<PAGE> 1
LOGO
LONGLEAF PARTNERS FUNDS(SM)
SEMI-ANNUAL REPORT
at June 30, 2000
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.................................... 5
Performance History* and Portfolio Summary............... 7
Portfolio of Investments................................. 8
Longleaf Partners International Fund (International Fund)
Management Discussion.................................... 10
Performance History* and Portfolio Summary............... 12
Portfolio of Investments................................. 14
Longleaf Partners Realty Fund (Realty Fund)
Management Discussion.................................... 16
Performance History* and Portfolio Summary............... 19
Portfolio of Investments................................. 20
Longleaf Partners Small-Cap Fund (Small-Cap Fund)
Management Discussion.................................... 23
Performance History* and Portfolio Summary............... 25
Portfolio of Investments................................. 26
Financial Statements and Footnotes......................... 28
Financial Highlights....................................... 42
Service Directory.......................................... 44
Trustees and Officers...................................... 45
</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:
Each of the four Longleaf Partners Funds posted strong net asset value gains
ranging between 6.8% and 10.1% in the second quarter. Additionally, the
Partners, International, and Small-Cap Funds significantly outperformed their
respective benchmarks as those indices declined in the period. A major shift in
market sentiment combined with substantial progress at many of our holdings
drove the quarter's positive results.
Sentiment Shift
On March 10th, speculation and the NASDAQ peaked. Since then market participants
have begun to demand customers, revenues, and operating cash flows that support
defendable intrinsic values over business plans without profits. Although
capital has flowed more rationally over the past three months and twenty days,
many pockets of pricing inefficiency remain. Our holdings have benefited from
this recent shift as the chart below shows.
CHART
(Description of Chart. The chart is a horizontal composite line graph for each
of the four Longleaf Partners Funds and three market indices, the S&P 500,
Russell 2000, and the NASDAQ. The line graph for each Fund and index begins on
the left vertical axis at zero on March 3, 2000 and ends on the right vertical
axis at June 30, 2000, showing the percentage changes in the per share net asset
value of the four funds and the three indices bi weekly for the period. The
beginning and ending co-ordinates are separately stated on the chart, as
follows):
PERCENTAGE CHANGES SINCE MARCH 10TH
<TABLE>
<CAPTION>
3/10 6/30
<S> <C> <C>
Partners 0 19.6%
International 0 18.2%
Realty 0 18.1%
Small-Cap 0 12.7%
S&P 500 0 4.6%
Russell 2000 0 (14.0%)
NASDAQ 0 (21.4%)
</TABLE>
1
<PAGE> 4
LONGLEAF PARTNERS FUNDS
LETTER TO SHAREHOLDERS
Progress at our holdings
During the second quarter we continued to see fundamental business progress at
most of the companies we own. Economic values built as management teams grew
their revenues, improved margins, and reinvested free cash flows wisely. Share
repurchases proceeded at an unprecedented pace. As our corporate partners have
spent $1 to buy $2 of business value, their companies' values-per-share have
materially increased.
We are actively exploring ways both to build values and to get corporate values
recognized with our management partners. Toward that end Southeastern has filed
a number of 13-D's which enable us to work more closely with management and talk
to potential acquirors. We submitted some of these because third party buyers
approached us about purchasing our stakes as part of their efforts to acquire
the companies. Several of our holdings are receiving bids for parts or all of
their businesses. During the quarter acquisition announcements by Unicredito
Italiano for Pioneer Group and by Phillip Morris for Nabisco caused PIOG and NA
to more than double from their first quarter lows. As others have begun to
recognize how discounted the prices of our holdings are, merger and acquisition
interest as well as liquidation plans have emerged as a means of getting paid.
Portfolio opportunity
The price-to-value ratio (P/V) calculates the stock price of a business versus
our appraisal of its value. We measure the composite P/V for each of the Funds
monthly and view this number as the best indicator of our future performance
potential, i.e. the lower the P/V, the higher our expected return. In early
March we saw P/V's UNDER 50% -- a first in the history of the Funds. If you
purchased shares of the Longleaf Funds in early March, you paid less than half
of what our appraisals indicated the portfolios were worth.
Because of the rebound since March previously discussed, P/V's have increased.
Each Fund, however, remains extremely cheap relative to its historic average.
All four Funds sell below 55% of our ascribed values, versus a long-term average
of 68%. These numbers are compelling and imply higher prospective returns than
our long-term results. We continue to add to our personal stakes in all four
Longleaf funds.
2
<PAGE> 5
LONGLEAF PARTNERS FUNDS
LETTER TO SHAREHOLDERS
Shareholder meeting
We were delighted to see almost 400 partners at our meeting in May. For those
who were unable to attend, we have posted the audio and slides on our web site,
www.longleafpartners.com. The presentations and questions elaborate on many of
the points discussed above. We hope that the site gives our partners a better
feel for our approach and our views on the Funds.
Transfer Agent Change
In our governing principles we state that "we will continue our efforts to
enhance shareholder services." As part of that commitment we are moving the
Longleaf Partners Funds' transfer agent function from NFDS in Kansas City to
PFPC in Westborough, MA. The transfer agent records and reports all direct
account activity. In moving to PFPC we anticipate improved statements, internet
account access, a more experienced staff, and increased accountability.
Our phone numbers will stay the same, and aside from an improvement in service
and a new mailing address, the transfer agent change should be seamless. You
will receive a Welcome Kit including an updated Prospectus before the mid-August
conversion.
Distribution Information
Capital gains distributions are still five months away, and it is impossible to
project what our realized gains will be or how many fund shares will exist.
Because some shareholders have inquired, we will tell you what little we know.
The Partners, International, and Small-Cap Funds will have small "spillback"
distributions from gains booked in November and December of 1999. Current-year
realized gains in the Partners Fund are minimal at this point. The International
Fund has booked gains in 2000 of over $29 million, which could change
dramatically if losses offset the amount or more gains are realized. Both the
Realty Fund and Small-Cap Fund have no distributable gains to date and have net
losses available to offset over $20 million of additional capital gains in each
Fund.
These numbers are extremely fluid and should not be used to make any
projections. Our third quarter report will provide more information about both
the distribution date and amounts.
3
<PAGE> 6
LONGLEAF PARTNERS FUNDS
LETTER TO SHAREHOLDERS
Conclusion
We appreciate the support that our partners have exhibited through the market's
volatility over the last year. We are pleased with the progress made recently in
our NAVs, and more importantly, with the results at most of our portfolio
companies.
Communicating with our partners is paramount. We hope you will review our
postings on the web site and send us your ideas of how the site can be more
beneficial. We have included copies of several recent articles about Longleaf in
this mailing. We also encourage you to read the Fund reports that follow.
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>
4
<PAGE> 7
PARTNERS FUND - MANAGEMENT DISCUSSION
by Mason Hawkins, Staley Cates, and John Buford
In the second quarter Longleaf Partners Fund rose 8.5% while the S&P 500 Index
and the equally weighted Value-Line Index declined 2.7% and 4.9%, respectively.
Several holdings meaningfully contributed to the Fund's return.
Waste Management, our largest position, posted solid first quarter results that
indicate Maury Myers and his new management team have stabilized the business.
The stock rose 39% in the second quarter. The company has reported both volume
and pricing increases and an improved working capital position. Non-strategic
asset sales are on target to raise $3 billion. The company received a favorable
settlement with the SEC, and a lead plaintiff has been chosen for shareholder
suits. We are delighted but not surprised by the progress. WMI remains deeply
undervalued relative to the free cash flow it currently generates. We anticipate
rapid value growth as Waste fully converts its computer systems and Myers
implements operational best practices throughout the company.
Our hotel companies also helped the Partners Fund's performance. Marriott was up
14% in the quarter, and Hilton rose 21%. REVPAR and occupancy numbers remained
strong, and new supply concerns moderated. The franchise and management fee
businesses are ahead of expectations for the year. At Hilton the owned
properties, primarily in central business district locations, have not been
seriously threatened by new supply, and the company is realizing synergies from
last year's Promus merger ahead of plan. Marriott and Hilton, as well as Host
Marriott, sell well below our appraisals, and Bill Marriott, Steve Bollenbach,
and Chris Nasetta are working diligently to build their corporate values.
Many of our management partners took action to capture their economic values.
Jack Cogan and the board of Pioneer Group negotiated the sale of the company to
Unicredito Italiano. The stock rose from its January low of $12.88 to over
$41.50, exceeded our appraisal, and we sold our position. Nabisco, where we had
acquired only a small stake, was auctioned for $55 per share to Phillip Morris.
