<PAGE> 1
LOGO
LONGLEAF PARTNERS FUNDS SM
SEMI-ANNUAL REPORT
at June 30, 1999
PARTNERS FUND
INTERNATIONAL FUND
REALTY FUND
SMALL-CAP FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGED BY:
SOUTHEASTERN ASSET MANAGEMENT, INC.
Memphis, TN
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders..................................... 1
Longleaf Partners Fund (Partners Fund)
Management Discussion.................................... 4
Performance History* and Portfolio Summary............... 5
Portfolio of Investments................................. 6
Longleaf Partners International Fund (International Fund)
Management Discussion.................................... 8
Performance History* and Portfolio Summary............... 10
Portfolio of Investments................................. 12
Longleaf Partners Realty Fund (Realty Fund)
Management Discussion.................................... 15
Performance History* and Portfolio Summary............... 17
Portfolio of Investments................................. 18
Longleaf Partners Small-Cap Fund (Small-Cap Fund)
Management Discussion.................................... 20
Performance History* and Portfolio Summary............... 22
Portfolio of Investments................................. 24
Financial Statements and Footnotes......................... 26
Financial Highlights....................................... 40
Service Directory.......................................... 42
Trustees and Officers...................................... 43
</TABLE>
* Average annual returns for all Funds and all indices except the Value-Line
Index are shown with all dividends and distributions reinvested; the
Value-Line Index is not available with reinvested dividends. The indices shown
are unmanaged. Past performance is no guarantee of future performance, and the
value of an investment when redeemed may be more or less than the purchase
price.
<PAGE> 3
LONGLEAF PARTNERS FUNDS
LETTER TO SHAREHOLDERS
TO OUR SHAREHOLDERS:
Second Quarter Performance
We are pleased to report the Longleaf Partners family of funds posted one of its
best quarterly results ever, with each Fund producing high absolute, real
returns for the three months ended June 30, 1999, and performing well against
market benchmarks. Although the Longleaf Funds operate in four distinct arenas,
their returns were remarkably similar.
<TABLE>
<S> <C>
Longleaf Partners Fund......................... +14.16%
Longleaf Partners International Fund........... +15.72%
Longleaf Partners Realty Fund.................. +14.49%
Longleaf Partners Small-Cap Fund............... +13.83%
</TABLE>
Horace's quote which we cited in our last report -- "Many shall be restored that
are now fallen, and many shall fall that are now in honor"-- proved prophetic. A
number of our undervalued businesses rose significantly in the second quarter
while most of the formerly popular Internet market leaders collapsed.
We implore our partners to remember that ANNUAL long-term equity returns have
averaged 12%. Many, many quarters may pass before all four Longleaf Funds again
produce results in excess of stocks' long-term performance, and accomplish the
feat over a three month span. Longleaf's investment partners had much to
celebrate this Fourth of July.
How the High Market Affects Us
Ben Graham, describing past bull markets in Chapter 8 of the fourth edition of
The Intelligent Investor, wrote:
Nearly all the bull markets had a number of well-defined
characteristics in common, such as (1) a historically high price
level, (2) high price/earnings ratios, (3) low dividend yields as
against bond yields, (4) much speculation on margin, and (5) many
offerings of new common-stock issues of poor quality.
The current bull market, measured by the S & P 500 Index, has no peer, and the
persistently good investment environment has dulled even the bears' view of
risk.
- - Assuming 1999 ends with positive performance, stocks will have gone up nine
consecutive years. Equities previously never had risen more than six years
without posting a down period.
1
<PAGE> 4
LONGLEAF PARTNERS FUNDS
LETTER TO SHAREHOLDERS
- - Stocks have climbed from the lows of 1990 approximately 465%, a rate of 21.8%
annually when dividends are reinvested.
- - Equities sell at the highest multiple of trailing earnings ever -- 36 times.
- - This unprecedented P/E ratio is being assigned to the highest level of
profitability in corporate history. Operating profit margins and returns on
equity capital have never exceeded current levels.
- - After-tax earnings yields are only half the yields on long-term Treasuries.
Dividend yields are inconsequential.
- - Frenetic day trading has grown to become a meaningful percentage of Wall
Street's daily volume.
- - Internet IPO's are being floated with such frequency that most new student
entrepreneurs believe any reasonable MBA.COM idea should make them
billionaires.
How should we react to this unprecedented market environment? The risk of losing
significant capital is high if you own the market or if you own companies with
no margin of safety between their prices and their values. Our operations will
not change. We will sell stocks when they reach our appraisals. We will purchase
new positions only when we find qualifying businesses managed by competent
individuals at prices below 60% of intrinsic value. If we cannot find such
stocks, cash reserves will build. This has been the case in the Partners Fund,
which closed to new investors on June 1 to limit inflows.
Patience and discipline are our weapons against the grossly elevated levels of
big company stocks. Either the general market will correct, or individual
businesses will temporarily be mispriced. We are ready to take advantage of
either case. Our research resources are substantial, and our efforts are acutely
focused.
This supercharged market environment has not eroded the opportunities in our
other three Funds. The market's broadening in the second quarter did not erase
the dichotomy between large cap equities and everything else. The International,
Realty, and Small-Cap Funds are fully invested and cash inflows are being
deployed in businesses selling at steep discounts to their appraisals. The price
of each Fund relative to its underlying value is 60% or less. We are continuing
to increase our personal stakes in the Realty and International Funds, where the
values are most compelling.
2
<PAGE> 5
LONGLEAF PARTNERS FUNDS
LETTER TO SHAREHOLDERS
A Tribute to our Partners
We have some of the most astute and involved investors in the industry, and we
appreciate your support. We had another crowded Partners Meeting in May with
over 400 shareholders from across the country. We thank you for the effort many
of you made to be with us.
The press recently has written about the demise of mutual funds, lower inflows,
and record redemption levels. It is appropriate that Longleaf's investment
partners are contrarian. We had net inflows both in 1998 and through the second
quarter of 1999 in all four funds. With two closed funds, 39% of our asset
growth has come from cash inflows over the last six months. We take your
commitment seriously and in turn commit that we will encourage long-term
partners who embrace our philosophy and discourage speculators who chase
performance.
Sincerely,
<TABLE>
<S> <C>
/s/ O. Mason Hawkins, CFA /s/ G. Staley Cates, CFA
O. Mason Hawkins, CFA G. Staley Cates, CFA
Chairman & CEO President
</TABLE>
3
<PAGE> 6
PARTNERS FUND - MANAGEMENT DISCUSSION
by Mason Hawkins, Staley Cates, and John Buford
During the second quarter, Longleaf Partners Fund rose 14.2%, more than twice
the S&P 500 Index's 7% return. The Partners Fund is up 21.3% for the first six
months of 1999. We would gladly accept our current performance for all of 1999.
Our top five holdings at the quarter's outset -- FDX, Marriott, Philips, United
Healthcare, and Seagram -- provided over 40% of the quarter's return and have
contributed almost 60% of 1999's performance. We continue to be rewarded for our
buying activity in 1998's third quarter market decline when we purchased UNH and
added substantially to FDX, Marriott, and Philips.
In April we sold our stake in Seagram at prices between $50 and $65 per share
versus our original cost of $28. The negative opinion that the investing public
had of CEO Edgar Bronfman, Jr. enabled us to buy Seagram at a substantial
discount to our appraisal. Looking past public opinion, we determined that his
capital allocation record was excellent, and took solace in the Bronfman
family's 30% ownership stake. During our investment tenure Mr. Bronfman
substantially increased the value of the firm through the acquisition of
Universal Entertainment Group, the sale of Tropicana, and the sale of USA
Networks.
We also sold our stake in News Corp. early in the quarter after it appreciated
to our appraisal. We shifted our ownership in the Japanese non-life companies by
selling one entirely and reinvesting the cash into our two remaining positions.
As the depth of our overseas research grows, we are better able to assess our
management partners and their attention to building shareholder value, and we
can concentrate more confidently in fewer companies.
We began the quarter with 21% cash and ended it with 31%. Two-thirds of the
increase came from portfolio sales. As we discussed in the Letter to
Shareholders, few new investment opportunities emerged. We began buying Georgia
Pacific Timber Group, but the price rose before we could establish a full
position. We added to several of our holdings when their stocks dipped below 60%
of our appraisals. We closed the Partners Fund again when cash inflows began to
increase. We wanted to limit any dilution of our existing shareholders'
positions before it happened.
As significant owners in the Fund, holding cash is not our preference. Buying
businesses without the requisite margin of safety, however, appeals to us even
less. In past times when elusive qualifying investments caused cash to rise
above 20%, we found hard work and long patience very rewarding. We should also
emphasize that most of the Fund's assets are invested, and the companies we own
have very attractive appreciation opportunities.
4
<PAGE> 7
PARTNERS FUND - PERFORMANCE HISTORY
AND PORTFOLIO SUMMARY
AVERAGE ANNUAL RETURNS
FOR THE PERIODS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Value-Line
Partners S&P 500 (Geometric)
Fund Index Index
-------- ------- -----------
<S> <C> <C> <C>
Year-to-Date 21.28% 12.34% 6.54%
One Year 17.37 22.72 (2.29)
Five Years 22.40 27.85 11.12
Ten Years 18.47 18.76 6.01
Since Public Offering 4/8/87 17.81 16.45 4.52
</TABLE>
FIVE LARGEST HOLDINGS
(REPRESENT 33.5% OF NET ASSETS)
FDX CORPORATION (FDX) 7.8%
Integrated air-ground transportation company providing time-definite delivery of
packages and documents worldwide.
MARRIOTT INTERNATIONAL, INC. (MAR) 7.6%
Owner of many of the strongest brand names in the lodging industry. Operates and
franchises over 300,000 rooms in hotels and resorts under the Marriott,
Ritz-Carlton, Renaissance, Courtyard, and Residence Inn names.
