<PAGE> 1
As filed with the Securities and Exchange Commission on May 1, 1996
Registration No. 33-10472
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
-----
Pre-Effective Amendment No. ( )
----- -----
Post-Effective Amendment No. 15 (X)
----- -----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 15 (X)
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(Check appropriate box or boxes)
LONGLEAF PARTNERS FUNDS TRUST
LONGLEAF PARTNERS FUND (SERIES ONE)
LONGLEAF PARTNERS SMALL CAP FUND (SERIES TWO)
(Exact name of registrant as specified in charter)
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c/o Southeastern Asset Management, Inc.
6075 Poplar Avenue; Suite 900
Memphis, TN 38119
(Address of principal executive offices)
----------------------------------------
Registrant's Telephone Number, Including Area Code - (901) 761-2474
<TABLE>
<S> <C>
CHARLES D. REAVES, ESQ. Copy to:
Executive Vice President ALAN ROSENBLAT, ESQ.
Longleaf Partners Funds Trust Dechert Price & Rhoads
c/o Southeastern Asset Mgmt., Inc. 1500 K Street, N.W.
6075 Poplar Ave., Ste. 900 Washington, D.C. 20005
Memphis, TN 38119
</TABLE>
(Name and address of agent for service)
---------------------------------------
Rule 485(b). Post-Effective Amendment No. 15 is being filed under
subparagraphs (1)(iii) and (iv) of Rule 485(b) to incorporate audited financial
statements for the fiscal year ended December 31, 1995, and other current
financial information, and under subparagraph (1)(vii) to make certain other
non-material changes in the language contained in the Prospectus and Statement
of Additional Information.
Effective Date. Pursuant to Rule 485(b), this Post-Effective Amendment No. 15
shall be effective on May 1, 1996, the date of filing.
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2(a) under the Investment Company Act of 1940, the
Registrant hereby declares that an indefinite number or amount of shares of
beneficial interest is being registered under the Securities Act of 1933. The
$500 filing fee required by said Rule has been paid. The Notice required by
Rule 24f-2(b)(1) under the Investment Company Act of 1940 with respect to the
fiscal year ended December 31, 1995, for Series One and Series Two was filed
with the Securities & Exchange Commission on January 25, 1996, together with a
registration fee for net sales for the period.
<PAGE> 2
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
__________
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS SMALL-CAP FUND
FORM N-1A CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PART A - ITEM NUMBER PROSPECTUS CAPTION
<S> <C> <C>
1. Cover Page Front Cover Page
2. Synopsis Front Cover Page
3. Condensed Financial "Condensed
Information Financial Information"
4. General Description of Front Cover Page;
Registrant Information on Investment
Management
5. Management of the Fund Types of Investments
Investment Techniques
Investment Risk Factors
Diversification and
Portfolio Turnover
Information on Management
and Administration
6. Capital Stock and Other Massachusetts Business
Securities Trust Provisions
Distributions and Taxes
7. Purchase of Securities How to Open an Account
Being Offered How to Purchase Shares
8. Redemption or Repurchase How to Redeem Shares
9. Legal Proceedings Not Applicable
</TABLE>
<PAGE> 3
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
PART B - ITEM NUMBER INFORMATION CAPTION
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents; Page 1
12. General Information Contained in Prospectus on and
and History Face Page and under
Significance of Fund Names;
Massachusetts Business Trust
Provisions; In SAI under
Management of the Fund.
13. Investment Objectives and Additional Information About
Policies Investment Restrictions and
Policies; Additional
Information About Investment
Techniques
14. Management of the Fund Management of the Fund
15. Control Persons and Control Persons and Principal
Principal Holders of Holders of Securities
Securities
16. Investment Advisory and Investment Advisory Services;
Other Services Other Management Related
17. Brokerage Allocation and Brokerage Allocation
Other Practices
18. Capital Stock and Other Contained in Prospectus under
Securities caption "Massachusetts
Business Trust Provisions"
19. Purchase, Redemption and Contained in Prospectus
Pricing of Securities under caption "How to
Purchase Shares"; "How to
Redeem Shares", and
"Computation of Net Asset
Value".
20. Tax Status Contained in Prospectus
under captions "Dividends
and Taxes"; In SAI under
caption "Additional Tax
Information"
21. Underwriters None; not applicable
22. Calculation of Performance Investment Performance and
Data Total Return
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 4
LONGLEAF PARTNERS FUNDS TRUST
=============================
LONGLEAF PARTNERS FUND
and
LONGLEAF PARTNERS SMALL-CAP FUND
PART A
INFORMATION REQUIRED IN THE PROSPECTUS
<PAGE> 5
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS SMALL-CAP FUND
Series of
LONGLEAF PARTNERS FUNDS TRUST
Investment Counsel
SOUTHEASTERN ASSET MANAGEMENT, INC.
6075 Poplar Ave., Suite 900
Memphis, TN 38119
(800) 445-9469 (901) 761-2474
Longleaf Partners Fund and Longleaf Partners Small-Cap Fund are series of
Longleaf Partners Funds Trust, a Massachusetts business trust. Each Fund seeks
to achieve its investment objective of long-term capital growth through
investment in equity securities of a limited number of companies believed by
the Investment Counsel to have unrecognized intrinsic value. The Funds'
portfolios include securities of companies located throughout the U.S. and a
limited number of foreign securities. Current income is not an objective. The
Funds are no-load, open-end diversified management investment companies.
LONGLEAF PARTNERS FUND seeks long-term capital growth through investment
primarily in securities of companies having a market capitalization greater than
$500 million, most of which are listed on the major stock exchanges.
LONGLEAF PARTNERS SMALL-CAP FUND seeks long-term capital growth primarily
through investment in securities of companies having a market capitalization of
$1 billion or less, some of which may be traded in the "over the counter"
market.
The Funds' objectives are suitable for investors who are willing to hold their
shares through periods of market fluctuations and the accompanying changes in
share values. The Funds are not intended for investors seeking short-term price
appreciation or for "market timers."
The minimum initial investment is $10,000 and shares may be purchased directly
from the Funds without payment of any sales charges. There are no "12b-1" fees
or redemption fees. Purchases may also be made through an authorized brokerage
firm, which may charge a transaction fee.
The Prospectus sets forth concisely the information that a prospective investor
should know before investing. Investors should read this Prospectus and retain
it for future reference. More detailed disclosure is contained in a Statement of
Additional Information, which has been filed with the Securities and Exchange
Commission and is available upon request without charge by telephoning or
writing the Fund Administrator, at the address shown above. The Statement of
Additional Information, dated the date of this Prospectus, is incorporated
herein by reference.
Shareholder inquiries about account status and redemption procedures should be
directed to the transfer agent by calling (800) 488-4191. Inquiries about other
Fund operations may be directed to Southeastern Asset Management, Inc. by
calling (901) 761-2474.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT IN SUCH SHARES INVOLVES INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE AND ARE
NOT GUARANTEED.
The date of this Prospectus is May 1, 1996
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Expenses..................... 2
Fund Names................... 3
Fund Names................... 4 HOW TO OPEN AN ACCOUNT OTHER SHAREHOLDER SERVICES
Regular Accounts......... 10 Confirmation and
INFORMATION ON INVESTMENT Individual Retirement Reports..................... 12
MANAGEMENT Accounts............... 10 Transfer Agent............... 12
Investment Counsel........... 4
Investment Objective......... 4 HOW TO PURCHASE SHARES HOW SHARES ARE PRICED
Investment Philosophy........ 4 By Mail.................. 10 Offering Price............... 13
Intrinsic Value............. 4 By Automatic Monthly Net Asset Value.............. 13
Types of Equity Investments.. 5 Investment.............. 10
Cash Reserves................ 6 By Wire.................. 10 DISTRIBUTIONS AND TAXES
Options on Securities Certificates............. 11 Dividends and
and Stock Indices.......... 6 Telephone Subscriptions Capital Gains............... 13
Risks of Investment.......... 7 by Broker/Dealers...... 11 Taxes........................ 13
Portfolio Turnover........... 7
Investment Restrictions...... 7 HOW TO REDEEM SHARES ADDITIONAL INFORMATION
Procedures............... 11 Portfolio Brokerage.......... 14
MANAGEMENT AND Price & Fees............. 12 Investment Performance....... 14
ADMINISTRATION By Mail.................. 12 Massachusetts Business
Portfolio Managers........... 7 By Telephone............. 12 Trust....................... 15
Trustees and Officers........ 7 Signature Guarantee...... 12 Code of Ethics............... 15
Investment Counsel Fees...... 9 Exceptions to Investment
Fund Administrator........... 9 Minimum..................... 15
</TABLE>
FUND EXPENSES
Expenses are one of several factors to consider when investing in a mutual
fund. The purpose of the following fee table is to provide an understanding
of the various costs and expenses that shareholders of the Fund will bear
directly or indirectly.
<TABLE>
<CAPTION>
LONGLEAF PARTNERS LONGLEAF PARTNERS
FUND SMALL-CAP FUND
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases...................................... None None
Sales Load Imposed on Reinvested Dividends........................... None None
Deferred Sales Load.................................................. None None
Redemption Fee....................................................... None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees...................................................... 0.821% 1.00%
12b-1 Fees........................................................... None None
Other Expenses
Administration................................................... 0.100% 0.100%
Shareholder Services - Transfer Agent............................ 0.020% 0.020%
All Other Operating Expenses..................................... 0.074% 0.180%
------ ------
Total Fund Operating Expenses*....................................... 1.015% 1.300%
====== ======
EXAMPLE*
You would pay the following expenses on a 1 Year $ 10 $ 13
$1,000 investment, assuming a 5% annual return 3 Years $ 32 $ 41
and either redemption or no redemption at the 5 Years $ 56 $ 71
end of each time period. 10 Years $124 $157
</TABLE>
*The Example is based on the "Total Fund Operating Expenses" described
above. Please remember that the Example should not be considered as
representative of past or future expenses and that actual expenses may be higher
or lower than those shown. The assumption in the Example of a 5% annual return
is required by regulations of the SEC applicable to all mutual funds. The
assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of a Fund's shares.
2
<PAGE> 7
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD AS FOLLOWS:
The following per share income and capital changes information has been audited
by Coopers & Lybrand, L.L.P., independent certified public accountants. The
auditors' report appears in the Annual Report to Shareholders for the year ended
December 31, 1995 and is incorporated by reference in this Prospectus.
LONGLEAF PARTNERS FUND
<TABLE>
<CAPTION>
NET GAINS
OR
NET (LOSSES) ON DISTRI- NET
ASSET SECURITIES TOTAL DIVIDENDS BUTIONS ASSET
VALUE NET REALIZED FROM FROM NET FROM TOTAL VALUE
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT CAPITAL DISTRI- END OF TOTAL
OF PERIOD INCOME UNREALIZED OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN
--------- ---------- ----------- ---------- ---------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1995.................. $ 17.13 $ .30 $ 4.40 $ 4.70 $ (.24) $ (.44) $ (.68) $ 21.15 27.50%
1994.................. 16.92 .21 1.30 1.51 (.16) (1.14) (1.30) 17.13 8.96%
1993.................. 14.70 .10 3.16 3.26 (.09) (.95) (1.04) 16.92 22.20%
1992.................. 13.34 .07 2.65 2.72 (.07) (1.29) (1.36) 14.70 20.47%
1991.................. 10.21 .05 3.93 3.98 (.06) (.79) (.85) 13.34 39.19%
1990.................. 12.62 .13 (2.16) (2.03) (.15) (.23) (.38) 10.21 (16.35)%
Two months ended December
31, 1989................ 14.30 .03 (.10) (.07) (.08) (1.53) (1.61) 12.62 (0.47)%(1)
Year ended
October 31,
1989.................. 11.25 .18 3.00 3.18 (.13) - (.13) 14.30 28.38%
1988.................. 8.69 .14 2.50 2.64 (.08) - (.08) 11.25 30.69%
March 24, 1987
(Date of Initial
Capitalization) through
October 31, 1987........ 10.00 .11 (1.42) (1.31) - - - 8.69 (13.14)%(1)
<CAPTION>
RATIO OF
EXPENSES RATIO OF
NET ASSETS TO NET
END OF AVERAGE INCOME TO PORTFOLIO
PERIOD NET AVERAGE TURNOVER
(THOUSANDS) ASSETS NET ASSETS RATE
------------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended December 31,
1995.................. $ 1,876,467 1.01% 1.45% 12.60%
1994.................. 753,527 1.17% 1.18% 27.39%
1993.................. 397,282 1.26% .63% 19.12%
1992.................. 243,678 1.29% .50% 29.12%
1991.................. 177,878 1.30% .42% 45.11%
1990.................. 129,643 1.32% 1.13% 52.45%
Two months ended December
31, 1989................ 148,680 1.31%* 1.73%* 6.67%
Year ended
October 31,
1989.................. 139,608 1.35% 1.37% 57.72%
1988.................. 50,676 1.50%(2) 1.40% 92.68%
March 24, 1987
(Date of Initial
Capitalization) through
October 31, 1987........ 25,787 1.50%*(2) 1.61%* 70.00%
</TABLE>
* Annualized
(1) Aggregate; not annualized.
(2) Before expense limitation fee waiver, this ratio was 1.64% and 1.83% for the
1988 and 1987 periods, respectively.
LONGLEAF PARTNERS SMALL-CAP FUND
<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%.
3
<PAGE> 8
SIGNIFICANCE OF FUNDS' NAMES
The name "Longleaf", derived from the longleaf pine, a majestic, sturdy tree
indigenous to the southeastern United States, represents the qualities of
strength and endurance. A second element of the name is the word "Partners." In
selecting portfolio investments, Southeastern seeks corporate managers who would
make exemplary long-term business partners. They should be properly incented,
ownership vested, honest, shareholder oriented, operationally competent
individuals who are capable of allocating corporate resources intelligently. The
Fund endeavors to be a supportive long-term "partner" with management of the
companies in which investments are made. Correspondingly, the manager's own
partners, other personnel, and relatives, are major investors in the Fund.
Management considers itself a "partner" with Fund shareholders in the sense that
together all are seeking long-term total return. The Fund desires loyal,
long-term investors as shareholders who view themselves as "partners" with Fund
management in the same sense.
INFORMATION ON INVESTMENT MANAGEMENT
INVESTMENT COUNSEL. Southeastern Asset Management, Inc., ("Southeastern"),
located in Memphis, Tennessee, is the Funds' Investment Counsel. The firm has
been engaged since 1975 in the management of securities portfolios for ERISA and
government retirement plans, charitable and educational endowments, and
individuals. The firm, owned and controlled by its principal officers, has more
than $6.2 billion in client assets under management.
INVESTMENT OBJECTIVE. The fundamental investment objective of both Funds is
long-term capital growth. To achieve this objective, each Fund invests primarily
in common stocks of a limited number of companies believed by Southeastern to
have unrecognized intrinsic value and the potential to grow their economic
worth. This investment objective is not expected to produce significant current
income and the realization of current income is incidental.
INVESTMENT PHILOSOPHY. Southeastern believes that superior long-term
performance can be achieved when positions in financially strong, well-managed
companies are acquired at prices significantly below their business value and
are sold when they approach their corporate worth. Using this approach,
Southeastern views stocks as ownership units in business enterprises. Corporate
intrinsic value is determined through careful securities analysis and the use of
established disciplines consistently applied over long periods of time. Stocks
which can be identified and purchased at a price significantly discounted from
their intrinsic worth not only protect investment capital from significant loss
but also facilitate major rewards when the true business value is ultimately
recognized. Seeking the largest margin of safety possible, Southeastern requires
at least a 40% market value discount from its appraisal of a company's intrinsic
value before purchasing the security.
