<PAGE> 1
As filed with the Securities and Exchange Commission on April 28, 2000
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. 22 (X)
----- -----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 22 (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 2, 2000
-----------------------------
It is proposed that this filing will become effective (check appropriate box)
[X] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] 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, 1999, was filed with the Securities & Exchange
Commission on February 18, 2000, together with a registration fee for net sales
for the period.
<PAGE> 2
Post-Effective Amendment No. 22
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 1999 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. 22
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
This Prospectus does not constitute an offering in any jurisdiction in which
such 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
visiting our website or calling (800) 445-9469 (option 2).
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 visit
our website or call (800) 445-9469 (option 2).
The Securities and Exchange Commission maintains an Internet website that
contains the Funds' periodic financial reports to shareholders, amendments to
its registration statement which include the Prospectus and Statement of
Additional Information, and other required filings. An investor may review
these materials free of charge by accessing the SEC's website at
http://www.sec.gov.
The Securities and Exchange Commission Investment Company Act File Number for
the Longleaf Partners Funds is 811-4923.
[LOGO]
LONGLEAF
PARTNERS
FUNDS(SM)
MANAGED BY:
SOUTHEASTERN ASSET MANAGEMENT, INC.
6410 POPLAR AVE.
SUITE 900
MEMPHIS, TN 38119
www.longleafpartners.com
(800) 445-9469
<PAGE> 6
PROSPECTUS
May 1, 2000
LONGLEAF PARTNERS FUNDS(SM)
Managed By:
SOUTHEASTERN ASSET MANAGEMENT, INC.
6410 Poplar Avenue, Suite 900
Memphis, TN 38119
(800) 445-9469
www.longleafpartners.com
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 believed to be significantly
undervalued.
LONGLEAF PARTNERS REALTY FUND
Invests primarily in real estate related operating companies and REITs 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 if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
4 RISK/RETURN SUMMARY
PRINCIPAL INVESTMENT STRATEGY
Philosophy 4
Process 4
Governing Principles 4
PRIMARY INVESTMENT RISKS WHICH APPLY TO ALL
LONGLEAF FUNDS
Market Fluctuation 5
Permanent Loss of Capital 5
Business Ownership Risks 5
Non-Diversification 6
Liquidity Risks 6
Foreign Investment Risks 7
Currency Hedging Risks 7
INVESTMENT OBJECTIVES, PERFORMANCE, FEES,
AND EXPENSE INFORMATION
Longleaf Partners Fund 8
Longleaf Partners International Fund 10
Longleaf Partners Realty Fund 12
Longleaf Partners Small-Cap Fund 14
16 DISCUSSION OF PRINCIPAL INVESTMENT
STRATEGIES AND RELATED RISKS
ADDITIONAL INFORMATION ON TYPES OF INVESTMENTS
International Fund 16
Realty Fund 16
HOW WE ACHIEVE OUR INVESTMENT OBJECTIVES
Determining Business or Intrinsic Value 17
Other Investment Criteria 17
Allocation of Investment Ideas 18
How Companies Reach Intrinsic Value 18
Portfolio Turnover 18
Other Investments 18
Cash Reserves 19
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
OTHER RISKS OF INVESTING WHICH APPLY TO ALL FUNDS
Puts, Calls, Options, and Financial Futures 19
Restricted and Illiquid Securities 19
Fixed Income Securities 19
20 PORTFOLIO MANAGEMENT
AND FUND OPERATIONS
Investment Adviser 21
Code of Ethics 21
Management Services 21
Advisory and Administration Fees 22
Portfolio Managers 23
Fund Operations 23
Board of Trustees 24
Other Executive Officers 25
25 SHAREHOLDER MANUAL
General Information 26
How To Open a New Account 26
Additional Investments 27
Exceptions to Investment Minimum and Closed Funds 28
How To Redeem Shares 29
How Fund Shares Are Priced 32
Dividends and Distributions 33
Taxes 33
Financial Highlights 36
</TABLE>
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.
You should 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.
<PAGE> 9
RISK/RETURN SUMMARY
PRINCIPAL INVESTMENT STRATEGY
PHILOSOPHY. We are value investors. We view equity investments as ownership in
a business enterprise. 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 values. We sell stocks when they approach our appraisals. We
determine business or intrinsic value through financial analysis and
established disciplines which we have consistently applied over 25 years.
Equities purchased at prices substantially less than their intrinsic worth
should protect capital from significant permanent loss and also should
appreciate substantially if the market recognizes the company's economic value.
PROCESS. All of the Longleaf Partners Funds use the same general investment
strategy. Our analysts, working as a team, identify those companies selling at
60% or less of our appraisals. If a company also satisfies other criteria,
including attractive business fundamentals and effective management, we
purchase a position for the Fund or Funds whose characteristics most closely
fit the company.
GOVERNING PRINCIPLES. The Longleaf Partners Funds represent an investment
partnership between all Fund shareholders and the employees and affiliates of
Southeastern Asset Management, Inc. ("Southeastern"), who together are among
the largest shareholders. The following principles govern this investment
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 discounts
from our appraisals of their corporate intrinsic values, their
financial strength, their management, their competitive
position, and our assessment of their future earnings potential.
4
<PAGE> 10
- We will comply with the Internal Revenue Code diversification
standards which require that at least 50% of each portfolio be
diversified, even though the Funds are non-diversified under
federal securities laws.
- 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.
PRIMARY INVESTMENT RISKS
WHICH APPLY TO ALL LONGLEAF FUNDS
MARKET FLUCTUATION. The Funds invest primarily in common stocks or securities
convertible to common stocks. Investments in equities are subject to declines in
a company's share price or an overall decline in the stock market. The value of
your investment in a Fund fluctuates daily with movements in stock prices. Loss
of money is, therefore, a risk of investing in the Funds.
PERMANENT LOSS OF CAPITAL. As significant shareholders in the Funds, management
at Longleaf defines investment risk as the permanent loss of capital. The Funds
are partial owners of companies through holdings of portfolio securities. We
attempt to mitigate the risk of permanent capital loss by buying businesses
only when they are selling at substantially less than our appraisals of their
values and by having 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.
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
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.
5
<PAGE> 11
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 limits its
ownership of businesses with regulatory risk.
NON-DIVERSIFICATION. The Funds are non-diversified under federal securities
laws and each Fund generally invests in 20 to 30 companies. We believe that
limiting the number of our holdings lowers our risk of losing capital, because
the portfolios contain our most qualified ideas where we strive to know the
companies and their managements extremely well. Owning fewer companies also
enables each company to have a meaningful impact on our investment results.
Following the tax standards for diversification, 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 invested in any security and owning no
more than 10% of any company's voting equity. The remaining portion of a Fund's
portfolio may contain positions which are over 5% of assets and greater than
10% of a company's voting equity.
We believe this approach maximizes the potential for outperforming the market
over the long term. The Funds' share values could, however, 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. Because it
may take longer to dispose of a large position once we have decided to sell, we
may be more susceptible to price fluctuations.
6
<PAGE> 12
FOREIGN INVESTMENT RISKS. 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 may
include international political and economic changes, foreign withholding
taxes, exchange controls, confiscation risks, foreign governmental
restrictions, differences in accounting standards, more limited availability of
public information, and currency fluctuations.
CURRENCY HEDGING RISKS. We evaluate whether currency hedging for foreign
securities would reduce the exposure to foreign currencies as part of the
investment decision process. 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
movements, 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.
INVESTMENT OBJECTIVES, PERFORMANCE,
FEES, AND EXPENSE INFORMATION
The following sections include specific information on each Fund's investment
objectives and policies, historical performance, and expenses of ownership.
The bar charts illustrate volatility by showing 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, 1999,
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 have affected 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> 13
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 mid to large-cap
companies. 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 or illiquid securities.
PAST FUND PERFORMANCE
TOTAL RETURN (%)
[GRAPH]
Coordinates for graph on page 8 of Prospectus.
<TABLE>
<CAPTION>
Year Percent
- ---- -------
<S> <C>
1990 (16.35)
1991 39.19
1992 20.47
1993 22.28
1994 8.96
1995 27.50
1996 21.02
1997 28.25
1998 14.28
1999 2.18
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter in last ten years. 23.73% 1st Quarter of 1991
Worst Quarter in last ten years. (18.35)% 3rd Quarter of 1998
</TABLE>
8
<PAGE> 14
PAST FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS AT 12/31/99
<TABLE>
<CAPTION>
Partners S&P 500 Value-Line
Fund Index (Geometric) Index
<S> <C> <C> <C>
One Year 2.18% 21.05% (1.40)%
Five Years 18.24% 28.55% 9.21%
Ten Years 15.75% 18.20% 5.23%
</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.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Fees and Expenses
(fees paid directly from your investment) None
--------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.77%
12b-1 Fees None
Other Expenses 0.15%
Administration 0.10%
Transfer Agent 0.02%
Other Operating Expenses 0.03%
--------------------------------------------------------
Total Fund Operating Expenses 0.92%
</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>
$97 $302 $524 $1,162
</TABLE>
9
<PAGE> 15
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.
The Fund does not limit the percentage of assets invested in any particular
geographic region or country. We may invest a significant portion of assets in
a single country, and may invest in developed and emerging countries. The Fund
may also invest up to 15% of assets in non-registered or illiquid securities.
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.
SPECIFIC RISKS OF INVESTING IN THIS FUND
The International Fund is designed for long-term investors who can
accept international investment risk, including currency, political, 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 per share and returns.
PAST FUND PERFORMANCE
TOTAL RETURN (%)
[GRAPH]
Coordinates for graph on page 10 of Prospectus
<TABLE>
<CAPTION>
Year Percent
- ---- -------
<S> <C>
1998 9.62*
1999 24.37
</TABLE>
* Initial Public Offering on 10/26/98 through 12/31/98
<TABLE>
<S> <C> <C>
Best Quarter since inception. 15.72% 2nd Quarter of 1999
Worst Quarter since inception. (0.33)% 4th Quarter of 1999
</TABLE>
10
<PAGE> 16
PAST FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS AT 12/31/99
<TABLE>
<CAPTION>
International EAFE
Fund Index
-------------------------
<S> <C> <C>
One Year 24.37% 25.27%
Since Initial Public Offering (October 26, 1998) 29.41% 32.05%
</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.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Fees and Expenses
(fees paid directly from your investment) None
------------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 1.50%
12b-1 Fees None
Other Expenses 0.26%
Administration 0.10%
Transfer Agent 0.02%
Other Operating Expenses 0.14%
------------------------------------------------------------
Total Fund Operating Expenses 1.76%
Expense Limitation Reimbursement* (0.01)%
Net Expenses 1.75%
</TABLE>
*The Fund has a contractual expense limitation of 1.75% of average net assets
per annum, excluding interest, taxes, brokerage commissions and extraordinary
expenses, which cannot be amended without shareholder approval.
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>
$184 $569
</TABLE>
11
<PAGE> 17
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 (REITs) and may invest in a few
non-real estate oriented companies. It may also invest up to 30% of assets in
foreign securities and up to 15% of assets in non-registered or illiquid
securities.
SPECIFIC RISKS OF INVESTING IN THIS FUND
The Realty Fund may face some risks associated with direct ownership of real
estate. These risks include fluctuations in mortgage interest rates, accounting
and tax law changes in depreciation expenses or deductions and other financial
reporting requirements affecting real estate, and limited liquidity of
undeveloped land. The Realty Fund's performance will not necessarily correlate
with the performance of mutual funds that do not concentrate in realty
investments.
