LONGLEAF PARTNERS FUNDS TRUST, 485BPOS, 1998-04-30

LONGLEAF PARTNERS FUNDS TRUST
485BPOS, 1998-04-30

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<PAGE> 1

As filed with the Securities and Exchange Commission on April 30, 1998

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. 19 (X)
----- -----

and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940

Amendment No. 19 (X)
----- -----

(Check appropriate box or boxes)

LONGLEAF PARTNERS FUNDS TRUST

(Exact name of registrant as specified in charter)
---------------------------------------------------
c/o Southeastern Asset Management, Inc.
6410 Poplar Avenue; Suite 900
Memphis, TN 38119
(Address of principal executive offices)
----------------------------------------
Registrant's Telephone Number, Including Area Code - (901) 761-2474

<TABLE>
<S> <C>
CHARLES D. REAVES, ESQ. Copy to:
Executive Vice President ALAN ROSENBLAT, ESQ.
Longleaf Partners Funds Trust Dechert Price & Rhoads
c/o Southeastern Asset Mgmt., Inc. 1775 Eye Street, N.W.
6410 Poplar Ave., Ste. 900 Washington, D.C. 20006
Memphis, TN 38119
</TABLE>

(Name and address of agent for service)
---------------------------------------

Approximate Date of Proposed Public Offering
-----------------------------

It is proposed that this filing will become effective (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

DECLARATION PURSUANT TO RULE 24f-2

Pursuant to Rule 24f-2(a) under the Investment Company Act of 1940, the
Registrant hereby declares that an indefinite number or amount of shares of
beneficial interest is being registered under the Securities Act of 1933. The
$500 filing fee required by said Rule has been paid. The Notice required by
Rule 24f-2(b)(1) under the Investment Company Act of 1940 with respect to the
fiscal year ended December 31, 1997, was filed with the Securities & Exchange
Commission on March 10, 1998, together with a registration fee for net sales
for the period.

<PAGE> 2

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 19

__________

LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS REALTY 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 The Funds at a Glance

3. Condensed Financial "Condensed
Information Financial Information"

4. General Description of Front Cover Page;
Registrant The Funds in Detail
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 State of Organization
Securities 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. 18

<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 History Face Page and under
Significance of Fund Names;
State of Organization
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 Services

17. Brokerage Allocation and Brokerage Allocation
Other Practices

18. Capital Stock and Other Contained in Prospectus under
Securities caption "State of Organization"

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
=============================
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS REALTY FUND
LONGLEAF PARTNERS SMALL-CAP FUND

PART A

INFORMATION REQUIRED IN THE PROSPECTUS

<PAGE> 5

LONGLEAF

PARTNERS

FUNDS

MANAGED BY:

SOUTHEASTERN ASSET MANAGEMENT, INC.

May 1, 1998
<PAGE> 6

================================================================================
PROSPECTUS

May 1, 1998

LONGLEAF PARTNERS FUNDS TRUST

A No-Load, Non-Diversified, Open-End,
Management Investment Company

With Three Portfolios

(LONGLEAF PARTNERS FUNDS TRUST(SM) LOGO)

LONGLEAF PARTNERS FUND

Seeks long-term capital growth through investment primarily in securities of
companies having a market capitalization greater than $1 billion, most of which
are listed on the major stock exchanges.

LONGLEAF PARTNERS REALTY FUND

Seeks maximum total return over the long-term through investment primarily in
real estate oriented companies.

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.

Please read this prospectus before investing, and keep it on file for future
reference. It contains important information, including how the Funds invest and
the services available to shareholders.

To learn more about the Funds, you can obtain a copy of the most recent
financial reports and portfolio listings, or a copy of the Statement of
Additional Information (SAI) dated May 1, 1998. The SAI has been filed with the
Securities and Exchange Commission (SEC) and is incorporated herein by reference
(legally forms a part of the prospectus). For a free copy of either document,
call 1-800-445-9469.

Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, the Federal Reserve
Board, or any other agency, and are subject to investment risk, including the
possible loss of principal.

LONGLEAF PARTNERS FUNDS
MANAGED BY
SOUTHEASTERN ASSET MANAGEMENT, INC.
6410 Poplar Avenue; Suite 900
Memphis, TN 38119

