<PAGE> 1
LONGLEAF PARTNERS SMALL-CAP FUND
April 2, 1996
TO OUR SHAREHOLDERS:
We are pleased to report that Longleaf Partners Small-Cap Fund began the year on
a strong note. Your Fund's net asset value increased 8.3% for the three months
ended March 31, 1996. This result compares favorably to gains of 5.6% and 4.2%
for the Wilshire 5000 Index and the Value-Line (geometric) Index, respectively.
The data below summarizes Small-Cap's recent average annual and cumulative
returns for the periods ended March 31, 1996:
AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LONGLEAF PARTNERS
SMALL-CAP FUND VALUE-LINE INDEX WILSHIRE 5000 INDEX
----------------- ---------------- -------------------
<S> <C> <C> <C>
LAST FIVE YEARS 12.55% 7.75% 15.01%
LAST FOUR YEARS 13.04% 7.61% 15.34%
LAST THREE YEARS 14.33% 7.20% 15.41%
LAST TWO YEARS 14.58% 10.05% 22.31%
LAST YEAR 24.38% 18.13% 32.18%
</TABLE>
CUMULATIVE TOTAL RETURNS*
<TABLE>
<CAPTION>
LONGLEAF PARTNERS
SMALL-CAP FUND VALUE-LINE INDEX WILSHIRE 5000 INDEX
----------------- ---------------- -------------------
<S> <C> <C> <C>
LAST FIVE YEARS 80.61% 45.22% 101.25%
LAST FOUR YEARS 63.27% 34.08% 77.00%
LAST THREE YEARS 49.44% 23.19% 53.72%
LAST TWO YEARS 31.27% 21.10% 49.60%
LAST YEAR 24.38% 18.13% 32.18%
LAST QUARTER 8.30% 4.20% 5.62%
</TABLE>
The Fund's investment in Helene Curtis Industries, Inc. contributed to first
quarter performance. At the close of 1995, the stock sold for $31 5/8. In
February one of the world's largest consumer products businesses, Unilever PLC,
tendered for the company at $70 per share.
While first quarter performance was strong, we think the portfolio contains
further significant upside opportunity since many of our holdings remain
materially undervalued in the marketplace. Additionally, we are finding new and
compelling long-term equity investment opportunities. This contrasts sharply
with the challenges Southeastern faces in the larger capitalization arena where
our flagship Longleaf Partners Fund operates.
Many of you have inquired about the Longleaf fund family's new addition,
Longleaf Partners Realty Fund. It began operations January 2, 1996, when
principals of Southeastern Asset Management, Inc. seeded the portfolio with an
initial $7.4 million capital investment. A very capable Southeastern partner and
member of our team for six years, C.T. Fitzpatrick is heading our effort and the
Fund is off to an excellent start. We believe strongly that there are many
compelling long-term investment opportunities in the diverse real estate arena,
and that over time this world
<PAGE> 2
will shift dramatically from private to public ownership. By applying the same
value disciplines that have served us well over the past 20 years, we are highly
confident that we can turn Longleaf Partners Realty Fund into another successful
vehicle for compounding our capital.
For those of you who would like information on the new fund, please contact our
marketing center at (800) 445-9469. You will receive a first quarter report,
application and Prospectus which describes the new fund's investment objectives
and policies, fees and expenses. Please read the Prospectus carefully before
making an investment decision.
We invite each of you to join us at the Funds' annual meeting which will be held
Tuesday, May 7 at 5:30 p.m. at the Dixon Gallery and Gardens in Memphis. We will
do our best to answer any and all of your questions there. We look forward to
seeing our fellow shareholders.
Sincerely,
/s/ O. Mason Hawkins /s/ G. Staley Cates
- ------------------------ -----------------------
O. Mason Hawkins, CFA G. Staley Cates, CFA
Co-Portfolio Manager Co-Portfolio Manager
- --------------------------------------------------------------------------------
* The average annual total returns of Longleaf Partners Small-Cap Fund for the
one year and five years ended March 31, 1996 and from its initial public
offering on February 21, 1989 through March 31, 1996 are 24.38%, 12.55% AND
8.88%, respectively. Fund returns and those of the Wilshire 5000 Index are
shown with all dividends and distributions reinvested; the Value Line Index is
not available with reinvested dividends. The stock market indices shown are
unmanaged. Past investment performance is no guarantee of future investment
performance, and the value of an investment when redeemed may be more or less
than the purchase price.