KONINKLIJKE PHILIPS ELECTRONICS N.V. (PHG) 6.8%
A leading manufacturer of lighting systems and electronics products, including
television and stereo equipment, appliances, and semiconductors.
UNITED HEALTHCARE CORPORATION (UNH) 6.1%
A national leader in health care management offering numerous managed care plans
and services.
WASTE MANAGEMENT, INC. (WMI) 5.2%
The world's largest solid waste collection and disposal company with
residential, commercial, and industrial customers throughout North America.
PORTFOLIO CHANGES
JANUARY 1, 1999 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
NEW HOLDINGS ELIMINATIONS
------------ ------------
<S> <C>
Allied Waste Industries, Inc. MediaOne Group, Inc.
Georgia-Pacific Corporation -- Timber Group Mitsui Marine and Fire
Park Place Entertainment Corp.* (HLT) Insurance Company, Ltd.
The News Corporation Limited
The Seagram Company Ltd.
</TABLE>
* Acquired through merger/spin-off of existing position (ticker of original
holding).
5
<PAGE> 8
PARTNERS FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock 68.8%
Environmental Services 6.3%
2,890,900 * Allied Waste Industries, Inc................... $ 57,095,275
4,748,750 * Waste Management, Inc.......................... 255,245,312
--------------
312,340,587
--------------
Gaming 1.7%
8,450,000 * Park Place Entertainment Corp.................. 81,859,375
Health Care 6.1%
4,840,000 United Healthcare Corporation.................. 303,105,000
Investment Management 0.4%
1,237,700 * The Pioneer Group, Inc......................... 21,350,325
Lodging 14.4%
1,076,380 * Crestline Capital Corporation.................. 18,096,639
12,509,500 Hilton Hotels Corporation...................... 177,478,531
11,700,250 Host Marriott Corporation(b)................... 138,940,469
10,103,600 Marriott International, Inc.................... 377,622,050
--------------
712,137,689
--------------
Manufacturing 2.3%
4,450,000 * UCAR International, Inc.(b).................... 112,362,500
Multi-Industry 7.4%
1,565,000 Alexander & Baldwin, Inc....................... 34,821,250
3,316,600 Koninklijke Philips Electronics N.V.
(Foreign).................................... 334,562,025
--------------
369,383,275
--------------
Natural Resources 6.2%
1,596,600 Georgia-Pacific Corporation - Timber Group..... 40,314,150
11,201,032 * Pioneer Natural Resources Company(b)........... 123,211,352
2,900,000 Rayonier Inc.(b)............................... 144,456,250
--------------
307,981,752
--------------
Property & Casualty Insurance 3.9%
14,606,000 The Nippon Fire & Marine Insurance Company,
Ltd. (Foreign)............................... 49,475,040
27,450,000 The Yasuda Fire & Marine Insurance Company,
Ltd. (Foreign)............................... 145,368,857
--------------
194,843,897
--------------
Publishing 3.5%
3,150,000 Knight Ridder, Inc............................. 173,053,125
Real Estate 3.9%
1,998,400 Boston Properties Inc.......................... 71,692,600
6,038,591 TrizecHahn Corporation (Foreign)............... 123,036,292
--------------
194,728,892
--------------
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 9
PARTNERS FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Transportation 12.7%
10,175,000 Canadian Pacific Limited (Foreign)............. $ 242,292,187
7,131,800 * FDX Corporation(c)............................. 386,900,150
--------------
629,192,337
--------------
TOTAL COMMON STOCKS (COST $2,657,257,557)...... 3,412,338,754
--------------
Short-Term Obligations 31.3%
Repurchase Agreement with State Street Bank, 4.25% due 7-1-99....... 107,502,000
Commercial Paper - Clipper Receivables Corp., 4.84% due 7-2-99...... 99,986,611
Commercial Paper - Clipper Receivables Corp., 4.84% due 7-7-99...... 99,919,667
Federal Home Loan Mortgage Corporation, 4.78% due 7-8-99............ 99,909,000
Federal Home Loan Mortgage Corporation, 4.80% due 7-14-99........... 99,830,639
Federal Home Loan Bank Discount Note, 4.79% due 7-16-99............. 99,804,583
Federal Home Loan Bank Discount Note, 4.81% due 7-23-99............. 99,713,389
Commercial Paper - Clipper Receivables Corp., 4.90% due 7-27-99..... 99,648,278
Federal Home Loan Mortgage Corporation, 4.87% due 8-5-99............ 99,538,195
Federal Home Loan Mortgage Corporation, 4.97% due 8-6-99............ 99,513,000
Federal Home Loan Mortgage Corporation, 4.87% due 8-18-99........... 198,736,000
Federal Home Loan Mortgage Corporation, 4.93% due 8-26-99........... 49,625,889
Federal Home Loan Bank Discount Note, 5.03% due 9-10-99............. 99,033,611
Federal National Mortgage Association, 5.08% due 9-21-99............ 98,872,500
Federal National Mortgage Association, 5.16% due 9-28-99............ 98,758,944
--------------
1,550,392,306
--------------
TOTAL INVESTMENTS (COST $4,207,649,863)(a)................... 100.1% 4,962,731,060
OTHER ASSETS AND LIABILITIES, NET............................ (0.1) (4,277,487)
----- --------------
NET ASSETS................................................... 100.0% $4,958,453,573
===== ==============
NET ASSET VALUE PER SHARE........................................... $29.58
==============
</TABLE>
* Non-income producing security
(a) Also represents aggregate cost for federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $1,005,572,222 and
($250,491,025), respectively.
(b) Affiliated company. See Note 7.
(c) A portion designated as collateral. See Note 10.
Note: Companies designated as "Foreign" are headquartered outside the U.S. and
represent 18% of net assets.
OPEN FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Currency Currency Sold and Currency Unrealized
Units Sold Settlement Date Market Value Gain (Loss)
- -------------- -------------------------------- ------------ -----------
<C> <S> <C> <C>
823,045,843 Japanese Yen 7-21-99............ $ 6,821,093 $ (630,401)
15,000,000,000 Japanese Yen 12-30-99........... 127,498,500 2,349,145
8,759,000,000 Japanese Yen 3-30-00............ 75,486,814 (689,608)
------------ ----------
Total Forward Contracts......... $209,806,407 $1,029,136
============ ==========
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 10
INTERNATIONAL FUND - MANAGEMENT DISCUSSION
by Mason Hawkins, Staley Cates, and Andrew McDermott
Longleaf Partners International Fund continued its strong performance in the
second quarter. The Fund returned 15.7% versus 2.2% for the EAFE Index. Since
inception last October, the Fund has grown from $27 million in assets to over
$240 million while returning 33.6% against EAFE's 14.4%.
The portfolio's strength was broad-based with most positions positively
contributing to performance. Gulf Canada, our second largest holding, provided
over 20% of the Fund's return. The stock has more than doubled from its low at
the end of last year as the gross undervaluation of Gulf's quality assets has
been partially recognized. With Gulf included, our top ten positions at the
quarter's outset accounted for over 85% of the International Fund's return.
The Fund's largest contributors benefited from the recovery in both pricing and
sentiment for various global commodities, particularly oil and diamonds. We are
not commodity traders and do not pretend to know the long-term outlook for these
products. We selected these companies because they were cheap, even using
prevailing depressed commodity prices, and because they are run by exceptional
partners who can build value during a downturn. Our appraisals have continued to
rise and our partners are poised to take advantage of a more positive market.
These companies, consequently, remain incredible values despite their stocks'
recent increases.
Japanese investments represent roughly one third of the portfolio, but
contributed only 15% of the return. The Japanese market has continued to
recover, outperforming most other developed world markets. We have two types of
holdings: non-life insurance companies and industrials such as Nippon
Broadcasting, Kentucky Fried Chicken Japan, and our newest position, MOS Food
Services, which sells Japanese style hamburgers and is the most shareholder-
oriented company we have met in Japan. The industrials have delivered high
single digit or double-digit returns this year while the non-life's are flat.
This divergence has made the non-lifes even more attractive than they were when
we began our research in Japan because they hold large portfolios of Japanese
equities that broadly reflect the Nikkei Index. The Nikkei's 26% rise this year
has added nearly 10% to our average non-life's appraisal before accounting for
the growth in the underlying insurance businesses. With prices flat, the
non-lifes' discounts to intrinsic value have increased during a period in which
we have become more knowledgeable about individual managements.
We added five new holdings in the second quarter. Despite the recovery of many
world markets, we are finding numerous opportunities, particularly in Northern
Europe, where we have added one name and are researching several
8
<PAGE> 11
INTERNATIONAL FUND - MANAGEMENT DISCUSSION
by Mason Hawkins, Staley Cates, and Andrew McDermott
interesting ideas. We also added our first Latin American position: Argentinean
sovereign U.S. dollar denominated bonds. A liquidity crunch combined with
misrepresentations concerning the demise of Argentina's currency board drove
sovereign yields well over 13% during the quarter, despite Argentina's
demonstrated commitment to a sound currency, its political consensus on economic
reform, a continuing privatization drive, and a recent history of real,
domestic-led GDP growth without excessive leverage.
During the quarter many new partners joined us in the Fund, and the cash inflows
benefited all shareholders by enabling us to buy some of the companies mentioned
above and to increase our holdings in existing positions. Given the abundance of
qualifying foreign investment opportunities, we are adding to our stakes in the
International Fund. We encourage our partners to do the same.
9
<PAGE> 12
INTERNATIONAL FUND - PERFORMANCE HISTORY
AND PORTFOLIO SUMMARY
RETURNS
FOR THE PERIODS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
International EAFE
Fund Index
------------- ------
<S> <C> <C>
Year-to-date 22.57% 3.24%
Since Public Offering 10/26/98 33.62 14.44
</TABLE>
FIVE LARGEST HOLDINGS
(REPRESENT 32.6% OF NET ASSETS)
BRIERLEY INVESTMENTS LIMITED 9.6%
A New Zealand based holding company which owns controlling stakes in U.K. based
Thistle hotels, Air New Zealand, and Australian building materials maker, James
Hardie.