PAST FUND PERFORMANCE
TOTAL RETURN (%)
[GRAPH]
Coordinates for graph on page 12 of Prospectus
<TABLE>
<CAPTION>
Year Percent
- ---- -------
<S> <C>
1996 40.69
1997 29.73
1998 (12.98)
1999 (10.45)
</TABLE>
Best Quarter since inception. 14.94% 3rd Quarter of 1997
Worst Quarter since inception. (17.65%) 3rd Quarter of 1998
12
<PAGE> 18
PAST FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS AT 12/31/99
<TABLE>
<CAPTION>
Whilshire Real
Realty Estate Securities NAREIT
Fund Index Index
--------------------------------------------
<S> <C> <C> <C>
One Year....................... (10.45)% (3.17)% (6.48)%
Since Initial Public Offering
(January 2, 1996)............ 9.21% 6.92% 5.21%
</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.
<TABLE>
<S> <C>
Shareholder Transaction Fees and Expenses
(fees paid directly from your investment)......... None
------------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees..................................... 1.00%
12b-1 Fees.......................................... None
Other Expenses...................................... 0.17%
Administration..................... 0.10%
Transfer Agent..................... 0.02%
Other Operating Expenses........... 0.05%
------------------------------------------------------------
Total Fund Operating Expenses....................... 1.17%
</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>
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$123 $383 $662 $1,459
</TABLE>
13
<PAGE> 19
LONGLEAF PARTNERS
SMALL-CAP FUND
INITIAL PUBLIC OFFERING--February 21, 1989
(Closed to new investors July 31, 1997)
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. The
capitalization range of this index at March 31, 2000, stated in thousands, was
as follows:
<TABLE>
<S> <C>
Largest Market Cap $7,492,151
Average Market Cap $552,804
Smallest Market Cap $9,686
</TABLE>
Some small-cap securities may be traded in the "over-the-counter" 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 or illiquid securities.
SPECIFIC RISKS OF INVESTING IN THIS FUND
Smaller companies may have more limited product lines, markets, financial
resources, and market liquidity than larger companies. Their securities may
trade less frequently and in more limited volume than those of larger
companies. Small-cap stocks may be more volatile than those of larger companies
and, where trading volume is thin, our ability to dispose of such securities
may be more limited.
PAST FUND PERFORMANCE
TOTAL RETURN (%)
[GRAPH]
Coordinates for graph on page 14 of Prospectus.
<TABLE>
<CAPTION>
Year Percent
- ---- -------
<S> <C>
1990 (30.05)
1991 26.31
1992 6.87
1993 19.83
1994 3.64
1995 18.61
1996 30.64
1997 29.04
1998 12.71
1999 4.05
</TABLE>
Best Quarter in last 10 years. 19.24% 1st Quarter of 1991
Worst Quarter in last 10 years. (20.21%) 3rd Quarter of 1990
14
<PAGE> 20
PAST FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS AT 12/31/99
<TABLE>
<CAPTION>
Small-Cap Russell 2000 Value-Line
Fund Index (Geometric) Index
----------------------------------------------
<S> <C> <C> <C>
One Year 4.05% 21.26% (1.40)%
Five Years 18.58% 16.69% 9.21 %
Ten Years 10.64%(*) 13.40% 5.23 %
</TABLE>
(*)From public offering on 2/21/89 through 3/31/91, the Fund was managed by a
different portfolio manager.
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.
<TABLE>
<S> <C>
Shareholder Transaction Fees and Expenses
(fees paid directly from your investment)......... None
------------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees..................................... 0.82%
12b-1 Fees.......................................... None
Other Expenses...................................... 0.15%
Administration.................... 0.10%
Transfer Agent.................... 0.02%
Other Operating Expenses.......... 0.03%
------------------------------------------------------------
Total Fund Operating Expenses 0.97%
</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>
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$102 $318 $551 $1,222
</TABLE>
15
<PAGE> 21
DISCUSSION OF PRINCIPAL
INVESTMENT STRATEGIES
AND RELATED RISKS
Additional Information
on Types of Investments
INTERNATIONAL FUND. In selecting investments for the International
Fund, we define a company as international if it is organized or head-
quartered outside the U.S. A business 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.
The majority of investments generally are in companies located in
Canada, Australia, and the developed countries of Europe, the Far
East, and Latin America.
The Fund normally will be substantially invested in equity securities of
international companies. It may also invest in foreign or U.S. closed-end
investment companies which invest internationally when direct investments in
the foreign region would be difficult or less liquid. When appropriate, the
Fund may invest in foreign governmental and commercial bonds, and in other
foreign money market instruments.
REALTY FUND. In selecting investments for the Realty Fund,
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
- construction, ownership, management, operation, financing,
sales, or development of real estate
- 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
- other businesses clearly related to the above functions or to the
manufacturing of appurtenances to real estate.
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:
- real estate owned or leased by the company either as lessor or
lessee
- timber or materials on such real estate
- 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.
16
<PAGE> 22
How We Achieve Our Investment Objectives
DETERMINING BUSINESS OR INTRINSIC VALUE. A company's market price generally
must be 60% or less of our appraisal to qualify for investment. Our research
team appraises businesses by studying financial statements, regulatory
information, trade publications, and other industry and corporate data, and by
talking with corporate management, competitors, and suppliers.
We use two primary methods of appraisal. The first assesses the company's
liquidation value based on the current economic worth of corporate assets and
liabilities. The second method determines the company's ongoing 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 free
cash flows plus a terminal value, using a conservative discount rate. Our
appraisal should represent the price that rational, independent buyers and
sellers would negotiate in an arms length sale. We then check our appraisals
against our data base of comparable business transactions.
OTHER INVESTMENT CRITERIA. In addition to significant undervaluation,
we also look for the following when selecting investments:
- Good Business. A number of things characterize an attractive business.
First, we must be able to understand both the fundamentals and the
economics of a business. Second, a strong balance sheet helps protect a
company during slow economic times and enables a business to seize
opportunities when they arise. Third, a sustainable competitive advantage
in market share, dominant brands, cost structure, or other areas, helps
ensure the strength of a company. Fourth, a business must be able to
generate and grow free cash flow from operations. Finally, pricing power
enables a company to pass cost increases to consumers rather than
absorbing them in lower margins.
- Good People. We want the managements of the businesses we own to have four
primary qualities. They must be capable operators who can run the business
profitably. They must be capable capital allocators who will build
shareholder value through wisely reinvesting the free cash flow that the
business generates. They must be shareholder oriented in their actions and
decisions. They must have the proper incentives with much of their net
worth tied to the stock's results.
Although a company may not meet all the above criteria, we must be convinced
that significant unrealized value is present before making an investment.
17
<PAGE> 23
ALLOCATION OF INVESTMENT IDEAS. When a company qualifies for purchase, 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.
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.
- Management Buy-Outs. Corporate management may obtain funding
to buy out shareholders and take the company private.
- Liquidations. A company may partially or fully liquidate its assets or
operations through spin-offs of subsidiaries or sales of a portion of the
business.
- Share Repurchase Programs. When a company's stock is undervalued,
repurchasing outstanding shares increases value per share. 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. We are long-term owners, not traders or speculators. Our
time horizon when purchasing a company is five years. Generally, we will hold
the stock as long as:
- A margin of safety exists between price and value, and we remain confident
in management's ability to create additional value; and
- 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.
18
<PAGE> 24
CASH RESERVES. Generally, cash reserves and money market instruments do not
exceed 15% of net assets. If, however, we have difficulty finding enough
investments that meet our criteria, 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 15% of total assets only in periods when equity valuations are high.
When cash has previously approached such levels, we closed the affected funds
to new investors. We would not allow cash reserves to exceed 35% of total
assets except for temporary, defensive purposes.
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:
PUTS, CALLS, OPTIONS, AND FINANCIAL FUTURES. 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.
Generally, these investments are used for hedging purposes or as an alternative
to owning the underlying security. 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.
RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net
assets in unregistered and 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 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. High yield securities or
non-investment grade bonds are more risky than investment grade securities.
They may be less sensitive to interest rate changes, but may be more sensitive
to economic downturns or adverse corporate developments.
19
<PAGE> 25
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20
<PAGE> 26
PORTFOLIO MANAGEMENT
AND FUND OPERATIONS
INVESTMENT ADVISER. Southeastern Asset Management, Inc. ("Southeastern") is the
Funds' investment adviser. Formed in 1975, the firm has 25 years of experience
managing securities portfolios for institutional investors and individuals.
Longleaf Partners Fund, the firm's first investment company, began operations
in 1987. Located in 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, our Code of Ethics requires all employees to limit their
investments in publicly offered equities to shares of the Longleaf Partners
Funds, unless granted prior clearance for other personal securities
transactions. All employees must report their personal securities transactions
quarterly. Any material violation of the Code of Ethics is reported to the
Boards of the Funds. The Boards also review the administration of the Code of
Ethics annually.
The independent Trustees of the Funds must invest in the Funds a cumulative
amount at least equal to their Trustees' fees, and must obtain clearance before
making personal securities investments to avoid conflicts of interest.
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.
21
<PAGE> 27
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 1999 Fee Fee
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PARTNERS FUND 1.00% on first
$400 million in
average net assets;
0.75% on balance 0.77% 0.10%
- --------------------------------------------------------------------------------
INTERNATIONAL FUND 1.50% on average
net assets 1.49%* 0.10%
- -------------------------------------------------------------------------------
REALTY FUND 1.00% on average
net assets 1.00% 0.10%
- --------------------------------------------------------------------------------
SMALL-CAP FUND 1.00% on first
$400 million in
average net assets;
0.75% on balance 0.82% 0.10%
- --------------------------------------------------------------------------------
</TABLE>
* Reflects fee reduction of 0.01% as the result of contractual expense
limitation.
All of the Funds have a contractual expense limitation included in
their investment counsel agreements with Southeastern, requiring Southeastern
to reduce its fees to the extent necessary to limit normal annual operating
expenses to a stated percentage of average net assets per annum, excluding
interest, taxes, brokerage commissions, and extraordinary expenses. The
investment counsel and fund administration fees are included in normal
operating expenses in making the calculation. Shareholder approval is required
to amend or remove these expense limitations. The expense limitation for the
Partners, Realty, and Small-Cap Funds is 1.5% of average net assets annually;
the expense limitation for the International Fund is 1.75% of average net
assets annually.
22
<PAGE> 28
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 24 and 25.
<TABLE>
<CAPTION>
Name-Title Fund Portfolio Funds
Responsibility
<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 the Funds Co-Portfolio Manager All
JOHN B. BUFORD
Vice President of Southeastern
and Vice President- Partners and
Investments of the Funds Co-Portfolio Manager Small-Cap Funds
C. T. FITZPATRICK
Vice President of Southeastern
and Vice President- Co-Portfolio Manager Realty Fund
Investments of the Funds
E. ANDREW
MCDERMOTT, III
Vice President of Southeastern Assistant
and Vice President- Portfolio Manager International Fund
Investments of the Funds
</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.
23
<PAGE> 29
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.
G. STALEY CATES*, CFA, Trustee and President; Co-Portfolio Manager.
President, Southeastern Asset Management, Inc. (since 1994); Vice President,
Southeastern Asset Management, Inc. (1986-1994). Education: B.B.A., Finance,
University of Texas, 1986.
CHADWICK H. CARPENTER, Jr., Trustee.
Private investor and consultant to software companies. Currently advisory board
member of Indus River Networks, which develops products for virtual private
networks. Senior executive officer at Progress Software Corporation (a leading
provider of software products used by developers to build and deploy commercial
applications worldwide) (1983-1997). 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 (1970-1994); 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.
Private investor and consultant. Chairman of the Executive Committee and
President, Riverside Golf Group, Inc., (1987-1997), 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. Cates 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.
24
<PAGE> 30
OTHER EXECUTIVE OFFICERS
Fund Investment Management
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; M.B.A.,
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 Administration and Marketing
CHARLES D. REAVES, Executive Vice-President and General Counsel.
Professional Experience: 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, Chief Financial
Officer and Treasurer.
Professional Experience: Southeastern Asset Management, Inc. (since 1989).
Education: B.S., Accounting, Pennsylvania State University, 1984.
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.
ANDREW R. MCCARROLL, Vice President, Secretary 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.
25
<PAGE> 31
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 29.
