Longleaf Partners Funds Trust - SEC.gov | HOME General Electric Vetco Gray, Singapore 1997-2006,...

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0000950144-08-006555.txt : 200808180000950144-08-006555.hdr.sgml : 2008081820080818154019ACCESSION NUMBER:0000950144-08-006555CONFORMED SUBMISSION TYPE:40-24B2PUBLIC DOCUMENT COUNT:14FILED AS OF DATE:20080818DATE AS OF CHANGE:20080818

FILER:

COMPANY DATA:COMPANY CONFORMED NAME:LONGLEAF PARTNERS FUNDS TRUSTCENTRAL INDEX KEY:0000806636IRS NUMBER:000000000STATE OF INCORPORATION:TNFISCAL YEAR END:1231

FILING VALUES:FORM TYPE:40-24B2SEC ACT:1940 ActSEC FILE NUMBER:811-04923FILM NUMBER:081025108

BUSINESS ADDRESS:STREET 1:C/O SOUTHEASTERN ASSET MANAGEMENTSTREET 2:6410 POPLAR AVE, SUITE 900CITY:MEMPHISSTATE:TNZIP:38119BUSINESS PHONE:9017612474

MAIL ADDRESS:STREET 1:C/O SOUTHEASTERN ASSET MANAGEMENTSTREET 2:6410 POPLAR AVE, SUITE 900CITY:MEMPHISSTATE:TNZIP:38119

FORMER COMPANY:FORMER CONFORMED NAME:SOUTHEASTERN ASSET MANAGEMENT FUNDS TRUSTDATE OF NAME CHANGE:19920703

FORMER COMPANY:FORMER CONFORMED NAME:SOUTHEASTERN ASSET MANAGEMENT VALUE TRUSTDATE OF NAME CHANGE:19881220

40-24B21g14770e40v24b2.htmLONGLEAF PARTNERS FUNDS TRUST

Longleaf Partners Funds Trust

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

40-24B-2

SALES LITERATURE OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-4923

LONGLEAF PARTNERS FUNDS TRUST
(Exact name of registrant as specified in charter)

c/o Southeastern Asset Management, Inc.
6410 Poplar Avenue; Suite900
Memphis, TN 38119
(Address of principal executive offices) (Zip code)

Registrants Telephone Number,Including Area Code - (901)761-2474

June30, 2008

Longleaf
Partners Fund

PHILOSOPHY

The Fund seeks to achieve superior long-term performance by acquiring equity securities ofcompetitively entrenched, financially strong, well-managed companies run by capable managements atmarket prices significantly below our assessment of their business value, and selling these stockswhen they approach our appraisal. We view equity investments as ownership in a businessenterprise. We determine business or intrinsic value through financial analysis and establisheddisciplines which we have consistently applied for 33years. Equities purchased at pricessubstantially less than their intrinsic worth should protect capital from significant loss andshould also appreciate substantially when the market ultimately recognizes corporate value.

OBJECTIVE/POLICY STATEMENT

Longleaf Partners Fund seeks long-term capital growth by investing primarily in a limited number ofmid and large cap companies believed to be significantly undervalued.

FUND MANAGEMENT

The Fund is managed by Southeastern Asset Management, Inc., a Memphis based firm. Founded in1975, the firm has 52 employees and manages over $39billion in assets.

INVESTMENT PARTNERSHIP

To align employee interests with those of shareholders and prevent conflicts of interest,Southeasterns Code of Ethics requires all employees to limit their investment in publicly tradedequity securities to the Longleaf Partners Funds (unless granted prior clearance.) The independentmembers of the Board of Trustees also must invest at least as much as their annual Trustees feesin the Funds.

GOVERNING PRINCIPLES

We will treat your investment in Longleafas if it were our own.

We will remain significant investors withyou in Longleaf.

We will invest for the long-term, whilestriving to maximize returns and minimizebusiness, financial, purchasing power, regulatory and market risks.

We will choose our equity investmentsbased on their discounts from our appraisalof their corporate intrinsic values, theirfinancial strengths, their managements, theircompetitive positions, and our assessmentof their future earnings potential.

We will concentrate our assets inour best ideas.

We will not impose loads, exit fees or 12b-lcharges on our investment partners.

We will consider closing the Fundsto new investors if closing wouldbenefit existing shareholders.

We will discourage short-term speculatorsand market timers from joining us, thelong-term investors in Longleaf.

We will communicate with our investmentpartners as candidly as possible.

All data as of 6/30/08

PORTFOLIO MANAGERS

Mason Hawkins,CFA
Southeastern since 1975

Staley Cates, CFA

PORTFOLIO CONSTRUCTION

Equities 99 %

Cash & Other 1 %

Total 100 %

AVERAGEANNUAL
PERFORMANCE as of 6/30/08

1 Year 5 Years 10 Years 20 Years

Longleaf Partners Fund (17.3 %) 7.6 % 7.2 % 13.2 %

Inflation + 10% 15.1 % 13.6 % 13.0 % 13.1 %

S&P 500 Index (13.1 %) 7.6 % 2.9 % 10.4 %

LONGLEAF PARTNERS FUND PROFILE

Initial Public Offering: 4/8/87

Net Assets: $10,701 million

YTD Expense Ratio: 0.89%; No loads, 12b-l, exit or performance fees

YTD Turnover: 9%

Investment Suitability: Appropriate for investors with atime horizon over 5 years

Symbol & Cusip: LLPFX; 54306910-8

Net Asset Value: $30.43

TOP TEN HOLDINGS 21 TOTAL HOLDING IN FUND

Dell information technology supplier 9.3 %

Chesapeake Energy oil & gas exploration & production 8.6 %

Liberty Media Entertainment media company that owns DTV 7.7 %

Pioneer Natural Resources oil & gas exploration & production 6.3 %

Liberty Media Interactive t.v., internet & catalog retail 5.3 %

NipponKoa Insurance non-life insurance 5.2 %

Aon Corp insurance brokerage & consulting 5.0 %

Cemex global cement company 4.8 %

FedEx Corporation time sensitive package delivery 4.7 %

eBay online auction, payment, & other services 4.6 %

Total 61.5 %

PERFORMANCE Yearly Returns

1988 35.2 % 1993 22.2 % 1998 14.3 % 2003 34.8 %

1989 23.3 % 1994 9.0 % 1999 2.2 % 2004 7.1 %

1990 (16.4 %) 1995 27.5 % 2000 20.6 % 2005 3.6 %

1991 39.2 % 1996 21.0 % 2001 10.3 % 2006 21.6 %

1992 20.5 % 1997 28.3 % 2002 (8.3 %) 2007 (0.4 %)

Thisfact sheet must be preceded or accompanied by a Prospectus. Returns do not reflectthe deduction of taxes that a shareholder would pay on Fund distributions or the redemption ofFund shares. Current performance may be lower or higher than the performance quoted. Please call1-800-445-9469 or view Longleafs website (www.longleafpartners.com) for more currentperformance information and for a copy of the current Prospectus, which should he read carefullyfor a discussion of investment objectives, management fees, expenses, and risks. Fund returns andthose of the unmanaged S&P 500 Index include reinvested dividends and distributions. TheU.S. Bureau of Labor Statistics compiles the monthly CP1-U values used to calculate inflation.Past performance (before and after taxes) is no guarantee of future performance, fund pricesfluctuate, and the value of an investment at redemption may be more or less than purchase price.The Funds Trustees may impose a redemption fee(payable to the Fund) for short term trades ifthey believe it necessary to deter market timing.

June30, 2008

Longleaf
Partners
International
Fund

PHILOSOPHY

The Fund seeks to achieve superior long-term performance by acquiring equity securities ofcompetitively entrenched, financially strong, well-managed companies run by capable managements atmarket prices significantly below our assessment of their business value, and selling these stockswhen they approach our appraisal. We view equity investments as ownership in a businessenterprise. We determine business or intrinsic value through financial analysis and establisheddisciplines which we have consistently applied for 33years. Equities purchased at pricessubstantially less than their intrinsic worth should protect capital from significant loss andshould also appreciate substantially when the market ultimately recognizes corporate value.


