LONGLEAF PARTNERS FUNDS TRUST, 485BPOS, 1997-03-24

LONGLEAF PARTNERS FUNDS TRUST
485BPOS, 1997-03-24

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<PAGE> 1

As filed with the Securities and Exchange Commission on March 24, 1997

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. 17 (X)
----- -----

and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940

Amendment No. 17 (X)
----- -----

(Check appropriate box or boxes)

LONGLEAF PARTNERS FUNDS TRUST

LONGLEAF PARTNERS FUND (SERIES ONE)
LONGLEAF PARTNERS SMALL CAP FUND (SERIES TWO)
(offered in a single Prospectus)

LONGLEAF PARTNERS REALTY FUND (SERIES THREE)
(offered in a separate Prospectus)

(Exact name of registrant as specified in charter)
--------------------------------------------------
c/o Southeastern Asset Management, Inc.
6075 Poplar Avenue; Suite 900
Memphis, TN 38119
(Address of principal executive offices)
----------------------------------------
Registrant's Telephone Number, Including Area Code - (901) 761-2474

<TABLE>
<S> <C>
CHARLES D. REAVES, ESQ. Copy to:
Executive Vice President ALAN ROSENBLAT, ESQ.
Longleaf Partners Funds Trust Dechert Price & Rhoads
c/o Southeastern Asset Mgmt., Inc. 1500 K Street, N.W.
6075 Poplar Ave., Ste. 900 Washington, D.C. 20005
Memphis, TN 38119
</TABLE>
(Name and address of agent for service)
---------------------------------------

Rule 485(b). Post-Effective Amendment No. 17 is being filed under
subparagraphs (1)(iii) and (iv) of Rule 485(b) to incorporate audited financial
statements for the fiscal year ended December 31, 1996, and other current
financial information, and under subparagraph (1)(vii) to make certain other
non-material changes in the language contained in the Prospectus and Statement
of Additional Information.

Effective Date. Pursuant to Rule 485(b), this Post-Effective Amendment No. 17
shall be effective on March 24, 1997, the date of filing.

DECLARATION PURSUANT TO RULE 24f-2

Pursuant to Rule 24f-2(a) under the Investment Company Act of 1940, the
Registrant hereby declares that an indefinite number or amount of shares of
beneficial interest is being registered under the Securities Act of 1933. The
$500 filing fee required by said Rule has been paid. The Notice required by
Rule 24f-2(b)(1) under the Investment Company Act of 1940 with respect to the
fiscal year ended December 31, 1996, was filed with the Securities & Exchange
Commission on February 7, 1997, together with a registration fee for net sales
for the period.

<PAGE> 2

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17

__________

LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS SMALL-CAP FUND
FORM N-1A CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
PART A - ITEM NUMBER PROSPECTUS CAPTION

<S> <C> <C>
1. Cover Page Front Cover Page

2. Synopsis Front Cover Page

3. Condensed Financial "Condensed
Information Financial Information"

4. General Description of Front Cover Page;
Registrant Information on Investment
Management

5. Management of the Fund Types of Investments
Investment Techniques
Investment Risk Factors
Diversification and
Portfolio Turnover
Information on Management
and Administration

6. Capital Stock and Other Massachusetts Business
Securities Trust Provisions
Distributions and Taxes

7. Purchase of Securities How to Open an Account
Being Offered How to Purchase Shares

8. Redemption or Repurchase How to Redeem Shares

9. Legal Proceedings Not Applicable

</TABLE>

<PAGE> 3

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17

<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
PART B - ITEM NUMBER INFORMATION CAPTION

<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents; Page 1
12. General Information Contained in Prospectus on and
and History Face Page and under
Significance of Fund Names;
Massachusetts Business Trust
Provisions; In SAI under
Management of the Fund.
13. Investment Objectives and Additional Information About
Policies Investment Restrictions and
Policies; Additional
Information About Investment
Techniques
14. Management of the Fund Management of the Fund

15. Control Persons and Control Persons and Principal
Principal Holders of Holders of Securities
Securities
16. Investment Advisory and Investment Advisory Services;
Other Services Other Management Related

17. Brokerage Allocation and Brokerage Allocation
Other Practices

18. Capital Stock and Other Contained in Prospectus under
Securities caption "Massachusetts
Business Trust Provisions"

19. Purchase, Redemption and Contained in Prospectus
Pricing of Securities under caption "How to
Purchase Shares"; "How to
Redeem Shares", and
"Computation of Net Asset
Value".

20. Tax Status Contained in Prospectus
under captions "Dividends
and Taxes"; In SAI under
caption "Additional Tax
Information"
21. Underwriters None; not applicable

22. Calculation of Performance Investment Performance and
Data Total Return

23. Financial Statements Financial Statements

</TABLE>

<PAGE> 4

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17

__________

LONGLEAF PARTNERS REALTY FUND
FORM N-1A CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
PART A - ITEM NUMBER PROSPECTUS CAPTION

<S> <C> <C>
1. Cover Page Front Cover Page

2. Synopsis Front Cover Page

3. Condensed Financial Will be "Condensed
Information Financial Information"

4. General Description of Front Cover Page;
Registrant Information on Investment
Management

5. Management of the Fund Types of Investments
Investment Techniques
Investment Risk Factors
Diversification and
Portfolio Turnover
Information on Management
and Administration

6. Capital Stock and Other Massachusetts Business
Securities Trust Provisions
Distributions and Taxes

7. Purchase of Securities How to Open an Account
Being Offered How to Purchase Shares

8. Redemption or Repurchase How to Redeem Shares

9. Legal Proceedings Not Applicable

</TABLE>
<PAGE> 5

LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 17

<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
PART B - ITEM NUMBER INFORMATION CAPTION

17. Brokerage Allocation and Brokerage Allocation
Other Practices

18. Capital Stock and Other Contained in Prospectus under
Securities caption "Massachusetts"

19. Purchase, Redemption and Contained in Prospectus
Pricing of Securities under caption "How to
Purchase Shares"; "How to
Redeem Shares", and
"Computation of Net Asset
Value".

20. Tax Status Contained in Prospectus
under captions "Dividends
and Taxes"; In SAI under
caption "Additional Tax
Information"
21. Underwriters None; not applicable

22. Calculation of Performance Investment Performance and
Data Total Return

23. Financial Statements To be incorporated in SAI

</TABLE>
<PAGE> 6

LONGLEAF PARTNERS FUNDS TRUST
=============================
LONGLEAF PARTNERS REALTY FUND

PART A

INFORMATION REQUIRED IN THE PROSPECTUS
<PAGE> 7

LONGLEAF PARTNERS FUND

LONGLEAF PARTNERS SMALL-CAP FUND

Series of

LONGLEAF PARTNERS FUNDS TRUST

Investment Counsel

SOUTHEASTERN ASSET MANAGEMENT, INC.
6075 Poplar Ave., Suite 900
Memphis, TN 38119

(800) 445-9469 (901) 761-2474

LOGO Longleaf Partners Fund and Longleaf Partners Small-Cap Fund are
series of Longleaf Partners Funds Trust, a Massachusetts business
trust. Each Fund seeks to achieve its investment objective of
long-term capital growth through investment in equity securities of a limited
number of companies believed by the Investment Counsel to have unrecognized
intrinsic value. The Funds' portfolios include securities of companies located
throughout the U.S. and a limited number of foreign securities. Current income
is not an objective. The Funds are no-load, open-end diversified management
investment companies.

LONGLEAF PARTNERS FUND seeks long-term capital growth through investment
primarily in securities of companies having a market capitalization greater than
$500 million, most of which are listed on the major stock exchanges.

LONGLEAF PARTNERS SMALL-CAP FUND seeks long-term capital growth primarily
through investment in securities of companies having a market capitalization of
$1 billion or less, some of which may be traded in the "over the counter"
market.

The Funds' objectives are suitable for investors who are willing to hold their
shares through periods of market fluctuations and the accompanying changes in
share values. The Funds are not intended for investors seeking short-term price
appreciation or for "market timers."

The minimum initial investment is $10,000 and shares may be purchased directly
from the Funds without payment of any sales charges. There are no "12b-1"

fees or redemption fees. Purchases may also be made through an authorized
brokerage firm, which may charge a transaction fee.

The Prospectus sets forth concisely the information that a prospective investor
should know before investing. Investors should read this Prospectus and retain
it for future reference. More detailed disclosure is contained in a Statement of
Additional Information, which has been filed with the Securities and Exchange
Commission and is available upon request without charge by telephoning or
writing the Fund Administrator, at the address shown above. The Statement of
Additional Information, dated the date of this Prospectus, is incorporated
herein by reference.

Shareholder inquiries about account status and redemption procedures should be
directed to the transfer agent by calling (800) 488-4191. Inquiries about other
Fund operations may be directed to Southeastern Asset Management, Inc. by
calling (901) 761-2474.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT IN SUCH SHARES INVOLVES INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE AND ARE
NOT GUARANTEED.

The date of this Prospectus is March 24, 1997
- --------------------------------------------------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE> 8
TABLE OF CONTENTS

<TABLE>
<S> <C>
Expenses 2
Financial Highlights 3

INFORMATION ON INVESTMENT
MANAGEMENT
Investment Counsel 4
Investment Objective 4
Investment Philosophy 4
Intrinsic Value 4
Types of Equity Investments 5
Cash Reserves 6
Options on Securities
and Stock Indices 6
Risks of Investment 7
Portfolio Turnover 7
Investment Restrictions 7

MANAGEMENT AND
ADMINISTRATION
Portfolio Managers 7
Trustees and Officers 7
Investment Counsel Fees 9
Fund Administrator 9

HOW TO OPEN AN ACCOUNT
Regular Accounts 10
Individual Retirement
Accounts 10

HOW TO PURCHASE SHARES
By Mail 10
By Automatic Monthly
Investment 10
By Wire 10
Certificates 11
Telephone Subscriptions
by Broker/Dealers 11

How to Redeem Shares
Procedures 11
Price & Fees 12
By Mail 12
By Telephone 12
Signature Guarantee 12

OTHER SHAREHOLDER SERVICES
Confirmation and
Reports 12
Transfer Agent 12

HOW SHARES ARE PRICED
Offering Price 13
Net Asset Value 13

DISTRIBUTIONS AND TAXES
Dividends and
Capital Gains 13
Taxes 13

ADDITIONAL INFORMATION
Ford Names
Portfolio Brokerage 14
Investment Performance 14
Massachusetts Business
Trust 15
Code of Ethics 15
Exceptions to Investment
Minimum 15
</TABLE>

FUND EXPENSES

Expenses are one of several factors to consider when investing in a mutual
fund. The purpose of the following fee table is to provide an understanding of
the various costs and expenses that shareholders of the Fund will bear directly
or indirectly.

<TABLE>
<CAPTION>
LONGLEAF PARTNERS LONGLEAF PARTNERS
FUND SMALL-CAP FUND
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None
Sales Load Imposed on Reinvested Dividends None None
Deferred Sales Load None None
Redemption Fee None None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees .797% 1.00%
12b-I Fees None None
Other Expenses
Administration 0.100% 0.100%
Shareholder Services - Transfer Agent .018% .018%
All Other Operating Expenses .039% .114%
Total Fund Operating Expenses* .954% 1.232%

EXAMPLE*
You would pay the following expenses on a 1 Year $ 10 $ 13
$1,000 investment, assuming a 5% annual return 3 Years $ 30 $ 39
and either redemption or no redemption at the 5 Years $ 53 $ 68
end of each time period. 10 Years $117 $149

</TABLE>

* The Example is based on the "Total Fund Operating Expenses" described above.
Please remember that the Example should not be considered as representative of
past or future expenses and that actual expenses may be higher or lower than
those shown. The assumption in the Example of a 5% annual return is required by
regulations of the SEC applicable to all mutual funds. The assumed 5% annual
return is not a prediction of, and does not represent, the projected or actual
performance of a Fund's shares.

2
<PAGE> 9

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD AS FOLLOWS:

LONGLEAF PARTNERS FUND
<TABLE>
<CAPTION>
NET GAINS
OR
(LOSSES)
NET ON DISTRI- NET
ASSET SECURITIES TOTAL DIVIDENDS BUTIONS ASSET
VALUE NET REALIZED FROM FROM NET FROM TOTAL VALUE
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT CAPITAL DISTRI- END OF TOTAL
OF PERIOD INCOME UNREALIZED OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN
--------- ---------- ---------- ---------- ---------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1996................. $21.15 $.37 $4.09 $4.46 $(.38) $(2.38) $(2.76) $22.85 21.02%
1995................. 17.13 .30 4.40 4.70 (.24) (.44) (.68) 21.15 27.50%
1994................. 16.92 .21 1.30 1.51 (.16) (1.14) (1.30) 17.13 8.96%
1993................. 14.70 .10 3.16 3.26 (.09) (.95) (1.04) 16.92 22.20%
1992................. 13.34 .07 2.65 2.72 (.07) (1.29) (1.36) 14.70 20.47%
1991................. 10.21 .05 3.93 3.98 (.06) (.79) (.85) 13.34 39.19%
1990................. 12.62 .13 (2.16) (2.03) (.15) (.23) (.38) 10.21 (16.35)%
Two months ended
December 31, 1989...... 14.30 .03 (.10) (.07) (.08) (1.53) (1.61) 12.62 (0.47)%(1)
Year ended
October 31,
1989................. 11.25 .18 3.00 3.18 (.13) - (.13) 14.30 28.38%
1988................. 8.69 .14 2.50 2.64 (.08) - (.08) 11.25 30.69%
March 24, 1987 (Date of
Initial Capitalization)
through October 31,
1987................... 10.00 .11 (1.42) (1.31) - - - 8.69 (13.14)%(1)

RATIO OF RATIO OF
EXPENSES NET
NET ASSETS TO INCOME TO
END OF AVERAGE AVERAGE PORTFOLIO AVERAGE
PERIOD NET NET TURNOVER COMMISSION
(THOUSANDS) ASSETS ASSETS RATE RATE PAID
----------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1996................. $2,300,079 0.95% 1.61% 33.18% $0.0750(3)
1995................. 1,876,467 1.01% 1.45% 12.60%
1994................. 753,527 1.17% 1.18% 27.39%
1993................. 397,282 1.26% .63% 19.12%
1992................. 243,678 1.29% .50% 29.12%
1991................. 177,878 1.30% .42% 45.11%
1990................. 129,643 1.32% 1.13% 52.45%
Two months ended
December 31, 1989...... 148,680 1.31%* 1.73%* 6.67%
Year ended
October 31,
1989................. 139,608 1.35% 1.37% 57.72%
1988................. 50,676 1.50%(2) 1.40% 92.68%
March 24, 1987 (Date of
Initial Capitalization)
through October 31,
1987................... 25,787 1.50%*(2) 1.61%* 70.00%
</TABLE>

* Annualized
(1) Aggregate; not annualized.
(2) Before expense limitation fee waiver, this ratio was 1.64% and 1.83% for the
1988 and 1987 periods, respectively.
(3) Not applicable for prior periods.

LONGLEAF PARTNERS SMALL-CAP FUND
<TABLE>
<CAPTION>
NET GAINS
OR
(LOSSES)
NET ON DISTRI- NET
ASSET NET SECURITIES TOTAL DIVIDENDS BUTIONS ASSET
VALUE INVESTMENT REALIZED FROM FROM NET FROM TOTAL VALUE
BEGINNING INCOME AND INVESTMENT INVESTMENT CAPITAL DISTRI- END OF TOTAL
OF PERIOD (LOSS) UNREALIZED OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN
--------- ---------- ---------- ---------- ---------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December
31,
1996.............. $14.46 $ .03 $4.40 $4.43 $ (.02) $(1.01) $(1.03) $17.86 30.64
1995.............. 13.28 .12 2.35 2.47 (.12) (1.17) (1.29) 14.46 18.61%
1994.............. 13.49 (.03) .52 .49 - (.70) (.70) 13.28 3.64%
1993.............. 11.40 (.06) 2.32 2.26 - (.17) (.17) 13.49 19.83%
1992.............. 10.67 (.01) .74 .73 - - - 11.40 6.87%
1991.............. 8.50 .06 2.17 2.23 (.06) - (.06) 10.67 26.31%
1990.............. 12.87 .40 (4.18) (3.78) (.36) (.23) (.59) 8.50 (30.05)%
Two months ended
December 31, 1989... 13.02 .04 .22 .26 (.05) (.36) (.41) 12.87 2.10%(1)
December 28, 1988
(Date of Initial
Capitalization)
through October 31,
1989................ 10.00 .17 2.94 3.11 (.09) - (.09) 13.02 31.13%(1)

RATIO OF
RATIO OF NET
EXPENSES INCOME
NET ASSETS TO (LOSS) TO
END OF AVERAGE AVERAGE PORTFOLIO AVERAGE
PERIOD NET NET TURNOVER COMMISSION
(THOUSANDS) ASSETS ASSETS RATE RATE PAID
----------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December
31,
1996.............. 252.157 1.23% .18% 27.97% $0.0605(3)
1995.............. 135,977 1.30% .84% 32.95%
1994.............. 99,609 1.38% (.22)% 19.79%
1993.............. 85,087 1.45% (.45)% 14.37%
1992.............. 62,181 1.45% (.03)% 25.80%
1991.............. 60,354 1.43% .60% 65.18%
1990.............. 47,894 1.43% 3.48% 14.93%
Two months ended
December 31, 1989... 52,176 1.47%* 1.60%* 3.96%
December 28, 1988
(Date of Initial
Capitalization)
through October 31,
1989................ 43,860 1.50%*(2) 1.63%* 20.47%
</TABLE>

* Annualized
(1) Aggregate; not annualized.
(2) Before expense limitation fee waiver, this ratio was 1.59%.
(3) Not applicable for prior periods.

3
<PAGE> 10

INFORMATION ON INVESTMENT MANAGEMENT

INVESTMENT COUNSEL. Southeastern Asset Management, Inc., ("Southeastern"),
located in Memphis, Tennessee, is the Funds' Investment Counsel. The firm has
been engaged since 1975 in the management of securities portfolios for ERISA and
government retirement plans, charitable and educational endowments, and
individuals. The firm, owned and controlled by its principal officers, has more
than $7.7 billion in client assets under management.

INVESTMENT OBJECTIVE. The fundamental investment objective of both Funds is
long-term capital growth. To achieve this objective, each Fund invests primarily
in common stocks of a limited number of companies believed by Southeastern to
have unrecognized intrinsic value and the potential to grow their economic
worth. This investment objective is not expected to produce significant current
income and the realization of current income is incidental.

INVESTMENT PHILOSOPHY. Southeastern believes that superior long-term
performance can be achieved when positions in financially strong, well-managed
companies are acquired at prices significantly below their business value and
are sold when they approach their corporate worth. Using this approach,
Southeastern views stocks as ownership units in business enterprises. Corporate
intrinsic value is determined through careful securities analysis and the use of
established disciplines consistently applied over long periods of time. Stocks
which can be identified and purchased at a price significantly discounted from
their intrinsic worth not only protect investment capital from significant loss
but also facilitate major rewards when the true business value is ultimately
recognized. Seeking the largest margin of safety possible, Southeastern requires
at least a 40% market value discount from its appraisal of a company's intrinsic
value before purchasing the security.

DETERMINATION OF INTRINSIC VALUE. Southeastern's investment analysts determine
the appraised per share corporate worth of potential investments using current,
publicly available financial statements. These are carefully scrutinized and two
primary methods of appraisal are applied. The first assesses what Southeastern
believes to be the real economic value of the company's net assets. The second
approach examines the enterprise's ability to generate free cash flow after
required or maintenance capital expenditures. After free cash flow is
determined, conservative projections about its rate of future growth are made.
The present value of that stream of free cash flow plus its terminal value is
then calculated using a discount rate based on expected interest rates.

If Southeastern's calculations are accurate, that present value would be the
price which buyers and sellers negotiating at arms length would accept for the
whole company. In a concluding analysis, the asset value determination and/or
the discounted free cash flow value are compared to Southeastern's data bank of
business transactions of comparable corporations.

Other considerations used in selecting potential investments include the
following:

-- INDICATIONS OF SHAREHOLDER ORIENTED MANAGEMENT. In selecting portfolio
investments, Southeastern seeks companies having properly incented, ownership
vested managements who are honest, shareholder oriented, operationally
competent individuals whom it believes are capable of allocating corporate
resources intelligently and who would make exemplary long-term business
partners.

-- EVIDENCE OF FINANCIAL STRENGTH. Southeastern requires that companies held
in the portfolio have sound financial statements and excess free cash flow
produced through operations.

-- POTENTIAL EARNINGS IMPROVEMENT. The company should be capable of producing
both a meaningful improvement in earnings within three to five years and an
adequate return on its invested capital.

The portfolio of each Fund has been constructed using a relatively limited
number of common stocks chosen by employing the criteria discussed. A particular
investment may not include all of the above factors, but Southeastern must be
convinced that significant unrealized intrinsic value is present.

COMPOSITION OF PORTFOLIO -- LONGLEAF PARTNERS FUND. Under normal circumstances,
Longleaf Partners Fund invests at least 75% of its equity portfolio in companies
having a market capitalization greater than $500 million, most of which are
listed on the major securities exchanges. The remainder of its equity portfolio
may be invested in securities that generally have an established market,
although the depth and liquidity of the market may vary.

COMPOSITION OF PORTFOLIO -- LONGLEAF PARTNERS SMALL-CAP FUND. Under normal
circumstances, Longleaf Partners Small-Cap Fund invests a mini-

4
<PAGE> 11

mum of 75% of its equity portfolio (but not less than 65% of total assets) in
the equity securities of companies having a market capitalization of $1 billion
or less. The term "equity securities" does not include debt having an equity
conversion feature. Some of these equity securities may be traded in the "over
the counter" market. The "over the counter" market is generally defined as the
market for securities which are not listed for trading on the New York Stock
Exchange or the American Stock Exchange. In contrast to the New York or American
Stock Exchange, the "over the counter" market is not a centralized facility that
imposes listing qualifications relating to assets, earnings and number of
shareholders. Securities of companies having small market capitalization may be
subject to greater price volatility and less trading liquidity than larger, well
established companies, due to factors such as changes in key personnel,
financing difficulties or problems with their products or services. As a result,
the net asset value per share of the Fund could fluctuate significantly. The
Fund may also invest the balance of its equity portfolio in securities of larger
companies.

TYPES OF EQUITY INVESTMENTS. Each Fund will generally maintain a fully invested
position in common stocks of U.S. issuers having the essential investment
considerations previously discussed. The Funds may also invest in other equity
securities such as preferred stocks, warrants, options, equity appreciation
certificates, and preferred stocks which initially pay no dividend but which
match dividend increases on the company's common stock.

FOREIGN SECURITIES. The Funds may invest up to 20% of total assets in
securities of foreign issuers which are traded in a U.S. market and which meet
the same criteria for investment as domestic companies, or depository receipts
for such securities. The Fund may be subject to additional investment risks for
these securities that are different in some respects from those incurred by
investments in securities of domestic issuers. Such risks include future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls, the possible seizure or nationalization of
foreign deposits, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
securities. There can be no assurance that such laws may not become applicable
to certain of the Fund's investments. In addition, there may be less publicly
available information about a foreign issuer than about a domestic issuer, and
foreign issuers may not be subject to the same accounting, auditing and
financial recordkeeping standards and requirements as domestic issuers.

RESTRICTED SECURITIES. Each Fund may invest in restricted securities and in
other assets having no ready market, including repurchase agreements of more
than seven (7) days in duration, if such purchases at the time thereof would not
cause more than 10% of the value of the Fund's total assets (but not exceeding
15% of the Fund's net assets including securities which are subject to Rule 144A
under the Securities Act of 1933) to be invested in all such illiquid or not
readily marketable assets. Restricted securities may be sold only in privately
negotiated transactions, in a public offering with respect to which a
registration statement is in effect under the Securities Act of 1933 or pursuant
to Rule 144 promulgated under such Act. Where registration is required, the Fund
may be obligated to pay all or part of the registration expense, and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If during such a period adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell. Restricted securities will be valued in such manner as the
Board of Trustees of the Fund in good faith deems appropriate to reflect their
fair market value.

CASH RESERVES. Each Fund's cash reserves, held to provide sufficient
flexibility to take advantage of new opportunities for investments and for other
cash needs, will be invested in money market instruments and generally will not
exceed 15% of total assets. If Southeastern has difficulty finding an adequate
number of undervalued equity securities, all or any portion of the Fund's assets
may also be invested temporarily in money market instruments.

Money market instruments in which each Fund may invest its cash reserves will
generally consist of obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and such obligations which are subject to
repurchase agreements. A repurchase agreement is an instrument under which an
investor such as the Fund purchases a U.S. Government security from a vendor,
with an agreement by the vendor to repurchase the security at the same price,
plus interest at a specified rate. In such a case, the security is held by the
Fund, in effect, as collateral for the repurchase obligation. Repurchase
agreements may be entered into with member banks of the Federal

5
<PAGE> 12

Reserve System or "primary dealers" (as designated by the Federal Reserve Bank
of New York) in United States Government securities. Repurchase agreements
usually have a short duration, often less than one week. In entering into the
repurchase agreement for the Fund, the Investment Counsel will evaluate and
monitor the credit worthiness of the vendor. In the event that a vendor should
default on its repurchase obligation, the Fund might suffer a loss to the extent
that the proceeds from the sale of the collateral were less than the repurchase
price. If the vendor becomes bankrupt, the Fund might be delayed, or may incur
costs or possible losses of principal and income, in selling the collateral.

Other acceptable money market instruments include commercial paper rated in the
highest grade by any nationally recognized rating agency, such as Moody's or
Standard & Poor's, certificates of deposit and bankers' acceptances issued by
domestic banks having total assets in excess of one billion dollars, and money
market investment companies (limited to a maximum of 5% of total assets).

The Funds may borrow money for temporary purposes such as the clearance of
purchases and sales of portfolio securities in an amount not to exceed 5% of
total assets, and for temporary purposes to satisfy redemption requests in an
amount not to exceed 15% of total assets, with the aggregate amount of all
borrowing outstanding at any time being limited to 15% of total assets.
Securities will not be purchased by borrowings in excess of 5% of total assets.

OPTIONS ON SECURITIES AND STOCK INDICES. The Fund may write (i.e., sell)
covered put and call options and purchase put and call options on securities or
stock indices that are listed on a national exchange. An option on a security is
a contract that gives the purchaser of the option, in return for the premium
paid, the right to buy a specified security (in the case of a call option) or to
sell a specified security (in the case of a put option) from or to the writer of
the option at a designated price during the term of the option. An option on a
stock index gives the purchaser of the option, in return for the premium paid,
the right to receive from the seller cash equal to the difference between the
closing price of the index and the exercise price of the option.

Transactions in puts or calls on securities or index options would be used
primarily for hedging or tax deferral purposes where the transactions would
complement the Funds' existing investment strategy. Examples of such uses would
be to (i) sell calls against existing equity positions; (ii) sell puts involving
portfolio positions to be held for the long term in order to more effectively
create these positions; (iii) buy individual puts against existing equity
positions for tax deferral purposes; and (iv) buy index puts for purposes of
hedging the overall portfolio.

The Fund may write a call or put option only if the option is "covered." This
means that so long as the Fund is obligated as the writer of a call option, it
will own the underlying securities subject to the call, or hold a call at the
same or lower exercise price, for the same exercise period, and on the same
securities as the written call. A put is covered if the Fund maintains
collateral consisting of cash, liquid money market instruments, or U.S.
government securities with a value equal to the exercise price in a segregated
account, or holds a put on the same underlying security at an equal or greater
exercise price. The value of the underlying securities on which options may be
written at any one time will not exceed 25% of the total assets of the Fund. The
Fund will not purchase put or call options if the aggregate premium paid for
such options would exceed 5% of its total assets at the time of purchase.

RISKS OF INVESTMENT. Because prices of stocks fluctuate from day to day, the
value of each Fund's portfolio and the Fund's price per share will vary based
upon general market conditions. The previous sections also discuss certain risks
which could be present should the Fund acquire those particular types of
investments. There is no assurance that the investment objectives of either Fund
can be achieved, and the value of your investment as a shareholder upon
redemption may be more or less than the purchase price.

PORTFOLIO TURNOVER. An equity investment in a company deemed to have
unrecognized intrinsic value usually will be held until such time as the market
value of its common stock approaches its appraised corporate worth as determined
by Southeastern. As a result, each portfolio should have an annual portfolio
turnover rate which would not exceed 50%. However, there are no limits on the
rate of portfolio turnover, and investments may be sold without regard to length
of time held when, in the opinion of Southeastern, investment considerations
warrant such action. Higher portfolio turnover rates, such as rates in excess of
100%, and short-term trading involve correspondingly greater commission expenses
and transaction costs. The portfolio turnover rates for each Fund are shown in
the tables on page 3.

