<PAGE> 1
As filed with the Securities and Exchange Commission on February 26, 1999
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. 21 (X)
----- -----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 21 (X)
----- -----
(Check appropriate box or boxes)
LONGLEAF PARTNERS FUNDS TRUST
(Exact name of registrant as specified in charter)
---------------------------------------------------
c/o Southeastern Asset Management, Inc.
6410 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. 1775 Eye Street, N.W.
6410 Poplar Ave., Ste. 900 Washington, D.C. 20006
Memphis, TN 38119
</TABLE>
(Name and address of agent for service)
---------------------------------------
Approximate Date of Proposed Public Offering May 1, 1999
-----------------------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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, 1998, was filed with the Securities & Exchange
Commission on February 25, 1999, together with a registration fee for net sales
for the period.
<PAGE> 2
Post-Effective Amendment No. 21
LONGLEAF PARTNERS FUNDS TRUST
Part A of the Registration Statement
Cross Reference Sheet Between Registration Statement
and Form of Prospectus
<TABLE>
<CAPTION>
Registration Statement Prospectus Heading
Item Number and Caption or Subheading
- ------------------------ -------------------
<S> <C>
Item 1. Front and Back Cover Page Face Page and Back Cover Page
Item 2. Risk/Return Summary: Investment Objectives
Investments, Risks, and Performance Longleaf Partners Investment
Strategy
Primary Investment Risks
Item 3. Risk/Return Summary: Specific Information on
Fee Table Each Fund
Partners Fund
International Fund
Realty Fund
Small-Cap Fund
Item 4. Investment Objectives, Combined under same headings
Principal Investment as Item 3 and also
Strategies, and Related How We Achieve Our
Risks Investment Objectives;
Other Risks of Investing
Which Apply to All Funds
Item 5. Management's Discussion of Contained in 1998 Annual
Fund Performance Report to Shareholders
Item 6. Management, Organization, Portfolio Management and
and Capital Structure Fund Operations
Item 7. Shareholder Information Shareholder Manual
Item 8. Distribution Arrangements Not Applicable
Item 9. Financial Highlights Information Financial Highlights
Table
</TABLE>
<PAGE> 3
Post-Effective Amendment No. 21
LONGLEAF PARTNERS FUNDS TRUST
Part B of the Registration Statement
Cross Reference Sheet Between Registration Statement
and Form of Statement of Additional Information
<TABLE>
<CAPTION>
Registration Statement Statement of Additional
Item Number and Caption Information Heading or Subheading
- ------------------------ ---------------------------------
<S> <C>
Item 10. Cover Page and Table of Cover Page and Table of
Contents Contents
Item 11. Fund History Fund History
Item 12. Description of the Fund Investment Objectives and Policies
and Its Investments and Risks Description of the Funds
Fundamental Policies and
Restrictions
Non-Fundamental Investment
Restrictions
Additional Information About
Types of Investments and
Investment Techniques
Portfolio Turnover
Item 13. Management of the Fund Management of the Funds
Compensation Table
Item 14. Control Persons and Principal Control Persons and Principal
Holders of Securities Holders of Securities
Item 15. Investment Advisory and Investment Advisory Services
Other Services Fund Administration
Other Service Providers
Item 16. Brokerage Allocation and Allocation of Brokerage
Other Practices Commissions
Item 17. Capital Stock and Capital Stock and Indemnification
Other Securities Rights
Item 18. Purchase, Redemption, and Purchase, Redemption, and
Pricing of Shares Pricing of Shares
Item 19. Taxation of the Fund Additional Tax Information
Item 20. Underwriters Not Applicable
Item 21. Calculation of Performance Investment Performance and
Data Total Return
Item 22. Financial Statements Financial Statements
</TABLE>
<PAGE> 4
LONGLEAF PARTNERS FUNDS TRUST
=============================
PART A
INFORMATION REQUIRED IN THE PROSPECTUS
<PAGE> 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
May 1, 1999
LONGLEAF PARTNERS FUNDS
MANAGED BY
SOUTHEASTERN ASSET
MANAGEMENT, INC.
6410 POPLAR AVENUE, SUITE 900
MEMPHIS, TN 38119
(800) 445-9469
[LONGLEAF LOGO(SM)] (901) 761-2474
LONGLEAF PARTNERS FUND
Invests primarily in mid to large cap companies believed to be significantly
undervalued.
LONGLEAF PARTNERS INTERNATIONAL FUND
Invests primarily in foreign companies of all sizes believed to be significantly
undervalued.
LONGLEAF PARTNERS REALTY FUND
Invests primarily in real estate related operating companies and REITs of all
sizes believed to be significantly undervalued.
LONGLEAF PARTNERS SMALL-CAP FUND
Invests primarily in companies of the size included in the Russell 2000 Index
believed to be significantly undervalued. (Closed to new investors)
The Longleaf Partners Funds are registered with the Securities and Exchange
Commission (SEC). That registration does not imply that the SEC endorses the
funds. The SEC has not approved or disapproved these securities or determined
whether this prospectus is adequate or complete. It is a criminal offense to
represent otherwise.
<PAGE> 6
This Prospectus contains important information about the investment strategies
and risks of the Longleaf Partners Funds that you should know before making an
investment. Please read it carefully and keep it on hand for future reference.
Please be aware that the Funds:
- - Are not bank deposits
- - Are not guaranteed, endorsed, or insured by any financial institution or
governmental entity such as the Federal Deposit Insurance Corporation (FDIC)
- - May not achieve their stated goals
2
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
INFORMATION ON INVESTMENTS
Investment Objectives....................................... 4
Longleaf Partners Investment Strategy....................... 4
Primary Investment Risks
Market Risks.............................................. 5
Business Ownership Risks.................................. 5
Non-Diversification....................................... 6
Liquidity Risks........................................... 6
Foreign Securities........................................ 6
Currency Hedging Risks.................................... 7
Risks of Other Investment Strategies...................... 7
Specific Information on Each Fund
Longleaf Partners Fund.................................... 8
Longleaf Partners International Fund...................... 10
Longleaf Partners Realty Fund............................. 12
Longleaf Partners Small-Cap Fund.......................... 14
How We Achieve Our Investment Objectives.................... 16
Other Risks of Investing Which Apply To All Funds........... 18
Portfolio Management and Fund Operations.................... 19
Advisory and Administration Fees.......................... 20
Portfolio Managers........................................ 21
Board of Trustees........................................... 22
Other Executive Officers.................................... 23
SHAREHOLDER MANUAL
General Information......................................... 24
How To Open a New Account................................... 24
Additional Investments...................................... 25
Exceptions.................................................. 26
How To Redeem Shares........................................ 27
How Fund Shares Are Priced.................................. 30
Dividends and Distributions................................. 30
Taxes....................................................... 30
Financial Highlights........................................ 32
</TABLE>
3
<PAGE> 8
INFORMATION ON INVESTMENTS
INVESTMENT OBJECTIVES
LONGLEAF PARTNERS FUND
Investment Objective -- Long-term capital growth.
Investment Policy -- Invests primarily in equity securities of companies having
a market capitalization greater than $1 billion.
LONGLEAF PARTNERS INTERNATIONAL FUND
Investment Objective -- Long-term capital growth through investment primarily in
equity securities of international issuers.
LONGLEAF PARTNERS REALTY FUND
Investment Objective -- Maximum total return over the long-term through
investment primarily in real estate oriented companies.
LONGLEAF PARTNERS SMALL-CAP FUND (CLOSED TO NEW INVESTORS)
Investment Objective -- Long-term capital growth.
Investment Policy -- Invests primarily in equity securities of companies having
a market capitalization in the range of companies included in the Russell 2000
Index.
LONGLEAF PARTNERS INVESTMENT STRATEGY
GOVERNING PRINCIPLES. The Longleaf Partners Funds represent an investment
partnership between all Fund shareholders and employees and affiliates of
Southeastern Asset Management, Inc. ("Southeastern"), who together are among the
largest shareholders. The following principles govern this partnership:
- We will treat your investment in Longleaf as if it were our own.
- We will remain significant investors with you in Longleaf.
- We will invest for the long term, while always striving to maximize
after-tax returns and to minimize business, financial, purchasing power,
regulatory and market risks.
- We will choose our equity investments based on their discount from our
appraisal of their corporate intrinsic value, their financial strength,
their management, their competitive position, and our assessment of their
future earnings potential.
- We will comply with the diversification standards of the Internal Revenue
Code, but will not overdiversify our holdings.
4
<PAGE> 9
- We will not impose loads, holding periods, exit fees or 12b-1 charges on our
investment partners.
- We will consider closing the Funds to new investors if our size begins to
restrict our ability to manage the portfolios or if closing would otherwise
benefit existing shareholders.
- We will discourage short-term speculators and market timers from joining us,
the long-term investors in Longleaf.
- We will continue our efforts to enhance shareholder services.
- We will communicate with our investment partners as candidly as possible.
PHILOSOPHY. We believe in what is commonly called value investing. The Funds
seek to achieve superior long-term performance by acquiring equity securities of
financially strong, well-managed companies run by capable managements at market
prices significantly below our assessment of their business value, and selling
these stocks when they approach that value. We view stock as ownership in a
business enterprise. We determine business or intrinsic value through financial
analysis and established disciplines which we have consistently applied over 24
years. Stocks purchased at prices substantially less than their intrinsic worth
should protect capital from significant loss and should also appreciate
substantially if the market ultimately recognizes true value.
PROCESS. All of the Longleaf Partners Funds use the same general investment
strategy. Our portfolio management group, working as a team, identifies those
companies which we believe are selling at 60% or less of their true worth. If
the company satisfies other criteria, including effectiveness of the management
team, we purchase a position for the Fund or Funds whose investment objectives
and policies most closely parallel the company.
PRIMARY INVESTMENT RISKS
As significant shareholders in the Funds, management at Longleaf defines
investment risk as the permanent loss of capital. This section describes the
primary factors that could impact short-term and long-term investment risk:
MARKET RISKS. The Funds are partial owners of companies through securities held
in the Funds' portfolios. We attempt to mitigate the risk of capital loss by
buying businesses only when they are selling at substantially less than our
appraised value and by long holding periods for these securities. Stock price
fluctuations, however, present a risk to investors who sell shares during market
declines, creating a permanent loss from a paper one. Historically, the ability
to hold shares through periods of volatility has protected long-term investors
from permanent loss. Because the Funds' shares will rise and fall in value,
however, investors in the Funds could lose money.
BUSINESS OWNERSHIP RISKS. As partial owners of the companies in Longleaf's
portfolios, we face four main risks inherent in owning a business. First, the
5
<PAGE> 10
company's operations must be successful. To minimize the business risk, we look
for companies with competitive advantages in their markets. Advantages could
include dominant market share, lowest cost structure, entrenched brand name, or
other similar qualities.
The second risk of owning a company is financial risk. To help ensure that a
company can weather economic downturns and take advantage of opportunities, a
company's assets and cash flows should amply cover liabilities, annual working
capital needs, and necessary capital replacements.
A company's third risk is whether it can control and mitigate cost increases. We
prefer to own businesses with strong purchasing power and the ability to pass
any cost increases on to customers.
If a regulatory agency can dictate a company's markets and profits, then that
business faces a fourth risk to its long-term success. Longleaf is selective in
its ownership of businesses with regulatory risk.
NON-DIVERSIFICATION. The Funds are non-diversified under the federal securities
laws and each Fund invests in a small number of companies. Limiting the number
of our holdings focuses on our best investments, enables us to know each in
greater detail, and should permit significant gain if the market recognizes a
company's true worth.
Each Fund could own as few as twelve securities, but generally will have 20 to
30 companies in its portfolio. At least 50% of each Fund's portfolio must be
diversified with a maximum of 5% of a Fund's total assets in any stock and no
more than 10% of any company's equity. The remainder of a Fund's portfolio may
contain positions which are over 5% of assets and greater than 10% of a
company's equity.
We believe this approach maximizes the potential for outperforming the market
over the long term. There is a risk, however, that the Funds' share values could
fluctuate more than if the portfolios had wider diversification.
LIQUIDITY RISKS. We take relatively large ownership positions in some companies
that we find are particularly undervalued. We often own more than 5% of a
company's equity securities and may own up to 20% or more of some companies.
Depending on market conditions and trading volume, disposing of such holdings
could be more difficult than if we owned less of the same companies. The longer
it takes to dispose of a large position once we have decided to sell, the
greater is our susceptibility to price fluctuations.
FOREIGN SECURITIES. The Partners, Realty, and Small-Cap Funds may invest up to
30% of assets in foreign securities, and the International Fund may invest all
of its assets in foreign securities. Foreign investment risks include
international political and economic changes, currency fluctuations, foreign
withholding taxes,
6
<PAGE> 11
exchange controls, confiscation risks, foreign governmental restrictions,
differences in accounting standards, and more limited availability of public
information.
CURRENCY HEDGING RISKS. Our investment process evaluates whether currency
hedging for foreign securities would be beneficial. Effectively hedged, a
foreign investment should offer the opportunity for capital appreciation
regardless of large fluctuations between foreign and U.S. currencies. Not all
foreign currencies can be effectively hedged, however, and the costs of hedging
may outweigh the benefits. If our hedging strategy does not correlate well with
market forces, price volatility of the portfolio could increase. Currency
hedging, considered separately, can result in losses which may be offset by
gains in the values of the securities hedged.
RISKS OF OTHER INVESTMENT STRATEGIES. The Funds may invest in non-registered
securities, may use puts, calls, options, swaps, and other similar techniques
primarily for hedging and risk management, and may use a variety of defensive
measures during adverse markets. These risks are discussed in more detail on
pages 18-19 of this Prospectus and on pages 7-12 of the Statement of Additional
Information.
SPECIFIC INFORMATION ON EACH FUND
The following sections include specific information on the investment objectives
and policies of each Fund, their historical performance, and the expenses of
ownership.
The bar charts illustrate the variability of Fund returns from year to year. The
total returns for the best and worst quarters indicate the short-term risks and
rewards of investing in each Fund.
The average annual returns for the cumulative periods ended December 31, 1998
compared with appropriate market indices highlight the benefits of compounding
through longer term investing, and illustrate the effects of averaging negative
returns in some periods with positive returns in others.
Each Fund's particular investment objective and policies, and the corresponding
market conditions, impact performance during the reported periods. Historical
returns illustrate how the Funds met the challenges of changing market
conditions during prior periods. Past investment performance does not predict
future performance and there is no assurance that we will achieve our investment
objectives.
7
<PAGE> 12
LONGLEAF PARTNERS FUND
INITIAL PUBLIC OFFERING -- April 8, 1987.
INVESTMENT OBJECTIVE -- Long-term capital growth.
INVESTMENT POLICY -- The Partners Fund normally invests at least 65% of total
assets in the equity securities of a limited number of companies having a market
capitalization greater than $1 billion. Most of these securities are listed on
the major securities exchanges. Current income is not an objective.
The Fund may invest up to 30% of assets in foreign securities and up to 15% of
assets in non-registered securities which may have limited liquidity.
RISKS OF INVESTING IN THIS FUND. The primary risks are the same as those
discussed on pages 5-8 of this Prospectus. Please see pages 18-19 of this
Prospectus and pages 7-12 of the Statement of Additional Information for more
detail and for the risks of other strategies the Fund may use.
8
<PAGE> 13
LONGLEAF PARTNERS FUND
PAST FUND PERFORMANCE
TOTAL RETURN (%) (BAR CHART)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
23.16 (16.35) 39.19 20.47 22.30 8.96 27.50 21.02 28.25 14.28
89 90 91 92 93 94 95 96 97 98
</TABLE>
(LONGLEAF PARTNERS FUND PAST FUND PERFORMANCE)
Best Quarter in last ten years. 23.75% -- 1st Quarter of 1991
Worst Quarter in last ten years. (18.35%) -- 3rd Quarter of 1998
AVERAGE ANNUAL TOTAL RETURNS AT 12/31/98
<TABLE>
<CAPTION>
S&P 500
PARTNERS STOCK VALUE LINE
FUND INDEX INDEX
-------- ------- ----------
<S> <C> <C> <C>
One Year.................................. 14.28% 28.59% (3.79)%
Five Years................................ 19.77% 24.05% 8.16%
Ten Years................................. 17.94% 19.19% 6.51%
</TABLE>
FUND FEES AND EXPENSES
The following table shows the fees and expenses you would pay to buy and hold
shares of the Partners Fund. We do not impose any front-end or deferred sales
charges or redemption fees, and the Fund does not have a 12b-1 Plan. The Fund
has a contractual interest, taxes, expense limitation of 1.5% of average net
assets per annum, excluding interest, taxes, brokerage commissions and
extraordinary expenses.
<TABLE>
<S> <C> <C>
Shareholder Transaction Fees and Expenses (fees paid
directly from your investment)............................ None
Annual Fund Operating Expenses --
(as a percentage of average net assets)
Management Fees......................................... 0.780%
12b-1 Fees.............................................. None
Other Expenses.......................................... 0.153%
Administration...................................... 0.100%
Transfer Agent...................................... 0.016%
Other Operating Expenses............................ 0.037%
------
Total Fund Operating Expenses............................... 0.933%
------
</TABLE>
EXAMPLE OF FUND EXPENSES. This example will help you compare the cost of
investing in the Partners Fund with other mutual funds. The table shows what you
would pay in expenses over time, whether or not you sold your shares at the end
of each period. The example assumes a $10,000 investment, a 5% total return each
year, and no changes in expenses. This information is for comparison purposes
only and does not represent the Fund's actual returns or expenses, which may be
higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------- ------- --------
<S> <C> <C> <C>
$95 $297 $516 $1,147
</TABLE>
9
<PAGE> 14
LONGLEAF PARTNERS INTERNATIONAL FUND
INITIAL PUBLIC OFFERING -- October 26, 1998
INVESTMENT OBJECTIVE -- Long-term capital growth through investment primarily in
the equity securities of international or foreign issuers.
INVESTMENT POLICY -- The International Fund normally invests at least 65% of
total assets in the equity securities of international issuers domiciled or
operating primarily in at least three countries other than the United States.
DEFINITION OF INTERNATIONAL. We define a company as international if it is
organized or headquartered outside the U.S. An issuer organized or headquartered
in the U.S. also qualifies as international if at least 50% of its assets are
outside the U.S. or 50% of its gross income is from non-U.S. sources.
NO COUNTRY LIMITATIONS. The Fund does not limit the percentage of assets which
may be invested in any particular geographic region or country. The majority of
investments generally are in companies located in Canada, Australia, and in the
developed countries of Europe, the Far East, and Latin America. We may also
invest a significant portion of assets in a single country, such as Japan, and
may invest in other countries, both developed and emerging.
The Fund normally will be substantially invested in equity securities of
international companies. We may also invest in U.S. or foreign closed-end
investment companies which invest internationally, when direct investments in
the foreign region would be difficult or less liquid. We may also invest in
foreign governmental and commercial bonds, and in other foreign money market
instruments when appropriate. The Fund may also invest up to 15% of assets in
non-registered securities which may have limited liquidity.
If investments meeting the Fund's criteria are not available or when market or
economic conditions so indicate, we may invest the Fund's assets temporarily in
obligations of the U.S. government and its instrumentalities, or in other
domestic or foreign money market instruments.
RISKS OF INVESTING IN THIS FUND
GENERAL RISKS. The primary risks are those discussed on pages 5-8 of this
Prospectus. Please see pages 18-19 of this Prospectus and pages 7-12 of the
Statement of Additional Information for more detail and for the risks of other
strategies the Fund may use.
SPECIFIC RISKS. The International Fund is designed for long-term investors who
can accept international investment risk, including currency, political and
economic, regulatory, and international market risks. Although world economies
are increasingly integrated, market valuations vary with each country's economic
conditions. These movements in different securities markets and, to the extent
not hedged, movements in foreign currencies where the Fund has exposure will
affect the Fund's price.
10
<PAGE> 15
LONGLEAF PARTNERS INTERNATIONAL FUND
PAST FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS AT 12/31/98
<TABLE>
<CAPTION>
MORGAN STANLEY CAPITAL
INTERNATIONAL
EUROPE, AUSTRALASIA
INTERNATIONAL FAR EAST (EAFE)
FUND STOCK INDEX
------------- ----------------------
<S> <C> <C>
Since Initial Public Offering
October 26, 1998....................... 9.02% 10.85%
</TABLE>
FUND FEES AND EXPENSES
The following table shows the fees and expenses you would pay to buy and hold
shares of the International Fund. We do not impose any front-end or deferred
sales charges or redemption fees, and the Fund does not have a 12b-1 Plan. The
Fund has a contractual expense limitation of 1.75% of average net assets per
annum, excluding interest, taxes, brokerage commissions and extraordinary
expenses.
<TABLE>
<S> <C> <C>
Shareholder Transaction Fees and Expenses (fees paid
directly from your investment)............................ None
Annual Fund Operating Expenses --
(as a percentage of average net assets)
Management Fees......................................... 1.500%
12b-1 Fees.............................................. None
Other Expenses.......................................... 1.150%
Administration...................................... 0.100%
Transfer Agent...................................... 0.016%
Other Operating Expenses............................ 1.034%
------
Total Fund Operating Expenses............................... 2.650%
------
Expense Limitation Reimbursement........................ 0.900%
Net Expenses............................................ 1.750%
------
</TABLE>
EXAMPLE OF FUND EXPENSES. This example will help you compare the cost of
investing in the International Fund with other mutual funds. The table shows
what you would pay in expenses over time, whether or not you sold your shares at
the end of each period. The example assumes a $10,000 investment, a 5% total
return each year, and no changes in expenses. This information is for comparison
purposes only and does not represent the Fund's actual returns or expenses,
which may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- ------- -------
<S> <C>
$178 $551
</TABLE>
11
<PAGE> 16
LONGLEAF PARTNERS REALTY FUND
DATE OF INITIAL PUBLIC OFFERING -- January 2, 1996
INVESTMENT OBJECTIVE -- Maximum total return over the long term through
investment primarily in the equity securities of a limited number of real estate
oriented companies.
INVESTMENT POLICY. The Realty Fund normally invests at least 65% of total
assets in the equity securities of companies in the real estate industry or
related industries, or in companies with significant real estate assets. For
example, the Fund may invest in manufacturers and distributors of construction
and building materials and equipment, institutions financing real estate, hotel
management companies, retail chains, railroads, and in lumber, paper, forest
product, timber, oil, mining, and natural resource companies. The Fund also
invests in real estate investment trusts (REIT's) and may invest in a few
non-real estate oriented companies. We may also invest up to 30% of assets in
foreign securities and up to 15% of assets in non-registered securities which
may have limited liquidity.
DEFINITION OF REAL ESTATE ORIENTED COMPANIES. A company qualifies as real
estate oriented if it meets one of the following tests:
1. Revenues and Net Profits. At least 50% of gross revenues or net profits are
derived from (i) construction, ownership, management, operation, financing,
sales, or development of real estate; (ii) extraction of timber or minerals
from real estate owned or leased as either a lessor or lessee under a lease
granting the designated development or extraction rights; or (iii) other
businesses clearly related to the above functions or to manufacturing
appurtenances to real estate; or
2. Valuation of Assets. At least 50% of the company's appraised value,
determined by our established procedures, is based on one or more of the
following: (i) real estate owned or leased by the company either as lessor or
lessee; (ii) timber or materials on such real estate; or (iii) the value of
the stream of fees or revenues derived from the management or operation of
real estate or rights to extract timber or minerals.
RISKS OF INVESTING IN THIS FUND
GENERAL RISKS. The primary risks are those discussed on pages 5-8 of this
Prospectus. Please see pages 18-19 of this Prospectus and pages 7-12 of the
Statement of Additional Information for more detail and for the risks of other
strategies the Fund may use.
SPECIFIC RISKS. The Realty Fund may face some of the risks normally associated
with direct ownership of real estate through its holdings of companies which own
real estate. These risks include fluctuations in mortgage interest rates,
accounting and tax law changes in depreciation deductions and other reporting
requirements affecting real estate, and limited liquidity of undeveloped land.
The Realty Fund's price fluctuations could differ from those of mutual funds
that invest in other industries.
12
<PAGE> 17
LONGLEAF PARTNERS REALTY FUND
PAST FUND PERFORMANCE
TOTAL RETURN (%) (BAR CHART)
<TABLE>
<S> <C> <C>
40.69 29.73 (12.98)
1996 1997 1998
</TABLE>
(LONGLEAF PARTNERS REALTY FUND PAST FUND PERFORMANCE)
Best Quarter since inception. 14.94% -- 3rd Quarter of 1997
Worst Quarter since inception. (17.65%) -- 3rd Quarter of 1998
AVERAGE ANNUAL TOTAL RETURNS AT 12/31/98
<TABLE>
<CAPTION>
WILSHIRE
REAL ESTATE
REALTY SECURITIES NAREIT
FUND INDEX INDEX
------- ----------- ------
<S> <C> <C> <C>
One Year.................................. (12.98)% (17.42)% (18.82)%
Since Initial Public Offering............. 16.69% 10.70% 9.42%
January 2, 1996
</TABLE>
FUND FEES AND EXPENSES
The following table shows the fees and expenses you would pay to buy and hold
shares of the Realty Fund. We do not impose any front-end or deferred sales
charges or redemption fees, and the Fund does not have a 12b-1 Plan. The Fund
has a contractual expense limitation of 1.5% of average net assets per annum,
excluding interest, taxes, brokerage commissions and extraordinary expenses.
<TABLE>
<S> <C> <C>
Shareholder Transaction Fees and Expenses (fees paid
directly from your investment).......................... None
Annual Fund Operating Expenses --
(as a percentage of average net assets)
Management Fees....................................... 1.000%
12b-1 Fees............................................ None
Other Expenses........................................ 0.172%
Administration.................................... 0.100%
Transfer Agent.................................... 0.016%
Other Operating Expenses.......................... 0.056%
------
Total Fund Operating Expenses............................. 1.172%
-------
</TABLE>
EXAMPLE OF FUND EXPENSES. This example will help you compare the cost of
investing in the Realty Fund with other mutual funds. The table shows what you
would pay in expenses over time, whether or not you sold your shares at the end
of each period. The example assumes a $10,000 investment, a 5% total return each
year, and no changes in expenses. This information is for comparison purposes
only and does not represent the Fund's actual returns or expenses, which may be
higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------- ------- --------
<S> <C> <C> <C>
$119 $372 $645 $1,423
</TABLE>
13
<PAGE> 18
LONGLEAF PARTNERS SMALL-CAP FUND
INITIAL PUBLIC OFFERING -- February 21, 1989
(Closed to new investors)
INVESTMENT OBJECTIVE -- Long-term capital growth.
INVESTMENT POLICY -- The Small-Cap Fund normally invests at least 65% of total
assets in the equity securities of a limited number of companies whose market
capitalization is within the range of companies in the Russell 2000 Index. Some
of these securities may be traded in the "over-the-counter" market, the market
for securities not listed on a stock exchange. The Fund may also invest in a
limited number of larger companies. Current income is not an objective.
We may also invest up to 30% of assets in foreign securities and up to 15% of
assets in non-registered securities which may have limited liquidity.
RISKS OF INVESTING IN THIS FUND
GENERAL RISKS. The primary risks are those discussed on pages 5-8 of this
Prospectus. Please see pages 18-19 of this Prospectus and pages 7-12 of the
Statement of Additional Information for more detail and for the risks of other
strategies the Fund may use.
SPECIFIC RISKS. Smaller companies have more limited product lines, markets, and
financial resources than larger companies. Their securities may trade less
frequently and in more limited volume than those of larger companies. As a
result, small-cap stocks may be more volatile than those of larger companies
and, where trading volume is limited, our ability to dispose of such securities
may be more limited.
14
<PAGE> 19
LONGLEAF PARTNERS SMALL-CAP FUND
PAST FUND PERFORMANCE
TOTAL RETURN (%) (BAR CHART)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
21.51 (30.05) 26.31 6.87 19.83 3.64 18.61 30.64 20.94 12.71
89 90 91 92 93 94 95 96 97 98
</TABLE>
(LONGLEAF PARTNERS SMALL-CAP FUND PAST FUND PERFORMANCE)
Best Quarter since inception. 19.34% -- 1st Quarter of 1991
Worst Quarter since inception. (20.21%) -- 3rd Quarter of 1990
AVERAGE ANNUAL TOTAL RETURNS AT 12/31/98
<TABLE>
<CAPTION>
RUSSELL
SMALL-CAP 2000 VALUE LINE
FUND STOCK INDEX INDEX
--------- ----------- ----------
<S> <C> <C> <C>
One Year.............................. 12.71% (2.55)% (3.79)%
Five Years............................ 18.49% 11.87% 8.16%
Since Initial Public Offering......... 12.56% 12.38% 5.97%
February 21, 1989
</TABLE>
FUND FEES AND EXPENSES
The following table shows the fees and expenses you would pay to buy and hold
shares of the Small-Cap Fund. We do not impose any front-end or deferred sales
charges or redemption fees, and the Fund does not have a 12b-1 Plan. The Fund
has a contractual expense limitation of 1.5% of average net assets per annum,
excluding interest, taxes, brokerage commissions and extraordinary expenses.
<TABLE>
<S> <C> <C>
Shareholder Transaction Fees and Expenses (fees paid
directly from your investment)............................ None
Annual Fund Operating Expenses --
(as a percentage of average net assets)
Management Fees......................................... 0.835%
12b-1 Fees.............................................. None
Other Expenses.......................................... 0.175%
Administration...................................... 0.100%
Transfer Agent...................................... 0.016%
Other Operating Expenses............................ 0.059%
------
Total Fund Operating Expenses............................... 1.010%
------
</TABLE>
EXAMPLE OF FUND EXPENSES. This example will help you compare the cost of
investing in the Small-Cap Fund with other mutual funds. The table shows what
you would pay in expenses over time, whether or not you sold your shares at the
end of each period. The example assumes a $10,000 investment, a 5% total return
each year, and no changes in expenses. This information is for comparison
purposes only and does not represent the Fund's actual returns or expenses,
which may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------- ------- --------
<S> <C> <C> <C>
$103 $322 $558 $1,236
</TABLE>
15
<PAGE> 20
HOW WE ACHIEVE OUR INVESTMENT OBJECTIVES
DETERMINING BUSINESS OR INTRINSIC VALUE. A company's market price must be 60%
or less of our appraisal to qualify for investment. Our research team appraises
businesses by studying publicly available financial statements and talking with
corporate management.
We use two primary methods of appraisal. The first assesses the company's
current liquidation value based on corporate assets and liabilities. The second
method determines the company's operating value based on its ability to generate
free cash flow after required capital expenditures and working capital needs. We
calculate the present value of the projected cash flows plus a terminal value,
using a conservative discount rate. Our appraisals should represent the price
which buyers and sellers would negotiate in an arms length transaction. We then
check our appraisals against our data bank of comparable business sales.
OTHER INVESTMENT CRITERIA. We also look for the following when selecting
investments:
- EFFECTIVE MANAGEMENT. Management's actions often determine whether a
business's value grows and its stock price reflects that business value. We
meet with corporate managers and research their history to assess both their
operating and capital allocation capabilities. To align our interests with
management, we prefer managers who own a significant amount of their
company's stock and whose compensation is tied to building corporate value.
- FINANCIAL STRENGTH. Financial strength helps protect a company during slow
economic times and enables a business to seize opportunities when they
arise. Strength implies low debt levels, limited liabilities, and the
ability to generate free cash flow from operations.
- EARNINGS IMPROVEMENT. A company should grow cash earnings and earn an
adequate return on its capital over three to five years.
Although a company may not meet all the above criteria, we must be convinced
that significant unrealized value is present before making an investment.
ALLOCATION OF INVESTMENT IDEAS. When a company meets our criteria, we allocate
the stock to the Funds whose investment objectives and policies most closely
parallel the business. More than one Fund may own a single security. For
example, a large-cap real estate company might appear in both the Realty and
Partners Funds. If the same company were based overseas, the International Fund
might also own it. The Small-Cap Fund may purchase a few large-cap companies
also held by one or more of the other Funds. If the Fund most closely aligned
with a security is fully invested or otherwise unable to buy a position, another
of the Funds might purchase that security.
16
<PAGE> 21
HOW COMPANIES REACH INTRINSIC VALUE. We generally sell a holding when its
market price reaches our appraisal. Undervalued businesses may reach their
intrinsic worth in several ways.
- - MARKET REALIZATION. Over time the market may recognize the business's true
value. As companies with strong management and true earnings power report
better earnings, the market should bid up the price of the stock;
- - MERGERS AND ACQUISITIONS. Undervalued companies often attract acquirors or
large owners may seek a buyer. In addition, the company's management may take
the company private;
- - LIQUIDATIONS. A company may partially liquidate its assets or operations
through spin-offs of subsidiaries or sales of a portion of the business. On
occasion, a company may elect to liquidate completely; and
- - SHARE REPURCHASE PROGRAMS. When a company's stock is undervalued,
repurchasing outstanding shares can enhance shareholder values. If
repurchasing shares is the capital allocation choice with the highest return,
management can grow the value of the business and shrink the number of owners
sharing the returns.
PORTFOLIO TURNOVER. Our time horizon when purchasing a company is five years.
Generally, we will hold the stock as long as
(i) A margin of safety exists between price and value and we remain confident
in management's ability to create additional value; and
(ii) No significantly better investments are available.
The Funds' portfolio turnover is generally less than 50%. There are no limits on
portfolio turnover, however, and we may sell portfolio holdings whenever we
believe that sales would benefit shareholders.
OTHER INVESTMENTS. All Funds may invest a portion of assets in cash equivalents
and a wide variety of securities other than common stock, including preferred
stock, debt securities, warrants, puts, calls, options, financial futures, and
combinations of these instruments.
CASH RESERVES. Generally, cash reserves and money market instruments do not
exceed 15% of net assets. If, however, we have difficulty finding enough
undervalued equity securities or if market conditions are otherwise unfavorable,
we may invest any portion of assets in money market instruments. Holding cash
reserves can penalize short-term performance in rising markets, but during
market declines cash allows us to purchase securities at discounted prices.
Generally, we would hold cash in excess of 35% of total assets only in a period
when equity valuations are high. When cash has previously approached such
levels, we closed the affected funds to new investors.
17
<PAGE> 22
OTHER RISKS OF INVESTING WHICH APPLY TO ALL FUNDS
The primary risks of investing in the Longleaf Partners Funds appear on pages
5-7 of this Prospectus. Those risks include general market conditions, business
ownership, non-diversification, possible limited liquidity, foreign market, and
currency hedging risks. Other risks include the following:
RISKS OF PUTS, CALLS, OPTIONS, AND FINANCIAL FUTURES. Primarily for hedging
purposes, the Funds may invest selectively in a wide variety of put and call
options, financial futures, swaps, combinations of these techniques, and in
other similar financial instruments. When used in conjunction with each other,
these techniques can reduce market risks. If used separately as independent
investments, these instruments have risks. Gains on investments in options and
futures depend on correctly predicting the direction of stock prices, interest
rates, and other economic factors. If a Fund were not able to close out its
position, a significant loss could occur.
INVESTMENTS IN RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest up to
15% of its assets in unregistered or not readily marketable securities.
Restricted or non-registered securities may be sold only in privately negotiated
transactions or in limited amounts under other exemptions. A Fund might have to
pay the registration expenses in order to sell such a position. When the
securities are not saleable, adverse market conditions could lower the eventual
sale price.
FIXED INCOME SECURITIES. The Funds may invest up to 15% of assets in both
investment and non-investment grade bonds. Prices of high yield securities or
non-investment grade bonds may be less sensitive to interest rate changes, but
may be more sensitive to economic downturns or adverse corporate developments.
YEAR 2000 COMPUTER READINESS. During 1998 attention increasingly focused on
"Y2K". Many computer programs use two digits instead of four to designate a
year; two digit systems may read the start of the next century as 1900 instead
of 2000. This simple problem will have widespread consequences if not corrected.
A computer system with an inaccurate date may not operate properly or could make
incorrect calculations.
At Longleaf we are taking steps to ensure that our fellow shareholders receive
the same level of service on January 1, 2000, that they had the previous day. We
are also seeking assurances from managements of our portfolio companies that
proper steps are being taken so that their operations will be Y2K compliant. We
factor their answers into our appraisals of their businesses.
According to our vendors, mission critical systems at Southeastern Asset
Management are already Y2K compliant, meaning they will correctly recognize
dates after December 31, 1999. Longleaf also relies on outside vendors for
functions such as custody, transfer agency, and trading. We are monitoring our
vendors' Y2K
18
<PAGE> 23
readiness. Each has provided a plan for compliance. All appear on track. Our
objective is to identify those vendors unable to modify their systems prior to
2000, and put contingency plans in place until those systems are working
properly.
We will be testing during 1999, and forming contingency plans to address other
unexpected service problems. There can be no assurance that these efforts will
be sufficient, however, and there could be adverse effects on shareholder
servicing or other operations, pricing, trading of portfolio securities in
domestic and foreign markets, and the operations of companies in which the Funds
are invested.
PORTFOLIO MANAGEMENT AND FUND OPERATIONS
INVESTMENT ADVISER. Southeastern Asset Management, Inc. ("Southeastern") is the
Funds' investment adviser. Formed in 1975, the firm has 24 years of experience
managing private securities portfolios for institutional investors and
individuals. Longleaf Partners Fund, the firm's first investment company, began
operations in 1987. Located at 6410 Poplar Ave., Suite 900, Memphis, Tennessee,
Southeastern now manages more than $13 billion in private account and mutual
fund assets.
CODE OF ETHICS. To align our interests with those of shareholders and prevent
conflicts of interest, we have adopted a Code of Ethics which requires all
employees to limit their investments in publicly offered equity securities to
shares of the Longleaf Partners Funds unless granted prior clearance for other
personal securities transactions. All employees must report their personal
securities transactions at the end of each quarter. Any material violation of
the Code of Ethics is reported to the Board of the Funds. The Board also reviews
the administration of the Code of Ethics on an annual basis.
The independent Trustees of the Funds must also obtain clearance before making
personal securities investments to avoid conflicts of interest. They have
adopted a policy requiring each independent Trustee to invest in the Funds an
amount at least equal to their Trustees' fees.
MANAGEMENT SERVICES. Southeastern manages the securities portfolios of the four
Longleaf Partners Funds under an Investment Counsel Agreement initially
effective in 1987. Southeastern also serves as Fund Administrator and provides
administrative, business, legal and compliance services. The Funds pay all
direct expenses of operations, such as professional fees of outside lawyers and
accounting firms, registration fees, trade association dues, insurance premiums,
and costs of outside pricing services. The Funds also reimburse Southeastern for
the costs of computer programs dedicated to Fund operations and a portion of the
compensation of the Funds' treasurer.
19
<PAGE> 24
ADVISORY AND ADMINISTRATION FEES. The Funds pay Southeastern the following
annual fees as a percentage of average net assets for the services rendered:
<TABLE>
<CAPTION>
INVESTMENT COUNSEL FEE
-----------------------------
ACTUAL ADMINISTRATION
STATED FEE 1998 FEE FEE
----------------- -------- --------------
<S> <C> <C> <C>
Partners Fund 1.00% on first
$400 Million in
avg. net assets
assets; 0.75% on
balance 0.78% 0.10%
International Fund 1.50% on avg. net
assets 0.60%* 0.10%
Realty Fund 1.00% on avg. net
assets 1.00% 0.10%
Small-Cap Fund 1.00% on first
$400 Million in
avg. net assets;
0.75% on balance 0.84% 0.10%
</TABLE>
* Reflects fee reduction of 0.90% as the result of contractual expense
limitation.
20
<PAGE> 25
PORTFOLIO MANAGERS. Collectively, the following individuals have shared
responsibility for investment management decisions of the specified Funds'
portfolios. Background information on each appears on pages 22 and 23.
<TABLE>
<CAPTION>
FUND PORTFOLIO
NAME AND TITLE RESPONSIBILITY FUNDS
- -------------------------------- -------------------- ------------
<S> <C> <C>
O. Mason Hawkins
Chairman of the Board and
C.E.O. of Southeastern and the
Funds Co-Portfolio Manager All
G. Staley Cates
President of Southeastern and
Vice President -- Investments
of the Funds Co-Portfolio Manager All
John B. Buford
Vice President of Southeastern Partners and
and Vice President -- Small-Cap
Investments of the Funds Co-Portfolio Manager Funds
C. T. Fitzpatrick
Vice President of Southeastern
and Vice President --
Investments of the Funds Co-Portfolio Manager Realty Fund
E. Andrew McDermott, III
Vice President of Southeastern
and Vice President -- Assistant Portfolio International
Investments of the Funds Manager Fund
</TABLE>
FUND OPERATIONS. Each Fund has a separate Board of Trustees which oversees all
operations of the particular Fund. The same Trustees serve all of the Funds. A
majority of the Trustees are independent and not affiliated with Southeastern.
Each Board of Trustees elects officers of the Funds who are also officers or
employees of Southeastern. The business and administrative operations of each
Fund are performed by the officers and employees of Southeastern under its
operating agreements with the Funds.
21
<PAGE> 26
BOARD OF TRUSTEES
O. MASON HAWKINS*, CFA, Chairman of the Board and Chief Executive Officer; Co-
Portfolio Manager.
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.
Private investor and consultant to several software startups. Currently a board
member of Indus River Networks and Call Technologies, which are developing
products for virtual private networks and telephony respectively. Previously
spent 14 years in senior executive officer positions at Progress Software
Corporation (a leading provider of software products used by developers to build
and deploy commercial applications worldwide). 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.
DANIEL W. CONNELL, JR., Trustee.
Senior Vice President -- Marketing, Jacksonville Jaguars, Ltd., Jacksonville, FL
(since 1994) (National Football League franchise); Executive Vice
President -- Corporate Banking Group and other officer positions, First Union
National Bank of Florida, Jacksonville, FL (1970-94); Chairman, Jacksonville
Chamber of Commerce (1997); Commissioner, Jacksonville Economic Development
Commission; Advisory Director, First Union National Bank of Florida.
Education: B.S.B.A., University of Florida, 1970.
STEVEN N. MELNYK, Trustee.
Vice President, The St. Joe Company, Jacksonville, Florida. Chairman of the
Executive Committee and President, Riverside Golf Group, Inc., (1987-97),
Jacksonville, FL (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 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 Southeastern.
22
<PAGE> 27
OTHER EXECUTIVE OFFICERS
INVESTMENT MANAGEMENT
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.
JOHN B. BUFORD, CFA, Co-Portfolio Manager, Longleaf Partners Fund and Longleaf
Partners Small-Cap Fund; Vice President -- Investments.
Professional Experience: Southeastern Asset Management, Inc. (since 1990).
Education: B.B.A., Finance, University of Texas, 1985.
C. T. FITZPATRICK, III, CFA, Co-Portfolio Manager of Longleaf Partners Realty
Fund; Vice President -- Investments.
Professional Experience: Vice President, Southeastern Asset Management, Inc.
(since 1990).
Education: B.A., Corporate Finance, University of Alabama, 1986; MBA, Finance,
Vanderbilt University, 1990.
E. ANDREW MCDERMOTT, III, Assistant Portfolio Manager of Longleaf Partners
International Fund; Vice President -- Investments
Professional Experience: Southeastern Asset Management, Inc. (since 1998); J.P.
Morgan & Co., San Francisco, Hong Kong, and Singapore; Associate and Analyst
(1994-1998); NEC Logistics, Tokyo (1992-1994).
Education: B.A., Princeton University, 1992.
FRANK N. STANLEY, III, CFA, Vice President -- Investments.
Professional Experience: Vice President, Southeastern Asset Management, Inc.
(since 1984).
Education: B.S., Management, Georgia Institute of Technology, 1964; Graduate
study, Emory University, 1965; M.B.A., Marketing, University of Florida, 1970.
FUND OPERATIONS
CHARLES D. REAVES, Executive Vice-President.
Professional Experience: Vice President and General Counsel, Southeastern Asset
Management, Inc. (since 1988). Director, ICI Mutual Insurance Company (since
1998).
Education: B.A. (Magna Cum Laude) Furman University, 1956; J.D., University of
Alabama, 1961; L.L.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).
Education: B.S., Accounting, Pennsylvania State University, 1984.
ANDREW R. MCCARROLL, Vice President and Assistant General Counsel.
Professional Experience: Southeastern Asset Management, Inc. (since 1998);
Farris, Warfield & Kanaday (law firm), Nashville, TN (1996-1998).
Education: Vanderbilt University, B.A., 1990; J.D., 1996; The University of
Chicago, M.A., 1993.
MARKETING AND ADMINISTRATION
LEE B. HARPER, Executive Vice President -- Marketing.
Professional Experience: Southeastern Asset Management, Inc. (since 1993).
Education: B.A., University of Virginia, 1985; M.B.A., Harvard University,
1989.
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.
23
<PAGE> 28
SHAREHOLDER MANUAL
GENERAL INFORMATION
FUNDS OPEN TO NEW SHAREHOLDERS. The Partners Fund, International Fund and
Realty Fund are open to new shareholders. The Small-Cap Fund is closed to new
shareholders unless you meet one of the exceptions outlined on page**.
MINIMUM INITIAL INVESTMENT. Our minimum initial investment for each Fund is
$10,000. Exceptions to the investment minimum are outlined on page**. There is
no minimum amount required for subsequent investments. All purchases are subject
to acceptance, and we may reject purchases to protect our other shareholders.
TRANSFER AGENT. Our transfer agent, National Financial Data Services (NFDS), in
Kansas City, Missouri, handles all shareholder purchases, redemptions and
account changes. Please direct your requests and questions about your account
directly to NFDS at (800) 488-4191. SOUTHEASTERN ASSET MANAGEMENT DOES NOT
PROCESS ACCOUNT ACTIVITY AND WILL FORWARD ANY CORRESPONDENCE RECEIVED IN MEMPHIS
TO NFDS IN KANSAS CITY. NFDS will process your request when it is received in
Kansas City.
HOW TO OPEN A NEW ACCOUNT
BY CHECK. To open a new regular account, please complete and sign the
application form and return it with a check for your initial investment. Your
check should be made payable to "Longleaf Partners Funds". The Funds DO NOT
ACCEPT THIRD PARTY CHECKS that have been endorsed over to them. You must
indicate on your account application and check the amount of your investment and
the Fund or Funds in which you are investing. You may return your application
and check in our business reply envelope or mail them to:
Longleaf Partners Funds
P. O. Box 419929
Kansas City, MO 64141-6929
Overnight deliveries should be sent to:
Longleaf Partners Funds
330 West 9th Street, 5th Floor
Kansas City, MO 64105
(800) 488-4191
BY WIRE. Call our transfer agent at (800) 488-4191 to establish a new account.
You should be prepared to provide all of the information that is required on the
account application. You will be assigned an account number by one of our
account representatives. Using your new account number, you should instruct your
bank to wire funds as follows:
24
<PAGE> 29
State Street Bank, Boston, MA
ABA # 011000028
A/C # 9905-023-9
Specify Longleaf Partners Funds # _______
# 133 Longleaf Partners Fund
# 136 Longleaf Partners International Fund
# 135 Longleaf Partners Realty Fund
# 134 Longleaf Partners Small-Cap Fund
Your new account number and your name
You will receive the current day's closing price if the Funds receive your wire
transfer prior to the close of the New York Stock Exchange, usually at 4:00 p.m.
Eastern Time. Your investment will be made at the following business day's
closing price if your wire is received after the close of the exchange. You
should initiate wire transfers as early in the day as possible to assure receipt
before the close of the Exchange. You must send a signed application to the
Fund. No redemptions can be paid until the Funds receive your completed
application.
INDIVIDUAL RETIREMENT ACCOUNTS. Please request an IRA Application Kit to open a
Traditional IRA, Roth IRA or SEP. The kit contains an explanation of tax
considerations, information on the trustee, State Street Bank, and instructions
for opening your retirement account. Your minimum initial investment of $10,000
must be satisfied primarily by transferring funds from an existing IRA or
qualified retirement plan. State Street Bank, charges an initial set-up fee of
$15 and a $10 annual maintenance fee.
ADDITIONAL INVESTMENTS
BY MAIL. You may make additional investments into your existing account by
sending a check for the amount of your investment and the remittance stub from
your account statement to our transfer agent, NFDS. You must designate on your
remittance stub the particular Fund(s) in which you are investing to ensure that
your investment is processed correctly.
BY WIRE TRANSFER. You may send additional investments through a wire transfer
by following the wire instructions shown above. These wire instructions are also
shown on the reverse side of your account statement.
BY TELEPHONE AND ELECTRONIC TRANSFER. If you have elected an electronic
transfer privilege on your account application form, you may purchase shares of
the Funds by calling the transfer agent at (800) 488-4191 to initiate an
electronic transfer from your bank account. You cannot open a new account by
electronic transfer. Your purchase price will be the closing price on the next
business day following the day you initiate your telephone order. Telephone
purchases cannot be used to make an investment on the day your call is placed.
25
<PAGE> 30
BY AUTOMATIC MONTHLY INVESTMENT. You may establish an automatic monthly
investment of $100 or more on your account by completing the ACH selection on
your account application or by sending written instructions to our transfer
agent. You must include a voided check with your request for the automatic
monthly investment. The Longleaf Partners Funds do not charge any fees for the
Automatic Monthly Investment Plan. You should consult your banking institution
about any service fees that they may charge. Transfers will occur on the
business day on or about the 21st of each month. You must send written
instructions to our transfer agent if you would like to change or cancel your
automatic monthly investment plan.
CERTIFICATES. If you would like to receive stock certificates for your
investments, you must send a written request to our transfer agent. Your
certificates will not be issued until 15 days after your purchase unless those
shares are purchased with wired funds. Please remember that you cannot redeem
those shares until the certificates have been returned to our transfer agent. If
you lose your certificates you may incur a cost to replace them.
RETURNED CHECKS OR REJECTED TRANSFERS. You are responsible for any expenses or
losses incurred by the Funds if your check is returned or your telephone order
is rejected because of insufficient funds or a stop payment request. These
expenses and losses include additional custodial and transfer agent fees as well
as any loss on the shares purchased for your account upon their cancellation. If
you are an existing shareholder, the Funds may collect losses by redeeming the
necessary amount from your account.
EXCEPTIONS
$10,000 INVESTMENT MINIMUM. The following investors may open a new account with
an initial investment that is less than $10,000.
(1) Family members of shareholders who have at least $250,000 invested in one of
the Longleaf Partners Funds may open an account with $5,000 in the same
Fund.
(2) Persons who are employed by, or affiliated with, institutional accounts of
at least $2,000,000 in one of the Funds or in an account managed by
Southeastern may invest $5,000 in any of the open funds.
(3) Employees of Southeastern Asset Management and their family members may open
new accounts with a $1,000 initial investment.
SMALL-CAP FUND. The following investors may open new accounts in the Small-Cap
Fund.
(1) Current shareholders of the Small-Cap Fund whose accounts were opened prior
to July 31, 1997 and their immediate family members.
26
<PAGE> 31
(2) Current investors who had an account balance of at least $250,000 in one of
the other Longleaf Partners Funds on July 31,1997.
(3) Clients of financial advisors and consultants having clients invested in the
Small-Cap Fund on July 31, 1997.
(4) Institutions, and their affiliates, who have an investment advisory
relationship with Southeastern Asset Management, Inc. of at least $2,000,000
on July 31, 1997.
(5) Employees of Southeastern Asset Management and their family members.
Please note that if you redeem your Small-Cap Fund account below the minimum
initial investment amount of $10,000, you will not be allowed to make further
investments until the Fund reopens.
PRIOR APPROVAL FOR EXCEPTIONS. Approval for one of the above exceptions must be
obtained by calling Southeastern Asset Management at (901) 761-2474 prior to
making your investment.
HOW TO REDEEM SHARES
PROCEDURES. You may withdraw any portion of your account in a share or dollar
amount at any time. We will send your redemption proceeds within one week of
receipt of your redemption request in good order. Good Order means that we have
received a completed and signed account application or W-9 form, and the
redemption request includes the following:
- - Your account number and fund name -- Longleaf Partners Fund (#133); Longleaf
Partners International Fund (#136); Longleaf Partners Realty Fund (#135);
Longleaf Partners Small-Cap Fund (#134);
- - The amount of the redemption specified in either dollars or shares;
- - The signatures of all owners, exactly as they are registered on the account;
- - Medallion Signature Guarantees;
- - Fund Certificates, if any have been issued for the shares being redeemed;
- - Other supporting legal documents that may be required in cases of estates,
corporations, trusts and certain other accounts.
Please call our transfer agent at (800) 488-4191 if you have questions about
these requirements.
The Funds must have received payment for the shares you are redeeming and may
delay the payment of your redemption for up to 15 days to ensure that collected
payment for those shares has been received.
27
<PAGE> 32
REDEMPTION PRICE AND FEES. Your redemption price will be the net asset value
per share at the next market close after the receipt of your redemption request
in good order. The redemption price may be more or less than the shares'
original cost. The Funds do not charge redemption fees. IRA accounts are subject
to the full $10 annual maintenance fee in the year they are redeemed.
BY MAIL. The Funds suggest that you send your redemption requests and required
documentation by registered or certified mail to:
Longleaf Partners Funds
P.O Box 419929
Kansas City, MO 64141-6929
You may also send your redemption request and required documentation by
overnight courier to:
Longleaf Partners Funds
330 West 9th Street, 5th Floor
Kansas City, MO 64105
(800) 488-4191
BY TELEPHONE. Investors who have established telephone redemption privileges on
their account may redeem up to $100,000 over the telephone. Telephone
redemptions may not be used for IRA accounts. Proceeds of telephone redemptions
can only be sent to the address of record on the account or wired in accordance
with the bank instructions on your account. If you call before the close of the
New York Stock Exchange, usually 4:00 p.m. Eastern Time, you will receive that
day's closing price. Redemption requests made after the close of the Exchange
will receive the next day's closing price. A telephone redemption request cannot
be changed or cancelled after the transfer agent has begun processing.
The transfer agent employs reasonable procedures to confirm that instructions
received by telephone are genuine. When these procedures are followed, the Funds
and the transfer agent are not liable for losses caused by such instructions.
The Fund reserves the right to revise or terminate the telephone redemption
privilege at any time.
ACCOUNT CHANGES. Changes to your account registration, mailing address, or
account privileges must be made in writing. Changes that accompany a redemption
request must be Medallion Signature Guaranteed.
MEDALLION SIGNATURE GUARANTEE. Redemptions over $100,000 must be made in
writing and require a Medallion Signature Guarantee. Each signature must
correspond to all of the names and signatures of the registered owners of the
account. All of the registered owners must sign the request and have their
signatures guaranteed. To obtain a Medallion Signature Guarantee, a member firm
of a domestic stock exchange, a U. S. commercial bank, or another financial
28
<PAGE> 33
institution that is a participant in a Medallion Program, must witness your
signature and stamp the document with the appropriate certification. A NOTARY
PUBLIC IS NOT AN ELIGIBLE GUARANTOR.
CONFIRMATIONS AND REPORTS. If you invest directly with the Funds, you will
receive a confirmation statement after each account transaction and a
consolidated investor statement at the end of each calendar quarter. You will
also receive tax documentation as required by the IRS. We will also send
quarterly, semi-annual and audited annual reports which provide information on
the Fund's portfolio of investments.
PURCHASES AND REDEMPTIONS THROUGH BROKERAGE FIRMS. You may purchase and redeem
shares of the Funds through brokerage firms that have agreements with the Funds.
The brokerage firm may charge you a transaction fee for its services. If you
invest through a brokerage firm, you must follow that firm's procedures for
buying and selling shares. The brokerage firm may designate other organizations
to accept purchase and redemption orders on behalf of their clients. The Funds
will use the time of day when the brokerage firm or its designee accepts the
order to determine the time of purchase or redemption, and will process the
order at the next price completed after that acceptance. Your brokerage firm has
the responsibility of sending prospectuses, financial reports and other Fund
materials to you.
BROKER/DEALER AND INSTITUTIONAL INVESTMENTS. Upon execution of formal trading
agreements, the Funds will accept trade orders from NASD members or other
institutional investors. The Funds offer telephone and automated trading through
our transfer agent, NFDS. Institutional investors may also establish pre-
authorized fax redemption privileges. Please contact the Funds directly to
obtain more information about these trading options.
Full payment for all trades must be received within one day of the trade date.
The entity that initiates the trade order will be responsible for any loss that
results from non-settlement. All purchase minimums and other requirements
outlined in the trade order agreements must be followed to remain in good
standing. The Funds may withdraw trading privileges at any time if it is in
their best interest.
PAYMENT OF REDEMPTIONS IN CASH. Although all redemptions in prior years have
been paid in cash, we have made a Rule 18f-1 election. Under this election, the
Longleaf Partners Funds at their present sizes are obligated to pay during any
90 day period only the first $250,000 of each redemption in cash. For omnibus
accounts of brokers this commitment applies to each separate shareholder rather
than to the single omnibus account. We have reserved the right to pay the
balance of any redemptions in excess of $250,000 by distributing portfolio
securities rather than cash. If that should happen, you may incur brokerage
commissions when selling the securities that were distributed to you. The
securities would also be subject to prevailing market prices at the time of the
sale.
29
<PAGE> 34
HOW FUND SHARES ARE PRICED
The price at which you buy or sell your Fund shares is referred to as their net
asset value or "NAV". We calculate NAV by dividing the total value of a Fund's
assets less its liabilities by the number of shares outstanding. We determine
the NAV once a day, at the close of regular trading on the New York Stock
Exchange (usually at 4:00 p.m.) on days the Exchange is open for business.
The values of the Funds' investments are based on their market values, usually
the last price reported before the close of the primary stock exchange where the
security trades. If there are no stock exchange or over-the-counter trades, the
price we use for valuation is the midpoint between the last representative bid
and ask prices or, if there are no such prices, the prior day's price.
Non-registered securities and securities with limited trading markets are valued
in good faith by the Board of Trustees.
We usually price foreign securities at the latest market close in the foreign
market, which may be at different times or days than the close of the New York
Stock Exchange. If events occur which could materially affect the NAV between
the close of the foreign market and normal pricing at the close of the New York
Stock Exchange, we reserve the right to price the foreign securities at fair
value as determined by the Board of Trustees, consistent with any regulatory
guidelines.
More detailed information on how we price portfolio securities appears in the
Statement of Additional Information at page 20.
DIVIDENDS AND DISTRIBUTIONS
We intend to qualify for favorable tax treatment under the federal Internal
Revenue Code by distributing to shareholders essentially all income and capital
gains. The Funds' dividends, comprised primarily of dividends on portfolio
securities and interest from money market investments, are usually distributed
at the end of the year. Any capital gains realized from sales of portfolio
securities during the year are usually distributed between October 31 and the
end of the year. Your dividends and distributions will be reinvested in
additional shares of the Funds unless you have chosen to receive them by check.
If you make an investment shortly before a dividend is declared, you will be
taxed on the dividend as though you had owned the shares from the beginning of
the year.
TAXES
This tax information is general and refers primarily to current federal income
tax provisions. We urge you to consult your own tax adviser about the status of
distributions and redemptions as applied to your personal situation.
TAXES ON INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS. Generally, the Funds
are not taxed on dividends and capital gains distributed to shareholders.
30
<PAGE> 35
Unless your account is a tax advantaged account such as an Individual Retirement
Account or you are a tax exempt organization, you are responsible for paying
federal and possibly state income taxes on any dividends and capital gains
distributions you receive, even if you reinvest in additional shares of the
Funds.
Fund dividends from net investment income, and short-term capital gains are
taxed at your ordinary income tax rate. Long-term capital gains from securities
held by the Funds for more than one year are taxed at a maximum rate of 20%. The
Form 1099 mailed to you after December 31 each year explains the federal tax
category of these distributions.
TAXES ON SALES OF FUND SHARES. If you redeem any Fund shares or if you exchange
shares between Funds, the transaction is taxable and you may have a capital gain
or loss. The amount of the gain or loss is the difference between your tax basis
and the amount received. The gain or loss is long-term for shares you have held
for one year or more, and is short-term for shares held less than one year. You
are responsible for reporting and paying any federal or state taxes which may be
due.
WITHHOLDING. Federal law requires the Funds to withhold a portion of
distributions and proceeds from redemptions if you have failed to provide a
correct tax identification number or to certify that you are not subject to
withholding. These certifications must be made on your application or on a
separate form which may be requested from our transfer agent.
More detailed information about tax issues relating to the Funds can be found on
pages 21-23 of the Statement of Additional Information.
31
<PAGE> 36
- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
FINANCIAL HIGHLIGHTS
The presentation is for a share outstanding throughout each period.
<TABLE>
<CAPTION>
NET
GAINS
(LOSS)
NET ON DISTRI-
ASSET SECURITIES TOTAL DIVIDENDS BUTIONS
VALUE NET REALIZED FROM FROM NET FROM
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT CAPITAL
OF PERIOD INCOME(A) UNREALIZED OPERATIONS INCOME GAINS
----------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
PARTNERS FUND
Year ended December 31,
1998.......................... $25.98 $.31 $ 3.16 $ 3.47 $ (.25) $(4.81)
1997.......................... 22.85 .21 6.24 6.45 (.21) (3.11)
1996.......................... 21.15 .37 4.09 4.46 (.38) (2.38)
1995.......................... 17.13 .30 4.40 4.70 (.24) (.44)
1994.......................... 16.92 .21 1.30 1.51 (.16) (1.14)
INTERNATIONAL FUND
August 12, 1998 (Capitalization)
through December 31, 1998..... $10.00 .01 (.03) (.02) (.01) -
REALTY FUND
Year ended December 31,
1998.......................... 17.35 .56 (2.82) (2.26) (.43) -
1997.......................... 13.97 .19 3.96 4.15 (.09) (.64)
1996.......................... 10.00 .16 3.91 4.07 (.04) (.05)
SMALL-CAP FUND
Year ended December 31,
1998.......................... 22.18 .20 2.51 2.71 (.17) (2.77)
1997.......................... 17.86 .25 4.94 5.19 (.18) (.69)
1996.......................... 14.46 .03 4.40 4.43 (.02) (1.01)
1995.......................... 13.28 .12 2.35 2.47 (.12) (1.17)
1994.......................... 13.49 (.03) .52 .49 - (.70)
</TABLE>
(a) Calculated based on weighted average shares outstanding for the period.
(b) Total return reflects the rate that an investor would have earned on
investment in the Fund during each period, assuming reinvestment of all
distributions.
(c) Aggregate, not annualized. Calculated based on initial public offering price
of $9.15 on October 26, 1998.
(d) Expenses presented net of fee waiver.
32
<PAGE> 37
- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
RATIO OF
NET EXPENSES RATIO OF
ASSET NET ASSETS TO NET
RETURN TOTAL VALUE END OF AVERAGE INCOME TO PORTFOLIO
OF DISTRI- END OF TOTAL PERIOD NET AVERAGE TURNOVER
CAPITAL BUTIONS PERIOD RETURN(B) (THOUSANDS) ASSETS NET ASSETS RATE
- ------- ------- ------ --------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ - $(5.06) $24.39 14.28% $3,685,300 .93% 1.12% 43.78%
- (3.32) 25.98 28.25 2,605,070 .94 0.81 38.07
- (2.76) 22.85 21.02 2,300,079 .95 1.61 33.18
- (.68) 21.15 27.50 1,876,467 1.01 1.45 12.60
- (1.30) 17.13 8.96 753,527 1.17 1.18 27.39
- (.01) 9.97 9.02(c) 75,572 1.75(d) 0.10 24.05
(.11) (.54) 14.55 (12.98) 775,696 1.17 3.44 21.55
(.04) (.77) 17.35 29.73 737,302 1.20 0.75 28.66
(.01) (.10) 13.97 40.69 156,009 1.50(d) .92 4.28
(2.94) 21.95 12.71 1,355,364 1.01 0.87 52.51
- (.87) 22.18 29.04 915,259 1.09 1.18 16.95
- (1.03) 17.86 30.64 252,157 1.23 .18 27.97
- (1.29) 14.46 18.61 135,977 1.30 .84 32.95
- (.70) 13.28 3.64 99,609 1.38 (.22) 19.79
</TABLE>
33
<PAGE> 38
LONGLEAF
PARTNERS
FUNDS
[LONGLEAF LOGO (SM)]
MANAGED BY:
SOUTHEASTERN ASSET MANAGEMENT, INC.
6410 POPLAR AVE.
SUITE 900
MEMPHIS, TN 38119
Fund Information Requests
(800) 445-9469
Shareholder Account Inquiries
(800) 488-4191
Inquiries About Fund Operations
(901) 761-2474
This Prospectus does not constitute an offering in any jurisdiction in which
such an offering would not be lawful.
You can find more information about the investment objectives and policies, the
risks of investing in the Longleaf Partners Funds, and more information on Fund
operations in the Statement of Additional Information (SAI). The SAI is
incorporated by reference in this Prospectus, and you may request a copy by
calling (800) 445-9469.
