THE OAKMARK GLOBAL FUND Report from Clyde S. McGregor and Robert A. Taylor, Portfolio Managers

THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK GLOBAL FUND FROM ITS INCEPTION (8/4/99) TO PRESENT (12/31/07) AS COMPARED TO THE MSCI WORLD INDEX12 (UNAUDITED)
	Average Annual Total Returns (as of 12/31/07)
(Unaudited)	Total Return Last 3 Months*	1-year	5-year	Since Inception (8/4/99)
Oakmark Global Fund (Class I)	-3.38%	7.33%	21.06%	16.19%
MSCI World	-2.42%	9.04%	16.96%	4.76%
Lipper Global Fund Index13	-2.05%	9.27%	17.11%	6.52%
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 9/30/07 was 1.13%. 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

Quarter Review

The quarter ended December 31 proved difficult for the holdings in The Oakmark Global Fund. For the quarter the Fund registered a 3% decrease in value which lagged behind the 2% losses that both the Lipper Global Fund Index and the MSCI World Index reported. This loss ended a streak of 12 profitable quarters for the Fund. Companies with declining stocks varied from Swiss financials to U.S. concert promoters. Countries where the Fund enjoyed strong relative performance included the U.S., South Korea, and Japan, while France, Ireland, and Switzerland produced the worst relative outcomes.

For the calendar year, the return to the Fund was 7%. Sharp-eyed readers may recall that in the December report one year ago, we wrote about return volatility and made the argument that, based on historical experience, return outcomes of 1-10% were quite unlikely. We also noted that the Global Fund had never produced a calendar year return in that range. Perhaps your writer tempted fate the wrong way and should have instead noted that the Fund had never produced an annual return of 50% or more! As always, we most enjoy reporting that the compound annualized rate of return since the Fund’s inception in 1999 is 16%.

During the quarter the percentage allocation to U.S.-domiciled companies grew to 45%. Trading activity and relative investment performance combined to produce this outcome. With this increase we find that the U.S. allocation is closer to the MSCI World Index weight than it has been in several years. Before one jumps to the conclusion that we have become “closet indexers,” however, one should also note that the Fund’s weight for Swiss equities is roughly five times that of the index’s. As we have often written, we construct Oakmark Global in a bottom-up fashion, paying little regard to factors such as domicile or market capitalization, providing that we stay within our stated investment restrictions. The fact that the U.S. weight is “index-neutral” is random happenstance and merely reflects the outcome of a constant struggle for market share in the portfolio. The fact that the Swiss weight is so large clearly reflects our belief that valuations in that market have become unduly depressed.

One thing investors can rely on is that whenever the financial community detects a new economic trend, it works diligently to find profitable ways to exploit that new trend. Investors may be equally certain that this exploitation will finally go too far and result in problems when the economic environment changes. The current sub-prime mortgage crisis in the U.S. aptly demonstrates this process. Residential housing prices experienced a worldwide boom during the first half of this decade, eventually requiring weaker and weaker participants to keep the trend going. Now we are in the process of finding out just how excessively this trend was exploited. It will take time for financial intermediaries to prove their balance sheet strength to investors, and in the meantime share prices are experiencing volatility not seen for five years. Many academics and investors equate volatility with risk. We do not. We view risk as permanent capital losses for clients. Since we are focused on valuing businesses and not on the daily swings of market prices, we are using this volatility to buy undervalued businesses and sell others that are either at fair value or are relatively less attractive.

It was the Best of Times—It was the Worst of Times

To describe the stock market in 2007, many quarterly reports will probably borrow this line that Charles Dickens used to refer to the French Revolution. While more subtle than the stock market of the late 1990s, the 2007 stock market was similarly characterized by momentum. Stock groups that began the year strongly generally continued in that direction, and weak groups got weaker. As well, countries with expensive stock markets at the beginning of the year generally became more expensive throughout 2007—obviously not an ideal outcome for value investors.

Perhaps 2007’s most interesting development was private equity’s disappearance as a major source of equity market liquidity only to be replaced by sovereign wealth funds. A fairly recent phenomenon, sovereign wealth funds (SWFs in the jargon of the investment industry), developed as nations with strong economies and trade surpluses banked their savings. With the sub-prime debt crisis making its way through the world’s financial system, SWFs had the immediate wherewithal to provide needed capital to institutions looking to buttress their capital ratios. Some experts estimate that SWFs hold more than $2 trillion in assets, and the number grows daily. As with most significant emerging factors, we do not know precisely how SWFs will affect financial markets over time, but we do believe that the process of recycling and investing these savings should work to integrate the world economy and promote economic growth.

During the quarter we sold our positions in Givaudan, SK Telecom, Tyco International, Square Enix, Takeda and Nikko Cordial. We did not add any new names, but used these proceeds to fund significant additional purchases of Daiwa Securities, UBS, Bank of Ireland, Samsung, Omron and Neopost. For each purchase we believe that the underlying business economics are not nearly as bad as the share prices have recently seemed to indicate. To borrow a phrase from Marty Whitman of Third Avenue Management, we are much more price conscious than we are outlook conscious. We have previously written about the financials and will not discuss them again here. Samsung’s share price has been weak as the DRAM (memory chip) market suffers pricing problems caused by excess capacity. As Samsung is the industry’s low-cost manufacturer, the company should eventually emerge in good shape from this trough as worldwide economic growth inevitably absorbs the excess capacity. Japan’s weak economy and falling capital spending budgets have depressed Omron’s results. Management has introduced a new cost cutting plan, which—combined with the company’s history of effective capital allocation—should at least partially offset any short-term concerns. Neopost reduced this year’s forecast for sales growth by 3%, prompting share prices to drop 20% in one day. Given the strong characteristics of this business (two dominant industry participants, recurring revenues over 60%, strong returns on capital, prodigious free cash flow), we believe that the price drop was a huge overreaction. Please see The Oakmark International Small Cap letter for further insights on Neopost.

We thank you for being our shareholders and welcome your suggestions and comments.

Global Diversification—December 31, 2007 (Unaudited)

Schedule of Investments—December 31, 2007 (Unaudited)