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

LIKE ALL MUTUAL FUNDS, 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> 7

CONTENTS

<TABLE>
<S> <C>
The Funds at a Glance......................................
Fund Expenses..............................................
Financial Highlights.......................................
The Funds in Detail
Longleaf Partners Fund...................................
Longleaf Partners Realty Fund............................
Longleaf Partners Small-Cap Fund.........................
Investment Management
Investment Counsel.......................................
Portfolio Managers.......................................
Investment Counsel Fees..................................
Investment Philosophy....................................
Types of Investments
Restricted and Illiquid Securities.......................
Foreign Securities.......................................
Fixed Income Securities..................................
Cash Reserves............................................
Investment Techniques
Borrowing................................................
Options on Securities and Stock Indices..................
Futures Contracts........................................
Forward Foreign Currency Contracts.......................
Risk of Options, Futures and Foreign Currency
Contracts.............................................
Loans of Portfolio Securities............................
Short Sales..............................................
Other Risk Factors.........................................
Diversification............................................
Portfolio Turnover.........................................
Fund Administration and Operations
Fund Administrator.......................................
Board of Trustees........................................
Other Executive Officers.................................
Funds Closed to New Shareholders...........................
How to Open an Account.....................................
How to Purchase Shares.....................................
How to Redeem Shares.......................................
Shareholder Servicing......................................
How Shares Are Priced......................................
Distributions and Taxes....................................
Other Information
Significance of Fund Names...............................
Code of Ethics...........................................
Portfolio Brokerage......................................
Investment Performance Information.......................
State of Organization....................................
Exceptions to Investment Minimum.........................
</TABLE>

2
<PAGE> 8

THE FUNDS AT A GLANCE

INVESTMENT PARTNERS

Longleaf Partners Funds represent what Southeastern Asset Management, Inc.
("Southeastern"), the Funds' Investment Counsel, views as an investment
partnership among all shareholders. Southeastern's employees and affiliates are
one of the largest group of shareholders in the three Funds.

Southeastern adheres to the following principles in managing Longleaf Partners
Funds:

- We will treat your investment in Longleaf as if it were our own.

- We will remain significant investors with you in Longleaf.

- We will invest for the long-term, while always striving to maximize
after-tax returns and to minimize business, financial, purchasing power,
regulatory and market risks.

- We will choose our common stock investments based on their discount from our
appraisal of their corporate intrinsic value, their financial strength,
their management, their competitive position, and our assessment of their
future earnings potential.

- We will comply with the diversification standards of the Internal Revenue
Code, but will not overdiversify our holdings.

- We will not impose loads, holding periods, exit fees or 12b-1 charges on our
investment partners.

- We will consider closing the Funds to new investors if our size begins to
restrict our ability to manage the portfolios or if closing would otherwise
benefit existing shareholders.

- We will discourage short-term speculators and market timers from joining us,
the long-term investors in Longleaf.

- We will continue our efforts to improve shareholder services.

- We will communicate with our investment partners as candidly as possible.

GENERAL STRATEGY

Each Fund invests primarily in equity securities of a limited number of
companies believed by Southeastern to have unrecognized intrinsic value. The
Funds invest in securities of companies located throughout the U.S., and may
invest up to 30% of assets in foreign securities.

DIVERSIFICATION

The Funds are non-diversified under the federal securities laws. However, the
Funds comply with the diversification standards established by the Internal
Revenue Code of 1986 for regulated investment companies.

3
<PAGE> 9

FUNDS CLOSED TO NEW SHAREHOLDERS

Longleaf Partners Realty Fund is open to new shareholders. Longleaf Partners
Fund and Longleaf Partners Small-Cap Fund are currently closed to new
shareholders, but remain open to existing shareholders and others related to
existing shareholders. See "Funds Closed To New Shareholders" on page 22 for the
exceptions.

WHO MAY WANT TO INVEST

The Funds are suitable for shareholders willing to hold their shares through
market fluctuations and the accompanying changes in share values. The Funds are
not appropriate investments for those seeking short-term price appreciation or
for "market timers."

MINIMUM INITIAL INVESTMENT -- NO SALES CHARGES

The minimum initial investment is $10,000. You may purchase shares directly from
the Funds without payment of any sales charges. There are no "12b-1" fees or
redemption fees. You may also purchase shares through an authorized brokerage
firm, which may charge a transaction fee.

GENERAL RISKS OF INVESTMENT

Market values of all types of securities fluctuate with the movement of the
securities markets, and the value of the Funds' portfolios and the prices per
share will vary. Risks of specific types of securities in which the Funds may
invest and in the investment techniques which may be used are discussed in more
detail in the text of the Prospectus. There is no assurance that the Funds will
achieve their investment objectives.

SHAREHOLDER INQUIRIES

Materials describing the Funds and application forms -- (800) 445-9469

Account status and redemption procedures -- (800) 488-4191

Inquiries about Fund operations -- (901) 761-2474

4
<PAGE> 10

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.

PARTNERS REALTY SMALL-CAP
FUND FUND FUND
-------- ------ ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None None None
Sales Load Imposed on Reinvested Dividends None None None
Deferred Sales Load None None None
Redemption Fee None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.788% 1.000% 0.901%
Fee Waiver 0 0 0
------- ------ -------
Net Management Fees 0.788% 1.000% 0.901%
12b-1 Fees None None None
Other Expenses
Administration 0.100% 0.100% 0.100%
Shareholder Services - Transfer Agent 0.017% 0.017% 0.017%
All Other Operating Expenses 0.037% 0.086% 0.076%
------- ------ -------
Total Fund Operating Expenses 0.942% 1.203% 1.094%
======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
EXAMPLE*
You would pay the following 1 Year $ 10 $ 12 $ 11
expenses on a $1,000 investment, 3 Years $ 30 $ 38 $ 35
assuming a 5% annual return and 5 Years $ 52 $ 66 $ 60
either redemption or no redemption 10 Years $116 $146 $133
at the end of each time period.
</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.