Longleaf Partners International Fund seeks long-term capital growth by investing primarily in alimited number of foreign companies of all sizes believed to be significantly undervalued.

FUND MANAGEMENT





We will treat your investment in Longleafas if it were our own.

We will remain significant investors withyou in Longleaf.

We will invest for the long-term, whilestriving to maximize returns and minimizebusiness, financial, purchasing power,regulatory and market risks.

We will choose our equity investments basedon their discounts from our appraisal of theircorporate intrinsic values, their financialstrengths, their managements, their competitivepositions, and our assessment of their futureearnings potential.

We will concentrate our assets in ourbest ideas.

We will not impose loads, exit fees or 12b-1charges on our investment partners.

We will consider closing the Funds to newinvestors it closing would benefit existingshareholders.

We will discourage short-term speculatorsand market timers from joining us, thelong-term investors in Longleaf.

We will communicate with our investmentpartners as candidly as possible.



Mason Hawkins, CFA

Staley Cates, CFA

Andrew McDermott

PORTFOLIOCONSTRUCTION

Equities 99 %

Cash & Other 1 %

Total 100 %

AVERAGE ANNUAL
PERFORMANCE as of 6/30/08

One Year Five Years Since IPO

Longleaf Partners

International Fund (12.6 %) 12.4 % 13.0 %

Inflation + 10% 15.1 % 13.6 % 13.2 %

MS EAFE Index (10.6 %) 16.7 % 6.6 %1

1 In 1998, the EAFE was available at month-end only: therefore, the EAFE value at October31,1998 was used to calculate performance since public offering.

INTERNATIONAL FUND PROFILE

Initial Public Offering: 10/26/98



YTD Turnover: 17%

Investment Suitability: Appropriate for investors with a time horizon over 5 years

Symbol & Cusip: LLINX; 54306940-5


TOP TEN HOLDINGS 21 Total Holdings in Fund

Dell information technology supplier 7.4 %

NipponKoa Insurance non-life insurance 7.4 %

Olympus imaging company 5.8 %

Fairfax Financial Holdings property/casualty insurance 5.8 %

Kyocera electronic components manufacturer 5.8 %

Ingersoll-Rand refrigeration & cooling 5.6 %

Millea non-life insurance 5.6 %

Japan Petrol oil & gas exploration & production 5.3 %

ACS Actividades construction, infrastructure & energy 5.0 %

YUM! Brands franchisor/owner-Taco Bell, KFC, Pizza Hut 4.8 %

Total 58.5 %

COUNTRY WEIGHTINGS

Equity Net Assets

Japan 37.6 % 37.3 %

US 12.3 % 12.2 %

Spain 8.3 % 8.2 %

UK 6.3 % 6.3 %

Canada 5.8 % 5.8 %

Bermuda 5.7 % 5.6 %

South Korea 4.7 % 4.7 %

Mexico 4.6 % 4.6 %

Ireland 4.6 % 4.5 %

Netherlands 4.3 % 4.3 %

Switzerland 3.1 % 3.1 %

France 2.7 % 2.6 %

Total 100 % 99.2 %

Cash/Other N/A 0.8 %

PERFORMANCE Yearly Returns

1998* 9.0 % 2001 10.5 % 2004 10.2 % 2007 15.3 %

1999 24.4 % 2002 (16.5 %) 2005 12.9 %

2000 25.9 % 2003 41.5 % 2006 17.1 %

* Partial year, initial public offering 10/26/98

This fact sheet must be preceded or accompanied by a Prospectus. Returns do not reflect thededuction of taxes that a shareholder would pay on Fund distributions or the redemption of Fundshares. Current performance may be lower or higher than the performance quoted. Please call1-800-445-9469 or view Longleafs website (www.longleafpartners.com) for more currentperformance information and for a copy of the current Prospectus, which should be read carefullyfor a discussion of investment objectives, management fees, expenses, and risks. Fund returnsand those of the unmanagedand unhedged MS EAFE Index include reinvested dividends and distributions. The U.S. Bureau ofLabor Statistics compiles the monthly CPI-U values used to calculate inflation. The Fund usescurrency hedging as an investment strategy. Past performance (before and after taxes) is noguarantee of future performance, fund prices fluctuate, and the value of an investment atredemption may be more or less than purchase price. The Funds Trustees may impose a redemption fee (payable to theFund) for short term trades if they believe it necessary to deter market timing.

June30, 2008

Longleaf Partners
Small-Cap Fund

closed to new investors

PHILOSOPHY

The Fund seeks to achieve superior long-term performance by acquiring equity securities ofcompetitively entrenched financially strong, well-managed, companies run by capable managementsat market prices significantly below our assesment of their business value, and selling thesestocks when they approach our appraisal. We view equity investments as ownership in a businessenterprise. We determine business or intrinsic value through financial analysis and establisheddisciplines which we have consistently applied for 33years. Equities purchased at pricessubstantially less than their intrinsic worth should protect capital from significant loss andshould also appreciate substantially when the market ultimately recognizes corporate value.


Longleaf Partners Small-Cap Fund seeks long-term capital growth by investing primarily in a limitednumber of small companies believed to be significantly undervalued.

FUND MANAGEMENT





We will treat your investment in Longleaf as if it were our own.

We will remain significant investors with you in Longleaf.

We will invest for the long-term, while striving to maximize returns and minimize business,financial, purchasing power, regulatory and market risks.

We will choose our equity investments based on their discounts from our appraisal of theircorporate intrinsic values, their financial strengths, their managements, theircompetitive positions, and our assessment of their future earnings potential.

We will concentrate our assets in our best ideas.

We will not impose loads, exit fees or 12b-1 charges on our investment partners.

We will consider closing the Funds to hew investors if closing would benefit existingshareholders.

We will discourage short-term speculators and market timers from joining us, the long-terminvestors in Longleaf.

We will communicate with our investment partners as candidly as possible.



Mason Hawkins, CFA

Staley Cates, CFA

PORTFOLIOCONSTRUCTION

Equities 96 %

Cash & Other 4 %

Total 100 %

AVERAGE ANNUAL
PERFORMANCE as: of 6/30/08

1 Year 5 Years 10 Years 15 Years

Longleaf Partners Small-Cap Fund (17.8 %) 11.1 % 9.2 % 12.9 %

Inflation + 10% 15.1 % 13.6 % 13.0 % 12.8 %

Russell 2000 Index (16.2 %) 10.3 % 5.5 % 8.9 %

SMALL-CAP FUND PROFILE

Initial Public Offering: 2/21/89; closed to new investors



YTD Turnover: 7%

Investment Suitability: Appropriate for investors with atime horizon over 5 years

Symbol & Cusip: LLSCX; 54306920-7


TOP TEN HOLDINGS - 22 Total Holdings in Fund

Pioneer NaturalResources oil & gas exploration & production 10.0 %

Washington Post education & media company 6.6 %

Texas Industries construction materials 5.8 %

Worthington Industries manufacturing & steel processing 5.3 %

Fairfax FinancialHoldings property/casualty insurance 5.0 %

Level 3 Communications telecom/info service provider 5.0 %

Potlatch timber company 4.9 %

Wendys fast food restaurant operator 4.8 %

Ruddick Harris Teeter grocery stores 4.8 %

Office Depot office products retailer 4.5 %

Total 56.7 %

PERFORMANCE - Yearly Returns

1989*1

21.5 % 1994 3.6 % 1999 4.1 % 2004 14.8 %

1990*

(30.1 %) 1995 18.6 % 2000 12.8 % 2005 10.8 %

1991* 26.3 % 1996 30.6 % 2001 5.5 % 2006 22.3 %

1992 6.9 % 1997 29.0 % 2002 (3.7 )% 2007 2.8 %

1993 19.8 % 1998 12.7 % 2003 43.9 %

1 Partial year, initial public offering on 2/21/89-12/31/89.

* From public offering through 3/31/91 Fund was managed by a different portfolio manager

This fact sheet must be preceded or accompanied by a Prospectus. Returns do not reflectthe deduction of taxes that a shareholder would pay on Fund distributions or the redemption ofFund shares. Current performance may be lower or higher than the performance quoted.Please call 1-800-445-9469 or view Longleafs website (www.longleafpartners.com) for morecurrent performance information and for a copy of the current Prospectus, which should be readcarefully for a discussion of investment objectives, management fees, expenses, and risks. Fundreturns and those of the unmanaged Russell 2000 Index include reinvested dividends anddistributions. The U.S. Bureau of Labor Statistics compiles the monthly CPI-U values used tocalculate inflation. Past performance (before and after taxes) is no guarantee of futureperformance, fund prices fluctuate and the value of an investment at redemption may be more orless than purchase price. The Funds Trustees may impose a redemption fee (payable to the Fund)for short term trades if they believe it necessary to deter market timing

Southeastern Asset Management, Inc.