Aetna is currently discussing selling its financial services business with
interested buyers. Peter Munk has sold TrizecHahn's Canadian properties and is
using $500 million of the proceeds to repurchase shares. Diageo has announced
plans to take a portion of Burger King public.
5
<PAGE> 8
PARTNERS FUND - MANAGEMENT DISCUSSION
by Mason Hawkins, Staley Cates, and John Buford
FedEx's share price remained flat in the quarter although the company's
international volume grew dramatically, worldwide yields improved, and customer
fuel surcharges have ameliorated higher fuel prices.
Several stocks in our portfolio had a down quarter in spite of unchanged or
increased values. Most dramatic was General Motors, which fell when the
company's offer to swap Hughes shares for GM shares was oversubscribed. Many
traders bought GM as an inexpensive way to receive Hughes, and before the swap
both stocks were selling at around $90. When the company announced that only one
fourth of tendered shares would be swapped, the arbitrage players who never
cared about owning the businesses or the underlying values rapidly sold their GM
shares. While the price of Hughes remained stable, GM shares fell to $58.
Because the company used fairly valued Hughes shares to purchase substantially
undervalued GM shares, the value-per-share of General Motors increased.
Our two timber-related holdings, Georgia Pacific Timber and Rayonier, also
declined in the quarter as ongoing interest rate increases boosted concerns that
stumpage demand would slow. While a short-term decline in the timber harvest
impacts current cash flow, the remaining timber reserve base builds. Tree growth
adds volume to the even larger asset base for future cutting. When demand
returns, larger, older stands will yield a more valuable product mix. As
long-term owners, a dip in current cash flow is acceptable because cash flow a
few years out will be more than correspondingly larger.
During the quarter we sold several holdings including previously mentioned
Pioneer Group. We sold both Alexander & Baldwin and Crestline, which were less
than one percent positions, to concentrate in more compelling opportunities. We
also sold our stake in Yasuda Fire and Marine, a Japanese non-life insurer.
Although this company remains statistically cheap, numerous visits with
management caused us to question their commitment to building value for
shareholders.
The quality of the businesses we own and our corporate partners are as good as
they have ever been in the Partners Fund, and the Fund sells for only 55% of our
appraised value. We look forward to reaping the benefits.
6
<PAGE> 9
PARTNERS FUND - PERFORMANCE HISTORY
AND PORTFOLIO SUMMARY
AVERAGE ANNUAL RETURNS
FOR THE PERIODS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Value-Line
PARTNERS S&P 500 (Geometric) Inflation
FUND Index Index Plus 10%*
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Year-to-Date 2.59% (0.47)% (5.38)% 6.84%
One Year (13.56) 7.24 (12.43) 13.13
Five Years 15.11 23.78 5.57 12.36
Ten Years 16.48 17.78 5.19 12.81
Since Public Offering 4/8/87 15.08 15.72 3.13 13.29
</TABLE>
* Inflation Source: Monthly Consumer Price Index for All Urban Consumers (CPI-U)
compiled by the U.S. Bureau of Labor Statistics.
FIVE LARGEST HOLDINGS
(REPRESENT 46.7% OF NET ASSETS)
WASTE MANAGEMENT, INC. (WMI) 17.6%
The world's largest solid waste collection and disposal company with
residential, commercial, and industrial customers throughout North America.
MARRIOTT INTERNATIONAL, INC. (MAR) 11.3%
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.
FEDEX CORPORATION. (FDX) 6.7%
Integrated air-ground transportation company providing time-definite delivery of
packages and documents worldwide.
GENERAL MOTORS CORPORATION (GM) 6.0%
Conglomerate that owns a controlling stake in Hughes Electronics, GMAC, and the
international truck and car business.
HILTON HOTELS CORPORATION (HLT) 5.1%
Worldwide hotel owner, operator, and franchiser. Owns trophy properties
including the Waldorf Astoria, Palmer House and Hawaiian Village. Manages and/or
franchises the Hilton, Hampton Inn, Embassy Suites, Doubletree, and Homewood
Suites brands.
PORTFOLIO CHANGES
JANUARY 1, 2000 THROUGH JUNE 30, 2000
<TABLE>
<CAPTION>
NEW HOLDINGS ELIMINATIONS
------------ ------------
<S> <C>
Diageo plc Alexander & Baldwin, Inc.
Diageo plc (ADR) Boston Properties Inc.
Nabisco Holdings Corp. - Class A Crestline Capital Corporation
Koninklijke Philips Electronics N.V.
The Pioneer Group, Inc.
United Healthcare Corporation
The Yasuda Fire & Marine Insurance
Company, Ltd.
</TABLE>
7
<PAGE> 10
PARTNERS FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock 96.3%
Beverages 5.0%
15,577,000 Diageo plc (Foreign)......................... $ 139,841,380
650,000 Diageo plc ADR (Foreign)..................... 23,115,625
--------------
162,957,005
--------------
Environmental Services 18.5%
2,890,900 * Allied Waste Industries, Inc................. 28,909,000
29,958,789 Waste Management, Inc........................ 569,216,991
--------------
598,125,991
--------------
Food 0.4%
235,000 Nabisco Holdings Corp. - Class A............. 12,337,500
Health Insurance 3.5%
1,768,400 Aetna Inc.................................... 113,509,175
Lodging 19.8%
17,752,600 Hilton Hotels Corporation.................... 166,430,625
11,700,250 Host Marriott Corporation(b)................. 109,689,844
10,103,600 Marriott International, Inc.................. 364,361,075
--------------
640,481,544
--------------
Manufacturing 1.8%
4,450,000 * UCAR International, Inc.(b).................. 58,128,125
Multi-Industry 6.0%
3,323,000 General Motors Corporation................... 192,941,688
Natural Resources 12.0%
6,474,600 Georgia-Pacific Corporation - Timber
Group(b)................................... 140,013,225
11,201,032 * Pioneer Natural Resources Company(b)......... 142,813,158
2,900,000 Rayonier Inc.(b)............................. 104,037,500
--------------
386,863,883
--------------
Property & Casualty Insurance 3.0%
31,740,000 The Nippon Fire & Marine Insurance Company,
Ltd. (Foreign)(b).......................... 95,695,385
Publishing 4.9%
2,973,300 Knight Ridder, Inc........................... 158,142,394
Real Estate 5.0%
9,122,700 TrizecHahn Corporation (Foreign)(b).......... 163,068,262
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 11
PARTNERS FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Restaurants 4.7%
5,400,000 * Tricon Global Restaurants, Inc............... $ 152,550,000
Transportation 11.7%
6,255,000 Canadian Pacific Limited (Foreign)........... 163,802,812
5,678,000 * FedEx Corporation(c)......................... 215,764,000
--------------
379,566,812
--------------
TOTAL COMMON STOCKS (COST $3,461,769,337).... 3,114,367,764
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
----------
<S> <C> <C> <C> <C> <C>
Short-Term Obligations 2.8%
89,113,000 Repurchase Agreement with State Street Bank,
5.55% due 7-3-00 (Collateralized by U.S.
government agency securities).............. 89,113,000
--------------
TOTAL INVESTMENTS (COST $3,550,882,337)(a)................ 99.1% 3,203,480,764
OTHER ASSETS AND LIABILITIES, NET......................... 0.9 29,397,069
----- --------------
NET ASSETS................................................ 100.0% $3,232,877,833
===== ==============
NET ASSET VALUE PER SHARE......................................... $21.02
==============
</TABLE>
* Non-income producing security
(a) Also represents aggregate cost for federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $376,493,295, and
$(723,894,868), respectively.
(b) Affiliated company. See Note 7.
(c) A portion designated as collateral for forward currency contracts. 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
------------- --------------------------------- ------------ -----------
<C> <S> <C> <C>
5,500,000,000 Japanese Yen 12-28-00............ $53,766,961 $ 3,506,808
4,500,000,000 Japanese Yen 6-29-01............. 45,450,000 175,063
------------ -----------
$99,216,961 $ 3,681,871
============ ===========
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 12
INTERNATIONAL FUND - MANAGEMENT DISCUSSION
by Mason Hawkins, Staley Cates, and Andrew McDermott
The International Fund ended the second quarter up 10.1% versus a 4.3% decline
for the EAFE Index. According to Morningstar, Longleaf Partners International
Fund was the second best performing international fund for the period. For the
year-to-date, the Fund is up 12.4% while the EAFE has fallen 4.6%.