6
<PAGE> 13

INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES. The investment restrictions listed below, as well as the
investment objectives of each Fund, have been adopted as fundamental policies,
along with certain other investment restrictions listed in the Statement of
Additional Information. Under the Investment Company Act of 1940, as amended
(the "Act"), a fundamental policy may not be changed without the vote of a
majority of the outstanding voting securities of the fund, as defined in the
Act. Under these restrictions, the Fund may not:

1. With respect to 75% of its total assets (taken at market), invest more than
5% of the value of its total assets in the securities of any single issuer
(other than obligations issued, or guaranteed by, the United States
Government, its agencies or instrumentalities).

2. With respect to 75% of its total assets, purchase more than 10% of all
outstanding voting securities or any class of securities of any one issuer.

3. Invest 25% or more of the value of its 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 or its agencies or
instrumentalities or to cash equivalents. Cash equivalents will not be used
to concentrate investments in a single industry.

4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction shall not apply to any
obligation of the United States Government, its agencies or
instrumentalities.

INFORMATION ON MANAGEMENT AND ADMINISTRATION

PORTFOLIO MANAGERS. Mr. O. Mason Hawkins, Chairman of the Board and Chief
Executive Officer of Southeastern Asset Management, Inc. and Mr. G. Staley
Cates, President of Southeastern Asset Management, Inc., serve as co-portfolio
managers of both Funds and in this capacity jointly have primary responsibility
for investment management of each portfolio.

TRUSTEES AND OFFICERS. Each series or Fund has a Board of Trustees, composed of
the same individuals. The Boards elect officers, who implement policies
formulated by the Boards. All Fund officers are officers or employees of
Southeastern Asset Management, Inc., and in this capacity administer each Fund's
business operations.

7
<PAGE> 14

MEMBERS OF BOARDS OF TRUSTEES
LONGLEAF PARTNERS FUND AND LONGLEAF PARTNERS SMALL-CAP FUND

O. MASON HAWKINS*, CFA, Chairman of the Board and Chief Executive Officer.
Founder and Director, Southeastern Asset Management, Inc. (since 1975); Director
of Research, First Tennessee Investment Management Company, Memphis, TN
(1974-1975); Director of Research, Atlantic National Bank, Jacksonville, FL
(1972-1974); Director, Mid-America Apartment Communities, Inc. (since 1993).
Education: B.S.B.A., Finance, University of Florida, 1970; M.B.A., University of
Georgia, 1971.

W. REID SANDERS*, Trustee and President.
Founder and Director, Southeastern Asset Management, Inc. (since 1975);
Investment Officer, First Tennessee Investment Management Company, Memphis, TN
(1973-1975); Credit Analyst and Commercial Lending Official, Union Planters
National Bank, Memphis, TN (1972-1973).
Education: B.A., Economics, University of Virginia, 1971.

CHADWICK H. CARPENTER, JR., Trustee.
Senior Executive Officer in charge of corporate development, Progress Software
Corporation, Bedford, MA (a corporation engaged in the development and marketing
of software products used by developers to build and deploy commercial
applications) (since 1993); Senior Vice President, Sales and Services
(1986-1993); Vice President, Product Services (1983-1986); prior to 1983,
Manager of MIMS Systems Operation, General Electric Information Services
Company; Senior Consultant, Touche Ross & Company.
Education: B.S., Electrical Engineering, Massachusetts Institute of Technology,
1971; M.S., Electrical Engineering, Massachusetts Institute of Technology, 1972.

DANIEL W. CONNELL, JR., Trustee.
Senior Vice President -- Marketing, Jacksonville Jaguars, Ltd., Jacksonville, FL
(since 1994) (National Football League franchise); Executive Vice
President -- Corporate Banking Group and other officer positions, First Union
National Bank of Florida, Jacksonville, FL (1970-94); Chairman, Jacksonville
Chamber of Commerce (1997); Commissioner, Jacksonville Economic Development
Commission; Advisory Director, First Union National Bank of Florida.
Education: B.S.B.A., University of Florida, 1970.

STEVEN N. MELNYK, Trustee.
Chairman of the Executive Committee and President, Riverside Golf Group, Inc.,
Jacksonville, FL (since 1987) (a corporation engaged in the design, construction
and operation through ownership of golf courses throughout the southeastern US);
Golf commentator and sports marketing executive, ABC Sports (since 1991) and CBS
Sports (1982-1991); Founding director and former Chairman, First Coast Community
Bank, Fernandina Beach, FL; Winner of U.S. Amateur Championship, 1969, and
British Amateur Championship, 1971.
Education: B.S.B.A., Industrial Management, University of Florida, 1969.

C. BARHAM RAY, Trustee.
Chairman of the Board and Secretary, SSM Corporation, Memphis, TN (since 1974)
(a corporation serving as a financial advisor in the evaluation of private
businesses, in the negotiation and structuring of purchase and sale transactions
of private businesses and as a venture capital investor); Director, Financial
Federal Savings Bank, Memphis, TN.
Education: B.A., Vanderbilt University, 1968; M.B.A., University of Virginia,
1973.

- ---------------
* Mr. Hawkins and Mr. Sanders are employed by the Investment Counsel and each is
deemed to be a Trustee who is an "interested person", as that term is defined
in Section 2(a)(19) of the Investment Company Act of 1940. Mr. Carpenter
serves as Chairman of the Audit Committee, which is composed of all Trustees
who are not affiliated with the Investment Counsel. Each non-affiliated
Trustee serving throughout the year received Trustees fees from all of the
Longleaf Partners Funds aggregating $27,500 during 1996. For more information,
see the Compensation Table set forth in the section entitled "Management of
the Fund" in the Statement of Additional Information.

8
<PAGE> 15

OTHER EXECUTIVE OFFICERS

CHARLES D. REAVES, Executive Vice President.
Professional Experience: General Counsel, Southeastern Asset Management, Inc.
(since 1988); Vice President in corporate finance, Porter, White & Yardley, Inc.
Birmingham, AL (1986-1988); Senior Vice President -- Finance and Secretary
(1981-1986) and Vice President and General Counsel (1974-1981), Saunders System
Inc., Birmingham, AL.
Education: J.D., University of Alabama, 1961; LL.M (Taxation), Georgetown
University Law Center, 1966; M.B.A., Emory University, 1981.

JULIE M. DOUGLAS, CPA, Executive Vice President -- Operations & Treasurer.
Professional Experience: Southeastern Asset Management, Inc. (since 1989); Audit
Supervisor and Audit Senior, Coopers & Lybrand, Birmingham, AL and Pittsburgh,
PA (1984-1989).
Education: B.S., Accounting, Pennsylvania State University, 1984.

LEE B. HARPER, Executive Vice President -- Marketing.
Professional Experience: Southeastern Asset Management, Inc. (since 1993);
Consultant, IBM Corporation, Memphis, TN (1989-1993); Business Analyst, McKinsey
& Company, Atlanta, GA (1985-1987).
Education: B.A., University of Virginia, 1985; M.B.A., Harvard University, 1989.

G. STALEY CATES, CFA, Co-Portfolio Manager, Vice President -- Investments.
Professional Experience: President, Southeastern Asset Management, Inc. (since
1994); Vice President, Southeastern Asset Management, Inc. (1986-1994).
Education: B.B.A., Finance, University of Texas, 1986.

FRANK N. STANLEY, III, CFA, Vice President -- Investments.
Professional Experience: Vice President, Southeastern Asset Management, Inc.
(since 1984); Portfolio Manager and Analyst, Montag & Caldwell, Atlanta, GA
(1974-1984); Investment Officer, Atlantic National Bank, Jacksonville, FL (1972-
1974).
Education: B.S., Management, Georgia Institute of Technology, 1964; Graduate
study, Emory University, 1965; M.B.A., Marketing, University of Florida, 1970.

JOHN B. BUFORD, CFA, Vice President -- Investments.
Professional Experience: Southeastern Asset Management, Inc. (since 1990); Vice
President, First Tennessee Bank (1989-90); Commerical Lending Officer/Credit
Analyst, Metropolitan National Bank (1985-88).
Education: B.B.A., Finance, University of Texas, 1985.

RANDY D. HOLT, CPA, Vice President, Secretary. Professional Experience: Vice
President and Secretary, Southeastern Asset Management, Inc. (since 1994);
Secretary/Treasurer (1985-1994); Ott, Baxter, Holt (1983-1985); A.M. Pullen &
Co. (1982-1983); Harry M. Jay & Associates (1978-1982).
Education: B.S., Accounting, University of Tennessee, 1976.

INVESTMENT COUNSEL FEES. Each Fund pays Southeastern Asset Management, Inc.
("Southeastern") an investment counsel fee which is accrued daily and paid
monthly, based on the average daily net asset value of the portfolio for the
year. This fee is equal to 1% per annum of the total average daily net assets on
the first $400,000,000 in average daily net assets and 0.75% per annum of all
additional average daily net assets. Southeastern has agreed to reduce its fees
to the extent operating expenses of each separate portfolio (excluding
brokerage, interest, taxes, and extraordinary expenses) exceed 1.5% of average
annual net assets. This agreement is not expected to cause a reduction in fees
during 1997.

FUND ADMINISTRATOR. Southeastern also serves as Fund Administrator. In this
capacity, it provides business administrative and compliance services for the
Fund, which include maintaining the Fund's accounting records, computing daily
the Fund's net asset value, preparation of tax returns, financial reports,
prospectuses and proxy statements, and monitoring of compliance with all
recordkeeping and regulatory requirements.

Southeastern receives an Administration Fee which is accrued daily and paid
monthly, equivalent on an annual basis to 0.10% of the average daily net assets
of the Fund. All direct expenses incurred in continuing administration and
operations are paid by the particular portfolio, including professional fees,
insurance and bonding premiums, association dues, fees charged by Federal and
state regulatory author-

9
<PAGE> 16

ities for registration, the expenses of preparation, printing and distributing
prospectuses and financial reports to shareholders, the costs of obtaining
prices for the securities held in the portfolio, the cost of forms and supplies,
telephone and postage, any extraordinary expenses, and reimbursement of the
Administrator for the salary of the Fund's Treasurer and rental and license fees
for software used in processing Fund transactions.

HOW TO OPEN AN ACCOUNT

REGULAR ACCOUNTS. To invest in the Longleaf Partners Funds, complete and sign
the account application, and mail to the address below. PLEASE NOTE THAT THE
MINIMUM INVESTMENT REQUIRED TO OPEN AN ACCOUNT IS $10,000.

Longleaf Partners Funds
P.O. Box 419929
Kansas City, MO 64141-6929

INDIVIDUAL RETIREMENT ACCOUNTS. You can open an IRA or a SEP-IRA with State
Street Bank and Trust Company as trustee by requesting the IRA Application Kit.
This contains an explanation of tax considerations and State Street's function
as trustee. After reading the information, fill in the IRA application and the
IRA transfer form and mail to the address shown. PLEASE NOTE THAT THE MINIMUM
INITIAL INVESTMENT IS $10,000, WHICH MUST BE SATISFIED PRIMARILY BY TRANSFERRING
FUNDS FROM AN EXISTING IRA OR A QUALIFIED RETIREMENT PLAN. YOU WILL BE CHARGED
AN INITIAL SET-UP FEE OF $15 AND A $10 ANNUAL MAINTENANCE FEE.

HOW TO PURCHASE SHARES

Direct purchases from the Longleaf Partners Funds are not subject to sales
commissions or transaction fees. Initial direct purchases from the Funds must
meet the $10,000 minimum; additional investments of any amount may be made as
often as desired. You may purchase shares directly from the Funds in the
following manner:

BY MAIL. To purchase shares into existing accounts by mail, send a check
payable to Longleaf Partners Funds along with the remittance stub from the
bottom of your most recent transaction statement to:

Longleaf Partners Funds
P.O. Box 419929
Kansas City, MO 64141-6929

INCLUDE THE NAME OF THE FUND AND YOUR ACCOUNT NUMBER ON THE CHECK or, if the
purchase is for a new account, include your account application and mail to the
address listed above.

If your check is returned because of insufficient funds or because you have
stopped payment on the check, you will be responsible for any losses sustained
by the Fund as the result of custodian or transfer agent fees or a decline in
the net asset value when the shares issued are cancelled. If you are an existing
shareholder, losses may be collected by redeeming the appropriate amount from
your account.

BY AUTOMATIC MONTHLY INVESTMENT. Once you have an account, you can make
automatic investments of $100 or more each month by filling in the Automatic
Monthly Investment Plan section of the application and sending a voided check
from your bank account. The transfer agent does not charge for the Automatic
Monthly Investment Plan, but your bank or credit union may charge a fee for this
service. Transfers will occur on the business day around the 21st day of each
month as affected by weekends and bank holidays. You may cancel this plan, or
change the withdrawal amount any time by written notice.

BY WIRE. You may purchase shares by wire. To do so:

1) Call the transfer agent at (800) 488-4191 to establish an account. Be
prepared to provide necessary registration information as listed on the
application. You will be provided with an account number.

10
<PAGE> 17

2) Instruct your bank to wire funds as follows:

<TABLE>
<S> <C>
- State Street Bank and Trust Company,
Boston, MA
- ABA routing number 011000028
- Specify Longleaf Partners Fund (# 133)
or Longleaf Partners Small-Cap Fund
(# 134)
- A/C# 9905-023-9
- your account number and your name
</TABLE>

If you are opening an account by wire, a completed application must be sent to
the Funds as soon as possible. There can be no redemptions until a completed
application has been received by the Funds.

CERTIFICATES. If you want to receive stock certificates with your purchases,
you must send written instructions. Unless shares are purchased with wired
funds, your certificate will not be issued until 15 days after your purchase.
Please note that if you request certificates when you purchase shares, you
cannot redeem those shares without returning the certificates. If you lose your
certificates, you may incur a cost to replace them.

PURCHASES AND REDEMPTIONS OF FUND SHARES THROUGH BROKERAGE FIRMS. Shares of
Longleaf Partners Funds may be purchased and redeemed through securities
brokerage firms having agreements with the Fund. The brokerage firm may charge
certain transaction fees for effecting these and other transactions and any such
transaction fees will be retained by the particular brokerage firm. Fund
investors who are clients of brokerage firms will follow that firm's procedures
in purchasing and redeeming Fund shares, and those procedures take precedence
over the instructions contained in this Prospectus which are applicable to
accounts opened directly with the Fund. The brokerage firm has the
responsibility of supplying its clients who are Fund shareholders with periodic
account statements and all Fund shareholder materials such as the Prospectus and
routine financial reports.

TELEPHONE SUBSCRIPTIONS FROM BROKERAGE FIRMS. Upon execution of formal trading
agreements, the Funds will accept telephone trade orders of $100,000 or less
from a member firm of a national securities exchange, and orders of $50,000 or
less from other members of the NASD, if shares are purchased for the member's
account or for the account of a customer. Larger phone orders require special
agreements with the Funds. Full payment must be received on all trade orders
within one day of the trade date. The broker/dealer placing the order will be
responsible for any loss resulting from cancellation caused by non-payment. The
broker/dealer may charge a reasonable transaction fee for its services, which it
will retain. The Fund may verify the identity and authorization of any member
firm or broker/dealer prior to accepting an order, and may withdraw the
privilege of placing trade orders if in the best interests of the Fund.

HOW TO REDEEM SHARES

PROCEDURES. You may withdraw any portion of your account by redeeming a
specific number of shares or a fixed dollar amount at any time. Redemption
proceeds are normally mailed within one day of receipt of the redemption request
in Good Order. Good Order means that you have a completed application on file
and that the redemption request includes:

1) Account number and fund name (Longleaf Partners Fund (# 133) or Longleaf
Partners Small-Cap Fund (# 134))

2) Amount of the transaction (specified in dollars or shares)

3) Signatures of all owners exactly as they are registered on the account

4) Signature guarantees if required and applicable (see below)

5) Fund certificates if applicable

6) Other supporting legal documents that may be required in cases of
estates, corporations, trusts and certain other accounts.

If you have questions about these requirements, please call the transfer agent
at (800) 488-4191.

The Fund must have received payment for the shares being redeemed, and may delay
redemption payment (normally not more than 15 days) until

11
<PAGE> 18

the Fund has assured itself that collected payment has been received for the
initial share purchase.

REDEMPTION PRICE AND FEES. The redemption price of shares will be the Fund's
net asset value per share next determined after the Fund has received all
required documents in Good Order. (See "How Shares Are Priced" on page 13). The
redemption price may be more or less than the shares' original cost. The Funds
charge no fee for redeeming shares from a regular account.

BY MAIL. Mail your redemption requests and required documentation to:

Longleaf Partners Funds
P.O. Box 419929
Kansas City, MO 64141-6929

The Fund suggests that redemption requests be sent by registered or certified
mail to the above address or by overnight courier to Longleaf Partners Funds;
c/o NFDS, Transfer Agent; 1004 Baltimore, 5th Floor; Kansas City, MO 64105.

BY TELEPHONE. You may authorize the transfer agent to accept telephone
redemptions of $25,000 or less for regular accounts by selecting this option on
your application. Telephone redemptions may not be used for IRA's. Proceeds of
telephone redemptions will be sent only to the mailing address designated in the
application or will be wired only to the commercial bank account so designated.
If you call before 4:00 p.m. Eastern Time, you will receive that day's closing
price; redemption requests made after 4:00 p.m. Eastern Time will receive the
next day's closing price. Once initiated, a telephone redemption request cannot
by changed or cancelled. Any changes in the instructions contained in the
application must be made in writing with a signature guarantee, and may be
verified by the transfer agent before a redemption will be allowed.

The transfer agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, which include use of
specific identifying information. When such procedures are followed, the Fund
and its transfer agent will not be liable for losses caused by following
telephone instructions which are reasonably believed to be genuine. The Fund
reserves the right to revise or terminate the telephone redemption at any time.

SIGNATURE GUARANTEE. Redemptions over $25,000 must be made in writing and
require a signature guarantee. The signatures must correspond to the names in
which the account is registered, and all registered owners must sign the request
and have their signatures guaranteed. To obtain a signature guarantee, a member
firm of a domestic stock exchange, a U.S. commercial bank or other financial
institution that is an eligible guarantor institution, must witness the
signature and stamp the document with the appropriate certification. A notary
public is not an eligible guarantor.

OTHER INFORMATION. Longleaf Partners Funds may suspend the redemption right or
postpone payment at times when the New York Stock Exchange is closed for other
than weekends or holidays, or under emergency circumstances as permitted by the
U.S. Securities and Exchange Commission.

OTHER SHAREHOLDER SERVICES

CONFIRMATION AND REPORTS. You will receive a confirmation statement after each
transaction showing your current account status. You will also receive a
statement of your account after the end of each calendar quarter. In addition,
you will receive a quarterly report on the Fund's portfolio and an audited
annual report for the year ending December 31. You will receive all tax
documentation as required by the IRS.

The Annual Report of each Fund for the fiscal year ended December 31, 1996
contains Management's Discussion of Fund Performance for that fiscal year,
supplemented by graphs depicting the particular fund's change in value from its
inception through the end of the fiscal year compared with a major, unmanaged
stock market index. These Annual Reports may be obtained without charge by
telephoning the Fund at (800) 445-9469, and pressing "1".

TRANSFER AGENT. National Financial Data Services ("NFDS"), an affiliate of
State Street Bank and Trust Company, serves as the Funds' transfer agent and
dividend disbursing agent. As transfer agent, NFDS maintains all shareholder
accounts and records, serves as stock transfer agent, prepares and sends
confirmations and other reports to shareholders, and handles all shareholder
servicing. If you have questions about your account, please call NFDS at (800)
488-4191.

12
<PAGE> 19

HOW SHARES ARE PRICED

OFFERING PRICE. The public offering price is the net asset value per share (see
"Computation of Net Asset Value", below) next determined after receipt of your
check or wire transfer of funds for the minimum initial purchase, or after a
telephone order from an authorized broker/dealer. All applications to establish
an account are subject to acceptance by the Fund. For subsequent purchases, the
applicable net asset value per share is that next determined after receipt by
the Fund of the check or wire transfer payment, or the telephone order by the
investor's broker/dealer.

COMPUTATION OF NET ASSET VALUE. The net asset value per share of the Fund is
determined as of the close of trading on each day that the New York Stock
Exchange is open for business. Net asset value per share is computed by taking
the value of all assets of the portfolio, subtracting its liabilities as accrued
daily, dividing by the number of shares outstanding and adjusting to the nearest
two decimal places. Presently, the New York Stock Exchange closes at 4:00 p.m.
New York City time. In the calculation of net asset value:

(1) portfolio securities listed or traded on a securities exchange and
over-the-counter securities traded on the NASDAQ national market are
valued at the last sale price; if there were no sales that day, securities
listed on major exchanges are valued at the midpoint between the latest
available and representative bid and asked prices;

(2) all other portfolio securities for which over-the-counter market
quotations are readily available are valued at the midpoint between the
latest available and representative bid and asked prices;

(3) when market quotations are not readily available, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Trustees;

(4) valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors;

(5) the fair value of United States Government obligations and other debt
securities which mature at a date less than ninety days subsequent to
valuation date will be determined on an amortized cost basis; and

(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.

DISTRIBUTIONS AND TAXES

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS. The practice of the Fund has been to
pay any dividends from net investment income annually and to make distributions
of any net realized capital gains annually, at the end of December.

Unless you have elected to the contrary in the original account application, all
income dividends and all capital gains distributions are reinvested
automatically in full and fractional shares of the Fund at the net asset value
per share next determined on the ex-dividend date of such dividend or
distribution. A shareholder may elect to have subsequent income dividends or the
aggregate of income dividends and capital gains distributions paid in cash
rather than reinvested in additional shares of the Fund by notifying the
transfer agent in writing.

TAXES. Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Federal Internal Revenue Code of 1986 by distributing
substantially all net investment income and net realized capital gains in the
form of dividends. As a result, management expects that neither Fund will incur
any significant Federal income tax liability. Should the Fund fail to distribute
the required minimum amounts, it would be subject to a non-deductible 4% excise
tax on certain undistributed taxable income and realized capital gains.

13
<PAGE> 20

bution has the effect of reducing the net asset value per share on the record
date by the amount of the payment. Such a distribution paid shortly after the
purchase of shares by an investor would be similar to a return of capital to the
investor even though it is subject to taxation as a distribution by the Fund.

Information will be provided promptly after the close of each taxable year as to
the proper classification of any net investment income and capital gains
distributions, and the amounts of any expenses which are non-deductible. The
shareholder should recognize that any distributions, whether received in cash or
invested in additional shares, are taxable for purposes of the Federal income
tax and such payments may also be subject to state income taxes. Distributions
by regulated investment companies and the sale of shares of such companies are
classified as "portfolio income", which includes dividends, interest income, and
capital gains or losses attributable to the disposition of property held for
investment.

This discussion about taxes is a general and abbreviated summary of the
provisions of the Federal Internal Revenue Code and Regulations as applicable to
the Fund and individual shareholders. These provisions are subject to change by
legislative or administrative action. Shareholders are advised to consult their
own tax advisors for more detailed information concerning federal, state and
local income taxation of investment company distributions as applied to their
particular circumstances.

SIGNIFICANCE OF FUNDS' NAMES

The name "Longleaf", derived from the longleaf pine, a majestic, sturdy tree
indigenous to the southeastern United States, represents the qualities of
strength and endurance. A second element of the name is the word "Partners." In
selecting portfolio investments, Southeastern seeks corporate managers who would
make exemplary long-term business partners. They should be properly incented,
ownership vested, honest, shareholder oriented, operationally competent
individuals who are capable of allocating corporate resources intelligently. The
Fund endeavors to be a supportive long-term "partner" with management of the
companies in which investments are made. Correspondingly, the manager's own
partners, other personnel, and relatives, are major investors in the Fund.
Management considers itself a "partner" with Fund shareholders in the sense that
together all are seeking long-term total return. The Fund desires loyal,
long-term investors as shareholders who view themselves as "partners" with Fund
management in the same sense.

ADDITIONAL INFORMATION

ALLOCATION OF PORTFOLIO BROKERAGE. Decisions to buy or sell investment
securities for each portfolio of the Fund are made by Southeastern, under the
supervision of the Board of Trustees. Southeastern has been granted authority,
in the name of the Fund, to place the orders for the execution of the Fund's
investment portfolio transactions. When placing such orders, Southeastern uses
its best efforts to obtain the most favorable price and execution, as more fully
described in the Statement of Additional Information, and places such orders
subject to and in accordance with directions of the Board of Trustees from time
to time. The Fund may pay higher commissions to certain brokers for particular
transactions than might be charged if a different broker had been selected on
occasions when, in Southeastern's opinion, this policy furthers the objective of
obtaining the most favorable price and execution for the transaction.

The Board of Trustees of the Fund has adopted a policy which permits
Southeastern to consider research and other investment information provided by a
broker/dealer, its sales of shares of the Fund, and the supplying of other
economic benefits which reduce the Fund's expenses as factors in selecting
broker/dealers qualified to execute portfolio transactions for the Fund.
Southeastern is authorized to pay higher commissions on brokerage transactions
for the Fund in order to secure research and investment services and other
specific benefits for the Fund, subject to review by the Fund's Board of
Trustees as to the extent and continuation of this practice. Sales of Fund
shares by a broker are one factor among others to be taken into account in
allocating portfolio transactions, but higher commissions will not be paid
solely for sales of Fund shares. The Fund is not committed to execute portfolio
transactions through any particular broker/dealers which provide investment
research information, or which sell shares of the Fund or provide other
benefits. The Board of Trustees monitors executions of portfolio transactions at
least quarterly to assure itself that

14
<PAGE> 21

these principles are being appropriately implemented.

INVESTMENT PERFORMANCE INFORMATION. The Funds may publish their total returns
from time to time in advertisements and in communications to shareholders,
calculated by using an industry standardized formula, as more fully described in
the Statement of Additional Information. Total return information will include
the average annual compounded rate of return for the 12 month and 5 year periods
ended at the close of the most recent calendar quarter, and for the period from
inception of operations through the end 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. For all of these purposes, total return
includes changes in net asset value per share and reinvestment in additional
shares of any dividends from net investment income or other distributions. An
example of such a calculation is included in the Statement of Additional
Information. INVESTORS SHOULD UNDERSTAND THAT INVESTMENT RESULTS WILL FLUCTUATE
OVER TIME, AND AN INVESTMENT MAY BE WORTH MORE OR LESS THAN THE PURCHASE PRICE,
DEPENDING ON THE TIMING OF THE INVESTMENT AND STOCK MARKET PERFORMANCE. ANY
PRESENTATION OF THE TOTAL RETURN FOR ANY PRIOR PERIOD IS NOT INTENDED TO BE A
REPRESENTATION OF FUTURE TOTAL RETURN.

Each Fund may compare its performance to that of widely recognized unmanaged
stock market indicies, including the Dow Jones Industrials Average and Standard
& Poor's 500 Stock Index. 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 services such as Lipper Analytical Services, Inc.
(an independent rating service that ranks most mutual funds based upon total
return performance), CDA Technologies, Morningstar, Inc., and The Value Line
Mutual Fund survey. The Funds may also provide information on their relative
rankings as published in such newspapers and magazines as The Wall Street
Journal, Barron's, Investor's Daily, Forbes, Business Week, Money, Financial
World, and other similar publications of general interest.

MASSACHUSETTS BUSINESS TRUST PROVISIONS. Longleaf Partners Funds Trust was
organized as a Massachusetts business trust on November 26, 1986. Each series or
Fund is authorized to issue an unlimited number of shares of beneficial
interest, all of which are of one class and have equal rights as to voting,
redemption, dividends and liquidation. Upon receipt of payment for shares, all
shares issued and outstanding are fully paid and nonassessable and are
redeemable at the net asset value per share at the option of shareholders as
more fully described in the section entitled "How to Redeem Shares". Shares have
no preemptive or conversion rights. For information on limitation of liability
and indemnification of Shareholders, Trustees and other affiliated parties, see
the section in the Statement of Additional Information entitled "Limitation of
Liability of Shareholders, Trustees and Others". The Fund's registered address
in the Commonwealth of Massachusetts is Two Oliver Street, Boston, Massachusetts
02109.

A mutual fund which is a Massachusetts business trust is not required by state
law to hold annual meetings of shareholders. Accordingly, shareholders' meetings
must be held only in certain specific situations required by the Investment
Company Act of 1940. Whether annual meetings will be held in the future when not
specifically required by that Act will be at the discretion of management of the
Funds.

CODE OF ETHICS. The Fund and Southeastern Asset Management, Inc. have adopted a
written Code of Ethics which requires all employees to limit their investments
in publicly offered equity securities to shares of the Longleaf Partners Funds
unless prior clearance before engaging in any other personal securities
transactions. All employees must report their personal securities transactions
at the end of each quarter. Employees will not be permitted to effect
transactions in a security if there are pending Fund or client orders in the
security; if the security has been purchased or sold by the Fund or a client
within fifteen calendar days; the security is being considered for purchase by
the Fund or a client; or the security is subject to internal trading
restrictions. In addition, employees are prohibited from engaging in short-term
trading (purchases and sales involving the same security within 60 days
resulting in a profit). Any material violation of the Code of Ethics is reported
to the Board of the Fund. The Board also reviews the administration of the Code
of Ethics on an annual basis.