5
<PAGE> 11

FINANCIAL HIGHLIGHTS

The following condensed financial information, including total returns, has been
The audit report on the 1997 financial statements issued by Coopers & Lybrand
conjunction with this condensed financial information. The presentation is for

<TABLE>
<CAPTION>
NET GAINS
OR
(LOSSES)
NET ON DISTRI-
ASSET SECURITIES TOTAL DIVIDENDS BUTIONS
VALUE NET REALIZED FROM FROM NET FROM RETURN
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT CAPITAL OF
OF PERIOD INCOME(A) UNREALIZED OPERATIONS INCOME GAINS CAPITAL
--------- ---------- ---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>

- - ----------------------------
LONGLEAF PARTNERS FUND
Year ended December 31,
1997.................... $22.85 $.21 $6.24 $6.45 $(.21) $(3.11) -
1996.................... 21.15 .37 4.09 4.46 (.38) (2.38) -
1995.................... 17.13 .30 4.40 4.70 (.24) (.44) -
1994.................... 16.92 .21 1.30 1.51 (.16) (1.14) -
1993.................... 14.70 .10 3.16 3.26 (.09) (.95) -
1992.................... 13.34 .07 2.65 2.72 (.07) (1.29) -
1991.................... 10.21 .05 3.93 3.98 (.06) (.79) -
1990.................... 12.62 .13 (2.16) (2.03) (.15) (.23) -
Two months ended December
31, 1989.................. 14.30 .03 (.10) (.07) (.08) (1.53) -
Year ended October 31,
1989.................... 11.25 .18 3.00 3.18 (.13) - -
1988.................... 8.69 .14 2.50 2.64 (.08) - -

- - ----------------------------
LONGLEAF PARTNERS REALTY FUND
Year ended December 31,
1997...................... 13.97 .19 3.96 4.15 (0.09) (0.64) (0.04)
January 2, 1996 (Date of
Initial Capitalization)
through December 31,
1996...................... 10.00 .16 3.91 4.07 (.04) (.05) (.01)
</TABLE>

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

* Annualized
(a) Calculated based on weighted average shares outstanding for the period.
(b) Not applicable for periods prior to 1996.
(c) Aggregate, not annualized.
(d) Before expense limitation fee waiver, this ratio was 1.64%.
(e) Before expense limitation fee waiver, this ratio was 1.60%.
(f) Before expense limitation fee waiver, this ratio was 0.82%.

6
<PAGE> 12

audited by Coopers & Lybrand L.L.P., independent certified public accountants.
L.L.P. appears in the Statement of Additional Information and should be read in
a share outstanding throughout each period.

<TABLE>
<CAPTION>
RATIO OF
NET EXPENSES RATIO OF
ASSET NET ASSETS TO NET AVERAGE
TOTAL VALUE END OF AVERAGE INCOME TO PORTFOLIO COMMISSION
DISTRI- END OF TOTAL PERIOD NET AVERAGE TURNOVER RATE
BUTIONS PERIOD RETURN (THOUSANDS) ASSETS NET ASSETS RATE PAID(B)
------- ------ ------ ----------- -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>

$(3.32) $25.98 28.25%(a) $2,605,070 0.94% 0.81% 38.07% $0.0514
(2.76) 22.85 21.02 2,300,079 0.95 1.61 33.18 0.0750
(.68) 21.15 27.50 1,876,467 1.01 1.45 12.60
(1.30) 17.13 8.96 753,527 1.17 1.18 27.39
(1.04) 16.92 22.20 397,282 1.26 .63 19.12
(1.36) 14.70 20.47 243,678 1.29 .50 29.12
(.85) 13.34 39.19 177,878 1.30 .42 45.11
(.38) 10.21 (16.35) 129,643 1.32 1.13 52.45
(1.61) 12.62 (0.47)(c) 148,680 1.31* 1.73* 6.67
(.13) 14.30 28.38 139,608 1.35 1.37 57.72
(.08) 11.25 30.69 50,676 1.50(d) 1.40 92.68

(0.77) 17.35 29.73 737,302 1.20 0.75 28.66 0.0739
(.10) 13.97 40.69(c) 156,009 1.50(e) .92(f) 4.28 0.0613
</TABLE>