The Fund's performance was broad-based: eighteen of the twenty positions we hold
advanced. We are already benefiting from the opportunities we had in the first
quarter to reshape the portfolio. We bought two of our strongest recent
performers, Molson and Diageo, when, during the first quarter's global
disgorgement of branded consumer goods, portfolio managers abandoned these
unassailable franchises to chase momentum stories. Corporate activity quickly
eliminated much of the large imbalance between prices and values. The recently
announced takeovers of Bestfoods and Nabisco in the U.S. have highlighted the
values of these businesses, and our portfolio has benefited.
Our three largest contributors were positions that we have discussed previously:
Gulf Canada, Safeway PLC, and Nippon Fire and Marine. Despite nearly doubling
since our initial purchase, Gulf Canada remains undervalued relative to the
asset value of its natural gas and oil reserves combined with its tremendous
exploration potential. The continuing strength of energy prices has driven
consolidation in the Canadian oil and gas market at prices that support our
conservative appraisal.
Safeway and Nippon declined to inexplicable levels during the first quarter. We
increased our positions because our partners continued to add value -- Carlos
Criado-Perez at Safeway grew both same store sales and market share, and Ken
Matsuzawa at Nippon executed the company's first stock buyback. During the
second quarter, their efforts were partially recognized as the shares recovered.
Prices of each, however, remain low, and our appraisals have risen.
Two of our largest positions, Brierley Investments and Fairfax Financial,
declined during the quarter despite positive developments in their underlying
businesses. Brierley CEO Greg Terry negotiated an attractive sale of a portion
of the company's Air New Zealand stake to Singapore Airlines. Brierley's balance
sheet has improved over the past year; progress at all businesses has been
positive; and the company has bought in shares. Despite all this, the
10
<PAGE> 13
INTERNATIONAL FUND - MANAGEMENT DISCUSSION
by Mason Hawkins, Staley Cates, and Andrew McDermott
stock trades near its all-time low and at its widest-ever discount to our
appraisal. At Fairfax, both the underwriting cycle and the investment
environment have turned in Prem Watsa's favor. He is taking advantage of
Fairfax's low price by repurchasing shares at a discount to book value.
We added TrizecHahn to the Fund during the quarter. TrizecHahn is a Canadian
real estate company run by Peter Munk, one of the best partners we have ever had
at Southeastern. The company is liquidating its Canadian and non-core U.S. real
estate portfolio at fair private market prices and repurchasing shares at a
significant discount to intrinsic value in the public market. We funded this
purchase by completing our extremely profitable sale of Bemrose as well as
liquidating two small positions in Ezaki Glico and KFC Japan.
We enter the third quarter with a composite price-to-value ratio of 54% and with
a number of exciting research ideas in the pipeline. We significantly increased
our own investment in the Fund recently and encourage others to take advantage
of the Fund's compelling opportunities.
11
<PAGE> 14
INTERNATIONAL FUND - PERFORMANCE HISTORY
AND PORTFOLIO SUMMARY
AVERAGE ANNUAL RETURNS
FOR THE PERIODS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
INTERNATIONAL EAFE Inflation
FUND Index Plus 10%
------------- ------ ---------
<S> <C> <C> <C>
Year-to-Date 12.40% (4.63)% 6.84%
One Year 14.05 15.72 13.13
Since Public Offering 10/26/98 28.51 18.21 13.44
</TABLE>
* Inflation Source: Monthly Consumer Price Index for All Urban Consumers (CPI-U)
compiled by the U.S. Bureau of Labor Statistics.
FIVE LARGEST HOLDINGS
(REPRESENT 32.1% OF NET ASSETS)
DIAGEO PLC 7.3%
Owner of premium spirits brands including Smirnoff, Johnnie Walker, Tanqueray,
Gordons, Hennessy, and Baileys; consumer food brands such as Pillsbury, Haagen
Dazs, Old El Paso, and Progresso; the world's leading stout, Guinness; and the
Burger King restaurant franchise.
THE NIPPON FIRE & MARINE INSURANCE COMPANY, LTD. 7.0%
Japanese provider of both non-life (property/casualty) and life insurance
services.
GULF CANADA RESOURCES LIMITED 6.5%
Canadian based exploration and production company with oil and natural gas
assets across the world.
FAIRFAX FINANCIAL HOLDINGS LIMITED 5.8%
Canadian based property/casualty insurer offering both primary insurance and
reinsurance across North America.
DE BEERS CONSOLIDATED MINES LTD. 5.5%
World's largest diamond miner and marketer.
12
<PAGE> 15
INTERNATIONAL FUND - PORTFOLIO SUMMARY
PORTFOLIO CHANGES
JANUARY 1, 2000 THROUGH JUNE 30, 2000
<TABLE>
<CAPTION>
NEW HOLDINGS ELIMINATIONS
------------ ------------
<S> <C>
Diageo plc Banco Hipotecario
Diageo plc (ADR) Bemrose Corporation plc
Fairfax Financial Holdings Limited The Dai-Tokyo Fire and Marine
Guinness Peat Group plc Insurance Company Ltd.
Jarvis Hotels plc Ezaki Glico Co., Ltd.
Molson Inc. -- Class A Hollinger Inc.
TrizecHahn Corporation Jarvis Hotels plc
Kentucky Fried Chicken Japan
Nippon Broadcasting System
Wassall PLC
The Yasuda Fire & Marine Insurance
Company, Ltd.
</TABLE>
COUNTRY ALLOCATION OF PORTFOLIO
(STOCKS AND FORWARDS)
<TABLE>
<S> <C>
Canada................................ 42.2%
Japan................................. 17.0
United Kingdom........................ 15.9
South Africa.......................... 5.9
United States......................... 5.2
Singapore............................. 4.9
Finland............................... 4.8
Bermuda............................... 4.1
-----
100.0%
=====
</TABLE>
13
<PAGE> 16
INTERNATIONAL FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Common Stock 92.5%
Beverages 12.4%
909,200 Diageo plc (United Kingdom)(d)................... $ 8,162,277
395,300 Diageo plc ADR (United Kingdom).................. 14,057,856
797,000 Molson Inc. -- Class A (Canada).................. 15,572,079
------------
37,792,212
------------
Food 0.6%
47,800 Weetabix Limited (United Kingdom)................ 1,809,110
Multi-Industry 10.1%
87,428,000 Brierley Investments Limited (Singapore)(d)...... 13,652,724
8,892,199 Guinness Peat Group plc (United Kingdom)......... 5,317,451
555,000 Sea Containers Limited (Bermuda)................. 11,724,375
------------
30,694,550
------------
Natural Resources 16.6%
691,100 De Beers Consolidated Mines Ltd. (South
Africa)........................................ 16,802,369
3,349,996 * Gendis Inc. (Canada)(b)(c)....................... 14,017,666
4,084,000 * Gulf Canada Resources Limited (Canada)(d)........ 19,654,250
------------
50,474,285
------------
Property & Casualty Insurance 21.9%
160,100 * Fairfax Financial Holdings Limited (Canada)(d)... 17,504,353
7,085,000 The Nippon Fire & Marine Insurance Company, Ltd.
(Japan)(d)..................................... 21,361,115
4,850,000 The Nissan Fire & Marine Insurance Company, Ltd.
(Japan)(d)..................................... 13,980,895
340,000 Sampo Insurance Company Ltd. (Finland)(d)........ 13,851,770
------------
66,698,133
------------
Publishing 5.3%
1,185,000 Hollinger International Inc. (Canada)............ 16,145,625
Real Estate 9.5%
4,671,600 * O&Y Properties Corporation (Canada)(b)(d)........ 14,030,249
830,000 TrizecHahn Corporation (Canada).................. 14,836,250
------------
28,866,499
------------
Restaurants 3.8%
1,020,000 MOS Food Service, Inc. (Japan)(d)................ 11,472,036
Retail 5.0%
3,870,000 Safeway plc (United Kingdom)(d).................. 15,057,098
</TABLE>
See Notes to Financial Statements.
14
<PAGE> 17
INTERNATIONAL FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Transportation 7.3%
280,000 Canadian Pacific Limited (Canada)................ $ 7,332,500
1,150,000 * Wisconsin Central Transportation Corporation
(United States)(d)............................. 14,950,000
------------
22,282,500
------------
TOTAL COMMON STOCKS (COST $274,728,356).......... 281,292,048
------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
PAR
----------
Short-Term Obligations 5.4%
16,328,000 Repurchase Agreement with State Street Bank, 5.55% due
7-3-00 (Collateralized by U.S. government agency
securities)......................................... 16,328,000
-------------
TOTAL INVESTMENTS (COST $291,056,356)(a)........................... 97.9% 297,620,048
OTHER ASSETS AND LIABILITIES, NET.................................. 2.1 6,339,955
------ -------------
NET ASSETS......................................................... 100.0% $ 303,960,003
====== =============
NET ASSET VALUE PER SHARE.................................................. $13.51
</TABLE>
* Non-income producing security
(a) Aggregate cost for federal income tax purposes. Aggregate unrealized
appreciation and depreciation are $32,037,365 and $(25,473,673),
respectively.