MINIMUM INITIAL INVESTMENT. Our minimum initial investment for each account is
$10,000. Exceptions to the investment minimum are outlined on pages 28 and 29.
There is no minimum amount required for subsequent investments. All purchases
are subject to acceptance, and we may reject purchases to protect 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) 445-9469. Southeastern Asset Management, Inc.
("Southeastern") 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
Checks and wire transfers received by the transfer agent before the close of
the New York Stock Exchange receive that day's closing price. Investments
received after the close of the Exchange are priced at the next day's closing
price. The Funds cannot accept post-dated checks or hold proceeds to be
invested at a later date.
BY CHECK:
- Complete and sign the application.
- Make check payable to "Longleaf Partners Funds." Third party checks are
not accepted.
- Indicate on account application and check the amount to be invested in
each fund.
- Mail application and initial investment to:
By U.S. Mail:
Longleaf Partners Funds
P. O. Box 219929
Kansas City, MO 64121-9929
By overnight courier:
Longleaf Partners Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
(800) 445-9469
26
<PAGE> 32
BY WIRE TRANSFER:
- Call the Funds at (800) 445-9469 (option 3) to establish a new account.
- Be prepared to provide all information required on the account
application.
- You will be assigned an account number. Please note this number on the
top of your application.
- Using your new account number, instruct your bank to wire funds as
follows:
State Street Bank, Boston, MA
ABA #011000028
A/C #9905-023-9
Specify Longleaf Partners Funds #
Longleaf Partners Fund (#133)
Longleaf Partners International Fund (#136)
Longleaf Partners Realty Fund (#135)
Longleaf Partners Small-Cap Fund (#134)
Please include your Longleaf account number and your name.
- You must send a signed application to the transfer agent. No
redemptions can be paid until the Funds receive your signed 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. The transfer agent charges an initial set-up fee of
$15 and a $10 annual maintenance fee.
ADDITIONAL INVESTMENTS
BY CHECK. Send your check with the remittance stub from your account statement
or with an instruction letter containing names, addresses and account number to
our transfer agent, NFDS. Designate on your check and remittance stub the
particular Fund(s) in which you are investing.
BY WIRE TRANSFER. Follow the wire instructions shown above. These instructions
also appear on the reverse side of your account statement.
BY TELEPHONE AND ELECTRONIC TRANSFER. You may establish electronic transfer
capabilities on your account application or by sending written instructions to
our transfer agent. You must also include a voided check. You may purchase
shares of the Funds by calling the transfer agent at (800) 445-9469 (option 3)
to initiate an electronic transfer
27
<PAGE> 33
from your bank account. Your purchase price will be the net asset value
computed on the next business day following your telephone purchase request.
YOUR INITIAL INVESTMENT CANNOT BE MADE BY ELECTRONIC TRANSFER.
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. The Longleaf Partners
Funds do not charge a fee for the Automatic Monthly Investment Plan. Consult
your banking institution about any service fees that it may charge. Transfers
will occur on the business day on or about the 21st of each month. You must
send written instructions to change or cancel your automatic monthly investment
plan.
CERTIFICATES. If you would like to receive Fund share 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 the
shares were purchased through a wire transfer. You cannot redeem certificated
shares until the certificates have been returned to the transfer agent. If you
lose your certificates, you will need to purchase a lost certificate bond.
RETURNED CHECKS OR REJECTED TRANSFERS. You are responsible for any expenses or
losses incurred by the Funds if your check is returned or your electronic
transfer order is rejected by your bank for any reason, including insufficient
funds or a stop payment request. These expenses and losses include additional
custodial and transfer agent fees as well as any loss the Funds incur on the
cancellation of the shares issued for your account. If you are an existing
shareholder, the Funds may collect these losses by redeeming the necessary
amount from your account.
EXCEPTIONS TO INVESTMENT
MINIMUM AND CLOSED FUNDS
EXCEPTIONS TO $10,000 INVESTMENT MINIMUM. The following investors may open a
new account with an initial investment of less than $10,000:
- - Family members of shareholders who have at least $250,000 invested in one of
the Longleaf Partners Funds may open one or more accounts in the same Fund
for a $5,000 initial investment.
- - Persons who are employed by or are individual participants in institutional
accounts of at least $2,000,000 in one of the Funds or in an account managed
by Southeastern may open one or more accounts in any of the open funds for an
initial investment of $5,000.
28
<PAGE> 34
- - Employees of Southeastern and their family members may open new accounts
with a $1,000 initial investment.
CLOSED FUND EXCEPTIONS. The Small-Cap Fund closed to new investors on July 31,
1997. The following investors may open new accounts in this Fund for an initial
investment of $10,000:
- - Immediate family members of shareholders of the Small-Cap Fund.
- - Financial advisors and consultants having clients who have maintained
accounts in the Small-Cap Fund since its closing date may add new clients.
- - Institutions and affiliates of institutions having an investment advisory
relationship with Southeastern of at least $2,000,000.
- - Employees of Southeastern and their family members ($1,000 initial
investment).
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 unless that Fund reopens.
PRIOR APPROVAL FOR EXCEPTIONS. Approval for one of the above exceptions must be
obtained by calling Southeastern at (901) 761-2474 prior to making your
investment.
HOW TO REDEEM SHARES
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. We must have received a completed and signed
account application or W-9 form before releasing your redemption. The Funds
cannot hold requests to process redemptions at a later date and must process
redemptions when received in good order.
REDEMPTION AND EXCHANGES BY TELEPHONE. Investors who have established
telephone redemption privileges may redeem or make exchanges up to $100,000 over
the telephone, using the following procedures. Telephone redemptions may not be
used for IRA accounts. Accounts with telephone address change requests within
the last 30 days must submit written redemption instructions with a Medallion
Signature Guarantee.
- - You may establish telephone redemption and exchange privileges when
completing the account application or you may request the service in
writing.
- - Call (800) 445-9469 (option 3) if you have established telephone
redemption and exchange privileges on your account.
- - Proceeds of redemptions will be sent only to the address of record or in
accordance with previously established wire instructions.
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<PAGE> 35
- - Calls before the close of the New York Stock Exchange receive that day's
price.
- - Calls after the close of the New York Stock Exchange receive the next
day's price.
Please retain the confirmation number assigned to your redemption as proof of
your trade. You cannot change or cancel a telephone redemption request after
the transaction has been placed.
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 telephone
redemption and exchange privileges at any time.
REDEMPTIONS BY LETTER. The following information must be included in a
redemption request:
- Your account number;
- 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 for redemptions over $100,000 or if
the proceeds will be sent to a destination not previously established
on the account;
- 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) 445-9469 (option 3) if you have
questions about these requirements.
Redemption requests and required documentation should be sent return receipt
requested as follows:
By U.S. Mail:
Longleaf Partners Funds
P.O. Box 219929
Kansas City, MO 64121-6929
By Overnight Courier:
Longleaf Partners Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
(800) 445-9469
30
<PAGE> 36
AUTOMATIC MONTHLY WITHDRAWALS. You may establish automatic monthly withdrawals
by sending written instructions to the transfer agent. Redemptions will be
processed on or about the 21st day of each month. Changes to your automatic
monthly withdrawal must be made by sending written instructions to the transfer
agent.
COLLECTED FUNDS. Whether you are redeeming by telephone or in writing, the
Funds must have received payment for the shares you are redeeming. The transfer
agent will send payment for the amount of your redemption covered by collected
funds. The balance of the redemption is not considered "in good order" and the
transfer agent may delay the redemption for up to 15 days to ensure that
collected funds have been received.
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.
ACCOUNT CHANGES. Changes to your account registration or account privileges must
be made in writing. If your account value exceeds $100,000, those changes must
be Medallion Signature Guaranteed. Changes that accompany a redemption request
must also 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 with 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
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 statement at the end of each calendar quarter. Please review your
statement for accuracy and report any discrepancies to the transfer agent
promptly. You will also receive tax documentation as required by the IRS. We
send quarterly, semi-annual and audited annual reports containing information
on each Fund's portfolio of investments. Reports are also available on the
Funds' website at www.longleafpartners.com.
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<PAGE> 37
PURCHASES AND REDEMPTIONS THROUGH BROKERAGE FIRMS AND OTHER AUTHORIZED
INSTITUTIONS. You may purchase and redeem shares of the Funds through brokerage
firms and other authorized institutions that have agreements with the Funds.
The firm may charge you a transaction fee for its services. If you invest
through an authorized firm, you must follow that firm's procedures for buying
and selling shares. The 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 firm or its designee accepts the order to determine
the time of purchase or redemption, and will process the order at the next
closing price computed after acceptance. The brokerage firm or other authorized
institution has the responsibility of sending prospectuses, financial reports
and other Fund materials to its clients.
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 the transfer agent. Institutional investors may also establish
pre-authorized fax redemption privileges. Please contact the Funds to obtain
more information about these trading options.
Full payment for all purchases must be received within one day of the trade
date. The entity initiating 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 interests.
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 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.
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
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<PAGE> 38
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. Eastern time) on days the
Exchange is open for business. The Exchange is closed for specified national
holidays and on week-ends.
The values of the Funds' investments are based on their market values.
Securities traded on a securities exchange and on NASDAQ are valued at the last
price reported before the close of the primary stock exchange where the security
trades. If there are no stock exchange trades or the security is traded
over-the-counter, 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 closing price. Nonregistered 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.
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 twelve months ended October 31 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 in cash. If you make an investment shortly before a dividend is
declared, you will be taxed on the full dividend in the same manner as
shareholders who have owned shares throughout 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.
33
<PAGE> 39
TAXES ON INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS. Generally, the Funds
are not taxed on dividends and capital gains distributed to shareholders.
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 your distribution
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-DIV mailed to you after December
31 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
in the Statement of Additional Information.
34
<PAGE> 40
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35
<PAGE> 41
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance for the past five years or, if shorter, the period of the
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an
<TABLE>
<CAPTION>
Net Gains
(Loss) on
Net Securities Total Dividends Distributions
Asset Value Net Realized from from Net from
Beginning Investment and Investment Investment Capital
of Period Income(a) Unrealized(a) Operations Income Gains
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PARTNERS FUND
Year ended Dec. 31, 1999 $ 24.39 $ .28 $ .34 $ .62 $ (.29) $ (4.23)
1998 25.98 .25 3.22 3.47 (.25) (4.81)
1997 22.85 .21 6.24 6.45 (.21) (3.11)
1996 21.15 .38 4.08 4.46 (.38) (2.38)
1995 17.13 .24 4.46 4.70 (.24) (.44)
- --------------------------------------------------------------------------------------------------------------------
INTERNATIONAL FUND
Year ended Dec. 31, 1999 9.97 .06 2.38 2.44 (.06) (.33)
August 12, 1998
(Capitalization)
through Dec. 31, 1998 10.00 .01 (.03) (.02) (.01) --
- --------------------------------------------------------------------------------------------------------------------
REALTY FUND
Year ended Dec. 31, 1999 14.55 .36 (1.88) (1.52) (.23) --
1998 17.35 .44 (2.70) (2.26) (.43) --
1997 13.97 .09 4.06 4.15 (.09) (.64)
1996 10.00 .03 4.04 4.07 (.04) (.05)
- --------------------------------------------------------------------------------------------------------------------
SMALL-CAP FUND
Year ended Dec. 31, 1999 21.95 .08 .79 .87 (.08) (2.54)
1998 22.18 .17 2.54 2.71 (.17) (2.77)
1997 17.86 .18 5.01 5.19 (.18) (.69)
1996 14.46 .02 4.41 4.43 (.02) (1.01)
1995 13.28 .12 2.35 2.47 (.12) (1.17)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) In prior years, this information was presented based on weighted average
shares outstanding for the period. This table has been recalculated using
the SEC method.
(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. For the International Fund, the
expense ratio before the waiver was 1.76% and 2.65% in 1999 and 1998,
respectively. The Realty Fund's expense ratio in 1996 before expense waiver
was 1.60%.
