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 (12/31/06) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX 13
		Average Annual Total Returns (as of 12/31/06)
	Total Return Last 3 Months*	1-year	5-year	10-year	Since Inception (11/1/95)
Oakmark International Small Cap Fund (Class I)	11.89%	34.90%	24.99%	15.50%	15.68%
MSCI World ex U.S.	10.12%	25.71%	15.25%	7.96%	8.38%
MSCI World ex U.S. Small Cap16	11.65%	19.46%	23.70%	N/A	N/A
Lipper International Small Cap Index17	13.69%	28.08%	23.99%	13.34%	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 Fund gained 12% in the quarter ended December 31, 2006, outperforming our benchmark indices. More importantly, however, for the past twelve months and since inception, your Fund is up 35% and 16% respectively, outpacing the MSCI World ex U.S. Index, which returned 26% and 8%.

Global small-cap equity indices experienced another strong quarter; most—excluding Japan—posted double-digit gains. Japan, the largest in the MSCI World ex U.S. Small Cap Universe, was virtually flat in the quarter.

The Fund remained well underweight Japan, having just 11% of assets invested in the country versus almost 27% for the index. As the Fund was substantially underweight in a relatively poor performing Japanese market, this allocation effect yielded the greatest contribution to overall performance in the quarter.

Stock selection in Norway and New Zealand also boosted the Fund during the quarter, adding almost 1% to the Fund's relative performance. The Fund's Norwegian and New Zealand names advanced 24% and 29% respectively in the quarter, versus the local markets, which posted 14% and 7% returns respectively.

Large Contributors
Tandberg ASA, a Norwegian manufacturer of video-conferencing equipment, rose 35% in the quarter (following last quarter's 34% advance). We highlighted this stock in the March 2006 report and discussed it again in last quarter's report. As the stock has now surpassed our estimate of fair value, we have begun making tax-efficient sales.

JJB Sports, a UK sporting goods retailer and health club owner, rose 27% in the quarter. While September results weren't impressive, the business's underlying fundamentals appear to be improving. Sportsworld, JJB's largest competitor, had been employing a massive price discounting strategy on brand name goods (namely Nike and Adidas) to attract shoppers into its stores and to its private label merchandise. JJB notified Nike and Adidas of these aggressive pricing tactics, and these companies have responded appropriately to protect their brands. Sportsworld has lost access to some of the most coveted merchandise (like Nike Air product) and now must meet strict operating guidelines to ensure future access. JJB, who never participated in these tactics, now receives marketing support from Nike and Adidas as well, further tightening those relationships. With the retail business on firmer footing, gross margins should improve in 2007. This, combined with good health club performance, has led many to upgrade their forecasts for the group.

Media Prima, Malaysia's largest free-to-air broadcaster, rose 31% in the quarter. The group's main channel, "3," substantially outperformed the advertising market this year by attracting large non-traditional advertisers to Malay TV (many of whom were limited due to foreign content production restrictions). With strong revenue growth and limited cost inflation, margins advanced 1000 basis points on this channel. The group is also making solid progress with its recently acquired channel "7." Media Prima has narrowed the previous owner's advertising discounts and brought margins from losses to mid-double-digit. Lastly, management is also evaluating options for its stake in New Straits Times, which represents about 13% of the value of the company. The group's dominant position is now translating into excellent financial results, and the market appears to be awakening to the new Media Prima.

Detractors
There was only one meaningful detractor to performance in the quarter. MLP, one of Germany's largest independent financial advisors (IFAs), was one of the Fund's top five positions and was off 15% in the quarter. Towards the end of the third quarter, the group revised down its earnings guidance for 2006 by almost 25% due to poor IFA productivity. Recent product changes meant IFAs received more upfront money on sales, leading them to be less aggressive. Poor branch oversight and poor product training discipline allowed the problem to fester. Management took aggressive action to rectify the problem and fired the Head of Sales and Marketing, as well as some branch managers, and it also changed the IFA's compensation schemes. Management has also taken advantage of the weak stock price and repurchased shares, which we view favorably as it should generate substantial value. We continue to like the underlying dynamics in the savings market in Germany and believe MLP is well positioned to exploit the changing environment. As such, the Fund used the shares' recent weakness to increase its position.

Portfolio Composition
The Fund exited many positions that had reached their fair values in the quarter, including Saurer, De La Rue, Halma, and Countrywide. We also sold the balance of our holdings in Matalan and Kook Soon Dang. New ideas generated in the quarter include Citizen Watch, a Japanese manufacturer of watches and electronic devices, and Spectris, a UK manufacturer of electronic controls.

Geographically, our portfolio weightings remain very similar to last quarter. Europe and the UK represent approximately 65% of investments, and the majority of the balance excluding cash is invested in the Pacific Rim.

Small capitalization international stocks (ex Japan) continued their strong advances in the quarter, which in turn further reduced the number of attractive investment candidates. 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—December 31, 2006 (Unaudited)

Schedule of Investments—December 31, 2006 (Unaudited)