(b) Affiliated company. See Note 7.
(c) Illiquid security. See Note 8.
(d) Designated as collateral on forward currency contracts. 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>
1,000,000 Australian Dollar 3-29-01........ $ 603,697 $ (20,747)
10,000,000 British Pound 12-28-00........... 15,196,325 953,675
3,000,000 British Pound 3-29-01............ 4,567,672 13,327
5,750,000 Canadian Dollar 3-29-01.......... 3,908,899 30,896
35,250,000 Canadian Dollar 6-29-01.......... 22,297,853 1,693,980
14,400,000 European Currency Unit 6-29-01... 14,090,400 (110,880)
2,500,000,000 Japanese Yen 12-28-01............ 24,439,528 1,585,873
2,550,000,000 Japanese Yen 3-29-01............. 25,343,968 359,086
6,400,000 New Zealand Dollar 9-29-00....... 3,013,025 281,695
21,600,000 New Zealand Dollar 12-28-00...... 10,169,244 147,216
------------ ----------
$123,630,611 $4,934,121
============ ==========
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 18
REALTY FUND - MANAGEMENT DISCUSSION
by C.T. Fitzpatrick, Mason Hawkins, and Staley Cates
Longleaf Partners Realty Fund posted a 9.8% return in the second quarter while
the Wilshire Real Estate Securities Index and the NAREIT Index rose 12.1% and
10.6%, respectively. Both market dynamics and positive results at our holdings
helped drive this real estate rebound.
THE MARKET
Perhaps the greatest investing parable is from Ben Graham's Intelligent
Investor. He tells the story of a business partner called "Mr. Market" and
describes him as follows:
Every day he tells you what he thinks your interest is worth and
furthermore offers either to buy you out or to sell you an additional
interest on that basis. Sometimes his idea of value appears plausible
and justified by business developments and prospects as you know them.
Often, on the other hand, Mr. Market lets his enthusiasm or his fears
run away with him, and the value he proposes seems to you a little
short of silly.
For the past two years "Mr. Market" has been silly. Despite steadily rising
earnings (FFO), exceptional property level fundamentals, and growing per share
values at many real estate companies, investors withdrew over $1.2 billion of
capital from real estate mutual funds in 1998 and 1999. An additional $117
million flowed out in the first quarter of 2000. This activity was on an asset
base of approximately $8.5 billion. Over this time period public real estate
market returns were terrible on an absolute basis and unprecedented relative to
common stocks.
Around the time the NASDAQ hit its peak in March capital began flowing back into
the public real estate industry. There were few sellers. Most real estate
companies began to rally, but prices of the large capitalization REITs rebounded
the most. While Longleaf Partners Realty Fund posted a strong quarter, our
relative performance was not as good because we own C-Corporations and cheaper,
smaller cap REITs that are not as widely followed as the "Blue Chip" REITs.
We do not know what "Mr. Market" will do next but we are encouraged by a more
sober tone among many investors. If capital continues to flow into the real
estate area one of two things should happen. Either the obviously
16
<PAGE> 19
REALTY FUND - MANAGEMENT DISCUSSION
by C.T. Fitzpatrick, Mason Hawkins, and Staley Cates
cheaper companies will be bid up closer to fair value, or more fully priced
REITs will acquire their cheaper brethren. Either way, we should benefit.
OUR COMPANIES
All of our holdings made material progress during the quarter, and most of the
stocks in our portfolio rose. Several had a significant impact on the Fund's
results.
Hilton Hotels: The stock rebounded nicely from the first quarter and was up
21%. Operating results to date have exceeded our expectations. Same property
revenues have risen 4.7%, well above inflation. The merger with Promus is
proceeding smoothly as the company is realizing annual cost savings of $65
million and revenue enhancements of $8 million.
Waste Management: The company posted solid first quarter results that indicate
Maury Myers and his new management team have stabilized the business. The stock
rose 39% in the second quarter. The company reported both volume and pricing
increases and an improved working capital position. Non-strategic asset sales
are on target to raise $3 billion. The company received a favorable settlement
with the SEC, and a lead plaintiff has been chosen for shareholder suits.
Forest City Enterprises: The company is firing on all cylinders with strong
same property growth of 4.9% in fiscal 1999 and a plethora of new developments
such as Times Square that are driving double-digit bottom line and value growth.
The stock rose 14% over the last three months.
Boston Properties: The company is benefiting from its class A office portfolio
strategically located in some of the most supply constrained markets in the
country, including New York, Boston, Washington, and San Francisco. Same
property growth was 8% in the first quarter resulting in double-digit bottom
line growth. The stock was up 21% in the second quarter.
Bay View: Following a steep decline in its stock early in the year our
management partners announced they were hiring an investment bank to review
strategic alternatives for enhancing shareholder value. This catalyst helped Bay
View shares rise 31% and the price remains well below our appraisal.
17
<PAGE> 20
REALTY FUND - MANAGEMENT DISCUSSION
by C.T. Fitzpatrick, Mason Hawkins, and Staley Cates
One holding, Excel Legacy, meaningfully detracted from our results in the
quarter. To address the market's gross underestimation of the company's value,
management announced a plan to sell non-core assets, focus on its most promising
development projects such as Anaheim across from Disneyland's entrance, and
repurchase 10% of the stock. We are encouraged by their strategic direction and
their commitment to value recognition.
WHAT ARE WE DOING AT LONGLEAF?
We see numerous new investment opportunities but none that we like better than
the companies we already own. We are working diligently with our management
teams, sometimes within the guidelines of a 13-D, to ensure that shareholder
value is being built and realized in the stock market.
We thank you, our long-term partners. We are optimistic that your patience will
be rewarded as investors become more focussed on our companies' tangible cash
flows and their intrinsic values.
PORTFOLIO CHANGES
JANUARY 1, 2000 THROUGH JUNE 30, 2000
<TABLE>
<CAPTION>
NEW HOLDINGS ELIMINATIONS
------------ ------------
<S> <C>
CO Space, Inc. Voting Trust* (Beacon Cousins Properties Incorporated
Capital Partners, Inc.) Cypress Communication, Inc.
Cypress Communications, Inc. Voting Voting Trust* (Beacon Capital
Trust* (Beacon Capital Partners, Partners, Inc.)
Inc.) The Pioneer Group, Inc.
Rayonier Inc.
</TABLE>
* Acquired through spin-off of existing position (name of original holding).
18
<PAGE> 21
REALTY FUND - PERFORMANCE HISTORY
AND PORTFOLIO SUMMARY
AVERAGE ANNUAL RETURNS
FOR THE PERIODS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Wilshire
Real Estate
REALTY Securities NAREIT Inflation
FUND Index Index Plus 10%*
------ ----------- ------ ---------
<S> <C> <C> <C> <C>
Year-to-Date 4.96% 15.20% 13.04% 6.84%
One Year (11.25) 4.45 0.74 13.13
Three Years (3.05) 1.20 (1.26) 12.26
Since Public Offering 1/2/96 9.32 9.52 7.51 12.54
</TABLE>
* Inflation Source: Monthly Consumer Price Index for All Urban Consumers (CPI-U)
compiled by the U.S. Bureau of Labor Statistics.
FIVE LARGEST HOLDINGS
(REPRESENT 48.8% OF NET ASSETS)
HILTON HOTELS CORPORATION (HLT) 13.2%
Worldwide hotel owner, operator, and franchiser. Owns trophy properties
including the Waldorf Astoria, Palmer House and Hawaiian Village. Manages and/or
franchises the Hilton, Hampton Inn, Embassy Suites, Doubletree, and Homewood
Suites brands.
FOREST CITY ENTERPRISES, INC. (FCE) 11.2%
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
redevelopment, and mixed-use projects in both New York's Times Square and San
Francisco.
CATELLUS DEVELOPMENT CORPORATION (CDX) 10.5%
A diversified real estate company that owns, manages and develops industrial
warehouses, offices, and apartments. 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.
PRIME GROUP REALTY TRUST (PGE) 7.1%
A REIT that owns over 9 million square feet of central business district and
suburban office space predominantly in the Chicago area. Also owns over 5
million square feet of industrial properties and has the right to over 9 million
square feet of developable space.
EXCEL LEGACY CORPORATION (XLG) 6.8%
A C-corp. focused on development, redevelopment, 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 Scottsdale, Anaheim, and Newport, KY across the river from
Cincinnati.