EXCEPTIONS TO INVESTMENT MINIMUM. The minimum initial purchase requirement is
not applicable to Trustees or officers of the Fund, or to directors, officers or
employees of the Investment Counsel.

15
<PAGE> 22

These persons and their relatives may open an account with a minimum initial
investment of $1,000. Members of the immediate families of shareholders having
invested at least $250,000 and clients of Southeastern or management personnel
of clients having private accounts of at least $2,000,000 may open a Fund
account with a minimum initial investment of $5,000. Any investor seeking one of
the above exceptions must obtain prior approval of Fund management.

16
<PAGE> 23

INVESTMENT COUNSEL
Southeastern Asset Management, Inc.
6075 Poplar Avenue, Suite 900
Memphis, TN 38119
(901) 761-2474

TRANSFER AND DIVIDEND AGENT
National Financial Data Services ("NFDS")
P.O. Box 419929
Kansas City, MO 64141-6929
For Information about your account,
call (800) 488-4191

CUSTODIAN
State Street Bank & Trust Company, Boston, MA

SPECIAL LEGAL COUNSEL
Dechert Price & Rhoads, Washington, DC

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Coopers & Lybrand, L.L.P., Boston, MA

No person has been authorized to give any further information or make any
representations other than those contained in this Prospectus. If given or made,
such other information or representations must not be relied upon as having been
authorized by the Fund, Investment Counsel, or Administrator. This Prospectus
does not constitute an offering in any state where such an offering may not be
lawfully made.

LONGLEAF
PARTNERS
LOGO FUNDS

MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
6075 POPLAR AVE.
SUITE 900
MEMPHIS, TN 38119
(901) 761-2474
(800) 445-9469

Prospectus

March 24, 1997

LONGLEAF
PARTNERS
FUND

LONGLEAF
PARTNERS
SMALL-CAP FUND

MANAGED BY:

SOUTHEASTERN ASSET

MANAGEMENT, INC.
<PAGE> 24

LONGLEAF PARTNERS FUND
and
LONGLEAF PARTNERS SMALL-CAP FUND

PART B

INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 25

TABLE OF CONTENTS

<TABLE>
<S> <C>
- - Fundamental Investment Restrictions.............. 1
- - Changes in Investment Policies and Fundamental
Investment Restrictions.......................... 2
- - Additional Information About Investment
Policies......................................... 3
- - Management of the Fund........................... 4
- - Control Persons and Principal Holders of
Securities....................................... 5
- - Investment Advisory Services..................... 5
- - Investment Performance and Total Return.......... 6
- - Other Management Related Services................ 8
- - Brokerage Allocation............................. 9
- - Distribution of Fund Shares...................... 10
- - Terms of Agreements.............................. 10
- - Redemption of Fund Shares........................ 11
- - Custodian of Fund Assets......................... 11
- - Independent Certified Public Accountants......... 11
- - Legal Counsel.................................... 11
- - Limitation of Liability of Shareholders, Trustees
and Others....................................... 12
- - Financial Statements............................. 12
</TABLE>

LOGO LONGLEAF
PARTNERS
FUNDS

STATEMENT OF
ADDITIONAL INFORMATION

------------------------

LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS
SMALL-CAP FUND

------------------------
MANAGED BY
SOUTHEASTERN ASSET MANAGEMENT, INC.
6075 POPLAR AVENUE; SUITE 900
MEMPHIS, TN 38119
------------------------

THIS STATEMENT OF ADDITIONAL INFORMATION, DATED MARCH
24, 1997 IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF LONGLEAF
PARTNERS FUND AND LONGLEAF PARTNERS SMALL-CAP FUND,
ALSO DATED MARCH 24, 1997, WHICH MAY BE OBTAINED
WITHOUT CHARGE UPON REQUEST MADE TO THE FUND
ADMINISTRATOR, SOUTHEASTERN ASSET MANAGEMENT, INC.

TELEPHONE (800) 445-9469; (901) 761-2474.

<PAGE> 26

STATEMENT OF ADDITIONAL INFORMATION
---------------------

LONGLEAF PARTNERS FUND
AND
LONGLEAF PARTNERS SMALL-CAP FUND

Series of

LONGLEAF PARTNERS FUNDS TRUST
---------------------

ADDITIONAL INFORMATION ABOUT INVESTMENT
RESTRICTIONS AND POLICIES

FUNDAMENTAL INVESTMENT RESTRICTIONS

Longleaf Partners Fund and Longleaf Partners Small-Cap Fund are series of
Longleaf Partners Funds Trust, a registered open-end management investment
company. The fundamental investment objectives and restrictions, and the general
investment policies of each series or Fund are described in the Prospectus.

One of these fundamental investment restrictions provides that the Fund
will not invest 25% or more of total assets of the particular portfolio in the
securities of issuers in any one industry. (This restriction does not apply to
obligations issued by the U.S. Government or its agencies or instrumentalities).
For purposes of defining what constitutes a single industry for purposes of this
restriction, each portfolio will use the SIC Industry Code definitions for
industries, as set forth in the latest edition of the Securities & Exchange
Commission publication entitled "Directory of Companies Required to File Annual
Reports with the Securities & Exchange Commission" or as otherwise publicly
available. Industry category groupings shown in the printed reports sent
quarterly to shareholders may contain more than one SIC Industry Code, and these
broader industry groupings are intended to be functionally descriptive
presentations rather than being limited to a single SIC industry category.

In addition to the investment objective and the four numbered investment
restrictions described in the Prospectus, both funds have adopted certain other
investment restrictions which are fundamental and cannot be changed except by
vote of the holders of a majority of the outstanding voting securities of that
portfolio. References to the "Fund" apply to both portfolios. As a result of
these restrictions, each series or portfolio may not engage in the following
activities, except as specifically authorized:

Neither portfolio of the Fund may:

1. Borrow money, except for temporary purposes such as obtaining
short-term credits for purposes of clearance of purchases and sales of
portfolio securities in an amount not to exceed 5% of the value of its
total assets at the time of borrowing, and except for temporary purposes to
satisfy redemption requests which might require the unexpected disposition
of securities in an amount not to exceed 15% of the value of its total
assets; provided, however, that aggregate borrowing at any time may not
exceed 15% of the value of the portfolio's total assets.

2. Mortgage pledge or hypothecate any of its assets, except to secure
permitted borrowings up to 15% of the value of its total assets at the time
of borrowing.
- --------------------------------------------------------------------------------

THIS STATEMENT OF ADDITIONAL INFORMATION, DATED MARCH 24, 1997 IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF LONGLEAF
PARTNERS FUND AND LONGLEAF PARTNERS SMALL-CAP FUND, ALSO DATED MARCH 24, 1997,
WHICH MAY BE OBTAINED WITHOUT CHARGE UPON REQUEST MADE TO THE FUND
ADMINISTRATOR, SOUTHEASTERN ASSET MANAGEMENT, INC.

1
<PAGE> 27

3. Purchase the securities of any other investment company, except by
purchase in the open market where to the best information of the Investment
Counsel, no commission or profit to a sponsor or dealer (other than the
customary broker's commission) results from such purchase, or except when
such purchase is part of a merger, consolidation or acquisition of assets.

4. Underwrite the securities of other issuers, except that the
portfolio may invest in securities that are illiquid or not readily
marketable without registration under the Securities Act of 1933, as
amended, including repurchase agreements of more than 7 days duration, if
immediately after the making of such investment not more than 10% of the
value of the portfolio's total assets would be so invested.

5. Purchase or sell real estate, except that the portfolio may invest
in marketable securities collateralized by real estate or interests therein
or in securities issued by companies that invest in real estate or
interests therein.

6. Invest in commodities or commodity futures contracts, or in
interests in oil, gas, or other mineral exploration or development
programs.

7. Engage in short sales of securities, or write a purchase put, call,
straddle, or spread option, except that the portfolio may write covered
call options with respect to its portfolio securities listed on a national
securities exchange and enter into closing purchase transactions with
respect to call options so listed or quoted.

8. Make loans, except loans of portfolio securities having a value
which is not in excess of 20% of the portfolio's total assets and except
that the purchase of a portion of an issue of publicly distributed notes,
bonds or other evidences of indebtedness or deposits with banks and other
financial institutions shall not be considered to be loans for purposes of
this restriction.

9. Purchase securities on margin, but obtaining short-term credits
from banks for the clearance of purchases or sales of securities shall not
be considered to be margin purchases for purposes of this restriction.

10. Issue senior securities, except insofar as the portfolio may be
deemed to have issued a senior security in connection with any permitted
borrowing.

CHANGES IN INVESTMENT POLICIES AND
FUNDAMENTAL INVESTMENT RESTRICTIONS

The investment objectives and the fundamental investment restrictions of
each Fund, as described in the Prospectus and this Statement of Additional
Information, may not be changed without the vote of the holders of a majority of
the outstanding voting securities. Under the Investment Company Act of 1940, a
"vote of a majority of the outstanding voting securities" means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of the
particular portfolio 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.

From time to time, either Fund may adopt additional investment restrictions
which may be required under the laws or regulations of a particular state in
which shares may be registered for sale or which may be necessary or desirable
for other policy reasons. Such investment restrictions would not be fundamental
in the sense discussed above, and would be subject to amendment or termination
at the discretion of the Board of Trustees should the particular law,
regulation, or policy be changed or in the event the registration of the Fund's
shares in the particular state imposing the limitation or requirement should be
discontinued. In addition, the Fund's Investment Policies and the discussion of
the types of portfolio investments as described

2
<PAGE> 28

in the Prospectus and herein, are not fundamental and may be similarly so
changed in the discretion of the Board of Trustees. Any such changes in
investment policy or restrictions will be disclosed through appropriate
modifications of the Prospectus or Statement of Additional Information.

ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES

The following sections provide expanded discussion of several of the types
of investments and investment techniques which may be used by both portfolios
which are not discussed in the Prospectus. These sections apply to each series
or Fund, and references to "the Fund" are applicable to both:

Warrants. The Fund may invest in warrants which entitle the holder to buy
equity securities at a specific price for a specific period of time. Warrants
may be considered more speculative than certain other types of investments in
that they do not entitle a holder to dividends or voting rights with respect to
the securities which may be purchased nor do they represent any rights in the
assets of the issuing company. Also, 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.

Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio to brokers or dealers, banks or other
institutional investors and receive collateral in the form of United States
Government obligations or money market funds. Under the Fund's 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 Fund's portfolio. In determining whether to
lend securities to a particular broker/dealer or financial institution, the
Investment Counsel will consider all relevant facts and circumstances, including
the credit-worthiness of the broker or financial institution. If the borrower
should fail to return the loaned securities, the 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 Fund may pay
reasonable finders, administrative and custodial fees in connection with such a
loan of securities. The Fund will not lend portfolio securities in excess of 20%
of the value of its total assets, nor will the Fund lend its portfolio
securities to any officer, director, trustee, employee of affiliate of the Fund
or the Investment Counsel.

Options. The Fund may time to time write (sell) covered call options on
certain of its portfolio securities. The Fund intends only to engage in
transactions in exchange-traded options. A covered call option is an option to
purchase a portfolio security owned by the Fund. In such a transaction, the Fund
obligates itself to sell the underlying security to the purchaser of the option
at a fixed price if the purchaser exercises the option during the option period.
In return, the Fund receives a premium from the purchaser. During the option
period, the Fund foregoes the opportunity to profit from any increase in the
market price of the security above the exercise price of the option, but retains
the risk that the price of the security may decline.

The Fund may seek to terminate its obligation as a writer of a call option
prior to its expiration by entering into a "closing purchase transaction". There
is no assurance that the Fund will be able to effect a closing purchase
transaction, particularly with respect to thinly traded call options. The
selling of call options could result in an increase in the Fund's portfolio
turnover rate, particularly in periods of appreciation in the market price of
the underlying securities.

3
<PAGE> 29

MANAGEMENT OF THE FUND

Each series or portfolio of the Fund is supervised by its Board of
Trustees, which implements policies through the Fund's principal executive
officers. Day to day portfolio management and fund administration is provided by
Southeastern Asset Management, Inc., in its capacity as Investment Counsel and
as Fund Administrator under separate contracts which must be renewed at periodic
intervals, as required by the Investment Company Act of 1940.

The names, principal occupations during at least the past five years and
other information with respect to members of the Board of Trustees and executive
officers are set forth in the Prospectus, following the section entitled
"Information on Management and Administration." The following table provides
information on aggregate compensation paid by all series of Longleaf Partners
Funds Trust to the individual Trustees serving during the fiscal year ended
December 31, 1996:

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
NAME OF PERSON; AGGREGATE COMPENSATION
POSITION (AGE) COMPENSATION FROM
ADDRESS FROM FUNDS FUNDS**
--------------- ------------ ------------
<S> <C> <C>
O. Mason Hawkins*........................................... None None
Chairman of the Board and CEO (49)
Chadwick H. Carpenter, Jr................................... $27,500 $27,500
Trustee (46)
14 Oak Park
Bedford, MA 01730
John R. McCarroll, Jr....................................... $18,234 $18,234
Trustee (56)
6262 Poplar Ave.
Ste. 201
Memphis, TN 38119
(Served from January 1, 1996 to August 29, 1996)
Steven N. Melnyk............................................ $27,500 $27,500
Trustee (50)
111 Riverside Ave.
Ste. 330
Jacksonville, FL 32202
</TABLE>

4
<PAGE> 30

<TABLE>
<CAPTION>
TOTAL
NAME OF PERSON; AGGREGATE COMPENSATION
POSITION (AGE) COMPENSATION FROM
ADDRESS FROM FUNDS FUNDS**
--------------- ------------ ------------
<S> <C> <C>
$27,500 $27,500
C. Barham Ray...............................................
Trustee (50)
785 Crossover Lane
Ste. 218
Memphis, TN 38117
W. Reid Sanders*............................................ None None
Trustee and President (46)
</TABLE>

- ---------------

The schedule of Trustees fees for each non-interested Trustee, effective
April 1, 1997, is as follows: Longleaf Partners Fund -- $15,000 per annum;
Longleaf Partners Small-Cap Fund -- $7,500 per annum; Longleaf Partners Realty
Fund -- $7,500 per annum.

* Trustee is an "interested" person because of employment by Southeastern Asset
Management, Inc., the Investment Counsel. The "interested" Trustees and all
executive officers of the Fund are officers or employees of the Investment
Counsel, which pays their salaries and other employee benefits. Its address
is 6075 Poplar Ave., Ste. 900, Memphis, TN 38119.
** The Funds have no pension or retirement plan for Trustees who are classified
as non-"interested" or non-affiliated.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Each Fund is controlled by its respective Boards of Trustees. Each Board of
Trustees consists of six members, four of whom are independent of the Investment
Counsel and are not "interested persons" as that term is defined in the
Investment Company Act of 1940.

As of December 31, 1996, the following are the groups of owners of shares
of each of the two Funds owning 5% or more of the outstanding shares:

Longleaf Partners Fund. Clients of Charles Schwab & Company, a registered
brokerage firm, owned approximately 15.4% of the outstanding shares in several
omnibus brokerage accounts.

Longleaf Partners Small-Cap Fund. Clients of Charles Schwab & Company, a
registered brokerage firm, owned approximately 15.8% in an omnibus brokerage
account; clients of National Financial Services Corp., a registered brokerage
firm, owned approximately 10.1% in an omnibus brokerage account; Mr. O. Mason
Hawkins, Chairman, owned individually approximately 6.4%; other directors,
trustees, officers and employees of Southeastern Asset Management, Inc. and
Southeastern's profit sharing plan, and members of their immediate families
owned an additional 9.5%, although no individual in this group owned as much as
5% of the outstanding shares.

INVESTMENT ADVISORY SERVICES

Southeastern Asset Management, Inc., an investment advisor registered with
the Securities and Exchange Commission under the Investment Advisers Act of
1940, is the Fund's Investment Counsel. The firm is owned and controlled by its
principal officers, who are listed in the Prospectus as affiliated Trustees and
Executive Officers and who are also either Trustees or officers of each Fund.

5
<PAGE> 31

Formed in 1975, the Investment Counsel engages in the business of managing
institutional and individual assets in private or separate accounts as well as
mutual funds, and is responsible for managing more than $7.7 billion in such
assets. It has served as investment adviser to Longleaf Partners Fund and
Longleaf Partners Small-Cap Fund since their respective inception dates in 1987
and 1988. Additional information with respect to the investment advisory
function is contained in the Prospectus under the caption "Investment
Management".

The Investment Counsel Fee, calculated daily and payable monthly, is 1% per
annum of the average daily net assets of each portfolio of the Fund for the
first $400 million of average daily net assets and 0.75% of average daily net
assets exceeding $400 million. The Investment Counsel limits the normal
operating expenses of each series, taken separately, including all fees but
excluding interest, taxes, brokerage commissions, and certain extraordinary
charges, to a maximum of 1.5% of each portfolio's average net assets in any
fiscal year through a reduction of its advisory and administration fees. No such
reductions were required during the fiscal year ended December 31, 1995.
Investment advisory fees paid for the fiscal years ended December 31, 1996,
1995, and 1994, respectively are: Longleaf Partners Fund -- $17,004,,356,
$11,548,213, and $5,234,469; Longleaf Partners Small-Cap Fund -- $1,735,200,
$1,217,369, and $913,327.

The Fund's portfolio turnover rate is computed by dividing the lesser of
purchases or sales of securities for the period by the average value of
portfolio securities for that period. A portfolio turnover rate of 50% would
occur if one-half of the portfolio of securities was replaced during a period of
one year, while a portfolio turnover rate of 100% would occur if all of the
portfolio of securities was replaced during a period of one year. Specific
information on portfolio turnover rates and annualized operating expenses is set
forth in the tables on page 3 of the Prospectus.

INVESTMENT PERFORMANCE AND TOTAL RETURN

Total Return Calculation. The average annual total return on an investment
in shares of the Fund 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 by the Fund 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).

6
<PAGE> 32

The average annual total returns for the two Funds for each full year since
inception are as follows:

<TABLE>
<CAPTION>
LONGLEAF LONGLEAF
PARTNERS PARTNERS
FUND SMALL-CAP FUND
-------- --------------
<S> <C> <C>
1996........................................................ 21.02% 30.64%
1995........................................................ 27.50% 18.61%
1994........................................................ 8.96% 3.64%
1993........................................................ 22.20% 19.83%
1992........................................................ 20.47% 6.87%
1991........................................................ 39.19% 26.31%
1990........................................................ (16.35%) (30.05%)
1989........................................................ 23.27% 32.78%
1988........................................................ 35.27% --
</TABLE>

The average annual total returns for each series for the twelve months and
five years ended December 31, 1996 and for the periods from initial public
offering through December 31, 1996, all using the above formula, are as follows:

<TABLE>
<S> <C>
LONGLEAF PARTNERS FUND
12/31/95-12/31/96........................................... 21.02%
12/31/91-12/31/96........................................... 19.87%
04/08/87-12/31/96........................................... 15.82%
LONGLEAF PARTNERS SMALL-CAP FUND
12/31/95-12/31/96........................................... 30.64%
12/31/91-12/31/96........................................... 15.52%
02/21/89-12/31/96........................................... 10.60%
</TABLE>

Use of Total Return information. Average annual total return information
may be useful to investors in considering each Fund's past investment
performance. However, certain factors should be taken into account before basing
an investment decision on this information. First, in comparing the Fund's total
return with the total return of any market indices for the same period, the
investor should be aware that market indices are unmanaged, contain different
and generally more numerous securities than the Fund's portfolio, and some
market indices are not adjusted for reinvested dividends. Further, no adjustment
is made in the Fund's total returns or the total returns of any market indices
for taxes payable on distributions.

The Fund is an equity investment. As a result, its total return will
fluctuate over time, and the total return for any past period is not an
indication or representation as to future rates of total return. When comparing
each Fund's total returns with those of other alternatives such as fixed income
products, 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 Longleaf Funds are designed for investors who are willing to accept such
greater market risks in the hope of realizing greater long-term gains. There is
no assurance, however, that either Fund's investment objective of long-term
capital growth will be achieved.

Reporting of Net Asset Value and Distributions. Each portfolio's offering
price per share (net asset value) is listed daily in the Mutual Fund quotation
tables in the financial sections of most newspapers under the abbreviations
"LonglfPF" and "LonglfSC". These tables also contain information on
distributions and dividends when declared. Usually such distributions are
declared annually, at the end of December. The Board of Trustees may also
declare a semi-annual distribution from net investment income when sufficient
net income has been generated to justify such a distribution.

7
<PAGE> 33

OTHER MANAGEMENT RELATED SERVICES

Southeastern Asset Management, Inc. also serves as the Fund Administrator.
In this capacity, it manages, performs or supervises all business and
administrative operations of each portfolio of the Fund, including the
following:

- Maintenance of all accounting records

- Preparation and filing of all required financial reports, tax returns,
and reports of sales of shares

- Calculation of the net asset value per share on a daily basis.

- Preparation and mailing of prospectuses, proxy statements, and other
required reports to shareholders

- General coordination and liaison among the Investment Counsel, authorized
dealers, the custodian bank, the transfer agent, and regulatory
authorities

- Providing office space and secretarial and clerical support for the above
functions.

Each portfolio pays an Administration Fee equal to 0.10% per annum of the
average daily net assets of each portfolio, which is accrued daily and paid
monthly, in arrears. Administration fees paid for the fiscal year ended December
31, 1996, were $2,133,914 for Longleaf Partners Fund and $173,520 for Longleaf
Partners Small-Cap Fund.

The Fund has also agreed to reimburse the Administrator for the salary of
the Fund's Treasurer and the charges for computer software or computer programs
solely used to process Fund transactions. These reimbursable expenses are
allocated between the two portfolios taking into account their respective assets
and number of shareholders. The Administrator has not been leasing computer
equipment for dedicated use by the Fund and has not requested reimbursement for
costs or charges related to computer hardware; such reimbursement is not
expected unless it should become necessary to lease computer equipment which
would be dedicated solely to the operations of the Fund. Reimbursable expenses
for the fiscal year ended December 31, 1996, were $168,016 for Longleaf Partners
Fund and $15,838 for Longleaf Partners Small-Cap Fund.

All other direct operating expenses of each portfolio will be paid by that
particular portfolio. Such expenses include but are not limited to the
following: (i) the fees of the Custodian and Transfer Agent; (ii) compensation
of the Fund's independent certified public accountants, legal counsel, and the
Trustees who are not officers or employees of Southeastern Asset Management,
Inc.; (iii) all franchise, income and other taxes relating to the Fund and its
securities; (iv) all filing fees and legal expenses incurred in qualifying and
continuing the registrations of the shares of the Fund for sale with the
Securities and Exchange Commission and with any regulatory agency in the several
states; (v) insurance premiums and associated dues; (vi) the costs of
typesetting, printing and mailing to shareholders such documents as
prospectuses, proxy statements, dividend notices and all other communications;
(vii) expenses of meetings of shareholders and the Boards of Trustees; (viii)
external expenses related to pricing the Fund's portfolio securities; and (ix)
all extraordinary expenses such as expenses of litigation. The Fund also pays
the expenses of stationery, appropriate forms, envelopes, checks, postage,
overnight air courier charges, telephone charges, and printing and mailing
charges for shareholder communications and similar items.

8
<PAGE> 34

BROKERAGE ALLOCATION

Southeastern Asset Management, Inc. ("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 (hereinafter collectively 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 through selected
brokers of purchase and sale orders. All investment decisions and placements of
trades with respect to the purchase and sale of portfolio securities are made in
accordance with the following principles:

1. Purchase and sale orders are usually placed with brokers who are
recommended by Southeastern and/or selected by management of the Fund as
able to achieve "best execution" of such orders. "Best execution" means
prompt and reliable execution at the most favorable security price, taking
into account the following provisions. The determination of what may
constitute best execution and price in the execution of a securities
transaction by a broker involves a number of considerations, including,
among others, the overall direct net economic result to the Fund (involving
both price paid or received and any commissions and other costs paid), the
efficiency with which the transaction is effected, the ability to effect
the transaction in the future, the financial strength and stability of the
broker, and the ability of the broker to commit resources to the execution
of the trade. Such considerations are judgemental and are weighed by
Southeastern and the Board of Trustees of the Fund in determining the
overall reasonableness of brokerage commissions.

2. In recommending brokers for portfolio transactions and in selecting
such brokers, Southeastern takes into account its past experience with
brokers in determining those qualified to achieve "best execution".

3. Southeastern is authorized to recommend, and the Fund is authorized
to allocate, brokerage and principal purchase and sales transactions to
brokers who have provided brokerage and research services, as such services
are defined in Section 28(e) of the Securities Exchange Act of 1934 (the
"1934 Act"), and for other services which benefit the Fund directly through
reduction of the Fund's expense obligations, such as a reduction in the
Fund's share of the lease charges for computer expenses, and to cause the
Fund to pay a commission for effecting a securities transaction in excess
of the amount another broker would have charged for effecting that
transaction, if Southeastern in making the recommendation in question
determines in good faith that the commission is reasonable in relation to
the value of the brokerage and research services or other benefits provided
the Fund by such broker. In reaching such determination, neither
Southeastern nor the officer of the Fund making the decision is required to
place a specific dollar value on the research or execution services of a
broker. In demonstrating that such determinations were made in good faith,
Southeastern and the officer of the Fund shall be prepared to show that all
commissions were allocated and paid for purposes contemplated by the Fund's
brokerage policy; that any other benefits or services provided the Fund
were in furtherance of lawful and appropriate obligations of the Fund; and
that the commissions paid were within a reasonable range. Such
determination shall be based on available information as to the level of
commissions known to be charged by other brokers on comparable
transactions, but there shall be taken into account the Fund's policies (i)
that paying the lowest commission is deemed secondary to obtaining a
favorable price and (ii) that the quality, comprehensiveness and frequency
of research studies which are provided for the Fund and Southeastern may be
useful to Southeastern in performing its services under its Agreement with
the Fund but are not subject to precise evaluation. Research services
provided by brokers to the Fund or to

9
<PAGE> 35

Southeastern are considered to be supplementary to, and not in lieu of
services required to be performed by Southeastern.

4. Purchases and sales of portfolio securities within the United
States other than on a securities exchange are executed with primary market
makers acting as principal, except where, in the judgment of Southeastern,
better prices and execution may be obtained on a commission basis or from
other sources.

5. Sales of the Fund's shares by a broker are one factor among others
to be taken into account in recommending and in deciding to allocate
portfolio transactions (including agency transactions, principal
transactions, purchases in underwritings or tenders in response to tender
offers) for the account of the Fund to a broker, provided that the broker
shall furnish "best execution", as defined in paragraph 1 above, and that
such allocation shall be within the scope of the Fund's other policies as
stated above; and provided further that in every allocation made to a
broker in which the sale of Fund Shares is taken into account, there shall
be no increase in the amount determined, as set forth in paragraph 3 above,
on the basis of best execution plus research services, without taking
account of or placing any value upon such sales of Fund shares.

Investment decisions for the Fund are made independently from those of
accounts of other clients advised by Southeastern, but the same security may be
held in the portfolios of more than one account, as well as by the Fund. When
several accounts and the Fund's portfolio simultaneously purchase or sell the
same security, the prices and amounts will be equitably allocated among all
accounts. In some situations this procedure could adversely affect the price or
quantity of the security available to the Fund, but in other situations the
Fund's ability to participate in larger volume transactions may enable it to
realize better executions, prices, and lower commissions.

Brokerage commissions paid for the fiscal years ended December 31, 1996,
1995, and 1994, respectively are: Longleaf Partners Fund -- $2,172,895,
$1,681,102, and $1,272,094; Longleaf Partners Small-Cap Fund -- $576,550,
$236,927, and $97,842.

DISTRIBUTION OF FUND SHARES

Shareholders are referred to the Fund's Prospectus for information on the
methods of purchasing shares of the Fund and computation of net asset value per
share. Shares are available directly from the Fund at net asset value without
payment of any sales charge. Shares are also available through authorized
broker/dealers upon payment of transaction fees, all of which are retained by
the particular broker or dealer.

Shares of the Fund are continuously issued and redeemed by the Fund. The
transfer agent and shareholder servicing agent functions are performed by
National Financial Data Services ("NFDS"), an affiliate of State Street Bank and
Trust Company, the Funds' custodian bank.

TERMS OF AGREEMENTS

At the Annual Meeting of Shareholders held in June of 1994, new agreements
with Southeastern Asset Management, Inc., as the Investment Counsel and
separately as the Fund Administrator, were adopted, effective for a period of
two years. Thereafter, each must be renewed annually by the affirmative vote of
a majority of the outstanding voting securities of the Fund or by a majority of
members of the Board of Trustees, including a majority of the Trustees who are
not "interested" Trustees, as required by the Investment Company Act of 1940.
Such Agreements will automatically terminate in the event of assignment as
defined in

10
<PAGE> 36

the Investment Company Act of 1940. The Fund may terminate such Agreements,
without penalty, upon 60 days' written notice, by a majority vote of its Board
of Trustees or by a majority of the outstanding voting securities of the Fund.

