THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (6/30/00) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX
6/30/00 NAV $11.99	Total Return Last 3 mos.	Average Annual Total Return* Through 6/30/00 From Fund Inception 11/1/95
The Oakmark International Small Cap Fund	0.9%	9.9%
MSCI World ex U.S. Index w/inc.**	-3.5%	12.3%
Lipper Analytical International Small Cap Fund Average**	-10.6%	20.7%
Micropal Equity International Small Cap Index**	-11.5%	20.6%
*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 indexes or funds whose composition is different from the Fund. The MSCI World ex U.S. Index includes 21 country sub-indexes. The Lipper International Small Cap Fund Average includes 76 mutual funds that invest in securities whose primary markets are outside the United States. The Micropal Equity International Small Cap Index is an unweighted index comprised of all funds within the international small company fund sector. Past performance is no guarantee of future results.

Fellow Shareholders,

The Oakmark International Small Cap Fund achieved an acceptable performance of .9% for the second quarter of 2000. This compares positively with the MSCI World ex-US Index which was up .3% and the Lip-per International Small Cap Fund Average which was down 10.6%. From inception, your Fund has returned just under 10% per year. Though this quarter's performance was not exciting, it was steady given the volatility in the global market place. More importantly, we remain extremely enthused with this fund's potential given how it is positioned and the rotation that appears to be happening out of speculative, money-losing tech stock and into companies that earn money and sell at low prices.

The Bubble is Losing Air

Certainly one of the biggest stories of this past calendar quarter is the weakness of the tech sector. No matter how it is analyzed, the truth is reality appears to be returning to the global equity markets. The reality we speak of is very simple: the worth of any asset is determined ultimately, over time, by the wealth that asset generates. In the case of stocks, the wealth of the underlying business is represented by free cash flow. We, as owners of business enterprises, prosper when our claim or share of ownership is enhanced by rising profits in general and free cash flow specifically. Over the last 18 months or so, depending on the specific location, tech, media and telecom stocks ("T-M-T") soared on the prospects for their sectors. In many cases, "prospects" and "profitability" were confused. Though usage of technology and telecommunications is soaring and is transforming how we live, there has been little profitability tied to this revolution.

One question that needs to be asked is: "why is there no profitability tied to this revolution?" The answer is actually quite simple and deals in part with the nature of the revolution itself. The fact is, in many cases there are very few barriers to entry for competitors. Because of the lack of barriers, enhanced by the spread of technology itself, it is almost impossible for companies in this sector to generate and grow the real wealth in the future that shareholders have discounted in the current share prices. In most cases, as soon as they make a profit (if they ever do, that is), the lack of barriers enables other competitors to eat away at any economic profitability that was finally achieved.

Advancing technology has been the most important economic force of our generation. But as investors, it is pure intellectual sloth to assume that any company that is simply involved in T-M-T is valuable. As investors, we need to understand how technological change will enhance profitability for a particular business enterprise. The other irony is that it is the "old economy" companies that seem to be the main tangible beneficiaries so far of this change.

China: Its Economic Evolution Will Impact the World

Since 1978, China's transformation from a command economy to one that is market-oriented has been a story of two steps forward, one step back. Today, the pace is genuinely accelerating. What is particularly notable is the leadership of China's firm embrace of the private sector over the public sector that has been exemplified in deeds as well as words. Jiang Zemin, China's President, recently made it clear to an Asian audience that China's future prosperity lies in its private sector. He even went as far as to tie long-term prosperity and the development of a modern economy to a robust stock market. Add to this the monetary liberalization that has been slowly occurring, as well as trade liberalization through the new WTO agreement, and it means huge investment opportunity in time.

China has always been an entrepreneurial place. We have interviewed countless Chinese owners/managers of businesses that fled China in the years after 1949 only to become highly successful entrepreneurs. Today, many manage huge businesses that literally were started with just the pennies they had in their pockets. The Chinese culture stresses a strong work ethic and they have an established commercial mentality. It does seem that these qualities are now becoming officially endorsed on the mainland after a 40-year slumber.

Though Oakmark International Small Cap has no direct investments in China yet, we have excellent exposure via companies listed in Hong Kong and the surrounding area. We feel this fund is extremely well-positioned to take advantage of this monumental change. We have an approx. 35% weighting in Asian companies, which are priced low but face high growth. Hung Hing Printing, for example, is a Hong Kong-based company that derives almost all of its sales from China. Hung Hing is the leading printing company in the region with blue-chip clients such as Mattel and Hasbro. With sales growing at over 15% annually, it has net cash and trades at under 7 times earnings.

Second Quarter Movers

Hite Brewing, a South Korean beer company we previously wrote about, gave the fund over 2 percentage points of return. The company continues to perform: profitability ratios and sales growth continue to beat all expectations. As a result, our sell target keeps increasing as well...a great situation for long-term shareholders such as ourselves. On the negative side, Royal Doulton, the UK-based gift and tableware maker cost the Fund over 1%. Oddly, the company's performance has done nothing but improve and its new casual line of tablewear has had very good success. Though the stock has been weak due to market disinterest, we would look for it to be a major future contributor to returns given its fundamental successes.

In closing, we remain extremely enthused with this Fund's potential. The current market has given us a rare opportunity to buy quality companies in developed markets at very low prices. In addition, restructuring in Europe has meant more management focus on profitability. Economic growth in Europe and recovery in the Pacific Rim and Latin America has provided a great investment climate for our companies. Thanks again for your continued support.

David G. Herro, CFA

Portfolio Manager
dherro@cs.com

Michael J. Welsh, CFA, CPA

Portfolio Manager
102521.2142@compuserve.com

July 6, 2000

(a) Non-income producing security.

(b) Includes portfolio and transaction hedges.