As filed with the Securities and Exchange Commission on April 30, 2014
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. 46 | x |
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 | x | |||
Amendment No. 46 | 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)
Registrants Telephone Number, Including Area Code - (901) 761-2474
ANDREW R. McCARROLL, ESQ
Southeastern Asset Mgmt., Inc.
6410 Poplar Ave., Ste. 900
Memphis, TN 38119
(Name and address of agent for service)
It is proposed that this filing will become effective (check appropriate box)
¨ | Immediately upon filing pursuant to paragraph (b) of Rule 485 |
¨ | 60 days after filing pursuant to paragraph (a)(1) of Rule 485 |
þ | on May 1, 2014 pursuant to paragraph (b) of Rule 485 |
¨ | 75 days after filing pursuant to paragraph (a)(2) of Rule 485 |
¨ | on May 1, 2012 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. |
Partners Fund (Ticker: LLPFX) |
Small-Cap Fund (Ticker: LLSCX) |
International Fund (Ticker: LLINX) |
Global Fund (Ticker: LLGLX) |
May 1, 2014 |
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.
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); and |
|
May not achieve their stated goals. |
Longleaf Partners Funds Summaries | ||||
Partners Fund Summary | 1 | |||
Invests primarily in mid and large-cap U.S. companies believed to be significantly undervalued. | ||||
Small-Cap Fund Summary | 5 | |||
Invests primarily in small-cap U.S. companies believed to be significantly undervalued. (Closed to new investors) | ||||
International Fund Summary | 9 | |||
Invests primarily in non-U.S. companies believed to be significantly undervalued. | ||||
Global Fund Summary | 13 | |||
Invests primarily in U.S. and non-U.S. companies believed to be significantly undervalued. |
Partners Fund | Longleaf Partners Funds | ¡ | 1 |
Partners Fund Summary |
Investment Objective
Longleaf Partners Fund seeks long-term capital growth.
Fees and Expenses
The following table shows the fees and expenses you may pay to buy and hold shares of the Partners Fund.
Transaction Fees and Expenses |
||||
(sales charges or loads)
(fees paid directly from your investment) |
None | |||
Annual Fund Operating Expenses |
||||
(expenses that you pay each year as a percentage of the value of your investment) | ||||
Management Fees |
0.76 | % | ||
12b-1 Fees |
None | |||
Other Expenses |
0.16 | |||
Total Annual Fund Operating Expenses |
0.92 | % | ||
Example of Fund Expenses. This example helps 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. Your actual costs may be higher or lower than those shown.
One Year | Three Years | Five Years | Ten Years | |||
$94 | $293 | $509 | $1,131 | |||
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During the most recent fiscal year, the Funds portfolio turnover rate was 22.73% of the average value of its portfolio.
Principal Investment Strategy
The Fund seeks superior long-term performance by acquiring equity securities of a limited number of
mid-and large- cap U.S. companies that we believe meet our qualitative and quantitative criteria:
|
Strong businesses that are understandable, financially sound, competitively entrenched, and will generate growing free cash flow; |
|
Good management partners who are capable operators, responsible capital allocators, trustworthy, and shareholder-oriented; and |
|
Good price that is typically 60% or less of our conservative appraisal determined through fundamental financial analysis using disciplines weve applied over 39 years. We believe purchasing equities at prices substantially less than their intrinsic worth establishes a margin of safety that should protect capital from significant permanent loss and provide the opportunity for substantial appreciation if the market recognizes the companys value. |
We sell securities when they approach our appraisals, when we perceive a change in company fundamentals, a decline in attractiveness relative to other issues, or if the original reasons for purchase materially change.
The Fund primarily owns common stock or securities convertible into common stock but may purchase other types of securities. The Fund may invest up to 30% of assets in non-U.S. securities, which could include emerging market issuers, and may achieve its exposure to non-U.S. securities through investing in American depositary receipts (ADRs). The Fund may purchase and sell (write) put and call options, futures contracts and options on futures contracts, swaps and other similar instruments and may engage in short sales. During the last fiscal year the Fund employed a variety of options strategies to gain exposure to securities of companies that meet our qualitative and quantitative criteria.
The Fund is non-diversified, which means that it may invest a significant portion of its assets in a relatively small number of issuers, and generally invests in 15 to 25 companies.
Principal Investment Risks
The following are summaries of the principal risks of investing in the Fund. For additional risk information that you should consider, see Risks of Investing in the Funds statutory prospectus.
2 | ¡ | Longleaf Partners Funds | Partners Fund |
Partners Fund Summary |
Principal Investment Risks (continued)
Stock Market Risk n Equity prices fluctuate in response to actual or perceived developments at individual companies, within particular industries or sectors, or general economic conditions. If the Funds price declines and you redeem your shares, you could lose money.
Investment Selection Risk n Investments might not reach what we believe are their true values either because the market fails to recognize the value or because we misjudged it.
Corporate Ownership Risks n As partial owners of companies, we face a number of risks inherent in owning a business, such as operational, financial and regulatory risk. If businesses we own in the Funds do not successfully address these risks, their business values and stock prices may decline and negatively impact your Fund shares.
Non-Diversification Risk n Because the Fund is non-diversified under federal securities laws and generally invests in 15 to 25 companies, each holding will have a greater impact on the Funds total return, and share value could fluctuate more than if a greater number of securities were held.
Non-U.S. Investment Risks n Non-U.S. investment risks can include political and economic changes, non-U.S. withholding taxes, exchange controls, confiscation, non-U.S. governmental restrictions, differences in accounting and auditing standards, more limited availability of public information and market illiquidity.
In addition, non-U.S. securities are generally denominated and traded in non-U.S. currencies, and the Fund may invest in derivative instruments that provide exposure to non-U.S. currencies. The exchange rates between currencies can fluctuate daily. As a result, the values of a Funds non-U.S. securities may be affected by changes in exchange rates between non-U.S. currencies and the U.S. dollar, as well as between currencies of countries other than the U.S. In some cases, the Fund may try to hedge to reduce the impact of currency exchange fluctuation, but does not intend to do so routinely. As a result, the Funds price will be more susceptible to currency fluctuations.
Non-U.S. investment risks may be more pronounced in emerging markets.
Derivatives Risks n The Funds use of derivative instruments involves risks different from, and possibly greater than, the risks associated with investing directly in securities, currencies and other traditional investments. To the extent it invests in derivative instruments, the Fund could lose more than the principal amount invested, and the use of certain derivatives may subject the Fund to the potential for unlimited loss. A derivative investment may not perform as we expect, may become illiquid and may result in loss if the Funds counterparty is unable or unwilling to meet its obligations. Derivatives also involve the risk of mispricing or improper valuation, the risk of ambiguous documentation, and the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. In addition, the use of derivatives may increase or accelerate the amount of taxes payable by shareholders.
Partners Fund | Longleaf Partners Funds | ¡ | 3 |
Performance
The bar chart and performance table illustrate the variability of returns and provide some indication of the risks of investing by showing the changes in performance from year to year, as well as how the Funds average annual returns for the 1, 5 and 10 years compare with a broad-based securities market index. Past performance (before and after taxes) does not indicate how the Fund will perform in the future. Free updated performance information can be obtained at longleafpartners.com or (800) 445-9469.
Past Fund Performance Total Return (%)
Average Annual Total Returns at December 31, 2013
One Year | Five Years | Ten Years | ||||||||||
Longleaf Partners Fund (net of fees and expenses) |
||||||||||||
Return Before Taxes |
32.12 | % | 22.05 | % | 6.05 | % | ||||||
Return After Taxes* on Distributions |
31.11 | 21.16 | 5.28 | |||||||||
Return After Taxes* on Distributions and Sale of Fund Shares |
18.95 | 18.27 | 4.96 | |||||||||
Comparative Index (no deductions for fees, expenses, or taxes) |
||||||||||||
S&P 500 Index |
32.39 | 17.94 | 7.41 | |||||||||
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates, and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. In some cases the return after taxes may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period.
Best Quarter
in last ten years.
2nd Quarter of 2009 26.63%
Worst Quarter
in last ten years.
4th Quarter of 2008 (34.73)%
4 | ¡ | Longleaf Partners Funds | Partners Fund |
Partners Fund Summary |
Management
Southeastern Asset Management, Inc. (Southeastern) is the Funds investment adviser. The following serve as portfolio managers:
O. Mason Hawkins n Chairman and Chief Executive Officer of Southeastern. Fund manager since 1987.
G. Staley Cates n President and Chief Investment Officer of Southeastern. Fund manager since 1994.
Purchase and Sale of Fund Shares
Minimum investment
|
$10,000 initial purchase |
|
No minimum for additional purchases |
Shares of the Fund may be purchased or redeemed any day the New York Stock Exchange is open.
Regular mail instructions:
P.O. Box 9694
Providence, RI 02940-9694
Overnight mail:
4400 Computer Drive
Westborough, MA 01581
Telephone requests:
(800) 445-9469
Wire transfers also accepted.
Tax Information
The Fund intends to make distributions that may be taxable as ordinary income or capital gains.
Payments to Broker-Dealers and other Financial Intermediaries
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and/or its investment adviser may pay the intermediary a fee to compensate for the services it provides, which may include performing sub-accounting and sub-transfer agent services, delivering Fund documents to shareholders and related services. These payments may create a conflict of interest by influencing the financial intermediary to make available or recommend the Fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
Small-Cap Fund | Longleaf Partners Funds | ¡ | 5 |
Small-Cap Fund Summary |
Investment Objective
Longleaf Partners Small-Cap Fund seeks long-term capital growth.
Fees and Expenses
The following table shows the fees and expenses you may pay to buy and hold shares of the Small-Cap Fund.
Transaction Fees and Expenses |
||||
(sales charges or loads) (fees paid directly from your investment) |
None | |||
Annual Fund Operating Expenses |
||||
(expenses that you pay each year as a percentage of the value of your investment) | ||||
Management Fees |
0.77 | % | ||
12b-1 Fees |
None | |||
Other Expenses |
0.14 | |||
Total Annual Fund Operating Expenses |
0.91 | % | ||
Example of Fund Expenses. This example helps 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. Your actual costs may be higher or lower than those shown.
One Year | Three Years | Five Years | Ten Years | |||
$93 | $290 | $504 | $1,120 | |||
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During the most recent fiscal year, the Funds portfolio turnover rate was 20.41% of the average value of its portfolio.
Principal Investment Strategy
The Fund seeks superior long-term performance by acquiring equity securities of a limited number
of small-cap U.S. companies that we believe meet our qualitative and quantitative criteria:
|
Strong businesses that are understandable, financially sound, competitively entrenched, and will generate growing free cash flow; |
|
Good management partners who are capable operators, responsible capital allocators, trustworthy, and shareholder-oriented; and |
|
Good price that is typically 60% or less of our conservative appraisal determined through fundamental financial analysis using disciplines weve applied over 39 years. We believe purchasing equities at prices substantially less than their intrinsic worth establishes a margin of safety that should protect capital from significant permanent loss and provide the opportunity for substantial appreciation if the market recognizes the companys value. |
We sell securities when they approach our appraisals, when we perceive a change in company fundamentals, a decline in attractiveness relative to other issues, or if the original reasons for purchase materially change.
The Small-Cap Fund normally invests at least 80% of net assets plus any borrowings for investment purposes in the equity securities, including convertible securities, of a limited number of companies whose market capitalizations at the time of purchase are considered small cap. The Fund primarily owns common stock but may purchase other types of securities. The Fund may invest up to 30% of assets in non-U.S. securities, which could include emerging market issuers, and may achieve its exposure to non-U.S. securities through investing in American depositary receipts (ADRs). The Fund may purchase and sell (write) put and call options, futures contracts and options on futures contracts, swaps and other similar instruments and may engage in short sales. The Fund did not invest significantly in derivative instruments over its last fiscal year.
The Fund is non-diversified, which means that it may invest a significant portion of its assets in a relatively small number of issuers, and generally invests in 15 to 25 companies.
6 | ¡ | Longleaf Partners Funds | Small-Cap Fund |
Small-Cap Fund Summary |
Principal Investment Strategy (continued)
Definition of Small-Cap n Currently, a company will be considered small cap if its market capitalization at the time of purchase is within the range of companies in the Russell 2000 Index, the S&P Small-Cap 600 Index, or the Wilshire US Small-Cap Index during the most recent 12-month period (based on month-end data). This capitalization range will change over time. At March 31, 2014, the top of this range was $10.2 billion. Fund investments are not limited to companies in these indices, however, and there is no requirement to sell securities of a company if it subsequently exceeds the top of the capitalization range.
Principal Investment Risks
The following are summaries of the principal risks of investing in the Fund. For additional risk information that you should consider, see Risks of Investing in the Funds statutory prospectus.
Stock Market Risk n Equity prices fluctuate in response to actual or perceived developments at individual companies, within particular industries or sectors, or general economic conditions. If the Funds price declines and you redeem your shares, you could lose money.
Investment Selection Risk n Investments might not reach what we believe are their true values either because the market fails to recognize the value or because we misjudged it.
Corporate Ownership Risks n As partial owners of companies, we face a number of risks inherent in owning a business, such as operational, financial and regulatory risk. If businesses we own in the Funds do not successfully address these risks, their business values and stock prices may decline and negatively impact your Fund shares.
Non-Diversification Risk n Because the Fund is non-diversified under federal securities laws and generally invests in 15 to 25 companies, each holding will have a greater impact on the Funds total return, and share value could fluctuate more than if a greater number of securities were held.
Non-U.S. Investment Risks n Non-U.S. investment risks can include political and economic changes, non-U.S. withholding taxes, exchange controls, confiscation, non-U.S. governmental restrictions, differences in accounting and auditing standards, more limited availability of public information and market illiquidity.
In addition, non-U.S. securities are generally denominated and traded in non-U.S. currencies, and the Fund may invest in derivative instruments that provide exposure to non-U.S. currencies. The exchange rates between currencies can fluctuate daily. As a result, the values of a Funds non-U.S. securities may be affected by changes in exchange rates between non-U.S. currencies and the U.S. dollar, as well as between currencies of countries other than the U.S. In some cases, the Fund may try to hedge to reduce the impact of currency exchange fluctuation, but does not intend to do so routinely. As a result, the Funds price will be more susceptible to currency fluctuations.
Non-U.S. investment risks may be more pronounced in emerging markets.
Small-Cap Risks n Smaller companies may have more limited product lines, markets, and financial resources than larger companies, and to the extent recently established, may have limited or no operating history to evaluate. In addition, 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.
Derivatives Risks n The Funds use of derivative instruments involves risks different from, and possibly greater than, the risks associated with investing directly in securities, currencies and other traditional investments. To the extent it invests in derivative instruments, the Fund could lose more than the principal amount invested, and the use of certain derivatives may subject the Fund to the potential for unlimited loss. A derivative investment may not perform as we expect, may become illiquid and may result in loss if the Funds counterparty is unable or unwilling to meet its obligations. Derivatives also involve the risk of mispricing or improper valuation, the risk of ambiguous documentation, and the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. In addition, the use of derivatives may increase or accelerate the amount of taxes payable by shareholders.
Small-Cap Fund | Longleaf Partners Funds | ¡ | 7 |
Performance
The bar chart and performance table illustrate the variability of returns and provide some indication of the risks of investing by showing the changes in performance from year to year, as well as how the Funds average annual returns for the 1, 5 and 10 years compare with a broad-based securities market index. Past performance (before and after taxes) does not indicate how the Fund will perform in the future. Free updated performance information can be obtained at longleafpartners.com or (800) 445-9469.
Past Fund Performance Total Return (%)
Average Annual Total Returns at December 31, 2013
One Year | Five Years | Ten Years | ||||||||||
Longleaf Partners Small-Cap Fund (net of fees and expenses) |
||||||||||||
Return Before Taxes |
30.45 | % | 24.42 | % | 10.34 | % | ||||||
Return After Taxes* on Distributions |
26.01 | 23.05 | 8.76 | |||||||||
Return After Taxes* on Distributions and Sale of Fund Shares |
20.34 | 20.21 | 8.41 | |||||||||
Comparative Index (reflects no deductions for fees, expenses, or taxes) |
|
|||||||||||
Russell 2000 Index |
38.82 | 20.08 | 9.07 | |||||||||
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates, and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. In some cases the return after taxes may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period.
Best Quarter
in last 10 years
3rd Quarter of 2009 23.98%
Worst Quarter
in last 10 years
4th Quarter of 2008 (28.22)%
8 | ¡ | Longleaf Partners Funds | Small-Cap Fund |
Small-Cap Fund Summary |
Management
Southeastern Asset Management, Inc. (Southeastern) is the Funds investment adviser. The following serve as portfolio managers:
O. Mason Hawkins n Chairman and Chief Executive Officer of Southeastern. Fund manager since 1989.
G. Staley Cates n President and Chief Investment Officer of Southeastern. Fund manager since 1994.
Ross Glotzbach n Deputy Director of Research for Southeastern. Fund manager since 2014.
Purchase and Sale of Fund Shares
Minimum investment
|
$10,000 initial purchase (closed to new investors) |
|
No minimum for additional purchases |
Shares of the Fund may be purchased or redeemed any day the New York Stock Exchange is open.
Regular mail instructions:
P.O. Box 9694
Providence, RI 02940-9694
Overnight mail:
4400 Computer Drive
Westborough, MA 01581
Telephone requests:
(800) 445-9469
Wire transfers also accepted.
Tax Information
The Fund intends to make distributions that may be taxable as ordinary income or capital gains.
Payments to Broker-Dealers and other Financial Intermediaries
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and/or its investment adviser may pay the intermediary a fee to compensate for the services it provides, which may include performing sub-accounting and sub-transfer agent services, delivering Fund documents to shareholders and related services. These payments may create a conflict of interest by influencing the financial intermediary to make available or recommend the Fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
International Fund | Longleaf Partners Funds | ¡ | 9 |
International Fund Summary |
Investment Objective
Longleaf Partners International Fund seeks long-term capital growth.
Fees and Expenses
The following table shows the fees and expenses you may pay to buy and hold shares of the International Fund.
Transaction Fees and Expenses |
||||
(sales charges or loads) (fees paid directly from your investment) |
None | |||
Annual Fund Operating Expenses |
||||
(expenses that you pay each year as a percentage of the value of your investment) | ||||
Management Fees |
1.06 | % | ||
12b-1 Fees |
None | |||
Other Expenses |
0.21 | |||
Total Annual Fund Operating Expenses |
1.27 | % | ||
Example of Fund Expenses. This example helps 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. Your actual costs may be higher or lower than those shown.
One Year | Three Years | Five Years | Ten Years | |||
$129 | $403 | $697 | $1,534 | |||
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During the most recent fiscal year, the Funds portfolio turnover rate was 36.12% of the average value of its portfolio.
Principal Investment Strategy
The Fund seeks superior long-term performance by acquiring equity securities of a limited number
of international or non-U.S. companies that we believe meet our qualitative and quantitative criteria:
|
Strong businesses that are understandable, financially sound, competitively entrenched, and will generate growing free cash flow; |
|
Good management partners who are capable operators, responsible capital allocators, trustworthy, and shareholder-oriented; and |
|
Good price that is typically 60% or less of our conservative appraisal determined through fundamental financial analysis using disciplines weve applied over 39 years. We believe purchasing equities at prices substantially less than their intrinsic worth establishes a margin of safety that should protect capital from significant permanent loss and provide the opportunity for substantial appreciation if the market recognizes the companys value. |
We sell securities when they approach our appraisals, when we perceive a change in company fundamentals, a decline in attractiveness relative to other issues, or if the original reasons for purchase materially change.
The International Fund normally invests at least 65% of total assets in the equity securities of non-U.S. issuers, which could include emerging market issuers, and may achieve its exposure to non-U.S. securities through investing in American depositary receipts (ADRs). The Fund primarily owns common stock or securities convertible into common stock but may purchase other types of securities as long as the investment meets our criteria. The Fund may purchase and sell (write) put and call options, futures contracts and options on futures contracts, swaps and other similar instruments and may engage in short sales. During the last fiscal year the Fund employed forward currency agreements for the purpose of managing its exposure to currency risk, as well as options and swaps to gain exposure to securities of companies that meet our qualitative and quantitative criteria.
The Fund is non-diversified, which means that it may invest a significant portion of its assets in a
10 | ¡ | Longleaf Partners Funds | International Fund |
International Fund Summary |
Principal Investment Strategy (continued)
relatively small number of issuers, and generally invests in 15 to 25 companies.
Definition of Non-U.S. n A company will generally be considered non-U.S. if headquartered outside the United States or if at least 50% of its assets are outside the U.S. or 50% of its gross income is from non-U.S. sources.
Principal Investment Risks
The following are summaries of the principal risks of investing in the Fund. For additional risk information that you should consider, see Risks of Investing in the Funds statutory prospectus.
Stock Market Risk n Equity prices fluctuate in response to actual or perceived developments at individual companies, within particular industries or sectors, or general economic conditions. If the Funds price declines and you redeem your shares, you could lose money.
Investment Selection Risk n Investments might not reach what we believe are their true values either because the market fails to recognize the value or because we misjudged it.
Corporate Ownership Risks n As partial owners of companies, we face a number of risks inherent in owning a business, such as operational, financial and regulatory risk. If businesses we own in the Funds do not successfully address these risks, their business values and stock prices may decline and negatively impact your Fund shares.
Non-Diversification Risk n Because the Fund is non-diversified under federal securities laws and generally invests in 15 to 25 companies, each holding will have a greater impact on the Funds total return, and share value could fluctuate more than if a greater number of securities were held.
Non-U.S. Investment Risks n Non-U.S. investment risks can include political and economic changes, non-U.S. withholding taxes, exchange controls, confiscation, non-U.S. governmental restrictions, differences in accounting and auditing standards, more limited availability of public information and market illiquidity.
In addition, non-U.S. securities are generally denominated and traded in non-U.S. currencies,
and the Fund may invest in derivative instruments that provide exposure to non-U.S. currencies. The exchange rates between currencies can fluctuate daily. As a result, the values of a Funds non-U.S. securities may be affected by changes in exchange rates between non-U.S. currencies and the U.S. dollar, as well as between currencies of countries other than the U.S. In some cases, the Fund may try to hedge to reduce the impact of currency exchange fluctuation, but does not intend to do so routinely. As a result, the Funds price will be more susceptible to currency fluctuations.
Non-U.S. investment risks may be more pronounced in emerging markets.
Focused Geographic Risks n The Fund does not limit the percentage of assets invested in any particular geographic region or country. Accordingly, there may be periods when the Fund has significant exposure to a particular region or country, so that negative events occurring in that area would have a greater adverse impact on performance than they would on more geographically diversified funds.
Derivatives Risks n The Funds use of derivative instruments involves risks different from, and possibly greater than, the risks associated with investing directly in securities, currencies and other traditional investments. To the extent it invests in derivative instruments, the Fund could lose more than the principal amount invested, and the use of certain derivatives may subject the Fund to the potential for unlimited loss. A derivative investment may not perform as we expect, may become illiquid and may result in loss if the Funds counterparty is unable or unwilling to meet its obligations. Derivatives also involve the risk of mispricing or improper valuation, the risk of ambiguous documentation, and the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. In addition, the use of derivatives may increase or accelerate the amount of taxes payable by shareholders.
International Fund | Longleaf Partners Funds | ¡ | 11 |
Performance
The bar chart and performance table illustrate the variability of returns and provide some indication of the risks of investing by showing the changes in performance from year to year, as well as how the Funds average annual returns for the 1, 5 and 10 years compare with a broad-based securities market index. Past performance (before and after taxes) does not indicate how the Fund will perform in the future. Free updated performance information can be obtained at longleafpartners.com or (800) 445-9469.
Past Fund Performance Total Return (%)
Average Annual Total Returns at December 31, 2013
One Year | Five Years | Ten Years | ||||||||||
Longleaf Partners International Fund (net of fees and expenses) |
||||||||||||
Return Before Taxes |
28.14 | % | 11.63 | % | 5.81 | % | ||||||
Return After Taxes* on Distributions |
28.15 | 11.61 | 5.40 | |||||||||
Return After Taxes* on Distributions and Sale of Fund Shares |
16.09 | 9.56 | 4.91 | |||||||||
Comparative Index (reflects no deductions for fees or expenses) |
||||||||||||
MSCI EAFE Index |
22.78 | 12.44 | 6.91 | |||||||||
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates, and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. In some cases the return after taxes may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period.
Best Quarter
in last 10 years.
2nd Quarter of 2009 24.04%
Worst Quarter
in last 10 years.
3rd Quarter of 2011 (23.57)%
12 | ¡ | Longleaf Partners Funds | International Fund |
International Fund Summary |
Management
Southeastern Asset Management, Inc. (Southeastern) is the Funds investment adviser. The following serve as portfolio managers:
O. Mason Hawkins n Chairman and Chief Executive Officer of Southeastern. Fund manager since 1998.
G. Staley Cates n President and Chief Investment Officer of Southeastern. Fund manager since 1998.
T. Scott Cobb n Head of Europe and Principal of Southeastern. Fund manager since 2010.
Ken I. Siazon n Principal of Southeastern. Fund manager since 2010.
Purchase and Sale of Fund Shares
Minimum investment
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$10,000 initial purchase |
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No minimum for additional purchases |
Shares of the Fund may be purchased or redeemed any day the New York Stock Exchange is open.
Regular mail instructions:
P.O. Box 9694
Providence, RI 02940-9694
Overnight mail:
4400 Computer Drive
Westborough, MA 01581
Telephone requests:
(800) 445-9469
Wire transfers also accepted.
Tax Information
The Fund intends to make distributions that may be taxable as ordinary income or capital gains.
Payments to Broker-Dealers and other Financial Intermediaries
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and/or its investment adviser may pay the intermediary a fee to compensate for the services it provides, which may include performing sub-accounting and sub-transfer agent services, delivering Fund documents to shareholders and related services. These payments may create a conflict of interest by influencing the financial intermediary to make available or recommend the Fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
Global Fund | Longleaf Partners Funds | ¡ | 13 |
Global Fund Summary |
Investment Objective
Longleaf Partners Global Fund seeks long-term capital growth.
Fees and Expenses
The following table shows the fees and expenses you may pay to buy and hold shares of the Global Fund.
Transaction Fees and Expenses |
||||
(sales charges or loads) (fees paid directly from your investment) |
None | |||
Annual Fund Operating Expenses |
||||
(expenses that you pay each year as a percentage of the value of your investment) | ||||
Management Fees |
1.125 | % | ||
12b-1 Fees |
None | |||
Other Expenses |
0.605 | |||
Total Annual Fund Operating Expenses |
1.73 | |||
Fee Waiver Due to Expense Cap* |
(0.08 | ) | ||
Total Annual Fund Operating Expenses After Fee Waiver |
1.65 | % | ||
* The investment adviser is contractually obligated to waive its fee to the extent necessary to limit operating expenses (other than interest, taxes, brokerage commissions, distribution fees, and extraordinary expenses) to a maximum during any fiscal year of 1.65% per annum of average net assets of the Fund; provided, however, that the investment adviser shall not be required to provide reimbursement to the Fund for any fiscal year in excess of the amount of its fee which would otherwise be earned for that fiscal year.
Example of Fund Expenses. This example helps compare the cost of investing in the Global 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. Your actual costs may be higher or lower than those shown.
1 Year | 3 Years | 5 Years | 10 Years | |||
$168 | $520 | $897 | $1,955 | |||
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate
may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During the most recent fiscal year, the Funds portfolio turnover rate was 4.14% of the average value of its portfolio.
Principal Investment Strategy
The Fund seeks superior long-term performance by acquiring equity securities of U.S. and non-U.S. companies that we believe meet our qualitative and quantitative criteria:
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Strong businesses that are understandable, financially sound, competitively entrenched, and will generate growing free cash flow; |
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Good management partners who are capable operators, responsible capital allocators, trustworthy, and shareholder-oriented; and |
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Good price that is typically 60% or less of our conservative appraisal determined through fundamental financial analysis using disciplines weve applied over 39 years. We believe purchasing equities at prices substantially less than their intrinsic worth establishes a margin of safety that should protect capital from significant permanent loss and provide the opportunity for substantial appreciation if the market recognizes the companys value. |
We sell securities when they approach our appraisals, when we perceive a change in company fundamentals, a decline in attractiveness relative to other issues, or if the original reasons for purchase materially change.
The Global Fund normally invests at least 40% of total assets in the equity securities of non-U.S. issuers throughout the world, which could include emerging market issuers, and may achieve its exposure to non-U.S. securities through investing in American depositary receipts (ADRs). The Fund primarily owns common stock or securities convertible into common stocks.
The Fund may purchase and sell (write) put and call options, futures contracts and options on futures contracts, swaps and other similar instruments and may engage in short sales. The Fund did not invest in derivative instruments over its last fiscal year.
14 | ¡ | Longleaf Partners Funds | Global Fund |
Global Fund Summary |
The Fund is non-diversified, which means that it may invest a significant portion of its assets in a relatively small number of issuers, and generally invests in 15 to 25 companies.
Definition of Non-U.S. n A company will generally be considered non-U.S. if headquartered outside the United States or if at least 50% of its assets are outside the U.S. or 50% of its gross income is from non-U.S. sources.
Principal Investment Risks
The following are summaries of the principal risks of investing in the Fund. For additional risk information that you should consider, see Risks of Investing in the Funds statutory prospectus.
Stock Market Risk n Equity prices fluctuate and may decline in response to actual or perceived developments at individual companies, within particular industries or sectors, or general economic conditions. If the value of your investment goes down and you redeem your shares, you could lose money.
Investment Selection Risk n Investments might not reach what we believe are their true values either because the market fails to recognize the value or because we misjudged it.
Corporate Ownership Risks n As partial owners of companies, we face a number of risks inherent in owning a business, such as operational, financial and regulatory risk. If businesses we own in the Funds are not successful in addressing these risks, their business values and stock prices may decline, which would have a negative impact on the value of your Fund shares.
Non-Diversification Risk n Because the Fund is non-diversified under federal securities laws and generally invests in 15 to 25 companies, each holding will have a greater impact on the Funds total return, and its share value could fluctuate more than if a greater number of securities were held.
Non-U.S. Investment Risks n Non-U.S. investment risks can include political and economic changes, non-U.S. withholding taxes, exchange controls, confiscation, non-U.S. governmental restrictions, differences in accounting and
auditing standards, more limited availability of public information and market illiquidity.
In addition, non-U.S. securities are generally denominated and traded in non-U.S. currencies, and the Fund may invest in derivative instruments that provide exposure to non-U.S. currencies. The exchange rates between currencies can fluctuate daily. As a result, the values of a Funds non-U.S. securities may be affected by changes in exchange rates between non-U.S. currencies and the U.S. dollar, as well as between currencies of countries other than the U.S. In some cases, the Fund may try to hedge to reduce the impact of currency exchange fluctuation, but does not intend to do so routinely. As a result, the Funds price will be more susceptible to currency fluctuations.
Non-U.S. investment risks may be more pronounced in emerging markets.
Focused Investment Risks n The Fund does not limit the percentage of assets invested in any particular geographic region or country. Accordingly, there may be periods when the Fund has significant exposure to a particular region or country, so that negative events occurring in that area would have a greater adverse impact on performance than they would on more geographically diversified funds.
Derivatives Risks n The Funds use of derivative instruments involves risks different from, and possibly greater than, the risks associated with investing directly in securities, currencies and other traditional investments. To the extent it invests in derivative instruments, the Fund could lose more than the principal amount invested, and the use of certain derivatives may subject the Fund to the potential for unlimited loss. A derivative investment may not perform as we expect, may become illiquid and may result in loss if the Funds counterparty is unable or unwilling to meet its obligations. Derivatives also involve the risk of mispricing or improper valuation, the risk of ambiguous documentation, and the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. In addition, the use of derivatives may increase or accelerate the amount of taxes payable by shareholders.
Global Fund | Longleaf Partners Funds | ¡ | 15 |
Performance
The Fund Commenced investment operations on December 27, 2012.
The bar chart and performance table illustrate the variability of returns and provide some indication of the risks of investing by showing how the Funds average annual returns for the year compares with a broad-based securities market index. Past performance (before and after taxes) does not indicate how the Fund will perform in the future. Free updated performance information can be obtained at longleafpartners.com or (800) 445-9469.
Past Fund Performance Total Return (%)
Average Annual Total Returns at December 31, 2013
One Year |
Since Inception
12/27/12 |
|||||||
Longleaf Partners Fund (net of fees and expenses) |
||||||||
Return Before Taxes |
28.40 | % | 28.05 | % | ||||
Return After Taxes* on Distributions |
28.40 | 28.05 | ||||||
Return After Taxes* on Distributions and Sale of Fund Shares |
16.07 | 21.38 | ||||||
Comparative Index (no deductions for fees, expenses, or taxes) |
||||||||
MSCI World Index |
26.68 | 26.65 | ||||||
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates, and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. In some cases the return after taxes may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period.
Best Quarter
Since 12/27/12 Inception
3rd Quarter of 2013 14.29%
Worst Quarter
Since 12/27/12 Inception
2nd Quarter of 2013 (0.96)%
16 | ¡ | Longleaf Partners Funds | Global Fund |
Global Fund Summary |
Management
Southeastern Asset Management, Inc. (Southeastern) is the Funds investment adviser. The following serve as portfolio managers:
O. Mason Hawkins n Chairman and Chief Executive Officer of Southeastern. Fund manager since 2012.
G. Staley Cates n President and Chief Investment Officer of Southeastern. Fund manager since 2012.
Purchase and Sale of Fund Shares
Minimum investment
|
$10,000 initial purchase |
|
No minimum for additional purchases |
Shares of the Fund may be purchased or redeemed on any day the New York Stock Exchange is open for trading.
Regular mail instructions:
P.O. Box 9694
Providence, RI 02940-9694
Overnight mail:
4400 Computer Drive
Westborough, MA 01581
Telephone requests:
(800) 445-9469
Wire transfers also accepted.
Tax Information
The Fund intends to make distributions that may be taxable as ordinary income or capital gains.
Payments to Broker-Dealers and other Financial Intermediaries
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and/or its investment adviser may pay the intermediary a fee to compensate for the services it provides, which may include performing sub-accounting and sub-transfer agent services, delivering Fund documents to shareholders and related services. These payments may create a conflict of interest by influencing the financial intermediary to make available or recommend the Fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
Longleaf Partners Funds | ¡ | 17 |
About The Funds |
Governing Principles n The Longleaf Partners Funds represent an investment partnership between all Fund shareholders and the employees and affiliates of the Funds manager, Southeastern Asset Management, Inc. (Southeastern), who are the Funds largest owners. Southeastern will use its best efforts to apply the following principles to this investment partnership:
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We will treat your investment as if it were our own. |
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We will remain significant investors in Longleaf Partners Funds. |
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We will invest for the long term, while striving to maximize returns and to minimize business, financial, purchasing power, regulatory, and market risks. |
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We will choose each equity investment based on its discount from our appraisal of its corporate intrinsic value, its financial strength, its management, its competitive position, and our assessment of its future earnings potential. |
|
We will focus our assets in our best ideas. |
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We will not impose loads or 12b-1 charges on mutual fund shareholders. |
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We will consider closing to new investors if closing would benefit existing clients. |
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We will discourage short-term speculators and market timers. |
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We will continue our efforts to enhance shareholder services. |
|
We will communicate with our investment partners as candidly as possible. |
Our Philosophy n 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 what we believe are growing, financially sound companies managed by capable, honorable individuals at market prices significantly below our assessment of their business values. We sell stocks when they approach our appraisals. We seek to determine business or intrinsic value through financial analysis and established disciplines
which we have consistently applied over 39 years. We believe purchasing equities at prices substantially less than their intrinsic worth establishes a margin of safety that should protect capital from significant permanent loss and provide the opportunity for substantial appreciation if the market recognizes the companys economic value. Over the long term, our annual return goal is to exceed inflation plus 10%. We have established an absolute return goal to emphasize the importance of preserving and increasing our shareholders assets, not just beating an index. There is no assurance we will meet this goal.
Process n All of the Longleaf Partners Funds seek long term capital growth and follow the same investment disciplines and appraisal methods. Our analysts, working as a team, seek competitively entrenched companies we believe can enhance their advantages and are operated by trustworthy, capable, shareholder-oriented managers. Generally, when the common stock is available at 60% or less of our conservative appraisals, and when the investment has been qualified, both quantitatively and qualitatively, we purchase a position for the Fund or Funds whose universe most closely fits the company.
How We Achieve Our Investment Objectives
The following section discusses the principal investment strategies we use to achieve each Funds objective. The investment objectives of the International and Global Funds are non-fundamental and may be changed without shareholder approval.
Determining Business or Intrinsic Value n 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 seeks to assess the companys liquidation value based on the current economic worth of corporate assets and liabilities. The second method seeks to determines the companys ongoing value based on its ability to generate free cash flow after required
18 | ¡ | Prospectus 2013 |
About The Funds |
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. We believe our appraisal represents the price that informed buyers and sellers would negotiate in an arms length sale. We then check our appraisals against our data base of comparable historic transactions.
Other Investment Criteria n In addition to significant estimated undervaluation, we also look for the following when selecting investments:
|
Strong Business. We look for businesses that possess, in our opinion, a number of qualities. 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 and growth 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 look for businesses whose managements possess, in our opinion, four primary qualities. They should be capable operators who can run the business profitably. They should be capable capital allocators who will build shareholder value through wisely reinvesting the free cash flow that the business generates. They should be shareholder oriented in their actions and decisions. They should have the proper incentives with much of their net worth tied to the companys results. |
Although a company may not meet all the investment criteria above, we must believe that significant unrealized value is present before making an investment.
Allocation of Investment Ideas n When a company qualifies for purchase, we generally allocate small-cap stocks to the Small-Cap Fund, non-U.S. names to the International Fund, and mid and large-cap U.S. stocks to the Partners Fund.