You can also find more information about the Longleaf Partners Funds in our
annual and semi-annual reports to shareholders, which contain financial
statements and which also discuss market conditions and investment strategies
that significantly affected the Funds' performance during the last fiscal year.
To obtain a free copy of the latest annual or semi-annual report, please call
(800) 445-9469.
The Securities and Exchange Commission Investment Company Act File Number is
811-4923
<PAGE> 39
PART B
INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 40
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
---------------------
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS INTERNATIONAL FUND
LONGLEAF PARTNERS REALTY FUND
LONGLEAF PARTNERS SMALL-CAP FUND
Series of
LONGLEAF PARTNERS FUNDS TRUST
[LONGLEAF LOGO(SM)] TABLE OF CONTENTS
<TABLE>
<S> <C>
- - Fund History.............................................. 2
- - Investment Objectives and Policies........................ 2
- - Fundamental Policies and Restrictions..................... 3
- - Non-Fundamental Investment Restrictions................... 6
- - Additional Information About Types of Investments and
Investment Techniques
Repurchase Agreements................................... 7
Warrants................................................ 8
Real Estate Investment Trusts........................... 8
Futures Contracts....................................... 8
Options on Securities and Stock Indices................. 9
Foreign Currency Contracts.............................. 10
Lending of Portfolio Securities......................... 11
Swaps................................................... 11
Short Sales............................................. 12
- - Portfolio Turnover........................................ 12
- - Management of the Funds................................... 13
- - Compensation Table........................................ 13
- - Control Persons and Principal Holders of Securities....... 14
- - Investment Advisory Services.............................. 14
- - Fund Administration....................................... 15
- - Other Service Providers................................... 16
- - Allocation of Brokerage Commissions....................... 17
- - Capital Stock and Indemnification Rights.................. 19
- - Purchase, Redemption, and Pricing of Shares............... 20
- - Additional Tax Information................................ 21
- - Investment Performance and Total Return................... 23
- - Table of Bond and Preferred Stock Ratings................. 25
- - Financial Statements
Report of Independent Public Accountants................ 28
Longleaf Partners Fund Portfolio of Investments.... 29
Longleaf Partners International Fund Portfolio of
Investments....................................... 31
Longleaf Partners Realty Fund Portfolio of
Investments....................................... 33
Longleaf Partners Small-Cap Fund Portfolio of
Investments....................................... 35
Other Financial Statements.............................. 38
</TABLE>
MANAGED BY
SOUTHEASTERN ASSET MANAGEMENT, INC.
6410 POPLAR AVENUE; SUITE 900
MEMPHIS, TN 38119
---------------------
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1999, IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF LONGLEAF
PARTNERS FUNDS TRUST, ALSO DATED MAY 1, 1999, WHICH MAY BE OBTAINED WITHOUT
CHARGE UPON REQUEST MADE TO SOUTHEASTERN ASSET MANAGEMENT, INC.
TELEPHONE (800) 445-9469; (901) 761-2474.
<PAGE> 41
LONGLEAF PARTNERS FUNDS TRUST
STATEMENT OF ADDITIONAL INFORMATION
---------------------
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS INTERNATIONAL FUND
LONGLEAF PARTNERS REALTY FUND
LONGLEAF PARTNERS SMALL-CAP FUND
---------------------
FUND HISTORY
Organization. Longleaf Partners Funds Trust was organized on November 26, 1986
as a Massachusetts business trust under the name Southeastern Asset Management
Value Trust. Its name was changed to Longleaf Partners Funds Trust on August 2,
1994. Its four separate series or Funds and the dates of their initial public
offerings are as follows:
Longleaf Partners Fund (known as Southeastern Asset Management Value Trust
Prior to August 2, 1994) -- Initial public offering -- April 8, 1987
Longleaf Partners International Fund -- Initial public offering -- October
26, 1998
Longleaf Partners Realty Fund -- Initial public offering -- January 2, 1996
Longleaf Partners Small-Cap Fund (known as Southeastern Asset Management
Small-Cap Fund prior to August 2, 1994)-- Initial public
offering -- February 21, 1989. This Fund is presently closed to new
investors.
Significance of Fund 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 Asset
Management, Inc. ("Southeastern"), the Funds' Investment Counsel, 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 Funds endeavor to be supportive long-term
"partners" with management of the companies in the portfolios. Correspondingly,
Southeastern's own partners, other personnel, and relatives, are major investors
in the Funds. Management considers itself a "partner" with Fund shareholders in
seeking long-term capital growth. The Funds desire loyal, long-term investors as
shareholders who view themselves as "partners" with Fund management.
INVESTMENT OBJECTIVES AND POLICIES
Longleaf Partners Funds Trust is an open-end, management investment company with
four series or Funds. Each series is operated as a separate mutual fund with its
own particular investment objective. The investment objectives and general
investment policies are as follows:
LONGLEAF PARTNERS FUND
Investment Objective -- Long-term capital growth.
Investment Policy -- Invests primarily in equity securities of companies having
a market capitalization greater than $1 billion.
2
<PAGE> 42
LONGLEAF PARTNERS INTERNATIONAL FUND
Investment Objective -- Long-term capital growth through investment primarily in
equity securities of international issuers.
LONGLEAF PARTNERS REALTY FUND
Investment Objective -- Maximum total return over the long-term through
investment primarily in real estate oriented companies.
LONGLEAF PARTNERS SMALL-CAP FUND (CLOSED TO NEW INVESTORS)
Investment Objective -- Long-term capital growth.
Investment Policy -- Invests primarily in equity securities of companies having
a market capitalization in the range of companies included in the Russell 2000.
Certain investment objectives, policies, and restrictions have been adopted as
"fundamental", either because a Fund has elected to do so or because the
Securities and Exchange Commission so requires. Those investment objectives and
restrictions classified as fundamental cannot be changed without approval of a
majority of the outstanding voting securities. Under the Investment Company Act
of 1940, "approval 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 Fund 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.
The investment objectives of the Partners, Small-Cap, and Realty Funds are
fundamental, and cannot be changed without shareholder approval. The investment
objective of the International Fund is non-fundamental, as are the general
investment policies of all of the Funds. In addition, as described in more
detail in the following sections, certain investment restrictions are not
fundamental. Non-fundamental investment objectives, policies, and restrictions
may be changed by the respective Boards of Trustees without shareholder
approval.
FUNDAMENTAL POLICIES AND RESTRICTIONS
Non-Diversification. The Funds are all classified as "non-diversified" under
the Federal securities laws. As a result, there are no diversification
requirements under the Investment Company Act of 1940 or any other securities
laws.
Internal Revenue Code Diversification Standards. The Partners Fund, the
Small-Cap Fund, and the Realty Fund have adopted as fundamental policy the
diversification standards of the Internal Revenue Code which apply to regulated
investment companies. The International Fund expects to apply these
diversification standards but has not adopted them as fundamental policy.
Under the diversification standards of the Internal Revenue Code, a mutual fund
has two "baskets" or groups of holdings -- a diversified basket, which must
comprise at least 50% of its total assets and a non-diversified basket, which
includes the remainder of its assets. With respect to the diversified basket,
consisting of at least 50% of a Fund's total assets, a Fund may not purchase
more than 10% of the outstanding voting securities of any one issuer or invest
more than 5% of the value of its total assets in the securities of any one
issuer, except for securities issued by the U.S. Government, its agencies or
instrumentalities. With respect to the remainder of its assets, a Fund may not
invest more than 25% of the
3
<PAGE> 43
value of its total assets in the securities of any one issuer (other than U.S.
Government securities), or invest more than 25 percent of the value of its total
assets in the securities of two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses or related trades
or businesses.
Industry Concentration. The Partners Fund and the Small-Cap Fund may not invest
25% or more of the value of their 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 and its agencies or instrumentalities
or to cash equivalents. Corporate commercial paper will not be used to
concentrate investments in a single industry.
For purposes of defining what constitutes a single industry for purposes of the
restriction applying to these Funds, each Fund 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 other publicly
available information. Industry category groupings shown in the Funds' 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.
The Realty Fund may not invest 25% of more of the value of its total assets in
any industry other than in real estate oriented companies, as discussed in more
detail in the Prospectus on page 12. For purposes of this definition, a company
is real estate oriented if at least 50% of its revenues are derived from real
estate related activities, or at least 50% of its appraised value as determined
by Southeastern is comprised of real estate assets. A company which satisfies
this definition is realty oriented even though its technical SIC Industry Code
may classify it as being in a different industry.
The Funds have adopted certain investment restrictions which are designated as
fundamental, which means that these restrictions cannot be changed without
shareholder approval. The wording of the investment restrictions for the
Partners, Realty, and Small-Cap Funds is identical; the wording of the
fundamental restrictions of the International Fund, formed in 1998, is different
from that of the other Funds, and its fundamental restrictions are shown
separately.
Except as specifically authorized, the Partners Fund, the Realty Fund, and the
Small-Cap Fund may not:
- - Borrow money, except that it may borrow from banks to increase its holdings of
portfolio securities in an amount not to exceed 30% of the value of its total
assets and may borrow for temporary or emergency purposes from banks and
entities other than banks in an amount not to exceed 5% of the value of its
total assets; provided that aggregate borrowing at any time may not exceed 30%
of the Fund's total assets less all liabilities and indebtedness not
represented by senior securities.
- - Issue any senior securities, except that collateral arrangements with respect
to transactions such as forward contracts, futures contracts, short sales or
options, including deposits of initial and variation margin, shall not be
considered to be the issuance of a senior security for purposes of this
restriction;
- - Act as an underwriter of securities issued by other persons, except insofar as
the Fund may be deemed an underwriter in connection with the disposition of
securities;
- - Purchase or sell real estate, except that the Fund may invest in securities of
companies that deal in real estate or are engaged in the real estate business,
including real estate investment trusts, and securities secured by real estate
or interests therein and the Fund may hold and sell real estate acquired
through
4
<PAGE> 44
default, liquidation, or other distributions of an interest in real estate as
a result of the Fund's ownership of such securities;
- - Purchase or sell commodities or commodity futures contracts, except that the
Fund may invest in financial futures contracts, options thereon and similar
instruments;
- - Make loans to other persons except through the lending of securities held by
it (but not to exceed a value of one-third of total assets), through the use
of repurchase agreements, and by the purchase of debt securities, all in
accordance with its investment policies.
The International Fund has adopted the following investment restrictions as
fundamental. The text of the fundamental restriction is set forth in quotation
marks and bold type; any comments following these fundamental restrictions are
explanatory only and are not fundamental.
- -INDUSTRY CONCENTRATION. "THE FUND WILL NOT PURCHASE ANY SECURITY WHICH WOULD
CAUSE THE FUND TO CONCENTRATE ITS INVESTMENTS IN THE SECURITIES OF ISSUERS
PRIMARILY ENGAGED IN ANY ONE INDUSTRY EXCEPT AS PERMITTED BY THE SECURITIES AND
EXCHANGE COMMISSION."
Comment. The present position of the staff of the Division of Investment
Management of the Securities and Exchange Commission is that a mutual fund will
be deemed to have concentrated its investments in a particular industry if it
invests 25% or more of its total assets, exclusive of cash and U.S. Government
securities, in securities of companies in any single industry. The Fund will
comply with this position but will be able to use a different percentage of
assets without seeking shareholder approval if the SEC should subsequently
allow investment of a larger percentage of assets in a single industry. Such a
change will not be made without providing prior notice to shareholders.
For purposes of defining what constitutes a single industry for purposes of
this restriction, the Fund 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 other publicly available
information. Industry category groupings shown in the Funds' 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.
- -SENIOR SECURITIES. "THE FUND MAY NOT ISSUE SENIOR SECURITIES, EXCEPT AS
PERMITTED UNDER THE INVESTMENT COMPANY ACT OF 1940 OR ANY RULE, ORDER OR
INTERPRETATION UNDER THE ACT."
Comment. Generally, a senior security is an obligation of a Fund which takes
precedence over the claims of fund shareholders. The Investment Company Act
generally prohibits a fund from issuing senior securities, with limited
exceptions. Under SEC staff interpretations, funds may incur certain
obligations (for example, to deliver a foreign currency at a future date under
a forward foreign currency contract) which otherwise might be deemed to create
a senior security, provided the fund maintains a segregated account containing
liquid securities having a value equal to the future obligations.
- -BORROWING. "THE FUND MAY NOT BORROW MONEY, EXCEPT AS PERMITTED BY APPLICABLE
LAW."
Comment. In general, a fund may not borrow money, except that (i) a fund may
borrow from banks (as defined in the Investment Company Act) in amounts up to
33 1/3% of its total assets (including the amount borrowed) less liabilities
(other than borrowings), (ii) a fund may borrow up to 5% of its total assets
for temporary or emergency purposes, (iii) a fund may obtain such short-term
credit as may be necessary for the clearance of purchases and sales of
portfolio securities, and (iv) a fund may not pledge its assets other
5
<PAGE> 45
than to secure such borrowings or, to the extent permitted by the Fund's
investment policies as set forth in its current prospectus and statement of
additional information, in connection with hedging transactions, short sales,
when-issued and forward commitment transactions and similar investment
strategies.
- -UNDERWRITING. "THE FUND MAY NOT ACT AS AN UNDERWRITER OF SECURITIES ISSUED BY
OTHERS, EXCEPT INSOFAR AS THE FUND MAY BE DEEMED AN UNDERWRITER IN CONNECTION
WITH THE DISPOSITION OF PORTFOLIO SECURITIES."
Comment. Generally, a mutual fund may not be an underwriter of securities
issued by others. However, the exception to this restriction enables the Fund
to sell securities held in its portfolio, usually securities which were
acquired in unregistered or "restricted" form, even though it otherwise might
technically be classified as an underwriter under the Federal securities laws
in making such sales.
- -COMMODITIES. "THE FUND MAY NOT PURCHASE OR SELL COMMODITIES OR COMMODITY
CONTRACTS UNLESS ACQUIRED AS A RESULT OF OWNERSHIP OF SECURITIES OR OTHER
INSTRUMENTS ISSUED BY PERSONS THAT PURCHASE OR SELL COMMODITIES OR COMMODITIES
CONTRACTS, BUT THIS RESTRICTION SHALL NOT PREVENT THE FUND FROM PURCHASING,
SELLING AND ENTERING INTO FINANCIAL FUTURES CONTRACTS (INCLUDING FUTURES
CONTRACTS ON INDICES OF SECURITIES, INTEREST RATES AND CURRENCIES), OPTIONS ON
FINANCIAL FUTURES CONTRACTS, WARRANTS, SWAPS, FORWARD CONTRACTS, FOREIGN
CURRENCY SPOT AND FORWARD CONTRACTS, OR OTHER DERIVATIVE INSTRUMENTS THAT ARE
NOT RELATED TO PHYSICAL COMMODITIES."
Comment. The Fund has the ability to purchase and sell (write) put and call
options and to enter into futures contracts and options on futures contracts
for hedging and risk management and for other non-hedging purposes. Examples of
non-hedging risk management strategies include increasing a Fund's exposure to
the equity markets of particular countries by purchasing futures contracts on
the stock indices of those countries and effectively increasing the duration of
a bond portfolio by purchasing futures contracts on fixed income securities.
Hedging and risk management techniques, unlike other non-hedging derivative
strategies, are not intended to be speculative but, like all leveraged
transactions, involve the possibility of losses as well as gains that could be
greater than the purchase and sale of the underlying securities.
- -LENDING. "THE FUND MAY NOT MAKE LOANS TO OTHER PERSONS EXCEPT THROUGH THE
LENDING OF SECURITIES HELD BY IT AS PERMITTED BY APPLICABLE LAW, THROUGH THE
USE OF REPURCHASE AGREEMENTS, AND BY THE PURCHASE OF DEBT SECURITIES, ALL IN
ACCORDANCE WITH ITS INVESTMENT POLICIES."
- -REAL ESTATE. "THE FUND MAY NOT PURCHASE OR SELL REAL ESTATE, EXCEPT THAT THE
FUND MAY INVEST IN SECURITIES OF COMPANIES THAT DEAL IN REAL ESTATE OR ARE
ENGAGED IN THE REAL ESTATE BUSINESS, INCLUDING REAL ESTATE INVESTMENT TRUSTS,
AND SECURITIES SECURED BY REAL ESTATE OR INTERESTS THEREIN AND THE FUND MAY
HOLD AND SELL REAL ESTATE ACQUIRED THROUGH DEFAULT, LIQUIDATION, OR OTHER
DISTRIBUTIONS OF AN INTEREST IN REAL ESTATE AS A RESULT OF THE FUND'S OWNERSHIP
OF SUCH SECURITIES."
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
All of the funds have also adopted the following non-fundamental investment
restrictions which may be changed in the discretion of the Board of Trustees,
without prior shareholder approval. Except as specifically authorized, the Funds
may not:
- - Purchase restricted (non-registered) or "illiquid" securities, including
repurchase agreements maturing in more than seven days, if as a result, more
than 15% of the Fund's net assets would then be invested in such securities
(excluding securities which are eligible for resale pursuant to Rule 144A
under the Securities Act of 1933).
6
<PAGE> 46
- - Acquire or retain securities of any investment company, except that the Fund
may (a) acquire securities of investment companies up to the limits permitted
by Sec. 12(d)(l) of the Investment Company Act of 1940 (for each holding, 5%
of the Fund's total assets, 3% of the company's voting stock, with not more
than 10% of the Fund's total assets invested in all such investment companies)
provided such acquisitions are made in the open market and there is no
commission or profit to a dealer or sponsor other than the customary broker's
commission, and (b) may acquire securities of any investment company as part
of a merger, consolidation or similar transaction.
- - Make short sales of equity portfolio securities whereby the dollar amount of
short sales at any one time would exceed 25% of the net assets of the Fund,
and the value of securities of any one issuer in which the Fund is short would
exceed the lessor of 5% of the value of the Fund's net assets or 5% of the
securities of any class of any issuer; provided that the Fund maintains
collateral in a segregated account consisting of cash or liquid securities
with a value equal to the current market value of the shorted securities,
which is marked to market daily. If the Fund owns an equal amount of such
securities or securities convertible into or exchangeable for, without payment
of any further consideration, securities of the same issuer as, and equal in
amount to, the securities sold short (which sales are commonly referred to as
"short sales against the box"), such restrictions shall not apply.
- - Invest in puts, calls, straddles, spreads or any combination thereof, except
that the Fund may (a) purchase and sell put and call options on securities and
securities indexes, and (b) write covered put and call options on securities
and securities indexes and combinations thereof; provided that the securities
underlying such options are within the investment policies of the Fund and the
value of the underlying securities on which options may be written at any one
time does not exceed 25% of total assets.
- - Invest in oil, gas or other mineral exploration programs, development programs
or leases, except that the Fund may purchase securities of companies engaging
in whole or in part in such activities.
- - Pledge, mortgage or hypothecate its assets except in connection with
borrowings which are otherwise permissible.
- - Purchase securities on margin, except short-term credits as are necessary for
the purchase and sale of securities, provided that the deposit or payment of
initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase on margin.
ADDITIONAL INFORMATION ABOUT TYPES OF INVESTMENTS
AND INVESTMENT TECHNIQUES
Repurchase Agreements. An acceptable investment for cash reserves, a repurchase
agreement is an instrument under which an investor such as the Fund purchases
U.S. Government securities or other securities 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
7
<PAGE> 47
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.
Warrants. Each of the Funds may invest in warrants for the purchase of equity
securities at a specific price for a stated period of time. Warrants may be
considered more speculative than other types of investments in that they do not
entitle a holder to dividends or voting rights for the securities which may be
purchased nor do they represent any rights in the assets of the issuing company.
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.
Real Estate Investment Trusts. REITs are sometimes described as equity REITs,
mortgage REITs and hybrid REITs. An equity REIT invests primarily in the fee
ownership or leasehold ownership of land and buildings and derives its income
primarily from rental income. An equity REIT may also realize capital gains (or
losses) by selling real estate properties in its portfolio that have appreciated
(or depreciated) in value. A mortgage REIT invests primarily in mortgages on
real estate, which may secure construction, development or long-term loans. A
mortgage REIT generally derives its income primarily from interest payments on
the credit it has extended. A hybrid REIT combines the characteristics of equity
REITs and mortgage REITs, generally by holding both ownership interests and
mortgage interests in real estate.
Equity REITs may be further characterized as operating companies or financing
companies. To the extent that an equity REIT provides operational and management
expertise to the properties held in its portfolio, the REIT generally exercises
some degree of control over the number and identity of tenants, the terms of
their tenancies, the acquisition, construction, repair and maintenance of
properties and other operational issues. A mortgage REIT or an equity REIT that
provides financing rather than operational and management expertise to the
properties in its portfolio will generally not have control over the operations
that are conducted on the real estate in which the REIT has an interest.
Futures Contracts. Primarily for hedging purposes, the Funds may purchase and
sell financial futures contracts. Although some financial futures contracts call
for making or taking delivery of the underlying securities, in most cases these
obligations are closed out before the settlement date. The closing of a
contractual obligation is accomplished by purchasing or selling an identical
offsetting futures contract. Other financial futures contracts by their terms
call for cash settlements.
The Funds may also buy and sell index futures contracts with respect to any
stock or bond index traded on a recognized stock exchange or board of trade. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract.
At the time one of the Funds purchases a futures contract, an amount of cash,
U.S. Government securities, or other liquid securities equal to the market value
of the futures contract will be deposited in a segregated account with the
Fund's Custodian. When writing a futures contract, the Fund will maintain with
the Custodian similar liquid assets that, when added to the amounts deposited
with a futures commission merchant or broker as margin, are equal to the market
value of the instruments underlying the contract. Alternatively, the Fund may
"cover" the position by owning the instruments underlying the contract (or, in
the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or holding a call option permitting the Fund to purchase the same
8
<PAGE> 48
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Custodian).
Options on Securities and Stock Indices. The Funds may write covered put and
call options and purchase put and call options on securities or stock indices.
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 securities 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.
The Funds may write a call or put option only if the option is "covered." A call
option on a security written by one of the Funds is covered if the Fund owns the
underlying security subject to the call, has an absolute and immediate right to
acquire that security without additional cash consideration (or for additional
cash consideration held in a segregated account by its Custodian) upon
conversion or exchange of other securities held in its portfolio, or the call is
otherwise covered with assets held in a segregated account. A call option on a
security is also covered if the Fund holds a call on the same security and in
the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, liquid securities or money market instruments in
a segregated account with its Custodian. A put option on a security written by
the Fund is covered if the Fund maintains similar liquid assets with a value
equal to the exercise price in a segregated account with its Custodian, or holds
a put on the same security and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written.
A Fund may cover call options on stock indices through a segregated account or
by owning securities whose price changes, in the opinion of the Investment
Counsel, are expected to be similar to those of the index, or in such other
manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. Nevertheless, where a Fund
covers a call option on a stock index through ownership of securities, such
securities may not match the composition of the index. In that event, the Fund
will not be fully covered and could be subject to risk of loss in the event of
adverse changes in the value of the index. A Fund may cover put options on stock
indices by segregating assets equal to the option's exercise price, or in such
other manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations.
A Fund will receive a premium from writing a put or call option, which increases
its gross income in the event the option expires unexercised or is closed out at
a profit. If the value of a security or an index on which a Fund has written a
call option falls or remains the same, the Fund will realize a profit in the
form of the premium received (less transaction costs) that could offset all or a
portion of any decline in the value of the portfolio securities being hedged. If
the value of the underlying security or index rises, however, the Fund will
realize a loss in its call option position, which will reduce the benefit of any
unrealized appreciation in the Fund's stock investments. By writing a put
option, the Fund assumes the risk of a decline in the underlying security or
index. To the extent that the price changes of the portfolio securities being
hedged correlate with changes in the value of the underlying security or index,
writing covered put options on securities or indices will increase the Fund's
losses in the event of a market decline, although such losses will be offset in
part by the premium received for writing the option.
9
<PAGE> 49
A Fund may also purchase put options to hedge its investments against a decline
in value. By purchasing a put option, the Fund will seek to offset a decline in
the value of the portfolio securities being hedged through appreciation of the
put option. If the value of the Fund's investments does not decline as
anticipated, or if the value of the option does not increase, the Fund's loss
will be limited to the premium paid for the option plus related transaction
costs. The success of this strategy will depend, in part, on the accuracy of the
correlation between the changes in value of the underlying security or index and
the changes in value of the Fund's security holdings being hedged.
A Fund may purchase call options on individual securities to hedge against an
increase in the price of securities that the Fund anticipates purchasing in the
future. Similarly, a Fund may purchase call options to attempt to reduce the
risk of missing a broad market advance, or an advance in an industry or market
segment, at a time when the Fund holds uninvested cash or short-term debt
securities awaiting investment. When purchasing call options, the Fund will bear
the risk of losing all or a portion of the premium paid if the value of the
underlying security or index does not rise.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers,
or the options exchange could suspend trading after the price has risen or
fallen more than the maximum specified by the exchange. Although the Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, it may experience losses in some cases as a result of such
inability.
Foreign Currency Contracts. As a method of hedging against foreign currency
exchange rate risks, the Funds may enter into forward foreign currency exchange
contracts and foreign currency futures contracts, as well as purchase put or
call options on foreign currencies, as described below. The Funds may also
conduct foreign currency exchange transactions on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market.
A Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk from adverse changes in the
relationship between the U.S. dollar and foreign currencies. A forward contract
is an obligation to purchase or sell a specific currency for an agreed price at
a future date which is individually negotiated and privately traded by currency
traders and their customers. The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. dollar price of
the security. In addition, for example, when Southeastern believes that a
foreign currency may suffer or enjoy a substantial movement against another
currency, a Fund may enter into a forward contract to sell an amount of the
former foreign currency approximating the value of some or all of its portfolio
securities denominated in such foreign currency. This second investment practice
is generally referred to as "cross-hedging." Because an amount of the Fund's
assets equal to the amount of the purchase will be held aside or segregated to
be used to pay for the commitment, the Fund will always have cash, cash
equivalents or high quality liquid securities available sufficient to cover any
commitments under these contracts or to limit any potential risk. The segregated
account will be marked-to-market on a daily basis. In addition, the fund will
not enter into such forward contracts if, as a result, it will have more than
30% of the value of its total assets committed to such contracts. While these
contracts are not presently regulated by the Commodity Future Trading Commission
("CFTC"), the CFTC may in the future assert authority to regulate forward
contracts. In such event, the Fund's ability to utilize forward contracts in the
manner set forth above may be restricted. Forward contracts may limit potential
gain from a positive change in the relationship between the U.S. dollar
10
<PAGE> 50
and foreign currencies. Unanticipated changes in currency prices may result in
poorer overall performance for the Fund than if it had not engaged in such
contracts.
A Fund may purchase and write put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of foreign portfolio
securities and against increases in the dollar cost of foreign securities to be
acquired. As with other kinds of options, however, the writing of an option on
foreign currency will constitute only a partial hedge, up to the amount of the
premium received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against fluctuation in exchange rates although, in the event of rate movements
adverse to the Fund's position, the Fund may forfeit the entire amount of the
premium plus related transaction costs.
A Fund may enter into exchange-traded contracts for the purchase or sale for
future delivery of foreign currencies ("foreign currency futures"). This
investment technique may be used to hedge against anticipated future changes in
exchange rates which otherwise might adversely affect the value of the
particular Fund's portfolio securities or adversely affect the prices of
securities that the Fund intends to purchase at a later date. The successful use
of currency futures will usually depend on the Investment Counsel's ability to
forecast currency exchange rate movements correctly. Should exchange rates move
in an unexpected manner, the Fund may not achieve the anticipated benefits of
foreign currency futures or may realize losses.
Lending of Portfolio Securities. The Funds may from time to time lend portfolio
securities to brokers or dealers, banks and other institutional investors and
receive collateral in the form of United States Government obligations or money
market funds. Under 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 portfolio. In
determining whether to lend securities to a particular broker/dealer or
financial institution, Southeastern 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
particular 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 Funds may pay reasonable fees in connection with such a
loan of securities. The Funds will not lend portfolio securities in excess of
one-third of the value of total assets, nor will the Funds lend portfolio
securities to any officer, director, trustee, employee of affiliate of the Funds
or Southeastern.
Swaps. The Funds may enter into swaps involving equity interests, indexes, and
currencies without limit. An equity swap is an agreement to exchange streams of
payments computed by reference to a notional amount based on the performance of
a single stock or a basket of stocks. Index swaps involve the exchange by a Fund
with another party of the respective amounts payable with respect to a notional
principal amount related to one or more indices. Currency swaps involve the
exchange of cash flows on a notional amount of two or more currencies based on
their relative future values.
The Funds may enter into these transactions to preserve a return or spread on a
particular investment or portion of its assets, to protect against currency
fluctuations, as a duration management technique, or to protect against any
increase in the price of securities a Fund anticipates purchasing at a later
date. These transactions may also be used to obtain the price performance of a
security without actually purchasing the security in circumstances where, for
example, the subject security is illiquid, is unavailable for direct investment
or is available only on less attractive terms.
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<PAGE> 51
Swaps have risks associated with them, including possible default by the counter
party to the transaction, illiquidity and, where used for hedges, the risk that
the use of a swap could result in losses greater than if the swap had not been
employed.
Short Sales. The Funds may seek to realize additional gains through short sale
transactions in securities listed on one or more national securities exchanges,
or in unlisted securities. Short selling involves the sale of borrowed
securities. At the time a short sale is effected, a Fund incurs an obligation to
replace the security borrowed at whatever its price may be at the time the Fund
purchases it for delivery to the lender. When a short sale transaction is closed
out by delivery of the securities, any gain or loss on the transaction is
taxable as short term capital gain or loss.
Since short selling can result in profits when stock prices generally decline,
the Funds can, to a certain extent, hedge the market risk to the value of its
other investments and protect its equity in a declining market. However, the
Funds could, at any given time, suffer both a loss on the purchase or retention
of one security, if that security should decline in value, and a loss on a short
sale of another security, if the security sold short should increase in value.
When a short position is closed out, it may result in a short term capital gain
or loss for federal income tax purposes. To the extent that in a generally
rising market a Fund maintains short positions in securities rising with the
market, the net asset value of the Fund would be expected to increase to a
lesser extent than the net asset value of an investment company that does not
engage in short sales.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of a Fund's portfolio securities for the year by the monthly average value
of the portfolio securities. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation.
Portfolio turnover cannot be accurately predicted. The Funds' investment
philosophy contemplates holding portfolio securities for the long term, and
portfolio turnover usually should be less than 50%. There are no specific limits
on portfolio turnover, and investments will be sold without regard to the length
of time held when investment considerations support such action. Turnover rates
greater than 100% involve greater transaction costs.
The 1998 portfolio turnover rates of the Funds for the past three years are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Partners Fund.......................................... 43.78% 38.07% 33.18%
International Fund (partial year)...................... 24.05% -- --
Realty Fund............................................ 21.55% 28.66% 4.28%
Small-Cap Fund......................................... 52.51% 16.95% 27.97%
</TABLE>
Portfolio turnover rates for the Partners Fund and the Small-Cap Fund were
higher during 1998 as the result of several factors. A number of portfolio
holdings reached their appraised or intrinsic value and were sold. Several
holdings were acquired or merged into other companies and some companies
spun-off a subsidiary. In addition, the assets of the Funds have increased
substantially during the past three years, and a substantial portion of the new
assets were invested in equities during the market decline during the summer and
fall of 1998.
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<PAGE> 52
MANAGEMENT OF THE FUNDS
Each of the Funds is supervised by its Board of Trustees, which implements
policies through the particular Fund's principal executive officers. Day to day
portfolio management and fund administration is provided by Southeastern Asset
Management, Inc. ("Southeastern") in its capacity as Investment Counsel and as
Fund Administrator under contracts which must be renewed annually, as required
by the Investment Company Act of 1940.
The names, principal occupations during at least the past five years and other
information about members of the Boards of Trustees and the Funds' executive
officers are set forth in the Prospectus on pages and . The following table
provides information on the schedule of Trustees' fees expected to be paid for
the fiscal year ending December 31, 1999:
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM EACH FUND TOTAL
NAME OF PERSON; --------------------------------------------- COMPENSATION
POSITION (AGE) PARTNERS INTERNATIONAL REALTY SMALL-CAP FROM ALL
ADDRESS FUND FUND FUND FUND FUNDS
--------------- -------- ------------- ------ --------- ------------
<S> <C> <C> <C> <C> <C>
O. Mason Hawkins*
Chairman of the Board and Chief
Executive Officer (51).......... None None None None None
Chadwick H. Carpenter, Jr.
Trustee (49)
14 Oak Park; Bedford, MA 01730
10660 East Tamarisk Way;
Scottsdale, AZ 85262............ $15,000 $5,000 $7,500 $7,500 $35,000
Daniel W. Connell, Jr.
Trustee (51)
One Stadium Place
Jacksonville, FL 32202.......... $15,000 $5,000 $7,500 $7,500 $35,000
Steven N. Melnyk
Trustee (52)
1535 The Greens Way
Jacksonville Beach, FL 32250.... $15,000 $5,000 $7,500 $7,500 $35,000
C. Barham Ray
Trustee (52)
845 Crossover Lane
Ste. 140
Memphis, TN 38117............... $15,000 $5,000 $7,500 $7,500 $35,000
W. Reid Sanders*
Trustee and President (50)...... None None None None None
</TABLE>
- ---------------
Trustee is an "interested" person through employment by Southeastern as
Investment Counsel. The "interested" Trustees and all executive officers of the
Fund are officers or employees of Southeastern, which pays their salaries and
other employee benefits. Its address is 6410 Poplar Ave., Ste. 900, Memphis, TN
38119.
The Funds have no pension or retirement plan for Trustees.
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<PAGE> 53
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Each Fund is controlled by its respective Board of Trustees. Each Board of
Trustees consists of six members, four of whom are independent of Southeastern
and are not "interested persons" of the particular Fund as that term is defined
in the Investment Company Act of 1940.
The following shareholders owned of record or beneficially 5% or more of the
outstanding shares of the designated Funds at December 31, 1998:
<TABLE>
<CAPTION>
PARTNERS INTERNATIONAL REALTY SMALL-CAP
FUND FUND FUND FUND
-------- ------------- ------ ---------
<S> <C> <C> <C> <C>
Clients of Charles Schwab & Co., a
brokerage firm......................... 16.0% 12.0% 26.7% 32.6%
Clients of National Financial Service
Corp., a brokerage firm................ * * 6.7% 5.6%
Sun Microsystems, Inc. 401(k) Plan....... 5.7% -- -- --
Litton Industries, Inc. (Employee
Plans)................................. 5.2% -- 6.1% --
Mr. O. Mason Hawkins, Chairman of the
Board and CEO of the Funds and
Southeastern........................... * 28.6% * *
All Trustees and officers of the Fund,
all directors and officers of
Southeastern and their relatives,
affiliated retirement plans and
endowments............................. 1.6% 41.2% 5.7% 4.3%
</TABLE>
- ---------------
* Ownership is less than 5%.
INVESTMENT ADVISORY SERVICES
Southeastern Asset Management, Inc. ("Southeastern"), an investment advisor
registered with the Securities and Exchange Commission under the Investment
Advisers Act of 1940, is the Fund's Investment Counsel. Southeastern is owned
and controlled by its principal officers, who are listed in the Prospectus as
affiliated Trustees and Executive Officers of the Fund. Mr. O. Mason Hawkins,
Chairman of the Board and Chief Executive Officer of Southeastern, owns a
majority of its outstanding voting stock and is deemed to control the Company.
Formed in 1975, Southeastern manages institutional and individual assets in
private or separate accounts as well as mutual funds, and is responsible for
managing more than $13 billion in client assets. It has served as investment
adviser to each of the Longleaf Partners Funds since their respective inception
dates. Additional information with respect to the investment advisory function
is contained in the Prospectus on pages .
The annual Investment Counsel fee for the Partners Fund and the Small-Cap Fund,
calculated daily and paid monthly, is 1% of average daily net assets on the
first $400 million and 0.75% of average daily net assets above $400 million. The
annual Investment Counsel fee for the Realty Fund is 1% of average daily net
assets. The annual Investment Counsel fee for the International Fund is 1.5% of
average daily net assets.
All of the Funds have a contractual expense limitation, which is included in the
Investment Counsel Agreement and cannot be changed without approval of
shareholders. The expense limitation includes the
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<PAGE> 54
investment advisory and administration fees, all reimbursible expenses, and all
normal operating expenses other than those discussed below. For the Partners,
Realty, and Small-Cap Funds, the Investment Counsel has agreed to reduce its
Investment Counsel fees to the extent that total operating expenses, excluding
interest, taxes, brokerage commissions and extraordinary expenses, exceed a
maximum of 1.5% of each Fund's average net assets on an annualized basis. The
International Fund has an expense limitation of 1.75% of average net assets per
annum, applicable in the same manner to the same types of expenses. During 1998,
the start-up year for the International Fund, Southeastern reduced its
Investment Counsel fees for this Fund by $127,852 to comply with the expense
limitation.
Investment Counsel fees paid by each Fund for the last three fiscal years are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Partners Fund................................. $26,393,753 $20,885,285 $17,004,356
International Fund............................ $ 212,286 -- --
Realty Fund................................... $ 8,173,553 $ 5,064,551 $ 391,283
Small-Cap Fund................................ $ 9,831,536 $ 5,697,623 $ 1,735,200
</TABLE>
FUND ADMINISTRATION
Southeastern serves as Fund Administrator and in that capacity manages or
performs all business and administrative operations of each Fund, including the
following:
- - Preparation and maintenance of all accounting records
- - Preparation and filing of required financial reports and tax returns
- - Securities registrations and reports of sales of shares
- - Calculation of daily net asset value per share
- - Preparation and filing of prospectuses, proxy statements, and other reports to
shareholders
- - General coordination and liaison among the Investment Counsel, the custodian
bank, the transfer agent, authorized dealers, other outside service providers,
and regulatory authorities
- - Supplying office space and general administrative support for the above
functions.
Each Fund pays an Administration Fee equal to 0.10% per annum of the average
daily net assets, which is accrued daily and paid monthly in arrears.
Administration fees paid by each Fund for the last three fiscal years are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Partners Fund..................................... $3,385,838 $2,651,375 $2,133,914
International Fund................................ $ 14,152 -- --
Realty Fund....................................... $ 817,356 $ 506,455 $ 43,848
Small-Cap Fund.................................... $1,177,540 $ 632,636 $ 173,520
</TABLE>
The Funds also reimburse the Administrator for the charges for computer programs
and hardware solely used to process Fund transactions and a portion of the
compensation of the Funds' Treasurer. These reimbursable expenses are allocated
among the portfolios taking into account their respective assets and number of
shareholders. The Administrator has not been leasing computer hardware equipment
for dedicated use by the Fund and has not requested reimbursement for costs or
charges related to computer hardware. Reimbursable expenses paid by each Fund
for the last three fiscal years are as follows:
15
<PAGE> 55
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Partners Fund......................................... $159,255 $192,492 $168,016
International Fund.................................... $ 9,704 -- --
Realty Fund........................................... $ 48,319 $ 19,076 $ 30,397
Small-Cap Fund........................................ $ 59,371 $ 26,959 $ 15,838
</TABLE>
All other direct operating expenses are paid by that particular Fund. Such
expenses include but are not limited to the following: (i) fees of the Custodian
and Transfer Agent; (ii) compensation of the independent public accountants,
outside legal counsel, and fees and travel expenses of the Trustees who are not
officers or employees of Southeastern; (iii) any franchise, income and other
taxes relating to the Funds or their securities; (iv) all filing fees and legal
expenses incurred in qualifying and continuing the registrations of the shares
for sale with the Securities and Exchange Commission and with any regulatory
agency in the several states; (v) insurance premiums and trade association 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 Funds' portfolio
securities; and (ix) any extraordinary expenses such as expenses of litigation.
The Funds also pay 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.
Terms of Operating Agreements. Each Fund has entered into agreements with
Southeastern as Investment Counsel and separately as Fund Administrator,
initially effective for a period of two years. Each agreement must be renewed
prior to August 1 of each year by the affirmative vote of a majority of the
outstanding voting securities of each Fund or by a majority of the members of
the Board of Trustees, including a majority of the Trustees who are not
"interested" Trustees. Such Agreements will automatically terminate in the event
of assignment as defined in the Investment Company Act of 1940. The Funds may
terminate such Agreements, without penalty, upon 60 days' written notice by a
majority vote of the Board of Trustees or by a majority of the outstanding
voting securities of the particular Fund.
OTHER SERVICE PROVIDERS
Custodian of Fund Assets. State Street Bank and Trust Company, located at One
Heritage Drive, North Quincy, MA 02171, 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 is responsible for collecting the proceeds of securities sold and
disbursement of the cost of securities purchased by the Funds. State Street Bank
also serves as the foreign custody manager for the Funds with respect to foreign
securities, using foreign sub-custodians which participate in its global custody
network.
Transfer Agent. National Financial Data Services ("NFDS"), located at 330 W.
9th Street, Kansas City, MO 64105, an affiliate of State Street Bank and Trust
Company, is the transfer agent and dividend disbursing agent. NFDS maintains all
shareholder accounts and records; processes all transactions including
purchases, redemptions, transfers and exchanges; prepares and mails account
confirmations and correspondence; issues stock certificates; and handles all
account inquiries.
16
<PAGE> 56
Independent Public Accountants. PricewaterhouseCoopers, L.L.P. is the Fund's
independent public accounting firm. The Funds are served by the Baltimore
office, located at 217 East Redwood Street, Suite 1600, Baltimore MD 21202, and
by the Boston office, located at One Post Office Square, Boston, MA 02109.
Legal Counsel. Dechert Price and Rhoads, a law firm with offices in several
major cities including Washington, Philadelphia, New York City, and Boston, is
the Funds' special legal counsel. The Funds are served by the Washington office,
located at 1775 Eye Street, NW, Washington, DC 20006-2402, and the Boston
office, located at Ten Post Office Square, South, Boston, MA 02109-4603. Charles
D. Reaves, Executive Vice President of the Funds and Vice President and General
Counsel of Southeastern Asset Management, Inc., is General Counsel to the Funds,
and Andrew R. McCarroll is Vice President and Assistant General Counsel of the
Funds and Southeastern.
ALLOCATION OF BROKERAGE COMMISSIONS
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 (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 of purchase and sale
orders through selected brokers. All investment decisions and placements of
trades for 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 in determining the overall
reasonableness of brokerage commissions.
2. In recommending or selecting brokers for portfolio transactions,
Southeastern takes into account its past experience 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. Southeastern could
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
17
<PAGE> 57
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
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 a 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 each Fund are made independently from those of the
other Funds or accounts of other clients managed by Southeastern, but the same
security may be held in the portfolios of more than one Fund or one managed
account. When several accounts and the Funds' portfolios simultaneously purchase
or sell the same security, the prices and amounts will be equitably allocated
among all such accounts. In some situations this procedure could adversely
affect the price or quantity of the security available to one or more of the
Funds, but in other situations the ability to participate in larger volume
transactions may enable a Fund to realize better executions, prices, and lower
commissions.
Southeastern does not own an interest in any brokerage firm and places trades
for the Funds through independent brokerage firms. Brokerage commissions paid by
the Funds for the past three years are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Partners Fund..................................... $6,461,416 $4,707,780 $2,172,895
International Fund (partial year)................. $ 282,438 -- --
Realty Fund....................................... $1,362,321 $1,791,258 $ 427,047
Small-Cap Fund.................................... $4,088,165 $1,632,755 $ 576,550
</TABLE>
Brokerage commissions for the Partners Fund and the Small-Cap Fund were higher
during 1998 as the result of several factors. A number of portfolio holdings
reached their appraised or intrinsic value and were sold. Several were acquired
or merged into other companies and some companies spun-off a subsidiary. In
addition, the assets of the Funds have increased substantially during the past
three years, and a substantial
18
<PAGE> 58
portion of the new assets were invested in equities during the market decline
during the summer and fall of 1998.
CAPITAL STOCK AND INDEMNIFICATION RIGHTS
Longleaf Partners Funds Trust is a Massachusetts business trust with four
separate series or Funds. Each series issues its capital stock in the form of
shares of beneficial interest having no par value. Each Fund may issue an
unlimited number of shares of beneficial interest, all of which are of one
class. Each share of each Fund has equal voting rights with all other shares of
that Fund. Shares do not have cumulative voting rights, which means that holders
of less than 50% of the outstanding shares cannot cumulate their total votes for
all Trustees in order to elect a single Trustee, and the holders of more than
50% of the outstanding shares may elect 100% of the particular Fund's Trustees.
A Massachusetts business trust is not required to hold annual meetings of
shareholders. Annual meetings ordinarily will not be held unless so required by
the provisions of the Investment Company Act of 1940, which would include such
matters as amending the investment advisory agreement or electing new members of
the Board of Trustees. The Board of Trustees may fill vacancies on the Board if
at least two-thirds of the Trustees serving after the new appointment were
elected by shareholders.
Each share of beneficial interest represents an equal proportionate interest in
the assets of the particular Fund with every other share and each share is
entitled to a proportionate share of dividends and distributions of net income
and capital gains belonging to that Fund when declared by the Board of Trustees.
There are no preemptive, subscription, or conversion rights.
When a Fund has received payment of the net asset value per share, each share
issued is fully paid and non-assessable. Under Massachusetts law, shareholders
of a mutual fund which is a series of a Massachusetts business trust could, in
theory, be held personally liable for certain obligations of the particular
series. Our Declaration of Trust contains an express disclaimer of shareholder
liability for obligations of each series, and this disclaimer is included in
contracts between the Funds and third parties. The Declaration of Trust also
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.
The Declaration of Trust and By-Laws provide that no Trustee, officer, employee,
or agent of any 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 Trust indemnifies each such person against all such losses
other than the excepted losses. The agreements between the Trust and,
respectively, the Investment Counsel and the Fund Administrator provide for
indemnification and relieve each such entity of liability 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.
19
<PAGE> 59
PURCHASE, REDEMPTION, AND PRICING OF SHARES
The methods of purchasing and redeeming shares through the transfer agent, NFDS,
are described on pages through of the Prospectus. Shares are offered
and redeemed at the net asset value per share next computed after receiving a
purchase order or a redemption request. Such calculations are made once a day,
at the close of regular trading on the New York Stock Exchange, usually at 4:00
p.m. Eastern Time.
To compute net asset value per share, we value all Fund assets daily, including
accruing dividends declared on portfolio securities and other rights to future
income. Liabilities are accrued and subtracted from assets, and the resulting
amount is dividend by the number of shares of beneficial interest then
outstanding. The following formula illustrates this calculation:
<TABLE>
<S> <C> <C>
Net Assets
- ------------------------ equals Net Asset Value Per Share
Shares Outstanding
</TABLE>
The net asset value per share for each of the Longleaf Partners Funds as shown
in the Statement of Assets and Liabilities for the year ended December 31, 1998,
shown on pages 38 and 39, was determined as follows:
<TABLE>
<C> <S> <C> <C>
Partners Fund International Fund
- ---------------------------------------------------------------------------
$3,685,299,923 $75,572,530
- --------------------- = $24.39 ------------------ = $9.97
151,097,394 7,583,796
Realty Fund Small-Cap Fund
- ---------------------------------------------------------------------------
$775,695,604 $1,355,363,619
- --------------------- = $14.55 ------------------ = $21.95
53,308,405 61,740,958
</TABLE>
In valuing Fund assets, we apply the following procedures:
(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 ask 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 ask 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 Funds' 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 short term United States Government obligations and other
debt securities will be determined on an amortized cost basis; and
20
<PAGE> 60
(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.
(7) Assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars using a method of determining a rate of exchange
consistent with policies established by the Board of Trustees.
The Funds normally calculate net asset value as of the close of business of the
New York Stock Exchange. Trading in securities on European and Far Eastern
securities exchanges or in other foreign markets is normally completed on days
(such as on week-ends) and at times when the New York Stock Exchange is not open
for business. In addition, trading in such international markets may not take
place on days when the New York Stock Exchange is open for business. Because of
the different trading days or hours in the various foreign markets, the
calculation of the Funds' net asset value may not take place contemporaneously
with the determination of the closing prices of some foreign securities on the
particular foreign exchanges or in other foreign markets in which those
securities are traded. The Funds follow the practice of converting closing
market prices denominated in foreign currency to U.S. dollars using the noon
Reuters currency exchange rates. This practice is widely used in the industry
and tends to reduce pricing differences between the close of the foreign markets
and the close of business on the New York Stock Exchange.
The Funds expect to follow their standard procedures in valuing foreign
securities even though there may be interim market developments which could have
an effect on the net asset value. However, should events occur which could
materially or significantly affect the valuation of such securities between the
time when their closing prices are determined in the usual manner and the time
the net asset value is calculated, the Funds may, in the discretion of the Board
of Trustees and in the absence of specific regulatory requirements, elect to
value these securities at fair value as determined in good faith by the Board of
Trustees.
ADDITIONAL TAX INFORMATION
Each Fund intends to qualify for favorable tax treatment applicable to regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986, as
amended. Qualification does not involve supervision of management or investment
practices or policies by the Internal Revenue Service. In order to qualify as a
regulated investment company, a Fund must, among other things, derive at least
90% of its gross income from dividends, interest, payments with respect to
proceeds from securities loans, gains from the sale or other disposition of
securities and other income (including gains from options future and forward
foreign currency contracts) derived with respect to its business of investing in
such securities. Each Fund must also diversify its holdings so that, at the end
of each quarter of its taxable year, (i) at least 50% of the market value of
total assets is represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer, to an amount not greater than
5% of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities). Further, a regulated investment company may not invest more than 25
percent of the value of its total assets in the securities of two or more
issuers which the Fund controls and which are engaged in the same or similar
trades or businesses or related trades or businesses.
If a Fund qualifies under the Internal Revenue Code for favorable tax treatment,
it is not subject to Federal income tax or taxation in the Commonwealth of
Massachusetts on its investment company taxable and any
21
<PAGE> 61
net realized capital gains which are distributed to shareholders. Instead,
shareholders other than tax exempt organizations are taxable at their personal
income tax rates on the distributions declared, even if the distributions are
reinvested in additional shares of the Funds. If a Fund should fail to qualify
for favorable tax treatment under the Internal Revenue Code, the Fund itself
would be subject to Federal income tax and to taxation by the Commonwealth of
Massachusetts on these amounts. To qualify again for favorable tax treatment
under the Internal Revenue Code, the Fund must distribute all undistributed
earnings and profits to shareholders, who then would be subject to taxation on
the amounts distributed.
At December 31, 1998, the Funds had capital loss carryovers for federal income
tax purposes which may be applied against future net taxable realized gains of
each succeeding year until the earlier of their utilization or expiration on
December 31, 2006 as follows:
<TABLE>
<S> <C>
Partners Fund............................................... None
International Fund.......................................... $ 867,951
Realty Fund................................................. $ 17,735,542
Small-Cap Fund.............................................. None
</TABLE>
The Funds may purchase certain debt securities which may be secured in whole or
in part by interests in real estate. If there should be a default and a Fund
were to acquire real estate by foreclosure, income generated by that real estate
(including rental income and gain on its disposition) may not be regarded as
qualifying income. If the Fund's non-qualifying income for a taxable year
exceeds 10% of its gross income, it would fail to qualify for favorable tax
treatment.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries which entitle the Fund to
a reduced rate of tax or exemption from tax on such income. It is not possible
to determine the effective rate of foreign tax in advance, because the amount of
assets to be invested within various countries is not known. To the extent that
the Fund is liable for foreign income taxes withheld at the source, the Fund
intends to cooperate so as to meet the requirements of the Internal Revenue Code
to "pass-through" to shareholders any credits for foreign income taxes paid.
There can be no assurance that the Fund will be able to do so.
If a Fund owns shares in a foreign corporation that constitutes a "passive
foreign investment company" for U.S. federal income tax purposes and the Fund
does not elect or is not able to treat the foreign corporation as a "qualified
electing fund" within the meaning of the Code, the Fund may be subject to U.S.
federal income tax on a portion of any "excess distribution" it receives from
the foreign corporation or any gain it derives from the disposition of such
shares, even if such income is distributed as a taxable dividend by the Fund to
its U.S. shareholders. The Fund may also be subject to additional tax in the
nature of an interest charge with respect to deferred taxes arising from such
distributions or gains. Any tax paid by the Fund as a result of its ownership of
shares in a "passive foreign investment company" will not give rise to any
deduction or credit to the Fund or any shareholder. If the Fund owns shares in a
"passive foreign investment company" and the Fund treats the foreign corporation
as a "qualified electing fund" under the Code, the Fund may be required to
include in its income each year a portion of the ordinary income and net capital
gains of the foreign corporation, even if this income is not distributed to the
Fund. Any such income may be treated as ordinary income and would be subject to
the distribution requirements described above, even if the Fund does not receive
any amounts to distribute.
22
<PAGE> 62
INVESTMENT PERFORMANCE AND TOTAL RETURN
Total Return Calculation. The average annual total return on an investment in
shares of each of the Funds 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 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
<TABLE>
<S> <C> <C> <C>
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).
</TABLE>
The average annual total returns for the Funds for each full calendar year since
inception are as follows:
<TABLE>
<CAPTION>
PARTNERS REALTY SMALL-CAP
FUND FUND FUND
-------- ------ ---------
<S> <C> <C> <C>
1998............................................... 14.28% (12.98)% 12.71%
1997............................................... 28.25% 29.73% 29.04%
1996............................................... 21.02% 40.69% 30.64%
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 returns for each of the Funds for the cumulative periods
shown, ending on December 31, 1998, are as follows:
<TABLE>
<S> <C>
PARTNERS FUND
5 years ended 12/31/98.................................... 19.77%
10 years ended 12/31/98................................... 17.94%
From Initial Public Offering on 4/8/87 through 12/31/98... 16.69%
INTERNATIONAL FUND
From Initial Public offering on 10/26/98 through
12/31/98............................................... 9.02%
REALTY FUND
From Initial Public Offering on 1/2/96 through 12/31/98... 16.69%
SMALL-CAP FUND
5 years ended 12/31/98.................................... 18.49%
From Initial Public offering on 2/21/89 through
12/31/98............................................... 12.56%
</TABLE>
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<PAGE> 63
Investment Performance Information. The Funds may publish their total returns
in advertisements and communications to shareholders. Total return information
will include the average annual compounded rate of return for the one, five, and
ten year periods (or since inception) ended at the close 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.
Each Fund may also compare its performance to that of widely recognized
unmanaged stock market indices as well as other more specialized indices. 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
outside services such as Lipper Analytical Services, Inc., 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, Forbes, Business Week,
Money, Financial World, and other similar publications.
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 and contain different
and generally more numerous securities than the Funds' portfolios. Some market
indices are not adjusted for reinvested dividends, and no adjustment is made in
the Funds' total returns or the total returns of any market indices for taxes
payable on distributions.
An investment in the Funds is an equity investment. As a result, total returns
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
investments, 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 Funds are designed for investors who are willing to accept such greater
market risks for the possibility of realizing greater long-term gains. There is
no assurance that the Funds' investment objectives will be achieved.
24
<PAGE> 64
TABLE OF BOND AND PREFERRED STOCK RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. PREFERRED STOCK RATINGS:
aaa -- An issue which is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of convertible preferred stocks.
25
<PAGE> 65
aa -- An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than the aaa and
aa classifications, earnings and asset protection are, nevertheless, expected to
be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
ba -- An issue which is rated ba is considered to have speculative elements, and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
DESCRIPTION OF STANDARD & POOR'S CORPORATION CORPORATE BOND AND PREFERRED STOCK
RATINGS:
AAA -- Securities rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Securities rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A -- Securities rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than securities in higher rated
categories.
BBB -- Securities rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
securities in this category than for securities in higher rated categories.
BB, B and CCC -- Securities rated BB, B and CCC are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents the
lowest degree of speculation and CCC the highest degree of speculation. While
such securities will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB -- Securities rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Securities rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair
26
<PAGE> 66
capacity or willingness to pay interest and repay principal. The B rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied B or BB rating.
CCC -- Securities rated CCC have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied B or B- rating.
Plus (+) or Minus (-): The ratings from A to CCC may be modified by the addition
of a plus or minus sign to show relative standing within major rating
categories.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended December 31, 1998, audited by
PricewaterhouseCoopers, L.L.P., the Fund's independent public accountants, are
included in the printed Annual Report to Shareholders of the Funds, and such
Financial Statements are incorporated by reference herein. The Financial
Statements contained in such printed Annual Reports, together with the Report of
Independent Accountants dated February 5, 1999 are included in this Statement of
Additional Information.
27
<PAGE> 67
- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Longleaf Partners Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Longleaf Partners Fund, Longleaf
Partners International Fund, Longleaf Partners Realty Fund, and Longleaf
Partners Small-Cap Fund, each a series of Longleaf Partners Funds Trust,
(hereafter referred to as the "Funds"), at December 31, 1998, and the results of
each of their operations, the changes in each of their net assets, and the
financial highlights for each of the fiscal periods presented, in conformity
with generally accepted accounting principles. Theses financial statements and
the financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with custodian and brokers provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 5, 1999
28
<PAGE> 68
- --------------------------------------------------------------------------------
PARTNERS FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock 93.6%
Beverages 5.2%
5,067,200 The Seagram Company Ltd. (Foreign) ................................ $ 192,553,600
Broadcasting 5.1%
7,146,362 The News Corporation Limited (Foreign)............................. 188,931,945
Cable 5.7%
4,450,000 * MediaOne Group, Inc................................................ 209,150,000
Environmental Services 6.0%
4,748,750 Waste Management, Inc.............................................. 221,410,469
Health Care 5.7%
4,840,000 United Healthcare Corporation...................................... 208,422,500
Investment Management 0.7%
1,237,700 The Pioneer Group, Inc............................................. 24,444,575
Lodging 16.8%
1,076,380 * Crestline Capital Corporation(b)................................... 15,742,057
8,500,000 Hilton Hotels Corporation.......................................... 162,562,500
10,763,800 Host Marriott Corporation(b)....................................... 148,674,987
10,103,600 Marriott International, Inc........................................ 293,004,400
--------------
619,983,944
--------------
Manufacturing 2.1%
4,450,000 * UCAR International, Inc.(b)........................................ 79,265,625
Multi-Industry 6.9%
1,565,000 Alexander & Baldwin, Inc........................................... 36,386,250
3,213,000 Philips Electronics N.V. (Foreign)................................. 217,479,937
--------------
253,866,187
--------------
Natural Resources 5.9%
9,772,100 Pioneer Natural Resources Company(b)............................... 85,505,875
2,900,000 Rayonier Inc.(b)................................................... 133,218,750
--------------
218,724,625
--------------
Property & Casualty Insurance 5.8%
20,167,000 Mitsui Marine and Fire Insurance Company, Ltd. (Foreign)........... 104,598,465
8,673,000 The Nippon Fire & Marine Insurance Company, Ltd. (Foreign)......... 31,450,657
16,245,000 The Yasuda Fire and Marine Insurance Company, Ltd. (Foreign)....... 77,034,570
--------------
213,083,692
--------------
Publishing 4.4%
3,150,000 Knight Ridder, Inc................................................. 161,043,750
Real Estate 5.0%
1,998,400 Boston Properties Inc.............................................. 60,951,200
6,038,591 TrizecHahn Corporation (Foreign)................................... 123,791,116
--------------
184,742,316
--------------
</TABLE>
See Notes to Financial Statements.
29
<PAGE> 69
- --------------------------------------------------------------------------------
PARTNERS FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Transportation 18.3%
7,003,000 Canadian Pacific Limited (Foreign)................................. $ 132,181,625
6,085,000 * FDX Corporation(c)................................................. 541,565,000
--------------
673,746,625
--------------
TOTAL COMMON STOCKS (COST $2,909,987,145).......................... 3,449,369,853
--------------
Short-Term Obligations 6.4%
Federal Home Loan Bank Discount Note, 5.14% due 1-4-99.................................. 99,957,917
Repurchase Agreement with State Street Bank, 4.0% due 1-4-99............................ 136,060,000
--------------
236,017,917
--------------
TOTAL INVESTMENTS (COST $3,146,005,062)(a)....................................... 100.0% 3,685,387,770
OTHER ASSETS AND LIABILITIES, NET................................................ -- (87,847)
----- --------------
NET ASSETS....................................................................... 100.0% $3,685,299,923
===== ==============
NET ASSET VALUE PER SHARE............................................................... $24.39
==============
</TABLE>
* Non-income producing security
(a) Also represents aggregate cost for federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $875,271,943 and
($335,889,235), respectively.
(b) Affiliated company. See Note 7.
(c) A portion designated as collateral for forward currency contracts. See Note
10.
Note: Companies designated as "Foreign" are headquartered outside the U.S. and
represent 29% of Net Assets.
OPEN FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Currency
Currency Currency Sold and Market Unrealized
Units Sold Settlement Date Value Loss
- -------------- ---------------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
14,552,730,000 Japanese Yen 1-28-99...................................... $129,355,336 $ (5,990,678)
6,265,172,522 Japanese Yen 2-26-99...................................... 55,969,292 (5,373,509)
823,095,843 Japanese Yen 7-21-99...................................... 7,495,659 (1,304,967)
------------ ------------
Total Forward Contracts................................... $192,820,287 $(12,669,154)
============ ============
</TABLE>
See Notes to Financial Statements.
30
<PAGE> 70
- --------------------------------------------------------------------------------
INTERNATIONAL FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock 82.3%
Agriculture 4.8%
121,000 * Agribrands International, Inc. (United States)(b).................. $ 3,630,000
Beverages 5.7%
645,000 The Highland Distilleries PLC (United Kingdom)..................... 2,866,592
37,000 The Seagram Company Ltd. (Canada).................................. 1,406,000
--------------
4,272,592
--------------
Broadcasting 5.1%
97,000 Nippon Broadcasting System(Japan)(b)............................... 3,821,881
Cable 2.2%
69,000 Shaw Communications, Inc. - Class B (Canada)....................... 1,668,937
Healthcare 2.3%
1,513,000 Haw Par Corporation Limited (Singapore)(b)......................... 1,689,479
Multi-Industry 16.1%
14,970,000 Brierley Investments Limited (New Zealand)(b)...................... 3,383,597
55,000 Philips Electronics N.V. (Netherlands)(b).......................... 3,722,813
2,350,000 Swire Pacific Limited (Hong Kong)(b)............................... 1,562,070
937,000 Wassall PLC (United Kingdom)(b).................................... 3,498,981
--------------
12,167,461
--------------
Natural Resources 10.2%
442,000 * Anderson Exploration Limited (Canada).............................. 3,960,896
1,280,000 * Gulf Canada Resources Limited (Canada)............................. 3,760,000
--------------
7,720,896
--------------
Property & Casualty Insurance 17.5%
760,000 The Dai-Tokyo Fire and Marine Insurance Company, Ltd. (Japan)(b)... 2,649,968
324,000 The Dowa Fire and Marine Insurance Company, Ltd. (Japan)........... 1,186,209
788,000 The Nippon Fire & Marine Insurance Company, Ltd. (Japan)(b)........ 2,857,502
965,000 The Nissan Fire & Marine Insurance Company, Ltd. (Japan)(b)........ 2,860,048
777,000 The Yasuda Fire & Marine Insurance Company, Ltd. (Japan)(b)........ 3,684,571
--------------
13,238,298
--------------
Restaurants 4.1%
334,000 Kentucky Fried Chicken Japan (Japan)(b)............................ 3,115,281
Transportation 14.3%
175,000 Canadian Pacific Limited (Canada).................................. 3,303,125
44,000 * FDX Corporation (United States)(b)................................. 3,916,000
210,000 * Wisconsin Central Transportation Corporation (United States)....... 3,609,375
--------------
10,828,500
--------------
TOTAL COMMON STOCKS (COST $59,515,891)......................................... 62,153,325
--------------
</TABLE>
See Notes to Financial Statements.
31
<PAGE> 71
- --------------------------------------------------------------------------------
INTERNATIONAL FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
--------------
<S> <C> <C> <C> <C> <C>
Short-Term Obligations 23.5%
Repurchase Agreement with State Street Bank, 4.00% due 1-4-99........................... $ 17,789,000
--------------
TOTAL INVESTMENTS (COST $77,304,891)(a).......................................... 105.8% 79,942,325
OTHER ASSETS AND LIABILITIES, NET................................................ (5.8) (4,369,962)
----- --------------
NET ASSETS....................................................................... 100.0% $ 75,572,363
===== ==============
NET ASSET VALUE PER SHARE............................................................... $9.97
==============
</TABLE>
* Non-income producing security
(a) Aggregate cost for federal income tax purposes. Aggregate unrealized
appreciation and depreciation are $4,396,327 and ($1,758,893), respectively
(b) All or a portion designated as collateral on forward currency contracts. See
Note 10.