7
<PAGE> 13

FINANCIAL HIGHLIGHTS, CONTINUED

<TABLE>
<CAPTION>
NET GAINS
OR
NET (LOSS) ON DISTRI-
ASSET NET SECURITIES TOTAL DIVIDENDS BUTIONS
VALUE INVESTMENT REALIZED FROM FROM NET FROM
BEGINNING INCOME AND INVESTMENT INVESTMENT CAPITAL
OF PERIOD (LOSS)(A) UNREALIZED OPERATIONS INCOME GAINS
--------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>

- - -----------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND
Year ended December 31,
1997........................... $17.86 $.25 $4.94 $5.19 $(.18) $ (.69)
1996........................... 14.46 .03 4.40 4.43 (.02) (1.01)
1995........................... 13.28 .12 2.35 2.47 (.12) (1.17)
1994........................... 13.49 (.03) .52 .49 - (.70)
1993........................... 11.40 (.06) 2.32 2.26 - (.17)
1992........................... 10.67 (.01) .74 .73 - -
1991........................... 8.50 .06 2.17 2.23 (.06) -
1990........................... 12.87 .40 (4.18) (3.78) (.36) (.23)
Two months ended December 31,
1989............................. 13.02 .04 .22 .26 (.05) (.36)
December 28, 1988 (Date of Initial
Capitalization) through October
31, 1989......................... 10.00 .17 2.94 3.11 (.09) -
</TABLE>

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

8
<PAGE> 14

$ (.87) $22.18 29.04% $915,259 1.09% 1.18% 16.95% $0.0514
(1.03) 17.86 30.64 252,157 1.23 .18 27.97 0.0605
(1.29) 14.46 18.61 135,977 1.30 .84 32.95
(.70) 13.28 3.64 99,609 1.38 (.22) 19.79
(.17) 13.49 19.83 85,087 1.45 (.45) 14.37
- 11.40 6.87 62,181 1.45 (.03) 25.80
(.06) 10.67 26.31 60,354 1.43 .60 65.18
(.59) 8.50 (30.05) 47,894 1.43 3.48 14.93
(.41) 12.87 2.10(c) 52,176 1.47* 1.60* 3.96
(.09) 13.02 31.13(c) 43,860 1.50*(d) 1.63* 20.47
</TABLE>

9
<PAGE> 15

THE FUNDS IN DETAIL

- - --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUND ("PARTNERS FUND"). Under normal circumstances, the
Partners Fund invests at least 75% of its equity portfolio (but not less than
65% of total assets) in a limited number of companies having a market
capitalization over $1 billion. Most of these securities are listed on the major
securities exchanges.

The Partners Fund may invest the remainder of its portfolio in a wide variety of
securities, including equity securities of smaller companies that generally have
an established market, in debt securities, options, warrants, and other similar
investments, and in money market instruments. Current income is not an
objective. The Partners Fund will not invest as much as 25% of its net assets in
companies in any one industry.

- - --------------------------------------------------------------------------------
LONGLEAF PARTNERS REALTY FUND ("REALTY FUND"). The Realty Fund seeks maximum
total return over the long-term through investment primarily in real estate
oriented companies. 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.

Under normal circumstances, at least 65% of the Realty Fund's total assets will
be invested in the equity securities of a limited number of companies in the
real estate industry or related industries or in companies which own significant
real estate assets.

The Realty Fund may invest the remainder of its portfolio in a wide variety of
securities, including securities of non-real estate companies, debt securities,
options, warrants, and other similar investments, and money market instruments.

Definition of Companies in the Real Estate Industry. A company is considered 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 are derived from one or more of the following:

- Construction, ownership, management, operation, financing, sales, or
development of real estate

- 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

- Other businesses which have a clear relationship to the ownership,
management, use, operation, or development of real estate or appurtenances
to real estate

10
<PAGE> 16

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 one or more of
the following:

- The current appraised value of real estate owned or leased by the company
either as lessor or as lessee

- The current appraised value of timber or minerals on such real estate

- The current appraised value of the stream of fees or revenues to be derived
from the management or operation of real estate or the rights to extract
timber or minerals from real estate

Under the above definitions, at least 65% of the Realty Fund's assets will be
invested in companies such as the following:

- 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, and railroads

- Lumber, paper, forest product, timber, mining and oil companies

- Other similar types of companies with a clear relationship to real estate
or the real estate industry

A company engaged in one or more businesses outside the real estate industry
will be considered to be in the real estate industry for purposes of compliance
with the Fund's investment objective if it satisfies either the Revenues and Net
Profits test or the Valuation of Assets test.

Policy on Industry Concentration. With the exception of companies in the real
estate or related industries, the Realty Fund will not invest as much as 25% of
its net assets in companies 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 in the real estate industry for purposes of the Realty Fund's 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).

- - --------------------------------------------------------------------------------
LONGLEAF PARTNERS SMALL-CAP FUND ("SMALL-CAP FUND"). Under normal
circumstances, the Small-Cap Fund invests at least 75% of its equity portfolio
(but not less than 65% of total assets) in a limited number of companies with a
market capitalization of $1 billion or less. Some of these securities may be
traded in the "over the counter" market, the market for securities which are not
listed for trading on a Stock Exchange.

