THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (8/5/91) TO PRESENT (9/30/00) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX
9/30/00 NAV $26.95	Total Return Last 3 mos.	Average Annual Total Return* Through 9/30/00 From Fund Inception 8/5/91
The Oakmark Fund	6.1%	19.2%
Standard & Poor's 500 Stock Index w/inc**	-1.0%	17.9%
Dow Jones Industrial Average w/inc**	2.4%	17.4%
Value Line Composite Index**	2.9%	6.2%
*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 whose composition is different from the Fund. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. The Dow Jones Average includes only 30 big companies. The Value Line Index is an unweighted average of more than 1,000 stocks. Past performance is no guarantee of future results.

The Oakmark Fund increased 6.1% for the quarter ended September 30. As with last quarter, we are pleased with this gain especially when compared to the loss in the S&P 500. Turning to the fiscal year, to just say our fund lost 8% of its value would miss the biggest financial story of the year. The year began with a mass exodus from traditional stocks into the "new economy" stocks in the NASDAQ. As the NASDAQ rose to its record high, from September 30, 1999 to March 10, 2000 your fund lost 26% of its value. But after March 10, the NASDAQ lost 27% and investors started returning to value stocks like those in The Oakmark Fund. From March 10 until September 30, your fund increased by 25%. Although we are not pleased with the full year results, we are pleased with the second half of the year and believe that our stocks will continue to benefit from this shift in investor sentiment.

Portfolio Changes

During the quarter we added five new companies to the portfolio and sold a high profile stock. When we began managing the fund in March we were frequently asked about Philip Morris because it had been a long-term holding of The Oakmark Fund. We said that despite our concerns about tobacco litigation we felt that Philip Morris' ownership of Kraft was not being properly valued. We thought Philip Morris should sell in the $30's, not the $20's. Last quarter, Philip Morris did trade up into the $30's and we used that opportunity to eliminate the position. Here's a brief explanation of our new holdings:

JC Penney (JCP—12)

In 1998, JCP sold at $78 per share. Since then the retailer has lost sales to discounters like Kohl's as well as to department stores like Macy's. Getting squeezed from both sides, the company is struggling to find its niche. In July, Allen Questrom was hired as CEO. Allen gained a reputation as perhaps the best merchant in retailing today by rescuing Federated Department Stores and Macy's from bankruptcy. We believe Questrom will also succeed in this turnaround.

AT&T (T—29)

AT&T stock peaked at $64 last year after cable TV acquisitions made them a "one-stop-shopping" provider of voice, data and video communications. After price wars in long distance reduced AT&T's earnings the stock sharply declined. We believe that the value of AT&T's various pieces including cable, wireless, long-distance and business services are worth twice the stock price. We also believe that AT&T's largest shareholder, John Malone (formerly of Tele-Communications, Inc.), will help the company devise a strategic plan to have that value recognized.

Rockwell (ROK—30)

This leader in electronic controls and industrial automation reached a stock price of $65 last year. A slowdown in industrial orders resulted in earnings reductions and the stock lost over half its value. The stock now sells at 8 times our estimate of next year's cash earnings, yields over 3% and should achieve secular EPS growth in excess of 10% annually.

CVS Corporation (CVS—46)

CVS is the largest drugstore chain in the US. The stock hit a high last year of $58 and a low last quarter of $35. Although both CVS and Walgreen's are expected to earn just over $700 million this year on sales just over $20 billion, and are each growing at about 15% per year, Walgreen's enterprise value (debt plus market value of its equity) is more than twice CVS's enterprise value! That spread strikes us as unwarranted, unlikely to persist, and therefore an opportunity.

Ford (F—26)

Ford stock fell from $43 last spring to $25 as interest rates rose, talk of economic slowing increased, and Firestone's tire problems hit the front page. We don't expect the Firestone recall to affect Ford's long-term value. We were pleased to see Ford make a tender offer last quarter to repurchase $10 billion of its stock. Ford is now selling at less than 7 times our estimate of next year's earnings.

Oakmark—A Large Company Fund

When investors categorize equity mutual funds, they generally look at two criteria: investment style and the size of the companies being purchased. For investment style growth — or value — The Oakmark Fund is clearly a value fund. All our energy goes into identifying and buying inexpensive stocks, selling them when they are no longer inexpensive, and then repeating the process. To categorize us based on the size of companies we purchase is more difficult. Since larger companies tend to have longer operating histories and more predictable earnings streams, they tend to be less risky investments. Therefore, many investors prefer mutual funds that focus on larger companies, as we do in The Oakmark Fund.

We believe The Oakmark Fund has always invested primarily in large companies. That's because when we think of large, we think of fundamental characteristics that measure the size of underlying businesses. Using measures like sales, net income or shareholders' equity, most of our investments have been and still are in stocks that are among the 250 largest businesses in the United States. But most organizations that categorize mutual funds look instead at how Wall Street values those businesses. For example, Morningstar calls the 250 stocks with the biggest market capitalizations "large cap." Based on their definition, a "large cap fund" primarily buys stocks that have market capitalizations over $10 billion. Because we own many stocks with market caps below $10 billion, in the last quarter Morningstar moved The Oakmark Fund from the "large cap value" to the "mid cap value" category.

This is important because we believe that investors who own funds that are still called "large cap" may not be getting the lower risk level they expect from investing in large companies. Last year, many small companies, mostly technology companies, had such high stock prices that they were categorized as large-cap stocks. By our count, the number of these small-company large-caps was five times as high as it was a decade ago! These stocks have a much higher risk profile than is typically associated with large companies. Avoiding these stocks is what has reduced the average market capitalization of our stock positions. The Oakmark Fund will continue buying stocks in large companies that we believe are priced at bargain levels. We believe this is simply acting rationally in a market that has priced many securities irrationally. And, if that means that, in this environment, our "large company value" fund gets categorized as "mid cap value," it just shows we are doing our job!

One last comment: the tax situation for The Oakmark Fund is now extremely favorable for taxable shareholders. As you can see in our financial statements, The Oakmark Fund has a realized loss of $4.74 per share. Because of that loss there will be no capital gain distribution this year (we will of course still distribute dividend income) and likely no gains distribution for at least a couple of more years.

Thank you for your patience. This was a difficult year for us, but we believe the turnaround that began seven months ago is likely to continue.

William C. Nygren, CFA

Portfolio Manager
bnygren@oakmark.com

Kevin G. Grant, CFA

Portfolio Manager
kgrant@oakmark.com

October 5, 2000