<PAGE> 1
LONGLEAF PARTNERS FUND
January 22, 1996
TO OUR SHAREHOLDERS:
We are happy to report Longleaf Partners Fund completed another year of above
average compounding. Yet, because of our lack of exposure to the previously hot
technology sector, our results have recently lagged the S&P 500. "It's not the
businesses I don't own that keep me awake at night," one of our first clients
told us some two decades ago. In 1995 your Fund advanced 27.5% and we slept
soundly knowing our business values were growing, our corporate partners were
competent and that, in most cases, share prices were closing the gap between
price and value.
A list of the best performing industries last year included biotechnology (+80%)
and semiconductors (+64%). These businesses have characteristics and threats we
have never fully understood and as a result we have stayed away. When
Microsoft's Bill Gates reviewed Roger Lowenstein's Buffett: The Making of an
American Capitalist in the January-February 1996 issue of Harvard Business
Review, we were comforted to read Mr. Gates' views on choosing the likely
winners in the fiercely competitive technology world. "Warren stays away from
technology companies because he likes investments in which he can predict
winners a decade in advance - an almost impossible feat when it comes to
technology."
Over the past five years, your Fund has grown net asset value on a pretax basis
23.3% annually, 6.7% more than the S&P 500's comparable return of 16.6%. A $1
million investment made on January 1, 1991 would have been worth over $2.8
million at year-end 1995. The data below summarizes Longleaf's recent average
annual and cumulative returns for periods ending December 31, 1995:
AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LONGLEAF PARTNERS FUND S&P 500 INDEX VALUE-LINE INDEX
---------------------- ------------- ----------------
<S> <C> <C> <C>
LAST FIVE YEARS 23.27% 16.57% 11.05%
LAST FOUR YEARS 19.59% 13.34% 7.34%
LAST THREE YEARS 19.29% 15.31% 7.47%
LAST TWO YEARS 17.87% 18.03% 5.88%
LAST YEAR 27.50% 37.54% 19.29%
</TABLE>
CUMULATIVE TOTAL RETURNS*
<TABLE>
<CAPTION>
LONGLEAF PARTNERS FUND S&P 500 INDEX VALUE-LINE INDEX
---------------------- ------------- ----------------
<S> <C> <C> <C>
LAST FIVE YEARS 184.66% 115.27% 68.91%
LAST FOUR YEARS 104.51% 65.02% 32.77%
LAST THREE YEARS 69.77% 53.34% 24.13%
LAST TWO YEARS 38.93% 39.32% 12.11%
LAST YEAR 27.50% 37.54% 19.29%
LAST QUARTER 1.33% 6.01% 0.02%
</TABLE>
Our expense ratio continued to decline last year from 1.17% in 1994 to 1.01%,
and from 1.50% when the Fund opened in 1987. The Fund remains committed to
imposing no sales load, no 12b-1 fees and no redemption fees. We continue to
focus on lowering our cost of owning Longleaf by both watching expenses and
minimizing turnover which was an unusually low 12.6% in 1995. We are acutely
aware of how long-term holding periods and tax deferral benefit the compounding
process and our overall after-tax return.
The Fund's board, the advisor's retirement plan, the employees of the advisor
and their families continue to increase their investment in Longleaf Partners
Fund. With over $29 million committed to the Fund's success, we remain one of
the largest investment groups.
Closing the Fund to new investors in September has received mixed reviews.
Existing owners have almost universally applauded the move while prospective
shareholders have been, in some cases, less than understanding. The propriety of
the decision was based on investment merits alone. Until our investment
opportunities exceed our still substantial cash reserve position, the Fund will
remain closed.
<PAGE> 2
Enclosed you will find a recent New York Times article that makes us appear more
sagacious than we are. It is highly improbable that our relative performance in
the next five years will match the results of these past five. We send you our
best wishes for a happy and prosperous 1996. We hope that many of you will join
us at the Fund's annual meeting which will be held Tuesday, May 7 at 5:30 p.m.
at the Dixon Gallery and Gardens in Memphis.
