Dear Fellow Shareholders,

The third quarter of 2005 was certainly newsworthy. Hurricanes, refinery outages, surging energy prices, continued tightening at the Federal Reserve, and an expanding budget deficit all captured attention and headlines. These events led to increased market volatility and significant shifts in stock market sector valuations. Even after such a volatile and emotional period, we remain focused on our primary task: generating investment returns that help our shareholders meet their long-term investment goals.

While world stock markets advanced in the third quarter, performance was uneven across our Funds and the stock market. Importantly, however, our Funds all posted gains for the fiscal year, which ended this quarter.

Patience and Discipline

A theme that we often repeat in these letters is that the consistent application of our value investing philosophy and a healthy measure of patience are important keys to our long-term investment success. Our process focuses on understanding intrinsic business value and finding growing companies with management intent on increasing shareholder value. We will only purchase these stocks when the business is priced at a substantial discount to value. This discipline limits the influence of emotion on our process and places current events like hurricanes and refinery outages in the proper context of their impact on long-term business value.

However, just being smart and getting great ideas into portfolios is not enough. There is an old Dutch proverb: "A handful of patience is worth a bushel of brains." Our process also requires that once stocks are in portfolios, we must wait patiently for the gap between the stock price and value to converge.

During the bull market of the late 1990s, traditional ("old-economy") companies frequently sold at very large discounts to value, as investors chased large-cap growth and internet stocks that attracted remarkably rich valuations. The valuation disparity between "hot" and "not-so-hot" stocks continued for a considerable period and even widened over time. The persistence of this disparity somehow gave it credibility with many investors. Its longevity also wore down many other investors whose impatience led them to abandon their discipline and "go with a strategy that is working." Eventually, the bubble burst, and disciplined, patient investors, including Oakmark shareholders, were rewarded.

More recently, and as Bill Nygren discusses in his commentary this quarter, we have noted compression in valuations between lower and higher quality companies over the past couple of years. We have purchased the shares of many high quality growth companies at average market valuation levels—bargain prices compared to our estimates of value. We believe that the gap between low and high quality companies will once again widen, and the stock prices of our better quality businesses will go up. The valuation compression has lasted longer than our logic would suggest it should. Rest assured however, we won't lose our patience.

Maintaining a Disciplined Investment Plan

We counsel our Fund investors that they should always make their investment decisions in the context of a realistic long-term plan. Developing a solid plan and sticking to it—even during difficult times—requires discipline and patience, and it is just as important for individual investors as it is for professionals. When dramatic changes such as those of the past few months occur, investors often react rashly and emotionally. However, these are the times when discipline and patience are needed the most.

Thank you for your continued investment and confidence in The Oakmark Funds. We welcome your comments and questions. You can reach us via e-mail at ContactOakmark@oakmark.com.

John R. Raitt
President of The Oakmark Funds
President and CEO of Harris Associates L.P.

THE OAKMARK FUNDS

Summary Information

The performance data quoted represents past performance. The above performance information for the Funds 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

FUND EXPENSES

A shareholder of each Fund incurs two types of costs: (1) transaction costs, such as redemption fees, and (2) ongoing costs, including investment advisory fees, transfer agent fees, and other fund expenses. The examples below are intended to help shareholders understand the ongoing cost (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other funds.

Actual Expenses

The following table provides information about actual account values and actual fund expenses for Class I of each Fund. The table shows the expenses a Class I shareholder would have paid on a $1,000 investment in each Fund from April 1, 2005, to September 30, 2005, as well as how much a $1,000 investment would be worth at the close of the period, assuming actual fund returns and expenses. A Class I shareholder can estimate expenses incurred for the period by dividing the account value at September 30, 2005, by $1,000 and multiplying the result by the number in the Expenses Paid During Period row as shown below.

Certain accounts invested for 90 days or less may be charged a 2% redemption fee. Please consult the Funds' prospectus at www.oakmark.com for more information.

* Expenses are equal to each Fund's annualized expense ratio for Class I, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by 365 (to reflect the one-half year period).

Hypothetical Example for Comparison Purposes

The following table provides information about hypothetical account values and hypothetical expenses for Class I of each Fund based on actual expense ratios and an assumed rate of return of 5% per year before expenses, which are not the Funds' actual returns. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses shareholders paid for the period. Shareholders may use this information to compare the ongoing costs of investing in a Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as redemption fees. Therefore, the third line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, the total costs would have been higher.

* Expenses are equal to each Fund's annualized expense ratio for Class I, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by 365 (to reflect the one-half year period).