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 (9/30/05) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX13
	Average Annual Total Returns (as of 09/30/05)
	Total Return Last 3 Months*	1-year	5-year	Since Inception (11/1/95)
Oakmark International Small Cap Fund (Class I)	10.85%	29.04%	18.85%	13.58%
MSCI World ex U.S.	10.92%	26.82%	3.37%	6.57%
Lipper International Small Cap Average16	10.12%	29.20%	11.39%	13.42%
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 11% for the quarter, performing in line with the benchmark indices. More importantly, however, for the past twelve months and since inception your Fund is up 29% and 14% respectively, outpacing the MSCI World ex U.S. Index with returns of 27% and 7%.

Performance in the quarter was broadly based, with approximately 9 of every 10 positions moving higher. Gurit-Heberlein, a Swiss mini-conglomerate, was the largest contributor. On August 30, the group announced it would split and separately list its healthcare activities, which include a dental supplies operation and a small medical equipment business. We had always employed a blended valuation on this company, incorporating the relative attractiveness of the group's healthcare activities versus its industrial operations. The breakup will help crystallize the value of each division, with the market preemptively driving up the stock in anticipation of the event.

Julius Baer was not only the second largest contributor to performance in the quarter, but it was the leading contributor to the Fund for the calendar year. You may recall the March 2005 shareholder letter, which discussed how Baer had adjusted its shareholding structure so that the family and minority shareholders would have equal voting rights. This change, coupled with strong operating performance, propelled the stock in the first half of the year. Recently, Baer announced a transformational acquisition, almost doubling the group's assets under management and fully utilizing all its excess capital. The acquisition price, post-synergies, looks very compelling, and after meeting the new management in Boston in September, we're very comfortable with the strategic direction and leadership of the newly formed group.

As at the tail end of 2004, bid activity in our small-cap universe has increased. Allco Equity Partners purchased 17% of Baycorp in July and tendered for 50% of the shares at A$3.50. (The stock had been trading below A$3.00 at the time.) After speaking with the key investment professionals at Allco, we became increasingly concerned that they were not committed to long-term value creation but were more interested in a quick return following some financial re-engineering. Though their approach was unsuccessful, Allco's interest has led Baycorp to become more active in managing its balance sheet. As such, Baycorp announced, along with its first-half results, a large special dividend and share repurchase. The market reacted strongly to these moves, driving the shares some 10% above Allco's bid. Matichon, a Thai newspaper group and long-time Fund holding, also received an acquisition offer in the quarter.

Our hedges had a small impact in the quarter, with the U.S. dollar gaining a bit more ground after staging a strong recovery last quarter. As a result of the dollar's recent overall strength and its return to a more normal purchasing power level, we have lowered our British Pound and Swiss Franc hedges to approximately 30% of the underlying position.

Portfolio Composition

We sold the last shares of Mexican airport operator Grupo Aeroportuario del Sureste S.A. de C.V. (Asur) during September. Asur appreciated approximately 170% (an annualized return of almost 23%) since we bought the position in September 2000. As you recall, we began buying Asur because of its attractive valuation, under-exploited retail opportunities, and strong management group (led by one of our other positions at the time Copenhagen Airports). When the events of September 11, 2001 caused airline volumes and Asur's share price to plummet, we aggressively built Asur to one of the Fund's largest positions. As the industry and passenger volumes normalized over the past three years, operating profits have more than doubled, and management returned over $3/share in dividends (close to 10% of our sell price) to shareholders. The Asur example epitomizes our investment philosophy. Our disciplined, long-term investment approach allowed us to look beyond the temporary dislocations caused by the tragic events of 9/11, and our fundamental, bottom-up analysis of Asur's competitive position and its management team gave us confidence that the group could effectively navigate the industry's difficult circumstances. Our patience and conviction were handsomely rewarded. As always, we will continue to look for more of these situations for our shareholders.

In addition to Asur and Matichon, we divested three other stocks in the quarter, Sopra, DIS and Ducati. We established meaningful positions in Spanish pay-TV provider Sogecable, UK real estate services firm Countrywide, and UK bank-note printer De La Rue.

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

Despite the performance of the portfolio over the past three years, there is no dearth of small cap ideas. We remain excited about the opportunities we're finding outside the portfolio, and we continue to like the portfolio's quality and price attractiveness. 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—September 30, 2005

Schedule of Investments—September 30, 2005

See accompanying notes to financial statements.