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 (3/31/06) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX16
	Average Annual Total Returns (as of 3/31/06)
	Total Return Last 3 Months*	1-year	5-year	10-year	Since Inception (11/1/95)
Oakmark International Small Cap Fund (Class I)	11.86%	28.65%	22.59%	14.41%	14.82%
MSCI World ex U.S.	9.33%	25.06%	10.08%	6.86%	7.56%
MSCI World ex U.S. Small Cap19	10.76%	33.00%	20.73%	N/A	N/A
Lipper International Small Cap Index20	13.35%	35.10%	19.04%	12.62%	N/A
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 most recent month-end performance data, visit www.oakmark.com.
* Not annualized

The Oakmark International Small Cap Fund gained 12% for the quarter, outperforming most of our benchmark indices. More importantly, however, for the past twelve months and since inception your Fund is up 29% and 15% respectively, outpacing the MSCI World ex U.S. Index with returns of 25% and 8%.

While stock selection was once again strong, our relative underweight position in a flat Japanese market certainly helped performance compared to our benchmarks. We found extremely compelling ideas in Switzerland, Norway, and Britain, which together offset our relative underweighting in Japan. And, in these markets, our names advanced 19.9%, 42.2% and 9.8%, respectively on average.

Large Contributors

Tandberg, a Norwegian provider of video-conferencing equipment, was the largest contributor to performance. One of our team members, Eric Bokota, met with Tandberg in September in Norway, initially passing on the stock due to valuation. (The share price was at Norwegian Kroner 83.75 at the time.) But, he was impressed with the group’s market position, the return and free cash flow characteristics of the business, and the underlying growth profile of the industry. Then in early fall, Tandberg missed the Street’s earnings expectations, and the stock fell 24% in a matter of days. Eric revisited the idea and began to do more in-depth research, talking to both vendors and customers. What he found was that customers’ buying patterns had changed, leading to further inter-quarter volatility, but the underlying attractiveness of Tandberg’s product suite remained solid. After another earnings miss in December, the resignation of the CEO, and an additional 36% drop in the share price (then at Norwegian Kroner 41.00), we began accumulating shares. Since our purchase, a new CEO has come on board, the demand picture has stabilized, and insiders have made large stock purchases. Combined, these have driven a rebound in Tandberg’s share price, though we believe nothing has materially changed with the fundamental attractiveness of this company over the last six months. Tandberg advanced 49% in the quarter.

Julius Baer, the Swiss private banking entity we’ve discussed in several previous letters, has continued to exceed expectations. Asset growth was strong in the fourth quarter report with respect to both Baer’s historical relationships and those coming from the newly acquired entities. Customer attrition was low, the integration is proceeding faster than we expected, and we were impressed with the group’s new Head of Private Banking, Alex Widmer. We believe excess capital will continue to be deployed in the most value accretive manner, primarily in private banking acquisitions. If these aren’t attractive, we believe that capital will be returned to shareholders. Given the strength in the share price compared against the upside remaining to intrinsic value, we’ve had to trim back our weighting as Baer advanced 28% in the quarter.

Schindler, a Swiss-based elevator manufacturer, was the third largest contributor to performance in the quarter. The group’s 2005 financial release was quite strong, with sales advancing 8% and operating profit advancing 5% despite several one-off costs including labor settlements, research and development related to new product releases and unusually large marketing expenses. More importantly, however, the group’s order backlog grew by 23% locally. Asian business is robust, and the new European Safety Norms for Existing Lifts regulation is beginning to drive demand in the region. In our view, the strong operating performance and the positive outlook for 2006 were the two key reasons behind the 37% advance in the shares in the quarter.

We are happy to report that there were no large negative contributors in the quarter. Three of our bottom five performers were Japanese, including Santen Pharmaceutical, Mabuchi Motor, and Square Enix. While none fell materially, together their performance was a bit below the index in the country. Our Korean positions, including Daekyo and Kook Soon Dang, were also negative contributors.

There is no hedge impact to report from the quarter because we closed all of our hedge contracts at the end of 2005. We believe the U.S. Dollar continues to trade in a reasonable value range against other major currencies when measured by purchasing power parity.

Portfolio Composition

We sold our entire positions in Wincor Nixdorf, Athens Stock Exchange, and Dogan Sirketler in the period as each reached its respective sell target. Also, we’ve added positions in Alsea, a Mexican operator of the Dominos, Burger King, and Starbucks franchises, and in South China Morning Post (SCMP Group Limited), the publisher of Hong Kong’s largest English daily newspaper. As sales exceeded purchases, our overall cash position rose to 7.3% of net assets at quarter end.

Geographically, our portfolio weightings remain very similar to last quarter. Europe and the UK represent 75% of investments, and the majority of the balance excluding cash is in the Pacific Rim.

Small capitalization international stocks have had a tremendous run over the past four years. While the quantity of new ideas has slowed, we’ve held names that have demonstrated a consistent ability to grow value per share over time. We 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—March 31, 2006 (Unaudited)

Schedule of Investments—March 31, 2006 (Unaudited)