6410 Poplar Ave, Suite900 Memphis, TN 38119 (901)761-2474

BACKGROUND

Year Founded: 1975

Headquarters: Memphis, Tennessee

Research Offices: London, Tokyo & Singapore

Staff: 52 Employees

9 Research Team Members

Ownership Structure: Independent; 100% employee owned

Assets Under Management (6/30/08): $39.4 billion

U.S. large cap separate accounts: $11.0 billion (closed)

International separate accounts: $1.3 billion

Global separate accounts: $10.0 billion

Longleaf Partners Fund: $10.7 billion

Longleaf Partners Small-Cap Fund: $3.1 billion (closed)

Longleaf Partners International Fund: $3.3 billion

Partnership Investing: -The Longleaf Funds are the exclusive equity vehicle for Southeasterns retirement plan and employee equity investments.

-Southeastern employees and their families are Longleafs largest shareholder group.

Investment Discipline: Value oriented; long time horizon

Target Return: Inflation +10%

Portfolio Management: Team approach

6410 POPLAR AVE, SUITE900 MEMPHIS, TN 38119 (901)761-2474

REPRESENTATIVE CLIENT LIST

Corporate Retirement Plans

American Airlines

Northrop Grumman

Bhs

OfficeMax

Cable & Wireless

Ormet

Cox Enterprises

Pactiv

DSG

Parker-Hannifin

DTE Energy

Pearson Group Pension Trustee Limited

EDS

Reuters

General Mills

Rollins

Kellogg Company

Smurfit-Stone

Lloyds Register

Stagecoach

Lloyds TSB

Syngenta

Lonza America

Tesco

National Grid USA

Nestle

Academic Institutions

Allegheny College

Temple University

Claremont McKenna College

University of Colorado

Cornell University

University of Florida

Georgia Tech

University of Georgia

Grinnell College

University of Nebraska

Groton School

University of Pennsylvania

Hamilton College

University of Pittsburgh

Loyola University New Orleans

University of Rochester

St. Andrews School

Wellesley College

Syracuse University

Foundations and Nonprofit Institutions

American Legacy Foundation

North Shore-Long Island Jewish

American Museum of Natural History

Health System

American Psychological Association

The Andrew W. Mellon Foundation

Carnegie Institution of Washington

The Church Pension Fund

Cisco Systems Foundation

The Duke Endowment

Dana-Farber Cancer Institute

The Nature Conservancy

Gordon and Betty Moore Foundation

The New York Public Library

Kauffman Foundation

Yawkey Foundation

Clients chosen for the list consist of equity separate institutional accounts and includeregionally and nationally recognized accounts representative of each category. Not all accounts ineach category have been listed, and the accounts shown were not selected as the result of theirinvestment performance. The listing is not intended to be a representation that the particularclients approve of Southeastern Asset Management, Inc. or the services it provides.

6410 Poplar Ave. Suite900 Memphis, TN 38119 (901)761-2474

BIOGRAPHIES

RESEARCH/PORTFOLIO MANAGEMENT

O. Mason Hawkins, CFA

Chairman and Chief Executive Officer

Southeastern since 1975.
1974-75, Director of Research, First Tennessee Investment Management, Memphis.
1972-73, Director of Research, Atlantic National Bank, Jacksonville.
Chartered Financial Analyst, 1979
Past President, Memphis Society of Financial Analysts, 1983

B.A. (Finance) University of Florida, 1970
M.B.A.(Finance) University of Georgia, 1971
Born 10 March1948

G. Staley Cates, CFA

President

1986, Research Associate, Morgan, Keegan & Company, Memphis.

B.B.A. (Finance) University of Texas, 1986
Born 5 October1964

T. Scott Cobb

Vice President

Southeastern since 2006. Based in London.
2004-2006 Smith, Salley & Associates, Greensboro.
2000-2004 Private Investor, Chapel Hill.
1995-2000 CST Investments, LLC, Memphis.

B.A. (History) University of Memphis, 1997
M.A. (Theological Studies) Covenant Theological Seminary, 1999
Born 3 October1974

Jason E. Dunn, CFA

Vice President

B.A. (Business & Economics) Rhodes College, 1999
Born 27 November1976

Ross Glotzbach, CFA

Vice President

2003-2004, Corporate Finance Analyst, Stephens, Inc., Little Rock.

B.A. (Economics) Princeton University, 2003
Born 30 July1980


RESEARCH/PORTFOLIO MANAGEMENT (continued)

E. Andrew McDermott

Vice President

Southeastern since 1998. Based in London.
1994-1998, J.P. Morgan, Hong Kong, Singapore, San Francisco.
1992-1994, NEC Logistics, Tokyo.

B.A. (History) Princeton University, 1992
Born 21 June1969

Ken Ichikawa Siazon

Vice President

Southeastern since 2006. Based in Asia.
1997-2006, Lehman Brothers, Singapore, Tokyo, Hong Kong
1994-1997, JP Morgan, Hong Kong, New York
1990-1992, Ford Motor Company, Tokyo
1989-1990, Fuji Bank, Tokyo

B.S. (Systems Engineering) University of Virginia, 1989
M.B.A. Harvard Business School, 1994
Born 26 November 1967

Lowry H. Howell, CFA

Analyst

2000-2005, Security Analyst and Principal, Flippin, Bruce & Porter, Lynchburg.
1995-2000, Equity Analyst, Associate Vice President, Southern Capital Advisors, Memphis.

B.A. (Finance) Rhodes College, 1995
M.S. (Accounting) Rhodes College, 1996
Born 20 January1973

Josh Shores, CFA

Analyst

2004-2007, Smith, Salley & Associates, Greensboro.
2002-2004, Franklin Street Partners, Chapel Hill.

B.A. (Philosophy & Religious Studies) University of North Carolina, 2002
Born 28 April1980


CLIENT PORTFOLIO MANAGEMENT

Jim Barton, Jr., CFA

Vice President

1991-1998, Proprietary Futures/Options Trader, Louis Dreyfus Corp., Memphis.
1990-1991, Professional Basketball Player, BG-07 Ludwigsburg, Germany.

B.A. (History) Dartmouth College, 1989
Born 4 September1966

Lee B. Harper

Vice President

1989-1993, Consultant, IBM, Memphis.
1985-1987, Business Analyst, McKinsey & Company, Atlanta.

B.A. (History, Communications) University of Virginia,1985
M.B.A. Harvard Business School, 1989
Born 3 April1963

Frank N. Stanley, III, CFA

Vice President

1974-1984, Portfolio Manager and Analyst, Montag & Caldwell, Atlanta.
1972-1973, Investment Officer, Atlantic National Bank, Jacksonville.
1966-1969, Lieutenant, U.S. Navy.

B.S. (Management) Georgia Institute of Technology, 1964
Emory University, 1965
M.B.A. (Marketing) University of Florida, 1970
Born 8 December1941

Gary M. Wilson, CFA

Vice President

1998-2002, Marketing, Citigroup, Tokyo
1993-1994, Business Development, Baystate Financial Services, Boston

B.A. (History) Colgate University, 1992
M.A, International Economics, Johns Hopkins School of Advanced International Studies, 1998
Born 20 January1970


CLIENT PORTFOLIO MANAGEMENT (continued)

Gwin Griesbeck

Associate

2006-2008, Investor Relations, Thales Fund Management, New York.
2004-2006, Investor Relations, Twinfields Capital Management, Greenwich, CT.
2003-2004, Consultant, Deloitte and Touche, New York.

