<PAGE> 1
LONGLEAF PARTNERS SMALL-CAP FUND
January 22, 1996
TO OUR SHAREHOLDERS:
We are pleased to report that Longleaf Partners Small-Cap Fund grew its net
asset value 18.6% in 1995, and in our view, made further progress in improving
the portfolio holdings. As could be expected, however, our results lagged the
previously hot, technology-led Wilshire 5000. "It's not the businesses I don't
own that keep me awake at night," one of our first clients told us some two
decades ago. In 1995 we slept soundly knowing our business values were growing,
our corporate partners were competent and that in most cases, share prices were
closing the gap between price and value.
A list of the best performing industries last year included biotechnology (+80%)
and semiconductors (+64%). These businesses have characteristics and threats we
have never fully understood and as a result we have stayed away. When
Microsoft's Bill Gates reviewed Roger Lowenstein's Buffett: The Making of an
American Capitalist in the January-February 1996 issue of Harvard Business
Review, we were comforted to read Mr. Gates' views on choosing the likely
winners in the fiercely competitive technology world. "Warren stays away from
technology companies because he likes investments in which he can predict
winners a decade in advance - an almost impossible feat when it comes to
technology."
The data below summarizes Small-Cap's recent average annual and cumulative
returns for the four full years which your two current managers have had
responsibility for the Fund:
AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LONGLEAF PARTNERS
SMALL-CAP FUND VALUE-LINE INDEX WILSHIRE 5000 INDEX
----------------- ---------------- -------------------
<S> <C> <C> <C>
LAST FOUR YEARS 12.02% 7.34% 13.40%
LAST THREE YEARS 13.79% 7.47% 14.91%
LAST TWO YEARS 10.88% 5.88% 16.76%
LAST YEAR 18.61% 19.29% 36.45%
</TABLE>
CUMULATIVE TOTAL RETURNS*
<TABLE>
<CAPTION>
LONGLEAF PARTNERS
SMALL-CAP FUND VALUE-LINE INDEX WILSHIRE 5000 INDEX
----------------- ---------------- -------------------
<S> <C> <C> <C>
LAST FOUR YEARS 57.44% 32.77% 65.35%
LAST THREE YEARS 47.32% 24.13% 51.74%
LAST TWO YEARS 22.94% 12.11% 36.36%
LAST YEAR 18.61% 19.29% 36.45%
LAST QUARTER 2.25% 0.02% 4.88%
</TABLE>
Many of you have recently asked if Small-Cap's performance is on the verge of
matching the above average relative and absolute results of our older and larger
Longleaf Partners Fund. While we don't have precise answers, we think the
following observations and opinions will help add perspective:
- As significant owners, we were satisfied with LLSC's 18.6% return in 1995,
regardless of results others achieved in areas we don't understand and
have difficulty valuing.
- We are off to a good start in 1996 both relatively and absolutely.
- We feel the building blocks in the portfolio are the best we have had
since LLSC was founded. The quality of the businesses, the managements
running them and the prices we have paid support this view.
- The composite price-to-value ratio of Small-Cap remains very attractive.
By upgrading the mix of the Fund's holdings (see "Portfolio Changes" on
last page), we believe we have improved the probability that over the next
few years more of our companies will reach their intrinsic value.
- The Fund's board, the advisor's retirement plan, the employees of the
advisor and their families continue to increase their investment in
Longleaf Partners Small-Cap Fund. With $30 million vested in the Fund's
success, we remain the largest investment group, owning over 21% of total
assets. We are unaware of any fund advisor who has as significant a
commitment to its fund.
- Our retirement plan at Southeastern is equally invested in both funds.
<PAGE> 2
Small-Cap's expense ratio continued to decline last year from 1.38% in 1994 to
1.30%, and from 1.50% when the Fund opened in 1989. The Fund remains committed
to imposing no sales load, no 12b-1 fees and no redemption fees. We continue to
focus on lowering our cost of owning Small-Cap by both controlling expenses and
minimizing turnover which was a relatively low 32.9% in 1995. We are acutely
aware of how long-term holding periods and tax deferral benefit the compounding
process and our overall after tax return.