GULF CANADA RESOURCES LIMITED (GOU) 8.0%
Canadian based exploration and production company with oil and natural gas
assets across the world.
WISCONSIN CENTRAL TRANSPORTATION (WCLX) 5.4%
A railroad holding company that owns lines in the midwest U.S., Ontario, the
United Kingdom, New Zealand, and Australia.
WASSALL PLC 4.8%
A U.K. based venture capital firm that focuses on buying turnaround situations
and currently consists of a very large cash position and a lighting business.
THE YASUDA FIRE & MARINE INSURANCE COMPANY, LTD. 4.8%
A Japanese non-life insurance company with over half its business in voluntary
auto policies, and the best combined ratio in Japan.
10
<PAGE> 13
INTERNATIONAL FUND - PERFORMANCE HISTORY
AND PORTFOLIO SUMMARY
PORTFOLIO CHANGES
JANUARY 1, 1999 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
NEW HOLDINGS ELIMINATIONS
------------ ------------
<S> <C>
Anglovaal Mining Limited Anglovaal Mining Limited
Bemrose Corporation plc FDX Corporation
De Beers Consolidated Mines Ltd. Haw Par Corporation Limited
MOS Food Service, Inc. Premier Farnell plc
O&Y Properties Corporation The Seagram Company Ltd.
Premier Farnell plc Shaw Communications, Inc.--Class B
Toyoda Automatic Loom Works, Ltd. Swire Pacific Limited
Weetabix Limited Toyoda Automatic Loom Works, Ltd.
</TABLE>
COUNTRY ALLOCATION OF PORTFOLIO
(Stocks, Bond and Forwards)
<TABLE>
<S> <C>
Japan................................. 30.9%
Canada................................ 19.0
United Kingdom........................ 16.0
New Zealand........................... 10.5
United States......................... 8.7
South Africa.......................... 5.1
Netherlands........................... 5.0
Argentina............................. 4.8
-----
100.0%
=====
</TABLE>
11
<PAGE> 14
INTERNATIONAL FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Common Stock 86.6%
Agriculture 2.6%
164,200 * Agribrands International, Inc. (United States)(c).... $ 6,496,162
Beverages 4.6%
2,610,000 The Highland Distillers plc (United Kingdom)(c)...... 11,313,893
Broadcasting 4.5%
220,000 Nippon Broadcasting System (Japan)(c)................ 10,905,484
Food 1.4%
63,100 Weetabix Limited (United Kingdom).................... 3,481,259
Multi-Industry 19.1%
83,750,000 * Brierley Investments Limited (New Zealand)(c)........ 23,520,936
112,240 Koninklijke Philips Electronics N.V.
(Netherlands)(c)................................... 11,322,210
3,450,000 Wassall PLC (United Kingdom)(c)...................... 11,828,161
------------
46,671,307
------------
Natural Resources 17.2%
854,700 * Anderson Exploration Limited (Canada)................ 11,173,870
482,000 De Beers Consolidated Mines Ltd. (South Africa)...... 11,507,750
4,650,000 * Gulf Canada Resources Limited (Canada)............... 19,471,875
------------
42,153,495
------------
Printing 3.6%
1,610,600 Bemrose Corporation plc (United Kingdom)(b).......... 8,796,903
Property & Casualty Insurance 16.4%
2,560,000 The Dai-Tokyo Fire and Marine Insurance Company, Ltd.
(Japan)(c)......................................... 9,200,263
1,565,000 The Dowa Fire and Marine Insurance Company, Ltd.
(Japan)............................................ 5,197,702
2,118,000 The Nippon Fire & Marine Insurance Company, Ltd.
(Japan)(c)......................................... 7,174,321
2,170,000 The Nissan Fire & Marine Insurance Company, Ltd.
(Japan)(c)......................................... 6,812,622
2,200,000 The Yasuda Fire & Marine Insurance Company, Ltd.
(Japan)(c)......................................... 11,650,692
------------
40,035,600
------------
Real Estate 0.9%
527,200 * O&Y Properties Corporation (Canada).................. 2,119,343
Restaurants 6.8%
416,000 Kentucky Fried Chicken Japan (Japan)(c).............. 5,120,951
873,000 MOS Food Service, Inc. (Japan)(c).................... 11,467,860
------------
16,588,811
------------
Transportation 9.5%
425,000 Canadian Pacific Limited (Canada).................... 10,120,313
697,100 * Wisconsin Central Transportation Corporation (United
States)(c)......................................... 13,157,762
------------
23,278,075
------------
TOTAL COMMON STOCKS (COST $186,483,872)........................... 211,840,332
------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE> 15
INTERNATIONAL FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Foreign Government Bond 4.4%
12,500,000 The Republic of Argentina, 11.375% due 1-30-17 (Cost
$10,906,250)............................................. $ 10,781,250
------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Short-Term Obligations 8.4%
Repurchase Agreement with State Street Bank, 4.25% due 7-1-99........ $ 5,669,000
Federal Home Loan Bank Discount Note, 4.51% due 7-1-99............... 15,000,000
------------
20,669,000
------------
TOTAL INVESTMENTS (COST $218,059,122)(a)...................... 99.4% 243,290,582
OTHER ASSETS AND LIABILITIES, NET............................. 0.6 1,396,037
----- ------------
NET ASSETS.................................................... 100.0% $244,686,619
===== ============
NET ASSET VALUE PER SHARE............................................ $12.22
============
</TABLE>
* Non-income producing security
(a) Aggregate cost for federal income tax purposes. Aggregate unrealized
appreciation and depreciation are $27,310,700 and ($2,079,240),
respectively.
(b) Affiliated company. See Note 7.
(c) All or a portion designated as collateral. See Note 10.
Note: Country listed in parenthesis after each company indicates location of
headquarters.
OPEN FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Currency Currency Sold and Currency Unrealized
Units Sold Settlement Date Market Value Gain (Loss)
- ------------- --------------------------------- ------------ -----------
<C> <S> <C> <C>
3,178,628 British Pound 9-8-99............. $ 5,013,232 $ 213,833
5,285,465 British Pound 12-30-99........... 8,350,035 321,504
6,688,166 British Pound 3-30-00............ 10,578,379 145,287
1,195,000 British Pound 6-30-00............ 1,883,679 9,261
1,500,000 Canadian Dollar 3-30-00.......... 1,016,890 13,967
1,700,000 Canadian Dollar 6-30-00.......... 1,148,571 19,011
979,587,187 Japanese Yen 8-18-99............. 8,152,500 143,152
2,374,317,354 Japanese Yen 12-30-99............ 20,181,460 1,619,074
4,938,728,087 Japanese Yen 3-30-00............. 42,562,929 448,340
6,339,814 New Zealand Dollar 8-18-99....... 3,363,731 (82,391)
15,024,523 New Zealand Dollar 12-30-99...... 7,997,866 116,510
23,650,000 New Zealand Dollar 3-30-00....... 12,604,333 234,832
------------ ----------
$122,853,605 $3,202,380
============ ==========
</TABLE>
See Notes to Financial Statements.
13
<PAGE> 16
(LOGO)
(Intentionally Left Blank)
14
<PAGE> 17
REALTY FUND - MANAGEMENT DISCUSSION
by C.T. Fitzpatrick, Mason Hawkins, and Staley Cates
Longleaf Partners Realty Fund increased 14.5% in the second quarter compared to
10.9% for the Wilshire Real Estate Securities Index and 10.6% for the NAREIT
Index. The strong second quarter brought the year-to-date return to 5.9% through
June.
Almost every company in the portfolio appreciated during the quarter, and three
of our holdings, Excel Legacy, TimberWest, and Prime Group, provided over 36% of
the return. Excel Legacy, our largest holding at the quarter's outset, announced
progress on several projects including its Los Arcos, AZ and Anaheim, CA
developments. TimberWest with timber assets in British Columbia is our fifth
largest position. The company continued its 1999 rebound as the economies in
TimberWest's markets have begun to recover. Prime Group, the Chicago office
REIT, has benefited from strong operations in a rising market and from smart
acquisition and development decisions.
During the quarter we sold two small and more fully priced holdings, Alexandria
Real Estate and Park Place Entertainment, to increase our stakes in several of
our most undervalued core positions. The Realty Fund's most significant
portfolio change was doubling our stake in Promus, which is now our largest
holding. The company announced that strengthening the Doubletree brand would
slow earnings growth from a mid-teens to a single digit rate over the next 18
months. This change slightly reduced our appraisal, but greatly impacted the
stock, which dropped from $37 1/4 to a low of $23 3/4. We seized this
discrepancy by taking Promus from 3.5% to 7.5% of the Fund. We have been
rewarded in the short run as Promus rebounded to almost $28 by quarter end.
Some may have interpreted Promus' price decline as bad for the Realty Fund.
Nothing could be further from the truth. The stock's volatility enhanced the
Fund's return opportunity -- we were able to increase our stake in one of the
world's premier hotel franchising companies at a more advantageous discount. As
Promus' value grows and its price moves toward our appraisal, we should enjoy
outstanding long-term returns.
With real estate's rise after twelve months of negative returns, many have
asked, "Has real estate turned the corner?" We manage the Fund the same
way -- in bull markets and bear markets, whether real estate is in favor or out
of favor. As owners, however, we are glad to see some recognition of the
tremendous gap between our companies' prices and their values. We would call the
recent rebound moderate -- real estate remains depressed compared to its
fundamentals. Even after the quarter's rise, the Realty Fund's NAV is still 60%
of our appraisal.
15
<PAGE> 18
REALTY FUND - MANAGEMENT DISCUSSION
by C.T. Fitzpatrick, Mason Hawkins, and Staley Cates
This wide margin of safety does not imply that short-term volatility is over.
When price fluctuations occur, we will take advantage of them.