DETERMINATION OF INTRINSIC VALUE. Southeastern's investment analysts determine
the appraised per share corporate worth of potential investments using current,
publicly available financial statements. These are carefully scrutinized and two
primary methods of appraisal are applied. The first assesses what Southeastern
believes to be the real economic value of the company's net assets. The second
approach examines the enterprise's ability to generate free cash flow after
required or maintenance capital expenditures. After free cash flow is
determined, conservative projections about its rate of future growth are made.
The present value of that stream of free cash flow plus its terminal value is
then calculated using a discount rate based on expected interest rates.
If Southeastern's calculations are accurate, that present value would be the
price which buyers and sellers negotiating at arms length would accept for the
whole company. In a concluding analysis, the asset value determination and/or
the discounted free cash flow value are compared to Southeastern's data bank of
business transactions of comparable corporations.
4
<PAGE> 9
Other considerations used in selecting potential investments include the
following:
-- INDICATIONS OF SHAREHOLDER ORIENTED MANAGEMENT. In selecting portfolio
investments, Southeastern seeks companies having properly incented, ownership
vested managements who are honest, shareholder oriented, operationally
competent individuals whom it believes are capable of allocating corporate
resources intelligently and who would make exemplary long-term business
partners.
-- EVIDENCE OF FINANCIAL STRENGTH. Southeastern requires that companies held
in the portfolio have sound financial statements and excess free cash flow
produced through operations.
-- POTENTIAL EARNINGS IMPROVEMENT. The company should be capable of producing
both a meaningful improvement in earnings within three to five years and an
adequate return on its invested capital.
The portfolio of each Fund has been constructed using a relatively limited
number of common stocks chosen by employing the criteria discussed. A particular
investment may not include all of the above factors, but Southeastern must be
convinced that significant unrealized intrinsic value is present.
COMPOSITION OF PORTFOLIO -- LONGLEAF PARTNERS FUND. Under normal circumstances,
Longleaf Partners Fund invests at least 75% of its equity portfolio in companies
having a market capitalization greater than $500 million, most of which are
listed on the major securities exchanges. The remainder of its equity portfolio
may be invested in securities that generally have an established market,
although the depth and liquidity of the market may vary.
COMPOSITION OF PORTFOLIO -- LONGLEAF PARTNERS SMALL-CAP FUND. Under normal
circumstances, Longleaf Partners Small-Cap Fund invests a minimum of 75% of its
equity portfolio (but not less than 65% of total assets) in the equity
securities of companies having a market capitalization of $1 billion or less.
The term "equity securities" does not include debt having an equity conversion
feature. Some of these equity securities may be traded in the "over the counter"
market. The "over the counter" market is generally defined as the market for
securities which are not listed for trading on the New York Stock Exchange or
the American Stock Exchange. In contrast to the New York or American Stock
Exchange, the "over the counter" market is not a centralized facility that
imposes listing qualifications relating to assets, earnings and number of
shareholders. Securities of companies having small market capitalization may be
subject to greater price volatility and less trading liquidity than larger, well
established companies, due to factors such as changes in key personnel,
financing difficulties or problems with their products or services. As a result,
the net asset value per share of the Fund could fluctuate significantly. The
Fund may also invest the balance of its equity portfolio in securities of larger
companies.
TYPES OF EQUITY INVESTMENTS. Each Fund will generally maintain a fully invested
position in common stocks of U.S. issuers having the essential investment
considerations previously discussed. The Funds may also invest in other equity
securities such as preferred stocks, warrants, options, equity appreciation
certificates, and preferred stocks which initially pay no dividend but which
match dividend increases on the company's common stock.
FOREIGN SECURITIES. The Funds may invest up to 15% of total assets in
securities of foreign issuers which are traded in a U.S. market and which meet
the same criteria for investment as domestic companies, or depository receipts
for such securities. The Fund may be subject to additional investment risks for
these securities that are different in some respects from those incurred by
investments in securities of domestic issuers. Such risks include future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls, the possible seizure or nationalization of
foreign deposits, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
securities. There can be no assurance that such laws may not become applicable
to certain of the Fund's investments. In addition, there may be less publicly
available information about a foreign issuer than about a domestic issuer, and
foreign issuers may not be subject to the same accounting, auditing and
financial recordkeeping standards and requirements as domestic issuers.
RESTRICTED SECURITIES. Each Fund may invest in restricted securities and in
other assets having no ready market, including repurchase agreements of more
than seven (7) days in duration, if such purchases at the time thereof would not
cause more than 10% of the value of the Fund's total assets (but not exceeding
15% of the Fund's net assets including securities which are subject to Rule 144A
under the Securities Act of 1933) to be invested in
5
<PAGE> 10
all such illiquid or not readily marketable assets. Restricted securities may be
sold only in privately negotiated transactions, in a public offering with
respect to which a registration statement is in effect under the Securities Act
of 1933 or pursuant to Rule 144 promulgated under such Act. Where registration
is required, the Fund may be obligated to pay all or part of the registration
expense, and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If during such a period adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities will be valued in such
manner as the Board of Trustees of the Fund in good faith deems appropriate to
reflect their fair market value.
CASH RESERVES. Each Fund's cash reserves, held to provide sufficient
flexibility to take advantage of new opportunities for investments and for other
cash needs, will be invested in money market instruments and generally will not
exceed 15% of total assets. If Southeastern has difficulty finding an adequate
number of undervalued equity securities, all or any portion of the Fund's assets
may also be invested temporarily in money market instruments.
Money market instruments in which each Fund may invest its cash reserves will
generally consist of obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and such obligations which are subject to
repurchase agreements. A repurchase agreement is an instrument under which an
investor such as the Fund purchases a U.S. Government security from a vendor,
with an agreement by the vendor to repurchase the security at the same price,
plus interest at a specified rate. In such a case, the security is held by the
Fund, in effect, as collateral for the repurchase obligation. Repurchase
agreements may be entered into with member banks of the Federal Reserve System
or "primary dealers" (as designated by the Federal Reserve Bank of New York) in
United States Government securities. Repurchase agreements usually have a short
duration, often less than one week. In entering into the repurchase agreement
for the Fund, the Investment Counsel will evaluate and monitor the credit
worthiness of the vendor. In the event that a vendor should default on its
repurchase obligation, the Fund might suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. If
the vendor becomes bankrupt, the Fund might be delayed, or may incur costs or
possible losses of principal and income, in selling the collateral.
Other acceptable money market instruments include commercial paper rated in the
highest grade by any nationally recognized rating agency, such as Moody's or
Standard & Poor's, certificates of deposit and bankers' acceptances issued by
domestic banks having total assets in excess of one billion dollars, and money
market investment companies (limited to a maximum of 5% of total assets).
The Funds may borrow money for temporary purposes such as the clearance of
purchases and sales of portfolio securities in an amount not to exceed 5% of
total assets, and for temporary purposes to satisfy redemption requests in an
amount not to exceed 15% of total assets, with the aggregate amount of all
borrowing outstanding at any time being limited to 15% of total assets.
Securities will not be purchased by borrowings in excess of 5% of total assets.
OPTIONS ON SECURITIES AND STOCK INDICES. The Fund may write (i.e., sell)
covered put and call options and purchase put and call options on securities or
stock indices that are listed on a national exchange. An option on a security is
a contract that gives the purchaser of the option, in return for the premium
paid, the right to buy a specified security (in the case of a call option) or to
sell a specified security (in the case of a put option) from or to the writer of
the option at a designated price during the term of the option. An option on a
stock index gives the purchaser of the option, in return for the premium paid,
the right to receive from the seller cash equal to the difference between the
closing price of the index and the exercise price of the option.
Transactions in puts or calls on securities or index options would be used
primarily for hedging or tax deferral purposes where the transactions would
complement the Funds' existing investment strategy. Examples of such uses would
be to (i) sell calls against existing equity positions; (ii) sell puts involving
portfolio positions to be held for the long term in order to more effectively
create these positions; (iii) buy individual puts against existing equity
positions for tax deferral purposes; and (iv) buy index puts for purposes of
hedging the overall portfolio.
The Fund may write a call or put option only if the option is "covered." This
means that so long as the Fund is obligated as the writer of a call option, it
will own the underlying securities subject to the call, or hold a call at the
same or lower exercise price, for the same exercise period, and on the same
6
<PAGE> 11
securities as the written call. A put is covered if the Fund maintains
collateral consisting of cash, liquid money market instruments, or U.S.
government securities with a value equal to the exercise price in a segregated
account, or holds a put on the same underlying security at an equal or greater
exercise price. The value of the underlying securities on which options may be
written at any one time will not exceed 25% of the total assets of the Fund. The
Fund will not purchase put or call options if the aggregate premium paid for
such options would exceed 5% of its total assets at the time of purchase.
RISKS OF INVESTMENT. Because prices of stocks fluctuate from day to day, the
value of each Fund's portfolio and the Fund's price per share will vary based
upon general market conditions. The previous sections also discuss certain risks
which could be present should the Fund acquire those particular types of
investments. There is no assurance that the investment objectives of either Fund
can be achieved, and the value of your investment as a shareholder upon
redemption may be more or less than the purchase price.
PORTFOLIO TURNOVER. An equity investment in a company deemed to have
unrecognized intrinsic value usually will be held until such time as the market
value of its common stock approaches its appraised corporate worth as determined
by Southeastern. As a result, each portfolio should have an annual portfolio
turnover rate which would not exceed 50%. However, there are no limits on the
rate of portfolio turnover, and investments may be sold without regard to length
of time held when, in the opinion of Southeastern, investment considerations
warrant such action. Higher portfolio turnover rates, such as rates in excess of
100%, and short-term trading involve correspondingly greater commission expenses
and transaction costs. The portfolio turnover rates for each Fund are shown in
the tables on page 3.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES. The investment restrictions listed below, as well as the
investment objectives of each Fund, have been adopted as fundamental policies,
along with certain other investment restrictions listed in the Statement of
Additional Information. Under the Investment Company Act of 1940, as amended
(the "Act"), a fundamental policy may not be changed without the vote of a
majority of the outstanding voting securities of the fund, as defined in the
Act. Under these restrictions, the Fund may not:
1. With respect to 75% of its total assets (taken at market), invest more than
5% of the value of its total assets in the securities of any single issuer
(other than obligations issued, or guaranteed by, the United States
Government, its agencies or instrumentalities).
2. With respect to 75% of its total assets, purchase more than 10% of all
outstanding voting securities or any class of securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or to cash equivalents. Cash equivalents will not be used
to concentrate investments in a single industry.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction shall not apply to any
obligation of the United States Government, its agencies or
instrumentalities.
INFORMATION ON MANAGEMENT AND ADMINISTRATION
PORTFOLIO MANAGERS. Mr. O. Mason Hawkins, Chairman of the Board and Chief
Executive Officer of Southeastern Asset Management, Inc. and Mr. G. Staley
Cates, President of Southeastern Asset Management, Inc., serve as co-portfolio
managers of both Funds and in this capacity jointly have primary responsibility
for investment management of each portfolio.
TRUSTEES AND OFFICERS. Each series or Fund has a Board of Trustees, composed of
the same individuals. The Boards elect officers, who implement policies
formulated by the Boards. All Fund officers are officers or employees of
Southeastern Asset Management, Inc., and in this capacity administer each Fund's
business operations.
7
<PAGE> 12
MEMBERS OF BOARDS OF TRUSTEES
LONGLEAF PARTNERS FUND AND LONGLEAF PARTNERS SMALL-CAP FUND
O. MASON HAWKINS*, CFA, Chairman of the Board and Chief Executive Officer.
Founder and Director, Southeastern Asset Management, Inc. (since 1975); Director
of Research, First Tennessee Investment Management Company, Memphis, TN
(1974-1975); Director of Research, Atlantic National Bank, Jacksonville, FL
(1972-1974); Director, Mid-America Apartment Communities, Inc. (since 1993).
Education: B.S.B.A., Finance, University of Florida, 1970; M.B.A., University of
Georgia, 1971.
W. REID SANDERS*, Trustee and President.
Founder and Director, Southeastern Asset Management, Inc. (since 1975);
Investment Officer, First Tennessee Investment Management Company, Memphis, TN
(1973-1975); Credit Analyst and Commercial Lending Official, Union Planters
National Bank, Memphis, TN (1972-1973).
Education: B.A., Economics, University of Virginia, 1971.
CHADWICK H. CARPENTER, JR., Trustee.
Senior Executive Officer in charge of corporate development, Progress Software
Corporation, Bedford, MA (a corporation engaged in the development and marketing
of software products used by developers to build and deploy commercial
applications) (since 1993); Senior Vice President, Sales and Services
(1986-1993); Vice President, Product Services (1983-1986); prior to 1983,
Manager of MIMS Systems Operation, General Electric Information Services
Company; Senior Consultant, Touche Ross & Company.
Education: B.S., Electrical Engineering, Massachusetts Institute of Technology,
1971; M.S., Electrical Engineering, Massachusetts Institute of Technology, 1972.
JOHN R. MCCARROLL, JR., Trustee.
Lawyer, Memphis, TN, (1965-present); Chairman, McCarroll Newman, LLC (since
1995); previously, Senior Vice President, Chief Financial Officer and Treasurer,
Guardsmark, Inc., Memphis, TN (1994); Partner, Apperson, Crump, Duzane & Maxwell
(1994); General Counsel, Malone & Hyde, Inc. and AutoZone, Inc. (1988-1994);
Partner, Hardison, McCarroll, Cook & Cannon (1980-1985); Partner, Burch, Porter
& Johnson (1977-1980); Circuit Court Judge, Division I, Fifteenth Judicial
Circuit, State of Tennessee (1974-1977).
Education: B.A., Vanderbilt University, 1962; J.D., Vanderbilt University, 1965.
STEVEN N. MELNYK, Trustee.
Chairman of the Executive Committee and President, Riverside Golf Group, Inc.,
Jacksonville, FL (since 1987) (a corporation engaged in the design, construction
and operation through ownership of golf courses throughout the southeastern US);
Golf commentator and sports marketing executive, ABC Sports (since 1991) and CBS
Sports (1982-1991); Founding director and former Chairman, First Coast Community
Bank, Fernandina Beach, FL; Winner of U.S. Amateur Championship, 1969, and
British Amateur Championship, 1971.
Education: B.S.B.A., Industrial Management, University of Florida, 1969.
C. BARHAM RAY, Trustee.
Chairman of the Board and Secretary, SSM Corporation, Memphis, TN (since 1974)
(a corporation serving as a financial advisor in the evaluation of private
businesses, in the negotiation and structuring of purchase and sale transactions
of private businesses and as a venture capital investor); Director, Financial
Federal Savings Bank, Memphis, TN.
Education: B.A., Vanderbilt University, 1968; M.B.A., University of Virginia,
1973.
- ---------------
* Mr. Hawkins and Mr. Sanders are employed by the Investment Counsel and each is
deemed to be a Trustee who is an "interested person", as that term is defined
in Section 2(a)(19) of the Investment Company Act of 1940. Mr. Carpenter
serves as Chairman of the Audit Committee, which is composed of all Trustees
who are not affiliated with the Investment Counsel. Each non-affiliated
Trustee received Trustees fees from both Funds aggregating $20,625 during
1995. For more information, see the Compensation Table set forth in the
section entitled "Management of the Fund" in the Statement of Additional
Information.
