THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/01) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX20
3/31/01 NAV2 $10.89	Total Return Last 3 months*	Average Annual Total Return3 Through 3/31/01 From Fund Inception 11/1/95
The Oakmark International Small Cap Fund	3.22%	8.07%
MSCI World ex U.S. Index w/inc.	-14.03%	5.28%
Lipper International Small Cap Fund Average23	-13.74%	11.66%
Micropal Equity International Small Cap Index24	-13.92%	10.75%
*Not annualized.

Fellow Shareholders,

The Oakmark International Small Cap Fund had an excellent quarter ending March 31, 2001. Your fund returned 3.2% compared to a decline in the Lipper International Small Cap Average of 13.7% and a decline in the MSCI World ex U.S. Index of 14.0%. Since inception, Oakmark International Small Cap has returned 8.1% annually compared to 11.7% and 5.3% average annual returns for the Lipper and Morgan Stanley indices, respectively. We are especially proud of our recent performance given the fact that very few global equity investment vehicles achieved positive results during this period. Given the opportunities we see in the international small cap sector, we remain optimistic about the Fund's prospects.

Where have all the Billboards Gone?

I usually commute to work via a brisk 20-minute walk to our offices in Chicago's business district known as "The Loop". I remember last summer passing one billboard after another advertising a different dot.com service. Whether it was jobs, travel, personal shopping, or toys, most of these billboards pitched a web site of some dot.com company. Knowing these prime billboards rent for a king's ransom, I often wondered how such fledgling businesses could afford such expensive advertising. I wondered how long it would be before dot.coms gave way to more traditional and economically sound advertisers. Well, my wait is over. Gone are the dot.coms and back are the ads selling television shows and beer.

Of course, this story has deeper meaning than the changing landscape of LaSalle Street in Chicago. Those dot.com companies financed their advertising by selling shares, not by earning profits. During the height of the tech craze days, these companies wildly peddled their goods in national and local papers, billboards and even on the Super Bowl. Advertising and media companies were the huge beneficiaries of the way these companies burned through the money they continually raised in the stock market.

Outside the US technology companies are generally more scarce and of lower quality, so in some ways the overseas bubble was even more pronounced. Any company with a technology connection, no matter how tenuous, was awarded a rich valuation. While technology shares were besieged with speculator interest, small, well-run, undervalued foreign stocks were shunned. The valuations of these businesses were flattened as assets shifted out of stable, high quality but "boring" companies.

Thankfully, and very beneficially for holders of foreign small companies, this trend is over. We continue to see the return of investor interest in quality foreign small cap companies. As mentioned in a previous quarterly letter about private equity, M & A activity continues to heat up as bottom fishers are trying to make their mark before prices rise too quickly. This quarter, the Fund had one of its larger positions, Anglian Group in the UK, taken over by a private equity group at a hefty premium to the market price. We have since sold the position for a large profit (kudos to analyst Dan O'Keefe!). All of this spells opportunity as international small caps, and value investing, return to favor.

The Land of Investment Opportunity

It has been a few years since the Asian economic crisis ended. In its wake, there has been one, real star reformer: South Korea. Currently, The Oakmark International Small Cap Fund has close to 8% of its assets there because not only are there plenty of undervalued companies that are soundly managed, but strong change is transforming South Korea into a far more investor friendly place. While we have previously written about this transformation, we felt compelled to highlight it again because of the abundant opportunity.

South Korea is one of the top ten economies of the world. Its work force is highly educated and productive and its fiscal finances are in order. Before the crisis, crony capitalism and "Japanese style" industrial planning were the order of the day. Today, South Korea is starting to transform itself into a transparent, open economy. As an example, when there is a relapse, the likes of Jang Ha Sung spring into action. Professor Jang is South Korea's leading shareholder rights activist with a devoted following, who has not been shy about hectoring (and enraging) backsliding managements when things are not right. He is an important watchdog for minority shareholders that believe Korea cannot progress until the old-style "chae-bol" way of doing business is discredited. We view his presence and the fact that he has been somewhat successful as an extremely positive sign.

It will continue to be a battle, and there are still some warts. The government, whose reform effort has generally been outstanding, has had occasional lapses. It recently agreed to invest some pension money in the market in hopes of stopping plunging equity prices and at times has propped up businesses that should have been allowed go under. Hyundai Engineering is the latest, though at least the equity holders, including the founding family, will be wiped out in a debt-for-equity swap. New incidents of management misbehavior continue to appear, but they are no longer greeted with a mere shrug of a shoulder as in the past.

Prior to the reforms, the lack of transparency in corporate Korea and the influence of overly-powerful family shareholders polluted the investment environment. Today, because of people like President Kim Dae Jung and Professor Jang, the investment environment has vastly improved. Combine this with current compelling equity valuations and we can see great medium and long-term investment potential. If only Japan would follow suit!

A Pleasant Future

With opportunities in places like South Korea and the state of depressed stock prices of foreign small cap companies, we remain hopeful about future prospects. Though global markets are still experiencing turbulence, the many attractions of international small cap investing give us confidence in the Fund's future prospects.

David G. Herro, CFA

Portfolio Manager
dherro@compuserve.com

Michael J. Welsh, CFA, CPA

Portfolio Manager
102521.2142@compuserve.com

April 5, 2001