We send you our best wishes for a happy and prosperous 1996. We hope that many
of you will join us at the Fund's annual meeting which will be held Tuesday, May
7 at 5:30 p.m. at the Dixon Gallery and Gardens in Memphis.
Sincerely,
/s/ O. Mason Hawkins, CFA /s/ G. Staley Cates, CFA
- ------------------------- ------------------------
O. Mason Hawkins, CFA G. Staley Cates, CFA
Co-Portfolio Manager Co-Portfolio Manager
- --------------------------------------------------------------------------------
* The average annual total returns of Longleaf Partners Small-Cap Fund for the
one year and five years ended December 31, 1995 and from its initial public
offering on February 21, 1989 through December 31, 1995 are 18.61%, 14.74% AND
7.95%, respectively. Fund returns and those of the Wilshire 5000 Index are
shown with all dividends and distributions reinvested; the Value Line Index is
not available with reinvested dividends. The stock market indices shown are
unmanaged. Past investment performance is no guarantee of future investment
performance, and the value of an investment when redeemed may be more or less
than the purchase price.
- --------------------------------------------------------------------------------
Average Annual Return
---------------------
LLSC Wilshire 5000 Value-Line
---- ------------- ----------
Five Year 14.7% 17.3% 11.0%
Four Year 12.0% 13.4% 7.3%
Three Year 13.9% 14.9% 7.5%
Two Year 10.9% 16.8% 5.9%
One Year 18.6% 36.4% 19.3%
Since Inception 7.9% 14.4% 4.4%
<PAGE> 3
- ---------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
FOR THE YEAR ENDED DECEMBER 31, 1995
- ---------------------------------------------------------------------
Longleaf Partners Small-Cap Fund (LLSC) produced an 18.6% total return for
shareholders in 1995 without exposure to technology stocks which are difficult
for us to value. Southeastern believes that the portfolio's current holdings are
financially sound, well managed, good businesses and are positioned for
substantial growth over the next five years.
In 1995 the Fund liquidated two financial services companies as their prices
approached our appraisals with the market's renewed interest in this sector.
Legg Mason, the regional brokerage firm provided almost 10% of the year's gains.
The mutual fund company, Pioneer Group, contributed an additional 6.8% of 1995's
return. The sale of Arden Group, a California grocery operator, realized $1.2
million in gains for LLSC. The stock rose in recognition of the company's
improved profitability.
The Fund also benefitted from tax deferred unrealized gains of companies that
remain in the portfolio. Meredith Corp., with its publishing business and
television stations, contributed over $3.8 million to 1995 performance as
advertising revenues and circulation grew. Longtime holding Alleghany continued
to add to LLSC's value, providing $1.6 million in 1995. The company benefitted
substantially as its large holding in Santa Fe Pacific railroad was merged with
Burlington Northern. The Fund's largest holding, White River Corporation, rose
in price as investors focused on the company's automobile claims settlement
services and profitable stake in Northwest Airlines. This provided $1.5 million
to LLSC. Union Corp. added $1.4 million to the portfolio's value as profits grew
from the company's accounts receivable and debt collection management services.
Of LLSC's new holdings, Thomas Industries which makes lighting products,
compressors and vacuum pumps, contributed 5.1% of the year's gains with the
acceleration of its revenues and earnings. Another new holding, American Safety
Razor, declined over the year, reducing gains by $1.9 million. Although the
company failed to match Wall Street's elevated expectations, Southeastern
believes that this maker of razors and other bladed instruments as well as bar
soaps has a much higher intrinsic worth than its year end price.
The following table provides a detailed accounting of each company's
contribution to performance in 1995.
<PAGE> 4
- ----------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- ----------------------------------------------------------------------
The following table delineates the specific dollar contributions of each
individual holding to the 18.61% total return for 1995.