- --------------------------------------------------------------------------------
PORTFOLIO CHANGES
(UNAUDITED)
JANUARY 1, 1996 THROUGH MARCH 31, 1996
<TABLE>
<CAPTION>
NEW HOLDINGS ELIMINATIONS
- ---------------------------------- -----------------------------
<S> <C>
AMETEK, Inc Chartwell Reinsurance Company
Bay View Capital Corp. Helene Curtis Industries, Inc.
First Federal Financial Corp. Meredith Corporation
Trizec Corporation Ltd.
</TABLE>
PUBLISHED DAILY PRICE QUOTATIONS
The daily net asset values per share of each series of Longleaf Partners Funds
Trust are reported in the Mutual Fund Quotations tables of major newspapers in
alphabetical sequence under the following symbols:
Longleaf Partners Fund -- "LonglfPF"
Longleaf Partners Small-Cap Fund -- "LonglfSC"
<PAGE> 3
<TABLE>
<S> <C>
- ---------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT MARCH 31, 1996 (UNAUDITED)
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES COMMON STOCK (98.3%) MARKET VALUE
------- ------------
<S> <C> <C> <C> <C> <C>
ADVERTISING (3.3%)
21,020 Grey Advertising Inc. - Class A............................ $ 4,792,560
------------
BANKING (6.0%)
225,000 Bay View Capital Corp...................................... 7,312,500
92,200 * First Federal Financial Corp............................... 1,463,675
------------
8,776,175
------------
BEVERAGES (2.9%)
195,000 * Celestial Seasonings, Inc.................................. 4,241,250
------------
BUSINESS SERVICES (9.1%)
370,000 * Pinkerton's, Inc........................................... 8,047,500
300,000 * The Union Corporation ..................................... 5,287,500
------------
13,335,000
------------
COMMERCIAL LIGHTING (2.0%)
139,300 Thomas Industries, Inc..................................... 2,925,300
------------
FINANCIAL SERVICES (12.8%)
280,000 Duff & Phelps Credit Rating Co............................. 4,480,000
280,000 Lexington Global Asset Managers, Inc. ..................... 1,242,500
348,400 * White River Corporation.................................... 12,977,900
------------
18,700,400
------------
FOOD (6.4%)
146,700 GoodMark Foods, Inc........................................ 2,273,850
277,000 * Ralcorp Holdings, Inc. .................................... 7,098,125
------------
9,371,975
------------
FURNITURE (4.6%)
715,000 * Rhodes, Inc. .............................................. 6,792,500
------------
INDUSTRIAL EQUIPMENT (1.4%)
507,600 * Baldwin Technology Company, Inc. - Class A................. 2,125,575
------------
INVESTMENT MANAGEMENT COMPANIES (6.6%)
505,000 Phoenix Duff & Phelps Corporation.......................... 3,156,250
140,700 United Asset Management Corporation........................ 6,524,963
------------
9,681,213
------------
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
- ---------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT MARCH 31, 1996 (UNAUDITED)
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES MARKET VALUE
------- ------------
<S> <C> <C> <C> <C> <C>
MANUFACTURING (16.9%)
210,000 AMETEK, Inc................................................ $ 3,701,250
850,000 * American Safety Razor Company.............................. 8,181,250
405,148 Armor All Products Corporation............................. 6,634,298
172,300 Franklin Electric Co., Inc................................. 6,202,800
------------
24,719,598
------------
MISCELLANEOUS (2.6%)
104,152 Seafield Capital Corporation............................... 3,853,624
------------
PROPERTY & CASUALTY INSURANCE (6.4%)
34,680 * Alleghany Corporation...................................... 6,849,300
28,200 * Markel Corporation......................................... 2,481,600
------------
9,330,900
------------
PUBLISHING (2.7%)
110,000 Plenum Publishing Corporation.............................. 4,042,500
------------
REAL ESTATE (8.4%)
385,000 Cousins Properties Incorporated............................ 7,507,500
707,000 Trizec Corporation Ltd..................................... 4,772,250
------------
12,279,750
------------
RESTAURANTS (2.9%)
290,000 * VICORP Restaurants, Inc.................................... 4,277,500
------------
RETAIL FOOD (3.3%)
200,000 * Craig Corporation.......................................... 2,275,000
120,000 Delchamps, Inc............................................. 2,550,000
------------
4,825,000
------------
TOTAL COMMON STOCKS (COST $127,326,627)................................. 144,070,820
------------
SHORT TERM OBLIGATIONS (3.0%)
Repurchase Agreement with State Street Bank and Trust Company, dated
3-29-96, due 4-1-96 at 4.75%, collateralized by $4,526,915 U.S.