8
<PAGE> 13
OTHER EXECUTIVE OFFICERS
CHARLES D. REAVES, Executive Vice President.
Professional Experience: General Counsel, Southeastern Asset Management, Inc.
(since 1988); Vice President in corporate finance, Porter, White & Yardley, Inc.
Birmingham, AL (1986-1988); Senior Vice President -- Finance and Secretary
(1981-1986) and Vice President and General Counsel (1974-1981), Saunders System
Inc., Birmingham, AL.
Education: J.D., University of Alabama, 1961; LL.M (Taxation), Georgetown
University Law Center, 1966; M.B.A., Emory University, 1981.
JULIE M. DOUGLAS, CPA, Executive Vice President -- Operations & Treasurer.
Professional Experience: Southeastern Asset Management, Inc. (since 1989); Audit
Supervisor and Audit Senior, Coopers & Lybrand, Birmingham, AL and Pittsburgh,
PA (1984-1989).
Education: B.S., Accounting, Pennsylvania State University, 1984.
LEE B. HARPER, Executive Vice President -- Marketing.
Professional Experience: Southeastern Asset Management, Inc. (since 1993);
Consultant, IBM Corporation, Memphis, TN (1989-1993); Business Analyst, McKinsey
& Company, Atlanta, GA (1985-1987).
Education: B.A., University of Virginia, 1985; M.B.A., Harvard University, 1989.
G. STALEY CATES, CFA, Co-Portfolio Manager, Vice President -- Investments.
Professional Experience: President, Southeastern Asset Management, Inc. (since
1994); Vice President, Southeastern Asset Management, Inc. (1986-1994).
Education: B.B.A., Finance, University of Texas, 1986.
FRANK N. STANLEY, III, CFA, Vice President -- Investments.
Professional Experience: Vice President, Southeastern Asset Management, Inc.
(since 1984); Portfolio Manager and Analyst, Montag & Caldwell, Atlanta, GA
(1974-1984); Investment Officer, Atlantic National Bank, Jacksonville, FL (1972-
1974).
Education: B.S., Management, Georgia Institute of Technology, 1964; Graduate
study, Emory University, 1965; M.B.A., Marketing, University of Florida, 1970.
JOHN B. BUFORD, CFA, Vice President -- Investments.
Professional Experience: Southeastern Asset Management, Inc. (since 1990); Vice
President, First Tennessee Bank (1989-90); Commerical Lending Officer/Credit
Analyst, Metropolitan National Bank (1985-88).
Education: B.B.A., Finance, University of Texas, 1985.
RANDY D. HOLT, CPA, Vice President, Secretary. Professional Experience: Vice
President and Secretary, Southeastern Asset Management, Inc. (since 1994);
Secretary/Treasurer (1985-1994); Ott, Baxter, Holt (1983-1985); A.M. Pullen &
Co. (1982-1983); Harry M. Jay & Associates (1978-1982).
Education: B.S., Accounting, University of Tennessee, 1976.
INVESTMENT COUNSEL FEES. Each Fund pays Southeastern Asset Management, Inc.
("Southeastern") an investment counsel fee which is accrued daily and paid
monthly, based on the average daily net asset value of the portfolio for the
year. This fee is equal to 1% per annum of the total average daily net assets on
the first $400,000,000 in average daily net assets and 0.75% per annum of all
additional average daily net assets. Actual fees paid during 1995 were 0.821%
for Longleaf Partners Fund and 1.00% for Longleaf Partners Small-Cap Fund. The
investment counsel fee is higher than the fee paid by most mutual funds to their
investment advisors. However, Southeastern has agreed to reduce its fees to the
extent operating expenses of each separate portfolio (excluding brokerage,
interest, taxes, and extraordinary expenses) exceed 1.5% of average annual net
assets. This agreement is not expected to cause a reduction in fees during 1996.
FUND ADMINISTRATOR. Southeastern also serves as Fund Administrator. In this
capacity, it provides business administrative and compliance services for the
Fund, which include maintaining the Fund's accounting records, computing daily
the Fund's net asset value, preparation of tax returns, financial reports,
prospectuses and proxy statements, and monitoring of compliance with all
recordkeeping and regulatory requirements.
Southeastern receives an Administration Fee which is accrued daily and paid
monthly, equivalent on an annual basis to 0.10% of the average daily net assets
9
<PAGE> 14
of the Fund. All direct expenses incurred in continuing administration and
operations are paid by the particular portfolio, including professional fees,
insurance and bonding premiums, association dues, fees charged by Federal and
state regulatory authorities for registration, the expenses of preparation,
printing and distributing prospectuses and financial reports to shareholders,
the costs of obtaining prices for the securities held in the portfolio, the cost
of forms and supplies, telephone and postage, any extraordinary expenses, and
reimbursement of the Administrator for the salary of the Fund's Treasurer and
rental and license fees for software used in processing Fund transactions.
HOW TO OPEN AN ACCOUNT
REGULAR ACCOUNTS. To invest in the Longleaf Partners Funds, complete and sign
the account application, and mail to the address below. PLEASE NOTE THAT THE
MINIMUM INVESTMENT REQUIRED TO OPEN AN ACCOUNT IS $10,000.
Longleaf Partners Funds
P.O. Box 419929
Kansas City, MO 64141-6929
INDIVIDUAL RETIREMENT ACCOUNTS. You can open an IRA or a SEP-IRA with State
Street Bank and Trust Company as trustee by requesting the IRA Application kit.
This contains an explanation of tax considerations and State Street's function
as trustee. After reading the information, fill in the IRA application and the
IRA transfer form and mail to the above address. PLEASE NOTE THAT THE MINIMUM
INITIAL INVESTMENT IS $10,000, WHICH MUST BE SATISFIED PRIMARILY BY TRANSFERRING
FUNDS FROM AN EXISTING IRA OR A QUALIFIED RETIREMENT PLAN. YOU WILL BE CHARGED
AN INITIAL SET-UP FEE OF $15 AND A $10 ANNUAL MAINTENANCE FEE.
HOW TO PURCHASE SHARES
Direct purchases from the Longleaf Partners Funds are not subject to sales
commissions or transaction fees. Initial direct purchases from the Funds must
meet the $10,000 minimum; additional investments of any amount may be made as
often as desired. You may purchase shares directly from the Funds in the
following manner:
BY MAIL. To purchase shares into existing accounts by mail, send a check
payable to Longleaf Partners Funds along with the remittance stub from the
bottom of your most recent transaction statement to:
Longleaf Partners Funds
P.O. Box 419929
Kansas City, MO 64141-6929
INCLUDE THE NAME OF THE FUND AND YOUR ACCOUNT NUMBER ON THE CHECK or, if the
purchase is for a new account, include your account application and mail to the
address listed in "HOW TO OPEN AN ACCOUNT".
If your check is returned because of insufficient funds or because you have
stopped payment on the check, you will be responsible for any losses sustained
by the Fund as the result of custodian or transfer agent fees or a decline in
the net asset value when the shares issued are cancelled. If you are an existing
shareholder, losses may be collected by redeeming the appropriate amount from
your account.
BY AUTOMATIC MONTHLY INVESTMENT. Once you have an account, you can make
automatic investments of $100 or more each month by filling in the Automatic
Monthly Investment Plan section of the application and sending a voided check
from your bank account. The transfer agent does not charge for the Automatic
Monthly Investment Plan, but your bank or credit union may charge a fee for this
service. Transfers will occur on the business day around the 21st day of each
month as affected by weekends and bank holidays. You may cancel this plan, or
change the withdrawal amount any time by written notice.
BY WIRE. You may purchase shares by wire. To do so:
1) Call the transfer agent at (800) 488-4191 to establish an account. Be
prepared to provide necessary registration information as listed on the
application. You will be provided with an account number.
10
<PAGE> 15
2) Instruct your bank to wire funds as follows:
<TABLE>
<S> <C>
- State Street Bank and Trust Company,
Boston, MA
- ABA routing number 011000028
- Specify Longleaf Partners Fund (# 133)
or Longleaf Partners Small-Cap Fund
(# 134)
- A/C# 9905-023-9
- your account number and your name
</TABLE>
Wired funds are considered received on the same day they are deposited in the
Fund account if received before 4:00 P.M. Eastern Time. If received after 4:00
P.M., shares will be purchased at the following business day's closing price.
If you are opening an account by wire, a completed application must be sent to
the Funds as soon as possible. There can be no redemptions until a completed
application has been received by the Funds.
CERTIFICATES. If you want to receive stock certificates with your purchases,
you must send written instructions. Unless shares are purchased with wired
funds, your certificate will not be issued until 15 days after your purchase.
Please note that if you request certificates when you purchase shares, you
cannot redeem those shares without returning the certificates. If you lose your
certificates, you may incur a cost to replace them.
PURCHASES AND REDEMPTIONS OF FUND SHARES THROUGH BROKERAGE FIRMS. Shares of
Longleaf Partners Funds may be purchased and redeemed through securities
brokerage firms having agreements with the Fund. The brokerage firm may charge
certain transaction fees for effecting these and other transactions and any such
transaction fees will be retained by the particular brokerage firm. Fund
investors who are clients of brokerage firms will follow that firm's procedures
in purchasing and redeeming Fund shares, and those procedures take precedence
over the instructions contained in this Prospectus which are applicable to
accounts opened directly with the Fund. The brokerage firm has the
responsibility of supplying its clients who are Fund shareholders with periodic
account statements and all Fund shareholder materials such as the Prospectus and
routine financial reports.
TELEPHONE SUBSCRIPTIONS FROM BROKERAGE FIRMS. Upon execution of formal trading
agreements, the Funds will accept telephone trade orders of $100,000 or less
from a member firm of a national securities exchange, and orders of $50,000 or
less from other members of the NASD, if shares are purchased for the member's
account or for the account of a customer. Larger phone orders require special
agreements with the Funds. Full payment must be received on all trade orders
within one day of the trade date. The broker/dealer placing the order will be
responsible for any loss resulting from cancellation caused by non-payment. The
broker/dealer may charge a reasonable transaction fee for its services, which it
will retain. The Fund may verify the identity and authorization of any member
firm or broker/dealer prior to accepting an order, and may withdraw the
privilege of placing trade orders if in the best interests of the Fund.
HOW TO REDEEM SHARES
PROCEDURES. You may withdraw any portion of your account by redeeming a
specific number of shares or a fixed dollar amount at any time. Redemption
proceeds are normally mailed within one day of receipt of the redemption request
in Good Order. Good Order means that you have a completed application on file
and that the redemption request includes:
1) Account number and fund name (Longleaf Partners Fund (# 133) or Longleaf
Partners Small-Cap Fund (# 134))
2) Amount of the transaction (specified in dollars or shares)
3) Signatures of all owners exactly as they are registered on the account
4) Signature guarantees if required and applicable (see below)
5) Fund certificates if applicable
6) Other supporting legal documents that may be required in cases of
estates, corporations, trusts and certain other accounts.
If you have questions about these requirements, please call the transfer agent
at (800) 488-4191.
The Fund must have received payment for the shares being redeemed, and may delay
redemption payment (normally not more than 15 days) until
11
<PAGE> 16
the Fund has assured itself that collected payment has been received for the
initial share purchase.
REDEMPTION PRICE AND FEES. The redemption price of shares will be the Fund's
net asset value per share next determined after the Fund has received all
required documents in Good Order. (See "How Shares Are Priced" on page 12). The
redemption price may be more or less than the shares' original cost. The Funds
charge no fee for redeeming shares from a regular account.
BY MAIL. Mail your redemption requests and required documentation to:
Longleaf Partners Funds
P.O. Box 419929
Kansas City, MO 64141-6929
The Fund suggests that redemption requests be sent by registered or certified
mail to the above address or by overnight courier to Longleaf Partners Funds;
c/o NFDS, Transfer Agent; 1004 Baltimore, 5th Floor; Kansas City, MO 64105.
BY TELEPHONE. You may authorize the transfer agent to accept telephone
redemptions of $25,000 or less for regular accounts by selecting this option on
your application. Telephone redemptions may not be used for IRA's. Proceeds of
telephone redemptions will be sent only to the mailing address designated in the
application or will be wired only to the commercial bank account so designated.
If you call before 4:00 p.m. Eastern Time, you will receive that day's closing
price; redemption requests made after 4:00 p.m. Eastern Time will receive the
next day's closing price. Once initiated, a telephone redemption request cannot
by changed or cancelled. Any changes in the instructions contained in the
application must be made in writing with a signature guarantee, and may be
verified by the transfer agent before a redemption will be allowed.
The transfer agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, which include use of
specific identifying information. When such procedures are followed, the Fund
and its transfer agent will not be liable for losses caused by following
telephone instructions which are reasonably believed to be genuine. The Fund
reserves the right to revise or terminate the telephone redemption at any time.
SIGNATURE GUARANTEE. Redemptions over $25,000 must be made in writing and
require a signature guarantee. The signatures must correspond to the names in
which the account is registered, and all registered owners must sign the request
and have their signatures guaranteed. To obtain a signature guarantee, a member
firm of a domestic stock exchange, a U.S. commercial bank or other financial
institution that is an eligible guarantor institution, must witness the
signature and stamp the document with the appropriate certification. A notary
public is not an eligible guarantor.
OTHER INFORMATION. Longleaf Partners Funds may suspend the redemption right or
postpone payment at times when the New York Stock Exchange is closed for other
than weekends or holidays, or under emergency circumstances as permitted by the
U.S. Securities and Exchange Commission.
OTHER SHAREHOLDER SERVICES
CONFIRMATION AND REPORTS. You will receive a confirmation statement after each
transaction showing your current account status. You will also receive a
statement of your account after the end of each calendar quarter. In addition,
you will receive a quarterly report on the Fund's portfolio and an audited
annual report for the year ending December 31. You will receive all tax
documentation as required by the IRS.
The Annual Report of each Fund for the fiscal year ended December 31, 1995
contains Management's Discussion of Fund Performance for that fiscal year,
supplemented by graphs depicting the particular fund's change in value from its
inception through the end of the fiscal year compared with a major, unmanaged
stock market index. These Annual Reports may be obtained without charge by
telephoning the Fund at (800) 445-9469, and pressing "1".
TRANSFER AGENT. National Financial Data Services ("NFDS"), an affiliate of
State Street Bank and Trust Company, serves as the Funds' transfer agent and
dividend disbursing agent. As transfer agent, NFDS maintains all shareholder
accounts and records, serves as stock transfer agent, prepares and sends
confirmations and other reports to shareholders, and handles all shareholder
servicing. If you have questions about your account, please call NFDS at (800)
488-4191.
12
<PAGE> 17
HOW SHARES ARE PRICED
OFFERING PRICE. The public offering price is the net asset value per share (see
"Computation of Net Asset Value", below) next determined after receipt of your
check or wire transfer of funds for the minimum initial purchase, or after a
telephone order from an authorized broker/dealer. All applications to establish
an account are subject to acceptance by the Fund. For subsequent purchases, the
applicable net asset value per share is that next determined after receipt by
the Fund of the check or wire transfer payment, or the telephone order by the
investor's broker/dealer.
COMPUTATION OF NET ASSET VALUE. The net asset value per share of the Fund is
determined as of the close of trading on each day that the New York Stock
Exchange is open for business. Net asset value per share is computed by taking
the value of all assets of the portfolio, subtracting its liabilities as accrued
daily, dividing by the number of shares outstanding and adjusting to the nearest
two decimal places. Presently, the New York Stock Exchange closes at 4:00 p.m.