19
<PAGE> 22
REALTY FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Common Stock 89.1%
Diversified Realty 27.5%
4,209,800 * Catellus Development Corporation................ $ 63,147,000
2,040,900 * Excel Legacy Corporation(b)..................... 5,484,919
1,864,050 Forest City Enterprises, Inc. - Class A(b)...... 62,212,669
148,600 Forest City Enterprises, Inc. - Class B(b)...... 5,284,587
1,640,000 TrizecHahn Corporation (Foreign)................ 29,315,000
------------
165,444,175
------------
Lodging 22.3%
8,424,744 Hilton Hotels Corporation....................... 78,981,975
2,845,000 Host Marriott Corporation (REIT)(c)............. 26,671,875
792,300 Marriott International, Inc..................... 28,572,319
------------
134,226,169
------------
Mortgage Financing 3.7%
2,250,647 Bay View Capital Corp.(b)....................... 22,084,474
Natural Resources/Land 12.4%
650,000 Deltic Timber Corporation(b).................... 13,893,750
4,180,000 TimberWest Forest Corp. (Foreign)(b)............ 29,339,272
1,635,000 Waste Management, Inc........................... 31,065,000
------------
74,298,022
------------
Office 15.8%
2,060,000 Beacon Capital Partners, Inc. (REIT)(b)(d)...... 22,454,000
768,000 Boston Properties Inc. (REIT)................... 29,664,000
2,810,700 Prime Group Realty Trust (REIT)(b).............. 42,687,506
------------
94,805,506
------------
Retail 7.4%
1,223,800 Getty Realty Corp.(b)........................... 13,308,825
1,622,100 * IHOP Corp.(b)................................... 27,170,175
3,016,700 Prime Retail, Inc. (REIT)(b).................... 3,770,875
------------
44,249,875
------------
TOTAL COMMON STOCKS (COST $603,724,255)......... 535,108,221
------------
Preferred Stock 5.9%
Diversified Realty 5.9%
14,600,000 * Excel Legacy Corporation - Series A Liquidating
Preference Convertible (Cost
$73,000,000)(b)(d).............................. 35,314,480
------------
</TABLE>
See Notes to Financial Statements.
20
<PAGE> 23
REALTY FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
UNITS MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Trust Units 1.8%
Lodging 1.3%
96,819 Wyndham International, Inc. Voting Trust (Cost
$9,271,419)(b)(d)............................... $ 7,745,520
Non-Realty 0.5%
465,979 CO Space, Inc. Voting Trust (Cost
$697,200)(b)(d)................................. 2,842,387
------------
10,587,907
------------
CONTRACTS
----------
Options 0.5%
Natural Resources/Land 0.5%
Put Options Written
8,461 Newhall Land and Farming Company, expiring
April '01 @ $25 (Premiums received
$2,581,033)..................................... (1,032,242)
Call Options Purchased
8,461 Newhall Land and Farming Company, expiring
April '01 @ $25 (Cost $3,711,631)............... 4,120,507
------------
3,088,265
------------
PAR
----------
Short-Term Obligations 2.3%
14,042,000 Repurchase Agreement with State Street Bank,
5.55% due 7-3-00 (Collateralized by U.S.
government agency securities)................. 14,042,000
------------
TOTAL INVESTMENTS (COST $701,865,472)(a)...................... 99.6% 598,140,873
OTHER ASSETS AND LIABILITIES, NET............................. 0.4 2,173,802
----- ------------
NET ASSETS.................................................... 100.0% $600,314,675
===== ============
NET ASSET VALUE PER SHARE............................................ $13.32
</TABLE>
* Non-income producing security
(a) Also represents aggregate cost for federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $62,191,481 and $(165,916,080),
respectively.
(b) Affiliated company. See Note 7.
(c) A portion designated as collateral on Newhall options. See Note 10.
(d) Illiquid, board valued security. See Note 8.
Note: REITs comprise 21% of net assets. Companies designated as "Foreign" are
headquartered outside the U.S. and represent 10% of net assets.
See Notes to Financial Statements.
21
<PAGE> 24
(LOGO)
(Intentionally Left Blank)
22
<PAGE> 25
SMALL-CAP FUND - MANAGEMENT DISCUSSION
by Mason Hawkins, Staley Cates, and John Buford
Longleaf Partners Small-Cap Fund rose 6.8% in the second quarter versus a 3.8%
decline in the Russell 2000 Index and a 4.9% fall in the Value-Line Index. A
combination of positive operating results and corporate management actions
helped produce the Fund's solid return.
Small-Cap's largest position, Gulf Canada, provided a sizeable boost to
performance as the stock rose 30% during the quarter. Higher oil and gas prices
have increased the company's cash flow, and management has successfully reduced
Gulf's debt. There have been numerous North American oil and gas company
acquisitions this year at prices that reinforce our belief that our Gulf
appraisal is conservative.
Pioneer Group also contributed to Small-Cap's performance. We began discussing
alternatives with management to get corporate value recognized at Pioneer's
$12.88 low this year. The board put the company up for sale. In May Unicredito
Italiano agreed to buy Pioneer, and we liquidated our position at over $41, well
above our appraisal.
Several other holdings added to the Fund's positive results. Hilb Rogal &
Hamilton rose 27% as its agencies benefited from substantial increases in
property/casualty insurance rates. Wyndham's stock appreciated 34% as the
company demonstrated that its turnaround is under way. Pediatrix, a relatively
small position, shot up 60% in the quarter when a state of Florida audit
concluded with no fines and no charges of overbilling. Management at Bay View
hired an investment banking firm to help explore all strategic options, and the
stock rose 31% in the quarter. U.S. Industries announced the sale of its
lighting business on the heels of divesting its Diversified Division. Management
is aggressively purchasing shares at a large discount to our appraisal.
Timberwest enjoyed an up quarter as the company reported higher operating cash
flow due to increased volume and improved mix. The company also completed a
major share repurchase. Catellus made progress: clearing all Fremont approvals,
selling much of its residential development business, and capitalizing on
increased demand and rents in both the San Francisco and San Diego markets.
Fleming announced the sale of its retail business except for Food 4 Less stores.
The company has had success with large distribution customers such as Target and
Kmart, and Fleming is reaping the benefits of the Internet by
23
<PAGE> 26
SMALL-CAP FUND - MANAGEMENT DISCUSSION
by Mason Hawkins, Staley Cates, and John Buford
providing distribution to a number of on-line grocers. In spite of this progress
the stock declined.
During the quarter as more information surfaced, we concluded that Safety-Kleen
had been permanently damaged, even though final details have not yet emerged.
The tax implication of selling the position is that its short-term loss offsets
the substantial short-term gain generated by our earlier sale of Romac.
Longleaf Partners Small-Cap Fund sells for below 55% of our appraisal. Companies
priced this cheaply attract bargain hunters, and a number of our management
partners are considering partial or full liquidations. For those investors who
have access to the closed Small-Cap Fund, the portfolio has a unique mix of
upside potential and tax attractiveness. We very recently added to our personal
stakes in the Fund.
24
<PAGE> 27
SMALL-CAP FUND - PERFORMANCE HISTORY
AND PORTFOLIO SUMMARY
AVERAGE ANNUAL RETURNS
FOR THE PERIODS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Value-Line
SMALL-CAP Russell 2000 (Geometric) Inflation
FUND Index Index Plus 10%*
--------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Year-to-Date 1.49% 3.04% (5.38)% 6.84%
One Year (4.54) 14.32 (12.43) 13.13
Five Years 17.38 14.27 5.57 12.36
Ten Years(a) 11.50 13.57 5.19 12.81
Since Public Offering 2/21/89(a) 11.35 12.86 4.52 13.18
</TABLE>
(a) From public offering through 3/31/91, the Fund was managed by a different
portfolio manager.
* Inflation Source: Monthly Consumer Price Index for All Urban Consumers
(CPI-U) compiled by the U.S. Bureau of Labor Statistics.
FIVE LARGEST HOLDINGS
(REPRESENT 31.1% OF NET ASSETS)
GULF CANADA RESOURCES LIMITED (GOU) 9.4%
Canadian based exploration and production company with oil and natural gas
assets across the world.
FLEMING COMPANIES, INC. (FLM) 6.5%
A leading food wholesaler which also has a substantial retail business with Food
4 Less, Sentry, Rainbow, and Bakers stores.
WISCONSIN CENTRAL TRANSPORTATION CORPORATION (WCLX) 5.6%
A railroad holding company that owns lines in the midwest U.S., Ontario, The
United Kingdom, New Zealand, and Australia.
THE MONY GROUP INC. (MNY) 4.8%
Financial services company that offers life insurance, annuity and investment
products to higher income individuals.
