THE OAKMARK INTERNATIONAL SMALL CAP FUND Report from David G. Herro and Chad M. Clark, Portfolio Managers

THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (6/30/05) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX17
	Average Annual Total Returns (as of 6/30/05)
	Total Return Last 3 Months*	1-year	5-year	Since Inception (11/1/95)
Oakmark International Small Cap Fund (Class I)	-2.65%	20.71%	15.48%	12.75%
MSCI World ex U.S.	-0.78%	14.55%	-0.34%	5.61%
Lipper International Small Cap Average20	-0.60%	17.35%	8.28%	11.06%
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 declined 3% for the quarter, underperforming the MSCI World ex U.S. Index with a 1% decline. More importantly, however, for the past twelve months and the past three years, your Fund is up 21% and 19% respectively, soundly outpacing the MSCI World ex U.S. Index with 15% and 13% respectively.

In our last letter, we highlighted the strong new idea generation we experienced during the quarter. The two UK retailers we added to the portfolio, Matalan and JJB Sports, continued to encounter tough trading conditions on the UK High Street. UK consumer confidence has been shaken by a series of interest rate increases and fear of a tax hike following the upcoming elections. Matalan and JJB have suffered, but they both have strong balance sheets, continue to generate free cash flow, and have maintained market share and competitiveness. With the market extrapolating the current, extraordinarily difficult retail conditions into perpetuity, the gap between the current share price and the intrinsic value of each of these businesses has widened markedly. As a result, we've aggressively added to our positions.

As you would expect, Carpetright, a UK carpet retailer and one of the portfolio's largest positions, wasn't immune to the difficult environment either. As we've noted many times in the past, despite some potential cyclicality, this company should continue to deliver high returns and to generate strong free cash flow. In addition, the management team is wholly focused on deploying that free cash flow in a value-accretive manner. Because of these strong fundamentals, we recently purchased additional shares, making Carpetright the portfolio's largest holding once again.

The star performer in the quarter was Interpump. Early in the quarter, the group announced a financially sound and strategically sensible acquisition of a German manufacturer of high-pressure pumps. Following this purchase, Interpump sold its lower-margin, lower-return cleaning business for a very attractive price. When the dust settled, we were left holding a higher quality portfolio of businesses at a more attractive valuation. And, at the conclusion of all this corporate activity in late April, both the CEO and the Vice Chairman increased their personal holdings in the company. We remain very pleased with this management as it is completely focused on building per share value over time.

Our hedges performed well in the quarter, with the U.S. Dollar staging a strong recovery. Both the Swiss Franc hedges and the British Pound hedges were positive contributors, with the U.S. Dollar strengthening approximately 7% versus the Swiss Franc and approximately 5% against the British Pound in the quarter.

Portfolio Composition

We had another robust quarter of new idea generation, adding five names to our approved list. Meaningful positions were established in French broadcaster M6, Swedish receivables manager Intrum Justitia, German securities broker MLP, and UK insurance broker Benfield. These replace a group of stocks that hit their target prices and were sold, including Jyske Bank, Copenhagen Airports, Kone, Davide Campari, and Geest.

Geographically, our portfolio weightings remain very similar to last quarter with Europe and the UK representing almost 70% of investments and the majority of the balance, excluding cash, in the Pacific Rim.

Virtually our entire team has been on the road visiting companies during the quarter. Despite the strong performance of the portfolio over the past three years, there is no dearth of small cap ideas. We remain excited about the opportunities outside the portfolio, and we continue to like the quality and price attractiveness of the portfolio itself. Thank you for your continued confidence.

David G. Herro, CFA Portfolio Manager dherro@oakmark.com	Chad M. Clark, CFA Portfolio Manager cclark@oakmark.com

International Diversification—June 30, 2005 (Unaudited)

Schedule of Investments—June 30, 2005 (Unaudited)