OPEN FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Currency Currency Sold and Currency Unrealized
Units Sold Settlement Date Market Value Gain (Loss)
- ------------- ---------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
3,178,628 British Pound 9-8-99...................................... $ 5,269,384 $ (42,320)
106,000 British Pound 12-30-99.................................... 175,674 1,855
1,802,146 Canadian Dollars 3-30-99.................................. 1,173,574 (11,813)
7,212,383 Hong Kong Dollars 8-20-01................................. 895,958 (154,709)
5,019,162 Hong Kong Dollars 8-18-99................................. 643,485 (23,075)
2,003,546,192 Japanese Yen 8-18-99...................................... 18,311,077 (2,341,567)
349,428,694 Japanese Yen 12-30-99..................................... 3,246,542 (87,649)
6,650,710 New Zealand Dollars 9-3-99................................ 3,514,392 (69,558)
2,362,725 Singapore Dollars 8-18-99................................. 1,453,851 (123,787)
----------- -----------
$34,683,937 $(2,852,623)
=========== ===========
</TABLE>
COUNTRY ALLOCATION
<TABLE>
<S> <C>
Japan....................................................... 29.9%
Canada...................................................... 23.8
United States............................................... 18.8
United Kingdom.............................................. 10.7
Netherlands................................................. 6.3
New Zealand................................................. 5.6
Singapore................................................... 2.6
Hong Kong................................................... 2.3
-----
100.0%
=====
</TABLE>
See Notes to Financial Statements.
32
<PAGE> 72
- --------------------------------------------------------------------------------
REALTY FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Common Stock - 88.2%
Diversified Realty 16.1%
4,209,800 * Catellus Development Corporation................................... $ 60,252,762
2,280,000 * Excel Legacy Corporation(b)........................................ 9,120,000
1,651,900 Forest City Enterprises, Inc. - Class A(b)......................... 43,362,375
135,200 Forest City Enterprises, Inc. - Class B............................ 3,481,400
440,600 TrizecHahn Corporation (Foreign)................................... 9,032,300
------------
125,248,837
------------
Lodging 26.2%
547,020 * Crestline Capital Corporation...................................... 8,000,168
1,895,000 Hilton Hotels Corporation.......................................... 36,241,875
5,470,200 Host Marriott Corporation(d)....................................... 75,557,137
286,200 Marriott International, Inc. - Class A............................. 8,299,800
1,060,000 * Promus Hotel Corporation........................................... 34,317,500
2,153,400 * Red Roof Inns, Inc.(b)............................................. 36,338,625
481,846 * Supertel Hospitality, Inc.(b)...................................... 4,396,845
------------
203,151,950
------------
Mortgage Financing 3.0%
1,088,000 Bay View Capital Corp.(b).......................................... 23,596,000
Natural Resources/Land 8.9%
304,200 * Castle & Cooke, Inc................................................ 4,486,950
650,000 Deltic Timber Corporation.......................................... 13,243,750
261,000 Rayonier Inc....................................................... 11,989,688
6,950,000 TimberWest Forest Corp.(b) (Foreign)............................... 40,101,827
------------
69,822,215
------------
Office 21.0%
447,300 Alexandria Real Estate Equities, Inc. (REIT)....................... 13,838,344
2,075,000 Beacon Capital Partners, Inc.(b)(c)(REIT).......................... 40,504,000
1,187,800 Boston Properties Inc. (REIT)...................................... 36,227,900
1,090,900 Cousins Properties Incorporated (REIT)............................. 35,181,525
2,443,300 Prime Group Realty Trust(b) (REIT)................................. 36,954,912
------------
162,706,681
------------
Retail 11.3%
1,223,800 Getty Realty Corp.(b).............................................. 17,898,075
915,000 * IHOP Corp.(b)...................................................... 36,542,813
3,371,400 Prime Retail, Inc.(b) (REIT)....................................... 33,081,862
------------
87,522,750
------------
Non-realty 1.7%
650,000 The Pioneer Group, Inc............................................. 12,837,500
------------
TOTAL COMMON STOCKS (COST $713,420,651)............................ 684,885,933
------------
</TABLE>
See Notes to Financial Statements.
33
<PAGE> 73
- --------------------------------------------------------------------------------
REALTY FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Preferred Stock - 8.8%
Diversified Realty 8.8%
14,600,000 * Excel Legacy Corporation - Series A Liquidating Preference
Convertible(b)(c)................................................ $ 68,031,620
------------
TOTAL PREFERRED STOCK (COST $73,000,000)........................... 68,031,620
------------
Options - 0.6%
CONTRACTS
----------
Natural Resources/Land 0.6%
Put Options Written
5,494 Newhall Land and Farming Company, expiring
April '99 @ $20 (Premiums received $1,076,268)..................... (16,482)
2,967 Newhall Land and Farming Company, expiring October '99 @ $25
(Premiums received $709,919)....................................... (480,654)
Call Options Purchased
5,494 Newhall Land and Farming Company, expiring
April '99 @ $20 (Cost $1,761,493).................................. 3,851,294
2,967 Newhall Land and Farming Company, expiring October '99 @ $25 (Cost
$1,225,243)........................................................ 1,222,404
------------
4,576,562
------------
Short-Term Obligations 1.4%
Repurchase Agreement with State Street Bank, 4.00% due 1-4-99........................... 10,494,000
------------
TOTAL INVESTMENTS (COST $798,115,200)(a)......................................... 99.0% 767,988,115
OTHER ASSETS AND LIABILITIES, NET................................................ 1.0 7,707,489
----- ------------
NET ASSETS....................................................................... 100.0% $775,695,604
===== ============
NET ASSET VALUE PER SHARE............................................................... $14.55
======
</TABLE>
* Non-income producing security
(a) Also represents aggregate cost for federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $51,167,842 and ($81,294,927),
respectively.
(b) Affiliated company. See Note 7.
(c) Illiquid, board valued security. See Note 8.
(d) A portion designated as collateral on Newhall options. See Note 10.
Note: Companies designated as "Foreign" are headquartered outside the U.S. and
represent 6% of Net Assets. REITs comprise 25% of Net Assets.
See Notes to Financial Statements.
34
<PAGE> 74
- --------------------------------------------------------------------------------
SMALL-CAP FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock 94.7%
Agriculture 2.3%
1,015,400 * Agribrands International, Inc.(b).................................. $ 30,462,000
Broadcasting 1.1%
367,000 Nippon Broadcasting System (Foreign)(d)............................ 14,460,108
Building Materials 0.4%
405,000 Sangetsu Co., Ltd (Foreign)(d)..................................... 5,966,351
Business Services 1.7%
1,104,400 * Pinkerton's, Inc.(b)............................................... 23,537,525
Cable 11.6%
100,000 Shaw Communications Inc. - Class A (Foreign)....................... 2,391,830
6,479,800 Shaw Communications Inc. - Class B
(Foreign)(b)(d).................................................. 154,985,773
--------------
157,377,603
--------------
Commercial Lighting 2.1%
1,397,700 * Genlyte Group Incorporated(b)...................................... 26,206,875
115,050 Thomas Industries, Inc............................................. 2,257,856
--------------
28,464,731
--------------
Entertainment 2.2%
1,470,000 * Carmike Cinemas, Inc. -- Class A(b)................................ 29,859,375
Investment Management 1.3%
865,000 The Pioneer Group, Inc............................................. 17,083,750
Lodging 6.7%
2,816,100 * Promus Hotel Corporation........................................... 91,171,238
Manufacturing 12.0%
2,064,740 AMETEK, Inc.(b).................................................... 46,069,511
1,740,000 * The Carbide/Graphite Group, Inc.(b)................................ 25,665,000
640,700 Robbins & Myers, Inc.(b)........................................... 14,175,487
433,200 * Scott Technologies, Inc............................................ 7,161,359
3,729,600 U.S. Industries, Inc............................................... 69,463,800
--------------
162,535,157
--------------
Mortgage Financing 3.2%
2,006,100 Bay View Capital Corp.(b)(d)....................................... 43,507,294
Natural Resources 9.6%
845,000 Deltic Timber Corporation(b)....................................... 17,216,875
3,349,996 Gendis Inc. - Class A(b)(c)(Foreign)............................... 10,366,732
21,584,400 * Gulf Canada Resources Limited(b)(Foreign).......................... 63,404,175
6,950,000 TimberWest Forest Corp.(b)(Foreign)................................ 40,101,827
--------------
131,089,609
--------------
Pharmaceuticals 3.7%
5,686,100 * Perrigo Company(b)................................................. 50,108,756
Property & Casualty Insurance 15.9%
239,101 * Alleghany Corporation.............................................. 44,921,100
96,000 The Chiyoda Fire and Marine Insurance Company, Ltd. (Foreign)...... 317,159
</TABLE>
See Notes to Financial Statements.
35
<PAGE> 75
- --------------------------------------------------------------------------------
SMALL-CAP FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
3,840,000 The Dai-Tokyo Fire and Marine Insurance Company, Ltd.
(Foreign)(d)..................................................... $ 13,389,312
3,910,000 Fuji Fire and Marine Insurance Company, Limited (Foreign)(d)....... 7,498,363
1,777,400 Hilb, Rogal and Hamilton Company(b)................................ 35,325,825
7,670,000 The Nissan Fire & Marine Insurance Company, Ltd. (Foreign)(d)...... 22,732,193
2,276,800 Orion Capital Corporation(b)....................................... 90,645,100
--------------
214,829,052
--------------
Real Estate 11.3%
4,203,400 * Catellus Development Corporation................................... 60,161,163
1,135,400 Cousins Properties Incorporated(d)................................. 36,616,650
631,700 * IHOP Corp.(b)...................................................... 25,228,519
1,520,000 TrizecHahn Corporation (Foreign)................................... 31,160,000
--------------
153,166,332
--------------
Restaurants 1.1%
982,400 * VICORP Restaurants, Inc.(b)........................................ 15,227,200
Retail 5.4%
2,333,400 Midas Inc.(b)...................................................... 72,627,075
Transportation 3.1%
2,460,800 * Wisconsin Central Transportation Corporation....................... 42,295,000
--------------
TOTAL COMMON STOCKS (COST $1,139,085,503)...................................... 1,283,768,156
--------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Short-Term Obligations 5.5%
Federal Home Loan Bank Discount Note, 5.14% due 1-4-99.................................. 49,978,958
Repurchase Agreement with State Street Bank, 4.00% due 1-4-99........................... 25,171,000
--------------
75,149,958
--------------
TOTAL INVESTMENTS (COST $1,214,235,461)(a)....................................... 100.2% 1,358,918,114
OTHER ASSETS AND LIABILITIES, NET................................................ (0.2) (3,554,495)
----- --------------
NET ASSETS....................................................................... 100.0% $1,355,363,619
===== ==============
NET ASSET VALUE PER SHARE............................................................... $21.95
======
</TABLE>
* Non-income producing security
(a) Also represents aggregate cost for federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $234,503,217 and ($89,820,564),
respectively.
(b) Affiliated company. See Note 7.
(c) Illiquid security. See Note 8.
(d) All or a portion designated as collateral on forward currency contracts. See
Note 10.
Note: Companies designated as "Foreign" are headquartered outside the U.S. and
represent 27% of Net Assets.
OPEN FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Currency Currency Sold and Currency Unrealized
Units Sold Settlement Date Market Value Gain
- ------------- ----------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
206,963,700 Canadian Dollars 4-1-99.................................... $134,778,061 $ 1,295,338
8,312,155,852 Japanese Yen 5-13-99....................................... 75,013,882 (9,167,897)
------------ -----------
Total Forward Contracts.................................... $209,791,943 $(7,872,559)
============ ===========
</TABLE>
See Notes to Financial Statements.
36
<PAGE> 76
(This page intentionally left blank)
37
<PAGE> 77
- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
PARTNERS FUND
<S> <C>
ASSETS:
Investments:
Affiliated securities, at market value (cost $713,543,660,
$0, $413,692,921 and $711,713,782, respectively) (Note 2
and 7)..................................................
Other securities, at market value (cost $2,196,443,485,
$59,515,891, $381,044,367 and $427,371,721,
respectively)...........................................
Short-term cash equivalents...............................
Repurchase agreement (Note 2).............................
TOTAL INVESTMENTS
Cash........................................................
Receivable for:
Dividends and interest....................................
Fund shares sold..........................................
Securities sold...........................................
Foreign tax reclaim.......................................
Prepaid assets..............................................
Insurance reserve premium...................................
TOTAL ASSETS
LIABILITIES:
Payable for:
Forward currency contracts (Note 2).......................
Fund shares redeemed......................................
Investment Counsel fee (Note 3)...........................
Administration fee (Note 4)...............................
Securities purchased......................................
Options written, at market value (premiums received
$1,786,187)...............................................
Other accrued expenses......................................
TOTAL LIABILITIES
NET ASSETS:
Net assets consist of:
Paid-in capital...........................................
Undistributed net investment income.......................
Accumulated net realized gain(loss) on investments and
foreign currency........................................
Unrealized gain(loss) on investments and foreign
currency................................................
Net Assets
NET ASSET VALUE PER SHARE...................................
FUND SHARES ISSUED AND OUTSTANDING..........................
</TABLE>
See Notes to Financial Statements.
38
<PAGE> 78
- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
PARTNERS FUND INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
- -------------- ------------------ ------------ --------------
<S> <C> <C> <C>
$ 462,407,295 $ - $403,172,705 $ 814,720,924
2,986,962,558 62,153,325 354,818,546 469,047,232
99,957,917 - - 49,978,958
136,060,000 17,789,000 10,494,000 25,171,000
- -------------- -------------- ------------ --------------
3,685,387,770 79,942,325 768,485,251 1,358,918,114
429 120 866 677
12,702,775 89,681 9,135,740 1,841,186
3,900,353 467,449 1,103,25 5,691,921
5,579,162 - - 10,276
- 4,816 - -
95,048 26,710 39,571 42,168
65,451 - 3,937 12,203
- -------------- -------------- ------------ --------------
3,707,730,988 80,531,101 778,768,616 1,366,516,545
- -------------- -------------- ------------ --------------
12,669,154 2,852,623 - 7,872,559
6,574,924 - 1,728,482 1,317,385
2,340,913 84,434 651,327 908,759
300,798 14,152 65,133 109,844
- 1,950,956 - 722,241
- - 497,136 -
545,276 56,406 130,934 222,138
- -------------- -------------- ------------ --------------
22,431,065 4,958,571 3,073,012 11,152,926
- -------------- -------------- ------------ --------------
$3,685,299,923 $ 75,572,530 $775,695,604 $1,355,363,619
============== ============== ============ ==============
$3,110,650,576 $ 74,687,080 $823,098,728 $1,215,486,666
872,615 244 627,922 43,744
47,063,178 1,099,320 (17,904,507) 3,023,536
526,713,554 (214,114) (30,126,539) 136,809,673
- -------------- -------------- ------------ --------------
$3,685,299,923 $ 75,572,530 $775,695,604 $1,355,363,619
============== ============== ============ ==============
$24.39 $9.97 $14.55 $21.95
====== ===== ====== ======
151,097,394 7,583,796 53,308,405 61,740,958
</TABLE>
See Notes to Financial Statements.
39
<PAGE> 79
- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends from affiliates (net of foreign tax withheld of
$0, $0, $755,956 and $845,151 respectively) (Note 7)....
Dividends from non-affiliates (net of foreign tax withheld
of $1,716,137, $24,527, $19,827, and $200,014,
respectively)...........................................
Interest..................................................
Total income.......................................
EXPENSES:
Investment Counsel fee (Note 3)...........................
Administration fee (Note 4)...............................
Transfer Agent fee........................................
Registration and filing fees..............................
Supplies and postage......................................
Printing..................................................
Reimbursable administration expenses (Note 4).............
Custodian fee.............................................
Professional fees.........................................
Trustees' fees............................................
Insurance expense.........................................
Interest..................................................
Miscellaneous.............................................
Investment counsel fee waived.............................
Total expenses.....................................
Net investment income..............................
REALIZED AND UNREALIZED GAIN(LOSS):
Net realized gain(loss):
Non-affiliated securities.................................
Affiliated securities.....................................
Forward currency contracts................................
Foreign currency transactions.............................
Net gain(loss)........................................
Change in unrealized gain(loss):
Securities................................................
Other assets, liabilities, forwards and options...........
Change in net unrealized gain(loss)...................
Net realized and unrealized gain(loss)................
NET INCREASE(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................
</TABLE>
See Notes to Financial Statements.
40
<PAGE> 80
- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PARTNERS FUND INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
- ------------- ------------------ ------------- --------------
<S> <C> <C> <C>
$ 35,534,587 $ - $ 17,737,888 $ 7,391,619
19,277,888 153,336 17,285,962 3,907,131
14,673,389 131,976 2,657,736 10,807,724
- ------------ ---------- ------------- ------------
69,485,864 285,312 37,681,586 22,106,474
- ------------ ---------- ------------- ------------
26,393,753 212,286 8,173,553 9,831,536
3,385,838 14,152 817,356 1,177,540
554,932 2,319 133,985 192,991
423,608 39,848 126,038 201,515
161,502 9,000 74,202 80,999
137,000 33,600 63,501 67,000
159,255 9,704 48,319 59,371
81,500 20,000 28,999 82,500
43,999 22,500 30,998 39,998
60,000 7,740 30,000 30,000
48,203 670 13,908 16,866
- - - 61,572
126,768 3,700 36,081 45,433
- (127,852) - -
- ------------ ---------- ------------- ------------
31,576,358 247,667 9,576,940 11,887,321
- ------------ ---------- ------------- ------------
37,909,506 37,645 28,104,646 10,219,153
- ------------ ---------- ------------- ------------
466,251,933 1,075,021 4,784,490 87,373,574
172,273,375 - (22,688,997) 57,831,869
(75,578) 24,299 -- 5,053,725
(159,306) 319 (122,383) (156,080)
- ------------ ---------- ------------- ------------
638,290,424 1,099,639 (18,026,890) 150,103,088
- ------------ ---------- ------------- ------------
(235,338,167) 2,637,436 (129,676,362) (20,724,205)
(12,669,154) (2,851,550) (4,127,188) (7,877,447)
- ------------ ---------- ------------- ------------
(248,007,321) (214,114) (133,803,550) (28,601,652)
- ------------ ---------- ------------- ------------
390,283,103 885,525 (151,830,440) 121,501,436
- ------------ ---------- ------------- ------------
$428,192,609 $ 923,170 $(123,725,794) $131,720,589
============ ========== ============= ============
</TABLE>
See Notes to Financial Statements.
41
<PAGE> 81
- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PARTNERS FUND
---------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 37,909,506 $ 21,420,547
Net realized gain(loss)................................... 638,290,424 306,865,056
Change in net unrealized gain(loss)....................... (248,007,321) 322,569,345
-------------- --------------
Net increase(decrease) in net assets resulting from
operations............................................. 428,192,609 650,854,948
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................ (36,966,961) (21,460,363)
From net realized gain on investments..................... (586,542,694) (311,977,522)
From return of capital.................................... - -
-------------- --------------
Net decrease in net assets resulting from
distributions.......................................... (623,509,655) (333,437,885)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares.......................... 890,978,876 477,572,262
Net asset value of shares issued to shareholders for
reinvestment of shareholder distributions............... 907,344,282 -
Cost of shares redeemed................................... (522,776,364) (489,998,326)
-------------- --------------
Net increase(decrease) in net assets from fund share
transactions........................................... 1,275,546,794 (12,426,064)
-------------- --------------
Total increase in net assets............................ 1,080,229,748 304,990,999
NET ASSETS:
Beginning of period....................................... 2,605,070,175 2,300,079,176
-------------- --------------
End of period............................................. $3,685,299,923 $2,605,070,175
============== ==============
Undistributed net investment income included in net assets
at end of period........................................ $872,615 $89,373
======== =======
</TABLE>
See Notes to Financial Statements.
42
<PAGE> 82
- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INTERNATIONAL FUND
------------------ REALTY FUND SMALL-CAP FUND
CAPITALIZATION ----------------------------- ------------------------------
AUGUST 12, 1998 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1997 1998 1997
------------------ ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
$ 37,645 $ 28,104,646 $ 3,776,009 $ 10,219,153 $ 7,445,302
1,099,639 (18,026,890) 27,323,623 150,103,088 26,187,400
(214,114) (133,803,550) 81,704,091 (28,601,652) 114,475,124
----------- ------------ ------------ -------------- -------------
923,170 (123,725,794) 112,803,723 131,720,589 148,107,826
----------- ------------ ------------ -------------- -------------
(37,720) (22,154,503) (3,757,696) (10,041,928) (7,427,301)
- (18,724) (27,280,191) (145,213,540) (28,306,270)
- (5,557,418) (1,813,127) - -
----------- ------------ ------------ -------------- -------------
(37,720) (27,730,645) (32,851,014) (155,255,468) (35,733,571)
----------- ------------ ------------ -------------- -------------
75,071,603 524,495,785 685,515,315 565,247,944 770,142,361
32,236 56,610,939 - 178,562,305 -
(516,759) (391,256,885) (184,175,044) (280,170,886) (219,414,438)
----------- ------------ ------------ -------------- -------------
74,587,080 189,849,839 501,340,271 463,639,363 550,727,923
----------- ------------ ------------ -------------- -------------
75,472,530 38,393,400 581,292,980 440,104,484 663,102,178
100,000 737,302,204 156,009,224 915,259,135 252,156,957
----------- ------------ ------------ -------------- -------------
$75,572,530 $775,695,604 $737,302,204 $1,355,363,619 $ 915,259,135
=========== ============ ============ ============== =============
$244 $627,922 $24,233 $43,744 $22,599
==== ======== ======= ======= =======
</TABLE>
See Notes to Financial Statements.
43
<PAGE> 83
- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
The Funds are each a series of Longleaf Partners Funds Trust, a Massachusetts
business trust which is registered under the Investment Company Act of 1940, as
amended, as an open-end non-diversified investment company. Capitalization for
each fund was provided by principals of Southeastern Asset Management, Inc., the
Investment Counsel.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Management Estimates
The accompanying financial statements are prepared in accordance with Generally
Accepted Accounting Principles for the investment company industry; these
principles may require the use of estimates by Fund management.
Security Valuation
(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) Option contracts are marked-to-market daily. Listed options are valued at
the latest closing price. If there are no transactions that day, the
options are valued at the midpoint between the closing bid and ask prices.
Over-the-counter options are valued as determined in good faith under
procedures established by the Funds' trustees.
(4) When market quotations are not readily available, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Funds' Trustees.
In determining fair value, the Board considers all relevant qualitative
and quantitative information available. These factors are subject to
change over time and are reviewed periodically. Estimated values may
differ from the values that would have been used had a ready market of the
investment existed.
Accounting for Investments
The Funds record security transactions on trade date. Realized gains and losses
on security transactions are determined using the specific identification
method. Dividend income is recognized on the ex-dividend date and interest
income is recognized on an accrual basis. Fund expenses are also recorded on an
accrual basis.
Distributions to Shareholders
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
44
<PAGE> 84
Federal Income Taxes
The Funds' policy is to comply with the requirements of the Internal Revenue
Code that are applicable to regulated investment companies and to distribute all
taxable income to shareholders. Accordingly, no federal income tax provision is
required. The Funds intend to make any required distributions to avoid the
application of a 4% nondeductible excise tax. Distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made within the Fund's capital
accounts to reflect income and gains available for distribution under income tax
regulations.
Foreign Currency Translations
The books and records of the Funds are maintained in U.S. dollars. Securities
denominated in currencies other than U.S. dollars are subject to changes in
value due to fluctuations in exchange rates. Purchases and sales of securities
and income and expenses are translated into U.S. dollars at the prevailing
exchange rate on the respective date of each transaction. The market value of
investment securities, assets and liabilities are translated into U.S. dollars
daily.
The Funds do not isolate the portion of net realized and unrealized gains or
losses in equity security investments which are attributable to changes in
foreign exchange rates. Accordingly, the impact of such changes is included in
the realized and unrealized gains or losses on the underlying equity securities.
Forward Currency Contracts
The Funds may execute forward currency contracts to reduce their exposure to
currency risk on portfolio investments denominated in foreign currency. Forward
currency contracts are commitments to purchase or sell a foreign currency at a
future maturity date. The resulting obligation is marked-to-market daily using
foreign currency exchange rates supplied by an independent pricing service. An
unrealized gain or loss is recorded for the difference between the contract
opening value and its current value. When a contract is closed or delivery is
taken, this gain or loss is realized. For federal tax purposes, gain or loss on
open forward contracts are treated as realized and subject to distribution at
our excise tax year-end date.
Options
Upon the purchase of a put or call option, the premium paid is recorded as an
investment. When the Funds write a put or a call option, the premium received by
the Funds is recorded as a liability. When a purchased option expires, a loss is
recognized for the cost of the option. When a written option expires, a gain is
realized for the premium received. When the Funds enter into a closing sale
transaction, a gain or loss is recognized based on the difference between the
proceeds of the closing transaction and the cost of the option.
Risk of Forward Currency Contracts and Options
The Funds generally use forward currency contracts and options for hedging
purposes to reduce market risks. However, when used separately, forward currency
contracts and options have risks. For example, the price movements of the
options and forwards may not follow the price movements of the portfolio
securities subject to the hedge. Gains on investments in options and forwards
depend on the ability to predict correctly the direction of stock prices,
interest rates, and other economic factors. Where a liquid secondary market for
options or forwards does not exist, the Funds may not be able to close their
positions and in such an event, the loss is theoretically unlimited.
45
<PAGE> 85
Repurchase Agreements
The Funds may engage in repurchase agreement transactions. The Funds' custodian
bank sells U.S. government securities to each Fund under agreements to
repurchase these securities from each Fund at a stated repurchase price
including interest for the term of the agreement, which is usually overnight or
over a weekend. Each Fund, through its custodian, receives delivery of the
underlying U.S. government securities as collateral, whose market value is
required to be at least equal to the repurchase price. If the custodian becomes
bankrupt, the Fund might be delayed, or may incur costs or possible losses of
principal and income, in selling the collateral.
NOTE 3. INVESTMENT COUNSEL AGREEMENT
Southeastern Asset Management, Inc. ("Southeastern") serves as Investment
Counsel to the Funds and receives annual compensation, computed daily and paid
monthly, in accordance with the following schedule for the Partners Fund and
Small-Cap Fund:
<TABLE>
<S> <C>
First $400 million of average daily net assets.............. 1.00%
In excess of $400 million................................... .75%
</TABLE>
The Realty Fund fee is calculated on the same basis at 1.00% per annum on all
asset levels.
For the Partners, Small-Cap and Realty Funds, Southeastern has agreed to reduce
its fees on a pro rata basis to the extent that each Fund's normal annual
operating expenses (excluding taxes, interest, brokerage fees, and extraordinary
expenses) exceed 1.5% of average annual net assets. No such reductions were
necessary for the current year.
The International Fund fee is calculated at 1.5% per annum on all asset levels.
For this Fund, Southeastern has agreed to reduce its fees on a pro rata basis to
the extent that the Fund's normal annual operating expenses (excluding taxes,
interest, brokerage fees and extraordinary expenses) exceed 1.75% of average
annual net assets. Southeastern reduced its fees by $127,852 in 1998 for
expenses exceeding 1.75%.
NOTE 4. FUND ADMINISTRATOR
Southeastern also serves as the Fund Administrator and in this capacity is
responsible for managing, performing or supervising the administrative and
business operations of the Funds. Functions include the preparation of all
registration statements, prospectuses, tax returns and proxy statements, daily
valuation of the portfolios and calculation of daily net asset values per share.
The Funds pay a fee as compensation for these services, accrued daily and paid
monthly, of 0.10% per annum of average daily net assets.
Reimbursable administration expenses paid by the Funds to Southeastern consist
of the cost of computer software dedicated to valuation calculations and a
portion of the Funds' Treasurer's salary allocated in accordance with Trustee
review and approval.
46
<PAGE> 86
NOTE 5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------
PARTNERS INTERNATIONAL REALTY SMALL-CAP
FUND FUND FUND FUND
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold................................... 33,032,388 7,632,832 32,103,302 24,333,088
Reinvestment of shareholder distribution...... 37,325,423 3,246 3,576,951 8,326,574
Shares redeemed............................... (19,542,488) (52,282) (24,869,928) (12,181,491)
----------- --------- ----------- -----------
50,815,323 7,583,796 10,810,325 20,478,171
=========== ========= =========== ===========
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
PARTNERS INTERNATIONAL SMALL-CAP
FUND FUND REALTY FUND FUND
----------- ------------- ----------- -----------
Shares sold................................... 18,272,322 -- 42,365,845 37,816,017
Shares redeemed............................... (18,643,094) -- (11,033,373) (10,675,148)
----------- --------- ----------- -----------
(370,772) -- 31,332,472 27,140,869
=========== ========= =========== ===========
</TABLE>
NOTE 6. INVESTMENT TRANSACTIONS
Purchases and sales of equity securities for the periods (excluding short-term
obligations) are summarized below:
<TABLE>
<CAPTION>
PARTNERS FUND INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
-------------- ------------------ ------------ --------------
<S> <C> <C> <C> <C>
Purchases $1,529,160,118 $64,413,279 $365,529,493 $875,404,049
Sales 1,365,027,274 7,024,788 162,962,921 515,634,661
</TABLE>
There were no written option transactions for any Fund in 1998.
NOTE 7. AFFILIATED COMPANIES
Under Section 2(a)(3) of the Investment Company Act of 1940, a portfolio company
is defined as "affiliated" if a Fund owns five percent or more of its voting
stock. At December 31, 1998, each Fund held at least five percent of the
outstanding voting stock of the following companies:
<TABLE>
<CAPTION>
%
OUTSTANDING
SHARES OF
THE
COMPANY
-----------
<S> <C>
PARTNERS FUND
Crestline Capital Corporation 5.3%
Host Marriott Corporation 5.3
Pioneer Natural Resources Company 9.8
Rayonier Inc. 10.4
UCAR International, Inc. 9.9
</TABLE>
47
<PAGE> 87
<TABLE>
<CAPTION>
%
OUTSTANDING
SHARES OF
THE
COMPANY
-----------
<S> <C>
REALTY FUND
Bayview Capital Corporation 5.6%
Beacon Capital Partners, Inc.(Note 8) 9.9
Deltic Timber Corporation 5.1
Forest City Enterprises, Inc. -- Class A 8.6
Excel Legacy Corporation* --
Common 6.8
Series A Liquidating Preference Convertible (Note 8) 68.6
Getty Realty Corp. 9.0
IHOP Corp. 9.3
Prime Group Realty Trust 16.2
Prime Retail, Inc. 7.9
Red Roof Inns, Inc. 7.9
Supertel Hospitality, Inc. 10.0
TimberWest Forest Corp. 10.0
* Combined voting power is 30.8%
SMALL-CAP FUND
Agribrands International, Inc. 9.5
AMETEK, Inc. 6.4
Bay View Capital Corp. 10.4
Carbide/Graphite Group, Inc. 20.8
Carmike Cinemas, Inc. 14.8
Deltic Timber Corporation 6.6
Gendis, Inc. - Class A(Note 8) 20.0
Genlyte Group Incorporated 10.3
Gulf Canada Resources Limited 6.2
Hilb, Rogal and Hamilton Company 14.6
IHOP Corp. 6.4
Midas Inc. 13.8
Orion Capital Corporation 8.4
Perrigo Company 7.8
Pinkerton's, Inc. 9.0
Robbins & Meyers, Inc. 5.9
Shaw Communications Inc. -- Class B 8.9
TimberWest Forest Corp. 10.0
VICORP Restaurants, Inc. 10.6
</TABLE>
NOTE 8. ILLIQUID OR RESTRICTED SECURITIES
The Realty Fund holds 2,075,000 shares of Beacon Capital Partners, Inc. (Beacon)
carried at cost less accrued dividends of $40,504,000 or $19.52 per share. The
Beacon shares were acquired in a private placement which closed March 17, 1998.
The registration statement for the Beacon shares became effective on November
13, 1998, but no regular trading market in the shares had developed by December
31, 1998.
The Realty Fund also owns 14,600,000 shares of Excel Legacy Corp. Series A
Liquidating Preference Convertible Stock (Excel Preferred) valued at $68,031,620
or $4.66 per share. The Excel Preferred shares were acquired in a private
placement which closed on March 31, 1998 and may be converted by the company
into common shares on May 17, 1999. The $5.00 per share cost is being amortized
to the market price of the
48
<PAGE> 88
common shares less 10% over the period remaining until May 17, 1999, when the
company has the right to require conversion. The Excel Preferred shares are not
registered and there is no regular trading market in these shares.
Both Beacon and Excel Preferred are valued in good faith under guidelines
established by the Board of Trustees. These investments represent 14% of the
Realty Fund's net assets at December 31, 1998.
The Small-Cap Fund owns 3,349,996 shares of Gendis, Inc. Class A common stock,
representing 20.0% of the total outstanding shares of the company. Due to the
Fund's large ownership stake, a portion of this position may be relatively
illiquid. Gendis represents 0.8% of the Small-Cap Fund's net assets at December
31, 1998.
NOTE 9. RELATED OWNERSHIP
At December 31, 1998, officers, employees of Southeastern and their families,
Fund trustees, the Southeastern retirement plan and other affiliates owned more
than 5% of the following Funds:
<TABLE>
<CAPTION>
Shares Owned Percent of Fund
------------ ---------------
<S> <C> <C>
International Fund.......................................... 2,361,908 41.2%
Realty Fund................................................. 3,023,575 5.7%
</TABLE>
NOTE 10. COLLATERAL
Securities with the following aggregate market value were segregated to
collateralize portfolio obligations at December 31, 1998:
<TABLE>
<CAPTION>
Market
Value of
Segregated
Obligation Assets
------------------------------------ ---------------
<S> <C> <C>
Partners Fund....................... Forward Currency Contracts $453,188,000
International Fund.................. Forward Currency Contracts 36,080,111
Realty Fund......................... Newhall-Land and Farming Company Put
Options Written 24,862,500
Small-Cap Fund...................... Forward Currency Contracts 288,581,970
</TABLE>
NOTE 11. CAPITAL LOSS CARRYOVERS
At December 31, 1998, the Funds had capital loss carryovers for federal income
tax purposes which may be applied against future net taxable realized gains of
each succeeding year until the earlier of their utilization or expiration on
December 31, 2006 as follows:
<TABLE>
<S> <C>
Partners Fund................................ None
International Fund........................... $ 867,951
Realty Fund.................................. 17,735,542
Small-Cap Fund............................... None
</TABLE>
49
<PAGE> 89
NOTE 12. POST OCTOBER LOSSES
Under current tax laws, certain capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal year.
The Funds elected to defer losses between November 1, 1998 and December 31, 1998
as follows:
<TABLE>
<CAPTION>
CAPITAL CURRENCY
---------- --------
<S> <C> <C>
Partners Fund............................................... None None
International Fund.......................................... $ 583,780 $ 182
Realty Fund................................................. 168,966 96,531
Small-Cap Fund.............................................. 5,500,942 79,329
</TABLE>
50
<PAGE> 90
(This page intentionally left blank)
51
<PAGE> 91
- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
FINANCIAL HIGHLIGHTS
The presentation is for a share outstanding throughout each period.
<TABLE>
<CAPTION>
NET
GAINS
(LOSS)
NET ON DISTRI-
ASSET SECURITIES TOTAL DIVIDENDS BUTIONS
VALUE NET REALIZED FROM FROM NET FROM
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT CAPITAL
OF PERIOD INCOME(A) UNREALIZED OPERATIONS INCOME GAINS
----------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
PARTNERS FUND
Year ended December 31,
1998.............................................. $25.98 $.31 $ 3.16 $ 3.47 $ (.25) $(4.81)
1997.............................................. 22.85 .21 6.24 6.45 (.21) (3.11)
1996.............................................. 21.15 .37 4.09 4.46 (.38) (2.38)
1995.............................................. 17.13 .30 4.40 4.70 (.24) (.44)
1994.............................................. 16.92 .21 1.30 1.51 (.16) (1.14)
INTERNATIONAL FUND
August 12, 1998 (Capitalization)
through December 31, 1998......................... 10.00 .01 (.03) (.02) (.01) -
REALTY FUND
Year ended December 31,
1998.............................................. 17.35 .56 (2.82) (2.26) (.43) -
1997.............................................. 13.97 .19 3.96 4.15 (.09) (.64)
1996.............................................. 10.00 .16 3.91 4.07 (.04) (.05)
SMALL-CAP FUND
Year ended December 31,
1998.............................................. 22.18 .20 2.51 2.71 (.17) (2.77)
1997.............................................. 17.86 .25 4.94 5.19 (.18) (.69)
1996.............................................. 14.46 .03 4.40 4.43 (.02) (1.01)
1995.............................................. 13.28 .12 2.35 2.47 (.12) (1.17)
1994.............................................. 13.49 (.03) .52 .49 - (.70)
</TABLE>
(a) Calculated based on weighted average shares outstanding for the period.
(b) Total return reflects the rate that an investor would have earned on
investment in the Fund during each period, assuming reinvestment of all
distributions.
(c) Aggregate, not annualized. Calculated based on initial public offering price
of $9.15 on October 26, 1998.
(d) Expenses presented net of fee waiver.
52
<PAGE> 92
- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
RATIO OF
NET EXPENSES RATIO OF
ASSET NET ASSETS TO NET
RETURN TOTAL VALUE END OF AVERAGE INCOME TO PORTFOLIO
OF DISTRI- END OF TOTAL PERIOD NET AVERAGE TURNOVER
CAPITAL BUTIONS PERIOD RETURN(B) (THOUSANDS) ASSETS NET ASSETS RATE
- ------- ------- ------ --------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ - $(5.06) $24.39 14.28% $3,685,300 .93% 1.12% 43.78%
- (3.32) 25.98 28.25 2,605,070 .94 0.81 38.07
- (2.76) 22.85 21.02 2,300,079 .95 1.61 33.18
- (.68) 21.15 27.50 1,876,467 1.01 1.45 12.60
- (1.30) 17.13 8.96 753,527 1.17 1.18 27.39
- (.01) 9.97 9.02(c) 75,572 1.75(d) 0.10 24.05
(.11) (.54) 14.55 (12.98) 775,696 1.17 3.44 21.55
(.04) (.77) 17.35 29.73 737,302 1.20 0.75 28.66
(.01) (.10) 13.97 40.69 156,009 1.50(d) .92 4.28
(2.94) 21.95 12.71 1,355,364 1.01 0.87 52.51
- (.87) 22.18 29.04 915,259 1.09 1.18 16.95
- (1.03) 17.86 30.64 252,157 1.23 .18 27.97
- (1.29) 14.46 18.61 135,977 1.30 .84 32.95
- (.70) 13.28 3.64 99,609 1.38 (.22) 19.79
</TABLE>
53
<PAGE> 93
PART C. OTHER INFORMATION
Item 23. Exhibits
(a). Articles of Incorporation. Registrant is a Massachusetts business trust.
Declaration of Trust filed herewith.
(b). By-Laws. Filed herewith.
(c). Instruments Defining Rights of Security Holders. Stock Certificate; Sample
- filed herewith.
(d). Investment Advisory Contracts (with Southeastern Asset Management, Inc.)
(1) Longleaf Partners Fund and Longleaf Partners Small-Cap Fund; filed
herewith
(2) Longleaf Partners Realty Fund; incorporated by reference from
Definitive Proxy Statement filed April 8, 1997 (Accession Number
0000950144-97-003893).
(3) Longleaf Partners International Fund; incorporated by reference from
Post-Effective Amendment No. 20, filed August 10, 1998 (Accession
Number 0000950144-98-009323).
(e). Underwriting Contracts. None; not applicable.
(f). Bonus or Profit Sharing Contracts. None; not applicable.
(g). Custodian Agreements. Custodian Agreement with State Street Bank and Trust
Company; filed herewith.
(h). Other Material Contracts.
(1). Fund Administration Agreement between Southeastern Asset
Management, Inc. and the first two series of Longleaf Partners
Fund Trust (Longleaf Partners Fund and Longleaf Partners
Small-Cap Fund); filed herewith.
(2). Fund Administration Agreement between Southeastern Asset
Management, Inc. and Longleaf Partners Realty Fund; Incorporated
by reference from Definitive Proxy Statement filed April 8, 1997
(Accession Number 0000950144-97-003893).
(3). Fund Administration Agreement between Southeastern Asset
Management, Inc. and Longleaf Partners International Fund;
incorporated by reference from Post Effective Amendment No. 20,
filed August 10, 1998 (Accession Number 0000950144-98-009323).
(4). Transfer Agent Agreement with National Financial Data Services;
filed herewith.
(5). Sub-Transfer Agent Agreement with Howard Johnson & Company; filed
herewith.
(6). Form of Sub-Transfer Agent Agreement with National Financial
Services Corp.
(7). IRA Disclosure Statement and Adoption Agreement (filed herewith.)
(i). Legal Opinion. Filed herewith.
(j). Other Opinions or Consents. Opinion and Consent of PriceWaterhouse
Coopers, LLP; filed herewith.
(k). Omitted Financial Statements. None.
(1). Initial Capital Agreements. None.
(m). Rule 12b-1 Plan. None.
(n). Financial Data Schedule; filed herewith.
(o). Rule 18f-3 Plan. Not applicable; none.
<PAGE> 94
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 21
Item 24 Persons Under Common Control With Registrant
Longleaf Partners Funds Trust, a Massachusetts business
trust registered under the Investment Company Act of 1940 as a
non-diversified, open-end management investment company, has four
series -- Longleaf Partners Fund, Longleaf Partners Small-Cap Fund,
Longleaf Partners Realty Fund, and Longleaf Partners International Fund.
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 investment 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.
Item 25 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> 95
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 21
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> 96
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 21
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> 97
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 21
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> 98
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 21
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 26 Business and Other Connections of Investment Counsel
Southeastern Asset Management, Inc., a Tennessee corporation, offers
investment advisory services to corporations, endorsement funds, 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 four series included in Post-Effective Amendment No.
21 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
John B. Buford, CPA 1990 - Present Vice President
Co-Portfolio Manager of Southeastern Asset
Partners and Small-Cap Funds Management, Inc.;
and Vice President - Investments
</TABLE>
<PAGE> 99
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 21
<TABLE>
<S> <C> <C>
C.T. Fitzpatrick, III, 1990 - Present; Vice President
CFA; Co-Portfolio Southeastern Asset (1994); Prior to
Manager of Realty Fund and Management, Inc. 1994 - Securities
Vice President - Investments Analyst
E. Andrew McDermott, III 1998 - Present; Vice President - Investments
Co-Portfolio Manager of Southeastern Asset
International Fund and Management, Inc.;
Vice President - Investments J.P. Morgan & Co.,
1994-98; NEC
Logistics, 1992-94
Frank N. Stanley, CFA 1985 - Present; Vice President
Vice President - Southeastern Asset
Investments Management, Inc.;
Charles D. Reaves 1988 - Present; Vice President &
Executive Vice President Southeastern Asset General Counsel
General Counsel Management, Inc.
Julie M. Douglas, CPA 1989 - Present; Fund Accountant
Executive Vice Southeastern Asset
President- Operations Management, Inc.
and Treasurer
Lee B. Harper 1993 - Present Marketing
Executive Vice Southeastern Asset Analyst
President - Marketing Management, Inc.
Randy D. Holt, CPA 1985 - Present; Vice President
Vice President Southeastern Asset & Secretary
and Secretary Management, Inc.
Andrew R. McCarroll, 1998 - Present; Vice President and
Vice President and Assistant Southeastern Asset Assistant General
General Counsel Management, Inc.; Counsel
1996-98; Farris
Warfield & Kanady (law firm)
</TABLE>
The address of Southeastern Asset Management, Inc. is 6410 Poplar Avenue
Suite 900; Memphis, TN 38119.
<PAGE> 100
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 21
Item 27 Principal Underwriters
(a) The Funds are all no-load funds selling shares directly to the
public as its own distributor.
(b) Not Applicable.
(c) Not Applicable.
ITEM 28 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, 6410 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 29 Management Services
Not applicable. (See section in the Prospectus entitled "Fund
Administrator").
ITEM 30 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) Not applicable
(c) The information required by Item 5 of Form N-1A is set forth
in the audited annual reports to shareholders of each series 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> 101
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 four series or
portfolios, Longleaf Partners Fund (First Series), Longleaf Partners Small-Cap
Fund (Second Series), Longleaf Partners Realty Fund (Third Series), and
Longleaf Partners International Fund (Fourth Series) have duly caused this
Post-Effective Amendment No. 21 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 25th day of February, 1999.
LONGLEAF PARTNERS FUNDS TRUST (THE MASTER TRUST)
LONGLEAF PARTNERS FUND (First Series)
LONGLEAF PARTNERS SMALL-CAP FUND (Second Series)
LONGLEAF PARTNERS REALTY FUND (Third Series)
LONGLEAF PARTNERS INTERNATIONAL FUND (Fourth Series)
By /s/ Charles D. Reaves
-------------------------------
Charles D. Reaves
Executive Vice President
<PAGE> 102
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 21
SIGNATURES (Continued)*
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 21 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 February 25, 1999
Board and Chief Executive
Officer
/s/ W. Reid Sanders
- --------------------------
W. Reid Sanders Trustee and President February 25, 1999
(Chief Operating Officer)
/s/ Chadwick H. Carpenter, Jr.
- ------------------------------
Chadwick H. Carpenter, Jr. Trustee February 25, 1999
/s/ Daniel W. Connell, Jr.
- --------------------------
Daniel W. Connell, Jr. Trustee February 25, 1999
/s/ Steven N. Melnyk
- --------------------------
Steven N. Melnyk Trustee February 25, 1999
/s/ C. Barham Ray
- --------------------------
C. Barham Ray Trustee February 25, 1999
</TABLE>
(*) As of the date of this Post-Effective Amendment No. 21, 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 ("the
Registrant") 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
EXHIBIT 23(a)
LONGLEAF PARTNERS FUNDS TRUST
(A Massachusetts Business Trust)
DECLARATION OF TRUST
(With All Amendments)
I. Organized as Southeastern Asset Management Value Trust
Date of Filing - November 26, 1986
II. Name Changed to Southeastern Asset Management Funds Trust
And Second Series Added
December 21, 1988
The Trust's Two Series Are Then Named
First Series - Southeastern Asset Management Value Trust
Second Series - Southeastern Asset Management Small-Cap Fund
III. Name Changed to Longleaf Partners Funds Trust
August 2, 1994
The Trust's Two Series Are Then Named
First Series - Longleaf Partners Fund
Second Series - Longleaf Partners Small-Cap Fund
IV. Third Series Added
September 12, 1995
The Trust's Three Series Are Then Named:
First Series - Longleaf Partners Fund
Second Series - Longleaf Partners Small-Cap Fund
Third Series - Longleaf Partners Realty Fund
V. Fourth Series Added
August 11, 1998
The Trust's Four Series Are Then Named
First Series - Longleaf Partners Fund
Second Series - Longleaf Partners Small-Cap Fund
Third Series - Longleaf Partners Realty Fund
Fourth Series - Longleaf Partners International Fund
<PAGE> 2
DECLARATION OF TRUST
LONGLEAF PARTNERS FUNDS TRUST
(A Massachusetts Business Trust)
Organized as Southeastern Asset Management Value Trust
Date of Filing - November 26, 1986
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PREAMBLE 1
ARTICLE I -- Name and definitions
Section 1.1 Name 2
Section 1.2 Definitions 2
ARTICLE II -- Trustees
Section 2.1 Number of Trustees 5
Section 2.2 Election and Term 5
Section 2.3 Resignation and Removal 5
Section 2.4 Vacancies 6
Section 2.5 Delegation of Power to Other Trustees 6
ARTICLE III -- Power of Trustees
Section 3.1 General 7
Section 3.2 Investments 7
Section 3.3 Legal Title 8
Section 3.4 Issuance and Repurchase of Securities 9
Section 3.5 Borrowing Money; Lending Trust Assets 9
Section 3.6 Delegation; Committees 9
Section 3.7 Collection and Payment 9
Section 3.8 Expenses 10
Section 3.9 Manner of Acting; By-Laws 10
Section 3.10 Miscellaneous Powers 10
Section 3.11 Principal Transactions 11
Section 3.12 Litigation 11
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE IV -- Investment Adviser, Distributor, Custodian and Transfer Agent
Section 4.1 Investment Adviser 12
Section 4.2 Administrative Services 12
Section 4.3 Distributor 13
Section 4.4 Transfer Agent 13
Section 4.5 Custodian 13
Section 4.6 Parties to Contract 13
ARTICLE V -- Limitations of Liability of Shareholders, Trustees and Others
Section 5.1 No Personal Liability of Shareholders, Trustees, etc. 15
Section 5.2 Non-Liability of Trustees, etc. 15
Section 5.3 Indemnification 15
Section 5.4 No Bond Required of Trustees 16
Section 5.5 No Duty of Investigation; Notice in Trust Instruments, etc. 16
Section 5.6 Reliance on Experts, etc. 17
ARTICLE VI -- Shares of Beneficial Interest
Section 6.1 Beneficial Interest 18
Section 6.2 Rights of Shareholders 18
Section 6.3 Trust Only 18
Section 6.4 Issuance of Shares 19
Section 6.5 Register of Shares 19
Section 6.6 Transfer of Shares 20
Section 6.7 Notices 20
Section 6.8 Voting Powers 20
Section 6.9 Series or Classes of Shares 21
ARTICLE VII -- Redemptions
Section 7.1 Redemptions 24
Section 7.2 Redemption of Shares; Disclosure of Holding 24
Section 7.3 Redemptions of Accounts of Less than $100 25
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE VIII -- Determination of Net Asset Value, Net Income and Distributions
Section 8.1 Net Asset Value 26
Section 8.2 Distributions to Shareholders 26
Section 8.3 Determination of Net Income 27
Section 8.4 Power to Modify Foregoing Procedures 27
ARTICLE IX -- Duration; Termination of Trust; Amendment; Mergers, etc.
Section 9.1 Duration 28
Section 9.2 Termination of Trust 28
Section 9.3 Amendment Procedure 29
Section 9.4 Merger, Consolidation and Sale of Assets 30
Section 9.5 Incorporation 30
ARTICLE X -- Reports to Shareholders 32
ARTICLE XI -- Miscellaneous
Section 11.1 Filing 33
Section 11.2 Governing Law 33
Section 11.3 Resident Agent 33
Section 11.4 Counterparts 33
Section 11.5 Reliance by Third Parties 34
Section 11.6 Provisions in Conflict with Law or Regulations 34
Section 11.7 Use of the Name "Southeastern Asset Management" 34
</TABLE>
<PAGE> 5
DECLARATION OF TRUST
OF
SOUTHEASTERN ASSET MANAGEMENT VALUE TRUST
Dated: November 25, 1986
THE DECLARATION OF TRUST of Longleaf Partners Funds Trust
(formerly Southeastern Asset Management Value Trust) is made the 25th day of
November, 1986 by the parties signatory hereto, as trustees (such persons, so
long as they shall continue in office in accordance with the terms of this
Declaration of Trust, and all other persons who at the time in question have
been duly elected or appointed as trustees in accordance with the provisions of
this Declaration of Trust and are then in office, being hereinafter called the
"Trustees").
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a business trust under
the laws of Massachusetts for the investment and reinvestment of funds
contributed thereto; and
WHEREAS, it is provided that the beneficial interest in the
trust assets be divided into transferable shares of beneficial interest as
hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will
hold in trust, all money and property contributed to the trust fund to manage
and dispose of the same for the benefit of the holders from time to time of the
shares of beneficial interest issued hereunder and subject to the provisions
hereof, as follows:
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ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. The name of the trust created hereby is the
"Longleaf Partners Funds Trust" (formerly "Southeastern Asset Management Value
Trust") and so far as may be practicable the Trustees shall conduct the Trust's
activities, execute all documents and sue or be sued under that name, which name
(and the word "Trust" wherever herein used) shall refer to the Trustees as
Trustees, and not as individuals, or personally, and shall not refer to the
officers, agents, employees or Shareholders of the Trust. Should the Trustees
determine such other name for the Trust as they deem proper and the Trust may
hold its property and conduct its activities under such other name.
Section 1.2 Definitions. Wherever they are used herein, the
following terms have the following respective meanings:
(a) "By-Laws" means the By-Laws referred to in Section 3.9
hereof, as from time to time amended.
(b) the terms "Commission", "Affiliated Person" and
"Interested Person", have the meanings given them in the Investment Company Act
of 1940 (the "1940 Act"), as defined in Subsection 1.2(h) hereof.
(c) "Declaration" means this Declaration of Trust as amended
from time to time. Reference in this Declaration of Trust to "Declaration",
"hereof", "herein" and "hereunder" shall be deemed to refer to this Declaration
rather than the article or section in which such words appear.
(d) "Distributor" means the party, other than the Trust, to a
contract described in Section 4.3 hereof.
(e) "Fundamental Policies" shall mean the investment policies
and restrictions set forth in the Prospectus and designated as fundamental
policies therein.
(f) "Investment Adviser" means any party, other than the
Trust, to a contract described in Section 4.1 hereof.
(g) "Majority Shareholder Vote" means the vote of the holders
of a majority of Shares, which shall consist of:
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(1) a majority of Shares represented in person or by proxy and entitled to vote
at a meeting of Shareholders at which a quorum, as determined in accordance with
the By-Laws, is present, (ii) a majority of Shares issued and outstanding and
entitled to vote when action is taken by written consent of Shareholders; and
(iii) a "majority of the outstanding voting securities", as the phrase is
defined in the 1940 Act, when any action is required by the 1940 Act by such
majority as so defined.
(h) "1940 Act" means the Investment Company Act of 1940 and
the rules and regulations thereunder as amended from time to time.
(i) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(j) "Prospectus" means the prospectus constituting part of the
Registration Statement of the Trust under the Securities Act of 1933 as such
prospectus may be amended or supplemented and filed with the Commission from
time to time.
(k) "Series" shall mean the separate sub-trusts that may be
established and designated as series pursuant to Section 6.1 of any one of such
sub-trusts.
(1) "Shareholder" means a record owner of outstanding Shares.
(m) "Shares" means the units of interest into which the
beneficial interest in the Trust shall be divided from time to time, including
the shares of any and all series or classes which may be established by the
Trustees, and includes fractions of Shares as well as whole Shares.
(n) "Transfer Agent" means the party, other than the Trust, to
the contract described in Section 4.4 hereof.
(o) "Trust" means Longleaf Partners Funds Trust (previously
Southeastern Asset Management Value Trust and Southeastern Asset Management
Funds Trust.)
(p) "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for the account
of the Trust or the Trustees.
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<PAGE> 8
(q) "Trustees" means the persons who have signed the
Declaration, so long as they shall continue in office in accordance with the
terms hereof, and all other persons who may from time to time be duly elected or
appointed, qualified and serving as Trustees in accordance with the provisions
hereof, and reference herein to a Trustee or the Trustees shall refer to such
person or persons in their capacity as trustees hereunder.
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ARTICLE II
TRUSTEES
Section 2.1. Number of Trustees. The number of Trustees shall
be such number as shall be fixed from time to time by a majority of the
Trustees, provided, however, that the number of Trustees shall in no event be
less than three (3) nor more than fifteen (15).
Section 2.2. Election and Term. The Trustees shall be elected
by a Majority Shareholder Vote at the first meeting of Shareholders following
the public offering of Shares of the Trust. The Trustees shall have the power to
set and alter the terms of office of the Trustees, and they may at any time
lengthen or lessen their own terms and make their terms of unlimited duration,
subject to the resignation and removal provisions of Section 2.3 hereof. Subject
to Section 16(a) of the 1940 Act, the Trustees may elect their own successors
and may, pursuant to Section 2.4 hereof, appoint Trustees to fill vacancies. The
Trustees shall adopt By-Laws not inconsistent with this Declaration or any
provision of law to provide for election of Trustees by Shareholders at such
time or times as the Trustees shall determine to be necessary or advisable.
Section 2.3 Resignation and Removal. Any Trustee may resign
his trust (without need for prior or subsequent accounting) by an instrument in
writing signed by him and delivered to the other Trustees and such resignation
shall be effective upon such delivery, or at a later date according to the terms
of the instrument. Any of the Trustees may be removed (provided the aggregate
number of Trustees after such removal shall not be less than the number required
by Section 2.1 hereof) by the action of two-thirds of the remaining Trustees or
by the action of the Shareholders of record or not less than two-thirds of the
Shares outstanding (for purposes of determining the circumstances and procedures
under which such removal by the Shareholders may take place, the provisions of
Section 16(c) of the 1940 Act shall be applicable to the same extent as if the
trust were subject to the provisions of that Section). Upon the resignation or
removal of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute
and deliver such documents as the remaining Trustees shall require for the
purpose of conveying
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<PAGE> 10
to the Trust or the remaining Trustees any Trust Property held in the name of
that resigning or removed Trustee. Upon the incapacity or death of any Trustee,
his legal representative shall execute and deliver on his behalf such documents
as the remaining Trustees shall require as provided in the preceeding sentence.
Section 2.4 Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform
the duties of the office of the Trustee. No such vacancy shall operate to annul
the Declaration or to revoke any existing agency created pursuant to the terms
of the Declaration. In the case of an existing vacancy existing by reason of an
increase in the number of Trustees, subject to the provisions of Section 16(a)
of the 1940 Act, the remaining Trustees or, prior to the public offering of
Shares of the Trust, if only one Trustee shall then remain in office, the
remaining Trustee, shall fill such vacancy by the appointment of such other
person as they or he, in their or his discretion, shall see fit, made by a
written instrument signed by a majority of the remaining Trustees or by the
remaining Trustee, as the case may be. Any such appointment shall not become
effective, however, until the person named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of the Declaration. An appointment of a Trustee
may be made in anticipation of a vacancy to occur at a later date by reason of
retirement, resignation or increase in the number of Trustees, provided that
such appointment shall not become effective prior to such retirement,
resignation or increase in the number of Trustees. Whenever a vacancy is filled
as provided in this Section 2.4, the Trustees in office, regardless of their
number, shall discharge all the duties imposed upon the Trustees by the
Declaration. A written instrument certifying the existence of such vacancy
signed by a majority of the Trustees shall be conclusive evidence of the
existence of such vacancy.
Section 2.5. Delegation of Power to Other Trustees. Any
Trustee may, by power of attorney, delegate his power for a period not exceeding
six (6) months at any one time to any other Trustee or Trustees; provided that
in no case shall less than two (2) Trustees personally exercise the powers
granted to the Trustees under the Declaration except as herein otherwise
expressly provided.
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ARTICLE II
POWERS OF TRUSTEES
Section 3.1 General. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities wheresoever in the world they may be
located as they deem necessary proper or desirable in order to promote the
interests of the Trust although such acts or things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
the Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be
construed as limiting the aforesaid power. Such powers of the Trustees may be
exercised without order of or resort to any court.
Section 3.2. Investments. The Trustees shall have the power
to:
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer,
exchange, distribute, lend or otherwise deal in or dispose of
negotiable or non-negotiable instruments, obligations,
evidences of indebtedness, certificates of deposit or
indebtedness, commercial paper repurchase agreements, reverse
repurchase agreements, options, commodities, commodity futures
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<PAGE> 12
contracts and related options, currencies, currency futures
and forward contracts, and other securities, investment
contracts and other instruments of any kind, including,
without limitation, those issued, guaranteed or sponsored by
any and all Persons including, without limitation, states,
territories and possessions of the United States, the District
of Columbia and any of the political subdivisions, agencies or
instrumentalities thereof, and by the United States Government
or its agencies or instrumentalities, foreign or international
instrumentalities, or by any bank or savings institution, or
by any corporation or organization organized under the laws of
the United States or of any state, territory or possession
thereof, and of corporations or organizations organized under
foreign laws, or in "when issued" contracts for any such
securities, or retain Trust assets in case and from time to
time change the investments of the assets of the Trust; and to
exercise any and all rights, powers and privileges of
ownership or interest in respect of any and all such
investments of every kind and description, including, without
limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more persons,
firms, associations or corporations to exercise any of said
rights, powers and privileges in respect of any of said
instruments; and the Trustees shall be deemed to have the
foregoing powers with respect to any additional securities in
which the Trust may invest should the Fundamental Policies be
amended.
The Trustees shall not be limited to investing in obligations maturing before
the possible termination of the Trust, nor shall the Trustees be limited by any
law limiting the investments which may be made by fiduciaries.
Section 3.3. Legal Title. Legal title to all the Trust
Property shall be vested in the Trustees as joint tenants except that the
Trustees shall have power to cause legal title to any Trust Property to be held
by or in the name of one or more of the Trustees, or in the name of the Trust,
or in the name of any other Person as nominee, on such terms as the Trustees may
determine, provided that the interest of the Trust herein is appropriately
protected. The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each Person who may hereafter become a
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<PAGE> 13
Trustee. Upon the resignation, removal or death of a Trustee he shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
Section 3.4. Issuance and Repurchase of Securities. The
Trustees shall have the power to issue, sell, repurchase, redeem, retire, cancel
or acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal in
Shares and, subject to the provisions set forth in Articles VII, VIII and IX and
Section 6.9 hereof, to apply to any such repurchase, redemption, retirement,
cancellation or acquisition of Shares any funds or property of the Trust,
whether capital or surplus or otherwise, to the full extent now or hereafter
permitted by the laws of the Commonwealth of Massachusetts governing business
corporations.
Section 3.5. Borrowing Money; Lending Trust Assets. Subject to
the Fundamental Policies, the Trustees shall have power to borrow money or
otherwise obtain credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the Trust, to endorse, guarantee,
or undertake the performance of any obligation, contract or engagement of any
other Person and to lend Trust assets.
Section 3.6. Delegation; Committees. The Trustees shall have
power, consistent with their continuing exclusive authority over the management
of the Trust and the Trust Property, to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of such
acts or things and the execution of such instruments either in the name of the
Trust or the names of the Trustees or otherwise as the Trustees may deem
expedient.
Section 3.7. Collection and Payment. The Trustees shall have
power to collect all property due to the Trust; to pay all claims, including
taxes, against the Trust Property; to prosecute, defend, compromise or abandon
any claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owned to the Trust;
and to enter into releases, agreements and other instruments.
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<PAGE> 14
Section 3.8. Expenses. The Trustees shall have the power to
incur and pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
Section 3.9. Manner of Acting; By-Laws. Except as otherwise
provided herein or in the By-Laws or by any provision of law, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), including any meeting held by
means of a conference telephone circuit or similar communications equipment by
means of which all persons participating in the meeting can hear each other, or
by written consents of all the Trustees. The Trustees may adopt By-Laws not
inconsistent with this Declaration to provide for the conduct of the business of
the Trust and may amend or repeal such By-Laws to the extent such power is not
reserved to the Shareholders.
Section 3.10. Miscellaneous Powers. The Trustees shall have
the power to: (a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) remove
Trustees or fill vacancies in or add to their number, elect and remove such
officers and appoint and terminate such agents or employees as they consider
appropriate, and appoint from their own number, and terminate, any one or more
committees which may exercise some or all of the power and authority of the
Trustees as the Trustees may determine; (d) purchase, and pay for out of Trust
Property, insurance policies insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers, distributors, selected dealers or
independent contractors of the Trust against all claims arising by reason of
holding any such position or by reason of any action taken or omitted to be
taken by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (e) establish pension, profit-sharing, Share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) to the extent permitted by law,
indemnify any person with whom the Trust has dealings, including any Investment
Adviser, Principal Underwriter,
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<PAGE> 15
Distributor, Transfer Agent, Administrator, and selected dealers, to such extent
as the Trustees shall determine; (g) guarantee indebtedness or contractural
obligations of others; (h) determine and change the fiscal year of the Trust and
the method of which its accounts shall be kept; and (i) adopt a seal for the
Trust but the absence of such seal shall not impair the validity of any
instrument executed on behalf of the Trust.
Section 3.11. Principal Transactions. Except in transactions
permitted by the 1940 Act or any rule or regulation thereunder, or any order of
exemption issued by the Commission, or effected to implement the provisions of
any agreement to which the Trust is a party, the Trustees shall not, on behalf
of the Trust, buy any securities (other than Shares) from or sell any securities
(other than Shares) to, or lend any assets of the Trust to, any Trustee or
officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with any Investment
Adviser, Principal Underwriter, Distributor or Transfer Agent or with any
Affiliated Person, or firm or company in which such Person is an Interested
Person, as broker, legal counsel, registrar, transfer agent, dividend disbursing
agent or custodian upon customary terms.