REDEMPTION OF FUND SHARES

The Fund has filed an election with the Securities & Exchange Commission in
the manner authorized by Rule 18f-1 under the Investment Company Act of 1940, in
which each portfolio of the Fund has committed itself to pay in cash all
requests for redemption by any shareholder of record, limited in amount with
respect to each shareholder during any ninety-day period to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period. This election to pay not less than $250,000 of each shareholder
redemption in cash is irrevocable while Rule 18f-1 is in effect, unless the
Securities & Exchange Commission by order upon application permits the
withdrawal of such notification of election as being appropriate in the public
interest and consistent with the protection of investors. In connection with
omnibus accounts, this election applies separately to each beneficial owner
rather than to the omnibus account in the aggregate.

Should the Fund elect to limit its cash payments on redemption to the
amounts allowed by this election, the balance of a redemption request in excess
of these amounts would be paid through a distribution of portfolio securities. A
shareholder who liquidates portfolio securities received in such a distribution
would incur brokerage commissions and be subject to prevailing market prices.

CUSTODIAN OF FUND ASSETS

State Street Bank and Trust Company, Boston, Massachusetts, 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 also has the responsibility
of collection of the proceeds of securities sold and disbursement of the cost of
securities purchased by the Fund.

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Coopers & Lybrand, L.L.P., an international public accounting firm, has
served since inception of the Fund as the independent certified public
accountants.

LEGAL COUNSEL

Dechert Price & Rhoads, a law firm with offices in several major cities,
including Washington, D.C., Philadelphia, and Boston serves as special legal
counsel to the Fund. Charles D. Reaves, Esq., Executive Vice President of the
Fund and Vice President & General Counsel of Southeastern Asset Management,
Inc., serves as general counsel to the Fund.

11
<PAGE> 37

LIMITATION OF LIABILITY OF
SHAREHOLDERS, TRUSTEES AND OTHERS

Longleaf Partners Funds Trust is a Massachusetts business trust organized
on November 26, 1986. The Fund's Declaration of Trust and its By-Laws provide
that no Trustee, officer, employee, or agent of the Fund shall be subject to any
personal liability to the Fund or its shareholders for any action or failure to
act, except for such person's willful misfeasance, bad faith, gross negligence,
or reckless disregard of the person's duties. The Fund indemnifies each such
person against all such losses other than the excepted losses. The agreements
between the Fund and, respectively, the Investment Counsel, and the Fund
Administrator and Shareholder Servicing Agent all relieve each such entity of
liability to the Fund for any act or omission in the course of its performance
under the particular agreement, including any mistake of judgment, in the
absence of willful misfeasance, bad faith or gross negligence. Information on
the contractual term and rights of cancellation of each such agreement is
contained in the section entitled "Terms of Agreements".

Under Massachusetts law, shareholders of a series of a Massachusetts
business trust such as the Fund could, in theory, be held personally liable for
certain obligations of the particular series. The Fund's Declaration of Trust
contains an express disclaimer of shareholder liability for such acts or
obligations of each series, and this disclaimer is included in contracts between
the Fund and third parties. Further, the Declaration of Trust provides for
indemnification from the assets of each series for any shareholder liability for
applicable acts or obligations should any shareholder be held liable under these
provisions for having been a shareholder.

FINANCIAL STATEMENTS

The financial statements for the fiscal year ended December 31, 1996,
audited by Coopers & Lybrand, L.L.P., the Fund's independent certified public
accountants, are included in the printed Annual Report to Shareholders of each
Fund, and such Financial Statements are incorporated herein. Copies of the
Financial Statements included in such printed Annual Reports, together with the
Report of Independent Accountants dated January 10, 1997, are included in this
Statement of Additional Information.

12
<PAGE> 38

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
LONGLEAF PARTNERS FUND

We have audited the accompanying statement of assets and liabilities of Longleaf
Partners Fund (a series of Longleaf Partners Funds Trust), including the
schedule of portfolio investments, as of December 31, 1996, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for the years ended December 31, 1996, 1995, 1994, 1993, 1992, 1991
and 1990, October 31, 1989 and 1988, the two months ended December 31, 1989, and
the period from March 24, 1987 (Date of Initial Capitalization) through October
31, 1987. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures include confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Longleaf Partners Fund as of December 31, 1996 and the results of its
operations, changes in its net assets, and the financial highlights each of the
respective periods stated in the first paragraph, in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
January 10, 1997
<PAGE> 39

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1996

<TABLE>
<CAPTION>
SHARES MARKET VALUE
--------- COMMON STOCK (83.9%) ------------
<S> <C> <C> <C> <C> <C>
BEVERAGES (4.3%)
2,550,000 The Seagram Company Ltd. ................................ $ 98,812,500
------------
BUSINESS SERVICES (1.3%)
595,700 Ecolab, Inc. ............................................ 22,413,213
279,200 * The Union Corporation.................................... 6,386,700
------------
28,799,913
------------
ENTERTAINMENT (0.3%)
171,277 * Chris-Craft Industries, Inc.............................. 7,172,224
------------
ENVIRONMENTAL SERVICES (2.7%)
346,900 Safety-Kleen Corp........................................ 5,680,487
1,709,800 WMX Technologies, Inc.................................... 55,782,225
------------
61,462,712
------------
FINANCIAL SERVICES (2.9%)
2,363,300 PaineWebber Group, Inc................................... 66,467,813
------------
FOOD (12.9%)
2,298,900 Nabisco Holdings Corp.................................... 89,369,737
3,818,000 The Quaker Oats Company.................................. 145,561,250
846,500 Ralston Purina Group Common Stock........................ 62,111,938
------------
297,042,925
------------
HEALTH CARE (2.7%)
1,361,700 * United HealthCare Corporation............................ 61,276,500
------------
INSURANCE BROKERAGE (2.8%)
3,770,142 Alexander & Alexander Services Inc....................... 65,506,217
------------
MANUFACTURING (2.1%)
1,407,000 Louisiana-Pacific Corporation............................ 29,722,875
574,000 * USG Corporation.......................................... 19,444,250
------------
49,167,125
------------
MULTI-INDUSTRY (8.5%)
1,565,000 Alexander & Baldwin, Inc................................. 39,125,000
3,075,000 * Phillips Electronics N.V................................. 123,000,000
1,488,300 Whitman Corporation...................................... 34,044,863
------------
196,169,863
------------
</TABLE>

See Notes to Financial Statements.
<PAGE> 40

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1996

<TABLE>
<CAPTION>
SHARES MARKET VALUE
--------- --------------
<S> <C> <C> <C> <C> <C>
NATURAL RESOURCES (6.1%)
1,237,700 The Pioneer Group, Inc. ................................. $ 29,395,375
2,900,000 Rayonier Inc............................................. 111,287,500
--------------
140,682,875
--------------
PROPERTY & CASUALTY INSURANCE (1.0%)
110,616 * Alleghany Corp........................................... 23,450,592
--------------
PUBLISHING (12.9%)
6,341,200 Knight-Ridder, Inc....................................... 242,550,900
158,300 The Washington Post Company - Class B.................... 53,050,287
--------------
295,601,187
--------------
REAL ESTATE (7.5%)
788,000 Cousins Properties Incorporated.......................... 22,162,500
6,847,791 * TrizecHahn Corporation................................... 150,651,402
--------------
172,813,902
--------------
RETAIL (0.9%)
520,000 American Stores Company.................................. 21,255,000
--------------
TELECOMMUNICATIONS (5.0%)
4,966,837 * 360 degrees Communications Company....................... 114,858,106
--------------
TRANSPORTATION (10.0%)
3,234,800 * Federal Express Corporation.............................. 143,948,600
1,934,100 Kansas City Southern Industries, Inc..................... 87,034,500
--------------
230,983,100
--------------
TOTAL COMMON STOCKS (COST $1,479,371,024)................................. 1,931,522,554
--------------
SHORT TERM OBLIGATIONS (16.0%)
Certificate of Deposit - due 8-19-97 at 5.25%............................. 45,000
Repurchase Agreement with State Street Bank and Trust Company, dated
12-31-96, due 1-2-97 at 4.75%, collateralized by $20,847,153 U.S.
Treasury Bond due 2-15-20 (Repurchase proceeds - $20,442,393) (Cost
$20,437,000)............................................................. 20,437,000
U.S. Treasury Bill, due 2-27-97, yield at date of purchase 4.94%.......... 347,323,375
--------------
367,805,375
--------------
TOTAL INVESTMENTS (COST $1,847,176,399)* *................................... 99.9% 2,299,327,929
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................... 0.1 751,247
----- --------------
NET ASSETS................................................................... 100.0% $2,300,079,176
===== ==============
NET ASSET VALUE PER SHARE (OFFERING AND REDEMPTION PRICE PER SHARE) BASED ON
100,652,843 SHARES OUTSTANDING AT DECEMBER 31, 1996............................... $22.85
==============
</TABLE>

* Non-income producing security
* * Also represents aggregate cost for Federal income tax purposes

See Notes to Financial Statements.
<PAGE> 41

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUND
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1996

<TABLE>
<S> <C>
ASSETS:

Investments:
Securities, at market value (cost $1,479,371,024) (Note 1
and Note 7)................................................. $1,931,522,554
U.S. Treasury Bills....................................... 347,323,375
Repurchase agreement (Note 6)............................. 20,437,000
Certificate of deposit.................................... 45,000
--------------
TOTAL INVESTMENTS 2,299,327,929
Cash........................................................ 263
Dividends and interest receivable........................... 2,530,519
Prepaid assets.............................................. 123,498
Insurance reserve premium................................... 52,272
--------------
TOTAL ASSETS 2,302,034,481
--------------

LIABILITIES:

Payable for:
Investment Counsel fee (Note 2)........................... 1,549,488
Administration fee (Note 3)............................... 195,305
Other accrued expenses...................................... 210,512
--------------
TOTAL LIABILITIES 1,955,305
--------------
NET ASSETS $2,300,079,176
==============
Composition of net assets:
Paid-in capital (unlimited number of shares authorized,
100,652,843 shares outstanding)........................ $1,847,529,846
Undistributed net investment income....................... 129,189
Accumulated net realized gain............................. 268,611
Unrealized appreciation of investments (Note 7)........... 452,151,530
--------------
NET ASSETS $2,300,079,176
==============
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE) PER SHARE
($2,300,079,176 DIVIDED BY 100,652,843 SHARES)............ $22.85
==============
</TABLE>

See Notes to Financial Statements.
<PAGE> 42

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends................................................. $ 32,116,678
Interest.................................................. 22,612,971
------------
54,729,649
------------
EXPENSES:
Investment Counsel fee (Note 2)........................... 17,004,356
Administration fee (Note 3)............................... 2,133,914
Transfer Agent fee........................................ 388,284
Reimbursable administration expenses (Note 3)............. 168,016
Supplies and postage...................................... 154,407
Registration and filing fees.............................. 127,615
Printing.................................................. 77,912
Trustees' fees............................................ 54,946
Insurance expense......................................... 50,815
Professional fees......................................... 35,600
Custodian fee............................................. 34,716
Miscellaneous............................................. 125,371
------------
20,355,952
------------
Net investment income............................. 34,373,697
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain from securities transactions, net:
Proceeds from sales.................................... 817,198,461
Cost of securities sold................................ 603,525,053
------------
Net realized gain................................. 213,673,408
Increase in unrealized appreciation for the year, net..... 158,628,871
------------
Net realized and unrealized gain on investments... 372,302,279
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $406,675,976
============
</TABLE>

See Notes to Financial Statements.
<PAGE> 43

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUND
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 34,373,697 $ 20,371,114
Net realized gain on investments.......................... 213,673,408 37,694,798
Net unrealized appreciation for the period................ 158,628,871 239,294,987
-------------- --------------
Net increase in net assets resulting from operations... 406,675,976 297,360,899
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($0.383 and $0.24 per share,
respectively).......................................... (34,349,264) (20,363,752)
From net realized gain on investments ($2.381 and $0.444
per share, respectively)............................... (213,539,413) (37,672,942)
-------------- --------------
Net decrease in net assets resulting from
distributions........................................ (247,888,677) (58,036,694)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares.......................... 415,870,054 1,109,962,005
Net asset value of shares issued to shareholders for
reinvestment of shareholder distributions.............. 234,252,018 54,537,285
Cost of shares redeemed................................... (385,297,441) (280,883,298)
-------------- --------------
Net increase in net assets from fund share
transactions......................................... 264,824,631 883,615,992
-------------- --------------
Total increase in net assets........................... 423,611,930 1,122,940,197
NET ASSETS:
Beginning of year......................................... 1,876,467,246 753,527,049
-------------- --------------
End of year (including undistributed net investment income
of $129,189 and $104,756, respectively)................ $2,300,079,176 $1,876,467,246
============== ==============
</TABLE>

See Notes to Financial Statements.
<PAGE> 44

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUND
NOTES TO FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Longleaf Partners Fund (the "Fund") is a series of Longleaf Partners Funds
Trust, a Massachusetts business trust which is registered under the Investment
Company Act of 1940, as amended, as a diversified open-end management investment
company. The Fund was organized on November 26, 1986 and on March 24, 1987 the
initial capitalization of $100,000 was provided by two principals of
Southeastern Asset Management, Inc., the Investment Counsel, who received 10,000
shares of beneficial interest in return. The Fund commenced its public offering
of shares on April 8, 1987.

The following is a summary of significant accounting policies:

(a) Valuation of Securities and Repurchase Agreements:

(1) Portfolio securities listed or traded on a securities exchange and
over-the-counter securities traded on the NASDAQ national market are
valued at the last sales price. If there are no transactions in the
security that day, securities are valued at the midpoint between the
closing bid and ask prices.

(2) All other portfolio securities for which over-the-counter market
quotations are readily available are valued at the midpoint between the
closing bid and ask prices. Repurchase agreements are valued at cost
which, combined with accrued interest, approximates market. Short-term
U.S. Government obligations are valued at amortized cost which
approximates current market value.

(3) When market quotations are not readily available, portfolio securities
are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the
Fund's Trustees.

(b) Accounting for Investments:

The Fund follows industry practice and records security transactions on
the day following the trade date (date the order to buy or sell is
executed). Realized gains and losses on security transactions are
determined using the specific identification method. Dividend income is
recognized on the ex-dividend date and interest income is recognized on an
accrual basis.

The Fund's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Accordingly, no
federal income tax provision is required. In addition, the Fund intends to
make any required distributions to avoid the application of a 4%
nondeductible excise tax.

(d) Distributions to Shareholders:

Dividends and distributions to shareholders are recorded on the
ex-dividend date.
<PAGE> 45

NOTE 2. INVESTMENT COUNSEL AGREEMENT

Southeastern Asset Management, Inc. ("Southeastern") serves as Investment
Counsel to the Fund and receives annual compensation from the Fund, computed
daily and paid monthly, in accordance with the following schedule:

<TABLE>
<S> <C>
First $400 million of average daily net assets.............. 1.00%
In excess of $400 million................................... .75%
</TABLE>

The Investment Counsel has agreed to reduce its fees on a pro rata basis for
services rendered to the extent that the Fund's normal annual operating expenses
(excluding taxes, interest, brokerage fees, and extraordinary expenses) exceed
1.5% of average annual net assets. No such reduction was necessary for the
current year.

NOTE 3. FUND ADMINISTRATOR

Southeastern also serves as the Fund Administrator and in this capacity is
responsible for managing, performing or supervising the administrative and
business operations of the Fund, including, among other things, the preparation
of all registration statements, prospectuses, tax returns and proxy statements,
daily valuation of the Fund's portfolio and calculation of daily net asset value
per share. The Fund pays a fee as compensation for these services, accrued daily
and paid monthly, of 0.10% per annum of average daily net assets.

Reimbursable administration expenses paid by the Fund to Southeastern consist of
a portion of both the computer support charges for computer programs used in
processing transactions for the Fund and its shareholders and of the salary of
the Fund's Treasurer calculated in accordance with Trustee review and approval.

NOTE 4. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest for the years ended December 31
were as follows:

<TABLE>
<CAPTION>
1996 1995
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Shares sold...................... 18,238,896 $415,870,054 56,015,693 $1,109,962,005
Reinvestment of shareholder
distribution................... 10,180,444 234,252,018 2,589,615 54,537,285
Shares redeemed.................. (16,493,540) (385,297,441) (13,874,948) (280,883,298)
----------- ------------ ----------- --------------
11,925,800 $264,824,631 44,730,360 $ 883,615,992
=========== ============ =========== ==============
</TABLE>

NOTE 5. INVESTMENT TRANSACTIONS

Purchases and sales of securities for the period (excluding short-term
obligations) aggregated $561,624,924 and $565,682,438, respectively. Total
brokerage commissions paid by the Fund during the period were $2,172,895.
<PAGE> 46

NOTE 6. INVESTMENTS IN SHORT-TERM OBLIGATIONS

As excess funds are available, the Fund makes certain short-term investments in
cash equivalents, including repurchase agreements. The Fund's custodian bank
sells U.S. government securities to the Fund under an agreement to repurchase
these securities from the Fund at a stated repurchase price including interest
for the term of the agreement, which is usually overnight or over a week-end.
The Fund, through its custodian, receives delivery of the underlying U.S.
government securities as collateral, the market value of which is required to be
at least equal to the repurchase price. If the custodian becomes bankrupt, the
Fund might be delayed, or may incur costs or possible losses of principal and
income, in selling the collateral. A repurchase agreement of $20,437,000 is
included in the statement of assets and liabilities at December 31, 1996.

NOTE 7. UNREALIZED APPRECIATION

Net unrealized appreciation consists of the following:

<TABLE>
<S> <C>
Unrealized appreciation.................................... $469,426,282
Unrealized depreciation.................................... (17,274,752)
------------
$452,151,530
============
</TABLE>

NOTE 8. RELATED PARTY SHAREHOLDERS

At December 31, 1996, officers and employees of Southeastern and their families,
Fund trustees and the Southeastern retirement plan and other affiliates owned
1,543,076 shares of the Fund, constituting 1.53% of the outstanding shares.

NOTE 9. OTHER PORTFOLIO INFORMATION

At December 31, 1996, the Fund's holdings consisted of at least five percent of
the outstanding voting stock of the following companies: 8.4% of Alexander &
Alexander Services, Inc., 5.2% of Kansas City Southern Industries, Inc., 6.8% of
Knight-Ridder, Inc., and 9.9% of Rayonier Inc.
<PAGE> 47

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUND
FINANCIAL HIGHLIGHTS

The following condensed financial information, including total returns, has been
audited by Coopers & Lybrand L.L.P., independent certified public accountants.
The audit report on the 1996 financial statements issued by Coopers & Lybrand
L.L.P. appears in this report and should be read in conjunction with this
condensed financial information. The presentation is for a share outstanding
throughout each period.
<TABLE>
<CAPTION>
NET GAINS
OR
(LOSSES)
NET ON DISTRI- NET
ASSET SECURITIES TOTAL DIVIDENDS BUTIONS ASSET
VALUE NET REALIZED FROM FROM NET FROM TOTAL VALUE
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT CAPITAL DISTRI- END OF TOTAL
OF PERIOD INCOME UNREALIZED OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN
--------- ---------- ----------- ---------- ---------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December
31,
1996.............. $21.15 $.37 $ 4.09 $ 4.46 $ (.38) $(2.38) $(2.76) $22.85 21.02%
1995.............. 17.13 .30 4.40 4.70 (.24) (.44) (.68) 21.15 27.50%
1994.............. 16.92 .21 1.30 1.51 (.16) (1.14) (1.30) 17.13 8.96%
1993.............. 14.70 .10 3.16 3.26 (.09) (.95) (1.04) 16.92 22.20%
1992.............. 13.34 .07 2.65 2.72 (.07) (1.29) (1.36) 14.70 20.47%
1991.............. 10.21 .05 3.93 3.98 (.06) (.79) (.85) 13.34 39.19%
1990.............. 12.62 .13 (2.16) (2.03) (.15) (.23) (.38) 10.21 (16.35)%
Two months ended
December 31,
1989................ 14.30 .03 (.10) (.07) (.08) (1.53) (1.61) 12.62 (0.47)%(1)
Year ended
October 31,
1989.............. 11.25 .18 3.00 3.18 (.13) - (.13) 14.30 28.38%
1988.............. 8.69 .14 2.50 2.64 (.08) - (.08) 11.25 30.69%
March 24, 1987
(Date of Initial
Capitalization)
through October 31,
1987................ 10.00 .11 (1.42) (1.31) - - - 8.69 (13.14)%(1)

RATIO OF
EXPENSES RATIO OF
NET ASSETS TO NET
END OF AVERAGE INCOME TO PORTFOLIO AVERAGE
PERIOD NET AVERAGE TURNOVER COMMISSION
(THOUSANDS) ASSETS NET ASSETS RATE RATE PAID
----------- -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December
31,
1996.............. $2,300,079 0.95% 1.61% 33.18% $0.0750(3)
1995.............. 1,876,467 1.01% 1.45% 12.60%
1994.............. 753,527 1.17% 1.18% 27.39%
1993.............. 397,282 1.26% .63% 19.12%
1992.............. 243,678 1.29% .50% 29.12%
1991.............. 177,878 1.30% .42% 45.11%
1990.............. 129,643 1.32% 1.13% 52.45%
Two months ended
December 31,
1989................ 148,680 1.31%* 1.73%* 6.67%
Year ended
October 31,
1989.............. 139,608 1.35% 1.37% 57.72%
1988.............. 50,676 1.50%(2) 1.40% 92.68%
March 24, 1987
(Date of Initial
Capitalization)
through October 31,
1987................ 25,787 1.50%*(2) 1.61%* 70.00%
</TABLE>

* Annualized
(1) Aggregate; not annualized.
(2) Before expense limitation fee waiver, this ratio was 1.64% and 1.83% for the
1988 and 1987 periods, respectively.
(3) Not applicable for prior periods.
<PAGE> 48

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
LONGLEAF PARTNERS SMALL-CAP FUND

We have audited the accompanying statement of assets and liabilities of Longleaf
Partners Small-Cap Fund (a series of Longleaf Partners Funds Trust), including
the schedule of portfolio investments, as of December 31, 1996, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for the years ended December 31, 1996, 1995, 1994, 1993, 1992, 1991
and 1990, the two months ended December 31, 1989, and the period from December
28, 1988 (Date of Initial Capitalization) through October 31, 1989. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures include confirmation of securities owned and
securities purchased but not received as of December 31, 1996 by correspondence
with the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Longleaf Partners Small-Cap Fund as of December 31, 1996 and the results of its
operations, changes in its net assets, and the financial highlights each of the
respective periods stated in the first paragraph, in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
January 10, 1997
<PAGE> 49

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1996

<TABLE>
<CAPTION>
SHARES MARKET VALUE
------- COMMON STOCK (96.6%) ------------
<S> <C> <C> <C> <C> <C>
ADVERTISING (2.1%)
21,020 Grey Advertising Inc. - Class A............................ $ 5,318,060
------------
BANKING (3.8%)
225,000 Bay View Capital Corp...................................... 9,534,375
------------
BEVERAGES (1.5%)
195,000 * Celestial Seasonings, Inc.................................. 3,851,250
------------
BUSINESS SERVICES (6.4%)
370,000 * Pinkerton's, Inc........................................... 9,296,250
300,000 * The Union Corporation ..................................... 6,862,500
------------
16,158,750
------------
COMMERCIAL LIGHTING (1.2%)
148,900 Thomas Industries, Inc..................................... 3,108,288
------------
FINANCIAL SERVICES (9.5%)
200,400 Duff & Phelps Credit Rating Co............................. 4,834,650
351,200 * White River Corporation.................................... 19,140,400
------------
23,975,050
------------
FOOD (0.7%)
100,000 GoodMark Foods, Inc........................................ 1,650,000
------------
FURNITURE (2.2%)
723,000 * Rhodes, Inc. .............................................. 5,603,250
------------
HEALTH CARE (5.3%)
1,025,000 * Healthsource, Inc. ........................................ 13,453,125
------------
INDUSTRIAL EQUIPMENT (0.2%)
231,400 * Baldwin Technology Company, Inc. - Class A................. 578,500
------------
INVESTMENT MANAGEMENT COMPANIES (4.8%)
164,000 * Lexington Global Asset Managers, Inc. ..................... 1,028,125
416,000 United Asset Management Corporation........................ 11,076,000
------------
12,104,125
------------
MANUFACTURING (15.5%)
850,000 * American Safety Razor Company.............................. 11,900,000
392,400 AMETEK, Inc................................................ 8,730,900
173,200 Franklin Electric Co., Inc................................. 8,097,100
393,000 Zurn Industries, Inc....................................... 10,267,125
------------
38,995,125
------------
</TABLE>

See Notes to Financial Statements.
<PAGE> 50

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1996

<TABLE>
<CAPTION>
SHARES MARKET VALUE
--------- ------------
<S> <C> <C> <C> <C> <C>
MISCELLANEOUS (1.6%)
104,152 Seafield Capital Corporation............................. $ 4,035,890
------------
NATURAL RESOURCES (3.5%)
374,000 The Pioneer Group, Inc................................... 8,882,500
------------
PROPERTY & CASUALTY INSURANCE (11.3%)
34,680 * Alleghany Corporation.................................... 7,352,160
642,500 Hilb, Rogal and Hamilton Company......................... 8,513,125
28,200 * Markel Corporation....................................... 2,538,000
165,000 Orion Capital Corporation................................ 10,085,625
------------
28,488,910
------------
PUBLISHING (1.5%)
110,000 Plenum Publishing Corporation............................ 3,850,000
------------
REAL ESTATE (19.2%)
1,050,000 * Catellus Development Corporation......................... 11,943,750
385,000 Cousins Properties Incorporated.......................... 10,828,125
478,000 * IHOP Corp................................................ 11,292,750
649,600 * TrizecHahn Corporation................................... 14,291,200
------------
48,355,825
------------
RESTAURANTS (1.5%)
290,000 * VICORP Restaurants, Inc.................................. 3,842,500
------------
RETAIL (0.9%)
120,000 Delchamps, Inc........................................... 2,325,000
------------
TELECOMMUNICATIONS (3.8%)
610,459 * Vanguard Cellular Systems, Inc. -- Class A............... 9,614,729
------------
TOTAL COMMON STOCKS (COST $192,789,051)................................... 243,725,252
------------
SHORT TERM OBLIGATIONS (3.3%)
Repurchase Agreement with State Street Bank and Trust Company, dated
12-31-96, due 1-2-97 at 4.75%, collateralized by $8,361,291 U.S.
Treasury Bond due 2-15-20 (Repurchase proceeds-$8,195,162) (Cost
$8,193,000).............................................................. 8,193,000
------------
TOTAL INVESTMENTS (COST $200,982,051)* *..................................... 99.9% 251,918,252
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................... 0.1 238,705
----- ------------
NET ASSETS................................................................... 100.0% $252,156,957
===== ============
NET ASSET VALUE PER SHARE (OFFERING AND REDEMPTION PRICE PER SHARE) BASED ON
14,121,918 SHARES OUTSTANDING AT DECEMBER 31, 1996................................ $17.86
========
</TABLE>

* Non-income producing security
* * Also represents aggregate cost for Federal income tax purposes

See Notes to Financial Statements.
<PAGE> 51

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1996

<TABLE>
<S> <C>
ASSETS:

Investments:
Securities, at market value (cost $192,789,051) (Note 1
and Note 7)............................................ $243,725,252
Repurchase agreement (Note 6)............................. 8,193,000
------------
TOTAL INVESTMENTS 251,918,252
Cash........................................................ 568
Receivables:
Securities sold........................................... 395,163
Dividends and interest.................................... 267,754
Prepaid assets.............................................. 20,621
Insurance reserve premium................................... 7,274
------------
TOTAL ASSETS 252,609,632
------------

LIABILITIES:

Payable for:
Securities purchased...................................... 164,320
Investment Counsel fee (Note 2)........................... 203,354
Administration fee (Note 3)............................... 20,335
Other accrued expenses...................................... 64,666
------------
TOTAL LIABILITIES 452,675
------------
NET ASSETS $252,156,957
============
Composition of net assets:
Paid-in capital (unlimited number of shares authorized,
14,121,918 shares outstanding)......................... $201,119,380
Undistributed net investment income....................... 4,598
Accumulated net realized gain............................. 96,778
Unrealized appreciation of investments (Note 7)........... 50,936,201
------------
NET ASSETS $252,156,957
============
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE) PER SHARE
($252,156,957 DIVIDED BY 14,121,918 SHARES)............... $17.86
=======
</TABLE>

See Notes to Financial Statements.
<PAGE> 52

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends................................................. $2,115,108
Interest.................................................. 328,269
-----------
2,443,377
-----------
EXPENSES:
Investment counsel fee (Note 2)........................... 1,735,200
Administration fee (Note 3)............................... 173,520
Registration and filing fees.............................. 59,945
Transfer agent fee........................................ 31,520
Trustees' fees............................................ 27,473
Printing.................................................. 22,553
Custodian fee............................................. 20,558
Reimbursable administration expenses (Note 3)............. 15,838
Supplies and postage...................................... 13,061
Professional fees......................................... 12,588
Insurance expense......................................... 6,374
Miscellaneous............................................. 18,984
-----------
2,137,614
-----------
Net investment income............................. 305,763
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain from securities transactions, net:
Proceeds from sales.................................... 47,196,026
Cost of securities sold................................ 33,779,854
-----------
Net realized gain................................. 13,416,172
Increase in unrealized appreciation for the year, net..... 33,330,915
-----------
Net realized and unrealized gain on investments... 46,747,087
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $47,052,850
===========
</TABLE>

See Notes to Financial Statements.
<PAGE> 53

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 305,763 $ 1,025,608
Net realized gain on investments.......................... 13,416,172 10,013,505
Net unrealized appreciation for the period................ 33,330,915 10,269,885
------------ ------------
Net increase in net assets resulting from operations... 47,052,850 21,308,998
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gain on investments ($1.005 and $1.166
per share, respectively)............................... (13,335,532) (10,015,944)
From net investment income ($0.0236 and $0.118 per share,
respectively).......................................... (313,153) (1,013,621)
------------ ------------
Net decrease in net assets resulting from
distributions........................................ (13,648,685) (11,029,565)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares.......................... 108,358,068 54,528,065
Net asset value of shares issued to shareholders for
reinvestment of shareholder distributions.............. 12,582,527 10,605,812
Cost of shares redeemed................................... (38,164,599) (39,045,822)
------------ ------------
Net increase in net assets from fund share
transactions......................................... 82,775,996 26,088,055
------------ ------------
Total increase in net assets........................... 116,180,161 36,367,488
NET ASSETS:
Beginning of year......................................... 135,976,796 99,609,308
------------ ------------
End of year (including undistributed net investment income
of $4,598 and $11,988, respectively)................... $252,156,957 $135,976,796
============ ============
</TABLE>

See Notes to Financial Statements.
<PAGE> 54

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
NOTES TO FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Longleaf Partners Small-Cap Fund (the "Fund") is a series of Longleaf Partners
Funds Trust, a Massachusetts business trust which is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company. The Fund was formed on December 21, 1988, and on December
28, 1988 the initial capitalization of $1,500,000 was provided by two principals
of Southeastern Asset Management, Inc., the Investment Counsel, who received
150,000 shares of beneficial interest in return. The Fund commenced its public
offering of shares on February 21, 1989.