(e) Annualized
36
<PAGE> 42
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Pricewaterhouse Coopers,
LLP, whose report, along with the Funds' financial statements, are included in
the Statement of Additional Information and annual report, which are available
upon request.
<TABLE>
<CAPTION>
Net
Asset Net Ratio of Ratio of
Total Value Assets Expenses Income Portfolio
Return of Distri- End of Total End of Period to Average to Average Turnover
Capital butions Period Return(b) (thousands) Net Assets Net Assets Rate
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ (4.52) $ 20.49 2.18% $3,622,109 .92% 1.16% 50.39%
-- (5.06) 24.39 14.28 3,685,300 .93 1.12 43.78
-- (3.32) 25.98 28.25 2,605,070 .94 .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
- ------------------------------------------------------------------------------------------------------------------------------
-- (.39) 12.02 24.37 293,613 1.75(d) .60 50.32
-- (.01) 9.97 9.02(c) 75,572 1.75(d)(e) .10(e) 24.05
- ------------------------------------------------------------------------------------------------------------------------------
(.11) (.34) 12.69 (10.45) 643,311 1.17 1.42 22.64
(.11) (.54) 14.55 (12.98) 775,696 1.17 3.44 21.55
(.04) (.77) 17.35 29.73 737,302 1.20 .75 28.66
(.01) (.10) 13.97 40.69 156,009 1.50(d) .92 4.28
- ------------------------------------------------------------------------------------------------------------------------------
-- (2.62) 20.20 4.05 1,429,673 .97 .38 47.48
-- (2.94) 21.95 12.71 1,355,364 1.01 .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
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
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38
<PAGE> 44
PART B
INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 45
LONGLEAF PARTNERS FUNDS SM
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
---------------------
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS INTERNATIONAL FUND
LONGLEAF PARTNERS REALTY FUND
LONGLEAF PARTNERS SMALL-CAP FUND
Series of
LONGLEAF PARTNERS FUNDS TRUST
LOGO 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............................................. 11
- - 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
Partners Fund Portfolio of Investments................ 29
International Fund Portfolio of Investments........... 31
Realty Fund Portfolio of Investments.................. 33
Small-Cap Fund Portfolio of Investments............... 35
Other Financial Statements.............................. 37
</TABLE>
MANAGED BY
SOUTHEASTERN ASSET MANAGEMENT, INC.
6410 POPLAR AVENUE; SUITE 900
MEMPHIS, TN 38119
TELEPHONE (800) 445-9469; WWW.LONGLEAFPARTNERS.COM
---------------------
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 2000, IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF LONGLEAF
PARTNERS FUNDS TRUST, ALSO DATED MAY 1, 2000, WHICH MAY BE OBTAINED WITHOUT
CHARGE UPON REQUEST BY CALLING (800) 445-9469.
<PAGE> 46
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; closed to new investors, effective July 31,
1997.
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 mid to large-cap
companies.
2
<PAGE> 47
LONGLEAF PARTNERS INTERNATIONAL FUND
Investment Objective -- Long-term capital growth through investment primarily in
equity securities of international or foreign issuers.
Investment Policy -- Invests at least 65% of total assets in the equity
securities of international issuers domiciled or operating primarily in at least
three companies other than the United States.
LONGLEAF PARTNERS REALTY FUND
Investment Objective -- Maximum total return over the long-term through
investment primarily in real estate oriented companies.
Investment Policy -- Invests at least 65% of total assets in the equity
securities of companies in the real estate industry or related industries.
LONGLEAF PARTNERS SMALL-CAP FUND
Investment Objective -- Long-term capital growth.
Investment Policy -- Invests at least 65% of total assets in equity securities
of companies having a market capitalization in the range of companies included
in the Russell 2000 Index.
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-
3
<PAGE> 48
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, and its agencies or instrumentalities. With respect to the remainder
of its assets, a Fund may not invest more than 25% of the 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, International Fund, and 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 definitions for
industries as set forth in the latest edition of the North American Industry
Classification System ("NAICS") or other publicly available information.
Industry category groupings shown in the Funds' printed reports sent quarterly
to shareholders may contain more than one Industry Code, and these broader
industry groupings are intended to be functionally descriptive presentations
rather than being limited to a single NAICS 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 pages 12 and 16. 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 NAICS
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 fundamental investment restrictions of the Partners,
Realty, and Small-Cap Funds are identical; the fundamental restrictions of the
International Fund, formed in 1998, are phrased differently, and its fundamental
restrictions are shown separately.
Except as specifically authorized, the Partners Fund, the Realty Fund, and the
Small-Cap Fund each 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;
4
<PAGE> 49
- - 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;
- - 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.
- - 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 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.
5
<PAGE> 50
- - 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, an 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 gains as well as losses
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).
- - 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
6
<PAGE> 51
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 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.
7
<PAGE> 52
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
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).
8
<PAGE> 53
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 Southeastern, 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.
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
9
<PAGE> 54
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.
As part of the investment decision process, a Fund may enter into forward
foreign currency exchange contracts ("forward contracts") to seek to minimize
the exposure from a change 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. A 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. The Funds will
segregate cash, cash equivalents or liquid securities sufficient to cover any
commitments under these contracts. The segregated account will be
marked-to-market daily. Each Fund may seek to hedge the foreign currency
exposure risk to the full extent of its investment in foreign securities, but
there is no requirement that all foreign securities be hedged against foreign
currency exposure. Forward contracts may reduce the potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies or, considered separately, may produce a loss.
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
10
<PAGE> 55
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.
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
11
<PAGE> 56
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%. Portfolio turnover rates in
excess of 50% generally occur because portfolio investments are acquired by
other companies or reach their appraised or intrinsic value during the year and
are sold. The proceeds of these sales may then be applied to purchase new
positions having a lower price to value ratio. 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 1999 portfolio turnover rates of the Funds for the past three years are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Partners Fund.......................................... 50.39% 43.78% 38.07%
International Fund..................................... 50.32% 24.05%* --
Realty Fund............................................ 22.64% 21.55% 28.66%
Small-Cap Fund......................................... 47.48% 52.51% 16.95%
</TABLE>
- ---------------
* Partial year
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<PAGE> 57
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, all of whom
are officers or employees of Southeastern Asset Management, Inc.
("Southeastern"). Day to day portfolio management and fund administration are
provided by 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 24 and 25. The following table
provides information on the schedule of Trustees' fees paid for the fiscal year
ended 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 (52).......... None None None None None
G. Staley Cates*
Trustee and President (35)...... None None None None None
Chadwick H. Carpenter, Jr.
Trustee (49)
14 Oak Park
Bedford, MA 01730............... $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 (53)
1535 The Greens Way
Jacksonville Beach, FL 32250.... $15,000 $5,000 $7,500 $7,500 $35,000
C. Barham Ray
Trustee (53)
845 Crossover Lane
Ste. 140
Memphis, TN 38117............... $15,000 $5,000 $7,500 $7,500 $35,000
</TABLE>
- ---------------
* Trustee is an "interested" person through employment by Southeastern. 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.
13
<PAGE> 58
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, 1999:
<TABLE>
<CAPTION>
PARTNERS INTERNATIONAL REALTY SMALL-CAP
FUND FUND FUND FUND
-------- ------------- ------ ---------
<S> <C> <C> <C> <C>
Clients of Charles Schwab & Co., a
brokerage firm......................... 16.6% 15.2% 22.6% 31.2%
Clients of National Financial Service
Corp., a brokerage firm................ * * * 6.0%
Sun Microsystems, Inc. Retirement Plan... 5.4% -- -- --
Litton Industries, Inc. (Employee
Retirement Plans)...................... 5.7% -- 6.6% --
Henry R Fett TTEE
U/A DTD 12/20/99
1999 Irrevocable US Annuity & Gift
Trust.................................... -- 11.7% -- --
Eternity Limited......................... -- 8.6% -- --
Mr. O. Mason Hawkins, Chairman of the
Board and CEO of the Funds and
Southeastern........................... * 8.3% 6.2% *
All Trustees and officers of the Fund,
all directors and officers of
Southeastern and their relatives,
affiliated retirement plans and
endowments............................. 1.7% 14.1% 9.2% 4.5%
</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 21 through 23.
14
<PAGE> 59
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 investment advisory and
administration fees, all reimbursible expenses, and all normal operating
expenses. 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.
Investment Counsel fees paid by each Fund for the last three fiscal years are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Partners Fund................................. $33,132,889 $26,393,753 $20,885,285
International Fund............................ $ 3,476,322 $ 84,434* --
Realty Fund................................... $ 7,445,972 $ 8,173,553 $ 5,064,551
Small-Cap Fund................................ $11,915,519 $ 9,831,536 $ 5,697,623
</TABLE>
- ---------------
* Partial year; net after reduction by $127,852 under expense limitation.
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>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Partners Fund..................................... $4,284,390 $3,385,838 $2,651,375
International Fund................................ 231,755 $ 14,152 --
Realty Fund....................................... 744,598 $ 817,356 $ 506,455
Small-Cap Fund.................................... 1,455,404 $1,177,540 $ 632,636
</TABLE>
15
<PAGE> 60
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:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Partners Fund....................................... $184,137 $159,255 $192,492
International Fund.................................. $ 7,033 $ 9,704* --
Realty Fund......................................... $ 41,405 $ 48,319 $ 19,076
Small-Cap Fund...................................... $ 69,576 $ 59,371 $ 26,959
</TABLE>
- ---------------
* Partial year
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
16
<PAGE> 61
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.
Independent Public Accountants. PricewaterhouseCoopers LLP is the Fund's
independent public accounting firm. The Funds are served by the Baltimore
office, located at 250 West Pratt Street, Suite 2100, Baltimore MD 21201, 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 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, is General Counsel of 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
17
<PAGE> 62
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 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.
18
<PAGE> 63
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>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Partners Fund..................................... $6,824,949 $6,461,416 $4,707,780
International Fund................................ $1,266,740 $ 282,438* --
Realty Fund....................................... $1,219,191 $1,362,321 $1,791,258
Small-Cap Fund.................................... $4,020,068 $4,088,165 $1,632,755
</TABLE>
- ---------------
* Partial year
CAPITAL STOCK AND INDEMNIFICATION RIGHTS
Longleaf Partners Funds Trust (the "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 shareholder
liability for covered acts or obligations should any shareholder be held
personally liable under these provisions.
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> 64
PURCHASE, REDEMPTION, AND PRICING OF SHARES
The methods of purchasing and redeeming shares through the transfer agent, NFDS,
are described on pages 26 through 32 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
Net Asset Value Per
equals 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 37 and 38, was calculated as follows:
<TABLE>
<C> <S> <C> <C>
PARTNERS FUND INTERNATIONAL FUND
$3,622,109,470 $293,613,096
= $20.49 = $12.02
--------------- -------------
176,769,274 $24,431,980
REALTY FUND SMALL-CAP FUND
$643,310,527 $1,429,673,217
= $12.69 = $20.20
--------------- -------------
50,689,493 70,780,977
</TABLE>
In valuing Fund assets, we apply the following procedures:
(1) Portfolio securities listed or traded on a securities exchange and
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> 65
(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 invest not 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 state taxation in the Commonwealth of
Massachusetts on its investment company taxable income and any 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,
21
<PAGE> 66
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, 1999, Longleaf Partners Realty Fund 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, as follows:
<TABLE>
<CAPTION>
AMOUNT EXPIRATION
------ -----------
<S> <C>
$17,735,542 ........... 12/31/2006
$ 7,577,501 ........... 12/31/2007
</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 Funds 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
Funds 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.