<TABLE>
<CAPTION>
PERCENTAGE
CONTRIBUTION OF TOTAL
IN 1995 CONTRIBUTION
------------ ------------
<S> <C> <C>
REALIZED GAINS (LOSSES):
Legg Mason, Inc............................................. $ 2,100,417 9.9%
The Pioneer Group, Inc...................................... 1,449,546 6.8
Arden Group, Inc. - Class A................................. 1,221,259 5.7
National Education Corporation.............................. 772,981 3.6
Meredith Corporation........................................ 554,169 2.6
Duff & Phelps Corporation................................... 547,329 2.6
Phoenix Duff & Phelps Corporation Convertible Preferred A... (477,340 ) (2.2)
All others, net............................................. 501,991 2.3
------------ ------
6,670,352 31.3
------------ ------
INCREASE IN UNREALIZED APPRECIATION (DEPRECIATION):
FROM SECURITIES HELD AT DECEMBER 31, 1994:
Meredith Corporation..................................... 3,853,278 18.1
Alleghany Corporation.................................... 1,614,430 7.6
White River Corporation.................................. 1,512,275 7.1
The Union Corporation.................................... 1,425,000 6.7
Duff & Phelps Credit Rating Co........................... 1,092,579 5.1
Chartwell Reinsurance Company............................ 1,033,801 4.9
Grey Advertising Inc..................................... 1,029,980 4.8
Plenum Publishing Corporation............................ 1,017,500 4.8
Cousins Properties Incorporated.......................... 1,008,144 4.7
Delchamps, Inc........................................... 615,000 2.9
Ralcorp Holdings, Inc.................................... 565,762 2.7
Phoenix Duff & Phelps Corporation........................ 563,928 2.6
VICORP Restaurants, Inc.................................. (2,320,000 ) (10.9)
All others, net.......................................... 128,271 0.6
------------ ------
13,139,948 61.7
------------ ------
FROM NEW HOLDINGS IN 1995:
Thomas Industries Inc.................................... 1,077,450 5.1
Markel Corporation....................................... 615,797 2.9
Franklin Electric Co., Inc............................... 430,374 2.0
Rhodes, Inc.............................................. (694,709 ) (3.3)
American Safety Razor Company............................ (1,909,604 ) (9.0)
All others, net.......................................... 953,782 4.5
------------ ------
473,090 2.2
------------ ------
Net realized and unrealized gain on investments............... 20,283,390 95.2
Net investment income......................................... 1,025,608 4.8
------------ ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $21,308,998 100.0%
============ ============
</TABLE>
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
LONGLEAF PARTNERS SMALL-CAP FUND
We have audited the accompanying statement of assets and liabilities of Longleaf
Partners Small-Cap Fund (a series of Longleaf Partners Funds Trust), including
the schedule of portfolio investments, as of December 31, 1995, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for the years ended December 31, 1995, 1994, 1993, 1992, 1991 and
1990, the two months ended December 31, 1989, and the period from December 28,
1988 (Date of Initial Capitalization) through October 31, 1989. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments and cash held by
the custodian as of December 31, 1995. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Longleaf Partners Small-Cap Fund as of December 31, 1995, the results of its
operations for the year ended December 31, 1995, the changes in its net assets
for the years ended December 31, 1995 and 1994, and the financial highlights for
each of the above periods in the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 12, 1996
<PAGE> 6
- ---------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1995
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES COMMON STOCK (96.6%) MARKET VALUE
------- ------------
<S> <C> <C> <C>
ADVERTISING (3.1%)
21,020 Grey Advertising Inc. - Class A............................ $ 4,204,000
------------
BEVERAGES (2.7%)
