THE OAKMARK INTERNATIONAL SMALL CAP FUND Report from David G. Herro and Michael J. Welsh, Portfolio Managers

THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (12/31/04) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX14
	Annual Average Total Returns (as of 12/31/04)
	Total Return Last 3 Months*	1-year	5-year	Since Inception (11/1/95)
Oakmark International Small Cap Fund (Class I)	13.41%	28.95%	13.92%	13.16%
MSCI World ex. U.S.	15.15%	20.38%	-0.76%	6.00%
Lipper International Small Cap Average18	14.55%	25.52%	7.76%	11.40%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
The performance data quoted represents past performance. The above performance information for the Fund does not reflect the imposition of a 2% redemption fee on shares held for 90 days or less to deter market timers. If reflected, the fee would reduce the performance quoted. Past performance does not guarantee future results. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com.
* Not annualized

The Oakmark International Small Cap Fund gained 13% for the quarter, underperforming our benchmark indices. More importantly, however, for the past twelve months your Fund is up 29%, solidly outpacing the relevant benchmarks.

Strong performers for the quarter were Schindler Holding and our airport operators, Grupo Aeroportuario del Sureste ("Asur") and Kobenhaven Lufthave. Asur continued to enjoy strong passenger volumes and increased retail spending per passenger. Towards the close of the quarter, its shareholder structure further simplified, paving the way for renewed cash disbursements to shareholders in 2005. Kobenhaven also enjoyed strong passenger figures, coupled with the finalization of the bidding process for the Brussels airport. Because Kobenhaven remained very disciplined with its bid, the group did not win the auction. As a result, Kobenhaven began returning excess cash to shareholders via share repurchases. Schindler (an elevator and escalator manufacturer) has continued along its recovery path, with profitability and free cash flow steadily increasing. To management's credit, these improvements have come in the face of a raw materials headwind and have coincided with the roll-out of several new products, including the Eurolift and Schindler 700 series.

The most significant detractor from quarterly performance was Lectra, a French software firm focused on developing products for the textile industry. Its core market happened to turn down simultaneously with a meaningful acquisition (Investronica). In addition, with approximately 25% of sales from dollar-based markets, Lectra is suffering from a large currency mismatch and is competitively disadvantaged relative to its U.S. peer, Gerber Scientific. We continue to believe the Investronica deal will be value accretive, because of significant working capital improvements and because an undisciplined price discounter has fallen out of the market. In addition, we expect the textile market and currencies to return to more normal levels, allowing for Lectra to return to historical levels of profitability.

Portfolio Composition
New positions initiated during the quarter include Lotte Confectionary, Korea's largest ice cream and candy company, and Orbotech, an Israeli semiconductor equipment company. Your Fund continued to add to the small-cap Korean banks discussed in last quarter's summary, Pusan and Daegu, and positions that had fallen, including Lectra and Morse.

Following the bid we saw last quarter for DFS, your Fund experienced quite a bit of merger and acquisition activity in this quarter as well. Waterford Wedgeford, Royal Doulton's largest shareholder, made a cash offer for the group in October. Similarly, Geest's largest shareholder, Bakkavor Group from Iceland, has made a tentative approach to the group. Finally, Recoletos' management has offered to repurchase Pearson's entire 72% stake for 3% more than we estimated the business to be worth. We're excited that independent entities continue to recognize the value we see in our businesses.

We continue to like the quality and price attractiveness of the portfolio. Thank you for your continued confidence.

David G. Herro, CFA Portfolio Manager dherro@oakmark.com	Michael J. Welsh, CFA, CPA Portfolio Manager mwelsh@oakmark.com

International Diversification—December 31, 2004 (Unaudited)

Schedule of Investments—December 31, 2004 (Unaudited)