B.C. (Finance and Marketing) McIntire School of Commerce, University of Virginia, 2003
Born 4 May1981

TRADING

Deborah L. Craddock, CFA

Vice President

1986-1987, Sales Assistant, Robinson-Humphrey Co., Inc., Memphis.

B.A. (Economics) Rhodes College, 1980
Born 25August1958

Jeffrey D. Engelberg, CFA

Vice President

2005-2007, Senior Trader, Fir Tree Partners, New York.
2001-2005, Convertible Bond Trader, KBC Financial Products, New York.
1999-2000, Listed Equity Trader, Morgan Stanley, New York.

B.S. (Economics), Wharton School, University of Pennsylvania, 1998
M.B.A. Wharton School, University of Pennsylvania, 1999
Born 8September1976

Dallas Geer

Associate

2001-2004, Trading Assistant, Tudor Investment Corp, Greenwich, CT.

B.A. (Accounting) University of Tennessee, 1998
M.B.A. University of Tennessee, 2001
Born 3 October1977

6410 Poplar Ave. Suite 900 Memphis, TN 38119 (901)761-2474

CLIENT ACCOUNTING

Nancy L. Thompson, CPA

Director of Client Accounting

1990-1996, Partner, Ott & Associates, CPAs, Memphis.
1985-1990, Jack T. Chism & Company, CPAs.
Certified Public Accountant, 1987.

B.A. University of Tennessee, 1976
M. Ed. University of North Florida, 1978
Born 24 July1954

Jamie H. Baccus, CPA

Portfolio Accountant

2003-2004, Mortgage Reconciliations Supervisor, Union Planters Bank.
2002-2003, Audit Supervisor, Horne CPA Group, Jackson, MS.
1999-2002, Audit Associate, Horne CPA Group, Jackson, MS.
Certified Public Accountant, 2001

BSBA (Accounting) Auburn University, 1998
Master of Accountancy University of Alabama, 1999

Pam Evans, CPA


2003-2004, Tax Manager, Reynolds, Bone & Griesbeck, PLC.
1996-2002, Reynolds, Bone & Griesbeck, PLC.
Certified Public Accountant, 1996.
B.A. University of Kentucky, 1972
Born 21 May1950

Joy Mains


2000-2002 Senior Accountant, KPMG LLP.
1999-2000 Staff Accountant, KPMG LLP.

B.B.A. University of Memphis, 1999
Born 24 March1977


CLIENT ACCOUNTING (continued)

Carol Nordtvedt


1992-1998, Accountant, Social Services.
1978-1981, Public Accounting Experience.

B.S. (Accounting) George Mason University, 1978
Born 3 June1953

Laura A. Wynn



Miller Hawkins Business College, 1978
Born 31 December1959

ADMINISTRATION

Steven G. Fracchia, CPA

Chief Financial Officer

1996-2007, Partner, Rhea & Ivy, PLC.
1994-1996, Controller, ALSAC/St. Jude Childrens Research Hospital.
1990-1994, Coopers & Lybrand (Pricewaterhouse Coopers).

B.S. (Accounting) University of Alabama, 1990
Born 29 August1968

Richard Hussey

Vice President and Chief Operating Officer

1997-1998, Director, Datacomm Solutions and Connectivity, Memphis.
1993-1998, Vice President, Circle H Farms, Memphis.
1991-1993, Global Technology and Operations Associate, J.P. Morgan, New York.

B.S. (Applied Economics & Business Management) Cornell University, 1991

Joseph L. Ott, CPA

Vice President, Treasurer and OperationsDirector

1983-1991, Partner, Ott & Associates, CPAs, Memphis.
1972-1983, Partner & Associate, Harry M. Jay & Associates, CPAs, Memphis.
1971-1972, Staff Accountant, Arthur Andersen & Co., New Orleans.
Certified Public Accountant, Mississippi, 1974: Tennessee, 1975.

B.S. (Accounting) Mississippi State University, 1971


ADMINISTRATION (continued)

Julie M. Douglas, CPA

Vice President and CFO - Mutual Funds

1987-1989, Audit Supervisor, Coopers & Lybrand, Birmingham.
1984-1987, Audit Senior, Coopers & Lybrand, Pittsburgh.
Certified Public Accountant, Pennsylvania, 1986: Tennessee, 1990.

B.S. (Accounting) Pennsylvania State University, 1984
Born 19 February1962

Dronda P. Morrison, CPA

Controller


1998-2004, Business Manager, St. Agnes Academy- St. Dominic School, Inc.

1978-1998, Controller, Les Passees Childrens Services

1976-1978, Accounts Payable Supervisor, Memphis Bank and Trust

Certified Public Accountant, Tennessee, 1985

B.B.A. (Accounting) Memphis State University, 1975


Suzanne K. Ross, CPA

Portfolio Compliance Specialist

2004 -2005, Staff Accountant, KPMG LLP.
Certified Public Accountant, 2005

Bachelorof Accountancy, Mississippi State University, 2002
Master of Professional Accountancy, Mississippi State University, 2003
Born 9 June1981

M. Andrew Wylie

Information Technology Manager

1999-2004, Project Manager, IBM Global Services, Memphis/Atlanta.

B.A. (Economics) Rhodes College, 1999
Born 27 May1977

6410 POPLAR AVE. SUITE 900 MEMPHIS, TN 38119 (901)761-2474

LEGAL

Andrew R. McCarroll Vice President and General Counsel


1996-1998, Farris Warfield & Kanaday, PLC, Nashville.

B.A. (English) Vanderbilt University, 1990

M.A. University of Chicago, 1993

J.D. Vanderbilt Law School, 1996

Born 26 October1967

Michael J. Wittke Legal Counsel and Chief Compliance Officer


1996-2002, PricewaterhouseCoopers, LLP, Boston.

B.A. (Business Administration) Michigan State University, 1993

J.D.Boston College Law School, 1996

Born 8 March1971

Joseph A. Antonio Legal Counsel

Southeastern since 2008. Based in Asia.

2008, SAPAG, Singapore

2006-2007, General Electric Vetco Gray, Singapore

1997-2006, Unocal Corporation, Philippines

1995-1997, Philippine Stock Exchange, Philippines

B.A. (Political Science), University of the Philippines, 1988

Bachelor of Law, University of the Philippines College of Law, 1993

Born 7 April1967

Steven P. McBride Legal Counsel


2001-2005, Senior Counsel, International Paper Company, Memphis.

1997-2001, Associate, Glankler Brown, PLLC, Memphis.

B.A. (Economics) University of Memphis, 1992

J.D.Notre Dame Law School, 1997

Born 5 May1970


INVESTMENT PHILOSOPHY

Superior long term investment performance can be achieved when financially strong, well managedcompanies are bought at prices significantly below their business value and sold when they approachcorporate worth.

Stocks represent ownership in a business enterprise.

Every business enterprise has a value.

With analytical work corporate worth can be determined.

When we buy stocks at significant discounts to their corporate worth:

It protects capital from significant loss over the long-term.

It allows for large reward when the value is recognized.


Security Selection Criteria

Investment = Safety of Principal + Adequate Return

Assumptions for Example Above: If we buy a business at 50% of appraisal, and the enterprise valuegrows at 12% per annum, and in the fifth year the stock price reaches its full appraisal, we willhave compounded our investment 29% per year. Two-thirds of the return comes from closing the gapbetween price and value. This chart does not reflect the performance of any particular security.

Research Process

analysts work+ analysts visit management We spend aver 80% of our time on thispart of theprocess.Team decides2X

INTERNATIONAL EQUITY


INTERNATIONAL SEPARATE ACCOUNTS

Background

Southeastern has owned both U.S. and overseas companies throughout the firms history.

In the late 1990s portfolios held up to 30% of assets in foreign securities because U.S.stocks did not meet Southeasterns required discount while non-U.S. opportunities were abundant.

At the time, all accounts were U.S. mandates, and mostclients limited overseas holdings.