New York City time. In the calculation of net asset value:
(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 sale price; if there were no sales that day, securities
listed on major exchanges are valued at the midpoint between the latest
available and representative bid and asked prices;
(2) all other portfolio securities for which over-the-counter market
quotations are readily available are valued at the midpoint between the
latest available and representative bid and asked prices;
(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;
(4) valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors;
(5) the fair value of United States Government obligations and other debt
securities which mature at a date less than ninety days subsequent to
valuation date will be determined on an amortized cost basis; and
(6) the value of other assets, including restricted and not readily marketable
securities, will be determined in good faith at fair value under
procedures established by and under the general supervision of the
Trustees.
DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS. The practice of the Fund has been to
pay any dividends from net investment income annually and to make distributions
of any net realized capital gains annually, at the end of December.
Unless you have elected to the contrary in the original account application, all
income dividends and all capital gains distributions are reinvested
automatically in full and fractional shares of the Fund at the net asset value
per share next determined on the ex-dividend date of such dividend or
distribution. A shareholder may elect to have subsequent income dividends or the
aggregate of income dividends and capital gains distributions paid in cash
rather than reinvested in additional shares of the Fund by notifying the
transfer agent in writing.
TAXES. Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Federal Internal Revenue Code of 1986 by distributing
substantially all net investment income and net realized capital gains in the
form of dividends. As a result, management expects that neither Fund will incur
any significant Federal income tax liability. Should the Fund fail to distribute
the required minimum amounts, it would be subject to a non-deductible 4% excise
tax on certain undistributed taxable income and realized capital gains.
Because the Fund expects to distribute substantially all net investment income
and net realized capital gains, shareholders subject to Federal income taxation
must report these distributions as income. A portion of these distributions may
qualify for the corporate dividends-received deduction. A distri-
13
<PAGE> 18
bution has the effect of reducing the net asset value per share on the record
date by the amount of the payment. Such a distribution paid shortly after the
purchase of shares by an investor would be similar to a return of capital to the
investor even though it is subject to taxation as a distribution by the Fund.
Information will be provided promptly after the close of each taxable year as to
the proper classification of any net investment income and capital gains
distributions, and the amounts of any expenses which are non-deductible. The
shareholder should recognize that any distributions, whether received in cash or
invested in additional shares, are taxable for purposes of the Federal income
tax and such payments may also be subject to state income taxes. Distributions
by regulated investment companies and the sale of shares of such companies are
classified as "portfolio income", which includes dividends, interest income, and
capital gains or losses attributable to the disposition of property held for
investment.
This discussion about taxes is a general and abbreviated summary of the
provisions of the Federal Internal Revenue Code and Regulations as applicable to
the Fund and individual shareholders. These provisions are subject to change by
legislative or administrative action. Shareholders are advised to consult their
own tax advisors for more detailed information concerning federal, state and
local income taxation of investment company distributions as applied to their
particular circumstances.
ADDITIONAL INFORMATION
ALLOCATION OF PORTFOLIO BROKERAGE. Decisions to buy or sell investment
securities for each portfolio of the Fund are made by Southeastern, under the
supervision of the Board of Trustees. Southeastern has been granted authority,
in the name of the Fund, to place the orders for the execution of the Fund's
investment portfolio transactions. When placing such orders, Southeastern uses
its best efforts to obtain the most favorable price and execution, as more fully
described in the Statement of Additional Information, and places such orders
subject to and in accordance with directions of the Board of Trustees from time
to time. The Fund may pay higher commissions to certain brokers for particular
transactions than might be charged if a different broker had been selected on
occasions when, in Southeastern's opinion, this policy furthers the objective of
obtaining the most favorable price and execution for the transaction.
The Board of Trustees of the Fund has adopted a policy which permits
Southeastern to consider research and other investment information provided by a
broker/dealer, its sales of shares of the Fund, and the supplying of other
economic benefits which reduce the Fund's expenses as factors in selecting
broker/dealers qualified to execute portfolio transactions for the Fund.
Southeastern is authorized to pay higher commissions on brokerage transactions
for the Fund in order to secure research and investment services and other
specific benefits for the Fund, subject to review by the Fund's Board of
Trustees as to the extent and continuation of this practice. Sales of Fund
shares by a broker are one factor among others to be taken into account in
allocating portfolio transactions, but higher commissions will not be paid
solely for sales of Fund shares. The Fund is not committed to execute portfolio
transactions through any particular broker/dealers which provide investment
research information, or which sell shares of the Fund or provide other
benefits. The Board of Trustees monitors executions of portfolio transactions at
least quarterly to assure itself that these principles are being appropriately
implemented.
INVESTMENT PERFORMANCE INFORMATION. The Funds may publish their total returns
from time to time in advertisements and in communications to shareholders,
calculated by using an industry standardized formula, as more fully described in
the Statement of Additional Information. Total return information will include
the average annual compounded rate of return for the 12 month and 5 year periods
ended at the close of the most recent calendar quarter, and for the period from
inception of operations through the end of the most recent calendar quarter.
Each Fund may also advertise or provide aggregate and average total return
information for different periods of time, such as the latest calendar quarter
or for the calendar year-to-date. For all of these purposes, total return
includes changes in net asset value per share and reinvestment in additional
shares of any dividends from net investment income or other distributions. An
example of such a calculation is included in the Statement of Additional
Information. INVESTORS SHOULD UNDERSTAND THAT INVESTMENT RESULTS WILL FLUCTUATE
OVER TIME, AND AN INVESTMENT MAY BE WORTH MORE OR LESS THAN THE PURCHASE PRICE,
DEPENDING ON THE TIMING OF THE INVESTMENT AND
14
<PAGE> 19
STOCK MARKET PERFORMANCE. ANY PRESENTATION OF THE TOTAL RETURN FOR ANY PRIOR
PERIOD IS NOT INTENDED TO BE A REPRESENTATION OF FUTURE TOTAL RETURN.
Each Fund may compare its performance to that of widely recognized unmanaged
stock market indicies, including the Dow Jones Industrials Average and Standard
& Poor's 500 Stock Index. The Funds may also compare their performance with that
of other mutual funds having similar investment objectives and with the industry
as a whole, as determined by services such as Lipper Analytical Services, Inc.
(an independent rating service that ranks most mutual funds based upon total
return performance), CDA Technologies, Morningstar, Inc., and The Value Line
Mutual Fund survey. The Funds may also provide information on their relative
rankings as published in such newspapers and magazines as The Wall Street
Journal, Barron's, Investor's Daily, Forbes, Business Week, Money, Financial
World, and other similar publications of general interest.
MASSACHUSETTS BUSINESS TRUST PROVISIONS. Longleaf Partners Funds Trust was
organized as a Massachusetts business trust on November 26, 1986. Each series or
Fund is authorized to issue an unlimited number of shares of beneficial
interest, all of which are of one class and have equal rights as to voting,
redemption, dividends and liquidation. Upon receipt of payment for shares, all
shares issued and outstanding are fully paid and nonassessable and are
redeemable at the net asset value per share at the option of shareholders as
more fully described in the section entitled "How to Redeem Shares". Shares have
no preemptive or conversion rights. For information on limitation of liability
and indemnification of Shareholders, Trustees and other affiliated parties, see
the section in the Statement of Additional Information entitled "Limitation of
Liability of Shareholders, Trustees and Others". The Fund's registered address
in the Commonwealth of Massachusetts is Two Oliver Street, Boston, Massachusetts
02109.
A mutual fund which is a Massachusetts business trust is not required by state
law to hold annual meetings of shareholders. Accordingly, shareholders' meetings
must be held only in certain specific situations required by the Investment
Company Act of 1940. Whether annual meetings will be held in the future when not
specifically required by that Act will be at the discretion of management of the
Funds.
CODE OF ETHICS. The Fund and Southeastern Asset Management, Inc. have adopted a
written Code of Ethics which requires all employees to obtain prior clearance
before engaging in any personal securities transactions. In addition, all
employees must report their personal securities transactions at the end of each
quarter. Employees will not be permitted to effect transactions in a security if
there are pending Fund or client orders in the security; if the security has
been purchased or sold by the Fund or a client within fifteen calendar days; the
security is being considered for purchase by the Fund or a client; or the
security is subject to internal trading restrictions. In addition, employees are
prohibited from engaging in short-term trading (purchases and sales involving
the same security within 60 days resulting in a profit). Any material violation
of the Code of Ethics is reported to the Board of the Fund. The Board also
reviews the administration of the Code of Ethics on an annual basis.
EXCEPTIONS TO INVESTMENT MINIMUM. The minimum initial purchase requirement is
not applicable to Trustees or officers of the Fund, or to directors, officers or
employees of the Investment Counsel. These persons and their relatives may open
an account with a minimum initial investment of $1,000. Members of the immediate
families of shareholders having invested at least $250,000 and clients of
Southeastern or management personnel of clients having private accounts of at
least $2,000,000 may open a Fund account with a minimum initial investment of
$5,000. Any investor seeking one of the above exceptions must obtain prior
approval of Fund management.
15
<PAGE> 20
INVESTMENT COUNSEL
Southeastern Asset Management, Inc.
6075 Poplar Avenue, Suite 900
Memphis, TN 38119
(901) 761-2474
TRANSFER AND DIVIDEND AGENT
National Financial Data Services ("NFDS")
P.O. Box 419929
Kansas City, MO 64141-6929
For Information about your account,
call (800) 488-4191
CUSTODIAN
State Street Bank & Trust Company, Boston, MA
SPECIAL LEGAL COUNSEL
Dechert Price & Rhoads, Washington, DC
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Coopers & Lybrand, L.L.P., Boston, MA
No person has been authorized to give any further information or make any
representations other than those contained in this Prospectus. If given or made,
such other information or representations must not be relied upon as having been
authorized by the Fund, Investment Counsel, or Administrator. This Prospectus
does not constitute an offering in any state where such an offering may not be
lawfully made.
[LONGLEAF
PARTNERS
FUNDS LOGO]
MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
6075 POPLAR AVE.
SUITE 900
MEMPHIS, TN 38119
(901) 761-2474
(800) 445-9469
Prospectus
May 1, 1996
LONGLEAF
PARTNERS
FUND
LONGLEAF
PARTNERS
SMALL-CAP FUND
MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
<PAGE> 21
LONGLEAF PARTNERS FUNDS TRUST
=============================
LONGLEAF PARTNERS FUND
and
LONGLEAF PARTNERS SMALL-CAP FUND
PART B
INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 22
LONGLEAF
LOGO
PARTNERS
FUNDS
STATEMENT OF ADDITIONAL INFORMATION
---------------------
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS SMALL-CAP FUND
---------------------
MANAGED BY
SOUTHEASTERN ASSET MANAGEMENT, INC.
6075 POPLAR AVENUE; SUITE 900
MEMPHIS, TN 38119
---------------------
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1996 IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF LONGLEAF
PARTNERS FUND AND LONGLEAF PARTNERS SMALL-CAP FUND, ALSO DATED MAY 1, 1996,
WHICH MAY BE OBTAINED WITHOUT CHARGE UPON REQUEST MADE TO THE FUND
ADMINISTRATOR, SOUTHEASTERN ASSET MANAGEMENT, INC.
TELEPHONE (800) 445-9469; (901) 761-2474.
<PAGE> 23
TABLE OF CONTENTS
<TABLE>
<S> <C>
- Fundamental Investment Restrictions....................................... 2
- Changes in Investment Policies and Fundamental Investment Restrictions.... 3
- Additional Information About Investment Policies.......................... 4
- Management of the Fund.................................................... 5
- Control Persons and Principal Holders of Securities....................... 6
- Investment Advisory Services.............................................. 7
- Investment Performance and Total Return................................... 7
- Other Management Related Services......................................... 9
- Brokerage Allocation...................................................... 10
- Distribution of Fund Shares............................................... 11
- Terms of Agreements....................................................... 11
- Redemption of Fund Shares................................................. 12
- Custodian of Fund Assets.................................................. 12
- Independent Certified Public Accountants.................................. 12
- Legal Counsel............................................................. 12
- Limitation of Liability of Shareholders, Trustees and Others.............. 13
- Financial Statements...................................................... 13
Longleaf Partners Fund............................................... 14
Longleaf Partners Small-Cap Fund..................................... 24
</TABLE>
1
<PAGE> 24
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS SMALL-CAP FUND
SERIES OF
LONGLEAF PARTNERS FUNDS TRUST
ADDITIONAL INFORMATION ABOUT INVESTMENT
RESTRICTIONS AND POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS
Longleaf Partners Fund and Longleaf Partners Small-Cap Fund are series of
Longleaf Partners Funds Trust, a registered open-end management investment
company. The fundamental investment objectives and restrictions, and the general
investment policies of each series or Fund are described in the Prospectus.
One of these fundamental investment restrictions provides that the Fund
will not invest 25% or more of total assets of the particular portfolio in the
securities of issuers in any one industry. (This restriction does not apply to
obligations issued by the U.S. Government or its agencies or instrumentalities).
For purposes of defining what constitutes a single industry for purposes of this
restriction, each portfolio will use the SIC Industry Code definitions for
industries, as set forth in the latest edition of the Securities & Exchange
Commission publication entitled "Directory of Companies Required to File Annual
Reports with the Securities & Exchange Commission" or as otherwise publicly
available. Industry category groupings shown in the printed reports sent
quarterly to shareholders may contain more than one SIC Industry Code, and these
broader industry groupings are intended to be functionally descriptive
presentations rather than being limited to a single SIC industry category.
In addition to the investment objective and the four numbered investment
restrictions described in the Prospectus, both funds have adopted certain other
investment restrictions which are fundamental and cannot be changed except by
vote of the holders of a majority of the outstanding voting securities of that
portfolio. References to the "Fund" apply to both portfolios. As a result of
these restrictions, each series or portfolio may not engage in the following
activities, except as specifically authorized:
Neither portfolio of the Fund may:
1. Borrow money, except for temporary purposes such as obtaining
short-term credits for purposes of clearance of purchases and sales of
portfolio securities in an amount not to exceed 5% of the value of its
total assets at the time of borrowing, and except for temporary purposes to
satisfy redemption requests which might require the unexpected disposition
of securities in an amount not to exceed 15% of the value of its total
assets; provided, however, that aggregate borrowing at any time may not
exceed 15% of the value of the portfolio's total assets.
2. Mortgage pledge or hypothecate any of its assets, except to secure
permitted borrowings up to 15% of the value of its total assets at the time
of borrowing.
3. Purchase the securities of any other investment company, except by
purchase in the open market where to the best information of the Investment
Counsel, no commission or profit to a sponsor or dealer (other than the
customary broker's commission) results from such purchase, or except when
such purchase is part of a merger, consolidation or acquisition of assets.
4. Underwrite the securities of other issuers, except that the
portfolio may invest in securities that are illiquid or not readily
marketable without registration under the Securities Act of 1933, as
amended,
2
<PAGE> 25
including repurchase agreements of more than 7 days duration, if immediately
after the making of such investment not more than 10% of the value of the
portfolio's total assets would be so invested.
5. Purchase or sell real estate, except that the portfolio may invest
in marketable securities collateralized by real estate or interests therein
or in securities issued by companies that invest in real estate or
interests therein.
6. Invest in commodities or commodity futures contracts, or in
interests in oil, gas, or other mineral exploration or development
programs.
7. Engage in short sales of securities, or write a purchase put, call,
straddle, or spread option, except that the portfolio may write covered
call options with respect to its portfolio securities listed on a national
securities exchange and enter into closing purchase transactions with
respect to call options so listed or quoted.
