Presidents' Letter

Dear Fellow Shareholders:

The second quarter of 2003 proved much stronger than the first as the market rebounded significantly and the major indices posted double-digit quarterly returns. Several developments seem to have caused the bounce: abatement of war fears, solid first-quarter corporate earnings, a healthier picture for the economy and corporate profits, continued interest rate reductions by the Fed, and a $350 billion tax-cut package from the federal government.

Like you, we've read headlines such as "How Long Can the Rally Last?" These headlines frustrate us because we have never thought in terms of "catching a rally" or riding the tide of the next market wave. We do not encourage it for our investors, either. During the recent market rally—and the difficult time preceding it—we have continued to find attractive values across industries, both domestic and international. This is because we don't focus on where stocks have been, but on current valuation and the potential for growth in value over the long term. So while volatile markets tempt investors to engage in market timing, we encourage you to consider a company's fundamental long-term prospects in the context of an attractive valuation. Short-term market gains can be very enticing, but everyone's expectations should focus on the reality of long-term equity returns, which we believe likely to remain attractive.

Corporate Governance—Attending to Shareholder Capital

When identifying potential investments, we as value investors focus critically on a company's intrinsic business value. But an integral part of our approach also centers on corporate governance and managements' incentives to grow business value. For some investors in the wake of recent corporate scandals, identifying strong managements has become a new focus, but at Harris Associates it has been an essential aspect of our process for over a quarter century. We seek out managers who are good custodians of shareholder capital: those that have a track record of success, are economically aligned with outside shareholders, and have pay structures tied to actions that drive long-term equity values. We believe this focus is a critical way to preserve our—and, subsequently, your—interests as long-term shareholders. Few individuals would start up a small business with a partner they did not trust, and we believe that principle should be applied to all equity investments. A history of value creation, intelligent deployment of cash, and long-term strategic vision are important fundamentals for company managements—elements all investors should closely evaluate before buying a stock.

Considering Your Investment Alternatives

After three years of a rocky stock market, individual investors generally remain timid about equity investing. However, it is essential to maintain a thoughtful perspective on investment options and choose the highest return opportunities relative to the level of risk you are comfortable taking. As interest rates have reached historic low levels, money market investments now offer about a 1% annual return and 10-year treasuries yield slightly above 3%. On the other hand, the average stock offers a dividend yield of about 2% and potential earnings growth of 6-7%. This 8-9% projected value growth looks quite attractive to us compared to the alternatives. This value growth can be compounded by purchasing undervalued companies, which we seek to do.

In the following Oakmark portfolio manager letters you'll find out more about important issues related to corporate governance (Oakmark and Oakmark Select), and where our domestic and international teams are finding value.

Thank you for your continued investment and commitment to The Oakmark Family of Funds, especially during these extended periods of market uncertainty. We welcome your comments and questions; you can reach us via email at ContactOakmark@oakmark.com.

Robert M. Levy President of the Oakmark Funds	John R. Raitt President and CEO of Harris Associates L.P.

THE OAKMARK FAMILY OF FUNDS

Summary Information

Past performance is no guarantee of future results. Investment return and principal value vary, and you may have a gain or loss when you sell shares. Average annual total return measures annualized change, while total return measures aggregate change.

* Not annualized