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. A 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 a 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 a 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> 67
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 calendar years ended 12/31 for each of
the Funds are as follows:
<TABLE>
<CAPTION>
PARTNERS INTERNATIONAL REALTY SMALL-CAP
FUND FUND FUND FUND
-------- ------------- ------ ---------
<S> <C> <C> <C> <C>
1999................................. 2.18% 24.37% (10.45)% 4.05%
1998................................. 14.28% 9.02%* (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................................. 23.26% -- -- 21.51%*
1988................................. 35.19% -- -- --
</TABLE>
- ---------------
* Partial year
23
<PAGE> 68
The average annual returns for each of the Funds for the cumulative periods
shown, ending on December 31, 1999, are as follows:
<TABLE>
<S> <C>
PARTNERS FUND
5 years ended 12/31/99.................................... 18.24%
10 years ended 12/31/99................................... 15.75%
From Initial Public Offering on 4/8/87 through 12/31/99... 15.48%
INTERNATIONAL FUND
From Initial Public offering on 10/26/98 through
12/31/99............................................... 29.41%
REALTY FUND
From Initial Public Offering on 1/2/96 through 12/31/99... 9.21%
SMALL-CAP FUND
5 years ended 12/31/99.................................... 18.58%
10 years ended 12/31/99................................... 10.64%
From Initial Public offering on 2/21/89 through
12/31/98............................................... 11.75%
</TABLE>
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 initial public offering) 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> 69
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> 70
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> 71
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, 1999, audited by
PricewaterhouseCoopers LLP, the Fund's independent 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 the printed Annual Report, together with the Report of Independent
Accountants dated February 5, 2000 are included as a part of this Statement of
Additional Information on the following pages.
27
<PAGE> 72
LONGLEAF PARTNERS FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees 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, 1999, 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 accounting principles generally accepted in the United States. These
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 auditing standards generally accepted in the United States 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, 1999 by correspondence with the custodian and
brokers provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 5, 2000
28
<PAGE> 73
PARTNERS FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock 98.4%
Environmental Services 17.1%
2,890,900 * Allied Waste Industries, Inc........................................ $ 25,476,056
34,557,689 Waste Management, Inc.(b)........................................... 593,960,280
--------------
619,436,336
--------------
Health Insurance 2.7%
267,700 Aetna Inc........................................................... 14,941,006
1,525,300 United Healthcare Corporation....................................... 81,031,562
--------------
95,972,568
--------------
Investment Management 0.5%
1,237,700 * The Pioneer Group, Inc.............................................. 19,493,775
Lodging 17.3%
1,076,380 * Crestline Capital Corporation(b).................................... 22,200,337
19,601,100 Hilton Hotels Corporation(b)........................................ 188,660,588
11,700,250 Host Marriott Corporation(b)........................................ 96,527,063
10,103,600 Marriott International, Inc......................................... 318,894,875
--------------
626,282,863
--------------
Manufacturing 2.2%
4,450,000 * UCAR International, Inc.(b)......................................... 79,265,625
Multi-Industry 9.0%
1,565,000 Alexander & Baldwin, Inc............................................ 35,701,563
3,323,000 General Motors Corporation.......................................... 241,540,563
360,640 Koninklijke Philips Electronics N.V. (Foreign)...................... 48,686,400
--------------
325,928,526
--------------
Natural Resources 11.7%
7,459,900 Georgia-Pacific Corporation - Timber Group(b)....................... 183,700,038
11,201,032 * Pioneer Natural Resources Company(b)................................ 100,109,223
2,900,000 Rayonier Inc.(b).................................................... 140,106,250
--------------
423,915,511
--------------
Property & Casualty Insurance 6.8%
30,534,000 The Nippon Fire & Marine Insurance Company, Ltd. (Foreign)(b)....... 90,985,902
27,460,000 The Yasuda Fire & Marine Insurance Company, Ltd. (Foreign).......... 155,066,839
--------------
246,052,741
--------------
Publishing 5.1%
3,134,300 Knight Ridder, Inc.................................................. 186,490,850
Real Estate 6.2%
1,998,400 Boston Properties Inc............................................... 62,200,200
9,681,791 TrizecHahn Corporation (Foreign)(b)................................. 163,380,223
--------------
225,580,423
--------------
</TABLE>
See Notes to Financial Statements.
29
<PAGE> 74
PARTNERS FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Restaurants 4.8%
4,465,000 * Tricon Global Restaurants, Inc...................................... $ 172,460,625
Transportation 15.0%
10,175,000 Canadian Pacific Limited (Foreign).................................. 219,398,437
7,890,000 * FDX Corporation(c).................................................. 322,996,875
--------------
542,395,312
--------------
TOTAL COMMON STOCKS (COST $3,940,414,406)........................... 3,563,275,155
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
----------
<S> <C> <C> <C> <C> <C>
Short-Term Obligations 1.7%
62,701,000 Repurchase Agreement with State Street Bank, 2.50% due 1-3-00
(Collateralized by U.S. government securities).................... 62,701,000
--------------
TOTAL INVESTMENTS (COST $4,003,115,406)(a)....................................... 100.1% 3,625,976,155
OTHER ASSETS AND LIABILITIES, NET................................................ (0.1) (3,866,685)
----- --------------
NET ASSETS....................................................................... 100.0% $3,622,109,470
===== ==============
NET ASSET VALUE PER SHARE................................................................ $20.49
==============
</TABLE>
* Non-income producing security
(a) Also represents aggregate cost for federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $435,970,447, and
$(813,109,698), 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 19% of net assets.
OPEN FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Currency Currency Sold and Currency Unrealized
Units Sold Settlement Date Market Value Loss
- ------------- ---------------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
8,759,000,000 Japanese Yen 3-30-00...................................... $ 86,819,208 $(12,022,002)
5,565,000,000 Japanese Yen 6-30-00...................................... 56,009,314 (4,841,706)
5,400,000,000 Japanese Yen 9-29-00...................................... 55,224,990 (882,633)
------------ ------------
$198,053,512 $(17,746,341)
============ ============
</TABLE>
See Notes to Financial Statements.
30
<PAGE> 75
INTERNATIONAL FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Common Stock 101.3%
Banks 1.8%
389,672 * Banco Hipotecario (Argentina)...................................... $ 5,378,011
Broadcasting 6.5%
220,000 Nippon Broadcasting System (Japan)(d).............................. 19,129,484
Food 2.1%
601,000 Ezaki Glico Co., Ltd. (Japan)(d)................................... 2,794,937
64,000 Weetabix Limited (United Kingdom).................................. 3,352,336
------------
6,147,273
------------
Lodging 0.3%
475,000 Jarvis Hotels plc (United Kingdom)................................. 899,530
Multi-Industry 15.7%
83,750,000 * Brierley Investments Limited (New Zealand)(d)...................... 17,470,250
310,100 Sea Containers Limited (Bermuda)................................... 8,256,412
3,765,000 Wassall PLC (United Kingdom)(d).................................... 20,388,650
------------
46,115,312
------------
Natural Resources 12.8%
380,000 De Beers Consolidated Mines Ltd. (South Africa).................... 10,996,250
3,349,996 Gendis Inc. (Canada)(b)(c)......................................... 10,964,295
4,650,000 * Gulf Canada Resources Limited (Canada)............................. 15,693,750
------------
37,654,295
------------
Printing 6.0%
3,453,600 Bemrose Corporation plc (United Kingdom)(b)........................ 17,477,765
Property & Casualty Insurance 22.8%
2,670,000 The Dai-Tokyo Fire and Marine Insurance Company, Ltd. (Japan)(d)... 10,877,720
4,879,000 The Nippon Fire & Marine Insurance Company, Ltd. (Japan)(d)........ 14,538,554
3,337,000 The Nissan Fire & Marine Insurance Company, Ltd. (Japan)(d)........ 10,302,292
490,000 Sampo Insurance Company Ltd. (Finland)(d).......................... 17,043,807
2,503,000 The Yasuda Fire & Marine Insurance Company, Ltd. (Japan)(d)........ 14,134,461
------------
66,896,834
------------
Publishing 4.7%
639,500 Hollinger Inc. (Canada)............................................ 5,948,632
598,400 Hollinger International Inc. (United States)....................... 7,741,800
------------
13,690,432
------------
Real Estate 4.4%
4,171,600 * O&Y Properties Corporation (Canada)(b)(d).......................... 12,934,748
Restaurants 6.5%
448,000 Kentucky Fried Chicken Japan (Japan)(d)............................ 5,685,619
1,020,000 MOS Food Service, Inc. (Japan)(d).................................. 13,542,854
------------
19,228,473
------------
</TABLE>
See Notes to Financial Statements.
31
<PAGE> 76
INTERNATIONAL FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Retail 8.6%
7,380,000 Safeway plc (United Kingdom)(d).................................... $ 25,216,014
Transportation 9.1%
525,000 Canadian Pacific Limited (Canada).................................. 11,320,312
1,150,000 * Wisconsin Central Transportation Corporation (United States)(d).... 15,453,125
------------
26,773,437
------------
TOTAL COMMON STOCKS (COST $280,486,997)............................ 297,541,608
------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
PAR
----------
Short-Term Obligations 0.9%
2,769,000 Repurchase Agreement with State Street Bank, 2.50% due 1-3-00
(Collateralized by U.S. government securities)................... 2,769,000
-------------
TOTAL INVESTMENTS (COST $283,255,997)(a)......................................... 102.2% 300,310,608
OTHER ASSETS AND LIABILITIES, NET................................................ (2.2) (6,697,512)
----- -------------
NET ASSETS....................................................................... 100.0% $ 293,613,096
===== =============
NET ASSET VALUE PER SHARE............................................................... $12.02
======
</TABLE>
* Non-income producing security
(a) Aggregate cost for federal income tax purposes. Aggregate unrealized
appreciation and depreciation are $34,129,773 and $(17,075,162),
respectively.
(b) Affiliated company. See Note 7.
(c) Illiquid security. See Note 8.
(d) Designated as collateral on forward currency contracts. See Note 10.
Note: Country listed in parenthesis after each company indicates location of
headquarters.
OPEN FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Currency Currency Sold and Currency Unrealized
Units Sold Settlement Date Market Value Gain (Loss)
- ------------- ------------------------------------------------------------ ------------ -----------
<C> <S> <C> <C>
6,688,166 British Pound 3-30-00....................................... $ 10,779,852 $ (56,186)
17,765,000 British Pound 6-30-00....................................... 28,622,721 (12,798)
10,000,000 British Pound 12-28-00...................................... 15,935,100 214,900
1,500,000 Canadian Dollar 3-30-00..................................... 1,035,769 (4,913)
18,500,000 Canadian Dollar 6-30-00..................................... 12,801,919 (328,369)
15,400,000 European Currency Unit 6-30-00.............................. 15,645,529 659,321
4,938,726,087 Japanese Yen 3-30-00........................................ 48,952,653 (5,941,384)
1,669,000,000 Japanese Yen 6-30-00........................................ 16,797,762 (1,333,264)
75,000,000 Japanese Yen 9-29-00........................................ 767,014 (27,813)
2,500,000,000 Japanese Yen 12-28-00....................................... 25,955,000 70,401
23,650,000 New Zealand Dollar 3-30-00.................................. 12,346,483 492,683
6,400,000 New Zealand Dollar 9-29-00.................................. 3,339,677 (44,957)
5,000,000 New Zealand Dollar 12-28-00................................. 2,607,250 (19,750)
------------ -----------
$195,586,729 $(6,332,129)
============ ===========
</TABLE>
See Notes to Financial Statements.