With a mix of U.S. and non-U.S. securities, the Global Fund will often participate in allocations of the same securities we purchase for the other Funds, depending on its current holdings and cash levels. As a result, more than one Fund may own a single security. For example, an overseas company might be in each of the International Fund, the Global Fund, and Partners Fund. If the Fund most closely aligned with a security is fully invested or otherwise unable to buy a position, another Fund (subject to its own investment policies and guidelines) might purchase that security.
How Companies May Reach Intrinsic Value n We generally sell a holding when its market price reaches our appraisal. Undervalued businesses may reach our estimate of their intrinsic worth in several ways.
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Market Realization. Over time the market may recognize the businesss true value. As companies with strong management and true earnings power report better earnings, the price of the stock generally rises. |
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Mergers and Acquisitions. Undervalued companies often attract acquirors, or large owners may seek a buyer. |
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Management Buy-Outs. Corporate management may obtain funding to buy out shareholders and take the company private. |
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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. |
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Share Repurchase Programs. When a companys 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 n We are long-term owners, not traders or speculators. Generally, our time horizon when purchasing a company is five or more years. We will generally hold the stock as long as we believe a margin of safety exists between price and value, and we remain confident in managements ability to create additional value.
Longleaf Partners Funds | ¡ | 19 |
Annual portfolio turnover for the past three years has ranged from approximately 15% to approximately 49% across the Funds. There are no limits on portfolio turnover, however, and we sell portfolio holdings whenever we believe that sales would benefit Fund shareholders.
Other Investments n All Funds may invest a portion of assets in cash equivalents and, as a non principal strategy, a wide variety of securities other than common stock including convertibles, preferred stock, debt securities, private placements, warrants, puts, calls, options, short sales, swaps, futures, and combinations of these instruments.
Cash Reserves n Normally, cash reserves and money market instruments do not exceed 15% of net assets. If, however, we have difficulty finding attractive investments, require cash to meet expected liquidity needs or otherwise believe it would benefit a Fund, all or any portion of Fund assets may be held in cash reserves. As a result, there may be periods when the percentage of securities qualifying as small cap or international fall below the normal levels described in the investment policies of the Small-Cap, International, and Global Funds. Holding cash reserves can penalize short-term performance in rising markets, but during market declines cash may allows us to purchase securities at discounted prices. Previously when cash has risen to over 20% for a prolonged period and inflows have continued to increase, we generally have closed the affected Funds. While we may hold any portion of assets in cash reserves for temporary defensive purposes during adverse market, economic or political conditions, we believe such conditions generally create opportunities for us to put excess cash to work.
The principal risks of investing in the Longleaf Partners Funds include the following:
Stock Market Risk n Equity prices fluctuate in response to actual or perceived developments at individual companies, within particular industries or sectors, or general economic conditions. If the Funds price declines and you redeem your shares, you could lose money.
Investment Selection Risk n Investments might not reach what we believe are their true values either because the market fails to recognize the value or because we misjudged it.
Corporate Ownership Risks n As partial owners of companies, we face a number of risks inherent in owning a business, such as operational, financial and regulatory risk. If businesses we own in the Funds do not successfully address these risks, their business values and stock prices may decline and negatively impact your Fund shares.
Non-Diversification Risk n Because the Fund is non-diversified under federal securities laws and generally invests in 15 to 25 companies, each holding will have a greater impact on the Funds total return, and share value could fluctuate more than if a greater number of securities were held.
Non-U.S. Investment Risks n Non-U.S. investment risks can include political and economic changes, non-U.S. withholding taxes, exchange controls, confiscation, non-U.S. governmental restrictions, differences in accounting and auditing standards, more limited availability of public information and market illiquidity. In addition, non-U.S. securities are generally denominated and traded in non-U.S. currencies, and the Fund may invest in derivative instruments that provide exposure to non-U.S. currencies. The exchange rates between currencies can fluctuate daily. As a result, the values of a Funds non-U.S. securities may be affected by changes in exchange rates between non-U.S. currencies and the U.S. dollar, as well as between currencies of countries other than the U.S. In some cases, the Fund may try to hedge to reduce the impact of currency exchange fluctuation, but does not intend to do so routinely. As a result, the Funds price will be more susceptible to currency fluctuations. Non-U.S. investment risks may be more pronounced in emerging markets.
Small-Cap Risks n Particularly with respect to the Small-Cap Fund, smaller companies may have more limited product lines, markets, and financial resources than larger companies, and to the extent recently established, may have limited or no operating history to evaluate. In addition, their securities may trade less frequently and in more limited volume than those of larger companies.
20 | ¡ | Prospectus 2013 |
About The Funds |
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.
Focused Geographic Risks n Particularly with respect to the International and Global Funds, Longleaf does not limit the percentage of assets invested in any particular geographic region or country. Accordingly, there may be periods when a Fund has significant exposure to a particular region or country, so that negative events occurring in that area would have a greater adverse impact on performance than they would on more geographically diversified funds.
Other risks include the following:
Puts, Calls, Options, Short Sales, Swaps and Financial Futures n The Funds may invest selectively in a wide variety of put and call options, futures, swaps, combinations of these techniques, and in other similar financial instruments and may engage in short sales. Generally, these investments or techniques are used for hedging purposes, to increase returns, or as an alternative to owning the underlying security. These techniques have risks. Gains on investments in options and futures and on short sales depend on correctly predicting the direction of stock prices, interest rates, and other economic factors. If these instruments do not perform as we anticipate, or if a Fund were not able to close out its position, a significant loss could occur, and in the case of short sales, the loss is potentially unlimited in certain circumstances. With respect to swaps and other derivative contracts, the Funds also bear the risk of loss of the amount expected to be received under the contract in the event of default or bankruptcy of a derivative counterparty. Derivatives also involve the risk of mispricing or improper valuation, the risk of ambiguous documentation, and the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. In addition, a Funds use of derivatives may increase or accelerate the amount of taxes payable by shareholders. Suitable derivative transactions may not be available in all circumstances and there can be no assurance that a Fund will engage in these
transactions to reduce exposure to other risks or that, if used, such strategies will be successful. Finally, federal legislation has been recently enacted in the U.S. that provides for new clearing, margin, reporting and registration requirements for participants in the derivatives market. While the ultimate impact is not yet clear, these changes could restrict and/or impose significant costs or other burdens upon the Funds participation in derivatives transactions.
Liquidity Risk n Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing a Fund from selling such illiquid securities at an advantageous time or price, or possibly requiring a Fund to dispose of other investments at unfavorable times or prices in order to satisfy its obligations. Funds with principal investment strategies that involve securities of companies with smaller market capitalizations, non-U.S. securities, restricted and illiquid securities, derivatives or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk. Particularly with respect to small-cap issuers, we may take relatively large ownership positions, and may purchase the same security for the Funds and for Southeasterns other clients. Depending on market and trading conditions, disposing of such holdings could be more difficult ( i.e. , at a lower price or with greater delay than desired) than if Southeastern owned a smaller amount. Additionally, the market for certain investments may become illiquid under adverse market or economic conditions independent of any specific adverse changes in the conditions of a particular issuer. In such cases, a Fund, due to limitations on investments in illiquid securities and the difficulty in purchasing and selling such securities or instruments, may be unable to achieve its desired level of exposure to a certain issuer or sector.
Each Fund may hold up to 15% of its net assets in securities that cannot be sold within seven business days at approximately the price at which the Fund has valued them. 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.
Longleaf Partners Funds | ¡ | 21 |
Bonds and Fixed Income Securities n The Funds may invest up to 15% of assets (at the time of purchase) in both investment and non investment grade corporate and governmental bonds. A Fund could lose money if the issuer or guarantor of a fixed income security is unable or unwilling, or is perceived (whether by market participants, ratings agencies, pricing services or otherwise) as unable or unwilling, to make timely principal and/or interest payments, or to otherwise honor its obligations. Securities are subject to varying degrees of credit risk, which are often reflected in their credit ratings. High yield or non-investment grade bonds (also known as junk bonds) have higher credit risk than investment grade securities. Fixed income securities are also subject to interest rate risk, which is the risk that they will decline in value because of changes in interest rates. In addition, rising interest rates may cause volatility and decreased liquidity in the fixed income markets, making it more difficult for a Fund to sell its fixed income holdings.
More detailed information on investments and investment techniques appears in the Statement of Additional Information.
22 | ¡ | Prospectus 2013 |
Shareholder Manual |
Investment Adviser n Southeastern Asset Management, Inc. (Southeastern) is the Funds investment adviser. Formed in 1975, the firm has over 39 years of experience managing securities portfolios for institutional investors and individuals. Located at 6410 Poplar Avenue, Suite 900, Memphis, Tennessee 38119, Southeastern managed more than $34.8 billion in private account and mutual fund assets at March 31, 2014.
Code of Ethics n To align our interests with those of Longleaf shareholders and other Southeastern clients and to prevent conflicts of interest, our Code of Ethics requires all employees to limit their investments in publicly offered equity securities to funds advised by Southeastern, unless granted an exception for other securities transactions.
Employees must report their personal securities transactions quarterly. Any material violation of the Code of Ethics is reported to the Board of the Funds. The Board also reviews the administration of the Code of Ethics annually, and Trustees must obtain clearance before making purchases of publicly offered equity securities to avoid con-
flicts of interest. The Code of Ethics also prohibits market timing and selective disclosure of portfolio holdings.
Disclosure of Portfolio Holdings n The Funds policies and procedures related to disclosing Fund portfolio securities are included in the Statement of Additional Information, which is available without charge upon request by calling (800) 445-9469 or by visiting our website, longleafpartners.com.
Management Services n 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, providing administrative, business, legal and compliance services. The Funds are responsible for payment of all direct operating expenses, such as custodian and transfer agent fees, Trustees fees, professional fees of outside lawyers and accounting firms, registration fees, trade association dues, printing, postage, insurance premiums, costs of outside pricing vendors, and the costs of computer programs dedicated to Fund operations.
Advisory and Administration Fees n The Funds paid Southeastern the following annual fees as a percentage of average net assets for the services rendered:
Fund | Investment Counsel Fee | Administration Fee | ||||
Stated Fee | Actual 2013 Fee | Actual 2013 Fee | ||||
Partners Fund | 1.00% on first $400 million in average net assets; 0.75% on balance | 0.76% | 0.10% | |||
Small-Cap Fund | 1.00% on first $400 million in average net assets; 0.75% on balance | 0.77% | 0.10% | |||
International Fund | 1.20% on first $500 million in average net assets; 1.00% on balance | 1.06% | 0.10% | |||
Global Fund | 1.125% on first $500 million in average net assets; 1.00% on balance | 1.125% | 0.10% |
Longleaf Partners Funds | ¡ | 23 |
A discussion of factors considered by the Board of Trustees in electing to renew the Investment Counsel and Fund Administration Agreements with Southeastern is contained in Longleafs Annual Report for the period ended December 31, 2013.
Portfolio Managers n The individuals identified as portfolio managers are senior members of Southeasterns research team, which is responsible for stock selection. The Statement of Additional Information provides additional information about portfolio manager compensation, other accounts managed by the portfolio managers, and each managers Fund ownership.
Team Approach n Southeastern believes that each of its clients, including the Longleaf Partners Funds, should have the full benefit of Southeasterns skill and experience. Each analyst is a generalist, charged with generating ideas for any portfolio in any industry or country. Once an investment idea is generated, it faces the scrutiny of the full research team, and must qualify under Southeasterns strict investment criteria before it may be implemented for a Fund. This team approach reinforces Southeasterns disciplines, as each team member participates in the analysis and evaluation of every analysts ideas.
To monitor individual client guidelines, regulatory requirements, cash movements, and progress regarding purchases and sales of securities, Southeasterns risk management, trading, legal, accounting, compliance, and client service functions participate in the investment implementation process. Mr. Hawkins and Mr. Cates engage to a greater extent with Southeasterns day to day operations than Mr. Cobb, Mr. Glotzbach and Mr. Siazon, whose roles are primarily investment research.
Fund Operations n Each Fund has a separate Board of Trustees which oversees all operations of the particular Fund. The same Trustees serve all four Funds. 75% of the Trustees are independent of and not affiliated with Southeastern. The investment and administrative functions for each Fund are performed or supervised by the officers
and employees of Southeastern under investment advisory and fund administration agreements with each of the Funds. Information on employment experience and educational backgrounds of the Funds Trustees appears in the Statement of Additional Information.
Funds Closed to New Investors n The Small-Cap Fund is closed to new shareholders unless you meet one of the exceptions outlined below. The Funds are not for offer or sale in jurisdictions outside the United States where such offer or sale would not be lawful.
Minimum Initial Investment n The minimum initial investment for each account is $10,000. Exceptions to the investment minimum are outlined below. Other than our $100 minimum for automatic monthly investment plans, there is no minimum amount required for subsequent investments. All purchases are subject to acceptance, and we may reject purchases to protect other shareholders.
Exceptions To Investment Minimum And Closed Funds
Prior Approval for Exceptions n Approval for exceptions must be obtained by calling Southeastern at (901) 761-2474 prior to making your investment. We reserve the right to make additional exceptions or otherwise modify these exceptions at any time and to reject any investment for any reason.
Exceptions to $10,000 Investment Minimum n The following investors may open a new account in any open Fund with an initial investment of less than $10,000:
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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. |
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Employees of Southeastern and their family members and Longleaf service providers may open new accounts with a $1,000 initial investment. |
Portfolio Managers
(Southeastern title, tenure)
O. Mason Hawkins
(Chairman and Chief Executive Officer, Southeastern since 1975)
Co-Portfolio Manager of all Funds
G. Staley Cates
(President and Chief Investment Officer, Southeastern since 1986)
Co-Portfolio Manager of all Funds
Ross Glotzbach
(Deputy Director of Research, Southeastern since 2004)
Co-Portfolio Manager of Small-Cap Fund
T. Scott Cobb
(Head of Europe, Principal, Southeastern since 2006)
Co-Portfolio Manager of International Fund
Ken I. Siazon
(Principal, Southeastern since 2006)
Co-Portfolio Manager of International Fund
24 | ¡ | Prospectus 2013 |
Shareholder Manual |
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Individual financial advisors and consultants whose clients aggregate over $10,000 may add new clients below the minimum. |
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Institutions and affiliates of institutions having a strategic investment advisory relationship with Southeastern may open client accounts below the minimum. |
Closed Fund Exceptions n The following investors may open new accounts in a closed Fund for an initial investment of $10,000 if approved by Southeastern:
|
Existing shareholders in a closed Fund and their spouse or minor child may open accounts in the same Fund. |
|
Individual financial advisors and consultants who have maintained accounts in a closed Fund since its closing date may add new clients to that Fund. |
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Institutions and affiliates of institutions having a strategic investment advisory relationship with Southeastern. |
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Employees of Southeastern and their family members and Longleaf service providers may open new accounts. |
Transfer Agent n BNY Mellon Asset Servicing (US) Inc. (BNY Mellon), of Westborough, Massachusetts, handles all shareholder purchases, redemptions and account changes. Please direct your requests and questions about your account to BNY Mellon at (800) 445-9469. Southeastern does not process transactions. All account maintenance correspondence and transaction instructions must be sent to BNY Mellon for processing.
Account Access Information n You may obtain personal account information through the Funds website, longleafpartners.com, or by calling our shareholder services associates at (800) 445-9469.
Market Timing and Short-term Trading n The Funds are intended for long-term investors and do not knowingly permit short-term trading or market-timing. Frequent trading into or out of a Fund may harm performance by disrupting portfolio management strategies, by increasing expenses, or by diluting the value of fund shares
held by long-term shareholders. If you engage in short-term trading of shares (whether held directly or through an intermediary), Longleaf may suspend or terminate your ability to make further purchases.
The Funds Trustees have established procedures to monitor trading regularly and to use fair value pricing. Longleaf, in its sole discretion, may consider it a violation of the excessive trading policy if you sell shares within 30 days of a purchase or enter into a series of transactions indicative of an excessive trading pattern. In such instances, the Funds may temporarily or permanently bar your future purchases in that Fund or all the Funds. A shareholders history in any Fund, including other accounts under common ownership or control, may determine whether the Fund will stop the shareholders purchases.
In addition, Longleaf reviews trading activity for substantial redemptions or exchanges within 90 days of purchase. These transactions may trigger the rejection of future Longleaf purchases within the next 90 days. The determination of what is substantial is made solely by Longleaf. Certain non-discretionary transactions and exceptional circumstances may fall outside the short-term trading prohibitions, but Longleaf will make such determinations in its sole discretion, and reserves the right to reject any purchase to protect long-term shareholders. The Trustees may alter these policies and procedures without prior notice to shareholders.
Pursuant to SEC Rule 22c-2, the Funds have made contractual arrangements with intermediaries, that hold multiple sub-accounts in a single omnibus Longleaf account, to require cooperation to help stop frequent trading, but frequent trading may still occur in these accounts. Longleaf will work with intermediaries to stop frequent trading, and reserves the right to impose restrictions on individual traders or on the entire omnibus account if an intermediary is not effective in policing timing activity.
The Funds Trustees may choose to impose a redemption fee (payable to the Funds) to deter short-term speculators and market timers. Shareholders would receive advance notice and a
Longleaf Partners Funds | ¡ | 25 |
supplement to this Prospectus before imposition of a redemption fee.
Fair Value Pricing n The Board of Trustees has adopted procedures to fair value each Funds securities when market prices are not readily available or are unreliable ( see How Fund Shares are Priced ). For example, a Fund may fair value a security when a security is de-listed or its trading is halted; when a securitys primary pricing source is unable or unwilling to provide a price; when a securitys primary trading market is closed during U.S. market hours; or when a securitys value is materially affected by company news or any other events occurring after the close of the securitys primary trading market.
By fair valuing securities, each Fund seeks to establish prices that investors might expect to realize upon the current sales of these securities. This methodology is designed to deter arbitrage market timers, who seek to exploit delays between the change in the value of a Funds portfolio holdings and the net asset value of the funds shares, and tries to ensure that the Fund prices are fair and do not dilute or harm shareholders. Each Fund makes fair value determinations in good faith in accordance with the Funds valuation procedures, but the fair value may be higher or lower than the value a Fund would have received if it had sold the security.
Anti-Money Laundering Regulations n As part of the Funds legal responsibility for the prevention of money laundering, Southeastern and the Funds service providers require a detailed verification of the identity of shareholders and individuals with authority or control over an account opened by entities such as corporations, partnerships, and trusts.
Prior to an account being opened, the Funds must have certain information such as name, street address, date of birth, and U.S. taxpayer identification number (the Identifying Information). In the case of an account opened by an entity, we also require copies of certain organizational documents.
No purchase will be allowed until the Identifying Information or required documentation has been
received. When the information or documentation has been supplied and the application is in good order, the Funds will verify the shareholders identity. If the Funds cannot verify identity, they will disallow additional purchases and may close the account. If the account is closed, the shareholder will receive proceeds based on the next calculated net asset value of the Fund(s). The Funds, by written notice to a shareholder, may suspend the payment of withdrawal proceeds if necessary to comply with applicable anti-money laundering regulations. The Funds will share the identity of shareholders with federal regulators and report a failure to verify identity in accordance with applicable law. The Funds, Southeastern, and the Funds service providers reserve the right to implement additional policies and procedures to detect and prevent money laundering.
Privacy of Personal Information
The Longleaf Partners Funds collect nonpublic personal information about our shareholders from the following sources:
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Information on forms, such as name, address, age, and social security number; and |
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Information about Longleaf transactions, such as purchase and redemption activity and account balances. |
We restrict access to nonpublic personal information to service providers involved in administering and servicing Longleaf accounts. Otherwise, we do not disclose nonpublic personal information about our present or former shareholders to third parties, except as permitted by law. We and our service providers maintain physical, electronic and procedural safeguards in accord with federal regulations to protect the nonpublic personal information of Longleaf shareholders.
If you hold shares of the Funds through a financial intermediary, such as a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary governs how your information would be shared with non-affiliated third parties.
26 | ¡ | Prospectus 2013 |
Shareholder Manual |
Checks and wire transfers for investments received by the transfer agent in good order before the close of the New York Stock Exchange are processed at that days closing price. Investments received after the close of the Exchange are priced at the next business days closing price.
The Funds cannot accept post dated checks, third party checks, money orders, credit card convenience checks, or checks drawn on a non-U.S. bank, nor can the Funds hold investments to be processed at a later date. Cashiers checks must include the shareholders name.
By Check:
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Complete and sign the application. Be sure to provide all data labeled Required. |
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Make check payable to Longleaf Partners Funds. |
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Indicate on account application and check the amount to be invested in each Fund. |
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Send application and initial investment to: |
By regular mail:
Longleaf Partners Funds P. O. Box 9694 Providence, RI 02940-9694 |
By express mail or overnight courier: Longleaf Partners Funds c/o BNY Mellon 4400 Computer Drive Westborough, MA 01581 (800) 445-9469 |
Items delivered to the P.O. Box are not deemed received until they arrive at BNY Mellon for processing. While mail delivered to the P.O. Box is transferred each day directly to BNY Mellon for processing, delays in U.S. mail and other administrative delays could result in an uncertain purchase date and NAV. Under normal circumstances, this process is typically completed on the same day as the mail is delivered to the P.O. Box. Time critical items requiring proof of receipt should be sent to the Westborough, MA address.
By Wire Transfer:
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Call the Funds at (800) 445-9469 to obtain information on establishing a new account. |
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After providing the original application and all required documentation in good order, you will be provided with a new account number. |
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Using your new account number, instruct your bank to wire funds as follows: |
Bank of New York Mellon
New York, NY
ABA 011001234
DDA # 0000733156
Identify the Fund:
A07 PF 133 Partners
A07 SC 134 Small-Cap
A07 IN 136 International
A07 GL 137 Global
For credit to: (your name as account is registered)
Shareholder account #: (your account number)
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BNY Mellon will not process wire transfers without a Fund identifier and shareholder account number. If your instructions are not in good order, your purchase may be delayed or your wire may be returned. |
Individual Retirement Accounts n 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, and instructions for opening your retirement account. The minimum initial investment for an IRA account is $10,000. The minimum is usually satisfied primarily by transferring funds from an existing IRA or qualified retirement plan.
There is no minimum required for subsequent investments, unless you have requested automatic monthly investment, for which the minimum is $100.
By Check n Send your check with the remittance stub from your account statement or with an instruction letter to BNY Mellon at the address shown above. Your communication must contain name, address, and account number. Designate on your check and remittance stub the particular Fund(s) in which you are investing. The Funds cannot accept post dated checks, third party checks, money orders, credit card convenience checks or checks drawn on a non-U.S. bank.
Longleaf Partners Funds | ¡ | 27 |
By Wire Transfer n Follow the wire instructions shown previously. Be sure to include your Fund and Account number on your wire.
By Telephone and Electronic Transfer n You may establish electronic transfer capabilities on your account application or by sending written instructions to our transfer agent. You must include a voided check. You may purchase shares of the Funds by calling the transfer agent at (800) 445-9469 to initiate an electronic transfer from your bank account. Electronic transfers can only be made from bank checking accounts and not from Money Market Funds or other financial
accounts. Your purchase price will be the net asset value next determined following receipt by the Fund of your telephone purchase request in good order. An electronic transfer may take up to three business days to settle and be considered in good order. Your initial investment cannot be made by electronic transfer.
By Automatic Monthly Investment n You may establish an automatic monthly investment of $100 or more by completing the designated section on your account application or by sending written instructions with a Medallion Signature Guarantee to our transfer agent. You must include a voided check with your request. We do not charge a fee for this service. Consult your banking institution about any fees that it may charge. Electronic transfers can only be made from bank checking accounts and not from Money Market Funds or other financial accounts. Transfers will occur on the business day on or about the 21st of each month. You can stop or change the amount of your automatic monthly investment by calling us at (800) 445-9469. If stopped, you can restart your monthly investment by calling us within 6 months of the time your automatic investment was stopped. You must send written instructions to make other changes to your automatic investment.
Certificates n 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 surety bond.
Returned Checks or Rejected Transfers n 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 and may reject future purchases.
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. To allow the Fund to plan for large redemptions in an orderly manner, we request that you notify us of anticipated redemptions of $1,000,000 or more at least 5 business days before the formal redemption request. We must have received a completed and signed account application or W-9 form before releasing redemption proceeds.
Redemption and Exchanges By Telephone n
Investors who have established telephone redemption and exchange privileges may redeem or make exchanges of up to $100,000 per Fund over the telephone. Telephone redemptions may not be made from IRA accounts. Accounts with address change requests within the last 30 days must submit written redemption instructions with a Medallion Signature Guarantee. The following procedures are applicable:
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You may establish telephone redemption and exchange privileges when completing the account application, or you may request the service by sending a written request to our Transfer Agent. |
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Call (800) 445-9469 if you have established telephone redemption and exchange privileges on your account. |
28 | ¡ | Prospectus 2013 |
Shareholder Manual |
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Exchanges into new accounts must meet the $10,000 minimum and any closed fund exceptions. |
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Proceeds of redemptions will be sent only to the address of record or in accordance with previously established bank instructions. |
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Telephonic orders completed before the close of the New York Stock Exchange receive that days price. |
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Telephonic orders completed after the close of the New York Stock Exchange receive the next business days price. |
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The Funds may not hold a redemption request to be processed at a later date. |
Please retain the confirmation number assigned to your telephone redemption or exchange as proof of your trade. You cannot change or cancel a telephone redemption or exchange request after the transaction has been processed. 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 n The following information must be included in a redemption request:
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Your account number; |
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Fund identification: |
A07 PF 133 Partners
A07 SC 134 Small-Cap
A07 IN 136 International
A07 GL 137 Global
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The amount of the redemption, specified in either dollars or shares; |
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The signatures of all owners, exactly as they are registered on the account; |
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Medallion Signature Guarantees are required under certain circumstances. In addition, your Medallion Signature Guarantees must have the appropriate prefix covering the amount of your redemption request. Please see page 29 for |
additional information regarding Medallion Signature Guarantees. If your Medallion Sig nature Guarantee is not in good order, your transaction will be rejected; |
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Fund Certificates, if any have been issued for the shares being redeemed; |
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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 if you have questions about these requirements.
Redemption requests and required documentation should be sent as follows:
By regular mail:
Longleaf Partners Funds P.O. Box 9694 Providence, RI 02940-9694 |
By express mail or overnight courier: Longleaf Partners Funds c/o BNY Mellon 4400 Computer Drive Westborough, MA 01581 (800) 445-9469 |
Items delivered to the P.O. Box are not deemed received until they arrive at BNY Mellon for processing. Time critical items requiring proof of receipt should be sent to the Westborough, MA address.
Distributions and transfers from IRA accounts are subject to additional requirements. Please obtain our Retirement Account Distribution Form, IRA Transfer & Conversion Form, or consult your tax advisor when redeeming from your retirement account.
Automatic Withdrawals n You may establish automatic withdrawals from your account by sending written instructions to the transfer agent. You may request withdrawals monthly, quarterly, semi-annually or annually. Withdrawals will be processed on or about the 21st day of the month they are scheduled to occur. You can stop or change the amount of your automatic withdrawal by calling us at (800) 445-9469. If stopped, you can restart your automatic withdrawal by calling us within 6 months of the time your systematic withdrawal was stopped. You must send written instructions to make other changes or to restart these withdrawals if it has been stopped for more than 6 months.
Longleaf Partners Funds | ¡ | 29 |
Collected Funds n 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. Any portion of a redemption request not covered by collected funds may be delayed for up to 15 days from the date of purchase, or until your check has cleared, to ensure that collected funds have been received.
Redemption Price n 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.
Account Changes n You may change the address on your account by calling us at (800) 445-9469 or accessing your account information at longleafpartners.com, or sending a written request to our transfer agent, BNY Mellon. Other changes to your account registration or account privileges must be made in writing.
Medallion Signature Guarantee n A Medallion Signature Guarantee is required when:
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You are redeeming more than $100,000 or are requesting a transfer or exchange of more than $100,000 (not including direct IRA transfers) from any Fund. |
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You are requesting changes to the ownership of an account, such as removing a joint owner, if the account has a value of more than $100,000. |
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You are redeeming within 30 days of a change to your account address. |
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You are requesting that a redemption be sent to an address or bank instructions other than those already established for your account. |
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You are requesting a redemption check be made payable to someone other than the registered account owner (not including direct IRA transfers). |
There may be circumstances in addition to those listed above that require a Medallion Signature Guarantee. Please contact us at (800) 445-9469 if you have questions regarding these requirements.
Acceptable medallion guarantees may be obtained from banks, brokerage firms or other institutions that are members of either the Securities Transfer Association Medallion Signature Program (STAMP), the New York Stock Exchange Medallion Signature Program (MSP), or the Stock Exchange Medallion Program (SEMP). The guarantee must be in original form, not photocopies or fax copies. The surety bond coverage of the Medallion Signature Guarantee on your request must be equal to, or greater than, the value of the requested transaction, and the guarantee must have unlimited effectiveness. Notarization is not an acceptable Medallion Signature Guarantee. If your Medallion Signature Guarantee is not in good order, your transaction will be rejected.
Confirmations and Reports n If you invest directly with the Funds, you will receive a confirmation statement after each account transaction and a balance statement at the end of each calendar quarter. Please review your statement for accuracy and report any discrepancies to our transfer agent promptly. You will also receive tax documentation as required by the IRS. We publish quarterly, semi-annual and audited annual reports containing information on each Funds portfolio of investments, generally 45 days after the end of each quarter.
Important Notice Regarding Delivery of Shareholder Documents n When the Funds send financial reports, prospectuses and other materials we reduce expenses by sending one copy to shareholders with the same address. Should you wish to receive individual copies of materials, please contact us at (800) 445-9469. You will begin receiving individual copies within 30 days. If you do not want to receive your quarterly statement, reports, prospectus or transaction confirmations by regular mail, you may elect the electronic delivery option by accessing your account at longleafpartners.com.
Purchases and Redemptions Through Brokerage Firms and Other Authorized Intermediaries n You may purchase and redeem shares of the Funds through brokerage firms and other authorized institutions that have agreements with the Funds. Some firms charge
30 | ¡ | Prospectus 2013 |
Shareholder Manual |
transaction fees for their services. If you invest through an authorized firm, you must follow that firms procedures for buying and selling shares. If a particular firm allows you to invest below Longleafs minimum, and you subsequently decide to hold directly with Longleaf, you must bring your account up to Longleafs $10,000 minimum, or you may be forced to redeem your shares. The firm may designate other organizations to receive purchase and redemption orders on behalf of their clients. If the firm submits trades to the Fund, or its designee, in accordance with the trading agreement, 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 Funds acceptance. The firm or other authorized institution has the responsibility of sending prospectuses, financial reports, statements, and tax forms to its customers.
Broker/Dealer and Institutional Investments n Upon execution of formal trading agreements, the Funds will accept trade orders from members of the Financial Industry Regulatory Authority (FINRA) or other institutional investors. The Funds offer telephone and automated trading through our transfer agent. Institutional investors may also establish pre-authorized fax redemption privileges. Please contact Southeastern at (901) 761-2474 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 Exceeding $250,000 n The Longleaf Partners Funds have made an election to pay in cash the first $250,000 of any shareholders redemptions during any 90 day period. For omnibus accounts of brokers, this commitment applies to each separate shareholder rather than to the omnibus account as a
whole. As allowed by Rule 18f-1, we reserve the right to pay the balance of any redemptions exceeding $250,000 by distributing portfolio securities rather than cash. We may elect to exercise this right for any reason. If securities in lieu of cash are distributed to you, you will need a brokerage account in which to receive the securities, you will incur brokerage commissions when selling the securities, and the securities will be subject to prevailing market prices at the time of sale.
The price at which you buy or sell your Fund shares is their net asset value or NAV. Southeastern has engaged BNY Mellon to calculate each Funds NAV. NAV is calculated by dividing the total value of a Funds assets less its liabilities by the number of shares outstanding. NAV is determined 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. The Exchange is closed for specified national holidays and on weekends.
The values of the Funds investments are based on their market values. Securities listed or traded on a securities exchange (U.S. or non-U.S.), on the NASDAQ national market, or on any representative quotation system providing same day publication of actual prices are valued at the last sale price. If there are no transactions in the security that day, securities are valued at the midpoint between the closing bid and ask prices or, if there are no such prices, the prior days closing price. In the case of bonds and other fixed income securities, valuations may be furnished by a pricing service which takes into account factors in addition to quoted prices (such as trading characteristics, yield, quality, coupon rate, maturity, type of issue, and other market data relating to the priced security or other similar securities) where taking such factors into account would lead to a more accurate reflection of the fair market value of such securities. When market quotations are not readily available, portfolio securities are valued as determined in good faith under policies and procedures established by and under the general supervision of the Funds Trustees.
Longleaf Partners Funds | ¡ | 31 |
In determining fair value, the Board considers all relevant qualitative and quantitative information available including news regarding significant market or security specific events. The Board may also utilize a service provided by an independent third party to assist in fair valuation of certain securities. These factors are subject to change over time and are reviewed periodically. Because the utilization of fair value depends on market activity, the frequency with which fair valuation may be used cannot be predicted. Estimated values may differ from the values that would have been used had a ready market for the investment existed.
Non-U.S. securities are usually priced at the latest market close in the non-U.S. 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 non-U.S. market and normal pricing at the close of the New York Stock Exchange, the non-U.S. securities may be priced at fair value as determined under policies and procedures established by the Board of Trustees, consistent with any regulatory guidelines.
Because the Funds are closed on days that non-U.S. markets may be open, the prices of non-U.S. holdings may change on days when investors do not have access to the Funds.
The Statement of Additional Information, which is a separate document, contains more information on pricing portfolio securities.
We intend to qualify for favorable tax treatment under the federal Internal Revenue Code by satisfying the Internal Revenue Code diversification standards and by distributing to shareholders essentially all investment income and realized capital gains. The Funds investment income, comprised primarily of dividends on portfolio securities and interest from cash equivalents or bonds, is usually distributed in late December. Realized capital gains for the 12 months ended October 31 are usually distributed in November. Your income dividends and capital gains distributions will be reinvested in additional shares of the Funds unless you chose 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.
We discourage redemptions to avoid taxable distributions. This practice can disrupt a Funds investment strategy and places a greater portion of a Funds tax burden on remaining shareholders. To the extent we identify this type of activity, we may place your account on sell only status and disallow future purchases. The identification of such trading activity involves judgments that are inherently subjective and our efforts to discourage this behavior cannot eliminate the possibility that the trading activity will occur.
Dividends and capital gains paid in cash can only be sent to your address of record or to existing bank instructions on your account. You may choose to change your election to have your distributions paid in cash or reinvested by calling us at (800) 445-9469.
This tax information is general and refers to current federal income tax provisions. These provisions may change. We urge you to consult your own tax adviser about the status of distributions and redemptions as applied to your personal situation.
Taxes on Income Dividends and Capital Gains Distributions n 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, except that qualified dividend income of noncorporate investors who satisfy certain holding period requirements is taxed at long-term capital gain rates. Distributions of net realized long-term capital gains from securities held by the Funds for
32 | ¡ | Prospectus 2013 |
Shareholder Manual |
more than one year are taxed at your applicable capital gains rate. IRS Form 1099-DIV, mailed to you after December 31, will report the federal tax category of these distributions.
Taxes on Sales of Fund Shares n If you redeem any Fund shares or if you exchange shares between Funds, the transaction is taxable and you may realize 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 more than one year, and is short-term for shares held one year or less. You are responsible for reporting and paying any federal or state taxes which may be due.
Cost Basis Reporting n The Funds are required to report to the IRS and furnish to their shareholders cost basis information for Fund shares acquired on or after January 1, 2012 (covered shares) and sold on or after that date. Cost basis records for non-covered shares or shares purchased prior to January 1, 2012 were maintained using ACSC (Average Cost) and will not be reported to the IRS. These requirements do not apply to investments through tax-deferred accounts, such as a 401(k) plan or an individual retirement plan. If you redeem covered shares during any year, the Funds will report the cost basis of such covered shares to the IRS and you on Form 1099-B along with the gross proceeds received on the redemption, the gain or loss realized on such redemption and the holding period of the redeemed shares.
The Funds default cost basis methodology will be FIFO (First In, First Out). If you and your financial or tax advisor determine another method to be more beneficial to your situation, you are able to change your default setting to another IRS-accepted cost basis method via the Funds website, longleafpartners.com, or by notifying the Funds transfer agent in writing. The elected cost basis (or the default cost basis method) for each sale of Fund shares may not be changed following the settlement date of each such sale of Fund shares.
You are encouraged to consult your tax advisor regarding the application of the new cost basis
reporting rules and, in particular, which cost basis calculation method you should elect.
Withholding n 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 Form W-9, which may be requested from our transfer agent.
Non-U.S. Taxes n A Funds investments in non-U.S. securities may be subject to non-U.S. taxes, which can decrease the Funds return on those securities. If more than 50% of a Funds assets at the close of its taxable year consists of securities of non-U.S. corporations, the Fund will be eligible to elect to pass through to you non-U.S. taxes that it pays, such that you will be required to include your share of such taxes in income, and will generally be allowed to claim a credit or deduction in respect of such taxes for U.S. federal income tax purposes.
The Statement of Additional Information contains more information about tax issues relating to the Funds.
34 | ¡ | Prospectus 2013 |
The financial highlights table is intended to help you understand the Funds financial performance for the past five years. 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 investment in the Funds (assuming reinvestment of all dividends and distributions). The presentation is for a share outstanding throughout each period.
This information has been audited by PricewaterhouseCoopers LLP, whose report, along with the Funds financial statements, is included in the Statement of Additional Information and annual report, which are available upon request.