195,000 * Celestial Seasonings, Inc.................................. 3,656,250
------------
BUSINESS SERVICES (9.2%)
356,200 * Pinkerton's, Inc........................................... 6,945,900
300,000 * The Union Corporation ..................................... 5,550,000
------------
12,495,900
------------
COMMERCIAL LIGHTING (2.4%)
139,300 Thomas Industries, Inc..................................... 3,273,550
------------
CONSUMER NON-CYCLICAL (4.6%)
197,000 Helene Curtis Industries, Inc. ............................ 6,230,125
------------
FINANCIAL SERVICES (10.9%)
280,000 Duff & Phelps Credit Rating Co............................. 4,025,000
280,000 Lexington Global Asset Managers, Inc. ..................... 1,338,764
245,000 * White River Corporation.................................... 9,432,500
------------
14,796,264
------------
FOOD (6.8%)
146,700 GoodMark Foods, Inc........................................ 2,603,925
277,000 * Ralcorp Holdings, Inc. .................................... 6,717,250
------------
9,321,175
------------
FURNITURE (4.1%)
574,600 * Rhodes, Inc. .............................................. 5,602,350
------------
INDUSTRIAL EQUIPMENT (1.9%)
507,600 * Baldwin Technology Company, Inc. - Class A................. 2,569,725
------------
INVESTMENT MANAGEMENT COMPANIES (6.5%)
505,000 Phoenix Duff & Phelps Corporation.......................... 3,471,875
140,700 United Asset Management Corporation........................ 5,399,363
------------
8,871,238
------------
MANUFACTURING (14.2%)
405,148 Armor All Products Corporation............................. 7,343,307
800,000 * American Safety Razor Company.............................. 6,300,000
172,300 Franklin Electric Co., Inc................................. 5,685,900
------------
19,329,207
------------
</TABLE>
See Notes to Financial Statements.
<PAGE> 7
- ---------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1995
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES MARKET VALUE
------- ------------
<S> <C> <C> <C>
MISCELLANEOUS (2.6%)
104,152 Seafield Capital Corporation............................... $ 3,541,168
------------
PROPERTY & CASUALTY INSURANCE (9.1%)
34,000 * Alleghany Corporation...................................... 6,732,000
158,368 Chartwell Reinsurance Company.............................. 3,484,096
28,200 * Markel Corporation......................................... 2,129,100
------------
12,345,196
------------
PUBLISHING (7.5%)
140,000 Meredith Corporation....................................... 5,862,500
110,000 Plenum Publishing Corporation.............................. 4,290,000
------------
10,152,500
------------
REAL ESTATE (5.7%)
385,000 Cousins Properties Incorporated............................ 7,796,250
------------
RESTAURANTS (2.1%)
290,000 * VICORP Restaurants, Inc.................................... 2,827,500
------------
RETAIL FOOD (3.2%)
200,000 * Craig Corporation.......................................... 1,975,000
120,000 Delchamps, Inc............................................. 2,445,000
------------
4,420,000
------------
TOTAL COMMON STOCKS (COST $113,827,112)................................. 131,432,398
------------
SHORT TERM OBLIGATIONS (3.3%)
Repurchase Agreement with State Street Bank and Trust Company, dated
12-29-95, due 1-2-96 at 5.00%, collateralized by $4,573,562 U.S.
Treasury Bond due 11-15-16 (Repurchase proceeds-$4,483,489) (Cost
$4,481,000)............................................................ 4,481,000
------------
TOTAL INVESTMENTS (COST $118,308,112)* *................................... 99.9% 135,913,398
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................. 0.1 63,398
----- ------------
NET ASSETS................................................................. 100.0% $135,976,796
===== =============
NET ASSET VALUE PER SHARE (OFFERING AND REDEMPTION PRICE PER SHARE) BASED ON
9,406,766 SHARES OUTSTANDING AT DECEMBER 31, 1995............................... $14.46
======
</TABLE>
* Non-income producing security
* * Also represents aggregate cost for Federal income tax purposes
See Notes to Financial Statements.