32
<PAGE> 77
REALTY FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Common Stock - 89.6%
Realty 89.2%
Diversified Realty 21.3%
4,209,800 * Catellus Development Corporation................................... $ 53,938,062
2,195,000 * Excel Legacy Corporation(b)........................................ 7,270,938
1,864,050 Forest City Enterprises, Inc. - Class A(b)......................... 52,193,400
148,600 Forest City Enterprises, Inc. - Class B(b)......................... 4,615,887
1,123,600 TrizecHahn Corporation (Foreign)................................... 18,960,750
------------
136,979,037
------------
Lodging 20.5%
8,424,744 Hilton Hotels Corporation.......................................... 81,088,161
3,434,408 Host Marriott Corporation (REIT)(c)................................ 28,333,866
719,500 Marriott International, Inc........................................ 22,709,219
------------
132,131,246
------------
Mortgage Financing 5.3%
2,399,647 Bay View Capital Corp.(b).......................................... 34,044,992
------------
Natural Resources/Land 13.5%
650,000 Deltic Timber Corporation(b)....................................... 14,218,750
200,000 Rayonier Inc....................................................... 9,662,500
4,740,200 TimberWest Forest Corp. (Foreign)(b)............................... 31,028,664
1,840,000 Waste Management, Inc.............................................. 31,625,000
------------
86,534,914
------------
Office 19.3%
2,075,000 Beacon Capital Partners, Inc. (REIT)(b)(d)......................... 24,900,000
833,000 Boston Properties Inc. (REIT)...................................... 25,927,125
914,200 Cousins Properties Incorporated (REIT)............................. 31,025,663
2,810,700 Prime Group Realty Trust (REIT)(b)................................. 42,687,506
------------
124,540,294
------------
Retail 9.3%
1,223,800 Getty Realty Corp.(b).............................................. 13,691,262
1,622,100 * IHOP Corp.(b)...................................................... 27,068,794
3,371,400 Prime Retail, Inc. (REIT)(b)....................................... 18,964,125
------------
59,724,181
------------
Non-Realty 0.4%
162,800 * The Pioneer Group, Inc............................................. 2,564,100
------------
TOTAL COMMON STOCKS (COST $663,929,088)............................ 576,518,764
------------
</TABLE>
See Notes to Financial Statements.
33
<PAGE> 78
REALTY FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Preferred Stock - 6.8%
Diversified Realty 6.8%
14,600,000 * Excel Legacy Corporation - Series A Liquidating Preference
Convertible (Cost $73,000,000)(b)(d)............................. $ 43,526,980
------------
UNITS
----------
Trust Units - 1.2%
Lodging 1.2%
93,564 Beacon Voting Trust (Cost $8,945,868)(b)(d)........................ 7,485,120
------------
CONTRACTS
----------
Options - 0.5%
Natural Resources/Land 0.5%
Put Options Written
8,461 Newhall Land and Farming Company, expiring
April '01 @ $25 (Premiums received $2,581,033)..................... (1,396,065)
Call Options Purchased
8,461 Newhall Land and Farming Company, expiring
April '01 @ $25 (Cost $3,711,631).................................. 5,000,451
------------
3,604,386
------------
PAR
----------
Short-Term Obligations 0.8%
5,234,000 Repurchase Agreement with State Street Bank, 2.5% due 1-3-00
(Collateralized by U.S. government securities)..................... 5,234,000
------------
TOTAL INVESTMENTS (COST $752,209,554)(a)......................................... 98.9% 636,369,250
OTHER ASSETS AND LIABILITIES, NET................................................ 1.1 6,941,277
----- ------------
NET ASSETS....................................................................... 100.0% $643,310,527
===== ============
NET ASSET VALUE PER SHARE............................................................... $12.69
======
</TABLE>
* Non-income producing security
(a) Also represents aggregate cost for federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $46,044,368 and $(173,332,438),
respectively.
(b) Affiliated company. See Note 7.
(c) A portion designated as collateral on Newhall options. See Note 10.
(d) Illiquid, board valued security. See Note 8.
Note: REITs comprise 27% of net assets. Companies designated as "Foreign" are
headquartered outside the U.S. and represent 8% of net assets.
See Notes to Financial Statements.
34
<PAGE> 79
SMALL-CAP FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock 99.1%
Agriculture 3.3%
1,015,400 * Agribrands International, Inc.(b).................................. $ 46,708,400
Beverages 2.1%
2,195,100 Whitman Corporation................................................ 29,496,656
Business Services 4.7%
5,029,900 * Romac International, Inc.(b)....................................... 67,589,281
Commercial Lighting 6.0%
2,407,500 * Genlyte Group Incorporated(b)...................................... 51,460,313
1,692,850 Thomas Industries, Inc.(b)......................................... 34,597,622
--------------
86,057,935
--------------
Entertainment 0.8%
1,470,000 * Carmike Cinemas, Inc. -- Class A(b)................................ 11,484,375
Environmental Services 5.0%
6,297,600 * Safety-Kleen Corp.(b).............................................. 71,241,600
Food -- Wholesale 4.6%
6,444,000 Fleming Companies, Inc.(b)......................................... 66,051,000
Health Care 1.0%
2,056,500 * Pediatrix Medical Group, Inc.(b)................................... 14,395,500
Investment Management 1.5%
1,320,000 * The Pioneer Group, Inc............................................. 20,790,000
Life Insurance 4.2%
2,058,500 The MONY Group Inc................................................. 60,082,469
Lodging 5.1%
2,829,653 Hilton Hotels Corporation.......................................... 27,235,410
15,450,400 * Wyndham International, Inc.(b)..................................... 45,385,550
--------------
72,620,960
--------------
Manufacturing 13.4%
3,323,440 AMETEK, Inc.(b).................................................... 63,353,075
1,740,000 * The Carbide/Graphite Group, Inc.(b)................................ 11,310,000
2,390,200 * Scott Technologies, Inc.(b)........................................ 45,115,025
5,115,000 U.S. Industries, Inc.(b)........................................... 71,610,000
--------------
191,388,100
--------------
Mortgage Financing 3.1%
3,114,700 Bay View Capital Corp.(b).......................................... 44,189,806
Natural Resources 11.1%
845,000 Deltic Timber Corporation(b)....................................... 18,484,375
27,863,860 * Gulf Canada Resources Limited (Foreign)(b)......................... 94,040,527
6,950,000 TimberWest Forest Corp. (Foreign)(b)............................... 45,493,695
--------------
158,018,597
--------------
</TABLE>
See Notes to Financial Statements.
35
<PAGE> 80
SMALL-CAP FUND - PORTFOLIO OF INVESTMENTS
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Pharmaceuticals 4.1%
7,268,800 * Perrigo Company(b)................................................. $ 58,150,400
Property & Casualty Insurance 6.6%
243,883 * Alleghany Corporation.............................................. 45,240,296
1,777,400 Hilb, Rogal and Hamilton Company(b)................................ 50,211,550
--------------
95,451,846
--------------
Real Estate 8.5%
4,680,000 * Catellus Development Corporation................................... 59,962,500
1,135,400 Cousins Properties Incorporated.................................... 38,532,638
1,443,400 * IHOP Corp.(b)...................................................... 24,086,738
--------------
122,581,876
--------------
Restaurants 1.1%
982,400 * VICORP Restaurants, Inc.(b)........................................ 15,841,200
Retail 7.7%
1,767,600 Midas Inc.(b)...................................................... 38,666,250
2,654,100 * The Neiman Marcus Group, Inc. -- Class B(b)........................ 71,494,819
--------------
110,161,069
--------------
Transportation 5.2%
5,550,800 * Wisconsin Central Transportation Corporation(b).................... 74,588,875
--------------
TOTAL COMMON STOCKS (COST $1,402,414,683)...................................... 1,416,889,945
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
----------
<S> <C> <C> <C> <C> <C>
Short-Term Obligations 0.7%
9,295,000 Repurchase Agreement with State Street Bank, 2.5% due 1-3-00
(Collateralized by U.S. government securities)................... 9,295,000
--------------
TOTAL INVESTMENTS (COST $1,411,709,683)(a)....................................... 99.8% 1,426,184,945
OTHER ASSETS AND LIABILITIES, NET................................................ 0.2 3,488,272
----- --------------
NET ASSETS....................................................................... 100.0% $1,429,673,217
===== ==============
NET ASSET VALUE PER SHARE............................................................... $20.20
======
</TABLE>
* Non-income producing security
(a) Also represents aggregate cost for federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $158,598,595 and
$(144,123,333), respectively.
(b) Affiliated company. See Note 7.
Note: Companies designated as "Foreign" are headquartered outside the U.S. and
represent 10% of net assets.
See Notes to Financial Statements.
36
<PAGE> 81
LONGLEAF PARTNERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments:
Affiliated securities, at market value (cost
$2,401,549,875, $46,220,168, $379,683,544 and
$1,135,148,750, respectively) (Note 2 and 7)............
Other securities, at market value (cost $1,538,864,531,
$234,266,829, $369,903,043 and $267,265,933,
respectively) (Note 2)..................................
Repurchase agreements (Note 2)............................
TOTAL INVESTMENTS
Cash........................................................
Receivable for:
Dividends and interest....................................
Fund shares sold..........................................
Securities sold...........................................
Prepaid assets..............................................
TOTAL ASSETS
LIABILITIES:
Payable for:
Forward currency contracts (Note 2).......................
Fund shares redeemed......................................
Securities purchased......................................
Investment counsel fee (Note 3)...........................
Administration fee (Note 4)...............................
Options written, at market value (premiums received
$2,581,033) (Note 2 and 9)................................
Other accrued expenses......................................
TOTAL LIABILITIES
NET ASSETS:
Net assets consist of:
Paid-in capital...........................................
Undistributed net investment income(loss).................
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.
37
<PAGE> 82
LONGLEAF PARTNERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
PARTNERS FUND INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
- -------------- ------------------ ------------ --------------
<S> <C> <C> <C>
$1,658,895,528 $ 41,376,808 $317,080,531 $1,135,549,976
1,904,379,627 256,164,800 315,450,784 281,339,969
62,701,000 2,769,000 5,234,000 9,295,000
- -------------- ------------ ------------ --------------
3,625,976,155 300,310,608 637,765,315 1,426,184,945
169 223 590 590
4,730,304 518,618 3,124,127 1,709,506
4,572,816 407,256 2,987,971 1,080,531
22,696,553 107,327 2,523,217 4,502,879
167,054 20,205 31,462 56,883
- -------------- ------------ ------------ --------------
3,658,143,051 301,364,237 646,432,682 1,433,535,334
- -------------- ------------ ------------ --------------
17,746,341 6,332,129 - -
13,164,530 905,778 1,043,156 2,544,589
2,022,779 - - 2,706
2,421,201 371,774 549,577 1,028,441
311,503 25,602 54,957 125,801
- - 1,396,065 -
367,227 115,858 78,400 160,580
- -------------- ------------ ------------ --------------
36,033,581 7,751,141 3,122,155 3,862,117
- -------------- ------------ ------------ --------------
$3,622,109,470 $293,613,096 $643,310,527 $1,429,673,217
============== ============ ============ ==============
$3,738,388,018 $265,239,079 $785,852,455 $1,414,197,988
- (1,144) - 32,283
278,607,044 17,654,042 (26,670,992) 968,573
(394,885,592) 10,721,119 (115,870,936) 14,474,373
- -------------- ------------ ------------ --------------
$3,622,109,470 $293,613,096 $643,310,527 $1,429,673,217
============== ============ ============ ==============
$20.49 $12.02 $12.69 $20.20
====== ====== ====== ======
176,769,274 24,431,980 50,689,493 70,780,977
</TABLE>
See Notes to Financial Statements.
38
<PAGE> 83
LONGLEAF PARTNERS FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends from affiliates (net of foreign tax withheld of
$454,114, $115,747, $18,319 and $28,235, respectively)
(Note 7)................................................
Dividends from non-affiliates (net of foreign tax withheld
of $1,561,433, $261,841, $41,060 and $66,235,
respectively)...........................................
Interest..................................................
Total income.......................................
EXPENSES:
Investment counsel fee (Note 3)...........................
Administration fee (Note 4)...............................
Transfer agent fee........................................
Registration and filing fees..............................
Postage and supplies......................................
Printing..................................................
Reimbursable administration expenses (Note 4).............
Custodian fee.............................................
Professional fees.........................................
Trustees' fees............................................
Insurance expense.........................................
Miscellaneous.............................................
Total expenses.....................................
Investment counsel fee waived.............................
Net expenses.......................................
Net investment income..............................