11
<PAGE> 17

The Small-Cap Fund may invest the remainder of its portfolio in a wide variety
of securities, including equity securities of larger companies, debt securities,
options, warrants, and other similar investments, and money market instruments.
Current income is not an objective. The Small-Cap Fund will not invest as much
as 25% of its net assets in companies in any one industry.

INVESTMENT MANAGEMENT

INVESTMENT COUNSEL. Southeastern Asset Management, Inc., ("Southeastern"),
located in Memphis, Tennessee, is the Funds' Investment Counsel. Since 1975, the
firm has been managing securities portfolios for ERISA and government retirement
plans, charitable foundations, educational endowments, and individuals. The firm
is owned and controlled by its principal officers, with Mr. O. Mason Hawkins,
Chairman of the Board and Chief Executive Officer, owning a majority of the
outstanding shares. The firm presently manages more than $12 billion in client
assets.

PORTFOLIO MANAGERS. Mr. O. Mason Hawkins, Chairman of the Board of Southeastern
and the Funds, and Mr. G. Staley Cates, President of Southeastern, are
co-portfolio managers of all three Funds. Mr. C. T. Fitzpatrick is the lead co-
portfolio manager of the Realty Fund. Collectively, they have primary
responsibility for investment management of the specified Funds' portfolios.

INVESTMENT COUNSEL FEES. Each Fund pays Southeastern an investment counsel fee
which is accrued daily and paid monthly. The fee is based on the average daily
net asset value of the Fund. For the Partners Fund and the Small-Cap Fund, this
fee is equal to 1% per annum of the first $400 million in average daily net
assets and 0.75% per annum of all additional average daily net assets. For the
Realty Fund, the fee is 1% of average daily net assets per annum. Southeastern
has agreed to reduce its fees to the extent operating expenses of any Fund
(excluding brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 1.5% of average annual net assets.

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 prices substantially 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 a security.

12
<PAGE> 18

Southeastern's investment analysts determine the appraised per share corporate
worth of potential investments using current, publicly available financial
statements. These are carefully scrutinized, using two primary methods of
appraisal. The first assesses what Southeastern believes to be the real economic
value of the company's net assets. The second examines the enterprise's ability
to generate free cash flow after required or maintenance capital expenditures
and working capital needs. Once 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
conservative discount rate. If Southeastern's projections 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 sales of comparable businesses.

Southeastern also considers the following in selecting potential investments:

- INDICATIONS OF SHAREHOLDER ORIENTED MANAGEMENT. In selecting portfolio
investments, Southeastern seeks companies with properly incented, ownership
vested managements. They must be honest, shareholder oriented, operationally
competent individuals capable of allocating corporate resources
intelligently. Southeastern is seeking exemplary long-term business
partners.

- EVIDENCE OF FINANCIAL STRENGTH. Southeastern requires companies in the
portfolio to have sound financial statements and the potential to generate
excess free cash flow from 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.

TYPES OF INVESTMENTS

Each Fund will generally maintain a fully invested position in common stocks
with the characteristics discussed above. The Funds may also invest in other
equity securities such as preferred stocks, and in equity securities of Real
Estate Investment Trusts or "REIT"s.

The Funds may also purchase warrants, options, financial futures, foreign
currency contracts, fixed income securities, and other similar investments, as
more fully described in the following sections.

RESTRICTED AND ILLIQUID SECURITIES. Each 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,

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<PAGE> 19

including repurchase agreements with maturities of more than seven days.
Securities that may be resold without registration under Rule 144A may be
treated as liquid for these purposes, in accordance with guidelines established
by the Board of Trustees.

Restricted or non-registered securities may be sold only in privately negotiated
transactions or in a public offering under an effective registration statement
or under Rules 144 and 144A. If registration is required, the particular 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
develop, the Fund might obtain a less favorable price. Restricted securities
will be valued as the Board of Trustees determines, in good faith to reflect the
fair market value.

FOREIGN SECURITIES. The Funds may invest up to 30% of total assets in foreign
issuers which meet the same criteria for investment as securities of domestic
issuers, or in sponsored and unsponsored depositary receipts for foreign
securities. On the effective date of this Prospectus, one or more of the Funds
had investments in companies located in Canada, Australia, the Netherlands, and
Japan. The Funds may be subject to additional investment risks when investing in
foreign securities. Such risks include currency risks, future political and
economic developments, imposition of foreign withholding taxes on dividends and
interest income payable on the securities, establishment of exchange controls,
seizure or nationalization of foreign deposits, or other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on such securities. In addition, there may be less publicly available
information about a foreign company, and foreign companies may not be subject to
the same accounting, auditing and financial recordkeeping standards and
requirements as domestic companies.