Net
Asset Value Beginning of Period |
Net
Investment Income |
Net
Gains (Losses) on Securities Realized and Unrealized |
Total
from Investment Operations |
Dividends
from Net Investment Income |
Distri-
butions from Capital Gains |
|||||||||||||||||||
Partners Fund |
||||||||||||||||||||||||
Year Ended December 31, |
||||||||||||||||||||||||
2013 |
$ | 26.39 | $ | 0.09 | $ | 8.34 | $ | 8.43 | $ | (0.08 | ) | $ | (0.99 | ) | ||||||||||
2012 |
26.65 | 0.31 | 3.95 | 4.26 | (0.27 | ) | (4.25 | ) | ||||||||||||||||
2011 |
28.26 | 0.11 | (0.90 | ) | (0.79 | ) | (0.13 | ) | (0.69 | ) | ||||||||||||||
2010 |
24.09 | 0.07 | 4.24 | 4.31 | (0.14 | ) | | |||||||||||||||||
2009 |
15.69 | 0.06 | 8.35 | 8.41 | (0.01 | ) | | |||||||||||||||||
Small-Cap Fund |
||||||||||||||||||||||||
Year Ended December 31, |
||||||||||||||||||||||||
2013 |
28.88 | (0.08 | ) | 8.62 | 8.54 | | (4.96 | ) | ||||||||||||||||
2012 |
25.23 | 0.03 | 5.67 | 5.70 | (0.03 | ) | (2.02 | ) | ||||||||||||||||
2011 |
26.52 | | 0.49 | 0.49 | (0.01 | ) | (1.77 | ) | ||||||||||||||||
2010 |
21.77 | 0.03 | 4.83 | 4.86 | (0.11 | ) | | |||||||||||||||||
2009 |
14.58 | 0.08 | 7.11 | 7.19 | | | ||||||||||||||||||
International Fund |
||||||||||||||||||||||||
Year Ended December 31, |
||||||||||||||||||||||||
2013 |
14.04 | 0.06 | 3.89 | 3.95 | (0.05 | ) | | |||||||||||||||||
2012 |
11.90 | 0.26 | 2.25 | 2.51 | (0.24 | ) | (0.13 | ) | ||||||||||||||||
2011 |
15.34 | 0.17 | (3.28 | ) | (3.11 | ) | (0.17 | ) | (0.16 | ) | ||||||||||||||
2010 |
13.66 | 0.12 | 1.75 | 1.87 | (0.19 | ) | | |||||||||||||||||
2009 |
11.09 | 0.07 | 2.50 | 2.57 | | | ||||||||||||||||||
Global Fund |
||||||||||||||||||||||||
Year Ended December 31, 2013 |
10.00 | (0.03 | ) | 2.87 | 2.84 | | | |||||||||||||||||
Inception December 27, 2012
|
10.00 | | | | | | ||||||||||||||||||
2011 |
NA | NA | NA | NA | NA | NA | ||||||||||||||||||
2010 |
NA | NA | NA | NA | NA | NA | ||||||||||||||||||
2009 |
NA | NA | NA | NA | NA | NA |
Longleaf Partners Funds | ¡ | 35 |
Total
Distri- butions |
Net
Asset Value End of Period |
Total
Return (a) |
Net Assets
End of Period (thousands) |
Ratio of
Expense to
|
Ratio of
Net Investment Income to Average Net Assets |
Portfolio
Turnover Rate |
||||||||||||||||||||
$ | (1.07 | ) | $ | 33.75 | 32.12 | % | $ | 8,600,542 | 0.92 | % | 0.25 | % | 22.73 | % | ||||||||||||
(4.52 | ) | 26.39 | 16.53 | 7,695,310 | 0.91 | 0.90 | 25.53 | |||||||||||||||||||
(0.82 | ) | 26.65 | (2.85 | ) | 7,953,798 | 0.91 | 0.39 | 23.55 | ||||||||||||||||||
(0.14 | ) | 28.26 | 17.89 | 8,584,963 | 0.91 | 0.23 | 36.72 | |||||||||||||||||||
(0.01) | 24.09 | 53.60 | 8,039,189 | 0.91 | 0.26 | 28.54 | ||||||||||||||||||||
(4.96 | ) | 32.46 | 30.45 | 4,126,633 | 0.91 | (0.24 | ) | 20.41 | ||||||||||||||||||
(2.05 | ) | 28.88 | 22.96 | 3,384,800 | 0.92 | 0.07 | 14.70 | |||||||||||||||||||
(1.78 | ) | 25.23 | 1.79 | 3,037,823 | 0.92 | | 37.33 | |||||||||||||||||||
(0.11 | ) | 26.52 | 22.32 | 3,056,707 | 0.93 | 0.14 | 16.67 | |||||||||||||||||||
| 21.77 | 49.31 | 2,500,501 | 0.95 | 0.45 | 12.93 | ||||||||||||||||||||
(0.05 | ) | 17.94 | 28.14 | 1,827,767 | 1.27 | 0.36 | 36.12 | |||||||||||||||||||
(0.37 | ) | 14.04 | 21.23 | 1,504,040 | 1.29 | 1.82 | 22.59 | |||||||||||||||||||
(0.33 | ) | 11.90 | (20.29 | ) | 1,571,156 | 1.37 | 1.07 | 48.87 | ||||||||||||||||||
(0.19 | ) | 15.34 | 13.69 | 2,211,191 | 1.38 | 0.76 | 27.80 | |||||||||||||||||||
| 13.66 | 23.17 | 2,165,459 | 1.59 | 0.55 | 20.15 | ||||||||||||||||||||
| 12.84 | 28.40 | 113,476 | 1.65 | (C) | (0.55 | ) | 4.14 | ||||||||||||||||||
|
|
|
10.00 | 0.00 | 10 | 1.65 | (b)(c) | 0.00 | 0.00 | |||||||||||||||||
NA | NA | NA | NA | NA | NA | NA | ||||||||||||||||||||
NA | NA | NA | NA | NA | NA | NA | ||||||||||||||||||||
NA | NA | NA | NA | NA | NA | NA |
(a) |
Total return reflects the rate that an investor would have earned on investment in the Fund during each period, assuming reinvestment of all distributions. |
(b) |
Annualized. |
(c) |
Expenses presented net of fee waiver. The expense ratio before the waiver for the periods ended December 31, 2013 and 2012 were 1.73% and 96.24%, respectively. |
Investment Counsel
Southeastern Asset Management, Inc.
6410 Poplar Avenue, Suite 900
Memphis, TN 38119
southeasternasset.com
Transfer, Dividend, and Pricing Agent
BNY Mellon Asset Servicing (US), Inc.
Westborough, MA
Principal Underwriter
ALPS Distributors, Inc.
Denver, CO
Custodian
State Street Bank & Trust Company
Boston, MA
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, Fund operations and Longleafs Proxy Voting Policies and Procedures in the Statement of Additional Information (SAI). The SAI is incorporated by reference in this Prospectus, and you may request a free copy by visiting our website longleafpartners.com or calling (800) 445-9469.
You can also find more information about the Longleaf Partners Funds in our annual and semi-annual reports to shareholders. In the Funds annual report, you will find a discussion of 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, to request additional information, or to make shareholder inquiries, please visit our website longleafpartners.com or call (800) 445-9469.
The Securities and Exchange Commission maintains a 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 SECs website at http://www.sec.gov.
These materials may also be reviewed and copied at the SECs Public Reference Room in Washington, D.C., or after paying a duplicating fee, by written request to the SECs Public Reference Section, Washington D.C., 20549-0102, or electronic request to publicinfo@sec.gov. Please call the SEC at (202) 551-8090 for more information.
The Securities and Exchange Commission Investment Company Act File Number for the Longleaf Partners Funds is 811-4923.
Longleaf Partners Funds ®
Statement Of Additional Information
Partners Fund (LLPFX) n Small-Cap Fund (LLSCX) n International Fund (LLINX) n Global Fund (LLGLX) Series of Longleaf Partners Funds Trust
Contents | May 1, 2014 |
This statement of additional information, dated
May 1, 2014 is not a prospectus. It should be read in conjunction with the prospectus of Longleaf Partners Funds Trust, dated May 1, 2014 which may be obtained free by calling (800) 445-9469.
Managed by
Southeastern Asset Management, Inc.
6410 Poplar Avenue; Suite 900
Memphis, TN 38119
(800) 445-9469 § southeasternasset.com
2 | n | Longleaf Partners Funds Trust |
Organization n 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 existing 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) n Initial public offering April 8, 1987. |
|
Longleaf Partners Small-Cap Fund (known as Southeastern Asset Management Small-Cap Fund prior to August 2, 1994) n Initial public offering February 21, 1989; closed to new investors, effective July 31, 1997. |
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Longleaf Partners International Fund n Initial public offering October 26, 1998. |
|
Longleaf Partners Global Fund n Initial public offering December 27, 2012. |
Significance of Fund Names n 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 we believe 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, Southeasterns employees 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 of each Fund are as follows:
Longleaf Partners Fund
Investment Objective n Long-term capital growth. Investment Policy n Invests primarily in equity securities of mid and large-cap companies.
Longleaf Partners Small-Cap Fund
Investment Objective n Long-term capital growth. Investment Policy n The Small-Cap Fund normally invests at least 80% of net assets plus any borrowings for investment purposes in the equity securities, including convertible securities, of companies whose market capitalizations at the time of purchase are considered small cap.
Longleaf Partners International Fund
Investment Objective n Long-term capital growth through investment primarily in equity securities of international or non-U.S. issuers. Investment Policy n Invests at least 65% of total assets in equity securities of international or non-U.S. issuers domiciled or operating primarily in at least three countries other than the United States.
Longleaf Partners Global Fund
Investment Objective n Long-term capital growth through investment primarily in equity securities of U.S. as well as non-U.S. companies. Investment Policy n Normally invests at least 40% of total assets in equity securities of non-U.S. companies.
Classification of Investment Objectives and Restrictions
The Funds have adopted certain investment objectives and restrictions as fundamental. Those investment objectives and restrictions cannot be changed without approval of a majority of the outstanding voting securities, meaning 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 and Small-Cap Funds are fundamental. The investment objectives of the International and Global Funds are non-fundamental. The investment policies of all of the Funds, shown in the prior section, are not fundamental. In addition, as described in more
Statement Of Additional Information | n | 3 |
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.
Shareholders of the Small-Cap Fund will be provided with at least 60 days prior written notice of any change to the Investment Policy set forth above. The Board of Trustees may, however, change the definition of small cap without prior notice if it concludes such a change is appropriate. Currently, a company will be considered small cap if its market capitalization at the time of purchase is within the range of companies in the Russell 2000 Index, the S&P Small-Cap 600 Index, or the Dow Jones Wilshire US Small-Cap Index during the most recent 12-month period (based on month-end data). This capitalization range will change over time.
Unless otherwise noted, whenever an investment policy or limitation states a maximum percentage of a Funds assets that may be invested in any security or other asset, or sets forth a policy regarding an investment standard, compliance with such percentage limitation or standard will be determined solely at the time of the Funds acquisition of such security or asset. The restriction on investing in illiquid securities is monitored on an ongoing basis.
Fundamental Investment Restrictions
Non-Diversification n 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 n The Partners Fund and the Small-Cap Fund have adopted as fundamental policy the diversification standards of the Internal Revenue Code which apply to regulated investment companies. The International and Global Funds expect to apply these diversification standards but have not adopted them as fundamental policy.
Under the diversification standards of the Internal Revenue Code, a mutual fund has two baskets or groups of holdings a diversified basket, which must comprise at least 50% of its total assets and a non-diversified basket, which includes the remainder of its assets. Within the diversified basket, consisting of at least 50% of a Funds 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 other registered investment companies or 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 the securities of other registered investment companies), 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 (as defined by the Internal Revenue Code) and which are engaged in the same, similar, or related trades or businesses.
Industry Concentration n The Partners 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, 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 financial reports sent 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.
Other Investment Restrictions n The Funds have adopted other investment restrictions designated as fundamental, which cannot be changed without shareholder approval. The fundamental investment restrictions of the Partners and Small-Cap Funds are identical and the fundamental restrictions of the International and Global Funds are identical.
Fundamental Investment Restrictions for Partners and Small-Cap Funds
Except as specifically authorized, the Partners 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 |
4 | n | Longleaf Partners Funds Trust |
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 Funds total assets less all liabilities and indebtedness not represented by senior securities. The Funds do not currently intend to enter reverse repurchase agreements, which would be viewed as borrowing. |
|
Issue any senior securities, except that collateral arrangements with respect to transactions such as forward contracts, futures contracts, short sales or options, including deposits of initial and variation margin, shall not be considered to be the issuance of a senior security for purposes of this restriction; |
|
Act as an underwriter of securities issued by other persons, except insofar as the Fund may be deemed an underwriter in connection with the disposition of securities; |
|
Purchase or sell real estate, except that the Fund may invest in securities of companies that deal in real estate or are engaged in the real estate business, including real estate investment trusts, and securities secured by real estate or interests therein and the Fund may hold and sell real estate acquired through default, liquidation, or other distributions of an interest in real estate as a result of the Funds 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 (without limit), and by the purchase of debt securities, all in accordance with its investment policies. |
Fundamental Investment Restrictions for the International and Global Funds
The International and Global Funds have adopted the following investment restrictions as fundamental. The text of the fundamental restriction is set forth in bold type; any comments following these fundamental restrictions are explanatory only and are not fundamental.
|
Industry Concentration. The Funds will not purchase any security which would cause the Funds to concentrate 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 in securities of companies in any single 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. The Funds 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 Funds 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 non-U.S. 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 at least equal to the future obligations.
|
Borrowing. The Funds 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
Statement Of Additional Information | n | 5 |
clearance of purchases and sales of portfolio securities, and (iv) a fund may not pledge its assets other than to secure such borrowings (and then only up to 33 1 / 3 % of its assets, as described above) or, to the extent permitted by the Funds 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. The Funds do not currently intend to enter reverse repurchase agreements, which would be viewed as borrowing.
|
Underwriting. The Funds may not act as an underwriter of securities issued by others, except insofar as the Funds 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 Funds 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 Funds 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 Funds 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 Funds have 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 Funds 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.
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Lending. The Funds may not make loans to other persons except through the lending of securities held by it as permitted by applicable law (up to 1 / 3 of net assets), through the use of repurchase agreements (without limit), and by the purchase of debt securities, all in accordance with its investment policies. |
|
Real Estate. The Funds may not purchase or sell real estate, except that the Funds 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 Funds may hold and sell real estate acquired through default, liquidation, or other distributions of an interest in real estate as a result of the Funds ownership of such securities. |
Non-Fundamental Investment Restrictions
The Funds have adopted the following non-fundamental investment restriction, which may be changed at the discretion of the Board of Trustees, without prior shareholder approval. Except as specifically authorized, the Funds may not:
|
Hold illiquid securities, including repurchase agreements maturing in more than seven days, in excess of 15% of the Funds net assets. The Funds generally do not consider securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933 to be illiquid. |
Funds not Regulated by the CFTC
Pursuant to a claim filed with the Commodity Futures Trading Commission (CFTC) on behalf of each Fund, neither Southeastern nor any Longleaf Fund is deemed to be a commodity pool operator under the Commodity Exchange Act. Therefore, each Fund is excluded from registration and regulation under the Commodity Exchange Act, and
6 | n | Longleaf Partners Funds Trust |
Southeastern is not deemed to be a commodity pool operator with respect to its services as investment counsel. If a Fund were no longer able to claim the exclusion, Southeastern would be required to register as a commodity pool operator, and the Funds and Southeastern would be subject to regulation under the Commodity Exchange Act.
Additional Information About Types of Investments and Investment Techniques
Repurchase Agreements n An acceptable investment for cash reserves, a repurchase agreement is an instrument under which a Fund purchases securities issued by the U.S. Government or its agencies or other securities from a vendor or counterparty with an agreement by the counterparty to repurchase the security at the same price, plus interest, at a specified rate. The security is held by the Fund as collateral for the repurchase obligation. Under certain circumstances, repurchase agreements may be viewed as loans. Repurchase agreements for Treasury securities 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 U.S. Government or agency securities. Repurchase agreements usually have a short duration, often less than one week. In entering into the repurchase agreement for the Fund, Southeastern Asset Management, Inc. (Southeastern) as Investment Counsel will evaluate and monitor the credit worthiness of the counterparty. In the event that a counterparty 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 counterparty becomes bankrupt, the Fund might be delayed, or may incur costs or possible losses of principal and income, in selling the collateral.
Warrants n 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 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 n 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 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 n 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.
Statement Of Additional Information | n | 7 |
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 Funds 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).
Options on Securities and Stock Indices n The Funds may write or purchase put and call options on securities or stock indices. An option on a security is a contract that gives the purchaser, 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, 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 where they (i) own or are short the underlying security in the case of a call or put option, respectively (sometimes referred to as a covered option), or (ii) do not own or are not short such security (sometimes referred to as a naked option).
However, the Funds may write a call or put option only if the option meets the coverage requirements of Section 18 of the Investment Company Act of 1940 and the rules thereunder, as further interpreted by the Securities and Exchange Commission. Pursuant to these requirements, 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 options 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 Funds stock investments. By writing a put option, the Fund assumes
8 | n | Longleaf Partners Funds Trust |
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 Funds 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 Funds investments does not decline as anticipated, or if the value of the option does not increase, the Funds loss will be limited to the premium paid for the option plus related transaction costs. The success of this strategy will depend, in part, on the accuracy of the correlation between the changes in value of the underlying security or index and the changes in value of the Funds 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 n 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 non-U.S. 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 non-U.S. 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 non-U.S. 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 non-U.S. currency exposure risk to the full extent of its investment in non-U.S. securities, but there is no requirement that all non-U.S. securities be hedged against non-U.S. currency exposure. Forward contracts may reduce the potential gain from a positive change in the relationship between the U.S. dollar and non-U.S. currencies or, considered separately, may produce a loss.
A Fund may purchase and write put and call options on non-U.S. currencies for the purpose of protecting against declines in the dollar value of non-U.S. portfolio securities and against increases in the dollar cost of non-U.S. securities to be acquired. As with other kinds of options, however, the writing of an option on non-U.S. 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 non-U.S. currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on non-U.S. currency may constitute an effective hedge against fluctuation in exchange rates although, in the event of rate movements adverse to the Funds 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 non-U.S. 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
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value of the particular Funds 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 Counsels 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 n 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, as well as income available to the Funds. 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. While voting rights may pass with the securities on loan, the Funds Trustees maintain a fiduciary duty to recall such securities in the event of a vote material to the investment, and any agreement to lend the Funds securities will permit the exercise of such a recall.
Swaps n The Funds may enter into swaps involving interests in securities, indexes, currencies, and other market factors in amounts deemed appropriate by the Funds Trustees. Most swap agreements are currently traded over-the-counter. In a standard swap transaction, two parties agree to exchange the returns (or differences in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or swapped between the parties are calculated with respect to a notional amount, which is the predetermined dollar principal of the trade representing the hypothetical
underlying quantity upon which payment obligations are computed.
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 or volatility in other market factors, 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 long or short exposure to the performance of a security or issuer without direct purchases or short sales.
In a credit default swap, the credit default protection buyer makes periodic payments, known as premiums, to the credit default protection seller. In return the credit default protection seller will make a payment to the credit default protection buyer upon the occurrence of a specified credit event with respect to a reference issuer or asset. A credit default swap can refer to a single issuer or asset, a basket of issuers or assets, or an index of issuers or assets, each known as the reference entity or underlying asset. A Fund may act as either the buyer or seller of a credit default swap. A Fund may enter into an unhedged credit default swap, in which it buys credit default protection on a reference entity without owning the underlying asset or assets issued by the reference entity. Credit default swaps involve greater and different risks than investing directly in the referenced asset, because, in addition to market risk, credit default swaps include liquidity, leveraging, counterparty and operational risk.
Credit default swaps allow a Fund to acquire or reduce credit exposure to a particular issuer, asset or basket of assets. If a swap agreement calls for payments by a Fund, the Fund must be prepared to make payments when due. If a Fund is the credit default protection seller, the Fund will experience a loss if the credit of the reference entity or underlying asset deteriorates and a credit event occurs. If a Fund is the credit default protection buyer, the Fund will be required to pay premiums to the credit default protection seller and bears the risk that the investment might expire worthless if the credit event does not occur. In the case of a physically settled credit default swap in which the Fund is the protection seller, the Fund must be prepared to pay par for and take possession of debt of a defaulted issuer delivered to the Fund by the credit default protection buyer. Any loss would be offset to an extent by the premium payments the Fund receives as the seller of credit default protection.
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A Fund will segregate liquid assets in an amount sufficient to cover the sum of its periodic payment obligations when it is the buyer of a credit default swap. In cases where a Fund is a seller, the Fund will segregate liquid assets sufficient to cover its obligation upon a credit event.
Swaps have risks associated with them, including illiquidity and the risk that the use of a swap could result in losses greater then if the swap had not been employed. If a Fund sells a credit default swap, it effectively adds leverage to its portfolio and will be subject to leveraging risk because, in addition to its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. In addition, if the creditworthiness of a Funds swap counterparty declines, the risk that the counterparty may not perform could increase, potentially resulting in a loss to the Fund. To limit counterparty risk, the Funds will only enter into swap agreements with counterparties that meet certain standards of creditworthiness. Although there can be no assurance that a Fund will be able to do so, a Fund may be able to reduce or eliminate its exposure under a swap agreement by assignment or other disposition, or by entering into an offsetting swap agreement with the same party or another creditworthy party. A Fund may have limited ability to eliminate its exposure under a credit default swap if the credit of the reference entity or underlying asset has declined.
The swaps market is largely unregulated. It is possible that developments in the swaps market,
including potential government regulation, could adversely affect a Funds ability to terminate existing swap agreements or to realize amounts to be received under such agreements. It is possible that government regulation of various types of derivative instruments, including futures and swap agreements, may limit or prevent a Fund from using such instruments as a part of its investment strategy, and could ultimately prevent the Fund from being able to achieve its investment objective. In 2008, multiple committees of the U.S. Congress held hearings investigating the rise in energy and agricultural prices and the role that the futures market and swap market participants may have played in this phenomenon. The Commodity Futures Trading Commission (CFTC) has also investigated allegations of price manipulation in certain commodity markets. Congress has passed legislation that would require regulatory agencies to develop rules imposing limits on certain derivatives activities. It is possible that this could potentially limit or
completely restrict the ability of a Fund to use these instruments as a part of its investment strategy. Limits or restrictions applicable to the counterparties with which the Fund engages in derivative transactions could also prevent the Fund from using these instruments.
Short Sales n 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, but generally will do so only for hedging purposes. 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. When a portfolio company has a subsidiary which is partially publicly held, a short sale of the subsidiarys shares can be used as a partial hedge to protect the value of the portfolio holding. However, the Funds could, at any given time, suffer both a loss on the purchase or retention of one security, if that security should decline in value, and a loss on a short sale of another security, if the security sold short should increase in value. When a short position is closed out, it may result in a short term capital gain or loss for federal income tax purposes. To the extent that in a generally rising market a Fund maintains short positions in securities rising with the market, the net asset value of the Fund would be expected to increase to a lesser extent than the net asset value of an investment company that does not engage in short sales.
Convertible Securities n Convertible securities are generally bonds, debentures, notes, preferred stocks or other securities or investments that may be converted or exchanged (by the holder or by the issuer) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio or predetermined price (the conversion price). A convertible security is designed to provide current income and also the potential for capital appreciation through the conversion feature, which enables the holder to benefit from increases in the market price of the underlying
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common stock. A convertible security may be called for redemption or conversion by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue. If a convertible security held by a Fund is called for redemption or conversion, the Fund could be required to tender it for redemption, convert it into the underlying common stock, or sell it to a third party, which may have an adverse effect on the Funds ability to achieve its investment objectives. Convertible securities have general characteristics similar to both debt and equity securities.
A convertible security generally entitles the holder to receive interest paid or accrued until the convertible security matures or is redeemed, converted or exchanged. Convertible securities rank senior to common stock in a corporations capital structure and, therefore, generally entail less risk than the corporations common stock, although the extent to which such risk is reduced depends in large measure upon the degree to which the convertible security sells above its value as a debt obligation. Before conversion, convertible securities have characteristics similar to non-convertible debt obligations and are designed to provide for a stable stream of income with generally higher yields than common stocks. However, there can be no assurance of current income because the issuers of the convertible securities may default on their obligations. Convertible securities are subordinate in rank to any senior debt obligations of the issuer, and, therefore, an issuers convertible securities entail more risk than its debt obligations. Moreover, convertible securities are often rated below investment grade or not rated because they fall below debt obligations and just above common equity in order of preference or priority on an issuers balance sheet. Convertible securities generally offer lower interest or dividend yields than non-convertible debt securities of similar credit quality because of the potential for capital appreciation. The common stock underlying convertible securities may be issued by a different entity than the issuer of the convertible securities.
The value of convertible securities is influenced by both the yield of non-convertible securities of comparable issuers and by the value of the underlying common stock. The value of a convertible security viewed without regard to its conversion feature ( i.e ., strictly on the basis of its yield) is sometimes referred to as its investment value. The investment value of the convertible security typically will fluctuate based on the credit quality of the issuer and will fluctuate inversely with changes in
prevailing interest rates. However, at the same time, the convertible security will be influenced by its conversion value, which is the market value of the underlying common stock that would be obtained if the convertible security were converted. Conversion value fluctuates directly with the price of the underlying common stock, and will therefore be subject to risks relating to the activities of the issuer and/or general market and economic conditions. Depending upon the relationship of the conversion price to the market value of the underlying security, a convertible security may trade more like an equity security than a debt instrument.
If, because of a low price of the common stock, the conversion value is substantially below the investment value of the convertible security, the price of the convertible security is governed principally by its investment value. Generally, if the conversion value of a convertible security increases to a point that approximates or exceeds its investment value, the value of the security will be principally influenced by its conversion value. A convertible security will sell at a premium over its conversion value to the extent investors place value on the right to acquire the underlying common stock while holding an income-producing security.
To the extent consistent with its other investment policies, each Fund may also create a synthetic convertible security by combining separate securities that possess the two principal characteristics of a traditional convertible security, i.e ., an income-producing security (income-producing element) and the right to acquire an equity security (convertible element). The income-producing element is achieved by investing in non-convertible, income-producing securities such as bonds, preferred stocks and money market instruments. The convertible element is achieved by investing in warrants or options to buy common stock at a certain exercise price, or options on a stock index. Unlike a traditional convertible security, which is a single security having a unitary market value, a synthetic convertible comprises two or more separate securities, each with its own market value. Therefore, the market value of a synthetic convertible security is the sum of the values of its income-producing element and its convertible element. For this reason, the values of a synthetic convertible security and a traditional convertible security may respond differently to market fluctuations.
The Funds may also purchase synthetic convertible securities created by other parties, including
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convertible structured notes. Convertible structured notes are income-producing debentures linked to equity, and are typically issued by investment banks. Convertible structured notes have the attributes of a convertible security; however, the investment bank that issued the convertible note, rather than the issuer of the underlying common stock into which the note is convertible, assumes the credit risk associated with the underlying investment and a Fund in turn assumes credit risk associated with the convertible note.
When-Issued, Delayed Delivery and Forward Commitment Transactions n A Fund may purchase or sell securities on a when-issued, delayed delivery or forward commitment basis. These transactions involve a commitment by the Fund to purchase or sell securities for a predetermined price or yield, with payment and delivery taking place more than seven days in the future, or after a period longer than the customary settlement period for that type of security. When delayed delivery purchases are outstanding, the Fund will either (i) segregate until the settlement date assets determined to be liquid in accordance with procedures approved by the Board of Trustees in an amount sufficient to meet the purchase price or (ii) enter into an offsetting contract for the forward sale of securities of equal value that it owns. Typically, no income accrues on securities purchased on a delayed delivery basis prior to the time delivery of the securities is made, although a Fund may earn income on segregated securities.
When purchasing a security on a when-issued, delayed delivery or forward commitment basis, the Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations, and takes such fluctuations into account when determining its net asset value. Because a Fund is not required to pay for the security until the delivery date, these risks are in addition to the risks associated with the Funds other investments. If the Fund remains substantially fully invested at a time when delayed delivery purchases are outstanding, the delayed delivery purchases may result in a form of leverage.
When the Fund has sold a security on a when-issued, delayed delivery or forward commitment basis, the Fund does not participate in future gains or losses with respect to the security. If the other party to a delayed delivery transaction fails to deliver or pay for the securities, the Fund could miss a favorable price or yield opportunity or could suffer
a loss. Additionally, when selling a security on a
when-issued, delayed delivery or forward commitment basis without owning the security, the Fund will incur a loss if the securitys price appreciates in value such that the securitys price is above the agreed upon price on the settlement date. The Fund may dispose of or renegotiate a transaction after it is entered into, and may sell when-issued, delayed delivery or forward commitment securities before the settlement date, which may result in a capital gain or loss.
A Fund may dispose of a commitment prior to settlement and may realize short-term profits or losses upon such disposition.
Other Investment Companies n The Funds may invest in securities of other open-end, closed-end or unit investment trust investment companies, including exchange-traded funds (ETFs), to the extent that such investments are consistent with the Funds investment objective and policies and permissible under the 1940 Act and related rules and any exemptive relief from or interpretations of the SEC.
In general, under the 1940 Act, an investment company such as the Fund may not (i) own more than 3% of the outstanding voting securities of any one registered investment company, (ii) invest more than 5% of its total assets in the securities of any single registered investment company or (iii) invest more than 10% of its total assets in securities of other registered investment companies.
A Fund may invest in other investment companies during periods when it has large amounts of uninvested cash, during periods when there is a shortage of attractive securities available in the market, or when portfolio management believes share prices of other investment companies offer attractive values. The Funds may also invest in other investment companies because the laws of some non-U.S. countries may make it difficult or impossible for a Fund to invest directly in issuers organized or headquartered in those countries, or may limit such investments. The most efficient, and sometimes the only practical, means of investing in such companies may be through investment in other investment companies that in turn are authorized to invest in the securities of such issuers.
As a shareholder in an investment company, a Fund will bear its ratable share of that investment companys expenses, and would remain subject to payment of the Funds management fees and other expenses with respect to assets so invested. A
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Funds shareholders would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. In addition, the securities of other investment companies may be leveraged and will therefore be subject to the same risks of leverage described in the Prospectus and herein.
U.S. Government Securities n U.S. Government securities are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. The U.S. Government does not guarantee the net asset value of the Funds shares. U.S. Government securities are subject to market and interest rate risk, and may be subject to varying degrees of credit risk. Some U.S. Government securities, such as Treasury bills, notes and bonds, and securities guaranteed by the Government National Mortgage Association (GNMA), are supported by the full faith and credit of the United States; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of the Federal National Mortgage Association (FNMA), are supported by the discretionary authority of the U.S. Government to purchase the agencys obligations; and still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality. Although U.S. Government-sponsored enterprises such as the Federal Home Loan Banks, Federal Home Loan Mortgage Corporation (FHLMC), and FNMA may be chartered or sponsored by Congress, they are not funded by Congressional appropriation and their securities are not issued by the U.S. Treasury or supported by the full faith and credit of the U.S. Government and include increased credit risks. Until recently, FNMA and FHLMC were government-sponsored enterprises owned entirely by private stockholders. The value of these entities stock fell sharply in 2008 due to concerns that the entities did not have sufficient capital to offset losses. In mid-2008, the U.S. Treasury was authorized to increase the size of home loans that FNMA and FHLMC could purchase in certain residential areas and, until 2009, to lend FNMA and FHLMC emergency funds and to purchase the entities stock. More recently, in September 2008, the U.S. Treasury announced that FNMA and FHLMC had been placed in conservatorship by the Federal Housing Finance Agency (FHFA), a newly created independent regulator. As the conservator, FHFA succeeded to all rights, titles, powers and privileges of FNMA and FHLMC and of any stockholder, officer or director of FNMA
and FHLMC with respect to FNMA and FHLMC and the assets of FNMA and FHLMC. FHFA selected a new chief executive officer and chairman of the board of directors for each of FNMA and FHLMC.
On September 7, 2008, the U.S. Treasury announced three additional steps taken by it in connection with the conservatorship. First, the U.S. Treasury entered into a Senior Preferred Stock Purchase Agreement with each of FNMA and FHLMC pursuant to which the U.S. Treasury would purchase up to an aggregate of $100 billion of each of FNMA and FHLMC to maintain a positive net worth in each enterprise. This agreement contains various covenants that severely limit each enterprises operations. In exchange for entering into these agreements, the U.S. Treasury received $1 billion of each enterprises senior preferred stock and warrants to purchase 79.9% of each enterprises common stock. Second, the U.S. Treasury announced the creation of a new secured lending facility that is available to each of FNMA and FHLMC as a liquidity backstop. Third, the U.S. Treasury announced the creation of a temporary program to purchase mortgage-backed securities issued by each of FNMA and FHLMC. On February 18, 2009, the U.S. Treasury announced that it was doubling the size of its commitment to each enterprise under the Senior Preferred Stock Program to $200 billion. The U.S. Treasurys obligations under the Senior Preferred Stock Program are for an indefinite period of time for a maximum amount of $200 billion per enterprise. Both the liquidity backstop and the mortgage-backed securities purchase program expired December 31, 2009. FNMA and FHLMC are continuing to operate as going concerns while in conservatorship and each remains liable for all of its obligations, including its guaranty obligations, associated with its mortgage-backed securities.
Under the Federal Housing Finance Regulatory Reform Act of 2008 (the Reform Act), which was included as part of the Housing and Economic Recovery Act of 2008, FHFA, as conservator or receiver, has the power to repudiate any contract entered into by FNMA or FHLMC prior to FHFAs appointment as conservator or receiver, as applicable, if FHFA determines, in its sole discretion, that performance of the contract is burdensome and that repudiation of the contract promotes the orderly administration of FNMAs or FHLMCs affairs. The Reform Act requires FHFA to exercise its right to repudiate any contract within a reasonable period of time after its appointment as conservator or receiver. FHFA, in its capacity as conservator, has
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indicated that it has no intention to repudiate the guaranty obligations of FNMA or FHLMC because FHFA views repudiation as incompatible with the goals of the conservatorship. However, in the event that FHFA, as conservator or if it is later appointed as receiver for FNMA or FHLMC, were to repudiate any such guaranty obligation, the conservatorship or receivership estate, as applicable, would be liable for actual direct compensatory damages in accordance with the provisions of the Reform Act. Any such liability could be satisfied only to the extent of FNMAs or FHLMCs assets available therefor.
In the event of repudiation, the payments of interest to holders of FNMA or FHLMC mortgage-backed securities would be reduced if payments on the mortgage loans represented in the mortgage loan groups related to such mortgage-backed securities are not made by the borrowers or advanced by the servicer. Any actual direct compensatory damages for repudiating these guaranty obligations may not be sufficient to offset any shortfalls experienced by such mortgage-backed security holders. Further, in its capacity as conservator or receiver, FHFA has the right to transfer or sell any asset or liability of FNMA or FHLMC without any approval, assignment or consent. Although FHFA has stated that it has no present intention to do so, if FHFA, as conservator or receiver, were to transfer any such guaranty obligation to another party, holders of FNMA or FHLMC mortgage-backed securities would have to rely on that party for satisfaction of the guaranty obligation and would be exposed to the credit risk of that party.
In addition, certain rights provided to holders of mortgage-backed securities issued by FNMA and FHLMC under the operative documents related to such securities may not be enforced against FHFA, or enforcement of such rights may be delayed, during the conservatorship or any future receivership. The operative documents for FNMA and FHLMC mortgage-backed securities may provide (or with respect to securities issued prior to the date of the appointment of the conservator may have provided) that upon the occurrence of an event of default on the part of FNMA or FHLMC, in its capacity as guarantor, which includes the appointment of a conservator or receiver, holders of such mortgage-backed securities have the right to replace FNMA or FHLMC as trustee if the requisite percentage of mortgage-backed securities holders consent. The Reform Act prevents mortgage-backed security holders from enforcing such rights if the event of default arises solely because a conservator or receiver has been appointed. The Reform Act also provides that
no person may exercise any right or power to terminate, accelerate or declare an event of default under certain contracts to which FNMA or FHLMC is a party, or obtain possession of or exercise control over any property of FNMA or FHLMC, or affect any contractual rights of FNMA or FHLMC, without the approval of FHFA, as conservator or receiver, for a period of 45 or 90 days following the appointment of FHFA as conservator or receiver, respectively.
U.S. Government securities include securities that have no coupons, or have been stripped of their unmatured interest coupons, individual interest coupons from such securities that trade separately, and evidences of receipt of such securities. Such securities may pay no cash income, and are purchased at a deep discount from their value at maturity. Because interest on zero coupon securities is not distributed on a current basis but is, in effect, compounded, zero coupon securities tend to be subject to greater risk than interest-paying securities of similar maturities. Custodial receipts issued in connection with so-called trademark zero coupon securities, such as CATs and TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S. Government securities, although the underlying bond represented by such receipt is a debt obligation of the U.S. Treasury. Other zero coupon Treasury securities ( e.g ., STRIPs and CUBEs) are direct obligations of the U.S. Government.
Fixed Income Securities n Fixed Income securities are subject to varying degrees of credit risk, which are often reflected in their credit ratings. A Fund could lose money on an investment in a fixed income security if the issuer or guarantor of the security is unable or unwilling, or is perceived (whether by market participants, ratings agencies, pricing services or otherwise) as unable or unwilling, to make timely principal and/or interest payments, or to otherwise honor its obligations.
Fixed income securities are also subject to interest rate risk, which is the risk that they will decline in value because of changes in interest rates. As nominal interest rates rise, the value of certain fixed income securities held by a Fund is likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Variable and floating rate securities generally are less sensitive to interest rate changes but may decline in value if their interest
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rates do not rise as much, or as quickly, as interest rates in general. Conversely, floating rate securities will not generally increase in value if interest rates decline. Inverse floating rate securities may decrease in value if interest rates increase. Inverse floating rate securities may also exhibit greater price volatility than a fixed rate obligation with similar credit quality. When a Fund holds variable or floating rate securities, a decrease (or, in the case of inverse floating rate securities, an increase) in market interest rates will adversely affect the income received from such securities and the net asset value of the Funds shares.