Treasury Bond due 2-15-15 (Repurchase proceeds-$4,438,756) (Cost
$4,437,000)............................................................ 4,437,000
------------
TOTAL INVESTMENTS (COST $131,763,627)* *................................... 101.3% 148,507,820
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................. (1.3) (1,889,883)
----- ------------
NET ASSETS................................................................. 100.0% $146,617,937
===== ============
NET ASSET VALUE PER SHARE (OFFERING AND REDEMPTION PRICE PER SHARE) BASED ON
9,364,109 SHARES OUTSTANDING AT MARCH 31, 1996.................................. $ 15.66
============
</TABLE>
* Non-income producing security
* * Also represents aggregate cost for Federal income tax purposes
<PAGE> 5
FIVE LARGEST HOLDINGS
(REPRESENTS 30.1% OF NET ASSETS AT 3/31/96)
WHITE RIVER CORPORATION (WHRC) 8.9%
A service company with a large security portfolio. Its primary operating
business provides vehicle valuation and collision estimating services and
software for insurance and auto repair firms.
AMERICAN SAFETY RAZOR COMPANY (RAZR) 5.6%
The largest U.S. maker of private label and value-brand shaving blades and
razors; the largest manufacturer of both premium and value-priced bladed hand
tools and blades; the second largest maker of skin care, bath, pharmaceutical
and specialty custom bar soaps. Also makes cotton swabs, balls and puffs, as
well as specialty industrial and medical blades.
PINKERTON'S, INC. (PKTN) 5.5%
One of the largest U.S. based security guard and investigative firms with both
domestic and international offices.
COUSINS PROPERTIES INCORPORATED (CUZ) 5.1%
A self advised, equity real estate investment trust concentrating in commercial
buildings primarily in Atlanta and the Southeast. The company also has valuable
non-income producing real estate holdings.
BAY VIEW CAPITAL CORP. (BVFS) 5.0%
The holding company for Bay View Federal Bank which serves the nine counties
contiguous with San Francisco Bay through 27 branch offices and one loan
production office.
<PAGE> 6
- ---------------------------------------------
TRUSTEES
O. MASON HAWKINS, CFA --
Chairman, Southeastern Asset
Management, Inc.
Memphis, Tennessee
CHADWICK H. CARPENTER, JR. --
Senior Executive Officer, Progress
Software Corporation
Bedford, Massachusetts
JOHN R. McCARROLL, JR. --
Chairman, McCarroll Newman LLC
Memphis, Tennessee
STEVEN N. MELNYK --
Chairman of the Executive
Committee and President,
Riverside Golf Group, Inc.
Jacksonville, Florida
C. BARHAM RAY -- Chairman of the
Board and Secretary, SSM Corp.
Memphis, Tennessee
W. REID SANDERS -- Executive
Vice President, Southeastern
Asset Management, Inc.
Memphis, Tennessee
- ---------------------------------------------
This report is submitted for the general informa-
tion of shareholders of the Fund. For more detailed
information about the Fund, its management, fees,
expenses and other pertinent information, please
see the prospectus.
This report is not authorized for distribution to
prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
LONGLEAF
[LFP LOGO] PARTNERS
FUNDS
MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
6075 POPLAR AVE.
SUITE 900
MEMPHIS, TN 38119
(901) 761-2474
(800) 488-4191
====================================================
[LFP LOGO]
QUARTERLY
REPORT
March 31, 1996
LONGLEAF PARTNERS
SMALL-CAP FUND
====================================================
MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