HILB, ROGAL AND HAMILTON COMPANY (HRH) 4.8%
An insurance broker with over 65 agencies focused on mid-sized commercial and
industrial accounts across the U.S. and Canada.
PORTFOLIO CHANGES
JANUARY 1, 2000 THROUGH JUNE 30, 2000
<TABLE>
<CAPTION>
NEW HOLDINGS ELIMINATIONS
------------ ------------
<S> <C>
Fairfax Financial Holdings Limited Carmike Cinemas, Inc. - Class A
Hollinger International Inc. Cousins Properties Incorporated
Midas Inc.
The Pioneer Group, Inc.
Romac International, Inc.
Safety-Kleen Corp.
</TABLE>
25
<PAGE> 28
SMALL-CAP FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock 91.8%
Agriculture 3.3%
1,015,400 * Agribrands International, Inc.(b).............. $ 42,583,337
Beverages 2.9%
3,052,900 Whitman Corporation............................ 37,779,638
Commercial Lighting 6.2%
2,407,500 * Genlyte Group Incorporated(b).................. 50,707,969
1,692,850 Thomas Industries, Inc.(b)..................... 29,942,284
--------------
80,650,253
--------------
Food -- Wholesale 6.5%
6,444,000 Fleming Companies, Inc.(b)..................... 84,174,750
Health Care 1.8%
2,056,500 * Pediatrix Medical Group, Inc.(b)............... 23,906,812
Life Insurance 4.8%
1,825,000 The MONY Group Inc............................. 61,707,812
Lodging 5.0%
2,829,653 Hilton Hotels Corporation...................... 26,527,997
15,450,400 * Wyndham International, Inc. - Class A(b)....... 38,626,000
--------------
65,153,997
--------------
Manufacturing 11.8%
2,750,740 AMETEK, Inc.(b)................................ 48,137,950
1,740,000 * The Carbide/Graphite Group, Inc.(b)............ 6,960,000
2,390,200 * Scott Technologies, Inc.(b).................... 41,081,562
4,637,700 U.S. Industries, Inc.(b)....................... 56,232,113
--------------
152,411,625
--------------
Mortgage Financing 2.4%
3,114,700 Bay View Capital Corp.(b)...................... 30,562,994
Natural Resources 14.6%
845,000 Deltic Timber Corporation(b)................... 18,061,875
25,289,860 * Gulf Canada Resources Limited (Foreign)(b)..... 121,707,451
6,950,000 TimberWest Forest Corp. (Foreign)(b)........... 48,781,805
--------------
188,551,131
--------------
Pharmaceuticals 1.8%
3,622,200 * Perrigo Company................................ 22,865,138
</TABLE>
See Notes to Financial Statements.
26
<PAGE> 29
SMALL-CAP FUND - PORTFOLIO OF INVESTMENTS
AT JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Property & Casualty Insurance 11.7%
248,760 * Alleghany Corporation.......................... $ 41,791,680
443,620 Fairfax Financial Holdings Limited (Foreign)... 48,502,693
1,777,400 Hilb, Rogal and Hamilton Company(b)............ 61,653,562
--------------
151,947,935
--------------
Publishing 0.9%
838,600 Hollinger International Inc. (Foreign)......... 11,425,925
Real Estate 6.4%
3,948,500 * Catellus Development Corporation............... 59,227,500
1,443,400 * IHOP Corp.(b).................................. 24,176,950
--------------
83,404,450
--------------
Restaurants 1.4%
982,400 * VICORP Restaurants, Inc.(b).................... 17,928,800
Retail 4.7%
2,185,900 * The Neiman Marcus Group, Inc. -- Class B....... 60,658,725
Transportation 5.6%
5,550,800 * Wisconsin Central Transportation
Corporation(b)............................... 72,160,400
--------------
TOTAL COMMON STOCKS (COST $1,148,608,227).................. 1,187,873,722
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
----------
<S> <C> <C> <C> <C> <C>
Short-Term Obligations 7.8%
51,621,000 Repurchase Agreement with State Street Bank,
5.55% due 7-3-00 (Collateralized by U.S.
government agency securities)................ 51,621,000
50,000,000
49,848,417
Federal Home Loan Mortgage Corporation, 6.53% due 7-18-00.......
--------------
101,469,417
--------------
TOTAL INVESTMENTS (COST $1,250,077,644)(a)................... 99.6% 1,289,343,139
OTHER ASSETS AND LIABILITIES, NET............................ 0.4 4,735,316
----- --------------
NET ASSETS................................................... 100.0% $1,294,078,455
===== ==============
NET ASSET VALUE PER SHARE........................................... $20.50
==============
</TABLE>
* Non-income producing security
(a) Also represents aggregate cost for federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $168,160,279 and
$(128,894,784), respectively.
(b) Affiliated company. See Note 7.
Note: Companies designated as "Foreign" are headquartered outside the U.S. and
represent 18% of net assets.
See Notes to Financial Statements.
27
<PAGE> 30
LONGLEAF PARTNERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AT JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PARTNERS FUND
<S> <C>
ASSETS:
Investments:
Affiliated securities, at market value (cost
$1,120,274,077, $28,974,255, $370,537,825 and
$802,254,805, respectively) (Note 2 and 7)..............
Other securities, at market value (cost $2,341,495,260,
$245,754,101, $319,866,680 and $346,353,422,
respectively) (Note 2)..................................
Repurchase agreements (Note 2)............................
Short-term cash equivalents...............................
TOTAL INVESTMENTS
Cash........................................................
Receivable for:
Dividends and interest....................................
Fund shares sold..........................................
Securities sold...........................................
Forward currency contracts (Note 2).......................
Prepaid assets..............................................
TOTAL ASSETS
LIABILITIES:
Payable for:
Fund shares redeemed......................................
Securities purchased......................................
Investment counsel fee (Note 3)...........................
Administration fee (Note 4)...............................
Options written, at market value (premiums received
$2,581,033) (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(loss) on investments and foreign
currency................................................
Net Assets
NET ASSET VALUE PER SHARE...................................
FUND SHARES ISSUED AND OUTSTANDING..........................
</TABLE>
See Notes to Financial Statements.
28
<PAGE> 31
LONGLEAF PARTNERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AT JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PARTNERS FUND INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
-------------- ------------------ ------------ --------------
<S> <C> <C> <C>
$ 813,445,499 $ 28,047,915 $293,593,439 $ 817,386,615
2,300,922,265 253,244,133 291,537,676 370,487,107
89,113,000 16,328,000 14,042,000 51,621,000
- - - 49,848,417
-------------- ------------ ------------ --------------
3,203,480,764 297,620,048 599,173,115 1,289,343,139
108 731 649 439
6,649,362 1,539,358 2,945,246 1,743,875
1,162,650 287,913 267,221 589,305
22,635,017 - - 4,961,103
3,681,871 4,934,121 - -
164,377 22,064 46,048 64,248
-------------- ------------ ------------ --------------
3,237,774,149 304,404,235 602,432,279 1,296,702,109
-------------- ------------ ------------ --------------
2,315,791 - 485,891 1,559,319
- - - -
2,094,228 356,186 484,610 872,157
268,301 24,174 48,461 105,359
- - 1,032,242 -
217,996 63,872 66,400 86,819
-------------- ------------ ------------ --------------
4,896,316 444,232 2,117,604 2,623,654
-------------- ------------ ------------ --------------
$3,232,877,833 $303,960,003 $600,314,675 $1,294,078,455
============== ============ ============ ==============
$3,275,658,105 $242,815,657 $718,094,325 $1,270,321,511
13,963,185 2,566,696 14,487,023 775,843
286,971,909 47,074,003 (28,543,403) (16,286,603)
(343,715,366) 11,503,647 (103,723,270) 39,267,704
-------------- ------------ ------------ --------------
$3,232,877,833 $303,960,003 $600,314,675 $1,294,078,455
============== ============ ============ ==============
$21.02 $13.51 $13.32 $20.50
============== ============ ============ ==============
153,830,885 22,503,749 45,053,922 63,134,821
</TABLE>
See Notes to Financial Statements.
29
<PAGE> 32
LONGLEAF PARTNERS FUNDS
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends from affiliates (net of foreign tax withheld of
$556,721, $18,206, $0 and $0, respectively) (Note 7)....
Dividends from non-affiliates (net of foreign tax withheld
of $625,976, $412,183, $36,054 and $0, respectively)....
Interest..................................................
Other.....................................................
Total income.......................................
EXPENSES:
Investment counsel fee (Note 3)...........................
Administration fee (Note 4)...............................
Transfer agent fee........................................