Sincerely,
/s/ O. Mason Hawkins, CFA /s/ G. Staley Cates, CFA
- ------------------------- ------------------------
O. Mason Hawkins, CFA G. Staley Cates, CFA
Co-Portfolio Manager Co-Portfolio Manager
- --------------------------------------------------------------------------------
* The average annual total returns of Longleaf Partners Fund for the one year
and five years ended December 31, 1995 and from its initial public offering on
April 8, 1987 through December 31, 1995 are 27.50%, 23.27% AND 15.24%,
respectively. Fund returns and those of the S&P 500 Stock Index are shown with
all dividends and distributions reinvested; the Value Line Index is not
available with reinvested dividends. The stock market indices shown are
unmanaged. Past investment performance is no guarantee of future investment
performance, and the value of an investment when redeemed may be more or less
than the purchase price.
- --------------------------------------------------------------------------------
Average Annual Returns
----------------------
LLP S&P 500
--- -------
Five Year 23.3% 16.6%
Four Year 19.6% 13.3%
Three Year 19.3% 15.3%
Two Year 17.9% 18.0%
One Year 17.6% 37.5%
Since Inception 15.2% 12.1%
<PAGE> 3
- ---------------------------------------------------------------------
LONGLEAF PARTNERS FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
FOR THE YEAR ENDED DECEMBER 31, 1995
- ---------------------------------------------------------------------
Longleaf Partners Fund (LLPF) produced a 27.5% total return for shareholders in
1995 without exposure to technology stocks which are difficult for us to value.
As the market rose, well managed and good businesses selling at attractive
prices became elusive. LLPF's cash position built as a result.
LLPF booked material gains from the sale of two companies. Multimedia's plan to
sell itself elevated its price and contributed almost $22 million to LLPF's
realized gains. John Labatt's sale to the Dutch company, Interbrew S.A.,
provided the portfolio with over $18 million in realized gains.
With turnover of only 12.6% most of our 27.5% return was derived from tax
deferred unrealized gains in companies that remain in the portfolio. Several
holdings benefitted from the market's renewed interest in the financial services
industry. Mellon Bank, with its growing reliance on fee based businesses through
Dreyfus and the Boston Company, contributed over 9% of the year's performance.
Kansas City Southern Industries, the railroad and mutual fund company, provided
an additional 6.2% of performance. Franklin Resources which manages and operates
the Franklin and Templeton mutual fund families contributed 6.1% to the year's
results.
Several of our long time holdings significantly added to 1995 results. The
market rewarded our largest holding, Knight-Ridder, as management changes
brought renewed attention to the company's valuable assets and its strong free
cash flow. This resulted in an addition of over $23 million to performance.
Ralston Purina Group contributed $15 million in unrealized appreciation as the
market recognized the company's improving pet food profitability and its
international growth opportunities at Eveready.
A new holding, The Seagram Company, contributed substantially to LLPF, adding
over $16 million to 1995 returns. The price of this Canadian-based beverage and
entertainment company declined significantly when Wall Street penalized the
company's decision to sell its dividend yielding stake in DuPont to purchase
MCA. With the deal's close and the exodus of dividend oriented shareholders, new
investors emerged who valued the company's operating businesses and its assets.
The following table provides a detailed accounting of each company's
contribution to performance in 1995.
<PAGE> 4
- ---------------------------------------------------------------------
LONGLEAF PARTNERS FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- ---------------------------------------------------------------------
The following table delineates the specific dollar contributions of each
individual holding to the 27.50% total return for 1995.
