Dear Fellow Shareholders,

Domestic and international stock markets rose again in the first quarter. The broader U.S. indexes finished the quarter up slightly, while international indexes extended their strong recent performance with percentage advances in the mid-single-digits. These summary statistics mask a very volatile quarter for world markets, however. The year started with strong advances around the world, but abruptly turned negative in late February, when the Chinese market fell 9% in a single day and U.S. stocks fell 3.5% in reaction. While the markets’ heightened volatility has persisted, markets recovered most of these losses by quarter end.

Market Volatility and Long-Term Investment Strategy

The volatility of world markets in the last quarter provides another lesson in investment risk and the importance of following a long-term investment strategy. We have to admit experiencing a little bit of “déjà vu” when looking back at this quarter. At the end of last year’s second quarter, we described a very similar series of events: strong returns around the world—led by red-hot international markets, a sudden and sharp market correction—with the largest declines concentrated among the former market leaders, a rapid negative shift in investor sentiment, and financial reporters’ newfound focus on investment risk (after the horses were out of the barn).

As we wrote last summer and as we saw reaffirmed this quarter, market declines like this are not unusual events. Investor emotion—greed in a strong market and fear during large declines—often magnifies small market events into larger price swings. It is in circumstances such as this that our value investing discipline becomes most valuable. This discipline removes emotion from the investment equation. It focuses our analysis, not on where a stock has been, but where it lies today relative to business value. In this light, we can dispassionately view a stock decline as an opportunity to buy a good stock at an even more attractive price. We actually welcome market volatility as a means to enhance returns and build more attractive portfolios for our shareholders. Both during this quarter and last year’s second quarter, we used the market’s weakness to add to positions or buy new stocks at attractive prices.

Once a stock is purchased, patience, realistic expectations for long-term business performance and a continued focus on valuation are required for success. Decisions to buy stocks on sharp price declines are rarely rewarded as quickly as they were this past quarter. Ultimately, the market has shown that a disciplined analytical process, such as Oakmark practices, minimizes emotional mistakes and proves rewarding over time.

Market Volatility and Mutual Fund Investing

We encourage mutual fund investors to take a similar approach when formulating their own investment strategy. First and foremost, fund investors should take emotion out of their investment decision-making process. The best way to do this is to develop and stick to a long-term investment and asset allocation plan, using reasonable long-term expectations for investment returns. Second, investors should limit portfolio turnover in order to minimize taxes and other costs, although it is appropriate to occasionally rebalance portfolios to match long-term allocation targets. Lastly, in picking funds and fund managers, investors should ignore short-term swings in performance and focus upon long-term investment track records. At Oakmark, we manage our portfolios to maximize wealth over the long run—with a seven-to-ten-year horizon. While this approach takes patience and discipline, we believe that this same horizon is most appropriate for fund investors to evaluate their own funds’ performance.

Thank you for entrusting your long term assets to 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 oakmark.com.

* Not annualized

As of 9/30/06, the expense ratio was 1.05% for The Oakmark Fund, 0.99% for The Oakmark Select Fund, 0.86% for The Oakmark Equity & Income Fund, 1.18% for The Oakmark Global Fund, 1.08% for The Oakmark International Fund and 1.37% for The Oakmark International Small Cap Fund. As of 10/2/06, the expense ratio was 1.75% for The Oakmark Global Select Fund.

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, 2006, to March 31, 2007, 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, 2007, 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 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.