Letter from the Chairman and President

Dear Fellow Shareholders,

We are pleased to present the Annual Report for The Oakmark Family of Funds. This past year has been noteworthy for value investors. At the end of 1999 and in early 2000 the market continued to favor growth and momentum investors. However, throughout the year there has been a quiet and long overdue turn toward value stocks, which has generally gone unnoticed. Value investors should take heart — recent performance speaks for itself.

From its high on March 10, 2000 through September 30, the NASDAQ declined 27.18%. Over that same time period the S&P 500 gained only 3.60%. As investor focus on stock valuations intensifies our Funds benefit significantly — illustrating that, over time, price and value do converge. We believe performance illustrates that there is compelling evidence that domestic value stocks are starting to return to favor. Since a NASDAQ market peak on March 10, our Funds have posted strong returns compared to major indices:

Putting aside these short-term performance results, we continue to have long-term optimism regarding our portfolio holdings. At a minimum, we believe investors should consider rebalancing their portfolios to increase their exposure to value funds, or, move more aggressively toward having a significant value weighting in their portfolio. Our confidence in our value style is confirmed through our hiring, as we have recently added more talent to our dedicated investment team. We are investing and staffing for a positive change.

In November, three of our Funds celebrate their five-year anniversary — Equity and Income, Small Cap, and International Small Cap. Each brings a level of diversification to investors without straying from our strict value approach. We are also very pleased to announce that effective November 6 we are capping the total annual fund operating expenses for The Oakmark Equity and Income Fund at 1.00%. Coupled with an excellent long-term performance record, we believe this makes the Fund even more appealing to all investors.

Shareholders will be pleased with important additions we've made at www.oakmark.com. Specifically, investors who visit our My Account area will notice that we have enhanced its capabilities. Shareholders can now perform transactions — purchases, exchanges, and redemptions — and also change their address on-line. We will continue to post timely information on our site and regularly evaluate how to enhance it.

We appreciate your continued investment. Our strongest statement is that we are increasing ours.

Victor A. Morgenstern Chairman Robert M. Levy President October 6, 2000