Section 3.12. Litigation. The Trustees shall have the power to
engage in and to prosecute, defend, compromise, abandon, or adjust, by
arbitration, or otherwise, any actions, suits, proceedings, disputes, claims,
and demands relating to the Trust, and out of the assets of the Trust to pay or
to satisfy any debts, claims or expenses incurred in connection therewith,
including those of litigation, and such power shall include without limitation
the power of the Trustees or any appropriate committee thereof, in the exercise
of their or its good faith business judgment, to dismiss any action, suit,
proceeding, dispute, claim, or demand, derivative or otherwise, brought by any
person, including a Shareholder in its own name or the name of the Trust,
whether or not the Trust or any of the Trustees may be named individually
therein or the subject matter arises by reason of business for or on behalf of
the Trust.
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ARTICLE IV
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER, DISTRIBUTOR,
CUSTODIAN AND TRANSFER AGENT
Section 4.1. Investment Adviser. Subject to approval by a
Majority Shareholder Vote, the Trustees may in their discretion from time to
time enter into one or more investment adviser, or investment counsel, or
investment management contracts whereby the other party or parties to any such
contracts shall undertake to furnish the Trust such investment advisory,
statistical and research facilities and services, and such other facilities and
services, if any, as the Trustees shall from time to time consider desirable
and all upon such terms and conditions as the Trustees may in their discretion
determine. Notwithstanding any provisions of the Declaration, the Trustees may
authorize the Investment Adviser, or Investment Counsel under any such contracts
(subject to such general or specific instructions as the Trustees may from time
to time adopt) to effect purchases, sales, loans or exchanges of portfolio
securities and other investments of the Trust on behalf of the Trustees or may
authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of such Investment Adviser, or
Investment Counsel (and all without further action by the Trustees). Any such
purchases, sales, loans and exchanges shall be deemed to have been authorized by
all of the Trustees. The Trustees may, in their sole discretion, call a meeting
of Shareholders in order to submit to a vote of Shareholders at such meeting the
approval or continuance of any such investment advisory or investment counsel
contract.
Section 4.2. Administrative Services. The Trustees may in
their discretion from time to time contract for administrative personnel and
services whereby the other party shall agree to provide the Trustees or the
Trust management, administration, accounting, legal, promotional, and/or
marketing services and administrative personnel to operate the Trust on a daily
or other basis, on such terms and conditions as the Trustees may in their
discretion determine. Such services may be provided by one or more entities.
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Section 4.3. Principal Underwriter and/or Managing
Distributor. The Trustees may in their discretion from time to time enter into
one or more contracts, providing for the sale of Shares to net the Trust not
less than the net asset value per Share (as described in Article VIII hereof)
and pursuant to which the Trust may either agree to sell the Shares to the other
parties to the contracts, or any of them, or appoint any such other party its
sales agent for such Shares. In either case, any such contract or contracts
shall be on such terms and conditions as the Trustees may in their discretion
determine not inconsistent with the provisions of this Article IV, including,
without limitation, the provision for the repurchase or sale of shares of the
Trust by such other party or parties as principal or as agent of the Trust.
Section 4.4. Transfer Agent. The Trustees may in their
discretion from time to time enter into a transfer agency and shareholder
service contract whereby the other party to such contract shall undertake to
furnish transfer agency and shareholder services to the Trust. The contract
shall have such terms and conditions as the Trustees may in their discretion
determine not inconsistent with the Declaration. Such services may be provided
by one or more Persons.
Section 4.5. Custodian. The Trustees may appoint or otherwise
engage one or more banks or trust companies, each having an aggregate capital,
surplus and undivided profits (as shown in its last published report) of at
least five million dollars ($5,000,000) to serve as Custodian with authority as
its agent, but subject to such restrictions, limitations and other requirements,
if any, as may be contained in the By-Laws of the Trust.
Section 4.6. Parties to Contract. Any contract of the
character described in Sections 4.1, 4.2, 4.3, 4.4 or 4.5 of this Article IV and
any other contract may be entered into with any Person, although one or more of
the Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party of the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship; nor shall any Person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with
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<PAGE> 18
the provisions of this Article IV. The same Person may be the other party to any
contracts entered into pursuant to Sections 4.1, 4.2, 4.3, 4.4 or 4.5 above or
otherwise, and any individual may be financially interested or otherwise
affiliated with Persons who are parties to any or all of the contracts mentioned
in this Section 4.6.
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LIMITATION OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1. No Personal Liability of Shareholders, Trustees,
etc. No Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or affairs of
the Trust. No Trustee, officer, employee or agent of the Trust shall be subject
to any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with the Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee or agent, as such, of the Trust is made a party to any suit or
proceeding to enforce any such liability, he shall not, on account thereof, be
held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities, to which such
Shareholder may become subject by reason to his being or having been a
Shareholder, and shall reimburse each Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
Section 5.2. Non-Liability of Trustees, etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the Trust, its
Shareholders, or to any Shareholder, Trustee, officer, employee, or agent
thereof for any action or failure to act (including without limitation the
failure to compel in any way any former or acting Trustee to redress any breach
of trust) except for his own bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties.
Section 5.3. Indemnification. (a) The Trustees shall provide
for indemnification by the Trust of any person
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who is, or has been, a Trustee, officer, employee or agent of the Trust against
all liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or officer, employee or agent and against amounts paid or
incurred by him in the settlement thereof, in such manner as the Trustees may
provide from time to time in the By-Laws.
(b) The words "claim", "action", "suit" or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal, or other,
including appeals), actual or threatened; and the words "liability" and
"expenses" shall include without limitation, attorneys' fees, costs, judgements,
amounts paid in settlement, fines, penalties and other liabilities.
Section 5.4. No Bond Required of Trustees. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
Section 5.5. No Duty of Investigation; Notice in Trust
Instruments, etc. No purchaser, lender, transfer agent or other Person dealing
with the Trustees or any officer, employee or agent of the Trust shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking, and every other act or thing whatsoever executed in connection with
the Trust shall be conclusively presumed to have been executed or done by the
executors thereof only in their capacity as officers, employees or agents of the
Trust. Every written obligation, contract, instrument, certificate, Share, other
security of the Trust or undertaking made or issued by the Trustees shall recite
that the same is executed or made by them not individually, but bind only the
Trust Estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees or Shareholders individually. The Trustees shall at all times maintain
insurance for the protection of the Trust Property, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
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Section 5.6. Reliance on Experts, etc. Each Trustee and
officer or employee of the Trust shall, in the performance of his or her duties,
be fully and completely justified and protected with regard to any act or any
failure to act resulting from reliance in good faith upon the books of account
or other records of the Trust, upon an opinion of counsel, or upon reports made
to the Trust by any of its officers or employees or by any Investment Adviser,
Principal Underwriter, Distributor, Transfer Agent, Administrator, selected
dealers, accountants appraisers or other experts or consultants selected with
reasonable care by the Trustees, officers or employees of the Trust, regardless
of whether such counsel or expert may also be a Trustee.
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ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1. Beneficial Interest. The interest of the
beneficiaries hereunder shall be divided into transferable shares of beneficial
interest without par value. The number of such shares of beneficial interest
authorized hereunder is unlimited. The Trustees may initially issue whole and
fractional shares of a single class, each of which shall represent an equal
proportionate share in the Trust with each other Share. The Trustees may divide
or combine the shares into a greater or lesser number of shares without thereby
changing the proportionate interests in the Trust. Subject to the provisions of
Section 6.9 hereof, the Trustees may also authorize the creation of additional
series of shares (the proceeds of which may be invested in separate,
independently managed portfolios) and additional classes of shares within any
series. All Shares issued hereunder including, without limitation, Shares issued
in connection with a dividend in Shares or a split in Shares, shall be fully
paid and nonassessable.
Section 6.2. Rights of Shareholders. The ownership of the
Trust Property of every description and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall no right to call for any partition or
division of any property, profits, rights or interests of the Trust nor can they
be called upon to assume any losses of the Trust or suffer an assessment of any
kind by virtue of their ownership of Shares. The Shares shall be personal
property giving only the rights in the Declaration specifically set forth. The
Shares shall not entitle the holder to preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may determine with respect
to any series of Shares.
Section 6.3. Trust Only. It is the intention of the Trustees
to create only the relationship of Trustee and beneficiary between the Trustees
and each Shareholder from time to time. It is not the intention of the Trustees
to create a general partnership, limited partnership, joint stock
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association, corporation, bailment or any form of legal relationship other than
a trust. Nothing in the Declaration shall be construed to make the Shareholders,
either by themselves or with the Trustees, partners or members of a joint stock
association.
Section 6.4. Issuance of Shares. The Trustees, in their
discretion may, from time to time without vote of the Shareholders, issue
Shares, in addition to the then issued and outstanding Shares and Shares held in
the treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times and on such
terms as the Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares. The Trustees may from time to
time divide or combine the Shares into a greater or lesser number without
thereby the proportionate beneficial interests in the Trust. Contributions to
the Trust may be accepted for, and Shares shall be redeemed as, whole Shares
and/or fractions of a Share as described in the Prospectus.
Section 6.5. Register of Shares. A register shall be kept at
the principal office of the Trust or at an office of the Transfer Agent which
shall contain the names and addresses of the Shareholders and the number of
Shares held by them respectively and a record of all transfers thereof. Such
register may be in written form or any other form capable of being converted
into written form within a reasonable time for visual inspection. Such register
shall be conclusive as to who are the holders of the Shares and who shall be
entitled to receive dividends or distributions or otherwise to exercise or enjoy
the rights of Shareholders. No Shareholder shall be entitled to receive payment
of any dividend or distribution, nor to have notice given to him as herein or in
the By-Laws provided, until he has given his address to the Transfer Agent or
such other officer or agent of the Trustees as shall keep the said register for
entry thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of Share certificates and promulgate appropriate rules and regulations as to
their use.
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Section 6.6. Transfer of Shares. Shares shall be transferable
on the records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized in writing, upon delivery to the Trustees or the
Transfer Agent of a duly executed instrument of transfer, together with such
evidence of the genuineness of each such execution and authorization and of
other matters as may reasonably be required. Upon such delivery the transfer
shall be recorded on the register of the Trust. Until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor any Transfer Agent or registrar
nor any officer, employee or agent of the Trust shall be affected by any notice
of the proposed transfer.
Any person becoming entitled to any Shares in consequence of
the death, bankruptcy, or incompetence of any Shareholder, or otherwise by
operation of law, shall be recorded on the register of Shares as the holder of
such Shares upon production of the proper evidence thereof to the Trustees or
the Transfer Agent, but until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law, except as may otherwise be provided by
the laws of the Commonwealth of Massachusetts.
Section 6.7. Notices. Any and all notices to which any
Shareholder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the register of the Trust.
Section 6.8. Voting Powers. The Shareholders shall have power
to vote (i) for the election of Trustees as provided in Section 2.2 hereof, (ii)
for the removal of Trustees as provided in Section 2.3 hereof, (iii) with
respect to any investment advisory or investment counsel contract as provided in
Section 4.1, (iv) with respect to termination of the Trust as provided in
Section 9.2, (v) with respect to any amendment of the Declaration to the extent
and as provided in Section 9.3, (vi) with respect to any merger, consolidation
or sale of assets as provided in Section 9.4, (vii) with respect to
incorporation of the Trust to the extent and as provided in Section 9.5, (viii)
to the same extent as the stockholders of
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a Massachusetts business corporation as to whether or not a court action
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, and (ix) with
respect to such additional matters relating to the Trust as may be required by
law, the Declaration, the By-Laws or any registration of the Trust with the
Commission (or any successory agency) or any state, or as and when the Trustees
may consider necessary or desirable. Each whole Share shall be entitled to one
vote as to any matter on which it is entitled to vote and each factional Share
shall be entitled to a proportionate fractional vote, except that Shares held in
the treasury of the Trust as of the record date, as determined in accordance
with the By-Laws, shall not be voted and except that the Trustees may, in
conjunction with the establishment of any series or classes of Shares, establish
conditions under which the several series or classes of Shares shall have
separate voting rights or no voting rights. Unless and until otherwise
determined by the Trustees, any vote of Shareholders shall be taken without
regard to class or series. There shall be no cumulative voting in the election
of Trustees. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, the Declaration or the
By-Laws to be taken by Shareholders. The By-Laws may include further provisions
for Shareholders' votes and meetings and related matters.
Section 6.9. Series or Classes of Shares. If the Trustees
shall divide the shares of the Trust into two or more series or two or more
classes or series, as provided in Section 6.1 hereof, the following provisions
shall be applicable:
(a) The number of authorized shares and the number of shares
of each series or of each class that may be issued shall be unlimited. The
Trustees may classify or reclassify any unissued shares or any shares previously
issued and reacquired of any series or class that may be established and
designated from time to time. The Trustees may hold as treasury shares (of the
same or some other series or class), reissue for such consideration and on such
terms as they may determine, or cancel any shares of any series or any class
reacquired by the Trust at their discretion from time to time.
(b) The power of the Trustees to invest and reinvest the
Trust Property shall be governed by Section 3.2 of this Declaration with respect
to any one or more series which represents the interests in the assets of the
Trust
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immediately prior to the establishment of two or more series and the power of
the Trustees to invest and reinvest assets applicable to any other series shall
be as set forth in the instrument of the Trustees establishing such series which
is hereinafter described.
(c) All consideration received by the Trust for the issue or
sale of shares of a particular series or class together with all assets in which
such consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series or class for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular series or class, the Trustees shall allocate them
among any one or more of the series or classes established and designated from
time to time in such manner and on such basis as they, in their sole discretion,
deem fair and equitable. Each such allocation by the Trustees shall be
conclusive and binding upon the shareholders of all series or classes for all
purposes.
(d) The assets belonging to each particular series shall be
charged with the liabilities of the Trust in respect of that series and all
expenses, costs, charges and reserves attributable to that series, and any
general liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular series shall be
allocated and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. Each allocation
of liabilities, expenses costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the shareholders.
(e) The power of the Trustees to pay dividends and make
distributions shall be governed by Section 8.2 of this Declaration with respect
to any one or more series or classes
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which represents the interests in the assets of the Trust immediately prior to
the establishment of two or more series or classes, dividends and distributions
on shares of a particular series or class may be paid with such frequency as the
Trustees may determine, which may be daily or otherwise, pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Trustees may determine, to the holders of shares of that series or class, from
such of the income and capital gains, accrued or realized, from the assets
belonging to that series or class, as the Trustees may determine, after
providing for actual and accrued liabilities belonging to that series or class.
All dividends and distributions on shares of a particular series or class shall
be distributed pro rata to the holders of that series or class in proportion to
the number of shares of that series or class held by such holders at the date
and time of record established for the payment of such dividends or
distributions.
(f) The Trustees shall have the power to determine the
designations, preferences, privileges, limitations and rights, including voting
and dividend rights, of each class and series of Shares.
(g) The establishment and designation of any series or class
of shares shall be effective upon the execution of a majority of the then
Trustees of an instrument setting forth such establishment and designation and
the relative rights and preferences of such series or class or as otherwise
provided in such series or class, or as otherwise provided in such instrument.
At any time that there are no shares outstanding of any particular series or
class previously established and designated, the Trustees may be an instrument
execute by a majority of their number abolish that series or class and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration.
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ARTICLE VII
Redemptions
7.1. Redemptions. All outstanding Shares may be redeemed at
the option of the holders thereof, upon and subject to the terms and conditions
provided in this Article VII. The Trust shall, upon application of any
Shareholder or pursuant to authorization from any Shareholder, redeem or
repurchase from such Shareholder outstanding shares for an amount per share
determined by the Trustees in accordance with any applicable laws and
regulations; provided that (a) such amount per share shall not exceed in any
case the equivalent of the proportionate interest of each share or of any class
or series of shares in the assets of the Trust at the time of the redemption or
repurchase and (b) if so authorized by the Trustees, the Trust may, at any time
and from time to time charge fees for effecting such redemption or repurchase,
at such rates as the Trustees may establish, as and to the extent permitted
under the 1940 Act and the rules and regulations promulgated thereunder, and
may, at any time and from time to time, pursuant to such Act and such rules and
regulations, suspend such right of redemption. The procedures for effecting and
suspending redemption shall be as set forth in the Prospectus from time to time.
Payment will be made in such manner as described in the Prospectus.
7.2. Redemption of Shares; Disclosure of Holding. If the
Trustees shall, at any time and in good faith, be of the opinion that direct or
indirect ownership of Shares or other securities of the Trust has or may become
concentrated in any Person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption by any such Person a number, or principal amount, of Shares or
other securities of the Trust sufficient, in the opinion of the Trustees, to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust into conformity with the requirements for such qualification and
(ii) to refuse to transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust in
question would in the opinion of the Trustees result in such disqualification.
The redemption shall be effected at a redemption price determined in accordance
with Section 7.1.
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The holders of Shares or other securities of the Trust shall
upon demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other authority.
Section 7.3. Redemptions of Accounts of Less than $100. The
Trustees shall have the power at any time to redeem Shares of any Shareholder at
a redemption price determined in accordance with Section 7.1 if at such time the
aggregate net asset value of the Shares in such Shareholder's account is less
than $100. A Shareholder will be notified that the value of his account is less
than $100 and allowed sixty (60) days to make an additional investment before
the redemption is processed.
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ARTICLE VIII
Determination of Net Asset Value,
Net Income and Distributions
Section 8.1. Net Asset Value. The net asset value of each
outstanding Share of the Trust shall be determined on such days and at such time
or times as the Trustees may determine. The method of determination of net asset
value shall be determined by the Trustees and shall be as set forth in the
Prospectus. The power and duty to make the daily calculations may be delegated
by the Trustees to any Investment Adviser, the Custodian, the Transfer Agent, an
Administrator or such other person as the Trustees by resolution may determine.
The Trustees may suspend the daily determination of net asset value to the
extent permitted by the 1940 Act.
Section 8.2. Distributions to Shareholders. The Trustees shall
from time to time distribute ratably among the Shareholders such proportion of
the net profits, surplus (including paid-in surplus), capital, or assets held by
the Trustees as they may deem proper. Such distribution may be made in cash or
property (including without limitation any type of obligations of the Trust or
any assets thereof), and the Trustees may distribute ratably among the
Shareholders additional Shares issuable hereunder in such manner, at such times,
and on such terms as the Trustees may deem proper. Such distributions may be
among the Shareholders of record at the time of declaring a distribution or
among the Shareholders of record at such later date as the Trustees shall
determine. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or to meet
obligations of the Trust, or as they may deem desirable to use in the conduct of
its affairs or to retain for future requirements or extensions of the business.
The Trustees may adopt and offer to Shareholders such dividend reinvestment
plans, cash dividend payout plans or related plans as the Trustees deem
appropriate.
Inasmuch as the computation of net income and gains for
Federal income tax purposes may vary from the computation thereof on the books,
the above provisions shall be interpreted to give the Trustees the power in
their discretion to distribute for any fiscal year as ordinary dividends and as
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capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
Section 8.3. Determination of Net Income. The Trustees shall
have the power to determine the net income of the Trust and from time to time to
distribute such net income ratably among the Shareholders as dividends in cash
or additional Shares issuable hereunder. The determination of net income and the
resultant declaration of dividends shall be as set forth in the Prospectus. The
Trustees shall have full discretion to determine whether any cash or property
received by the Trust shall be treated as income or as principal and whether any
item of expense shall be charged to the income or the principal account, and
their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much, if any, of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
Section 8.4. Power to Modify Foregoing Procedures.
Notwithstanding any of the foregoing provisions of this Article VIII, the
Trustees may prescribe, in their absolute discretion, such other bases and times
for determining the per Share net asset value of the Shares or net income, or
the declaration and payment of dividends and distributions, as they may deem
necessary or desirable to enable the Trust to comply with any provision of the
1940 Act, or any rule or regulation thereunder, including any rule or regulation
adopted pursuant to Section 22 of the 1940 Act by the Commission or any
securities association registered under the Securities Exchange Act of 1934, or
any order of exemption issued by said Commission, all as in effect now or
hereafter amended or modified. Included within the authority of the Trustees is
the authority, in their absolute discretion, to adopt a distribution plan of the
type permitted by Rule 12b-1 of the Investment Company Act of 1940, and to
distribute the compensation provided for therein, either from the principal or
the income of the Trust, as determined by the Trustees in their absolute
discretion. Without limiting the generality of the foregoing, the Trustees may
establish classes of series of Shares in accordance with Section 6.9.
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ARTICLE IX
DURATION; TERMINATION OF
TRUST; AMENDMENT; MERGERS, ETC.
Section 9.1. Duration. The Trust shall continue without
limitation of time but subject to the provisions of this Article IX.
Section 9.2. Termination of Trust. (a) The Trust may be
terminated (i) by the affirmative vote of the holders of not less than
two-thirds of the Shares outstanding and entitled to vote at any meeting of
Shareholders, or (ii) by an instrument in writing, without a meeting, signed by
a majority of the Trustees and consented to by the holders of not less than
two-thirds of such Shares, or by such other vote as may be established by the
Trustees with respect to any class or series of Shares, or (iii) by the Trustees
by written notice to the Shareholders. Upon the termination of the Trust:
(i) The trust shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust
shall have been wound up, including the power to fulfill or
discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, transfer or otherwise dispose
of all or any part of the remaining Trust Property to one or
more persons at public or private sale for consideration which
may consist in whole or in part of cash, securities or other
property of any kind, discharge or pay its liabilities, and to
do all other acts appropriate to liquidate its business;
provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the
Trust Property shall require Shareholder approval in
accordance with Section 9.4 hereof.
(ii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases,
indemnities and refunding agreements, as
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they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or
partly each, among the Shareholders according to their
respective rights.
(b) After termination of the Trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and interests of
all Shareholders shall thereupon cease.
Section 9.3. Amendment Procedure. (a) This Declaration may be
amended by a Majority Shareholder Vote, at a meeting of Shareholders, or by
written consent without a meeting. The Trustees may also amend this Declaration
without the vote or consent of Shareholders to change the name of the Trust, to
supply any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or if they deem it necessary to conform this
Declaration to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code, or to eliminate or reduce any federal, state or local taxes which
are or may be payable by the Trust or the Shareholders, but the Trustees shall
not be liable for failing to do so.
(b) No amendment may be made under this Section 9.3 which
would change any rights with respect to any Shares of the Trust by reducing the
amount payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares outstanding and entitled to
vote, or by such other vote as may be established by the Trustees with respect
to any series or class of Shares. Nothing contained in this Declaration shall
permit the amendment of this Declaration to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents of the
Trust or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by
the Secretary or any Assistant Secretary of the Trust, setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as
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aforesaid on a copy of the Declaration, as amended, and executed by a majority
of the Trustees or certified by the Secretary or any Assistant Secretary of the
Trust, shall be conclusive evidence of such amendment when lodged among the
records of the Trust.
Notwithstanding any other provision hereof, until such time as
a Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 9.4. Merger, Consolidation and Sale of Assets. The
Trust may merge or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all of
the Trust Property, including its good will, upon such terms and conditions and
for such consideration when and as authorized, at any meeting of Shareholders
called for the purpose, by the affirmative vote of the holders for not less than
two-thirds of the Shares outstanding and entitled to vote, or by an instrument
or instruments in writing without a meeting, consented to by the holders of not
less than two-thirds of such Shares, or by such other vote as may be established
by the Trustees with respect to any series or class of Shares; provided,
however, that, if such merger, consolidation, sale, lease or exchange is
recommended by the Trustees, a Majority Shareholder Vote shall be sufficient
authorization; and any such merger, consolidation, sale, lease or exchange shall
be deemed for all purposes to have been accomplished under and pursuant to the
statutes of the Commonwealth of Massachusetts. In respect of any such merger,
consolidation, sale or exchange of assets, any Shareholder shall be entitled to
rights of appraisal of his Shares to the same extent as a shareholder of a
Massachusetts business corporation in respect of a merger, consolidation, sale,
or exchange of assets of a Massachusetts business corporation, and such rights
shall be his exclusive remedy in respect to his dissent from any such action.
Section 9.5. Incorporation. With approval of a Majority
Shareholder Vote, or by such other vote as may be established by the Trustees
with respect to any series or class of Shares, the Trustees may cause to be
organized or assist in organizing a corporation or corporation under the laws of
any jurisdiction or any other trust, partnership,
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association or other organization to take over all of the Trust Property or to
carry on any business in which the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer the Trust Property to any such
corporation, trust, partnership, association or organization in exchange for the
shares or securities thereof or otherwise, and to lend money to, subscribe for
the shares or securities of, and enter into any contracts with any such
corporation, trust, partnership, association or organization in which the Trust
holds or is about to acquire shares or any other interest. The Trustees may also
cause a merger or consolidation between the Trust or any successor thereto and
any such corporation, trusts, partnership, association or other organization if
and to the extent permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organization or entities.
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ARTICLE X
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the
Shareholders a written financial report of the transactions of the Trust,
including financial statements which shall at least annually be certified by
independent public accountants.
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ARTICLE XI
MISCELLANEOUS
Section 11.1. Filing. This Declaration and any amendment
hereto shall be filed in the office of the Secretary of the Commonwealth of
Massachusetts and in such other places as may be required under the laws of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee or by the Secretary or any
Assistant Secretary of the Trust stating that such action was duly taken in a
manner provided herein, and unless such amendment or such certificate sets forth
some later time for the effectiveness of such amendment, such amendment shall be
effective upon its filing. A restated Declaration, integrating into a single
instrument all of the provisions of the Declaration which are then in effect and
operative, may be executed from time to time by a majority of the Trustees and
shall, upon filing with the Secretary of the Commonwealth of Massachusetts, be
conclusive evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration and the various amendments
thereto.
Section 11.2. Resident Agent. The Trust may appoint and
maintain a resident agent in the Commonwealth of Massachusetts.
Section 11.3. Governing Law. This Declaration is executed by
the Trustees with reference to the laws of the Commonwealth of Massachusetts,
and the rights of all parties and the validity and construction of every
provision hereof shall be subject to and construed according to the laws of said
State.
Section 11.4. Counterparts. The Declaration may be
simultaneously executed in several counterparts, each of which shall be deemed
to be an original, and such counterparts, together, shall constitute one and the
same instrument, which shall be sufficiently evidenced by any such original
counterpart.
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Section 11.5. Reliance by Third Parties. Any certificate
executed by an individual who, according to the records of the Trust, appears to
be a Trustee hereunder, or Secretary or Assistant Secretary of the Trust,
certifying to: (a) the number or identify of Trustees or Shareholders, (b) the
due authorization of the execution of any instrument or writing, (c) the form of
any vote passed at a meeting of Trustees or Shareholders, (d) the fact that the
number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (e) the form
of any By-Laws adopted by or the identity of any officers elected by the
Trustees, or (f) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees and their successors.
Section 11.6. Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provisions shall be deemed superseded by such law or regulation to
the extent necessary to eliminate such conflict; provided, however, that such
determination shall not affect any of the remaining provisions of the
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of the Declaration shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
pertain only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
Section 11.7. Use of the Name. Southeastern Asset Management,
Inc. ("SAM") has consented to the use by the Trust of the identifying name
"Southeastern Asset Management", which is a property right of SAM. The Trust
will only use such name as a component of its name and for no other purpose, and
will not purport to grant to any third party the right to use such name for any
purpose. SAM or any corporate affiliate may use or grant to others the right to
use the name "Southeastern Asset Management", or any combination or abbreviation
thereof, as all or a portion of a corporate or business name or for any
- 34 -
<PAGE> 39
commercial purpose, including a grant of such right to any other investment
company. At the request of SAM, the Trust will take such action as may be
required to provide its consent to the use by SAM, or any corporate affiliate,
or by any person to whom SAM or an affiliate shall have granted the right to the
use, of such name, or any combination or abbreviation thereof. Upon the
termination of any investment advisory agreement or investment counsel agreement
into which SAM and the Trust may enter, the Trust shall, upon request by SAM,
cease to use the name "Southeastern Asset Management" as a component of its
name, and shall not use the name, or any combination or abbreviation thereof, as
a part of its name or for any other commercial purpose, and shall cause its
officers, trustees and shareholders to take any and all action which SAM may
request to effect the foregoing and to reconvey to SAM any and all rights to
such name.
IN WITNESS WHEREOF, the undersigned have executed this
instrument this 25th day of November, 1986.
/s/ James H. White, III /s/ Charles D. Reaves
- ----------------------------------- ------------------------------------
as Trustee and not individually as Trustee and not individually
Address: 15 North 21st Street Address: 15 North 21st Street
Birmingham, Alabama 35202 Birmingham, Alabama 35202
/s/ Charles K. Porter
---------------------------------
as Trustee and not individually
Address: 15 North 21st Street
Birmingham, Alabama 35202
The registered agent for service of process for the Trust and
the Trustees in the Commonwealth of Massachusetts is:
C. T. Corporation System
2 Oliver Street
Boston, Massachusetts 02109
- 35 -
<PAGE> 40
STATE OF ALABAMA
COUNTY OF JEFFERSON
On this 25th day of November, 1986, James H. White, III,
Charles K. Porter and Charles D. Reaves known to me and known to be the
individuals described in and who executed the foregoing instrument, personally
appeared before me and they severally acknowledged the foregoing instrument to
be their free act and deed.
/s/ Joan L. Lilly
-----------------------------------
Notary Public
My Commission Expires
11-14-89
- ----------------------
- 36 -
<PAGE> 41
AMENDMENT TO
DECLARATION OF TRUST OF
SOUTHEASTERN ASSET MANAGEMENT VALUE TRUST,
CHANGING THE NAME OF THE TRUST TO
SOUTHEASTERN ASSET MANAGEMENT FUNDS TRUST
DATED: DECEMBER 16, 1988
This AMENDMENT TO THE DECLARATION OF TRUST of Southeastern Asset Management
Value Trust is made the 16th day of December, 1988, by the Trustees signatory
hereto, who constitute a majority of the present members of the Board of
Trustees.
W I T N E S S E T H
WHEREAS the Trustees desire to change the name of the Trust to "Southeastern
Asset Management Funds Trust," and to designate the existing or first series of
shares of beneficial interest as "Southeastern Asset Management Value Trust," a
separate independently managed portfolio, and
WHEREAS the Trustees desire to authorize the creation of a second series of
shares of beneficial interest, as authorized by Section 6.1 of Article VI of the
Declaration of Trust, subject to the provisions of Section 6.9 of Article VI of
the Declaration of Trust, such new series of shares to be named "Southeastern
Asset Management Small Cap Fund," the assets of which shall be invested in a
separate, independently managed portfolio and
WHEREAS the Trustees desire to change the principal place of business and
mailing address of the Trust to 860 Ridgelake Boulevard, Suite 301, Memphis,
Tennessee, 38119;
NOW THEREFORE, the Trustees hereby declare as follows:
1. Section 1.1 of Article I of the Trust is hereby amended to read as
follows:
"Section 1.1(a) Name. The name of the trust created hereby is the
"Southeastern Asset Management Funds Trust", and so far as may be
practicable the Trustees shall conduct the Trust's activities, execute
all documents and sue or be sued under that name, which name (and the
word "Trust" wherever herein used) shall refer to the Trustees as
Trustees, and not as individuals, or personally, and shall not refer to
the officers, agents, employees or Shareholders of the Trust. Should
the Trustees determine such other name for the Trust as they deem
proper, the Trust may hold its property and conduct its activities
under such other name.
<PAGE> 42
Section 1.1(b) Designation of Separate Series. The Trust shall be
comprised of two (2) series of shares of beneficial interest, each of
which shall be a separate portfolio, until further action by the
Trustees as authorized by Section 6.1 of Article VI of the trust. Each
such series shall be subject to the provisions of Section 6.9 of
Article VI, and to all other applicable provisions of the Trust. The
first such series shall be the series of the Trust which was initially
funded on March 24, 1987, and the name of such first series, a
separate, independently managed portfolio, is "Southeastern Asset
Management Value Trust." The second such series shall also be a
separate, independently managed portfolio and the name of such second
series is "Southeastern Asset Management Small Cap Fund."
2. The Trustees hereby declare that they will hold in trust all money and
property contributed to the Trust for Southeastern Asset Management
Small Cap Fund, the second series, and to manage and dispose of the
same for the benefit of the holders from time to time of its shares of
beneficial interest which are to be issued under and subject to all
provisions of the Trust.
3. There shall be one class of shares of beneficial interest of
Southeastern Asset Management Value Trust, the first series, and one
class of shares of beneficial interest of Southeastern Asset Management
Small Cap Fund, the second series. Each such share shall have one vote
on all matters on which its shareholders are entitled to take action.
Upon issuance of each share of beneficial interest in consideration of
payment in cash or other property of the then current net asset value
per share, each such share of beneficial interest of the said first
series and the said second series shall be fully paid and
<PAGE> 43
non-assessable, subject to all of the provisions of the Trust. The
shares of beneficial interest and assets of each series, shall be in
all respects separate from and independent of the assets and shares of
beneficial interest of the other series, and neither series shall have
any claim of any nature against the assets of the other series of the
Trust. There shall be no preemptive rights. The methods and procedures
of offering, purchasing, issuing, and redeeming such shares of
beneficial interest of each of the two series shall be established by
the Trust and by the registration statement of each series as filed
with the U.S. Securities and Exchange Commission in the manner required
by the Securities Act of 1933 and the Investment Company Act of 1940.
4. The principal place of business and mailing address of the Trust is
hereby changed to c/o Southeastern Asset Management, Inc., 860
Ridgelake Boulevard, Suite 301, Memphis, Tennessee, 38119.
5. The registered agent for the service of process for the Trust and for
the Trustees in the Commonwealth of Massachusetts is CT Corporation
System, Two Oliver Street, Boston, Massachusetts, 02109.
<PAGE> 44
IN WITNESS WHEREOF, the undersigned Trustees have executed this Amendment to the
Declaration of Trust on the 16th day of December, 1988, in the official capacity
of Trustee of the Trust and not individually.
/s/ O. Mason Hawkins William E. Smith, Jr.
- ----------------------------------- ------------------------------------
Chairman of the Board of Trustee
Trustees 160 Cleage Drive
860 Ridgelake Boulevard Birmingham, Alabama 35217
Suite 301
Memphis, Tennessee 38119
/s/ John R. McCarroll, Jr. Thomas K. Yardley
- ----------------------------------- ------------------------------------
Trustee Trustee
3030 Poplar Avenue 15 North 21st Street
Memphis, Tennessee 38111
/s/ W. Reid Sanders
- -----------------------------------
Trustee
860 Ridgelake Boulevard
Suite 301
Memphis, Tennessee 38119
STATE OF TENNESSEE
COUNTY OF SHELBY
On this 16th day of December, 1988, O. Mason Hawkins, W. Reid Sanders, and John
R. McCarroll, Jr. known to me and known to be the individuals described in and
who executed the foregoing instrument, personally appeared before me and they
severally acknowledged the foregoing instrument to be their free act and deed.
/s/ Kay Clark
------------------------------------
Notary Public
My Commission Expires
MY COMMISSION EXPIRES JAN. 5, 1991
<PAGE> 45
AMENDMENT TO DECLARATION OF TRUST OF
SOUTHEASTERN ASSET MANAGEMENT FUNDS TRUST
Dated: October 27, 1989
W I T N E S S E T H
The Declaration of Trust of Southeastern Asset Management Funds Trust,
a registered open-end investment company having two separate series or
portfolios, Southeastern Asset Management Value Trust and Southeastern Asset
Management Small-Cap Fund, is hereby amended by the Trustees signatory hereto,
who constitute a majority of the present members of the Board of Trustees of
each of the two series, by adding the following subparagraph as a new
subparagraph in Article I of the Trust:
"Section 1.1(c). Designation of Principal Office and Other Addresses -
The principal office of the Trust is 15 North 21st Street, Suite 300,
Birmingham, Alabama 35203, at which address the Trust was originally
formed on November 25, 1986 by the execution of the Declaration of
Trust by the three organizing Trustees having their principal places of
business at such address. Official correspondence involving the Trust
or either of its separate series should be addressed to the said
Principal Office or to the Trust's registered agent for service of
process in the Commonwealth of Massachusetts, CT Corporation System,
Two Oliver Street, Boston, Massachusetts 02109. Remittances payable to
the Trust's separate series should be sent to its bank lockbox
addresses, as follows:
Southeastern Asset Management Value Trust
P. O. Box 414256
Kansas City, Missouri 64141
Southeastern Asset Management Small-Cap Fund
P. O. Box 414209
Kansas City, Missouri 64141
Correspondence involving the Trust's investment portfolio should be
sent to the Trust's Investment Counsel, Southeastern Asset Management,
Inc., 860 Ridgelake Boulevard, Suite 301, Memphis, Tennessee 38119."
<PAGE> 46
IN WITNESS WHEREOF, the undersigned Trustees have executed this
Amendment to the Declaration of Trust on behalf of each of its two separate
series on the 27th day of October, 1989, in the official capacity of Trustee of
the Trust and not individually.
Southeastern Asset Management Funds Trust
Southeastern Asset Management Southeastern Asset Management
Value Trust Small-Cap Fund
/s/ O. Mason Hawkins /s/ O. Mason Hawkins
- ----------------------------------- ------------------------------------
Chairman of the Board of Chairman of the Board of
Trustees Trustees
860 Ridgelake Boulevard 860 Ridgelake Boulevard
Suite 301 Suite 301
Memphis, Tennessee 38119 Memphis, Tennessee 38119
/s/ John R. McCarroll, Jr. /s/ John R. McCarroll, Jr.
- ----------------------------------- ------------------------------------
Trustee Trustee
3030 Poplar Avenue 3030 Poplar Avenue
Memphis, Tennessee 38111 Memphis, Tennessee 38111
/s/ W. Reid Sanders /s/ W. Reid Sanders
- ----------------------------------- ------------------------------------
Trustee Trustee
860 Ridgelake Boulevard 860 Ridgelake Boulevard
Suite 301 Suite 301
Memphis, Tennessee 38119 Memphis, Tennessee 38119
STATE OF TENNESSEE
COUNTY OF SHELBY
On this 27th day of October, 1989, O. Mason Hawkins, W. Reid Sanders, and John
R. McCarroll, Jr. known to me and known to be the individuals described in and
who executed the foregoing instrument, personally appeared before me and they
severally acknowledged the foregoing instrument to be their free act and deed.
/s/ Kay Clark
------------------------------------
Notary Public
My Commission Expires
MY COMMISSION EXPIRES JAN. 5, 1991
<PAGE> 47
AMENDMENT TO DECLARATION OF TRUST
SOUTHEASTERN ASSET MANAGEMENT FUNDS TRUST
A MASSACHUSETTS BUSINESS TRUST
W I T N E S S E T H
This amendment relates to the Declaration of Trust of Southeastern Asset
Management Funds Trust (such Declaration of Trust having been originally filed
in the Office of the Secretary of State of the Commonwealth of Massachusetts on
November 26, 1986 under the name "Southeastern Asset Management Value Trust"),
which is an open-end management investment company registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, and
presently having two series, Southeastern Asset Management Value Trust and
Southeastern Asset Management Small-Cap Fund. The said Declaration of Trust is
hereby amended by the Trustees signatory hereto, who constitute a majority of
the present membership of the Board of Trustees of each such series, by deleting
in its entirety the existing Section 1.1(c) of Article I of the Declaration of
Trust (which was added by the amendment dated October 27, 1989), and
substituting therefor the following new Section 1.1(c) in Article I of the
Declaration of Trust:
"Section 1.1(c). Designation of Registered Office and Other Addresses.
(i). The registered office of the Trust in The Commonwealth of
Massachusetts (which shall be the official address of the Trust) is c/o
CT Corporation System, Two Oliver Street, Boston, Massachusetts 02109.
(ii). The securities, cash, and other intangible assets of the Trust
are held by the Trust's custodian, The Boston Company (Boston Safe
Deposit and Trust Company), One Exchange Place, Boston, Massachusetts
02109.
(iii). Remittances in the form of bank checks for the purchases of
shares of beneficial interest of the Trust and other general
correspondence addressed to the Trust should be addressed to the
following post office lockboxes of the Trust in the Commonwealth of
Massachusetts:
Southeastern Asset Management Value Trust
P.O. Box 9204
Boston, MA 02209-9204
Southeastern Asset Management Small-Cap Fund
P.O. Box 9203
Boston, MA 02209-9203
Page 1 of 3
<PAGE> 48
(iv). Correspondence relating to matters involving the investment
management of the portfolios of the Trust's separate series and
correspondence relating to matters involving general administration or
shareholder services (including transfer agent matters) should be
addressed to the Trust's Investment Counsel and the Trust's
Administrator and Shareholder Servicing Agent, each of which is
Southeastern Asset Management, Inc., as follows:
Southeastern Asset Management, Inc.
860 Ridgelake Boulevard, Suite 301
Memphis, Tennessee 38120
IN WITNESS WHEREOF, the undersigned Trustees have executed this Amendment to the
Declaration of Trust on behalf of the Trust's two series, on the 10th day of
June, 1993, in their official capacities as Trustees of the Trust only, and not
individually:
SOUTHEASTERN ASSET MANAGEMENT FUNDS TRUST
Southeastern Asset Management Value Trust
Southeastern Asset Management Small-Cap Fund
/s/ O. Mason Hawkins
- -----------------------------------
Chairman of the Board and
Chief Executive Officer
/s/ W. Reid Sanders
- -----------------------------------
President and Trustee
/s/ John R. McCarroll, Jr.
- -----------------------------------
Trustee
/s/ C. Barham Ray
- -----------------------------------
Trustee
Page 2 of 3
<PAGE> 49
STATE OF TENNESSEE
COUNTY OF SHELBY
On this the 10th day of June, 1993, O. Mason Hawkins, W. Reid Sanders, John R.
McCarroll, Jr., and C. Barham Ray, known to me and known to be four of the
Trustees described in and who executed the foregoing instrument, personally
appeared before me and severally acknowledged their execution of the foregoing
instrument to be their free act and deed in their capacity as Trustees of the
Trust's two series.
Seal
/s/ Kay Clark
------------------------------------
Notary Public
My Commission Expires
My Commission Expires January 10, 1995
/s/ Chadwick H. Carpenter, Jr.
- ----------------------------------
Trustee
Commonwealth of Massachusetts
County of Middlesex
On this the 11th day of June, 1993, Chadwick H. Carpenter, Jr., known to me and
known to be one of the Trustees described in and who executed the foregoing
instrument, personally appeared before me and acknowledged his execution of the
foregoing instrument to be his free act and deed in his capacity as a Trustee of
the Trust's two series.
/s/ James D. Freedman
------------------------------------
Notary Public
Seal
My Commission Expires
My Commission exp. Apr. 28, 2000
Page 3 of 3
<PAGE> 50
AMENDMENT TO DECLARATION OF TRUST
SOUTHEASTERN ASSET MANAGEMENT FUNDS TRUST
A Massachusetts Business Trust
Change Of Name Of Trust To
LONGLEAF PARTNERS FUNDS TRUST
W I T N E S S E T H
This amendment relates to the Declaration of Trust of Southeastern Asset
Management Funds Trust (such Declaration of Trust having been originally filed
in the Office of the Secretary of State of the Commonwealth of Massachusetts on
November 26, 1986 under the name "Southeastern Asset Management Value Trust"),
which is an open-end management investment company registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, and
presently having two series, Southeastern Asset Management Value Trust and
Southeastern Asset Management Small-Cap Fund.
The said Declaration of Trust is hereby amended by the Trustees signatory
hereto, who constitute a majority of the present membership of the Board of
Trustees of each such series, as authorized unanimously by all members of the
Board of Trustees at a special meeting held on May 24, 1994, by deleting in
their entirety the existing Sections 1.1(a), 1.1(b) and 1.1(c) of Article I of
the Declaration of Trust and substituting therefor the following new Sections
1.1(a), 1.1(b) and 1.1(c) in Article I of the Declaration of Trust:
"Section 1.1(a). Name. Effective as of the date of filing this
amendment in the office of the Secretary of the Commonwealth of
Massachusetts, the name of the trust created hereby is "Longleaf
Partners Funds Trust" (in substitution of the name "Southeastern Asset
Management Funds Trust", as previously established by the amendment
filed in the office of the Secretary of the Commonwealth of
Massachusetts on December 21, 1988), and so far as may be practicable
the Trustees shall conduct the Trust's activities, execute all
documents and sue or be sued under that name, which name (and the word
"Trust" whenever herein used) when referring to the Trustees shall
refer to them in their official capacities as Trustees, and not as
individuals or personally, and shall not refer to the officers, agents,
employees or Shareholders of the Trust. Should the Trustees determine
such other name for the Trust as they deem proper, the Trust many hold
its property and conduct its activities
Page 1
<PAGE> 51
AMENDMENT TO DECLARATION OF TRUST
Longleaf Partners Funds Trust
under such other name."
"Section 1.1(b). Designation of Separate Series. As authorized by
Section 6.9 of Article VI, the Trust shall be comprised of two (2)
series of shares of beneficial interest, each series being a separate
portfolio of investments, until further action by the Trustees as
authorized by Section 6.1 of Article VI. Each such series is subject to
the provisions of Article 6.9 of Article VI, and to all other
applicable provisions of the Declaration of Trust.
Effective on the date of the filing of this Amendment with the
Secretary of the Commonwealth of Massachusetts, the name of the first
series, a separate, independently managed portfolio, is "Longleaf
Partners Fund" (in substitution of the name Southeastern Asset
Management Value Trust, as previously established by the Amendment
filed with the office of the Secretary of the Commonwealth of
Massachusetts on December 21, 1988).
Effective on the date of the filing of this Amendment with the
Secretary of the Commonwealth of Massachusetts, the name of the second
series, a separate, independently managed portfolio, is "Longleaf
Partners Small-Cap Fund" (in substitution of the name Southeastern
Asset Management Small-Cap Fund, as previously established by the
Amendment filed with the office of the Secretary of the Commonwealth of
Massachusetts on December 21, 1988).
So far as may be practicable, the Trustees shall conduct the activities
of each such series, execute all documents and each such series shall
sue or be sued under its respective name, which name (and the word
"Trust" or "Series" whenever herein used) when referring to the
Trustees shall refer to them in their official capacities as Trustees,
and not as individuals or personally, and shall not refer to the
officers, agents, employees or Shareholders of the Trust. Should the
Trustees determine such other name for each respective series of the
Trust as they deem proper, each such series of the Trust may hold its
property and conduct its activities under such other name."
"Section 1.1(c). Designation of Registered Office and Other Addresses.
(i). The registered office of the Trust in The Commonwealth of
Massachusetts (which shall be the official address of the Trust) is c/o
CT Corporation System, Two Oliver Street, Boston, Massachusetts 02109.
(ii). The securities, cash, and other intangible assets
Page 2
<PAGE> 52
AMENDMENT TO DECLARATION OF TRUST
Longleaf Partners Funds Trust
of each series of the Trust are held by the Trust's custodian, State
Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110.
(iii). Remittances in the form of bank checks for the purchases of
shares of beneficial interest of the Trust and each series thereof and
other correspondence relating to purchase of shares shall be addressed
to the transfer agent of the Trust and each of its series as follows:
Longleaf Partners Funds Trust
c/o National Financial Data Services ("NFDS"),
transfer agent
P.O. Box 419929
Kansas City, MO 64141-6929
(iv). Other general correspondence relating to shareholder account
maintenance shall be addressed to the transfer agent of the Trust and
each of its series as follows:
Longleaf Partners Funds Trust
c/o National Financial Data Services ("NFDS"),
transfer agent
P.O. Box 419733
Kansas City, MO 64141-6733
(v). Correspondence relating to matters involving the investment
management of the portfolios of the Trust's separate series and
correspondence relating to matters involving general administration
(excluding transfer agent matters) should be addressed to the Trust's
Investment Counsel and Administrator, Southeastern Asset Management,
Inc., as follows:
Southeastern Asset Management, Inc.
6075 Poplar Avenue, Suite 900
Memphis, Tennessee 38119
IN WITNESS WHEREOF, the undersigned Trustees have executed this Amendment to the
Declaration of Trust on behalf of the Trust's two series, on the dates
indicated, in their official capacities as Trustees of the Trust only, and not
as individuals or in their individual capacities.
Page 3
<PAGE> 53
AMENDMENT TO DECLARATION OF TRUST
Longleaf Partners Funds Trust
SIGNATURES
LONGLEAF PARTNERS FUNDS TRUST (formerly Southeastern Asset Management Funds
Trust)
LONGLEAF PARTNERS FUND, the first series (formerly Southeastern Asset
Management Value Trust)
LONGLEAF PARTNERS SMALL-CAP FUND, the second series (formerly Southeastern
Asset Management Small-Cap Fund)
/s/ O. Mason Hawkins
- ----------------------------------
Chairman of the Board and
Chief Executive Officer
/s/ W. Reid Sanders
- ----------------------------------
President and Trustee
/s/ John R. McCarroll, Jr.
- ----------------------------------
Trustee
/s/ C. Barham Ray
- ----------------------------------
Trustee
State of Tennessee
County of Shelby
On this the 29th day of July, 1994, each of the individuals signing above, known
to me and known to be the Trustees described in and who executed the foregoing
instrument, personally appeared before me and severally acknowledged their
execution of the foregoing instrument to be their free act and deed in their
capacity as Trustees of the Trust's two series.
Seal
/s/ Kay Clark
------------------------------------
Notary Public
My Commission Expires
My Commission Expires January 10, 1995
Page 4
<PAGE> 54
AMENDMENT TO DECLARATION OF TRUST
Longleaf Partners Funds Trust
SIGNATURES
IN WITNESS WHEREOF, the undersigned Trustee(s) have executed this Amendment to
the Declaration of Trust on behalf of the Trust's two series, on the 27 day of
July, 1994, in the particular Trustee's capacity is a Trustee of the Trust only,
and not individually:
LONGLEAF PARTNERS FUNDS TRUST (formerly Southeastern Asset Management Funds
Trust)
LONGLEAF PARTNERS FUND, the first series (formerly Southeastern Asset
Management Value Trust)
LONGLEAF PARTNERS SMALL-CAP FUND, the second series (formerly Southeastern
Asset Management Small-Cap Fund)
/s/ Chadwick H. Carpenter, Jr.
- ---------------------------------------
Trustee
Commonwealth of Massachusetts
County of Middlesex
On this the 27th day of July, 1994, Chadwick H. Carpenter, Jr., known to me and
known to be a Trustee described in and who executed the foregoing instrument,
personally appeared before me and acknowledged his execution of the foregoing
instrument to be his free act and deed in his capacity as a Trustee of the
Trust's two series.
/s/ Barbara J. Collum
- ---------------------------------------
Notary Public
My Commission Expires March 22, 1995
/s/ Steven N. Melnyk
- ---------------------------------------
Trustee
State of Florida
County of Duval
On this the 27th day of July, 1994, Steven N. Melnyk, known to me and known to
be a Trustee described in and who executed the foregoing instrument, personally
appeared before me and acknowledged his execution of the foregoing instrument to
be his free act and deed in his capacity as a Trustee of the Trust's two series.
/s/ Leslie C. Bowley
- ---------------------------------------
Notary Public
My Commission Expires LESLIE C. BOWLEY
MY COMMISSION # CC 215040 EXPIRES
AUGUST 9, 1996
BONDED THRU TROY FAIN INSURANCE INC.
Page 5
<PAGE> 55
AMENDMENT TO DECLARATION OF TRUST
LONGLEAF PARTNERS FUNDS TRUST
A Massachusetts Business Trust
Designation of Third Series
W I T N E S S E T H
This amendment relates to the Declaration of Trust of Longleaf Partners Funds
Trust (such Declaration of Trust having been originally filed in the Office of
the Secretary of State of the Commonwealth of Massachusetts on November 26, 1986
under the name "Southeastern Asset Management Value Trust"), which is an
open-end management investment company registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, and presently
having two series, Longleaf Partners Fund and Longleaf Partners Small-Cap Fund.
The Declaration of Trust of Longleaf Partners Funds Trust is hereby amended by
the Trustees signatory hereto, who constitute all of the present Trustees of
each such series, as authorized unanimously by resolution at a meeting of the
Board of Trustees held on September 5, 1995, by deleting in its entirety the
existing Section 1.1(b) in Article I of the Declaration of Trust and
substituting therefor the following new Section 1.1(b) in Article I of the
Declaration of Trust:
"Section 1.1(b). Designation of Separate Series. As authorized by
Section 6.9 of Article VI, the Trust shall be comprised of three (3)
series of shares of beneficial interest, each series being a separate
portfolio of investments, until further action by the Trustees as
authorized by Section 6.1 of Article VI. Each such series is subject to
the provisions of Article 6.9 of Article VI, and to all other
applicable provisions of the Declaration of Trust.
Effective August 2, 1994, the name of the first series, a separate,
independently managed portfolio of securities, is "Longleaf Partners
Fund" (in substitution of the name Southeastern Asset Management Value
Trust, as previously established by the Amendment filed with the office
of the Secretary of the Commonwealth of Massachusetts on December 21,
1988).
Effective August 2, 1994, the name of the second series, a separate,
independently managed portfolio of securities, is "Longleaf Partners
Small-Cap Fund" (in
Page 1
<PAGE> 56
AMENDMENT TO DECLARATION OF TRUST
Longleaf Partners Funds Trust
substitution of the name Southeastern Asset Management Small-Cap Fund,
as previously established by the Amendment filed with the office of the
Secretary of the Commonwealth of Massachusetts on December 21, 1988).
A third series is hereby created, which shall be a separate,
independently managed portfolio of securities, having the name
"Longleaf Partners Realty Fund."
Each of the three (3) series shall have one class of shares of
beneficial interest and each such share shall have one vote on all
matters on which the shareholders of each series are entitled to take
action. Upon issuance of each share of beneficial interest in
consideration of payment in cash or other property of the then current
net asset value per share, each such share of beneficial interest shall
be fully paid and non-assessable, subject to all of the provisions of
the Trust, and there shall be no pre-emptive rights.
The assets of each series and the shares of beneficial interest thereof
shall be in all respects separate and independent of the assets and
shares of beneficial interest of each of the other series, and no
series or any shareholders of any series shall have any claim of any
nature against the assets of or shareholders of any other series of the
Trust.
So far as practicable, each such Series may hold its property and
conduct its activities under its respective designated name, the
Trustees shall conduct the activities of each such series, execute all
documents and each such series shall sue or be sued under its
respective designated name, which name (and the word "Trust" or
"series" whenever herein used) when referring to the Trustees shall
refer to them in their official capacities as Trustees, and not as
individuals or personally, and shall not refer to the officers, agents,
employees or shareholders of the Trust or any of its series. Should the
Trustees determine to change the name of any or all of the respective
series of the Trust, as they should deem to be proper, each or any such
series of the Trust may hold its property and conduct its activities
under such other name upon the filing of an appropriate amendment to
the Declaration of Trust with the Secretary of the Commonwealth of
Massachusetts."
IN WITNESS WHEREOF, the undersigned Trustees have executed this Amendment to the
Declaration of Trust on behalf of the Trust and its three series, on the date
indicated, in their official capacities as Trustees of the Trust only, and not
as individuals or in their individual capacities:
Page 2
<PAGE> 57
AMENDMENT TO DECLARATION OF TRUST
Longleaf Partners Funds Trust
LONGLEAF PARTNERS FUNDS TRUST (the Master Trust)
LONGLEAF PARTNERS FUND (first series)
LONGLEAF PARTNERS SMALL-CAP FUND (second series)
LONGLEAF PARTNERS REALTY FUND (third series)
/s/ O. Mason Hawkins
- ---------------------------------------
Chairman of the Board and Chief
Executive Officer
Trustee
/s/ W. Reid Sanders
- ---------------------------------------
President and Trustee
/s/ Chadwick H. Carpenter, Jr.
- ---------------------------------------
Trustee
/s/ John R. McCarroll, Jr.
- ---------------------------------------
Trustee
/s/ Steven N. Melnyk
- ---------------------------------------
Trustee
/s/ C. Barham Ray
- ---------------------------------------
Trustee
State of Tennessee
County of Shelby
On this the 5th day of September, 1995, each of the individuals signing above,
known to me and known to be the Trustees described in and who executed the
foregoing instrument, personally appeared before me and severally acknowledged
their execution of the foregoing instrument to be their free act and deed in
their capacities as Trustees of the Trust's three series.
Seal
/s/ Kay Clark
------------------------------------
Notary Public
My Commission Expires
MY COMMISSION EXPIRES OCT. 14, 1998
Page 3
<PAGE> 58
AMENDMENT TO DECLARATION OF TRUST
LONGLEAF PARTNERS FUNDS TRUST
A Massachusetts Business Trust
DESIGNATION OF FOURTH SERIES
W I T N E S S E T H
This amendment relates to the Declaration of Trust of Longleaf Partners Funds
Trust (the "Trust"), originally filed in the office of the Secretary of the
Commonwealth of Massachusetts on November 26, 1986 under the name "Southeastern
Asset Management Value Trust". The Trust is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 as an open-end
management investment company. Presently, it has three Series, Longleaf Partners
Fund, Longleaf Partners Small-Cap Fund, and Longleaf Partners Realty Fund.
The Declaration of Trust of Longleaf Partners Funds Trust is hereby amended by
the Board of Trustees pursuant to a resolution adopted by the Trustees at a
meeting held by conference telephone call on August 7, 1998, in which a majority
of the Trustees participated throughout, by deleting in its entirety the
existing Section 1.1(b) of Article I and substituting in its place the following
restated Section 1.1(b) of Article I:
"Section 1.1(b). Designation of Separate Series. As authorized by
Section 6.9 of Article VI, the Trust shall be comprised of four (4)
series of shares of beneficial interest, each series being a separate
portfolio of investments, until further action by the Trustees as
authorized by Section 6.1 of Article VI. Each such series is subject to
the provisions of Article 6.9 of Article VI, and to all other
applicable provisions of the Declaration of Trust.
Effective on and after August 2, 1994, the name of the first series, a
separate, independently managed portfolio of securities, is "Longleaf
Partners Fund" (in substitution of the name Southeastern Asset
Management Value Trust, as previously established by the Amendment
filed with the office of the Secretary of the Commonwealth of
Massachusetts on December 21, 1988).
Effective on and after August 2, 1994, the name of the second series, a
separate, independently managed portfolio of securities, is "Longleaf
Partners Small-Cap Fund" (in substitution of the name Southeastern
Asset Management Small-Cap Fund, as previously established by the
Amendment filed with the office of the Secretary of the Commonwealth of
Massachusetts on December 21, 1988).
Page 1
<PAGE> 59
AMENDMENT TO DECLARATION OF TRUST
LONGLEAF PARTNERS FUNDS TRUST
Effective on and after September 12, 1995, the third series, a
separate, independently managed portfolio of securities, is "Longleaf
Partners Realty Fund", as established by the Amendment filed with the
office of the Secretary of the Commonwealth of Massachusetts on that
date.
Effective herewith, a new, fourth series of this Trust is created,
which shall be a separate, independently managed portfolio of
securities, having the name "Longleaf Partners International Fund."
Each of the four (4) series shall have one class of shares of
beneficial interest and each such share shall have one vote on all
matters on which the shareholders of each such series are entitled to
take action. Upon issuance of each share of beneficial interest in
consideration of payment in cash or other property of the then current
net asset value per share, each such share of beneficial interest shall
be fully paid and non-assessable, subject to all of the provisions of
the Trust, and there shall be no pre-emptive rights.
The assets of each such series and the shares of beneficial interest
thereof shall be in all respects separate and independent of the assets
and shares of beneficial interest of each of the other series, and no
series or any shareholders of any series shall have any claim of any
nature against the assets of or shareholders of any other series of the
Trust.
Each such Series shall hold its property and conduct its activities
under its respective designated name, and the Trustees shall conduct
the activities of each such series and execute all documents under that
name, and each such series shall sue or be sued under its respective
designated name, which name (and the word "Trust" or "series" whenever
herein used) when referring to the Trustees shall refer to them in
their official capacities as Trustees, and not as individuals or
personally, and shall not be deemed to refer to the officers, agents,
employees or shareholders of the Trust. Should the Trustees through
appropriate action determine to change the name of any or all of the
respective series of the Trust, as they should deem to be proper, each
or any such series of the Trust may hold its property and conduct its
activities under such other name upon the filing of an appropriate
amendment to the Declaration of Trust with the Secretary of the
Commonwealth of Massachusetts."
IN WITNESS WHEREOF, the undersigned Trustees have executed this Amendment to the
Declaration of Trust on behalf of the Trust and its four Series, on the dates
indicated, in their official capacities as Trustees of the Trust, and not as
individuals or in their individual capacities:
Page 2
<PAGE> 60
AMENDMENT TO DECLARATION OF TRUST
LONGLEAF PARTNERS FUNDS TRUST
LONGLEAF PARTNERS FUNDS TRUST (the Master Trust)
Longleaf Partners Fund (First Series)
Longleaf Partners Small-Cap Fund (Second Series)
Longleaf Partners Realty Fund (Third Series)
Longleaf Partners International Fund (Fourth Series)
/s/ O. Mason Hawkins
- ---------------------------------------
Chairman of the Board and
Chief Executive Officer
/s/ W. Reid Sanders
- ---------------------------------------
President and Trustee
/s/ Chadwick H. Carpenter, Jr.
- ---------------------------------------
Trustee
/s/ Daniel W. Connell, Jr.
- ---------------------------------------
Trustee
/s/ Steven N. Melnyk
- ---------------------------------------
Trustee
/s/ C. Barham Ray
- ---------------------------------------
Trustee
State of Tennessee
County of Shelby
On this the 7th day of August, 1998, O. Mason Hawkins, known to me, personally
appeared before me and acknowledged that he voluntarily executed the foregoing
instrument in his capacity as Trustee of Longleaf Partners Funds Trust and its
several Series.
/s/ Kay Clark
- ---------------------------------------
Notary Public
My Commission Expires
My Commission Expires October 14, 1998
State of Tennessee
County of Shelby
On this the 7th day of August, 1998, C. Barham Ray, known to me, personally
appeared before me and acknowledged that he voluntarily executed the foregoing
instrument in his capacity as Trustee of Longleaf Partners Funds Trust and its
several Series.
/s/ Judy M. Baldwin
- ---------------------------------------
Notary Public
My Commission Expires
MY COMMISSION EXPIRES MAR. 14, 2000
State of Florida
County of Duval
On this the 7th day of August, 1998, Daniel W. Connell, Jr., known to me,
personally appeared before me and acknowledged that he voluntarily executed the
foregoing instrument in his capacity as Trustee of Longleaf Partners Funds Trust
and its several Series.
/s/ Pamela H. Kelly
- ---------------------------------------
Notary Public
My Commission Expires December 8, 2001
Page 3
<PAGE> 1
EXHIBIT 23(b)
LONGLEAF PARTNERS FUNDS TRUST
A Massachusetts Business
Trust
(Organized as Southeastern Asset Management Value
Trust
on November 25, 1986)
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I -- Definitions 1
ARTICLE II -- Offices
Section 2.1 Principal Office 1
Section 2.2 Other Offices 1
ARTICLE III -- Shareholders Meeting
Section 3.1 Place of Meetings 1
Section 3.2 Meetings 2
Section 3.3 Notice of Meetings 2
Section 3.4 Quorum and Adjournment 2
Section 3.5 Voting Rights, Proxies 3
Section 3.6 Vote Required 3
Section 3.7 Inspectors of Election 3
Section 3.8 Inspection of Books and Records 4
Section 3.9 Action by Shareholders Without Meeting 4
ARTICLE IV -- Trustees
Section 4.1 Meetings of the Trustees 4
Section 4.2 Notice of Special Meetings 4
Section 4.3 Telephone Meetings 5
Section 4.4 Quorum, Voting and Adjournment of Meetings 5
Section 4.5 Action by Trustees Without Meeting 5
Section 4.6 Expenses and Fees 5
Section 4.7 Execution of Instruments and Documents and Signing
of Checks and Other Obligations and Transfers 6
Section 4.8 Indemnification of Trustees, Officers, Employees and Agents 6
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE V -- Committees
Section 5.1 Executive and Other Committees 10
Section 5.2 Advisory Committee 10
Section 5.3 Committee Action Without Meeting 10
ARTICLE VI -- Officers
Section 6.1 Executive Officers 11
Section 6.2 Other Officers and Agents 11
Section 6.3 Term and Removal and Vacancies 11
Section 6.4 Compensation Officers 11
Section 6.5 Power and Duties 11
Section 6.6 The Chairman 12
Section 6.7 The President 12
Section 6.8 The Vice President 12
Section 6.9 The Assistant Vice Presidents 12
Section 6.10 The Secretary 12
Section 6.11 The Assistant Secretaries 13
Section 6.12 The Treasurer 13
Section 6.13 The Assistant Treasurer 13
Section 6.14 Delegation of Duties 13
ARTICLE VII -- Dividends and Distributions 13
ARTICLE VIII--Certificates of Shares
Section 8.1 Certificates of Shares 14
Section 8.2 Lost Stolen, Destroyed, and Mutilated Certificates 15
ARTICLE IX -- Custodian
Section 9.1 Appointment and Duties 16
Section 9.2 Central Certificate System 16
ARTICLE X -- Waiver of Notice 17
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE XI -- Miscellaneous
Section 11.1 Location of Books and Records 17
Section 11.2 Record Date 17
Section 11.3 Seal 18
Section 11.4 Fiscal Year 18
Section 11.5 Orders for Payment of Money 18
ARTICLE XII -- Compliance with Federal Regulations 18
ARTICLE XIII-- Amendments 19
ARTICLE XIV -- Declaration of Trust 19
</TABLE>
<PAGE> 4
BY-LAWS
OF
LONGLEAF PARTNERS FUNDS TRUST
ARTICLE I
DEFINITIONS
The terms "Commission", "Declaration", "Investment Advisor",
"Majority Shareholder Vote", "Shareholder", "Shares", "Transfer Agent", "Trust",
"Trust Property", and "Trustees" have the respective meanings given them in the
Declaration of Trust of Southeastern Asset Management Value Trust dated November
25, 1986, as amended from time to time.