<TABLE>
<CAPTION>
PERCENTAGE
CONTRIBUTION OF TOTAL
IN 1995 CONTRIBUTION
------------ ------------
<S> <C> <C>
REALIZED GAINS:
Multimedia, Inc.............................................. $ 21,984,806 7.4%
John Labatt Limited.......................................... 18,310,698 6.2
All others, net.............................................. 3,721,317 1.2
------------ ------
44,016,821 14.8
------------ ------
INCREASE IN UNREALIZED APPRECIATION (DEPRECIATION):
FROM SECURITIES HELD AT DECEMBER 31, 1994:
Mellon Bank Corporation................................... 27,056,250 9.1
Knight-Ridder, Inc........................................ 23,587,857 7.9
Kansas City Southern Industries, Inc...................... 18,385,438 6.2
Franklin Resources, Inc................................... 18,029,461 6.1
Ralston - Ralston Purina Group............................ 15,025,375 5.1
Federal Express Corporation............................... 14,332,666 4.8
McKesson Corporation...................................... 13,770,000 4.6
Paine Webber Group, Inc................................... 11,816,500 4.0
Coca-Cola Enterprises, Inc................................ 11,756,713 4.0
Whitman Corporation....................................... 9,120,000 3.1
The Quaker Oats Company................................... 7,535,227 2.5
The Washington Post Company............................... 6,199,734 2.1
WMX Technologies, Inc..................................... 6,191,268 2.1
American Express Company.................................. 5,818,750 2.0
Alexander & Alexander Services Inc........................ (7,055,685) (2.4)
All others, net........................................... 27,491,550 9.1
------------ ------
209,061,104 70.3
------------ ------
FROM NEW HOLDINGS IN 1995:
The Seagram Company Ltd................................... 16,399,650 5.5
All others, net........................................... 7,512,210 2.5
------------ ------
23,911,860 8.0
------------ ------
Net realized and unrealized gain on investments................ 276,989,785 93.1
Net investment income.......................................... 20,371,114 6.9
------------ ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......... $297,360,899 100.0%
============ ============
</TABLE>
<PAGE> 5
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
<PAGE> 6
- ---------------------------------------------------------------------
LONGLEAF PARTNERS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1995
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES COMMON STOCK (83.4%) MARKET VALUE
--------- ------------
<S> <C> <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.
<PAGE> 7
- ---------------------------------------------------------------------
LONGLEAF PARTNERS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1995
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES MARKET VALUE
--------- --------------
<S> <C> <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.
<PAGE> 8
- ---------------------------------------------------------------------
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.
<PAGE> 9
- ---------------------------------------------------------------------
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.
<PAGE> 10
- ---------------------------------------------------------------------
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.
<PAGE> 11
- ---------------------------------------------------------------------
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.
<PAGE> 12
NOTE 2. INVESTMENT COUNSEL AGREEMENT
Southeastern Asset Management, Inc. ("Southeastern") serves as Investment
Counsel to the Fund and receives annual compensation from the Fund, computed
daily and paid monthly, in accordance with the following schedule:
<TABLE>
<S> <C>
First $400 million of average daily net assets..................... 1.00%
In excess of $400 million.......................................... .75%
</TABLE>
The Investment Counsel has agreed to reduce its fees on a pro rata basis for
services rendered to the extent that the Fund's normal annual operating expenses
(excluding taxes, interest, brokerage fees, and extraordinary expenses) exceed
1.5% of average annual net assets. No such reduction was necessary for the
current period.
NOTE 3. FUND ADMINISTRATOR
Southeastern also serves as the Fund Administrator and in this capacity is
responsible for managing, performing or supervising the administrative and
business operations of the Fund, including, among other things, the preparation
of all registration statements, prospectuses, tax returns and proxy statements,
daily valuation of the Fund's portfolio and calculation of daily net asset value
per share. The Fund pays a fee as compensation for these services, accrued daily
and paid monthly, of 0.10% per annum of average daily net assets.
Reimbursable administration expenses paid by the Fund to Southeastern consist of
a portion of both the computer support charges for computer programs used in
processing transactions for the Fund and its shareholders and of the salary of
the Fund's Treasurer calculated in accordance with Trustee review and approval.