Because the employees of Southeastern wanted to take advantage of the compelling non-U.S.investments, we seeded Longleaf Partners International Fund in October1998. We simultaneouslyoffered comparable separate accounts.

Management of International Portfolios

Southeastern has a single investment team that shares a common approach and is tasked withfindingthe best investment opportunities without regard to size, location or industry. The teamcollectivelydetermines which names to hold in clientsportfolios.

International portfolios normally contain18-20 securities.

Country and industry weightings are a by-product of bottom upinvestment decisions.

Portfolios contain not only companies headquartered outsideof the U.S., but also U.S. domiciledcompanies with more than half of revenues, profits or appraised value derived from non-U.S.locations.

Market caps are a by-product of bottom up investment decisions. Most namesare at least $1billion given the size of Southeasterns asset base and the concentrated approach.

Cashis a by-product of a lack of investment opportunities that meet Southeasterns criteria. Whenwe have not found stocks selling at the requisite discount for prolonged periods, cash hasapproached 30% of the portfolios for limited periods.

For new accounts we do not hedgecurrency exposure and do not have a view on the direction ofcurrency markets. We appraise businesses and leave decisions about hedging to our clients.

International Accounts as of 6/30/08

14 accounts

$4.6billion in assets ($3.3billion is Longleaf PartnersInternational Fund)

$50million minimum account size

Fees

150 basis points on the first $50million

125 basis points on $50-$100million

100 basis points on all assets over $100million

6410POPLAR AVE. SUITE 900 MEMPHIS, TN 38119 (901)761 -2474

LONGLEAF PARTNERS INTERNATIONAL FUND

Performance for periods ending 6/30/08, net of fees

Cumulative Total Return Average Annual Return

IPO IPO

1 year 5 years (10/26/981 1 Year 5 Years (10/26/98)

LLIN -12.6 % 79.6 % 226.0 % -12.6 % 12.4 % 13.0 %

Inflation+ 10% 15.1 % 89.1 % 230.6 % 15.1 % 13.6 % 13.2 %

MSCI EAFE -10.6 % 116.2 % 86.1 % -10.6 % 16.7 % 6.6 %

PercentileRanking Versus MSCI EAFE Managers

1 year 5 years 9.5 years

LLIN 70 98 8

A Prospectus should precede or accompany this information. The average annual total returns ofLongleaf Partners International Fund (LLIN)are net of fees and include changes in principal value,reinvested dividends and capital gains distributions. Performance does not reflect taxes that ashareholder would pay on distributions or share redemptions. The MSCI EAFE Index(EAFE) showsdividends and distributions reinvested. In 1998, EAFE was available only at month-end; therefore,we use EAFEs value at 10/31/98 to calculate EAFE performance since public offering. EAFE isunmanaged and unhedged. Southeastern sometimes hedges currency for LLIN. Past performance cannotguarantee future results, fund prices fluctuate and redeemed shares may be higher or lower thantheir purchase price. Separately managed international accounts will perform differently. Currentperformance of LLIN may be higher or lower than the performance shown. Call 1-800-445-9469 orviewwww.longleafpartners. com for the most recent performance or forthe Funds Prospectus, whichcontains investment objectives, management fees, expenses, and risks. Read the Prospectus carefullybefore investing. Callan Associates provided the following performance and ranking based onaverage annual total returns of 99 investment companies representing $310billion in assets andclassified by Callan Associates as non-US equity funds employing various strategies to investassets in a well-diversified portfolio of non-U.S. developed market equity securities, excludingregional specialists, index and emerging market products.

6410Poplar Ave, Suite 900 Memphis, TN 38119 (901)761-2474

LONGLEAF PARTNERS INTERNATIONAL FUND

Yearly Investment Performance

YEAR Net of fees MSCIEAFE

1998*

9.0 % 10.9 %

1999

24.4 % 27.0 %

2000

25.9 % -14.1%

2001

10.5 % -21.4%

2002

-16.5%

-15.9%

2003

41.5 % 38.6 %

2004

10.2 % 20.3 %

2005

12.9 % 13.5 %

2006

17.1 % 26.3 %

2007

15.3 % 11.2 %

2 Quarters 2008

-12.9%

-11.0%

Annualized Return from

13.0 % 6.6 %

IPO (10/26/98) to 6/30/08

* Partical year, initial public offering 10/26/98

A Prospectus should precede or accompany this information. The average annual total returns ofLongleaf Partners International Fund (LLIN)are net of fees and include changes in principalvalue, reinvested dividends and capital gains distributions. 1year return as of 6/30/08 was- -12.6%, 5year was 12.4%. Performance does not reflect taxes that a shareholder would pay ondistributions or share redemptions. The MSCI EAFE Index(EAFE) shows dividends and distributionsreinvested. In 1998, EAFE was available only at month-end; therefore, we use EAFEs value at10/31/98 to calculate EAFE performance since public offering. EAFE is unmanaged and unhedged.Southeastern sometimes hedges currency for LLIN. Past performance cannot guarantee future results,fund prices fluctuate and redeemed shares may be higher or lower than their purchase price.Separately managed international accounts will perform differently. Current performance of LLIN maybe higher or lower than the performance shown. Call 1-800-445-9469 or view www.longleafpartners.com for the most recent performance or for the Funds Prospectus, which contains investmentobjectives, management fees, expenses, and risks. Read the Prospectus carefully before investing.

6410 Poplar Ave Suite 900 Memphis, TN 38119 (901)761-2474

LONGLEAF PARTNERS FUNDS

SEMI-ANNUAL REPORT

at June30, 2008

PARTNERS FUND

SMALL-CAP FUND

INTERNATIONAL FUND

MANAGED BY:

SOUTHEASTERN ASSET MANAGEMENT, INC.

Memphis, TN

Cautionary Statement

One of Longleafs Governing Principles is that we will communicate with our investment partners as candidly as possible, because we believe our shareholders benefit from understanding our investment philosophy and approach. Our views and opinions regarding the investment prospects of our portfolio holdings and Funds are forward looking statements which may or may not be accurate over the long term. While we believe we have a reasonable basis for our appraisals and we have confidence in our opinions, actual results may differ materially from those we anticipate. Information provided in this report should not be considered a recommendation to purchase or sell any particular security.

You can identify forward looking statements by words like believe, expect, anticipate, or similar expressions when discussing prospects for particular portfolio holdings and/or one of the Funds. We cannot assure future results and achievements. You should not place undue reliance on forward looking statements, which speak only as of the date of this report. We disclaim any obligation to update or alter any forward looking statements, whether as a result of new information, future events, or otherwise. This material must be preceded or accompanied by a Prospectus. Please read the Prospectus carefully for a discussion of fees, expenses, and risks. Current performance may be lower or higher than the performance quoted herein. You may obtain a current copy of the Prospectus or more current performance information by calling 1-800-445-9469 or at Longleafs website (www.longleafpartners.com).

The price-to-value ratio (P/V) is a calculation that compares the prices of the stocks in a portfolio to Southeasterns appraisal of their intrinsic values. P/V represents a single data point about a Fund, and should not be construed as something more. We caution our shareholders not to give this calculation undue weight. P/V alone tells nothing about:

The quality of the businesses we own or the managements that run them;

The cash held in the portfolio and when that cash will be invested;

The range or distribution of individual P/Vs that comprise the average; and

The sources of and changes in the P/V.

When all of the above information is considered, the P/V is a useful tool to gauge the attractiveness of a Funds potential opportunity. It does not, however, tell when that opportunity will be realized, nor does it guarantee that any particular companys price will ever reach its value. We remind our shareholders who want to find a single silver bullet of information that investments are rarely that simple. To the extent an investor considers P/V in assessing a Funds return opportunity, the limits of this tool should be considered along with other factors relevant to each investor.

2008 Longleaf Partners Funds Trust. All Rights Reserved.

LONGLEAF, LONGLEAF PARTNERS FUNDS and the pine cone logo are registered trademarks of Longleaf Partners Funds Trust. SOUTHEASTERN ASSET MANAGEMENT, INC. is a registered trademark.