ARTICLE II
OFFICES
Section 2.1. Principal Office. Until changed by the Trustees,
the principal registered office of the Trust in the Commonwealth of
Massachusetts shall be in the City of Boston, County of Suffolk.
Section 2.2. Other Offices. In addition to its principal
office in the Commonwealth of Massachusetts, the Trust may have an office or
offices in the City of Birmingham, State of Alabama, the City of Memphis, State
of Tennessee, and at such other places within and without the Commonwealth as
the Trustees may from time to time designate or the business of the Trust may
require.
ARTICLE III
SHAREHOLDERS' MEETINGS
Section 3.1. Place of Meetings. Meetings of Shareholders shall
be held at such place, within or without
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<PAGE> 5
the Commonwealth of Massachusetts, as may be designated from time to time by the
Trustees.
Section 3.2. Meetings. Meetings of Shareholders of the Trust
shall be held whenever called by the Trustees or the Chief Executive Officer or
Chief Operating Officer of the Trust and whenever election of a Trustee or
Trustees by Shareholders is required by the provisions of Section 16(a) of the
1940 Act, for that purpose. Meetings of shareholders shall also be called by the
Secretary upon the written request of the holders of Shares entitled to vote not
less than twenty-five percent (25%) of all the votes entitled to be cast at such
meeting. Such request shall state the purpose or purposes of such meeting and
the matters proposed to be acted on thereat. The Secretary shall inform such
Shareholders of the reasonable, estimated cost of preparing and mailing such
notice of the meeting and upon payment to the Trust of such costs, the Secretary
shall give notice stating the purpose or purposes of the meeting to all entitled
to vote at such meeting. No meeting need be called upon the request of the
holders of Shares entitled to cast less than a majority of all votes entitled to
be cast at such meeting to consider any matter which is substantially the same
as a matter voted upon at any meeting of Shareholders held during the preceding
twelve months.
Section 3.3. Notice of Meetings. Written or printed notice of
every Shareholders' meeting stating the place, date, and purpose or purposes
thereof, shall be given by the Secretary not less than ten (10) nor more than
ninety (90) days before such meeting to each Shareholder entitled to vote at
such meeting. Such notice shall be deemed to be given when deposited in the
United States mail, postage prepaid, directed to the Shareholder at his address
as it appears on the records of the Trust.
Section 3.4. Quorum and Adjournment of Meetings. Except as
otherwise provided by law, by the Declaration or by these By-Laws, at all
meetings of Shareholders the holders of a majority of the Shares issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall be requisite and shall constitute a quorum for the translation of
business. If a quorum is present, the affirmative vote of a majority of the
Shares present in person or represented by Proxy shall constitute the act of the
Shareholders, unless a greater proportion is expressly required for such action
by law, the Declaration or these By-Laws. In the absence of a quorum, the
Shareholders present or represented by proxy and entitled to vote thereat shall
have
- 2 -
<PAGE> 6
power to adjourn the meeting from time to time. Any adjourned meeting may be
held as adjourned without further notice. At any adjourned meeting at which a
quorum shall be present, any business may be transacted as if the meeting had
been held as originally called.
Section 3.5. Voting Rights, Proxies. At each meeting of
Shareholders, each holder of record Shares entitled to vote thereat shall be
entitled to one vote in person or by proxy, executed in writing by the
Shareholder or his duly authorized attorney-in-fact for such Share of beneficial
interest of the Trust and for the fractional portion of one vote for each
fractional Share entitled to vote so registered in his name on the records of
the Trust on the date fixed as the record date for the determination of
Shareholders entitled to vote at such meeting. No proxy shall be valid after
eleven months from its date, unless otherwise provided in the proxy. At all
meetings of Shareholders, unless the voting is conducted by inspectors, all
questions relating to the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided by the chairman of the
meeting. Pursuant to a resolution of a majority of the Trustees, proxies may be
solicited in the name of one or more Trustees or Officers of the Trust.
Section 3.6. Vote Required. Except as otherwise provided by
law, by the Declaration of Trust, or by these By-Laws, at each meeting of
Shareholders at which a quorum is present, all matters shall be decided by
Majority Shareholder Vote.
Section 3.7. Inspectors of Election. In advance of any meeting
of Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any Shareholder or his proxy shall, appoint Inspectors of Election of the
meeting. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the trustees in
advance of the convening of the meeting or at the meeting by the person acting
as chairman. The Inspectors of Election shall determine the number of Shares
outstanding, the Shares represented at the meeting, the existence of a quorum,
the authenticity, validity and effect of proxies, shall receive votes, ballots
or consents, shall hear and determine all challenges and questions in any way
arising in connection with the right to vote, shall count and tabulate all votes
or consents, determine the results, and do such
- 3 -
<PAGE> 7
other acts as may be proper to conduct the election or vote with fairness to all
Shareholders. On request of the chairman of the meeting, or of any Shareholder
or his proxy, the Inspectors of Election shall make a report in writing of any
challenge or question or matter determined by them and shall execute a
certificate of any facts found by them.
Section 3.8. Inspection of Books and Records. Shareholders
shall have such rights and procedures of inspection of the books and records of
the Trust as are granted to Shareholders under the laws relating to business
corporations of the Commonwealth of Massachusetts.
Section 3.9. Action by Shareholders Without Meeting. Except as
otherwise provided by law, the provisions of these By-Laws relating to notices
and meetings to the contrary notwithstanding, any action required or permitted
to be taken at any meeting of Shareholders may be taken without a meeting of a
majority of the Shareholders entitled to vote upon the action in writing and
such consents are filed with the records of the Trust. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
Trustees
Section 4.1. Meetings of the Trustees. The Trustees may in
their discretion provide for regular or special meetings of the Trustees.
Regular meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the President and shall be
called by the President or the Secretary upon the written request of any two (2)
Trustees.
Section 4.2. Notice of Special Meetings. Written notice of
special meetings of the Trustees, stating the place, date and time thereof,
shall be given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed to
be given when deposited in the United States mail, postage prepaid, directed to
the Trustee at his address as it appears on the records of the Trust. Subject to
- 4 -
<PAGE> 8
the provisions of the 1940 Act, notice or waiver of notice need not specify the
purpose of any special meeting.
Section 4.3. Telephone Meetings. Subject to the provisions of
the 1940 Act, any Trustee or any member or members of any committee designated
by the Trustees, may participate in a meeting of the Trustees, or any such
committee, as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
Section 4.4. Quorum, Voting and Adjournment of Meetings. At
all meetings of the Trustees, a majority of the Trustees shall be requisite to
and shall constitute a quorum for the transaction of business. If a quorum is
present, the affirmative vote of a majority of the Trustees present shall be the
act of the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall have been obtained.
Section 4.5. Action by Trustees Without Meeting. The
provisions of these By-Laws covering notices and meetings to the contrary
notwithstanding, and except as required by law, any action required or permitted
to be taken at any meeting of the Trustees may be taken without a meeting if a
consent in writing setting forth the action shall be signed by all of the
Trustees entitled to vote upon the action and such written consent is filed with
the minutes of proceedings of the Trustees.
Section 4.6. Expenses and Fees. Each Trustee may be allowed
expenses, if any, for attendance at each regular or special meeting of the
Trustees, and each Trustee who is not an officer or employee of the Trust or of
its investment manager or underwriter or of any corporate affiliate of any of
said persons shall receive for services rendered as a Trustee of the Trust such
compensation as may be fixed by the Trustees. Nothing herein contained shall be
construed to preclude any Trustee from serving the Trust in any other capacity
and receiving compensation therefor.
- 5 -
<PAGE> 9
Section 4.7. Execution of Instruments and Documents and
Signing of Checks and Other Obligations and Transfers. All instruments,
documents and other papers shall be executed in the name and on behalf of the
Trust and all checks, notes, drafts and other obligations for the payment of
money by the Trust shall be signed, and all transfer of securities standing in
the name of the Trust shall be executed, by the President, Vice President or the
Treasurer or by any one or more officers or agents of the Trust as shall be
designated for that purpose by vote of the Trustees.
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 proceeding, whether civil, criminal, administrative 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 interests of the Trust, and with respect to any criminal 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 contendere 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
- 6 -
<PAGE> 10
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 adjudication 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
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<PAGE> 11
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 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 loses by reason of
any lawful advances, or
(iii) a determination, based on a review of readily
available facts, that there is reason believe that such person
ultimately will be found entitled to indemnification, is made
by either
- 8 -
<PAGE> 12
(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 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 a 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 liability 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.
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<PAGE> 13
ARTICLE V
Committees
Section 5.1. Executive and Other Committees. The Trustees, by
resolution adopted by a majority of the trustees, may designate an Executive
Committee and/or other committees, each committee to consist of two (2) or more
of the Trustees of the Trust and may delegate to such committees, in the
intervals between meetings of the Trustees, any or all of the powers of the
Trustees in the management of the business and affairs of the Trust. In the
absence of any member of any such committee, the members thereof present at any
meeting, whether or not they constitute a quorum, may appoint a Trustee to act
in place of such absent member. Each such committee shall keep a record of its
proceedings.
The Executive Committee and any other committee shall fix its
own rules or procedure, but the presence of a least fifty percent (50%) of the
members of the whole committee shall in each case be necessary to constitute a
quorum of the committee and the affirmative vote of the majority of the members
of the committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to
the Trustees at the meeting thereof next succeeding to the taking of such
action.
Section 5.2. Advisory Committee. The Trustees may appoint an
advisory committee which shall be composed of persons who do not serve the Trust
in any other capacity and which shall have advisory functions with respect to
the investments of the Trust but which shall have no power to determine that any
security or other investment, shall be purchased, sold or otherwise disposed of
by the Trust. The number of persons constituting any such advisory committee
shall be determined from time to time by the Trustees. The members of any such
advisory committee may receive compensation for their services and may be
allowed such fees and expenses for the attendance at meetings as the Trustees
may from time to time determine to be appropriate.
Section 5.3. Committee Action Without Meeting. The provisions
of these By-Laws covering notices and meetings to the contrary notwithstanding,
and except as required by law, any action required or permitted to be taken at
any meeting of any Committee of the Trustees appointed pursuant to Section
- 10 -
<PAGE> 14
5.1 of these By-Laws may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all members of the Committee
entitled to vote upon the action and such written consent is filed with the
records of the proceedings of the Committee.
ARTICLE VI
Officers
Section 6.1. Executive Officers. The executive officers of the
Trust shall be a Chairman, a President, one or more Vice Presidents, a Secretary
and a Treasurer. The Chairman shall be selected from among the Trustees but none
of the other executive officers need be a Trustee. Two or more officers, except
those of Presidents and any Vice President, may be held by the same person, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The executive officers of the Trust shall be elected annually by the
Trustees and each executive officer so elected shall hold office until his
successor is elected and has qualified.
Section 6.2. Other Officers and Agents. The Trustees may also
elect one or more Assistant Vice President, Assistant Secretary and Assistant
Treasurers and may elect, or may delegate to the President the power to appoint,
such other officers and agents as the Trustees shall at any time or from time to
time deem advisable.
Section 6.3. Term and Removal and Vacancies. Each officer of
the Trust shall hold office until his successor is elected and has qualified.
Any officer or agent of the Trust may be removed by the Trustees whenever, in
their judgment, the best interests of the Trust will be served thereby, but such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
Section 6.4. Compensation Officers. The compensation of
officers and agents of the Trust shall be fixed by the Trustees, or by the
President to the extent provided by the Trustees with respect to officers
appointed by the President.
Section 6.5. Power and Duties. All officers and agents of the
Trust, as between themselves and the Trust, shall have such authority and
perform such duties in the
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<PAGE> 15
management of the Trust as may be provided in our pursuant to these By-Laws, or
to the extent not so provided, as may be prescribed by the Trustees, provided,
that no rights of any third party shall be affected or impaired by any such
By-Law or resolution of the Trustees unless he has knowledge thereof.
Section 6.6. The Chairman. The Chairman shall be the Chief
Executive Officer, shall preside at all meetings of the Shareholders and of the
Trustees, shall be a signatory on all Annual and Semi-Annual Reports as may be
sent to shareholders, and he shall perform such other duties as the Trustees may
from time to time prescribe.
Section 6.7. The President. The President shall be the Chief
Operating officer of the Trust, he shall have general and active management of
the business of the Trust, shall see that all orders and resolutions of the
Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.
Section 6.8. The Vice Presidents. The Vice Presidents shall be
of such number and shall have such titles as may be determined from time to time
by the Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President shall, in the absence or disability of the
President, exercise the powers and perform the duties of the President, and he
or they shall perform such other duties as the Trustees or the President may
from time to time prescribe.
Section 6.9. The Assistant Vice Presidents. The Assistant Vice
President, or, if there be more than one, the Assistant Vice Presidents, shall
perform such duties and have such powers as may be assigned them from time to
time by the Trustees or the President.
Section 6.10. The Secretary. The Secretary shall attend all
meetings of the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book to
be kept for that purpose, and shall perform like duties for the standing
committees when required. The Secretary shall give, or cause to be given, notice
of all meetings of the Shareholders and special meetings of the Trustees, and
shall perform such other duties and have such powers as the Trustees, or the
President, may from time to time prescribe. He shall keep in safe
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<PAGE> 16
custody the seal of the Trust and affix or cause the same to be affixed to any
instrument requiring it, and, when so affixed, it shall be attested by his
signature of an Assistant Secretary.
Section 6.11. The Assistant Secretaries. The Assistant
Secretary, or if there be more than one, the Assistant Secretaries in the order
determined by the Trustees of the President, shall, in the absence or disability
or the Secretary, perform the duties and exercise in the powers of the Secretary
and shall perform such duties and have such other powers as the Trustees or the
President may from time to time prescribe.
Section 6.12. The Treasurer. The Treasurer shall be the chief
financial officer of the Trust. The Treasurer shall keep or cause to be kept
full and accurate accounts of receipts and disbursements in books belonging to
the Trust, and shall render to the Trustees and the President, whenever any of
them require it, an account of his transactions as Treasurer and the financial
condition of the Trust, and shall perform such other duties as the Trustees, or
the President, may from time to time prescribe.
Section 6.13. The Assistant Treasurer. The Assistant
Treasurer, or, if there shall be more than one, the Assistant Treasurers in the
order determined by the Trustees or the President, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Trustees, or the President, may from time to time prescribe.
Section 6.14. Delegation of Duties. Whenever an officer is
absent or disabled, or whenever for any reason the Trustees may deem it
desirable, the Trustees may delegate the powers and duties of an officer or
officers to any officer or officers or to any Trustee or Trustees.
ARTICLE VII
Dividends and Distributions
Subject to any applicable provisions of law and the
Declaration, dividends and distributions upon the Shares may be declared at such
intervals as the Trustees may determine, in cash, in securities or other
property, or in Shares, from
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<PAGE> 17
any sources permitted by law, all as the Trustees shall from time to time
determine.
Inasmuch as the computation of net income and net profits from
the sale of securities or other properties for federal income tax purposes may
vary from the computation thereof on the records of the Trust, the Trustees
shall have power, in their discretion, to distribute as income dividends and as
capital gain distributions, respectively, amounts sufficient to enable the Trust
to avoid or reduce liability for federal income taxes.
ARTICLE VIII
Certificates of Shares
Section 8.1. Certificates of Shares. The Trust may, at its
option, determine not to issue a certificate or certificates to evidence Shares
owned of record by any Shareholder. If issued, certificates of Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such form
and design at any time or from time to time, and shall be entered in the records
of the Trust as they are issued. Each such certificate shall bear a
distinguishing number, shall exhibit the holder's name and certify the number of
full Shares owned by such holder, shall be signed by or in the name of the Trust
by the Chairman or the President, and countersigned by the Secretary or the
Treasurer and an Assistant Treasurer of the Trust, shall be sealed with the
seal, and shall contain such recitals as may be required by law. Where any
certificate is signed by a Transfer Agent or by a Registrar, the signature of
such officers and the seal may be facsimile, printed or engraved.
In case any officer or officers who shall have signed, or
whose facsimile signature or signatures shall appear on, any such certificate or
certificates shall cease to be such officer or officers of the Trust, whether
because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Trust, such certificate or
certificates shall, nevertheless, be adopted by the Trust and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures shall appear therein had
not ceased to be such officer or officers of the Trust.
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<PAGE> 18
No certificate shall be issued for any share until such share
is fully paid.
Section 8.2. Lost, Stolen, Destroyed and Mutilated
Certificates. The Trustees may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
Trust alleged to have been lost, stolen or destroyed, upon satisfactory proof of
such loss, theft, or destruction, and the Trustees may, in their discretion,
require the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give to the Trust and to such Registrar, Transfer Agent
and/or Transfer Clerk as may be authorized or required to countersign such new
certificates, a bond in such sum and of such type as they may direct, and with
such surety or sureties, as they may direct, as indemnity against any claim that
may be against them or any of them on account of or in connection with the
alleged loss, theft or destruction of any such certificate.
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<PAGE> 19
ARTICLE IX
Custodian
Section 9.1. Appointment and Duties. The Trust shall at all
times employ a bank or trust company having capital, surplus and undivided
profits of at least five million dollars ($5,000,000) as custodian with
authority as its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in these By-Laws and the 1940 Act to
perform the following functions:
(1) to receive and hold the securities owned by the
Trust and deliver the same upon written order.
(2) to receive and receipt for any money due to the
Trust and deposit the same in its own banking department or
elsewhere as the Trustees may direct.
(3) to distribute such funds upon orders or vouchers.
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize the custodian to employ one or
more sub-custodians from time to time to perform such of the acts and services
of the custodian and upon such terms and conditions, as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees.
Section 9.2. Central Certificate System. Subject to such
rules, regulations, and orders as the Commission may adopt, the Trustees may
direct the custodian to deposit all or any part of the securities owned by the
Trust in a system for the central handling of securities established by a
national
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<PAGE> 20
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
ARTICLE X
Waiver of Notice
Whenever any notice of the time, place or purpose of any
meeting of Shareholders, Trustees, or of any committee is required to be given
in accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to such notice and filed with the records of the meeting, whether before or
after the holding thereof, or actual attendance at the meeting of Shareholders,
Trustees or committee, as the case may be, in person, shall be deemed
equivalent to the giving of such notice of such person.
ARTICLE XI
Miscellaneous
Section 11.1. Location of Books and Records. The books and
records of the Trust may be kept outside the Commonwealth of Massachusetts at
such place or places as the Trustees may from time to time determine, except as
otherwise required by law.
Section 11.2. Record Date. The Trustees may fix in advance a
date as the record date for the purpose of determining Shareholders entitled to
notice of, or to vote at, any meeting of Shareholders, or Shareholders entitled
to receive payment of any dividend or the allotment of any right, or in order to
make a determination of Shareholders for any other purpose. Such date, in any
case shall be not more than sixty (60) days, and in case of a meeting of
Shareholders not less than ten (10) days prior to the date on which particular
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<PAGE> 21
action requiring such determination of Shareholders is to be taken. In lieu of
fixing a record date the Trustees may provide that the transfer books shall be
closed for a stated period but not to exceed, in any case, twenty (20) days. if
the transfer books are closed for the purpose of determining Shareholders
entitled to notice of a vote at a meeting of Shareholders, such books shall be
closed for a least ten (10) days immediately preceding such meeting.
Section 11.3. Seal. The Trustees shall adopt a seal which
shall be in such form and shall have such inscription thereon as the Trustees
may from time to time provide. The seal of the Trust may be affixed to any
document, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and attested manually in the same manner and with the same effect
as if done by a Massachusetts business corporation under Massachusetts law.
Section 11.4. Fiscal Year. The fiscal year of the trust shall
end as such date as the Trustees may by resolution specify, and the trustees may
by resolution change such date for future fiscal years at any time and from time
to time.
Section 11.5. Orders for Payment of Money. All orders or
instructions for the payment of money of the Trust, and all notes or other
evidences of indebtedness issued of the trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement between
the Trust and the bank or trust company appointed as Custodian of the securities
and funds of the Trust.
ARTICLE XII
Compliance with Federal Regulations
The Trustees are hereby empowered to take such action as they
may deem to be necessary, desirable or appropriate so that the Trust is or shall
be in compliance with any federal or state statute, rule or regulation with
which compliance by the Trust is required.
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<PAGE> 22
ARTICLE XIII
Amendments
These By-Laws may be amended, altered, or repealed, or new
By-Laws may be adopted, (a) by a Majority Shareholder Vote, or (b) by the
Trustees, provided, however, that no By-Laws may be amended, adopted or repealed
by the Trustees if such amendment, adoption or repeal required, pursuant to law,
the Declaration, or these By-Laws, a vote of the Shareholders. The Trustees
shall in no event adopt By-Laws which are in conflict with the Declaration, and
any apparent inconsistency shall be construed in favor of the related provisions
in the Declaration.
ARTICLE XIV
Declaration of Trust
The Declaration of Trust establishing Southeastern Asset
Management Value Trust, dated November 25, 1986, a copy of which, together with
all amendments thereto, is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Longleaf Partners Funds
Trust (formerly Southeastern Asset Management Value Trust) refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally and no Trustee, Shareholder, officer, employee or agent of
Southeastern Asset Management Value Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of said Longleaf Partners Funds Trust (originally Southeastern Asset
Management Value Trust), but the Trust assets and estate only shall be liable.
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<PAGE> 1
Exhibit 23(c)
ORGANIZED IN THE COMMONWEALTH OF
MASSACHUSETTS
NUMBER LONGLEAF PARTNERS FUND SHARES
[ ] ====================== [ ]
An Open-End Management Investment Company
Seeking Long-Term Capital Growth
A SERIES OF LONGLEAF PARTNERS FUNDS TRUST SEE REVERSE SIDE
FOR ADDITIONAL
SHARES OF BENEFICIAL INTEREST PROVISIONS
THIS CERTIFIES that is the owner of
SEE REVERSE FOR CERTAIN DEFINITIONS
------------------------------------
CUSIP 543069 10 8
------------------------------------
COUNTERSIGNED: NATIONAL FINANCIAL DATA SERVICES
SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY
P.O. BOX 419733, KANSAS CITY, MO 64141-8733
BY
-------------------------------------------------------
AUTHORIZED OFFICER
FULLY PAID AND NONASSESSABLE SHARES OF BENEFICIAL INTEREST OF NO PAR VALUE
Longleaf Partners Fund is a series of Longleaf Partners Funds Trust, which
was established as a series Massachusetts Business Trust (hereinafter called
the "Trust") under a Declaration of Trust dated November 25, 1986, as amended
from time to time.
This Certificate and the Shares represented hereunder are transferable on
the books of the Trust by the registered holder hereof in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate is issued by the Trustees of Longleaf Partners Fund, a
series of Longleaf Partners Funds Trust, not individually but as Trustees of
its assets, and is not valid unless countersigned by the Transfer Agent.
Witness the facsimile seal of this Trust and the facsimile signatures of
the duly authorized officers.
Dated:
Julie M. Douglas Reid Sanders
EXECUTIVE VICE PRESIDENT OPERATIONS AND TREASURER PRESIDENT
<PAGE> 2
THE TRUST WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A
FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE
RIGHTS OF THE SHARES AUTHORIZED TO BE ISSUED.
--------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ____ Custodian ____
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
--------------------------
For value received, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF ASSIGNEE
- ----------------------------------------------
- ----------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of Beneficial Interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
---------------------------------------------
Attorney
- ------------------------------------------------------------------------
to transfer the said Shares on the books of the within-named Trust with full
power of substitution in the premises.
Dated
-------------------
-------------------------------------------
-------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER AND MUST
BE GUARANTEED BY A BANK OR TRUST COMPANY OR
BY A MEMBER FIRM OF THE NEW YORK STOCK
EXCHANGE.
ADDITIONAL PROVISIONS
THE HOLDER AND EVERY TRANSFEREE OR ASSIGNEE OF THIS CERTIFICATE OR OF THE
SHARES REPRESENTED HEREBY OR OF ANY INTEREST THEREIN ACCEPTS AND AGREES TO BE
BOUND BY THE PROVISIONS OF THE DECLARATION OF TRUST AND ALL AMENDMENTS THERETO,
ALL OF WHICH ARE FILED WITH THE SECRETARY OF THE COMMONWEALTH OF MASSACHUSETTS
AND RECORDED IN THE OFFICE OF THE CITY CLERK, CITY OF BOSTON, SUFFOLK COUNTY,
COMMONWEALTH OF MASSACHUSETTS, AND SUCH BY-LAWS OF THE TRUST AS MAY BE FROM
TIME TO TIME ADOPTED BY THE TRUSTEES (COPIES OF WHICH ARE ON FILE AT THE
PRINCIPAL OFFICE OF THE TRANSFER AGENT OF THE TRUST) ALL OF WHICH PROVISIONS ARE
HEREBY INCORPORATED BY REFERENCE AS FULLY AS IF SET FORTH HEREIN IN THEIR
ENTIRETY. THE DECLARATION OF TRUST PROVIDES THAT THE TRUST DOCUMENT AND THE
NAMES "LONGLEAF PARTNERS FUND" AND "LONGLEAF PARTNERS FUNDS TRUST" REFER TO THE
TRUSTEES NOT PERSONALLY BUT AS SUCH TRUSTEES AND NO TRUSTEE, SHAREHOLDER,
OFFICER OR AGENT OF THE TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, NOR
SHALL RESORT BE HAD TO PRIVATE PROPERTY OF ANY TRUSTEE, SHAREHOLDER, OFFICER,
OR EMPLOYEE OF THE TRUST FOR THE SATISFACTION OF ANY OBLIGATION OR CLAIM IN
CONNECTION WITH THIS CERTIFICATE OR THE SHARES OF BENEFICIAL INTEREST IN THE
TRUST ESTATE REPRESENTED HEREBY.
<PAGE> 1
EXHIBIT 23(d)(1)
INVESTMENT COUNSEL AGREEMENT
Agreement made as of the 1st day of August, 1994, between LONGLEAF
PARTNERS FUNDS TRUST, formerly SOUTHEASTERN ASSET MANAGEMENT FUNDS TRUST, a
Massachusetts business trust, ("the Master Trust") and each of its separate
series or separate portfolios, as presently existing or hereafter created in the
manner authorized by the provisions of the Master Trust, (each such separate
series or separate portfolio being hereafter referred to in the singular as "the
Fund" or "the Trust") to the extent the Agreement may be adopted by the Board of
Trustees and/or shareholders of each such separate series or separate portfolio,
and SOUTHEASTERN ASSET MANAGEMENT, INC., a Tennessee corporation, (hereinafter
referred to as "the Investment Counsel").
In consideration of the mutual agreements herein made, the Fund and the
Investment Counsel understand and agree as follows:
1.(a) The Investment Counsel agrees, during the term of this Agreement,
to supervise the investment activities of the Fund and to furnish the Fund with
investment research and advice and continuously to furnish the Fund with an
investment program for its assets in a manner consistent with the investment
objectives and policies as adopted by the Fund's Board of Trustees and
shareholders. Such investment program shall include the timing of the purchase
and sales of portfolio securities and the placing of orders for the purchase and
sale of portfolio securities on behalf of the Fund.
(b) The Investment Counsel shall be responsible for making
recommendations as to the selection of members of securities exchanges, brokers
and dealers (such members, brokers and dealers being hereinafter referred to as
"brokers") for the execution of the Fund's portfolio transactions and, when
applicable, the negotiation of commissions in connection therewith. The Fund,
through the Board of Trustees and pursuant to such procedures as it shall adopt,
shall be responsible for the final decisions as to these matters. The Investment
Counsel shall be responsible for the actual placement of purchase and sale
orders and its officers or other personnel who place such orders shall be
compensated by the Investment Counsel for such services. The same individual, in
his capacity, as an officer, employee or agent of the Investment Counsel, may
make the recommendations in question and, in his capacity as a Trustee or as an
officer of the Fund, make the decisions allocating the purchase or sale order to
a broker for execution on behalf of the Fund. The officer of the Fund making
such decisions and placements may be affiliated with brokers who effect
transactions for the Fund; provided, however, no such officer may allocate any
transactions to the broker with which he is affiliated unless such allocation is
authorized by the President or another officer of the Fund.
2. All recommendations and decisions with respect to brokers in connection
with the placements of orders for the purchase and sale of portfolio securities
shall be made in accordance with the following principles:
(a) Purchase and sale orders will usually be placed with
brokers which are recommended by the Investment Counsel and/or selected
by the Fund as able to achieve "best execution" of such orders. "Best
execution" shall mean prompt and reliable execution at the most
favorable security price. 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, without
limitation, 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 where a large block is involved,
availability of the broker to stand ready to execute possibly difficult
transactions in the future, and the financial strength and stability of
the broker. Such considerations are judgmental and are weighed by the
Investment Counsel and the Fund in determining the overall
reasonableness of brokerage commissions.
(b) In recommending brokers for portfolio transactions and in
selecting such brokers, the Investment Counsel and the Fund shall take
into account their past experience as to brokers qualified to achieve
"best execution".
(c) The Investment Counsel is authorized to recommend, and the
Fund is authorized to allocate, brokerage and principal business to
brokers who have provided brokerage and research services, (as such
<PAGE> 2
services are defined in Section 28 (e) (3) of the Securities Exchange
Act of 1934 (the "1934 Act"), for the Fund and/or other accounts, if
any, for which from time to time the Investment Counsel exercises
investment discretion (as defined in Section 3(a)(35) the 1934 Act)
and, as to transactions in the United States as to which fixed minimum
commission rates are not applicable, 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 the Investment Counsel in making the recommendation in
question determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research
services provided by such broker, viewed in terms of either that
particular transaction or the Investment Counsel's overall
responsibilities with respect to the Fund and the other accounts, if
any, as to which it exercises investment discretion. In reaching such
determination, neither the Investment Counsel nor the Officer or
Officers of the Fund making the decision will be required to place or
attempt to place a specific dollar value on the research or execution
services of a broker or on the portion of any commission reflecting
either of said services. In demonstrating that such determinations were
made in good faith, the Investment Counsel and the officer or officers
of the Fund who have made the recommendations and decisions in question
shall be prepared to show that all commissions were allocated and paid
for purposes contemplated by the Fund's brokerage policy, that
commissions were not allocated or paid for products or services which
were readily and customarily available and offered to the public on a
commercial basis and that the commissions paid were within a reasonable
range. Whether commissions were within a reasonable range shall be
based on any 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 that (i) obtaining a
low commission is deemed secondary to obtaining a favorable securities
price since it is recognized that usually it is more beneficial to the
Fund to obtain a favorable price than to pay the lowest commission; and
(ii) the quality, comprehensiveness and frequency of research studies
that are provided for the Fund and the Investment Counsel are useful to
the Investment Counsel in performing its advisory activities under this
Agreement. Research services provided by brokers to the Fund or the
Investment Counsel are considered to be in addition to, and not in lieu
of, services required to be performed by the Investment Counsel under
this Agreement. In addition, to the extent not otherwise prohibited
under applicable securities laws and regulations, the Investment
Counsel may cause the Fund to pay a commission for effecting a
securities transaction in excess of the amount another broker would
have charged for effecting the transaction if the Investment Counsel in
making the recommendation in question determines in good faith that
such amount is reasonable in relation to the value of other goods and
services provided the Fund by such broker, subject to the same
principles applied in the payment of commissions paid for brokerage and
research services.
(d) Purchases and sales of portfolio securities other than on
a securities exchange shall be executed with primary market makers
acting as principal except where, in the judgement of the Investment
Counsel, better prices and execution may be obtained on a commission
basis or from other sources.
(e) Sales of the Fund's shares made 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, purchase in underwritings or tenders in
response to tender offers) for the account of this Fund to that broker;
provided that the broker shall furnish "best execution", as defined in
paragraph 2(a) above, and that such allocation shall be within the
scope of the Fund's other policies as stated above; 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
of the commissions or other compensation paid to such broker beyond a
reasonable amount of commission or other compensation determined, as
set forth in subparagraph 2(c) hereof, on the basis of best execution
plus research services, without taking account of or placing any value
upon such sale of the Fund's shares.
(f) The Fund may purchase and/or sell securities which are
also purchased or sold by the Investment Counsel or its owners or their
affiliates or other investment advisory clients of the Investment
Counsel. When other clients of the Investment Counsel desire to
purchase or sell a security at the same time such security is purchased
or sold for the Fund, it is understood that such purchases and sales
will be made in a manner designed to be fair to all parties.
<PAGE> 3
3. The Investment Counsel shall, at its own expense, maintain such
staff and employ or retain such personnel and consult with such other persons as
it shall from time to time determine to be necessary or useful to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Investment Counsel
shall be deemed to include persons employed or otherwise retained by the
Investment Counsel to furnish statistical and other factual data, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Investment Counsel may desire. The Investment Counsel shall provide the Fund
or any Administrator or other entity having the responsibility of maintaining on
behalf of the Fund such records as are required under the Investment Company Act
of 1940 with prompt and timely information about all aspects of the purchases
and sales of the Fund's portfolio securities and with full information with
respect to brokers executing such securities so as to facilitate the proper
maintenance of all such records. The Investment Counsel shall maintain such
records as may be required to be maintained by an investment counsel under the
Investment Advisers Act of 1940, and all such records shall be made available to
the Trust, upon the request of its Board of Trustees or President.
4. The Fund will require the Fund's Administrator, or other entity
having the responsibility for maintaining such records as are required by the
Investment Company Act of 1940, to make available to the Investment Counsel from
time to time such financial reports, proxy statements and other information
relating to the business and affairs of the Fund as the Investment Counsel may
reasonably require in order to discharge its duties and obligations hereunder or
to comply with any applicable law and regulations.
5. The Investment Counsel shall bear the cost of rendering the
investment advisory services to be performed by it under this Agreement, and
shall, at its own expense, pay the compensation of the directors, trustees,
officers and employees, if any, of the Fund who are also employed by the
Investment Counsel, and such clerical and bookkeeping services as the Investment
Counsel shall reasonably require in performing its duties hereunder, as required
by the Investment Advisers Act of 1940 (other than records maintained by the
Fund as required by the Investment Company Act of 1940).
6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Counsel, the Fund shall pay to the Investment
Counsel an Investment Counsel Fee which shall be accrued daily and paid monthly
in arrears equal to 1.00% per annum of the Fund's average daily net assets on
the first $400,000,000 in average daily net assets and 0.75% per annum for all
additional average daily net assets. Such calculations shall be made by applying
1/365ths of the annual rate to the Fund's net assets each day determined as of
the time the net asset value is determined on that day or if the net asset value
is not determined on the day, on the last previous business day it was so
determined. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for the
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees as set forth above. Subject to the
provisions of paragraph 8 hereof, payment of the compensation of the Investment
Counsel for the preceding month shall be made as promptly as possible after
completion of the computations described in paragraph 8 hereof.
7. The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, but not being limited to the charges and
expenses of any Administrator, any transfer agent, and/or any dividend
disbursing agent; the charges and expenses of any registrar, any custodian,
sub-custodian or depository appointed by the Fund for the safekeeping of its
cash, portfolio securities and other assets and the settlement of its portfolio
securities transactions; all taxes, including securities issuance and transfer
taxes, and fees payable by the Fund to federal, state or other governmental
agencies or pursuant to any foreign laws; the cost and expense of engraving or
printing of any certificates representing shares of the Fund; all costs and
expenses in connection with the registration and maintenance of registration of
the Fund and its shares with the Securities and Exchange Commission and various
states and other jurisdictions or pursuant to any foreign laws (including filing
fees and legal fees and disbursements of counsel); the cost and expense of
printing, including typesetting, and distributing prospectuses of the Fund and
supplements thereto the Fund's shareholders; all expenses of shareholders' and
Trustees' meetings and of preparing, printing and mailing of proxy statements
and reports to shareholders; fees and travel expenses of Trustees or members of
any advisory board or committee who are not employees of the Investment Counsel;
all expenses incident to the payment of any
<PAGE> 4
dividend, distribution, withdrawal or redemption whether in shares or in cash;
charges and expenses of any outside service used for pricing of the Fund's
shares; charges and expenses of legal counsel, including counsel to the Trustees
of the Fund who are not "interested persons" (as defined in the Investment
Company Act of 1940) of the Trust or the Investment Counsel, and or independent
accountants, in connection with any matter relating to the Fund; membership dues
of industry associations; interest payable on Fund borrowings; postage;
insurance premiums on property or personnel (including officers and Trustees) of
the Fund which inure to its benefit; extraordinary expenses (including but not
limited to legal claims and liabilities and litigation costs and any
indemnification related thereto); and all organizational costs and all other
charges and costs of the Fund's operations unless otherwise explicitly provided
herein; provided, however, that all such expenses to be paid by the Fund shall
be subject to review and approval by the Board of Trustees of the Fund as to the
reasonableness thereof.
8. In the event the operating expenses of the Fund, including amounts
payable to the Investment Counsel pursuant to paragraph 6 hereof but excluding
all extraordinary expenses, for any fiscal year ending on a date on which this
Agreement is in effect, exceed the expense limitations applicable to the Fund
imposed by state securities laws or regulations thereunder, as such limitations
may be raised or lowered from time to time, the Investment Counsel shall reduce
its Investment Counsel Fee to the extent of such excess and, if required
pursuant to any such laws or regulations, will reimburse the Fund for annual
operating expenses in the amount of such excess of any expense limitation that
may be applicable; provided, however, there shall be excluded from such expenses
the amount of any interest, taxes, brokerage commissions, distribution fees and
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto) paid
or payable by the Fund. Such reduction, if any, shall be based upon the expense
limitation, if any, applicable to the Fund at the end of the last business day
of the fiscal year of the Fund. Each such monthly calculation shall be based on
the Fund's average daily net assets and expenses for the period beginning on the
first day of the fiscal year of the Fund (or, in its first year, the first day
of the Fund's operations). Should two or more such expense limitations be
applicable at the end of the last business day of the month, that expense
limitation which results in the largest reduction in the applicable fees or the
largest expense reimbursements shall be applicable. In the absence of any
applicable expense limitations under state laws or regulations which are more
favorable to the Fund than the following undertaking, the Investment Counsel
agrees that the Investment Counsel Fee shall be reduced and reimbursement of the
Fund shall be required to the extent necessary to limit operating expenses
(other than interest, taxes, brokerage commissions, distribution fees, and
extraordinary expenses) as defined above, to a maximum during any fiscal year of
1.5% per annum of average net assets of the Fund; provided, however, that the
Investment Counsel shall not be required pursuant to this undertaking to provide
reimbursement to the Fund for any fiscal year in excess of the amount of its
Investment Counsel Fee which would otherwise be earned for that fiscal year.
9. The Investment Counsel will use its best efforts in the supervision
and management of the investment advisory activities of the Trust. 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 for, or any
damages, expenses or losses incurred in connection with, any act or omission
connected with or arising out of any services rendered under this Agreement,
including any mistake of judgement, 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 this Agreement.
Notwithstanding the foregoing, the Investment Counsel shall not be liable to the
Fund for the acts and omissions of any party engaged by it to execute purchases
and sales of portfolio securities for or on behalf of the Fund under this
Agreement, except to the extent that such party is liable to the Investment
Counsel for such acts and omissions. Any person, even though also employed by
the Investment Counsel, who may be or become an employee of and paid by the Fund
shall be deemed, when acting within the scope of his or her employment by the
Fund, to be acting in such employment solely for the Fund and not as the
employee or agent of the Investment Counsel.
10. Nothing contained in this Agreement shall prevent the Investment
Counsel or any affiliated person of the Investment Counsel from acting as
investment adviser or manager for any other person, firm, corporation and/or
other entity and nothing contained in this Agreement shall in any way bind or
restrict the Investment
<PAGE> 5
Counsel or any such affiliated person from buying, selling or trading any
securities or commodities for their own accounts or for the account of others
for whom they may be acting. Nothing in this Agreement shall limit or restrict
the right of any Trustee, or officer or employee of the Investment Counsel to
engage in any other business or to devote his time and attention in part to the
management or other aspects of any other business whether of a similar or
dissimilar nature.
11. This Agreement shall remain in effect for a period of two (2) years
and from year to year thereafter, provided such continuance is approved at least
annually by the vote of holders of a majority, as defined in the Investment
Company Act of 1940, of the outstanding voting securities of the Fund or by the
Trustees of the Fund; provided, that in either event such continuance is also
approved annually by the vote of a majority of the Trustees of the Fund who are
not parties to this Agreement or who are not otherwise "interested persons" (as
defined in the Investment Company Act of 1940) of any such party, which vote
must be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that (a) the Fund may, at any time and without the
payment of any penalty, terminate this Agreement upon sixty days written notice
to the Investment Counsel, either by majority vote of the Trustees of the Fund
or by the vote of a majority of the outstanding voting securities of the Fund;
(b) this Agreement shall immediately terminate in the event of its assignment
(within the meaning of the Investment Company Act of 1940) unless such automatic
termination shall be prevented by an exemptive order of the Securities and
Exchange Commission; and (c) the Investment Counsel may terminate this Agreement
without payment of penalty on sixty days written notice to the Fund. Any notice
under this Agreement shall be given in writing, addressed and delivered, or
mailed post-paid, to the other party at the principal office of such party.
12. This Agreement may be amended by the parties without the vote or
consent of the shareholders of the Fund to supply any omission, to cure, correct
or supplement any ambiguous, defective or inconsistent provision hereof, or if
they deem it necessary to confirm this Agreement to the requirements of
applicable federal laws or regulations, but neither the Fund nor the Investment
Counsel shall be liable for failing to do so.
13. This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts and the applicable provisions of the
Investment Company Act of 1940. To the extent the applicable laws of the
Commonwealth of Massachusetts, or any of the provisions herein, conflict with
the applicable provisions of the Investment Company Act of 1940, the latter
shall control.
14. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, or rule or otherwise, the remainder of the Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
15. Nothing herein shall be construed as constituting the Investment
Counsel as an agent of the Fund.
16. The Declaration of Trust establishing the Fund, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that the
name of the Trust refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the Fund shall be held to any personal liability,
nor shall resort be had to their private property (other than as specifically
provided in the said Declaration of Trust) for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Fund, but
the Fund's assets and estate only shall be liable.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
LONGLEAF PARTNERS FUNDS TRUST, formerly SOUTHEASTERN ASSET MANAGEMENT
FUNDS TRUST
(the Master Trust)
LONGLEAF PARTNERS FUND, formerly SOUTHEASTERN ASSET MANAGEMENT
VALUE TRUST
(First Series)
LONGLEAF PARTNERS SMALL-CAP FUND, formerly SOUTHEASTERN ASSET
MANAGEMENT SMALL-CAP FUND
(Second Series)
By /s/ Charles D. Reaves
------------------------------
Executive Vice President
SOUTHEASTERN ASSET MANAGEMENT INC.
(the "Investment Counsel")
By /s/ W. Reid Sanders
------------------------------
Executive Vice President
<PAGE> 1
EXHIBIT 23(g)
CUSTODIAN CONTRACT
Between
SOUTHEASTERN ASSET MANAGEMENT FUNDS TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
1. Employment of Custodian and Property to be Held By It..................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian .....................................................................2
2.1 Holding Securities ............................................................................2
2.2 Delivery of Securities ........................................................................2
2.3 Registration of Securities ....................................................................5
2.4 Bank Accounts .................................................................................5
2.5 Availability of Federal Funds .................................................................5
2.6 Collection of Income ..........................................................................6
2.7 Payment of Fund Monies ........................................................................6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased ..........................................................................8
2.9 Appointment of Agents .........................................................................8
2.10 Deposit of Fund Assets in Securities System ...................................................8
2.11 Fund Assets Held in the Custodian's Direct
Paper System .................................................................................10
2.12 Segregated Account ...........................................................................10
2.13 Ownership Certificates for Tax Purposes ......................................................11
2.14 Proxies ......................................................................................11
2.15 Communications Relating to Portfolio
Securities ...................................................................................11
3. Payments for Repurchases or Redemptions and Sales
of Shares of the Fund ................................................................................12
4. Proper Instructions ..................................................................................12
5. Actions Permitted Without Express Authority ..........................................................13
6. Evidence of Authority ................................................................................13
7. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income ....................................................14
8. Records ..............................................................................................14
9. Opinion of Fund's Independent Accountants ............................................................15
10. Reports to Fund by Independent Public Accountants ....................................................15
11. Compensation of Custodian ............................................................................15
12. Responsibility of Custodian ..........................................................................15
13. Effective Period, Termination and Amendment ..........................................................17
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C>
14. Successor Custodian ..................................................................................18
15. Interpretive and Additional Provisions ...............................................................19
16. Additional Funds .....................................................................................19
17. Massachusetts Law to Apply ...........................................................................19
18. Prior Contracts ......................................................................................19
19. Limitations of Liability of the Trustees
and Shareholders .....................................................................................20
20. Shareholder Communications Election ..................................................................20
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between Southeastern Asset Management Funds Trust, a
business trust organized and existing under the laws of Massachusetts, c/o
Southeastern Asset Management, Inc., Suite 900, 6075 Poplar Avenue, Memphis, TN
38119, hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in two series,
Southeastern Asset Management Value Trust and Southeastern Asset Management
Small Cap Fund (such series together with all other series subsequently
established by the Fund and made subject to this Contract in accordance with
paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
4), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians,
1
<PAGE> 5
but only in accordance with an applicable vote by the Board of Trustees of the
Fund on behalf of the applicable Portfolio(s), and provided that the Custodian
shall have no more or less responsibility or liability to the Fund on account of
any actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, including all
securities owned by such Portfolio, other than (a) securities which are
maintained pursuant to Section 2.10 in a clearing agency which acts as
a securities depository or in a book-entry system authorized by the
U.S. Department of the Treasury, collectively referred to herein as
"Securities System" and (b) commercial paper of an issuer for which
State Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the Direct
Paper System of the Custodian pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only
upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case the cash or
2
<PAGE> 6
other consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian
3
<PAGE> 7
will not be held liable or responsible for the delivery of
securities owned by the Portfolio prior to the receipt of such
collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
4
<PAGE> 8
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other
than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the name of each Portfolio of the Fund, subject
only to draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject to
the provisions hereof, all cash received by it from or for the account
of the Portfolio, other than cash maintained by the Portfolio in a bank
account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of
1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Trustees of the Fund. Such funds shall be deposited by the Custodian in
its capacity as Custodian and shall be withdrawable by the Custodian
only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the
5
<PAGE> 9
Custodian, the Custodian shall, upon the receipt of Proper Instructions
from the Fund on behalf of a Portfolio, make federal funds available to
such Portfolio as of specified times agreed upon from time to time by
the Fund and the Custodian in the amount of checks received in payment
for Shares of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when they
become due and shall collect interest when due on securities held
hereunder. Income due each Portfolio on securities loaned pursuant to
the provisions of Section 2.2 (10) shall be the responsibility of the
Fund. The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or data
as may be necessary to assist the Fund in arranging for the timely
delivery to the Custodian of the income to which the Portfolio is
properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities
6
<PAGE> 10
System, in accordance with the conditions set forth in Section
2.10 hereof; (c) in the case of a purchase involving the
direct paper system, in accordance with the conditions set
forth in Section 2.11; (d) in the case of repurchase
agreements entered into between the Fund on behalf of the
Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of
the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for
7
<PAGE> 11
which such payment is to be made, declaring such purpose to be
a proper purpose, and naming the person or persons to whom
such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of securities for the account of
a Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions
from the Fund on behalf of such Portfolio to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such securities to
the same extent as if the securities had been received by the
Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
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<PAGE> 12
account of the Portfolio upon (i) receipt of advice from the
Securities system that such securities have been transferred
to the account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i)
receipt of advice from the Securities System that payment for
such securities has been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Portfolio. Copies of all advices from the Securities System of
transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio in the form of a written advice or notice and
shall furnish to the Fund on behalf of the Portfolio copies of
daily transaction sheets reflecting each day's transactions in
the Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of
the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against
the Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if and to
the extent that the Portfolio has not been made whole for any
such loss or damage.
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2.11 Fund Assets Held in the Custodian's Direct Paper System. The custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Securities System for the account of
the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian
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<PAGE> 14
pursuant to Section 2.10 hereof, (i) in accordance with the provisions
of any agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of
The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio, (ii) for purposes of segregating
cash or government securities in connection with options purchased,
sold or written by the Portfolio or commodity futures contracts or
options thereon purchased or sold by the Portfolio, (iii) for the
purposes of compliance by the Portfolio with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies
and (iv) for other proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions from
the Fund on behalf of the applicable Portfolio, a certified copy of a
resolution of the Board of Trustees or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper corporate
purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to securities of each Portfolio held by it and in
connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls
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<PAGE> 15
and maturities of securities and expirations of rights in connection
therewith and notices of exercise of call and put options written by
the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian
from issuers of the securities being held for the Portfolio. With
respect to tender or exchange offers, the Custodian shall transmit
promptly to the Portfolio all written information received by the
Custodian from issuers of the securities whose tender or exchange is
sought and from the party (or his agents) making the tender or exchange
offer. If the Portfolio desires to take action with respect to any
tender offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days prior
to the date on which the Custodian is to take such action.
3. Payments for Repurchases or Redemptions and Sales of Shares of the Fund
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
4. Proper Instructions
Proper Instructions as used herein means a writing signed or
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<PAGE> 16
initialled by one or more person or persons as the Board of Trustees shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific statement of
the purpose for which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing. Upon receipt of a certificate of the Secretary or an Assistant
Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.12.
5. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
6. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other
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<PAGE> 17
instrument or paper believed by it to be genuine and to have been properly
executed by or on behalf of the Fund. The Custodian may receive and accept a
certified copy of a vote of the Board of Trustees of the Fund as conclusive
evidence (a) of the authority of any person to act in accordance with such vote
or (b) of any determination or of any action by the Board of Trustees pursuant
to the Declaration of Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of written
notice to the contrary.
7. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value per
share and the daily income of each Portfolio shall be made at the time or times
described from time to time in the Fund's currently effective prospectus related
to such Portfolio.
8. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include
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<PAGE> 18
certificate numbers in such tabulations.
9. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
10. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
12. Responsibility of Custodian
Except as provided below, so long as and to the extent that it is in
the exercise of reasonable care, the Custodian shall not be responsible for the
title, validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Contract and shall be held
harmless in acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options agreement. It shall be
entitled to rely on and may act upon advice
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<PAGE> 19
of counsel for the Fund on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice.
The Custodian agrees to maintain for its functions and activities
insurance coverages of the type and with limits appropriate for the businesses
carried on pursuant to this Agreement, including at least the following
insurance coverages: (i) financial institution bond with standard coverage for
employee dishonesty, fraud, forgery, and similar coverages normally included in
a financial in a financial institution bond; (ii) excess securities coverage
insuring all risk of physical loss to securities; (iii) electronic and computer
crime coverage; (iv) check and draft forgery coverage applicable to forged or
altered documents; and (v) bankers professional liability insurance, covering
losses caused by errors and omissions while rendering a professional service for
a client or customer. The Memorandum of Insurance with respect to such coverages
are attached as Exhibit 1 to this Agreement.
The Fund shall not be responsible for, and the Custodian shall assume
responsibility for any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to fraudulent
acts, negligent acts,and mistakes, errors and omissions of the types covered by
the insurance policies maintained by the Custodian pursuant to the above
provisions, regardless of whether the amount of the loss would be payable by the
insurer or would be payable by the Custodian because the loss would exceed the
limits of the policy or would be within the self-retention layer or deductible,
provided such fraudulent acts, negligent acts or mistakes, errors or omissions
are committed by the directors, officers, employees, agents or subcontractors of
the Custodian (other than the Fund or its portfolios, agents or subcontractors)
in connection with the Custodian's performance of its functions or businesses
and would cause a loss to the Fund or its shareholders or to the Custodian.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements,
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<PAGE> 20
foreign exchange contracts and assumed settlement) for the benefit of a
Portfolio or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract which are not included within
the types of insurance coverages carried by the Custodian and described above,
except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's assets to
the extent necessary to obtain reimbursement.
13. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has reviewed the use by such Portfolio of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect to
a Portfolio act under Section 2.11 hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has reviewed the use by such
Portfolio of the Direct Paper System; provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Declaration of Trust, and
further provided, that the Fund on behalf of one or more of the Portfolios may
at any time by action of its Board of Trustees (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event
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<PAGE> 21
at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
14. Successor Custodian
If a successor custodian for the Fund or one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
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<PAGE> 22
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
15. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
16. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to Southeastern Asset Management Value Trust and Southeastern Asset
Management Small Cap Fund with respect to which it desires to have the Custodian
render services as custodian under the terms hereof, it shall so notify the
Custodian in writing, and if the Custodian agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
17. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
18. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
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<PAGE> 23
19. Limitations of Liability of the Trustees and Shareholders
a. A copy of the Declaration of Trust of the 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 Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument
are not binding upon any of the Trustees or Shareholders individually but
are binding only upon the assets and property of the Fund.
b. The Declaration of Trust establishing the Fund, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in
the office of the Secretary of the Commonwealth of Massachusetts, provides
that the name of the Trust refers to the Trustee under the Declaration
collectively as Trustees, but not as individuals or personally, and no
Trustee, shareholder, officer, employee or agent of the said Trust shall
be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of said Trust, but the Trust
assets and estate only shall be liable.
20. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [x] The Custodian is not authorized to release the Fund's
name, address, and share positions.
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IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 1st day of June, 1994.
ATTEST SOUTHEASTERN ASSET MANAGEMENT
FUNDS TRUST
/s/ Julie M. Douglas By /s/ Charles D. Reaves
- ----------------------------------- ------------------------------------
Executive Vice President & Executive Vice President
Treasurer
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ D. Hubay By /s/
- ----------------------------------- ------------------------------------
Executive Vice President
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<PAGE> 25
AMENDMENT TO CUSTODIAN CONTRACT
This Amendment to the Custodian Contract is made as of September 30,
1997 by and between Longleaf Partners Funds Trust (the "Fund") and State Street
Bank and Trust Company (the "Custodian"). Capitalized terms used in this
Amendment without definition shall have the respective meanings given to such
terms in the Custodian Contract referred to below.
WHEREAS, the Fund and the Custodian entered into a Custodian Contract
dated as of June 1, 1994 (as amended and in effect from time to time, the
"Contract"); and
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets, and the Fund has made Longleaf Partners Fund,
Longleaf Partners Small-Cap Fund and Longleaf Partners Realty Fund subject to
the Contract (each such series, together with all other series subsequently
established by the Fund and made subject to the Contract in accordance with the
terms thereof, shall be referred to as a "Portfolio", and, collectively, the
"Portfolios"); and
WHEREAS, the Fund and the Custodian desire to amend certain provisions
of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") promulgated
under the Investment Company Act of 1940, as amended; and
WHEREAS, the Fund and the Custodian desire to amend and restate certain
other provisions of the Contract relating to the custody of assets of each of
the Portfolios held outside of the United States.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereby agree to
amend the Contract, pursuant to the terms thereof, as follows:
I. Articles 3 through 20 of the Contract are hereby renumbered, as of the
effective date of this Amendment, as Articles 5 through 22,
respectively.
II. New Articles 3 and 4 of the Contract are hereby added, as of the
effective date of this Amendment, as set forth below.
3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER
3.1. DEFINITIONS.
Capitalized terms in this Article 3 shall have the following meanings:
<PAGE> 26
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including financial institutions such as any Mandatory Securities Depositories
operating in the country); prevailing or developing custody and settlement
practices; and laws and regulations applicable to the safekeeping and recovery
of Foreign Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, except that the term does not include Mandatory Securities Depositories.
"Foreign Assets" means any of the Portfolios' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Portfolios'
transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with prevailing or
developing custodial or market practices.
3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
The Fund, by resolution adopted by its Board of Trustees (the "Board of
Trustees"), hereby delegates to the Custodian, subject to Section (b) of Rule
17f-5, the responsibilities set forth in this Article 3 with respect to Foreign
Assets held outside the United States, and the Custodian hereby accepts such
delegation, as Foreign Custody Manager of each Portfolio.
3.3. COUNTRIES COVERED.
The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to the countries and custody
arrangements for each such country listed on Schedule A to this Contract, which
may be amended from time to time by the Foreign Custody Manager. The Foreign
Custody Manager shall list on Schedule A the Eligible Foreign Custodians
selected by the Foreign Custody Manager to maintain the assets of each
Portfolio. Mandatory Securities Depositories are listed on Schedule B to this
Contract, which Schedule B may be amended from time to time by the Foreign
Custody Manager. The Foreign Custody
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<PAGE> 27
Manager will provide amended versions of Schedules A and B in accordance with
Section 3.7 of this Article 3.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account, or to place or maintain Foreign Assets, in a country listed on
Schedule A, and the fulfillment by the Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by the Board responsibility as Foreign Custody Manager with
respect to that country and to have accepted such delegation. Following the
receipt of Proper Instructions directing the Foreign Custody Manager to close
the account of a Portfolio with the Eligible Foreign Custodian selected by the
Foreign Custody Manager in a designated country, the delegation by the Board to
the Custodian as Foreign Custody Manager for that country shall be deemed to
have been withdrawn and the Custodian shall immediately cease to be the Foreign
Custody Manager of the Portfolio with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to a Portfolio with respect
to the country as to which the Custodian's acceptance of delegation is
withdrawn.
3.4. SCOPE OF DELEGATED RESPONSIBILITIES.
3.4.1. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS.
Subject to the provisions of this Article 3, the Foreign Custody Manager may
place and maintain the Foreign Assets in the care of the Eligible Foreign
Custodian selected by the Foreign Custody Manager in each country listed on
Schedule A, as amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager to place
or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody Manager shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to custodians in the country
in which the Foreign Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping of such assets,
including, without limitation:
(i) the Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical
protections available for certificated securities (if
applicable), its methods of keeping custodial records, and its
security and data protection practices;
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(ii) whether the Eligible Foreign Custodian has the financial
strength to provide reasonable care for Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation and
standing and, in the case of a foreign securities depository
or clearing agency which is not a Mandatory Securities
Depository, the foreign securities depository's or clearing
agency's operating history and the number of participants in
the foreign securities depository or clearing agency; and
(iv) whether the Fund will have jurisdiction over and be able to
enforce judgments against the Eligible Foreign Custodian, such
as by virtue of the existence of any offices of the Eligible
Foreign Custodian in the United States or the Eligible Foreign
Custodian's consent to service of process in the United
States.
3.4.2. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS
The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign Custodian
that is a foreign securities depository or clearing agency) governing the
foreign custody arrangements with each Eligible Foreign Custodian selected by
the Foreign Custody Manager will provide reasonable care for the Foreign Assets
held by that Eligible Foreign Custodian based on the standards applicable to
custodians in the particular country. Each such contract shall include
provisions that provide:
(i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that the Fund will be
adequately protected against the risk of loss of the Foreign
Assets held in accordance with such contract;
(ii) that the Foreign Assets will not be subject to any right,
security interest, or lien or claim of any kind in favor of
the Eligible Foreign Custodian or its creditors except a claim
of payment for their safe custody or administration or, in the
case of cash deposits, liens or rights in favor of creditors
of the Eligible Foreign Custodian arising under bankruptcy,
insolvency, or similar laws;
(iii) that beneficial ownership of the Foreign Assets will be freely
transferable without the payment of money or value other than
for safe custody or administration;
(iv) that adequate records will be maintained identifying the
Foreign Assets as belonging to the Fund or as being held by a
third party for the benefit of the Fund;
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(v) that the Fund's independent public accountants will be given
access to those records or confirmation of the contents of
those records; and
(vi) that the Fund will receive periodic reports with respect to
the safekeeping of the Foreign Assets, including, but not
limited to, notification of any transfer of the Foreign Assets
to or from the account of the Portfolio or a third party
account containing the Foreign Assets held for the benefit of
the Portfolio,
or, in lieu of any or all of the provisions set forth in (i) through (vi) above,
such other provisions that the Foreign Custody Manager determines will provide,
in their entirety, the same or greater level of care and protection for the
Foreign Assets as the provisions set forth in (i) through (vi) above in their
entirety.
3.4.3. MONITORING.
In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible Foreign
Custodian and (ii) the contract governing the custody arrangements established
by the Foreign Custody Manager with the Eligible Foreign Custodian. In the event
the Foreign Custody Manager determines that the custody arrangements with an
Eligible Foreign Custodian it has selected are no longer appropriate, the
Foreign Custody Manager shall notify the Board in accordance with Section 3.7
hereunder.
3.5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY.
For purposes of this Article 3, the Board shall be deemed to have considered and
determined to accept such Country Risk as is incurred by placing and maintaining
the Foreign Assets in each country for which the Custodian is serving as Foreign
Custody Manager of a Portfolio, and the Board shall be deemed to be monitoring
on a continuing basis such Country Risk to the extent that the Board considers
necessary or appropriate. The Fund, on behalf of the Portfolios, and the
Custodian each expressly acknowledge that the Foreign Custody Manager shall not
be delegated any responsibilities under this Article 3 with respect to Mandatory
Securities Depositories.
3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO.
In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the Investment Company Act of 1940, as amended, would
exercise.
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3.7. REPORTING REQUIREMENTS.
The Foreign Custody Manager shall report the withdrawal of the Foreign Assets
from an Eligible Foreign Custodian and the placement of such Foreign Assets with
another Eligible Foreign Custodian by providing to the Board amended Schedules A
or B at the end of the calendar quarter in which an amendment to either Schedule
has occurred. The Foreign Custody Manager shall make written reports notifying
the Board of any other material change in the foreign custody arrangements of a
Portfolio described in this Article 3 after the occurrence of the material
change.
3.8. REPRESENTATIONS WITH RESPECT TO RULE 17F-5.
The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.
The Fund represents to the Custodian that the Board has determined that it is
reasonable for the Board to rely on the Custodian to perform the
responsibilities delegated pursuant to this Contract to the Custodian as the
Foreign Custody Manager of each Portfolio.
3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY
MANAGER.
The Board of Trustees' delegation to the Custodian as Foreign Custody Manager of
a Portfolio shall be effective as of the date of execution of this Amendment and
shall remain in effect until terminated at any time, without penalty, by written
notice from the terminating party to the non-terminating party. Termination will
become effective thirty days after receipt by the non-terminating party of such
notice. The provisions of Section 3.3 of this Article 3 shall govern the
delegation to and termination of the Custodian as Foreign Custody Manager of the
Fund with respect to designated countries.
4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF A PORTFOLIO HELD
OUTSIDE THE UNITED STATES.
4.1 DEFINITIONS.
Capitalized terms in this Article 4 shall have the following meanings:
"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian or a Permissible Foreign Custodian.
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"Permissible Foreign Custodian" means any person with whom property of a
Portfolio may be placed and maintained outside of the United States under (i)
section 17(f) or 26(a) of the Investment Company Act of 1940, as amended,
without regard to Rule 17f-5 or (ii) an order of the U.S. Securities and
Exchange Commission.
4.2. HOLDING SECURITIES.
The Custodian shall identify on its books as belonging to a Portfolio the
foreign securities held by each Foreign Sub-Custodian or Foreign Securities
System. The Custodian may hold foreign securities for all of its customers,
including the Portfolio, with any Foreign Sub-Custodian in an account that is
identified as belonging to the Custodian for the benefit of its customers,
provided however, that (i) the records of the Custodian with respect to foreign
securities of the Portfolio which are maintained in such account shall identify
those securities as belonging to the Portfolio and (ii) the Custodian shall
require that securities so held by the Foreign Sub-Custodian be held separately
from any assets of such Foreign Sub-Custodian or of other customers of such
Foreign Sub-Custodian.
4.3. FOREIGN SECURITIES SYSTEMS.
Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign
Sub-Custodian in such country pursuant to the terms of this Contract.