High Yield Securities n The Funds may invest in debt securities, including convertible securities, that are below investment grade quality. A security is considered to be below investment grade quality if it is either (1) not rated in one of the four highest rating categories by one of the Nationally Recognized Statistical Rating Organizations (NRSROs) ( i.e ., rated Ba or below by Moodys Investors Service, Inc. (Moodys) or BB or below by Standard & Poors Ratings Services (S&P) or Fitch, Inc. (Fitch)) or (2) if unrated, determined by the portfolio management to be of comparable quality to obligations so rated. Additional information about Moodys, S&Ps and Fitchs securities ratings are included Table of Bond and Preferred Stock Ratings below.
Below investment grade securities are sometimes referred to as high yield securities or junk bonds. Investing in high yield securities involves special risks in addition to the risks associated with investments in higher rated debt securities. While investments in high yield securities generally provide greater income and increased opportunity for capital appreciation than investments in higher quality securities, investments in high yield securities typically entail greater price volatility as well as principal and income risk. High yield securities are regarded as predominantly speculative with respect to the issuers continuing ability to meet principal and interest payments. Analysis of the creditworthiness of issuers of high yield securities may be more complex than for issuers of higher quality debt securities. The Funds may continue to hold high yield securities following a decline in their rating if in the opinion of portfolio management it would be advantageous to do so. Investments in high yield securities are described as speculative by ratings agencies. Securities ranked in the lowest investment grade category may also be considered speculative by certain ratings agencies.
High yield securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. The prices of high yield securities are likely to be sensitive to adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in high yield security prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If an issuer of high yield securities defaults, in addition to risking payment of all or a portion of interest and principal, the Funds investing in such securities may incur additional expenses to seek recovery. The market prices of high yield securities structured as zero-coupon or pay-in-kind securities are affected to a greater extent by interest rate changes, and therefore tend to be more volatile than securities that pay interest periodically and in cash. Even though such securities do not pay current interest in cash, a Fund nonetheless is required to accrue interest income on these investments and to distribute the interest income on a current basis. Thus, a Fund could be required at times to liquidate other investments in order to satisfy its distribution requirements.
The secondary market on which high yield securities are traded may be less liquid than the market for higher grade securities. Less liquidity in the secondary trading market could adversely affect the price at which the Funds could sell a high yield security, and could adversely affect a Funds daily net asset value. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of high yield securities, especially in a thinly traded market. When secondary markets for high yield securities are less liquid than the market for higher grade securities, it may be more difficult to value lower rated securities because such valuation may require more research, and elements of judgment may play a greater role in the valuation because there is less reliable, objective data available.
Loan Participations and Assignments n The Funds may invest in fixed- and floating-rate loans arranged through private negotiations between an issuer of debt instruments and one or more financial institutions (lenders). Generally, a Funds investments in loans are expected to take the form of loan participations and assignments of portions of loans from third parties.
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Large loans to corporations or governments may be shared or syndicated among several lenders, usually banks. A Fund may participate in such syndicates, or can buy part of a loan, becoming a direct lender. Participations and assignments involve special types of risk, including liquidity risk and the risks of being a lender. If a Fund purchases a participation, it may only be able to enforce its rights through the lender, and may assume the credit risk of the lender in addition to the borrower. With respect to assignments, a Funds rights against the borrower may be more limited than those held by the original lender.
Borrowing and Leverage n Leverage, including borrowing, will cause the value of a Funds shares to be more volatile than if the Fund did not use leverage. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of a Funds portfolio securities. The Funds may engage in transactions or purchase instruments that give rise to forms of leverage. Such transactions and instruments may include, among others, the use of reverse repurchase agreements and other borrowings, the investment of collateral from loans of portfolio securities, or the use of when-issued, delayed-delivery or forward commitment transactions. The use of derivatives and short sales may also involve leverage. The use of leverage may cause a Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet segregation requirements. Certain types of leveraging transactions, such as short sales of securities the Fund does not own, could theoretically be subject to unlimited losses in cases where a Fund, for any reason, is unable to close out the transaction. In addition, to the extent a Fund borrows money, interest costs on such borrowings may not be recovered by any appreciation of the securities purchased with the borrowed amounts and could exceed the Funds investment returns, resulting in greater losses.
The Boards of Trustees have authorized Southeastern as the Funds investment manager to vote proxies relating to the Funds portfolio securities in accord with the Proxy Voting Policies and Procedures attached as Appendix A. Also the Funds make available information regarding how the Funds voted proxies for the most recent 12-month period ended June 30. The Funds make this information available on Form N-PX free by phone (800) 445-9469, on the Funds website,
longleafpartners.com, and on the SECs website, sec.gov.
The portfolio turnover rate is calculated by dividing the lesser of purchases or sales of a Funds 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% (or material increases from one year to the next) generally occur because the Funds have significant buying opportunities or companies in the portfolio are acquired or reach their appraised value during the year and are sold. 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. Increases in turnover will generally involve greater transaction costs.
Because the Global Fund commenced operations on December 27, 2012, the Funds portfolio turnover rates for 2012 and 2011 are not included in this Statement of Additional Information (SAI).
The portfolio turnover rates of the Funds for the past three years, as applicable, are as follows:
2013 | 2012 | 2011 | ||||||||||
Partners Fund |
22.73 | % | 25.53 | % | 23.55 | % | ||||||
Small-Cap Fund |
20.41 | 14.70 | 37.33 | |||||||||
International Fund |
36.12 | 22.59 | 48.87 | |||||||||
Global Fund |
4.14 | na | na | |||||||||
Disclosure of Portfolio Holdings
Disclosure of Portfolio Holdings n The portfolio holdings of the Funds are proprietary information and Southeasterns Code of Ethics prohibits selective disclosure of portfolio holdings which have not been made public. Southeastern has adopted procedures designed to ensure that holdings are not released on a selective basis and to limit disclosure of the Funds holdings to routine regulatory filings and/or to service providers in the ordinary course of business as required to process transactions, subject in all cases
Statement Of Additional Information | n | 17 |
to the requirements that there be a legitimate business purpose, and that the receiving party be subject to a duty of confidentiality and a duty not to trade on the information. The Funds Boards of Trustees have approved these procedures, and any material compliance matters arising under these procedures would be reported to the Boards by the Funds Chief Compliance Officer, who oversees their implementation. Southeastern does not receive compensation to disclose information on the Funds non-public portfolio holdings.
Information regarding portfolio holdings of the Longleaf Partners Funds may be disclosed to outside parties in a number of situations, including: 1) disclosure to the Funds custodian, State Street Bank and Trust, but only in connection with processing and/or reconciling transactions for the Funds; 2) disclosure to ISS, the Funds proxy voting agent, but only in connection with voting proxies for the Funds; 3) disclosure to brokers selected and/or considered by Southeasterns trading department to execute transactions, but only in connection with the trading process, and the settlement and processing of transactions; 4) disclosure in connection with required U.S. and non-U.S. regulatory filings; 5) disclosure to accounting firms, law firms, or other professionals subject to a duty of confidentiality, and a duty not to trade on the non-public information; 6) information related to portfolio holdings may also be authorized for disclosure by the Funds Chief Compliance Officer only if permitted by law and if such disclosure is consistent with Southeasterns fiduciary duty to Fund shareholders. Southeastern investment research (excluding portfolio holdings) may be shared by the analyst conducting that research as part of the investment due diligence process. Southeastern investment research may also be shared by Southeastern with existing and potential investors regarding holdings that have been publicly disclosed. In addition, Southeastern may provide other information to existing and potential investors and intermediaries working on behalf of such investors. Such information may consist of analytical information concerning a Funds portfolio as a whole, without naming specific holdings.
The Funds complete portfolio holdings are generally published with up to a 45 day lag following each fiscal quarter in the Funds quarterly reports sent to shareholders and posted on the Funds website. These holdings are also included in reports filed with the SEC on Form N-CSR or Form N-Q. The Funds top ten holdings as of the end of each fiscal
quarter are also published on the Funds website, generally with up to a 10 to 15 day lag. Once a portfolio holding has been publicly disclosed in an approved regulatory filing, or on the Funds website, it is no longer subject to confidential treatment.
18 | n | Longleaf Partners Funds Trust |
Each of the Funds is operated by the Board of Trustees, which implements policies and Fund operations through 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.
* | Mr. Hawkins is a director and officer of Southeastern Asset Management, Inc. and as such is classified as an interested Trustee. Ms. Child is not affiliated with Southeastern, but performs certain administration and operational functions for the Funds in Massachusetts, their state of organization, and could be deemed to be an interested Trustee. |
Statement Of Additional Information | n | 19 |
The membership of each Board of Trustees is the same. There is no stated term of service, and Trustees continue to serve after election until resignation. All Trustees presently serving except for Rex M. Deloach were elected or re-elected at a meeting of shareholders held on September 19, 2001 in Boston, Massachusetts.
Principal Occupations During Past 5 Years |
Number of Portfolios Overseen |
Other Directorships During the Past 5 Years |
||
Affiliated or Interested Trustees* | ||||
Chairman of the Board and Chief Executive Officer, Southeastern Asset Management, Inc. | 4 | |||
Marketing Consultant since 2005; Chief Marketing Officer, Bingham McCutchen, LLP (1999-2004) (an international law firm); Director of Marketing, Arthur Andersen LLP (accounting firm) Memphis office (1991-98), Atlanta office (1998-99). | 4 | |||
Independent or Non-Interested Trustees | ||||
Private Investor and Consultant since 1997; Senior Executive Officer, Progress Software Corp. (1983-97). | 4 | |||
Private Investor since 2006; President and CEO, Twilight Ventures, LLC (investment holding company) 2005-2006; Senior Vice President-Marketing, Jacksonville Jaguars (NFL franchise) (1994-2004). | 4 | |||
President, Financial Insights, Inc. (financial consulting and litigation support) since 2002; Vice President, The Oxford Company (private land and timber investments) (1994-2012). | 4 | |||
Senior Vice President, Stephens, Inc. (financial services), since 2009; Real Estate Development, The Sea Island Company (hospitality), (2005-2009); Private Investor and Consultant since 1997; Golf Commentator, ABC Sports (1991-2004); President, Riverside Golf Group, Inc. (since 1989). | 4 | |||
Private Investor and Consultant, since 2008; Partner, 360 Goodwyn LLC (real estate development) (2005-2013); Partner, SSM Corp. (venture capital firm) (1974-2007). | 4 | Director, Financial Federal Savings Bank, Memphis, TN and INNOVA, Memphis, TN | ||
President, Steger and Bizzell Engineering, Inc. since 2003; Director of Product Strategy, National Instruments, Inc. (1996-2003). | 4 |
20 | n | Longleaf Partners Funds Trust |
The following table provides information on fees paid to each Trustee for Board service during the calendar year 2013:
Name |
Total Compensation From All Funds (3)(4) |
|||
O. Mason Hawkins* (1) |
None | |||
Margaret H. Child* (2) |
$ | 150,000 | ||
Chadwick H. Carpenter, Jr. |
150,000 | |||
Daniel W. Connell, Jr. |
150,000 | |||
Rex M. Deloach |
150,000 | |||
Steven N. Melnyk |
150,000 | |||
C. Barham Ray |
150,000 | |||
Perry C. Steger |
150,000 | |||
* | Interested Trustee |
(1) |
Mr. Hawkins is classified as an interested Trustee because he is Chairman and CEO of Southeastern Asset Management, Inc., the Funds Investment Counsel and Administrator. |
(2) |
Ms. Child is classified as an interested Trustee because she performs certain operational and administrative functions for the Funds in Massachusetts, their state of organization. She is not employed by Southeastern Asset Management, Inc. and accordingly receives no compensation from Southeastern. |
(3) |
The Funds have no pension or retirement plan for Trustees. |
(4) |
The Funds also reimburse the outside Trustees for lodging and travel expenses incurred in attending Board meetings. |
Statement Of Additional Information | n | 21 |
Ownership of Fund Shares by Trustees
The following table provides information on the range of ownership of Fund shares at December 31, 2013 by individual members of the Funds Boards of Trustees.
Name of Director |
Dollar Range of Equity Securities in Each Fund |
Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Trustee in Family of Investment Companies |
||
Affiliated or Interested Trustees | ||||
O. Mason Hawkins, CFA (1) |
Partners Fund Over $100,000 Small-Cap Fund Over $100,000 International Fund Over $100,000 Global Fund Over $100,000 |
Over $100,000 | ||
Margaret H. Child (2) |
Partners Fund Over $100,000 Small-Cap Fund Over $100,000 International Fund Over $100,000 Global Fund None |
Over $100,000 | ||
Independent or Non-Interested Trustees | ||||
Chadwick H. Carpenter, Jr. |
Partners Fund Over $100,000 Small-Cap Over $100,000 International Fund Over $100,000 Global Fund None |
Over $100,000 | ||
Daniel W. Connell, Jr. |
Partners Fund Over $100,000 Small-Cap Fund Over $100,000 International Fund Over $100,000 Global Fund Over $100,000 |
Over $100,000 | ||
Rex M. Deloach |
Partners Fund Over $100,000 Small-Cap Fund Over $100,000 International Fund Over $100,000 Global Fund Over $100,000 |
Over $100,000 | ||
Steven N. Melnyk |
Partners Fund Over $100,000 Small-Cap Fund $50,000$100,000 International Fund $50,000$100,000 Global Fund $0$50,000 |
Over $100,000 | ||
C. Barham Ray |
Partners Fund Over $100,000 Small-Cap Fund Over $100,000 International Fund Over $100,000 Global Fund None |
Over $100,000 | ||
Perry C. Steger |
Partners Fund Over $100,000 Small-Cap Fund Over $100,000 International Fund Over $100,000 Global Fund None |
Over $100,000 | ||
(1) |
Mr. Hawkins is classified as an interested Trustee because he is Chairman and CEO of Southeastern asset Management, Inc., the Funds Investment Counsel and Administrator. |
(2) |
Ms. Child is classified as an interested Trustee because she performs certain operational and administrative functions for the Funds in Massachusetts, their state of organization. She is not employed by Southeastern Asset Management, Inc. and accordingly receives no compensation from Southeastern. |
22 | n | Longleaf Partners Funds Trust |
Other Information Concerning the Boards of Trustees
Leadership Structure and Board of Trustees
Each of the Funds is operated by a Board of Trustees, 75% of whom, including the Chairman, are independent of and not affiliated with Southeastern. The same Trustees serve all four Funds and have delegated day to day operation to various service providers whose activities they oversee. Except for the Audit Committee described below, the Trustees have elected not to exercise oversight by committee. Instead, each Board-level decision involving the Funds is considered by the Board itself. Using such a structure allows the perspective of all Trustees to be brought to bear on each matter considered.
The Funds are subject to a number of risks, including investment, compliance, operational and valuation risks, among others. Risk oversight forms part of the Boards general oversight of the Funds and is addressed as part of various Board activities. Each quarter the Board meets with officers of Southeastern covering issues related to Fund investments, legal, regulatory and compliance items, as well as Fund operations. While Southeastern in its capacity as administrator oversees day to day activities of service providers of the Funds, the Board receives routine reports on these activities, and when necessary has met with service providers to address matters potentially affecting the Funds. Further, on an annual basis the Board meets with senior officers from each department of Southeastern and receives a report addressing material changes impacting that department. At that same annual meeting, the team of investment analysts is present for extensive discussion of Southeasterns investment process and how it has impacted the Funds. Trustees are free at any time to make inquiries of Southeastern or other service providers to the Funds. The risk management policies of the Funds service providers and their implementation vary among service providers and over time and there is no guarantee that they will be effective. Not all risks that may affect the Funds can be identified nor can processes and controls be developed to eliminate or mitigate their occurrence or effects; some risks are simply beyond any control of the Funds, Southeastern or other service providers. The Trustees believe that their current oversight approach is an appropriate way to manage risks facing the Funds, whether investment, compliance, valuation, or otherwise. The Trustees may, at any time in their discretion, change the manner in which they conduct risk oversight of the Funds.
The Board does have one standing committee, the Audit Committee, comprised solely of independent Trustees (Carpenter, Connell, Deloach, Melnyk, Ray and Steger). The Audit Committees duties are spelled out in a charter, but its main functions are to oversee the Funds accounting and financial reporting processes and to oversee the quality and objectivity of the Funds financial statements and the independent audit thereof. The Audit Committee met separately with the Funds independent auditor twice during the last fiscal year.
The independent Trustees meet separately on a quarterly basis and meet separately with the Funds Chief Compliance Officer at least annually. On an annual basis, the Board conducts a self-assessment and evaluates its structure, including as it relates to overseeing and managing the Funds risks. Consistent with Longleafs governing principles, each of Longleafs Trustees is a significant owner and partner with other shareholders (see table set forth above), which is designed to align their interests with those of shareholders.
Board Attributes Disclosure
The Board of Trustees, in its present configuration, has been in place since 2003. Our least tenured Trustee has ten years of experience on the Board and our longest tenured Trustee has 23 years of experience, exclusive of Mr. Hawkins who was a Trustee when Longleaf Partners Fund launched 27 years ago. Each of the Trustees has demonstrated leadership abilities and possesses experience, qualifications, and skills valuable to the Funds. In addition, the varying backgrounds and areas of expertise of the Trustees allow them to view and analyze issues impacting the Funds from differing perspectives. Specific information supporting our determination that each Trustee is qualified to serve follows:
Chadwick H. Carpenter has served in senior management of a global software company and has extensive technical expertise in computer software, financial management, and budgeting.
Margaret H. Child has over 20 years of professional marketing and communications expertise, including service as Chief Marketing Officer of a global law firm and Director of Marketing at a global accounting firm.
Statement Of Additional Information | n | 23 |
Daniel W. Connell, Jr. worked as a commercial banker for over 20 years, 10 of which were as a senior officer whose duties included oversight of corporate lending for large companies, oversight of regional commercial real estate lending, and oversight of a region with approximately 1,800 employees. Mr. Connell also possesses experience with gas exploration ventures and has served as President of the University of North Florida Foundation.
Rex M. Deloach, who serves as Chairman of the Audit Committee, has over 30 years experience in public accounting including services as audit partner for major U.S. public companies. He also has over 10 years experience as a financial consultant and served 2 years as Vice Chancellor, Finance and Administration at the University of Mississippi.
O. Mason Hawkins is founder, Chairman and CEO of Southeastern Asset Management, Inc., the Funds adviser. As of December 31, 2013, Southeastern had over $35.0 billion in assets under management. Mr. Hawkins, a CFA, has over 42 years of
experience as an investment manager and analyst. He is the author of Southeasterns shareholder-oriented, industry-renowned governing principles, and the largest individual owner in the Funds.
Steven N. Melnyk has founded and served as Chairman of a state chartered independent bank, and has founded and served as President of a real estate development company. He currently serves as Senior Vice President of a Financial Services Firm.
C. Barham Ray has 20 years experience as a financial consultant and financial analyst, 15 years experience as a venture capitalist, 35 years of experience as a value investor, and has served as a Board member for numerous private companies.
Perry C. Steger, who serves as Chairman of the Board, has founded and served as CEO of an industrial automation software company, served as Director of Product Strategy of a global supplier of automation products, and is currently CEO of a civil engineering firm.
Control Persons and Principal Holders of Securities
The following table lists those shareholders owning directly or beneficially 5% or more of the outstanding shares of each Fund at March 31, 2014, and also shows the aggregate ownership of Fund and management company personnel, their relatives, and affiliated retirement plans and foundations:
Longleaf Partners Fund
Clients of Charles Schwab & Co., Inc., a brokerage firm | 14.9 | % | ||
101 Montgomery St. San Francisco, CA 94104-4122 |
||||
Clients of National Financial Services Corp., a brokerage firm | 12.6 | |||
Church St. Station PO Box 3908 New York, NY 10008-3908 |
||||
Pershing LLC | 6.5 | |||
PO Box 2052 Jersey City, NJ 07303-9998 |
||||
All Trustees of the Fund, all directors, officers and employees of Southeastern Asset Management, Inc., and relatives, affiliated retirement plans and foundations | 8.3 | |||
24 | n | Longleaf Partners Funds Trust |
Longleaf Partners Small-Cap Fund
Clients of National Financial Services, Corp., a brokerage firm | 19.0 | % | ||
Church St. Station PO Box 3908 New York, NY 10008-3908 |
||||
Clients of Charles Schwab & Co., Inc., a brokerage firm | 15.7 | |||
101 Montgomery St. San Francisco, CA 94104-4122 |
||||
The Northern Trust Co As Custodian FBO Walgreens | 5.3 | |||
PO Box 92994 | ||||
Chicago, IL 60675-2994 | ||||
Vanguard Fiduciary Trust Co. | 5.1 | |||
PO Box 2600 VM 613 | ||||
Valley Forge, PA 19482 | ||||
All Trustees of the Fund, all directors, officers and employees of Southeastern Asset Management, Inc., and relatives, affiliated retirement plans and foundations | 7.5 | |||
Longleaf Partners International Fund
Clients of Charles Schwab & Co., Inc., a brokerage firm | 16.9 | |||
101 Montgomery St. San Francisco, CA 94104-4122 |
||||
Clients of National Financial Services, Corp., a brokerage firm | 11.6 | |||
Church St. Station PO Box 3908 New York, NY 10008-3908 |
||||
All Trustees of the Fund, all directors, officers and employees of Southeastern Asset Management, Inc., and relatives, affiliated retirement plans and foundations | 21.4 | |||
Longleaf Partners Global Fund
Clients of Charles Schwab & Co., a brokerage firm | 18.2 | |||
101 Montgomery St. San Francisco, CA 94104-4122 |
||||
All Trustees of the Fund, all directors, officers and employees of Southeastern Asset Management, Inc., and relatives, affiliated retirement plans and foundations | 64.1 | |||
Southeastern Asset Management, Inc. (Southeastern), an investment advisor registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, is the Funds Investment Counsel. Southeastern is owned and controlled by its principal officers. 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 as of March 31, 2014 was responsible for managing more than $34.8 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 17 through 18.
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 International Fund is 1.20% of average daily net assets on the first $500 million and 1.00% of average daily net assets above $500 million. The annual Investment Counsel fee for the Global Fund is 1.125% of average daily net assets on the first $500 million and 1% of average daily net assets above $500 million.
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
Statement Of Additional Information | n | 25 |
reimbursible expenses, and all normal operating expenses. For the Partners 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 1.50% of each Funds 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 and the Global Fund a 1.65% expense limitation, until average annual net assets exceed $54 million and expenses fall below the limitation.
Investment Counsel fees paid by each Fund for the last three fiscal years are as follows:
2013 | 2012 | 2011 | ||||||||||
Partners
|
$ | 62,337,196 | $ | 62,677,101 | $ | 66,217,635 | ||||||
Small-Cap
|
31,104,602 | 25,659,898 | 24,422,663 | |||||||||
International
|
17,719,300 | 16,054,042 | 23,934,969 | |||||||||
*Global Fund |
477,025 | NA | NA | |||||||||
* The Global Fund launched December 27, 2012.
Southeastern serves as Fund Administrator under an agreement which is renewable annually, 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 or supervision of preparation and filing of required financial reports and tax returns; |
|
Preparation or supervision of preparation of federal and state securities registrations and reports of sales of shares; |
|
Calculation or supervision of calculation of daily net asset value per share; |
|
Preparation and filing of prospectuses, proxy statements, and reports to shareholders; |
|
General coordination and liaison among the Investment Counsel, the Custodian, the Transfer Agent, authorized dealers, other outside service providers, and regulatory authorities. |
Each Fund pays an Administration Fee equal to 0.10% per annum of the average daily net assets for the services provided by Southeastern, which is accrued daily and paid monthly in arrears.
Administration fees paid by each Fund for the last three fiscal years are as follows:
2013 | 2012 | 2011 | ||||||||||
Partners
|
$ | 8,178,293 | $ | 8,223,613 | $ | 8,695,685 | ||||||
Small-Cap
|
4,013,947 | 3,287,986 | 3,123,022 | |||||||||
International
|
1,671,930 | 1,505,404 | 2,025,872 | |||||||||
*Global Fund |
45,807 | NA | NA | |||||||||
* The Global Fund launched December 27, 2012.
All 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 state regulatory agency; (v) insurance premiums and trade association dues; (vi) the costs of typesetting, printing and mailing to shareholders such documents as prospectuses, proxy statements, reports to shareholders, dividend notices and other communications; (vii) expenses of formal meetings of shareholders to vote on Fund or shareholder proposals and meetings of 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 are also responsible for the expenses of stationery, appropriate forms, envelopes, checks, postage, overnight air courier charges, telephone and data line charges, and printing and mailing expenses for shareholder communications and similar items, and the costs of computer programs or software used solely to process Fund transactions.
Terms of Operating Agreements n 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 each year prior to November 1 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
26 | n | Longleaf Partners Funds Trust |
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.
The Funds and Southeastern have adopted a code of ethics under rule 17j-1 of the Investment Company Act. This code requires all Southeastern employees and their spouses to limit their investments in publicly offered equity securities to shares of the Longleaf Partners Funds, unless granted an exception.
Additional Information About Portfolio Managers
Information about portfolio managers for the Longleaf Partners Funds is contained on page 23 of the Prospectus. Set forth below is additional information regarding other accounts managed, portfolio manager compensation, and ownership of Fund securities. Compensation of portfolio managers is paid by Southeastern for services performed for Longleaf, as well as Southeasterns other clients. Each Longleaf fund pays Southeastern an investment counsel and administration fee, and does not separately compensate portfolio managers.
Other Accounts Managed O. Mason Hawkins
1. | O. Mason Hawkins, Co-Portfolio Manager, Longleaf Partners Fund, Longleaf Partners Small-Cap Fund, Longleaf Partners International Fund and Longleaf Partners Global Fund |
2. | Other accounts managed: |
a. | Other registered investment companies: 3 accounts, assets = $1,195,727,447 |
b. | Other pooled accounts: 7 accounts, assets = $1,139,235,147 |
c. | Other accounts: 148 accounts, assets = $18,040,177,617 |
3. | Under 2(b), no accounts have a performance fee. |
Under 2(c), 14 accounts have a performance fee, assets = $6,153,277,143
4. | Conflicts of interest could arise in connection with managing the Longleaf Partners Funds side by side with Southeasterns other clients (the Other Accounts). Southeasterns Other Accounts include domestic, global, international and small-cap mandates, and investment opportunities may |
be appropriate for more than one category of account, as well as more than one of the Longleaf Partners Funds. Because of market conditions and client guidelines, not all investment opportunities will be available to all accounts at all times. While Southeastern has a financial incentive to favor performance fee accounts, as well as the Longleaf Funds, where its employees have substantial investments, Southeastern has developed allocation principles designed to ensure that no account or Fund is systematically given preferential treatment over time, and Southeasterns compliance personnel, including the CCO, routinely monitor allocations for consistency with these principles, as well as any evidence of conflict of interest. |
Compensation
Portfolio manager compensation at 12/31/13 included the following:
|
Competitive salary (comparable to investment firms elsewhere); |
|
Bonus based on contribution to the firm over the year. Contribution includes: |
a. | How investment ideas generated by the manager and his investment team performed both in price and value growth; |
b. | How the Longleaf Funds and other Southeastern accounts performed as measured against inflation plus 10%; |
c. | How the overall firm performed. |
Ownership of Fund Securities
Longleaf Partners Fund Over $1,000,000
Longleaf Partners Small-Cap Fund Over $1,000,000
Longleaf Partners International Fund Over $1,000,000
Longleaf Partners Global Fund Over $1,000,000
Other Accounts Managed G. Staley Cates
1. | G. Staley Cates, Co-Portfolio Manager, Longleaf Partners Fund, Longleaf Partners Small-Cap Fund, Longleaf Partners International Fund and Longleaf Partners Global Fund |
2. | Other accounts managed: |
a. | Other registered investment companies: 3 accounts, assets = $1,195,727,447 |
b. | Other pooled accounts: 7 accounts, assets = $1,139,235,147 |
Statement Of Additional Information | n | 27 |
c. | Other accounts: 148 accounts, assets = $18,040,177,617 |
3. | Under 2(b), no accounts have a performance fee. |
Under 2(c), 14 accounts have a performance fee, assets = $6,153,277,143
4. | Conflicts of interest could arise in connection with managing the Longleaf Partners Funds side by side with Southeasterns other clients (the Other Accounts). Southeasterns Other Accounts include domestic, global, international and small-cap mandates, and investment opportunities may be appropriate for more than one category of account, as well as more than one of the Longleaf Partners Funds. Because of market conditions and client guidelines, not all investment opportunities will be available to all accounts at all times. While Southeastern has a financial incentive to favor performance fee accounts, as well as the Longleaf Funds, where its employees have substantial investments, Southeastern has developed allocation principles designed to ensure that no account or Fund is systematically given preferential treatment over time, and Southeasterns compliance personnel, including the CCO, routinely monitor allocations for consistency with these principles, as well as any evidence of conflict of interest. |
Compensation
Portfolio manager compensation at 12/31/13 included the following:
|
Competitive salary (comparable to investment firms elsewhere); |
|
Bonus based on contribution to the firm over the year. Contribution includes: |
a. | How investment ideas generated by the manager performed both in price and value growth; |
b. | How the Longleaf Funds and other Southeastern accounts performed as measured against inflation plus 10%; |
c. | How the overall firm performed. |
Ownership of Fund Securities
Longleaf Partners Fund Over $1,000,000
Longleaf Partners Small-Cap Fund Over $1,000,000
Longleaf Partners International Fund Over $1,000,000
Longleaf Partners Global Fund $10,001-$50,000
Other Accounts Managed T. Scott Cobb
1. | T. Scott Cobb, Co-Portfolio Manager, Longleaf Partners International Fund |
2. | Other accounts managed: |
a. | Other registered investment companies (including Longleaf Partners, Small-Cap, and Global Funds): 6 accounts, assets = $14,065,860,636 |
b. | Other pooled accounts: 7 accounts, assets = $1,139,235,147 |
c. | Other accounts: 148 accounts, assets = $18,040,177,617 |
3. | Under 2(b), no accounts have a performance fee. |
Under 2(c), 14 accounts have a performance fee, assets = $6,153,277,143
4. | Conflicts of interest could arise in connection with managing the Longleaf Partners Funds side by side with Southeasterns other clients (the Other Accounts). Southeasterns Other Accounts include domestic, global, international and small-cap mandates, and investment opportunities may be appropriate for more than one category of account, as well as more than one of the Longleaf Partners Funds. Because of market conditions and client guidelines, not all investment opportunities will be available to all accounts at all times. Because a portion of Mr. Cobbs compensation is tied to revenues attributable to international investments, he has a conflict of interest as it relates to non-international accounts. In addition, while Southeastern has a financial incentive to favor performance fee accounts, as well as the Longleaf Funds, where its employees have substantial investments, Southeastern has developed allocation principles designed to ensure that no account or Fund is systematically given preferential treatment over time, and Southeasterns compliance personnel, including the CCO, routinely monitor allocations for consistency with these principles, as well as any evidence of conflict of interest. |
Compensation
Portfolio manager compensation at 12/31/13 included the following:
|
Competitive salary (comparable to investment firms elsewhere); |
28 | n | Longleaf Partners Funds Trust |
|
Bonus based on contribution to the firm over the year. Contribution includes: |
a. | How investment ideas generated by the manager performed both in price and value growth; |
b. | How the Longleaf Funds and other Southeastern accounts performed as measured against inflation plus 10%; |
c. | How the overall firm performed. |
|
In order to align Mr. Cobbs financial incentives with the success of international investments, Southeastern includes in Mr. Cobbs compensation a portion of the firms revenues attributable to international investments on Longleaf Partners International Fund, as well as private account clients with international holdings. |
Ownership of Fund Securities
Longleaf Partners International Fund Over $1,000,000
Other Accounts Managed Ken I. Siazon
1. | Ken I. Siazon, Co-Portfolio Manager, Longleaf Partners International Fund |
2. | Other accounts managed: |
a. | Other registered investment companies (including Longleaf Partners, Small-Cap, and Global Funds): 6 accounts, assets = $14,065,860,636 |
b. | Other pooled accounts: 7 accounts, assets = $1,139,235,147 |
c. | Other accounts: 148 accounts, assets = $18,040,177,617 |
3. | Under 2(b), no accounts have a performance fee. |
Under 2(c), 14 accounts have a performance fee, assets = $6,153,277,143
4. | Conflicts of interest could arise in connection with managing the Longleaf Partners Funds side by side with Southeasterns other clients (the Other Accounts). Southeasterns Other Accounts include domestic, global, international and small-cap mandates, and investment opportunities may be appropriate for more than one category of account, as well as more than one of the Longleaf Partners Funds. Because of market conditions and client guidelines, not all investment opportunities will be available to all accounts at all times. Because a portion of |
Mr. Siazons compensation is tied to revenues attributable to international investments, he has a conflict of interest as it relates to non-international accounts. In addition, while Southeastern has a financial incentive to favor performance fee accounts, as well as the Longleaf Funds, where its employees have substantial investments, Southeastern has developed allocation principles designed to ensure that no account or Fund is systematically given preferential treatment over time, and Southeasterns compliance personnel, including the CCO, routinely monitor allocations for consistency with these principles, as well as any evidence of conflict of interest. |
Compensation
Portfolio manager compensation at 12/31/13 included the following:
|
Competitive salary (comparable to investment firms elsewhere); |
|
Bonus based on contribution to the firm over the year. Contribution includes: |
a. | How investment ideas generated by the manager performed both in price and value growth; |
b. | How the Longleaf Funds and other Southeastern accounts performed as measured against inflation plus 10%; |
c. | How the overall firm performed. |
|
In order to align Mr. Siazons financial incentives with the success of international investments, Southeastern includes in Mr. Siazons compensation a portion of the firms revenues attributable to international investments on Longleaf Partners International Fund, as well as private account clients with international holdings. |
Ownership of Fund Securities
Longleaf Partners International Fund Over $1,000,000
Other Accounts Managed Ross Glotzbach
1. | Ross Glotzbach, Co-Portfolio Manager, Longleaf Partners Small-Cap Fund |
2. | Other accounts managed: |
a. | Other registered investment companies (including Longleaf Partners, Global, and International Funds): 6 accounts, assets = $11,740,890,012 |
Statement Of Additional Information | n | 29 |
b. | Other pooled accounts: 7 accounts, assets = $1,139,235,147 |
c. | Other accounts: 148 accounts, assets = $18,040,177,617 |
3. | Under 2(b), no accounts have a performance fee. |
Under 2(c), 14 accounts have a performance fee, assets = $6,153,277,143
4. | Conflicts of interest could arise in connection with managing the Longleaf Partners Funds side by side with Southeasterns other clients (the Other Accounts). Southeasterns Other Accounts include domestic, global, international and small-cap mandates, and investment opportunities may be appropriate for more than one category of account, as well as more than one of the Longleaf Partners Funds. Because of market conditions and client guidelines, not all investment opportunities will be available to all accounts at all times. In addition, while Southeastern has a financial incentive to favor performance fee accounts, as well as the Longleaf Funds, where its employees have substantial investments, Southeastern has developed allocation principles designed to ensure that no account or Fund is systematically given preferential treatment over time, and Southeasterns compliance personnel, including the CCO, routinely monitor allocations for consistency with these principles, as well as any evidence of conflict of interest. |
Compensation
Portfolio manager compensation at 12/31/13 included the following:
|
Competitive salary (comparable to investment firms elsewhere); |
|
Bonus based on contribution to the firm over the year. Contribution includes: |
a. | How investment ideas generated by the manager performed both in price and value growth; |
b. | How the Longleaf Funds and other Southeastern accounts performed as measured against inflation plus 10%; |
c. | How the overall firm performed. |
Ownership of Fund Securities
Longleaf Partners Small-Cap Fund Over $1,000,000
Custodian of Fund Assets n State Street Bank and Trust Company, located at One Heritage Drive, North Quincy, MA 02171, serves as Custodian of the assets of each Fund. Where possible, the Custodian utilizes book entry records with securities depositories, which in turn may have book entry records with transfer agents of the issuers of the securities. With respect to U.S. Government issues the Custodian may utilize the book entry system of the Federal Reserve System. The Custodian is responsible for collecting the proceeds of securities sold and disbursement of the cost of securities purchased by the Funds. State Street Bank also serves as the non-U.S. custody manager for the Funds with respect to non-U.S. securities, using non-U.S. sub-custodians which participate in its global custody network.
Transfer Agent n BNY Mellon Asset Servicing (US), Inc. (BNY Mellon), located at 4400 Computer Drive, Westborough, MA 01581-5120 is the transfer agent and dividend disbursing agent. BNY Mellon maintains shareholder accounts and records; processes transactions including purchases, redemptions, transfers and exchanges; prepares and mails account confirmations, statements, tax forms, and correspondence; issues stock certificates; and handles account inquiries.
The Funds pay BNY Mellon a base fee plus an annual per account transfer agency fee. In addition, the Funds and/or Southeastern may pay an annual per account sub-transfer agency fee to certain financial intermediaries that maintain omnibus accounts with the Funds.
Independent Registered Public Accounting Firm n PricewaterhouseCoopers LLP, 100 E. Pratt Street, Baltimore, MD 21202, serves as independent registered public accounting firm to each Fund.
Legal Counsel n Dechert, 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 Boston office, located at 200 Clarendon Street, 27 th Floor, Boston, MA 02116-5021. Andrew R. McCarroll, General Counsel and Principal of Southeastern, Steven P. McBride, Assistant General Counsel, and Michael J. Wittke, Chief Compliance Officer, perform legal services for the Funds under Southeasterns contract as Fund Administrator, which includes responsibility for preparing registration statements and other regulatory filings for the Funds.