In closing, we thank our long-term partners who take the time to understand our
approach. All our investment partners have benefited from the net inflows over
the last eighteen months. We are readily finding qualifying investments for the
cash coming in now. The stability of our Fund allows us to act independently and
greatly enhances our ability to implement intelligent capital allocation
decisions.
16
<PAGE> 19
REALTY FUND - PERFORMANCE HISTORY
AND PORTFOLIO SUMMARY
AVERAGE ANNUAL RETURNS
FOR THE PERIODS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Wilshire
Realty Real Estate NAREIT
Fund Securities Index Index
------ ---------------- ------
<S> <C> <C> <C>
Year-to-Date 5.91% 7.06% 4.94%
One Year (4.31) (6.64) (10.18)
Three Years 12.90 9.94 8.66
Since Public Offering 1/2/96 16.05 11.11 9.54
</TABLE>
FIVE LARGEST HOLDINGS
(REPRESENT 38.5% OF NET ASSETS)
PROMUS HOTEL CORPORATION (PRH) 8.9%
Franchisor and/or manager of over 1,100 hotels under the Doubletree, Embassy
Suites, Hampton Inn, and Homewood Suites brand names.
EXCEL LEGACY CORPORATION (XLG) 8.7%
A C-corp. focused on development, re-development, and ownership of unique real
estate projects throughout North America. Excel Legacy has numerous urban,
mixed-use retail/ entertainment developments primarily located in the western
U.S. including San Diego, Palm Springs, Salt Lake City, Scottsdale, Denver, and
Newport, KY across the river from Cincinnati.
CATELLUS DEVELOPMENT CORPORATION (CDX) 7.8%
A diversified real estate company that owns, manages and develops industrial
warehouses, offices, apartments and residential communities. CDX has substantial
land holdings throughout the U.S. with a concentration of high profile projects
in California. Catellus' most significant project is a 313 acre mixed use
development at Mission Bay on the waterfront in downtown San Francisco.
FOREST CITY ENTERPRISES, INC. (FCE) 6.7%
A diversified, national real estate owner and operator of retail and office
properties, as well as residential units. Forest City is developing several high
profile urban in-fill projects including the Denver Stapleton Airport
re-development, and mixed use projects in both New York's Times Square and San
Francisco. The company also owns over 5,000 acres of land for future
development.
TIMBERWEST FOREST CORP. (TWF) 6.4%
Largest private land owner in Western Canada with 334,000 hectares of private
timberlands located on Vancouver Island in British Columbia.
PORTFOLIO CHANGES
JANUARY 1, 1999 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
NEW HOLDINGS ELIMINATIONS
------------ ------------
<S> <C>
Franchise Mortgage Acceptance Company Alexandria Real Estate Equities,
Inc.
Park Place Entertainment Corp.*(HLT) Castle & Cooke, Inc.
Park Place Entertainment Corp.*(HLT)
</TABLE>
* Acquired through merger/spin-off of existing position (ticker of original
holding).
17
<PAGE> 20
REALTY FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Common Stock - 88.3%
Realty 87.0%
Diversified Realty 16.8%
4,209,800 * Catellus Development Corporation................ $ 65,251,900
2,280,000 * Excel Legacy Corporation(b)..................... 10,830,000
1,864,050 Forest City Enterprises, Inc. - Class A(b)...... 52,193,400
148,600 Forest City Enterprises, Inc. - Class B......... 4,179,375
440,600 TrizecHahn Corporation (Foreign)................ 8,977,225
------------
141,431,900
------------
Lodging 26.0%
547,020 * Crestline Capital Corporation................... 9,196,774
1,895,000 Hilton Hotels Corporation....................... 26,885,313
3,434,408 Host Marriott Corporation (REIT)(d)............. 40,783,595
711,000 Marriott International, Inc..................... 26,573,625
2,400,900 * Promus Hotel Corporation........................ 74,427,900
2,153,400 * Red Roof Inns, Inc.(b).......................... 38,626,612
173,546 * Supertel Hospitality, Inc....................... 2,136,785
------------
218,630,604
------------
Mortgage Financing 5.4%
1,188,000 Bay View Capital Corp.(b)....................... 24,354,000
2,381,000 * Franchise Mortgage Acceptance Company(b)........ 20,833,750
------------
45,187,750
------------
Natural Resources/Land 10.0%
650,000 Deltic Timber Corporation(b).................... 17,509,375
261,000 Rayonier Inc.................................... 13,001,062
6,950,000 TimberWest Forest Corp. (Foreign)(b)............ 53,999,729
------------
84,510,166
------------
Office 18.5%
2,075,000 Beacon Capital Partners, Inc. (REIT)(b)(c)...... 32,032,813
1,070,000 Boston Properties Inc. (REIT)................... 38,386,250
1,090,900 Cousins Properties Incorporated (REIT).......... 36,886,056
2,810,700 Prime Group Realty Trust (REIT)(b).............. 48,308,906
------------
155,614,025
------------
Retail 10.3%
1,223,800 Getty Realty Corp.(b)........................... 17,592,125
1,650,000 * IHOP Corp.(b)................................... 39,703,125
3,371,400 Prime Retail, Inc. (REIT)(b).................... 29,289,038
------------
86,584,288
------------
</TABLE>
See Notes to Financial Statements.
18
<PAGE> 21
REALTY FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Non-Realty 1.3%
Investment Management 1.3%
650,000 * The Pioneer Group, Inc.......................... $ 11,212,500
------------
TOTAL COMMON STOCKS (COST $710,502,050)......... 743,171,233
------------
Preferred Stock - 7.4%
Diversified Realty 7.4%
14,600,000 * Excel Legacy Corporation - Series A Liquidating
Preference Convertible(b)(c) (Cost
$73,000,000).................................. 62,415,000
------------
CONTRACTS
----------
Options - 0.2%
Natural Resources/Land 0.2%
Put Options Written
2,967 Newhall Land and Farming Company, expiring
October '99 @ $25 (Premiums received
$709,919)....................................... (356,040)
5,494 Newhall Land and Farming Company, expiring
April '01 @ $25 (Premiums received
$1,818,514)..................................... (1,488,874)
Call Options Purchased
2,967 Newhall Land and Farming Company, expiring
October '99 @ $25 (Cost $1,225,243)............. 646,806
5,494 Newhall Land and Farming Company, expiring
April '01 @ $25 (Cost $2,423,953)............... 2,719,530
------------
1,521,422
------------
Short-Term Obligations 3.6%
30,100,000
Repurchase Agreement with State Street Bank, 4.25% due 7-1-99........
------------
TOTAL INVESTMENTS (COST $814,722,813)(a)...................... 99.5% 837,207,655
OTHER ASSETS AND LIABILITIES, NET............................. 0.5 4,191,890
----- ------------
NET ASSETS.................................................... 100.0% $841,399,545
===== ============
NET ASSET VALUE PER SHARE............................................ $15.41
============
</TABLE>
* Non-income producing security
(a) Also represents aggregate cost for federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $101,629,956 and ($79,145,114),
respectively.
(b) Affiliated company. See Note 7.
(c) Illiquid, board valued security. See Note 8.
(d) A portion designated as collateral. See Note 10.
Note: REITs comprise 27% of net assets. Companies designated as "Foreign" are
headquartered outside the U.S. and represent 7% of net assets.
See Notes to Financial Statements.
19
<PAGE> 22
SMALL-CAP FUND - MANAGEMENT DISCUSSION
by Mason Hawkins, Staley Cates, and John Buford
During the second quarter, Longleaf Partners Small-Cap Fund continued its
successful compounding record. The Fund rose 13.8% in the quarter, and Small-
Cap posted a year-to-date return of 10.6% versus the Russell 2000 Index's 9.3%
return in 1999.
Most of the businesses in the portfolio appreciated during the quarter as the
market's overall performance broadened. Eight of our top ten holdings provided
over 60% of the quarter's return, led by gains at Gulf Canada and Wisconsin
Central. Gulf Canada made great strides in strengthening its balance sheet and
meaningfully cutting costs. In addition, rising oil prices moved the market's
sentiment. In spite of Gulf Canada's appreciation, the company still sells for
significantly less than its value based on its reserves and securities.
Wisconsin Central is increasing its EW&S stake (the United Kingdom's only cargo
rail system) at a very attractive price, and is continuing to make improvements
to its operations. WCLX's traffic in its U.S. markets also grew. The management
team owns over 15% of this company and will continue to use its expertise in
building value through rail assets.
Our largest holding, Promus Hotels, fell during the quarter when the company
announced slower than expected growth. Although expansion of the Doubletree
brand will not be as fast as anticipated, the free cash flow generated by its
other brands is growing in the mid-teens, and the company is selling
significantly below the value of its core franchising business. In addition,
management has aggressively repurchased shares. We also took advantage of the
temporary stock decline by adding to our stake.
Our other major position that declined during the quarter was Midas. Although
same-store sales were weak, the new management made great progress in improving
franchisee relations.
We are continuing our effort to concentrate in our twenty best domestic
businesses. The Fund has decreased its holdings to 30 stocks. We sold four
companies that represented 3% of assets, including the last three Japanese
securities in the Fund. Our only remaining foreign exposure consists of Canadian
headquartered businesses in oil, real estate, and timber.
During the quarter we increased our stakes in several of our most undervalued
businesses and added two new companies. Since the end of the quarter, we have
begun buying an additional new holding. The trading desk has orders pending that
will use the Fund's remaining cash.
20
<PAGE> 23
SMALL-CAP FUND - MANAGEMENT DISCUSSION
by Mason Hawkins, Staley Cates, and John Buford
The second quarter's small stock rally and the performance at the companies we
own was gratifying. Even better, this appreciation did not dim the Fund's future
prospects. We continue to find a large number of qualifying businesses, the Fund
is fully invested, and the price-to-value ratio remains below historic levels.
