President's Letter

Dear Fellow Shareholders,

Most of the broad domestic and international stock indexes rose by small amounts in the fourth quarter. While all of our Funds achieved positive results, our performance relative to overall market results was mixed. For the full year 2005, international markets produced excellent double-digit returns, while domestic markets posted much lower returns. Most of our Funds produced full year 2005 results above or in line with their respective benchmarks. Unfortunately, The Oakmark Fund was the one Fund that did not meet our goal of producing positive results for shareholders—as it had a small loss for the year.

Buying Stocks at a Discount to Value

At Oakmark, our investment philosophy focuses on identifying growing businesses that are run by management teams intent on increasing shareholder value. Our goal is to buy the stocks of these companies only when they are priced at substantial discounts to our estimate of intrinsic value. The cornerstone of this process is estimating the intrinsic value (or private market value) of companies in which we might invest. If our analysts' estimates of value are correct, the toughest part of our job is done.

As we look back over the past year and consider our current portfolio positions, we are encouraged by three positive developments related to the valuation of our holdings. First, worldwide acquisition activity has picked up significantly, and acquisition prices have generally confirmed our estimates of intrinsic value. Private market value—the price that an informed buyer is willing to pay to own and control all of a company—is an important input into our estimates of value. Acquisitions in several industries—including energy, newspapers, cable TV, and consumer products—have validated our business value estimates.

Second, earnings and cash flow growth for the companies that we own have generally been strong, and as a result, we believe intrinsic value has grown significantly over the past year for a great number of our holdings. In the U.S., in particular, intrinsic values of our holdings have grown at a faster rate than the increase in market prices. While we believe that both our international and domestic portfolios offer attractive valuations, our U.S. portfolio holdings, as a group, sell at a larger discount to value than a year ago.

Third, many of our holdings' management teams have large existing and/or recently implemented share repurchase authorizations. When a company with an undervalued stock makes large repurchases of its shares, two good things happen to our holdings: 1) per share intrinsic value of the company rises (yet again!) and 2) the repurchases provide a lift for a holding's share price, which often helps close the gap between market price and intrinsic value.

Personal Investment in the Funds

At Oakmark, we believe that share ownership helps to align the interests of management with shareholders. When management has a meaningful stake invested alongside other shareholders, the focus on performance and shareholder value is intensified. We believe this is true for the companies that we invest in, as well as for the mutual funds that we manage. Significant ownership of Fund shares—not just by Fund portfolio managers, but by all levels of employees at the Fund and its adviser (including analysts, senior management, trustees and others)—communicates a higher standard of integrity, focus, and commitment.

We have made a practice of encouraging ownership of The Oakmark Funds and have made a custom of reporting to shareholders annually on the level of Fund ownership. In this regard, we are pleased to announce that as of December 31, 2005, the employees of the Funds' adviser, Harris Associates L.P., the Funds' officers and trustees and their families have over $200 million invested in The Oakmark Funds. This compares to an investment of $180 million in December 2004, the last date for which we reported holdings. This increase represents a combination of price appreciation and additional purchases.

For those particularly interested in portfolio manager holdings, all of our Fund managers own at least $1 million of the Fund that they manage. As required under recent SEC rules, we will provide more details on portfolio manager holdings when we release our year-end filings later this month.

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, visit www.oakmark.com.

* Not annualized