30 | n | Longleaf Partners Funds Trust |
Principal Underwriter n ALPS Distributors, Inc. located at 1290 Broadway, Suite 1100, Denver, Co 80203 is a registered broker-dealer under the Securities Exchange Act of 1934, as amended, and serves as principal underwriter. In this capacity, ALPS receives purchase and sale orders on behalf of the Funds through the National Securities Clearing Corporation. Southeastern pays ALPS fees.
Service Awards n In order to promote quality service for the benefit of Fund shareholders, Southeastern may give special recognition or financial rewards to employees of service providers such as the Funds transfer agent and fulfillment agent. Such reward programs are designed to recognize employees of these Fund service providers who excel in meeting our shareholders needs. Costs associated with these reward programs are paid by 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. 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 desired price range with a minimum of market impact, 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 judgmental 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 may recommend and the Fund may allocate brokerage and certain so-called riskless principal transactions to brokers who have provided brokerage and research services, as defined in Section 28(e) of the Securities Exchange Act of 1934 (the 1934 Act), and for other services that benefit the Fund directly through reduction of the Funds expenses. Southeastern could cause the Fund to pay a commission for a securities transaction in excess of the amount another broker would have charged if Southeastern 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. 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, but shall be prepared to show that all commissions were allocated and paid for purposes contemplated by the Funds 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 were within a reasonable range. Such determination shall be based on information as to the level of commissions charged by other brokers on comparable transactions, but shall take into account the Funds 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 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 are considered to be supplementary to, and not in lieu of services required to be performed by Southeastern. While Southeastern is authorized by its contract with the Funds to purchase research services with Fund commissions as permitted by Section 28(e) of the 1934 Act (as described above), Southeastern does not consider this service in selecting firms to execute portfolio transactions for the Funds. Southeastern performs its own independent research in performing investment counsel services for the Funds. Southeastern may obtain supplemental investment research information from certain brokerage firms in the ordinary course of business, but Southeastern evaluates brokers |
Statement Of Additional Information | n | 31 |
based on the quality of their execution and brokerage services and does not make trading allocations to receive research. |
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. Southeastern may also utilize electronic communication networks (ECNs) when the requisite volume of securities can be purchased or sold in the desired price range. |
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 by a number of managed accounts. When several accounts and the Funds portfolios simultaneously purchase or sell the same security, the prices and amounts will be equitably allocated among all such accounts. In some situations this procedure could adversely affect the price or quantity of the security available to one or more of the Funds, but in other situations the ability to participate in larger volume transactions may enable a Fund to realize better executions, prices, and lower commissions.
Southeastern does not own an interest in any brokerage firm and places trades for the Funds through non-affiliated brokerage firms. Brokerage commissions paid by the Funds for the past three years are as follows:
2013 | 2012 | 2011 | ||||||||||
Partners
|
$ | 2,749,090 | $ | 3,930,440 | $ | 3,265,507 | ||||||
Small-Cap
|
2,660,774 | 939,604 | 1,427,783 | |||||||||
International
|
1,442,079 | 603,130 | 1,165,640 | |||||||||
*Global Fund |
75,328 | na | na | |||||||||
* The Global Fund launched December 27, 2012.
Indemnification Rights
Longleaf Partners Funds Trust (the Trust) is a Massachusetts business trust which presently has 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 Funds Trustees.
A Massachusetts business trust is not required to hold annual meetings of shareholders. Annual meetings ordinarily will not be held unless 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 rare circumstances, 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 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 persons willful misfeasance, bad faith, gross negligence, or reckless disregard of the persons 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
32 | n | Longleaf Partners Funds Trust |
performance under the particular agreement, including any mistake of judgment, in the absence of willful misfeasance, bad faith or gross negligence.
Purchase, Redemption, and Pricing of Shares
The methods of purchasing and redeeming shares through the transfer agent, BNY Mellon, are described on pages 18 through 24 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, all Fund assets are valued 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 divided by the number of shares of beneficial interest then outstanding. The following formula illustrates this calculation:
Net Assets
Shares Outstanding |
equals |
Net Asset Value
Per Share |
The net asset value per share for each of the Longleaf Partners Funds as shown in the Statements of Assets and Liabilities for the year ended December 31, 2013, shown on page 50, was calculated as follows:
Partners Fund | ||||
$8,600,541,757 254,799,192 |
= | $33.75 | ||
Small-Cap Fund | ||||
$4,126,633,408 127,132,898 |
= | $32.46 | ||
International Fund | ||||
$1,827,767,101 101,879,317 |
= | $17.94 | ||
Global Fund | ||||
$113,475,902 8,839,282 |
= | $12.84 |
In valuing Fund assets, we apply the following procedures:
1. | Portfolio securities listed or traded on a securities exchange (U.S. or non-U.S.), on the NASDAQ national market or any representative quotation system providing same day publication of actual prices, are valued at the last sale price. If there are |
no transactions in the security that day, securities are valued at the midpoint between the closing bid and ask prices or, if there are no such prices, the prior days closing price; |
2. | In the case of bonds and other fixed income securities, valuations may be furnished by a pricing service which takes into account factors in addition to quoted prices (such as trading characteristics, yield, quality, coupon rate, maturity, type of issue, and other market data relating to the priced security or other similar securities) where taking such factors into account would lead to a more accurate reflection of the fair market value of such securities; |
3. | When market quotations are not readily available, valuations of portfolio securities may be determined in accordance with 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 including news regarding significant market or security specific events. The Board may also utilize a service provided by an independent third party to assist in fair valuation of certain securities. These factors are subject to change over time and are reviewed periodically. Because the utilization of fair value pricing depends on market activity, the frequency with which fair valuation may be used cannot be predicted. Estimated values may differ from the values that would have been used had a ready market for the investment existed. |
4. | Repurchase agreements are valued at cost which, combined with accrued interest, approximates market; |
5. | Short-term United States Government obligations purchased with a remaining maturity of more than 60 days are valued through pricing obtained through pricing services approved by the Funds Trustees. Obligations purchased with a remaining maturity of 60 days or less or existing positions that have less than 60 days to maturity generally are valued at amortized cost, which approximates market value. However, if amortized cost is deemed not to reflect fair value, the securities are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service. |
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; and |
Statement Of Additional Information | n | 33 |
7. | Assets and liabilities initially expressed in non-U.S. 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 non-U.S. markets is normally completed 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 non-U.S. markets, the calculation of the Funds net asset value may not take place contemporaneously with the determination of the closing prices of some non-U.S. securities on the particular non-U.S. exchanges or in other non-U.S. markets in which those securities are traded.
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 consistent with any specific regulatory requirements, elect to value these securities at fair value as determined in good faith by the Board of Trustees.
The following discussion summarizes certain U.S. federal income tax considerations for general informational purposes only. This discussion does not address all aspects of taxation (including state, local, and non-U.S. taxes), nor does it address matters that may be relevant to particular types of shareholders (including persons who are not citizens or residents of the United States). This summary is based on the Internal Revenue Code of 1986, as amended (the Code), the regulations thereunder, published rulings and court decisions, in effect as of the date of this SAI. These laws are subject to change, possibly on a retroactive basis.
Each Fund intends to qualify for favorable tax treatment applicable to regulated investment companies under Subchapter M of the Code. In order to qualify to be treated 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 securities loans, gains from the sale or other disposition of securities and other income (including gains from options, futures 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 a value not greater than 5% of the value of the Funds 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 and regulated investment companies). Further, a Fund may invest not more than 25% 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. Each Fund must also distribute with respect to each taxable year at least 90% of the sum of its investment company taxable income (as that term is defined in the Code without regard to the deduction for dividends paidgenerally taxable ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and net tax-exempt income, if any, for such year. For purposes of the diversification test described above, the identification of the issuer (or, in some cases, issuers) of a particular Fund investment can depend on the terms and conditions of that investment.
If a Fund qualifies under the Code for favorable tax treatment, it is not subject to federal income tax on its investment company taxable income and any net realized capital gains that are distributed to shareholders. Instead, shareholders other than tax exempt organizations are taxable at their federal income tax rates on the distributions declared, even if the distributions are reinvested in additional shares of the Funds. If a Fund were to fail to meet the income or diversification test described above, the Fund could in some cases cure such failure, including by paying a Fund-level tax and, in the case of a diversification test failure, disposing of certain assets. If a Fund were ineligible to or otherwise did not cure such failure for any year, or if a Fund were otherwise to fail to qualify as a RIC accorded special tax treatment for such year, the Fund itself would be subject to federal income tax (and to taxation by the Commonwealth of
34 | n | Longleaf Partners Funds Trust |
Massachusetts) at regular corporate rates without any deduction for amounts distributed to shareholders. To qualify again for favorable tax treatment under the Code, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions to shareholders, who then would be subject to taxation on the amounts distributed.
If a Fund fails to distribute in a calendar year at least an amount generally equal to the sum of 98% of its ordinary income for such year and 98.2% of its capital gain net income for the one-year period ending October 31 of such year, plus any retained amount from the prior year, such Fund will be subject to a nondeductible 4% excise tax on the undistributed amounts.
For U.S. federal income tax purposes, distributions of investment income are generally taxable to shareholders as ordinary income. Taxes on distributions of capital gains are determined by how long a Fund owned or is considered to have owned the investments that generated them, rather than how long a shareholder may have owned shares in such Fund. In general, a Fund will recognize long-term capital gain or loss on assets it has owned (or is deemed to have owned) for more than one year, and short-term capital gain or loss on investments it has owned (or is deemed to have owned) for one year or less. Distributions of net capital gain (that is, the excess of net long-term capital gain over net short-term capital loss) that are properly reported by the Fund as capital gain dividends will be taxable to shareholders as long-term capital gains. Distributions of net short-term capital gain (as reduced by any net long-term capital loss for the taxable year) will be taxable to shareholders as ordinary income.
If the Fund makes a distribution to a shareholder in excess of the Funds current and accumulated earnings and profits in any taxable year, the excess distribution will be treated as a return of capital to the extent of such shareholders tax basis in its shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces a shareholders tax basis in its shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by the shareholder of its shares.
In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income that is eligible for taxation at long-term capital gain rates, the Fund must meet holding
period and other requirements with respect to some portion of the dividend-paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Funds shares. Any distribution of income that is attributable to (i) income received by the Fund in lieu of dividends with respect to securities on loan pursuant to a securities lending transaction or (ii) dividend income received by the Fund on securities it temporarily purchased from a counterparty pursuant to a repurchase agreement that is treated for U.S. federal income tax purposes as a loan by the Fund, will not constitute qualified dividend income. The special tax treatment of qualified dividend income applies only to taxable years beginning before January 1, 2013, unless Congress enacts tax legislation providing otherwise.
The sale, exchange, or redemption of shares of a Fund may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months. Otherwise, the gain or loss on the taxable disposition of shares will be treated as short-term capital gain or loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, to the extent of any long-term capital gain distributions received (or deemed received) by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed under the Codes wash-sale rule if other substantially identical shares of a Fund are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Investment income received by the Funds from sources within non-U.S. countries may be subject to non-U.S. income taxes withheld at the source. The United States has entered into tax treaties with many non-U.S. 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 non-U.S. tax in advance, because the amount of assets to be invested within various countries is not known. If more than 50% of a Funds assets at year end consists of the securities of non-U.S. corporations, the Fund may elect to permit shareholders to claim a credit or deduction on their U.S. federal income tax returns for their pro rata portions of qualified taxes paid by the Fund to non-U.S.
Statement Of Additional Information | n | 35 |
countries in respect of non-U.S. securities. In such a case, shareholders will include in gross income from non-U.S. sources their pro rata shares of such taxes paid by the Fund. A shareholders ability to claim an offsetting non-U.S. tax credit or deduction in respect of non-U.S. taxes paid by the Fund is subject to certain limitations imposed by the Code, which may result in the shareholders not receiving a full credit or deduction (if any) for the amount of such taxes. Shareholders who do not itemize on their U.S. federal income tax returns may claim a credit (but not a deduction) for such non-U.S. taxes.
Shareholders of the Partners Fund or the Small Cap Fund generally will not be entitled to claim a credit or deduction with respect to non-U.S. taxes incurred by that Fund. Even if a Fund were eligible to make such an election for a given year, it may determine not to do so.
A Funds transactions in certain derivative instruments (e.g., options, futures or forward contracts, and swap agreements) may be subject to one or more special tax rules that can affect the amount, timing or character of distributions to shareholders. Because the tax rules applicable to these types of transactions are in some cases uncertain, future guidance with respect to these rules (which could be retroactive) may affect whether the Fund qualifies for treatment as a regulated investment company. A Funds transactions in non-U.S. currencies can give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the non-U.S. currency concerned.
If a Fund owns shares in a non-U.S. 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 non-U.S. 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 non-U.S. corporation or any gain it derives from the disposition of such shares, even if such income is distributed as a 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 is able to treat the non-U.S. corporation as a qualified electing fund under the Code or under special rules applicable to registered investment companies, the Fund may be required to include in its income each year a portion of the ordinary income and net realized capital gains and unrealized appreciation of the non-U.S. 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. Alternatively, the Fund may elect to mark to market shares in a passive foreign investment company. If this election is made, the stock in a passive foreign investment company is marked to market (treated as if it were sold) at the close of the Funds taxable year. If the passive foreign investment company stock is in an unrealized gain position at that time, the Fund will recognize the gain as ordinary income which is subject to the Funds distribution requirements. If the passive foreign investment company stock is in an unrealized loss position, the losses are permitted to be recognized, but only to the extent of mark to market gains previously taken into account on that stock.
A Funds investments in certain debt obligations can result in the Fund including amounts in its income even though payment of those amounts is not received until a later time, in which event the Fund may be required to pay out an amount exceeding the total cash interest it received, thus potentially requiring it to liquidate portfolio securities when it is not advantageous to do so.
Investments in debt obligations that are at risk of or in default present special tax issues for a Fund. Tax rules are not entirely clear about issues such as whether, when or to what extent a Fund should recognize market discount on a debt obligation, when a Fund may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless securities and how payments received on obligations in default should be allocated between principal and income. These and other related issues will be addressed by a Fund when, as and if it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a regulated investment company and does not become subject to U.S. federal income or excise tax.
36 | n | Longleaf Partners Funds Trust |
A portion of the interest paid or accrued on certain high yield discount obligations owned by a Fund may not be deductible to (and thus, may affect the cash flow of) the issuer. If a portion of the interest paid or accrued on certain high yield discount obligations is not deductible, that portion will be treated as a dividend for purposes of the corporate dividends-received deduction. In such cases, if the issuer of the high yield discount obligations is a domestic corporation, dividend payments by the Fund may be eligible for the dividends-received deduction to the extent of the deemed dividend portion of such accrued interest. Interest paid on debt obligations owned by a Fund, if any, that are considered for U.S. tax purposes to be payable in the equity of the issuer or a related party will not be deductible to the issuer, possibly affecting the cash flow of the issuer.
Each Fund generally is required to withhold and remit to the U.S. Treasury a percentage of the taxable distributions and redemption proceeds paid to any individual shareholder who fails to properly furnish the Fund with a correct taxpayer identification number, who has under-reported dividend or interest income, or who fails to certify to such Fund that he or she is not subject to such withholding. The backup withholding tax rate is 28% for amounts paid through 2012. This rate will expire and the backup withholding rate will be 31% for amounts paid after December 31, 2012, unless Congress enacts tax legislation providing otherwise. Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholders U.S. federal income tax liability, provided the appropriate information is furnished to the IRS.
Under Treasury regulations, if a shareholder recognizes a loss on disposition of a Funds shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment of the loss is proper. Shareholders should consult their tax advisors to determine the
applicability of these regulations in light of their individual circumstances.
Effective for taxable years beginning after March 18, 2010, certain individuals (and, if provided in future guidance, certain domestic entities) must disclose annually their interests in specified foreign financial assets on their U.S. federal income tax returns. It is currently unclear under what circumstances, if any, a shareholders (indirect) interest in the Funds
specified foreign financial assets, if any, falls within this requirement.
New rules enacted in March 2010 require the reporting to the IRS of direct and indirect ownership of non-U.S. financial accounts and non-U.S. entities by U.S. persons. Failure to provide this required information can result in a 30% withholding tax on certain payments (withholdable payments) made after December 31, 2012. Withholdable payments include U.S.-source dividends and interest, and gross proceeds from the sale or other disposal of property that can produce U.S.-source dividends or interest.
The IRS has issued only very preliminary guidance with respect to these new rules; their scope remains unclear and potentially subject to material change. Very generally, it is possible that distributions made by the Fund after December 31, 2012 (or such later date as may be provided in future guidance) to a shareholder will be subject to the new 30% withholding requirement. Payments will generally not be subject to withholding under these rules so long as shareholders provide the Fund with certifications or other documentation as the Fund may request including, to the extent required, with regard to their direct and indirect owners. Payments to a non-U.S. shareholder that is a foreign financial institution (as defined under these rules) will generally be subject to withholding unless such shareholder enters into, and provides certification to the Fund of, a valid information reporting and withholding agreement with the IRS to report, among other requirements, required information including about certain direct and indirect U.S. investors or U.S. accounts. Future regulations may exempt certain non-U.S. financial institutions from these requirements, but it is currently unclear whether or when such regulations will be issued. Persons investing in the Fund through an intermediary should contact their intermediary regarding the application of the new reporting and withholding regime to their investments in the Fund. Shareholders are urged to consult a tax advisor regarding
Statement Of Additional Information | n | 37 |
this new reporting and withholding regime, in light of their particular circumstances.
Under current law, a Fund is not liable for any income or franchise tax in The Commonwealth of Massachusetts, provided that the Fund continues to qualify as a regulated investment company under Subchapter M of the Code. However, each Fund may be subject to state and/or local taxes in other jurisdictions in which such Fund is deemed to be doing business. Shareholders should consult with their own tax advisors concerning the state and local tax consequences of investing in the Funds.
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
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). |
The average annual total returns of each of the Funds for the years ended December 31 for the past ten years are as follows:
Partners Fund |
Small-Cap Fund |
International Fund |
Global Fund* |
|||||||||||||
2013 |
32.12 | % | 30.45 | % | 28.14 | % | 28.40 | % | ||||||||
2012 |
16.53 | 22.96 | 21.23 | na | ||||||||||||
2011 |
2.85 | 1.79 | 20.29 | na | ||||||||||||
2010 |
17.89 | 22.32 | 13.69 | na | ||||||||||||
2009 |
53.60 | 49.31 | 23.17 | na | ||||||||||||
2008 |
50.60 | 43.90 | 39.60 | na | ||||||||||||
2007 |
0.44 | 2.80 | 15.29 | na | ||||||||||||
2006 |
21.63 | 22.33 | 17.07 | na | ||||||||||||
2005 |
3.62 | 10.75 | 12.88 | na | ||||||||||||
2004 |
7.14 | 14.78 | 10.21 | na | ||||||||||||
* | The Global Fund launched December 27, 2012. |
38 | n | Longleaf Partners Funds Trust |
The average annual returns for each of the Funds (except the Global Fund which launched on December 27, 2012) for the cumulative periods shown, ending on December 31, 2013 are as follows:
Partners Fund | ||||
Five years ended 12/31/13 | 22.05% | |||
Ten years ended 12/31/13 |
6.05 | |||
Small-Cap Fund | ||||
Five years ended 12/31/13 | 24.42 | |||
Ten years ended 12/31/13 |
10.34 | |||
International Fund | ||||
Five years ended 12/31/13 | 11.63 | |||
Ten years ended 12/31/13 |
5.81 |
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. or Morningstar, Inc. The Funds may also provide information on their relative rankings as published in such newspapers and magazines as The Wall Street Journal, Barrons, Forbes, Money, and other similar publications.
Use of Total Return Information § Average annual total return information may be useful to investors in considering each Funds past investment performance. However, certain factors should be taken into account before basing an investment decision on this information. First, in comparing the Funds 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 unhedged and contain different and more numerous securities than the Funds portfolios. Some market indices are not adjusted for reinvested dividends, and no adjustment is made in market
indices for taxes payable on distributions. After tax calculations applicable to the Funds total returns are shown in the Prospectus on pages 3, 7, 11 and 15.
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 Funds 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.
Table of Bond and Preferred Stock Ratings
Description of Moodys 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
Statement Of Additional Information | n | 39 |
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.
Moodys 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 Moodys 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.
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 & Poors 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.
40 | n | Longleaf Partners Funds Trust |
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 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.
Statement Of Additional Information | n | 41 |
The financial statements for the fiscal year ended December 31, 2013, audited by PricewaterhouseCoopers LLP, the Funds independent registered public accounting firm, are included in the printed Annual Reports to Shareholders of the Funds. The Financial Statements contained in the printed Annual Reports, together with the Report of Independent Registered Public Accounting Firm dated February 10, 2014 are included as a part of this Statement of Additional Information on the following pages.
Report of Independent Registered Public Accounting Firm
To the Trustees of Longleaf Partners Funds Trust and Shareholders of Longleaf Partners Fund, Longleaf Partners Small-Cap Fund, Longleaf Partners International Fund, and Longleaf Partners Global Fund:
In our opinion, the accompanying statements of assets and liabilities, including the portfolios 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 Funds Trust (comprised of Longleaf Partners Fund, Longleaf Partners Small-Cap Fund, Longleaf Partners International Fund, and Longleaf Partners Global Fund, hereafter referred to as the Funds) at December 31, 2013, the results of each of their operations, the changes in each of their net assets, and financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2013 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 10, 2014
42 | ¡ | Longleaf Partners Funds Trust | Partners Fund |
Portfolio of Investments |
Common Stock | ||||||||||||
Share Quantity | Market Value | % of Net Assets | ||||||||||
Air Freight & Logistics |
||||||||||||
FedEx Corporation |
4,136,612 | $ | 594,720,707 | 6.9 | % | |||||||
Capital Markets |
||||||||||||
The Bank of New York Mellon Corporation |
14,258,600 | 498,195,484 | 5.8 | |||||||||
Construction Materials |
||||||||||||
Vulcan Materials Company (b) |
3,954,016 | 234,947,631 | 2.7 | |||||||||
Diversified Financial Services |
||||||||||||
Berkshire Hathaway Inc. Class B* |
2,740,320 | 324,892,339 | 3.8 | |||||||||
Diversified Telecommunication Services |
||||||||||||
Level 3 Communications, Inc.* (b) |
15,026,565 | 498,431,161 | 5.8 | |||||||||
Food Products |
||||||||||||
Mondelez International, Inc. Class A |
11,947,000 | 421,729,100 | 4.9 | |||||||||
Health Care Equipment & Supplies |
||||||||||||
Abbott Laboratories |
9,696,076 | 371,650,593 | 4.3 | |||||||||
Industrial Conglomerates |
||||||||||||
Koninklijke Philips N.V. (Foreign) |
8,818,600 | 323,251,612 | 3.8 | |||||||||
Koninklijke Philips N.V. ADR (Foreign) |
2,643,400 | 97,726,498 | 1.1 | |||||||||
420,978,110 | 4.9 | |||||||||||
Insurance |
||||||||||||
Aon plc (Foreign) |
774,841 | 65,001,411 | 0.7 | |||||||||
Loews Corporation |
13,853,000 | 668,268,720 | 7.8 | |||||||||
The Travelers Companies, Inc. |
3,194,185 | 289,201,510 | 3.4 | |||||||||
1,022,471,641 | 11.9 | |||||||||||
Media |
||||||||||||
DIRECTV* |
6,174,300 | 426,582,387 | 5.0 | |||||||||
Oil, Gas & Consumable Fuels |
||||||||||||
Chesapeake Energy Corporation |
18,608,927 | 505,046,279 | 5.9 | |||||||||
CONSOL Energy Inc. (b) |
11,692,000 | 444,763,680 | 5.2 | |||||||||
Murphy Oil Corporation |
5,178,829 | 336,002,426 | 3.9 | |||||||||
1,285,812,385 | 15.0 | |||||||||||
Real Estate Management & Development |
||||||||||||
Cheung Kong Holdings Limited (Foreign) |
29,439,900 | 464,702,650 | 5.4 | |||||||||
Total Common Stocks (Cost $4,462,999,897) |
6,565,114,188 | 76.4 | ||||||||||
Preferred Stock | ||||||||||||
Oil, Gas & Consumable Fuels |
||||||||||||
Chesapeake Energy Corporation Convertible Preferred Stock 5.75% |
56,500 | 66,069,688 | 0.7 | |||||||||
Chesapeake Energy Corporation Convertible Preferred Stock Series A 5.75% |
45,480 | 52,813,650 | 0.6 | |||||||||
Total Preferred Stocks (Cost $83,894,895) |
118,883,338 | 1.3 | ||||||||||
See Notes to Financial Statements
Partners Fund | Statement Of Additional Information | ¡ | 43 |
continued |
Options Purchased | ||||||||||||
Share Equivalents | Market Value | % of Net Assets | ||||||||||
Insurance |
||||||||||||
Aon plc Call, 9/30/15, with J.P. Morgan, Strike Price $80 (Foreign) (Cost $30,018,783) |
5,303,672 | $ | 53,885,308 | 0.6 | % | |||||||
Short-Term Obligations | ||||||||||||
Principal Amount | ||||||||||||
Repurchase Agreement with State Street Bank,
|
299,433,000 | 299,433,000 | 3.5 | |||||||||
U.S. Treasury Bills, 0.01% 0.05% due 1/23/14 to 4/24/14 |
1,525,000,000 | 1,524,844,750 | 17.7 | |||||||||
Total Short-Term Obligations (Cost $1,824,282,674) |
1,824,277,750 | 21.2 | ||||||||||
Total Investments (Cost $6,401,196,249) (a) |
8,562,160,584 | 99.5 | ||||||||||
Options Written |
(10,713,417 | ) | (0.1 | ) | ||||||||
Other Assets and Liabilities, Net |
49,094,590 | 0.6 | ||||||||||
Net Assets |
$ | 8,600,541,757 | 100.0 | % | ||||||||
Net asset value per share |
$ | 33.75 |
* | Non-income producing security. |
(a) |
Aggregate cost for federal income tax purposes is $6,406,058,009. Net unrealized appreciation of $2,160,964,335 consists of unrealized appreciation and depreciation of $2,188,712,765 and $(27,748,430), respectively. |
(b) |
Affiliated issuer during the period. See Note 7. |
Note: Companies designated as Foreign are headquartered outside the U.S. and represent 12% of net assets.
Options Written | ||||||||||||||||||
Share Equivalents | Unrealized Gain | Market Value | % of Net Assets | |||||||||||||||
Insurance |
||||||||||||||||||
Aon plc Put, 9/30/15, with J.P. Morgan, Strike Price $65 (Foreign) (Premiums received $22,858,826) |
(5,303,672 | ) | $ | 12,145,409 | $ | (10,713,417 | ) | (0.1 | )% | |||||||||
See Notes to Financial Statements
44 | ¡ | Longleaf Partners Funds Trust | Small-Cap Fund |
Portfolio of Investments |
Common Stock | ||||||||||||
Share Quantity | Market Value | Net Assets | ||||||||||
Capital Markets |
||||||||||||
Legg Mason, Inc. |
3,089,387 | $ | 134,326,547 | 3.3 | % | |||||||
Construction & Engineering |
||||||||||||
OCI N.V.* (Foreign) |
1,015,533 | 45,733,213 | 1.1 | |||||||||
Construction Materials |
||||||||||||
Martin Marietta Materials, Inc. |
386,952 | 38,671,983 | 0.9 | |||||||||
Texas Industries, Inc.* (b) |
7,510,757 | 516,589,866 | 12.5 | |||||||||
555,261,849 | 13.4 | |||||||||||
Diversified Consumer Services |
||||||||||||
Graham Holdings Company Class B (b) (formerly The Washington Post Company Class B) |
428,000 | 283,900,960 | 6.9 | |||||||||
Diversified Telecommunication Services |
||||||||||||
Level 3 Communications, Inc.* |
8,662,900 | 287,348,393 | 7.0 | |||||||||
tw telecom inc.* |
5,382,000 | 163,989,540 | 4.0 | |||||||||
451,337,933 | 11.0 | |||||||||||
Hotels, Restaurants & Leisure |
||||||||||||
DineEquity, Inc. (b) |
1,261,654 | 105,411,192 | 2.5 | |||||||||
Vail Resorts, Inc. (b) |
2,477,000 | 186,344,710 | 4.5 | |||||||||
The Wendys Company (b) |
8,410,411 | 73,338,784 | 1.8 | |||||||||
365,094,686 | 8.8 | |||||||||||
Industrial Congolmerates |
||||||||||||
Hopewell Holdings Limited (Foreign) |
25,183,500 | 85,251,651 | 2.1 | |||||||||
Insurance |
||||||||||||
Everest Re Group, Ltd. (Foreign) |
1,449,600 | 225,949,152 | 5.5 | |||||||||
Fairfax Financial Holdings Limited (Foreign) |
458,700 | 183,138,863 | 4.4 | |||||||||
409,088,015 | 9.9 | |||||||||||
Media |
||||||||||||
Scripps Networks Interactive, Inc. Class A |
2,052,600 | 177,365,166 | 4.3 | |||||||||
Real Estate Investment Trusts (REITs) |
||||||||||||
Empire State Realty Trust, Inc. (b) |
12,270,850 | 187,744,005 | 4.5 | |||||||||
Rayonier Inc. |
77,324 | 3,255,340 | 0.1 | |||||||||
190,999,345 | 4.6 | |||||||||||
Total Common Stocks (Cost $1,717,172,787) |
2,698,359,365 | 65.4 | ||||||||||
See Notes to Financial Statements
Small-Cap Fund | Statement Of Additional Information | ¡ | 45 |
continued |
Short-Term Obligations | ||||||||||||
Share Quantity | Market Value | Net Assets | ||||||||||
Repurchase Agreement with State Street Bank,
|
170,449,000 | $ | 170,449,000 | 4.1 | % | |||||||
U.S. Treasury Bills, 0.01% 0.05% due 1/23/14 to 4/3/14 |
1,275,000,000 | 1,274,911,800 | 30.9 | |||||||||
Total Short-Term Obligations (Cost $1,445,334,813) |
1,445,360,800 | 35.0 | ||||||||||
Total Investments (Cost $3,162,507,600) (a) |
4,143,720,165 | 100.4 | ||||||||||
Other Assets and Liabilities, Net |
(17,086,757 | ) | (0.4 | ) | ||||||||
Net Assets |
$ | 4,126,633,408 | 100.0 | % | ||||||||
Net asset value per share |
$ | 32.46 |
* | Non-income producing security. |
(a) |
Also represents aggregate cost for federal tax purposes. Net unrealized appreciation of $981,212,565 consists of unrealized appreciation and depreciation of $987,175,344 and $(5,962,779), respectively. |
(b) |
Affliated issuer during the period. See Note 7. |
Note: Companies designated as Foreign are headquartered outside the U.S. and represent 13% of net assets.
See Notes to Financial Statements
46 | ¡ | Longleaf Partners Funds Trust | International Fund |
Portfolio of Investments |
Common Stock | ||||||||||||
Share Quantity | Market Value | Net Assets | ||||||||||
Air Freight & Logistics |
||||||||||||
TNT Express NV (Netherlands) |
6,761,346 | $ | 62,767,317 | 3.4 | % | |||||||
Construction & Engineering |
||||||||||||
ACS, Actividades de Construccion Y Servicios, S.A. (Spain) |
1,373,026 | 47,259,748 | 2.6 | |||||||||
Ferrovial S.A. (Spain) |
3,971,000 | 76,836,037 | 4.2 | |||||||||
Hochtief AG (Germany) |
710,354 | 60,647,364 | 3.3 | |||||||||
OCI N.V.* (Netherlands) |
2,492,988 | 112,268,486 | 6.1 | |||||||||
UGL Limited (Australia) |
1,064,440 | 6,947,682 | 0.4 | |||||||||
303,959,317 | 16.6 | |||||||||||
Construction Materials |
||||||||||||
Lafarge S.A. (France) |
1,628,500 | 122,031,084 | 6.7 | |||||||||
Diversified Financial Services |
||||||||||||
EXOR S.p.A. (Italy) |
2,158,860 | 85,861,387 | 4.7 | |||||||||
Food Products |
||||||||||||
Orkla ASA (Norway) |
5,051,292 | 39,408,955 | 2.2 | |||||||||
Hotels, Restaurants & Leisure |
||||||||||||
Genting Berhad (Malaysia) (d) |
20,167,000 | 63,170,026 | 3.5 | |||||||||
Melco International Development Limited (Hong Kong) (d) |
36,508,000 | 134,180,777 | 7.3 | |||||||||
204,790,991 | 10.8 | |||||||||||
Industrial Conglomerates |
||||||||||||
Koninklijke Philips N.V. (Netherlands) |
2,655,666 | 97,345,193 | 5.3 | |||||||||
Insurance |
||||||||||||
Fairfax Financial Holdings Limited (Canada) |
201,500 | 80,450,144 | 4.4 | |||||||||
Machinery |
||||||||||||
CNH Industrial N.V.* (Netherlands) |
1,339,800 | 15,206,730 | 0.8 | |||||||||
CNH Industrial N.V. (Local)* (Netherlands) |
1,673,660 | 19,075,902 | 1.1 | |||||||||
34,282,632 | 1.9 | |||||||||||
Media |
||||||||||||
News Corporation Class B* (United States) |
4,539,100 | 80,932,153 | 4.4 | |||||||||
Real Estate Management & Development |
||||||||||||
Cheung Kong Holdings Limited (Hong Kong) |
7,816,000 | 123,373,921 | 6.7 | |||||||||
K. Wah International Holdings Limited (Hong Kong) |
14,828,000 | 8,987,478 | 0.5 | |||||||||
132,361,399 | 7.2 | |||||||||||
Specialty Retail |
||||||||||||
Nitori Holdings Co., Ltd. (Japan) |
671,500 | 63,572,833 | 3.5 | |||||||||
Textiles, Apparel & Luxury Goods |
||||||||||||
Guinness Peat Group Plc* (New Zealand) |
21,993,270 | 10,671,512 | 0.6 | |||||||||
Wireless Telecommunication Services |
||||||||||||
Vodafone Group plc ADR (United Kingdom) |
1,215,997 | 47,800,842 | 2.6 | |||||||||
Total Common Stocks (Cost $897,552,775) |
1,358,795,571 | 74.3 | ||||||||||
See Notes to Financial Statements
International Fund | Statement Of Additional Information | ¡ | 47 |
continued |
Preferred Stock | ||||||||||||
Share Quantity | Market Value | Net Assets | ||||||||||
Metals & Mining |
||||||||||||
Manabi S.A. Class A Preferred* (Brazil) (b)(c) |
||||||||||||
Total Preferred Stocks (Cost $90,630,186) |
91,000 | $ | 77,882,577 | 4.3 | % | |||||||
Warrants | ||||||||||||
Hotels, Restaurants & Leisure |
||||||||||||
Genting Berhad Warrants 12/18/18* (Malaysia) (Cost $5,069,988) |
7,786,050 | 7,440,188 | 0.4 | |||||||||
Short-Term Obligations | ||||||||||||
Principal Amount | ||||||||||||
Repurchase Agreement with State Street Bank, 0.0% due 1/2/14, Repurchase price $66,631,000 (Collateral: 60,205,000 U.S. Treasury Bond, 3.79% due 8/15/39, Value $67,967,833) |
66,631,000 | 66,631,000 | 3.7 | |||||||||
U.S. Treasury Bills, 0.01% 0.05% due 2/13/14 to 4/3/14 |
300,000,000 | 299,978,050 | 16.4 | |||||||||
Total Short-Term Obligations (Cost $366,599,264) |
366,609,050 | 20.1 | ||||||||||
Total Investments (Cost $1,359,852,213) (a) |
1,810,727,386 | 99.1 | ||||||||||
Swap Contracts |
19,791,130 | 1.1 | ||||||||||
Forward Currency Contracts |
1,396,442 | | ||||||||||
Other Assets and Liabilities, Net |
(4,147,857 | ) | (0.2 | ) | ||||||||
Net Assets |
$ | 1,827,767,101 | 100.0 | % | ||||||||
Net asset value per share |
$ | 17.94 |
* | Non-income producing security. |
(a) |
Aggregate cost for federal income tax purposes is $1,363,267,954. Net unrealized appreciation of $450,875,173 consists of unrealized appreciation and depreciation of $465,127,402 and $(14,252,229), respectively. |
(b) |
Affiliated issuer during the period. See Note 7. |
(c) |
Illiquid. Board Valued. See Note 8. |
(d) |
A portion designated as collateral for forward contracts. See Note 12. |
Note: Country listed in parenthesis after each company indicates location of headquarters.