CONTENTS

Letter to Shareholders

1

Longleaf Partners Fund (Partners Fund)

Management Discussion

5

Performance History

8

Portfolio Summary

9

Portfolio of Investments

10

Longleaf Partners Small-Cap Fund (Small-Cap Fund)


14

Performance History

16

Portfolio Summary

17


18

Longleaf Partners International Fund (International Fund)


20

Performance History

22

Portfolio Summary

23


24

Financial Statements and Footnotes

28

Financial Highlights

42

Expense Example

44

Fund Information

47

Service Directory

49

Longleaf Partners Funds

LETTER TO SHAREHOLDERS

TO OUR SHAREHOLDERS:

The Partners and International Funds outperformed their respective benchmark indices in the second quarter, and both Partners and Small-Cap posted positive returns. Returns were volatile with a strong rally in April, slight gains in May, and material market declines across the globe in June. Each Fund remains in negative territory in 2008, far from our absolute goal of inflation plus 10%. Over the last decade or more, however, the three Funds have significantly outperformed the relevant benchmarks. As a result of lower stock prices, stable to growing values, and portfolio changes, the price-to-value ratio (P/V)of each Fund is below 60%, a level rarely seen in our firms history and well below the historic average in the high-60%s.

Cumulative Returns through June30, 2008

2nd

Inception

15Year

10Year

5Year

1Year

Quarter

Partners Fund
(4/8/87 IPO)

1169.7

%

471.4

%

100.6

%

44.0

%

(17.3

)%

3.0

%

Inflation plus 10%

1294.9

510.5

239.6

89.1

15.1

4.4

S&P 500 Index*

613.1

275.3

32.9

44.1

(13.1

)

(2.7

)

Small-Cap Fund
(2/21/89 IPO)

679.8

514.4

140.7

69.6

(17.8

)

0.3

Inflation plus 10%

992.9

510.5

239.6

89.1

15.1

4.4

Russell 2000 Index

483.1

260.3

71.2

63.2

(16.2

)

0.6

International Fund
(10/26/98 IPO)

226.0

NA

NA

79.6

(12.6

)

(1.6

)

Inflation plus 10%

230.6

NA

NA

89.1

15.1

4.4

EAFE Index*

86.1

NA

NA

116.2

(10.6

)

(2.3

)

* During the inception year, these indices were available at month-end only; therefore, the S&P 500 Index value at 3/31/87 and the EAFE Index value at 10/31/98 were used to calculate performance since inception. Additional performance information for each Fund can be found on pages8,16 and 22.

Periods of volatility such as we experienced over the last three quarters demonstrate the markets pricing inefficiency and illustrate the importance of knowing a companys intrinsic or private market value, which usually swings very little over a short-term period. For example, our appraisal of Dell rose in the second quarter based on the companys reported cash flow and share reduction. The stock price, however, fluctuated wildly, rising almost 34% from its low point of $18.24 in mid-April to its high of $24.45 in mid-June, and ending June at $21.88, 10% below the high but almost 10% above where the quarter began.

1



Emotion-laden pricing provides opportunity for long-term investors who hinge decisions on business appraisals. At a time when many value managers whom we admire have faced forced liquidations to meet redemptions, Longleafs investment partners have acted rationally, maintaining and in many cases adding to their investments. Net inflows have allowed us to take advantage of Mr.Market who has put numerous existing and qualifying new businesses across the world on sale at compelling prices. With cash flows and the proceeds from sold or scaled back names, we have bought more of our highest quality companies at lower prices.

The economic forces creating investor discomfort record oil and commodity prices, ongoing credit crisis, housing bubble fallout, and global economic slowdown have impacted the Funds. On the positive side Longleafs three oil and gas holdings, Chesapeake, Pioneer Natural Resources, and Japan Petroleum have helped returns. Our appraisals assume oil and gas prices dramatically below current levels. In spite of the stocks appreciation and our conservative assumptions, these companies trade well below their values, and Japex is among the most discounted names in the International Fund.

Conversely, high oil and commodity prices have permeated corporate and individual purchasing habits, squeezed margins, and slowed sales at a number of companies. In addition, economic headwinds have adversely impacted almost all financial companies. Many of the Funds stocks have not been immune. The global economic slowdown and higher operating costs also have lowered average appraisal growth in the Funds to less than the annualized double-digit gains we desire. Most companies values, however, have grown or held steady rather than declined because of business improvements, less economic sensitivity, and/or significant share repurchases.

Buyback activity has remained a bright spot. The pace of repurchases discussed in the First Quarter Report has continued, helping appraisals build in an economic environment where they otherwise might not. Not only have current buybacks increased value per share, but they have illustrated the quality of our management partners capital allocation skills. The fact that so many holdings have excess capital to buy in shares in this challenging economy is a testament to the financial strength and competitive advantages of what we own.

When we believe that becoming more active can improve the value growth and /or value recognition at a holding, we will take action. Recently we have had several management interactions to address maximizing shareholder value. We had a Schedule 13D filed on Hilb Rogal prior to its being bought by Willis; we made public our belief that the TDS independent directors have represented independent shareholders interests poorly; we encouraged the recent change in board members at both Dillards and UBS; we filed a Schedule 13D at Pioneer to discuss value recognition alternatives with management as

2



well as outsiders; and we made public our intent to vote against the new CEO of NipponKoa. Being activist is not our intent, but we will take action to insure that our interests and those of our fellow shareholders are well represented.

We do not know how long economic uncertainty and shareholder fear will last. Bear markets do not die of old age. The mispricing, however, is providing the opportunity to own high quality companies with terrific five year outlooks that imply high long-term IRRs. We are aggressively adding personal capital to the Funds and encourage our partners to do the same. Given that bullish sentiment is at its lowest level in 14years and that some are recommending exiting equities altogether, there is plenty of panic in the air. Historically, the best time to invest has been when owning stocks has felt the worst.

Throughout history a small number of successful investors have used periods of fear to build portfolio foundations for substantial long-term gain. John Marks Templeton was among the greatest. We pay tribute to Sir John who not only provided a role model for investing, but also was a trusted advisor and supportive investment partner. In Southeasterns formative years Sir John graciously shared his wisdom with us, offering sound advice for building an investment firm. Much of our success has been attributable to following his core beliefs including:

treating shareholders as partners and communicating openly with them;

being willing to go against popular or consensus thinking when supported by conservative appraisals;

seeking opportunities worldwide rather than solely in the U.S.;and

striving to buy stocks at the point of maximum pessimism.

We will miss Sir John but will continue to embrace his investing principles. We share the optimism he portrayed in a quote printed by the Wall Street Journal. Throughout history, people have focused too little on the opportunities that problems present in investing and in life in general. The 21stcentury offers great hope and glorious promise, perhaps a new golden age of opportunity.

Sincerely,

O. Mason Hawkins, CFA
Chairman & CEO
Southeastern Asset Management, Inc.

G. Staley Cates, CFA
President
Southeastern Asset Management, Inc.

3

Intentionally Left Blank

4

Partners Fund

MANAGEMENT DISCUSSION

Longleaf Partners Fund gained 3.0% in the second quarter, bringing the year-to-date return to (8.2)%. These results outpaced the S&P 500, which declined 2.7% in the quarter and is down 11.9% year-to-date but the Partners Fund is well behind our annual absolute goal of inflation plus 10%. The long-term returns below reflect an impressive record. We believe that with todays portfolio foundation the Fund could match or exceed historic results given the extreme discount (the P/V is in the high-50%s), the high quality of the businesses we own, and the management teams running them.

Cumulative Returns

Inception

20year

10year

Partners Fund

1169.7

%

1098.9

%

100.6

%

Inflation plus 10%

1294.9

1081.4

239.6

S&P 500 Index

613.1

629.3

32.9

Please see page 8 for additional performance information.