Registration and filing fees..............................
Postage and supplies......................................
Printing..................................................
Reimbursable administration expenses (Note 4).............
Custodian fee.............................................
Professional fees.........................................
Trustees' fees............................................
Insurance expense.........................................
Miscellaneous.............................................
Total expenses.....................................
Investment counsel fee waived.............................
Net expenses.......................................
Net investment income..............................
REALIZED AND UNREALIZED GAIN:
Net realized gain(loss):
Non-affiliated securities.................................
Affiliated securities (Note 7)............................
Short sale................................................
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.
30
<PAGE> 33
LONGLEAF PARTNERS FUNDS
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PARTNERS FUND INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
------------- ------------------ ------------- --------------
<S> <C> <C> <C>
$ 13,640,480 $ 163,852 $ 14,304,151 $ 5,233,646
12,025,282 4,807,744 3,153,281 1,097,518
1,933,286 221,146 474,820 560,919
1,661,500 - - -
------------- ------------- ------------- -------------
29,260,548 5,192,742 17,932,252 6,892,083
------------- ------------- ------------- -------------
12,733,615 2,135,130 2,926,048 5,183,064
1,631,513 142,342 292,605 624,773
267,329 23,326 47,949 102,377
64,537 19,580 21,830 27,004
153,028 19,053 39,863 63,381
144,937 22,578 34,029 34,064
95,035 12,039 20,677 40,322
60,728 58,529 10,438 11,698
13,597 27,935 12,399 15,612
39,781 19,891 19,891 19,891
22,602 2,338 5,445 8,397
77,689 17,519 20,983 27,856
------------- ------------- ------------- -------------
15,304,391 2,500,260 3,452,157 6,158,439
- (6,425) - -
------------- ------------- ------------- -------------
15,304,391 2,493,835 3,452,157 6,158,439
------------- ------------- ------------- -------------
13,956,157 2,698,907 14,480,095 733,644
------------- ------------- ------------- -------------
18,760,620 22,064,869 (1,230,582) 40,067,304
(4,277,263) 4,722,284 (641,830) (57,322,480)
- 2,512,216 - -
(6,118,492) 120,592 - -
7,028 (131,067) 6,929 9,916
------------- ------------- ------------- -------------
8,371,893 29,288,894 (1,865,483) (17,245,260)
------------- ------------- ------------- -------------
29,737,678 (10,490,477) 12,148,592 24,790,233
21,432,548 11,273,005 (925) 3,098
------------- ------------- ------------- -------------
51,170,226 782,528 12,147,666 24,793,331
------------- ------------- ------------- -------------
59,542,119 30,071,422 10,282,183 7,548,071
------------- ------------- ------------- -------------
$ 73,498,276 $ 32,770,329 $ 24,762,278 $ 8,281,715
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements.
31
<PAGE> 34
LONGLEAF PARTNERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PARTNERS FUND
---------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income...................................... $ 13,956,157 $ 49,528,145
Net gain(loss)............................................. 8,371,893 904,344,452
Change in net unrealized gain(loss)........................ 51,170,226 (921,599,146)
-------------- --------------
Net increase(decrease) in net assets resulting from
operations............................................. 73,498,276 32,273,451
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................. - (50,849,326)
From net realized gain on investments...................... - (672,352,020)
From return of capital..................................... - -
-------------- --------------
Net decrease in net assets resulting from
distributions.......................................... - (723,201,346)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares........................... 377,651,597 1,134,274,945
Net asset value of shares issued to shareholders for
reinvestment of shareholder distributions................ - 695,727,239
Cost of shares redeemed.................................... (840,381,510) (1,202,264,742)
-------------- --------------
Net increase in net assets from fund share
transactions........................................... (462,729,913) 627,737,442
-------------- --------------
Total increase(decrease) in net assets................... (389,231,637) (63,190,453)
NET ASSETS:
Beginning of period........................................ 3,622,109,470 3,685,299,923
-------------- --------------
End of period.............................................. $3,232,877,833 $3,622,109,470
============== ==============
Undistributed net investment income(loss) included in net
assets at end of period.................................. $ 13,963,185 $ -
============== ==============
</TABLE>
See Notes to Financial Statements.
32
<PAGE> 35
LONGLEAF PARTNERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
----------------------------- ------------------------------- -------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999 (UNAUDITED) 1999
-------------- ------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 2,698,907 $ 1,393,626 $ 14,480,095 $ 10,544,396 $ 733,644 $ 5,553,594
29,288,894 24,733,892 (1,865,483) (8,699,625) (17,245,260) 163,374,107
782,528 10,935,233 12,147,666 (85,360,316) 24,793,331 (122,335,300)
------------ ------------ ------------ -------------- -------------- --------------
32,770,329 37,062,751 24,762,278 (83,515,545) 8,281,715 46,592,401
------------ ------------ ------------ -------------- -------------- --------------
- (1,346,328) - (5,142,943) - (5,574,355)
- (8,227,856) - - - (165,419,770)
- - - (11,417,766) - -
------------ ------------ ------------ -------------- -------------- --------------
- (9,574,184) - (16,560,709) - (170,994,125)
------------ ------------ ------------ -------------- -------------- --------------
58,393,790 251,155,300 48,363,773 256,227,058 178,464,290 500,525,620
- 8,647,707 - 15,791,432 - 163,286,523
(80,817,212) (69,251,008) (116,121,903) (304,327,313) (322,340,767) (465,100,821)
------------ ------------ ------------ -------------- -------------- --------------
(22,423,422) 190,551,999 (67,758,130) (32,308,823) (143,876,477) 198,711,322
------------ ------------ ------------ -------------- -------------- --------------
10,346,907 218,040,566 (42,995,852) (132,385,077) (135,594,762) 74,309,598
293,613,096 75,572,530 643,310,527 775,695,604 1,429,673,217 1,355,363,619
------------ ------------ ------------ -------------- -------------- --------------
$303,960,003 $293,613,096 $600,314,675 $ 643,310,527 $1,294,078,455 $1,429,673,217
============ ============ ============ ============== ============== ==============
$2,566,697 $(1,144) $14,487,023 $ - $775,843 $32,284
--------- ------ ---------- ------ ------- ------
--------- ------ ---------- ------ ------- ------
</TABLE>
See Notes to Financial Statements.
33
<PAGE> 36
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; these principles may require the use of
estimates by Fund management. Actual results could differ from those estimates.
Security Valuation
(1) Portfolio securities listed or traded on a securities exchange, on the
NASDAQ national market, or any quotation system providing same day
publication of actual prices 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 or, if there are no such
prices, the prior day's close.
(2) All other portfolio securities for which over-the-counter market
quotations are readily available are valued at the last representative
sales price, if available, or at the midpoint between the closing bid and
ask prices or, if there are no such prices, the prior day's close.
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.
34
<PAGE> 37
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
substantially 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 forward contracts are treated as realized and subject to distribution at
our excise tax year-end date.
35
<PAGE> 38
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. When an option
is exercised, the cost of securities acquired or the proceeds from securities
sold is adjusted by the premium amount.
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 or agency 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 or agency 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.