Forward Currency Contracts | ||||||||||||||||||||||
Currency Units Sold | Unrealized Gain | Market Value | % of Net Assets | |||||||||||||||||||
Japanese Yen Forward with State Street Bank
|
(6,300,000,000 | ) | 1,396,442 | (59,842,927 | ) | | ||||||||||||||||
See Notes to Financial Statements
48 | ¡ | Longleaf Partners Funds Trust | International Fund |
Portfolio of Investments |
Swap Contracts | ||||||||||||||||||||
Market Value | % of Net Assets | |||||||||||||||||||
Vodafone Swap Contracts with J.P. Morgan due 9/13/18 |
$ | 24,353,998 | 1.3 | % | ||||||||||||||||
Verizon Swap Contracts with J.P. Morgan due 10/15/14 |
(4,349,767 | ) | (0.2 | ) | ||||||||||||||||
Galaxy Swap Contracts with Deutsche Bank due 12/19/18 |
(213,101 | ) | | |||||||||||||||||
$ | 19,791,130 | 1.1 | % | |||||||||||||||||
|
Wireless
Telecommunication Services |
|
|
Wireless
Telecommunication Services |
|
|
Hotels, Restaurants
& Leisure |
|
||||||||||||||
Components of Swap Contracts |
|
Vodafone Group
plc ADR (United Kingdom) |
|
|
Verizon
Communications Inc. (United States) |
|
|
Galaxy Entertainment
Group Limited (Hong Kong) |
|
|||||||||||||
Shares of underlying security |
3,565,335 | (1,257,480) | (888,000) | |||||||||||||||||||
Unrealized appreciation (depreciation) |
$22,538,916 | $(3,643,053) | $(213,036) | |||||||||||||||||||
Accrued dividends |
2,003,255 | (666,464) | | |||||||||||||||||||
Financing fee |
(188,173) | (40,250) | (65) | |||||||||||||||||||
Unrealized gain (loss) |
$24,353,998 | $(4,349,767) | $(213,101) | |||||||||||||||||||
Country Weightings (Unaudited)
Stock & Warrants | Net Assets | |||||||
Netherlands |
21.2 | % | 16.7 | % | ||||
Hong Kong |
18.5 | 14.5 | ||||||
Spain |
8.6 | 6.8 | ||||||
France |
8.5 | 6.7 | ||||||
Italy |
5.9 | 4.7 | ||||||
United States |
5.6 | 4.4 | ||||||
Canada |
5.6 | 4.4 | ||||||
Brazil |
5.4 | 4.3 | ||||||
Malaysia |
4.9 | 3.9 | ||||||
Japan |
4.4 | 3.5 | ||||||
Germany |
4.2 | 3.3 | ||||||
United Kingdom |
3.3 | 2.6 | ||||||
Norway |
2.7 | 2.2 | ||||||
New Zealand |
0.7 | 0.6 | ||||||
Australia |
0.5 | 0.4 | ||||||
100.0 | % | 79.0 | ||||||
All other, net |
21.0 | |||||||
100.0 | % | |||||||
See Notes to Financial Statements
Global Fund | Statement Of Additional Information | ¡ | 49 |
Portfolio of Investments |
Common Stock | ||||||||||||
Share Quantity | Market Value | % of Net Assets | ||||||||||
Air Freight & Logistics |
||||||||||||
FedEx Corporation (United States) |
20,807 | $ | 2,991,422 | 2.6 | % | |||||||
TNT Express NV (Netherlands) |
178,444 | 1,656,542 | 1.5 | |||||||||
4,647,964 | 4.1 | |||||||||||
Capital Markets |
||||||||||||
The Bank of New York Mellon Corporation (United States) |
155,694 | 5,439,948 | 4.8 | |||||||||
Construction & Engineering |
||||||||||||
Hochtief AG (Germany) |
24,608 | 2,100,939 | 1.8 | |||||||||
OCI N.V.* (Netherlands) |
168,607 | 7,592,998 | 6.7 | |||||||||
9,693,937 | 8.5 | |||||||||||
Diversified Financial Services |
||||||||||||
EXOR S.p.A. (Italy) |
121,400 | 4,828,276 | 4.3 | |||||||||
Diversified Telecommunication Services |
||||||||||||
Level 3 Communications, Inc.* (United States) |
371,627 | 12,326,867 | 10.9 | |||||||||
Food Products |
||||||||||||
Mondelez International, Inc. Class A (United States) |
39,718 | 1,402,045 | 1.2 | |||||||||
Orkla ASA (Norway) |
648,600 | 5,060,220 | 4.5 | |||||||||
6,462,265 | 5.7 | |||||||||||
Hotels, Restaurants & Leisure |
||||||||||||
Genting Berhad (Malaysia) |
1,506,249 | 4,718,093 | 4.2 | |||||||||
Melco International Development Limited (Hong Kong) |
1,526,388 | 5,610,056 | 4.9 | |||||||||
10,721,620 | 9.1 | |||||||||||
Industrial Conglomerates |
||||||||||||
Koninklijke Philips N.V. (Netherlands) |
52,217 | 1,914,049 | 1.7 | |||||||||
Insurance |
||||||||||||
Everest Re Group, Ltd. (Bermuda) |
16,704 | 2,603,652 | 2.3 | |||||||||
Fairfax Financial Holdings Limited (Canada) |
4,802 | 1,917,229 | 1.7 | |||||||||
Loews Corporation (United States) |
101,715 | 4,906,732 | 4.3 | |||||||||
9,427,613 | 8.3 | |||||||||||
Machinery |
||||||||||||
CNH Industrial N.V.* (Netherlands) |
119,862 | 1,360,434 | 1.2 | |||||||||
Media |
||||||||||||
DIRECTV* (United States) |
66,209 | 4,574,380 | 4.0 | |||||||||
News Corporation Class B* (United States) |
284,600 | 5,074,418 | 4.5 | |||||||||
9,648,798 | 8.5 | |||||||||||
Oil, Gas & Consumable Fuels |
||||||||||||
Chesapeake Energy Corporation (United States) |
179,600 | 4,874,344 | 4.3 | |||||||||
Murphy Oil Corporation (United States) |
21,408 | 1,388,951 | 1.2 | |||||||||
6,263,295 | 5.5 | |||||||||||
See Notes to Financial Statements
50 | ¡ | Longleaf Partners Funds Trust | Global Fund |
Portfolio of Investments |
Common Stock | ||||||||||||
Share Quantity | Market Value | % of Net Assets | ||||||||||
Real Estate Management & Development |
||||||||||||
Cheung Kong Holdings Limited (Hong Kong) |
420,029 | $ | 6,630,070 | 5.8 | % | |||||||
Textiles, Apparel & Luxury Goods |
||||||||||||
Guinness Peat Group Plc* (New Zealand) |
9,987,700 | 4,846,204 | 4.3 | |||||||||
Total Common Stocks (Cost $82,112,205) |
93,817,869 | 82.7 | ||||||||||
Warrants | ||||||||||||
Hotels, Restaurants & Leisure |
||||||||||||
Genting Berhad Warrants 12/18/18* (Malaysia) (Cost $207,198) |
411,762 | 393,471 | 0.3 | |||||||||
Short-Term Obligations | ||||||||||||
Principal Amount | ||||||||||||
Repurchase Agreement with State Street Bank, 0.0% due 1/2/14, Repurchase price $19,185,000 (Collateral: 17,335,000 U.S. Treasury Bond, 3.79% due 8/15/39, Value $19,570,174) (Cost $19,185,000) |
19,185,000 | 19,185,000 | 16.9 | |||||||||
Total Investments (Cost $101,504,404) (a) |
113,396,340 | 99.9 | ||||||||||
Other Assets and Liabilities, Net |
79,562 | 0.1 | ||||||||||
Net Assets |
$ | 113,475,902 | 100.0 | % | ||||||||
Net asset value per share |
$ | 12.84 |
* | Non-income producing security. |
(a) |
Aggregate cost for federal income tax purposes is $101,504,664. Net unrealized appreciation of $11,891,937 consists of unrealized appreciation and depreciation of $12,133,705 and $(241,768), respectively. |
Note: Country listed in parenthesis after each company indicates location of headquarters.
Country Weightings (Unaudited)
Common Stock
& Warrants |
Net Assets | |||||||
United States |
45.6 | % | 37.8 | % | ||||
Netherlands |
13.3 | 11.1 | ||||||
Hong Kong |
13.0 | 10.7 | ||||||
Malaysia |
5.4 | 4.5 | ||||||
Norway |
5.4 | 4.5 | ||||||
New Zealand |
5.2 | 4.3 | ||||||
Italy |
5.1 | 4.3 | ||||||
Bermuda |
2.8 | 2.3 | ||||||
Germany |
2.2 | 1.8 | ||||||
Canada |
2.0 | 1.7 | ||||||
100.0 | % | 83.0 | ||||||
All other, net |
17.0 | |||||||
100.0 | % | |||||||
See Notes to Financial Statements
52 | ¡ | Longleaf Partners Funds Trust |
Statements of Assets and Liabilities | at December 31, 2013 |
Partners
Fund |
Small-Cap
Fund |
International
Fund |
Global
Fund |
|||||||||||||
Assets |
||||||||||||||||
Investments: |
||||||||||||||||
Affiliated securities, at market value (cost $1,029,552,080, $871,906,222, $90,630,186, and $0 respectively) (Note 2 and 7) |
$ | 1,178,142,472 | $ | 1,353,329,517 | $ | 77,882,577 | $ | | ||||||||
Other securities, at market value (cost $5,371,644,169, $2,290,601,378, $1,269,222,027, and $101,504,404 respectively) (Note 2) |
7,384,018,112 | 2,790,390,648 | 1,732,844,809 | 113,396,340 | ||||||||||||
Total Investments |
8,562,160,584 | 4,143,720,165 | 1,810,727,386 | 113,396,340 | ||||||||||||
Cash |
858 | 326 | 775 | 447 | ||||||||||||
Receivable for: |
||||||||||||||||
Fund shares sold |
4,827,684 | 1,708,264 | 1,646,323 | 282,950 | ||||||||||||
Dividends and interest |
2,325,696 | 1,807,421 | 683,232 | 8,681 | ||||||||||||
Securities sold |
51,911,124 | 8,279,225 | 623,780 | | ||||||||||||
Swap contracts (Note 11) |
| | 24,353,998 | | ||||||||||||
Forward currency contracts (Note 11) |
| | 1,396,442 | | ||||||||||||
Foreign tax reclaims |
| | 394,728 | 4,950 | ||||||||||||
Prepaid assets |
166,644 | 83,299 | 35,172 | 1,155 | ||||||||||||
Total Assets |
8,621,392,590 | 4,155,598,700 | 1,839,861,836 | 113,694,523 | ||||||||||||
Liabilities |
||||||||||||||||
Payable for: |
||||||||||||||||
Securities purchased |
| 410,153 | 4,817,212 | 6,107 | ||||||||||||
Fund shares redeemed |
2,948,863 | 25,205,178 | 664,895 | | ||||||||||||
Options written (premiums received $22,858,826) (Note 11) |
10,713,417 | | | | ||||||||||||
Swap contracts (Note 11) |
| | 4,562,868 | | ||||||||||||
Investment counsel fee (Note 3) |
5,665,245 | 2,752,675 | 1,651,124 | 137,044 | ||||||||||||
Administration fee (Note 4) |
743,677 | 355,334 | 156,345 | 9,548 | ||||||||||||
Other accrued expenses |
779,631 | 241,952 | 242,291 | 65,922 | ||||||||||||
Total Liabilities |
20,850,833 | 28,965,292 | 12,094,735 | 218,621 | ||||||||||||
$ | 8,600,541,757 | $ | 4,126,633,408 | $ | 1,827,767,101 | $ | 113,475,902 | |||||||||
Net Assets |
||||||||||||||||
Net assets consist of: |
||||||||||||||||
Paid-in capital |
$ | 6,270,598,948 | $ | 3,110,372,072 | $ | 1,452,735,979 | $ | 101,584,009 | ||||||||
Undistributed net investment income |
433,479 | | 1,189,323 | | ||||||||||||
Accumulated net realized gain (loss) on investments and foreign currency |
156,399,586 | 35,048,771 | (98,227,971 | ) | (260 | ) | ||||||||||
Unrealized gain on investments and foreign currency |
2,173,109,744 | 981,212,565 | 472,069,770 | 11,892,153 | ||||||||||||
Net Assets |
$ | 8,600,541,757 | $ | 4,126,633,408 | $ | 1,827,767,101 | $ | 113,475,902 | ||||||||
Net asset value per share |
$ | 33.75 | $ | 32.46 | $ | 17.94 | $ | 12.84 | ||||||||
Fund shares issued and outstanding |
254,799,192 | 127,132,898 | 101,879,317 | 8,839,282 | ||||||||||||
See Notes to Financial Statements
Statement Of Additional Information | ¡ | 53 |
Statements of Operations | For the Year Ended December 31, 2013 |
Partners
Fund |
Small-Cap
Fund |
International
Fund |
Global
Fund |
|||||||||||||
Investment Income: |
||||||||||||||||
Income: |
||||||||||||||||
Dividends from non-affiliates (net of foreign tax withheld of $2,393,738, $688,050, $2,156,818, and $16,481 respectively) |
$ | 87,377,505 | $ | 12,146,334 | $ | 26,300,361 | $ | 504,544 | ||||||||
Dividends from affiliates (net of foreign tax withheld of $0, $0, $0, and $0 respectively) (Note 7) |
4,804,601 | 12,404,550 | | | ||||||||||||
Interest from non-affiliates |
3,813,241 | 379,606 | 836,170 | 364 | ||||||||||||
Interest from affiliates (Note 7) |
| 1,834,118 | | | ||||||||||||
Total Income |
95,995,347 | 26,764,608 | 27,136,531 | 504,908 | ||||||||||||
Expenses: |
||||||||||||||||
Investment counsel fee (Note 3) |
62,337,196 | 31,104,602 | 17,719,300 | 515,329 | ||||||||||||
Administration fee (Note 4) |
8,178,293 | 4,013,947 | 1,671,930 | 45,807 | ||||||||||||
Transfer agent fees and expenses |
2,425,538 | 606,699 | 509,521 | 8,076 | ||||||||||||
Prospectus and shareholder reports |
648,000 | 194,003 | 87,500 | 17,999 | ||||||||||||
Trustees fees and expenses |
515,501 | 261,751 | 261,751 | 43,001 | ||||||||||||
Custodian fees and expenses |
286,801 | 34,798 | 650,002 | 27,798 | ||||||||||||
Professional fees |
67,997 | 68,997 | 103,995 | 75,997 | ||||||||||||
Registration fees |
472,289 | 51,088 | 83,291 | 53,290 | ||||||||||||
Other |
265,202 | 126,063 | 73,148 | 7,450 | ||||||||||||
Total Expenses |
75,196,817 | 36,461,948 | 21,160,438 | 794,747 | ||||||||||||
Expense reimbursement (Note 3) |
| | | (38,304 | ) | |||||||||||
Net expenses after reimbursement |
75,196,817 | 36,461,948 | 21,160,438 | 756,443 | ||||||||||||
Net Investment Income (Loss) |
20,798,530 | (9,697,340 | ) | 5,976,093 | (251,535 | ) | ||||||||||
Realized and Unrealized Gain (Loss): |
||||||||||||||||
Net realized gain (loss): |
||||||||||||||||
Non-affiliated securities |
629,035,819 | 315,507,601 | (31,087,578 | ) | 87,781 | |||||||||||
Affiliated securities (Note 7) |
70,275,114 | 219,335,519 | | | ||||||||||||
Options written (Note 11) |
(10,459,160 | ) | | 20,207,616 | | |||||||||||
Swap contracts (Note 11) |
| | 14,027,313 | | ||||||||||||
Forward currency contracts (Note 11) |
| | 9,827,583 | | ||||||||||||
Foreign currency transactions |
119,425 | (51 | ) | (180,906 | ) | (31,640 | ) | |||||||||
Net Gain |
688,971,198 | 534,843,069 | 12,794,028 | 56,141 | ||||||||||||
Change in Unrealized Appreciation (Depreciation): |
||||||||||||||||
Non-affiliated securities |
1,355,216,592 | 257,547,163 | 449,427,903 | 11,891,937 | ||||||||||||
Affiliated securities (Note 7) |
197,323,993 | 262,247,581 | (64,751,793 | ) | | |||||||||||
Options written (Note 11) |
12,145,409 | | 13,839,626 | | ||||||||||||
Swap contracts (Note 11) |
| | (3,974,178 | ) | | |||||||||||
Forward currency contracts (Note 11) |
| | 235,846 | | ||||||||||||
Other assets and liabilities |
| | (13,359 | ) | 216 | |||||||||||
Change in Net Unrealized Appreciation |
1,564,685,994 | 519,794,744 | 394,764,045 | 11,892,153 | ||||||||||||
Net Realized and Unrealized Gain |
2,253,657,192 | 1,054,637,813 | 407,558,073 | 11,948,294 | ||||||||||||
Net Increase in Net Assets Resulting from Operations |
$ | 2,274,455,722 | $ | 1,044,940,473 | $ | 413,534,166 | $ | 11,696,759 | ||||||||
See Notes to Financial Statements
54 | ¡ | Longleaf Partners Funds Trust |
Statements of Changes in Net Assets |
Partners Fund | Small-Cap Fund | |||||||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Operations: |
||||||||||||||||
Net investment income (loss) |
$ | 20,798,530 | $ | 73,834,948 | $ | (9,697,340 | ) | $ | 2,321,218 | |||||||
Net realized gain (loss) from investments and foreign currency transactions |
688,971,198 | 919,351,525 | 534,843,069 | 309,509,649 | ||||||||||||
Net change in unrealized appreciation of securities, other assets, liabilities and forwards |
1,564,685,994 | 252,802,824 | 519,794,744 | 362,423,458 | ||||||||||||
Net increase (decrease) in net assets resulting from operations |
2,274,455,722 | 1,245,989,297 | 1,044,940,473 | 674,254,325 | ||||||||||||
Distributions to Shareholders: |
||||||||||||||||
From net investment income |
(20,343,744 | ) | (78,165,018 | ) | | (2,321,218 | ) | |||||||||
From net realized gain on investments |
(247,918,001 | ) | (1,118,819,567 | ) | (570,019,242 | ) | (230,227,027 | ) | ||||||||
Net decrease in net assets resulting from distributions |
(268,261,745 | ) | (1,196,984,585 | ) | (570,019,242 | ) | (232,548,245 | ) | ||||||||
Capital Share Transactions (Note 6): |
||||||||||||||||
Net proceeds from sale of shares |
498,162,969 | 649,548,254 | 539,499,976 | 301,300,827 | ||||||||||||
Net asset value of shares issued to shareholders for reinvestment of shareholder distributions |
249,351,112 | 1,110,915,679 | 533,915,240 | 215,308,384 | ||||||||||||
Cost of shares redeemed |
(1,848,476,657 | ) | (2,067,956,010 | ) | (806,502,541 | ) | (611,339,157 | ) | ||||||||
Net increase (decrease) in net assets from fund share transactions |
(1,100,962,576 | ) | (307,492,077 | ) | 266,912,675 | (94,729,946 | ) | |||||||||
Total increase (decrease) in net assets |
905,231,401 | (258,487,365 | ) | 741,833,906 | 346,976,134 | |||||||||||
Net Assets: |
||||||||||||||||
Beginning of year |
7,695,310,356 | 7,953,797,721 | 3,384,799,502 | 3,037,823,368 | ||||||||||||
End of year |
$ | 8,600,541,757 | $ | 7,695,310,356 | $ | 4,126,633,408 | $ | 3,384,799,502 | ||||||||
Undistributed net investment income included in net assets at end of period |
$ | 433,479 | $ | 7,423,480 | $ | | $ | | ||||||||
See Notes to Financial Statements
Statement Of Additional Information | ¡ | 55 |
International Fund | Global Fund | |||||||||||||
Year Ended December 31, |
Year Ended
December 31, |
Inception
12/27/12 to |
||||||||||||
2013 | 2012 | 2013 | 12/31/12 | |||||||||||
$ | 5,976,093 | $ | 27,368,888 | $ | (251,535 | ) | $ | (2 | ) | |||||
12,794,028 | (54,314,053 | ) | 56,141 | | ||||||||||
394,764,045 | 316,859,330 | 11,892,153 | | |||||||||||
413,534,166 | 289,914,165 | 11,696,759 | (2 | ) | ||||||||||
(5,078,816 | ) | (25,376,933 | ) | | | |||||||||
| (14,628,946 | ) | | | ||||||||||
(5,078,816 | ) | (40,005,879 | ) | | | |||||||||
149,183,991 | 105,464,130 | 103,356,309 | 10,000 | |||||||||||
4,492,269 | 36,026,754 | | | |||||||||||
(238,404,180 | ) | (458,515,934 | ) | (1,587,164 | ) | | ||||||||
(84,727,920 | ) | (317,025,050 | ) | 101,769,145 | 10,000 | |||||||||
323,727,430 | (67,116,764 | ) | 113,465,904 | 9,998 | ||||||||||
1,504,039,671 | 1,571,156,435 | 9,998 | | |||||||||||
$ | 1,827,767,101 | $ | 1,504,039,671 | $ | 113,475,902 | $ | 9,998 | |||||||
$ | 1,189,323 | $ | 2,051,383 | $ | | $ | | |||||||
See Notes to Financial Statements
56 | ¡ | Longleaf Partners Funds Trust |
Notes to Financial Statements |
Note 1. Organization
Longleaf Partners Fund, Longleaf Partners Small-Cap Fund, Longleaf Partners International Fund, and the Longleaf Partners Global Fund (the Funds) are non-diversified and each is a series of Longleaf Partners Funds Trust, a Massachusetts business trust, which is registered as an open-end management investment company under the Investment Company Act of 1940, as amended.
Note 2. Significant Accounting Policies
Management Estimates
The accompanying financial statements are prepared in accordance with accounting principles generally accepted in the United States of America; these principles may require the use of estimates by Fund management. Actual results could differ from those estimates.
Security Valuation
Portfolio securities listed or traded on a securities exchange (U.S. or foreign), on the NASDAQ national market, or any representative quotation system providing same day publication of actual prices, are valued at the last sale price. If there are no transactions in the security that day, securities are valued at the midpoint between the closing bid and ask prices or, if there are no such prices, the prior days close.
In the case of bonds and other fixed income securities, valuations may be furnished by a pricing service which takes into account factors in addition to quoted prices (such as trading characteristics, yield, quality, coupon rate, maturity, type of issue, and other market data relating to the priced security or other similar securities) where taking such factors into account would lead to a more accurate reflection of the fair market value of such securities.
When market quotations are not readily available, valuations of portfolio securities may be determined in accordance with procedures established by and under the general supervision of the Funds Trustees. In determining fair value, the Board considers relevant qualitative and quantitative information including news regarding significant market or security specific events. The Board may also utilize a service provided by an independent third party to assist in fair valuation of certain securities. These factors are subject to change over time and are reviewed periodically. Because the utilization of fair value depends on market activity, the frequency with which fair valuation may be used cannot be predicted. Estimated values may differ from the values that would have been used had a ready market for the investment existed.
Repurchase agreements are valued at cost which, combined with accrued interest, approximates market value. Short-term U.S. Government obligations purchased with a remaining maturity of more than 60 days are valued through pricing obtained through pricing services approved by the Funds Trustees. Obligations purchased with a remaining maturity of 60 days or less or existing positions that have less than 60 days to maturity generally are valued at amortized cost, which approximates market value. However, if amortized cost is deemed not to reflect fair value, the securities are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service.
The Funds determine net asset values (NAVs) once a day, at the close of regular trading on the New York Stock Exchange (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 weekends. Foreign securities are generally priced at the latest market close in the foreign market, which may be at different times or days than the close of the 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 Exchange, foreign securities may be fair valued as determined by the Board of Trustees, consistent with any regulatory guidelines.
Statement Of Additional Information | ¡ | 57 |
Accounting for Investments
For financial reporting purposes, 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 able to obtain information on 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 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 Funds 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 values 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.
Repurchase Agreements
The Funds may engage in repurchase agreement transactions. The Fixed Income Clearing Corporation (FICC) sells U.S. government or agency securities to each Fund under agreements to repurchase these securities at a stated repurchase price including interest for the term of the agreement, which is usually overnight or over a weekend. Each Fund, through FICC, receives delivery of the underlying U.S. government or agency securities as collateral, whose market value is required to be at least equal to the repurchase price. If FICC becomes bankrupt, the Fund might be delayed, or may incur costs or possible losses of principal and income, in selling the collateral.
When-Issued Securities
The Funds may trade on a when-issued basis when a security has been authorized but not yet issued. In a when-issued transaction, securities are purchased or sold but delivery or settlement is delayed until the underlying stock is issued. Transactions in when-issued securities are subject to market fluctuations and risk of loss prior to settlement. Their value is determined in the same manner as other securities.
Options
The Funds may purchase and sell (write) call and put options on various instruments including securities to gain long or short exposure to the underlying instruments.
58 | ¡ | Longleaf Partners Funds Trust |
Notes to Financial Statements |
An option contract gives the buyer the right, but not the obligation, to buy(call) or sell(put) an underlying item at a fixed exercise price on a certain date or during a specified period. The cost of securities acquired through the exercise of a call option is increased by the premiums paid. The proceeds from securities sold through the exercise of a purchased put option are decreased by the premiums paid. The cost of purchased options that expire unexercised are treated by the Funds, on expiration date, as realized losses on investments.
When the Funds write an option, an amount equal to the premium received is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated, on the expiration date, as realized gains on written options. The difference between the premium and the amount paid on effecting a closing transaction, including brokerage commissions, is also treated as a realized gain, or, if the premium is less than the amount paid for the closing transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Funds have a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the security purchased.
The current market value of an exchange traded option is the last sales price. Over-the-counter options are valued in accordance with fair value procedures established by and under the general supervision of the Funds Trustees.
Risk of Options
Gains on investment in options may depend on correctly predicting the market value direction of the underlying security. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position and a Fund may experience losses as a result of such illiquidity. Listed options involve minimal counter-party risk since listed options are guaranteed against default by the exchange on which they trade. When purchasing over-the-counter (OTC) options, the Funds bear the risk of economic loss from counterparty default, equal to the market value of the option.
Swap Contracts
The Funds may enter into swap contracts for purposes of pursuing their investment objectives or as a substitute for investing directly in securities, shorting securities, or to hedge a position. Swaps are two-party contracts entered into primarily by institutional investors for periods ranging from a day to more than one year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged between the parties is calculated with respect to a notional amount, for example, the return on or increase in value of a particular dollar amount invested in a basket of securities. Most swap contracts entered into by the Funds calculate and settle the obligations of the parties to the agreement on a net basis with a single payment. Consequently, a Funds current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of such obligations (or rights). A Funds current obligations under a swap agreement are accrued daily, offset against any amounts owed to the Fund.
The market value of a swap contract is determined by marking the underlying security (securities) to their last quoted value at the close of the NYSE, usually 4:00 p.m., Eastern Time. The swaps market value is then adjusted to accrue dividend or interest income, financing charges and/or other economic terms associated with the contract.
Risk of Swaps
Swap contracts involve, to varying degrees, elements of market risk and exposure to loss in excess of the amount reflected in the Statement of Assets and Liabilities. The notional amounts reflect the extent of the
Statement Of Additional Information | ¡ | 59 |
total investment exposure each Fund has under the swap contract. The primary risks associated with the use of swaps are imperfect correlation between movements in the notional amount and the price of the underlying investments and the inability of counterparties to perform. A Fund bears the risk of loss of the amount expected to be received under a swap contract in the event of the default or bankruptcy of a swap counterparty.
Forward Currency Contracts
Forward currency contracts are commitments to purchase or sell a foreign currency at a future maturity date at a prespecified price. 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 in qualifying currencies are treated as realized and are subject to distribution at our excise tax year-end date.
Risk of Forward Currency Contracts
The Funds may use forward currency contracts for hedging purposes to offset currency exposure in portfolio holdings. 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. Not all foreign currencies can be effectively hedged; and the costs of hedging may outweigh the benefits. If our hedging strategy does not correlate well with market and currency movements, price volatility of the portfolio could increase. Where a liquid secondary market for forwards does not exist, the Funds may not be able to close their positions and in such an event, the loss is theoretically unlimited. In addition, the Funds could be exposed to risks if the counterparty to these contracts is unable to perform.
Counterparty Risk and Collateral
The Funds have entered in to collateral agreements with counterparties to mitigate risk on OTC derivatives. Collateral is generally determined based on the net unrealized gain or loss with each counterparty, subject to minimum exposure amounts. Collateral, both pledged by and for the benefit of a Fund, is held in a segregated account at the Funds custodian bank and is comprised of assets specific to each agreement. See Note 13, Counterparty Risk and Credit-Risk-Related Contingent Features Derivative Instruments, for additional information.
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:
First $400 million of average daily net assets |
1.00% | |||
In excess of $400 million |
.75% | |||
For the Partners and Small-Cap Funds, Southeastern has agreed to reduce its fees on a pro rata basis to the extent that each Funds 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 in accordance with the following schedule:
First $500 million of average daily net assets |
1.20% | |||
In excess of $500 million |
1.00% | |||
60 | ¡ | Longleaf Partners Funds Trust |
Notes to Financial Statements |
For this Fund, Southeastern has agreed to reduce its fees on a pro rata basis to the extent that the Funds normal annual operating expenses (excluding taxes, interest, brokerage fees, and extraordinary expenses) exceed 1.75% of average annual net assets. No reduction was necessary for the current year.
The Global Fund fee is calculated in accordance with the following schedule:
First $500 million of average daily net assets |
1.125% | |||
In excess of $500 million |
1.00% | |||
For this Fund, Southeastern has agreed to reduce its fees on a pro rata basis to the extent that the Funds normal annual operating expenses (excluding taxes, interest, brokerage fees, and extraordinary expenses) exceed 1.65% of average annual net assets. A reduction of $38,304 was applied during the year.
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, proxy statements, and oversight of 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.
Note 5. Investment Transactions
Purchases and sales of equity securities, purchased options and corporate bonds for the period (excluding short-term obligations) are summarized below:
Purchases | Sales | |||||||
Partners Fund |
$ | 1,590,675,462 | $ | 4,251,837,729 | ||||
Small-Cap Fund |
539,878,768 | 1,911,911,997 | ||||||
International Fund |
474,524,608 | 745,040,376 | ||||||
Global Fund |
83,983,110 | 1,751,487 | ||||||
Written options not included in the above purchase and sales transactions for the Funds include:
Partners Fund | International Fund | |||||||||||||||
Share
Equivalents |
Premiums |
Share
Equivalents |
Premiums | |||||||||||||
Options outstanding at December 31, 2012 |
| $ | | 6,476,800 | $ | 29,016,064 | ||||||||||
Options written |
10,940,592 | 29,854,554 | | | ||||||||||||
Options closed |
(5,636,920 | ) | (6,995,728 | ) | (6,476,800 | ) | (29,016,064 | ) | ||||||||
Options outstanding at December 31, 2013 |
5,303,672 | $ | 22,858,826 | | $ | | ||||||||||
Statement Of Additional Information | ¡ | 61 |
Note 6. Shares of Beneficial Interest
Each Fund is authorized to issue unlimited shares of beneficial interest with no par value. Transactions in shares of beneficial interest were as follows:
Year Ended December 31, 2013 | ||||||||||||||||
Partners
Fund |
Small-Cap
Fund |
International
Fund |
Global
Fund |
|||||||||||||
Shares sold |
16,489,626 | 16,945,800 | 9,489,933 | 8,990,215 | ||||||||||||
Reinvestment of shareholder distributions |
7,728,681 | 17,289,978 | 250,825 | | ||||||||||||
Shares redeemed |
(61,007,416 | ) | (24,322,804 | ) | (14,980,415 | ) | (151,933 | ) | ||||||||
(36,789,109 | ) | 9,912,974 | (5,239,657 | ) | 8,838,282 | |||||||||||
Year Ended December 31, 2012 | ||||||||||||||||
Partners
Fund |
Small-Cap
Fund |
International
Fund |
Global
Fund |
|||||||||||||
Shares sold |
22,820,434 | 10,779,942 | 8,434,480 | 1,000 | ||||||||||||
Reinvestment of shareholder distributions |
43,079,454 | 7,791,685 | 2,639,352 | | ||||||||||||
Shares redeemed |
(72,791,079 | ) | (21,748,786 | ) | (35,954,602 | ) | | |||||||||
(6,891,191 | ) | (3,177,159 | ) | (24,880,770 | ) | 1,000 | ||||||||||
Note 7. Affiliated Issuer
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 during all or part of the year.
Shares at
December 31,
|
Market Value at December 31 | |||||||||||
2013 | 2012 | |||||||||||
Partners Fund |
||||||||||||
CONSOL Energy Inc. |
11,692,000 | $ | 444,763,680 | $ | 403,914,300 | |||||||
Level 3 Communications, Inc.* |
15,026,565 | 498,431,161 | 347,263,917 | |||||||||
Vulcan Materials Company (c) |
3,954,016 | 234,947,631 | 371,564,286 | |||||||||
1,178,142,472 | 1,122,742,503 | |||||||||||
Small-Cap Fund |
||||||||||||
DineEquity, Inc. |
1,261,654 | 105,411,192 | 168,259,177 | |||||||||
Empire State Realty Trust, Inc. |
12,270,850 | 187,744,005 | | |||||||||
Graham Holdings Company Class B
|
428,000 | 283,900,960 | 156,309,880 | |||||||||
Quicksilver Resources Inc.* (c) |
| | 70,318,820 | |||||||||
Quicksilver Resources Inc., 7.125% |
||||||||||||
Senior Notes due 4/1/16 (c) |
| | 11,722,410 | |||||||||
Saks Incorporated* (c) |
| | 151,853,735 | |||||||||
Saks Incorporated
|
| | 26,635,427 | |||||||||
Service Corporation International (c) |
| | 167,265,339 | |||||||||
Texas Industries, Inc.* |
7,510,757 | 516,589,866 | 383,123,714 | |||||||||
Vail Resorts, Inc. |
2,477,000 | 186,344,710 | 179,416,530 | |||||||||
The Wendys Company (c) |
8,410,411 | 73,338,784 | 131,444,900 | |||||||||
1,353,329,517 | 1,446,349,932 | |||||||||||
62 | ¡ | Longleaf Partners Funds Trust |
Notes to Financial Statements |
Shares at
December 31,
|
Market Value at December 31, | |||||||||||
2013 | 2012 | |||||||||||
International Fund |
||||||||||||
Manabi S.A. Class A Preferred* |
91,000 | $ | 77,882,577 | $ | 113,211,111 | |||||||
Purchases | Sales |
Dividend or
Interest Income (a) |
||||||||||
Partners Fund |
||||||||||||
CONSOL Energy Inc. |
$ | | $ | 30,638,108 | $ | 4,607,250 | ||||||
Level 3 Communications, Inc.* |
| | | |||||||||
Vulcan Materials Company (c) |
| 181,561,031 | 197,351 | |||||||||
| 212,199,139 | 4,804,601 | ||||||||||
Small-Cap Fund |
||||||||||||
DineEquity, Inc. |
| 91,197,903 | 4,426,209 | |||||||||
Empire State Realty Trust, Inc. |
159,977,396 | | 975,533 | |||||||||
Graham Holdings Company Class B
|
| | | |||||||||
Quicksilver Resources Inc.* (c) |
| 41,065,126 | | |||||||||
Quicksilver Resources Inc.,
|
| 13,579,458 | 1,221,869 | (b) | ||||||||
Saks Incorporated* (c) |
| 224,609,186 | | |||||||||
Saks Incorporated
|
| 40,294,081 | 612,249 | (b) | ||||||||
Service Corporation
|
| 207,475,890 | 689,626 | |||||||||
Texas Industries, Inc.* |
| | | |||||||||
Vail Resorts, Inc. |
| 63,147,278 | 2,582,717 | |||||||||
The Wendys Company (c) |
| 164,702,616 | 3,730,465 | |||||||||
159,977,396 | 846,071,538 | 14,238,668 | ||||||||||
International Fund |
||||||||||||
Manabi S.A. Class A Preferred* |
$ | | $ | | $ | | ||||||
* | Non-income producing |
(a) |
Dividend income unless otherwise noted. |
(b) |
Interest income. |
(c) |
Not an affiliate at the end of the period. |
Note 8. Illiquid Securities
The International Fund owns 91,000 shares of Manabi S.A. Class A Preferred. These shares were acquired directly from the issuer in a private placement. They are considered restricted securities within the meaning of Rule 144 promulgated under the Securities Act of 1933. Prior to an initial public offering, shares are subject to other selling restrictions such as a right of first offer for the benefit of other shareholders. Further, upon an initial public offering, it is anticipated that the shares will be subject to a post-offering lock up period as required by underwriters, the BM&FBOVESPA or Brazils CVM. Due to the lack of an active trading market, all or a portion of this position may be illiquid. Judgement plays a greater role in valuing illiquid securities than those for which a more active market exists. These shares represent 4.3% of the
Statement Of Additional Information | ¡ | 63 |
International Funds net assets at December 31, 2013 and are valued using procedures adopted by the Board of Trustees (See Note 2).
Note 9. Related Ownership
At December 31, 2013, officers, employees of Southeastern and their families, Fund trustees, the Southeastern retirement plan and other affiliates owned more than 5% of the following Funds:
Shares Owned | Percent of Fund | |||||||
Partners Fund |
20,367,039 | 8.0 | % | |||||
Small-Cap Fund |
9,737,625 | 7.7 | ||||||
International Fund |
21,759,916 | 21.4 | ||||||
Global Fund |
6,606,815 | 74.7 | ||||||
Note 10. Fair Value Measurements and Disclosures
FASB ASC 820 established a single definition of fair value for financial reporting, created a three-tier framework for measuring fair value based on inputs used to value the Funds investments, and required additional disclosure about the use of fair value measurements. The hierarchy of inputs is summarized below.
|
Level 1 quoted prices in active markets for identical investments |
|
Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
|
Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments) |
Observable inputs are those based on market data obtained from sources independent of the Funds, and unobservable inputs reflect the Funds own assumptions based on the best information available. The input levels are not necessarily an indication of risk or liquidity associated with investing in those securities.