FIXED INCOME SECURITIES. The Funds may invest a maximum of 25% of net assets in
investment grade and non-investment grade debt securities of companies and
preferred stock. Securities rated non-investment grade (lower than Baa by
Moody's Investor Services Inc. or lower than BBB by Standard and Poors
Corporation) are sometimes referred to as "high yield" or "junk" bonds. The
Statement of Additional Information contains a table summarizing these ratings.

The prices of high yield securities may 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
Funds may incur additional expenses to seek recovery.

CASH RESERVES. Cash reserves, held to provide flexibility to take advantage of
new investment opportunities and for other cash needs, will be invested in money
market instruments and generally will not exceed 15% of total assets. If

14
<PAGE> 20

Southeastern has difficulty finding an adequate number of undervalued equity
securities, all or any portion of assets may also be invested temporarily in
money market instruments. Cash reserves in excess of 35% of total assets will be
held for defensive purposes only.

Money market instruments will generally consist of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
obligations subject to repurchase agreements for these instruments. A repurchase
agreement permits an investor to purchase a U.S. Government security from a
vendor, with an agreement by the vendor to repurchase the security at the same
price, plus interest.

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 $1 billion, and money market investment companies
(each limited to a maximum of 5% of total assets).

INVESTMENT TECHNIQUES

All of the Funds may use the following investment techniques or investment
tools, subject to the accompanying restrictions. These investment tools provide
investment flexibility and enable Southeastern to reduce investment risk through
hedging the portfolio when appropriate, managing foreign currency exposure when
investing in foreign securities, and managing potential income tax liabilities.
Southeastern intends to use these investment flexibilities primarily when, in
its opinion, they would be effective to manage or reduce risk.

BORROWING. The Funds may borrow up to 30% of total assets for temporary or
emergency purposes such as clearing trades or processing redemptions, and for
increasing portfolio holdings. Each Fund must maintain continuous asset coverage
of 300% in a segregated account with respect to borrowings and within three days
assign additional portfolio holdings to restore such coverage if it should
decline to less than 300%. Leveraging may exaggerate the effect of any increase
or decrease in the value of portfolio securities on the Funds' 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.
These expenses may exceed the income received from the securities purchased with
borrowed funds.

OPTIONS ON SECURITIES AND STOCK INDICES. The Funds 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, in
return for the premium paid, the right to buy a specified security if it is a
call option, or to sell a specified security if it is 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, in return for the premium paid, the
right to receive from the seller

15
<PAGE> 21

cash equal to the difference between the closing price of the index and the
exercise price of the option.

The Funds may write a call or put option only if the option is "covered." While
the Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the call, hold a call at the same or lower exercise price
or otherwise hold securities or segregate assets to cover the call. 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.

FUTURES CONTRACTS. The Funds may buy and sell financial futures contracts,
stock and bond index futures contracts, foreign currency futures contacts and
options on any of these. 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 Funds may enter into forward foreign
currency exchange contracts ("forward contracts") to attempt to minimize the
risk from adverse changes in the relationship between the U.S. dollar and
foreign currencies. A forward contract is an obligation to purchase or sell a
specific currency for an agreed price at a future date. The contract is
individually negotiated and privately traded by currency traders and their
customers.

When the Fund purchases or sells a security denominated in a foreign currency,
Southeastern may desire to "lock in" the U.S. dollar price relative to the
foreign currency by entering a forward contract to buy the equivalent amount of
the foreign currency. Currency hedging balances the currency risk in portfolio
investments. Fluctuations between the U.S. dollar and the foreign currency
become of no concern. A foreign equity security should offer the opportunity for
appreciation exclusive of significant currency fluctuations. Not all foreign
currencies can be hedged. If a foreign company's assets or operations are
located substantially in the U.S. or across multiple countries, its securities
may not require currency hedging. Thus, Southeastern may or may not elect to
hedge currency as part of the investment process.

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<PAGE> 22

When Southeastern believes that the currency of a particular foreign country may
sustain substantial movement against another currency, it may "cross hedge."
Cross hedging entails entering into a forward contract to sell or buy the amount
of the foreign currency (or another currency which acts as a proxy for that
currency) approximating the value of some or all of the portfolio securities
denominated in that foreign currency. Forward transactions may call for the
delivery of one foreign currency in exchange for another foreign currency and
may at times involve currencies other than those in which its portfolio
securities are denominated.

RISK OF OPTIONS, FUTURES AND FOREIGN CURRENCY CONTRACTS. Using puts and calls
in conjunction with each other for hedging purposes can reduce market risks.
However, when used separately, options and futures have risks. For example, the
price movements of the securities underlying the options and futures may not
follow the price movements of the portfolio securities subject to the hedge.
Gains on investments in options and futures depend on the ability to predict
correctly the direction of stock prices, interest rates, and other economic
factors. Where a liquid secondary market for options or futures does not exist,
the Funds may not be able to close their positions and in such an event, the
loss is theoretically unlimited.