21
<PAGE> 24
SMALL-CAP FUND - PERFORMANCE HISTORY
AND PORTFOLIO SUMMARY
AVERAGE ANNUAL RETURNS
FOR THE PERIODS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Value-Line
Small-Cap Russell 2000 (Geometric)
Fund Index Index
--------- ------------ -----------
<S> <C> <C> <C>
Year-to-Date 10.62% 9.28% 6.54%
One Year 9.65 1.50 (2.29)
Three Years 22.68 11.22 9.55
Five Years 21.47 15.40 11.12
Ten Years* 12.30 12.39 6.01
Since Public Offering 2/21/89* 13.02 12.72 6.33
</TABLE>
* From public offering through 3/31/91, the Fund was managed by a different
portfolio manager.
FIVE LARGEST HOLDINGS
(REPRESENT 31.3% OF NET ASSETS)
PROMUS HOTEL CORPORATION (PRH) 8.0%
Franchisor and/or manager of over 1100 hotels under the Doubletree, Embassy
Suites, Hampton Inn, and Homewood Suites brand names.
GULF CANADA RESOURCES LIMITED (GOU) 7.5%
Canadian based exploration and production company with oil and natural gas
assets across the world.
WISCONSIN CENTRAL TRANSPORTATION CORPORATION (WCLX) 5.8%
A railroad holding company that owns lines in the midwest U.S., Ontario, the
United Kingdom, New Zealand, and Australia.
ORION CAPITAL CORPORATION (OC) 5.3%
A property/casualty insurer with business lines focusing on workers'
compensation, nonstandard auto, professional liability, and unique or highly
specialized situations.
CATELLUS DEVELOPMENT CORPORATION (CDX) 4.7%
A diversified real estate company that owns, manages and develops industrial
warehouses, offices, apartments and residential communities. CDX has substantial
land holdings throughout the U.S. with a concentration of high profile projects
in California. Catellus' most significant project is a 313 acre mixed use
development at Mission Bay on the waterfront in downtown San Francisco.
22
<PAGE> 25
SMALL-CAP FUND - PERFORMANCE HISTORY
AND PORTFOLIO SUMMARY
PORTFOLIO CHANGES
JANUARY 1, 1999 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
NEW HOLDINGS ELIMINATIONS
------------ ------------
<S> <C>
First Health Group Corp. The Chiyoda Fire and Marine
Fleming Companies, Inc. Insurance Company, Ltd.
The MONY Group Inc. The Dai-Tokyo Fire and Marine
Premier Farnell plc Insurance Company, Ltd.
Vail Resorts, Inc. Fuji Fire and Marine Insurance
Company, Limited
Nippon Broadcasting System
The Nissan Fire & Marine
Insurance Company, Ltd.
Pinkerton's Inc.
Premier Farnell plc
Robbins & Myers, Inc.
Sangetsu Co., Ltd.
Shaw Communications Inc. - Class
A
Shaw Communications Inc. - Class
B
</TABLE>
23
<PAGE> 26
SMALL-CAP FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock 87.9%
Agriculture 2.6%
1,015,400 * Agribrands International, Inc. (b)............. $ 40,171,763
Commercial Lighting 3.9%
2,120,500 * Genlyte Group Incorporated(b).................. 47,578,719
653,650 Thomas Industries, Inc......................... 13,399,825
--------------
60,978,544
--------------
Entertainment 1.5%
1,470,000 * Carmike Cinemas, Inc. -- Class A(b)............ 23,428,125
Food -- Wholesale 1.2%
1,662,100 Fleming Companies, Inc......................... 19,321,913
Health Care 2.2%
1,562,100 * First Health Group Corp........................ 33,682,781
Insurance 2.5%
1,191,100 The MONY Group Inc............................. 38,859,638
Investment Management 1.0%
865,000 * The Pioneer Group, Inc......................... 14,921,250
Lodging 8.4%
4,020,000 * Promus Hotel Corporation(b).................... 124,620,000
367,800 * Vail Resorts, Inc.............................. 6,436,500
--------------
131,056,500
--------------
Manufacturing 13.1%
3,040,340 AMETEK, Inc.(b)................................ 69,927,820
1,740,000 * The Carbide/Graphite Group, Inc.(b)............ 24,903,750
2,363,900 * Scott Technologies, Inc.(b).................... 45,505,075
3,729,600 U.S. Industries, Inc........................... 63,403,200
--------------
203,739,845
--------------
Mortgage Financing 2.6%
2,006,100 Bay View Capital Corp.(b)...................... 41,125,050
Natural Resources 13.2%
845,000 Deltic Timber Corporation(b)................... 22,762,187
3,349,996 Gendis Inc. (Foreign)(b)(c).................... 11,543,125
27,863,860 * Gulf Canada Resources Limited(Foreign)(b)...... 116,679,914
6,950,000 TimberWest Forest Corp.(Foreign)(b)............ 53,999,729
--------------
204,984,955
--------------
Pharmaceuticals 3.6%
7,268,800 * Perrigo Company(b)............................. 55,424,600
</TABLE>
See Notes to Financial Statements.
24
<PAGE> 27
SMALL-CAP FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Property & Casualty Insurance 10.7%
243,883 * Alleghany Corporation.......................... $ 45,118,355
1,777,400 Hilb, Rogal and Hamilton Company(b)............ 39,769,325
2,276,800 Orion Capital Corporation(b)................... 81,680,200
--------------
166,567,880
--------------
Real Estate 11.4%
4,680,000 * Catellus Development Corporation............... 72,540,000
1,135,400 Cousins Properties Incorporated................ 38,390,713
1,443,400 * IHOP Corp.(b).................................. 34,731,812
1,520,000 TrizecHahn Corporation (Foreign)............... 30,970,000
--------------
176,632,525
--------------
Restaurants 1.1%
982,400 * VICORP Restaurants, Inc.(b).................... 17,069,200
Retail 3.2%
1,767,600 Midas Inc.(b).................................. 50,155,650
Transportation 5.7%
4,749,900 * Wisconsin Central Transportation
Corporation(b)............................... 89,654,362
--------------
TOTAL COMMON STOCKS (COST $1,216,186,872).................. 1,367,774,581
--------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Short-Term Obligations 12.5%
Repurchase Agreement with State Street Bank, 4.25% due 7-1-99....... 44,718,000
Federal Home Loan Mortgage Corporation, 4.78% due 7-15-99........... 99,815,278
Federal Home Loan Bank Discount Note, 4.91% due 7-19-99............. 49,879,250
--------------
194,412,528
--------------
TOTAL INVESTMENTS (COST $1,410,599,400)(a)................... 100.4% 1,562,187,109
OTHER ASSETS AND LIABILITIES, NET............................ (0.4) (6,876,594)
----- --------------
NET ASSETS................................................... 100.0% $1,555,310,515
===== ==============
NET ASSET VALUE PER SHARE........................................... $24.28
==============
</TABLE>
* Non-income producing security
(a) Also represents aggregate cost for federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $228,004,543 and ($76,416,834),
respectively.
(b) Affiliated company. See Note 7.
(c) Illiquid security. See Note 8.
Note: Companies designated as "Foreign" are headquartered outside the U.S. and
represent 14% of net assets.
See Notes to Financial Statements.
25
<PAGE> 28
LONGLEAF PARTNERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AT JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PARTNERS FUND
<S> <C>
ASSETS:
Investments:
Affiliated securities, at market value (cost $720,477,865,
$9,352,464, $440,466,339 and $897,651,503, respectively)
(Note 2 and 7)..........................................
Other securities, at market value (cost $1,936,779,692,
$177,131,408, $346,684,907 and $318,535,369,
respectively) (Note 2)..................................
Foreign government bond...................................
Short-term cash equivalents...............................
Repurchase agreement (Note 2).............................
TOTAL INVESTMENTS
Cash........................................................
Receivable for:
Dividends and interest....................................
Fund shares sold..........................................
Securities sold...........................................
Forward currency contracts (Note 2).......................
Foreign tax reclaim.......................................
Prepaid assets..............................................
Insurance reserve premium...................................
TOTAL ASSETS
LIABILITIES:
Payable for:
Securities purchased......................................
Fund shares redeemed......................................
Investment counsel fee (Note 3)...........................
Administration fee (Note 4)...............................
Options written, at market value (premiums received
$2,528,433) (Note 2 and 9)................................
Other accrued expenses......................................
TOTAL LIABILITIES
NET ASSETS:
Net assets consist of:
Paid-in capital...........................................
Undistributed net investment income.......................
Accumulated net realized gain(loss) on investments and
foreign currency........................................
Unrealized gain on investments and foreign currency.......
Net Assets
NET ASSET VALUE PER SHARE...................................
FUND SHARES ISSUED AND OUTSTANDING..........................
</TABLE>
See Notes to Financial Statements.
26
<PAGE> 29
LONGLEAF PARTNERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AT JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PARTNERS FUND INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
- -------------- ------------------ ------------ --------------
<S> <C> <C> <C>
$ 518,970,571 $ 8,796,903 $451,867,248 $ 990,730,407
2,893,368,183 203,043,429 357,085,321 377,044,174
- 10,781,250 - -
1,442,890,306 15,000,000 - 149,694,528
107,502,000 5,669,000 30,100,000 44,718,000
- -------------- ------------ ------------ --------------
4,962,731,060 243,290,582 839,052,569 1,562,187,109
245 25 63 597
6,401,072 1,017,824 3,591,196 2,080,138
3,821,545 543,075 341,016 1,091,451
- 9,392,544 2,347,739 -
1,029,136 3,202,380 - -
- 4,543 - -
100,530 30,550 40,912 50,765
65,451 - 3,937 12,203
- -------------- ------------ ------------ --------------
4,974,149,039 257,481,523 845,377,432 1,565,422,263
- -------------- ------------ ------------ --------------
8,010,318 12,289,043 - 6,915,872
3,820,777 104,462 1,323,028 1,962,716
3,117,389 307,396 667,453 998,938
404,693 18,951 66,745 122,233
- - 1,844,914 -
342,289 75,052 75,747 111,989
- -------------- ------------ ------------ --------------
15,695,466 12,794,904 3,977,887 10,111,748
- -------------- ------------ ------------ --------------
$4,958,453,573 $244,686,619 $841,399,545 $1,555,310,515
============== ============ ============ ==============
$3,571,027,345 $209,510,491 $843,811,142 $1,272,812,928
39,501,895 1,606,782 8,080,457 3,535,298
591,827,571 5,138,352 (38,303,460) 127,379,012
756,096,762 28,430,994 27,811,406 151,583,277
- -------------- ------------ ------------ --------------
$4,958,453,573 $244,686,619 $841,399,545 $1,555,310,515
============== ============ ============ ==============
$29.58 $12.22 $15.41 $24.28
====== ====== ====== ======
167,645,726 20,015,495 54,599,414 64,062,145
</TABLE>
See Notes to Financial Statements.