A summary of the inputs used in valuing the Funds net assets as December 31, 2013 follows:
Level 1 | Level 2 | Level 3 | Total Value | |||||||||||||
Partners Fund |
||||||||||||||||
Common Stock |
$ | 6,565,114,188 | $ | | $ | | $ | 6,565,114,188 | ||||||||
Preferred Stock |
| 118,883,338 | | 118,883,338 | ||||||||||||
Short-Term Obligations |
1,824,277,750 | | | 1,824,277,750 | ||||||||||||
Options Purchased |
| 53,885,308 | | 53,885,308 | ||||||||||||
Options Written |
| (10,713,417 | ) | | (10,713,417 | ) | ||||||||||
Total |
8,389,391,938 | 162,055,229 | | 8,551,447,167 | ||||||||||||
Small-Cap Fund |
||||||||||||||||
Common Stock |
2,698,359,365 | | | 2,698,359,365 | ||||||||||||
Short-Term Obligations |
1,445,360,800 | | | 1,445,360,800 | ||||||||||||
Total |
$ | 4,143,720,165 | $ | | $ | $ | 4,143,720,165 | |||||||||
64 | ¡ | Longleaf Partners Funds Trust |
Notes to Financial Statements |
Level 1 | Level 2 | Level 3 | Total Value | |||||||||||||
International Fund |
||||||||||||||||
Common Stock |
$ | 1,366,235,759 | $ | | $ | | $ | 1,366,235,759 | ||||||||
Preferred Stock |
| | 77,882,577 | 77,882,577 | ||||||||||||
Short-Term Obligations |
366,609,050 | | | 366,609,050 | ||||||||||||
Swap Contracts Receivable |
| 24,353,998 | | 24,353,998 | ||||||||||||
Swap Contracts Payable |
| (4,562,868 | ) | | (4,562,868 | ) | ||||||||||
Forward Currency Contracts |
1,396,442 | | | 1,396,442 | ||||||||||||
Total |
1,734,241,251 | 19,791,130 | 77,882,577 | 1,831,914,958 | ||||||||||||
Global Fund |
||||||||||||||||
Common Stock |
94,211,340 | | | 94,211,340 | ||||||||||||
Short-Term Obligations |
19,185,000 | | | 19,185,000 | ||||||||||||
Total |
$ | 113,396,340 | $ | | $ | | $ | 113,396,340 | ||||||||
Certain foreign securities are fair valued by utilizing an external pricing service in the event of significant market movements between the time the Funds value such foreign securities and the earlier closing of foreign markets. Such fair valuations are categorized as Level 2 in the hierarchy. Between December 31, 2012 and December 31, 2013, application of these valuation procedures triggered reclassification from Level 2 to Level 1 of $394,133,408, and $911,177,164 in the Partners and International Funds, respectively.
The sole Level 3 holding at December 31, 2013 was Manabi S.A. which was valued by taking into account company specific developments and other relevant factors. These other factors include: transactions in company shares; the value assigned to the investment in any subsequent capital raises; broker quotes, if available; trading multiples of comparable public companies, and other significant events (e.g., government action or natural disaster) that could impact value. See Note 8 for additional information on this security.
The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in determining fair value as of December 31, 2013:
Level 3 Holding | International Fund | |||
Fair value beginning of period |
$ | 113,211,111 | ||
Unrealized loss |
(35,328,534 | ) | ||
Fair value at December 31, 2013 |
$ | 77,882,577 | ||
Note 11. Derivative Instruments
The Funds invested in options, swaps and forward contracts. Footnote 2, Significant Accounting Policies, contains additional information regarding the risks of these derivatives.
Options
The Funds use options in several ways:
|
Written covered calls create an exit method for all or a portion of an underlying security position for portfolio management purposes; |
|
Purchased call options secure upside exposure to the underlying security at low implied long-term interest rates. The maximum loss exposure is the premium paid for the options. |
|
Purchased call options are sometimes used in tandem with written put options, to create long synthetic exposure to the underlying security. |
Statement Of Additional Information | ¡ | 65 |
With both purchased call options (sometimes in tandem with written put options) the Funds get exposure to the stock without tying up cash.
Swap Contracts
Swap contracts are used to create exposure to the underlying notional value of a stock or bond position. Swap contracts may be done to free up cash or to access markets or short positions more efficiently than otherwise possible.
Forward Currency Contracts
Forward currency contracts are used on a limited basis to hedge embedded currency exposure related to a specific holding.
During 2013, the Small-Cap and Global Funds held no derivatives. The following is a summary of the location of derivative instruments in the Partners and International Funds financial statements at December 31, 2013:
Statement of Assets and Liabilities |
||||||||||
Derivative | Location | Partners Fund | International Fund | |||||||
Options purchased |
Other securities, at market value | $ | 53,885,308 | $ | | |||||
Swap contracts |
Receivable for swap contracts | | 24,353,998 | |||||||
Swap contracts |
Payable for swap contracts | | (4,562,868 | ) | ||||||
Forward currency contracts |
Receivable for forward currency contracts | | 1,396,442 | |||||||
Options written |
Payable for options written | (10,713,417 | ) | | ||||||
$ | 43,171,891 | $ | 21,187,572 | |||||||
Impact of Derivatives
on Statement of Operations |
||||||||
Partners Fund | International Fund | |||||||
Net realized gain (loss): |
||||||||
Non-affiliated securities (Options purchased) |
$ | | $ | 35,233,792 | ||||
Options written |
(10,459,160 | ) | 20,207,616 | |||||
Swap contracts |
| 14,027,313 | ||||||
Forward currency contracts |
| 9,827,583 | ||||||
(10,459,160 | ) | 79,296,304 | ||||||
Change in unrealized appreciation (depreciation): |
||||||||
Non-affiliated securities (Options purchased) |
23,886,524 | | ||||||
Options written |
12,145,409 | 13,839,626 | ||||||
Swap contracts |
| (3,974,178 | ) | |||||
Forward currency contracts |
235,846 | |||||||
$ | 36,031,933 | $ | 10,101,294 | |||||
For the period ended December 31, 2013 the average volume of derivative activities were as follows:
Options
Purchased Cost |
Options
Written Premiums |
Swap
Contracts Value |
Forwards
Currency Contracts Unrealized |
|||||||||||||
Partners Fund |
$ | 88,803,216 | $ | 5,513,060 | $ | | $ | | ||||||||
International Fund |
21,722,191 | 17,856,039 | 18,886,493 | 1,553,141 | ||||||||||||
66 | ¡ | Longleaf Partners Funds Trust |
Notes to Financial Statements |
Note 12. Collateral
The table below summarizes collateral related to each derivative type held at December 31, 2013. For the purpose of the table, collateral is shown up to the amount of, but not exceeding, the asset or liability. Derivative assets and liabilities are presented in the Statement of Assets and Liabilities at their gross amount.
Partners Fund |
Gross Amount in
Statement of Assets and Liabilities |
Collateral
Pledged (Received) |
Net Amount |
|||||||||
Derivative Assets |
||||||||||||
Options purchased* |
$ | 53,885,308 | $ | (51,605,061 | ) | $ | 2,280,247 | |||||
Derivative Liabilities |
||||||||||||
Options Written |
(10,713,471 | ) | 10,260,061 | (453,410 | ) | |||||||
International Fund |
||||||||||||
Derivative Assets |
||||||||||||
Swap contracts |
24,353,998 | (24,044,486 | ) | 309,512 | ||||||||
Forward currency contracts |
1,396,442 | | 1,396,442 | |||||||||
25,750,440 | (24,044,486 | ) | 1,705,954 | |||||||||
Derivative Liabilities |
||||||||||||
Swap contracts |
(4,562,868 | ) | 4,294,486 | (268,382 | ) | |||||||
* | Options purchased are included in Other securities, at market value in the Statement of Assets and Liabilities. |
In addition to collateral, securities valued at $60,178,624 in the International Fund were restricted to cover the notional amount of forward currency contacts.
Note 13. Counterparty Risk and Credit-Risk-Related Contingent Features of Derivative Instruments
The Funds may invest in certain securities or engage in other transactions where the Funds are exposed to counterparty credit risk in addition to broader market risks. The Funds may face increased risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Funds investment manager attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the investment manager. In addition, declines in the values of underlying collateral received may expose the Funds to increased risk of loss.
The Funds have entered into master agreements with its derivative counterparties that provide for general obligations, representations, agreements, collateral, events of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Funds net assets or NAV over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.
Note 14. Federal Income Taxes
Required fund distributions are based on income and capital gain amounts determined in accordance with federal income tax regulations, which differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes differ from those reflected in the accompanying financial statements.
Statement Of Additional Information | ¡ | 67 |
Distributions were designated subject to tax as follows:
Year Ended December 31, 2013 | ||||||||||||||||
Partners Fund | Small-Cap Fund | International Fund | Global Fund | |||||||||||||
Long-term capital gains |
$ | 247,918,001 | $ | 540,598,961 | $ | | $ | | ||||||||
Ordinary income |
20,343,744 | 29,420,281 | 5,078,816 | | ||||||||||||
$ | 268,261,745 | $ | 570,019,242 | $ | 5,078,816 | $ | | |||||||||
Year Ended December 31, 2012 | ||||||||||||||||
Partners Fund | Small-Cap Fund | International Fund | Global Fund | |||||||||||||
Long-term capital gains |
$ | 1,038,433,238 | $ | 212,677,436 | $ | 14,628,946 | $ | | ||||||||
Ordinary income |
158,551,347 | 19,870,809 | 25,376,933 | | ||||||||||||
$ | 1,196,984,585 | $ | 232,548,245 | $ | 40,005,879 | $ | | |||||||||
The tax-basis components of net assets at December 31, 2013 were as follows:
Partners Fund | Small-Cap Fund | International Fund | Global Fund | |||||||||||||
Unrealized appreciation |
$ | 2,195,996,414 | $ | 987,175,344 | $ | 486,072,685 | $ | 12,133,661 | ||||||||
Unrealized depreciation |
(27,748,430 | ) | (5,962,779 | ) | (18,815,096 | ) | (241,768 | ) | ||||||||
Net unrealized appreciation(depreciation) |
2,168,247,984 | 981,212,565 | 467,257,589 | 11,891,893 | ||||||||||||
Post Oct-31st loss deferred |
| | | | ||||||||||||
Undistributed ordinary income |
433,479 | | 1,189,323 | | ||||||||||||
Undistributed long-term capital gains |
161,261,346 | 35,048,771 | | | ||||||||||||
Tax loss carryforwards (no expiration) |
| | (93,415,790 | ) | | |||||||||||
Paid-in capital |
6,270,598,948 | 3,110,372,072 | 1,452,735,979 | 101,584,009 | ||||||||||||
$ | 8,600,541,757 | $ | 4,126,633,408 | $ | 1,827,767,101 | $ | 113,475,902 | |||||||||
The following permanent reclassifications were made between capital accounts to reflect the tax character of foreign currency transactions and distributions. These reclassifications did not affect results of operations or net assets.
Partners Fund | Small-Cap Fund | International Fund | Global Fund | |||||||||||||
Undistributed net investment income |
$ | (7,444,787 | ) | $ | 9,697,340 | $ | (1,759,337 | ) | $ | 251,535 | ||||||
Accumulated net realized gain(loss) on investments and foreign currency |
7,444,787 | (9,697,340 | ) | 1,759,337 | (56,401 | ) | ||||||||||
Paid-in capital |
| | (195,134 | ) | ||||||||||||
The Funds tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after filing of the tax return but could be longer in certain circumstances. Management has analyzed the Funds tax positions taken on federal income tax returns for all open tax years (tax years ended December 31, 2010-2013), and has concluded that no provision for federal income tax is required in the Funds financial statements.
68 | ¡ | Longleaf Partners Funds Trust |
Financial Highlights |
The presentation is for a share outstanding throughout each period.
Net Asset
Value Beginning of Period |
Net
(Loss) |
Net Gains
(Losses) on Securities Realized and Unrealized |
Total
from Investment Operations |
Dividends
from Net Investment Income |
Distri-
butions from Capital Gains |
|||||||||||||||||||
Partners Fund |
||||||||||||||||||||||||
Year Ended December 31, |
||||||||||||||||||||||||
2013 |
$ | 26.39 | $ | 0.09 | $ | 8.34 | $ | 8.43 | $ | (0.08 | ) | $ | (0.99 | ) | ||||||||||
2012 |
26.65 | 0.31 | 3.95 | 4.26 | (0.27 | ) | (4.25 | ) | ||||||||||||||||
2011 |
28.26 | 0.11 | (0.90 | ) | (0.79 | ) | (0.13 | ) | (0.69 | ) | ||||||||||||||
2010 |
24.09 | 0.07 | 4.24 | 4.31 | (0.14 | ) | | |||||||||||||||||
2009 |
15.69 | 0.06 | 8.35 | 8.41 | (0.01 | ) | | |||||||||||||||||
Small-Cap Fund |
||||||||||||||||||||||||
Year Ended December 31, |
||||||||||||||||||||||||
2013 |
28.88 | (0.08 | ) | 8.62 | 8.54 | | (4.96 | ) | ||||||||||||||||
2012 |
25.23 | 0.03 | 5.67 | 5.70 | (0.03 | ) | (2.02 | ) | ||||||||||||||||
2011 |
26.52 | | 0.49 | 0.49 | (0.01 | ) | (1.77 | ) | ||||||||||||||||
2010 |
21.77 | 0.03 | 4.83 | 4.86 | (0.11 | ) | | |||||||||||||||||
2009 |
14.58 | 0.08 | 7.11 | 7.19 | | | ||||||||||||||||||
International Fund |
||||||||||||||||||||||||
Year Ended December 31, |
||||||||||||||||||||||||
2013 |
14.04 | 0.06 | 3.89 | 3.95 | (0.05 | ) | | |||||||||||||||||
2012 |
11.90 | 0.26 | 2.25 | 2.51 | (0.24 | ) | (0.13 | ) | ||||||||||||||||
2011 |
15.34 | 0.17 | (3.28 | ) | (3.11 | ) | (0.17 | ) | (0.16 | ) | ||||||||||||||
2010 |
13.66 | 0.12 | 1.75 | 1.87 | (0.19 | ) | | |||||||||||||||||
2009 |
11.09 | 0.07 | 2.50 | 2.57 | | | ||||||||||||||||||
Global Fund |
||||||||||||||||||||||||
Year Ended December 31, 2013 |
10.00 | (0.03 | ) | 2.87 | 2.84 | | | |||||||||||||||||
Inception December 27, 2012 to December 31, 2012 |
10.00 | | | | | | ||||||||||||||||||
(a) |
Total return reflects the rate that an investor would have earned on investment in the Fund during each period, assuming reinvestment of all distributions. |
(b) |
Expenses presented net of fee waiver. For the Global Fund, the expense ratio before waiver for the periods ended December 31, 2013 and 2012 were 1.73% and 96.24%, respectively. |
Statement Of Additional Information | ¡ | 69 |
Statement Of Additional Information | n | A-1 |
SOUTHEASTERN ASSET MANAGEMENT, INC.
LONGLEAF PARTNERS FUNDS
PROXY VOTING POLICIES AND PROCEDURES
INTRODUCTION
As an investment adviser registered with the Securities and Exchange Commission under Section 203 of the Investment Advisers Act of 1940 (the Advisers Act), Southeastern Asset Management, Inc. (Southeastern) must adopt and implement written policies and procedures that are reasonably designed to ensure that Southeastern votes client securities in the best interest of clients. The proxy voting policies and procedures set forth herein (the Proxy Policy) are an update to policies and procedures followed by Southeastern for many years and have been revised to comply with the terms of Rule 206(4)-6 under the Advisers Act. The Proxy Policy sets forth the general principles to be applied in voting proxies of companies held in client portfolios, and is intended for distribution to all clients for informational and disclosure purposes.
In addition, Southeastern has been granted discretionary authority to manage the assets of the separate series of Longleaf Partners Funds Trust (Longleaf), an open-end management investment company registered with the SEC under the Investment Company Act of 1940 (the 40 Act). Pursuant to its discretionary authority to manage Longleafs assets, and under the supervision of the Longleaf Boards of Trustees, Southeastern votes proxies of companies held in Longleafs portfolios. Effective August 1, 2003, the Boards of Trustees of Longleafs three series have authorized Southeastern to vote securities in the Longleaf Partners Funds according to this updated Proxy Policy, and instructed Southeastern as Administrator of the Funds to implement for Longleaf the procedures necessary to comply with proxy rules applicable to investment companies under the 40 Act. Accordingly, Southeastern will make disclosure of Longleafs proxy voting record on Form N-PX, when and as required by Investment Company Act Rule 30b1-4, and will disclose in Longleafs public filings information regarding the proxy policies applicable to Longleaf, as required by Items 13(f), 22(b)7, and 22(c)5 of Form N-1A.
I. INFORMATION AVAILABLE TO CLIENTS AND LONGLEAF SHAREHOLDERS
In order to comply with Advisers Act Rule 206(4)-6(c), Southeastern will describe these proxy voting policies and procedures in Part II of its Form ADV, an updated copy of which will be provided to all existing private account clients and all new clients prior to their
conducting business with Southeastern. Upon request, Southeastern will provide any private account client with a copy of these proxy voting policies and procedures as well as complete information on how Southeastern voted proxies of companies in the clients portfolio.
Shareholders of the Longleaf Partners Funds may find a description of this Proxy Policy in the Funds Statement of Additional Information (SAI). The SAI may be obtained free of charge from the Funds website, www.longleafpartners.com, by calling (800) 445-9469 or on the Securities and Exchange Commission website, www.sec.gov. Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Funds website, www.longleafpartners.com, by calling (800) 445-9469, or on the Funds Form N-PX available on the Securities and Exchange Commission website, www.sec.gov.
II. STATEMENT OF GENERAL POLICIES
AFFECTING PROXY VOTING
Proposal Must Benefit Shareholders n One of the principles used by Southeastern in selecting stocks for investment is the presence of shareholder-oriented management. This is defined as management which takes actions and supports policies designed to increase the value of the companys shares and thereby enhance shareholder wealth. As a result, all proposals submitted for shareholder approval are analyzed in light of their long-term benefit to current shareholders.
Management Must Be Responsive n Southeasterns portfolio management group is active in meeting with top management of portfolio companies and in discussing its views on policies or actions which could enhance shareholder value. To facilitate such discussions, Southeastern may convert a Schedule 13G filing (which is used by passive institutional investors) to a Schedule 13D filing in order to be more active in encouraging management of a company to take particular steps which could further enhance shareholder value. Whether management of a company will consider reasonable shareholder suggestions is a factor to be taken into consideration in proxy voting.
General Policies With Respect to Routine Proposals n Under the statutes of its state of incorporation, a company usually must hold meetings of shareholders annually for the purpose of electing or re-electing directors. In addition, the
A-2 | n | Longleaf Partners Funds Trust |
Securities and Exchange Commission requires that publicly held corporations ratify the selection of the independent auditing firm each year if an annual meeting of shareholders is being held. In many situations, these two matters are the only matters submitted to shareholders for a vote at the companys Annual Meeting of Shareholders and are therefore viewed by the investment community as being routine in nature. Southeasterns general policy is to support the Boards recommendations to vote in favor of these annually recurring matters, particularly where the Board has a record of supporting shareholder rights and is otherwise shareholder oriented.
Exceptions to General Policy n In some circumstances, Southeastern may oppose the routine re-election of a Board of Directors. As a technical matter, a shareholder opposed to re-election must express such opposition by voting the proxy for purposes of establishing the presence of a quorum, but withholding the vote for a particular director or the entire slate of directors. Using this procedure, Southeastern may withhold the vote for re-election of the Board in circumstances such as the following:
|
A Board of Directors may have adopted policies or taken actions during the prior year which are within its discretionary authority and, as such, are not matters which must be submitted to shareholders for approval. If such policies or actions have the effect of limiting or diminishing shareholder value, Southeastern may voice its opposition to the Boards positions by withholding the votes for re-election of the Board or any director. |
|
There may be situations where top management of a company, after having discussions with Southeasterns portfolio management group and perhaps with other institutional shareholders, may have failed or refused to adopt policies or take actions which would enhance shareholder value. Depending on the circumstances, Southeastern may also exercise its proxy voting authority by withholding an affirmative vote for re-election of the Board. |
General Policies With Respect to Special Management Proposals n In addition to election or re-election of directors and ratification of the selection of auditors, there may be additional, specific management proposals submitted to shareholders for approval. Southeasterns general policy is to vote in favor of specific or non-recurring proposals submitted where such proposals are reasonable and appear to be in the best interest of shareholders.
Exceptions to General Policy n There may be situations where a Board of Directors has submitted to
shareholders for approval various amendments to the corporate charter or other specific proposals which have the effect of restricting shareholder rights or otherwise diminishing shareholder value. Southeastern may decide to oppose these specific proposals and, as an integral part of such opposition, may also oppose the re-election of the Board of Directors. In the alternative, Southeastern may vote against the special proposals but may vote in favor of re-election of the Board where the Board is otherwise shareholder-oriented and the special proposals do not materially harm shareholder rights.
General Policies With Respect to Shareholder Proposals n There may be situations when a companys proxy statement contains minority shareholder proposals, which might include eliminating staggered terms for members of boards of directors, eliminating other anti-takeover defenses, adopting cumulative voting rights, or establishing operating rules or policies which are of primary interest to special interest groups. Southeastern votes these proposals on a case-by case basis with the primary objective of supporting corporate operating policies which provide the maximum financial benefit to shareholders. In Southeasterns opinion, if a companys management has demonstrated that it is shareholder-oriented by adopting operating policies and procedures which are beneficial to shareholders, Southeastern may oppose minority shareholder proposals, particularly when the adoption of such proposals could inhibit normal operations or might be disruptive.
III. DISCUSSION OF SPECIFIC CORPORATE
POLICIES AND PROPOSALS
The determination as to whether a particular policy or shareholder proposal is likely to enhance or diminish shareholder wealth may be relatively clear or, in the alternative, could be subjective. Below is a list of specific issues which may be presented for a vote and how Southeastern is likely to treat such matters. Because proxy issues and the circumstances of individual companies are so varied, there may be instances when Southeastern does not vote in strict adherence to the guidelines set forth below. In addition, the discussion is not exhaustive and does not include all potential voting issues. To the extent issues are not covered by this Proxy Policy, or in situations where Southeastern does not vote as described below, Southeastern will be governed by what it considers to be in the best interests of its clients.
|
One share, one vote. |
Explanation n Southeastern believes that good corporate governance usually requires that all shareholders have an equal voice in electing a Board
Statement Of Additional Information | n | A-3 |
of Directors and in voting on other proposals submitted to shareholders. Southeastern generally would oppose proposals to create separate classes of shares with disproportionate voting rights which may be designed primarily to empower shareholders affiliated with existing management at the expense of non-management affiliated shareholders. Recognizing that certain corporate finance proposals may require that new shareholders receive stronger voting rights or more beneficial conversion rights in consideration for the price per share of a new offering, Southeastern would give consideration to supporting reasonable disproportionate voting or conversion rights in situations where the proposal would raise necessary capital without undue dilution of the voting or ownership rights of existing shareholders.
|
Reasonable Stock Option Plans and Reasonable Cash Incentives. |
Explanation n Southeastern believes that management of a portfolio company will tend to make decisions and support policies which enhance shareholder wealth if management is a significant owner of the company. In addition, management will tend to be shareholder oriented if a primary method of ongoing management compensation is through the granting of options for the purchase of additional shares rather than through the award of substantial cash bonuses. Recognizing that compensation derived solely from stock options could be dilutive over time, Southeastern believes that there should be an appropriate balance between stock option grants and cash compensation, and that both should be related to the achievement of overall corporate profitability. Southeastern will therefore favor the adoption or continuation of reasonable, non super-dilutive stock option plans and will support the election of directors who couple granting of stock options and annual cash compensation with improved corporate profitability.
|
Super-dilutive Stock Option Plans. |
Explanation n Stock option plans with excessively large authorizations to issue additional shares at the discretion of the Board of Directors can be harmful to existing shareholders in two respects. First, such plans may be used to increase the ownership position of current management on terms and conditions not available to non-management affiliated minority shareholders; second, such plans may be used to ward off a hostile takeover by issuing additional shares to current management on a basis
which is more favorable than is available to other shareholders. The appropriate number of unissued shares allocated to a stock option plan as a percentage of outstanding shares may vary and can be discretionary, depending on the circumstances. Southeastern generally will oppose the adoption of stock option plans providing for unusually large share authorizations which appear to exceed the needs for reasonable executive compensation.
|
Reasonable Employment Contracts and Golden Parachutes. |
Explanation n To retain effective top management teams, a company needs to provide protection against the fear of preemptory dismissal should a hostile takeover attempt be successful. Although Southeastern generally opposes structural anti-takeover measurers, it will support a Board of Directors which enters into employment contracts for limited, rolling time periods (such as 3 years), and provides reasonable parachutes or termination compensation for an effective top management group.
|
Share Repurchase Programs. |
Explanation n During periods when a portfolio companys shares are materially underpriced, the best allocation of capital may be the repurchase of shares rather than expansion of the companys businesses or an increase in corporate dividends. Shrinkage of the companys common capitalization can have the effect of substantially increasing shareholder wealth for those shareholders able to continue their investment. Southeastern will accordingly support Boards of Directors entering into share repurchase programs during periods when common shares are materially underpriced.
|
Cumulative Voting and Pre-emptive Rights. |
Explanation n Cumulative voting enables minority shareholders, including an investment adviser casting votes for its clients, to aggregate the number of votes available for all directors and assign these votes to a single director. Thus, some minority shareholders might own sufficient shares to be able to elect a designated representative to the Board, and thereby achieve a larger voice in the corporate management process. The presence of pre-emptive rights preserves a right of first refusal for existing shareholders to acquire newly issued shares on the same terms as the shares might be offered to a majority or control group, thereby enabling minority shareholders to maintain the same pro-rata percentage of voting control.
A-4 | n | Longleaf Partners Funds Trust |
The charters of most corporations formed in recent years do not contain provisions for cumulative voting or pre-emptive rights. Because these provisions protect the rights of minority shareholders, Southeastern would usually oppose a proposal for elimination of such rights in situations where they presently exist.
|
Blank Check Preference Stock. |
Explanation n Blank Check preference stock allows a Board of Directors, without subsequent shareholder approval, to issue unlimited series of preference stock under terms and conditions determined wholly by the Board. Such terms and conditions may include preferential voting rights, dividends, and conversion rights which could be substantially dilutive for common shareholders. Such preference shares could also be issued by the Board to support questionable corporate financing proposals or as an anti-takeover measure. Because of the potential for dilution of common shareholders, Southeastern will generally oppose the adoption of blank check preference stock provisions.
|
Greenmail Share Repurchases. |
Explanation n Unlike normal share repurchase programs which are implemented when a companys shares are materially underpriced, greenmail repurchases of outstanding shares are usually made at inflated share prices for the purpose of eliminating a potential acquirer. As a result, such greenmail payments usually have both the immediate and long-term effect of limiting rather than enhancing shareholder value and may interfere with natural market forces. Southeastern will generally oppose the re-election of Boards of Directors which engage in greenmail repurchases in circumstances which would not enhance long-term shareholder value.
|
Structural Anti-takeover Defenses. |
Explanation n In most situations, the adoption of anti-takeover defenses which become part of the corporations organizational structure have the effect of limiting natural market forces on the trading price of a companys stock. Such structural or permanent provisions include the following: staggered terms for the Board of Directors, under which Board terms run for more than one year and less than all directors are elected each year; supermajority shareholder approval for merger or acquisition proposals not approved by the Board of Directors; and adoption of poison pills designed
to damage the capital structure of either the acquiring or the acquired corporation in a non Board approved merger or takeover.
Southeastern generally will oppose the adoption of these types of structural anti-takeover defenses, and would generally favor their removal in corporate charters where they presently exist. There may be exceptions to this policy, however, if management has demonstrated that it pursues policies to create shareholder value and is otherwise shareholder-oriented.
|
Right to Call Meetings |
Explanation n Southeastern generally opposes proposals seeking to limit the ability of shareholders to call special meetings and vote on issues outside of the companys annual meeting. Limiting the forum in which shareholders are able to vote on proposals could adversely affect shareholder value.
|
Mergers, Acquisitions, Reorganizations, and other Transactions |
Explanation n Shareholders may be faced with a number of different types of transactions, including acquisitions, mergers, reorganizations involving business combinations, liquidations and sale of all or substantially all of a companys assets, that may require shareholder consent. Voting on such proposals involves considerations unique to each transaction, so Southeastern votes such matters on a case-by-case basis.
|
Environmental, Social, and Ethical Issues |
Explanation n Southeastern recognizes the overall benefit that is provided to society in general when its portfolio companies act in a responsible manner as a good corporate steward in areas of environmental, social and ethical matters. Therefore, as a general policy, Southeastern will be supportive of and vote in favor of proposals that, in Southeasterns opinion, would further such causes. However, such areas can be highly subjective and can, at times, be in conflict with what we consider to be in the long-term best interests of the shareholders. Therefore, Southeastern will give due regard to such proposals and will consider these matters on a case-by-case basis.
IV. SOUTHEASTERNS PROXY VOTING PROCEDURES
Monitoring for Proxies and Corporate Actions n Southeastern has implemented procedures designed to ensure that it receives the proxies
Statement Of Additional Information | n | A-5 |
and corporate actions for which it is responsible, and that these proxies and corporate actions are reconciled with the reported holdings of its clients as of the record date for voting, and then voted prior to applicable deadlines.
Regarding proxies, Southeastern has hired a third-party service provider to assist in monitoring for meetings. Each business day, Southeastern sends an updated file of holdings in each client portfolio where Southeastern has voting discretion to this administrator. The administrator has undertaken the task of collecting ballots and notifying Southeastern of all record and meeting dates for these holdings. In addition, Southeastern maintains its own list of record and meeting dates for client holdings, as a back-up and check. Upon notification of upcoming meetings, Southeasterns Proxy Coordinator identifies all clients who hold the security as of the record date, and the number of shares held. It is the Proxy Coordinators job to ensure that voting decisions are made with respect to each client account and that such decisions are transmitted prior to applicable deadlines. The administrator assists and follows through with the implementation of Southeasterns voting decisions for each of its client accounts where voting discretion has been granted.
It should be noted that if Southeastern or its clients enter into a securities lending arrangement with respect to securities in a clients portfolio, Southeastern may not be able to vote proxies on those particular shares. In addition, with respect to foreign holdings, record and meeting dates may be announced with very little time to respond. In such circumstances, Southeastern makes its best effort to respond in a timely manner. In some foreign markets, shareholders who vote proxies are not able to sell in the companys stock within a given period of time surrounding the meeting date. Southeastern coordinates voting such proxies with its trading activity, and in some cases may not vote such proxies where doing so would impair its trading flexibility. Southeastern may also refrain from voting where shares of a particular holding have been sold out of all client accounts prior to the meeting date. In summary, Southeastern may refrain from voting in situations where the cost of voting exceeds the expected benefit.
Regarding corporate transactions, information is available from a number of sources. Information usually comes first to the Southeastern portfolio management group and specifically to the particular
co-manager or analyst primarily responsible for the portfolio holding. This information generally comes through press releases reported on electronic media services or in financial media such as The Wall Street Journal. In addition, Southeastern personnel routinely monitor news and events relating to portfolio holdings of clients, and accordingly learn of corporate actions which may require a response. Similarly, custodian banks receiving notification of corporate actions from issuers in turn notify Southeastern. Not all corporate actions require a response (such as dividend payments or stock splits), and Southeastern will not normally respond where the default action is the desired outcome. Corporate actions which do require a response are handled by Southeasterns Director of Client Accounting or her designee.
Decisions on Proxy Voting § Proxy Statements issued by portfolio companies are reviewed by the investment analyst assigned responsibility for the particular portfolio company. Proxies are voted in accordance with the general policies as described in Part II above. Any internal recommendation to consider voting in a manner contrary to the recommendations of the companys Board of Directors is presented to Southeasterns CEO or President for final decision before implementation. In addition, a conflict of interest review is performed with respect to each vote (see Conflicts of Interest below).
Attendance at Shareholders Meetings § A representative of Southeastern may attend shareholders meetings where there are special or unusual issues to be presented to shareholders. If Southeastern has determined to oppose managements position, the representative may vote the shares of its clients in person rather than using the normal proxy voting procedures to return proxies to management.
Conflicts of Interest § Occasions may arise where Southeastern or one of its personnel could have a conflict of interest with respect to a particular proxy vote. For example, there may be occasions where Southeastern has invested client assets in a company for which Southeastern also provides investment management services, or one of Southeasterns clients may have a material interest in the outcome of a vote. It is also possible that Southeasterns personnel may have a personal conflict of interest with respect to a vote, such as familial relationship with company management.
Southeastern considers potential conflicts of interest with respect to each voting decision. Any individual participating in a voting decision who
A-6 | n | Longleaf Partners Funds Trust |
has a personal conflict of interest shall disclose that conflict to the Proxy Coordinator and the Proxy Conflict Committee for review, and shall otherwise remove himself or herself from the proxy voting process. In addition, personnel involved in voting decisions must consider any Southeastern conflict of interest and report such conflicts to the Proxy Coordinator and the Proxy Conflict Committee, which also separately considers conflicts of interest which may be applicable to a vote. Before the Proxy Coordinator can submit voting decisions for execution, a representative of the portfolio management team and two representatives of the Proxy Conflict Committee must initial Southeasterns internal proxy form indicating that they are not aware of a conflict of interest.
In cases where a conflict of interest has been identified, Southeasterns Proxy Conflict Committee will prepare a report prior to execution of a voting decision which contains the following:
|
the nature of the conflict; |
|
an evaluation of the materiality of the conflict; and |
|
if the conflict is material, the procedures used to address the conflict. |
Three out of four members of the Proxy Conflict Committee must approve the report. Such reports will be kept pursuant to the policies set forth under Record Retention below.
If a conflict is material, Southeastern will attempt to disclose the conflict to affected clients, including private account clients and/or the Longleaf Partners Funds Boards of Trustees, and either obtain consent to vote on a given voting occasion or vote in accordance with instructions from the client and/or Longleaf Board of Trustees. Where consent has been given for Southeastern to vote, it will treat a proxy vote as it would any other and vote according to the principles stated herein, with the governing principle being what is in the best interest of the companys shareholders. If Southeastern is not able to reach affected clients in time to obtain consent, or obtaining consent is not otherwise feasible, Southeastern may vote in accord with guidance provided by a proxy service provider independent of Southeastern.
In evaluating the materiality of a conflict, Southeastern will consider a number of factors, including:
|
whether Southeastern has been solicited by the person or entity creating the conflict; |
|
whether the size of Southeasterns business relationship with the source of the conflict is material in light of Southeasterns total business; |
|
whether Southeasterns voting power or voting decision is material from the perspective of the source of the conflict; |
|
other factors which indicate Southeasterns voting decision has not been impaired or tainted by the conflict. |
If Southeastern concludes that the conflict is not material, the conflict of interest report will state the basis for this determination, and Southeastern will vote in the manner it deems in its clients best interest.
Record Retention § As required by Advisers Act Rule 204-2(c)(2), Southeastern maintains with respect to its clients:
|
copies of its proxy policies and procedures; |
|
copies of proxy statements received regarding client securities (Southeastern will either keep a copy, rely on a copy obtained from the SECs EDGAR system, or will hire a third-party service provider to retain copies and provide them promptly upon request); |
|
a record of each vote cast on behalf of a client (Southeastern will either retain this record itself |
or hire a third-party service provider to make and retain such records and provide them promptly upon request);
|
copies of documents created by Southeastern that are material to a voting decision or that memorialize the basis for the decision (including conflict of interest reports); |
|
copies of each written client request for information on how Southeastern voted on behalf of a client, and a copy of Southeasterns written response to any written or oral client request for information on how Southeastern voted its proxy. |
Adopted August 1, 2003
Amended December 18, 2006
Amended December 4, 2007
Amended June 9, 2008
Amended December 17, 2010
Investment Counsel
Southeastern Asset Management, Inc.
6410 Poplar Avenue, Suite 900
Memphis, TN 38119
(901) 761-2474
southeasternasset.com
Transfer, Dividend, and Pricing Agent
BNY Mellon Asset Servicing (US), Inc.
4400 Computer Drive
Westborough, MA 01581
For Information about your account, call
(800) 445-9469
Principal Underwriter
ALPS Distributors, Inc.
Denver, CO
Custodian
State Street Bank & Trust Company,
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.
