THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (9/30/00) AS COMPARED TO THE RUSSELL 2000 INDEX
9/30/00 NAV $15.10	Total Return Last 3 mos.	Average Annual Total Return* Through 9/30/00 From Fund Inception 11/1/95
The Oakmark Small Cap Fund	13.1%	12.7%
Lipper Small Cap Fund Index**	3.4%	16.1%
Russell 2000 w/inc**	1.1%	13.7%
S&P Small Cap 600 w/inc**	3.3%	14.8%
*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 third calendar quarter of 2000 was a period where the portfolio actions that we undertook in the first half of 2000 began to bear fruit. For the quarter, your Fund was up 13.1% versus the Russell 2000 Index which rose by 1.1%. On a calendar year-to-date basis, your Fund is up 11.0% compared to the Russell 2000's rise of 4.2%. While pleased with recent results, we believe we can continue to improve our performance based upon the values that we can currently find among small cap stocks. We will continue to work to position your Fund to improve returns and liquidity while doing all we rationally can to minimize the Fund's taxable gains.

Building On Recent Success

In last quarter's letter, we indicated that we were trying to invest not just in good companies trading at low valuations, but in companies that had a higher probability of experiencing a positive catalyst. A positive catalyst can help expose the undervaluation of a particular stock to a wider group of investors which often results in these investors bidding up the stock's price. These fortuitous events can sometime compound upon themselves resulting in excellent investment returns. A good example of this phenomenon from your Fund's portfolio has been our recent experience with Dura Pharmaceuticals. While it is unusual to find a pharmaceutical stock trading at levels that are comfortable for value investors, we often investigate stocks in this industry in the hopes that we can find value. Our work was rewarded early this year as we came to know Dura and, after our analytical work convinced us that the company's value greatly exceeded its stock price, we accumulated a position in the stock at just under $13 per share.

What attracted us to Dura was that its rapidly growing drug business was being overshadowed in their financial results by sizeable investments in research and development for a new drug delivery technology. We believed that the drug business was worth far more than $13 per share and that the new drug delivery technology was likely to be additive to Dura's long-term value as well. Within months following our purchase, Dura announced a downsizing of the drug delivery research and development budget to improve profits. Strong quarterly financial results showed good growth in revenues and profits from the core drug business and, in September, Dura announced that Elan Pharmaceuticals was buying the company. Over a five-month period, Dura's stock rose from $13 to $39 due mainly to the combination of low initial valuation followed by positive catalysts. While we do not expect this type of performance to be repeated often, we believe that if we continue to invest in stocks with characteristics similar to Dura's, the portfolio should experience success over time.

New Investments

As we start the fourth calendar quarter of 2000, the Fund's portfolio has expanded to forty-six stocks, up from forty stocks at June 30, 2000. During the last quarter we added ten stocks to the portfolio while four stocks exited the Fund (one company was purchased for cash while the other three stocks were sold). The stocks that we bought were: American Greetings Corp. (greeting cards), CIBER, Inc. (computer services), Conmed Corp. (medical instruments), Gardner Denver, Inc. (compressors and petroleum equipment), Georgia Gulf Corp. (chemical manufacturer), Imation Corp. (computer storage products and services), Integrated Electrical Services, Inc. (electrical and communications contracting), NCO Group, Inc. (accounts receivable collection services), Scott Technologies, Inc. (self-contained breathing apparatus manufacturer) and ShopKo Stores, Inc. (general retailer). While we believe each of these stocks has a compelling investment case, we would like to highlight two issues that seem particularly interesting at current prices.

The two new stocks your Fund owns that we would like to discuss in detail are: American Greetings and Conmed. Both of these companies appear close to a turning point and, despite the fact that we might be a quarter or two early, we are excited about the long-term prospects for these firms.

American Greetings is the number two greeting card company behind Hallmark and we believe the current uncertainty about the company's growth prospects has resulted in an undervalued security. A reduction in inventory at American Greeting's retail customers has caused some near-term sluggishness in revenues, but this trend could be a longer-term positive as it should allow for more timely inventory being on the shelves at greeting card retailers. Additionally, the acquisition of Gibson Greetings has caused some unusual variations in American Greetings' financial results. However, we believe over time this acquisition will add to the firm's financial performance. Lastly, new accounting rules that have resulted in the shifting of some quarterly revenues and the losses associated with the building of the company's on-line offering have further confused investors. However, when we strip away all the aforementioned noise, we see a company that continues to build for the long-term and is trading at a low multiple of its cash flow.

Conmed is a medical instruments company that specializes in arthroscopy and powered surgical instruments. This company experienced an earnings shortfall in the second quarter and its stock was promptly cut in half. Cash flow, however, remains robust since Conmed has large quarterly charges for goodwill. These non-cash charges hurt reported earnings per share but they do not impact cash generation. Since the key item that we evaluate is a company's free cash flow generation, we became interested in Conmed.

Outlook

The stock market has been a difficult place to make money this year in part due to exaggerated moves in stock prices based upon only a moderate change in business fundamentals. These excessive price fluctuations can provide opportunities for long-term investors to acquire the stocks of good businesses at attractive prices. We find it fascinating that many investors believe that building a business is a linear process. It is not; indeed, almost every business experiences ups and downs. Our goal remains the same: buy good businesses at attractive prices and over time this should accrue to the benefit of our shareholders despite short-term price fluctuations.

Once again we would like to thank you, our shareholders, for your support of The Oakmark Small Cap Fund.

James P. Benson, CFA

Portfolio Manager
jbenson@oakmark.com

Clyde S. McGregor, CFA

Portfolio Manager
mcgregor@oakmark.com

October 5, 2000