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LONGLEAF PARTNERS REALTY FUND
April 2, 1996
TO OUR SHAREHOLDERS:
This is our first letter to shareholders since the Fund began operations on
January 2, 1996 when the principals of Southeastern Asset Management, Inc.
seeded the portfolio with a $7.4 million commitment. We are most pleased to
welcome you as a new investment partner in Longleaf Partners Realty Fund. We are
also pleased to report that, despite sizable cash holdings, your Fund's net
asset value increased by 8.4% in the quarter ended March 31,1996. This result
compares favorably to a 4.3% gain for the unmanaged Wilshire Real Estate Index,
our primary benchmark.
The Realty Fund's cash balances at the end of January, February, and March were
36.1%, 29.7% and 6.6%, respectively. Our cash reserves declined as we invested
in a number of companies that should provide outstanding returns over the next
several years. We strongly believe that there are many compelling long-term
investment opportunities in the diverse real estate arena, and that over time,
this world will shift dramatically from private to public ownership. By applying
the same value disciplines that have served us well over the past 20 years, we
are highly confident that we can turn Longleaf Partners Realty Fund into another
successful vehicle for compounding capital. We will strive to own financially
sound, above-average businesses when they are run by highly competent,
trustworthy, and properly incented management teams. Furthermore, we will invest
in these compaines only when we can buy their shares at significant discounts to
our appraisal of their business values. We believe the existing positions in
your portfolio meet these investment criteria.
Unlike most real estate funds which primarily invest in REITs and primarily seek
to maximize pre-tax dividend yield, Longleaf Partners Realty Fund will attempt
to maximize long-term total return. To achieve this end we will pursue any
company, REIT or otherwise, which has attractively priced real estate assets.
The Fund will have at least 65% of its assets invested in companies that derive
half or more of their value from real estate. The remainder of the Fund will
hold businesses that are consistent with our investment philosophy but may not
be real estate companies. To the extent that we are unable to find attractive,
long-term investments consistent with our principles, we will hold cash. We will
continue to spend the majority of our time evaluating individual businesses and
their managements to find the very best available investment opportunities.
We hope this introduction to Longleaf Partners Realty Fund is helpful. Our
annual meeting will be held at 5:30 p.m. on Tuesday, May 7 at the Dixon Gallery
and Gardens in Memphis, TN. We look forward to seeing you there and telling you
more about the Realty Fund.
Sincerely,
/s/ C.T. Fitzpatrick /s/ O. Mason Hawkins /s/ G. Staley Cates
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C.T. Fitzpatrick, CFA O. Mason Hawkins, CFA G. Staley Cates, CFA
Co-Portfolio Manager Co-Portfolio Manager Co-Portfolio Manager
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LONGLEAF PARTNERS REALTY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT MARCH 31, 1996 (UNAUDITED)
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SHARES COMMON STOCK (92.4%) MARKET VALUE
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<S> <C> <C> <C> <C> <C>
FINANCIAL SERVICES (3.6%)
10,000 * White River Corporation.................................... $ 372,500
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FURNITURE (4.8%)
52,000 * Rhodes, Inc................................................ 494,000
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INSURANCE AND BROKERAGE (4.4%)
24,000 Alexander & Alexander Services Inc......................... 453,000
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PUBLISHING (4.0%)
6,000 Knight-Ridder, Inc......................................... 408,750
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REALTY (75.6%)
19,200 Alexander & Baldwin, Inc................................... 460,800
34,000 Burnham Pacific Properties................................. 374,000
27,000 Bay View Capital Corp...................................... 877,500
27,000 Castle & Cooke, Inc........................................ 442,125
34,000 Cousins Properties Incorporated............................ 663,000
18,000 Essex Property Trust....................................... 373,500
31,300 * First Federal Financial Corp............................... 496,888
