Dear Fellow Shareholders,

Both domestic and international stock markets increased significantly in the first quarter. Most major market indexes enjoyed returns in the mid to high single digits. Each of our Funds also produced significant positive returns during the quarter. More importantly, every one of our Funds achieved a new all-time high net asset value during the quarter.

Benchmarks, Performance Goals and Long Term Investing

During the first quarter, our Funds as a group achieved mixed results relative to their "benchmark" indexes. Some Funds outperformed the benchmarks, some were in line, and some lagged. This mix is not unusual. While we often mention relative performance as a point of reference in our quarterly reports, quarterly benchmarks do not drive our investment process. Instead, our primary focus is to provide positive returns, protecting our investors' capital from loss. Second, while we strive to significantly outperform the returns earned by our peers—our focus is on doing so over the long run.

Many fund managers are evaluated on the basis of their funds’ short-term performance relative to their benchmarks, and their compensation is tied to this relative performance. For fear of underperforming the benchmark, they often create a broadly diversified portfolio that looks a lot like the market index, and have little chance of achieving returns much different from the benchmark in any given quarter.

At Oakmark, we understand that good investment ideas are scarce. We pick out-of-favor stocks about which investors often have near-term concerns. We then concentrate our portfolios in our most attractive ideas. We recognize that our portfolio concentration and choice of unloved stocks may increase the chances that our portfolios lag behind the broader indexes for several quarters. At the same time, we believe that our selectivity and disciplined stock analysis dramatically increase the chances for long-term outperformance. Studies of the most successful money managers of the past several decades reveal a similar pattern. While their long-term performance far exceeded their peers, there were periods of as long as two or three years when their performance significantly lagged behind market indexes and their peers.

The compression in market valuations, which we have mentioned in recent quarters, still persists. In our view, companies with strong balance sheets, leading market positions, and excellent growth prospects are being valued in the market at earnings multiples similar to those of average companies. Similarly, in the credit markets, yields on lower quality bonds are at historically low premiums to high quality bonds. We sold most of our high yield bonds from the Equity and Income Fund last year, and over the past two years we have populated our portfolios with many high quality companies that are selling at average market multiples. While we cannot predict the exact moment when these trends will change, we strongly believe that the market will recognize these differences in fundamentals by establishing premium market values for quality businesses, including our holdings.

In the meantime, just as the managers discussed above went through significant periods when the market did not recognize their portfolios’ values, we recognize that our Funds may lag behind the broader market indexes at times. As always, we encourage patience from our Fund investors. At times when performance does lag, it is important to have a disciplined long-term plan and the patience to let that plan work.

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 most recent month-end performance data, 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 October 1, 2005, to March 31, 2006, 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 March 31, 2006, 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.

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.