The following is a summary of significant accounting policies:

(a) Valuation of Securities and Repurchase Agreements:

(b) Accounting for Investments:

(d) Distributions to Shareholders:

Dividends and distributions to shareholders are recorded on the
ex-dividend date.
<PAGE> 55

NOTE 2. INVESTMENT COUNSEL AGREEMENT

<TABLE>
<S> <C>
First $400 million of average daily net assets.............. 1.00%
In excess of $400 million................................... .75%
</TABLE>

NOTE 3. FUND ADMINISTRATOR

NOTE 4. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest for the years ended December 31
were as follows:

<TABLE>
<CAPTION>
1996 1995
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold........................... 6,357,663 $108,358,068 3,818,992 $54,528,065
Shares redeemed....................... (2,348,601) (38,164,599) 734,983 10,605,812
Reinvestment of shareholder
distribution........................ 706,090 12,582,527 (2,650,508) (39,045,822)
---------- ------------ ---------- -----------
4,715,152 $ 82,775,996 1,903,467 $26,088,055
========== ============ ========== ===========
</TABLE>

NOTE 5. INVESTMENT TRANSACTIONS

Purchases and sales of securities for the period (excluding short term
obligations) aggregated $112,741,793 and $47,196,026, respectively. Total
brokerage commissions paid by the Fund during the period were $576,550.

NOTE 6. INVESTMENTS IN SHORT-TERM OBLIGATIONS

agreement to repurchase these securities from the Fund at a stated repurchase
price including interest for the term of the agreement, which is usually
overnight or over a week-end. The Fund, through its custodian, receives delivery
of the underlying U.S. government securities as collateral, the market value of
which is required to be at least equal to the repurchase price. If the custodian
becomes bankrupt, the Fund might be delayed, or may incur costs or possible
losses of principal and income, in selling the collateral. A repurchase
agreement of $8,193,000 is included in the statement of assets and liabilities
at December 31, 1996.

NOTE 7. UNREALIZED APPRECIATION

Net unrealized appreciation consists of the following:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $56,813,222
Unrealized depreciation..................................... (5,877,021)
-----------
$50,936,201
===========
</TABLE>

NOTE 8. RELATED PARTY SHAREHOLDERS

At December 31, 1996, Mr. O. Mason Hawkins, Chairman of the Board and Chief
Executive Officer of Southeastern and of the Fund, owned 903,082 shares of the
Fund, constituting 6.4% of the outstanding shares; Mr. W. Reid Sanders, a
director and Executive Vice President of Southeastern and a member of the Board
of Trustees and President of the Fund, owned 451,171 shares of the Fund,
constituting 3.2% of the outstanding shares. Officers and employees of
Southeastern and their families, Fund trustees and the Southeastern retirement
plan and other affiliates owned an additional 892,535 shares, constituting 6.3%
of the outstanding shares.

NOTE 9. OTHER PORTFOLIO INFORMATION

At December 31, 1996, the Fund's holdings consisted of at least five percent of
the outstanding class of common stock of the following companies: 7.0% of
American Safety Razor Company, 5.0% of IHOP Corp., 7.9% of Rhodes, Inc., 5.2% of
The Union Corporation, and 7.2% of White River Corporation.
<PAGE> 57

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
FINANCIAL HIGHLIGHTS

The following condensed financial information, including total returns, has been
audited by Coopers & Lybrand L.L.P., independent certified public accountants.
The audit report on the 1996 financial statements issued by Coopers & Lybrand
L.L.P. appears in this report and should be read in conjunction with this
condensed financial information. The presentation is for a share outstanding
throughout each period.
<TABLE>
<CAPTION>
NET GAINS
OR
NET (LOSS) ON DISTRI- NET
ASSET NET SECURITIES TOTAL DIVIDENDS BUTIONS ASSET
VALUE INVESTMENT REALIZED FROM FROM NET FROM TOTAL VALUE
BEGINNING INCOME AND INVESTMENT INVESTMENT CAPITAL DISTRI- END OF TOTAL
OF PERIOD (LOSS) UNREALIZED OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN
--------- ---------- ---------- ---------- ---------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended
December 31,
1996.............. $ 14.46 $ .03 $ 4.40 $ 4.43 $ (.02) $(1.01) $ (1.03) $17.86 30.64%
1995.............. 13.28 .12 2.35 2.47 (.12) (1.17) (1.29) 14.46 18.61%
1994.............. 13.49 (.03) .52 .49 - (.70) (.70) 13.28 3.64%
1993.............. 11.40 (.06) 2.32 2.26 - (.17) (.17) 13.49 19.83%
1992.............. 10.67 (.01) .74 .73 - - - 11.40 6.87%
1991.............. 8.50 .06 2.17 2.23 (.06) - (.06) 10.67 26.31%
1990.............. 12.87 .40 (4.18) (3.78) (.36) (.23) (.59) 8.50 (30.05)%
Two months ended
December 31, 1989... 13.02 .04 .22 .26 (.05) (.36) (.41) 12.87 2.10%(1)
December 28, 1988
(Date of Initial
Capitalization)
through October 31,
1989................ 10.00 .17 2.94 3.11 (.09) - (.09) 13.02 31.13%(1)

RATIO OF
EXPENSES RATIO OF
NET ASSETS TO NET INCOME
END OF AVERAGE (LOSS) TO PORTFOLIO AVERAGE
PERIOD NET AVERAGE TURNOVER COMMISSION
(THOUSANDS) ASSETS NET ASSETS RATE RATE PAID
----------- -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended
December 31,
1996.............. $252,157 1.23% .18% 27.97% $0.0605(3)
1995.............. 135,977 1.30% .84% 32.95%
1994.............. 99,609 1.38% (.22)% 19.79%
1993.............. 85,087 1.45% (.45)% 14.37%
1992.............. 62,181 1.45% (.03)% 25.80%
1991.............. 60,354 1.43% .60% 65.18%
1990.............. 47,894 1.43% 3.48% 14.93%
Two months ended
December 31, 1989... 52,176 1.47%* 1.60%* 3.96%
December 28, 1988
(Date of Initial
Capitalization)
through October 31,
1989................ 43,860 1.50%*(2) 1.63%* 20.47%
</TABLE>

* Annualized
(1) Aggregate; not annualized.
(2) Before expense limitation fee waiver, this ratio was 1.59%.
(3) Not applicable for prior periods.
<PAGE> 58

LONGLEAF PARTNERS REALTY FUND

PART A

INFORMATION REQUIRED IN THE PROSPECTUS
<PAGE> 59

LONGLEAF PARTNERS REALTY FUND

a Series of

LONGLEAF PARTNERS FUNDS TRUST

Investment Counsel
SOUTHEASTERN ASSET MANAGEMENT, INC.
6075 Poplar Ave., Suite 900
Memphis, TN 38119
(800) 445-9469 (901) 761-2474

Longleaf Partners Realty Fund (the
"Fund" or the "Realty Fund") is a
LOGO series of Longleaf Partners Funds
Trust, a Massachusetts business
trust. The Realty Fund is a non-diversified, open-end management investment
company.

The Fund's fundamental investment objective is to obtain maximum total return
over the long term through investment primarily in real estate oriented
companies. Under normal circumstances, at least 65% of the Fund's total assets
will be invested in the equity securities of a limited number of companies which
are engaged in business in the real estate industry or related industries or in
companies which own significant real estate assets, and which are believed by
the Investment Counsel to have unrecognized intrinsic value. The Fund may also
invest up to 35% of its total assets in equity or debt securities of companies
engaged in any business, in money market instruments, and in options, financial
futures, and currency contracts. Investments are selected based upon the
potential for long term capital growth or the realization of high current
income, consistent with the overall objective of maximizing total return.

The Fund's investment objective is suitable for investors who are willing to
hold their shares through periods of market fluctuations and the accompanying
changes in share values. The Fund is not intended for investors seeking
short-term price appreciation or for "market timers."

The minimum initial investment is $10,000 and shares may be purchased directly
from the Fund without payment of any sales charges. There are no
"12b-1" fees or redemption fees. Purchases may
also be made through an authorized brokerage firm,
which may charge a transaction fee.
The Prospectus sets forth concisely the informa-
tion that a prospective investor should know before investing. Investors should
read this Prospectus and retain it for future reference. More detailed
disclosure is contained in a Statement of Additional Information, which has been
filed with the Securities and Exchange Commission and is available upon request
without charge by telephoning or writing Southeastern Asset Management, Inc., at
the address shown above. The Statement of Additional Information, dated the date
of this Prospectus, is incorporated herein by reference.

The date of this Prospectus is March 24, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Fund Expenses 2
Financial Highlights 3

INFORMATION ON INVESTMENT
OBJECTIVES AND PHILOSOPY 3
Types of Investments
Equity Securities 4
Real Estate Investment
Trusts 5
Fixed Income Securites 5
Restricted and Illiquid
Securities 5
Foreign Securities 6
Cash Reserves 6
Investment Techniques 6
Risk Factors 8
Diversification and
Portfolio Turnover 9

INFORMATION ON MANAGEMENT
AND ADMINISTRATION
Portfolio Managers 9
Trustees and Officers 9,10
Investment Counsel Fees 11
Fund Administrator 11

HOW TO OPEN AN ACCOUNT
Regular Accounts 12
Individual Retirement
Accounts 12

HOW TO PURCHASE SHARES
By Mail 12
By Automatic Monthly
Investment 12
By Wire 12
Certificates 13
Telephone Subscriptions
by Broker/Dealers 13

How to Redeem Shares
Procedures 13
Redemption Price & Fees 13
By Mail 13
By Telephone 14
Signature Guarantee 14
Other Information 14

OTHER SHAREHOLDER SERVICES
Confirmation and Reports 14
Transfer Agent 14

HOW SHARES ARE PRICED
Offering Price 14
Computation of
Net Asset Value 14

DISTRIBUTIONS AND TAXES
Dividends and Capital
Gains Distributions 15
Taxes 15

ADDITIONAL INFORMATION
Significance of Fund Name 16
Allocation of
Portfolio Brokerage 16
Investment Performance
Information 16
Massachusetts Business
Trust Provisions 17
Code of Ethics 17
Exceptions to Investment
Minimum 17

APPENDIX 18
</TABLE>

FUND EXPENSES

<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees 1.000%
Reimbursement (.107)%
------
Net Management Fees .893%

12b-I Fees None
Other Expenses
Administration .100%
Shareholder Services - Transfer Adjust .018%

All Other Operating Expenses* .489%
Total Fund Operating Expenses* 1.500%

EXAMPLE*
You would pay the following expenses on a 1 Year $ 15
$1,000 investment, assuming a 5% annual return 3 Years $ 47
and either redemption or no redemption at the 5 Years $ 82
end of each time period. 10 Years $179

</TABLE>

* Total Fund operating expenses are limited by contractual agreement to a
maximum of 1.5% per annum. Please remember that the Example should not be
considered as representative of past or future expenses and that actual
expenses may be higher or lower than those shown. The assumption in the
Example of a 5% annual return is required by regulations of the SEC applicable
to all mutual funds. The assumed 5% annual return is not a prediction of, and
does not represent, the projected or actual performance of a Fund's shares.

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<PAGE> 61

FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout each
period as follows:

The Fund was initially capitalized January 2, 1996. The following condensed
financial information, including total returns, has been audited by Coopers &
Lybrand L.L.P., independent certified public accountants. The audit report on
the 1996 financial statements issued by Coopers & Lybrand L.L.P. appearing in
the Annual Report to Shareholders and in the Statement of Additional Information
should be read in conjunction with this condensed financial information. The
presentation is for a share outstanding throughout the year.

<TABLE>
<CAPTION>
<S> <C>
Net Asset Value, Beginning of Year.......................... $ 10.00
Income from Investment Operations:
Net Investment Income..................................... .16
Net Gains or Losses on Securities (both realized and
unrealized)............................................ 3.91
--------
Total From Investment Operations.......................... 4.07
--------
Less Distributions:
Dividends from net investment income...................... (.04)
Distributions from capital gains.......................... (.05)
Return of capital......................................... (.01)
--------
(.10)
--------
Net Asset Value, End of Year................................ $ 13.97
========
Total Return................................................ 40.69%(1)
Ratios/Supplemental Data:
Net Assets, End of Year (000's)........................... $156,009
Ratio of Expenses to Average Net Assets................... 1.50%(2)
Ratio of Net Income to Average Net Assets................. .92%(3)
Portfolio Turnover Rate................................... 4.28%
Average commission rate paid.............................. $ 0.0613
</TABLE>

- ---------------

(1) Aggregate; not annualized.

(2) Before expense limitation fee waiver, this ratio was 1.60%.

(3) Before expense limitation fee waiver, this ratio was .82%.

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<PAGE> 62

INFORMATION ON INVESTMENT OBJECTIVES AND PHILOSOPHY

INVESTMENT COUNSEL. Southeastern Asset Management, Inc., ("Southeastern"),
located in Memphis, Tennessee, is the Fund's Investment Counsel. The firm has
been engaged since 1975 in the management of securities portfolios for ERISA and
government retirement plans, charitable and educational endowments, and
individuals. The firm, owned and controlled by its principal officers, has more
than $6 billion in client assets under management.

INVESTMENT OBJECTIVE. The fundamental investment objective of Longleaf Partners
Realty Fund is to obtain maximum total return over the long term through
investment primarily in real estate oriented companies. Under normal
circumstances, at least 65% of the Fund's total assets will be invested in the
equity securities of a limited number of companies which are engaged in business
in the real estate industry or related industries or in companies which own
significant real estate assets, and which are believed by the Investment Counsel
to have unrecognized intrinsic value. The Fund may also invest up to 35% of its
total assets in equity or debt securities of companies engaged in any business,
in money market instruments, and in options, financial futures, and currency
contracts, as described in more detail on pages 7 and 8. Investments are
selected based upon the potential for long term capital growth or the
realization of high current income, consistent with the overall objective of
maximizing total return.

DEFINITION OF COMPANIES IN THE REAL ESTATE INDUSTRY. A company is considered to
be in the real estate industry (residential, commercial or industrial) or a
related industry if it satisfies one of the following tests:

1. Revenues and Net Profits. At least 50% of the company's gross revenues or
net profits is derived from construction, ownership, management, operation,
financing, sales, or development of real estate, or from the extraction of
timber or minerals from real estate owned or leased by the company either as
a lessor or as a lessee under a lease granting the designated development or
extraction rights, or from businesses which have a clear relationship to the
ownership, management, use, operation, or development of real estate or
appurtenances to real estate.

2. Valuation of Assets. At least 50% of the company's appraised value, as
determined by the Investment Counsel using its established appraisal
procedures for determining intrinsic value, is attributable to the current
appraised value of real estate owned or leased by the company either as
lessor or as lessee, to the current appraised value of timber or minerals on
such real estate, or to the current appraised value of the stream of fees or
revenues to be derived from the management or operation of real estate or to
the rights to extract timber or minerals from real estate.

Under the above definitions, at least 65% of the Fund's assets will be invested
in companies such as real estate investment trusts; manufacturers and
distributors of construction materials, equipment and building supplies;
financial institutions which make or service mortgages on real estate; hotel and
hotel management companies; retail chains; railroads; and lumber, paper, forest
product, timber, mining and oil companies as well as other similar types of
companies which have a clear relationship to real estate or the real estate
industry. A company which is engaged in one or more businesses outside the real
estate industry will be considered to be in the real estate industry for
purposes of evaluating compliance with the Fund's investment objective if it
satisfies one of the above tests.

POLICY ON INDUSTRY CONCENTRATION. With the exception of issuers in the real
estate or related industries, the Fund will not invest as much as 25% of its net
assets in securities of issuers in any one industry. As described in the prior
section, the Fund's investment in companies engaged in businesses outside the
real estate industry which possess significant real estate holdings will be
deemed to be in the real estate industry for purposes of its investment
objective and its policy on industry concentration. This concentration policy
will not limit the Fund's purchase of obligations issued by the U.S. Government
and its agencies or instrumentalities, or cash equivalents (which will not be
used to concentrate investments in a single industry other than real estate).

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<PAGE> 63

ysis and the use of established disciplines consistently applied over long
periods of time. Stocks which can be identified and purchased at a price
significantly discounted from their intrinsic worth not only protect investment
capital from significant loss but also facilitate major rewards when the true
business value is ultimately recognized.

If Southeastern's calculations are accurate, that present value would be the
price which buyers and sellers negotiating at arms length would accept for the
whole company. In a concluding analysis, the asset value determination and/or
the discounted free cash flow value are compared to Southeastern's data base of
business transactions of comparable corporations.

Other considerations used in selecting potential investments include the
following:

-- EVIDENCE OF FINANCIAL STRENGTH. Southeastern requires that companies held
in the portfolio have sound financial statements and excess free cash flow
produced through operations.

-- POTENTIAL EARNINGS IMPROVEMENT. The company should be capable of producing
both a meaningful improvement in earnings within three to five years and an
adequate return on its invested capital.

A particular investment may not include all of the above factors, but
Southeastern must be convinced that significant unrealized intrinsic value is
present as the result of a substantial market discount or expected above average
returns.

TYPES OF INVESTMENTS

EQUITY SECURITIES. Equity securities in which the Realty Fund may invest
include common stock, preferred stock, convertible preferred stock, convertible
bonds, and warrants.

REAL ESTATE INVESTMENT TRUSTS. The Fund is authorized to invest in the equity
securities of real estate investment trusts or "REITs." A REIT is a corporation
or a business trust that would otherwise be taxed as a corporation, which meets
the definitional requirements of the Internal Revenue Code of 1986, as amended
(the "Code"). The Code permits a qualifying REIT to deduct dividends paid,
thereby effectively eliminating corporate level federal income tax and making
the REIT a pass-through vehicle for federal income tax purposes. To meet the
definitional requirements of the Code, a REIT must, among other things, invest
substantially all of its assets in interests in real estate (including mortgages
and other REITs) or cash and government securities; derive most of its income
from rents from real property or interest on loans secured by mortgages on real
property; and distribute to shareholders annually 95% or more of its otherwise
taxable income.

FIXED INCOME SECURITIES. The Realty Fund may invest a maximum of 25% of its net
assets in investment grade and non-investment grade debt securities of
companies, including real estate industry companies, and preferred stock of such
companies. Securities rated non-investment grade (lower than Baa by Moody's
Investor Services Inc. ("Moody's") or lower than BBB by Standard and Poors
Corporation ("S&P")) are sometimes referred to as "high yield" or "junk" bonds.
Investors should consider the following risks associated with high yield, high
risk securities before investing in the Fund.

High yield securities may be regarded as speculative with respect to the
issuer's continuing ability to make 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, and the ability of a Fund to
achieve its investment objective may, to the extent

5
<PAGE> 64

of its investment in high yield securities, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were investing in
higher quality securities.

High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to
interest-rate changes than more highly rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. Yields on high
yield securities will fluctuate. If the issuer of high yield securities
defaults, the Fund may incur additional expenses to seek recovery.

The secondary markets in which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect the price at which the Fund
could sell a particular high yield security when necessary to meet liquidity
needs or in response to a specific economic event, such as a deterioration in
the creditworthiness of the issuer, and could adversely affect and cause large
fluctuations in the daily net asset value of the Fund's shares. Adverse
publicity and investor perceptions may decrease the values and liquidity of high
yield securities.

It is reasonable to expect that any recession could disrupt the market for high
yield securities, have an adverse impact on the value of such securities, and
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon. New laws and proposed new laws may adversely
impact the market for high yield securities. See the Appendix for additional
information about the classifications of investment grade and non-investment
grade debt and preferred stocks.

Included within the above investments are mortgage-backed securities, such as
mortgage pass-through certificates, real estate mortgage investment conduit
("REMIC") certificates and collateralized mortgage obligations ("CMOs").
Investing in mortgage-backed securities, a form of derivative, involves certain
unique risks in addition to those associated with investing in the real estate
industry in general. These risks include the failure of a counter-party to meet
its commitments, adverse interest rate changes and the effect of prepayments on
mortgage cash flows and returns.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest a maximum of 15% of its
net assets in restricted securities (securities which are not registered or
which are not deemed to be readily marketable) and all other illiquid
securities, including repurchase agreements with maturities of more than seven
days. Securities that may be resold without registration pursuant to Rule 144A
may be treated as liquid for these purposes, subject to the supervision and
oversight of and, in accordance with guidelines established by the Board of
Trustees to determine whether there is a readily available market for such
securities. Illiquid securities may include securities issued by certain REITs
that are not listed on a major stock exchange, options sold in the
over-the-counter market, and forward foreign currency contracts which are not
exchange traded.

Restricted or non-registered securities may be sold only in privately negotiated
transactions, in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 or pursuant to Rule 144
promulgated under such Act. Where registration is required, the Fund may be
obligated to pay all or part of the registration expense, and a considerable
period may elapse between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective registration statement.
If during such a period adverse market conditions were to develop, the Fund
might obtain a less favorable price than prevailed when it decided to sell.
Restricted securities will be valued in such manner as the Board of Trustees of
the Fund in good faith deems appropriate to reflect their fair market value.

FOREIGN SECURITIES. The Fund may invest up to 20% of total assets in securities
of foreign issuers which meet the same criteria for investment as domestic
companies, or sponsored and unsponsored depositary receipts for such securities.
The Fund may be subject to additional investment risks for these securities that
are different in some respects from those incurred by investments in securities
of domestic issuers. Such risks include currency risks, future political and
economic developments, the possible imposition of foreign withholding taxes on
interest income payable on the securities, the possible establishment of
exchange controls, the possible seizure or nationalization of foreign deposits,
or the adoption of other foreign governmental restrictions which might adversely
affect the payment of principal and interest on such securities. There can be no
assurance that such laws may not become applicable to certain of the Fund's
investments. In addition, there may be less publicly available information about
a foreign issuer than about a domestic issuer, and foreign issuers

6
<PAGE> 65

may not be subject to the same accounting, auditing and financial recordkeeping
standards and requirements as domestic issuers.

CASH RESERVES. The Fund's cash reserves, held to provide sufficient flexibility
to take advantage of new opportunities for investments and for other cash needs,
will be invested in money market instruments and generally will not exceed 15%
of total assets. If Southeastern has difficulty finding an adequate number of
undervalued equity securities, all or any portion of the Fund's assets may also
be invested temporarily in money market instruments. Cash reserves in excess of
35% of total assets will be maintained for defensive purposes only.

Money market instruments in which the Fund may invest its cash reserves will
generally consist of obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and such obligations which are subject to
repurchase agreements. A repurchase agreement is an instrument under which an
investor such as the Fund purchases a U.S. Government security from a vendor,
with an agreement by the vendor to repurchase the security at the same price,
plus interest at a specified rate. In such a case, the security is held by the
Fund, in effect, as collateral for the repurchase obligation. Repurchase
agreements may be entered into with member banks of the Federal Reserve System
or "primary dealers" (as designated by the Federal Reserve Bank of New York) in
United States Government securities. Repurchase agreements usually have a short
duration, often less than one week. In entering into the repurchase agreement
for the Fund, the Investment Counsel will evaluate and monitor the credit-
worthiness of the vendor. In the event that a vendor should default on its
repurchase obligation, the Fund might suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. If
the vendor becomes bankrupt, the Fund might be delayed, or may incur costs or
possible losses of principal and income, in selling the collateral.

Other acceptable money market instruments include commercial paper rated by any
nationally recognized rating agency, such as Moody's or Standard & Poor's,
certificates of deposit, bankers' acceptances issued by domestic banks having
total assets in excess of one billion dollars, and money market investment
companies (limited to a maximum of 5% of total assets).

INVESTMENT TECHNIQUES

The Realty Fund is authorized to use the following investment techniques,
subject to the accompanying restrictions. Although these techniques or
strategies are used regularly by some investment companies, Southeastern expects
that the Fund's use of these techniques will not be routine and will be limited
to special situations.

BORROWING. The Fund may borrow up to 30% of the value of its assets to increase
its holdings of portfolio securities. The Fund is required to maintain
continuous asset coverage of 300% with respect to such borrowings and to sell
(within three days) sufficient portfolio holdings to restore such coverage if it
should decline to less than 300% due to market fluctuations or otherwise, even
if such liquidations of the Fund's portfolio are disadvantageous from an
investment standpoint. Leveraging by means of borrowing, which is deemed to be a
speculative technique, may exaggerate the effect of any increase or decrease in
the value of portfolio securities on the Fund's net asset value. Money borrowed
also will be subject to interest and other costs (which may include commitment
fees and/or the cost of maintaining minimum average balances) which may or may
not exceed the income received from the securities purchased with borrowed
funds.

OPTIONS ON SECURITIES AND STOCK INDICES. The Fund may write (i.e., sell) put
and call options and purchase put and call options on securities or stock
indices. An option on a security is a contract that gives the purchaser of the
option, in return for the premium paid, the right to buy a specified security
(in the case of a call option) or to sell a specified security (in the case of a
put option) from or to the writer of the option at a designated price during the
term of the option. An option on a stock index gives the purchaser of the
option, in return for the premium paid, the right to receive from the seller
cash equal to the difference between the closing price of the index and the
exercise price of the option.

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<PAGE> 66

Fund maintains collateral consisting of cash, liquid money market instruments,
or U.S. government securities with a value equal to the exercise price in a
segregated account, or holds a put on the same underlying security at an equal
or greater exercise price. The value of the underlying securities on which
options may be written at any one time will not exceed 25% of the total assets
of the Fund. The Fund will not purchase put or call options if the aggregate
premium paid for such options would exceed 5% of its total assets at the time of
purchase.

FUTURES CONTRACTS. For hedging purposes only, the Fund may buy and sell
financial futures contracts, stock and bond index futures contracts, foreign
currency futures contracts and options on any of the foregoing. A financial
futures contract is an agreement between two parties to buy or sell a specified
debt security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the difference
between the value of the index at the beginning and at the end of the contract
period. A futures contract on a foreign currency is an agreement to buy or sell
a specified amount of a currency for a set price on a future date.

FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may enter into forward foreign
currency exchange contracts ("forward contracts") to attempt to minimize the
risk to the Fund from adverse changes in the relationship between the U.S.
dollar and foreign currencies. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date which is
individually negotiated and privately traded by currency traders and their
customers.

The Fund will enter into forward contracts under the following circumstances.
First, when the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security in relation to another currency by entering into a
forward contract to buy the amount of foreign currency needed to settle the
transaction. Second, when it is believed that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, it may enter into a forward contract to sell or buy the amount of the
former foreign currency (or another currency which acts as a proxy for that
currency) approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. The second investment practice
is generally referred to as "cross-hedging." The Fund's forward transactions may
call for the delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its portfolio
securities are denominated.