36
<PAGE> 39
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 $6,425 for the six months
ended June 30, 2000 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, 2000 (UNAUDITED)
-------------------------------------------------------
PARTNERS INTERNATIONAL REALTY SMALL-CAP
FUND FUND FUND FUND
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold......... 19,249,124 4,637,802 3,941,218 9,146,134
Shares redeemed..... (42,187,513) (6,566,033) (9,576,789) (16,792,290)
----------- ---------- ----------- -----------
(22,938,389) (1,928,231) (5,635,571) (7,646,156)
=========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------
PARTNERS INTERNATIONAL REALTY SMALL-CAP
FUND FUND FUND FUND
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold......... 42,839,976 21,925,549 18,285,180 22,402,360
Reinvestment of
shareholder
distribution...... 32,884,394 706,373 1,261,297 8,115,384
Shares redeemed..... (50,052,490) (5,783,738) (22,165,389) (21,477,725)
----------- ---------- ----------- -----------
25,671,880 16,848,184 (2,618,912) 9,040,019
=========== ========== =========== ===========
</TABLE>
37
<PAGE> 40
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 254,894,807 107,600,977 10,680,950 75,643,068
Sales 748,019,217 140,146,771 70,575,846 312,194,241
</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, 2000, 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
Georgia-Pacific Corporation--Timber Group 8.0
Host Marriott Corporation 5.3
The Nippon Fire & Marine Insurance Company, Ltd. 5.7
Pioneer Natural Resources Company 11.2
Rayonier Inc. 10.6
TrizecHahn Corporation 6.1
UCAR International, Inc. 9.4
INTERNATIONAL FUND
Gendis Inc. (Note 8) 20.0
O&Y Properties Corporation 10.8
REALTY FUND
Bay View Capital Corporation 6.9
Beacon Capital Partners, Inc. (Note 8) 9.8
CO Space, Inc. Voting Trust 9.9
Deltic Timber Corporation 5.3
Excel Legacy Corporation*--
Common 4.9
Series A Liquidating Preference Convertible (Note 8) 68.6
Forest City Enterprises, Inc. -- Class A and B 6.2
Getty Realty Corp. 9.6
IHOP Corp. 8.2
Prime Group Realty Trust 17.8
Prime Retail, Inc. 7.0
TimberWest Forest Corp. 6.5
Wyndham International, Inc. Voting Trust (Note 8) 8.9
* Combined voting power is 26.3%
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
%
OUTSTANDING
SHARES OF THE
COMPANY
-------------
<S> <C>
SMALL-CAP FUND
Agribrands International, Inc. 10.0
AMETEK, Inc. 8.6
Bay View Capital Corp. 9.6
The Carbide/Graphite Group, Inc. 20.9
Deltic Timber Corporation 6.9
Fleming Companies, Inc. 16.4
Genlyte Group Incorporated 17.8
Gulf Canada Resources Limited 7.2
Hilb, Rogal and Hamilton Company 13.6
IHOP Corp. 7.3
Pediatrix Medical Group, Inc. 13.0
Scott Technologies, Inc. 14.1
Thomas Industries, Inc. 10.9
TimberWest Forest Corp. 10.7
U.S. Industries, Inc. 5.7
VICORP Restaurants, Inc. 14.6
Wisconsin Central Transportation Corporation 11.2
Wyndham International, Inc. -- Class A 9.2
</TABLE>
NOTE 8. ILLIQUID OR RESTRICTED SECURITIES
The Realty Fund holds 2,060,000 shares of Beacon Capital Partners, Inc. (Beacon)
carried at $22,454,000 or $10.90 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, 2000.
On July 1, 1999, Beacon paid a taxable distribution of $9,013,144 in the form of
91,994 units of Wyndham International, Inc. Voting Trust. The Wyndham Voting
Trust structure allows Beacon Capital Partners to retain voting authority with
respect to their investment in Wyndham International without jeopardizing their
REIT status. The Wyndham Voting Trust shares are not registered and are subject
to transfer restrictions. The Wyndham Voting Trust subsequently paid
distributions in cash and 4,825 additional trust units. At June 30, 2000 the
96,819 total Wyndham Voting Trust units are carried at $7,745,520 or $80.00 per
unit.
On March 24, 2000, Beacon created another voting trust to distribute shares of
an unregistered, unlisted security, CO Space Preferred stock. The Realty Fund
received approximately 465,979 CO Space, Inc. Voting Trust units at a cost basis
of $697,000. On June 22, 2000, Beacon announced the closing of a stock for stock
transaction to merge the CO Space shares held in the Voting Trust into InterNAP
Network Services Corporation. At June 30, 2000, this Voting Trust is carried at
$2,842,387 or approximately $6.10 per share. The entire position was sold in a
private transaction on July 11, 2000 for $3,556,972.
39
<PAGE> 42
The Realty Fund also owns 14,600,000 shares of Excel Legacy Corp. Series A
Liquidating Preference Convertible Stock (Excel Preferred) valued at $35,314,480
or $2.4188 per share. The Excel Preferred shares were acquired in a private
placement which closed on March 31, 1998 and are convertible into common shares.
The registration statement for the Excel Preferred shares and the common shares
into which they are convertible became effective July 7, 2000. There is no
regular trading market for the Preferred shares.
Beacon, the Voting Trusts and Excel Preferred are valued in good faith under
guidelines established by the Board of Trustees. These investments represent
11.4% of the Realty Fund's net assets at June 30, 2000.
The International 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, and the relatively limited trading market for the
company's shares, a portion of this position may be somewhat illiquid. Gendis
represents 4.6% of the International Fund's net assets at June 30, 2000.
NOTE 9. RELATED OWNERSHIP
At June 30, 2000, 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................... 3,385,891 15.1%
Realty Fund.......................... 4,659,841 10.3
Small-Cap Fund....................... 3,326,358 5.3
</TABLE>
NOTE 10. COLLATERAL
Securities with the following aggregate market value were segregated to
collateralize portfolio obligations at June 30, 2000:
<TABLE>
<CAPTION>
Market
Value of
Segregated
Obligation Assets
------------------------- ---------------
<S> <C> <C>
Partners Fund............ Forward Currency
Contracts $209,000,000
International Fund....... Forward Currency
Contracts $163,670,466
Realty Fund.............. Newhall Land and Farming
Company Put Options
Written $ 24,375,000
</TABLE>
40
<PAGE> 43
(Intentionally Left Blank)
41
<PAGE> 44
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 UNREALIZED OPERATIONS INCOME GAINS
----------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
PARTNERS FUND
Six months ended June 30, 2000
(Unaudited)..................... $20.49 $.09 $ .44 $ .53 $ - $ -
Year ended December 31,
1999.......................... 24.39 .28 .34 .62 (.29) (4.23)
1998.......................... 25.98 .25 3.22 3.47 (.25) (4.81)
1997.......................... 22.85 .21 6.24 6.45 (.21) (3.11)
1996.......................... 21.15 .38 4.08 4.46 (.38) (2.38)
1995.......................... 17.13 .24 4.46 4.70 (.24) (.44)
INTERNATIONAL FUND
Six months ended June 30, 2000
(Unaudited)..................... 12.02 .11 1.38 1.49 - -
Year ended December 31, 1999...... 9.97 .06 2.38 2.44 (.06) (.33)
August 12, 1998 (Capitalization)
through December 31, 1998..... 10.00 .01 (.03) (.02) (.01) -
REALTY FUND
Six months ended June 30, 2000
(Unaudited)..................... 12.69 .32 .31 .63 - -
Year ended December 31,
1999.......................... 14.55 .36 (1.88) (1.52) (.23) -
1998.......................... 17.35 .44 (2.70) (2.26) (.43) -
1997.......................... 13.97 .09 4.06 4.15 (.09) (.64)
1996.......................... 10.00 .03 4.04 4.07 (.04) (.05)
SMALL-CAP FUND
Six months ended June 30, 2000
(Unaudited)..................... 20.20 .01 .29 .30 - -
Year ended December 31,
1999.......................... 21.95 .08 .79 .87 (.08) (2.54)
1998.......................... 22.18 .17 2.54 2.71 (.17) (2.77)
1997.......................... 17.86 .18 5.01 5.19 (.18) (.69)
1996.......................... 14.46 .02 4.41 4.43 (.02) (1.01)
1995.......................... 13.28 .12 2.35 2.47 (.12) (1.17)
</TABLE>
(a) Annualized
(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. For the International Fund, the
expense ratio before the waiver was 1.76%, 1.76% and 2.65% in 2000, 1999 and
1998, respectively. The Realty Fund's expense ratio in 1996 before the
waiver was 1.60%.
42
<PAGE> 45
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>
- $ - $21.02 2.59% $3,232,878 .94%(a) .86%(a) 7.88%
- (4.52) 20.49 2.18 3,622,109 .92 1.16 50.39
- (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
- - 13.51 12.40 303,960 1.75(a)(d) 1.90(a) 39.07
- (.39) 12.02 24.37 293,613 1.75(d) .60 50.32
- (.01) 9.97 9.02(c) 75,572 1.75(a)(d) .10(a) 24.05
- - 13.32 4.96 600,315 1.18(a) 4.95(a) 1.84
(.11) (.34) 12.69 (10.45) 643,311 1.17 1.42 22.64
(.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
- - 20.50 1.49 1,294,078 .99(a) .12(a) 6.09
- (2.62) 20.20 4.05 1,429,673 .97 .38 47.48
- (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
</TABLE>
43
<PAGE> 46
SERVICE DIRECTORY
CONTACT US AT WWW.LONGLEAFPARTNERS.COM OR
(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 from 9:00 a.m. to 6:00 p.m. Eastern
time, Monday through Friday.
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:
<TABLE>
<CAPTION>
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
</TABLE>
44
<PAGE> 47
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, Chief Financial
Officer
and Treasurer
Lee B. Harper, Executive Vice President - Marketing
Frank N. Stanley III, Vice President - Investments
Randy D. Holt, Vice President
Andrew R. McCarroll, Vice President, Secretary 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
45
<PAGE> 48
Longleaf Partners Funds SM
(800) 445-9469
www.longleafpartners.com
