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 (6/30/07) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX14
		Average Annual Total Returns (as of 6/30/07)
	Total Return Last 3 Months*	1-year	5-year	10-year	Since Inception (11/1/95)
Oakmark International Small Cap Fund (Class I)	2.52%	31.58%	23.98%	15.39%	15.77%
MSCI World ex U.S.	6.98%	27.09%	18.14%	7.97%	9.00%
MSCI World ex U.S. Small Cap17	5.16%	26.13%	24.29%	N/A	N/A
Lipper International Small Cap Index18	7.57%	33.40%	25.79%	14.13%	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.
Expense Ratio as of 9/30/06 was 1.37%. 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 3% for the quarter ending June 30, 2007, compared to the MSCI World ex U.S. Index that returned 7% and the MSCI World ex U.S. Small Cap Index that returned 5%. More importantly, however, for the past twelve months and since inception, your Fund is up 32% and 16% respectively, outpacing the MSCI World ex U.S. Index, which returned 27% and 9% respectively, and the MSCI World ex U.S. Small Cap Index, which returned 26% for the past 12 months.

Stock selection in Switzerland and Malaysia boosted the Fund during the quarter, adding almost 75 basis points to the Fund’s relative performance. The Fund’s German, UK, and French names detracted from performance for the quarter and account for approximately 2% of the underperformance relative to the benchmarks.

Detractors

What a difference a quarter makes! In the last quarterly report we highlighted MLP AG, one of Germany’s largest independent financial advisors (IFAs), as the Fund’s largest contributor to performance. The stock is down 21% this quarter and was the Fund’s largest detractor to performance. The positives we highlighted last quarter still hold true. The difference is that the CFO announced in late June that he was resigning to pursue other interests. We like the CFO and were pleased with his efforts, along with the CEO, to clean up the balance sheet by selling off the non-core insurance businesses. Although we are disappointed to see him leave, the CEO will assume these responsibilities until an outside replacement is found. We are comfortable with this near-term solution since the CEO was the company’s previous CFO, and we believe that he can handle both roles in the interim period. Despite the stock’s price decline this quarter, we believe the long-term trends for MLP remain very positive.

Wagon, a UK engineering company, is down this quarter due to continued weak orders from key French customers Renault and Peugeot, which represent over 50% of Wagon’s sales. Both companies have had poor sales performance due to lost market share, and as a result, they have decided to use excess plant capacity to perform body structure work in-house that Wagon had done for them. We view these as temporary factors for Wagon.

Contributors

Morse, a UK technology support and consulting company, has been strong this quarter. The stock was up 30% due to the spin-off of Monitise, a company that develops software that allows consumers to access bank information and perform transactions via their mobile phones. The business is in its infancy, but it has huge potential because of its relationships with top UK-banking institutions, HSBC and Royal Bank of Scotland, as well as many mobile phone providers.

Media Prima, Malaysia’s largest free-to-air broadcaster, rose 22% in the quarter. The group’s newly acquired television channel, “9,” is performing well, as are its radio and outdoor advertising assets. The Malaysian advertising market is expected to be strong the second half of 2007 with television, radio, and outdoor taking share from print advertising.

We discussed South Korean Daekyo Co. at the end of the first quarter when it was the largest performance detractor. At the beginning of the year, Daekyo raised prices on its educational materials, which caused subscriptions and subsequently its share price to decline. During the latter part of June, the share price rose markedly, and for the quarter the stock returned 18%. Daekyo has begun restructuring its unprofitable education-related divisions and has initiated a small share buyback program. Better management, combined with the continued rise in value of the group’s holding in Shinhan Financial, were the key drivers of Daekyo’s share price in the quarter.

Portfolio Composition

It was an active quarter for trading in our portfolio, and the Fund exited many positions that reached fair value, including Veda Advantage, Lisi, Pfeiffer Vacuum Technology, Asia Satellite Telecom, Prosegur Seguridad, and Gurit Holding. New additions included MDS Inc., a leading Canadian provider of products and services to the global life sciences market; Duerr AG, a German company that engineers and builds plants and manufactures machinery for the automotive industry; Estavis, a German real estate company; and Amplifon, an Italian company that supplies services and equipment to treat hearing loss.

Geographically, our portfolio weightings remain quite similar to last quarter, with the exception of adding Canadian holding, MDS, to the portfolio. Europe and the UK represent a little more than 60% of investments, North America is approximately 3%, Latin America is around 2%, and the majority of the balance excluding cash is invested in the Pacific Rim.

As we close, we encourage you to keep in mind our investment time horizon is measured in years, not quarters. We view ourselves as investors, not traders, and we focus on the long-term business dynamic of a company and its management. We generally expect to hold a stock for at least three to five years. Over time, we have found it takes this long for the market’s view of a company’s value to converge with our view. As long-term value investors, we will continue to focus on finding attractive, under-valued foreign companies with management teams focused on building shareholder value.

International Diversification—June 30, 2007 (Unaudited)

Schedule of Investments—June 30, 2007 (Unaudited)