PART C. OTHER INFORMATION
Item 28. Exhibits
(a). | Articles of Incorporation. Registrant is a Massachusetts business trust. Re-Stated Declaration of Trust; incorporated by reference from Post-Effective Amendment No. 26, filed February 28, 2003; Amendment to Declaration of Trust: Designation of Fourth Series, incorporated by reference from Post-Effective Amendment No. 40, filed June 18, 2012. |
(b). | Re-Stated By-Laws; incorporated by reference from Post-Effective Amendment No. 28, filed February 28, 2005. |
(c). | Instruments Defining Rights of Security Holders. Stock Certificate; incorporated by reference from Post-Effective Amendment No. 23, filed August 1, 2000. |
(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. |
(2) | Longleaf Partners International Fund; incorporated by reference from Post-Effective Amendment No. 20, filed August 10, 1998, and Post-Effective Amendment No. 27, filed February 27, 2004. Addendum filed March 1, 2011. |
(3) | Investment Research and Client Services Agreement between Southeastern Asset Management, Inc. and Southeastern Asset Management International (UK) Ltd.; incorporated by reference from Post-Effective Amendment No. 31, filed February 29, 2008. |
(4) | Fund Management Agreement between Southeastern Asset Management, Inc and Southeastern Asset Management International (Singapore) Pte. Ltd.; incorporated by reference from Post-Effective Amendment No. 34, filed March 1, 2010. |
(5) | Longleaf Partners Global Fund, incorporated by reference from Post-Effective Amendment No. 41, filed December 27, 2012. |
(e). | Underwriting Contracts. Distribution Agreement between Longleaf Partners Funds Trust and ALPS Distributors, Inc.; Filed herewith. |
(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. |
(h). | Other Material Contracts. |
(1). | Fund Administration Agreement between Southeastern Asset Management, Inc. and Longleaf Partners Fund and Longleaf Partners Small-Cap Fund; incorporated by reference from Post-Effective Amendment No. 21, filed February 26, 1999. |
(2). | 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. |
(3). | Fund Administration Agreement between Southeastern Asset Management and Longleaf Partners Global Fund, incorporated by reference from Post-Effective Amendment No. 40, filed June 18, 2012. |
(4). | Transfer Agent Agreement with PFPC Inc.; incorporated by reference from Post-Effective Amendment No. 23, filed August 1, 2000. |
(5). | Form of Shareholder Servicing Agent Agreement with National Financial Services Corp; incorporated by reference from Post-Effective Amendment No. 21, filed February 26, 1999. |
(6). | Traditional IRA Disclosure Statement and Custodial Agreement; Roth IRA Disclosure Statement and Custodial Agreement. incorporated by reference from Post-Effective Amendment No. 30, filed April 27, 2007. |
(7). | Simple IRA Disclosure Statement and Account Agreement; incorporated by reference from Post-Effective Amendment No. 30, filed April 27, 2007. |
(8). | Accounting Services Agreement between Southeastern Asset Management, Inc. and PFPC Inc.; incorporated by reference from Post-Effective Amendment No. 31, filed February 29, 2008. |
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(i). | Legal Opinion; filed herewith. |
(j). | Other Opinions or Consents. Consent of PricewaterhouseCoopers, filed herewith. |
(k). | Omitted Financial Statements. None. |
(1). | Initial Capital Agreements. None. |
(m). | Rule 12b-1 Plan. None. |
(n). | Rule 18f-3 Plan. Not applicable; none. |
(o). | Reserved |
(p). | Code of Ethics; incorporated by reference from Post-Effective Amendment No. 45, filed February 28, 2014. |
(r). | Power of Attorney dated as of March 3, 2014; filed herewith. |
Item 29 Persons Under Common Control With Registrant
Longleaf Partners Funds Trust, a Massachusetts business trust registered under the Investment Company Act of 1940 as an open-end management investment company, now has four series Longleaf Partners Fund, Longleaf Partners Small-Cap Fund, Longleaf Partners Global Fund, and Longleaf Partners International Fund, all of which are non-diversified open-end management investment companies. Each series has a separate Board of Trustees composed of the same individuals. Six of the eight 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 and a Fund Administration Agreement with Southeastern Asset Management, Inc., 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 30 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 proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) by reason of the fact that he is or was a Trustee, officer, employee, or agent of the Trust. The indemnification shall be against expenses, including attorneys fees, judgements, fines, and amounts paid in settlement, actually and reasonably incurred by him in connection with the action, suit, or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo 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 liable for negligence or misconduct in the performance of his duty to the Trust, except to the extent that the court in which the action or suit was brought, or a court of equity in the county in which the Trust has its principal office, determines upon application that, despite the adjudication of liability but in view of all circumstances of the case, the person is fairly and reasonably entitled to indemnity for these expenses which the court shall deem proper, provided such Trustee, officer, employee or agent is not adjudged to be liable by reason of his willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
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(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 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 be deemed exclusive of any other rights to which a person may be entitled under any by-law, agreement, vote of Shareholders or disinterested trustees or otherwise, both as to action in his official capacity and as to action in another capacity while holding the office, and shall continue as to a person who has ceased to be a Trustee, officer, employee, or agent and inure to the benefit of the heirs, executors and administrators of such person; provided that no person may satisfy any right of indemnity or reimbursement granted herein or to which he may be otherwise entitled except out of the property of the Trust, and no Shareholder shall be personally liable with respect to any claim for indemnity or reimbursement or otherwise.
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(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 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.
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Item 31 Business and Other Connections of Investment Counsel
Southeastern Asset Management, Inc., a corporation organized under the laws of the State of Tennessee, offers investment advisory services to corporations, endowment funds, retirement and pension plans and individual investors.
The following individuals are Trustees of the Registrant who are employed by Southeastern Asset Management, Inc.:
Name of Company, | ||
Name and position | Principal Business | |
With Registrant |
and Address |
|
O. Mason Hawkins, CFA | 1975-Present; | |
Trustee and Co-Portfolio | Southeastern Asset Management, Inc.; | |
Manager of Partners, Small-Cap, Global and International Funds | Chairman of the Board and CEO |
The following individuals are officers of Southeastern Asset Management Inc. who have responsibilities for investment company operations:
Name of Company, | ||
Capacity with | Principal Business | |
Investment Counsel |
and Address |
|
G. Staley Cates | 1994 Present; | |
Co-Portfolio Manager of Partners, Small-Cap, Global and International Funds, President and CIO |
Vice President (1985-94) Southeastern Asset Management, Inc. |
|
T. Scott Cobb | 2006 Present | |
Co-Portfolio Manager | Southeastern Asset Management, Inc. | |
of International Fund | 2007 Present | |
Senior Analyst and Principal | Southeastern Asset Management International (UK) Ltd. | |
Ken I. Siazon | 2006 Present | |
Co-Portfolio Manager | Southeastern Asset Management, Inc. | |
of International Fund | 2009 Present | |
Senior Analyst and Principal | Southeastern Asset Management International (Singapore) Pte. Ltd. | |
Ross Glotzbach | 2004 Present | |
Co-Portfolio Manager | Southeastern Asset Management, Inc. | |
of Small-Cap Fund | ||
Deputy Director of Research | ||
Peter Kris | 2012 Present; | |
Head of Global Funds Business | Southeastern Asset Management, Inc. | |
Julie M. Bishop, CPA Mutual Fund Chief Financial Officer and Principal |
1989 Present; Southeastern Asset Management, Inc. |
|
Lee B. Harper Head of Client Portfolio Management and Principal |
1993 Present Southeastern Asset Management, Inc. |
|
Deborah L. Craddock | 1987 Present; | |
Head of Trading and Principal | Southeastern Asset Management, Inc. | |
Andrew R. McCarroll, | 2003 Present; Vice President and Assistant | |
General Counsel and Principal | General Counsel (1998-2002); | |
Southeastern Asset Management, Inc. | ||
Michael J. Wittke Chief Compliance Officer |
2005 Present; Associate Legal Counsel (2002-2004); Southeastern Asset Management, Inc. 1996-2002, PricewaterhouseCoopers, LLP |
|
Richard Hussey | 2006 Present; Chief Information Officer (1999-2006) | |
Chief Operating Officer and Principal | Southeastern Asset Management, Inc. |
The address of Southeastern Asset Management, Inc. is 6410 Poplar Avenue Suite 900; Memphis, TN 38119.
The address of Southeastern Asset Management International (UK) Ltd. is 3 rd Floor, 7 Savile Row, London, UK, W1S 3PE.
The address of Southeastern Asset Management International (Singapore) Pte. Ltd. is 501 Orchard Road #05-10, Wheelock Place, Singapore.
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Item 32 Principal Underwriters
(a) |
ALPS Distributors, Inc. located at 1290 Broadway, Suite 1100, Denver, CO 80203. Southeastern pays ALPS fees. |
(b) | Not Applicable. |
(c) | Not Applicable. |
ITEM 33 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 Registrants Fund Administrator, Southeastern Asset Management, Inc., Suite 900, 6410 Poplar Avenue; Memphis, TN 38119. Transfer Agent records are maintained in the possession of BNY Mellon Asset Servicing (U.S.) Inc., 4400 Computer Drive, Westborough, MA 01581.
ITEM 34 Management Services
Not applicable. (See section in the Prospectus entitled Fund Administrator).
ITEM 35 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.
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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) now having four series or portfolios, Longleaf Partners Fund, Longleaf Partners Small-Cap Fund, Longleaf Partners International Fund, and Longleaf Partners Global Fund, certifies that it has met all the requirements for effectiveness pursuant to Rule 485 (b) under the Securities Act of 1933 and that it has duly caused this Post-Effective Amendment No. 46 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis and State of Tennessee, on the 30th day of April, 2014.
LONGLEAF PARTNERS FUNDS TRUST (THE MASTER TRUST)
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS SMALL-CAP FUND
LONGLEAF PARTNERS INTERNATIONAL FUND
LONGLEAF PARTNERS GLOBAL FUND
By |
/s/ O. Mason Hawkins |
|
O. Mason Hawkins Chairman and Chief Executive Officer Southeastern Asset Management, Inc. Functioning as principal executive officer under agreements with Longleaf Partners Funds Trust and its separate series |
By |
/s/ Julie M. Bishop |
|
Julie M. Bishop Mutual Fund Chief Financial Officer & Principal Southeastern Asset Management, Inc. Functioning as principal financial and accounting officer under agreements with Longleaf Partners Funds Trust and its separate series |
By |
/s/ Andrew R. McCarroll |
|
Andrew R. McCarroll General Counsel & Principal Southeastern Asset Management, Inc. Functioning as principal legal officer under agreements with Longleaf Partners Funds Trust and its separate series |
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SIGNATURES (Continued)*
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 46 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:
Signature |
Title |
Date |
||
INTERESTED TRUSTEES | ||||
/s/ O. Mason Hawkins** O. Mason Hawkins |
Trustee |
April 30, 2014 |
||
/s/ Margaret H. Child** Margaret H. Child |
Trustee |
April 30, 2014 |
||
NON-INTERESTED TRUSTEES | ||||
/s/ Chadwick H. Carpenter, Jr.** Chadwick H. Carpenter, Jr. |
Trustee |
April 30, 2014 |
||
/s/ Daniel W. Connell, Jr.** Daniel W. Connell, Jr. |
Trustee |
April 30, 2014 |
||
/s/ Rex M. Deloach** Rex M. Deloach |
Trustee |
April 30, 2014 |
||
/s/ Steven N. Melnyk** Steven N. Melnyk |
Trustee |
April 30, 2014 |
||
/s/ C. Barham Ray** C. Barham Ray |
Trustee |
April 30, 2014 |
||
/s/ Perry C. Steger** Perry C. Steger |
Chairman of the Board |
April 30, 2014 |
By: |
/s/ Andrew R. McCarroll |
|
Andrew R. McCarroll Attorney-in-Fact April 30, 2014 |
(*) | As of the date of execution of this Post-Effective Amendment No. 46, the Board of Trustees of each Series consists of eight individuals, as shown above. Each Trustee is a Trustee of each Series, and each is signing this Post-Effective Amendment on behalf of each such Series. |
(**) | Executed by Andrew R. McCarroll pursuant to a Power of Attorney dated as of March 3, 2014. |
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.
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Exhibit (e)
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of May 1, 2014, between Longleaf Partners Funds Trust, a Massachusetts business trust (the Fund), and ALPS Distributors, Inc., a Colorado corporation (ALPS).
WHEREAS, the Fund is an open-end investment company registered under the Investment Company Act of 1940, as amended, presently consisting of the portfolios and share classes listed in Appendix A ;
WHEREAS, ALPS is registered as a broker-dealer under the Securities Exchange Act of 1934 (the 1934 Act) and a member of the Financial Industry Regulatory Authority (FINRA); and
WHEREAS, the Fund, at its investment advisers expense, wishes to employ the services of ALPS in connection with the promotion and distribution of the shares of the Fund (the Shares).
NOW, THEREFORE, in consideration of the mutual promises and undertakings herein contained, the parties agree as follows.
1. | ALPS Appointment and Duties. |
(a) | The Fund hereby appoints ALPS to provide the distribution services set forth in this Agreement on Appendix B , as amended from time to time, upon the terms and conditions hereinafter set forth. ALPS hereby accepts such appointment and agrees to furnish such specified services. ALPS shall for all purposes be deemed to be an independent contractor and shall, except as otherwise expressly authorized in this Agreement, have no authority to act for or represent the Fund in any way or otherwise be deemed an agent of the Fund. |
(b) | ALPS may employ or associate itself with a person or persons or organizations as ALPS believes to be desirable in the performance of its duties hereunder; provided that, in such event, the compensation of such person or persons or organizations shall be paid by and be the sole responsibility of ALPS, and the Fund shall bear no cost or obligation with respect thereto; and provided further that ALPS shall not be relieved of any of its obligations under this Agreement in such event and shall be responsible for all acts of any such person or persons or organizations taken in furtherance of this Agreement to the same extent it would be for its own acts. |
2. | ALPS Compensation; Expenses . |
ALPS will bear all expenses in connection with the performance of its services under this Agreement, except as otherwise provided herein. ALPS will not bear any of the costs of Fund personnel. Other Fund expenses incurred shall be borne by the Fund or the Funds investment adviser, including, but not limited to, initial organization and offering
expenses; the blue sky registration and qualification of Shares for sale in the various states in which the officers of the Fund shall determine it advisable to qualify such Shares for sale (including registering the Fund as a broker or dealer or any officer of the Fund as agent or salesman in any state); litigation expenses; taxes; costs of preferred shares; expenses of conducting repurchase offers for the purpose of repurchasing Fund shares; administration, transfer agency, and custodial expenses; interest; Fund trustees fees; brokerage fees and commissions; state and federal registration fees; advisory fees; insurance premiums; fidelity bond premiums; Fund and investment advisory related legal expenses; costs of maintenance of Fund existence; printing and delivery of materials in connection with meetings of the Funds trustees; printing and mailing of shareholder reports, prospectuses, statements of additional information, other offering documents and supplements, proxy materials, and other communications to shareholders; securities pricing data and expenses in connection with electronic filings with the U.S. Securities and Exchange Commission (the SEC).
3. | Documents . The Fund has furnished or will furnish, upon request, ALPS with copies of the Funds Declaration of Trust, advisory agreement, custodian agreement, transfer agency agreement, administration agreement, current prospectus, statement of additional information, periodic Fund reports, and all forms relating to any plan, program or service offered by the Fund. The Fund shall furnish, within a reasonable time period, to ALPS a copy of any amendment or supplement to any of the above-mentioned documents. Upon request, the Fund shall furnish promptly to ALPS any additional documents necessary or advisable to perform its functions hereunder. As used in this Agreement the terms registration statement, prospectus and statement of additional information shall mean any registration statement, prospectus and statement of additional information filed by the Fund with the SEC and any amendments and supplements thereto that are filed with the SEC. |
4. | Sales of Shares . |
(a) | The Fund grants to ALPS the right to sell the Shares as agent on behalf of the Fund, during the term of this Agreement, subject to the registration requirements of the Securities Act of 1933, as amended (the 1933 Act), the Investment Company Act of 1940, as amended (the 1940 Act), and of the laws governing the sale of securities in the various states (Blue Sky Laws), under the terms and conditions set forth in this Agreement. ALPS shall have the right to sell, as agent on behalf of the Fund, the Shares covered by the registration statement, prospectus and statement of additional information for the Fund then in effect under the 1933 Act and 1940 Act. |
(b) | The rights granted to ALPS shall be exclusive, except that the Fund reserves the right to sell Shares (i) directly to investors on applications received and accepted by the Fund or (ii) through financial intermediaries that have entered into an agreement with the Fund. |
(c) |
Except as otherwise noted in the Funds current prospectus and/or statement of additional information, all Shares sold to investors by ALPS or the Fund will be sold |
2
at the public offering price. The public offering price for all accepted subscriptions will be the net asset value per Share, as determined in the manner described in the Funds current prospectus and/or statement of additional information. |
(d) | The Fund shall receive the net asset value per Share on all sales. If a fee in connection with shareholder redemptions is in effect, such fee will be paid to the Fund. The net asset value of the Shares will be calculated by the Fund or by another entity on behalf of the Fund. ALPS has no duty to inquire into, or liability for, the accuracy of the net asset value per Share as calculated. |
(e) | The Fund reserves the right to suspend sales and ALPS authority to process orders for Shares on behalf of the Fund if, in the judgment of the Fund, it is in the best interests of the Fund to do so. Suspension will continue for such period as may be determined by the Fund. |
(f) | In consideration of these rights granted to ALPS, ALPS agrees to use its best efforts to solicit orders for the sale of the Shares at the public offering price and will undertake such advertising and promotion as it believes is reasonable in connection with such solicitation. ALPS shall review and file such materials with the SEC and/or FINRA to the extent required by the 1934 Act and the 1940 Act and the rules and regulations thereunder, and by the rules of FINRA. This shall not prevent ALPS from entering into like arrangements (including arrangements involving the payment of underwriting commissions) with other issuers. ALPS will act only on its own behalf as principal should it choose to enter into selling agreements with selected dealers or others. |
(g) | ALPS is not authorized by the Fund to give any information or to make any representations other than those contained in the registration statement or prospectus and statement of additional information, or contained in shareholder reports or other material that may be prepared by or on behalf of the Fund for ALPS use. Consistent with the foregoing, ALPS may prepare and distribute sales literature or other material as it may deem appropriate in consultation with the Fund, provided such sales literature complies with applicable law and regulations. |
(h) | The Fund agrees that it will take all action necessary to register the Shares under the 1933 Act and the 1940 Act (subject to the necessary approval of its shareholders). The Fund shall make available to ALPS such number of copies of its prospectus, statement of additional information, and periodic reports as ALPS may reasonably request. The Fund shall furnish to ALPS copies of all information, financial statements and other papers, which ALPS may reasonably request for use in connection with the distribution of Shares of the Fund. |
(i) | The Fund agrees to execute any and all documents and to furnish any and all information and otherwise to take all actions that may be reasonably necessary in connection with the qualification of the Shares for sale in such states as ALPS may designate. The Fund must notify ALPS in writing of the states in which the Shares may be sold and must notify ALPS in writing of any changes to the information contained in the previous notification. |
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(j) | The Fund shall not use the name of ALPS, or any of its affiliates, in any prospectus or statement of additional information, sales literature, and other material relating to the Fund in any manner without the prior written consent of ALPS (which shall not be unreasonably withheld); provided, however, that ALPS hereby approves all lawful uses of the names of ALPS and its affiliates in the prospectus and statement of additional information of the Fund and in all other materials which merely refer in accurate terms to its appointment hereunder or which are required by the SEC, FINRA, OCC or any state securities authority. |
(k) | Neither ALPS nor any of its affiliates shall use the name of the Fund in any publicly disseminated materials, including sales literature, in any manner without the prior consent of the Fund (which shall not be unreasonably withheld); provided, however, that the Fund hereby approves all lawful uses of its name in any required regulatory filings of ALPS which merely refer in accurate terms to the appointment of ALPS hereunder, or which are required by the SEC, FINRA, OCC or any state securities authority. |
(l) | ALPS will promptly transmit any orders received by it for purchase, redemption, or exchange of the Shares to the Funds transfer agent. |
(m) | The Fund agrees to issue Shares of the Fund and to request The Depository Trust Company to record on its books the ownership of such Shares in accordance with the book-entry system procedures described in the prospectus in such amounts as ALPS has requested through the transfer agent in writing or other means of data transmission, as promptly as practicable after receipt by the Fund of the requisite deposit securities and cash component (together with any fees) and acceptance of such order, upon the terms described in the Registration Statement. |
(n) | The Fund agrees that it will take all action necessary to register an indefinite number of Shares under the 1933 Act. The Fund shall make available to ALPS, at ALPS expense, such number of copies of its prospectus, statement of additional information, and periodic reports as ALPS may reasonably request. The Fund will furnish to ALPS copies of all information, financial statements and other papers, which ALPS may reasonably request. |
(o) | The Fund agrees to execute any and all documents and to furnish any and all information and otherwise to take all actions that may be reasonably necessary in connection with the qualification of the Shares for sale in such states as ALPS may designate. The Fund will keep ALPS informed of the jurisdictions in which Shares of the Fund are authorized for sale and shall promptly notify ALPS of any change in this information. |
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5. | Insurance . ALPS agrees to maintain fidelity bond and liability insurance coverages which are, in scope and amount, consistent with coverages customary for distribution activities relating to the Fund. ALPS shall notify the Fund upon receipt of any notice of material, adverse change in the terms or provisions of its insurance coverage. Such notification shall include the date of change and the reason or reasons therefor. ALPS shall notify the Fund of any material claims against it, whether or not covered by insurance, and shall notify the Fund from time to time as may be appropriate of the total outstanding claims made by it under its insurance coverage. |
6. | Right to Receive Advice . |
(a) | Advice of the Fund and Service Providers . If ALPS is in doubt as to any action it should or should not take, ALPS may request directions, advice, or instructions from the Fund or, as applicable, the Funds investment adviser, custodian, or other service providers. |
(b) | Advice of Counsel . If ALPS is in doubt as to any question of law pertaining to any action it should or should not take, ALPS may request advice from counsel of its own choosing (who may be counsel for the Fund, the Funds investment adviser, or ALPS, at the option of ALPS). |
(c) | Conflicting Advice . In the event of a conflict between directions, advice or instructions ALPS receives from the Fund or any service provider and the advice ALPS receives from counsel, ALPS may in its sole discretion rely upon and follow the advice of counsel. ALPS will provide the Fund with prior written notice of its intent to follow advice of counsel that is materially inconsistent with directions, advice or instructions from the Fund. Upon request, ALPS will provide the Fund with a copy of such advice of counsel. |
7. | Standard of Care; Limitation of Liability; Indemnification . |
(a) | ALPS shall be obligated to act in good faith and to exercise commercially reasonable care and diligence in the performance of its duties under this Agreement. |
(b) | In the absence of willful misfeasance, bad faith, negligence, or reckless disregard by ALPS in the performance of its duties, obligations, or responsibilities set forth in this Agreement, ALPS and its affiliates, including their respective officers, directors, agents, and employees, shall not be liable for, and the Fund agrees to indemnify, defend and hold harmless such persons from, all taxes, charges, expenses, assessments, claims, and liabilities (including, without limitation, attorneys fees and disbursements and liabilities arising under applicable federal and state laws) arising directly or indirectly from the following: |
(i) | the inaccuracy of factual information furnished to ALPS by the Fund or the Funds investment adviser, custodians, or other service providers; |
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(ii) | any untrue statement of a material fact or omission of a material fact required to be stated or necessary in order to make the statements not misleading under the 1933 Act, the 1940 Act, or any other statute or the common law, in any registration statement, prospectus, statement of additional information, shareholder report, or other information filed or made public by the Fund (as amended from time to time), except to the extent the statement or omission was made in reliance upon, and in conformity with, information furnished to the Fund by or on behalf of ALPS; |
(iii) | any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates; |
(iv) | losses, delays, failure, errors, interruption or loss of data occurring directly or indirectly by reason of circumstances beyond its reasonable control, including without limitation, acts of God, action or inaction of civil or military authority, war, terrorism, riot, fire, flood, sabotage, labor disputes, elements of nature, or non-performance by a third party; |
(v) | ALPS reliance on any instruction, direction, notice, instrument or other information that ALPS reasonably believes to be genuine; |
(vi) | loss of data or service interruptions caused by equipment failure; or |
(vii) | any other action or omission to act which ALPS takes in connection with the provision of services to the Fund. |
(c) | ALPS shall indemnify and hold harmless the Fund, the Funds investment adviser and their respective officers, directors, agents, and employees from and against any and all taxes, charges, expenses, assessments, claims, and liabilities (including, without limitation, attorneys fees and disbursements and liabilities arising under applicable federal and state laws) arising directly or indirectly from ALPS willful misfeasance, bad faith, negligence, or reckless disregard in the performance of its duties, obligations, or responsibilities set forth in this Agreement. |
(d) | Notwithstanding anything in this Agreement to the contrary, neither party shall be liable under this Agreement to the other party hereto for any punitive, consequential, special or indirect losses or damages. Any indemnification payable by a party to this Agreement shall be net of insurance maintained by the indemnified party as of the time the claim giving rise to indemnity hereunder is alleged to have arisen to the extent it covers such claim. |
8. | Activities of ALPS . The services of ALPS under this Agreement are not to be deemed exclusive, and ALPS shall be free to render similar services to others. The Fund recognizes that from time to time directors, officers and employees of ALPS may serve as directors, officers and employees of other corporations or businesses (including other investment companies) and that such other corporations and businesses may include ALPS as part of their name and that ALPS or its affiliates may enter into distribution agreements or other agreements with such other corporations and businesses. |
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9. | Accounts and Records . The accounts and records maintained by ALPS shall be the property of the Fund. ALPS shall prepare, maintain and preserve such accounts and records as required by the 1940 Act and other applicable securities laws, rules and regulations. ALPS shall surrender such accounts and records to the Fund , in the form in which such accounts and records have been maintained or preserved , promptly upon receipt of instructions from the Fund. The Fund shall have access to such accounts and records at all times during ALPS normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by ALPS to the Fund at the Funds expense. ALPS shall assist the Fund, the Funds independent auditors, or, upon approval of the Fund, any regulatory body, in any requested review of the Funds accounts and records, and reports by ALPS or its independent accountants concerning its accounting system and internal auditing controls will be open to such entities for audit or inspection upon reasonable request. ALPS or its undersigned as defined by Rule 17a-4 of the Securities and Exchange Act (the Exchange Act), shall have access to all electronic communications, including password access to the system storing the electronic communications, of registered representatives of ALPS that are associated with the Fund and are required to be maintained under Rule 17a-4 of the Exchange Act and FINRA Rules 3110 and 3010. Electronic storage media maintained by the Fund will comply with Rule 17a-4 of the Exchange Act. |
10. | Confidential and Proprietary Information . ALPS agrees that it will, on behalf of itself and its officers and employees, treat all transactions contemplated by this Agreement, and all records and information relative to the Fund and its current and former shareholders and other information germane thereto, as confidential and as proprietary information of the Fund and not to use, sell, transfer, or divulge such information or records to any person for any purpose other than performance of its duties hereunder, except after prior notification to and approval in writing from the Fund, which approval shall not be unreasonably withheld. Approval may not be withheld where ALPS may be exposed to civil, regulatory, or criminal proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when requested by the Fund. When requested to divulge such information by duly constituted authorities, ALPS shall use reasonable commercial efforts to request confidential treatment of such information. ALPS shall have in place and maintain physical, electronic, and procedural safeguards reasonably designed to protect the security, confidentiality, and integrity of, and to prevent unauthorized access to or use of records and information relating to the Fund and its current and former shareholders. |
11. |
Compliance with Rules and Regulations . ALPS shall comply (and to the extent ALPS takes or is required to take action on behalf of the Fund hereunder shall cause the Fund to comply) with all applicable requirements of the 1940 Act and other applicable laws, rules, regulations, orders and code of ethics, as well as all investment restrictions, policies and procedures adopted by the Fund of which ALPS has knowledge (it being understood that ALPS is deemed to have knowledge of all investment restrictions, policies or procedures set out in the Funds public filings or otherwise provided to ALPS). Except as set out in |
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this Agreement, ALPS assumes no responsibility for such compliance by the Fund. ALPS shall maintain at all times a program reasonably designed to prevent violations of the federal securities laws (as defined in Rule 38a-1 under the 1940 Act) with respect to the services provided, and shall provide to the Fund a certification to such effect no less than annually or as otherwise reasonably requested by the Fund. ALPS shall make available its compliance personnel and shall provide at its own expense summaries and other relevant materials relating to such program as reasonably requested by the Fund. |
12. | Representations and Warranties of ALPS . ALPS represents and warrants to the Fund that: |
(a) | It is duly organized and existing as a corporation and in good standing under the laws of the State of Colorado. |
(b) | It is empowered under applicable laws and by its Articles of Incorporation and By-laws to enter into and perform this Agreement. |
(c) | All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. |
(d) | It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement in accordance with industry standards. |
(e) | ALPS has conducted a review of its supervisory controls system and has made available to the Fund the most current report of such review and any updates thereto. Every time ALPS conducts a review of its supervisory control system it will make available to the Fund for inspection a report of such review and any updates thereto. ALPS shall immediately notify the Fund of any changes in how it conducts its business that would materially change the results of its most recent review of its supervisory controls system and any other changes to ALPS business that would affect the business of the Fund or the Funds investment adviser. |
13. | Representations and Warranties of the Fund. The Fund represents and warrants to ALPS that: |
(a) | It is a trust duly organized and existing and in good standing under the laws of the state of Massachusetts and is registered with the SEC as an open-end management investment company. |
(b) | It is empowered under applicable laws and by its Declaration of Trust and By-laws to enter into and perform this Agreement. |
(c) | The Board of Trustees of the Fund has duly authorized it to enter into and perform this Agreement. |
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(d) | Notwithstanding anything in this Agreement to the contrary, the Fund agrees not to make any modifications to its registration statement or adopt any policies which would affect materially the obligations or responsibilities of ALPS hereunder without the prior written approval or ALPS, which approval shall not be unreasonably withheld or delayed. |
14. | Consultation Between the Parties . ALPS and the Fund shall regularly consult with each other regarding ALPS performance of its obligations under this Agreement. In connection therewith, the Fund shall submit to ALPS at a reasonable time in advance of filing with the SEC reasonably final copies of any amended or supplemented registration statement (including exhibits) under the 1933 Act and the 1940 Act; provided, however, that nothing contained in this Agreement shall in any way limit the Funds right to file at any time such amendments to any registration statement and/or supplements to any prospectus or statement of additional information, of whatever character, as the Fund may deem advisable, such right being in all respects absolute and unconditional. |
15. | Anti-Money Laundering . With respect to those accounts held through financial intermediaries that have entered into an agreement with ALPS purchases and sales of Fund shares, ALPS agrees to maintain an anti-money laundering program in compliance with Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the USA Patriot Act) and all applicable laws and regulations promulgated thereunder. ALPS confirms that, as soon as possible, following the request from the Fund, ALPS will supply the Fund with copies of ALPS anti-money laundering policy and procedures, and such other relevant certifications and representations regarding such policy and procedures as the Fund may reasonably request from time to time. ALPS will provide, to the Fund, any Financial Crimes Enforcement Network (FinCEN) request received pursuant to USA Patriot Act Section 314(a), which the Fund may then provide to its transfer agent. |
16. | Business Interruption Plan . ALPS shall maintain in effect a business interruption plan, and enter into any agreements necessary with appropriate parties making reasonable provisions for emergency use of electronic data processing equipment customary in the industry. In the event of equipment failures, ALPS shall, at no additional expense to the Fund, take commercially reasonable steps to minimize service interruptions. |
17. | Duration and Termination of this Agreement . |
(a) | Initial Term . This Agreement shall become effective as of the date first written above (the Start Date) and shall continue thereafter throughout the period that ends two (2) years after the Start Date (the Initial Term). |
(b) |
Renewal Term . If not sooner terminated, this Agreement shall renew at the end of the Initial Term and shall thereafter continue for successive annual periods, provided such continuance is specifically approved at least annually (i) by the Funds Board of Trustees or (ii) by a vote of a majority of the outstanding voting securities of the relevant portfolio of the Fund, provided that in either event the continuance is also approved by the majority of the Trustees of the Fund who are not interested persons |
9
(as defined in the 1940 Act) of any party to this Agreement by vote cast in person at a meeting called for the purpose of voting on such approval. If a plan under Rule 12b-1 of the 1940 Act is in effect, continuance of the plan and this Agreement must be approved at least annually by a majority of the Trustees of the Fund who are not interested persons (as defined in the 1940 Act) and have no financial interest in the operation of such plan or in any agreements related to such plan, cast in person at a meeting called for the purpose of voting on such approval. |
(c) | This Agreement is terminable without penalty on sixty (60) days written notice by the Funds Board of Trustees, by vote of the holders of a majority of the outstanding voting securities of the relevant portfolio of the Fund, or by ALPS. |
(d) | Deliveries Upon Termination . Upon termination of this Agreement, ALPS agrees to cooperate in the orderly transfer of distribution duties and shall deliver to the Fund or as otherwise directed by the Fund (at the expense of the Fund) all records and other documents made or accumulated in the performance of its duties for the Fund hereunder. In the event ALPS gives notice of termination under this Agreement, it will continue to provide the services contemplated hereunder after such termination at the contractual rate for up to 120 days, provided that the Fund uses all reasonable commercial efforts to appoint such replacement on a timely basis. |
18. | Assignment . This Agreement will automatically terminate in the event of its assignment (as defined in the 1940 Act). This Agreement shall not be assignable by the Fund without the prior written consent of ALPS. |
19. | Governing Law . The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Colorado and the 1940 Act and the rules thereunder. To the extent that the laws of the State of Colorado conflict with the 1940 Act or such rules, the latter shall control. |
20. | Names . The obligations of the Fund entered into in the name or on behalf thereof by any director, shareholder, representative, or agent thereof are made not individually, but in such capacities, and are not binding upon any of the directors, shareholders, representatives or agents of the Fund personally, but bind only the property of the Fund, and all persons dealing with the Fund must look solely to the property of the Fund for the enforcement of any claims against the Fund. |
21. | Amendments to this Agreement . This Agreement, including any Appendices hereto, may only be amended by the parties in writing. |
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22. | Notices . All notices and other communications hereunder shall be in writing, shall be deemed to have been given when received or when sent by telex or facsimile, and shall be given to the following addresses (or such other addresses as to which notice is given): |
To ALPS:
ALPS Distributors, Inc.
1290 Broadway, Suite 1100
Denver, Colorado 80203
Attn: General Counsel
Fax: (303) 623-7850
To the Fund:
Longleaf Partners Funds
c/o Southeastern Asset Management, Inc.
6410 Poplar Avenue, Suite 900
Memphis, TN 38119
Attn: General Counsel
Fax: (901) 260-0885
24. | Counterparts . This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. |
25. | Entire Agreement . This Agreement embodies the entire agreement and understanding among the parties and supersedes all prior agreements and understandings relating to the subject matter hereof; provided, however, that ALPS may embody in one or more separate documents its agreement, if any, with respect to delegated duties and oral instructions. |
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
LONGLEAF PARTNERS FUNDS TRUST | ||
By: |
/s/ Margaret H. Child |
|
Name: | Margaret H. Child | |
Title: | Trustee | |
ALPS DISTRIBUTORS, INC. | ||
By: |
/s/ Jeremy O. May |
|
Name: | Jeremy O. May | |
Title: | President |
APPENDIX A
LIST OF PORTFOLIOS AND SHARE CLASSES
Longleaf Partners Fund (initial share class)
Longleaf Partners Small-Cap Fund (initial share class)
Longleaf Partners International Fund (initial share class)
Longleaf Partners Global Fund (initial share class)
APPENDIX B
SERVICES
|
Act as legal underwriter/distributor |
|
Maintain & supervise FINRA registrations for licensed individuals |
|
Prepare, update, execute & maintain selling agreements (when ALPS is a party to the intermediary agreement) |
|
Provide investment company advertising & sales literature review/approval |
|
Administer intermediary due diligence program (when ALPS is a party to the intermediary agreement) |
Exhibit (i).
LONGLEAF PARTNERS FUNDS TRUST
c/o Southeastern Asset Management, Inc.
6410 Poplar Avenue; Suite 900
Memphis, TN 38119
April 30, 2014
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 International Fund (Third Series)
Longleaf Partners Global Fund (Fourth Series)
Ladies and Gentlemen:
This letter is written with respect to Post-Effective Amendment No. 46 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 International Fund, and Longleaf Partners Global Fund, each a separate Series of the Trust.
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, except as described in the following paragraph, non-assessable when issued.
The Trust is an entity of the type commonly known as a Massachusetts business trust. Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in every note, bond, contract, instrument, certificate or undertaking made or issued on behalf of the Trust. The Declaration of Trust provides for indemnification out of the property of the particular series of shares for all loss and expense of any shareholder or former shareholder of such series (or his or her heirs, executors, administrators or other legal representatives, or, in the case of a corporation or other entity, its corporate or other general successor) held personally liable solely by reason of his or her being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the series itself would be unable to meet its obligations.
I hereby consent to the filing of this opinion as an exhibit to the said Post Effective Amendment No. 46 to the Registration Statement and the reference to my name in Part B of the Registration Statement under the heading Other Service Providers; Legal Counsel.
Very truly yours,
/s/ Andrew R. McCarroll |
Andrew R. McCarroll |
General Counsel |
Southeastern Asset Management, Inc. |
functioning as principal legal officer under |
agreements with Longleaf Partners Funds Trust |
and its separate Series |
Exhibit (j)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form N-1A of our report dated February 10, 2014, relating to the financial statements and financial highlights of Longleaf Partners Fund, Longleaf Partners Small-Cap Fund, Longleaf Partners International Fund, and Longleaf Partners Global Fund (comprising Longleaf Partners Funds Trust), which appear in such Registration Statement. We also consent to the references to us under the headings Financial Statements, Independent Registered Public Accounting Firm and Financial Highlights in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
April 30, 2014
Exhibit (r)
POWER OF ATTORNEY
I, the undersigned Trustee of Longleaf Partners Funds Trust, hereby severally constitute and appoint each of Andrew R. McCarroll, Michael J. Wittke and Julie M. Bishop, and each of them singly, with full powers of substitution and resubstitution, my true and lawful attorney, with full power to such attorney to sign for me, and in my name and in the capacity indicated below, any and all amendments (including post-effective amendments) to the Registration Statement of Longleaf Partners Funds Trust on Form N-1A, the substance of which has been approved by the Trustees of Longleaf Partners Funds Trust, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney full power and authority to do and perform each and every act and thing requisite or necessary to be done in the premises, as fully to all intents and purposes as I might or could do in person, and hereby ratify and confirm all that said attorney lawfully could do or cause to be done by virtue hereof.
/s/ O. Mason Hawkins |
March 3, 2014 |
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O. Mason Hawkins, Trustee | Date | |||
/s/ Margaret H. Child |
March 3, 2014 |
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Margaret H. Child, Trustee | Date | |||
/s/ Chad Carpenter |
March 3, 2014 |
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Chad Carpenter, Trustee | Date | |||
/s/ Daniel W. Connell, Jr. |
March 3, 2014 |
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Daniel W. Connell, Jr., Trustee | Date | |||
/s/ Rex M. Deloach |
March 3, 2014 |
|||
Rex M. Deloach, Trustee | Date | |||
/s/ Steven N. Melnyk |
March 3, 2014 |
|||
Steven N. Melnyk, Trustee | Date | |||
/s/ C. Barham Ray |
March 3, 2014 |
|||
C. Barham Ray, Trustee | Date | |||
/s/ Perry C. Steger |
March 3, 2014 |
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Perry C. Steger, Trustee | Date |