4.4. HOLDING OF FOREIGN ASSETS WITH PERMISSIBLE FOREIGN CUSTODIANS.
Subject to the requirements of Sections 17(f) and 26(a) of the Investment
Company Act of 1940, as amended (and any other applicable law or order), the
Custodian may place and maintain Foreign Assets in the care of any Permissible
Foreign Custodian. Article 3 (other than the definitions in Section 3.1) of
this Contract shall not apply to placement of Foreign Assets by the Custodian
with a Permissible Custodian.
4.5. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
4.5.1. DELIVERY OF FOREIGN SECURITIES.
The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of a Portfolio held by such Foreign Sub-Custodian, or in a Foreign
Securities System account, only upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:
(i) upon the sale of such foreign securities for the Portfolio in
accordance with reasonable market practice in the country
where such foreign securities are held or traded, including,
without limitation: (A) delivery against expectation of
receiving later payment; or (B) in the case of a sale
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<PAGE> 32
effected through a Foreign Securities System, in accordance
with the rules governing the operation of the Foreign
Securities System;
(ii) in connection with any repurchase agreement related to foreign
securities;
(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Portfolio;
(iv) to the issuer thereof or its agent when such foreign
securities are called, redeemed, retired or otherwise become
payable;
(v) to the issuer thereof, or its agent, for transfer into the
name of the Custodian (or the name of the respective Foreign
Sub-Custodian or of any nominee of the Custodian or such
Foreign Sub-Custodian) or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with market
custom; provided that in any such case the Foreign
Sub-Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Foreign Sub-Custodian's own negligence or willful
misconduct;
(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities,
the surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts or
temporary securities for definitive securities;
(ix) for delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Portfolio;
(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper trust purpose, but only upon receipt of,
in addition to Proper Instructions, a copy of a resolution of
the Board of Contract or of
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<PAGE> 33
an Executive Committee of the Board of Contract so authorized
by the Board of Contract, signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary that the
resolution was duly adopted and is in full force and effect (a
"Certified Resolution"), specifying the foreign securities to
be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
trust purpose, and naming the person or persons to whom
delivery of such securities shall be made.
4.5.2. PAYMENT OF PORTFOLIO MONIES.
Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, monies of a Portfolio in the following cases only:
(i) upon the purchase of foreign securities for the Portfolio,
unless otherwise directed by Proper Instructions, by (A)
delivering money to the seller thereof or to a dealer therefor
(or an agent for such seller or dealer) against expectation of
receiving later delivery of such foreign securities; or (B) in
the case of a purchase effected through a Foreign Securities
System, in accordance with the rules governing the operation
of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Portfolio;
(iii) for the payment of any expense or liability of the Portfolio
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees
under this Contract, legal fees, accounting fees, and other
operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign
exchange contracts for the Portfolio, including transactions
executed with or through the Custodian or its Foreign
Sub-Custodians;
(v) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(vii) in connection with the borrowing/lending of foreign
securities; and
(viii) for any other proper trust purpose, but only upon receipt of,
in addition to Proper Instructions, a Certified Resolution
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made,
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<PAGE> 34
declaring such purpose to be a proper trust purpose, and
naming the person or persons to whom such payment is to be
made.
4.5.3. MARKET CONDITIONS.
Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of a Portfolio and delivery
of Foreign Assets maintained for the account of a Portfolio may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs, including, without limitation, delivering Foreign Assets to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) with the expectation of receiving later payment for such Foreign Assets
from such purchaser or dealer.
4.6. REGISTRATION OF FOREIGN SECURITIES.
The foreign securities maintained in the custody of a Foreign Custodian (other
than bearer securities) shall be registered in the name of the Fund (on behalf
of the applicable Portfolio) or in the name of the Custodian or in the name of
any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and
the Fund agrees to hold any such nominee harmless from any liability as a holder
of record of such foreign securities. The Custodian or a Foreign Sub-Custodian
shall not be obligated to accept securities on behalf of the Fund (on behalf of
the applicable Portfolio) under the terms of this Contract unless the form of
such securities and the manner in which they are delivered are in accordance
with reasonable market practice.
4.7. BANK ACCOUNTS.
A bank account or bank accounts opened and maintained outside the United States
on behalf of a Portfolio with a Foreign Sub-Custodian shall be subject only to
draft or order by the Custodian or such Foreign Sub-Custodian, acting pursuant
to the terms of this Contract to hold cash received by or from or for the
account of the Portfolio.
4.8. COLLECTION OF INCOME.
The Custodian shall use reasonable endeavors to collect all income and other
payments in due course with respect to the Foreign Assets held hereunder to
which a Portfolio shall be entitled and shall credit such income, as collected,
to the Portfolio. In the event that extraordinary measures are required to
collect such income, the Fund and the Custodian shall consult as to such
measures and as to the compensation and expenses of the Custodian relating to
such measures.
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4.9. PROXIES.
The Custodian will generally with respect to the foreign securities held under
this Article 4 use its reasonable endeavors to facilitate the exercise of voting
and other shareholder proxy rights, subject always to the laws, regulations and
practical constraints that may exist in the country where such securities are
issued. The Fund acknowledges that local conditions, including lack of
regulation, onerous procedural obligations, lack of notice and other factors may
have the effect of severely limiting the ability of the Fund to exercise
shareholder rights.
4.10. COMMUNICATIONS RELATING TO FOREIGN SECURITIES.
The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub-Custodians from issuers of the foreign securities
being held for the account of a Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information so
received by the Custodian from issuers of the foreign securities whose tender or
exchange is sought or from the party (or its agents) making the tender or
exchange offer. The Custodian shall not be liable for any untimely exercise of
any tender, exchange or other right or power in connection with foreign
securities or other property of the Portfolio at any time held by it unless (i)
the Custodian or the respective Foreign Sub-Custodian is in actual possession of
such foreign securities or property and (ii) the Custodian receives Proper
Instructions with regard to the exercise of any such right or power, and both
(i) and (ii) occur at least three business days prior to the date on which such
right or power is to be exercised.
4.11. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS.
Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with such
Foreign Sub-Custodian's performance of such obligations. At the election of the
Fund, the Fund shall be entitled to be subrogated to the rights of the Custodian
with respect to any claims against a Foreign Sub-Custodian as a consequence of
any such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund and any applicable Portfolio has not been made whole for any such
loss, damage, cost, expense, liability or claim.
4.12. TAX LAW.
The Custodian shall have no responsibility or liability for any obligations now
or hereafter imposed on the Fund or the Custodian as custodian of the Portfolios
by the tax
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law of the United States or of any state or political subdivision thereof. It
shall be the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund with respect to the Portfolios or the Custodian
as custodian of such Portfolios by the tax law of countries other than those
mentioned in the above sentence, including responsibility for withholding and
other taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with regard to
such tax law shall be to use reasonable efforts to assist the Fund with respect
to any claim for exemption or refund under the tax law of countries for which
the Fund has provided such information.
4.13. LIABILITY OF CUSTODIAN.
Except as may arise from the Custodian's own negligence or willful misconduct or
the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be
without liability to the Fund for any loss, liability, claim or expense
resulting from or caused by anything which is (A) part of Country Risk or (B)
part of the "prevailing country risk" of the Fund and the Portfolios, as such
term is used in SEC Release Nos. IC-22658; IS-1080 (May 12, 1997) or as such
term or other similar terms are now or in the future interpreted by the U.S.
Securities and Exchange Commission or by the staff of the Division of Investment
Management of such Securities and Exchange Commission.
The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or a Foreign Securities Depository, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism, or any other loss where the Sub-Custodian has
otherwise acted with reasonable care.
III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and
effect. In the event of any conflict between the terms of the Contract
prior to this Amendment and this Amendment, the terms of this Amendment
shall prevail. If the Custodian is delegated the responsibilities of
Foreign Custody Manager pursuant to the terms of Article 3 hereof, in
the event of any conflict between the provisions of Articles 3 and 4
hereof, the provisions of Article 3 shall prevail.
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IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.
WITNESSED BY: STATE STREET BANK AND TRUST
COMPANY
/s/ Glenn Ciotti By: /s/ Ronald E. Logue
- ----------------------------------- ------------------------------------
Vice President and Title: Executive Vice President
Associate Counsel
WITNESSED BY: LONGLEAF PARTNERS FUNDS TRUST
/s/ Julie M. Douglas By: /s/ Charles D. Reaves
- ----------------------------------- ------------------------------------
Executive Vice President Executive Vice President
13
<PAGE> 1
EXHIBIT 23(h)(1)
FUND ADMINISTRATION AGREEMENT
AGREEMENT made as of the 1st day of August, 1994, between LONGLEAF
PARTNERS FUNDS TRUST, formerly SOUTHEASTERN ASSET MANAGEMENT FUNDS TRUST, a
Massachusetts business trust, ("the Master Trust") and each of its separate
series or separate portfolios, as presently existing or hereafter created in the
manner authorized by the provisions of the Master Trust, (each such separate
series or separate portfolio being hereafter referred to in the singular as "the
Fund") to the extent the Agreement may be adopted by the Board of Trustees
and/or shareholders of each such portfolio, and SOUTHEASTERN ASSET MANAGEMENT,
INC., a Tennessee corporation, (hereinafter referred to as "the Administrator").
In consideration of the mutual agreements herein made, the Fund appoints the
Administrator and the Administrator agrees to serve as the Fund Administrator on
the terms and conditions set forth herein.
I
GENERAL AUTHORITY AND FACILITIES
1.01. STANDARD OF SERVICE OF THE ADMINISTRATOR
The Administrator will use its best efforts to provide efficient,
effective, and accurate administrative services for the Fund, as defined in
Section II herein, and will seek innovative and continuing technological
improvements for the said functions for which it has assumed responsibilities.
The Administrator will not be liable or responsible for delays or errors by
reason of circumstances beyond its control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical breakdown
beyond its control, flood or catastrophe, acts of God, insurrection, war, riots
or failure beyond its control of transportation, communication or power supply.
The Administrator will provide services equal in quality to those
administration, accounting, and shareholder services performed for any other
management investment companies which the administrator may serve in a similar
capacity.
1.02. FACILITIES AND EMPLOYEES
(a) The Administrator shall, at its own expense, furnish directly or
through subsidiaries, office facilities, including space, furniture and
equipment and, to the extent that such services are not being provided by others
under contract with the Fund, personnel for managing the affairs of the Fund,
maintaining and servicing the records with respect to the investments and
shareholders of the Fund, and maintaining and servicing all other books and
records of the Fund, as required by the Investment Company Act of 1940, but not
including such duties, services, or records which are customarily performed or
maintained for an open-end management investment company by its custodian,
transfer agent, independent auditors, and/or outside legal counsel.
(b) The Administrator shall provide personnel satisfactory to the Board of
Trustees of the Fund to serve as officers of the Fund, including a President,
one or more Executive Vice Presidents or Vice Presidents, a Secretary, a
Treasurer, and such additional officers and employees as may reasonably be
necessary for the performance of its duties under this Agreement.
(c) The personnel and facilities provided by the Administrator shall be
subject to the control and direction of the Board of Trustees of the Fund,
notwithstanding that some or all of their compensation and expenses of their
employment may be paid by the Administrator. The Administrator is responsible
for the employment, control and conduct of its agents and employees and for
injury to such agents or employees or to others through its agents or employees.
The Administrator assumes full responsibility for its agents and employees under
applicable statutes and agrees to pay all employment taxes thereunder. The
Administrator will maintain appropriate insurance at its own expense against
public liability in a reasonable amount.
<PAGE> 2
1.03. DOCUMENTS TO BE FURNISHED TO ADMINISTRATOR
The Fund shall from time to time provide the Administrator with: (1) a
copy of the Declaration of Trust of the Fund and all amendments thereto; (2) a
copy of the Bylaws of the Fund as amended from time to time; (3) certified
copies of votes of the Board of Trustees of the Fund relating to the issues of
Shares of the Fund; (4) any amended certificate for Shares of the Fund in the
form adopted by the Board; (5) specimen signatures of the officers of the Fund;
(6) such other documents as the Administrator may reasonably request.
1.04. PROTECTION OF ADMINISTRATOR; INDEMNIFICATION
(a) The Administrator may rely on certifications of the President, any
Executive Vice President or Vice President, the Secretary or the Treasurer of
the Fund as to proceedings, facts or other matters in connection with any action
taken by the shareholders or the Board of Trustees of the Fund, and upon
instructions not inconsistent with this Agreement, from the President or any
Executive Vice President or Vice President and the Treasurer or any Assistant
Treasurer. The Administrator may apply to counsel for the Fund or to its own
counsel for advice whenever it deems it expedient. With respect to any action
taken on the basis of such certifications or instructions or in accordance with
the advice of counsel for the Fund, the Fund will indemnify and hold harmless
the Administrator from any and all liability and expense.
(b) The Administrator shall be indemnified and held harmless by the Fund
against any loss or damage by reason of any act done by it in good faith and in
reliance upon any instrument or certificate for Shares believed by it (a) to be
genuine and (b) to be signed, countersigned or executed by any person or persons
authorized to sign, countersign, or execute such instrument or certificate;
provided, however, that the Administrator shall not be so indemnified in the
event of its failure to obtain a proper signature guarantee.
(c) If any officer of the Fund shall no longer be vested with authority to
sign for the Fund, written notice thereof shall forthwith be given to the
Administrator by the Fund and until receipt of such notice by it, the
Administrator shall be fully indemnified and held harmless by the Fund in
recognizing and acting upon certificates or other instruments bearing the
signatures or facsimile signatures of such officer.
(d) Except as may otherwise be required by the Investment Company Act of
1940 or the rules thereunder, neither the Administrator nor its stockholders,
officers, directors, employees or agents shall be subject to any liability for,
or any damages, expenses or losses incurred in connection with, any act or
omission connected with or arising out of any services rendered under this
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 this
Agreement. Notwithstanding the foregoing, the Administrator shall not be liable
to the Fund for the acts and omissions of any party engaged by it to execute
purchases and sales of portfolio securities for or on behalf of the Fund under
this Agreement, except to the extent that such party is liable to the
Administrator for such acts and omissions. Any person, even though also employed
by the Administrator, who may be or become an employee of the Fund shall be
deemed, when acting within the scope of his or her employment by the Fund, to be
acting in such employment solely for the Fund and not as the employee or agent
of the Administrator.
(e) The Administrator shall for all purposes herein be deemed to be an
independent contractor. As such, the Administrator has no authority to act for
or represent the Fund in any way and is not an agent of the Fund.
<PAGE> 3
II
ACCOUNTING AND ADMINISTRATION FUNCTIONS
2.01. MAINTENANCE OF RECORDS
The Administrator will maintain records on behalf of the Fund in compliance
with the Rules and Regulations of the Securities and Exchange Commission,
including, but not limited to, any such records required to be maintained
pursuant to Section 31(a) of the Investment Company Act of 1940 and the Rules
and Regulations thereunder. Such records will at all times be available for
inspection and use by the Fund and upon termination of this Agreement be
transferred upon instructions of the Fund to any successor administrator or to
the Fund itself.
2.02. RESPONSIBILITIES AND FUNCTIONS
The Administrator shall have the responsibility of managing, performing, or
supervising the administrative and business operations of the Fund, other than
those related to the management of the Fund's portfolio of securities and the
distribution and sale of the Fund's shares. The duties and responsibilities to
be performed by the Administrator shall include the following:
(1) Preparation or supervision of the preparation of all registration
statements and prospectuses, and the filing thereof with the appropriate
regulatory authorities.
(2) Preparation or supervision of the preparation of all public
financial statements and financial reports, the filing thereof with the
appropriate regulatory authorities, and the distribution to shareholders of
the Fund.
(3) Preparation or the supervision of the preparation of all tax
returns and the filing thereof with the appropriate regulatory authorities.
(4) Preparation or the supervision of the preparation of any Proxy
Statements, assistance in the conduct of any meetings of shareholders,
tabulation of proxies and ballots of shareholders, and the maintenance of
minutes of such meetings.
(5) Daily valuation of the Fund's portfolio and the daily calculation
of the Fund's net asset value per share.
(6) Co-ordination and liaison between the Fund and its Investment
Counsel, its Custodian, its Transfer Agent and the reconciliation of all
accounts and records provided by such entities.
(7) Management and scheduling of regular quarterly meetings of the
Fund's Board of Trustees, and in connection therewith, providing all
necessary assistance in the conduct of such meetings, and the maintenance
of minutes of such meetings.
(8) Establishment of internal accounting controls and procedures and
the continuing monitoring thereof.
(9) Co-ordination with the Fund's independent certified public
accountants and outside legal counsel.
(10) Management of audits and inspections by the Fund's independent
certified public accountants and by all regulatory authorities.
(11) Supplying or obtaining on behalf of the Fund such other advice
or assistance as may be necessary or desirable in the continuing
administration of the Fund's business affairs.
<PAGE> 4
2.03. ADMINISTRATION FEES AND EXPENSES
(a.) The Administrator shall be entitled to receive and the Fund shall be
obligated to pay to the Administrator for the services specified in this Section
II an Administration Fee, which shall be accrued daily and paid monthly in
arrears of 0.10% per annum of average daily net assets. The Fund shall also
reimburse the Administrator for the Fund's equitable and appropriate share of
the total cash compensation of the Fund's Treasurer, as allocated among the Fund
and any other Fund or series and any other commingled investment or insurance
product served by the Administrator and the Fund's Treasurer, subject to review
of and approval by the Board of Trustees, and shall pay or provide reimbursement
for all other operational expenses, as provided in Paragraphs 2.03(b) and
2.03(c) of this Agreement.
2.03 (b) The Fund shall pay all of its costs and expenses of operation,
except those specifically stated herein to be borne or payable by the
Administrator. The expenses payable by the Fund shall include, but shall not be
limited to: (i) the fees of the Fund's Investment Counsel, and Administrator;
(ii) the fees of any Custodian and Transfer Agent of the Fund; (iii)
compensation of the Fund's independent certified public accountants and any
legal counsel retained by the Fund, including compensation and costs relating to
litigation, and the fees, compensation and expenses of the "non-interested"
Trustees of the Fund; (iv) franchise, income, business license and original
issue taxes relating to the Fund and its securities; (v) fees and legal expenses
incurred in qualifying the shares of the Fund for sale with any state regulatory
agency in the several states, and the fees and expenses of maintaining,
renewing, increasing or amending such qualifications; (vi) insurance and bonding
premiums and association dues; (vii) fees and expenses involved in registering
and maintaining registrations of the Fund and of its shares with the Securities
and Exchange Commission, including the preparation and printing of prospectuses
for shareholders; (viii) costs of printing and mailing to shareholders
prospectuses, proxy statements, dividend notices, routine and special reports
and other communications to shareholders, as well as all expenses of
shareholders and Trustees meetings; (ix) costs of printing of any stock
certificates; (x) interest expense and brokers' commissions and issue and
transfer taxes chargeable to the Fund in connection with securities transactions
to which the Fund is a party; (xi) the costs of obtaining prices of the Fund's
portfolio securities; and (xii) any extraordinary expenses including
extraordinary legal expenses; provided, however, that all such expenses to be
paid by the Fund shall be subject to review and approval by the Board of
Trustees of the Fund as to the reasonableness thereof.
2.03 (c) The Fund shall reimburse the Administrator for the Fund's
equitable and appropriate share of the costs and expenses of the following
items, such costs and expenses to be allocated among the Fund and any other
Funds or series and any other commingled investment or insurance products served
by the Administrator, subject to review of and approval by the Board of Trustees
of the Fund as to the method of allocation and the reasonableness of the costs
and expenses:
(1) Costs and expenses of leasing or acquiring specialized computer
programs or computer software and software support contracts used
exclusively by the Fund and any other Funds or commingled products.
(2) Costs and expenses of leasing or acquiring specialized computer
equipment or hardware and appropriate support contracts for computer
equipment purchased exclusively for and dedicated solely to processing of
transactions for the Fund and any other Funds or commingled products.
(3) Organizational expenses amortized in a manner as permitted by
generally accepted accounting principles and the Securities & Exchange
Commission, limited to the particular series or Fund.
(4) Costs and expenses of stationery, appropriate forms, envelopes,
checks, postage, telephone, telegraph, and overnight or other courier
charges and other similar items, to the extent such costs and expenses
have not been paid directly by the Fund.
<PAGE> 5
III
TERMINATION, AMENDMENTS, AND OTHER PROVISIONS
3.01. RENEWAL AND TERMINATION
This Agreement shall remain in effect for a period of two (2) years and
from year to year thereafter, provided such continuance is approved at least
annually by the vote of holders of a majority, as defined in the Investment
Company Act (the "Act"), of the outstanding voting securities of the Fund or by
the Trustees of the Fund; provided, that in either event such continuance is
also approved annually by the vote of a majority of the Trustees of the Fund who
are not parties to this Agreement or who are not otherwise "interested persons"
(as defined in the Investment Company Act of 1940) of any such party, which vote
must be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that (a) the Fund may, at any time and without the
payment of any penalty, terminate this Agreement upon sixty days written notice
to the Administrator, either by majority vote of the Trustees of the Fund or by
the vote of a majority of the outstanding voting securities of the Fund; (b)
this Agreement shall immediately terminate in the event of its assignment
(within the meaning of the Investment Company Act of 1940) unless such automatic
termination shall be prevented by an exemptive order of the Securities and
Exchange Commission; and (c) the Administrator may terminate this Agreement
without penalty on sixty days written notice to the Fund. Any notice under this
Agreement shall be given in writing, addressed and delivered, or mailed
post-paid, to the other party at the principal office of such party.
3.02. SUCCESSOR ADMINISTRATOR
In the event that a successor to any of the Administrator's duties or
responsibilities hereunder is designated by the Fund by written notice to the
Administrator, the Administrator will, promptly upon such termination and at the
expense of the Fund, transfer to such successor all other relevant books,
records, correspondence and other data established or maintained by the
Administrator under this Agreement in form reasonably acceptable to the Fund (if
such form differs from the form in which the Administrator has maintained the
same, the Fund shall pay any expenses associated with transferring the same to
such form), and will cooperate in the transfer of such duties and
responsibilities, including provision for assistance from the Administrator's
personnel in the establishment of books, records, and other data by such
successor.
3.03. AMENDMENT
This Agreement may be amended by the parties without the vote or consent
of the shareholders of the Fund to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to confirm this Agreement to the requirements of applicable
federal laws or regulations.
3.04. FURTHER ASSURANCES
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes of this Agreement.
3.05. MISCELLANEOUS
(a) This Agreement shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts.
(b) The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions of this
Agreement or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument.
(c) The Declaration of Trust establishing the Fund, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that the
name of the Trust refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the said Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any
<PAGE> 6
obligation or claim or otherwise, in connection with the affairs of said Trust,
but the Trust assets and estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
1st day of August, 1994.
LONGLEAF PARTNERS FUNDS TRUST, FORMERLY
SOUTHEASTERN ASSET MANAGEMENT FUNDS TRUST
(THE MASTER TRUST)
LONGLEAF PARTNERS FUND, FORMERLY SOUTHEASTERN
ASSET MANAGEMENT VALUE TRUST (FIRST SERIES)
LONGLEAF PARTNERS SMALL-CAP FUND, FORMERLY
SOUTHEASTERN ASSET MANAGEMENT SMALL-CAP FUND
By /s/ Charles D. Reaves
---------------------------------------------
Executive Vice President
SOUTHEASTERN ASSET MANAGEMENT, INC. (THE FUND
ADMINISTRATOR)
By /s/ W. Reid Sanders
---------------------------------------------
Executive Vice President
<PAGE> 1
EXHIBIT 23(h)(4)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
SOUTHEASTERN ASSET MANAGEMENT FUNDS TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION> Page
----
<S> <C> <C>
Article 1 Terms of Appointment; Duties of the Bank ......................2
Article 2 Fees and Expenses .............................................6
Article 3 Representations and Warranties of the Bank ....................7
Article 4 Representations and Warranties of the Fund ....................8
Article 5 Data Access and Proprietary Information .......................9
Article 6 Responsibility of the Fund and the Bank ......................11
Article 7 Standard of Care .............................................15
Article 8 Covenants of the Fund and the Bank ...........................15
Article 9 Termination of Agreement .....................................17
Article 10 Additional Funds .............................................17
Article 11 Assignment ...................................................18
Article 12 Amendment ....................................................18
Article 13 Massachusetts Law to Apply ...................................18
Article 14 Force Majeure ................................................19
Article 15 Consequential Damages ........................................19
Article 16 Merger of Agreement ..........................................20
Article 17 Limitations of Liability of the Trustees
and the Shareholders .........................................20
Article 18 Counterparts .................................................20
</TABLE>
<PAGE> 3
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1st day of June, 1994, by and between
SOUTHEASTERN ASSET MANAGEMENT FUNDS TRUST, a Massachusetts business trust, c/o
Southeastern Asset Management, Inc., Suite 900, 6075 Poplar Avenue, Memphis,
Tennessee 38119 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in two series,
Southeastern Asset Management Value Trust and Southeastern Asset Management
Small Cap Fund (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Article 10, being herein referred to as a "Portfolio", and collectively as the
"Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the
Bank as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities, and the
Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
<PAGE> 4
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund, on behalf of the Portfolios, hereby employs and appoints the Bank to
act as, and the Bank agrees to act as its transfer agent for the authorized and
issued shares of beneficial interest of the Fund representing interests in each
of the respective Portfolios ("Shares"), dividend disbursing agent, custodian of
certain retirement plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each of the
respective Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus") of
the Fund on behalf of the applicable Portfolio, including without limitation any
periodic investment plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as applicable
and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
thereof to the Custodian of the Fund authorized pursuant to
the Declaration of Trust of the Fund (the "Custodian");
-2-
<PAGE> 5
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby
be deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner such
monies as instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at
-3-
<PAGE> 6
its option, may issue replacement certificates in place of
mutilated stock certificates upon presentation thereof and
without such indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of Shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of Shares which are authorized, based upon data provided to
it by the Fund, and issued and outstanding. The Bank shall
also provide the Fund on a regular basis with the total
number of Shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of Shares, to monitor the issuance of such Shares
or to take cognizance of any laws relating to the issue or
sale of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent, custodian of
certain retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to: maintaining all Shareholder accounts, preparing Shareholder meeting
lists,
-4-
<PAGE> 7
mailing proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information and (ii) provide a system which will
enable the Fund to monitor the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the Fund on
behalf of each Portfolio and the Bank per the attached service responsibility
schedule. The Bank may at times perform only a portion of these services and the
Fund or its agent may perform these services on the Fund's behalf.
-5-
<PAGE> 8
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing between the
Fund and the Bank.
Article 2 Fees and Expenses
2.01 For performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual maintenance
fee for each Shareholder account as set out in the initial fee schedule attached
hereto. Such fees and out-of-pocket expenses and advances identified under
Section 2.02 below may be changed from time to time subject to mutual written
agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses, including but not limited to confirmation production,
postage, forms, telephone, microfilm, microfiche, tabulating proxies, records
storage or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the Bank
at the request or with the consent of the Fund, will be reimbursed by the Fund
on behalf of the applicable Portfolio.
2.03 The Fund agrees on behalf of each of the Portfolios to pay all
fees and reimbursable expenses within five days following the mailing of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all Shareholder accounts shall be advanced to the
Bank by the Fund at least seven (7) days prior to the mailing date of such
materials.
-6-
<PAGE> 9
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the Commonwealth
of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
3.06 It (the Bank) maintains for its functions and activities and will
continue to maintain insurance coverages of the type and with limits appropriate
for the businesses carried on pursuant to this Agreement, including at least the
following insurance coverages; (i) brokers blanket bond with standard coverage
for employee dishonesty, fraud, forgery, and similar coverages normally included
in a brokers blanket bond, (ii) transfer agent errors and omissions insurance,
covering employee mistakes for transfer agent services and resulting shareholder
losses; (iii) electronic and computer crime coverage, and (iv) check and draft
forgery coverage applicable to forged or altered documents. The memorandum of
insurance with respect to such coverages are attached as Exhibit 2 to this
Agreement.
-7-
<PAGE> 10
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a business trust duly organized and existing and in good
standing under the laws of Massachusetts.
4.02 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of Trust
and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of the Fund being
offered for sale.
4.06 It (the Fund) maintains for its functions and activities and will
continue to maintain insurance coverages of the type and with limits appropriate
for the businesses carried on pursuant to this Agreement, including at least the
following insurance coverages; (i) investment company fidelity bond with
standard coverage for employee dishonesty, fraud, forgery, and similar coverages
normally included in a mutual fund fidelity bond, (ii) transfer agent errors and
omissions insurance,
-8-
<PAGE> 11
covering employee mistakes for transfer agent services and resulting shareholder
losses; (iii) electronic and computer crime coverage, and (iv) check and draft
forgery coverage applicable to forged or altered documents. Memorandum of
insurance certificates with respect to such coverages are attached as Exhibit 3
to this Agreement.
Article 5 Data Access and Proprietary Information
5.01 The Fund acknowledges that the data bases, computer programs,
screen format, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank on
data bases under the control and ownership of the Bank or other third party
("Data Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information") of substantial
value to the Bank or other third party. In no event shall Proprietary
Information be deemed Customer Data. The Fund agrees to treat all Proprietary
Information as proprietary to the Bank and further agrees that it shall not
divulge any Proprietary Information to any person or organization except as may
be provided hereunder. Without limiting the foregoing, the Fund agrees for
itself and its employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance with
the Bank's applicable user documentation;
-9-
<PAGE> 12
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of
the Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose
of such information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data required
hereunder from being retransmitted to any other computer facility
or other location, except with the prior written consent of the
Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal copyright
law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Article 5. The obligations of this Article
shall survive any earlier termination of this Agreement.
5.02 If the Fund notifies the Bank that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services,
-10-
<PAGE> 13
the Bank shall endeavor in a timely manner to correct such failure.
Organizations from which the Bank may obtain certain data included in the Data
Access Services are solely responsible for the contents of such data and the
Fund agrees to make no claim against the Bank arising out of the contents of
such third-party data, including, but not limited to, the accuracy thereof. DATA
ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN
CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK
EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash of Shares or (ii) transmit Shareholder information
or other information (such transactions constituting a "COEFI"), then in such
event the Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as such
instruction is undertaken in conformity with security procedures established by
the Bank from time to time.
Article 6 Responsibility of the Fund and the Bank
6.01 The Bank shall not be responsible for, and the Fund shall on behalf
of the applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
-11-
<PAGE> 14
(a) Fraudulent acts, negligent acts, and mistakes, errors and
omissions of the types covered by the insurance policies maintained by the Fund
pursuant to the provisions of subparagraph 4.06, regardless of whether the
amount of the loss would be payable by the insurer or would be payable by the
Fund because the loss would exceed the limits of the policy or would be within
the self-retention layer or deductible, provided such fraudulent acts, negligent
acts or mistakes, errors or omissions are committed by trustees, directors,
officers, employees, agents or subcontractors of the Fund (other than the Bank
of its subordinates, agents or subcontractors) in connection with the Fund's
performance of its functions or businesses and would cause a loss to the Fund or
its shareholders or to the Bank.
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records, documents or services which (i) are received by the
Bank or its agents or subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf of the Fund
including but not limited to any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf of the
applicable Portfolio.
-12-
<PAGE> 15
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or regulations
of any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
6.02 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with the Fund's legal counsel with respect to any
matter arising in connection with the services to be performed by the Bank under
this Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by the Fund on behalf of the applicable
Portfolio for any action taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel. The Bank, its agents and
subcontractors shall be protected and indemnified in acting upon any paper or
document furnished by or on behalf of the Fund, reasonably believed to be
genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided the Bank or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. The Bank, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officers of
the Fund, and the proper
-13-
<PAGE> 16
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar, provided such stock certificates are first
presented to the Fund for verification.
6.03 The Fund shall not be responsible for, and the Bank shall assume
responsibility for any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) Fraudulent acts, negligent acts, and mistakes, errors and
omissions of the types covered by the insurance policies maintained by the Bank
pursuant to the provisions of subparagraph 3.06, regardless of whether the
amount of the loss would be payable by the insurer or would be payable by the
Bank because the loss would exceed the limits of the policy or would be within
the self-retention layer or deductible, provided such fraudulent acts, negligent
acts or mistakes, errors or omissions are committed by the directors, officers,
employees, agents or subcontractors of the Bank (other than the Fund or its
portfolios, agents or subcontractors) in connection with the Bank's performance
of its functions or businesses and would cause a loss to the Fund or its
shareholders or to the Bank.
(b) The Bank's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Fund or its agents or subcontractors
of information, records, documents or services which (i) which are received by
the Fund or its agents or
-14-
<PAGE> 17
subcontractors, and (ii) have been prepared, maintained, or performed by the
Bank or any other person or firm on behalf of the Bank.
6.04 In order that the indemnification provisions contained in this
Article 6 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said claim in its own
name or in the name of the Bank. The Bank shall in no case confess any claim or
make any compromise in any case in which the Fund may be required to indemnify
the Bank except with the Fund's prior written consent.
Article 7 Standard of Care
7.01 Both parties shall at all times act in good faith and agree to
use their best efforts within reasonable limits to insure the accuracy of all
services or functions performed under or in connection with this Agreement.
Except as otherwise provided in Article 6, neither party shall be liable for
loss or damage to the other party unless such loss or damage to the other party
is caused by the first party's negligence, bad faith, or willful misconduct or
that of its employees.
Article 8 Covenants of the Fund and the Bank
8.01 The Fund shall on behalf of each of the Portfolios promptly
furnish to the Bank the following:
-15-
<PAGE> 18
(a) A certified copy of the resolution of the Trustees of the Fund
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
8.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
8.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.04 The Bank and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
-16-
<PAGE> 19
8.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
9.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Fund on behalf of the applicable Portfolio(s). Additionally, the
Bank reserves the right to charge for any other reasonable expenses associated
with such termination and/or a charge equivalent to the average of three (3)
months' fees.
Article 10 Additional Funds
10.01 In the event that the Fund establishes one or more series of
Shares in addition to Southeastern Asset Management Value Trust and Southeastern
Asset Management Small Cap Fund with respect to which it desires to have the
Bank render services as transfer agent under the terms hereof, it shall so
notify the Bank in writing, and if the Bank agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
-17-
<PAGE> 20
Article 11 Assignment
11.01 Except as provided in Section 11.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
11.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
11.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
Article 12 Amendment
12.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the
Trustees of the Fund.
Article 13 Massachusetts Law to Apply
13.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
-18-
<PAGE> 21
13.02 The Declaration of Trust establishing the Fund, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that the
name of the Trust refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the said Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise, in connection with the
affairs of said Trust, but the Trust assets and estate only shall be liable.
Article 14 Force Majeure
14.01 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
Article 15 Consequential Damages
15.01 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
-19-
<PAGE> 22
Article 16 Merger of Agreement
16.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
Article 17 Limitations of Liability of the Trustees and Shareholders
17.01 A copy of the Declaration of Trust of the 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 Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or Shareholders individually but are
binding only upon the assets and property of the Fund.
Article 18 Counterparts
18.01 This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
-20-
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
SOUTHEASTERN ASSET MANAGEMENT
FUNDS TRUST
BY: /s/ Charles D. Reaves
--------------------------------------
Executive Vice President
ATTEST:
/s/ Julie M. Douglas
- -----------------------------
Executive Vice President and
Treasurer
STATE STREET BANK AND TRUST COMPANY
BY: /s/
--------------------------------------
Executive Vice President
ATTEST:
/s/
- ------------------------------
-21-
<PAGE> 24
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
<S> <C> <C> <C>
1. Receives orders for the purchase
of Shares. X
2. Issue Shares and hold Shares in
Shareholders accounts. X
3. Receive redemption requests. X
4. Effect transactions 1-3 above
directly with broker-dealers. X
5. Pay over monies to redeeming
Shareholders. X
6. Effect transfers of Shares. X
7. Prepare and transmit dividends
and distributions. X
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and
accurate control book for each
issue of securities. X
(Prepare
12. Mail proxies. X labels only; Bowne will
mail)
13. Mail Shareholder reports. "
14. Mail prospectuses to current
Shareholders. "
15. Withhold taxes on U.S. resident
and non-resident alien accounts. X
16. Prepare and file U.S. Treasury
Department forms. To be discussed
17. Prepare and mail account and
confirmation statements for
Shareholders. X
</TABLE>
-22-
<PAGE> 25
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
<S> <C> <C> <C>
18. Provide Shareholder account
information. X
19. Blue sky reporting. Send sales reports to Funds
</TABLE>
* Such services are more fully described in Article 1.02 (a), (b) and (c)
of the Agreement.
SOUTHEASTERN ASSET MANAGEMENT
FUNDS TRUST
BY: /s/ Charles D. Reaves
-----------------------------------
Executive Vice President
ATTEST:
/s/ Julie M. Douglas
- -------------------------------
Executive V.P. and Treasurer
STATE STREET BANK AND TRUST COMPANY
BY:
-----------------------------------
Executive Vice President
ATTEST:
- -------------------------------
-23-
<PAGE> 1
EXHIBIT 23(h)(5)
LONGLEAF PARTNERS FUND
SUB-TRANSFER AGENT AGREEMENT
AGREEMENT made as of the 31st day of December, 1996 by Longleaf
Partners Fund (the "Fund") and Howard Johnson & Company ("Agent").
W I T N E S S E T H:
WHEREAS: Fund is an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "Act"); National Financial Data
Services ("NFDS") serves as the institutional transfer agent for Fund; Agent now
performs administrative and record-keeping services for the employee benefit
plan or plans listed in Exhibit 1 attached hereto (the "Plan"), and the
financial institution designated by the Plan and listed in Exhibit 1 ("Trustee")
performs custody services for the Plan; and
WHEREAS: Fund desires to appoint Agent to serve as sub-transfer agent of the
Fund to receive and then transmit to NFDS as transfer agent of the Fund
instructions and confirmations regarding the purchase, exchange and redemption
of securities of the Fund on behalf of the Plan;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, the parties hereto hereby agree as follows:
1. Appointment of Agent, Procedural Matters: Fund hereby appoints Agent as
sub-transfer agent with respect to securities of the Fund to be
purchased and held by the Plan, and Agent accepts such appointment, on
the terms set forth herein.
(a) Fund or its designee will furnish Agent or its designee with (1)
confirmed per share net asset value or pricing information as of
the close of trading on the New York Stock Exchange (the "Close
of Trading") on each business day that the New York Stock
Exchange is open for business and (2) dividend and capital gains
information as it arises. Fund shall use its best efforts to
provide such information to Agent or its designee by means of
facsimile or electronic transmission by 5:30 p.m. eastern time
("ET") on each business day for Fund.
(b) Agent shall, as agent for the Fund, receive from the Plan for
acceptance as of the Close of Trading on each business day
(based upon the Plan's receipt of instructions from
participants in the Plan prior to the Closing of Trading on
such business day): (1) orders for the purchase of shares of
the Fund, and (2) redemption requests with respect to shares of
the Fund held by the Plan ("Instructions"). The business day on
which there are any orders for purchases or redemptions shall be
Page 1
<PAGE> 2
SUB-TRANSFER AGENT AGREEMENT
referred to as a Trade Date or "TD". Agent shall upon acceptance
of any such Instructions on a particular Trade Date communicate
such acceptance to the Plan.
(c) Agent or its designee will communicate to NFDS by means of
facsimile or electronic transmission no later than 9:00 a.m. ET
on the business day immediately following the Trade Date ("TD +
1") a report of the trading activity for that Trade Date or, in
the alternative, information indicating that there were no
trades. The trading report shall provide a description of Plan
trading activity of Fund shares in sufficient detail to enable
NFDS and Fund to process the transactions accurately. In the
event there are net purchases for Fund (a net result of purchases
and redemptions) the report will reflect the net amount of shares
to be purchased. In the event there are net redemptions for Fund,
the report will reflect the net amount of shares to be redeemed.
If Agent or its designee is unable to communicate this
information, Agent shall save and hold Fund harmless from any
cost, damages or liabilities resulting therefrom unless such
inability is the result of Fund's negligence or inability to
provide the information called for by Section 1(a) above in a
timely manner.
(d) Fund will instruct NFDS to send via facsimile or electronic
transmission to Agent or its designee a confirmation of each
Trade Date's net purchase or net redemption, as the case may be,
for the Fund by the close of business on the day following the
Trade Date (TD + 1).
(e) In the event there are net purchases on any Trade Date for the
Fund, Agent will instruct Trustee to wire to NFDS by the Close of
Trading on the next succeeding business day that the New York
Stock Exchange and banks are open for business (TD + 1), the
dollar amount of the net purchases. If the wire is not received
by NFDS by such time, then Fund reserves the right, in its sole
discretion, to cancel such purchases. If Fund cancels the trade,
Agent shall use its best efforts to require the Trustee to
compensate Fund for the amount of any resulting dilution of
Fund's net asset value. If Fund accepts the trade, Agent shall
use its best efforts to require Trustee to compensate Fund for
any associated bank penalties.
In the event there are net redemptions for the day, Fund will
instruct NFDS to wire to Trustee by Close of Trading on the
business day following the Trade Date (TD + 1), the dollar amount
of the net redemptions. If the wire is not received by Trustee by
such time, Trustee will
Page 2
<PAGE> 3
SUB-TRANSFER AGENT AGREEMENT
contact NFDS. If it is determined that NFDS was negligent in
initiating the wire, Fund shall use its best efforts to require
NFDS to compensate Trustee for the amount of the overdraft plus
associated bank penalties.
(f) Agent or its designee will reconcile the records of the Plan to
each Trade Date's confirmations. Agent will notify Fund of any
material differences promptly but in not event later than the
close of the second business day following the Trade Date (TD +
2). Fund and Agent shall jointly determine the cause and the
appropriate action to be taken.
2. Representations by Agent. Agent represents that:
(a) it has full power and authority from the Plan Sponsor to enter
into and perform this Agreement;
(b) it is registered as a transfer agent pursuant to Section 17A of
the Securities Exchange Act of 1934, as amended (the "1934 Act");
(c) all purchases and redemptions of Fund shares contemplated by the
Agreement shall be effected in accordance with Fund's then
current prospectus;
(d) the arrangements provided for in this Agreement will be disclosed
to the Plan through its representatives; and
(e) it will promptly notify Fund in the event that Agent or its
designee is for any reason is unable to perform any of its
obligations under this Agreement.
3. Representations of Fund. Fund represents that:
(a) it has full power and authority to enter into and perform this
Agreement and is duly authorized to appoint Agent as Fund's
sub-transfer agent;
(b) it is registered as an investment company under Section 8 of the
Investment Company Act of 1940;
(c) it will promptly notify Agent in the event that it is for any
reason unable to perform any of its obligations under this
Agreement.
4. Verification. Each party hereto (or its designee) shall, as soon as
practicable after receipt of a report, notification of information
transmitted by the other party hereto, verify to such other party by
telephonic facsimile or other means of electronic transmission its
receipt of such transmission, and in the absence of such verification a
party to whom a transmission is sent shall not be liable for any
failure to
Page 3
<PAGE> 4
SUB-TRANSFER AGENT AGREEMENT
act in accordance with such transmission, and the sending party may
not claim that such transmission was received by the other. Each party
(or its designee) shall notify the other of any errors, omissions or
interruptions in, or delay or unavailability of, any such transmission
as promptly as possible.
5. Information Regarding the Plan. Agent shall transmit to Fund (or to
any agent designated by either of them) such information concerning
the Plan and participants in the Plan as shall reasonably be necessary
to provide the services contemplated by this Agreement and as Fund
shall reasonably conclude is necessary to enable it to comply with
applicable state Blue Sky laws.
6. Prospectus Delivery. The parties hereto agree that Fund and the Plan
shall be responsible for establishing requirements for the timely
delivery to Plan participants of prospectuses for the Funds in such
quantities as are reasonably necessary, in compliance with
requirements of the Securities and Exchange Commission, the Department
of Labor, and other regulatory authorities.
7. Warning Calls. Fund may require that any entity purchasing or
redeeming shares of the Fund comply with warning call procedures
relating to maximum allowable redemptions. If a trade for any Fund
exceeds a warning call limit previously communicated to Agent and a
corresponding warning call was not placed to Fund within the required
time frame, Fund reserves the right to reject the trade.
8. Indemnification. In providing services pursuant to this Agreement,
Agent and Fund shall comply with all applicable Federal and state
securities laws and regulations and each party hereto shall fully
indemnify the other for any claims or liabilities suffered by such
other party, or its partners, employees or agents (including
reasonable legal fees and other out-of-pocket costs of defending
against any such claim or liability), arising from non-compliance by
such party with any such laws or regulations.
9. Non-Exclusivity. Fund acknowledges and agrees that Agent or Trustee
may enter into agreements similar to this Agreement with organizations
other than Fund or NFDS which also serve as transfer agents for mutual
funds. Agent and Trustee acknowledge and agree that nothing contained
herein shall prohibit NFDS or any affiliate of NFDS from providing
administrative, sub-accounting or record keeping services to any
defined contribution plan.
10. Termination of Agreement. This Agreement may be terminated at any time
by any party upon 90 days written notice to the other parties.
Notwithstanding the foregoing, this Agreement shall
Page 4
<PAGE> 5
SUB-TRANSFER AGENT AGREEMENT
be terminated immediately upon either (i) a material breach by any
party not cured within 15 days after notice from another party, or
(ii) upon termination of services from any party to the Plan. The
provisions of paragraph 8 and this paragraph 10 shall survive any
termination of this Agreement.
11. Notices. (a). Unless otherwise specified, all notices and other
communications with respect to the terms and conditions of this
Agreement shall be in writing and shall be hand delivered or mailed by
certified mail to the other party at the following address or such
other address as each party may give notice to the other.
If to Agent: If to Fund:
Howard Johnson & Company Longleaf Partners Funds
Three Ravinia Drive; Ste. 1480 6075 Poplar Avenue, Suite 900
Atlanta, GA 30346 Memphis, Tennessee 38119
Attn: Andy Adams Attn: Charles D. Reaves
(b). The method of sending reports, notices and communications with
respect to the administration and operations of the transactions
contemplated by this Agreement shall be established by mutual consent
of the parties hereto in writing by letter, and shall continue in
effect until amended in writing by letter.
12. Amendment, Assignment and Other Matters. This Agreement may not be
amended except by a writing signed by the party against which
enforcement is sought. This Agreement may be executed in several
counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument. The headings in
this Agreement are for reference only and shall not affect the
interpretation of construction of this Agreement. Except as set forth
in paragraph 11(b), this Agreement contains the entire understandings
of the parties as to the subject matter hereof and supersedes any
prior agreements, written or oral. Agent recognizes that Fund is a
Massachusetts business trust and agrees that the Fund's assets only
and not those of any of its Trustees, officers, or shareholders shall
be subject to any liabilities under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
HOWARD JOHNSON & COMPANY LONGLEAF PARTNERS FUND
By: /s/ Nancy B. Greer By:
-------------------------- -------------------------
/s/ Nancy B. Greer /s/ Charles D. Reaves
-------------------------- -------------------------
Executive Vice President and
Chief Financial Officer Executive Vice President
-------------------------- -------------------------
Page 5
<PAGE> 6
LONGLEAF PARTNERS FUND
HOWARD JOHNSON & COMPANY
SUB-TRANSFER AGENT AGREEMENT
EXHIBIT 1
LISTING OF EMPLOYEE BENEFIT PLANS SUBJECT TO AGREEMENT
1. Sun Microsystems, Inc. 401(k) Plan; NationsBank as Trustee; effective
July 31, 1996
2. Deseret Mutual Benefits 403(b) Plan; Wells Fargo Bank as Trustee;
effective December 31, 1996
<PAGE> 1
EXHIBIT 23(h)(6)
FORM OF AGENCY TRADING AGREEMENT
AGREEMENT made as of the __________________ day of __________, 199 by
National Financial Services Corporation ("NFSC") and Longleaf Partners Small Cap
Fund ("Fund/Agent").
WITNESSETH:
WHEREAS: Fund/Agent and NFSC either have executed a form of
distribution, service or operating agreement ("Services Agreement") or have
developed unwritten trading procedures ("Procedures") pursuant to which NFSC
transmits to Fund/Agent orders for the purchase, redemption or exchange of Fund
shares, as identified in such Services Agreement or Procedures, on behalf of
customers of NFSC ("Orders"); and
WHEREAS: Fund/Agent desires that NFSC serve as limited agent to accept
orders for the purchase, exchange and redemption of shares of the Funds
("Shares") by certain employee benefit plans ("Plans");
NOW, THEREFORE, in consideration of the promises and mutual covenants
hereinafter contained, the parties hereto hereby agree as follows:
1 . Appointment of NFSC. Fund/Agent hereby appoints NFSC as its agent
for the sole and limited purpose of accepting purchase, exchange or redemption
orders for Shares purchased, exchanged or redeemed by the Plans ("Orders"). NFSC
hereby accepts its appointment on the terms and conditions set forth herein.
Notwithstanding anything in this Agreement to the contrary, NFSC shall not be
acting as agent for Fund/Agent in any manner whatsoever, except in accepting
such Orders.
2. Appointment of Agent. NFSC may appoint a third party as its Agent
("NFSC's Agent") for the purpose of receiving Orders on behalf of NFSC. Such
Orders received by NFSC's Agent shall be deemed received by NFSC, and
accordingly by Fund/Agent, simultaneously.
3. Orders and Acceptance. NFSC, as agent of Fund/Agent, shall accept on
behalf of the Plans, Orders for the purchase, exchange or redemption of Shares
of the Funds. If such Orders are received by NFSC or NFSC's Agent prior to the
close of trading on the New York Stock Exchange (the "Close of Trading") on a
day the New York Stock Exchange is open for business (a "Business Day") or such
other time as designated in writing to NFSC by Fund/Agent,
1
<PAGE> 2
they shall be treated as having been received by Fund/Agent on such Business Day
("Trade Date").
4. Trade Reporting. By checking the box titled 'Applies', Fund/Agent
represents that it has selected such trade reporting option and that such terms
are part of this Agreement. By checking the box titled 'Does not apply',
Fund/Agent represents that is has not selected that trade reporting option and
that such terms are not part of this Agreement.
OPTION A: [ ] APPLIES [X] DOES NOT APPLY
By 9:00 a.m. ET each Business Day following Trade Date ("TD + 1"), NFSC will
provide, via facsimile or other mutually acceptable process, to Fund/Agent
summarized trading instructions for the net purchase or net redemption of Shares
of the Funds based on Orders accepted by NFSC or NFSC's Agent prior to Close of
Trading on the prior Business Day. NFSC shall provide detailed trading
instructions to Fund/Agent on TD+1 via Fund/SERV transmission or other such
trade order process as agreed to in the Services Agreement or Procedures by NFSC
and Fund/Agent. Such instructions shall be effected at the public offering
price, or such other price as may apply to the transaction, of the Shares of the
respective Fund calculated as of the Close of Trading on the Business Day on
which the Order was accepted by NFSC or NFSC's Agent.
OPTION B: [X] APPLIES [ ] DOES NOT APPLY
By 9:00 a.m. ET each Business Day following Trade Date ("TD + 1"), NFSC will
provide, via facsimile or other mutually acceptable process, to Fund/Agent
trading instructions for the net purchase or net redemption of Shares of the
Funds based on Orders accepted by NFSC or NFSC's Agent prior to Close of Trading
on the prior Business Day. Such instructions shall be effected at the public
offering price, or such other price as may apply to the transaction, of the
Shares of the respective Fund calculated as of the Close of Trading on the
Business Day on which the Order was accepted by NFSC or NFSC's Agent.
5. Settlement. Settlements shall be made for the aggregate net purchase
or redemption for each Fund on each Business Day by wire transfer in accordance
with the procedures set forth in the Services Agreement or Procedures. Under
option A above, the respective parties shall settle transactions on the second
Business Day following Trade Date ("TD+2"). Under Option B above the respective
parties shall settle transactions during the Business Day following Trade Date
("TD+1").
6. Representations by NFSC. NFSC represents that:
(a) It has full power and authority to enter into and perform
this Agreement;
(b) it is registered as a broker/dealer pursuant to Section
15 of the Securities Exchange Act of 1934, as amended (the "1934 Act");
2
<PAGE> 3
(c) it will promptly notify Fund/Agent in the event that NFSC
is for any reason unable to perform any of its obligations under this Agreement.
7. Representations of Fund/Agent. Fund/Agent represents that:
(a) it has full power and authority to enter into and perform
this Agreement and is duly authorized to appoint NFSC as agent for the Fund and
to authorize NFSC to designate further agents;
(b) it will promptly notify NFSC in the event that it is for
any reason unable to perform any of its obligations under this Agreement.
8. Indemnification. Each party shall indemnify and hold harmless the
other, and the other's affiliates, agents, control persons, and employees, from
any claim, demand, loss, expense, or cause of action resulting from (a) the
misconduct or negligence, as measured by industry standards, of the indemnifying
party or its affiliates, agents, control persons, or employees in carrying out
their obligations under this Agreement, or (b) breach at any time of its
representations hereunder by the indemnifying party. Such indemnification will
survive the termination of this Agreement.
9. Termination of Agreement. This Agreement may be terminated at any
time by either party upon ninety (90) days written notice to the other party.
Notwithstanding the foregoing, this Agreement may be terminated immediately upon
a material breach by either party not cured within thirty (30) days after notice
from the other. The provisions of Section 8 shall survive any termination of
this Agreement.
10. Notices. Unless otherwise specified, all notices and other
communications (except those described in paragraph 4) hereunder shall be in
writing and shall be hand delivered or mailed by certified mail to the other
party at the following address or such other address as each party may give
notice to the other:
If to Fund/Agent:
Southeastern Asset Management, Inc.
6410 Poplar Avenue, Suite 900
Memphis, TN 38119
Attn.: Andy McCarroll
If to NFSC: With a copy to:
3
<PAGE> 4
National Financial Services Corporation Fidelity Investments
200 Liberty Street, 5th Floor 82 Devonshire St. L4A
One World Financial Center, Tower A Boston, MA 02109-3614
New York, NY 10281 Att: Mutual Fund Product Mgmt
Att: Bob Adams Corrine Casper - L4A
Mutual Funds, MZ NY5C
11. Amendment, Assignment and Other Matters. This Agreement may not be
amended except by a writing signed by each of the parties hereto. This Agreement
shall not be assigned, except to affiliates, by either party without the written
consent of the other party. This Agreement may be executed in several
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument. The headings in this Agreement are for
reference only and shall not affect the interpretation or construction of this
Agreement. This Agreement, including any Exhibits attached hereto, and including
the Services Agreement or Procedures, contains the entire agreement of the
parties as to the subject matter hereof and supersedes any prior agreements,
written or oral. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, without giving effect to the
principles of conflicts of law thereof.
12. Massachusetts Business Trust Provisions. NFSC acknowledges that
Fund/Agent is a series of a business trust organized under the laws of the
Commonwealth of Massachusetts. In recognition of such acknowledgement and in
order to place Fund/Agent in the same economic situation as would be the
situation if Fund/Agent were a corporation instead of a Massachusetts business
trust, NFSC hereby agrees that only the trust assets of Fund/Agent shall be
available to satisfy any liabilities incurred under this Agreement, and further
agrees that there shall be no personal liability on the part of and no resort to
the assets of any of the Trustees, officers, or shareholders of Fund/Agent for
any liabilities incurred under this Agreement, nor shall there be any liability
on the part of and no resort to the assets of any other series in the same fund
family as Fund/Agent for the liabilities of Fund/Agent incurred under this
Agreement.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
FUND/AGENT NATIONAL FINANCIAL SERVICES
CORPORATION
By: By:
------------------------------- ----------------------------------
Name: Name:
----------------------------- --------------------------------
Title: Title:
---------------------------- -------------------------------
Date: Date:
------------------------------ --------------------------------
5
<PAGE> 1
EXHIBIT 23(h)(7)
---------------------------------------------------------------
---------------------------------------------------------------
LOGO
IRA
DISCLOSURE STATEMENT
&
ADOPTION AGREEMENT
LONGLEAF
PARTNERS FUNDS
---------------------------------------------------------------
---------------------------------------------------------------
INVESTMENT COUNSEL:
SOUTHEASTERN ASSET MANAGEMENT, INC.
MEMPHIS, TN
PLAN ADMINISTRATIVE AGENT:
NATIONAL FINANCIAL DATA SERVICES
KANSAS CITY, MO
TRUSTEE:
STATE STREET BANK AND TRUST CO.
BOSTON, MA
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION
Investments............................................... 1
Investment Minimums....................................... 1
What's New in the World of IRAs?.......................... 1
What's in this kit?....................................... 1
What's the Difference between a Traditional IRA and a Roth
IRA..................................................... 2
Is a Roth IRA right for Me?............................... 4
SEPs and SIMPLES.......................................... 4
Instructions for Opening Your Account..................... 4
PART ONE: DESCRIPTION OF TRADITIONAL IRAS
Your Traditional IRA...................................... 6
Eligibility............................................... 6
Contributions............................................. 6
Transfers/Rollovers....................................... 9
Withdrawals............................................... 11
PART TWO: DESCRIPTION OF ROTH IRAS
Your Roth IRA............................................. 13
Eligibility............................................... 14
Contributions............................................. 14
Conversion of Existing Traditional IRA.................... 17
Transfers/Rollovers....................................... 19
Withdrawals............................................... 19
PART THREE: RULES FOR ALL IRAS (TRADITIONAL AND ROTH)
General Information....................................... 25
Investments............................................... 25
Fees and Expenses......................................... 26
Tax Matters............................................... 26
Account Termination....................................... 27
IRA Documents............................................. 28
INDIVIDUAL RETIREMENT ACCOUNT CUSTODIAL AGREEMENT
Part One: Provisions applicable to Traditional IRAs....... 29
Part Two: Provisions applicable to Roth IRAs.............. 31
Part Three: Provisions applicable to Traditional & Roth
IRAs.................................................... 32
FORMS
Retirement Account Application.............. Inside Back Cover
Transfer/Conversion Form.................... Inside Back Cover
</TABLE>
<PAGE> 3
LONGLEAF PARTNERS FUNDS
UNIVERSAL IRA INFORMATION KIT
INTRODUCTION
INVESTMENTS
The Longleaf Partners Funds, managed by Southeastern Asset Management, are the
sponsors of this IRA. All investments must be made in Longleaf Partners Fund,
Longleaf Partners International Fund, Longleaf Partners Realty Fund, Longleaf
Partners Small-Cap Fund and any other mutual funds formed by the Longleaf
Partners Funds. The Longleaf Partners Small-Cap Fund is closed to new investors.
INVESTMENT MINIMUMS
The minimum initial investment for Traditional IRA accounts and Roth IRA
accounts in all of the Longleaf Partners Funds is $10,000, which must be
satisfied primarily by transferring assets from another IRA, Converting a
Traditional IRA to a Roth IRA or rolling over assets from a qualified retirement
plan. The Longleaf Partners Funds will not accept Roth IRA contribution accounts
until they meet our $10,000 investment minimum.
WHAT'S NEW IN THE WORLD OF IRAS?
An Individual Retirement Account ("IRA") has always provided an attractive means
to save money for the future on a tax-advantaged basis. Recent changes to
Federal tax law have now made the IRA an even more flexible investment and
savings vehicle. Among the changes is the creation of the Roth Individual
Retirement Account ("Roth IRA"), which was first available for use starting
January 1, 1998. Under a Roth IRA, the earnings and interest on an individual's
nondeductible contributions grow without being taxed, and distributions may be
tax-free under certain circumstances. Most taxpayers (except for those with very
high income levels) will be eligible to contribute to a Roth IRA. A Roth IRA can
be used instead of a Traditional IRA, to replace an existing Traditional IRA, or
complement a Traditional IRA you wish to continue maintaining.
Taxpayers with adjusted gross income of up to $100,000 are eligible to convert
existing Traditional IRAs into Roth IRAs. If you convert early in a year and
later turn out to be ineligible because your gross income exceeds $100,000 (or
for other reasons you wish to reverse the conversion), you can "recharacterize"
the conversion by transferring the amount in the converted Roth IRA back to a
Traditional IRA. The details on conversion (and recharacterization) are found
later in this booklet.
Other IRA changes effective starting in 1998 are as follows: First, Congress
increased the income levels at which IRA holders who participate in
employer-sponsored retirement plans can make deductible Traditional IRA
contributions. Also the rules for deductible contributions by an IRA holder
whose spouse is a participant in an employer-sponsored retirement plan have been
liberalized. Second, the 10% penalty tax for premature withdrawals (before age
59 1/2) will no longer apply in the case of withdrawals to pay certain higher
education expenses or certain first-time homebuyer expenses. Also starting in
the year 2000, the 10% penalty tax will not apply to any amount distributed to
the IRS under a levy for unpaid taxes.
WHAT'S IN THIS KIT?
In this Kit you will find detailed information about Roth IRAs and about the
changes that have been made to Traditional IRAs. You will also find everything
you need to establish and maintain either a Traditional or Roth IRA, or to
convert all or part of an existing Traditional IRA to a Roth IRA.
The first section of this Kit contains the instructions and forms you will need
to open a new Traditional or Roth IRA, to transfer from another IRA to a State
Street Bank and Trust IRA, or to convert a Traditional IRA to a Roth IRA.
The second section of this Kit contains our Universal IRA Disclosure Statement.
The Disclosure Statement is divided into three parts:
- Part One describes the basic rules and benefits which are specifically
applicable to your Traditional IRA.
1
<PAGE> 4
- Part Two describes the basic rules and benefits which are specifically
applicable to your Roth IRA.
- Part Three describes important rules and information applicable to all IRAs.
The third section of this Kit contains the Universal IRA Custodial Agreement.
The Custodial Agreement is also divided into three parts:
- Part One contains provisions specifically applicable to Traditional IRAs.
- Part Two contains provisions specifically applicable to Roth IRAs.
- Part Three contains provisions applicable to all IRAs (Traditional and Roth).
This Universal Individual Retirement Custodial Account Kit contains information
and forms for both Traditional IRAs and Roth IRAs. However, you may use the
Adoption Agreement in this Kit to establish only one Traditional IRA or one Roth
IRA; separate Adoption Agreements must be completed if you want to establish
multiple (Roth or Traditional) IRA accounts.
WHAT'S THE DIFFERENCE BETWEEN A TRADITIONAL IRA AND A ROTH IRA?
With a Traditional IRA, an individual can contribute up to $2,000 per year and
may be able to deduct the contribution from taxable income, reducing current
income taxes. Taxes on investment growth and dividends are deferred until the
money is withdrawn. Withdrawals are taxed as additional ordinary income when
received. Nondeductible contributions, if any, are withdrawn tax-free.
Withdrawals before age 59 1/2 are assessed a 10% penalty in addition to income
tax, unless an exception applies.
With a Roth IRA, the contribution limits are essentially the same as Traditional
IRAs, but there is no tax deduction for contributions. All dividends and
investment growth in the account are tax-free. Most important with a Roth IRA:
there is no income tax on qualified withdrawals from your Roth IRA.
Additionally, unlike a Traditional IRA, there is no rule against making
contributions to Roth IRAs after turning age 70 1/2, and there's no requirement
that you begin making minimum withdrawals at that age.
2
<PAGE> 5
The following chart highlights some of the major differences between a
Traditional IRA and a Roth IRA:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
CHARACTERISTICS TRADITIONAL IRA ROTH IRA
<S> <C> <C>
-------------------------------------------------------------------------------------
ELIGIBILITY - Individuals (and their - Individuals (and their
spouses) who receive spouses) who receive
compensation compensation
- Individuals age 70 1/2 and - Individuals age 70 1/2 and
over may not contribute over may contribute
-------------------------------------------------------------------------------------
TAX TREATMENT OF - Subject to limitations, - No deduction permitted for
CONTRIBUTIONS contributions are deductible amounts contributed
-------------------------------------------------------------------------------------
CONTRIBUTION LIMITS - Individuals may contribute - Individuals may generally
up to $2,000 annually (or 100% contribute up to $2,000 (or
of compensation, if less) 100% of compensation, if
- Deductibility depends on less)
income level for individuals - Ability to contribute phases
who are active participants out at income levels of
in an employer-sponsored $95,000 to $110,000
retirement plan (individual taxpayer) and
$150,000 to $160,000
(married taxpayers)
- Overall limit for
contributions to Traditional
and Roth IRAs (but not
including SEP or SIMPLE
IRAs) is $2,000 annually (or
100% of compensation, if
less)
-------------------------------------------------------------------------------------
EARNINGS - Earnings and interest are - Earnings and interest are
not taxed when received by not taxed when received by
your IRA your IRA
-------------------------------------------------------------------------------------
ROLLOVER/CONVERSIONS - Individual may rollover - Rollovers from other IRAs
amounts held in employer- only
sponsored retirement - Amounts rolled over (or
arrangements (401(k), SEP converted) from another IRA
IRA, etc.) tax free to are subject to income tax in
Traditional IRA the year rolled over or
converted
- Tax on amounts rolled over
or converted in 1998 may be
spread over four year period
(1998-2001)
-------------------------------------------------------------------------------------
WITHDRAWALS - Total (principal + earnings) - Not taxable as long as a
taxable as income in year qualified distribution--
withdrawn (except for any generally, account open for
prior non-deductible 5 years, and age 59 1/2
contributions) - Minimum withdrawals NOT
- Minimum withdrawals must REQUIRED after age 70 1/2
begin after age 70 1/2
-------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 6
IS A ROTH OR A TRADITIONAL IRA RIGHT FOR ME?