<PAGE> 8
- ---------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1995
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments:
Securities, at market value (cost $113,827,112) (Note 1 and Note 7)......... $131,432,398
Repurchase agreement (Note 6)............................................... 4,481,000
------------
TOTAL INVESTMENTS 135,913,398
Cash.......................................................................... 413
Receivables:
Dividends and interest...................................................... 154,108
Securities sold............................................................. 51,021
Prepaid assets................................................................ 9,322
Insurance reserve premium..................................................... 7,274
------------
TOTAL ASSETS 136,135,536
------------
LIABILITIES:
Payable for:
Investment Counsel fee (Note 2)............................................. 115,003
Administration fees (Note 3)................................................ 11,500
Other accrued expenses........................................................ 32,237
------------
TOTAL LIABILITIES 158,740
------------
NET ASSETS $135,976,796
============
Composition of net assets:
Paid-in capital (unlimited number of shares authorized,
9,406,766 shares outstanding)............................................ $118,343,383
Undistributed net investment income......................................... 11,988
Accumulated net realized gain............................................... 16,139
Unrealized appreciation of investments (Note 7)............................. 17,605,286
------------
NET ASSETS $135,976,796
============
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE) PER SHARE
($135,976,796 DIVIDED BY 9,406,766 SHARES).................................. $14.46
=======
</TABLE>
See Notes to Financial Statements.
<PAGE> 9
- ---------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends.................................................................... $ 2,374,944
Interest..................................................................... 232,609
-----------
2,607,553
-----------
EXPENSES:
Investment Counsel fee (Note 2).............................................. 1,217,369
Administration fees (Note 3)................................................. 121,737
Reimbursable administration expenses (Note 3)................................ 56,425
Transfer Agent fees.......................................................... 24,492
Registration and filing fees................................................. 43,124
Custodian fee................................................................ 20,602
Printing..................................................................... 17,532
Trustees' fees............................................................... 30,000
Professional fees............................................................ 14,601
Supplies and postage......................................................... 11,452
Insurance expense............................................................ 8,162
Miscellaneous................................................................ 16,449
-----------
1,581,945
-----------
Net investment income................................................ 1,025,608
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain from securities transactions, net:
Proceeds from sales....................................................... 38,801,106
Cost of securities sold................................................... 28,787,601
-----------
Net realized gain.................................................... 10,013,505
Increase in unrealized appreciation for the period, net...................... 10,269,885
-----------
Net realized and unrealized gain on investments...................... 20,283,390
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................... $21,308,998
===========
</TABLE>
See Notes to Financial Statements.
<PAGE> 10
- ---------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994
---------------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)................................ $ 1,025,608 $ (203,479)
Net realized gain on investments............................ 10,013,505 4,900,252
Net unrealized appreciation (depreciation) for the period... 10,269,885 (1,620,399)
---------------- -----------
Net increase in net assets resulting from operations..... 21,308,998 3,076,374
---------------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gain on investments ($1.166 and $.70 per
share)................................................... (10,015,944) (4,881,743)
From net investment income ($0.118 per share)............... (1,013,621)
---------------- -----------
Net decrease in net assets resulting from
distributions.......................................... (11,029,565) (4,881,743)
---------------- -----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares............................ 54,528,065 29,622,251
Net asset value of shares issued to shareholders for
reinvestment of shareholder distributions................ 10,605,812 4,769,625
Cost of shares reacquired................................... (39,045,822) (18,063,961)
---------------- -----------
Net increase in net assets from fund share
transactions........................................... 26,088,055 16,327,915
---------------- -----------
Total increase in net assets............................. 36,367,488 14,522,546
NET ASSETS:
Beginning of year........................................... 99,609,308 85,086,762
---------------- -----------
End of year (including undistributed net investment income
of $11,988 in 1995)...................................... $135,976,796 $99,609,308
============== ===========
</TABLE>
See Notes to Financial Statements.
<PAGE> 11
- ---------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Longleaf Partners Small-Cap Fund (the "Fund") is a series of Longleaf Partners
Funds Trust, a Massachusetts business trust which is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company. The Fund was formed on December 21, 1988, and on December
28, 1988 the initial capitalization of $1,500,000 was provided by two principals
of Southeastern Asset Management, Inc., the Investment Counsel, who received
150,000 shares of beneficial interest in return. The Fund commenced its public
offering of shares on February 21, 1989.