8,000 Hilton Hotels Corporation.................................. 752,000
33,000 The Horsham Corporation.................................... 482,625
20,000 Louisiana-Pacific Corporation.............................. 487,500
35,000 * Quaker City Bancorp, Inc................................... 485,625
12,500 Reckson Associates Realty Corp............................. 382,812
64,000 Sizeler Property Investors, Inc............................ 504,000
151,000 Trizec Corporation Ltd..................................... 1,019,250
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7,801,625
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TOTAL COMMON STOCKS (COST $9,060,919)................................... 9,529,875
OPTIONS WRITTEN (-0.1%)
80 Hilton Hotels Call, 4/19/96 @ $100......................... (13,500)
SHORT TERM OBLIGATIONS (7.8%)
Certificates of Deposit in Thrift Institutions.......................... 19,000
Passbook Savings Deposits in Thrift Institutions........................ 105,500
Repurchase Agreement with State Street Bank and Trust Company, dated
3-29-96 due 4-1-96 at 4.75%, collateralized by $702,707 U.S. Treasury
Bond due 2-15-15 (Repurchase proceeds-$683,270) (Cost $683,000)........ 683,000
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807,500
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TOTAL INVESTMENTS (COST $9,847,660)* *..................................... 100.1% 10,323,875
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................. (0.1) (6,820)
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NET ASSETS................................................................. 100.0% $10,317,055
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NET ASSET VALUE PER SHARE (OFFERING AND REDEMPTION PRICE PER SHARE) BASED ON
951,907 SHARES OUTSTANDING AT MARCH 31, 1996.................................... $ 10.84
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* Non-income producing security
* * Also represents aggregate cost for Federal income tax purposes
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FIVE LARGEST HOLDINGS
(REPRESENTS 37.0% OF NET ASSETS AT 3/31/96)
TRIZEC CORPORATION LTD. (TZC) 9.9%
A Canadian based commercial real estate company that owns, manages and develops
primarily retail (regional and super regional malls) and office space in the
U.S. and Canada.
BAY VIEW CAPITAL CORP. (BVFS) 8.5%
The holding company for Bay View Federal Bank which uses deposits and other
funds to originate and purchase real estate loans and consumer loans, and serves
the nine counties contiguous with San Francisco Bay through 27 branch offices
and one loan production office.
HILTON HOTELS CORPORATION (HLT) 7.3%
Owner, operator and franchiser of worldwide hotels and gaming properties.
COUSINS PROPERTIES INCORPORATED (CUZ) 6.4%
A self advised, equity real estate investment trust concentrating in commercial
buildings primarily in Atlanta and the Southeast. The company also has valuable
non-income producing real estate holdings.
SIZELER PROPERTY INVESTORS, INC. (SIZ) 4.9%
A self advised, equity real estate investment trust concentrating in
income-producing shopping center and apartment properties in LA, FL, AL and TX.
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TRUSTEES
O. MASON HAWKINS, CFA --
Chairman, Southeastern Asset
Management, Inc.
Memphis, Tennessee
CHADWICK H. CARPENTER, JR. --
Senior Executive Officer, Progress
Software Corporation
Bedford, Massachusetts
JOHN R. McCARROLL, JR. --
Chairman, McCarroll Newman LLC
Memphis, Tennessee
STEVEN N. MELNYK --
Chairman of the Executive
Committee and President,
Riverside Golf Group, Inc.
Jacksonville, Florida
C. BARHAM RAY -- Chairman of the
Board and Secretary, SSM Corp.
Memphis, Tennessee
W. REID SANDERS -- Executive
Vice President, Southeastern
Asset Management, Inc.
Memphis, Tennessee
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This report is submitted for the general informa-
tion of shareholders of the Fund. For more detailed
information about the Fund, its management, fees,
expenses and other pertinent information, please
see the prospectus.
This report is not authorized for distribution to
prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
LONGLEAF
[LFP LOGO] PARTNERS
FUNDS
MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
6075 POPLAR AVE.
SUITE 900
MEMPHIS, TN 38119
(901) 761-2474
(800) 488-4191
====================================================
[LFP LOGO]
QUARTERLY
REPORT
March 31, 1996
LONGLEAF PARTNERS
REALTY FUND
====================================================
MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