27
<PAGE> 30
LONGLEAF PARTNERS FUNDS
STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends from affiliates (net of foreign tax withheld of
$0, $84,608, $18,320 and $28,236, respectively) (Note
7)......................................................
Dividends from non-affiliates (net of foreign tax withheld
of $1,506,310, $149,973, $11,566, and $66,235,
respectively)...........................................
Interest..................................................
Total income.......................................
EXPENSES:
Investment counsel fee (Note 3)...........................
Administration fee (Note 4)...............................
Transfer agent fee........................................
Registration and filing fees..............................
Supplies and postage......................................
Printing..................................................
Reimbursable administration expenses (Note 4).............
Custodian fee.............................................
Professional fees.........................................
Trustees' fees............................................
Insurance expense.........................................
Miscellaneous.............................................
Investment counsel fee waived.............................
Total expenses.....................................
Net investment income..............................
REALIZED AND UNREALIZED GAIN(LOSS):
Net realized gain(loss):
Non-affiliated securities.................................
Affiliated securities (Note 7)............................
Options...................................................
Forward currency contracts................................
Foreign currency transactions.............................
Net gain(loss)........................................
Change in unrealized gain(loss):
Securities................................................
Other assets, liabilities, forwards and options...........
Change in net unrealized gain.........................
Net realized and unrealized gain......................
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........
</TABLE>
See Notes to Financial Statements.
28
<PAGE> 31
LONGLEAF PARTNERS FUNDS
STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PARTNERS FUND INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
- ------------- ------------------ ----------- --------------
<S> <C> <C> <C>
$ 7,156,448 $ 761,474 $ 7,201,066 $ 5,057,656
29,459,980 1,613,336 4,196,887 1,900,238
21,884,006 705,228 399,716 3,214,284
- ------------ ----------- ----------- ------------
58,500,434 3,080,038 11,797,669 10,172,178
- ------------ ----------- ----------- ------------
16,687,405 1,256,052 3,764,561 5,666,279
2,158,871 83,737 376,457 689,386
348,061 13,276 60,716 111,184
164,539 59,526 36,435 46,949
126,260 9,325 34,184 50,643
120,384 9,682 30,745 40,232
91,325 3,474 20,806 34,911
47,605 38,555 11,901 20,704
19,836 19,693 17,356 18,844
30,001 9,837 15,165 15,165
21,085 161 6,542 8,074
65,313 10,733 20,438 28,151
- (48,656) - -
- ------------ ----------- ----------- ------------
19,880,685 1,465,395 4,395,306 6,730,522
- ------------ ----------- ----------- ------------
38,619,749 1,614,643 7,402,363 3,441,656
- ------------ ----------- ----------- ------------
541,931,121 5,175,604 (23,306,366) 118,000,397
- - 1,201,375 10,690,750
- - 1,706,039 -
2,833,271 (1,136,572) - (4,335,671)
9,531 (8,106) 50,172 49,898
- ------------ ----------- ----------- ------------
544,773,923 4,030,926 (20,348,780) 124,405,374
- ------------ ----------- ----------- ------------
215,698,489 22,719,026 60,917,181 6,905,055
13,684,718 5,926,083 (2,979,236) 7,868,549
- ------------ ----------- ----------- ------------
229,383,207 28,645,109 57,937,945 14,773,604
- ------------ ----------- ----------- ------------
774,157,130 32,676,035 37,589,165 139,178,978
- ------------ ----------- ----------- ------------
$812,776,879 $34,290,678 $44,991,528 $142,620,634
============ =========== =========== ============
</TABLE>
See Notes to Financial Statements.
29
<PAGE> 32
LONGLEAF PARTNERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PARTNERS FUND
---------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income...................................... $ 38,619,749 $ 37,909,506
Net gain(loss)............................................. 544,773,923 638,290,424
Change in net unrealized gain(loss)........................ 229,383,207 (248,007,321)
-------------- --------------
Net increase(decrease) in net assets resulting from
operations............................................. 812,776,879 428,192,609
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................. - (36,966,961)
From net realized gain on investments...................... - (586,542,694)
From return of capital..................................... - -
-------------- --------------
Net decrease in net assets resulting from
distributions.......................................... - (623,509,655)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares........................... 832,210,531 890,978,876
Net asset value of shares issued to shareholders for
reinvestment of shareholder distributions................ - 907,344,282
Cost of shares redeemed.................................... (371,833,760) (522,776,364)
-------------- --------------
Net increase in net assets from fund share
transactions........................................... 460,376,771 1,275,546,794
-------------- --------------
Total increase in net assets............................. 1,273,153,650 1,080,229,748
NET ASSETS:
Beginning of period........................................ 3,685,299,923 2,605,070,175
-------------- --------------
End of period.............................................. $4,958,453,573 $3,685,299,923
============== ==============
Undistributed net investment income included in net assets
at end of period......................................... $ 39,501,895 $872,615
=========== =======
</TABLE>
See Notes to Financial Statements.
30
<PAGE> 33
LONGLEAF PARTNERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
- -------------------------------- ----------------------------- -------------------------------
SIX MONTHS CAPITALIZATION SIX MONTHS SIX MONTHS
ENDED AUGUST 12, 1998 ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 1999 TO DECEMBER 31, JUNE 30, 1999 DECEMBER 31, JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998 (UNAUDITED) 1998
- -------------- --------------- -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1,614,643 $ 37,645 $ 7,402,363 $ 28,104,646 $ 3,441,656 $ 10,219,153
4,030,926 1,099,639 (20,348,780) (18,026,890) 124,405,374 150,103,088
28,645,109 (214,114) 57,937,945 (133,803,550) 14,773,604 (28,601,652)
------------ ----------- ------------ ------------ -------------- --------------
34,290,678 923,170 44,991,528 (123,725,794) 142,620,634 131,720,589
------------ ----------- ------------ ------------ -------------- --------------
- (37,720) - (22,154,503) - (10,041,928)
- - - (18,724) - (145,213,540)
- - - (5,557,418) - -
------------ ----------- ------------ ------------ -------------- --------------
- (37,720) - (27,730,645) - (155,255,468)
------------ ----------- ------------ ------------ -------------- --------------
146,525,084 75,071,603 179,488,825 524,495,785 271,626,585 565,247,944
- 32,236 - 56,610,939 - 178,562,305
(11,701,673) (516,759) (158,776,412) (391,256,885) (214,300,323) (280,170,886)
------------ ----------- ------------ ------------ -------------- --------------
134,823,411 74,587,080 20,712,413 189,849,839 57,326,262 463,639,363
------------ ----------- ------------ ------------ -------------- --------------
169,114,089 75,472,530 65,703,941 38,393,400 199,946,896 440,104,484
75,572,530 100,000 775,695,604 737,302,204 1,355,363,619 915,259,135
------------ ----------- ------------ ------------ -------------- --------------
$244,686,619 $75,572,530 $841,399,545 $775,695,604 $1,555,310,515 $1,355,363,619
============ =========== ============ ============ ============== ==============
$1,606,782 $244 $8,080,457 $627,922 $3,535,298 $43,744
============ =========== ============ ============ ============== ==============
</TABLE>
See Notes to Financial Statements.
31
<PAGE> 34
LONGLEAF PARTNERS FUNDS
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
The Funds are each a series of Longleaf Partners Funds Trust, a Massachusetts
business trust which is registered under the Investment Company Act of 1940, as
amended, as an open-end non-diversified investment company. Capitalization for
each fund was provided by principals of Southeastern Asset Management, Inc., the
Investment Counsel.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Management Estimates
The accompanying financial statements are prepared in accordance with Generally
Accepted Accounting Principles for the investment company industry; these
principles may require the use of estimates by Fund management.
Security Valuation
(1) Portfolio securities listed or traded on a securities exchange and
over-the-counter securities traded on the NASDAQ national market are
valued at the last sales price. If there are no transactions in the
security that day, securities are valued at the midpoint between the
closing bid and ask prices.
(2) All other portfolio securities for which over-the-counter market
quotations are readily available are valued at the midpoint between the
closing bid and ask prices. Repurchase agreements are valued at cost
which, combined with accrued interest, approximates market. Short-term
U.S. Government obligations are valued at amortized cost which
approximates current market value.
(3) Option contracts are marked-to-market daily. Listed options are valued at
the latest closing price. If there are no transactions that day, the
options are valued at the midpoint between the closing bid and ask prices.
Over-the-counter options are valued as determined in good faith under
procedures established by the Funds' trustees.
(4) When market quotations are not readily available, portfolio securities are
valued at their fair values as determined in good faith under procedures
established by and under the general supervision of the Funds' Trustees.
In determining fair value, the Board considers all relevant qualitative
and quantitative information available. These factors are subject to
change over time and are reviewed periodically. Estimated values may
differ from the values that would have been used had a ready market of the
investment existed.
32
<PAGE> 35
Accounting for Investments
The Funds record security transactions on trade date. Realized gains and losses
on security transactions are determined using the specific identification
method. Dividend income is recognized on the ex-dividend date, except that
certain dividends from foreign securities are recorded as soon after the
ex-dividend date as the Fund is informed of the dividend. Interest income and
Fund expenses are recognized on an accrual basis.