The following is a summary of significant accounting policies:
(a) Valuation of Securities and Repurchase Agreements:
(1) Portfolio securities listed or traded on a securities exchange and
over-the-counter securities traded on the NASDAQ national market are
valued at the last sales price. If there are no transactions in the
security that day, securities are valued at the midpoint between the
closing bid and ask prices.
(2) All other portfolio securities for which over-the-counter market
quotations are readily available are valued at the midpoint between the
closing bid and ask prices. Repurchase agreements are valued at cost
which, combined with accrued interest, approximates market.
(3) When market quotations are not readily available, portfolio securities
are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the
Fund's Trustees.
(b) Accounting for Investments:
The Fund follows industry practice and records security transactions on
the day following the trade date (date the order to buy or sell is
executed). Realized gains and losses on security transactions are
determined using the specific identification method. Dividend income is
recognized on the ex-dividend date and interest income is recognized on an
accrual basis.
(c) Federal Income Taxes:
The Fund's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Accordingly, no
federal income tax provision is required. In addition, the Fund intends to
make any required distributions to avoid the application of a 4%
nondeductible excise tax.
(d) Distributions to Shareholders:
Dividends and distributions to shareholders are recorded on the
ex-dividend date.
<PAGE> 12
NOTE 2. INVESTMENT COUNSEL AGREEMENT
Southeastern Asset Management, Inc. ("Southeastern") serves as Investment
Counsel to the Fund and receives annual compensation from the Fund, computed
daily and paid monthly, in accordance with the following schedule:
<TABLE>
<S> <C>
First $400 million of average daily net assets..................... 1.00%
In excess of $400 million.......................................... .75%
</TABLE>
The Investment Counsel has agreed to reduce its fees on a pro rata basis for
services rendered to the extent that the Fund's normal annual operating expenses
(excluding taxes, interest, brokerage fees, and extraordinary expenses) exceed
1.5% of average annual net assets. No such reduction was necessary for the
current period.
NOTE 3. 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 Fund, including, among other things, the preparation
of all registration statements, prospectuses, tax returns and proxy statements,
daily valuation of the Fund's portfolio and calculation of daily net asset value
per share. The Fund pays 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 Fund to Southeastern consist of
a portion of both the computer support charges for computer programs used in
processing transactions for the Fund and its shareholders and of the salary of
the Fund's Treasurer calculated in accordance with Trustee review and approval.
NOTE 4. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
---------- -----------
<S> <C> <C>
Shares sold..................................... 3,818,992 $54,528,065
Reinvestment of shareholder distribution........ 734,983 10,605,812
Shares redeemed................................. (2,650,508) (39,045,822)
---------- -----------
1,903,467 $26,088,055
========== ===========
</TABLE>
NOTE 5. INVESTMENT TRANSACTIONS
Purchases and sales of securities for the period (excluding short term
obligations) aggregated $52,886,854 and $38,801,106, respectively. Total
brokerage commissions paid by the Fund during the period were $236,927.
NOTE 6. INVESTMENTS IN SHORT TERM OBLIGATIONS
As excess funds are available, the Fund makes certain short term investments in
cash equivalents, including repurchase agreements. The Fund's Custodian Bank
sells U.S. Government Securities to the Fund under an
<PAGE> 13
agreement to repurchase these securities from the Fund at a stated repurchase
price including interest for the term of the agreement, which is usually
overnight or over a week-end. The Fund, through its custodian, receives delivery
of the underlying U.S. Government securities, the market value of which is
required to be at least equal to the repurchase price. A repurchase agreement of
$4,481,000 is included in the statement of assets and liabilities at December
31, 1995.
