THE OAKMARK EQUITY AND INCOME FUND Report from Clyde S. McGregor and Edward A. Studzinski, Portfolio Managers

THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (9/30/05) AS COMPARED TO THE LIPPER BALANCED FUND INDEX9
	Average Annual Total Returns (as of 09/30/05)
	Total Return Last 3 Months*	1-year	5-year	Since Inception (11/1/95)
Oakmark Equity & Income Fund (Class I)	5.83%	13.65%	12.17%	14.06%
Lipper Balanced Fund Index	2.92%	10.05%	2.89%	7.95%
S&P 5003	3.60%	12.25%	-1.49%	9.60%
Lehman Govt./Corp. Bond10	-0.96%	2.58%	6.89%	6.49%
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

Retrospective

The Oakmark Equity and Income Fund recorded a return of 6% for the quarter ended September 30. This contrasts with the 3% result for the Lipper Balanced Fund Index, our primary standard of comparison. Positive rates of return always please us, as we know that many of our shareholders depend on earnings from the Fund to sustain their lifestyles. We are especially happy to earn positive returns in the summer quarter, however, as the securities markets have often found this particular period to be challenging. (More than half of the quarters in which the Fund has lost money have been summer quarters.) September 30 also ends the Fund's fiscal year. For the fiscal twelve months the Fund earned approximately 14% while the comparable Lipper Balanced Fund figure increased 10%.

Our firm's investment research department has adopted the practice of including a brief retrospective on our investment history with a stock when they review one of their stocks for our investment committee. Since we have found these reports to be a valuable investment tool, we thought that we should do the same for the Equity and Income Fund at the fiscal year-end. And, while the official tenth birthday for the Fund will not occur until the beginning of November, the September quarter was the 40^th quarter in the Fund's history, so we will call this a ten-year retrospective. Through September 30, our annualized rate of return since inception has been 14%. Nine of ten fiscal years have produced positive returns, and the only negative outcome (the year ended 9/30/02) was a relatively small loss of 0.5%. This first decade has met our goal of providing equity-like returns (i.e. greater than 10%/year) while experiencing less volatility than an all-equity portfolio.

Though the past ten years have been replete with challenges, they have generally been a wonderful time to be a value investor. Your portfolio managers often whine and moan about the prevailing investment environment, but we know that we are blessed to do what we do and to do it at Harris Associates L.P., your Fund's adviser. We truly are honored to have you, the Fund shareholders, invest alongside us in The Oakmark Equity and Income Fund. We hope that we have the privilege of working together with you for many years into the future.

It's an Ill Wind….

No doubt many writers have borrowed from Shakespeare's The Tempest to begin an article that references the recent hurricanes in the Gulf of Mexico. Let us say at the outset that we deeply regret the terrible impact these storms have had on millions of lives. Nevertheless, an unusual aspect of investing is that tragic events do affect investment returns. These particular storms have enhanced the current value of several of the Fund's holdings.

As value investors, we try to create portfolios with favorable risk/reward characteristics. We attempt to purchase securities at a price that already fully discounts negative possibilities. This means that when unexpected favorable events occur, holdings have considerable upside potential. Our five holdings that are North American exploration and production companies (Burlington Resources, XTO Energy, St. Mary Land & Exploration, Encana, and Cabot Oil & Gas) experienced a price increase as a result of the recent hurricanes. The five companies have limited operations in the Gulf of Mexico; in fact, Encana sold its Gulf properties only six months ago. The disruption and destruction of Gulf production facilities and pipelines helped to drive the price of natural gas up 80% in the summer quarter, and while the five companies had pre-sold some of their next few years' production at lower prices, much of their gas will sell at the current high price level. Our holding in ConocoPhillips has also benefited, but for a different reason. ConocoPhillips is a major refiner of oil and, with many refineries off-line after the storms, unaffected facilities have become more valuable.

Over the four years that we have owned stocks of companies in this sector, clients have occasionally asked if we based our ownership on a forecast of rising commodity prices. In fact, our process asks the market to estimate the outlook for commodity prices. We assume that the futures markets for commodities provide a viable basis from which to establish valuations for resource company assets. When we initiated positions in Burlington Resources and XTO Energy in 2001, we used prevailing futures prices to determine that both companies traded at a discount to our estimate of liquidation value of their energy reserves. And, we were paying nothing for the operating companies, i.e. the talent and infrastructure that had discovered the gas and oil. Opportunities to obtain something for free always attract us. In this case we also obtained a favorably weighted distribution of surprise outcomes because the prices for gas and oil were low relative to production costs.

The situation is obviously different today. The near-term price for natural gas far exceeds the level needed to justify new investment intended to increase supply. The futures market understands this and has priced delivery of natural gas in 2009 at half the price that it assigns to current delivery. The next two winters could be difficult, however. While natural gas is abundant in many parts of the world, the ability to deliver this gas to North America is limited. Many liquefied natural gas (LNG) terminals have been proposed, but few are under construction. And while Canada has plentiful untapped supplies in the McKenzie Delta, the pipelines to deliver this gas have yet to complete the permitting process, and construction is not likely to be finished for several years. As a result, we currently base our valuations of U.S. natural gas producers on a forecast of high profitability for the next two years with a significant drop-off in 2008.

We have often written in these letters that we go wherever our understanding of value takes us. The recent hurricanes may have accelerated the process by which price and value come together for our exploration and production company holdings. The hurricanes may also provide new value opportunities for us as we expect many companies to report disappointing earnings in the second half of the year.

Clyde S. McGregor, CFA Portfolio Manager mcgregor@oakmark.com	Edward A. Studzinski, CFA Portfolio Manager estudzinski@oakmark.com

Schedule of Investments—September 30, 2005