Distributions to Shareholders
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Federal Income Taxes
The Funds' policy is to comply with the requirements of the Internal Revenue
Code that are applicable to regulated investment companies and to distribute all
taxable income to shareholders. Accordingly, no federal income tax provision is
required. The Funds intend to make any required distributions to avoid the
application of a 4% nondeductible excise tax. Distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made within the Fund's capital
accounts to reflect income and gains available for distribution under income tax
regulations.
Foreign Currency Translations
The books and records of the Funds are maintained in U.S. dollars. Securities
denominated in currencies other than U.S. dollars are subject to changes in
value due to fluctuations in exchange rates. Purchases and sales of securities
and income and expenses are translated into U.S. dollars at the prevailing
exchange rate on the respective date of each transaction. The market value of
investment securities, assets and liabilities are translated into U.S. dollars
daily.
The Funds do not isolate the portion of net realized and unrealized gains or
losses in equity security investments which are attributable to changes in
foreign exchange rates. Accordingly, the impact of such changes is included in
the realized and unrealized gains or losses on the underlying equity securities.
Forward Currency Contracts
The Funds may execute forward currency contracts to reduce their exposure to
currency risk on portfolio investments denominated in foreign currency. Forward
currency contracts are commitments to purchase or sell a foreign currency at a
future maturity date. The resulting obligation is marked-to-market daily using
foreign currency exchange rates supplied by an independent pricing service. An
unrealized gain or loss is recorded for the difference between the contract
opening value and its current value. When a contract is closed or delivery is
taken, this gain or loss is realized. For federal tax purposes, gain or loss on
open
33
<PAGE> 36
forward contracts are treated as realized and subject to distribution at our
excise tax year-end date.
Options
Upon the purchase of a put or call option, the premium paid is recorded as an
investment. When the Funds write a put or a call option, the premium received by
the Funds is recorded as a liability. When a purchased option expires, a loss is
recognized for the cost of the option. When a written option expires, a gain is
realized for the premium received. When the Funds enter into a closing sale
transaction, a gain or loss is recognized based on the difference between the
proceeds of the closing transaction and the cost of the option.
Risk of Forward Currency Contracts and Options
The Funds generally use forward currency contracts and options for hedging
purposes to reduce market risks. However, when used separately, forward currency
contracts and options have risks. For example, the price movements of the
options and forwards may not follow the price movements of the portfolio
securities subject to the hedge. Gains on investments in options and forwards
depend on the ability to predict correctly the direction of stock prices,
interest rates, and other economic factors. Where a liquid secondary market for
options or forwards does not exist, the Funds may not be able to close their
positions and in such an event, the loss is theoretically unlimited.
Repurchase Agreements
The Funds may engage in repurchase agreement transactions. The Funds' custodian
bank sells U.S. government securities to each Fund under agreements to
repurchase these securities from each Fund at a stated repurchase price
including interest for the term of the agreement, which is usually overnight or
over a weekend. Each Fund, through its custodian, receives delivery of the
underlying U.S. government securities as collateral, whose market value is
required to be at least equal to the repurchase price. If the custodian becomes
bankrupt, the Fund might be delayed, or may incur costs or possible losses of
principal and income, in selling the collateral.
NOTE 3. INVESTMENT COUNSEL AGREEMENT
Southeastern Asset Management, Inc. ("Southeastern") serves as Investment
Counsel to the Funds and receives annual compensation, computed daily and paid
monthly, in accordance with the following schedule for the Partners Fund and
Small-Cap Fund:
<TABLE>
<S> <C>
First $400 million of average daily net
assets.................................... 1.00%
In excess of $400 million................... .75%
</TABLE>
The Realty Fund fee is calculated on the same basis at 1.00% per annum on all
asset levels.
34
<PAGE> 37
For the Partners, Small-Cap and Realty Funds, Southeastern has agreed to reduce
its fees on a pro rata basis to the extent that each Fund's normal annual
operating expenses (excluding taxes, interest, brokerage fees, and extraordinary
expenses) exceed 1.5% of average annual net assets. No such reductions were
necessary for the current year.
The International Fund fee is calculated at 1.5% per annum on all asset levels.
For this Fund, Southeastern has agreed to reduce its fees on a pro rata basis to
the extent that the Fund's normal annual operating expenses (excluding taxes,
interest, brokerage fees and extraordinary expenses) exceed 1.75% of average
annual net assets. Southeastern reduced its fees by $48,656 at June 30, 1999 for
expenses exceeding 1.75%.
NOTE 4. FUND ADMINISTRATOR
Southeastern also serves as the Fund Administrator and in this capacity is
responsible for managing, performing or supervising the administrative and
business operations of the Funds. Functions include the preparation of all
registration statements, prospectuses, tax returns and proxy statements, daily
valuation of the portfolios and calculation of daily net asset values per share.
The Funds pay a fee as compensation for these services, accrued daily and paid
monthly, of 0.10% per annum of average daily net assets.
Reimbursable administration expenses paid by the Funds to Southeastern consist
of the cost of computer software dedicated to valuation calculations and a
portion of the Funds' Treasurer's salary allocated in accordance with Trustee
review and approval.
NOTE 5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
-------------------------------------------------------
PARTNERS INTERNATIONAL REALTY SMALL-CAP
FUND FUND FUND FUND
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold......... 30,279,494 13,512,589 12,653,848 12,085,288
Shares redeemed..... (13,731,162) (1,080,890) (11,362,839) (9,764,101)
----------- ---------- ----------- -----------
16,548,332 12,431,699 1,291,009 2,321,187
=========== ========== =========== ===========
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------
PARTNERS INTERNATIONAL REALTY SMALL-CAP
FUND FUND FUND FUND
----------- ------------- ----------- -----------
Shares sold......... 33,032,388 7,632,832 32,103,302 24,333,088
Reinvestment of
shareholder
distribution...... 37,325,423 3,246 3,576,951 8,326,574
Shares redeemed..... (19,542,488) (52,282) (24,869,928) (12,181,491)
----------- ---------- ----------- -----------
50,815,323 7,583,796 10,810,325 20,478,171
=========== ========== =========== ===========
</TABLE>
35
<PAGE> 38
NOTE 6. INVESTMENT TRANSACTIONS
Purchases and sales of equity securities for the period (excluding short-term
obligations) are summarized below:
<TABLE>
<CAPTION>
PARTNERS FUND INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
-------------- ------------------ ----------- --------------
<S> <C> <C> <C> <C>
Purchases $ 317,012,699 $155,089,455 $78,866,562 $264,145,445
Sales 1,122,885,865 33,297,078 70,706,084 315,738,140
</TABLE>
NOTE 7. AFFILIATED COMPANIES
Under Section 2(a)(3) of the Investment Company Act of 1940, a portfolio company
is defined as "affiliated" if a Fund owns five percent or more of its voting
stock. At June 30, 1999, each Fund held at least five percent of the outstanding
voting stock of the following companies:
<TABLE>
<CAPTION>
%
OUTSTANDING
SHARES OF
THE
COMPANY
-----------
<S> <C>
PARTNERS FUND
Host Marriott Corporation 5.1
Pioneer Natural Resources Company 11.1
Rayonier Inc. 10.4
UCAR International, Inc. 9.4
INTERNATIONAL FUND
Bemrose Corporation plc 5.7
REALTY FUND
Bay View Capital Corporation 6.3
Beacon Capital Partners, Inc.(Note 8) 9.9
Deltic Timber Corporation 5.2
Excel Legacy Corporation*--
Common 6.8
Series A Liquidating Preference Convertible (Note 8) 68.6
Forest City Enterprises, Inc. -- Class A 10.0
Franchise Mortgage Acceptance Company 8.3
Getty Realty Corp. 9.0
IHOP Corp. 8.3
Prime Group Realty Trust 18.6
Prime Retail, Inc. 7.8
Red Roof Inns, Inc. 8.0
TimberWest Forest Corp. 10.0
* Combined voting power is 30.8%
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
%
OUTSTANDING
SHARES OF
THE
COMPANY
-----------
<S> <C>
SMALL-CAP FUND
Agribrands International, Inc. 9.7
AMETEK, Inc. 9.4
Bay View Capital Corp. 10.7
Carbide/Graphite Group, Inc. 20.0
Carmike Cinemas, Inc.-- Class A 14.8
Deltic Timber Corporation 6.7
Gendis, Inc. (Note 8) 20.0
Genlyte Group Incorporated 15.6
Gulf Canada Resources Limited 8.0
Hilb, Rogal and Hamilton Company 14.6
IHOP Corp. 7.3
Midas Inc. 10.2
Orion Capital Corporation 8.4
Perrigo Company 9.9
Promus Hotel Corporation 5.1
Scott Technologies, Inc. 13.0
TimberWest Forest Corp. 10.0
VICORP Restaurants, Inc. 10.8
Wisconsin Central Transportation Corporation 9.3
</TABLE>
NOTE 8. ILLIQUID OR RESTRICTED SECURITIES
The Realty Fund holds 2,075,000 shares of Beacon Capital Partners, Inc. (Beacon)
carried at $32,032,813 or $15.4375 per share. The Beacon shares were acquired in
a private placement which closed March 17, 1998. The registration statement for
the Beacon shares became effective on November 13, 1998, but no regular trading
market in the shares had developed by June 30, 1999.
The Realty Fund also owns 14,600,000 shares of Excel Legacy Corp. Series A
Liquidating Preference Convertible Stock (Excel Preferred) valued at $62,415,000
or $4.275 per share. The Excel Preferred shares were acquired in a private
placement which closed on March 31, 1998 and may be converted by the company
into common shares. The Excel Preferred shares are not registered and there is
no regular trading market in these shares.
Both Beacon and Excel Preferred are valued in good faith under guidelines
established by the Board of Trustees. These investments represent 11% of the
Realty Fund's net assets at June 30, 1999.