NOTE 7. UNREALIZED APPRECIATION
Net unrealized appreciation consists of the following:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $25,090,676
Unrealized depreciation..................................... (7,485,390)
-----------
$17,605,286
===========
</TABLE>
NOTE 8. RELATED PARTY SHAREHOLDERS
At December 31, 1995, Mr. O. Mason Hawkins, Chairman of the Board and Chief
Executive Officer of Southeastern and of the Fund, owned 1,152,101 shares of the
Fund, constituting 12.3% of the outstanding shares; Mr. W. Reid Sanders, a
director and Executive Vice President of Southeastern and a member of the Board
of Trustees and President of the Fund, owned 315,135 shares of the Fund,
constituting 3.4% of the outstanding shares. Officers and employees of
Southeastern and their families, Fund trustees and the Southeastern retirement
plan owned an additional 496,623 shares, constituting 5.3% of the outstanding
shares.
NOTE 9. OTHER PORTFOLIO INFORMATION
At December 31, 1995, the Fund's holdings consisted of at least five percent of
the outstanding class of common stock of the following companies: American
Safety Razor Company -- 7.0%, Duff & Phelps Credit Rating Co. -- 5.1%, Lexington
Global Asset Managers, Inc. -- 5.1%, Rhodes, Inc. -- 6.2%, The Union
Corporation -- 5.4%, and White River Corporation -- 5.0%.
<PAGE> 14
- ------------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
The following condensed financial information, including total returns, has been
audited by Coopers & Lybrand L.L.P. independent public accountants. The audit
report on the 1995 financial statements issued by Coopers & Lybrand L.L.P.
appears in this report and should be read in conjunction with this condensed
financial information. The presentation is for a share outstanding throughout
each period.
<TABLE>
<CAPTION>
NET GAINS
OR
NET (LOSSES) ON DISTRI- NET
ASSET NET SECURITIES TOTAL DIVIDENDS BUTIONS ASSET
VALUE INVESTMENT REALIZED FROM FROM NET FROM TOTAL VALUE
BEGINNING INCOME AND INVESTMENT INVESTMENT CAPITAL DISTRI- END OF TOTAL
OF PERIOD (LOSS) UNREALIZED OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN
--------- ---------- ----------- ---------- ---------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended
December 31,
1995.................. $ 13.28 $ .12 $ 2.35 $ 2.47 $ (.12) $ (1.17) $ (1.29) $ 14.46 18.61%
1994.................. 13.49 (.03) .52 .49 - (.70) (.70) 13.28 3.64%
1993.................. 11.40 (.06) 2.32 2.26 - (.17) (.17) 13.49 19.83%
1992.................. 10.67 (.01) .74 .73 - - - 11.40 6.87%
1991.................. 8.50 .06 2.17 2.23 (.06) - (.06) 10.67 26.31%
1990.................. 12.87 .40 (4.18) (3.78) (.36) (.23) (.59) 8.50 (30.05)%
Two months ended December
31,
1989.................... 13.02 .04 .22 .26 (.05) (.36) (.41) 12.87 2.10%(1)
December 28, 1988 (Date
of Initial
Capitalization) through
October 31, 1989........ 10.00 .17 2.94 3.11 (.09) - (.09) 13.02 31.13%(1)
<CAPTION>
RATIO OF
EXPENSES RATIO OF
NET ASSETS TO NET INCOME
END OF AVERAGE (LOSS) TO PORTFOLIO
PERIOD NET AVERAGE TURNOVER
(THOUSANDS) ASSETS NET ASSETS RATE
----------- -------- ----------- ---------
<S> <<C> <C> <C> <C>
Year ended
December 31,
1995.................. $ 135,977 1.30% .84% 32.95%
1994.................. 99,609 1.38% (.22)% 19.79%
1993.................. 85,087 1.45% (.45)% 14.37%
1992.................. 62,181 1.45% (.03)% 25.80%
1991.................. 60,354 1.43% .60% 65.18%
1990.................. 47,894 1.43% 3.48% 14.93%
Two months ended December
31,
1989.................... 52,176 1.47%* 1.60%* 3.96%
December 28, 1988 (Date
of Initial
Capitalization) through
October 31, 1989........ 43,860 1.50%*(2) 1.63%* 20.47%
</TABLE>
* Annualized
(1) Aggregate; not annualized.
