Dear Fellow Shareholders,

Domestic and international stock markets were weak in the fourth quarter. While most of the broader market indexes ended the full year with positive returns, 2007 was a volatile and emotional year for the market, and most of our Funds experienced their first negative return year in some time. While it is easy to be distracted by short-term swings, we still remain intently focused upon our primary goal: buying undervalued stocks that help our clients meet their long-term investment goals.

Macro-Events and Micro-Opportunities

The unwinding of the credit cycle, which we anticipated in recent letters, hit the world's markets with a vengeance in the fourth quarter. The market has rapidly corrected the pervasive underpricing of risk in the residential mortgage, credit card, LBO (leveraged buyout), and commercial paper markets. Given the length of the recent lending excesses and the extent of the credit-driven boom, logic suggests that markets will remain volatile for the near-term and that some sectors of the credit markets, such as commercial real estate mortgages and high yield bonds, will see further corrections. Logic also suggests that a correction of this magnitude—particularly in housing—will slow economic growth.

The macro-events of the past several months have destroyed huge amounts of business value at many companies, which has caused their stock prices to plummet in line with the decline in value. With our focus on "micro-level" or bottom up research, we note that many fundamentally solid businesses have also suffered large stock price declines—declines that far outstrip the impact of a slower growth economy or other macro-events. With these changes, the price-to-value discount for our existing portfolio holdings has widened, and we are finding many more attractive new investment ideas. While the market's recent weakness may cause our investors some concern, we encourage shareholders to consider adding to holdings when markets provide a chance to buy at greater discounts to value.

Oakmark International and Oakmark International Small Cap Funds Reopen

On January 2, 2008, The Oakmark International and Oakmark International Small Cap Funds re-opened to new investors. The two Funds closed to new shareholders in 2003 and 2002, respectively, when we believed that high levels of purchases threatened our ability to successfully invest cash inflows. With the recent weakness in international markets, investor interest has weakened. Re-opening the Funds to new investors will help to restore the balance between purchases and sales, and will allow us to capitalize upon the growing list of attractively priced international stocks.

Personal Investments in the Funds

At Oakmark, we believe that a focus on management share ownership is an important component of a successful investment strategy. We believe that managers that tie their personal wealth directly to their company's stock—on both the upside and the downside—will focus more intently on growing long-term shareholder value. We also believe that management is in a better position than most outside investors to understand the value of their business. For this reason, we regard significant management share purchases as a positive signal about value.

We believe these statements are true for the companies that we invest in, as well as for the mutual funds that we manage. We therefore encourage our investment team and other employees to invest in The Oakmark Funds. Significant ownership of Oakmark shares—not just by Fund portfolio managers and analysts but by all levels of employees at the Fund and its adviser (including Fund officers, senior management, trustees and others)—demonstrates our responsibility, focus, and commitment.

Each year, we report the level of our Fund ownership to shareholders. In this regard, we are pleased to announce that as of December 31, 2007, the employees of the Funds' adviser, Harris Associates L.P., the Funds' officers, its trustees, and their families have over $245 million invested in The Oakmark Funds. While the values of most of our Funds declined last year, this level is higher than our holdings at the beginning of the year and reflects significant new purchases of Fund shares. For those particularly interested in portfolio manager holdings, every Fund manager continues to own at least $1 million of each Fund that he manages.

Thank you for your continued investment and confidence in 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.

December 31, 2007

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 9/30/07, the expense ratio was 1.01% for The Oakmark Fund, 0.97% for The Oakmark Select Fund, 0.83% for The Oakmark Equity and Income Fund, 1.13% for The Oakmark Global Fund, 1.31% for The Oakmark Global Select Fund, 1.05% for The Oakmark International Fund and 1.34% for The Oakmark International Small Cap Fund.