The Small-Cap Fund owns 3,349,996 shares of Gendis, Inc. common stock,
representing 20.0% of the total outstanding shares of the company. Due to the
Fund's large ownership stake, a portion of this position may be relatively
illiquid. Gendis represents 0.7% of the Small-Cap Fund's net assets at June 30,
1999.
37
<PAGE> 40
NOTE 9. PUT OPTIONS WRITTEN
The Realty Fund had the following written option transactions for the six months
ended June 30, 1999:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
--------- ----------
<S> <C> <C>
Options outstanding at December 31, 1998...... 8,461 $1,786,187
Options expired............................... (5,494) (1,076,268)
Options written............................... 5,494 1,818,514
------ ----------
Options outstanding at June 30, 1999.......... 8,461 $2,528,433
====== ==========
</TABLE>
NOTE 10. COLLATERAL
Securities with the following aggregate market value were segregated to
collateralize portfolio obligations at June 30, 1999:
<TABLE>
<CAPTION>
Market
Value of
Segregated
Obligation Assets
------------------------- ---------------
<S> <C> <C>
Partners Fund............ Forward Currency
Contracts $217,000,000
International Fund....... Forward Currency
Contracts $129,749,978
Realty Fund.............. Newhall Land and Farming
Company Put Options
Written $ 23,750,000
</TABLE>
NOTE 11. RELATED OWNERSHIP
At June 30, 1999, officers, employees of Southeastern and their families, Fund
trustees, the Southeastern retirement plan and other affiliates owned more than
5% of the following Funds:
<TABLE>
<CAPTION>
Shares Owned Percent of Fund
------------ ---------------
<S> <C> <C>
International Fund................... 2,715,206 13.6%
Realty Fund.......................... 4,110,732 7.5%
</TABLE>
38
<PAGE> 41
NOTE 12. CAPITAL LOSS CARRYOVERS
As of December 31, 1998, the Funds had capital loss carryovers for federal
income tax purposes which may be applied against future net taxable realized
gains of each succeeding year until the earlier of their utilization or
expiration on December 31, 2006 as follows:
<TABLE>
<S> <C>
Partners Fund..................... None
International Fund................ $ 867,951
Realty Fund....................... 17,735,542
Small-Cap Fund.................... None
</TABLE>
39
<PAGE> 42
LONGLEAF PARTNERS FUNDS
FINANCIAL HIGHLIGHTS
The presentation is for a share outstanding throughout each period.
<TABLE>
<CAPTION>
NET
GAINS
(LOSS)
NET ON DISTRI-
ASSET SECURITIES TOTAL DIVIDENDS BUTIONS
VALUE NET REALIZED FROM FROM NET FROM
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT CAPITAL
OF PERIOD INCOME(A) UNREALIZED OPERATIONS INCOME GAINS
----------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
PARTNERS FUND
June 30, 1999 (Unaudited)......... $24.39 $.24 $ 4.95 $ 5.19 $ - $ -
Year ended December 31,
1998.......................... 25.98 .31 3.16 3.47 (.25) (4.81)
1997.......................... 22.85 .21 6.24 6.45 (.21) (3.11)
1996.......................... 21.15 .37 4.09 4.46 (.38) (2.38)
1995.......................... 17.13 .30 4.40 4.70 (.24) (.44)
1994.......................... 16.92 .21 1.30 1.51 (.16) (1.14)
INTERNATIONAL FUND
June 30, 1999 (Unaudited)......... 9.97 .09 2.16 2.25 - -
August 12, 1998 (Capitalization)
through December 31, 1998..... 10.00 .01 (.03) (.02) (.01)
REALTY FUND
June 30, 1999 (Unaudited)......... 14.55 .14 .72 .86 - -
Year ended December 31,
1998.......................... 17.35 .56 (2.82) (2.26) (.43)
1997.......................... 13.97 .19 3.96 4.15 (.09) (.64)
1996.......................... 10.00 .16 3.91 4.07 (.04) (.05)
SMALL-CAP FUND
June 30, 1999 (Unaudited)......... 21.95 .06 2.27 2.33 - -
Year ended December 31,
1998.......................... 22.18 .20 2.51 2.71 (.17) (2.77)
1997.......................... 17.86 .25 4.94 5.19 (.18) (.69)
1996.......................... 14.46 .03 4.40 4.43 (.02) (1.01)
1995.......................... 13.28 .12 2.35 2.47 (.12) (1.17)
1994.......................... 13.49 (.03) .52 .49 - (.70)
</TABLE>
(a) Calculated based on weighted average shares outstanding for the period.
(b) Total return reflects the rate that an investor would have earned on
investment in the Fund during each period, assuming reinvestment of all
distributions.
(c) Aggregate, not annualized. Calculated based on initial public offering price
of $9.15 on October 26, 1998.
(d) Expenses presented net of fee waiver.
(e) Annualized
40
<PAGE> 43
LONGLEAF PARTNERS FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
RATIO OF
NET EXPENSES RATIO OF
ASSET NET ASSETS TO NET
RETURN TOTAL VALUE END OF AVERAGE INCOME TO PORTFOLIO
OF DISTRI- END OF TOTAL PERIOD NET AVERAGE TURNOVER
CAPITAL BUTIONS PERIOD RETURN(B) (THOUSANDS) ASSETS NET ASSETS RATE
- ------- ------- ------ --------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ - $ - $29.58 21.28% $4,958,454 .92%(e) .89% 9.35%
- (5.06) 24.39 14.28 3,685,300 .93 1.12 43.78
- (3.32) 25.98 28.25 2,605,070 .94 .81 38.07
- (2.76) 22.85 21.02 2,300,079 .95 1.61 33.18
- (.68) 21.15 27.50 1,876,467 1.01 1.45 12.60
- (1.30) 17.13 8.96 753,527 1.17 1.18 27.39
- - 12.22 22.57 244,687 1.75(d)(e) .96 20.35
- (.01) 9.97 9.02(c) 75,572 1.75(d) .10 24.05
- - 15.41 5.91 841,400 1.17(e) .98 9.50
(.11) (.54) 14.55 (12.98) 775,696 1.17 3.44 21.55
(.04) (.77) 17.35 29.73 737,302 1.20 .75 28.66
(.01) (.10) 13.97 40.69 156,009 1.50(d) .92 4.28
- - 24.28 10.62 1,555,311 .98(e) .25 20.92
(2.94) 21.95 12.71 1,355,364 1.01 .87 52.51
- (.87) 22.18 29.04 915,259 1.09 1.18 16.95
- (1.03) 17.86 30.64 252,157 1.23 .18 27.97
- (1.29) 14.46 18.61 135,977 1.30 .84 32.95
- (.70) 13.28 3.64 99,609 1.38 (.22) 19.79
</TABLE>
41
<PAGE> 44
SERVICE DIRECTORY
CALL (800) 445-9469
24-HOUR AUTOMATED INFORMATION OPTION 1
For automated reporting of daily prices, account balances and transaction
activity, 24-hours a day, seven days a week. Please have your Fund number (see
below) and account number ready to access your investment information.
FUND INFORMATION OPTION 2
To request a prospectus, financial report, application or other Fund information
from 7:00 a.m. to 7:00 p.m. Eastern time, Monday through Friday.
SHAREHOLDER INQUIRIES OPTION 3
To request action on your existing account contact the transfer agent, NFDS,
from 9:00 a.m. to 6:00 p.m. Eastern time, Monday through Friday.
<TABLE>
<S> <C>
Mail correspondence to: Overnight address:
Longleaf Partners Funds Longleaf Partners Funds
c/o NFDS c/o NFDS
P.O. Box 219929 330 W. 9th Street
Kansas City, MO 64121-9929 Kansas City, MO 64105
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SERVICES FOR FINANCIAL ADVISORS (800) 761-2509
Please contact Mary Williamson or Lee Harper for additional information.
PUBLISHED DAILY PRICE QUOTATIONS
Daily net asset value per share of each Fund is reported in mutual fund
quotations tables of major newspapers in alphabetical order under the bold
heading LONGLEAF PARTNERS as follows:
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TRANSFER AGENT
ABBREVIATION SYMBOL CUSIP FUND NUMBER
- ------------- ------ --------- --------------
<C> <S> <C> <C>
Partners LLPFX 543069108 133
Intl LLINX 543069405 136
Realty LLREX 543069306 135
Sm-Cap LLSCX 543069207 134
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TRUSTEES AND OFFICERS
Trustees
O. Mason Hawkins, Chairman
Chadwick H. Carpenter, Jr.
G. Staley Cates
Daniel W. Connell, Jr.
Steven N. Melnyk
C. Barham Ray
Officers
O. Mason Hawkins, Co-Portfolio Manager and Chief Executive Officer
G. Staley Cates, Co-Portfolio Manager and President
John B. Buford, Co-Portfolio Manager of the Partners and Small-Cap Funds
and Vice President - Investments
C. T. Fitzpatrick, Co-Portfolio Manager of the Realty Fund
and Vice-President - Investments
E. Andrew McDermott, Assistant Portfolio Manager of the International Fund
and Vice President - Investments
Charles D. Reaves, Executive Vice President and General Counsel
Julie M. Douglas, Executive Vice President - Operations and Treasurer
Lee B. Harper, Executive Vice President - Marketing
Frank N. Stanley III, Vice President - Investments
Randy D. Holt, Vice President and Secretary
Andrew R. McCarroll, Vice President and Assistant General Counsel
Transfer Agent
National Financial Data Services
Kansas City, Missouri
Custodian
State Street Bank & Trust Company
Boston, Massachusetts
Special Legal Counsel
Dechert Price & Rhodes
Washington D.C.
Independent Public Accountants
PricewaterhouseCoopers LLP
Baltimore, Maryland
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Longleaf Partners Funds SM
c/o NFDS
P.O. Box 219929
Kansas City, MO 64121-9929
(800) 445-9469