8. Make loans, except loans of portfolio securities having a value
which is not in excess of 20% of the portfolio's total assets and except
that the purchase of a portion of an issue of publicly distributed notes,
bonds or other evidences of indebtedness or deposits with banks and other
financial institutions shall not be considered to be loans for purposes of
this restriction.
9. Purchase securities on margin, but obtaining short-term credits
from banks for the clearance of purchases or sales of securities shall not
be considered to be margin purchases for purposes of this restriction.
10. Issue senior securities, except insofar as the portfolio may be
deemed to have issued a senior security in connection with any permitted
borrowing.
CHANGES IN INVESTMENT POLICIES AND
FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment objectives and the fundamental investment restrictions of
each Fund, as described in the Prospectus and this Statement of Additional
Information, may not be changed without the vote of the holders of a majority of
the outstanding voting securities. Under the Investment Company Act of 1940, a
"vote of a majority of the outstanding voting securities" means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of the
particular portfolio or (2) 67% or more of the shares present at a shareholders'
meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.
From time to time, either Fund may adopt additional investment restrictions
which may be required under the laws or regulations of a particular state in
which shares may be registered for sale or which may be necessary or desirable
for other policy reasons. Such investment restrictions would not be fundamental
in the sense discussed above, and would be subject to amendment or termination
at the discretion of the Board of Trustees should the particular law,
regulation, or policy be changed or in the event the registration of the Fund's
shares in the particular state imposing the limitation or requirement should be
discontinued. In addition, the Fund's Investment Policies and the discussion of
the Types of Portfolio Investments as described in the Prospectus and herein,
are not fundamental and may be similarly so changed in the discretion of the
Board of Trustees. Any such changes in investment policy or restrictions will be
disclosed through appropriate modifications of the Prospectus or Statement of
Additional Information.
The Fund has agreed to comply with certain additional investment
restrictions for the states of Texas and Ohio. Under the Texas investment
restriction, the Fund has agreed that its combined investments in all types
3
<PAGE> 26
of illiquid assets, securities which are not readily marketable and in
securities of foreign issuers not listed on a recognized domestic or foreign
securities exchange shall not exceed 15% of average net assets at the time of
purchase. In addition, the Fund's investment in warrants shall not exceed 5% of
the value of the Fund's net assets; included within this amount, investments in
warrants not listed on the New York or American Stock Exchange shall not exceed
2% of the value of the Fund's net assets.
Under the Ohio requirements, the Fund has agreed to comply with the
following additional restrictions:
1. The Fund will not purchase or retain the securities of any issuer
if the officers, directors, or trustees of the Fund, its advisors or
managers owning beneficially more than one-half of one percent of the
securities of an issuer together own beneficially more than five percent of
the securities of that issuer.
2. The Fund will not invest more than fifteen percent of its total
assets in the securities of issuers which together with any predecessors
have a record of less than three years continuous operation or securities
of issuers which are restricted as to disposition. For purposes of this
restriction, "restricted" securities shall include securities which are
subject to Rule 144A under the Securities Act of 1933.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
The following sections provide expanded discussion of several of the types
of investments and investment techniques which may be used by both portfolios
which are not discussed in the Prospectus. These sections apply to each series
or Fund, and references to "the Fund" are applicable to both:
Warrants. The Fund may invest in warrants which entitle the holder to buy
equity securities at a specific price for a specific period of time. Warrants
may be considered more speculative than certain other types of investments in
that they do not entitle a holder to dividends or voting rights with respect to
the securities which may be purchased nor do they represent any rights in the
assets of the issuing company. Also, the value of a warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to the expiration date.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio to brokers or dealers, banks or other
institutional investors and receive collateral in the form of United States
Government obligations or money market funds. Under the Fund's current
practices, the loan collateral must be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities, and
will not be used to leverage the Fund's portfolio. In determining whether to
lend securities to a particular broker/dealer or financial institution, the
Investment Counsel will consider all relevant facts and circumstances, including
the credit-worthiness of the broker or financial institution. If the borrower
should fail to return the loaned securities, the Fund could use the collateral
to acquire replacement securities, but could be deprived of immediate access to
such assets for the period prior to such replacement. The Fund may pay
reasonable finders, administrative and custodial fees in connection with such a
loan of securities. The Fund will not lend portfolio securities in excess of 20%
of the value of its total assets, nor will the Fund lend its portfolio
securities to any officer, director, trustee, employee of affiliate of the Fund
or the Investment Counsel.
Options. The Fund may time to time write (sell) covered call options on
certain of its portfolio securities. The Fund intends only to engage in
transactions in exchange-traded options. A covered call option is an option to
purchase a portfolio security owned by the Fund. In such a transaction, the Fund
obligates itself to sell the underlying security to the purchaser of the option
at a fixed price if the purchaser exercises the option during the option period.
In return, the Fund receives a premium from the purchaser. During the option
4
<PAGE> 27
period, the Fund foregoes the opportunity to profit from any increase in the
market price of the security above the exercise price of the option, but retains
the risk that the price of the security may decline.
The Fund may seek to terminate its obligation as a writer of a call option
prior to its expiration by entering into a "closing purchase transaction". There
is no assurance that the Fund will be able to effect a closing purchase
transaction, particularly with respect to thinly traded call options. The
selling of call options could result in an increase in the Fund's portfolio
turnover rate, particularly in periods of appreciation in the market price of
the underlying securities.
MANAGEMENT OF THE FUND
Each series or portfolio of the Fund is supervised by its Board of
Trustees, which implements policies through the Fund's principal executive
officers. Day to day portfolio management and fund administration is provided by
Southeastern Asset Management, Inc., in its capacity as Investment Counsel and
as Fund Administrator under separate contracts which must be renewed at periodic
intervals, as required by the Investment Company Act of 1940.
The names, principal occupations during at least the past five years and
other information with respect to members of the Board of Trustees and executive
officers are set forth in the Prospectus, following the section entitled
"Information on Management and Administration." The following table provides
information on aggregate compensation to be paid by all series of Longleaf
Partners Funds Trust to the individual Trustees for the fiscal year ending
December 31, 1996:
COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME OF PERSON; AGGREGATE TOTAL
POSITION (AGE) COMPENSATION COMPENSATION
ADDRESS FROM FUNDS FROM FUNDS**
- -------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
O. Mason Hawkins*................................................... None None
Chairman of the Board and CEO (48)
Chadwick H. Carpenter, Jr........................................... $ 27,500 $ 27,500
Trustee (45)
Progress Software Corp.
14 Oak Park
Bedford, MA 01730
John R. McCarroll, Jr............................................... $ 27,500 $ 27,500
Trustee (55)
6262 Poplar Ave.
Ste. 201
Memphis, TN 38119
</TABLE>
5
<PAGE> 28
<TABLE>
<CAPTION>
NAME OF PERSON; AGGREGATE TOTAL
POSITION (AGE) COMPENSATION COMPENSATION
ADDRESS FROM FUNDS FROM FUNDS**
- -------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Steven N. Melnyk.................................................... $ 27,500 $ 27,500
Trustee (49)
111 Riverside Ave.
Ste. 330
Jacksonville, FL 32202
C. Barham Ray....................................................... $ 27,500 $ 27,500
Trustee (49)
785 Crossover Lane
Ste. 218
Memphis, TN 38117
W. Reid Sanders*.................................................... None None
Trustee and President (46)
</TABLE>
- ---------------
The schedule of Trustees fees to be paid during 1996 by each Series to each
non-interested Trustee is as follows: Longleaf Partners Fund -- $15,000 per
annum; Longleaf Partners Small-Cap Fund -- $7,500 per annum; Longleaf Partners
Realty Fund -- $5,000 per annum.
* Trustee is an "interested" person because of employment by Southeastern Asset
Management, Inc., the Investment Counsel. The "interested" Trustees and all
executive officers of the Fund are officers or employees of the Investment
Counsel, which pays their salaries and other employee benefits. Its address
is 6075 Popular Ave., Ste. 900, Memphis, TN 38119.
** The Funds have no pension or retirement plan for Trustees who are classified
as non-"interested" or non-affiliated.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Each Fund is controlled by its respective Boards of Trustees. Each Board of
Trustees consists of six members, four of whom are independent of the Investment
Counsel and are not "interested persons" as that term is defined in the
Investment Company Act of 1940.
As of March 31, 1996, the following are the groups of owners of shares of
each of the two Funds owning 5% or more of the outstanding shares:
Directors, trustees, and officers of the Funds and Southeastern Asset
Management, Inc., members of their families, and related retirement plans
including Southeastern's corporate profit sharing plan owned in the aggregate
approximately $32.3 million or 1.6% of the assets and outstanding shares of
Longleaf Partners Fund. In addition, individual and institutional customers of
Charles Schwab & Co., Inc., a broker/dealer, owned in the aggregate
approximately 15.8% of the outstanding shares.
Personnel of the Funds and Southeastern Asset Management, Inc. and others
described above owned approximately $31.6 million or 21.6% of the assets and
outstanding shares of Longleaf Partners Small-Cap Fund. Included within these
percentages, Mr. Hawkins owned approximately 11.3% and the Hawkins Charitable
Trust owned approximately 1.0% of the outstanding shares; Mr. Sanders owned
approximately 3.4% of the outstanding shares. In addition, individual and
institutional customers of Charles Schwab & Co., Inc., a broker/dealer, owned in
the aggregate approximately 7.2% of the outstanding shares.
6
<PAGE> 29
INVESTMENT ADVISORY SERVICES
Southeastern Asset Management, Inc., an investment advisor registered with
the Securities and Exchange Commission under the Investment Advisers Act of
1940, is the Fund's Investment Counsel. The firm is owned and controlled by its
principal officers, who are listed in the Prospectus as affiliated Trustees and
Executive Officers and who are also either Trustees or officers of each Fund.
Formed in 1975, the Investment Counsel engages in the business of managing
institutional and individual assets in private or separate accounts and is
responsible for managing more than $4.2 billion in such assets. It has served as
investment adviser to each of the Funds since their respective inception dates
in 1987 and 1988. Additional information with respect to the investment advisory
function is contained in the Prospectus under the caption "Investment
Management".
The Investment Counsel Fee, calculated daily and payable monthly, is 1% per
annum of the average daily net assets of each portfolio of the Fund for the
first $400 million of average daily net assets and 0.75% of average daily net
assets exceeding $400 million. This Investment Counsel fee is higher than the
advisory fees paid by most investment companies to their investment advisors.
However, the Investment Counsel limits the normal operating expenses of each
series, taken separately, including all fees but excluding interest, taxes,
brokerage commissions, and certain extraordinary charges, to a maximum of 1.5%
of each portfolio's average net assets in any fiscal year through a reduction of
its advisory and administration fees. No such reductions were required during
the fiscal year ended December 31, 1995. Investment advisory fees paid for the
fiscal years ended December 31, 1995, 1994, and 1993, respectively are: Longleaf
Partners Fund -- $11,548,213, $5,234,469, and $3,302,328; Longleaf Partners
Small-Cap Fund -- $1,217,369, $913,327, and $704,816.
The Fund's portfolio turnover rate is computed by dividing the lesser of
purchases or sales of securities for the period by the average value of
portfolio securities for that period. A portfolio turnover rate of 50% would
occur if one-half of the portfolio of securities was replaced during a period of
one year, while a portfolio turnover rate of 100% would occur if all of the
portfolio of securities was replaced during a period of one year. Specific
information on portfolio turnover rates and annualized operating expenses is set
forth in the tables on page 3 of the Prospectus.
INVESTMENT PERFORMANCE AND TOTAL RETURN
Total Return Calculation. The average annual total return on an investment
in shares of the Fund for a particular period is calculated using a specific
formula required by the Securities & Exchange Commission. The formula takes into
account any appreciation or depreciation in the portfolio, assumes reinvestment
of all dividends and capital gains distributions, and then mathematically
averages the return over the length of time covered by the calculation. The
formula used by the Fund for computing average annual total return as specified
by regulation, is as follows:
"Average Annual Total Return" shall mean the average annual compounded
rate of return, computed according to the following formula:
p(1+T) to the nth power = ERV
Where P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years (or fractional portions thereof)
ERV = ending value of a hypothetical $1,000 investment made at
the beginning of the period (or fractional portion
thereof).
7
<PAGE> 30
The average annual total returns for the two Funds for each full year since
inception are as follows:
<TABLE>
<CAPTION>
LONGLEAF LONGLEAF
PARTNERS PARTNERS
FUND SMALL-CAP FUND
-------- --------------
<S> <C> <C>
1995........................................................ 27.50% 18.61%
1994........................................................ 8.96% 3.64%
1993........................................................ 22.20% 19.83%
1992........................................................ 20.47% 6.87%
1991........................................................ 39.19% 26.31%
1990........................................................ (16.35%) (30.05%)
1989........................................................ 23.27% 32.78%
1988........................................................ 35.27% --
</TABLE>
The average annual total returns for each series for the twelve months and
five years ended December 31, 1995 and for the periods from initial public
offering through December 31, 1995, all using the above formula, are as follows:
<TABLE>
<S> <C>
LONGLEAF PARTNERS FUND
12/31/94-12/31/95................................................... 27.50%
12/31/90-12/31/95................................................... 23.27%
04/08/87-12/31/95................................................... 15.24%
LONGLEAF PARTNERS SMALL-CAP FUND
12/31/94-12/31/95................................................... 18.61%
12/31/90-12/31/95................................................... 14.74%
02/21/89-12/31/95................................................... 7.95%
</TABLE>
Use of Total Return information. Average annual total return information
may be useful to investors in considering each Fund's past investment
performance. However, certain factors should be taken into account before basing
an investment decision on this information. First, in comparing the Fund's total
return with the total return of any market indices for the same period, the
investor should be aware that market indices are unmanaged, contain different
and generally more numerous securities than the Fund's portfolio, and some
market indices are not adjusted for reinvested dividends. Further, no adjustment
is made in the Fund's total returns or the total returns of any market indices
for taxes payable on distributions.
The Fund is an equity investment. As a result, its total return will
fluctuate over time, and the total return for any past period is not an
indication or representation as to future rates of total return. When comparing
each Fund's total returns with those of other alternatives such as fixed income
products, investors should understand that an equity fund may be subject to
greater market risks than are money market or fixed income investments, and that
the Longleaf Funds are designed for investors who are willing to accept such
greater market risks in the hope of realizing greater long-term gains. There is
no assurance, however, that either Fund's investment objective of long-term
capital growth will be achieved.
Reporting of Net Asset Value and Distributions. Each portfolio's offering
price per share (net asset value) is listed daily in the Mutual Fund quotation
tables in the financial sections of most newspapers under the abbreviations
"LonglfPF" and "LonglfSC". These tables also contain information on
distributions and dividends when declared. Usually such distributions are
declared annually, at the end of December. The Board of Trustees may also
declare a semi-annual distribution from net investment income when sufficient
net income has been generated to justify such a distribution.
8
<PAGE> 31
OTHER MANAGEMENT RELATED SERVICES
Southeastern Asset Management, Inc. also serves as the Fund Administrator.
In this capacity, it manages, performs or supervises all business and
administrative operations of each portfolio of the Fund, including the
following:
- Maintenance of all accounting records
- Preparation and filing of all required financial reports, tax returns,
and reports of sales of shares
- Calculation of the net asset value per share on a daily basis.