(2) Before expense limitation fee waiver, this ratio was 1.59%.
<PAGE> 15
PORTFOLIO CHANGES
(UNAUDITED)
JANUARY 1, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
NEW HOLDINGS ELIMINATIONS
<S> <C>
American Safety Razor Company Applied Power Inc.
Armor All Products Corporation Cowles Media Company
Celestial Seasonings, Inc. C-TEC Corporation
Chartwell Reinsurance Company Foodarama Supermarkets, Inc.
Franklin Electric Co., Inc. National Education Corporation
GoodMark Foods, Inc. Piedmont Management Company Inc.
Lexington Global Asset Managers, Inc. The Pioneer Group, Inc.
Markel Corporation
Rhodes, Inc.
Thomas Industries Inc.
United Asset Management Corporation
</TABLE>
FIVE LARGEST HOLDINGS
(REPRESENTS 28% OF NET ASSETS AT 12/31/95)
WHITE RIVER CORPORATION (WHRC) 6.9%
A service company with holdings in several investments. It's primary operating
business provides vehicle valuation and collision estimating services and
software for insurance and auto repair firms.
COUSINS PROPERTIES INCORPORATED (CUZ) 5.7%
A self advised, equity real estate investment trust concentrating in commercial
buildings primarily in Atlanta and the Southeast. The company also has valuable
non-income producing real estate holdings.
ARMOR ALL PRODUCTS CORPORATION (ARMR) 5.4%
The leading U.S. supplier of automotive appearance chemical products such as
plastic and rubber protectants, waxes and car wash products. Brand names include
Armor All, Rain Dance and Rally.
PINKERTON'S, INC. (PKTN) 5.1%
One of the largest U.S. based security guard and investigative firms with both
domestic and international offices.
ALLEGHANY CORPORATION (Y) 4.9%
Owner of the world's largest title insurance organization. Also owns Celite
Corporation, a worldwide filtration and industrial minerals business, and is the
largest shareholder of Burlington Northern SantaFe railroad.
PUBLISHED DAILY PRICE QUOTATIONS
The daily net asset values per share of each series of Longleaf Partners Funds
Trust are reported in the Mutual Fund Quotations tables of major newspapers in
alphabetical sequence under the following symbols:
Longleaf Partners Fund -- "LonglfPF"
Longleaf Partners Small-Cap Fund -- "LonglfSC"
<PAGE> 16
- ---------------------------------------------
TRUSTEES
O. MASON HAWKINS, CFA --
Chairman, Southeastern Asset
Management, Inc.
Memphis, Tennessee
CHADWICK H. CARPENTER, JR. --
Senior Executive Officer, Progress
Software Corporation
Bedford, Massachusetts
JOHN R. McCARROLL, JR. --
Chairman, McCarroll Newman LLC
Memphis, Tennessee
STEVEN N. MELNYK --
Chairman of the Executive
Committee and President,
Riverside Golf Group, Inc.
Jacksonville, Florida
C. BARHAM RAY -- Chairman of the
Board and Secretary, SSM Corp.
Memphis, Tennessee
W. REID SANDERS -- Executive
Vice President, Southeastern
Asset Management, Inc.
Memphis, Tennessee
- ---------------------------------------------
This report is submitted for the general informa-
tion of shareholders of the Fund. For more detailed
information about the Fund, its management, fees,
expenses and other pertinent information, please
see the prospectus.
This report is not authorized for distribution to
prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
LONGLEAF
PARTNERS
FUNDS
MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
6075 POPLAR AVE.
SUITE 900
MEMPHIS, TN 38119
(901) 761-2474
(800) 488-4191
----------------------------------------------------
----------------------------------------------------
ANNUAL
REPORT
December 31, 1995
LONGLEAF PARTNERS
SMALL-CAP FUND
----------------------------------------------------
----------------------------------------------------
MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