We cannot act as your legal or tax adviser and so we cannot tell you which kind
of IRA is right for you. The information contained in this Kit is intended to
provide you with the basic information and material you will need if you decide
whether a Traditional or Roth IRA is better for you, or if you want to convert
an existing Traditional IRA to a Roth IRA. We suggest that you consult with your
accountant, lawyer or other tax adviser, or with a qualified financial planner,
to determine whether you should open a Traditional or Roth IRA or convert any or
all of an existing Traditional IRA to a Roth IRA. Your tax adviser can also
advise you as to the state tax consequences that may affect whether a
Traditional or Roth IRA is right for you.
SEPS AND SIMPLES.
The State Street Bank Traditional IRA may be used in connection with a
simplified employee pension (SEP) plan maintained by your employer. To establish
a Traditional IRA as part of your Employer's SEP plan, complete the Adoption
Agreement for a Traditional IRA, indicating in the proper box that the IRA is
part of a SEP plan. A Roth IRA should not be used in connection with a SEP plan.
A Roth IRA may not be used as part of an employer SIMPLE IRA plan. (However,
after two years amounts contributed to a SIMPLE IRA may be converted to a Roth
IRA.) A Traditional IRA may be used, but only after an individual has been
participating for two or more years (for the first two years, only a special
SIMPLE IRA may be used). SIMPLE IRA plans were added by the 1996 tax law to
provide an easy and inexpensive way for small employers to provide retirement
benefits for their employees. If you are interested in a SIMPLE IRA plan at your
place of employment, call or write to the number or address given at the end of
the Disclosure Statement portion of this Kit.
OTHER POINTS TO NOTE.
The Disclosure Statement in this Kit provides you with the basic information
that you should know about State Street Bank and Trust Company Traditional IRAs
and Roth IRAs. The Disclosure Statement provides general information about the
governing rules for these IRAs and the benefits and features offered through
each type of IRA. However, the State Street Bank and Trust Company Adoption
Agreement and the Custodial Agreement, are the primary documents controlling the
terms and conditions of your personal State Street Bank and Trust Company
Traditional or Roth IRA, and these shall govern in the case of any difference
with the Disclosure Statement.
You or your when used throughout this Kit refer to the person for whom the State
Street Bank and Trust Company Traditional or Roth IRA is established. A Roth IRA
is either a State Street Bank and Trust Company Roth IRA or any Roth IRA
established by any other financial institution. A Traditional IRA is any
non-Roth IRA offered by State Street Bank and Trust Company or any other
financial institution.
LONGLEAF PARTNERS FUNDS
STATE STREET BANK AND TRUST COMPANY
UNIVERSAL INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
INSTRUCTIONS FOR OPENING YOUR TRADITIONAL IRA OR ROTH IRA
1. Read carefully the applicable sections of the Universal IRA Disclosure
Statement contained in this Kit, the Traditional or Roth Individual
Retirement Custodial Account document (as applicable), the Adoption
Agreement, and the prospectus(es) for any Fund(s) you are considering.
Consult your lawyer or other tax adviser if you have any questions about how
opening a Traditional IRA or Roth IRA will affect your financial and tax
situation.
This Universal Individual Retirement Custodial Account Kit contains
information and forms for both Traditional IRAs and Roth IRAs. However, you
may use the Retirement Account Appli-
4
<PAGE> 7
cation to establish only one Traditional IRA or one Roth IRA; separate
Retirement Account Applications must be completed if you want to establish
multiple (Roth or Traditional) IRA accounts.
2. Complete the Retirement Account Application.
3. If you are transferring assets from an existing IRA to this IRA, complete
the IRA Transfer & Conversion Form.
4. The Custodian fees for maintaining your IRA are listed in the FEES AND
EXPENSES section of Part Three of the Disclosure Statement and on the
Retirement Account Application. If you are paying by check, enclose a check
for the correct amount payable as specified below. If you do not pay by
check, the correct amount will be taken from your Account.
5. Check to be sure you have properly completed all necessary forms and
enclosed a check for the Custodian's fees (unless being withdrawn from your
Account). Your Traditional IRA or Roth IRA cannot be accepted without the
properly completed documents or the Custodian fees.
All checks should be payable to "LONGLEAF PARTNERS FUNDS". Please include
detailed instructions showing the particular Fund and account that you are
investing in.
Send the completed forms and checks to:
LONGLEAF PARTNERS FUNDS
P. O. Box 419929
Kansas City, MO 64141-6929
STATE STREET BANK AND
TRUST COMPANY
UNIVERSAL INDIVIDUAL
RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
PART ONE: DESCRIPTION OF TRADITIONAL IRAS
- -----------------------------------------
SPECIAL NOTE
Part One of the Disclosure Statement describes the rules applicable to
Traditional IRAs beginning January 1, 1998.
IRAs described in these pages are called "Traditional IRAs" to distinguish them
from the new "Roth IRAs" first available in 1998. Roth IRAs are described in
Part Two of this Disclosure Statement. Contributions to a Roth IRA are not
deductible (regardless of your AGI), but withdrawals that meet certain
requirements are not subject to federal income tax, so that dividends and
investment growth on amounts held in the Roth IRA can escape federal income tax.
Please see Part Two of this Disclosure Statement if you are interested in
learning more about Roth IRAs.
Traditional IRAs described in this Disclosure Statement may be used as part of a
simplified employee pension (SEP) plan maintained by your employer. Under a SEP
your employer may make contributions to your Traditional IRA, and these
contributions may exceed the normal limits on Traditional IRA contributions.
This Disclosure Statement does not describe IRAs established in connection with
a SIMPLE IRA program maintained by your employer. Employers provide special
explanatory materials for accounts established as part of a SIMPLE IRA program.
Traditional IRAs may be used in connection with a SIMPLE IRA program, but for
the first two years of participation a special SIMPLE IRA (not a Traditional
IRA) is required.
5
<PAGE> 8
- ----------------------------------------
YOUR TRADITIONAL IRA
This Part One contains information about your Traditional Individual Retirement
Custodial Account with State Street Bank and Trust Company as Custodian. A
Traditional IRA gives you several tax benefits. Earnings on the assets held in
your Traditional IRA are not subject to federal income tax until withdrawn by
you. You may be able to deduct all or part of your Traditional IRA contribution
on your federal income tax return. State income tax treatment of your
Traditional IRA may differ from federal treatment; ask your state tax department
or your personal tax adviser for details.
Be sure to read Part Three of this Disclosure Statement for important additional
information, including information on how to revoke your Traditional IRA,
investments and prohibited transactions, fees and expenses, and certain tax
requirements.
- ----------------------------------------
ELIGIBILITY
WHAT ARE THE ELIGIBILITY REQUIREMENTS FOR A TRADITIONAL IRA?
You are eligible to establish and contribute to a Traditional IRA for a year if:
- You received compensation (or earned income if you are self employed) during
the year for personal services you rendered. If you received taxable alimony,
this is treated like compensation for IRA purposes.
- You did not reach age 70 1/2 during the year.
CAN I CONTRIBUTE TO A TRADITIONAL IRA FOR MY SPOUSE?
For each year before the year when your spouse attains age 70 1/2, you can
contribute to a separate Traditional IRA for your spouse, regardless of whether
your spouse had any compensation or earned income in that year. This is called a
"spousal IRA." To make a contribution to a Traditional IRA for your spouse, you
must file a joint tax return for the year with your spouse. For a spousal IRA,
your spouse must set up a different Traditional IRA, separate from yours, to
which you contribute.
- ----------------------------------------
CONTRIBUTIONS
WHEN CAN I MAKE CONTRIBUTIONS TO A TRADITIONAL IRA?
You may make a contribution to your existing Traditional IRA or establish a new
Traditional IRA for a taxable year by the due date (not including any
extensions) for your federal income tax return for the year. Usually this is
April 15 of the following year.
HOW MUCH CAN I CONTRIBUTE TO MY TRADITIONAL IRA?
For each year when you are eligible (see above), you can contribute up to the
lesser of $2,000 or 100% of your compensation (or earned income, if you are
self-employed). However, under the tax laws, all or a portion of your
contribution may not be deductible.
If you and your spouse have spousal Traditional IRAs, each spouse may contribute
up to $2,000 to his or her IRA for a year as long as the combined compensation
of both spouses for the year (as shown on your joint income tax return) is at
least $4,000. If the combined compensation of both spouses is less than $4,000,
the spouse with the higher amount of compensation may contribute up to that
spouse's compensation amount, or $2,000 if less. The spouse with the lower
compensation amount may contribute any amount up to that spouse's compensation
plus any excess of the other spouse's compensation over the other spouse's IRA
contribution. However, the maximum contribution to either spouse's Traditional
IRA is $2,000 for the year.
If you (or your spouse) establish a new Roth IRA and make contributions to both
your Traditional IRA and a Roth IRA, the combined limit on contributions to both
your (or your spouse's) Traditional IRA and Roth IRA for a single calendar year
is $2,000.
6
<PAGE> 9
HOW DO I KNOW IF MY CONTRIBUTION IS TAX DEDUCTIBLE?
The deductibility of your contribution depends upon whether you are an active
participant in any employer-sponsored retirement plan. If you are not an active
participant, the entire contribution to your Traditional IRA is deductible.
If you are an active participant in an employer-sponsored plan, your Traditional
IRA contribution may still be completely or partly deductible on your tax
return. This depends on the amount of your income (see below).
Similarly, the deductibility of a contribution to a Traditional IRA for your
spouse depends upon whether your spouse is an active participant in any
employer-sponsored retirement plan. If your spouse is not an active participant,
the contribution to your spouse's Traditional IRA will be deductible. If your
spouse is an active participant, the Traditional IRA contribution will be
completely, partly or not deductible depending upon your combined income.
An exception to the preceding rules applies to high-income married taxpayers,
where one spouse is an active participant in an employer-sponsored retirement
plan and the other spouse is not. A contribution to the non-active participant
spouse's Traditional IRA will be only partly deductible starting at an adjusted
gross income level on the joint tax return of $150,000, and the deductibility
will be phased out as described below over the next $10,000 so that there will
be no deduction at all with an adjusted gross income level of $160,000 or
higher.
HOW DO I DETERMINE MY OR MY SPOUSE'S "ACTIVE PARTICIPANT" STATUS?
Your (or your spouse's) Form W-2 should indicate if you (or your spouse) were an
active participant in an employer-sponsored retirement plan for a year. If you
have a question, you should ask your employer or the plan administrator.
In addition, regardless of income level, your spouse's "active participant"
status will not affect the deductibility of your contributions to your
Traditional IRA if you and your spouse file separate tax returns for the taxable
year and you lived apart at all times during the taxable year.
WHAT ARE THE DEDUCTION RESTRICTIONS FOR ACTIVE PARTICIPANTS?
If you (or your spouse) are an active participant in an employer plan during a
year, the contribution to your Traditional IRA (or your spouse's Traditional
IRA) may be completely, partly or not deductible depending upon your filing
status and your amount of adjusted gross income ("AGI"). If AGI is any amount up
to the lower limit, the contribution is deductible. If your AGI falls between
the lower limit and the upper limit, the contribution is partly deductible. If
your AGI falls above the upper limit, the contribution is not deductible.
- ----------------------------------------
FOR ACTIVE PARTICIPANTS
- -- 1998
ADJUSTED GROSS INCOME (AGI) LEVEL
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------
IF IF YOU ARE THEN YOUR
YOU MARRIED TRADITIONAL
ARE FILING JOINTLY IRA
SINGLE CONTRIBUTION
IS
------------------------------------------
Up Up to Fully
to Lower Limit Deductible
Lower ($50,000
Limit for 1998)
($30,000
for
1998)
------------------------------------------
More More than Partly
than Lower Limit Deductible
Lower but less
Limit than
but Upper Limit
less ($60,000
than for 1998)
Upper
Limit
($40,000
for
1998)
------------------------------------------
Upper Upper Limit Not
Limit or more Deductible
or
more
- ----------------------------------------------
</TABLE>
The Lower Limit and the Upper Limit will change for 1999 and later years. The
Lower Limit and Upper Limit for these years are shown in the following table.
Substitute the correct Lower Limit and Upper Limit in the table above to
determine deductibility in any particular year. (Note: if you are married but
filing separate returns, your Lower Limit
7
<PAGE> 10
is always zero and your Upper Limit is always $10,000).
TABLE OF LOWER AND UPPER LIMITS
<TABLE>
<CAPTION>
- ---------------------------------------------
MARRIED
SINGLE FILING JOINTLY
- ---------------------------------------------
LOWER UPPER LOWER UPPER
YEAR LIMIT LIMIT LIMIT LIMIT
<S> <C> <C> <C> <C>
- -----
1999 $31,000 $41,000 $51,000 $ 61,000
2000 $32,000 $42,000 $52,000 $ 62,000
2001 $33,000 $43,000 $53,000 $ 63,000
2002 $34,000 $44,000 $54,000 $ 64,000
2003 $40,000 $50,000 $60,000 $ 70,000
2004 $45,000 $55,000 $65,000 $ 75,000
2005 $50,000 $60,000 $70,000 $ 80,000
2006 $50,000 $60,000 $75,000 $ 85,000
2007
and
later $50,000 $60,000 $80,000 $100,000
- -----
</TABLE>
HOW DO I CALCULATE MY DEDUCTION IF I FALL IN THE "PARTLY DEDUCTIBLE" RANGE?
If your AGI falls in the partly deductible range, you must calculate the portion
of your contribution that is deductible. To do this, multiply your contribution
by a fraction. The numerator is the amount by which your AGI exceeds the lower
limit (for 1998: $30,000 if single, or $50,000 if married filing jointly). The
denominator is $10,000 (note that the denominator for married joint filers is
$20,000 starting in 2007). Subtract this from your contribution and then round
down to the nearest $10. When you fall in the "partly deductible" range, the
deductible amount is the greater of the amount calculated or $200 (provided you
contribute at least $200). If your contribution is less than $200, then the
entire contribution is deductible.
For example, assume that you make a $2,000 contribution to your Traditional IRA
in 1998, a year in which you are an active participant in your employer's
retirement plan. Also assume that your AGI is $57,555 and you are married,
filing jointly. You would calculate the deductible portion of your contribution
this way:
1. The amount by which your AGI exceeds the lower limit of the partly
deductible range:
($57,555 - $50,000) = $7,555
2. Divide this by $10,000:
<TABLE>
<S> <C>
$ 7,555 = 0.7555
-------
$10,000
</TABLE>
3. Multiply this by your contribution limit:
0.7555 X $2,000 = $1,511
4. Subtract this from your contribution:
($2,000 - $1,551) = $489
5. Round this down to the nearest $10: = $480
6. Your deductible contribution is the greater of this amount or $200.
Even though part or all of your contribution is not deductible, you may still
contribute to your Traditional IRA (and your spouse may contribute to your
spouse's Traditional IRA) up to the limit on contributions. When you file your
tax return for the year, you must designate the amount of non-deductible
contributions to your Traditional IRA for the year. See IRS Form 8606.
HOW DO I DETERMINE MY AGI?
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
WHAT HAPPENS IF I CONTRIBUTE MORE THAN ALLOWED TO MY TRADITIONAL IRA?
The maximum contribution you can make to a Traditional IRA generally is $2,000
or 100% of compensation or earned income, whichever is less. Any amount
contributed to the IRA above the maximum is considered an "excess contribution."
The excess is calculated using your contribution limit, not the deductible
limit. An excess contribution is subject to excise tax of 6% for each year it
remains in the IRA.
HOW CAN I CORRECT AN EXCESS CONTRIBUTION?
Excess contributions may be corrected without paying a 6% penalty. To do so, you
must withdraw the excess and any earnings on the excess before the due date
(including extensions) for filing your federal income tax return for the year
for which you made the excess contribution. A deduction should
8
<PAGE> 11
not be taken for any excess contribution. Earnings on the amount withdrawn must
also be withdrawn. The earnings must be included in your income for the tax year
for which the contribution was made and may be subject to a 10% premature
withdrawal tax if you have not reached age 59 1/2.
WHAT HAPPENS IF I DON'T CORRECT THE EXCESS CONTRIBUTION BY THE TAX RETURN DUE
DATE?
Any excess contribution withdrawn after the tax return due date (including any
extensions) for the year for which the contribution was made will be subject to
the 6% excise tax. There will be an additional 6% excise tax for each year the
excess remains in your account.
Under limited circumstances, you may correct an excess contribution after tax
filing time by withdrawing the excess contribution (leaving the earnings in the
account). This withdrawal will not be includible in income nor will it be
subject to any premature withdrawal penalty if (1) your contributions to all
Traditional IRAs do not exceed $2,000 and (2) you did not take a deduction for
the excess amount (or you file an amended return (Form 1040X) which removes the
excess deduction).
HOW ARE EXCESS CONTRIBUTIONS TREATED IF NONE OF THE PRECEDING RULES APPLY?
Unless an excess contribution qualifies for the special treatment outlined
above, the excess contribution and any earnings on it withdrawn after tax filing
time will be includible in taxable income and may be subject to a 10% premature
withdrawal penalty. No deduction will be allowed for the excess contribution for
the year in which it is made.
Excess contributions may be corrected in a subsequent year to the extent that
you contribute less than your maximum contribution amount. As the prior excess
contribution is reduced or eliminated, the 6% excise tax will become
correspondingly reduced or eliminated for subsequent tax years. Also, you may be
able to take an income tax deduction for the amount of excess that was reduced
or eliminated, depending on whether you would be able to take a deduction if you
had instead contributed the same amount.
ARE THE EARNINGS ON MY TRADITIONAL IRA FUNDS TAXED?
Any dividends on or growth of the investments held in your Traditional IRA are
generally exempt from federal income taxes and will not be taxed until withdrawn
by you, unless the tax exempt status of your Traditional IRA is revoked (this is
described in Part Three of this Disclosure Statement).
- ----------------------------------------
TRANSFERS/ROLLOVERS
CAN I TRANSFER OR ROLL OVER A DISTRIBUTION I RECEIVE FROM MY EMPLOYER'S
RETIREMENT PLAN INTO A TRADITIONAL IRA?
Almost all distributions from employer plans or 403(b) arrangements (for
employees of tax-exempt employers) are eligible for rollover to a Traditional
IRA. The main exceptions are
- payments over the lifetime or life expectancy of the participant (or
participant and a designated beneficiary),
- installment payments for a period of 10 years or more,
- required distributions (generally the rules require distributions starting at
age 70 1/2 or for certain employees starting at retirement, if later),
- payments of employee after-tax contributions, and
- starting in 1999, hardship withdrawals from a 401(k) plan or a 403(b)
arrangement.
If you are eligible to receive a distribution from a tax qualified retirement
plan as a result of, for example, termination of employment, plan
discontinuance, or retirement, all or part of the distribution may be
transferred directly into your Traditional IRA. This is a called a "direct
rollover." Or, you may receive the distribution and make a regular rollover to
your Traditional IRA within 60 days. By making a direct rollover or a regular
rollover, you can defer income taxes
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<PAGE> 12
on the amount rolled over until you subsequently make withdrawals from your
Traditional IRA.
The maximum amount you may roll over is the amount of employer contributions and
earnings distributed. You may not roll over any after-tax employee contributions
you made to the employer retirement plan. If you are over age 70 1/2 and are
required to take minimum distributions under the tax laws, you may not roll over
any amount required to be distributed to you under the minimum distribution
rules. Also, if you are receiving periodic payments over your or your and your
designated beneficiary's life expectancy or for a period of at least 10 years,
you may not roll over these payments. A rollover to a Traditional IRA must be
completed within 60 days after the distribution from the employer retirement
plan to be valid.
NOTE: A qualified plan administrator or 403(b) sponsor MUST WITHHOLD 20% OF YOUR
DISTRIBUTION for federal income taxes UNLESS you elect a direct rollover. Your
plan or 403(b) sponsor is required to provide you with information about direct
and regular rollovers and withholding taxes before you receive your distribution
and must comply with your directions to make a direct rollover.
The rules governing rollovers are complicated. Be sure to consult your tax
adviser or the IRS if you have a question about rollovers.
ONCE I HAVE ROLLED OVER A PLAN DISTRIBUTION INTO A TRADITIONAL IRA, CAN I
SUBSEQUENTLY ROLL OVER INTO ANOTHER EMPLOYER'S QUALIFIED RETIREMENT PLAN?
Yes. Part or all of an eligible distribution received from a qualified plan may
be transferred from the Traditional IRA holding it to another qualified plan.
However, the Traditional IRA must have no assets other than those which were
previously distributed to you from the qualified plan. Specifically, the
Traditional IRA cannot contain any annual contributions by you (or your spouse).
Also, the new qualified plan must accept rollovers. Similar rules apply to
Traditional IRAs established with rollovers from 403(b) arrangements.
CAN I MAKE A ROLLOVER FROM MY TRADITIONAL IRA TO ANOTHER TRADITIONAL IRA?
You may make a rollover from one Traditional IRA to another Traditional IRA you
have or you establish to receive the rollover. Such a rollover must be completed
within 60 days after the withdrawal from your first Traditional IRA. After
making such a regular rollover from one Traditional IRA to another, you must
wait a full year (365 days) before you can make another such rollover. (However,
you can instruct a Traditional IRA custodian to transfer amounts directly to
another Traditional IRA custodian; such a direct transfer does not count as a
rollover.)
WHAT HAPPENS IF I COMBINE ROLLOVER CONTRIBUTIONS WITH MY ANNUAL CONTRIBUTIONS IN
ONE IRA?
If you wish to make both a normal annual contribution and a rollover
contribution, you may wish to open two separate Traditional IRAs by completing
two Adoption Agreements and two sets of forms. You should consult a tax adviser
before making your annual contribution to the Traditional IRA you established
with rollover contributions (or make a rollover contribution to the Traditional
IRA to which you make your annual contributions). This is because combining your
annual contributions and rollover contributions originating from an employer
plan distribution would prohibit any future rollover out of the Traditional IRA
into another qualified plan. If despite this, you still wish to combine a
rollover contribution and the IRA holding your annual contributions, you should
establish the account as an Annual Contributions IRA on the Adoption Agreement
(not a Rollover IRA or Direct Rollover IRA) and make the contributions to that
account. Each account must meet the Fund's $10,000 minimum initial investment,
which must be satisfied primarily by transferring assets from another IRA.
10
<PAGE> 13
HOW DO ROLLOVERS AFFECT MY CONTRIBUTION OR DEDUCTION LIMITS?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, rollovers are not deductible and they do not affect your
deduction limits as described above.
WHAT ABOUT CONVERTING MY TRADITIONAL IRA TO A ROTH IRA?
The rules for converting a Traditional IRA to a Roth IRA, or making a rollover
from a Traditional IRA to a Roth IRA, are described in Part Two below.
- ----------------------------------------
WITHDRAWALS
WHEN CAN I MAKE WITHDRAWALS FROM MY TRADITIONAL IRA?
You may withdraw from your Traditional IRA at any time. However, withdrawals
before age 59 1/2 may be subject to a 10% penalty tax in addition to regular
income taxes (see below).
WHEN MUST I START MAKING WITHDRAWALS?
If you have not withdrawn the total amount held in your Traditional IRA by the
April 1 following the year in which you reach 70 1/2 you must make minimum
withdrawals in order to avoid penalty taxes. The rule allowing certain employees
to postpone distributions from an employer qualified plan until actual
retirement (even if this is after age 70 1/2 does not apply to Traditional IRAs.
The minimum withdrawal amount is determined by dividing the balance in your
Traditional IRA (or IRAs) by your life expectancy or the combined life
expectancy of you and your designated beneficiary. The minimum withdrawal rules
are complex. Consult your tax adviser for assistance.
The penalty tax is 50% of the difference between the minimum withdrawal amount
and your actual withdrawals during a year. The IRS may waive or reduce the
penalty tax if you can show that your failure to make the required minimum
withdrawals was due to reasonable cause and you are taking reasonable steps to
remedy the problem.
HOW ARE WITHDRAWALS FROM MY TRADITIONAL IRA TAXED?
Amounts withdrawn by you are includible in your gross income in the taxable year
that you receive them, and are taxable as ordinary income. Amounts withdrawn may
be subject to income tax withholding by the custodian unless you elect not to
have withholding. See Part Three below for additional information on
withholding. Lump sum withdrawals from a Traditional IRA are not eligible for
averaging treatment currently available to certain lump sum distributions from
qualified employer retirement plans.
Since the purpose of a Traditional IRA is to accumulate funds for retirement,
your receipt or use of any portion of your Traditional IRA before you attain age
59 1/2 generally will be considered as an early withdrawal and subject to a 10%
penalty tax.
The 10% penalty tax for early withdrawal will not apply if:
- The distribution was a result of your death or disability.
- The purpose of the withdrawal is to pay certain higher education expenses for
yourself or your spouse, child, or grandchild. Qualifying expenses include
tuition, fees, books, supplies and equipment required for attendance at a
post-secondary educational institution. Room and board expenses may qualify
if the student is attending at least half-time.
- The withdrawal is used to pay eligible first-time homebuyer expenses. These
are the costs of purchasing, building or rebuilding a principal residence
(including customary settlement, financing or closing costs). The purchaser
may be you, your spouse, or a child, grandchild, parent or grandparent of you
or your spouse. An individual is considered a "first-time homebuyer" if the
individual did not have (or, if married, neither spouse had) an ownership
interest in a principal residence during the two-year period immediately
preceding the acquisition in question. The withdrawal must be used for
eligible expenses within 120
11
<PAGE> 14
days after the withdrawal. (If there is an unexpected delay, or cancellation
of the home acquisition, a withdrawal may be redeposited as a rollover).
There is a lifetime limit on eligible first-time homebuyer expenses of
$10,000 per individual.
- The distribution is one of a scheduled series of substantially equal periodic
payments for your life or life expectancy (or the joint lives or life
expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments, the 10%
penalty tax may apply. The 10% penalty will not apply if you make no change
in the series of payments until the end of five years or until you reach age
59 1/2, whichever is later. If you make a change before then, the penalty
will apply. For example, if you begin receiving payments at age 50 under a
withdrawal program providing for substantially equal payments over your life
expectancy, and at age 58 you elect to receive the remaining amount in your
Traditional IRA in a lump-sum, the 10% penalty tax will apply to the lump sum
and to the amounts previously paid to you before age 59 1/2.
- The distribution does not exceed the amount of your deductible medical
expenses for the year (generally speaking, medical expenses paid during a
year are deductible if they are greater than 7 1/2 % of your adjusted gross
income for that year).
- The distribution does not exceed the amount you paid for health insurance
coverage for yourself, your spouse and dependents. This exception applies
only if you have been unemployed and received federal or state unemployment
compensation payments for at least 12 weeks; this exception applies to
distributions during the year in which you received the unemployment
compensation and during the following year, but not to any distributions
received after you have been reemployed for at least 60 days.
- Starting in the year 2000, the distribution is made pursuant to an IRS levy
to pay overdue taxes.
HOW ARE NONDEDUCTIBLE CONTRIBUTIONS TAXED WHEN THEY ARE WITHDRAWN?
A withdrawal of nondeductible contributions (not including earnings) will be
tax-free. However, if you made both deductible and nondeductible contributions
to your Traditional IRA, then each distribution will be treated as partly a
return of your nondeductible contributions (not taxable) and partly a
distribution of deductible contributions and earnings (taxable). The nontaxable
amount is the portion of the amount withdrawn which bears the same ratio as your
total nondeductible Traditional IRA contributions bear to the total balance of
all your Traditional IRAs (including rollover IRAs and SEPs, but not including
Roth IRAs).
For example, assume that you made the following Traditional IRA contributions:
<TABLE>
<CAPTION>
Year Deductible Nondeductible
---- ---------- -------------
<S> <C> <C>
1995 $2,000
1996 $2,000
1997 $1,000 $1,000
1998 $1,000
------ ------
$5,000 $2,000
</TABLE>
In addition assume that your Traditional IRA has total investment earnings
through 1998 of $1,000. During 1998 you withdraw $500. Your total account
balance as of 12-31-98 is $7,500 as shown below.
Deductible Contributions $5,000
Nondeductible
Contributions $2,000
Earnings On IRA $1,000
Less 1998 Withdrawal $ 500
- ---------------------------------------- ------
Total Account Balance
as of 12/31/98 $7,500
To determine the nontaxable portion of your 1998 withdrawal, the total 1998
withdrawal ($500) must be multiplied by a fraction. The numerator of the
fraction is the total of all nondeductible contributions remaining in the
account before the 1998 withdrawal ($2,000). The denominator is the total ac-
12
<PAGE> 15
count balance as of 12-31-98 ($7,500) plus the 1998 withdrawal ($500) or $8,000.
The calculation is:
Total Remaining
Nondeductible $2,000 X $500
Contributions $8,000
- ----------------------------------------
Total Account Balance = $ 125
Thus, $125 of the $500 withdrawal in 1998 will not be included in your taxable
income. The remaining $375 will be taxable for 1998. In addition, for future
calculations the remaining nondeductible contribution total will be $2,000 minus
$125, or $1,875.
A loss in your Traditional IRA investment may be deductible. You should consult
your tax adviser for further details on the appropriate calculation for this
deduction if applicable.
IS THERE A PENALTY TAX ON CERTAIN LARGE WITHDRAWALS OR ACCUMULATIONS IN MY IRA?
Earlier tax laws imposed a "success" penalty equal to 15% of withdrawals from
all retirement accounts (including IRAs, 401(k) or other employer retirement
plans, 403(b) arrangements and others) in a year exceeding a specified amount
(initially $150,000 per year). Also, there was a 15% estate tax penalty on
excess accumulations remaining in IRAs and other tax-favored arrangements upon
your death. These 15% penalty taxes have been repealed.
Important: Please see Part Three below which contains important information
applicable to all State Street Bank and Trust Company IRAs.
PART TWO: DESCRIPTION OF ROTH IRAS
- ----------------------------------------
SPECIAL NOTE
Part Two of the Disclosure Statement describes the rules generally applicable to
Roth IRAs beginning January 1, 1998.
Roth IRAs are available for the first time in 1998. Contributions to a Roth IRA
are not tax-deductible, but withdrawals that meet certain requirements are not
subject to federal income taxes. This makes the dividends on and growth of the
investments held in your Roth IRA tax-free for federal income tax purposes if
the requirements are met.
Traditional IRAs, which have existed since 1975, are still available.
Contributions to a Traditional IRA may be tax-deductible. Earnings and gains on
amounts while held in a Traditional IRA are tax-deferred. Withdrawals are
subject to federal income tax (except for prior after-tax contributions which
may be recovered without additional federal income tax).
This Part Two does not describe Traditional IRAs. If you wish to review
information about Traditional IRAs, please see Part One of this Disclosure
Statement.
This Disclosure Statement also does not describe IRAs established in connection
with a SIMPLE IRA program or a Simplified Employee Pension (SEP) plan maintained
by your employer. Roth IRAs may not be used in connection with a SIMPLE IRA
program or a SEP plan.
- ----------------------------------------
YOUR ROTH IRA
Your Roth IRA gives you several tax benefits. While contributions to a Roth IRA
are not deductible, dividends on and growth of the assets held in your Roth IRA
are not subject to federal income tax. Withdrawals by you from your Roth IRA are
excluded from your income for federal income tax purposes if certain
requirements (described below) are met. State income tax treatment of your Roth
IRA may differ from federal treatment; ask your state tax department or your
personal tax adviser for details.
Be sure to read Part Three of this Disclosure Statement for important additional
information, including information on how to revoke your Roth IRA, investments
and prohibited transactions, fees and expenses and certain tax requirements.
13
<PAGE> 16
- ----------------------------------------
ELIGIBILITY
WHAT ARE THE ELIGIBILITY REQUIREMENTS FOR A ROTH IRA?
You are eligible to establish and contribute to a Roth IRA for a year if you
received compensation (or earned income if you are self employed) during the
year for personal services you rendered. If you received taxable alimony, this
is treated like compensation for Roth IRA purposes.
In contrast to a Traditional IRA, with a Roth IRA you may continue making
contributions after you reach age 70 1/2.
CAN I CONTRIBUTE TO ROTH IRA FOR MY SPOUSE?
If you meet the eligibility requirements you can not only contribute to your own
Roth IRA, but also to a separate Roth IRA for your spouse out of your
compensation or earned income, regardless of whether your spouse had any
compensation or earned income in that year. This is called a "spousal Roth IRA."
To make a contribution to a Roth IRA for your spouse, you must file a joint tax
return for the year with your spouse. For a spousal Roth IRA, your spouse must
set up a different Roth IRA, separate from yours, to which you contribute.
Of course, if your spouse has compensation or earned income, your spouse can
establish his or her own Roth IRA and make contributions to it in accordance
with the rules and limits described in this Part Two of the Disclosure
Statement.
- ----------------------------------------
CONTRIBUTIONS
WHEN CAN I MAKE CONTRIBUTIONS TO A ROTH IRA?
You may make a contribution to your Roth IRA or establish a new Roth IRA for a
taxable year by the due date (not including any extensions) for your federal
income tax return for the year. Usually this is April 15 of the following year.
For example, you will have until April 15, 1999 to establish and make a
contribution to a Roth IRA for 1998.
HOW MUCH CAN I CONTRIBUTE TO MY ROTH IRA?
For each year when you are eligible (see above), you can contribute up to the
lesser of $2,000 or 100% of your compensation (or earned income, if you are
self-employed).
Your Roth IRA limit is reduced by any contributions for the same year to a
Traditional IRA. For example, assuming you have at least $2,000 in compensation
or earned income, if you contribute $500 to your Traditional IRA for a year,
your maximum Roth IRA contribution for that year will be $1,500. (Note: the Roth
IRA contribution limit is not reduced by contributions made to either a SEP IRA
or a SIMPLE IRA; salary reduction contributions by you are considered employer
contributions for this purpose.)
If you and your spouse have spousal Roth IRAs, each spouse may contribute up to
$2,000 to his or her Roth IRA for a year as long as the combined compensation of
both spouses for the year (as shown on your joint income tax return) is at least
$4,000. If the combined compensation of both spouses is less than $4,000, the
spouse with the higher amount of compensation may contribute up to that spouse's
compensation amount, or $2,000 if less. The spouse with the lower compensation
amount may contribute any amount up to that spouse's compensation plus any
excess the other spouse's compensation over the other spouse's Roth IRA
contribution. However, the maximum contribution to either spouse's Roth IRA is
$2,000 for the year.
As noted above, the spousal Roth IRA limits are reduced by any contributions for
the same calendar year to a Traditional IRA maintained by you or your spouse.
For taxpayers with high income levels, the contribution limits may be reduced
(see next page).
ARE CONTRIBUTIONS TO A ROTH IRA TAX DEDUCTIBLE?
Contributions to a Roth IRA are not deductible. This is a major difference
between Roth IRAs and Traditional IRAs. Contributions to a Traditional IRA may
be deductible on your federal income tax return depending
14
<PAGE> 17
on whether or not you are an active participant in an employer-sponsored plan
and on your income level.
ARE THE EARNINGS ON MY ROTH IRA FUNDS TAXED?
Any dividends on or growth of investments held in your Roth IRA are generally
exempt from federal income taxes and will not be taxed until withdrawn by you,
unless the tax exempt status of your Roth IRA is revoked. If the withdrawal
qualifies as a tax-free withdrawal (see below), amounts reflecting earnings or
growth of assets in your Roth IRA will not be subject to federal income tax.
WHICH IS BETTER, A ROTH IRA OR A TRADITIONAL IRA?
This will depend upon your individual situation. A Roth IRA may be better if you
are an active participant in an employer-sponsored plan and your adjusted gross
income is too high to make a deductible IRA contribution (but not too high to
make a Roth IRA contribution). Also, the benefits of a Roth IRA vs. a
Traditional IRA may depend upon a number of other factors including: your
current income tax bracket vs. your expected income tax bracket when you make
withdrawals from your IRA, whether you expect to be able to make nontaxable
withdrawals from your Roth IRA (see below), how long you expect to leave your
contributions in the IRA, how much you expect the IRA to earn in the meantime,
and possible future tax law changes.
Consult a qualified tax or financial adviser for assistance on this question.
ARE THERE ANY RESTRICTIONS ON CONTRIBUTIONS TO MY ROTH IRA?
Taxpayers with very high income levels may not be able to contribute to a Roth
IRA at all, or their contribution may be limited to an amount less than $2,000.
This depends upon your filing status and the amount of your adjusted gross
income (AGI). The following table shows how the contribution limits are
restricted:
- ----------------------------------------
ROTH IRA CONTRIBUTION LIMITS
ADJUSTED GROSS INCOME (AGI) LEVEL
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------
IF YOU ARE
IF YOU ARE MARRIED
SINGLE FILING THEN YOU
TAXPAYER JOINTLY MAY MAKE
-------------------------------------
Up to Up to Full
$95,000 $150,000 Contribution
-------------------------------------
More than More than Reduced
$95,000 $150,000 Contribution
but less than but less than (see
$110,000 $160,000 explanation
below)
-------------------------------------
$100,000 $160,000 Zero (no
and up and up contribution)
- ----------------------------------------------
</TABLE>
Note: If you are a married taxpayer filing separately, your maximum Roth IRA
contribution limit phases out over the first $10,000 of adjusted gross income.
If your AGI is $10,000 or more you may not contribute to a Roth IRA for the
year.
HOW DO I CALCULATE MY LIMIT IF I FALL IN THE "REDUCED CONTRIBUTION" RANGE?
If your AGI falls in the reduced contribution range, you must calculate your
contribution limit. To do this, multiply your normal contribution limit ($2,000
or your compensation if less) by a fraction. The numerator is the amount by
which your AGI exceeds the lower limit of the reduced contribution range
($95,000 if single, or $150,000 if married filing jointly). The denominator is
$15,000 (single taxpayers) or $10,000 (married filing jointly). Subtract this
from your normal limit and then round down to the nearest $10. With AGI in the
reduced contribution range, the contribution limit is the greater of the amount
calculated or $200.
For example, assume that your AGI for the year is $157,555 and you are married,
filing
15
<PAGE> 18
jointly. You would calculate your Roth IRA contribution limit this way:
1. The amount by which your AGI exceeds the lower limit of the reduced
contribution deductible range:
($157,555 - $150,000) = $7,555
2. Divide this by $10,000:
<TABLE>
<S> <C>
$7,555
------- = 0.7555
$10,000
</TABLE>
3. Multiply this by $2,000 (or your compensation for the year, if less):
0.7555 x $2,000 = $1,511
4. Subtract this from your $2,000 limit:
($2,000 - $1,551) = $489
5. Round this down to the nearest $10 = $480
6. Your contribution limit is the greater of this amount or $200.
Remember, your Roth IRA contribution limit of $2,000 is reduced by any
contributions for the same year to a Traditional IRA. If you fall in the reduced
contribution range, the reduction formula applies to the Roth IRA contribution
limit left after subtracting your contribution for the year to a Traditional
IRA.
HOW DO I DETERMINE MY AGI?
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
There are two additional rules when calculating AGI for purposes of Roth IRA
contribution limits. First, if you are making a deductible contribution for the
year to a Traditional IRA, your AGI is not reduced by the amount of the
deduction. Second, if you are converting a Traditional IRA to a Roth IRA in a
year (see below), the amount includible in your income as a result of the
conversion is not considered AGI when computing your Roth IRA contribution limit
for the year.
WHAT HAPPENS IF I CONTRIBUTE MORE THAN ALLOWED TO MY ROTH IRA?
The maximum contribution you can make to a Roth IRA generally is $2,000 or 100%
of compensation or earned income, whichever is less. As noted above, your
maximum is reduced by the amount of any contribution to a Traditional IRA for
the same year and may be further reduced if you have high AGI. Any amount
contributed to the Roth IRA above the maximum is considered an "excess
contribution."
An excess contribution is subject to excise tax of 6% for each year it remains
in the Roth IRA.
HOW CAN I CORRECT AN EXCESS CONTRIBUTION?
Excess contributions may be corrected without paying a 6% penalty. To do so, you
must withdraw the excess and any earnings on the excess before the due date
(including extensions) for filing your federal income tax return for the year
for which you made the excess contribution. Earnings on the amount withdrawn
must also be withdrawn. The earnings must be included in your income for the tax
year for which the contribution was made and may be subject to a 10% premature
withdrawal tax if you have not reached age 59 1/2 (unless an exception to the
10% penalty tax applies).
WHAT HAPPENS IF I DON'T CORRECT THE EXCESS CONTRIBUTION BY THE TAX RETURN DUE
DATE?
Any excess contribution withdrawn after the tax return due date (including any
extensions) for the year for which the contribution was made will be subject to
the 6% excise tax. There will be an additional 6% excise tax for each year the
excess remains in your account.
Unless an excess contribution qualifies for the special treatment outlined
above, the excess contribution and any earnings on it withdrawn after tax filing
time will be includible in taxable income and may be subject to a 10% premature
withdrawal penalty.
You may reduce the excess contributions by making a withdrawal equal to the
excess. Earnings need not be withdrawn. To the extent that no earnings are
withdrawn, the
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<PAGE> 19
withdrawal will not be subject to income taxes or possible penalties for
premature withdrawals before age 59 1/2. Excess contributions may also be
corrected in a subsequent year to the extent that you contribute less than your
Roth IRA contribution limit for the subsequent year. As the prior excess
contribution is reduced or eliminated, the 6% excise tax will become
correspondingly reduced or eliminated for subsequent tax years.
- ----------------------------------------
CONVERSION OF EXISTING TRADITIONAL IRA
CAN I CONVERT AN EXISTING TRADITIONAL IRA INTO A ROTH IRA?
Yes, you can convert an existing Traditional IRA into a Roth IRA if you meet the
eligibility requirements described below. Conversion may be accomplished in any
of three ways: First, you can withdraw the amount you want to convert from your
Traditional IRA and roll it over to a Roth IRA within 60 days. Second, you can
establish a Roth IRA and then direct the custodian of your Traditional IRA to
transfer the amount in your Traditional IRA you wish to convert to the new Roth
IRA. Third, if you want to convert an existing Traditional IRA with State Street
Bank as custodian to a Roth IRA, you may give us directions to convert; we will
convert your existing account when the paperwork to establish your new Roth IRA
is complete.
You are eligible to convert a Traditional IRA to a Roth IRA if, for the year of
the conversion, your AGI is $100,000 or less. The same limit applies to married
and single taxpayers, and the limit is not indexed to cost-of-living increases.
Married taxpayers are eligible to convert a Traditional IRA to a Roth IRA only
if they file a joint income tax return; married taxpayers filing separately are
not eligible to convert. However, if you file separately and have lived apart
from your spouse for the entire taxable year, you are considered not married,
and the fact that you are filing separately will not prevent you from
converting.
If you accomplish a conversion by withdrawing from your Traditional IRA and
rolling over to a Roth IRA within 60 days, the requirements in the preceding
sentence apply to the year of the withdrawal (even though the rollover
contribution occurs in the following calendar year).
Caution; If you have reached age 70 1/2 by the year when you convert another
non-Roth IRA you own to a Roth IRA, be careful not to convert any amount that
would be a required minimum distribution under the applicable age 70 1/2 rules.
Under current IRS regulations, required minimum distributions may not be
converted.
WHAT HAPPENS IF I CHANGE MY MIND ABOUT CONVERTING?
You can undo a conversion by notifying the custodian or trustee of each IRA (the
custodian of the first IRA--the Traditional IRA you converted--and the custodian
of the second IRA--the Roth IRA that received the conversion). The amount you
want to unconvert by transferring back to the first custodian is treated as if
it had not been converted. This is called "recharacterization."
If you want to recharacterize a converted amount, you must do so before the due
date (including any extensions you receive) for your federal income tax return
for the year of the conversion. Any net income on the amount recharacterized
must accompany it back to the Traditional IRA.
Under current IRS rules, you can recharacterize for any reason. For example, you
would recharacterize if you converted early in a year and then turned out to be
ineligible because your income was over the $100,000 limit. Also, if you convert
and then recharacterize during a year, you can then convert to a Roth IRA a
second time if you wish. Under the current IRS rules, there is no limit on the
number of times you can convert, recharacterize and then convert again during a
year, and no restrictions on the reasons for doing so. However, if you convert
an amount more than twice in a year, any additional conversion transactions will
be disregarded when determining the
17
<PAGE> 20
amount of income taxes you have to pay because of the conversion (see next
page).
For example, suppose you converted a Traditional IRA with $100,000 in it to a
Roth IRA early in 1998. You will owe income taxes on $100,000 (assuming the
Traditional IRA held all taxable amounts). The market value of your Roth IRA
declines to $80,000, so you recharacterize it back to a Traditional IRA, and
then convert the Traditional IRA a second time to a Roth IRA. You will have to
pay income taxes on $80,000 for the second conversion, rather than on $100,000.
The value of the Roth IRA declines further and, in late 1998 the Roth IRA is
worth $60,000, so you recharacterize back to a Traditional IRA and then convert
it to a Roth IRA a third time. This last conversion is disregarded for income
tax purposes, and you will still have to pay income taxes on $80,000 under this
example.
Note: Conversions from a Traditional IRA to a Roth IRA that failed because you
did not meet the eligibility requirements (more than $100,000 of AGI or married
but not filing jointly) and which you then recharacterize do not count when
applying these rules. Similarly, any conversions before November 1, 1998 do not
count when applying these rules. (Caution: As you can see, these rules are very
complex; be sure to consult a competent tax professional for assistance. Also,
the limits on the number of conversions that will be recognized for income tax
purposes apply for 1998 and 1999. The IRS may adopt different rules thereafter,
or may change the foregoing rules to provide different limits on the number of
conversions permitted or the acceptable reasons for recharacterizing--check with
your tax adviser for the latest developments.)
Under current IRS rules, recharacterization is not restricted to amounts you
converted from a Traditional IRA to a Roth IRA. You can, for example, make an
annual contribution to a Traditional IRA and recharacterize it as a contribution
to a Roth IRA, or vice versa. You must make the election to recharacterize by
the due date for your tax return for the year and follow the procedures
summarized above.
WHAT ARE THE TAX RESULTS FROM CONVERTING?
The taxable amount in your Traditional IRA you convert to a Roth IRA will be
considered taxable income on your federal income tax return for the year of the
conversion. All amounts in a Traditional IRA are taxable except for your prior
non-deductible contributions to the Traditional IRA.
If you make the conversion during 1998, the taxable income is spread over four
years. In other words, you would include one quarter of the taxable amount on
your federal income tax return for 1998, 1999, 2000 and 2001. If you want to
treat all the income as 1998 income (not spread over four years), you can elect
to do so on Form 8606 filed with your 1998 federal income tax return.
If you convert a Traditional IRA (or a SEP IRA or SIMPLE IRA -- see below) to a
Roth IRA, under IRS rules income tax withholding will apply unless you elect not
to have withholding. The Adoption Agreement or the Universal IRA Transfer of
Assets Form has more information about withholding. However, withholding income
taxes from the amount converted (instead of paying applicable income taxes from
another source) may adversely affect the anticipated financial benefits of
converting. Consult your financial adviser for more information.
CAN I CONVERT A SEP IRA OR SIMPLE IRA ACCOUNT TO A ROTH IRA?
If you have a SEP IRA as part of an employer simplified employee pension (SEP)
program, or a SIMPLE IRA as part of an employer SIMPLE IRA program, you can
convert the IRA to a Roth IRA. However, with a SIMPLE IRA account, this can be
done only after the SIMPLE IRA account has been in existence for at least two
years. You must meet the eligibility rules summarized above to convert.
SHOULD I CONVERT MY TRADITIONAL IRA TO A ROTH IRA?
Only you can answer this question, in consultation with your tax or financial
advisers. A number of factors, including the following, may be relevant.
Conversion may be advantageous if you expect to leave the converted funds on
deposit in your Roth IRA for at
18
<PAGE> 21
least five years and to be able to withdraw the funds under circumstances that
will not be taxable (see below). The benefits of converting will also depend on
whether you expect to be in the same tax bracket when you withdraw from your
Roth IRA as you are now. Also, conversion is based upon an assumption that
Congress will not change the tax rules for withdrawals from Roth IRAs in the
future, but this cannot be guaranteed.
- ----------------------------------------
TRANSFERS/ROLLOVERS
CAN I TRANSFER OR ROLL OVER A DISTRIBUTION I RECEIVE FROM MY EMPLOYER'S
RETIREMENT PLAN INTO A ROTH IRA?
Distributions from qualified employer-sponsored retirement plans or 403(b)
arrangements (for employees of tax-exempt employers) are not eligible for
rollover or direct transfer to a Roth IRA. However, in certain circumstances it
may be possible to make a direct rollover of an eligible distribution to a
Traditional IRA and then to convert the Traditional IRA to Roth IRA (see above).
Consult your tax or financial adviser for further information on this
possibility.
CAN I MAKE A ROLLOVER FROM MY ROTH IRA TO ANOTHER ROTH IRA?
You may make a rollover from one Roth IRA to another Roth IRA you have or you
establish to receive the rollover. Such a rollover must be completed within 60
days after the withdrawal from your first Roth IRA. After making a rollover from
one Roth IRA to another, you must wait a full year (365 days) before you can
make another such rollover. (However, you can instruct a Roth IRA custodian to
transfer amounts directly to another Roth IRA custodian; such a direct transfer
does not count as a rollover.)
HOW DO ROLLOVERS AFFECT MY ROTH IRA CONTRIBUTION LIMITS?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, you may make a rollover from one Roth IRA to another even
during a year when you are not eligible to contribute to a Roth IRA (for
example, because your AGI for that year is too high).
- ----------------------------------------
WITHDRAWALS
WHEN CAN I MAKE WITHDRAWALS FROM MY ROTH IRA?
You may withdraw from your Roth IRA at any time. If the withdrawal meets the
requirements discussed below, it is tax-free. This means that you pay no federal
income tax even though the withdrawal includes earnings or gains on your
contributions while they were held in your Roth IRA.
WHEN MUST I START MAKING WITHDRAWALS?
There are no rules on when you must start making withdrawals from your Roth IRA
or on minimum required withdrawal amounts for any particular year during your
lifetime. Unlike Traditional IRAs, you are not required to start making
withdrawals from a Roth IRA by the April 1 following the year in which you reach
age 70 1/2.
After your death, there are IRS rules on the timing and amount of distributions.
In general, the amount in your Roth IRA must be distributed by the end of the
fifth year after your death. However, distributions to a designated beneficiary
that begin by the end of the year following the year of your death and that are
paid over the life expectancy of the beneficiary satisfy the rules. Also, if
your surviving spouse is your designated beneficiary, the spouse may defer the
start of distributions until you would have reached age 70 1/2 had you lived.
WHAT ARE THE REQUIREMENTS FOR A TAX-FREE WITHDRAWAL?
To be tax-free, a withdrawal from your Roth IRA must meet two requirements.
First, the Roth IRA must have been open for 5 or more years before the
withdrawal. Second, at least one of the following conditions must be satisfied:
- You are age 59 1/2 or older when you make the withdrawal.
- The withdrawal is made by your beneficiary after you die.
19
<PAGE> 22
- You are disabled (as defined in IRS rules) when you make the withdrawal.
- You are using the withdrawal to cover eligible first time homebuyer expenses.
These are the costs of purchasing, building or rebuilding a principal
residence (including customary settlement, financing or closing costs). The
purchaser may be you, your spouse or a child, grandchild, parent or
grandparent of you or your spouse. An individual is considered a "first-time
homebuyer" if the individual did not have (or, if married, neither spouse
had) an ownership interest in a principal residence during the two-year
period immediately preceding the acquisition in question. The withdrawal must
be used for eligible expenses within 120 days after the withdrawal (if there
is an unexpected delay, or cancellation of the home acquisition, a withdrawal
may be redeposited as a rollover).
There is a lifetime limit on eligible first-time homebuyer expenses of $10,000
per individual.
For purposes of the 5-year rule, all your Roth IRAs are considered. As soon as
the 5-year rule is satisfied for any Roth IRA, it is considered satisfied for
all your Roth IRAs. For a Roth IRA that you started with annual contribution,
the 5 year period starts with the year for which you make the initial annual
contribution. For a Roth IRA that you set up with amounts rolled over or
converted from a non-Roth IRA, the 5 year period begins with the year in which
the conversion or rollover was made.
HOW ARE WITHDRAWALS FROM MY ROTH IRA TAXED IF THE TAX-FREE REQUIREMENTS ARE NOT
MET?
If the qualified withdrawal requirements are not met, the tax treatment of a
withdrawal depends on the character of the amounts withdrawn. To determine this,
all your Roth IRAs (if you have more than one) are treated as one, including any
Roth IRA you may have established with another Roth IRA custodian. Amounts
withdrawn are considered to come out in the following order:
- First, all annual contributions.
- Second, all conversion amounts (on a first-in, first-out basis).
- Third, earnings (including dividends and gains).
A withdrawal treated as your own prior annual contribution amounts to your Roth
IRA will not be considered taxable income in the year you receive it, nor will
the 10% penalty apply. A withdrawal consisting of previously taxed conversion
amounts also is not considered taxable income in the year of the withdrawal, and
is also not subject to the 10% premature withdrawal penalty. To the extent that
the nonqualified withdrawal consists of dividends or gains while your
contributions were held in your Roth IRA, the withdrawal is includible in your
gross income in the taxable year you receive it, and may be subject to the 10%
withdrawal penalty.
As mentioned, for purposes of determining what portion of any withdrawal is
includible in income, all of your Roth IRA accounts are considered as one single
account. Therefore, withdrawals from Roth IRA accounts are not considered to be
from earnings or interest until an amount equal to all prior annual
contributions and, if applicable, all conversion amounts, made to all of an
individual's Roth IRA accounts is withdrawn. The following example illustrates
this:
A single individual contributes $1,000 a year to his State Street Bank and Trust
Company Roth IRA account and $1,000 a year to the Brand X Roth IRA account over
a period of ten years. At the end of 10 years his account balances are as
follows:
<TABLE>
<CAPTION>
PRINCIPAL
CONTRIBUTIONS EARNINGS
------------- --------
<S> <C> <C>
State Street Bank
Roth IRA $10,000 $10,000
Brand X Roth IRA $10,000 $ 7,000
-----------------------------------------------
Total $20,000 $17,000
</TABLE>
20
<PAGE> 23
At the end of 10 years, this person has $37,000 in both Roth IRA accounts, of
which $20,000 represents his contributions (aggregated) and $17,000 represents
his earnings (aggregated). This individual, who is 40, withdraws the entire
$17,000 from his Brand X Roth IRA (not a qualified withdrawal). We look to the
aggregate amount of all principal contributions -- in this case $20,000 -to
determine if the withdrawal is from contributions, and thus non-taxable. In this
example, there is no ($0) taxable income as a result of this withdrawal because
the $17,000 withdrawal is less than the total amount of aggregated contributions
($20,000). If this individual then withdrew $15,000 from his State Street Bank
Roth IRA, $3,000 would not be taxable (the remaining aggregate contributions)
and $12,000 would be treated as taxable income for the year of the withdrawal,
subject to normal income taxes and the 10% premature withdrawal penalty (unless
an exception applies).
Taxable withdrawals of dividends and gains from a Roth IRA are treated as
ordinary income. Withdrawals of taxable amounts from a Roth IRA are not eligible
for averaging treatment currently available to certain lump sum distributions
from qualified employer-sponsored retirement plans, nor are such withdrawals
eligible for capital gains tax treatment.
Amounts withdrawn may be subject to income tax withholding by the custodian
unless you elect not to have withholding. See Part Three below for additional
information on withholding.
Your receipt of any taxable withdrawal from your Roth IRA before you attain age
59 1/2 generally will be considered as an early withdrawal and subject to a 10%
penalty tax.
The 10% penalty tax for early withdrawal will not apply if any of the following
exceptions applies:
- The withdrawal was a result of your death or disability.
- The withdrawal is one of a scheduled series of substantially equal periodic
payments for your life or life expectancy (or the joint lives or life
expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments, the 10%
penalty tax will apply. For example, if you begin receiving payments at age
50 under a withdrawal program providing for substantially equal payments over
your life expectancy, and at age 58 you elect to withdraw the remaining
amount in your Roth IRA in a lump-sum, the 10% penalty tax will apply to the
lump sum and to the amounts previously paid to you before age 59 1/2 to the
extent they were includible in your taxable income.
- The withdrawal is used to pay eligible higher education expenses. These are
expenses for tuition, fees, books, and supplies required to attend an
institution for post-secondary education. Room and board expenses are also
eligible for a student attending at least half-time. The student may be you,
your spouse, your child or grandchild. However, expenses that are paid for
with a scholarship or other educational assistance payment are not eligible
expenses.
- The withdrawal is used to cover eligible first time homebuyer expenses (as
described above in the discussion of tax-free withdrawals).
- The withdrawal does not exceed the amount of your deductible medical expenses
for the year (generally speaking, medical expenses paid during a year are
deductible if they are greater than 7 1/2 % of your adjusted gross income for
that year).
- The withdrawal does not exceed the amount you paid for health insurance
coverage for yourself, your spouse and dependents. This exception applies
only if you have been unemployed and received federal or state unemployment
compensation payments for at least 12 weeks; this exception applies to
distributions during the year in which you received the unemployment
compensation and during the following year, but not to any distributions
received after you have been reemployed for at least 60 days.
21
<PAGE> 24
- Starting in the year 2000 a distribution is made pursuant to an IRS levy to
pay overdue taxes.
There is one additional time when the 10% penalty tax may apply. If you convert
an amount from a non-Roth IRA to a Roth IRA, and then make a withdrawal that is
treated as coming from that converted amount within five years after the
conversion, the 10% penalty applies (unless there is an exception). This rule is
the one exception to the usual Roth IRA rule that, once the five year
requirement is satisfied for one of your Roth IRAs, it is satisfied for all your
Roth IRAs.
SEE THE TABLE AT THE END OF THIS PART FOR A SUMMARY OF THE RULES ON WHEN
WITHDRAWALS FROM YOUR ROTH IRA WILL BE SUBJECT TO INCOME TAXES OR THE 10%
PENALTY TAX.
HOW ARE THE TAX RULES AFFECTED IF I CONVERTED A NON-ROTH IRA TO A ROTH IRA IN
1998?
If you convert a non-Roth IRA to a Roth IRA in 1998 and are spreading the
taxable income over the years 1998-2001, and if you make a withdrawal during
that period, special rules apply. Consult your tax adviser.
WHAT ABOUT THE 15 PERCENT PENALTY TAX?
The rule imposing a 15% penalty tax on very large withdrawals from tax-favored
arrangements (including IRAs, 403(b) arrangements and qualified
employer-sponsored plans), or on excess amounts remaining in such tax-favored
arrangements at your death, has been repealed. This 15% tax no longer applies.
Two Important Points: First, the custodian will report withdrawals from your
Roth IRA to the IRS on Form 1099-R as required and will complete Form 1099-R
based on your Roth IRA account with the custodian. However, since all Roth IRAs
are considered together when determining the tax treatment of withdrawals, and
since you may have other Roth IRAs with other custodians (about which we have no
information) you have sole responsibility for correctly reporting withdrawals on
your tax return. It is essential that you keep proper records and report the
income taxes properly if you have multiple Roth IRAs. Second, the discussion of
the tax rules for Roth IRAs in this Disclosure Statement is based upon the best
available information. However, there may be changes in pending IRS proposed
regulations or further legislation on the requirements for and tax treatment of
Roth IRA accounts. Therefore, you should consult your tax adviser for the latest
developments or for advice about how maintaining a Roth IRA will affect your
personal tax or financial situation.
Note: In order to facilitate proper recordkeeping and tax reporting for your
Roth IRA, the service company maintaining certain account records may require
you to set up separate Roth IRAs to hold annual contributions and conversion
amounts. In addition, the service company may require separate Roth IRAs for
conversion amounts from different calendar years. Any such requirement will be
noted in the Adoption Agreement for your Roth IRA or in the instructions for
opening your Roth IRA.
Also, please see Part Three below which contains important information
applicable to all State Street Bank and Trust Company IRAs.
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<PAGE> 25
SUMMARY OF TAX RULES FOR WITHDRAWALS
The following table summarizes when income taxes or the 10% premature withdrawal
penalty tax will apply to a withdrawal from your Roth IRA. Remember, income
taxes or penalties apply or not depending on the type of contribution withdrawn.
This is determined under the IRS rules described above, considering all of your
Roth IRAs together (including any you may maintain with another trustee or
custodian). Therefore, if you have multiple Roth IRAs, the tax treatment of a
withdrawal will not necessarily follow from the type of contributions held in
the particular Roth IRA account you withdrew from. Also, the income and penalty
tax rules for Roth IRA withdrawals are extremely complex; the following table is
only a summary and may not cover every possible situation. Consult the IRS or
your personal tax adviser if you have a question about your individual
situation.
<TABLE>
<S> <C> <C> <C>
QUALIFIED NOT A QUALIFIED WITHDRAWAL
WITHDRAWAL
----------------------------------------------------------------
TYPE OF (THE REQUIREMENTS EXCEPTION TO 10% EXCEPTION TO
CONTRIBUTION FOR A QUALIFIED TAX APPLIES 10% TAX DOES
WITHDRAWN WITHDRAWAL ARE (EXCEPTIONS ARE NOT APPLY
OUTLINED ABOVE) LISTED ABOVE)
- ---------------------------------------------------------------------------------------
- Annual Contribu- . . . . . . . . .No income or penalty tax on withdrawal. . . . .
tion Amounts
- 1998 Conversion
Amounts
- ---------------------------------------------------------------------------------------
Income taxes on No income or No income or No income tax on
amount converted penalty tax on penalty tax on withdrawal. Penalty
previously paid withdrawal. withdrawal. tax applies if the
(in other words, withdrawal occurs
either you paid within 5 years of
any income taxes conversion and if
due on your 1998 the withdrawal is
tax return, or you treated as
spread the income consisting of taxa-
taxes due over ble amounts
1998-2001, but included in the
have paid them all original con-
by the time of the version.
withdrawal)
Income taxes on
amount converted N/A Income tax applies
were spread over to withdrawal to Income and penalty
1998-2001 and not the extent of tax apply to with-
fully paid by the remaining taxable drawal.
time of withdrawal amount. No penalty
tax.
- ---------------------------------------------------------------------------------------
- 1999 and Later No income or No income or No income tax on
Conversion Amounts penalty tax on penalty tax on withdrawal. Penalty
withdrawal. withdrawal. tax applies to
taxable amounts
included in the
conversion if the
withdrawal occurs
within 5 years of
conversion.
- ---------------------------------------------------------------------------------------
- Earnings, Gains or No income or Income tax applies. Income and penalty
Growth of Account penalty tax on No penalty tax. tax apply.
withdrawal.
</TABLE>
23
<PAGE> 26
The table summarizes the tax rules that may apply if you withdraw from your Roth
IRA. What happens if you die and your beneficiary wants to make withdrawals from
the account? The following is a summary of the rules.
- First, if you converted from a Traditional IRA to a Roth IRA in 1998,
spreading the income taxes due over the 1998-2001 period, and you die before
2001, the deferred income taxes must be recognized and paid with your final
income tax return for the year of death. As an exception to this rule, if
your surviving spouse is the sole beneficiary of all your Roth IRAs, the
spouse can elect to continue spreading the income over the remainder of the
1998-2001 period.
- Second, if your beneficiary is not your surviving spouse, withdrawals by the
beneficiary will be subject to income taxes depending on the type of
contribution withdrawn as summarized in the table. However, in determining
what type of contribution the beneficiary is withdrawing, any Roth IRAs the
beneficiaries owns in his or her own right are not considered (this is an
exception to the normal rule that all Roth IRAs are considered together). A
beneficiary will not be subject to the 10% premature withdrawal penalty
because withdrawals following the original owner's death are an exception to
the 10% penalty tax.