- Preparation and mailing of prospectuses, proxy statements, and other
required reports to shareholders
- General coordination and liaison among the Investment Counsel, authorized
dealers, the custodian bank, the transfer agent, and regulatory
authorities
- Providing office space and secretarial and clerical support for the above
functions.
Each portfolio pays an Administration Fee equal to 0.10% per annum of the
average daily net assets of each portfolio, which is accrued daily and paid
monthly, in arrears. Administration fees paid for the fiscal year ended December
31, 1995, were $1,406,428 for Longleaf Partners Fund and $121,737 for Longleaf
Partners Small-Cap Fund.
The Fund has also agreed to reimburse the Administrator for the salary of
the Fund's Treasurer and the charges for computer software or computer programs
solely used to process Fund transactions. These reimbursable expenses are
allocated between the two portfolios taking into account their respective assets
and number of shareholders. The Administrator has not been leasing computer
equipment for dedicated use by the Fund and has not requested reimbursement for
costs or charges related to computer hardware; such reimbursement is not
expected unless it should become necessary to lease computer equipment which
would be dedicated solely to the operations of the Fund. Reimbursable expenses
for the fiscal year ended December 31, 1995, were $133,072 for Longleaf Partners
Fund and $56,425 for Longleaf Partners Small-Cap Fund.
All other direct operating expenses of each portfolio will be paid by that
particular portfolio. Such expenses include but are not limited to the
following: (i) the fees of the Custodian and Transfer Agent; (ii) compensation
of the Fund's independent certified public accountants, legal counsel, and the
Trustees who are not officers or employees of Southeastern Asset Management,
Inc.; (iii) all franchise, income and other taxes relating to the Fund and its
securities; (iv) all filing fees and legal expenses incurred in qualifying and
continuing the registrations of the shares of the Fund for sale with the
Securities and Exchange Commission and with any regulatory agency in the several
states; (v) insurance premiums and associated dues; (vi) the costs of
typesetting, printing and mailing to shareholders such documents as
prospectuses, proxy statements, dividend notices and all other communications;
(vii) expenses of meetings of shareholders and the Boards of Trustees; (viii)
external expenses related to pricing the Fund's portfolio securities; and (ix)
all extraordinary expenses such as expenses of litigation. The Fund also pays
the expenses of stationery, appropriate forms, envelopes, checks, postage,
overnight air courier charges, telephone charges, and printing and mailing
charges for shareholder communications and similar items.
9
<PAGE> 32
BROKERAGE ALLOCATION
Southeastern Asset Management, Inc. ("Southeastern"), in its capacity as
Investment Counsel, is responsible under the supervision of the Board of
Trustees for the selection of members of securities exchanges, brokers and
dealers (hereinafter collectively referred to as "brokers") for the execution of
portfolio transactions and, when applicable, the negotiation of brokerage
commissions. On behalf of each Fund, Southeastern is also responsible for
investment decisions and for the placement and execution through selected
brokers of purchase and sale orders. All investment decisions and placements of
trades with respect to the purchase and sale of portfolio securities are made in
accordance with the following principles:
1. Purchase and sale orders are usually placed with brokers who are
recommended by Southeastern and/or selected by management of the Fund as
able to achieve "best execution" of such orders. "Best execution" means
prompt and reliable execution at the most favorable security price, taking
into account the following provisions. The determination of what may
constitute best execution and price in the execution of a securities
transaction by a broker involves a number of considerations, including,
among others, the overall direct net economic result to the Fund (involving
both price paid or received and any commissions and other costs paid), the
efficiency with which the transaction is effected, the ability to effect
the transaction in the future, the financial strength and stability of the
broker, and the ability of the broker to commit resources to the execution
of the trade. Such considerations are judgemental and are weighed by
Southeastern and the Board of Trustees of the Fund in determining the
overall reasonableness of brokerage commissions.
2. In recommending brokers for portfolio transactions and in selecting
such brokers, Southeastern takes into account its past experience with
brokers in determining those qualified to achieve "best execution".
3. Southeastern is authorized to recommend, and the Fund is authorized
to allocate, brokerage and principal purchase and sales transactions to
brokers who have provided brokerage and research services, as such services
are defined in Section 28(e) of the Securities Exchange Act of 1934 (the
"1934 Act"), and for other services which benefit the Fund directly through
reduction of the Fund's expense obligations, such as a reduction in the
Fund's share of the lease charges for computer expenses, and to cause the
Fund to pay a commission for effecting a securities transaction in excess
of the amount another broker would have charged for effecting that
transaction, if Southeastern in making the recommendation in question
determines in good faith that the commission is reasonable in relation to
the value of the brokerage and research services or other benefits provided
the Fund by such broker. In reaching such determination, neither
Southeastern nor the officer of the Fund making the decision is required to
place a specific dollar value on the research or execution services of a
broker. In demonstrating that such determinations were made in good faith,
Southeastern and the officer of the Fund shall be prepared to show that all
commissions were allocated and paid for purposes contemplated by the Fund's
brokerage policy; that any other benefits or services provided the Fund
were in furtherance of lawful and appropriate obligations of the Fund; and
that the commissions paid were within a reasonable range. Such
determination shall be based on available information as to the level of
commissions known to be charged by other brokers on comparable
transactions, but there shall be taken into account the Fund's policies (i)
that paying the lowest commission is deemed secondary to obtaining a
favorable price and (ii) that the quality, comprehensiveness and frequency
of research studies which are provided for the Fund and Southeastern may be
useful to Southeastern in performing its services under its Agreement with
the Fund but are not subject to precise evaluation. Research services
provided by brokers to the Fund or to
10
<PAGE> 33
Southeastern are considered to be supplementary to, and not in lieu of services
required to be performed by Southeastern.
4. Purchases and sales of portfolio securities within the United
States other than on a securities exchange are executed with primary market
makers acting as principal, except where, in the judgment of Southeastern,
better prices and execution may be obtained on a commission basis or from
other sources.
5. Sales of the Fund's shares by a broker are one factor among others
to be taken into account in recommending and in deciding to allocate
portfolio transactions (including agency transactions, principal
transactions, purchases in underwritings or tenders in response to tender
offers) for the account of the Fund to a broker, provided that the broker
shall furnish "best execution", as defined in paragraph 1 above, and that
such allocation shall be within the scope of the Fund's other policies as
stated above; and provided further that in every allocation made to a
broker in which the sale of Fund Shares is taken into account, there shall
be no increase in the amount determined, as set forth in paragraph 3 above,
on the basis of best execution plus research services, without taking
account of or placing any value upon such sales of Fund shares.
Investment decisions for the Fund are made independently from those of
accounts of other clients advised by Southeastern, but the same security may be
held in the portfolios of more than one account, as well as by the Fund. When
several accounts and the Fund's portfolio simultaneously purchase or sell the
same security, the prices and amounts will be equitably allocated among all
accounts. In some situations this procedure could adversely affect the price or
quantity of the security available to the Fund, but in other situations the
Fund's ability to participate in larger volume transactions may enable it to
realize better executions, prices, and lower commissions.
Brokerage commissions paid for the fiscal years ended December 31, 1995,
1994, and 1993, respectively are: Longleaf Partners Fund -- $1,681,102,
$1,272,094, and $471,902; Longleaf Partners Small-Cap Fund -- $236,927, $97,842,
and $103,074.
DISTRIBUTION OF FUND SHARES
Shareholders are referred to the Fund's Prospectus for information on the
methods of purchasing shares of the Fund and computation of net asset value per
share. Shares are available directly from the Fund at net asset value without
payment of any sales charge. Shares are also available through authorized
broker/dealers upon payment of transaction fees, all of which are retained by
the particular broker or dealer.
Shares of the Fund are continuously issued and redeemed by the Fund. The
transfer agent and shareholder servicing agent functions are performed by
National Financial Data Services ("NFDS"), an affiliate of State Street Bank and
Trust Company, the Funds' custodian bank.
TERMS OF AGREEMENTS
At the Annual Meeting of Shareholders held in June of 1994, new agreements
with Southeastern Asset Management, Inc., as the Investment Counsel and
separately as the Fund Administrator, were adopted, effective for a period of
two years ending on July 31, 1996. Each must be renewed annually by the
affirmative vote of a majority of the outstanding voting securities of the Fund
or by a majority of members of the Board of Trustees, including a majority of
the Trustees who are not "interested" Trustees, as required by the Investment
Company Act of 1940. Such Agreements will automatically terminate in the event
of assignment
11
<PAGE> 34
as defined in the Investment Company Act of 1940. The Fund may terminate such
Agreements, without penalty, upon 60 days' written notice, by a majority vote of
its Board of Trustees or by a majority of the outstanding voting securities of
the Fund.
REDEMPTION OF FUND SHARES
The Fund has filed an election with the Securities & Exchange Commission in
the manner authorized by Rule 18f-1 under the Investment Company Act of 1940, in
which each portfolio of the Fund has committed itself to pay in cash all
requests for redemption by any shareholder of record, limited in amount with
respect to each shareholder during any ninety-day period to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period. This election to pay not less than $250,000 of each shareholder
redemption in cash is irrevocable while Rule 18f-1 is in effect, unless the
Securities & Exchange Commission by order upon application permits the
withdrawal of such notification of election as being appropriate in the public
interest and consistent with the protection of investors. In connection with
omnibus accounts, this election applies separately to each beneficial owner
rather than to the omnibus account in the aggregate.
Should the Fund elect to limit its cash payments on redemption to the
amounts allowed by this election, the balance of a redemption request in excess
of these amounts would be paid through a distribution of portfolio securities. A
shareholder liquidating portfolio securities received in such a distribution
would incur brokerage commissions and be subject to prevailing market prices.
CUSTODIAN OF FUND ASSETS
State Street Bank and Trust Company, Boston, Massachusetts, serves as
Custodian of the assets of each Fund. Where possible, the Custodian utilizes
book entry records with securities depositories, which in turn may have book
entry records with transfer agents of the issuers of the securities. With
respect to U.S. Government issues, the Custodian may utilize the book entry
system of the Federal Reserve System. The Custodian also has the responsibility
of collection of the proceeds of securities sold and disbursement of the cost of
securities purchased by the Fund.
INDEPENDENT CERTIFICATE PUBLIC ACCOUNTANTS
Coopers & Lybrand, L.L.P., an international public accounting firm, has
served since inception of the Fund as the independent certified public
accountants.
LEGAL COUNSEL
Dechert Price & Rhoads, a law firm with offices in several major cities,
including Washington, D.C., Philadelphia, and Boston serves as special legal
counsel to the Fund. Charles D. Reaves, Esq., Executive Vice President of the
Fund and Vice President & General Counsel of Southeastern Asset Management,
Inc., serves as general counsel to the Fund.
12
<PAGE> 35
LIMITATION OF LIABILITY OF
SHAREHOLDERS, TRUSTEES AND OTHERS
Longleaf Partners Funds Trust is a Massachusetts business trust organized
on November 27, 1986. The Fund's Declaration of Trust and its By-Laws provide
that no Trustee, officer, employee, or agent of the Fund shall be subject to any
personal liability to the Fund or its shareholders for any action or failure to
act, except for such person's willful misfeasance, bad faith, gross negligence,
or reckless disregard of the person's duties. The Fund indemnifies each such
person against all such losses other than the excepted losses. The agreements
between the Fund and, respectively, the Investment Counsel, and the Fund
Administrator and Shareholder Servicing Agent all relieve each such entity of
liability to the Fund for any act or omission in the course of its performance
under the particular agreement, including any mistake of judgment, in the
absence of willful misfeasance, bad faith or gross negligence. Information on
the contractual term and rights of cancellation of each such agreement is
contained in the section entitled "Terms of Agreements".
Under Massachusetts law, shareholders of a series of a Massachusetts
business trust such as the Fund could, in theory, be held personally liable for
certain obligations of the particular series. The Fund's Declaration of Trust
contains an express disclaimer of shareholder liability for such acts or
obligations of each series, and this disclaimer is included in contracts between
the Fund and third parties. Further, the Declaration of Trust provides for
indemnification from the assets of each series for any shareholder liability for
applicable acts or obligations should any shareholder be held liable under these
provisions for having been a shareholder.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended December 31, 1995,
audited by Coopers & Lybrand, L.L.P., the Fund's independent certified public
accountants, are included in the printed Annual Report to Shareholders of each
Fund, and such Financial Statements are incorporated herein. Copies of the
Financial Statements included in such printed Annual Reports, together with the
Report of Independent Accountants dated January 12, 1996, are attached to this
Statement of Additional Information.
13
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
LONGLEAF PARTNERS FUND
We have audited the accompanying statement of assets and liabilities of
Longleaf Partners 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, October 31, 1989 and 1988, the two months ended December 31, 1989, and the
period from March 24, 1987 (Date of Initial Capitalization) through October 31,
1987. 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 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
14
<PAGE> 37
LONGLEAF PARTNERS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES COMMON STOCK (83.4%) MARKET VALUE
--------- ------------
<S> <C> <C>
BEVERAGES (4.7%)
2,550,000 The Seagram Company Ltd. ........................................... $ 88,293,750
------------
BUSINESS SERVICES (1.3%)
600,000 Ecolab, Inc. ....................................................... 18,000,000
47,300 Rollins, Inc........................................................ 1,046,513
279,200 * The Union Corporation............................................... 5,165,200
------------
24,211,713
------------
ENTERTAINMENT (0.4%)
166,289 * Chris-Craft Industries, Inc......................................... 7,191,999
------------
ENVIRONMENTAL SERVICES (3.1%)
512,900 Safety-Kleen Corp................................................... 8,014,062
1,709,800 WMX Technologies, Inc............................................... 51,080,275
------------
59,094,337
------------
FINANCIAL SERVICES (7.0%)
490,000 American Express Company............................................ 20,273,750
1,170,000 Mellon Bank Corporation............................................. 62,887,500
2,363,300 PaineWebber Group, Inc.............................................. 47,266,000
------------
130,427,250
------------
FOOD (11.4%)
1,324,700 Coca-Cola Enterprises, Inc.......................................... 35,435,725
3,315,000 The Quaker Oats Company............................................. 114,367,500
478,333 * Ralcorp Holdings, Inc............................................... 11,599,575
846,500 Ralston Purina Group Common Stock................................... 52,800,438
------------
214,203,238
------------
HEALTH CARE (5.3%)
1,058,500 * Health Systems International, Inc................................... 34,004,312
765,000 McKesson Corporation................................................ 38,728,125
857,300 * WellPoint Health Networks Inc....................................... 27,540,763
------------
100,273,200
------------
INSURANCE BROKERAGE (4.0%)
3,770,142 Alexander & Alexander Services Inc.................................. 71,632,698
42,500 Marsh & McLennan Companies, Inc..................................... 3,771,875
------------
75,404,573
------------
INVESTMENT MANAGEMENT COMPANIES (4.4%)
1,200,000 Franklin Resources, Inc. ........................................... 60,450,000
778,000 The Pioneer Group, Inc. ............................................ 21,200,500
------------
81,650,500
------------
LODGING (4.9%)
1,495,000 Hilton Hotels....................................................... 91,942,500
------------
MANUFACTURING (2.4%)
882,400 Louisiana-Pacific................................................... 21,398,200
494,200 Polaroid Corp....................................................... 23,412,725
------------
44,810,925
------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 38
LONGLEAF PARTNERS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES MARKET VALUE
--------- --------------
<S> <C> <C>
MULTI-INDUSTRY (3.8%)
1,565,000 Alexander & Baldwin, Inc........................................... $ 35,995,000
1,520,000 Whitman Corporation................................................ 35,340,000
--------------
71,335,000
--------------
NATURAL RESOURCES (4.5%)
6,217,100 Horsham Corporation................................................ 83,930,850
--------------
PROPERTY & CASUALTY INSURANCE (1.1%)
108,448 * Alleghany Corp..................................................... 21,472,704
--------------
PUBLISHING (12.9%)
3,170,600 Knight-Ridder, Inc................................................. 198,162,500
158,300 The Washington Post Company - Class B.............................. 44,640,600
--------------
242,803,100
--------------
REAL ESTATE (.9%)
788,000 Cousins Properties Incorporated.................................... 15,957,000
--------------
RETAIL (.9%)
520,000 American Stores Company............................................ 13,910,000
225,000 * Craig Corporation.................................................. 2,221,875
--------------
16,131,875
--------------
TOYS (1.7%)
1,039,400 Hasbro Inc......................................................... 32,221,400
--------------
TRANSPORTATION (8.7%)
1,070,000 * Federal Express Corporation........................................ 79,046,250
1,859,100 Kansas City Southern Industries, Inc............................... 85,053,825
--------------
164,100,075
--------------
TOTAL COMMON STOCKS (COST $1,271,933,331)........................................... 1,565,455,989
--------------
SHORT TERM OBLIGATIONS (16.5%)
Certificate of Deposit - due 8-19-96 at 4.25%....................................... 45,000
Repurchase Agreement with State Street Bank and Trust Company, dated
12-29-95, due 1-2-96 at 5.00%, collateralized by $50,621,548 U.S. Treasury Bond
due 11-15-16 (Repurchase proceeds - $49,655,571) (Cost $49,628,000)............... 49,628,000
U.S. Treasury Bill, due 1-4-96, yield at date of purchase 5.30%................. 49,978,250
U.S. Treasury Bill, due 1-11-96, yield at date of purchase 5.41%................ 49,928,195
U.S. Treasury Bill, due 1-18-96, yield at date of purchase 5.33%................ 29,925,625
U.S. Treasury Bill, due 1-25-96, yield at date of purchase 5.36%................ 49,824,000
U.S. Treasury Bill, due 2-1-96, yield at date of purchase 5.22%................. 29,873,933
U.S. Treasury Bill, due 2-8-96, yield at date of purchase 4.98%................. 49,730,305
--------------
308,933,308
--------------
TOTAL INVESTMENTS (COST $1,580,866,639)* *............................................ 99.9% $1,874,389,297
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................................ 0.1 2,077,949
----- --------------
NET ASSETS............................................................................ 100.0% $1,876,467,246
===== ==============
NET ASSET VALUE PER SHARE (OFFERING AND REDEMPTION PRICE PER SHARE) BASED ON
88,727,043 SHARES OUTSTANDING AT DECEMBER 31, 1995......................................... $21.15
======
</TABLE>
* Non-income producing security
* * Also represents aggregate cost for Federal income tax purposes
See Notes to Financial Statements.
