THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/01) AS COMPARED TO THE RUSSELL 2000 INDEX11
3/31/01 NAV2 $14.40	Total Return Last 3 months*	Average Annual Total Return3 Through 3/31/01 From Fund Inception 11/1/95
The Oakmark Small Cap Fund	5.19%	11.25%
Lipper Small Cap Value Fund Index12	2.48%	11.77%
Russell 2000 w/inc	-6.51%	9.48%
S&P Small Cap 600 w/inc.13	-6.57%	12.20%
*Not annualized.

We are pleased to report that your Fund had a gain of 5.2% for the past quarter, thus we outperformed our benchmark index by just under12%. The first quarter of calendar 2001 was disappointing to many investors as most of the major market indices posted losses for the period. The Russell 2000 small cap index dropped 6.5% for the just ended quarter as profit warnings from numerous companies overwhelmed the interest rate reductions engineered by the Federal Reserve.

The key to our relative success comes, we believe, from our adherence to fundamental analysis of a company's value versus momentum investing, which became very popular about three years ago. Momentum investors tend to focus on recent stock price movements rather than asking the logical question: what is a business worth? Our analysts concentrate their entire effort in estimating a company's private market value and when we find a company that is trading at 60% or less of our estimated valuation we purchase that stock. While our approach to investing does not eliminate owning stocks that sometimes go down, we believe that a diversified portfolio of fundamentally inexpensive stocks should be able to perform well over time for our shareholders.

Small Cap Relative Valuations

Over the past four years we have seen a technology boom, a technology bust, a telecommunications boom, a telecommunications bust, a move by investors to large cap stocks and the ignoring of small cap stocks. Beginning in 1997, a clear divergence in valuations between large cap stocks and small cap stocks began and this valuation gap has not yet begun to meaningfully close. In 1997, both large and small cap stocks traded at equivalent levels relative to trailing 12-month earnings or revenues: 15x-18x earnings and just under 1.5x revenues. Since 1997, small caps have fallen to about 13x-15x earnings and about 1.3x revenues while large cap valuations expanded to 23x-25x earnings and about 2x sales. Put a different way, small caps used to trade near parity with large caps but now trade at a discount of about 40% to their large cap peers.

We find this wide relative valuation gap interesting since smaller companies typically have several advantages vis-a-vis large companies. Smaller companies have less bureaucracy and thus more focus on customers and they are often more nimble with product introductions. This can result in smaller companies growing at faster rates, yet as a group, these stocks are far cheaper than the larger companies. Additionally, if this valuation gap persists, it would seem likely that many larger companies will turn to smaller companies as acquisition targets since it may be less expensive to buy a successful small company than it would be to develop a new product or service internally. Overall, we view the future of small cap stocks as bright and we believe this sector is one of the best places to invest.

Portfolio Changes

During the first calendar quarter of 2001 the Fund's portfolio expanded from forty-three stocks to forty-six stocks. Since the beginning of 2001, we sold National Data and Scott Technologies for solid gains after National Data achieved our price target and Scott Technologies announced its acquisition by Tyco International. The stocks that we purchased included: Berry Petroleum, Central Parking Corp., IDEXX Laboratories, InFocus Corp., Sensient Technologies and Spherion Corp.

Highlighted Newcomers

Two new stocks that your Fund owns that we would like to discuss are Berry Petroleum and IDEXX Labs. Berry is a California based producer of heavy crude oil. Increases over the past year in crude oil prices have aided Berry's outlook, but the stock plunged late last Fall as the California electrical crisis hit. This impacted Berry since one of the by-products of the company's steam injected oil recovery operations is the production of surplus electricity. This electricity is usually sold to California's public electric utilities and Berry makes a nice profit from its co-generation facilities. However, both large California utilities are now in dire financial condition brought on by buying high priced electricity on the spot market and selling it at much lower regulated prices to consumers. This has led to a stoppage in payments to electric providers such as Berry and in turn Berry has stopped supplying electricity to the utilities.

We viewed the 30% plus sell-off in Berry's shares caused by the utility impasse as an opportunity to acquire a high quality business with good management and undervalued assets. It is hard to imagine a scenario where electrical generation capacity in California is not a good asset. Additionally, we would expect a political solution soon with regard to the unpaid bills of the California public utilities. Therefore, with a timeframe measured in years and not days or months, we believe Berry represents a solid long-term investment for your Fund.

IDEXX Labs principally produces veterinary pharmaceuticals and test kits. This is a high return business and we believe IDEXX has a bright future with over a dozen products in the FDA registration process. Additionally, the company has a debt-free balance sheet and they have consistently been using their excess cash flow to repurchase stock. Veterinary medicine is a very attractive business since the customers (i.e. pet owners) pay cash for their veterinary products and services unlike human healthcare where either the government or an insurance company pays the bills. This creates a more market driven environment with less red tape and we believe IDEXX has the potential to thrive in this type of market.

Outlook

As the above stocks demonstrate, there are numerous small cap stocks that are selling at compelling valuations. Thus, we expect that the rebound in small cap value stocks that began in 2000 will accelerate in 2001 albeit, with some volatility.

Once again we would like to thank you for your support of The Oakmark Small Cap Fund. At current valuations small cap value stocks appear to be an above average sector in which to invest and we will endeavor to achieve good returns on your behalf.

James P. Benson, CFA

Portfolio Manager
jbenson@oakmark.com

Clyde S. McGregor, CFA

Portfolio Manager
mcgregor@oakmark.com

April 4, 2001