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 (9/30/06) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX15 (UNAUDITED)
	Average Annual Total Returns (as of 9/30/06)
(Unaudited)	Total Return Last 3 Months*	1-year	5-year	10-year	Since Inception (11/1/95)
Oakmark International Small Cap Fund (Class I)	8.42%	28.50%	26.58%	14.64%	14.88%
MSCI World ex U.S.	3.72%	18.65%	14.63%	7.14%	7.63%
MSCI World ex U.S. Small Cap18	0.14%	14.81%	22.68%	N/A	N/A
Lipper International Small Cap Index19	2.16%	19.69%	22.52%	12.15%	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 oakmark.com.
* Not annualized

The Oakmark International Small Cap gained 8% in the quarter ended September 30, 2006, solidly outperforming our benchmark indices. More importantly, however, for the past twelve months and since inception your Fund is up 29% and 15% per annum respectively, outpacing the MSCI World ex U.S. Index with returns of 19% and 8%.

Following last quarter's volatility, risk aversion in the global equity markets appears to have subsided, despite lingering geo-political anxiety. Outside of Japan, which fell 3.4% locally, most international small cap markets performed well in the quarter.

This quarter, the Fund benefited greatly from both geographic allocation and stock selection. For the second consecutive quarter Japan was one of the worst performing small cap markets. The Fund remains well underweight in the Japanese market, having just 9% of assets invested in the country versus almost 30% for the MSCI World ex U.S. Small Cap Index. Not only was the Fund underweight in Japan, but its Japanese positions, led by Square Enix, advanced in the quarter. As a result, Japan was the largest contributor to relative performance.

Combined stock selection in Norway and the United Kingdom also boosted relative performance in the quarter. The Fund's Norwegian and UK names advanced almost 16% and 8% respectively in the quarter, versus the local markets which posted -5% and 5% returns respectively.

Large Contributors

Sogecable, the leading Spanish pay-TV provider, was the largest contributor to performance, advancing 25% in the quarter. As you may recall from last quarter's discussion, concerns about soccer rights and soccer content costs led to a 1 billion Euro decline in Sogecable's market capitalization. We assumed some content cost inflation in our forecasts, but nothing warranting a 30% decline in the stock price of the country's premium pay-TV provider. As a result, we aggressively added to our position. While the dust hasn't completely settled yet, we do know Sogecable will retain access to soccer matches for the foreseeable future, albeit at a higher price. With this modicum of clarity, the shares rebounded strongly during the quarter.

Tandberg ASA, a Norwegian manufacturer of video-conferencing equipment, rose 35% in the quarter. We highlighted this stock in the March 2006 report. After a series of earnings misses, new management came in and stabilized what had always been a product-strong company. First and second quarter earnings reports exceeded the Street's expectations, although they generally fell in-line with our forecasts. With no significant news during the quarter, the stock's strong showing appears to have coincided with the Street's upward earnings revisions.

Morse, a UK IT services and consulting group, rose 29% in the quarter. Management has successfully transformed this company from an infrastructure reseller to a services business, with two-thirds of profits derived from the latter. After recently disposing of poorly performing reselling activities in France, Germany and Austria, the company initiated central cost-cutting measures. These steps, combined with a potential new revenue stream from mobile ATM software, should enable the company's earnings to advance strongly. As the rebound in share price indicates, the market appears to be waking up to the new Morse.

Detractors

This quarter, no meaningful positions (those weighted 1.5% or more of the portfolio) fell more than 10%. Exposure to the automotive sector was the only consistent factor among the Fund's negative performers. Both Kongsberg Automotive, a Norwegian niche auto parts manufacturer, and Wagon PLC, a UK general auto parts manufacturer, fell in the quarter. These are very unique assets with limited U.S. auto exposure. And, in Wagon's case, it's a roll-up and restructuring of former bankrupt European auto parts players spear-headed by Wilbur Ross.

Portfolio Composition

Portfolio activity was somewhat muted in the quarter. We trimmed positions in some holdings as they approached what we believe to be their fair value. We added to new names, including Kimberly Clark de Mexico and Binggrae. New ideas generated in the quarter include Robert Walters, a UK recruitment consultant; CTS Eventim, a German ticket broker; and Ementor, a Norwegian IT distributor targeting small and medium-sized enterprises.

Geographically, our portfolio weightings remain very similar to last quarter. Europe and the UK represent almost 70% of investments, and the majority of the balance excluding cash is invested in the Pacific Rim.

After a slight retrenchment last quarter, small capitalization international stocks (ex Japan) rebounded nicely in the quarter. Given the markets' advance, the number of attractive investment candidates has diminished. However, we continue to own names that have demonstrated a consistent ability to grow value per share over time. We thank you for your continued support.

International Diversification—September 30, 2006 (Unaudited)

Schedule of Investments—September 30, 2006

See accompanying Notes to Financial Statements.