16
<PAGE> 39
LONGLEAF PARTNERS FUND
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments:
Securities, at market value (cost $1,271,933,331) (Note 1 and Note 7)...... $1,565,455,989
U.S. Treasury Bills........................................................ 259,260,308
Repurchase agreement (Note 6).............................................. 49,628,000
Certificate of deposit..................................................... 45,000
--------------
TOTAL INVESTMENTS 1,874,389,297
Cash......................................................................... 654
Dividends and interest receivable............................................ 3,855,717
Prepaid assets............................................................... 81,270
Insurance reserve premium.................................................... 52,272
--------------
TOTAL ASSETS 1,878,379,210
--------------
LIABILITIES:
Payable for:
Investment Counsel fee (Note 2)............................................ 1,298,488
SEC Registration fee....................................................... 304,697
Administration fees (Note 3)............................................... 161,807
Other accrued expenses....................................................... 146,972
--------------
TOTAL LIABILITIES 1,911,964
--------------
NET ASSETS $1,876,467,246
==============
Composition of net assets:
Paid-in capital (unlimited number of shares authorized,
88,727,043 shares outstanding).......................................... $1,582,705,215
Undistributed net investment income........................................ 104,756
Accumulated net realized gain.............................................. 134,616
Unrealized appreciation of investments (Note 7)............................ 293,522,658
--------------
NET ASSETS $1,876,467,246
==============
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE) PER SHARE
($1,876,467,246 DIVIDED BY 88,727,043 SHARES).............................. $21.15
======
</TABLE>
See Notes to Financial Statements.
17
<PAGE> 40
LONGLEAF PARTNERS FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends.................................................................... $ 20,643,652
Interest..................................................................... 13,999,689
------------
34,643,341
------------
EXPENSES:
Investment Counsel fee (Note 2).............................................. 11,548,213
Administration fees (Note 3)................................................. 1,406,428
Registration and filing fees................................................. 396,232
Transfer Agent fees.......................................................... 279,733
Supplies and postage......................................................... 200,112
Reimbursable administration expenses (Note 3)................................ 133,072
Printing..................................................................... 60,213
Trustees' fees............................................................... 52,500
Insurance expense............................................................ 46,838
Custodian fee................................................................ 36,198
Professional fees............................................................ 19,902
Miscellaneous................................................................ 92,786
------------
14,272,227
------------
Net investment income................................................ 20,371,114
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain from securities transactions, net:
Proceeds from sales....................................................... 145,859,072
Cost of securities sold................................................... 108,164,274
------------
Net realized gain.................................................... 37,694,798
Increase in unrealized appreciation for the period, net...................... 239,294,987
------------
Net realized and unrealized gain on investments...................... 276,989,785
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................... $297,360,899
============
</TABLE>
See Notes to Financial Statements.
18
<PAGE> 41
LONGLEAF PARTNERS FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994
---------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income......................................... $ 20,371,114 $ 6,641,882
Net realized gain on investments.............................. 37,694,798 46,757,685
Net unrealized appreciation (depreciation) for the period..... 239,294,987 (27,178,440)
-------------- ------------
Net increase in net assets resulting from operations....... 297,360,899 26,221,127
-------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($0.24 and $0.16 per share)........ (20,363,752) (6,551,337)
From net realized gain on investments ($0.444 and $1.1392 per
share)..................................................... (37,672,942) (46,645,513)
-------------- ------------
Net decrease in net assets resulting from distributions.... (58,036,694) (53,196,850)
-------------- ------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares.............................. 1,109,962,005 463,320,832
Net asset value of shares issued to shareholders for
reinvestment of shareholder distributions.................. 54,537,285 49,067,314
Cost of shares reacquired..................................... (280,883,298) (129,167,484)
-------------- ------------
Net increase in net assets from fund share transactions.... 883,615,992 383,220,662
-------------- ------------
Total increase in net assets............................... 1,122,940,197 356,244,939
NET ASSETS:
Beginning of year............................................. 753,527,049 397,282,110
-------------- ------------
End of year (including undistributed net investment income of
$104,756 and $97,395, respectively)........................ $1,876,467,246 $753,527,049
============== ============
</TABLE>
See Notes to Financial Statements.
19
<PAGE> 42
LONGLEAF PARTNERS FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Longleaf Partners 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 organized on November 26, 1986 and on March 24, 1987 the
initial capitalization of $100,000 was provided by two principals of
Southeastern Asset Management, Inc., the Investment Counsel, who received 10,000
shares of beneficial interest in return. The Fund commenced its public offering
of shares on April 8, 1987.
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. Short-term
U.S. Government obligations are valued at amortized cost which
approximates current market value.
(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.
20
<PAGE> 43
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.................................. 56,015,693 $1,109,962,005
Reinvestment of shareholder distribution..... 2,589,615 54,537,285
Shares redeemed.............................. (13,874,948) (280,883,298)
----------- --------------
44,730,360 $ 883,615,992
========== =============
</TABLE>
NOTE 5. INVESTMENT TRANSACTIONS
Purchases and sales of securities for the period (excluding short term
obligations) aggregated $691,320,686 and $145,859,072 respectively. Total
brokerage commissions paid by the Fund during the period were $1,681,102.
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 agreement
to repurchase these securities from the Fund at a stated repurchase price
including
21
<PAGE> 44
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 $49,628,000 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.................................... $309,341,313
Unrealized depreciation.................................... (15,818,655)
------------
$293,522,658
===========
</TABLE>
NOTE 8. RELATED PARTY SHAREHOLDERS
At December 31, 1995, officers and employees of Southeastern and their
families, Fund trustees and the Southeastern retirement plan owned 1,338,755
shares of the Fund, constituting 1.5% 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:
Alexander & Alexander Services, Inc. -- 9.0%, Craig Corporation -- 5.3%, Horsham
Corporation -- 6.5%, Knight-Ridder, Inc. -- 6.5%, and The Union Corporation --
5.0%.
22
<PAGE> 45
LONGLEAF PARTNERS 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 SECURITIES TOTAL DIVIDENDS BUTIONS ASSET
VALUE NET REALIZED FROM FROM NET FROM TOTAL VALUE
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT CAPITAL DISTRI- END OF
OF PERIOD INCOME UNREALIZED OPERATIONS INCOME GAINS BUTIONS PERIOD
--------- ---------- ----------- ---------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1995.................... $ 17.13 $ .30 $ 4.40 $ 4.70 $ (.24) $ (.44) $ (.68) $ 21.15
1994.................... 16.92 .21 1.30 1.51 (.16) (1.14) (1.30) 17.13
1993.................... 14.70 .10 3.16 3.26 (.09) (.95) (1.04) 16.92
1992.................... 13.34 .07 2.65 2.72 (.07) (1.29) (1.36) 14.70
1991.................... 10.21 .05 3.93 3.98 (.06) (.79) (.85) 13.34
1990.................... 12.62 .13 (2.16) (2.03) (.15) (.23) (.38) 10.21
Two months ended December
31, 1989.................. 14.30 .03 (.10) (.07) (.08) (1.53) (1.61) 12.62
Year ended October 31,
1989.................... 11.25 .18 3.00 3.18 (.13) - (.13) 14.30
1988.................... 8.69 .14 2.50 2.64 (.08) - (.08) 11.25
March 24, 1987
(Date of Initial
Capitalization) through
October 31, 1987.......... 10.00 .11 (1.42) (1.31) - - - 8.69
<CAPTION>
RATIO OF
EXPENSES RATIO OF
NET ASSETS TO NET
END OF AVERAGE INCOME TO PORTFOLIO
TOTAL PERIOD NET AVERAGE TURNOVER
RETURN (THOUSANDS) ASSETS NET ASSETS RATE
-------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995.................... 27.50% $ 1,876,467 1.01% 1.45% 12.60%
1994.................... 8.96% 753,527 1.17% 1.18% 27.39%
1993.................... 22.20% 397,282 1.26% .63% 19.12%
1992.................... 20.47% 243,678 1.29% .50% 29.12%
1991.................... 39.19% 177,878 1.30% .42% 45.11%
1990.................... (16.35)% 129,643 1.32% 1.13% 52.45%
Two months ended December
31, 1989.................. (0.47)%(1) 148,680 1.31%* 1.73%* 6.67%
Year ended October 31,
1989.................... 28.38% 139,608 1.35% 1.37% 57.72%
1988.................... 30.69% 50,676 1.50%(2) 1.40% 92.68%
March 24, 1987
(Date of Initial
Capitalization) through
October 31, 1987.......... (13.14)%(1) 25,787 1.50%*(2) 1.61%* 70.00%
</TABLE>
* Annualized
(1) Aggregate; not annualized.
(2) Before expense limitation fee waiver, this ratio was 1.64% and 1.83% for the
1988 and 1987 periods, respectively.
23
<PAGE> 46
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
24
<PAGE> 47
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>
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.
25
<PAGE> 48
LONGLEAF PARTNERS SMALL-CAP FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES MARKET VALUE
------- ------------
<S> <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.
26
<PAGE> 49
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.
27
<PAGE> 50
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.
28
<PAGE> 51
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.
29
<PAGE> 52
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.
30
<PAGE> 53
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 agreement
to repurchase these securities from the Fund at a stated repurchase price
including
31
<PAGE> 54
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%.
32
<PAGE> 55
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
OF PERIOD (LOSS) UNREALIZED OPERATIONS INCOME GAINS BUTIONS PERIOD
--------- ---------- ----------- ---------- ---------- -------- -------- -------
<S> <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
1994..................... 13.49 (.03) .52 .49 - (.70) (.70) 13.28
1993..................... 11.40 (.06) 2.32 2.26 - (.17) (.17) 13.49
1992..................... 10.67 (.01) .74 .73 - - - 11.40
1991..................... 8.50 .06 2.17 2.23 (.06) - (.06) 10.67
1990..................... 12.87 .40 (4.18) (3.78) (.36) (.23) (.59) 8.50
Two months ended December 31,
1989....................... 13.02 .04 .22 .26 (.05) (.36) (.41) 12.87
December 28, 1988 (Date of
Initial Capitalization)
through October 31, 1989... 10.00 .17 2.94 3.11 (.09) - (.09) 13.02
<CAPTION>
RATIO OF
EXPENSES RATIO OF
NET ASSETS TO NET INCOME
END OF AVERAGE (LOSS) TO PORTFOLIO
TOTAL PERIOD NET AVERAGE TURNOVER
RETURN (THOUSANDS) ASSETS NET ASSETS RATE
-------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year ended
December 31,
1995..................... 18.61% $ 135,977 1.30% .84% 32.95%
1994..................... 3.64% 99,609 1.38% (.22)% 19.79%
1993..................... 19.83% 85,087 1.45% (.45)% 14.37%
1992..................... 6.87% 62,181 1.45% (.03)% 25.80%
1991..................... 26.31% 60,354 1.43% .60% 65.18%
1990..................... (30.05)% 47,894 1.43% 3.48% 14.93%
Two months ended December 31,
1989....................... 2.10%(1) 52,176 1.47%* 1.60%* 3.96%
December 28, 1988 (Date of
Initial Capitalization)
through October 31, 1989... 31.13%(1) 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%.
33
<PAGE> 56
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
PART C. OTHER INFORMATION
Item 24 Financial Statement and Exhibits
(a) Financial Statements. Included in Part B of Post-Effective Amendment No.
15.
(b) Exhibits:
(1) Declaration of Trust and Amendments; (previously
filed) (1), (3), (5)
(2) By-laws - previously filed. (1)
(3) Voting Trust Agreement - none
(4) Specimen Security - previously filed (1)
(5) Form of Investment Counsel Agreement with Southeastern
Asset Management, Inc. (4)
(6)(a) Form of Agreement with Principal Underwriter - None
(6)(b) Sample Dealer Agreement - none
(7) Bonus, profit sharing or pension plans - none
(8)(a) Custodian Agreement with State Street Bank and Trust
Company; previously filed (4)
(b) Transfer Agent Agreement with National Financial Data
Services; previously filed (4)
(9) Administration Agreement - Agreement with Southeastern
Asset Management, Inc. Previously filed (4)
(10) Opinion and consent of counsel; filed herewith
(11) Other opinions, appraisals, rulings and consents:
Accountants' Consent; filed herewith
(12) Financial Statements omitted from Prospectus - See Item 24(a)
(13) Letters of investment intent - None
(14) Prototype Retirement Plan - None
(15) Plan pursuant to Rule 12b-1 - None
_____________________________________________________________
(1) Incorporated by reference from the Initial Registration
Statement and Pre-Effective Amendments Numbers 1 and 2.
(2) Incorporated by reference from Post-Effective Amendment 1
(3) Incorporated by reference from Post-Effective Amendment 3
(4) Incorporated by reference from Post-Effective Amendment 10.