The Fund will not enter into forward foreign currency contracts if, as a result,
the Fund will have more than 15% of the value of its net assets committed to the
consummation of such contracts. To the extent such contracts would be deemed to
be illiquid, they will be included in the maximum limitation of 15% of net
assets invested in restricted or illiquid securities.

RISKS OF OPTIONS, FUTURES AND FOREIGN CURRENCY CONTRACTS. Options, futures, and
foreign currency contracts are forms of derivatives. The use of options and
futures as hedging techniques may not succeed where the price movements of the
securities underlying the options and futures do not follow the price movements
of the portfolio securities subject to the hedge. Gains on investments in
options and futures depend on the portfolio manager's ability to predict
correctly the direction of stock prices, interest rates, and other economic
factors. Where a liquid secondary market for options or futures does not exist,
the Fund may not be able to close its position and, in such an event, would be
unable to control its losses. The loss from investing in futures contracts is
potentially unlimited. The use of forward foreign currency contracts may limit
gains from a positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may cause poorer
overall performance for the Fund than if it had not engaged in such contracts.

LOANS OF PORTFOLIO SECURITIES. The Fund may lend to broker-dealers portfolio
securities with an aggregate market value of up to one-third of its total
assets. Such loans must be secured by collateral (consisting of any combination
of liquid money market instruments, U.S. Government securities or irrevocable
letters of credit) in an amount at least equal (on a daily market-to-market
basis) to the current market value of the securities loaned. The Fund may
terminate the loans at any time and obtain the return of the securities loaned
within five business days. The Fund will continue to receive any interest or
dividends paid on the loaned securities.

SHORT SALES. The Fund may enter into short sales, provided the dollar amount of
short sales at any one time would not exceed 25% of the net assets of the Fund,
and the value of securities of any one issuer in which the Fund is short would
not exceed

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<PAGE> 67

the lesser of 2% of the value of the Fund's net assets or 2% of the securities
of any class of any issuer. The Fund must maintain collateral in a segregated
account consisting of cash, liquid money market instruments or U.S. government
securities with a value equal to the current market value of the shorted
securities, which is marked to market daily. If the Fund owns an equal amount of
such securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same issuer as, and
equal in amount to, the securities sold short (which sales are commonly referred
to as "short sales against the box"), the above requirements are not applicable.

RISK FACTORS

The risks related to the particular types of securities in which the Realty Fund
may invest and the investment techniques which it may use are discussed in the
preceding sections describing those securities and techniques. In addition, the
following general investment risks should be considered.

Under normal circumstances, at least 65% of the Fund's total assets will be
invested in the equity securities of companies engaged in the real estate
industry or in businesses related to the real estate industry. Because the Fund
will be concentrated in this industry, the Fund may be subject to the risks
associated with the direct ownership of real estate. For example, real estate
values may fluctuate as a result of general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
regulatory limitations on rents, changes in neighborhood values, changes in the
appeal of properties to tenants, and increase in interest rates. The value of
securities of companies which service the real estate business sector may also
be affected by such risks. Thus, the value of the Fund's shares may change at
different rates compared to the value of shares of a mutual fund with
investments in many different industries.

Because the Fund may invest a substantial portion of its assets in REITs, the
Fund may also be subject to certain risks associated with direct investments in
REITs. REITs may be affected by changes in the value of their underlying
properties and by defaults by borrowers or tenants. Furthermore, REITs are
dependent upon specialized management skills, have limited diversification and
are, therefore, subject to risks inherent in financing a limited number of
projects. REITs depend generally on their ability to generate cash flow to make
distributions to shareholders, and certain REITs have self-liquidation
provisions by which mortgages held may be paid in full and distributions of
capital returns may be made at any time. In addition, the performance of a REIT
may be affected by its failure to qualify for tax-free pass-through of income.

Because prices of equity securities fluctuate from day to day, the value of the
Fund's portfolio and the Fund's price per share will vary based upon general
market conditions. There is no assurance that the investment objectives of the
Fund can be achieved, and the value of your investment as a shareholder upon
redemption may be more or less than the purchase price.

DIVERSIFICATION AND PORTFOLIO TURNOVER

The Realty Fund is non-diversified under the federal securities laws. As a
non-diversified portfolio, there are no restrictions under the securities laws
limiting the percentage of assets that may be invested in the securities of any
one issuer. However, the Fund intends to qualify as a "regulated investment
Company" under Subchapter M of the federal Internal Revenue Code of 1986. See
"Taxes" on page 15. To satisfy these federal tax requirements, there are certain
diversification requirements and investment limits. With respect to 50% of total
assets, not more than 5% of total assets may be invested in the securities of
any one issuer and the Fund may not acquire more than 10% of all outstanding
voting securities of any one issuer; with respect to the other 50% of total
assets, not more than 25% of total assets may be invested in the securities of
any one issuer or related issuers.

Under these investment requirements, the Fund must invest in at least twelve
securities positions. Ten of the positions may not exceed 5% of total assets
each at the time of purchase; the remaining two positions could each comprise
25% of total assets at the time of purchase. Generally, it is anticipated that
the portfolio will consist of more

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<PAGE> 68

than twelve positions. To the extent that the Fund is less diversified, it may
be more susceptible to adverse economic, political, or regulatory developments
affecting a single issuer than would be the case if it were more broadly
diversified.

The Fund may engage in portfolio trading when considered appropriate, but short
term trading will not be used as the primary means of achieving its investment
objective. Although the Fund cannot accurately predict its portfolio turnover
rate, it is not expected to exceed 100% in normal circumstances. However, there
are no limits on the rate of portfolio turnover, and investments may be sold
without regard to length of time held when, in the opinion of Southeastern,
investment considerations warrant such action. Higher portfolio turnover rates,
such as rates in excess of 100%, and short-term trading involve correspondingly
greater commission expenses and transaction costs.

INFORMATION ON MANAGEMENT AND ADMINISTRATION

PORTFOLIO MANAGERS. Mr. O. Mason Hawkins, Chairman of the Board and Chief
Executive Officer of Southeastern Asset Management, Inc. ("Southeastern"), Mr.
G. Staley Cates, President of Southeastern, and Mr. C. T. Fitzpatrick, III, Vice
President of Southeastern, serve as portfolio managers and collectively have
primary responsibility for investment management of the Fund's portfolio.

TRUSTEES AND OFFICERS. The Fund has a Board of Trustees which elects officers
responsible for implementing policies formulated by the Board. All Fund officers
are officers or employees of Southeastern Asset Management, Inc., and in this
capacity administer the Fund's business operations.

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<PAGE> 69

MEMBERS OF BOARD OF TRUSTEES

- ---------------
* Mr. Hawkins and Mr. Sanders are employed by the Investment Counsel and each is
deemed to be a Trustee who is an "interested person", as that term is defined
in Section 2(a)(19) of the Investment Company Act of 1940. Mr. Carpenter
serves as Chairman of the Audit Committee, which is composed of all Trustees
who are not affiliated with the Investment Counsel. Effective April 1, 1997,
The Realty Fund pays fees of $7,500 per annum to each such non-affiliated or
"non-interested" Trustee.

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<PAGE> 70

OTHER EXECUTIVE OFFICERS

C. T. FITZPATRICK, III, CFA, Co-Portfolio Manager, Vice
President -- Investments.
Professional Experience: Vice President, Southeastern Asset Management, Inc.
(since 1990); Financial Analyst, Merrill Lynch Capital Markets (1986-88).
Education: B.A., Corporate Finance, University of Alabama, 1986; MBA, Finance,
Vanderbilt University (1990).

RANDY D. HOLT, CPA, Vice President-Secretary. Professional Experience: Vice
President and Secretary, Southeastern Asset Management, Inc. (since 1994);
Secretary/Treasurer (1985-1994); Ott, Baxter, Holt (1983-1985); A.M. Pullen &
Co. (1982-1983); Harry M. Jay & Associates (1978-1982).
Education: B.S., Accounting, University of Tennessee, 1976.

INVESTMENT COUNSEL FEES. The Fund pays Southeastern an investment counsel fee
which is accrued daily and paid monthly, based on the average daily net asset
value of the portfolio for the year, equal to 1% per annum of the total average
daily net assets. Southeastern has agreed to reduce its fees to the extent
operating expenses of the Fund (excluding brokerage, interest, taxes, and
extraordinary expenses) exceed 1.5% of average annual net assets, and this
agreement caused a reduction in the Investment Counsel fee for 1996.

FUND ADMINISTRATOR. Southeastern, the Investment Counsel, also serves as Fund
Administrator. In this capacity, it provides business administrative and
compliance services for the Fund, which include maintaining the Fund's
accounting records, computing daily the Fund's net asset value, preparation of
tax returns, financial reports, prospectuses and proxy statements, and
monitoring of compliance with all recordkeeping and regulatory requirements.
Southeastern receives an Administration Fee which is accrued daily and paid
monthly, equivalent on an annual basis to 0.10% of the average daily net assets
of the Fund. All direct expenses incurred in continuing administration and
operations, as set forth in the section in the Statement of Additional
Information entitled "Other Management Related Services," are paid by the Fund.

12
<PAGE> 71

HOW TO OPEN AN ACCOUNT

REGULAR ACCOUNTS. To invest in the Longleaf Partners Realty Fund, complete and
sign the account application, and mail to the address below. PLEASE NOTE THAT
THE MINIMUM INVESTMENT REQUIRED TO OPEN AN ACCOUNT IS $10,000.

Longleaf Partners Funds
P.O. Box 419929
Kansas City, MO 64141-6929

INDIVIDUAL RETIREMENT ACCOUNTS. You can open an IRA or a SEP-IRA with State
Street Bank and Trust Company as trustee by requesting the IRA Application kit.
This contains an explanation of tax considerations and State Street's function
as trustee. After reading the information, fill in the IRA application and the
IRA transfer form and mail to the above address. PLEASE NOTE THAT THE MINIMUM
INITIAL INVESTMENT IS $10,000, WHICH MUST BE SATISFIED PRIMARILY BY TRANSFERRING
FUNDS FROM AN EXISTING IRA OR A QUALIFIED RETIREMENT PLAN. YOU WILL BE CHARGED
AN INITIAL SET-UP FEE OF $15 AND A $10 ANNUAL MAINTENANCE FEE.

HOW TO PURCHASE SHARES

Direct purchases from the Longleaf Partners Funds are not subject to sales
commissions or transaction fees. If you purchase your shares through an
authorized broker/dealer, you may be charged a transaction fee which is retained
by the broker/
dealer. Initial direct purchases from the Fund must meet the $10,000 minimum;
additional investments of any amount may be made as often as desired. You may
purchase shares directly from the Fund in the following manner:

Longleaf Partners Funds
P.O. Box 419733
Kansas City, MO 64141-6733

INCLUDE THE NAME OF THE FUND AND YOUR ACCOUNT NUMBER ON THE CHECK or, if the
purchase is for a new account, include your account application and mail to the
address listed in "HOW TO OPEN AN ACCOUNT".

BY WIRE. You may purchase shares by wire. To do so:

2) Instruct your bank to wire funds as follows:

<TABLE>
<S> <C>
- State Street Bank and Trust Company,
Boston, MA
- ABA routing number 011000028
- A/C# 9905-023-9
- Specify Longleaf Partners Realty Fund
(# 135)
- your account number and your name
</TABLE>

Wired funds are considered received on the same day they are deposited in the
Fund account if received before 4:00 P.M. Eastern Time. If received after 4:00
P.M., shares will be purchased at the following business day's closing price. If
you are opening an account by wire, a completed application must be sent to the
Fund as soon as possible. No redemptions can occur until a completed application
has been received by the Fund.

13
<PAGE> 72

TELEPHONE SUBSCRIPTIONS FROM BROKER/DEALERS. Upon execution of formal trading
agreements, the Funds will accept telephone trade orders of $100,000 or less
from a member firm of a national securities exchange, and orders of $50,000 or
less from other members of the NASD, if shares are purchased for the member's
account or for the account of a customer. Larger phone orders require a special
agreement with the Fund. Full payment must be received on all trade orders
within one day of the trade date. The broker/dealer placing the order will be
responsible for any loss resulting from cancellation caused by non-payment. The
broker/dealer may charge a reasonable transaction fee for its services, which it
will retain. The Fund may verify the identity and authorization of any member
firm or broker/dealer prior to accepting an order, and may withdraw the
privilege of placing trade orders if in the best interests of the Fund.

HOW TO REDEEM SHARES

PROCEDURES. You may withdraw any portion of your account by redeeming a
specific number of shares or a fixed dollar amount at any time. Redemption
proceeds are mailed within one week of receipt of the redemption request in Good
Order. Good Order means that you have a completed application on file and that
the redemption request includes:

1) Account number and fund name -- Longleaf Partners Realty Fund (# 135)

2) Amount of the transaction (specified in dollars or shares)

3) Signatures of all owners exactly as they are registered on the account

4) Signature guarantees if required and applicable (see below)

5) Fund certificates if applicable

6) Other supporting legal documents that may be required in cases of
estates, corporations, trusts and certain other accounts.

If you have questions about these requirements, please call the transfer agent
at (800) 488-4191.

The Fund must have received payment for the shares being redeemed, and may delay
redemption payment (for up to 15 days from the date of purchase) until the Fund
has assured itself that collected payment has been received for the initial
share purchase.

REDEMPTION PRICE AND FEES. The redemption price of shares will be the Fund's
net asset value per share next determined after the Fund has received all
required documents in Good Order. (See "How Shares Are Priced" on page 14). The
redemption price may be more or less than the shares' original cost. The Fund
charges no fee for redeeming shares from a regular account.

BY MAIL. Mail your redemption requests and required documentation to:

Longleaf Partners Funds
P.O. Box 419733
Kansas City, MO 64141-6733

14
<PAGE> 73

BY TELEPHONE. You may authorize the transfer agent to accept telephone
redemptions of $25,000 or less for regular accounts by selecting this option on
the application. Telephone redemptions may not be used for IRA's. Proceeds of
telephone redemptions will be sent only to the mailing address designated in the
application or will be wired only to the commercial bank account so designated.
If you call before 4:00 p.m. Eastern Time, you will receive that day's closing
price; redemption requests made after 4:00 p.m. Eastern Time will receive the
next day's closing price. Once initiated, a telephone redemption request cannot
be changed or cancelled. Any changes in the instructions contained in the
application must be made in writing with a signature guarantee, and may be
verified by the transfer agent before a redemption will be allowed.

OTHER SHAREHOLDER SERVICES

CONFIRMATION AND REPORTS. You will receive a confirmation statement after each
transaction showing your current account status. You will also receive a
statement of your account after the end of each calendar quarter. In addition,
you will receive semi-annual and audited annual reports which provide
information on the Fund's portfolio of investments. These reports may be
obtained without charge by telephoning the Fund at (800) 445-9469, and pressing
"1". You will also receive all tax documentation as required by the IRS.

TRANSFER AGENT. National Financial Data Services ("NFDS"), an affiliate of
State Street Bank and Trust Company, serves as the Fund's transfer agent and
dividend disbursing agent. As transfer agent, NFDS maintains all shareholder
accounts and records, serves as stock transfer agent, prepares and sends
confirmations and other reports to shareholders, and handles all shareholder
servicing. If you have questions about your account, please call NFDS at (800)
488-4191.

HOW SHARES ARE PRICED

COMPUTATION OF NET ASSET VALUE. The net asset value per share of the Fund is
determined as of the close of trading on each day that the New York Stock
Exchange is open for business. Net asset value per share is computed by taking
the value of all assets of the portfolio, subtracting its liabilities as accrued
daily, dividing by the number of shares outstanding and adjusting to the nearest
three decimal places. Presently, the New York Stock Ex-

15
<PAGE> 74

change closes at 4:00 p.m. New York City time. In the calculation of net asset
value:

(2) all other portfolio securities for which over-the-counter market
quotations are readily available are valued at the midpoint between the
latest available and representative bid and asked prices;

(5) the fair value of United States Government obligations and other debt
securities will be determined on an amortized cost basis; and

DISTRIBUTIONS AND TAXES

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS. The practice of the Fund will be to
pay any dividends from net investment income annually and to make distributions
of any net realized capital gains annually, as of the close of the calendar
year.

Unless you have elected to the contrary in the original account application, all
income dividends and all capital gains distributions are reinvested
automatically in full and fractional shares of the Fund at the net asset value
per share next determined on the ex-dividend date for such dividend or
distribution. A shareholder may elect to have subsequent income dividends or the
aggregate of income dividends and capital gains distributions paid in cash
rather than reinvested in additional shares of the Fund by notifying the
transfer agent in writing.

TAXES. The Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Federal Internal Revenue Code of 1986, and will be
distributing substantially all net investment income and net realized capital
gains in the form of dividends. As a result, management expects that the Fund
will not incur any significant Federal income tax liability. Should the Fund
fail to distribute the required minimum amounts, it would be subject to a
non-deductible 4% excise tax on certain undistributed taxable income and
realized capital gains.

Because the Fund expects to distribute substantially all net investment income
and net realized capital gains, shareholders subject to Federal income taxation
must report these distributions as income. A portion of these distributions may
qualify for the corporate dividends-received deduction. Distributions that the
Fund receives from a REIT, and dividends of the Fund attributable to such
distributions, will not constitute "dividends" for purposes of the
dividends-received deduction applicable to corporate shareholders. In addition,
if the Realty Fund has rental income or income from the disposition of real
property acquired as a result of a default on securities the Fund owns, the
receipt of such income could adversely affect its ability to retain its tax
status as a regulated investment company.

A distribution has the effect of reducing the net asset value per share on the
record date by the amount of the payment. Such a distribution paid shortly after
the purchase of shares by an investor would be similar to a return of capital to
the investor even though it is subject to taxation as a distribution by the
Fund. Information will be provided promptly after the close of each taxable year
as to the proper classification of any net investment income and capital gains
distributions, and the amounts of any expenses which are non-deductible. The
shareholder should recognize that any distributions, whether received in cash or
invested in additional shares, are taxable for purposes of the Federal income
tax and such payments may also be

16
<PAGE> 75

subject to state income taxes. Distributions by regulated investment companies
and the sale of shares of such companies are classified as "portfolio income",
which includes dividends, interest income, and capital gains or losses
attributable to the disposition of property held for investment.

This discussion about taxes is a general and abbreviated summary of the
provisions of the Federal Internal Revenue Code and Regulations as applicable to
the Fund and individual shareholders. For more information, see section entitled
"Additional Tax Information" in the Statement of Additional Information. These
provisions are subject to change by legislative or administrative action.
Shareholders are advised to consult their own tax advisors for more detailed
information concerning federal, state and local income taxation of investment
company distributions as applied to their particular circumstances.

ADDITIONAL INFORMATION

SIGNIFICANCE OF FUND NAME. 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 seeks
corporate managers who would make exemplary long-term business partners. They
should be properly incented, ownership vested, honest, shareholder oriented,
operationally competent individuals who are capable of allocating corporate
resources intelligently. The Fund endeavors to be a supportive long-term
"partner" with management of the companies in which investments are made.
Correspondingly, the manager's own partners, other personnel, and relatives, are
major investors in the Fund. Management considers itself a "partner" with Fund
shareholders in the sense that together all are seeking long-term total return.
The Fund desires loyal, long-term investors as shareholders who view themselves
as "partners" with Fund management in the same sense.

ALLOCATION OF PORTFOLIO BROKERAGE. Decisions to buy or sell investment
securities for the Fund are made by Southeastern, under the supervision of the
Board of Trustees. Southeastern has been granted authority, in the name of the
Fund, to place the orders for the execution of the Fund's investment portfolio
transactions. When placing such orders, Southeastern uses its best efforts to
obtain the most favorable price and execution, as more fully described in the
Statement of Additional Information, and places such orders subject to and in
accordance with directions of the Board of Trustees from time to time. The Fund
may pay higher commissions to certain brokers for particular transactions than
might be charged if a different broker had been selected on occasions when, in
Southeastern's opinion, this policy furthers the objective of obtaining the most
favorable price and execution for the transaction.

INVESTMENT PERFORMANCE INFORMATION. The Fund may publish its total returns from
time to time in advertisements and in communications to shareholders, calculated
by using an industry standardized formula, as more fully described in the
Statement of Additional Information. Total return information will include the
average annual compounded rate of return for the 12 month period ended at the
close of the most recent calendar quarter, and for the period from inception of
operations through the end of the most recent calendar quarter. The 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. For all of

17
<PAGE> 76

these purposes, total return includes changes in net asset value per share and
reinvestment in additional shares of any dividends from net investment income or
other distributions. The formula for the calculation is included in the
Statement of Additional Information. INVESTORS SHOULD UNDERSTAND THAT INVESTMENT
RESULTS WILL FLUCTUATE OVER TIME, AND AN INVESTMENT MAY BE WORTH MORE OR LESS
THAN THE PURCHASE PRICE, DEPENDING ON THE TIMING OF THE INVESTMENT AND STOCK
MARKET PERFORMANCE. ANY PRESENTATION OF THE TOTAL RETURN FOR ANY PRIOR PERIOD IS
NOT INTENDED TO BE A REPRESENTATION OF FUTURE TOTAL RETURN.

The Fund may compare its performance to that of widely recognized unmanaged
stock market indicies and other more specialized indices. The Fund may also
compare its performance with that of other mutual funds having similar
investment objectives and with the industry as a whole, as determined by
services such as Lipper Analytical Services, Inc. (an independent rating service
that ranks most mutual funds based upon total return performance), CDA
Technologies, Morningstar, Inc., and The Value Line Mutual Fund Survey. The Fund
may also provide information on relative rankings as published in such
newspapers and magazines as The Wall Street Journal, Barron's, Investor's
Business Daily, Forbes, Business Week, Money, Financial World, and other similar
publications of general interest.

MASSACHUSETTS BUSINESS TRUST PROVISIONS. Longleaf Partners Funds Trust was
organized as a Massachusetts business trust on November 26, 1986. It now has
three series or portfolios -- Longleaf Partners Fund, Longleaf Partners Small-
Cap Fund, and Longleaf Partners Realty Fund. Each series is authorized to issue
an unlimited number of shares of beneficial interest, all of which are of one
class and have equal rights as to voting, redemption, dividends and liquidation.
Upon receipt of payment for shares, all shares issued and outstanding are fully
paid and nonassessable and are redeemable at the net asset value per share at
the option of shareholders as more fully described in the section entitled "How
to Redeem Shares". Shares have no preemptive or conversion rights. For
information on limitation of liability and indemnification of Shareholders,
Trustees and other affiliated parties, see the section in the Statement of
Additional Information entitled "Limitation of Liability of Shareholders,
Trustees and Others". The Fund's registered address in the Commonwealth of
Massachusetts is Two Oliver Street, Boston, Massachusetts 02109.

CODE OF ETHICS. The Fund and Southeastern Asset Management, Inc. have adopted a
written Code of Ethics which requires all employees to limit their investments
in publicly offered equity securities to shares of the Longleaf Partners Funds
unless prior clearance is received before engaging in any other personal
securities transactions. All employees must report their personal securities
transactions at the end of each quarter. Employees will not be permitted to
effect transactions in a security if there are pending Fund or client orders in
the security; if the security has been purchased or sold by the Fund or a client
within fifteen calendar days; the security is being considered for purchase by
the Fund or a client; or the security is subject to internal trading
restrictions. In addition, employees are prohibited from engaging in short-term
trading (purchases and sales involving the same security within 60 days
resulting in a profit). Any material violation of the Code of Ethics is reported
to the Board of the Fund. The Board also reviews the administration of the Code
of Ethics on an annual basis.

EXCEPTIONS TO INVESTMENT MINIMUM. The minimum initial purchase requirement is
not applicable to Trustees or officers of the Fund, or to directors, officers or
employees of the Investment Counsel. These persons and their relatives may open
an account with a minimum initial investment of $1,000. Members of the immediate
families of shareholders having invested at least $250,000 and clients of
Southeastern or management personnel of clients having private accounts of at
least $2,000,000 may open a Fund account with a minimum initial investment of
$5,000. Any investor seeking one of the above exceptions must obtain prior
approval of Fund management.

18
<PAGE> 77

APPENDIX

RATINGS

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS:

Aaa -- Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. PREFERRED STOCK RATINGS:

aaa -- An issue which is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of convertible preferred stocks.

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

19
<PAGE> 78

terms of the issue over any long period of time may be small.

caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.

DESCRIPTION OF STANDARD & POOR'S CORPORATION CORPORATE BOND AND PREFERRED STOCK
RATINGS:

AAA -- Securities rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.

AA -- Securities rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.

A -- Securities rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than securities in higher rated
categories.

BBB -- Securities rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
securities in this category than for securities in higher rated categories.

BB, B and CCC -- Securities rated BB, B and CCC are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents the
lowest degree of speculation and CCC the highest degree of speculation. While
such securities will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.

BB -- Securities rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.

B -- Securities rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair 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.

20
<PAGE> 79

INVESTMENT COUNSEL
Southeastern Asset Management, Inc.
6075 Poplar Avenue, Suite 900
Memphis, TN 38119
(901) 761-2474

TRANSFER AND DIVIDEND AGENT
National Financial Data Services ("NFDS")
P.O. Box 419733
Kansas City, MO 64141-6733
For Information about your account,
call (800) 488-4191

CUSTODIAN
State Street Bank & Trust Company, Boston, MA

SPECIAL LEGAL COUNSEL
Dechert Price & Rhoads, Washington, DC

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Coopers & Lybrand, L.L.P., Boston, MA

LONGLEAF
PARTNERS
LOGO
FUNDS TRUST

Longleaf Partners Realty Fund

MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
6075 POPLAR AVE.
SUITE 900
MEMPHIS, TN 38119
(901) 761-2474
(800) 445-9469

Prospectus

March 24, 1997

LONGLEAF
PARTNERS
REALTY
FUND

MANAGED BY:

SOUTHEASTERN ASSET

MANAGEMENT, INC.
<PAGE> 80

LONGLEAF PARTNERS REALTY FUND

PART B

INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 81

STATEMENT OF ADDITIONAL INFORMATION

---------------------

LONGLEAF PARTNERS REALTY FUND

a Series of

LONGLEAF PARTNERS FUNDS TRUST

LOGO TABLE OF CONTENTS

<TABLE>
<S> <C>
- - Additional Information About Investment Restrictions and
Policies.................................................. 2
- - Additional Information About Investment Techniques........ 4
- - Management of the Fund.................................... 7
- - Control Persons and Principal Holders of Securities....... 9
- - Investment Advisory Services.............................. 9
- - Investment Performance and Total Return................... 9
- - Other Management Related Services......................... 10
- - Additional Tax Information................................ 11
- - Brokerage Allocation...................................... 12
- - Distribution of Fund Shares............................... 14
- - Terms of Agreements....................................... 14
- - Redemption of Fund Shares................................. 14
- - Custodian of Fund Assets.................................. 14
- - Independent Certified Public Accountants.................. 15
- - Legal Counsel............................................. 15
- - Limitation of Liability of Shareholders, Trustees and
Others.................................................... 15
</TABLE>

MANAGED BY
SOUTHEASTERN ASSET MANAGEMENT, INC.
6075 POPLAR AVENUE; SUITE 900
MEMPHIS, TN 38119

---------------------

THIS STATEMENT OF ADDITIONAL INFORMATION, DATED MARCH 24, 1997, IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF
LONGLEAF PARTNERS REALTY FUND, ALSO DATED MARCH 24, 1997, WHICH MAY BE OBTAINED
WITHOUT CHARGE UPON REQUEST MADE TO THE FUND ADMINISTRATOR, SOUTHEASTERN ASSET
MANAGEMENT, INC.

TELEPHONE (800) 445-9469; (901) 761-2474.
<PAGE> 82

LONGLEAF PARTNERS REALTY FUND

a Series of

LONGLEAF PARTNERS FUNDS TRUST
---------------------

ADDITIONAL INFORMATION ABOUT INVESTMENT
RESTRICTIONS AND POLICIES

Longleaf Partners Realty Fund (the "Fund" or the "Realty Fund") is a series
of Longleaf Partners Funds Trust, a registered open-end management investment
company having three series. The fundamental investment objective and the
general investment policies and investment techniques are described in the
Prospectus. The Fund has also adopted certain investment restrictions limiting
the following activities except as specifically authorized:

The Fund may not:

(1) Borrow money, except that it may borrow from banks to increase its
holdings of portfolio securities in an amount not to exceed 30% of the
value of its total assets and may borrow for temporary or emergency
purposes from banks and entities other than banks in an amount not to
exceed 5% of the value of its total assets; provided that aggregate
borrowing at any time may not exceed 30% of the Fund's total assets.