During the quarter the Funds net inflows as well as the sale of Liberty Capital enabled us to add to several of the highest quality, most discounted names, including Cemex, Dell, FedEx, Liberty Media Entertainment, and Sun Microsystems. Liberty Capital, a holding company of various equities, was a minimal position created from Liberty Medias split into three pieces. Although it was priced below appraisal, we sold the position because of its small size and the opportunity to round up core holdings with better value growth prospects. We happily remain partners with John Malone through Liberty Interactive and Liberty Media Entertainment, which controls 48% of DIRECTV. Liberty Media Entertainment shares combined with the Funds ownership of DTV shares make this satellite broadcaster the Funds largest holding. DIRECTV has been one of the strongest contributors to performance this year and remains significantly discounted due to its solid value growth. In the quarter DTVs price-to-value ratio narrowed more than Liberty Media Entertainments, and we swapped shares while this disparity lasted.

Over the last three months the Funds two oil and gas holdings, Chesapeake and Pioneer Natural Resources, appreciated 43% and 59%, respectively as energy prices reached record highs. After two strong quarters, these two companies have been the biggest performance contributors for the year-to-date. Interestingly, because each company began the year at a steep discount, and both have identified substantial new potential reserves, these stocks still sell for a large discount to intrinsic worth even assuming oil and gas prices decline to a fraction of todays levels.

In addition to Chesapeake and Pioneer, Level3 and Dell, two of the worst performing stocks through March, contributed meaningfully to second quarter results. Each stock

5

Partners Fund


was extremely volatile through the quarter, but Level3 ended up 39% and Dell up 10%. Neither company reported any significant news; our appraisals of Level3 and Dell grew.

The same companies that hurt results most in the quarter also have been the largest detractors year-to-date. Sun fell 30% in the last three months when the company missed estimates. This shortfall came from deferred buying by several large U.S.customer segments. While the company believes this is a postponement rather than a competitive loss, we have lowered our appraisal to reflect a worst case scenario of sales for the coming year. The stock sells for less than half of our conservatively assessed value. We have confidence in Jonathan Schwartz and his team and applaud their substantial share buybacks as well as their strategy for creating competitive advantage through open systems.

General Motors fell almost 40% in the quarter. Higher fuel prices decimated sales of the companys profitable SUVs and trucks in North America, and GMAC continued to work through its subprime exposure. The overseas car business, however, grew and produced annualized earnings per share of over $4 almost half of the stocks price. GMs earnings power in 2010 is arguably $6-10/share given the discontinuation of UAW health costs, a smaller restructured GMAC, and current overseas earnings. Since quarter-end management has announced several initiatives to increase liquidity over the next two years. General Motors is deeply discounted versus any conservative estimate of its worth and earnings power in 2010 should be significantly higher than today. We have not added to the position because we have higher quality alternatives that sell at half of value, and those values should grow at double-digit rates.

UBS declined 19% over the last three months and has been the most disappointing stock in the Fund this year, not because of the price decline, but due to our substantial appraisal deterioration. We discussed our appraisal mistake in the First Quarter Report. We believe that Marcel Rohner is leading the company out of its credit woes with great skill. Further write-downs, if any, should be manageable and offset by earnings.

The on-deck list has become longer, broader, and more compelling since late June. Whereas earlier in the year most new opportunities emerged from a handful of areas financials, real estate related companies, and retail todays list expands well beyond those segments. The higher quality opportunities make incoming cash flows all the more important to the Funds foundation as they enable us to purchase new opportunities without sacrificing returns from what we own. We continue to add to the Fund and encourage our partners as well as new shareholders to do the same.

6

Partners Fund


As one of our clients recently said, If you liked the Partners Fund portfolio at a $33NAV, then you ought to love it under $30. The long-term investment case is as compelling as we wrote in the first quarter:

A P/V that is in the high-50%s, substantially lower than where it has traded in the last five years;

Businesses that are growing value through substantial cash flow generation from, in a number of cases, top line growth and margin improvement, in spite of a slower economy;

Corporate partners who are meaningfully adding to value per share by aggressively buying in stock at steep discounts.

Sentiment has recently reached levels of fear that we havent seen in over a decade. We do not know when sentiment will change, but we are grateful that the angst persists. The consternation is allowing us to own more uniquely competitive businesses managed by talented partners at very discounted prices.

7

Partners Fund - PERFORMANCE HISTORY

AVERAGE ANNUAL RETURNS

for the periods ended June30, 2008

Partners

Inflation

S&P 500

Fund

Plus 10%

Index

Year-to-Date

(8.23

)%

7.70

%

(11.91

)%

One Year

(17.30

)

15.07

(13.12

)

Five Years

7.57

13.59

7.58

Ten Years

7.21

13.00

2.88

Since Public Offering 4/8/87

12.72

13.22

9.69

Past performance does not predict future performance, Fund prices fluctuate, and the value of an investment at redemption may be worth more or less than the purchase price. The Funds performance results in the table shown above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The S&P 500 Index is shown with all dividends and distributions reinvested. In 1987, the reinvested S&P500 Index was available at month-end only; therefore, the index value at March31, 1987 was used to calculate performance since public offering. This index is unmanaged and is not hedged for foreign currency risk. Longleaf often hedges its exposure to foreign currencies. This practice will impact the Funds relative performance versus a similar unhedged portfolio. Generally the relative returns of hedged positions improve when the dollar strengthens and decline when the dollar weakens. The U.S. Bureau of Labor Statistics compiles the monthly CPI-U values used to calculate inflation. Seasonally adjusted inflation data is presented for periods less than one year. Current performance may be lower or higher than the performance quoted. Please call 1-800-445-9469 or view Longleafs website (www.longleafpartners.com) for more current performance information.

8

Partners Fund PORTFOLIO SUMMARY

TABLE OF PORTFOLIO HOLDINGS

at June30, 2008

Net

Assets

Common Stock

99.5

%

Dell Inc.

9.3

Chesapeake Energy Corporation

8.6

Liberty Media Entertainment Corporation

7.7

Pioneer Natural Resources Company

6.3

Liberty Media Holding Corporation Interactive

5.3

The NipponKoa Insurance Company, Ltd.

5.2

Aon Corporation

5.0

FedEx Corporation

4.7

eBay, Inc.

4.6

Sun Microsystems, Inc.

4.6

The Walt Disney Corporation

4.5

Cemex S.A.B. de C.V. ADS

4.4

Yum! Brands, Inc.

4.3

Koninklijke Philips Electronics N.V.

4.3

Level3 Communications, Inc.

4.2

Walgreen Co.

3.9

The DIRECTV Group, Inc.

3.2

Telephone and Data Systems, Inc.

3.0

UBS AG

2.8

Symantec Corporation

2.1

General Motors Corporation

1.5

Options

0.3

Cash Reserves

0.8

Other Assets and Liabilities, net

(0.6

)

100.0

%

PORTFOLIO CHANGES

January1, 2008 through June30, 2008

New Holdings

Eliminations

*Liberty Media Entertainment Corporation ClassA (Liberty Media Holding Corporation Capital)

Comcast Corporation ClassA Special
Liberty Media Holding Corporation
Capital
Limited Brands, Inc.
Sprint Nextel Corporation

*Change due to corporate action (name of related holding)

9

Partners Fund - PORTFOLIO OF INVESTMENTS

at June30, 2008 (Unaudited)

Shares

Value

Common Stock 99.5%

Automobiles 1.5%

14,240,000

General Motors Corporation(c)

$

163,760,000

Broadcasting and Cable 10.9%

13,097,000

*

The DIRECTV Group, Inc.

339,343,270

34,105,000

*

Liberty Media Entertainment Corporation ClassA

826,364,150

1,165,707,420

Construction Materials 4.4%

19,324,711

Cemex S.A.B. de C.V. ADS (Foreign)

477,320,378

Entertainment 4.5%

15,489,800

The Walt Disney Corporation

483,281,760

Financial Services 2.8%

14,443,800

UBS AG (Foreign)

298,408,908

Insurance Brokerage 5.0%

11,668,090

Aon Corporation

536,032,055

Internet and Catalog Retail 5.3%

38,289,181

*

Liberty Media Holding Corporation Interactive
Series A

565,148,312

Internet Services 4.6%

17,903,050

*

eBay, Inc.