(5) Incorporated by reference from Post-Effective Amendment 12
<PAGE> 57
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
Item 25 Persons Under Common Control With Registrant
Longleaf Partners Funds Trust, a Massachusetts business
trust registered under the Investment Company Act of 1940 as an
open-end management investment company has three series. The first
series is Longleaf Partners Fund, and the second series is Longleaf
Partners Small-Cap Fund, both of which are included in this
Post-Effective Amendment No. 15. Each series has a separate Board of
Trustees composed of the same six individuals. Four of the six Trustees
are classified as Trustees who are not "interested" as defined by Sec. 2
(a)(19) of the Investment Company Act of 1940. Each series is
controlled by its particular Board of Trustees, and each series has
entered into an Investment Counsel Agreement with Southeastern Asset
Management, an adviser registered under the Investment Advisers Act of
1940. Each series is treated for accounting purposes as a separate
entity, and each series has separate financial statements. The third
series, Longleaf Partners Realty Fund, is included in Post-Effective
Amendment No. 14.
Item 26 Number of Holders of Securities
As of March 31, 1996, there were 17,710 shareholders of the
single class of shares outstanding of Longleaf Partners Fund, and 883
shareholders of the single class of shares outstanding of Longleaf
Partners Small-Cap Fund.
Item 27 Indemnification
Section 4.8 of the By-Laws of the Registrant provides as follows:
"Section 4.8. Indemnification of Trustees, Officers, Employees and
Agents. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Trustee, officer, employee, or agent of
the Trust. The indemnification shall be against expenses, including attorneys'
fees, judgements, fines, and amounts paid in settlement, actually and
reasonably incurred by him in connection with the action, suit, or proceeding,
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendre or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Trust, and with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Trust to obtain a judgment or decree in its favor
by reason of the fact that he is or was a Trustee, officer, employee, or agent
of the trust. The indemnification shall be against expenses, including
attorneys' fees actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Trust, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which the person has been adjudged to be
<PAGE> 58
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
liable for negligence or misconduct in the performance of his duty to the
Trust, except to the extent that the court in which the action or suit was
brought, or a court of equity in the county in which the Trust has its
principal office, determines upon application that, despite the adjudicate of
liability but in view of all circumstances of the case, the person is fairly
and reasonably entitled to indemnity for these expenses which the court shall
deem proper, provided such Trustee, officer, employee or agent is not adjudged
to be liable by reason of his willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the
Trust has been successful on the merits or otherwise in defense of any action
suit or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue, or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections (a) or
(b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which
consists of Trustees who were not parties to the action,
suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum
of disinterested Trustees so directs, by independent legal
counsel in a written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person
shall be entitled to indemnification for any liability, whether
or not there is an adjudication of liability, arising by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of duties as described in Section 17(h) and (i) of the
Investment Company Act of 1940 ("disabling Conduct"). A person
shall be deemed not liable by reason by disabling conduct if,
either:
(i) A final decision on the merits is made by a court or other
body before whom the proceeding
<PAGE> 59
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling
conduct; or
(ii) In the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the
indemnitee was not liable by reason of disabling conduct,
is made by either-
(A) A majority of a quorum of Trustees who are neither
"interested persons" of the Trust, as defined in
Section 2(a)(19) of the Investment Company Act of
1940, nor parties to the action, suit or proceeding,
or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition thereof
if:
(1) Authorized in the specific case by the Trustees; and
(2) The Trust receives an undertaking by or on behalf of the
Trustee, officer, employee or agent of the Trust to repay the
advance if it is not ultimately determined that such person is
entitled to be indemnified by the Trust; and
(3) either,
(i) such person provides a security for his undertaking, or
(ii) the Trust is insured against losses by reason of any
lawful advances, or
(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person
ultimately will be found entitled to indemnification, is
made by either-
(A) a majority of a quorum which consists of Trustees who
are neither "interested persons" of the Trust, as
defined in Section 2(a)(19) of the Investment Company
Act of 1940, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not
<PAGE> 60
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
be deemed exclusive of any other rights to which a person may be entitled under
any by-law, agreement, vote of Shareholders or disinterested trustees or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding the office, and shall continue as to person who
has ceased to be a Trustee, officer, employee, or agent and inure to the
benefit of the heirs, executors and administrators of such person; provided
that no person may satisfy any right of indemnity or reimbursement granted
herein or to which he may be otherwise entitled except out of the property of
the Trust, and no Shareholder shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against any
lability asserted against him and incurred by him in any such capacity, or
arising out of his status as such. However, in no event will the Trust
purchase insurance to indemnify any officer or Trustee against liability for
any act for which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office."
________________________________________________________________
Paragraph 9 of the Investment Counsel Agreement, provides that, except as
may otherwise be required by the Investment Company Act of 1940 or the rules
thereunder, neither the Investment Counsel nor its stockholders, officers,
directors, employees, or agents shall be subject to any liability incurred in
connection with any act or omission connected with or arising out of any
services rendered under the Agreement, including any mistake of judgment,
except by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the Agreement. Similar provisions are contained in Paragraph
1.04(d) of the Fund Administration Agreement. Reference is made to such
agreements for the full text.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant
<PAGE> 61
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed by the Act and will be governed by the
final adjudication of such issue.
The Registrant hereby undertakes that is will apply the indemnification
provisions of its By-Laws in a manner consistent with Investment Company Act
Release No. 11330 so long as the interpretation of Section 17(h) and 17(i)
therein remains in effect.
Item 28 Business and Other Connections of Investment Counsel
Southeastern Asset Management, Inc., a Tennessee corporation, offers
investment management services to corporations, retirement and pension plans
and individual investors. The primary occupations for at least the past five
years of its directors, officers or employees who are also either Trustees or
officers of the two series included in Post-Effective Amendment No. 15 are as
follows:
<TABLE>
<CAPTION>
Name of Company,
Name and position Principal Business Capacity With
With Registrant and Address Investment Counsel
---------------------- ------------------ ------------------
<S> <C> <C>
O. Mason Hawkins, CFA 1975-Present; Chairman of the
Chairman of the Board Southeastern Asset Board and CEO
and Co-Portfolio Management, Inc.
Manager
W. Reid Sanders 1975-Present; Executive
Trustee and President Southeastern Asset Vice President
Chief Operating Management, Inc.
Officer
G. Staley Cates, CFA 1985 - Present; President (1994)
Co-Portfolio Manger Southeastern Asset Vice President
and Vice President- Management, Inc. 1985-94
Investments
</TABLE>
<PAGE> 62
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
<TABLE>
<S> <C> <C>
John B. Buford, CPA 1990 - Present Vice President
Vice President - Investments Southeastern Asset
Management, Inc.;
1989-90 - First
Tennessee Bank,
Memphis, TN,
Vice President;
1985-1988,
Metropolitan
National Bank
Commercial Lending
Officer/Credit
Analyst.
Frank N. Stanley, CFA 1985 - Present; Vice President
Vice President - Southeastern Asset
Investments Management, Inc.;
1984-1985; Montag &
Caldwell, Inc.
Atlanta, Georgia
Charles D. Reaves 1988 - Present; Vice President &
Executive Vice President Southeastern Asset General Counsel
General Counsel Management, Inc.
1986-1988; Porter
White & Yardley, Inc.
Birmingham, AL
(Vice Prescient and
Principal); Prior to
1986; Saunders System,
Inc., Birmingham, AL.
(Senior Vice President
and Chief Financial
Officer)
Julie M. Douglas, CPA 1989 - Present; Fund Accountant
Executive Vice Southeastern Asset
President- Operations Management, Inc.
and Treasurer 1984-1989; Coopers &
Lybrand, Certified
Public Accountants,
Pittsburgh, PA &
Birmingham, AL
Lee B. Harper 1993 - Present Marketing
Executive Vice Southeastern Asset Analyst
President - Marketing Management, Inc.
1989-1993 - IBM Corp.,
Memphis, TN, Consultant;
McKinsey & Company, Atlanta,
GA, Business Analyst
Randy D. Holt, CPA 1985 - Present; Vice President
Vice President Southeastern Asset & Secretary
and Secretary Management, Inc.
</TABLE>
The address of Southeastern Asset Management, Inc. is Suite 900, The Crescent
Center; 6075 Poplar Avenue; Memphis, TN 38119.
<PAGE> 63
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
Item 29 Principal Underwriters
(a) The Fund is a no-load fund selling its shares directly to the
public and serves as its own distributor.
(b) Not Applicable.
(c) Not Applicable.
ITEM 30 Location of Accounts and Records
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 (other than those required to be maintained by
the custodian and transfer agent) are maintained in the physical possession of
Registrant's Fund Administrator, which is Southeastern Asset Management, Inc.,
Suite 900, 6075 Poplar Avenue; Memphis, TN 38119. Transfer Agent records are
maintained in the possession of National Financial Data Services, Inc., 1004
Baltimore, 5th Floor, Kansas City, MO 64105.
ITEM 31 Management Services
Not applicable. (See section in the Prospectus entitled "Fund
Administrator").
ITEM 32 Undertakings
(a) Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes
to file with the Securities and Exchange Commission such supplementary and
periodic information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section, including an annual updating of the
registration statement within four months of the end of each fiscal year,
containing audited financial statements for the most recent fiscal year.
(b) The information required by Item 5A of Form N-1A is set forth
in the audited annual reports to shareholders for each fiscal year, which is
the calendar year. Registrant hereby undertakes to furnish each person to whom
a Prospectus is delivered with a copy of the then current Annual Report upon
request and without charge.
<PAGE> 64
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
RULE 485(b) CERTIFICATION
Pursuant to subparagraph (3) of Rule 485(b) under the Securities Act of 1933,
the Registrant represents as follows:
1. This Post-Effective Amendment No. 15 is being filed solely for one or
more of the purposes specified in subparagraph (1) of Rule 485(b), in
particular, subparagraph 1(iii) and (iv) to file updated audited
financial statements for the fiscal year ended December 31, 1995, and
subparagraph 1 (vii), to make certain non-material changes in
disclosure language.
2. No material event requiring disclosure in the Prospectus, other than
making certain non-material changes as permitted by subparagraph
(1)(vii) of Rule 485(b), has occurred since the filing of
Post-Effective Amendment No. 11 on May 1, 1995, the last
Post-Effective Amendment containing a Prospectus for Series One and
Series Two, the series which are included in this Post-Effective
Amendment No. 15.
SIGNATURES*
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Longleaf Partners Funds Trust, a
Massachusetts business trust (the Master Trust) having three series or
portfolios, Longleaf Partners Fund (Series One), and Longleaf Partners Small-Cap
Fund (Series Two), have duly caused this Post-Effective Amendment No. 15 to the
Registration Statement to be signed on their behalf by the undersigned,
thereunto duly authorized, in the City of Memphis and State of Tennessee,
on the 30th day of April, 1996.
Longleaf Partners Fund Trust (the Master Trust)
Longleaf Partners Fund (Series One)
Longleaf Partners Small-Cap Fund (Series Two)
By /s/ Charles D. Reaves
------------------------
Charles D. Reaves
Executive Vice President
<PAGE> 65
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
SIGNATURES (Continued)*
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 15 to the Registration Statement of Longleaf Partners Funds Trust
on Form N-1A has been signed below by the following persons in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ O. Mason Hawkins
- --------------------------
O. Mason Hawkins Trustee; Chairman of the April 30, 1996
Board and Chief Executive
Officer
/s/ W. Reid Sanders
- --------------------------
W. Reid Sanders Trustee and President April 30, 1996
(Chief Operating Officer)
/s/ Chadwick H. Carpenter, Jr.
- ------------------------------
Chadwick H. Carpenter, Jr. Trustee April 30, 1996
/s/ John R. McCarroll, Jr.
- --------------------------
John R. McCarroll, Jr. Trustee April 30, 1996
/s/ Steven N. Melnyk
- --------------------------
Steven N. Melnyk Trustee April 30, 1996
/s/ C. Barham Ray
- --------------------------
C. Barham Ray Trustee April 30, 1996
</TABLE>
(*) As of the date of this Post-Effective Amendment No. 15, the Board of
Trustees of each Series consists of six individuals, as shown above. Each
Trustee and each officer is a Trustee and/or officer of each Series, and each
is signing this Post-Effective Amendment on behalf of each such Series.
NOTICE
A Copy of the Declaration of Trust of Longleaf Partners Funds Trust is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that this instrument is executed on behalf of the Registrant by the above
Trustees or officers of the Registrant in their capacities as Trustees or as
officers and not individually, and any obligations arising out of this
instrument are not binding upon any of the Trustees, officers or shareholders
individually, but instead are binding only upon the assets and property of the
Registrant.
<PAGE> 1
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
EXHIBIT 10
LONGLEAF PARTNERS FUNDS TRUST
c/o Southeastern Asset Management, Inc.
6075 Poplar Avenue; Suite 900
Memphis, TN 38119
April 30, 1996
Securities and Exchange Commission and
Board of Trustees
Longleaf Partners Funds Trust (the master trust)
Longleaf Partners Fund (Series One)
Longleaf Partners Small-Cap Fund (Series Two)
Gentlemen:
This letter is written with respect to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A (File No. 33-10472), (the "Registration
Statement") of Longleaf Partners Funds Trust, a Massachusetts business trust
("the Trust"), with the Securities and Exchange Commission for the purpose of
registering under the Securities Act of 1933, as amended, an indefinite number
of shares of beneficial interest of no par value (the"Shares") of Longleaf
Partners Fund and Longleaf Partners Small-Cap Fund, which are the first and
second series of the Trust.
As General Counsel of the Master Trust and all of series, I am familiar with
and have examined such records, certificates and other documents and reviewed
such questions of law as deemed necessary or appropriate for the purposes of
this opinion. On the basis of such examination and review, you are advised
that, in my opinion, proper trust proceedings have been taken by the Trust so
that the shares have been validly authorized and, when the shares have been
issued and sold in accordance with the terms of the Prospectus included in the
Registration Statement, (with the Trust receiving consideration for the net
asset value per share prior to issuance of the shares), the Shares will be
validly issued, fully paid and non-assessable when issued.
I hereby consent to the filing of this opinion as an exhibit to the said Post
Effective Amendment No. 15 to the Registration Statement and the reference to
my name as General Counsel in the Statement of Additional Information under the
heading "The Fund's Legal Counsel".
Very truly yours,
/s/ Charles D. Reaves
- ---------------------
Charles D. Reaves
General Counsel
Longleaf Partners Funds Trust
Longleaf Partners Fund (Series One)
Longleaf Partners Small-Cap Fund (Series Two)
<PAGE> 1
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 15
EXHIBIT 11
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in Part B of the Statement of Additional
Information, constituting part of Post-Effective Amendment No. 15 to this
Registration Statement on Form N-1A (File No. 33-10472), of our reports dated
January 12, 1996, on the audits of the following:
Longleaf Partners Fund
Statement of Assets and Liabilities, including the schedule of
portfolio investments, as of December 31, 1995 and the related
statements of operations for the year then ended, the statement 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, October 31, 1989 and 1988, the
two months ended December 31, 1989, and the period from March 24, 1987
(date of initial capitalization) through October 31, 1987.
Longleaf Partners Small-Cap Fund
Statement of Assets and Liabilities 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.
We also consent to the reference to our firm under the headings "Independent
Certified Public Accountants" and "Financial Statements" in Part B of the
Registration Statement, and in the Financial Highlights Tables contained in
Part A of the Registration Statement.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 30, 1996