NOTE 4. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------- --------------
<S> <C> <C>
Shares sold................................. 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 interest
for the
<PAGE> 13
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%.
<PAGE> 14
- ------------------------------------------------------------------------
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 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.
<PAGE> 15
PORTFOLIO CHANGES
(UNAUDITED)
JANUARY 1, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
NEW HOLDINGS ELIMINATIONS
- ---------------------------------------- ----------------------
<S> <C>
Health Systems International, Inc. Kemper Corporation
Hilton Hotels John LaBatt Limited
Louisiana Pacific Multimedia, Inc.
Marsh & McLennan Companies, Inc.
Polaroid Corp.
Rollins, Inc.
The Seagram Company Ltd.
WellPoint Health Networks Inc.
</TABLE>
FIVE LARGEST HOLDINGS
(REPRESENTS 30.7% OF NET ASSETS AT 12/31/95)
KNIGHT-RIDDER, INC. (KRI) 10.6%
One of the largest newspaper publishers in the U.S. and a worldwide provider of
electronic information services.
THE QUAKER OATS COMPANY (OAT) 6.1%
A producer of brand name packaged foods and beverages including numerous hot and
cold cereals, Gatorade, Snapple, and Aunt Jemima.
HILTON HOTELS (HLT) 4.9%
Owner, operator and franchiser of worldwide hotels and gaming properties.
THE SEAGRAM COMPANY LTD. (VO) 4.7%
Global producer and marketer of brand name distilled spirits (Absolut, Chivas),
juices (Tropicana), coolers and mixers (Seagram's). Owns entertainment giant MCA
which includes Universal Studios, a large film library, and television and movie
production and syndication. Also holds 14.9% of Time Warner stock.
KANSAS CITY SOUTHERN INDUSTRIES, INC. (KSU) 4.5%
Large railroad operator throughout nine Southern and Midwestern states. Also
owns all or significant portions of companies in the mutual fund business
including Janus, Berger and DST.
PUBLISHED DAILY PRICE QUOTATIONS
The daily net asset values per share of each series of Longleaf Partners Funds
Trust are reported in the Mutual Fund Quotations tables of major newspapers in
alphabetical sequence under the following symbols:
Longleaf Partners Fund -- "LonglfPF"
Longleaf Partners Small-Cap Fund -- "LonglfSC"
<PAGE> 16
- ---------------------------------------------
TRUSTEES
O. MASON HAWKINS, CFA --
Chairman, Southeastern Asset
Management, Inc.
Memphis, Tennessee
CHADWICK H. CARPENTER, JR. --
Senior Executive Officer, Progress
Software Corporation
Bedford, Massachusetts
JOHN R. McCARROLL, JR. --
Chairman, McCarroll Newman LLC
Memphis, Tennessee
STEVEN N. MELNYK --
Chairman of the Executive
Committee and President,
Riverside Golf Group, Inc.
Jacksonville, Florida
C. BARHAM RAY -- Chairman of the
Board and Secretary, SSM Corp.
Memphis, Tennessee
W. REID SANDERS -- Executive
Vice President, Southeastern
Asset Management, Inc.
Memphis, Tennessee
- ---------------------------------------------
This report is submitted for the general informa-
tion of shareholders of the Fund. For more detailed
information about the Fund, its management, fees,
expenses and other pertinent information, please
see the prospectus.
This report is not authorized for distribution to
prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
LONGLEAF
PARTNERS
FUNDS
MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
6075 POPLAR AVE.
SUITE 900
MEMPHIS, TN 38119
(901) 761-2474
(800) 488-4191
----------------------------------------------------
----------------------------------------------------
ANNUAL
REPORT
December 31, 1995
LONGLEAF
PARTNERS FUND
----------------------------------------------------
----------------------------------------------------
MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