LOANS OF PORTFOLIO SECURITIES. The Funds may lend to broker-dealers portfolio
securities with an aggregate market value of up to one-third of total assets.
Such loans must be secured by liquid collateral in an amount at least equal to
the current market value of the securities loaned, marked-to-market daily. The
Funds may terminate the loans at any time and obtain the return of the
securities loaned within three business days. During the period of the loan, the
Funds continue to receive any interest or dividends paid on the loaned
securities.

SHORT SALES. The Funds may enter into short sales, provided the dollar amount
of short sales at any one time would not exceed 25% of net assets, and the value
of securities of any one issuer in which the Funds are short would not exceed 5%
of net assets. The Funds must maintain liquid collateral in a segregated account
equal to the current market value of the shorted securities, marked-to-market
daily. These restrictions do not apply to short sales against the box, where the
Funds own an equal amount of the securities sold short or securities convertible
into or exchangeable into an equal amount of securities of the same issuer sold
short, without additional payment.

OTHER RISK FACTORS

There is no assurance that any of the Funds will achieve their investment
objectives. Market values of all types of securities fluctuate and the value of
the Funds' portfolios and the prices per share will vary, based on general stock
market conditions. Liquidity risks can limit the ability of the Funds to sell
portfolio securities at current market valuations. Fixed income securities have

17
<PAGE> 23

interest rate risks, which cause a decline in their principal values when
interest rates rise. For these and other reasons, the value of your investment
as a shareholder at redemption may be more or less than the purchase price.

Because the Realty Fund generally invests at least 65% of its assets in real
estate oriented companies, it may be subject to risks normally associated with
the direct ownership of real estate. Thus, the value of its shares may change at
different rates than shares of a mutual fund with investments in many different
industries.

DIVERSIFICATION

The Funds are classified as non-diversified under the Investment Company Act of
1940 and have no diversification requirements under the federal securities laws.
The Funds comply with the diversification standards of Subchapter M of the
Internal Revenue Code of 1986. 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 Funds 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 diversification requirements, the Funds must, when fully invested,
own 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,
Southeastern anticipates that the portfolios will consist of more than twelve
positions. To the extent that the Funds are less diversified, they may be more
susceptible to adverse economic, political, or regulatory developments affecting
a single investment than if they were more broadly diversified.

PORTFOLIO TURNOVER

The Funds may engage in short-term trading, but this strategy will not be used
as a primary means of achieving their investment objectives. The Funds cannot
accurately predict portfolio turnover. In past years, portfolio turnover has
generally been less than 50%. There are no limits on the rate of portfolio
turnover, and investments will be sold without regard to the length of time held
when investment considerations support such action. Higher turnover rates, such
as rates over 100%, involve greater commissions and transaction costs.

FUND ADMINISTRATION AND OPERATIONS

FUND ADMINISTRATOR. As Fund Administrator, Southeastern provides all business,
administrative and compliance services for the Funds. For these services, the
firm receives an Administration Fee of 0.10% of average net assets per annum,
accrued daily and paid monthly. The Funds pay all direct expenses of their
operations, such as professional association fees, insurance premiums,
registration

18
<PAGE> 24

fees, and costs of printing, postage, and supplies. The Funds also reimburse
Southeastern for computer licensing fees for mutual fund software programs and
the salary of the Funds' Treasurer.

BOARD OF TRUSTEES. Each Fund has a separate Board of Trustees which oversees
all operations of the Funds. The same six Trustees serve all Funds. Four of the
six Trustees are independent and are not affiliated with Southeastern. Each Fund
Board elects officers who are also officers or employees of Southeastern. The
business operations of each Fund are performed by the officers and employees of
Southeastern under its operating agreements with the Funds.

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<PAGE> 25

BOARD OF TRUSTEES

O. MASON HAWKINS*, CFA, Chairman of the Board and Chief Executive Officer; Co-
Portfolio Manager.

Founder and Director, Southeastern Asset Management, Inc. (since 1975); Director
of Research, First Tennessee Investment Management Company, Memphis, TN (1974-
1975); Director of Research, Atlantic National Bank, Jacksonville, FL
(1972-1974); Director, Mid-America Apartment Communities, Inc. (since 1993).

Education: B.S.B.A., Finance, University of Florida, 1970; M.B.A., University of
Georgia, 1971.

W. REID SANDERS*, Trustee and President.

Founder and Director, Southeastern Asset Management, Inc. (since 1975);
Investment Officer, First Tennessee Investment Management Company, Memphis, TN
(1973-1975); Credit Analyst and Commercial Lending Official, Union Planters
National Bank, Memphis, TN (1972-1973).

Education: B.A., Economics, University of Virginia, 1971.

CHADWICK H. CARPENTER, JR., Trustee.