489,290,356

Multi-Industry 4.3%

11,806,035

Koninklijke (Royal) Philips Electronics N.V. (Foreign)

401,688,472

1,640,165

Koninklijke (Royal) Philips Electronics N.V. ADR (Foreign)

55,437,577

457,126,049

Natural Resources 14.9%

13,914,200

Chesapeake Energy Corporation

917,780,632

8,657,900

Pioneer Natural Resources Company(b)

677,740,412

1,595,521,044

Pharmacies and Drug Stores 3.9%

12,814,000

Walgreen Co.

416,583,140

Property & Casualty Insurance 5.2%

63,701,000

The NipponKoa Insurance Company, Ltd. (Foreign)(b)(c)

552,513,265

Restaurants 4.3%

13,292,252

Yum! Brands, Inc.

466,425,123

Software 2.1%

11,754,800

*

Symantec Corporation

227,455,380

See Notes to Financial Statements.

10



Shares

Value

Technology 13.9%

45,389,166

*

Dell Inc.

$

993,114,952

44,960,789

*

Sun Microsystems, Inc.(b)

489,173,384

1,482,288,336

Telecommunications 7.2%

153,597,754

*

Level 3 Communications, Inc.(b)

453,113,374

1,530,800

Telephone and Data Systems, Inc.

72,360,916

5,666,200

Telephone and Data Systems, Inc. Special

249,879,420

775,353,710

Transportation 4.7%

6,351,501

FedEx Corporation(c)

500,434,764

Total Common Stocks (Cost$9,057,333,292)

10,652,650,000

Contracts

Options 0.3%

Construction Materials 0.3%

9,000,000

Call Options Purchased Cemex S.A.B.de C.V.

ADS (Foreign), expiring March 2012 @ $45 (Cost$41,968,073)

20,608,200

4,576,686

Call Options Purchased Cemex S.A.B.de C.V.

ADS (Foreign), expiring June 2012 @ $40 (Cost$23,403,076)

13,853,171

34,461,371

Principal

Amount

Short-Term Obligations 0.8%

79,908,000

Repurchase Agreement with State Street Bank,
1.30% due 7-1-08, Repurchase price $79,910,886
(Collateral: $77,900,000 U.S. Treasury Bonds, 2.44%-2.92%, due 9-15-10 to 8-15-12, Value $81,508,883)

79,908,000

Total Investments (Cost$9,202,612,441)(a)

100.6

%

10,767,019,371

Other Assets and Liabilities, Net

(0.6)

(65,666,348)

Net Assets

100.0

%

$10,701,353,023

Net asset value per share

$30.43

*Non-income producing security.

(a) Aggregate cost for federal income tax purposes is $9,223,572,977. Net unrealized appreciation of $1,564,406,930 consists of unrealized appreciation and depreciation of $3,150,040,250 and $(1,585,633,320), respectively.

(b) Affiliated issuer. See Note7.

(c) All or a portion designated as collateral. See Note8.

Note: Companies designated as Foreign are headquartered outside the U.S. and represent 17% of net assets.


11



OPEN FORWARD CURRENCY CONTRACTS

Currency

Currency Sold and

Currency

Unrealized

Units Sold

Settlement Date

Market Value

Gain (Loss)

18,406,000,000

Japanese Yen 11-6-08

$174,631,191

$(1,600,151)

18,089,954,000

Japanese Yen 12-3-08

171,924,529

(6,144,158)

30,641,564,000

Japanese Yen 2-5-09

292,364,982

741,684

174,400,000

Swiss Franc 4-3-09

171,089,235

1,161,081

$810,009,937

$(5,841,544)

SWAP AGREEMENT

Underlying

Notional

Amount

Unrealized

Units

Agreement

at Value

Loss

4,750,000

General Motors Corporation Preferred, 6.25% Convertible SeriesC due 7-15-33

$62,985,000

$(36,718,325)


12

Intentionally Left Blank

13

Small-Cap Fund


Longleaf Partners Small-Cap Fund rose 0.3% in the second quarter, slightly short of the Russell 2000 Indexs 0.6% gain. The Fund is down 11.4% for the year-to-date while the Index has fallen 9.4%. The Funds more impressive long-term returns are shown below.

Cumulative Returns

Inception

15year

10year

5year

Small-Cap Fund

679.8

%

514.4

%

140.7

%

69.6

%

Inflation plus 10%

992.9

510.5

239.6

89.1

Russell 2000 Index

483.1

260.3

71.2

63.2

Please see page16 for additional performance information.

Over the last three months Pioneer Natural Resources appreciated 59% as energy prices reached record highs. After two strong quarters, Pioneer has been the biggest performance contributor for the year-to-date, and as a result, the company is the Funds largest holding. Interestingly, because Pioneer began the year at a steep discount and subsequently reported large potential reserve additions, the stock still sells way below intrinsic worth even if oil declines to half of its recent price.

During the quarter we sold one position, the insurance broker Hilb Rogal, when Willis announced the purchase of the company for a fair price (taking into account undervalued Willis shares to fund half of the transaction.) As Willis holders, the slight dilution should be offset by significant cost synergies, a stronger North American footprint and sales culture, and increased leverage with underwriters. Hilb was one of the largest contributors to second quarter performance, and we used some of the proceeds from the sale to fill out the previously underweighted position in Willis.

Level3, among the worst performing stocks through March, rallied 39% in the second quarter. The stock was extremely volatile even though the company did not report any significant news. Our appraisal grew.

Two stocks, Dillards and Del Monte, hurt performance the most in the quarter. Following a decline earlier in the year, Dillards is also among the largest detractors in 2008. The weak economy has hurt retail stocks, and Dillards has not been immune. Our appraisal is underpinned by the value of the companys real estate, which is selling in the stock market for less than $20 per square foot versus a recent comparable transaction of $120 per square foot. We are pleased to have new board members involved who are focused on securing the value of the companys assets for its owners.

At Del Monte raw material and transportation cost increases have hurt earnings. The company expects costs to continue to rise and has budgeted higher marketing expenses to implement a price increase and introduce new products. Our lowered

14

Small-Cap Fund


appraisal reflects reduced margins, but the price is far below what the valuable food brands and pet products are worth.

In addition to Dillards, the largest detractors from year-to-date returns have been Washington Post, IDT, and Fair Isaac. The same credit and recession fears that plagued the Posts stock in the first quarter continued through the second. Less than 10% of the companys higher education students receive private loans, and only a small portion of the companys operating income is tied to newspaper advertising. The stock sells for approximately half of our appraisal. IDT has been a mistake; we misjudged the core business and the management.

We added to the Funds position in Fair Isaac, and the companys leaders have continued to shrink shares and buy stock personally. The terrible credit markets have reduced the use of FICO scoring as financial institutions have significantly cut back solicitations for credit cards as well as other types of financing. Fair Isaacs other product lines have also suffered from the decreased activity of their financial institution customers. The competitive strength of FICOs brand remains intact, and in this most challenging and depressed environment the company should generate $2.50/share of free cash flow versus a stock price under $21.

Because opportunities to add to Fair Isaac, Willis, Markel, and Service Corp. were so compelling, proceeds from sales and trims went to these existing names. The on-deck list, however, is growing in size and attractiveness. We are carefully considering tradeoffs for higher business quality and/or improved partners. The Funds P/V is mid-50%s, a rare occurrence and far below the long-term average. We do not know how long these discounts will remain, but believe that the Fund is extremely well positioned to produce good returns for our long-term partners.

As recently as a year ago, many small caps traded for prices close to their private market values. Now, the stock market prices many of these companies dramatically below levels at which they would trade in a transaction because of the difficulty for all buyers in securing debt financing. But the long-term discounted cash flow values of these companies is intact, and, at some point when financing returns, these companies will be the first ones to change hands at prices far higher than todays.

15

Small-Cap Fund - PERFORMANCE HISTORY

AVERAGE ANNUAL RETURNS

for the periods ended June30, 2008

Small-Cap

Inflation

Russell 2000

Fund

Plus 10%

Index

Year-to-Date

(11.35

)%

Longleaf Partners Funds Trust - SEC.gov | HOME General Electric Vetco Gray, Singapore 1997-2006,...

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