(2) 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;

(3) Act as an underwriter of securities issued by other persons,
except insofar as the Fund may be deemed an underwriter in connection with
the disposition of securities;

(4) Purchase or sell real estate, except that the Fund may invest in
securities of companies that deal in real estate or are engaged in the real
estate business, including real estate investment trusts, and securities
secured by real estate or interests therein and the Fund may hold and sell
real estate acquired through default, liquidation, or other distributions
of an interest in real estate as a result of the Fund's ownership of such
securities;

(5) Purchase or sell commodities or commodity futures contracts,
except that the Fund may invest in financial futures contracts, options
thereon and similar instruments;

(6) Make loans to other persons except through the lending of
securities held by it (but not to exceed a value of one-third of total
assets), through the use of repurchase agreements, and by the purchase of
debt securities, all in accordance with its investment policies;

(7) With respect to 50% of its total assets, 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 securities of any one issuer, except
securities issued by the U.S. Government, its agencies or
instrumentalities;

(8) Purchase restricted or "illiquid" securities, including repurchase
agreements maturing in more than seven days, if as a result, more than 15%
of the Fund's net assets would then be invested in such securities;
(excluding securities which are eligible for resale pursuant to Rule 144A,
under the Securities Act of 1933).

2
<PAGE> 83

(9) Purchase securities issued by companies which, including their
predecessors, have been in operation for less than 3 years, if, as a
result, more than 5% of the Fund's total assets would then be invested in
such securities, except that this restriction shall not be applicable to
securities issued by a real estate investment trust in operation for less
than 3 years;

(10) Purchase or retain securities of any issuer if the officers,
directors or trustees of the Fund and the Investment Counsel who
individually own more than 1/2 of 1% of the securities of such issuer
together own beneficially more than 5% of such securities;

(11) Acquire or retain securities of any investment company, except
that the Fund may (a) acquire securities of investment companies up to the
limits permitted by Sec. 12(d)(1) of the Investment Company Act of 1940,
provided such acquisitions are in the open market and there is no
commission or profit to a dealer or sponsor other than the customary
broker's commission, and (b) acquire securities of any investment company
as part of a merger, consolidation or similar transaction;

(12) Make short sales whereby the dollar amount of short sales at any
one time would exceed 25% of the net assets of the Fund, and the value of
securities of any one issuer in which the Fund is short would exceed the
lesser of 2% of the value of the Fund's net assets or 2% of the securities
of any class of any issuer; provided the Fund maintains collateral in a
segregated account consisting of cash, liquid money market instruments or
U.S. government securities with a value equal to the current market value
of the shorted securities, which is marked to market daily. If the Fund
owns an equal amount of such securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities
of the same issuer as, and equal in amount to, the securities sold short
(which sales are commonly referred to as "short sales against the box"),
such restrictions shall not apply.

(13) Invest in puts, calls, straddles, spreads or any combination
thereof, except that the Fund may (a) purchase put and call options on
securities and securities indexes, and (b) write covered put and call
options on securities and securities indexes, provided that (i) the
securities underlying such options are within the investment policies of
the Fund; (ii) at the time of such investment, the value of the aggregate
premium paid for such securities does not exceed 5% of the Fund's total
assets; and (iii) the value of the underlying securities on which options
may be written at any one time does not exceed 25% of total assets;

(14) Invest in oil, gas or other mineral exploration programs,
development programs or leases, except that the Fund may purchase
securities of companies engaging in whole or in part in such activities;

(15) Pledge, mortgage or hypothecate its assets except in connection
with permitted borrowings;

(16) Purchase securities on margin, except short-term credits as are
necessary for the purchase and sale of securities, provided that the
deposit or payment of initial or variation margin in connection with
futures contracts or related options will not be deemed to be a purchase on
margin;

(17) Invest in warrants, if at the time of such investment (a) more
than 5% of the value of the Fund's net assets would be invested in warrants
or (b) more than 2% of the value of the Fund's net assets would be invested
in warrants that are not listed on the New York Stock Exchange or the
American Stock Exchange (and for this purpose, warrants attached to
securities will be deemed to have no value).

FUNDAMENTAL INVESTMENT RESTRICTIONS. The Investment Objective and Policy
of Industry Concentration set forth on pages 3 and 4 of the Prospectus and the
Investment Restrictions numbered 1 through 7 in this Statement of Additional
Information have been adopted as fundamental policies of the Fund. Under the
Investment Company Act of 1940, as amended (the "1940 Act"), a fundamental
policy may not be changed without the vote of a majority of the outstanding
voting securities of the Fund, as defined under the 1940 Act. "Majority" means
the lesser of (1) 67% or more of the shares present at a meeting of shareholders
of the

3
<PAGE> 84

Fund, if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (2) more than 50% of the outstanding shares
of the Fund. Investment restrictions numbered 8 through 17 above, are
non-fundamental and may be changed at any time by vote of a majority of the
Board of Trustees.

From time to time, the Fund may adopt additional investment restrictions
which may be required under the laws or regulations of a particular state in
which shares may be registered for sale or which may be necessary or desirable
for other policy reasons. Such investment restrictions would not be fundamental
in the sense discussed above, and would be subject to amendment or termination
at the discretion of the Board of Trustees should the particular law,
regulation, or policy be changed or in the event the registration of the Fund's
shares in the particular state imposing the limitation or requirement should be
discontinued. In addition, the Fund's Investment Philosophy and the discussion
of the Types of Investments and Investment Techniques as described in the
Prospectus are not fundamental and may be similarly so changed in the discretion
of the Board of Trustees. Any such changes in investment policy or restrictions
will be disclosed through appropriate modifications of the Prospectus or
Statement of Additional Information.

ADDITIONAL INFORMATION ABOUT INVESTMENT TECHNIQUES

The following sections provide expanded discussion of several of the types
of investments and investment techniques which may be used by the Fund.

Real Estate Investment Trusts. REITs are sometimes informally
characterized as equity REITs, mortgage REITs and hybrid REITs. An equity REIT
invests primarily in the fee ownership or leasehold ownership of land and
buildings and derives its income primarily from rental income. An equity REIT
may also realize capital gains (or losses) by selling real estate properties in
its portfolio that have appreciated (or depreciated) in value. A mortgage REIT
invests primarily in mortgages on real estate, which may secure construction,
development or long-term loans. A mortgage REIT generally derives its income
primarily from interest payments on the credit it has extended. A hybrid REIT
combines the characteristics of equity REITs and mortgage REITs, generally by
holding both ownership interests and mortgage interests in real estate. It is
anticipated, although not required, that under normal circumstances a majority
of the Fund's investments in REITs will consist of equity REITs.

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. It is
anticipated that under normal circumstances a majority of the Fund's equity REIT
investments will consist of securities issued by operating companies.

Futures Contracts. For hedging purposes, the Fund 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.

4
<PAGE> 85

The Fund may also buy and sell index futures contracts with respect to any
stock or bond index traded on a recognized stock exchange or board of trade. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract.

At the time the Fund purchases a futures contract, an amount of cash, U.S.
Government securities, or other liquid money market instruments equal to the
market value of the futures contract will be deposited in a segregated account
with the Fund's Custodian. When writing a futures contract, the Fund will
maintain with its 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" its 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 Fund's Custodian).

Options on Securities and Stock Indices. The Fund may write covered call
and put options and purchase call and put options on securities or stock indices
that are traded on United States exchanges.

An option on a security is a contract that gives the purchaser of the
option, in return for the premium paid, the right to buy a specified security
(in the case of a call option) or to sell a specified security (in the case of a
put option) from or to the writer of the option at a designated price during the
term of the option. An option on a securities index gives the purchaser of the
option, in return for the premium paid, the right to receive from the seller
cash equal to the difference between the closing price of the index and the
exercise price of the option.

The Fund may write a call or put option only if the option is "covered." A
call option on a security written by the Fund is covered if the Fund owns the
underlying security covered by the call or 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. 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 money market
instruments, or U.S. Government securities 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 else 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.

The Fund will cover call options on stock indices by owning securities
whose price changes, in the opinion of the Investment Counsel, are expected to
be similar to those of the index, or in such other manner as may be in
accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Nevertheless, where the 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. The Fund will cover put options on stock indices by
segregating assets equal to the option's exercise price, or in such other manner

5
<PAGE> 86

as may be in accordance with the rules of the exchange on which the option is
traded and applicable laws and regulations.

The Fund will receive a premium from writing a put or call option, which
increases the Fund's 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 the
Fund has written a call option falls or remains the same, the Fund will realize
a profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the portfolio securities
being hedged. If the value of the underlying security or index rises, however,
the Fund will realize a loss in its call option position, which will reduce the
benefit of any unrealized appreciation in the Fund's stock investments. By
writing a put option, the Fund assumes the risk of a decline in the underlying
security or index. To the extent that the price changes of the portfolio
securities being hedged correlate with changes in the value of the underlying
security or index, writing covered put options on securities or indices will
increase the Fund's losses in the event of a market decline, although such
losses will be offset in part by the premium received for writing the option.

The Fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, the Fund will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not increase, the
Fund's loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will depend, in part, on the
accuracy of the correlation between the changes in value of the underlying
security or index and the changes in value of the Fund's security holdings being
hedged.

The 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, the 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 the 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, the Fund may experience losses in some
cases as a result of such inability.

Foreign Currency Contracts and Currency Hedging Transactions. In order to
hedge against foreign currency exchange rate risks, the Fund may enter into
forward foreign currency exchange contracts and foreign currency futures
contracts, as well as purchase put or call options on foreign currencies, as
described below. The Fund may also conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market.

The Fund may enter into forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date which is individually negotiated and privately
traded by currency traders and their customers. The Fund may enter into a
forward contract, for example, when it enters into a contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock in"
the U.S. dollar price of the security. In

6
<PAGE> 87

addition, for example, when the Fund believes that a foreign currency may suffer
or enjoy a substantial movement against another currency, it may enter into a
forward contract to sell an amount of the former foreign currency approximating
the value of some or all of the Fund's portfolio securities denominated in such
foreign currency. This second investment practice is generally referred to as
"cross-hedging." Because in connection with the Fund's foreign currency forward
transactions an amount of the Fund's assets equal to the amount of the purchase
will be held aside or segregated to be used to pay for the commitment, the Fund
will always have cash, cash equivalents or high quality debt securities
available sufficient to cover any commitments under these contracts or to limit
any potential risk. The segregated account will be marked-to-market on a daily
basis. In addition, the Fund will not enter into such forward contracts if, as a
result, the Fund will have more than 15% of the value of its total assets
committed to such contracts. While these contracts are not presently regulated
by the Commodity Futures Trading Commission ("CFTC"), the CFTC may in the future
assert authority to regulate forward contracts. In such event, the Fund's
ability to utilize forward contracts in the manner set forth above may be
restricted. Forward contracts may limit potential gain from a positive change in
the relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for the Fund
than if it had not engaged in such contracts.

The Fund may purchase and write put and call options on foreign currencies
for the purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and the Fund could be required
to purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may
constitute an effective hedge against fluctuation in exchange rates although, in
the event of rate movements adverse to the Fund's position, the Fund may forfeit
the entire amount of the premium plus related transaction costs.

The Fund may enter into exchange-traded contracts for the purchase or sale
for future delivery of foreign currencies ("foreign currency futures"). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
the Fund's portfolio securities or adversely affect the prices of securities
that the Fund intends to purchase at a later date. The successful use of
currency futures will usually depend on the Investment Counsel's ability to
forecast currency exchange rate movements correctly. Should exchange rates move
in an unexpected manner, the Fund may not achieve the anticipated benefits of
foreign currency futures or may realize losses.

MANAGEMENT OF THE FUND

The Fund is supervised by its Board of Trustees, which implements policies
through the Fund's principal executive officers. Day to day portfolio management
and fund administration is provided by Southeastern Asset Management, Inc. in
its capacity as Investment Counsel and as Fund Administrator under contracts
which must be renewed at periodic intervals, as required by the Investment
Company Act of 1940.

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<PAGE> 88

annual compensation paid to the individual Trustees serving during the fiscal
year ended December 31, 1996 for all three series of Longleaf Partners Funds
Trust:

COMPENSATION TABLE
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS SMALL-CAP FUND
LONGLEAF PARTNERS REALTY FUND

<TABLE>
<CAPTION>
TOTAL
NAME OF PERSON; AGGREGATE COMPENSATION
POSITION (AGE) COMPENSATION FROM
ADDRESS FROM FUNDS FUNDS**
--------------- ------------ ------------
<S> <C> <C>
O. Mason Hawkins*........................................... None None
Chairman of the Board and CEO (49)
Chadwick H. Carpenter, Jr................................... $27,500 $27,500
Trustee (46)
14 Oak Park
Bedford, MA 01730
John R. McCarroll, Jr....................................... $18,234 $18,234
Trustee (54)
6262 Poplar Ave.
Ste. 201
Memphis, TN 38119
(Served from January 1, 1996 to August 29, 1996)
Steven N. Melnyk............................................ $27,500 $27,500
Trustee (50)
111 Riverside Ave.
Ste. 330
Jacksonville, FL 32202
C. Barham Ray............................................... $27,500 $27,500
Trustee (50)
785 Crossover Lane
Ste. 218
Memphis, TN 38117
W. Reid Sanders*............................................ None None
Trustee and President (45)
</TABLE>

- ---------------

8
<PAGE> 89

The schedule of Trustees fees paid by each Series to each non-interested
Trustee effective April 1, 1997, is as follows: Longleaf Partners
Fund -- $15,000 per annum; Longleaf Partners Small-Cap Fund -- $7,500 per annum;
Longleaf Partners Realty Fund -- $7,500 per annum.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

The Realty Fund is controlled by its Board of Trustees, which consists of
six members, four of whom are independent of the Investment Counsel and are not
"interested persons" as that term is defined in the Investment Company Act of
1940. Persons owning 5% or more of the Fund's outstanding shares at June 30,
1996 are as follows: clients of Charles Schwab & Company, a registered brokerage
firm, owned approximately 29.5% of the outstanding shares an omnibus brokerage
account, clients of National Financial Services Corp., a registered brokerage
firm, owned approximately 5.2% in an omnibus brokerage account; Mr. O. Mason
Hawkins, Chairman, owned individually approximately 8.6%; other directors,
trustees, officers and employees of Southeastern Asset Management, Inc. and
Southeastern's profit sharing plan, and members of their immediate families
owned an additional 5.0%.

INVESTMENT ADVISORY SERVICES

Formed in 1975, the Investment Counsel engages in the business of managing
institutional and individual assets in private or separate accounts and is
responsible for managing more than $7.7 billion in such assets. It has served as
investment counsel to Longleaf Partners Fund and Longleaf Partners Small-Cap
Fund since their respective inception dates in 1987 and 1988, and Longleaf
Partners Realty Fund since its inception on January 2, 1997. Additional
information with respect to the investment advisory function is contained in the
Prospectus under the caption "Investment Management".

The Investment Counsel Fee, calculated daily and payable monthly, is 1% per
annum of the average daily net assets of the Fund. The Investment Counsel has
agreed to limit the normal operating expenses of the Fund, including all fees
but excluding interest, taxes, brokerage commissions, and certain extraordinary
charges, to a maximum of 1.5% of the Fund's average net assets in any fiscal
year through a reduction of its Investment Counsel fees, and its fees were
reduced during 1996 under this provision.

The Fund's portfolio turnover rate is computed by dividing the lesser of
purchases or sales of securities for the period by the average value of
portfolio securities for that period. A portfolio turnover rate of 50% would
occur if one-half of the portfolio of securities were to be replaced during a
period of one year, while a portfolio turnover rate of 100% would occur if all
of the portfolio of securities were replaced during a period of one year.
Specific information on portfolio turnover rates and annualized operating
expenses is set forth in the Prospectus.

INVESTMENT PERFORMANCE AND TOTAL RETURN

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<PAGE> 90

dividends and capital gains distributions, and then mathematically averages the
return over the length of time covered by the calculation. The formula used by
the Fund 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

The total return of the Realty Fund for the year ended December 31, 1996,
calculated by using this formula, was 40.69%.

The Fund is an equity investment. As a result, its total return 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
the Fund's total return with those of other alternatives such as fixed income
products, 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 Fund is designed for investors who are willing to accept such greater market
risks in the hope of realizing greater long-term gains. There is no assurance
that the Fund's investment objective will be achieved.

OTHER MANAGEMENT RELATED SERVICES

- Maintenance of all accounting records

- Preparation and filing of all required financial reports, tax returns,
and reports of sales of shares

- Calculation of the net asset value per share on a daily basis.

- Preparation and filing of prospectuses, proxy statements, and other
required reports to shareholders

- Registration of the Fund and its shares in the various states and with
the Securities and Exchange Commission.

- General coordination and liaison among the Investment Counsel, authorized
dealers, the custodian bank, the transfer agent, and regulatory
authorities

- Providing office space and secretarial and clerical support for the above
functions.

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<PAGE> 91

The Fund pays an Administration Fee equal to 0.10% per annum of the average
daily net assets of each portfolio, which is accrued daily and paid monthly, in
arrears. Administration fees paid during 1996 were $43,848. The Fund has also
agreed to reimburse the Administrator for a portion of the salary of the Fund's
Treasurer and the charges for computer software or computer programs and
computer hardware solely used to process Fund transactions. These reimbursable
expenses are allocated among the three portfolios taking into account their
respective assets and numbers of shareholders. The Administrator has not been
leasing computer equipment for dedicated use by the Fund and has not requested
reimbursement for costs or charges related to computer hardware; such
reimbursement is not expected unless it should become necessary to lease
computer equipment which would be dedicated solely to the operations of the
Fund. Reimbursable administration expenses paid during 1996 were $30,397.

All other direct operating expenses of each portfolio will be paid by that
particular portfolio. Such expenses include but are not limited to the
following: (i) the fees of the Custodian and Transfer Agent; (ii) compensation
of the Fund's independent certified public accountants, outside legal counsel,
and the Trustees who are not officers or employees of Southeastern Asset
Management, Inc.; (iii) all franchise, income and other taxes relating to the
Fund and its securities; (iv) all filing fees and legal expenses incurred in
qualifying and continuing the registrations of the shares of the Fund for sale
with the Securities and Exchange Commission and with any regulatory agency in
the several states; (v) insurance premiums and trade association dues; (vi) the
costs of typesetting, printing and mailing to shareholders such documents as
prospectuses, proxy statements, dividend notices and all other communications;
(vii) expenses of meetings of shareholders and the Boards of Trustees; (viii)
external expenses related to pricing the Fund's portfolio securities; and (ix)
all extraordinary expenses such as expenses of litigation. The Fund also pays
the expenses of stationery, appropriate forms, envelopes, checks, postage,
overnight air courier charges, telephone charges, and printing and mailing
charges for shareholder communications and similar items.

ADDITIONAL TAX INFORMATION

The Fund intends to qualify for the tax treatment applicable to regulated
investment companies ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended. Such qualification does not involve supervision of management
or investment practices or policies by the Internal Revenue Service. In order to
qualify as a regulated investment company, a Fund must, among other things,
derive at least 90% of its gross income from dividends, interest, payments with
respect to proceeds from securities loans, gains from the sale or other
disposition of securities and other income (including gains from options future
and forward foreign currency contracts) derived with respect to its business of
investing in such securities; and derive less than 30% of its gross income from
the sale or other disposition of securities of any of the following: options,
futures or forward contracts (other than those on foreign currencies), or
foreign currencies (or options, futures or forward contracts thereon) that are
not directly related to the RIC's principal business of investing in securities
(or options and futures with respect thereto) held for less than three months.

Certain of the debt securities acquired by the Fund may be secured in whole
or in part by interests in real estate. If the Fund were to acquire real estate
(by foreclosure, for example), income, if any, generated by that real estate
(including rental income and gain on its disposition) may not be regarded as
qualifying income. If the Fund's non-qualifying income for a taxable year
exceeded 10% of its gross income, it would fail to qualify as a regulated
investment company and it would be taxed in the same manner as an ordinary
corporation. In that case, the Fund would be ineligible to deduct its
distributions to its Shareholders and those distributions, to the extent derived
from the Fund's current and accumulated earnings and profits, would constitute
dividends (which may be eligible for the corporate dividends-received deduction)
which are taxable to Shareholders as

11
<PAGE> 92

ordinary income, even though those distributions might otherwise, at least in
part, have been treated in the Shareholder's hands as long-term capital gain. If
the Fund fails to qualify as a regulated investment company in a given taxable
year, it must distribute its earnings and profits accumulated in that year in
order to qualify again as a regulated investment company.

In order to achieve favorable tax treatment, the 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 the Fund's total assets is represented by cash,
U.S. Government securities and other securities limited in respect of any one
issuer, to an amount not greater than 5% of the Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities). Further, a regulated investment company
may not invest more than 25 percent of the value of its total assets in the
securities of two or more issuers which the Fund controls and which are engaged
in the same or similar trades or businesses or related trades or businesses. By
so qualifying, a Fund is not subject to Federal income tax if it timely
distributes its investment company taxable income and any net realized capital
gains.

Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent application of the tax, the Fund must distribute or be deemed to have
distributed with respect to each calendar year an amount equal to the sum of:
(1) at least 98% of its ordinary income (not taking into account any capital
gains or losses) for the calendar year; (2) at least 98% of its capital gains in
excess of its capital losses (adjusted for certain ordinary losses) for the
12-month period ending on October 31 or the calendar year; and (3) all taxable
ordinary income and capital gains for previous years that were not distributed
during such years. A distribution will be treated as paid on December 31 of the
calendar year if it is declared by the Fund in October, November, or December of
that year to shareholders of record on a date in such a month and paid by the
Fund during January of the following calendar year. Such distributions will be
treated as received by shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.

BROKERAGE ALLOCATION

Southeastern Asset Management, Inc. ("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 (hereinafter collectively referred to as "brokers") for the execution of
portfolio transactions and, when applicable, the negotiation of brokerage
commissions. On behalf of the Fund, Southeastern is also responsible for
investment decisions and for the placement and execution through selected
brokers of purchase and sale orders. All investment decisions and placements of
trades with respect to the purchase and sale of portfolio securities are made in
accordance with the following principles:

12
<PAGE> 93

weighed by Southeastern and the Board of Trustees of the Fund in
determining the overall reasonableness of brokerage commissions.

3. Southeastern is authorized to recommend, and the Fund is authorized
to allocate, brokerage and principal purchase and sales transactions to
brokers who have provided brokerage and research services, as such services
are defined in Section 28(e) of the Securities Exchange Act of 1934 (the
"1934 Act"), and for other services which benefit the Fund directly through
reduction of the Fund's expense obligations, such as a reduction in the
Fund's share of the lease charges for computer expenses. Southeastern could
cause the Fund to pay a commission for effecting a securities transaction
in excess of the amount another broker would have charged for effecting
that transaction, if Southeastern in making the recommendation in question
determines in good faith that the commission is reasonable in relation to
the value of the brokerage and research services or other benefits provided
the Fund by such broker. In reaching such determination, neither
Southeastern nor the officer of the Fund making the decision is required to
place a specific dollar value on the research or execution services of a
broker. In demonstrating that such determinations were made in good faith,
Southeastern and the officer of the Fund shall be prepared to show that all
commissions were allocated and paid for purposes contemplated by the Fund's
brokerage policy; that any other benefits or services provided the Fund
were in furtherance of lawful and appropriate obligations of the Fund; and
that the commissions paid were within a reasonable range. Such
determination shall be based on available information as to the level of
commissions known to be charged by other brokers on comparable
transactions, but there shall be taken into account the Fund's policies (i)
that paying the lowest commission is deemed secondary to obtaining a
favorable price and (ii) that the quality, comprehensiveness and frequency
of research studies which are provided for the Fund and Southeastern may be
useful to Southeastern in performing its services under its Agreement with
the Fund but are not subject to precise evaluation. Research services
provided by brokers to the Fund or to Southeastern are considered to be
supplementary to, and not in lieu of services required to be performed by
Southeastern.

13
<PAGE> 94

the prices and amounts will be equitably allocated among all accounts. In some
situations this procedure could adversely affect the price or quantity of the
security available to the Fund, but in other situations the Fund's ability to
participate in larger volume transactions may enable it to realize better
executions, prices, and lower commissions. Total brokerage commissions paid
during 1996 were $427,047.

DISTRIBUTION OF FUND SHARES

TERMS OF AGREEMENTS

The Fund has entered into agreements with Southeastern Asset Management,
Inc., as the Investment Counsel and separately as the Fund Administrator,
effective for a period of two years. Each agreement must be renewed annually by
the affirmative vote of a majority of the outstanding voting securities of the
Fund or by a majority of members of the Board of Trustees, including a majority
of the Trustees who are not "interested" Trustees, as required by the Investment
Company Act of 1940. Such Agreements will automatically terminate in the event
of assignment as defined in the Investment Company Act of 1940. The Fund may
terminate such Agreements, without penalty, upon 60 days' written notice, by a
majority vote of its Board of Trustees or by a majority of the outstanding
voting securities of the Fund.

REDEMPTION OF FUND SHARES

The Fund has filed an election with the Securities & Exchange Commission in
the manner authorized by Rule 18f-1 under the Investment Company Act of 1940, in
which each portfolio of the Fund has committed itself to pay in cash all
requests for redemption by any shareholder of record, limited in amount with
respect to each shareholder during any ninety-day period to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period. This election is irrevocable while Rule 18f-1 is in effect, unless the
Securities & Exchange Commission by order upon application permits the
withdrawal of such notification of election as being appropriate in the public
interest and consistent with the protection of investors. In connection with
omnibus accounts, this election applies separately to each beneficial owner
rather than to the omnibus account in the aggregate.

Should the Fund elect to limit its cash payments on redemption to the
amounts allowed by this election, the balance of a redemption request in excess
of these amounts would be paid through a distribution of portfolio securities. A
shareholder liquidating portfolio securities received in such a distribution
would incur brokerage commissions and be subject to prevailing market prices.

14
<PAGE> 95

CUSTODIAN OF FUND ASSETS

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Coopers & Lybrand, L.L.P., an international public accounting firm, serves
as the Fund's independent certified public accountant.

LEGAL COUNSEL

Dechert Price & Rhoads, a law firm with offices in several major cities,
including Washington, D.C., Philadelphia, and Boston, serves as special legal
counsel to the Fund. Charles D. Reaves, Esq., Executive Vice President of the
Fund and Vice President & General Counsel of Southeastern Asset Management,
Inc., serves as general counsel to the Fund.

LIMITATION OF LIABILITY OF
SHAREHOLDERS, TRUSTEES AND OTHERS

Longleaf Partners Funds Trust is a Massachusetts business trust organized
on November 26, 1986. It now has three series or Funds. The Declaration of Trust
and By-Laws provide that no Trustee, officer, employee, or agent of any Fund
shall be subject to any personal liability to the Fund or its shareholders for
any action or failure to act, except for such person's willful misfeasance, bad
faith, gross negligence, or reckless disregard of the person's duties. The Fund
indemnifies each such person against all such losses other than the excepted
losses. The agreements between the Fund and, respectively, the Investment
Counsel and the Fund Administrator relieve each such entity of liability to the
Fund for any act or omission in the course of its performance under the
particular agreement, including any mistake of judgment, in the absence of
willful misfeasance, bad faith or gross negligence. Information on the
contractual term and rights of cancellation of each such agreement is contained
in the section entitled "Terms of Agreements".