REALIZED AND UNREALIZED GAIN(LOSS):
Net realized gain(loss):
Non-affiliated securities.................................
Affiliated securities (Note 7)............................
Options...................................................
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.
39
<PAGE> 84
LONGLEAF PARTNERS FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PARTNERS FUND INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
- ------------- ------------------ ------------- --------------
<S> <C> <C> <C>
$ 19,573,130 $ 1,068,720 $ 10,926,161 $ 10,808,885
35,819,820 2,670,858 7,651,367 2,844,620
33,602,899 1,709,757 659,372 6,060,731
- ------------ ------------- ------------- -------------
88,995,849 5,449,335 19,236,900 19,714,236
- ------------ ------------- ------------- -------------
33,132,889 3,476,322 7,445,972 11,915,519
4,284,390 231,755 744,598 1,455,404
690,431 37,347 120,019 234,614
248,545 99,355 39,642 104,973
279,306 23,615 73,313 108,262
263,023 24,429 71,594 96,989
184,137 7,033 41,405 69,576
102,186 108,041 19,443 35,120
46,568 45,346 44,108 41,994
60,000 20,000 30,000 30,000
44,240 2,648 12,001 16,444
131,989 22,076 50,409 51,747
- ------------ ------------- ------------- -------------
39,467,704 4,097,967 8,692,504 14,160,642
- (42,258) - -
- ------------ ------------- ------------- -------------
39,467,704 4,055,709 8,692,504 14,160,642
- ------------ ------------- ------------- -------------
49,528,145 1,393,626 10,544,396 5,553,594
- ------------ ------------- ------------- -------------
916,862,616 27,261,297 (26,756,214) 149,184,620
836,664 (243,560) 16,786,733 18,515,858
- - 1,258,956 -
(13,344,304) (2,235,160) - (4,335,671)
(10,524) (48,685) 10,900 9,300
- ------------ ------------- ------------- -------------
904,344,452 24,733,892 (8,699,625) 163,374,107
- ------------ ------------- ------------- -------------
(916,521,959) 14,417,177 (84,456,914) (130,207,391)
(5,077,187) (3,481,944) (903,402) 7,872,091
- ------------ ------------- ------------- -------------
(921,599,146) 10,935,233 (85,360,316) (122,335,300)
- ------------ ------------- ------------- -------------
(17,254,694) 35,669,125 (94,059,941) 41,038,807
- ------------ ------------- ------------- -------------
$ 32,273,451 $ 37,062,751 $ (83,515,545) $ 46,592,401
============ ============= ============= =============
</TABLE>
See Notes to Financial Statements.
40
<PAGE> 85
LONGLEAF PARTNERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PARTNERS FUND
---------------------------------
YEAR ENDED
DECEMBER 31,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income...................................... $ 49,528,145 $ 37,909,506
Net gain(loss)............................................. 904,344,452 638,290,424
Change in net unrealized gain(loss)........................ (921,599,146) (248,007,321)
-------------- --------------
Net increase(decrease) in net assets resulting from
operations............................................. 32,273,451 428,192,609
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................. (50,849,326) (36,966,961)
From net realized gain on investments...................... (672,352,020) (586,542,694)
From return of capital..................................... - -
-------------- --------------
Net decrease in net assets resulting from
distributions.......................................... (723,201,346) (623,509,655)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares........................... 1,134,274,945 890,978,876
Net asset value of shares issued to shareholders for
reinvestment of shareholder distributions................ 695,727,239 907,344,282
Cost of shares redeemed.................................... (1,202,264,742) (522,776,364)
-------------- --------------
Net increase in net assets from fund share
transactions........................................... 627,737,442 1,275,546,794
-------------- --------------
Total increase (decrease) in net assets................... (63,190,453) 1,080,229,748
NET ASSETS:
Beginning of period........................................ 3,685,299,923 2,605,070,175
-------------- --------------
End of period.............................................. $3,622,109,470 $3,685,299,923
============== ==============
Undistributed net investment income (loss) included in net
assets at end of period.................................. $ - $872,615
===== ========
</TABLE>
See Notes to Financial Statements.
41
<PAGE> 86
LONGLEAF PARTNERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
- -------------------------------- ----------------------------- -------------------------------
YEAR CAPITALIZATION YEAR ENDED YEAR ENDED
ENDED AUGUST 12, 1998 DECEMBER 31, DECEMBER 31,
DECEMBER 31, TO DECEMBER 31, ----------------------------- -------------------------------
1999 1998 1999 1998 1999 1998
- -------------- --------------- -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1,393,626 $ 37,645 $ 10,544,396 $ 22,852,505 $ 5,553,594 $ 10,219,153
24,733,892 1,099,639 (8,699,625) (18,082,849) 163,374,107 150,103,088
10,935,233 (214,114) (85,360,316) (128,495,450) (122,335,300) (28,601,652)
------------ ----------- ------------ ------------ -------------- --------------
37,062,751 923,170 (83,515,545) (123,725,794) 46,592,401 131,720,589
------------ ----------- ------------ ------------ -------------- --------------
(1,346,328) (37,720) (5,142,943) (22,173,227) (5,574,355) (10,041,928)
(8,227,856) - - - (165,419,770) (145,213,540)
- - (11,417,766) (5,557,418) - -
------------ ----------- ------------ ------------ -------------- --------------
(9,574,184) (37,720) (16,560,709) (27,730,645) (170,994,125) (155,255,468)
------------ ----------- ------------ ------------ -------------- --------------
251,155,300 75,071,603 256,227,058 524,495,785 500,525,620 565,247,944
8,647,707 32,236 15,791,432 56,610,939 163,286,523 178,562,305
(69,251,008) (516,759) (304,327,313) (391,256,885) (465,100,821) (280,170,886)
------------ ----------- ------------ ------------ -------------- --------------
190,551,999 74,587,080 (32,308,823) 189,849,839 198,711,322 463,639,363
------------ ----------- ------------ ------------ -------------- --------------
218,040,566 75,472,530 (132,385,077) 38,393,400 74,309,598 440,104,484
75,572,530 100,000 775,695,604 737,302,204 1,355,363,619 915,259,135
------------ ----------- ------------ ------------ -------------- --------------
$293,613,096 $75,572,530 $643,310,527 $775,695,604 $1,429,673,217 $1,355,363,619
============ =========== ============ ============ ============== ==============
$(1,144) $244 $ - $627,922 $32,284 $43,744
======= ==== === ======== ======= =======
</TABLE>
See Notes to Financial Statements.
42
<PAGE> 87
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; these principles may require the use of
estimates by Fund management. Actual results could differ from those estimates.
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 values 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, except that
certain dividends from foreign securities are recorded as soon after the
ex-dividend date as the Fund is informed of the dividend. Interest income and
Fund expenses are recognized on an accrual basis.
Distributions to Shareholders
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
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
substantially all taxable income to shareholders. Accordingly, no federal income
tax provision is required. The Funds intend to make any required distributions
to
43
<PAGE> 88
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. When an option
is exercised, the cost of securities acquired or the proceeds from securities
sold is adjusted by the premium amount.
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.
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
44
<PAGE> 89
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 $42,258 at December 31, 1999
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.
45
<PAGE> 90
NOTE 5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------
PARTNERS INTERNATIONAL REALTY SMALL-CAP
FUND FUND FUND FUND
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold.................................. 42,839,976 21,925,549 18,285,180 22,402,360
Reinvestment of shareholder distribution..... 32,884,394 706,373 1,261,297 8,115,384
Shares redeemed.............................. (50,052,490) (5,783,738) (22,165,389) (21,477,725)
----------- ---------- ----------- -----------
25,671,880 16,848,184 (2,618,912) 9,040,019
=========== ========== =========== ===========
</TABLE>
<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
=========== ========== =========== ===========
</TABLE>
NOTE 6. INVESTMENT TRANSACTIONS
Purchases and sales of equity securities for the period (excluding short-term
obligations) are summarized below:
<TABLE>
<CAPTION>
PARTNERS FUND INTERNATIONAL FUND REALTY FUND SMALL-CAP FUND
-------------- ------------------ ------------ --------------
<S> <C> <C> <C> <C>
Purchases $1,902,827,363 $298,661,669 $164,287,991 $727,658,632
Sales 1,800,399,787 103,196,294 197,406,000 632,040,381
</TABLE>
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, 1999, 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 5.6
Georgia-Pacific Corporation--Timber Group 9.0
Hilton Hotels Corporation 5.3
Host Marriott Corporation 5.1
The Nippon Fire & Marine Insurance Company, Ltd. 5.3
Pioneer Natural Resources Company 11.2
Rayonier Inc. 10.6
TrizecHahn Corporation 6.3
UCAR International, Inc. 9.9
Waste Management, Inc. 5.6
INTERNATIONAL FUND
Gendis Inc. (Note 8) 20.0
Bemrose Corporation plc 12.3
O&Y Properties Corporation 9.6
</TABLE>
46
<PAGE> 91
<TABLE>
<CAPTION>
%
OUTSTANDING
SHARES OF THE
COMPANY
-------------
<S> <C>
REALTY FUND
Bay View Capital Corporation 7.4
Beacon Capital Partners, Inc. (Note 8) 9.9
Beacon Voting Trust (Note 8) 9.9
Deltic Timber Corporation 5.2
Excel Legacy Corporation*--
Common 6.0
Series A Liquidating Preference Convertible (Note 8) 68.6
Forest City Enterprises, Inc. -- Class A and B 10.3
Getty Realty Corp. 9.0
IHOP Corp. 8.1
Prime Group Realty Trust 18.6
Prime Retail, Inc. 7.8
TimberWest Forest Corp. 6.8
* Combined voting power is 30.8%
SMALL-CAP FUND
Agribrands International, Inc. 9.8
AMETEK, Inc. 10.3
Bay View Capital Corp. 9.6
The Carbide/Graphite Group, Inc. 20.9
Carmike Cinemas, Inc.-- Class A 14.8
Deltic Timber Corporation 6.8
Fleming Companies, Inc. 16.6
Genlyte Group Incorporated 17.6
Gulf Canada Resources Limited 8.0
Hilb, Rogal and Hamilton Company 13.6
IHOP Corp. 7.2
Midas Inc. 10.9
The Neiman Marcus Group, Inc. -- Class B 5.4
Pediatrix Medical Group, Inc. 13.2
Perrigo Company 9.9
Romac International, Inc. 10.8
Safety-Kleen Corp. 6.3
Scott Technologies, Inc. 13.4
Thomas Industries, Inc. 10.7
TimberWest Forest Corp. 10.0
U.S. Industries, Inc. 5.9
VICORP Restaurants, Inc. 11.1
Wisconsin Central Transportation Corporation 10.8
Wyndham International, Inc. -- Class A 9.2
</TABLE>
NOTE 8. ILLIQUID OR RESTRICTED SECURITIES
The Realty Fund holds 2,075,000 shares of Beacon Capital Partners, Inc. (Beacon)
carried at $24,900,000 or $12.00 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, 1999.
47
<PAGE> 92
On July 1, 1999, Beacon paid a taxable distribution of $9,013,144 in the form of
91,994 units of Beacon Voting Trust. The Voting Trust structure allows Beacon
Capital Partners to retain voting authority with respect to their investment in
Wyndham International without jeopardizing their REIT status. The Voting Trust
shares are not registered and are subject to transfer restrictions. On October
25, 1999, the Voting Trust paid a cash distribution of $67,275 and 1,570
additional trust units. At December 31, 1999 the 93,564 total Voting Trust units
are carried at $7,485,120 or $80.00 per unit.
The Realty Fund also owns 14,600,000 shares of Excel Legacy Corp. Series A
Liquidating Preference Convertible Stock (Excel Preferred) valued at $43,526,980
or $2.9813 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. The Excel Preferred shares are not registered and there is
no regular trading market in these shares.