- Third, if your surviving spouse is the beneficiary, the spouse can elect
either to receive withdrawals as beneficiary, or to treat your Roth IRA as
the spouse's Roth IRA. If the spouse receives withdrawals as a beneficiary,
the rules in the preceding paragraph generally apply to the spouse just as to
any other beneficiary. If the spouse treats the Roth IRA as the spouse's own,
there are a couple of special rules. First, the spouse will be treated as
having had a Roth IRA for five years (one of the requirements for tax-free
withdrawals) if either your Roth IRA or any of the spouse's Roth IRAs has
been in effect for at least five years. Second, withdrawals will be subject
to the 10% penalty tax unless an exception applies. Since the spouse has
elected to treat your Roth IRA as the spouse's own Roth IRA, the exception
for payments following your death will not apply.
24
<PAGE> 27
PART THREE: RULES FOR ALL IRAS (TRADITIONAL AND ROTH)
- ----------------------------------------
GENERAL INFORMATION
IRA REQUIREMENTS
All IRAs must meet certain requirements. Contributions generally must be made in
cash. The IRA trustee or custodian must be a bank or other person who has been
approved by the Secretary of the Treasury. Your contributions may not be
invested in life insurance or collectibles or be commingled with other property
except in a common trust or investment fund. Your interest in the account must
be nonforfeitable at all times. You may obtain further information on IRAs from
any district office of the Internal Revenue Service.
MAY I REVOKE MY IRA?
You may revoke a newly established Traditional or Roth IRA at any time within
seven days after the date on which you receive this Disclosure Statement. A
Traditional or Roth IRA established more than seven days after the date of your
receipt of this Disclosure Statement may not be revoked.
To revoke your Traditional or Roth IRA, mail or deliver a written notice of
revocation to the Custodian at the address which appears at the end of this
Disclosure Statement. Mailed notice will be deemed given on the date that it is
postmarked (or, if sent by certified or registered mail, on the date of
certification or registration). If you revoke your Traditional or Roth IRA
within the seven-day period, you are entitled to a return of the entire amount
you originally contributed into your Traditional or Roth IRA, without adjustment
for such items as sales charges, administrative expenses or fluctuations in
market value.
- ----------------------------------------
INVESTMENTS
HOW ARE MY IRA CONTRIBUTIONS INVESTED?
You control the investment and reinvestment of contributions to your Traditional
or Roth IRA. Investments must be in one or more of the Fund(s) available from
time to time as listed in the Adoption Agreement for your Traditional or Roth
IRA or in an investment selection form provided with your Adoption Agreement or
from the Fund Distributor or Service Company. You direct the investment of your
IRA by giving your investment instructions to the Distributor or Service Company
for the Fund(s). Since you control the investment of your Traditional or Roth
IRA, you are responsible for any losses; neither the Custodian, the Distributor
nor the Service Company has any responsibility for any loss or diminution in
value occasioned by your exercise of investment control. Transactions for your
Traditional or Roth IRA will generally be at the applicable public offering
price or net asset value for shares of the Fund(s) involved next established
after the Distributor or the Service Company (whichever may apply) receives
proper investment instructions from you; consult the current prospectus for the
Fund(s) involved for additional information.
Before making any investment, read carefully the current prospectus for any Fund
you are considering as an investment for your Traditional IRA or Roth IRA. The
prospectus will contain information about the Fund's investment objectives and
policies, as well as any minimum initial investment or minimum balance
requirements and any sales, redemption or other charges.
Because you control the selection of investments for your Traditional or Roth
IRA and because mutual fund shares fluctuate in value, the growth in value of
your Traditional or Roth IRA cannot be guaranteed or projected.
ARE THERE ANY RESTRICTIONS ON THE USE OF MY IRA ASSETS?
The tax-exempt status of your Traditional or Roth IRA will be revoked if you
engage in any of the prohibited transactions listed in Section 4975 of the tax
code. Upon such revocation, your Traditional or Roth IRA is treated as
distributing its assets to you. The taxable portion of the amount in your IRA
will be subject to income tax (unless, in the case of a Roth IRA, the
requirements for a tax-free withdrawal are satisfied). Also, you
25
<PAGE> 28
may be subject to a 10% penalty tax on the taxable amount as a premature
withdrawal if you have not yet reached the age of 59 1/2. There may also be
prohibited transaction penalty taxes.
Any investment in a collectible (for example, rare stamps) by your Traditional
or Roth IRA is treated as a withdrawal; the only exception involves certain
types of government-sponsored coins or certain types of precious metal bullion.
WHAT IS A PROHIBITED TRANSACTION?
Generally, a prohibited transaction is any improper use of the assets in your
Traditional or Roth IRA. Some examples of prohibited transactions are:
- Direct or indirect sale or exchange of property between you and your
Traditional or Roth IRA.
- Transfer of any property from your Traditional or Roth IRA to yourself or
from yourself to your Traditional or Roth IRA.
Your Traditional or Roth IRA could lose its tax exempt status if you use all or
part of your interest in your Traditional or Roth IRA as security for a loan or
borrow any money from your Traditional or Roth IRA. Any portion of your
Traditional or Roth IRA used as security for a loan will be treated as a
distribution in the year in which the money is borrowed. This amount may be
taxable and you may also be subject to the 10% premature withdrawal penalty on
the taxable amount.
- ----------------------------------------
FEES AND EXPENSES
CUSTODIAN'S FEES
The following is a list of the fees charged by the Custodian for maintaining
either a Traditional IRA or a Roth IRA.
<TABLE>
<S> <C>
Account Installation
Fee $15.00
Annual Maintenance Fee
per Fund $10.00
Termination, Rollover,
or Transfer of
Account to Successor
Custodian NONE
</TABLE>
GENERAL FEE POLICIES
- Fees may be paid by you directly, or the Custodian may deduct them from your
Traditional or Roth IRA.
- Fees may be changed upon 30 days written notice to you.
- The full annual maintenance fee will be charged for any calendar year during
which you have a Traditional or Roth IRA with us. This fee is not prorated
for periods of less than one full year.
- If provided for in this Disclosure Statement or the Adoption Agreement,
termination fees are charged when your account is closed whether the funds
are distributed to you or transferred to a successor custodian or trustee.
- The Custodian may charge you for its reasonable expenses for services not
covered by its fee schedule.
OTHER CHARGES
- There may be sales or other charges associated with the purchase or
redemption of shares of a Fund in which your Traditional IRA or Roth IRA is
invested. Before investing, be sure to read carefully the current prospectus
of any Fund you are considering as an investment for your Traditional IRA or
Roth IRA for a description of applicable charges.
- ----------------------------------------
TAX MATTERS
WHAT IRA REPORTS DOES THE CUSTODIAN ISSUE?
The Custodian will report all withdrawals to the IRS and the recipient on the
appropriate form. For reporting purposes, a direct transfer of assets to a
successor custodian or trustee is not considered a withdrawal (except for such a
transfer that effects a conversion of a Traditional IRA to a Roth IRA, or a
recharacterization of a Roth IRA back to a Traditional IRA).
26
<PAGE> 29
The Custodian will report to the IRS the year-end value of your account and the
amount of any rollover (including conversions of a Traditional IRA to a Roth
IRA) or a regular annual contribution made during a calendar year, as well as
the tax year for which a contribution is made. Unless the Custodian receives an
indication from you to the contrary, it will treat any amount as a contribution
for the tax year in which it is received. It is most important that a
contribution between January and April 15th for the prior year be clearly
designated as such.
WHAT TAX INFORMATION MUST I REPORT TO THE IRS?
You must file Form 5329 with the IRS for each taxable year for which you made an
excess contribution or you take a premature withdrawal that is subject to the
10% penalty tax, or you withdraw less than the minimum amount required from your
Traditional IRA. If your beneficiary fails to make required minimum withdrawals
from your Traditional or Roth IRA after your death, your beneficiary may be
subject to an excise tax and be required to file Form 5329.
For Traditional IRAs, you must also report each nondeductible contribution to
the IRS by designating it a nondeductible contribution on your tax return. Use
Form 8606. In addition, for any year in which you make a nondeductible
contribution or take a withdrawal, you must include additional information on
your tax return. The information required includes: (1) the amount of your
nondeductible contributions for that year; (2) the amount of withdrawals from
Traditional IRAs in that year; (3) the amount by which your total nondeductible
contributions for all the years exceed the total amount of your distributions
previously excluded from gross income; and (4) the total value of all your
Traditional IRAs as of the end of the year. If you fail to report any of this
information, the IRS will assume that all your contributions were deductible.
This will result in the taxation of the portion of your withdrawals that should
be treated as a nontaxable return of your nondeductible contributions.
WHICH WITHDRAWALS ARE SUBJECT TO WITHHOLDING?
ROTH IRA
Federal income tax may be withheld at a flat rate of 10% of any taxable
withdrawal from your Roth IRA, unless you elect not to have tax withheld.
Withdrawals from a Roth IRA are not subject to the mandatory 20% income tax
withholding that applies to most distributions from qualified plans or 403(b)
accounts that are not directly rolled over to another plan or IRA.
TRADITIONAL IRA
Federal income tax will be withheld at a flat rate of 10% from any withdrawal
from your Traditional IRA, unless you elect not to have tax withheld.
Withdrawals from a Traditional IRA are not subject to the mandatory 20% income
tax withholding that applies to most distributions from qualified plans or
403(b) accounts that are not directly rolled over to another plan or IRA.
ACCOUNT TERMINATION
You may terminate your Traditional IRA or Roth IRA at any time after its
establishment by sending a completed withdrawal form (or other withdrawal
instructions in a form acceptable to the Custodian), or a transfer authorization
form, to:
LONGLEAF PARTNERS FUNDS
P.O. Box 419929
Kansas City, MO 64141-6929
Your Traditional IRA or Roth IRA with State Street Bank will terminate upon the
first to occur of the following:
- The date your properly executed withdrawal form or instructions (as described
above) withdrawing your total Traditional IRA or Roth IRA balance is received
and accepted by the Custodian or, if later, the termination date specified in
the withdrawal form.
- The date the Traditional IRA or Roth IRA ceases to qualify under the tax
code. This will be deemed a termination.
- The transfer of the Traditional IRA or Roth IRA to another custodian/trustee.
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- The rollover of the amounts in the Traditional IRA or Roth IRA to another
custodian/trustee.
Any outstanding fees must be received prior to such a termination of your
account.
The amount you receive from your IRA upon termination of the account will be
treated as a withdrawal, and thus the rules relating to Traditional IRA or Roth
IRA withdrawals will apply. For example, if the IRA is terminated before you
reach age 59 1/2, the 10% early withdrawal penalty may apply to the taxable
amount you receive.
IRA DOCUMENTS
TRADITIONAL IRA
The terms contained in Articles I to VII of Part One of the State Street Bank
and Trust Company Universal Individual Retirement Custodial Account document
have been promulgated by the IRS in Form 5305-A for use in establishing a
Traditional IRA Custodial Account that meets the requirements of Code Section
408(a) for a valid Traditional IRA. This IRS approval relates only to the form
of Articles I to VII and is not an approval of the merits of the Traditional IRA
or of any investment permitted by the Traditional IRA.
ROTH IRA
The terms contained in Articles I to VII of Part Two of the State Street Bank
and Trust Company Universal Individual Retirement Account Custodial Agreement
have been promulgated by the IRS in Form 5305-RA for use in establishing a Roth
IRA Custodial Account that meets the requirements of Code Section 408A for a
valid Roth IRA. This IRS approval relates only to the form of Articles I to VII
and is not an approval of the merits of the Roth IRA or of any investment
permitted by the Roth IRA.
Based on our legal advice relating to current tax laws and IRS meetings, State
Street Bank believes that the use of a Universal Individual Retirement Account
Information Kit such as this, containing information and documents for both a
Traditional IRA or a Roth IRA, will be acceptable to the IRS. However, if the
IRS makes a ruling, or if Congress enacts legislation, regarding the use of
different documentation, State Street Bank will forward to you new documentation
for your Traditional IRA or a Roth IRA (as appropriate) for you to read and, if
necessary, an appropriate new Adoption Agreement to sign. By adopting a
Traditional IRA or a Roth IRA using these materials, you acknowledge this
possibility and agree to this procedure if necessary. In all cases, to the
extent permitted State Street Bank will treat your IRA as being opened on the
date your account was opened using the Adoption Agreement in this Kit.
ADDITIONAL INFORMATION
For additional information you may write to the following address or call the
following telephone number.
Longleaf Partners Funds
P. O. Box 419929
Kansas City, MO 64141-6929
(800) 488-4191
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STATE STREET BANK AND
TRUST COMPANY UNIVERSAL
INDIVIDUAL RETIREMENT
ACCOUNT CUSTODIAL
AGREEMENT
PART ONE: PROVISIONS
APPLICABLE TO
TRADITIONAL IRAS
The following provisions of Articles I to VII are in the form promulgated by the
Internal Revenue Service in Form 5305-A (Rev. January 1998) for use in
establishing an individual retirement custodial account.
ARTICLE I.
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or an
employer contribution to a simplified employee pension plan as described in
section 408(k).
ARTICLE II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III.
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m) except as otherwise permitted by section 408(m)(3)
which provides an exception for certain gold, silver and platinum coins,
coins issued under the laws of any state, and certain bullion.
ARTICLE IV.
1. Notwithstanding any provisions of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be
made in accordance with the following requirements and shall otherwise
comply with section 408(a)(6) and Proposed Regulations section 1.408-8,
including the incidental death benefit provisions of Proposed Regulations
section 1.401(a)(9)-2, the provisions of which are incorporated by
reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Depositor under paragraph 3, or to the surviving spouse under paragraph
4, other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the
Depositor and the surviving spouse and shall apply to all subsequent years.
The life expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or begin
to be, distributed by the Depositor's required beginning date, the April 1
following the calendar year end in which the Depositor reaches age 70 1/2.
By that date, the Depositor may elect, in a manner acceptable to the
Custodian, to have the balance in the custodial account distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period that
may not be longer than the Depositor's life expectancy.
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<PAGE> 32
(e) Equal or substantially equal annual payments over a specified period that
may not be longer than the joint life and last survivor expectancy of the
Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her interest has
begun, distribution must continue to be made in accordance with paragraph
3.
(b) If the Depositor dies before distribution of his or her interest has begun,
the entire remaining interest will, at the election of the Depositor or, if
the Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either
(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over the life or
life expectancy of the designated beneficiary or beneficiaries starting by
December 31 of the year following the year of the Depositor's death. If,
however, the beneficiary is the Depositor's surviving spouse, then this
distribution is not required to begin before December 31 of the year in
which the Depositor would have reached age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Depositor's required beginning date, even though payments may actually have
been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted in
the account.
5. In the case of distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each
year, divide the Depositor's entire interest in the custodial account as of
the close of business on December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last survivor expectancy
of the Depositor and the Depositor's designated beneficiary, or the life
expectancy of the designated beneficiary, whichever applies.) In the case
of distributions under paragraph 3, determine the initial life expectancy
(or joint life and last survivor expectancy) using the attained ages of the
Depositor and designated beneficiary as of their birthdays in the year the
Depositor reaches age 70 1/2. In the case of a distribution in accordance
with paragraph 4(b)(ii), determine life expectancy using the attained age
of the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy
the minimum distribution requirements described above. This method permits
an individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for
another.
ARTICLE V.
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under section 408(i) and
Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence
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<PAGE> 33
will be controlling. Any additional articles that are not consistent with
section 408(a) and the related regulations will be invalid.
ARTICLE VII.
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear on the Retirement Account
Application.
PART TWO: PROVISIONS
APPLICABLE TO ROTH IRAS
The following provisions of Articles I to VII are in the form promulgated by the
Internal Revenue Service in Form 5305-RA (January 1998) for use in establishing
a Roth Individual Retirement Custodial Account.
ARTICLE I
1. If this Roth IRA is not designated as a Roth Conversion IRA, then, except
in the case of a rollover contribution described in section 408A(e), the
Custodian will accept only cash contributions and only up to a maximum
amount of $2,000 for any tax year of the Depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no contributions
other than IRA Conversion Contributions made during the same tax year will
be accepted.
ARTICLE IA
The $2,000 limit described in Article I is gradually reduced to $0 between
certain levels of adjusted gross income (AGI). For a single Depositor, the
$2,000 annual contribution is phased out between AGI of $95,000 and $110,000;
for a married Depositor who files jointly, between AGI of $150,000 and $160,000;
and for a married Depositor who files separately, between $0 and $10,000. In
case of a conversion, the Custodian will not accept IRA Conversion Contributions
in a tax year if the Depositor's AGI for that tax year exceeds $100,000 or if
the Depositor is married and files a separate return. Adjusted gross income is
defined in section 408A(c)(3) and does not include IRA Conversion Contributions.
ARTICLE II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within
the meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section
408(m)(3), which provides an exception for certain gold, silver, and
platinum coins, coins issued under the laws of any state, and certain
bullion.
ARTICLE IV
1. If the Depositor dies before his or her entire interest is distributed to
him or her and the Depositor's surviving spouse is not the sole
beneficiary, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of the
beneficiary or beneficiaries, either:
(a) Be distributed by December 31 of the year containing the fifth anniversary
of the Depositor's death, or
(b) Be distributed over the life expectancy of the designated beneficiary
starting no later than December 31 of the year following the year of the
Depositor's death.
If distributions do not begin by the date described in (b), distribution method
(a) will apply.
2. In the case of distribution method 1(b) above, to determine the minimum
annual payment for each year, divide the Depositor's entire interest in the
custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the designated beneficiary using
the attained age of the designated beneficiary as of the benefici-
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<PAGE> 34
ary's birthday in the year distributions are required to commence and
subtract 1 for each subsequent year.
3. If the Depositor's spouse is the sole beneficiary on the Depositor's date
of death, such spouse will then be treated as the Depositor.
ARTICLE V
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under sections 408(i) and
408A(d)(3)(E), and Regulations section 1.408-5 and 1.408-6, and under
guidance published by the Internal Revenue Service.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through IV and this sentence will be controlling. Any
additional articles that are not consistent with section 408A, the related
regulations, and other published guidance will be invalid.
ARTICLE VII.
This agreement will be amended from time to time to comply with the provisions
of the Code, related regulations, and other published guidance. Other amendments
may be made with the consent of the persons whose signatures appear below.
PART THREE: PROVISIONS
APPLICABLE TO BOTH TRADITIONAL
IRAS AND ROTH IRAS
ARTICLE VIII.
1. As used in this Article VIII the following terms have the following
meanings:
"Account" or "Custodial Account" means the individual retirement account
established using the terms of either Part One or Part Two and, in either
event, Part Three of this State Street Bank and Trust Company Universal
Individual Retirement Account Custodial Agreement and the Retirement
Account Application signed by the Depositor. The Account may be a
Traditional Individual Retirement Account or a Roth Individual Retirement
Account, as specified by the Depositor. See Section 24 below.
"Custodian" means State Street Bank and Trust Company.
"Fund" means any registered investment company which is advised, sponsored
or distributed by Sponsor; provided, however, that such a mutual fund or
registered investment company must be legally offered for sale in the
state of the Depositor's residence.
"Distributor" means the entity which has a contract with the Fund(s) to
serve as distributor of the shares of such Fund(s).
In any case where there is no Distributor, the duties assigned hereunder
to the Distributor may be performed by the Fund(s) or by an entity that
has a contract to perform management or investment advisory services for
the Fund(s).
"Service Company" means any entity employed by the Custodian or the
Distributor, including the transfer agent for the Fund(s), to perform
various administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned
hereunder to the Service Company will be performed by the Distributor (if
any) or by an entity specified in the second preceding paragraph.
"Sponsor" means [insert fund management company or other fund entity
that is making Fund(s) available under
this Agreement and has the power to appoint a successor Custodian.]
2. The Depositor may revoke the Custodial Account established hereunder by
mailing or delivering a written notice of revocation to the Custodian
within
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<PAGE> 35
seven days after the Depositor receives the Disclosure Statement related
to the Custodial Account. Mailed notice is treated as given to the
Custodian on date of the postmark (or on the date of Post Office
certification or registration in the case of notice sent by certified or
registered mail). Upon timely revocation, the Depositor's initial
contribution will be returned, without adjustment for administrative
expenses, commissions or sales charges, fluctuations in market value or
other changes.
The Depositor may certify in the Retirement Account Application that the
Depositor received the Disclosure Statement related to the Custodial
Account at least seven days before the Depositor signed the Retirement
Account Application to establish the Custodial Account, and the Custodian
may rely upon such certification.
3. All contributions to the Custodial Account shall be invested and
reinvested in full and fractional shares of one or more Funds. All such
shares shall be issued and accounted for as book entry shares, and no
physical shares or share certificate will be issued. Such investments
shall be made in such proportions and/or in such amounts as Depositor from
time to time in the Retirement Account Application or by other written
notice to the Service Company (in such form as may be acceptable to the
Service Company) may direct.
The Service Company shall be responsible for promptly transmitting all
investment directions by the Depositor for the purchase or sale of shares
of one or more Funds hereunder to the Funds' transfer agent for execution.
However, if investment directions with respect to the investment of any
contribution hereunder are not received from the Depositor as required or,
if received, are unclear or incomplete in the opinion of the Service
Company, the contribution will be returned to the Depositor, or will be
held uninvested (or invested in a money market fund if available) pending
clarification or completion by the Depositor, in either case without
liability for interest or for loss of income or appreciation. If any other
directions or other orders by the Depositor with respect to the sale or
purchase of shares of one or more Funds for the Custodial Account are
unclear or incomplete in the opinion of the Service Company, the Service
Company will refrain from carrying out such investment directions or from
executing any such sale or purchase, without liability for loss of income
or for appreciation or depreciation of any asset, pending receipt of
clarification or completion from the Depositor.
All investment directions by Depositor will be subject to any minimum
initial or additional investment or minimum balance rules applicable to a
Fund as described in its prospectus.
All dividends and capital gains or other distributions received on the
shares of any Fund held in the Depositor's Account shall be (unless
received in additional shares) reinvested in full and fractional shares of
such Fund (or of any other Fund offered by the Sponsor, if so directed).
4. Subject to the minimum initial or additional investment, minimum balance
and other exchange rules applicable to a Fund, the Depositor may at any
time direct the Service Company to exchange all or a specified portion of
the shares of a Fund in the Depositor's Account for shares and fractional
shares of one or more other Funds. The Depositor shall give such
directions by written or telephonic notice acceptable to the Service
Company, and the Service Company will process such directions as soon as
practicable after receipt thereof (subject to
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<PAGE> 36
the second paragraph of Section 3 of this Article VIII).
5. Any purchase or redemption of shares of a Fund for or from the Depositor's
Account will be effected at the public offering price or net asset value
of such Fund (as described in the then effective prospectus for such Fund)
next established after the Service Company has transmitted the Depositor's
investment directions to the transfer agent for the Fund(s).
Any purchase, exchange, transfer or redemption of shares of a Fund for or
from the Depositor's Account will be subject to any applicable sales,
redemption or other charge as described in the then effective prospectus
for such Fund.
6. The Service Company shall maintain adequate records of all purchases or
sales of shares of one or more Funds for the Depositor's Custodial
Account. Any account maintained in connection herewith shall be in the
name of the Custodian for the benefit of the Depositor. All assets of the
Custodial Account shall be registered in the name of the Custodian or of a
suitable nominee. The books and records of the Custodian shall show that
all such investments are part of the Custodial Account.
The Custodian shall maintain or cause to be maintained adequate records
reflecting transactions of the Custodial Account. In the discretion of the
Custodian, records maintained by the Service Company with respect to the
Account hereunder will be deemed to satisfy the Custodian's recordkeeping
responsibilities therefor. The Service Company agrees to furnish the
Custodian with any information the Custodian requires to carry out the
Custodian's recordkeeping responsibilities.
7. Neither the Custodian nor any other party providing services to the
Custodial Account will have any responsibility for rendering advice with
respect to the investment and reinvestment of Depositor's Custodial
Account, nor shall such parties be liable for any loss or diminution in
value which results from Depositor's exercise of investment control over
his Custodial Account. Depositor shall have and exercise exclusive
responsibility for and control over the investment of the assets of his
Custodial Account, and neither Custodian nor any other such party shall
have any duty to question his directions in that regard or to advise him
regarding the purchase, retention or sale of shares of one or more Funds
for the Custodial Account.
8. The Depositor may in writing appoint an investment adviser with respect to
the Custodial Account on a form acceptable to the Custodian and the
Service Company. The investment adviser's appointment will be in effect
until written notice to the contrary is received by the Custodian and the
Service Company. While an investment adviser's appointment is in effect,
the investment adviser may issue investment directions or may issue orders
for the sale or purchase of shares of one or more Funds to the Service
Company, and the Service Company will be fully protected in carrying out
such investment directions or orders to the same extent as if they had
been given by the Depositor.
The Depositor's appointment of any investment adviser will also be deemed
to be instructions to the Custodian and the Service Company to pay such
investment adviser's fees to the investment adviser from the Custodial
Account hereunder without additional authorization by the Depositor or the
Custodian.
9. (a) Distribution of the assets of the Custodial Account shall be made at
such time and in such form as Depositor (or the Beneficiary if Depositor
is deceased) shall elect by written order to the Custodian. Depositor
acknowledges that any distribution of a
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<PAGE> 37
taxable amount from the Custodial Account (except for distribution on
account of Depositor's disability or death, return of an "excess
contribution" referred to in Code Section 4973, or a "rollover" from this
Custodial Account) made earlier than age 59 1/2 may subject Depositor to an
"additional tax on early distributions" under Code Section 72(t) unless an
exception to such additional tax is applicable. For that purpose, Depositor
will be considered disabled if Depositor can prove, as provided in Code
Section 72(m)(7), that Depositor is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or be of long-continued
and indefinite duration. It is the responsibility of the Depositor (or the
Beneficiary) by appropriate distribution instructions to the Custodian to
insure that any applicable distribution requirements of Code Section
401(a)(9) and Article IV above are met. If the Depositor (or Beneficiary)
does not direct the Custodian to make distributions from the Custodial
Account by the time that such distributions are required to commence in
accordance with such distribution requirements, the Custodian (and Service
Company) shall assume that the Depositor (or Beneficiary) is meeting the
minimum distribution requirements from another individual retirement
arrangement maintained by the Depositor (or Beneficiary) and the Custodian
and Service Company shall be fully protected in so doing. The Depositor (or
the Depositor's surviving spouse) may elect to comply with the distribution
requirements in Article IV using the recalculation of life expectancy
method, or may elect that the life expectancy of the Depositor and/or the
Depositor's surviving spouse, as applicable, will not be recalculated; any
such election may be in such form as the Depositor (or surviving spouse)
provides (including the calculation of minimum distribution amounts in
accordance with a method that does not provide for recalculation of the
life expectancy of one or both of the Depositor and surviving spouse and
instructions for withdrawals to the Custodian in accordance with such
method). Notwithstanding any other provision of Article IV, unless an
election to have life expectancies recalculated annually is made by the
time distributions are required to begin, life expectancies shall not be
recalculated.
(b) The Depositor acknowledges (i) that any withdrawal from the Custodial
Account will be reported by the Custodian in accordance with applicable IRS
requirements (currently, on Form 1099-R), (ii) that the information
reported by the Custodian will be based on the amounts in the Custodial
Account and will not reflect any other individual retirement accounts the
Depositor may own and that, consequently, the tax treatment of the
withdrawal may be different than if the Depositor had no other individual
retirement accounts, and (iii) that, accordingly, it is the responsibility
of the Depositor to maintain appropriate records so that the Depositor (or
other person ordering the distribution) can correctly compute all taxes
due. Neither the Custodian nor any other party providing services to the
Custodial Account assumes any responsibility for the tax treatment of any
distribution from the Custodial Account; such responsibility rests solely
with the person ordering the distribution.
10. The Custodian assumes (and shall have) no responsibility to make any
distribution except upon the written order of Depositor (or Beneficiary if
Depositor is deceased) containing such information as the Custodian may
reasonably request. Also, before making any distribution or honoring any
assignment of the Custodial Account, Custodian shall be furnished with
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<PAGE> 38
any and all applications, certificates, tax waivers, signature guarantees
and other documents (including proof of any legal representative's
authority) deemed necessary or advisable by Custodian, but Custodian shall
not be responsible for complying with any order or instruction which
appears on its face to be genuine, or for refusing to comply if not
satisfied it is genuine, and Custodian has no duty of further inquiry. Any
distributions from the Account may be mailed, first-class postage prepaid,
to the last known address of the person who is to receive such
distribution, as shown on the Custodian's records, and such distribution
shall to the extent thereof completely discharge the Custodian's liability
for such payment.
11. (a) The term "Beneficiary" means the person or persons designated as such
by the "designating person" (as defined below) on a form acceptable to the
Custodian for use in connection with the Custodial Account, signed by the
designating person, and filed with the Custodian. The form may name
individuals, trusts, estates, or other entities as either primary or
contingent beneficiaries. However, if the designation does not effectively
dispose of the entire Custodial Account as of the time distribution is to
commence, the term "Beneficiary" shall then mean the designating person's
estate with respect to the assets of the Custodial Account not disposed of
by the designation form. The form last accepted by the Custodian before
such distribution is to commence, provided it was received by the Custodian
(or deposited in the U.S. Mail or with a reputable delivery service) during
the designating person's lifetime, shall be controlling and, whether or not
fully dispositive of the Custodial Account, thereupon shall revoke all such
forms previously filed by that person. The term "designating person" means
Depositor during his/her lifetime; after Depositor's death, it also means
Depositor's spouse, but only if the spouse elects to treat the Custodial
Account as the spouse's own Custodial Account in accordance with applicable
provisions of the Code.
(b) When and after distributions from the Custodial Account to Depositor's
Beneficiary commence, all rights and obligations assigned to Depositor
hereunder shall inure to, and be enjoyed and exercised by, Beneficiary
instead of Depositor.
(c) Notwithstanding Section 3 of Article IV of Part Two above, if the
Depositor's spouse is the sole Beneficiary on the Depositor's date of
death, the spouse will not be treated as the Depositor if the spouse elects
not to be so treated. In such event, the Custodial Account will be
distributed in accordance with the other provisions of such Article IV,
except that distributions to the Depositor's spouse are not required to
commence until December 31 of the year in which the Depositor would have
turned age 70 1/2.
12. (a) The Depositor agrees to provide information to the Custodian at such
time and in such manner as may be necessary for the Custodian to prepare
any reports required under Section 408(i) or Section 408A(d)(3)(E) of the
Code and the regulations thereunder or otherwise.
(b) The Custodian or the Service Company will submit reports to the Internal
Revenue Service and the Depositor at such time and manner and containing
such information as is prescribed by the Internal Revenue Service.
(c) The Depositor, Custodian and Service Company shall furnish to each other
such information relevant to the Custodial Account as may be required under
the Code and any regulations issued or forms adopted by the Treasury
Department thereunder or as may otherwise be necessary for the
administration of the Custodial Account.
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<PAGE> 39
(d) The Depositor shall file any reports to the Internal Revenue Service which
are required of him by law (including Form 5329), and neither the Custodian
nor Service Company shall have any duty to advise Depositor concerning or
monitor Depositor's compliance with such requirement.
13. (a) Depositor retains the right to amend this Custodial Account document in
any respect at any time, effective on a stated date which shall be at least
60 days after giving written notice of the amendment (including its exact
terms) to Custodian by registered or certified mail, unless Custodian
waives notice as to such amendment. If the Custodian does not wish to
continue serving as such under this Custodial Account document as so
amended, it may resign in accordance with Section 17 below.
(b) Depositor delegates to the Custodian the Depositor's right so to amend,
provided (i) the Custodian does not change the investments available under
this Custodial Agreement and (ii) the Custodian amends in the same manner
all agreements comparable to this one, having the same Custodian,
permitting comparable investments, and under which such power has been
delegated to it; this includes the power to amend retroactively if
necessary or appropriate in the opinion of the Custodian in order to
conform this Custodial Account to pertinent provisions of the Code and
other laws or successor provisions of law, or to obtain a governmental
ruling that such requirements are met, to adopt a prototype or master form
of agreement in substitution for this Agreement, or as otherwise may be
advisable in the opinion of the Custodian. Such an amendment by the
Custodian shall be communicated in writing to Depositor, and Depositor
shall be deemed to have consented thereto unless, within 30 days after such
communication to Depositor is mailed, Depositor either (i) gives Custodian
a written order for a complete distribution or transfer of the Custodial
Account, or (ii) removes the Custodian and appoints a successor under
Section 17 below.
Pending the adoption of any amendment necessary or desirable to conform
this Custodial Account document to the requirements of any amendment to any
applicable provision of the Internal Revenue Code or regulations or rulings
thereunder, the Custodian and the Service Company may operate the
Depositor's Custodial Account in accordance with such requirements to the
extent that the Custodian and/or the Service Company deem necessary to
preserve the tax benefits of the Account.
(c) Notwithstanding the provisions of subsections (a) and (b) above, no
amendment shall increase the responsibilities or duties of Custodian
without its prior written consent.
(d) This Section 13 shall not be construed to restrict the Custodian's right to
substitute fee schedules in the manner provided by Section 16 below, and no
such substitution shall be deemed to be an amendment of this Agreement.
14. (a) Custodian shall terminate the Custodial Account if this Agreement is
terminated or if, within 30 days (or such longer time as Custodian may
agree) after resignation or removal of Custodian under Section 17,
Depositor or Sponsor, as the case may be, has not appointed a successor
which has accepted such appointment. Termination of the Custodial Account
shall be effected by distributing all assets thereof in a single payment in
cash or in kind to Depositor, subject to Custodian's right to reserve funds
as provided in Section 17.
(b) Upon termination of the Custodial Account, this custodial account document
shall have no further force and effect (except for Sections 15(f), 17(b)
and (c) hereof which shall survive the termination of the Custodial Account
and this document), and
37
<PAGE> 40
Custodian shall be relieved from all further liability hereunder or with
respect to the Custodial Account and all assets thereof so distributed.
15. (a) In its discretion, the Custodian may appoint one or more contractors or
service providers to carry out any of its functions and may compensate them
from the Custodial Account for expenses attendant to those functions. In
the event of such appointment, all rights and privileges of the Custodian
under this Agreement shall pass through to such contractors or service
providers who shall be entitled to enforce them as if a named party.
(b) The Service Company shall be responsible for receiving all instructions,
notices, forms and remittances from Depositor and for dealing with or
forwarding the same to the transfer agent for the Fund(s).
(c) The parties do not intend to confer any fiduciary duties on Custodian or
Service Company (or any other party providing services to the Custodial
Account), and none shall be implied. Neither shall be liable (or assumes
any responsibility) for the collection of contributions, the proper amount,
time or tax treatment of any contribution to the Custodial Account or the
propriety of any contributions under this Agreement, or the purpose, time,
amount (including any minimum distribution amounts), tax treatment or
propriety of any distribution hereunder, which matters are the sole
responsibility of Depositor and Depositor's Beneficiary.
(d) Not later than 60 days after the close of each calendar year (or after the
Custodian's resignation or removal), the Custodian or Service Company shall
file with Depositor a written report or reports reflecting the transactions
effected by it during such period and the assets of the Custodial Account
at its close. Upon the expiration of 60 days after such a report is sent to
Depositor (or Beneficiary), the Custodian or Service Company shall be
forever released and discharged from all liability and accountability to
anyone with respect to transactions shown in or reflected by such report
except with respect to any such acts or transactions as to which Depositor
shall have filed written objections with the Custodian or Service Company
within such 60 day period.
(e) The Service Company shall deliver, or cause to be delivered, to Depositor
all notices, prospectuses, financial statements and other reports to
shareholders, proxies and proxy soliciting materials relating to the shares
of the Funds(s) credited to the Custodial Account. No shares shall be
voted, and no other action shall be taken pursuant to such documents,
except upon receipt of adequate written instructions from Depositor.
(f) Depositor shall always fully indemnify Service Company, Distributor, the
Fund(s), Sponsor and Custodian and save them harmless from any and all
liability whatsoever which may arise either (i) in connection with this
Agreement and the matters which it contemplates, except that which arises
directly out of the Service Company's, Distributor's, Fund's, Sponsor's or
Custodian's bad faith, gross negligence or willful misconduct, (ii) with
respect to making or failing to make any distribution, other than for
failure to make distribution in accordance with an order therefor which is
in full compliance with Section 10, or (iii) actions taken or omitted in
good faith by such parties. Neither Service Company nor Custodian shall be
obligated or expected to commence or defend any legal action or proceeding
in connection with this Agreement or such matters unless agreed upon by
that party and Depositor, and unless fully indemnified for so doing to that
party's satisfaction.
(g) The Custodian and Service Company shall each be responsible solely for
performance of those duties expressly assigned to it in this Agreement, and
38
<PAGE> 41
neither assumes any responsibility as to duties assigned to anyone else
hereunder or by operation of law.
(h) The Custodian and Service Company may each conclusively rely upon and shall
be protected in acting upon any written order from Depositor or
Beneficiary, or any investment adviser appointed under Section 8, or any
other notice, request, consent, certificate or other instrument or paper
believed by it to be genuine and to have been properly executed, and so
long as it acts in good faith, in taking or omitting to take any other
action in reliance thereon. In addition, Custodian will carry out the
requirements of any apparently valid court order relating to the Custodial
Account and will incur no liability or responsibility for so doing.
16. (a) The Custodian, in consideration of its services under this Agreement,
shall receive the fees specified on the applicable fee schedule. The fee
schedule originally applicable shall be the one specified in the Adoption
Agreement or Disclosure Statement, as applicable. The Custodian may
substitute a different fee schedule at any time upon 30 days' written
notice to Depositor. The Custodian shall also receive reasonable fees for
any services not contemplated by any applicable fee schedule and either
deemed by it to be necessary or desirable or requested by Depositor.
(b) Any income, gift, estate and inheritance taxes and other taxes of any kind
whatsoever, including transfer taxes incurred in connection with the
investment or reinvestment of the assets of the Custodial Account, that may
be levied or assessed in respect to such assets, and all other
administrative expenses incurred by the Custodian in the performance of its
duties (including fees for legal services rendered to it in connection with
the Custodial Account) shall be charged to the Custodial Account. If the
Custodian is required to pay any such amount, the Depositor (or
Beneficiary) shall promptly upon notice thereof reimburse the Custodian.
(c) All such fees and taxes and other administrative expenses charged to the
Custodial Account shall be collected either from the amount of any
contribution or distribution to or from the Account, or (at the option of
the person entitled to collect such amounts) to the extent possible under
the circumstances by the conversion into cash of sufficient shares of one
or more Funds held in the Custodial Account (without liability for any loss
incurred thereby). Notwithstanding the foregoing, the Custodian or Service
Company may make demand upon the Depositor for payment of the amount of
such fees, taxes and other administrative expenses. Fees which remain
outstanding after 60 days may be subject to a collection charge.
17. (a) Upon 30 days' prior written notice to the Custodian, Depositor or
Sponsor, as the case may be, may remove it from its office hereunder. Such
notice, to be effective, shall designate a successor custodian and shall be
accompanied by the successor's written acceptance. The Custodian also may
at any time resign upon 30 days' prior written notice to Sponsor, whereupon
the Sponsor shall notify the Depositor (or Beneficiary) and shall appoint a
successor to the Custodian. In connection with its resignation hereunder,
the Custodian may, but is not required to, designate a successor custodian
by written notice to the Sponsor or Depositor (or Beneficiary), and the
Sponsor or Depositor (or Beneficiary) will be deemed to have consented to
such successor unless the Sponsor or Depositor (or Beneficiary) designates
a different successor custodian and provides written notice thereof
together with such a different successor's written acceptance by such date
as the Custodian specifies in its original notice to the Sponsor or
Depositor (or Beneficiary) (provided
39
<PAGE> 42
that the Sponsor or Depositor (or Beneficiary) will have a minimum of 30
days to designate a different successor).
(b) The successor custodian shall be a bank, insured credit union, or other
person satisfactory to the Secretary of the Treasury under Code Section
408(a)(2). Upon receipt by Custodian of written acceptance by its
successor of such successor's appointment, Custodian shall transfer and
pay over to such successor the assets of the Custodial Account and all
records (or copies thereof) of Custodian pertaining thereto, provided that
the successor custodian agrees not to dispose of any such records without
the Custodian's consent. Custodian is authorized, however, to reserve such
sum of money or property as it may deem advisable for payment of all its
fees, compensation, costs, and expenses, or for payment of any other
liabilities constituting a charge on or against the assets of the
Custodial Account or on or against the Custodian, with any balance of such
reserve remaining after the payment of all such items to be paid over to
the successor custodian.
(c) Any Custodian shall not be liable for the acts or omissions of its
predecessor or its successor.
18. References herein to the "Internal Revenue Code" or "Code" and sections
thereof shall mean the same as amended from time to time, including
successors to such sections.
19. Except where otherwise specifically required in this Agreement, any notice
from Custodian to any person provided for in this Agreement shall be
effective if sent by first-class mail to such person at that person's last
address on the Custodian's records.
20. Depositor or Depositor's Beneficiary shall not have the right or power to
anticipate any part of the Custodial Account or to sell, assign, transfer,
pledge or hypothecate any part thereof. The Custodial Account shall not be
liable for the debts of Depositor or Depositor's Beneficiary or subject to
any seizure, attachment, execution or other legal process in respect
thereof except to the extent required by law. At no time shall it be
possible for any part of the assets of the Custodial Account to be used
for or diverted to purposes other than for the exclusive benefit of the
Depositor or his/her Beneficiary except to the extent required by law.
21. When accepted by the Custodian, this Agreement is accepted in and shall be
construed and administered in accordance with the laws of the state where
the principal offices of the Custodian are located. Any action involving
the Custodian brought by any other party must be brought in a state or
federal court in such state.
If in the Retirement Account Application, Depositor designates that the
Custodial Account is a Traditional IRA, this Agreement is intended to
qualify under Code Section 408(a) as an individual retirement Custodial
Account and to entitle Depositor to the retirement savings deduction under
Code Section 219 if available. If in the Retirement Account Application
Depositor designates that the Custodial Account is a Roth IRA, this
Agreement is intended to qualify under Code Section 408A as a Roth
individual retirement Custodial Account and to entitle Depositor to the
tax-free withdrawal of amounts from the Custodial Account to the extent
permitted in such Code section.
If any provision hereof is subject to more than one interpretation or any
term used herein is subject to more than one construction, such ambiguity
shall be resolved in favor of that interpretation or construction which is
consistent with the intent expressed in whichever of the two preceding
sentences is applicable.
40
<PAGE> 43
However, the Custodian shall not be responsible for whether or not such
intentions are achieved through use of this Agreement, and Depositor is
referred to Depositor's attorney for any such assurances.
22. Depositor should seek advice from Depositor's attorney regarding the legal
consequences (including but not limited to federal and state tax matters)
of entering into this Agreement, contributing to the Custodial Account,
and ordering Custodian to make distributions from the Account. Depositor
acknowledges that Custodian and Service Company (and any company
associated therewith) are prohibited by law from rendering such advice.
23. If any provision of any document governing the Custodial Account provides
for notice, instructions or other communications from one party to another
in writing, to the extent provided for in the procedures of the Custodian,
Service Company or another party, any such notice, instructions or other
communications may be given by telephonic, computer, other electronic or
other means, and the requirement for written notice will be deemed
satisfied.
24. The legal documents governing the Custodial Account are as follows:
(a) If in the Retirement Account Application the Depositor designated the
Custodial Account as a Traditional IRA under Code Section 408(a), the
provisions of Part One and Part Three of this Agreement and the provisions
of the Retirement Account Application are the legal documents governing
the Depositor's Custodial Account.
(b) If in the Retirement Account Application the Depositor designated the
Custodial Account as a Roth IRA under Code Section 408A, the provisions of
Part Two and Part Three of this Agreement and the provisions of the
Retirement Account Application are the legal documents governing the
Depositor's Custodial Account.
(c) In the Retirement Account Application the Depositor must designate the
Custodian Account as either a Roth IRA or a Traditional IRA, and a
separate account will be established for such IRA. One Custodial Account
may not serve as a Roth IRA and a Traditional IRA (through the use of
subaccounts or otherwise).
(d) The Depositor acknowledges that the Service Company may require the
establishment of different Roth IRA accounts to hold annual contributions
under Code Section 408A(c)(2) and to hold conversion amounts under Code
Section 408A(c)(3)(B). The Service Company may also require the
establishment of different Roth IRA accounts to hold amounts converted in
different calendar years. If the Service Company does not require such
separate account treatment, the Depositor may make annual contributions
and conversion contributions to the same account.
25. Articles I through VII of Part One of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-A. It is
anticipated that, if and when the Internal Revenue Service promulgates
changes to Form 5305-A, the Custodian will amend this Agreement
correspondingly.
Articles I through VII of Part Two of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-RA. It is
anticipated that, if and when the Internal Revenue Service promulgates
changes to Form 5305-RA, the Custodian will amend this Agreement
correspondingly.
The Internal Revenue Service has endorsed the use of documentation
permitting a Depositor to establish either a Traditional IRA or Roth IRA
(but not both using a single Retirement Account Application), and this Kit
complies with the requirements of the IRS guidance for such use. If the
41
<PAGE> 44
Internal Revenue Service subsequently determines that such an approach is
not permissible, or that the use of a "combined" Adoption Agreement does
not establish a valid Traditional IRA or a Roth IRA (as the case may be),
the Custodian will furnish the Depositor with replacement documents and
the Depositor will if necessary sign such replacement documents. Depositor
acknowledge and agrees to such procedures and to cooperate with Custodian
to preserve the intended tax treatment of the Account.
26. If the Depositor maintains an Individual Retirement Account under Code
section 408(a), Depositor may convert or transfer such other IRA to a Roth
IRA under Code section 408A using the terms of this Agreement and the
Retirement Account Application by completing and executing the Retirement
Account Application and giving suitable directions to the Custodian and
the custodian or trustee of such other IRA. Alternatively, the Depositor
may convert or transfer such other IRA to a Roth IRA by use of a reply
card or by telephonic, computer or electronic means in accordance with
procedures adopted by the Custodian or Service Company intended to meet
the requirements of Code section 408A, and the Depositor will be deemed to
have executed the Retirement Account Application and adopted the
provisions of this Agreement and the Retirement Account Application in
accordance with such procedures.
In accordance with the requirements of Code Section 408A(d)(6) and
regulations thereunder, the Depositor may recharacterize a contribution to
a Traditional IRA as a contribution to a Roth IRA, or may recharacterize a
contribution to a Roth IRA as a contribution to a Traditional IRA. The
Depositor agrees to observe any limitations imposed by the Service Company
on the number of such transactions in any year (or any such limitations or
other restrictions that may be imposed by the Service Company or the IRS).
27. The Depositor acknowledges that he or she has received and read the
current prospectus for each Fund in which his or her Account is invested
and the Individual Retirement Account Disclosure Statement related to the
Account. The Depositor represents under penalties of perjury that his or
her Social Security number (or other Taxpayer Identification Number) as
stated in the Retirement Account Application is correct.
42
<PAGE> 45
Longleaf Partners Funds
c/o NFDS
P.O. Box 419929
Kansas City, MO 64141-6929
Fund Information Requests
(800) 445-9469
Shareholder Account Inquiries
(800) 488-4191
<PAGE> 46
(LOGO) LONGLEAF PARTNERS FUNDS
Complete this form and return to:
NFDS Attn: Longleaf Partners Funds, P.O. Box 419929, Kansas City, MO 64141-6929.
(800) 488-4191.
IRA TRANSFER & CONVERSION FORM
1. CURRENT TRUSTEE
- ------------------------------------------------------
Name of Present Trustee/Trustee Telephone No.
- ------------------------------------------------------
Account Number Mutual Fund (if applicable)
- ------------------------------------------------------
Street or P.O. Box
- ------------------------------------------------------
City, State, Zip Code
2. AMOUNT
- --- I have established a new IRA account with Longleaf Partners Funds.
- --- I have an existing IRA account with Longleaf Partners Funds.
Please include your existing fund and account #
---------------------------------------------------
Please transfer the assets (cash only) indicated below to NFDS as successor
trustee.
-------------- All Assets
-------------- A portion of assets totaling $ _______ only
3. INITIATE TRANSFER
Please transfer the amount indicated above:
-------------- At maturity date of / /
-------------- Immediately (I am aware of any penalties)
4. WITHHOLDING (for Roth Conversions only)
I_____ DO NOT want withholding taken from my conversion.
I_____ DO want withholding taken from my conversion.
Please withhold ____% or $ _________ from my conversion.
(Unless otherwise indicated tax will be withheld at a rate of 10%)
5. ACCOUNT TYPE (Check One)
The amounts transferred will be a:
MINIMUM PER FUND
- --- Transfer from a Regular IRA $10,000
- --- Rollover from Qualified Employer Plan 10,000
- --- Convert a Regular IRA to a Roth IRA 10,000
- --- Transfer from a Roth Conversion IRA 10,000
Year of Initial Conversion.
------------------
- --- Transfer from Roth Contribution IRA 10,000
Year of Initial Contribution.
------------------
- --- SEP IRA 10,000
6. FUNDS (See minimums in Section 5)
<TABLE>
<S> <C> <C>
INTERNATIONAL FUND...... $ %
------------------ --------------
PARTNERS FUND........... $ %
------------------ --------------
REALTY FUND............. $ %
------------------ --------------
SMALL-CAP FUND.......... $ %
------------------ --------------
(Closed to New Investors)
</TABLE>
7. ACCOUNT OWNER
( )
- ------------------------------------------------------
Owner's Name Daytime Phone No.
- ------------------------------------------------------
Street or P.O. Box
- ------------------------------------------------------
City, State, Zip Code
8. SIGNATURE
I certify that I have established an IRA Account with Longleaf Partners Funds
meeting the requirements of the Internal Revenue Code and certify that the IRA
assets being transferred meet those same requirements.
- ------------------------------------------------------
Investor's Signature Date
9. SIGNATURE GUARANTEE (if required by current trustee)
GUARANTOR'S STAMP
- ------------------------------
Name of Institution
- ------------------------------------------------------
Signature of Authorized Officer Date
- ------------------------------------------------------
TO: THE ABOVE NAMED TRUSTEE/TRUSTEE:
(TO BE COMPLETED BY NFDS)
State Street Bank accepts its appointment as trustee for the above account.
Please forward a check, as directed above, payable to:
State Street Bank, FBO
Reference No. _________ (please include this number on your check)
- ------------------------------------------------------
Authorized Signature Date
Please mail to: NFDS
PO Box 419929
Kansas City, MO 64141-6929
<PAGE> 47
(LOGO) LONGLEAF PARTNERS FUNDS
Send completed application along with your check payable to Longleaf Partners
Funds, or transfer instructions to:
NFDS, Attn: Longleaf Partners Funds, P.O. Box 419929, Kansas City, MO
64141-6929. (800) 488-4191.
RETIREMENT ACCOUNT APPLICATION
1. APPLICANT
- ------------------------------------------------------
Owner's Name (First, Initial, Last)
- ------------------------------------------------------
Social Security Number Date of Birth (mo/day/yr)
2. MAILING ADDRESS
- ------------------------------------------------------
Street or P. O. Box
- ------------------------------------------------------
City, State, Zip Code
( )
- ------------------------------------------------------
Day Time Telephone No.
3. ACCOUNT TYPE (CHECK ONE)
MINIMUM PER FUND
- --- Transfer from a Regular IRA $10,000
- --- Rollover from Qualified Employer Plan 10,000
- --- Convert Regular IRA to Roth IRA 10,000
- --- Transfer from a Roth Conversion IRA 10,000
Year of Initial Conversion.
---------------------
- --- Transfer from a Roth Contribution IRA 10,000
Year of Initial Contribution.
------------------
- --- SEP IRA 10,000
4. FUND: (Above minimums are for EACH Fund)
<TABLE>
<S> <C> <C>
INTERNATIONAL FUND......... $ %
------------------ ----------
PARTNERS FUND.............. $ %
------------------ ----------
REALTY FUND................ $ %
------------------ ----------
SMALL-CAP FUND............. $ %
------------------ ----------
(Closed to New Investors)
TOTAL FEES ($25 per acct).. $
------------------
TOTAL INVESTMENT........... $ 100%
------------------ ----------
</TABLE>
5. EXISTING LONGLEAF PARTNERS IRA ACCOUNT
Please provide us with your existing account information. An existing account in
one of Closed Funds is required to open a new account in the same Fund.
<TABLE>
<S> <C>
- --- INTERNATIONAL FUND (136) Acct# __________________
- --- PARTNERS FUND (133) Acct# __________________
- --- REALTY FUND (135) Acct# __________________
- --- SMALL-CAP FUND (134) Acct# __________________
</TABLE>
6. BENEFICIARIES
I designate the individual(s) named below as the beneficiaries of this IRA. I
understand that I may change or add beneficiaries at any time by written notice.
If I am not survived by any beneficiary, my beneficiary shall be my estate.
PRIMARY BENEFICIARY (1)
- ------------------------------------------------------
Name
- ------------------------------------------------------
Social Security No. Date of Birth
- ------------------------------------------------------
Relationship % of assets
PRIMARY BENEFICIARY (2)
- ------------------------------------------------------
Name
- ------------------------------------------------------
Social Security No. Date of Birth
- ------------------------------------------------------
Relationship % of assets
SECONDARY BENEFICIARY (1)
- ------------------------------------------------------
Name
- ------------------------------------------------------
Social Security No. Date of Birth
- ------------------------------------------------------
Relationship % of assets
SECONDARY BENEFICIARY (2)
- ------------------------------------------------------
Name
- ------------------------------------------------------
Social Security No. Date of Birth
- ------------------------------------------------------
Relationship % of assets
<PAGE> 48
7. INSTRUCTIONS
<TABLE>
<S> <C>
I. Designate the amounts to be invested in each
Fund.
II. The investment minimum of $10,000 per fund
account must be satisfied by transferring or
converting assets from another IRA.
III. There is a one-time $15 set-up fee and a $10
annual maintenance fee per fund account. These
fees are paid automatically by redeeming shares
from your account unless you add these fees to
your check or include a separate check made
payable to NFDS.
IV. Please send this application and the transfer
form or a check to the address on the front of
this form.
</TABLE>
8. DUPLICATE SHAREHOLDER STATEMENTS
Complete only if you would like the person named below to receive copies of your
account statements.
- ------------------------------------------------------
Name (First, Initial, Last)
- ------------------------------------------------------
Company Name
- ------------------------------------------------------
Street or P.O. Box Number
- ------------------------------------------------------
City, State, Zip Code
9. TELEPHONE EXCHANGE ($100,000 Maximum)
Exchanges can be made only between Longleaf accounts that have the same
registration. You may decline this option by checking the box below.
- --- I do NOT want telephone exchange privileges.
10. SIGNATURE
BY SIGNING BELOW I:
(1) establish an Individual Retirement Account pursuant to the Internal Revenue
Code of 1986, as amended, and in accordance with all the terms of the Trust
Agreement on Form 5305 or 5305-R; (2) certify that all contributions to the IRA
meet the requirements of the code governing such contributions; (3) appoint
State Street Bank and Trust, or its successor as trustee on the account; (4)
agree that I have received, read, accept, and specifically incorporate herein
the Trust Agreement on Form 5305 or 5305-R and the IRA Disclosure Statement; (5)
agree to promptly give instructions to the trustee necessary to enable the
trustee to carry out its duties under the Trust Agreement; and (6) agree that I
have received and read the prospectus for the investment(s) selected and
understand its terms, as amended from time to time, are incorporated in this
application by reference and that this account will be subject to the Trust
Agreement as amended from time to time.
I acknowledge that any amount converted from a Regular IRA to a Roth IRA will be
treated as taxable income for federal income tax purposes. If a rollover from a
Roth IRA, I certify that information given is correct.
I understand that the annual maintenance fee and account set-up fee may be
deducted from my account if not prepaid and that the trustee may change the fee
from time to time.
I authorize the Fund to act upon instructions believed to be genuine and in
accordance with the procedures described in the prospectus for this account and
any account into which exchanges are made. I agree that neither the Funds, the
transfer agent, nor State Street Bank and Trust will be liable for any loss,
cost, or expense for acting on instructions, provided such entities employ
reasonable procedures to confirm that such instructions are genuine.
I CERTIFY THAT THE TAXPAYER IDENTIFICATION NUMBER SHOWN ON THIS APPLICATION IS
CORRECT.
- ------------------------------------------------------
Signature of Applicant Date
PROSPECT I.D. NUMBER (For Internal Use Only)
<PAGE> 1
Exhibit 23(i)
LONGLEAF PARTNERS FUNDS TRUST
c/o Southeastern Asset Management, Inc.
6410 Poplar Avenue; Suite 900
Memphis, TN 38119
February 26, 1999
Securities and Exchange Commission
Boards of Trustees
Longleaf Partners Funds Trust (the master trust)
Longleaf Partners Fund (First Series)
Longleaf Partners Small-Cap Fund (Second Series)
Longleaf Partners Realty Fund (Third Series)
Longleaf Partners International Fund (Fourth Series)
Gentlemen:
This letter is written with respect to Post-Effective Amendment No. 21 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"), as filed with the Securities and Exchange Commission registering
under the Securities Act of 1933 an indefinite number of shares of beneficial
interest of each Series having no par value (the "Shares") of Longleaf Partners
Fund, Longleaf Partners Small-Cap Fund, Longleaf Partners Realty Fund and
Longleaf Partners International Fund, each a separate Series of the Trust.
As General Counsel of the Trust and each of its 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. 21 to the Registration Statement and the reference to
my name as General Counsel in Part B of the Registration Statement under the
heading "Other Service Providers; Legal Counsel".
Very truly yours,
/s/ Charles D. Reaves
- -------------------------
Charles D. Reaves
General Counsel
Longleaf Partners Funds Trust
and each of its Series
<PAGE> 1
EXHIBIT 23(j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 21 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 5, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Report to Shareholders of Longleaf Partners Funds (consisting of the Longleaf
Partners Fund, Longleaf Partners International Fund, Longleaf Partners Realty
Fund, and Longleaf Partners Small-Cap Fund), which is incorporated by reference
into the Registration Statement. We also consent to the references to us under
the heading "Financial Highlights" in the Prospectus and under the heading
"Independent Accountants" in the Statement of Additional Information.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> PARTNERS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,146,005,062
<INVESTMENTS-AT-VALUE> 3,685,387,770
<RECEIVABLES> 22,182,290
<ASSETS-OTHER> 160,928
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,707,730,988
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,431,065
<TOTAL-LIABILITIES> 22,431,065
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,110,650,576
<SHARES-COMMON-STOCK> 151,097,394
<SHARES-COMMON-PRIOR> 100,282,071
<ACCUMULATED-NII-CURRENT> 872,615
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 47,063,178
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 526,713,554
<NET-ASSETS> 3,685,299,923
<DIVIDEND-INCOME> 54,812,475
<INTEREST-INCOME> 14,673,389
<OTHER-INCOME> 0
<EXPENSES-NET> 31,576,358
<NET-INVESTMENT-INCOME> 37,909,506
<REALIZED-GAINS-CURRENT> 638,290,424
<APPREC-INCREASE-CURRENT> (248,007,321)
<NET-CHANGE-FROM-OPS> 428,192,609
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 36,966,961
<DISTRIBUTIONS-OF-GAINS> 586,542,694
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 33,032,388
<NUMBER-OF-SHARES-REDEEMED> 19,542,488
<SHARES-REINVESTED> 37,325,423
<NET-CHANGE-IN-ASSETS> 1,080,229,748
<ACCUMULATED-NII-PRIOR> 89,373
<ACCUMULATED-GAINS-PRIOR> (4,843,855)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26,393,753
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31,576,358
<AVERAGE-NET-ASSETS> 3,385,833,272
<PER-SHARE-NAV-BEGIN> 25.980
<PER-SHARE-NII> 0.310
<PER-SHARE-GAIN-APPREC> 3.160
<PER-SHARE-DIVIDEND> 0.250
<PER-SHARE-DISTRIBUTIONS> 4.810
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 24.390
<EXPENSE-RATIO> 0.930
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> AUG-12-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 77,304,891
<INVESTMENTS-AT-VALUE> 79,942,325
<RECEIVABLES> 561,946
<ASSETS-OTHER> 26,830
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,531,101
<PAYABLE-FOR-SECURITIES> 1,950,956
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,007,615
<TOTAL-LIABILITIES> 4,958,571
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74,687,080
<SHARES-COMMON-STOCK> 7,583,796
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 244
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,099,320
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (214,114)
<NET-ASSETS> 75,572,530
<DIVIDEND-INCOME> 153,336
<INTEREST-INCOME> 131,976
<OTHER-INCOME> 0
<EXPENSES-NET> 247,667
<NET-INVESTMENT-INCOME> 37,645
<REALIZED-GAINS-CURRENT> 1,099,639
<APPREC-INCREASE-CURRENT> (214,114)
<NET-CHANGE-FROM-OPS> 923,170
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 37,720
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,632,832
<NUMBER-OF-SHARES-REDEEMED> 52,282
<SHARES-REINVESTED> 3,246
<NET-CHANGE-IN-ASSETS> 75,472,530
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 212,286
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 247,667
<AVERAGE-NET-ASSETS> 36,635,649
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.010
<PER-SHARE-GAIN-APPREC> (0.030)
<PER-SHARE-DIVIDEND> 0.010
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.970
<EXPENSE-RATIO> 1.750
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> REALTY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 805,231,288
<INVESTMENTS-AT-VALUE> 768,485,251
<RECEIVABLES> 10,238,991
<ASSETS-OTHER> 44,374
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 778,768,616
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,073,012
<TOTAL-LIABILITIES> 3,073,012
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 823,098,728
<SHARES-COMMON-STOCK> 53,308,405
<SHARES-COMMON-PRIOR> 42,498,080
<ACCUMULATED-NII-CURRENT> 627,922
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (17,904,507)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (30,126,539)
<NET-ASSETS> 775,695,604
<DIVIDEND-INCOME> 35,023,850
<INTEREST-INCOME> 2,657,736
<OTHER-INCOME> 0
<EXPENSES-NET> 9,576,940
<NET-INVESTMENT-INCOME> 28,104,646
<REALIZED-GAINS-CURRENT> (18,026,890)
<APPREC-INCREASE-CURRENT> (133,803,550)
<NET-CHANGE-FROM-OPS> (123,725,794)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 22,154,503
<DISTRIBUTIONS-OF-GAINS> 18,724
<DISTRIBUTIONS-OTHER> 5,557,418
<NUMBER-OF-SHARES-SOLD> 32,103,302
<NUMBER-OF-SHARES-REDEEMED> 24,869,928
<SHARES-REINVESTED> 3,576,951
<NET-CHANGE-IN-ASSETS> 38,393,400
<ACCUMULATED-NII-PRIOR> 24,232
<ACCUMULATED-GAINS-PRIOR> 46,795
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,173,553
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,576,940
<AVERAGE-NET-ASSETS> 817,355,288
<PER-SHARE-NAV-BEGIN> 17.350
<PER-SHARE-NII> 0.560
<PER-SHARE-GAIN-APPREC> (2.820)
<PER-SHARE-DIVIDEND> 0.430
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.110
<PER-SHARE-NAV-END> 14.550
<EXPENSE-RATIO> 1.170
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> SMALL-CAP FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,214,235,461
<INVESTMENTS-AT-VALUE> 1,358,918,114
<RECEIVABLES> 7,543,383
<ASSETS-OTHER> 55,048
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,366,516,545
<PAYABLE-FOR-SECURITIES> 722,241
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,430,685
<TOTAL-LIABILITIES> 11,152,926
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,215,486,666
<SHARES-COMMON-STOCK> 61,740,958
<SHARES-COMMON-PRIOR> 41,242,786
<ACCUMULATED-NII-CURRENT> 43,744
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,023,536
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 136,809,673
<NET-ASSETS> 1,355,363,619
<DIVIDEND-INCOME> 11,298,750
<INTEREST-INCOME> 10,807,724
<OTHER-INCOME> 0
<EXPENSES-NET> 11,887,321
<NET-INVESTMENT-INCOME> 10,219,153
<REALIZED-GAINS-CURRENT> 150,103,088
<APPREC-INCREASE-CURRENT> (28,601,652)
<NET-CHANGE-FROM-OPS> 131,720,589
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,041,928
<DISTRIBUTIONS-OF-GAINS> 145,213,540
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,333,088
<NUMBER-OF-SHARES-REDEEMED> 12,181,491
<SHARES-REINVESTED> 8,326,574
<NET-CHANGE-IN-ASSETS> 440,104,484
<ACCUMULATED-NII-PRIOR> 22,599
<ACCUMULATED-GAINS-PRIOR> (2,022,091)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,831,536
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11,887,321
<AVERAGE-NET-ASSETS> 1,177,538,107
<PER-SHARE-NAV-BEGIN> 22.180
<PER-SHARE-NII> 0.200
<PER-SHARE-GAIN-APPREC> 2.510
<PER-SHARE-DIVIDEND> 0.170
<PER-SHARE-DISTRIBUTIONS> 2.770
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 21.950
<EXPENSE-RATIO> 1.010
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