15
<PAGE> 96

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
LONGLEAF PARTNERS REALTY FUND

We have audited the accompanying statement of assets and liabilities of Longleaf
Partners Realty Fund (a series of Longleaf Partners Funds Trust), including the
schedule of portfolio investments, as of December 31, 1996, and the related
statement of operations, the statement of changes in net assets, and the
financial highlights for the year ended December 31, 1996. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures include confirmation of securities owned as of December 31, 1996 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Longleaf Partners Realty Fund as of December 31, 1996 and the results of its
operations, changes in its net assets, and the financial highlights for the year
ended December 31, 1996, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
January 24, 1997
<PAGE> 97

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS REALTY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1996

<TABLE>
<CAPTION>
SHARES MARKET VALUE
--------- COMMON STOCK (84.9%) ------------
<S> <C> <C> <C> <C> <C>
FINANCIAL SERVICES (0.5%)
14,500 * White River Corporation.................................. $ 790,250
-----------
FURNITURE (1.2%)
236,600 * Rhodes, Inc.............................................. 1,833,650
-----------
INSURANCE AND BROKERAGE (3.7%)
130,000 Alexander & Alexander Services Inc....................... 2,258,750
264,400 Hilb, Rogal and Hamilton Company......................... 3,503,300
-----------
5,762,050
-----------
PUBLISHING (4.3%)
178,000 Knight-Ridder, Inc....................................... 6,808,500
-----------
REAL ESTATE INDUSTRY (75.2%)
19,200 Alexander & Baldwin, Inc................................. 480,000
365,000 Arden Realty, Inc........................................ 10,128,750
102,000 Bradley Real Estate, Inc................................. 1,836,000
34,000 Burnham Pacific Properties............................... 510,000
100,000 Bay View Capital Corp.................................... 4,237,500
359,200 * Castle & Cooke, Inc...................................... 5,702,300
1,390,400 * Catellus Development Corporation......................... 15,815,800
256,900 Cousins Properties Incorporated.......................... 7,225,313
44,000 Essex Property Trust..................................... 1,292,500
80,000 * First Fed Financial Corp................................. 1,760,000
87,900 Forest City Enterprises, Inc. - Class A.................. 5,317,950
40,800 Forest City Enterprises, Inc. - Class B.................. 2,468,400
672,300 * IHOP Corp................................................ 15,883,087
28,000 Louisiana-Pacific Corporation............................ 591,500
293,700 The Pioneer Group, Inc................................... 6,975,375
35,000 * Quaker City Bancorp, Inc................................. 665,000
261,000 Rayonier Inc............................................. 10,015,875
12,500 Reckson Associates Realty Corp........................... 528,125
295,000 * Red Roof Inns, Inc....................................... 4,572,500
282,400 Sizeler Property Investors, Inc.......................... 2,718,100
213,500 * Supertel Hospitality, Inc................................ 1,921,500
469,160 * TrizecHahn Corporation................................... 10,321,520
28,000 * USG Corporation.......................................... 948,500
190,200 Wolohan Lumber Co........................................ 2,377,500
113,400 Zurn Industries, Inc..................................... 2,962,575
-----------
117,255,670
-----------
TOTAL COMMON STOCKS (COST $116,169,380)................................... 132,450,120
-----------
</TABLE>

See Notes to Financial Statements.
<PAGE> 98

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS REALTY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1996

<TABLE>
<CAPTION>
MARKET VALUE
------------
<S> <C> <C> <C> <C> <C>
SHORT TERM OBLIGATIONS (15.2%)
Certificates of Deposit in Thrift Institutions............................ $ 9,000
Repurchase Agreement with State Street Bank and Trust Company, dated
12-31-96 due 1-2-97 at 4.75%, collateralized by $716,504 U.S. Treasury
Bond due 2-15-20 (Repurchase proceeds-$700,185) (Cost $700,000).......... 700,000
U.S. Treasury Bill, due 1-2-97, yield at date of purchase 4.82%........... 16,997,757
U.S. Treasury Bill, due 1-9-97, yield at date of purchase 4.11%........... 2,997,300
U.S. Treasury Bill, due 1-16-97, yield at date of purchase 4.57%.......... 2,994,375
------------
23,698,432
------------
TOTAL INVESTMENTS (COST $139,867,812)*....................................... 100.1% 156,148,552
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................... (0.1) (139,328)
----- ------------
NET ASSETS................................................................... 100.0% $156,009,224
===== ============
NET ASSET VALUE PER SHARE (OFFERING AND REDEMPTION PRICE PER SHARE) BASED ON
11,165,607 SHARES OUTSTANDING AT DECEMBER 31, 1996................................ $13.97
========
</TABLE>

* Non-income producing security
* * Also represents aggregate cost for Federal income tax purposes

See Notes to Financial Statements.
<PAGE> 99

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS REALTY FUND
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1996

<TABLE>
<S> <C>
ASSETS:

Investments:
Securities, at market value (cost $116,169,380) (Note 1
and Note 7)............................................ $132,450,120
U.S. Treasury Bills....................................... 22,989,432
Repurchase agreement (Note 6)............................. 700,000
Deposits in thrift institutions........................... 9,000
------------
TOTAL INVESTMENTS 156,148,552
Cash........................................................ 5,382
Dividends and interest receivable........................... 183,179
Prepaid assets.............................................. 3,456
------------
TOTAL ASSETS 156,340,569
------------

LIABILITIES:

Payable for:
Securities purchased...................................... 92,500
Investment Counsel fee (Note 2)........................... 142,316
Administration fees (Note 3).............................. 11,829
Other accrued expenses...................................... 84,700
------------
TOTAL LIABILITIES 331,345
------------
NET ASSETS $156,009,224
============
Composition of net assets:
Paid-in capital (unlimited number of shares authorized,
11,165,607 shares outstanding)......................... $139,719,202
Undistributed net investment income....................... 5,919
Accumulated net realized gain............................. 3,363
Unrealized appreciation of investments (Note 7)........... 16,280,740
------------
NET ASSETS $156,009,224
============
NET ASSET VALUE (OFFERING AND REDEMPTION PRICE) PER SHARE
($156,009,224 DIVIDED BY 11,165,607 SHARES)............... $13.97
=======
</TABLE>

See Notes to Financial Statements.
<PAGE> 100

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS REALTY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends................................................. $ 672,709
Interest.................................................. 390,751
-----------
1,063,460
-----------
EXPENSES:
Investment Counsel fee (Note 2)........................... 438,484
Registration and filing fees.............................. 78,446
Administration fee (Note 3)............................... 43,848
Reimbursable administration expenses (Note 3)............. 30,397
Printing.................................................. 24,885
Custodian fee............................................. 24,356
Professional fees......................................... 21,210
Trustees' fees............................................ 18,315
Transfer agent fee........................................ 7,871
Supplies and postage...................................... 7,523
Insurance expense......................................... 3,167
Miscellaneous............................................. 6,424
Less: Fee reduction (Note 2).............................. (47,201)
-----------
657,725
-----------
Net investment income............................. 405,735
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain from securities transactions, net:
Proceeds from sales.................................... 1,637,737
Cost of securities sold................................ 1,147,205
-----------
Net realized gain................................. 490,532
Increase in unrealized appreciation for the year, net..... 16,280,740
-----------
Net realized and unrealized gain on investments... 16,771,272
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $17,177,007
===========
</TABLE>

See Notes to Financial Statements.
<PAGE> 101

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS REALTY FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
OPERATIONS:
Net investment income..................................... $ 405,735
Net realized gain on investments.......................... 490,532
Net unrealized appreciation for the period................ 16,280,740
------------
Net increase in net assets resulting from operations... 17,177,007
------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gain on investments ($0.04589 per
share)................................................. (487,169)
From net investment income ($0.03766 per share)........... (399,816)
From return of capital ($0.01502 per share)............... (159,496)
------------
Net decrease in net assets resulting from
distributions......................................... (1,046,481)
------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares.......................... 150,091,326
Net asset value of shares issued to shareholders for
reinvestment of shareholder distributions.............. 999,870
Cost of shares redeemed................................... (11,212,498)
------------
Net increase in net assets from fund share
transactions.......................................... 139,878,698
------------
Total increase in net assets........................... 156,009,224
NET ASSETS:
Beginning of year......................................... 0
------------
End of year (including undistributed net investment income
of $5,919)............................................. $156,009,224
============
</TABLE>

See Notes to Financial Statements.
<PAGE> 102

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS REALTY FUND
NOTES TO FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Longleaf Partners Realty Fund (the "Fund") is a series of Longleaf Partners
Funds Trust, a Massachusetts business trust which is registered under the
Investment Company Act of 1940, as amended. The Fund is a non-diversified
open-end management investment company. The Fund was funded and commenced its
public offering of shares on January 2, 1996. Initial capitalization of $100,000
was provided by a principal of Southeastern Asset Management, Inc., the
Investment Counsel, who received 10,000 shares of beneficial interest in return.

The following is a summary of significant accounting policies:

(a) Valuation of Securities and Repurchase Agreements:

(b) Accounting for Investments:

(d) Distributions to Shareholders:

Dividends and distributions to shareholders are recorded on the
ex-dividend date.
<PAGE> 103

NOTE 2. INVESTMENT COUNSEL AGREEMENT

The Investment Counsel has agreed to reduce its fees on a pro rata basis for
services rendered to the extent that the Fund's normal annual operating expenses
(excluding taxes, interest, brokerage fees, and extraordinary expenses) exceed
1.5% of average annual net assets. A reduction of $47,201 was required for the
year ended December 31, 1996.

NOTE 3. FUND ADMINISTRATOR

NOTE 4. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest were as follows:

<TABLE>
<CAPTION>
SHARES AMOUNT
---------- ------------
<S> <C> <C>
Shares sold.................................... 11,949,427 $150,091,326
Reinvestment of shareholder distributions...... 71,778 999,870
Shares redeemed................................ (855,598) (11,212,498)
---------- ------------
11,165,607 $139,878,698
========== ============
</TABLE>

NOTE 5. INVESTMENT TRANSACTIONS

Purchases and sales of securities for the period (excluding short term
obligations) aggregated $117,476,081 and $1,637,737, respectively. Total
brokerage commissions paid by the Fund during the period were $427,047.

NOTE 6. INVESTMENTS IN SHORT-TERM OBLIGATIONS

As excess funds are available, the Fund makes certain short term investments in
cash equivalents, including repurchase agreements. The Fund's custodian bank
sells U.S. government securities to the Fund under an agreement to repurchase
these securities from the Fund at a stated repurchase price including interest
for the term of the agreement, which is usually overnight or over a weekend. The
Fund, through its custodian, receives delivery of the underlying U.S. government
securities as collateral, the market value of which is required to be at least
equal to the repurchase price. If the custodian becomes bankrupt, the Fund might
be
<PAGE> 104

delayed, or may incur costs or possible losses of principal and income, in
selling the collateral. A repurchase agreement of $700,000 is included in the
statement of assets and liabilities at December 31, 1996.

NOTE 7. UNREALIZED APPRECIATION

Net unrealized appreciation consists of the following:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $17,288,185
Unrealized depreciation..................................... (1,007,445)
-----------
$16,280,740
===========
</TABLE>

NOTE 8. RELATED PARTY SHAREHOLDERS

At December 31, 1996, Mr. O. Mason Hawkins, Chairman of the Board and Chief
Executive Officer of Southeastern and of the Fund, owned 960,873 shares of the
Fund, constituting 8.6% of the outstanding shares; Mr. W. Reid Sanders, a
director and Executive Vice President of Southeastern and a member of the Board
of Trustees and President of the Fund, owned 190,114 shares of the Fund,
constituting 1.7% of the outstanding shares. Officers and employees of
Southeastern and their families, Fund trustees and the Southeastern retirement
plan and other affiliates owned an additional 368,580 shares, constituting 3.3%
of the outstanding shares.

NOTE 9. OTHER PORTFOLIO INFORMATION

At December 31, 1996, the Fund held 5% or more of the outstanding voting stock
of the following company: 7.1% of IHOP Corp.
<PAGE> 105

- --------------------------------------------------------------------------------
LONGLEAF PARTNERS REALTY FUND
FINANCIAL HIGHLIGHTS

The Fund was initially capitalized January 2, 1996. The following condensed
financial information, including total returns, has been audited by Coopers &
Lybrand L.L.P., independent certified public accountants. The audit report on
the 1996 financial statements issued by Coopers & Lybrand L.L.P. appears in this
report and should be read in conjunction with this condensed financial
information. The presentation is for a share outstanding throughout the year.

- ---------------

(1) Aggregate; not annualized.

(2) Before expense limitation fee waiver, this ratio was 1.60%.

(3) Before expense limitation fee waiver, this ratio was .82%.
<PAGE> 106
LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17

PART C. OTHER INFORMATION

Item 24 Financial Statement and Exhibits

(a) Financial Statements. Included in Part B of Post-Effective Amendment No.
17.

(b) Exhibits:

(1) Declaration of Trust and Amendments; (previously
filed) (1), (3), (5)
(2) By-laws - previously filed. (1)
(3) Voting Trust Agreement - none

(4) Specimen Security - previously filed (1)
(5) Form of Investment Counsel Agreement with Southeastern
Asset Management, Inc. (4), (5)

(6)(a) Form of Agreement with Principal Underwriter - None
(6)(b) Sample Dealer Agreement - none
(7) Bonus, profit sharing or pension plans - none

(8)(a) Custodian Agreement with State Street Bank and Trust
Company; previously filed (4), (5)
(b) Transfer Agent Agreement with National Financial Data
Services; previously filed (4), (5)
(9) Administration Agreement - Agreement with Southeastern
Asset Management, Inc. Previously filed (4), (5)

(10) Opinion and consent of counsel; filed herewith
(11) Other opinions, appraisals, rulings and consents:
Accountants' Consent; filed herewith
(12) Financial Statements omitted from Prospectus - See Item 24(a)
(13) Letters of investment intent - None
(14) Prototype Retirement Plan - None
(15) Plan pursuant to Rule 12b-1 - None
_____________________________________________________________
(1) Incorporated by reference from the Initial Registration
Statement and Pre-Effective Amendments Numbers 1 and 2.
(2) Incorporated by reference from Post-Effective Amendment 1
(3) Incorporated by reference from Post-Effective Amendment 3
(4) Incorporated by reference from Post-Effective Amendment 10.
(5) Incorporated by reference from Post-Effective Amendment 12

<PAGE> 107

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17

Item 25 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 has three series. The first
series is Longleaf Partners Fund, the second series is Longleaf
Partners Small-Cap Fund, and the third is Longleaf Partners Realty Fund.
Each series has a separate Board of Trustees composed of the same six
individuals. Four of the six Trustees are classified as Trustees who
are not "interested" as defined by Sec. 2 (a)(19) of the Investment
Company Act of 1940. Each series is controlled by its particular Board
of Trustees, and each series has entered into an Investment Counsel
Agreement with Southeastern Asset Management, an 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 26 Number of Holders of Securities

As of December 31, 1996, there were 16,850 shareholders of the
single class of shares outstanding of Longleaf Partners Fund, 1,446
shareholders of the single class of shares outstanding of Longleaf
Partners Small-Cap Fund, and 1,507 shareholders of the single class of
shares outstanding of Longleaf Partners Realty Fund.

Item 27 Indemnification

Section 4.8 of the By-Laws of the Registrant provides as follows:

"Section 4.8. Indemnification of Trustees, Officers, Employees and
Agents. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Trustee, officer, employee, or agent of
the Trust. The indemnification shall be against expenses, including attorneys'
fees, judgements, fines, and amounts paid in settlement, actually and
reasonably incurred by him in connection with the action, suit, or proceeding,
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendre or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Trust, and with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.

(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Trust to obtain a judgment or decree in its favor
by reason of the fact that he is or was a Trustee, officer, employee, or agent
of the trust. The indemnification shall be against expenses, including
attorneys' fees actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Trust, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which the person has been adjudged to be
<PAGE> 108

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17

liable for negligence or misconduct in the performance of his duty to the
Trust, except to the extent that the court in which the action or suit was
brought, or a court of equity in the county in which the Trust has its
principal office, determines upon application that, despite the adjudicate of
liability but in view of all circumstances of the case, the person is fairly
and reasonably entitled to indemnity for these expenses which the court shall
deem proper, provided such Trustee, officer, employee or agent is not adjudged
to be liable by reason of his willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office.

(c) To the extent that a Trustee, officer, employee, or agent of the
Trust has been successful on the merits or otherwise in defense of any action
suit or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue, or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection therewith.

(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections (a) or
(b).

(2) The determination shall be made:

(i) By the Trustees, by a majority vote of a quorum which
consists of Trustees who were not parties to the action,
suit or proceeding; or

(ii) If the required quorum is not obtainable, or if a quorum
of disinterested Trustees so directs, by independent legal
counsel in a written opinion; or

(iii) By the Shareholders.

(3) Notwithstanding any provision of this Section 4.8, no person
shall be entitled to indemnification for any liability, whether
or not there is an adjudication of liability, arising by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of duties as described in Section 17(h) and (i) of the
Investment Company Act of 1940 ("disabling Conduct"). A person
shall be deemed not liable by reason by disabling conduct if,
either:
(i) A final decision on the merits is made by a court or other
body before whom the proceeding
<PAGE> 109

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17

was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling
conduct; or

(ii) In the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the
indemnitee was not liable by reason of disabling conduct,
is made by either-

(A) A majority of a quorum of Trustees who are neither
"interested persons" of the Trust, as defined in
Section 2(a)(19) of the Investment Company Act of
1940, nor parties to the action, suit or proceeding,
or
(B) an independent legal counsel in a written opinion.

(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition thereof
if:

(1) Authorized in the specific case by the Trustees; and

(2) The Trust receives an undertaking by or on behalf of the
Trustee, officer, employee or agent of the Trust to repay the
advance if it is not ultimately determined that such person is
entitled to be indemnified by the Trust; and

(3) either,

(i) such person provides a security for his undertaking, or

(ii) the Trust is insured against losses by reason of any
lawful advances, or

(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person
ultimately will be found entitled to indemnification, is
made by either-

(A) a majority of a quorum which consists of Trustees who
are neither "interested persons" of the Trust, as
defined in Section 2(a)(19) of the Investment Company
Act of 1940, nor parties to the action, suit or
proceeding, or

(B) an independent legal counsel in a written opinion.

(f) The indemnification provided by this Section shall not
<PAGE> 110

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17

be deemed exclusive of any other rights to which a person may be entitled under
any by-law, agreement, vote of Shareholders or disinterested trustees or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding the office, and shall continue as to person who
has ceased to be a Trustee, officer, employee, or agent and inure to the
benefit of the heirs, executors and administrators of such person; provided
that no person may satisfy any right of indemnity or reimbursement granted
herein or to which he may be otherwise entitled except out of the property of
the Trust, and no Shareholder shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.

(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against any
lability asserted against him and incurred by him in any such capacity, or
arising out of his status as such. However, in no event will the Trust
purchase insurance to indemnify any officer or Trustee against liability for
any act for which the Trust itself is not permitted to indemnify him.

(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office."

________________________________________________________________

Paragraph 9 of the Investment Counsel Agreement, provides that, except as
may otherwise be required by the Investment Company Act of 1940 or the rules
thereunder, neither the Investment Counsel nor its stockholders, officers,
directors, employees, or agents shall be subject to any liability incurred in
connection with any act or omission connected with or arising out of any
services rendered under the Agreement, including any mistake of judgment,
except by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the Agreement. Similar provisions are contained in Paragraph
1.04(d) of the Fund Administration Agreement. Reference is made to such
agreements for the full text.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant
<PAGE> 111

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17

against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed by the Act and will be governed by the
final adjudication of such issue.

The Registrant hereby undertakes that is will apply the indemnification
provisions of its By-Laws in a manner consistent with Investment Company Act
Release No. 11330 so long as the interpretation of Section 17(h) and 17(i)
therein remains in effect.

Item 28 Business and Other Connections of Investment Counsel

Southeastern Asset Management, Inc., a Tennessee corporation, offers
investment management services to corporations, retirement and pension plans
and individual investors. The primary occupations for at least the past five
years of its directors, officers or employees who are also either Trustees or
officers of the two series included in Post-Effective Amendment No. 15 are as
follows:

<TABLE>
<CAPTION>
Name of Company,
Name and position Principal Business Capacity With
With Registrant and Address Investment Counsel
---------------------- ------------------ ------------------
<S> <C> <C>
O. Mason Hawkins, CFA 1975-Present; Chairman of the
Chairman of the Board Southeastern Asset Board and CEO
and Co-Portfolio Management, Inc.
Manager

W. Reid Sanders 1975-Present; Executive
Trustee and President Southeastern Asset Vice President
Chief Operating Management, Inc.
Officer

G. Staley Cates, CFA 1985 - Present; President (1994)
Co-Portfolio Manger Southeastern Asset Vice President
and Vice President- Management, Inc. 1985-94
Investments
</TABLE>
<PAGE> 112
LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17

<TABLE>
<S> <C> <C>
John B. Buford, CPA 1990 - Present Vice President
Vice President - Investments Southeastern Asset
Management, Inc.;
1989-90 - First
Tennessee Bank,
Memphis, TN,
Vice President;
1985-1988,
Metropolitan
National Bank
Commercial Lending
Officer/Credit
Analyst.

C.T. Fitzpatrick, III, 1990 - Present; Vice President
CFA; Co-Portfolio Southeastern Asset (1994); Prior to
Manager and Vice Management, Inc. 1994 - Securities
President - Investments Analyst

Frank N. Stanley, CFA 1985 - Present; Vice President
Vice President - Southeastern Asset
Investments Management, Inc.;
1984-1985; Montag &
Caldwell, Inc.
Atlanta, Georgia

Charles D. Reaves 1988 - Present; Vice President &
Executive Vice President Southeastern Asset General Counsel
General Counsel Management, Inc.
1986-1988; Porter
White & Yardley, Inc.
Birmingham, AL
(Vice Prescient and
Principal); Prior to
1986; Saunders System,
Inc., Birmingham, AL.
(Senior Vice President
and Chief Financial
Officer)

Julie M. Douglas, CPA 1989 - Present; Fund Accountant
Executive Vice Southeastern Asset
President- Operations Management, Inc.
and Treasurer 1984-1989; Coopers &
Lybrand, Certified
Public Accountants,
Pittsburgh, PA &
Birmingham, AL

Lee B. Harper 1993 - Present Marketing
Executive Vice Southeastern Asset Analyst
President - Marketing Management, Inc.
1989-1993 - IBM Corp.,
Memphis, TN, Consultant;
McKinsey & Company, Atlanta,
GA, Business Analyst

Randy D. Holt, CPA 1985 - Present; Vice President
Vice President Southeastern Asset & Secretary
and Secretary Management, Inc.
</TABLE>

The address of Southeastern Asset Management, Inc. is Suite 900, The Crescent
Center; 6075 Poplar Avenue; Memphis, TN 38119.
<PAGE> 113
LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17

Item 29 Principal Underwriters

(a) The Fund is a no-load fund selling its shares directly to the
public and serves as its own distributor.

(b) Not Applicable.

ITEM 30 Location of Accounts and Records

All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 (other than those required to be maintained by
the custodian and transfer agent) are maintained in the physical possession of
Registrant's Fund Administrator, which is Southeastern Asset Management, Inc.,
Suite 900, 6075 Poplar Avenue; Memphis, TN 38119. Transfer Agent records are
maintained in the possession of National Financial Data Services, Inc., 1004
Baltimore, 5th Floor, Kansas City, MO 64105.

ITEM 31 Management Services

Not applicable. (See section in the Prospectus entitled "Fund
Administrator").

ITEM 32 Undertakings

(a) Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes
to file with the Securities and Exchange Commission such supplementary and
periodic information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section, including an annual updating of the
registration statement within four months of the end of each fiscal year,
containing audited financial statements for the most recent fiscal year.

(b) The information required by Item 5A of Form N-1A is set forth
in the audited annual reports to shareholders for each fiscal year, which is
the calendar year. Registrant hereby undertakes to furnish each person to whom
a Prospectus is delivered with a copy of the then current Annual Report upon
request and without charge.
<PAGE> 114
LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17
RULE 485(b) CERTIFICATION

Pursuant to subparagraph (3) of Rule 485(b) under the Securities Act of 1933,
the Registrant represents as follows:
1. This Post-Effective Amendment No. 17 is being filed solely for one or
more of the purposes specified in subparagraph (1) of Rule 485(b), in
particular, subparagraph 1(iii) and (iv) to file updated audited
financial statements for the fiscal year ended December 31, 1996, and
subparagraph 1 (vii), to make certain non-material changes in
disclosure language.
2. No material event requiring disclosure in the Prospectus, other than
making certain non-material changes as permitted by subparagraph
(1)(vii) of Rule 485(b), has occurred since the filing of
Post-Effective Amendment No. 15 on May 1, 1996, the last
Post-Effective Amendment containing a Prospectus for Series One and
Series Two, or July 18, 1996, the date of filing of Post-Effective
Amendment No. 16, the last Post-Effective Amendment containing a
Prospectus for Series Three, other than the matters set forth in the
Supplements to Prospectus or "stickers" dated the same date as this
Post-Effective Amendment No. 17.
SIGNATURES*
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Longleaf Partners Funds Trust, a
Massachusetts business trust (the Master Trust) having three series or
portfolios, Longleaf Partners Fund (Series One), and Longleaf Partners Small-Cap
Fund (Series Two), have duly caused this Post-Effective Amendment No. 15 to the
Registration Statement to be signed on their behalf by the undersigned,
thereunto duly authorized, in the City of Memphis and State of Tennessee,
on the 24th day of March, 1997.
Longleaf Partners Fund Trust (the Master Trust)
Longleaf Partners Fund (Series One)
Longleaf Partners Small-Cap Fund (Series Two)
Longleaf Partners Realty Fund (Series Three)

By /s/ Charles D. Reaves
------------------------
Charles D. Reaves
Executive Vice President
<PAGE> 115

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 17

SIGNATURES (Continued)*

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 15 to the Registration Statement of Longleaf Partners Funds Trust
on Form N-1A has been signed below by the following persons in the capacities
and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ O. Mason Hawkins
- --------------------------
O. Mason Hawkins Trustee; Chairman of the March 24, 1997
Board and Chief Executive
Officer

/s/ W. Reid Sanders
- --------------------------
W. Reid Sanders Trustee and President March 24, 1997
(Chief Operating Officer)

/s/ Chadwick H. Carpenter, Jr.
- ------------------------------
Chadwick H. Carpenter, Jr. Trustee March 24, 1997

/s/ Daniel W. Connell, Jr.
- --------------------------
Daniel W. Connell, Jr. Trustee March 24, 1997

/s/ Steven N. Melnyk
- --------------------------
Steven N. Melnyk Trustee March 24, 1997

/s/ C. Barham Ray
- --------------------------
C. Barham Ray Trustee March 24, 1997
</TABLE>

(*) As of the date of this Post-Effective Amendment No. 17, the Board of
Trustees of each Series consists of six individuals, as shown above. Each
Trustee and each officer is a Trustee and/or officer of each Series, and each
is signing this Post-Effective Amendment on behalf of each such Series.

NOTICE

A Copy of the Declaration of Trust of Longleaf Partners Funds Trust is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that this instrument is executed on behalf of the Registrant by the above
Trustees or officers of the Registrant in their capacities as Trustees or as
officers and not individually, and any obligations arising out of this
instrument are not binding upon any of the Trustees, officers or shareholders
individually, but instead are binding only upon the assets and property of the
Registrant.

<PAGE> 1

LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 17

EXHIBIT 10
LONGLEAF PARTNERS REALTY FUND
c/o Southeastern Asset Management, Inc.
6075 Poplar Avenue; Suite 900
Memphis, TN 38119

March 24, 1997
Securities and Exchange Commission and
Board of Trustees
Longleaf Partners Funds Trust (the master trust)
Longleaf Partners Fund (Series One)
Longleaf Partners Small-Cap Fund (Series Two)
Longleaf Partners Realty Fund (Series Three)

Gentlemen:

This letter is written with respect to Post-Effective Amendment No. 17 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"), with the Securities and Exchange Commission for the purpose of
registering under the Securities Act of 1933, as amended, an indefinite number
of shares of beneficial interest of no par value (the"Shares") of the three
series of Longleaf Partners Funds Trust, which is the third separate series of
the Trust.

As General Counsel of the Master Trust and its three series, I am familiar with
and have examined such records, certificates and other documents and reviewed
such questions of law as deemed necessary or appropriate for the purposes of
this opinion. On the basis of such examination and review, you are advised
that, in my opinion, proper trust proceedings have been taken by the Trust so
that the shares have been validly authorized and, when the shares have been
issued and sold in accordance with the terms of the Prospectus included in the
Registration Statement, (with the Trust receiving consideration for the net
asset value per share prior to issuance of the shares), the Shares will be
validly issued, fully paid and non-assessable when issued.

I hereby consent to the filing of this opinion as an exhibit to the said Post
Effective Amendment No. 17 to the Registration Statement and the reference to
my name as General Counsel in the Statement of Additional Information under the
heading "The Fund's Legal Counsel".

Very truly yours,

/s/ Charles D. Reaves
- ---------------------
Charles D. Reaves
General Counsel
Longleaf Partners Funds Trust
Longleaf Partners Realty Fund (Series Three)

<PAGE> 1

EXHIBIT 11

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the inclusion in Part B of the Statement of Additional
Information, constituting part of Post-Effective Amendment No. 17 to this
Registration Statement on Form N-1A (File No. 33-10472), of our reports dated
January 10, 1997, on the audits of the following:

Longleaf Partners Fund

Statement of Assets and Liabilities, including the schedule of
portfolio investments, as of December 31, 1996 and the related statement of
operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for the years ended December 31, 1996, 1995, 1994, 1993, 1992,
1991, and 1990, October 31, 1989 and 1988, the two months ended December 31,
1989, and the period from March 24, 1987 (Date of Initial Capitalization)
through October 31, 1987.

Longleaf Partners Small-Cap Fund

Statement of Asset and Liabilities including the schedule of portfolio
investments, as of December 31, 1996 and the related statement of operations
for the year then ended, the statements of changes in net assets for each of
the two years in the period then ended, and the financial highlights for the
years ended December 31, 1996, 1995, 1994, 1993, 1992, 1991, and 1990, the
two months ended December 31, 1989, and the period from December 28, 1988
(Date of Initial Capitalization) through October 31, 1989.

Longleaf Partners Realty Fund

Statement of Asset and Liabilities including the schedule of portfolio
investments, as of December 31, 1996 and the related statement of
operations, the statement of changes in net assets, and the financial
highlights for the year ended December 31, 1996.

We also consent to the reference to our firm under the headings, "Independent
Certified Public Accountants" and "Financial Statements" in Part B of the
Registration Statement, and in the Financial Highlights Tables contained in
Part A of the Registration Statement.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
March 24, 1997