Both Beacon, Beacon Voting Trust and Excel Preferred are valued in good faith
under guidelines established by the Board of Trustees. These investments
represent 11.8% of the Realty Fund's net assets at December 31, 1999.
The International Fund owns 3,349,996 shares of Gendis, Inc. 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 3.7% of the International Fund's net assets at
December 31, 1999.
NOTE 9. PUT OPTIONS WRITTEN
The Realty Fund had the following written option transactions for the year ended
December 31, 1999:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
--------- ----------
<S> <C> <C>
Options outstanding at December 31, 1998.................... 8,461 $1,786,187
Options expired............................................. (8,461) (1,786,187)
Options written............................................. 8,461 2,581,033
------ ----------
Options outstanding at December 31, 1999.................... 8,461 $2,581,033
====== ==========
</TABLE>
NOTE 10. COLLATERAL
Securities with the following aggregate market value were segregated to
collateralize portfolio obligations at December 31, 1999:
<TABLE>
<CAPTION>
Market
Value of
Segregated
Obligation Assets
------------------------------------ ---------------
<S> <C> <C>
Partners Fund....................... Forward Currency Contracts $307,031,250
International Fund.................. Forward Currency Contracts $199,512,515
Realty Fund......................... Newhall Land and Farming Company Put
Options Written $ 24,750,000
</TABLE>
48
<PAGE> 93
NOTE 11. RELATED OWNERSHIP
At December 31, 1999, 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.......................................... 3,445,163 14.1%
Realty Fund................................................. 4,667,904 9.2%
</TABLE>
NOTE 12. CAPITAL LOSS CARRYOVERS
At December 31, 1999, the Realty Fund 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 as follows:
<TABLE>
<CAPTION>
Amount Expiration
------ ----------
<S> <C> <C>
$17,735,542 12/31/2006
$ 7,577,501 12/31/2007
</TABLE>
The Partners Fund, International Fund and Small-Cap Fund had no loss carryovers.
NOTE 13. 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, 1999 and December 31, 1999
as follows:
<TABLE>
<CAPTION>
Capital Currency
---------- --------
<S> <C> <C>
Partners Fund............................................... - -
International Fund.......................................... - $12,152
Realty Fund................................................. $1,357,949 -
Small-Cap Fund.............................................. $6,089,260 -
</TABLE>
49
<PAGE> 94
(This page intentionally left blank)
50
<PAGE> 95
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 UNREALIZED OPERATIONS INCOME GAINS
----------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
PARTNERS FUND
Year ended December 31,
1999.............................................. $24.39 $.28 $ .34 $ .62 $ (.29) $(4.23)
1998.............................................. 25.98 .25 3.22 3.47 (.25) (4.81)
1997.............................................. 22.85 .21 6.24 6.45 (.21) (3.11)
1996.............................................. 21.15 .38 4.08 4.46 (.38) (2.38)
1995.............................................. 17.13 .24 4.46 4.70 (.24) (.44)
INTERNATIONAL FUND
Year ended December 31, 1999.......................... 9.97 .06 2.38 2.44 (.06) (.33)
August 12, 1998 (Capitalization)
through December 31, 1998......................... 10.00 .01 (.03) (.02) (.01) -
REALTY FUND
Year ended December 31,
1999.............................................. 14.55 .36 (1.88) (1.52) (.23) -
1998.............................................. 17.35 .44 (2.70) (2.26) (.43) -
1997.............................................. 13.97 .09 4.06 4.15 (.09) (.64)
1996.............................................. 10.00 .03 4.04 4.07 (.04) (.05)
SMALL-CAP FUND
Year ended December 31,
1999.............................................. 21.95 .08 .79 .87 (.08) (2.54)
1998.............................................. 22.18 .17 2.54 2.71 (.17) (2.77)
1997.............................................. 17.86 .18 5.01 5.19 (.18) (.69)
1996.............................................. 14.46 .02 4.41 4.43 (.02) (1.01)
1995.............................................. 13.28 .12 2.35 2.47 (.12) (1.17)
</TABLE>
(a) Annualized
(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. For the International Fund, the
expense ratio before the waiver was 1.76% and 2.65% in 1999 and 1998,
respectively. The Realty Fund's expense ratio in 1996 before the waiver was
1.60%.
51
<PAGE> 96
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>
$ - $(4.52) $20.49 2.18% $3,622,109 .92% 1.16% 50.39%
- (5.06) 24.39 14.28 3,685,300 .93 1.12 43.78
- (3.32) 25.98 28.25 2,605,070 .94 .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
- (.39) 12.02 24.37 293,613 1.75(d) .60 50.32
- (.01) 9.97 9.02(c) 75,572 1.75(a)(d) .10(a) 24.05
(.11) (.34) 12.69 (10.45) 643,311 1.17 1.42 22.64
(.11) (.54) 14.55 (12.98) 775,696 1.17 3.44 21.55
(.04) (.77) 17.35 29.73 737,302 1.20 .75 28.66
(.01) (.10) 13.97 40.69 156,009 1.50(d) .92 4.28
- (2.62) 20.20 4.05 1,429,673 .97 .38 47.48
(2.94) 21.95 12.71 1,355,364 1.01 .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
</TABLE>
52
<PAGE> 97
INVESTMENT COUNSEL
Southeastern Asset Management,
Inc.
6410 Poplar Avenue, Suite 900
Memphis, TN 38119
(901) 761-2474
TRANSFER AND DIVIDEND AGENT
National Financial Data Services
("NFDS")
P.O. Box 219929
Kansas City, MO 64121-6929
For Information about your
account,
call (800) 445-9469
CUSTODIAN
State Street Bank & Trust
Company, Boston, MA
SPECIAL LEGAL COUNSEL
Dechert Price & Rhoads,
Washington, DC
INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
PricewaterhouseCoopers, L.L.P.,
Baltimore, MD and Boston, MA
No person has been authorized to
give any further information or
make any representations other
than those contained in the
Prospectus or this Statement of
Additional Information. If given
or made, such other information
or representations must not be
relied upon as having been
authorized by the Fund, its
Investment Counsel, or its
Administrator. This Prospectus
does not constitute an offering
in any state where such an
offering may not be lawfully
made.
LONGLEAF
PARTNERS
FUNDS TRUST
(LONGLEAF PARTNERS FUNDS LOGO)
MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
6410 POPLAR AVE.
SUITE 900
MEMPHIS, TN 38119
(800) 445-9469 (LONGLEAF PARTNERS FUNDS LOGO)
www.longleafpartners.com
LONGLEAF
PARTNERS
FUNDS (SM)
STATEMENT OF
ADDITIONAL INFORMATION
MAY 1, 2000
---------------------------------------
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS
INTERNATIONAL FUND
LONGLEAF PARTNERS
REALTY FUND
LONGLEAF PARTNERS
SMALL-CAP FUND
---------------------------------------
MANAGED BY
SOUTHEASTERN ASSET MANAGEMENT, INC.
6410 POPLAR AVENUE; SUITE 900
MEMPHIS, TN 38119
---------------------------------------
TELEPHONE (800) 445-9469;
WWW.LONGLEAFPARTNERS.COM
<PAGE> 98
PART C. OTHER INFORMATION
Item 23. Exhibits
(a). Articles of Incorporation. Registrant is a Massachusetts business trust.
Declaration of Trust; incorporated by reference from Post Effective
Amendment No. 21, filed February 26, 1999 (Accession Number
0000950144-99-002256).
(b). By-Laws; incorporated by reference from Post Effective Amendment No. 21,
filed February 26, 1999 (Accession Number 0000950144-99-002256).
(c). Instruments Defining Rights of Security Holders. Stock Certificate; Sample;
incorporated by reference from Post Effective Amendment No. 21, filed
February 26, 1999 (Accession Number 0000950144-99-002256).
(d). Investment Advisory Contracts (with Southeastern Asset Management, Inc.)
(1) Longleaf Partners Fund and Longleaf Partners Small-Cap Fund;
incorporated by reference from Post Effective Amendment No. 21,
filed February 26, 1999 (Accession Number 0000950144-99-002256)
(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; incorporated by reference from Post Effective Amendment No. 21,
filed February 26, 1999 (Accession Number 0000950144-99-002256).
(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); incorporated by reference from Post Effective Amendment No.
21, filed February 26, 1999 (Accession Number
0000950144-99-002256).
(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;
incorporated by reference from Post Effective Amendment No. 21,
filed February 26, 1999 (Accession Number 0000950144-99-002256).
(5). Sub-Transfer Agent Agreement with Howard Johnson & Company;
incorporated by reference from Post Effective Amendment No. 21,
filed February 26, 1999 (Accession Number 0000950144-99-002256).
(6). Form of Sub-Transfer Agent Agreement with National Financial
Services Corp; incorporated by reference from Post Effective
Amendment No. 21, filed February 26, 1999 (Accession Number
0000950144-99-002256).
(7). IRA Disclosure Statement and Adoption Agreement; incorporated by
reference from Post Effective Amendment No. 21, filed February 26,
1999 (Accession Number 0000950144-99-002256).
(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; incorporated by reference from
form NSAR-B, filed February 29, 2000 (Accession Number
0000806636-00-000002).
(o). Rule 18f-3 Plan. Not applicable; none.
<PAGE> 99
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 22
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> 100
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 22
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> 101
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 22
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> 102
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 22
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> 103
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 22
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.
22 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
G. Staley Cates 1985 - Present; President (1994)
Trustee and President Southeastern Asset Vice President
Chief Operating Management, Inc. 1985-94
Officer
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> 104
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 22
<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
and Secretary Management, Inc.
General Counsel
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.
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> 105
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 22
Item 27 Principal Underwriters
(a) Each series is a no-load fund 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> 106
CERTIFICATION UNDER RULE 485(b)
Pursuant to subparagraphs (3) and (4) of Rule 485(b) under the Securities Act of
1933, the Registrant represents as follows:
1. This Post-Effective Amendment No. 22 is being filed solely for one or
more of the purposes specified in subparagraph (1) of Rule 485(b),
including in particular subparagraph 1(i) [bringing the financial
statements up to date by incorporating audited financial statements for
the fiscal year ended December 31, 1999], and subparagraph 1(v) [making
certain non-material changes in disclosure language which the registrant
deems appropriate].
2. No material event requiring disclosure in the Prospectus, other than one
listed in subparagraph (b)(1), including updating the financial
statements and making certain non-material changes as permitted by
subparagraph (1)(v) of Rule 485(b), has occurred since the filing of
Post-Effective Amendment No. 21 on February 26, 1999, the last
Post-Effective Amendment containing a Prospectus for the Registrant.
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. 22 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 28th day of April, 2000.
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> 107
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 22
SIGNATURES (Continued)*
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 22 to the Registration Statement of Longleaf Partners Funds Trust
on Form N-1A has been signed below by the following persons in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ O. Mason Hawkins
- --------------------------
O. Mason Hawkins Trustee; Chairman of the April 27, 2000
Board and Chief Executive
Officer
/s/ G. Staley Cates
- --------------------------
G. Staley Cates Trustee and President April 27, 2000
(Chief Operating Officer)
/s/ Chadwick H. Carpenter, Jr.
- ------------------------------
Chadwick H. Carpenter, Jr. Trustee April 27, 2000
/s/ Daniel W. Connell, Jr.
- --------------------------
Daniel W. Connell, Jr. Trustee April 27, 2000
/s/ Steven N. Melnyk
- --------------------------
Steven N. Melnyk Trustee April 27, 2000
/s/ C. Barham Ray
- --------------------------
C. Barham Ray Trustee April 27, 2000
</TABLE>
(*) As of the date of this Post-Effective Amendment No. 22, 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(i)
LONGLEAF PARTNERS FUNDS TRUST
c/o Southeastern Asset Management, Inc.
6410 Poplar Avenue; Suite 900
Memphis, TN 38119
April 28, 2000
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. 22 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. 22 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. 22 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 5, 2000, relating to the financial
statements and financial highlights appearing in the December 31, 1999 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
April 28, 2000