Private investor and consultant to several software startups. Currently a board
member of Indus River Networks and Call Technologies, which are developing
products for virtual private networks and telephony respectively. Previously
spent 14 years in senior executive officer positions at Progress Software
Corporation (a leading provider of software products used by developers to build
and deploy commercial applications worldwide). Prior to 1983, Manager of MIMS
Systems Operation, General Electric Information Services Company; Senior
Consultant, Touche Ross & Company.

Education: B.S., Electrical Engineering, Massachusetts Institute of Technology,
1971; M.S., Electrical Engineering, Massachusetts Institute of Technology, 1972.

DANIEL W. CONNELL, JR., Trustee.

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

Education: B.S.B.A., University of Florida, 1970.

STEVEN N. MELNYK, Trustee.

Vice President, The St. Joe Company, Jacksonville, Florida. Chairman of the
Executive Committee and President, Riverside Golf Group, Inc., (1987-97),
Jacksonville, FL (a corporation engaged in the design, construction and
operation through ownership of golf courses throughout the southeastern US);
Golf commentator and sports marketing executive, ABC Sports (since 1991) and CBS
Sports (1982-1991); Founding director and former Chairman, First Coast Community
Bank, Fernandina Beach, FL; Winner of U.S. Amateur Championship, 1969, and
British Amateur Championship, 1971.

Education: B.S.B.A., Industrial Management, University of Florida, 1969.

C. BARHAM RAY, Trustee.

Chairman of the Board and Secretary, SSM Corporation, Memphis, TN (since 1974)
(a 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.

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<PAGE> 26

OTHER EXECUTIVE OFFICERS

INVESTMENT MANAGEMENT

G. STALEY CATES, CFA, Co-Portfolio Manager; Vice President -- Investments.

Professional Experience: President, Southeastern Asset Management, Inc. (since
1994); Vice President, Southeastern Asset Management, Inc. (1986-1994).

Education: B.B.A., Finance, University of Texas, 1986.

C. T. FITZPATRICK, III, CFA, Co-Portfolio Manager of Longleaf Partners Realty
Fund; Vice President -- Investments.

Professional Experience: Vice President, Southeastern Asset Management, Inc.
(since 1990); Financial Analyst, Merrill Lynch Capital Markets (1986-88).

Education: B.A., Corporate Finance, University of Alabama, 1986; MBA, Finance,
Vanderbilt University, 1990.

JOHN B. BUFORD, CFA, Vice President -- Investments.

Professional Experience: Southeastern Asset Management, Inc. (since 1990); Vice
President, First Tennessee Bank (1989-90); Commercial Lending Officer/Credit
Analyst, Metropolitan National Bank (1985-88).

Education: B.B.A., Finance, University of Texas, 1985.

FRANK N. STANLEY, III, CFA, Vice President -- Investment.

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.

FUND OPERATIONS

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; L.L.M. (Taxation), Georgetown
University Law Center, 1966; M.B.A., Emory University, 1981.

JULIE M. DOUGLAS, CPA, Executive Vice President -- Operations & Treasurer.

Professional Experience: Southeastern Asset Management, Inc. (since 1989);
Audit Supervisor and Audit Senior, Coopers & Lybrand, Birmingham, AL and
Pittsburgh, PA (1984-1989).

Education: B.S., Accounting, Pennsylvania State University, 1984.

MARKETING AND ADMINISTRATION

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.

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.

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<PAGE> 27

FUNDS CLOSED TO NEW SHAREHOLDERS

Longleaf Partners Realty Fund is open to new investors. Longleaf Partners Fund
and Longleaf Partners Small-Cap Fund are closed to new shareholders until
further notice, but remain open to the following investors:

(1) Shareholders of the particular Fund on the date of its closing and their
immediate family members.

(2) Shareholders who had an account balance of at least $250,000 in one of the
Longleaf Partners Funds on July 31, 1997.

(3) Financial Advisors or Consultants having clients invested in the particular
Fund on July 31, 1997.

(4) Institutions or affiliates having an investment advisory relationship with
Southeastern Asset Management, Inc. of at least $2,000,000.

(5) Employees and affiliates of Southeastern Asset Management, Inc. and their
relatives.

Any investor seeking one of the above exceptions must obtain prior approval of
Fund management. A current shareholder of the Partners Fund or the Small-Cap
Fund who redeems an account below the minimum initial investment of $10,000 will
not be allowed to make further investments until these Funds have re-opened to
new investors.

HOW TO OPEN AN ACCOUNT

REGULAR ACCOUNTS. To invest in Longleaf Partners Funds, complete, sign and mail
the account application to the address below. THE MINIMUM INVESTMENT FOR EACH
FUND IS $10,000.

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

INDIVIDUAL RETIREMENT ACCOUNTS. You can open a regular or Roth IRA by
requesting the IRA Application kit. The kit contains an explanation of tax
considerations and information on the trustee, State Street Bank. After reading
the information, fill in the application and the transfer form and mail to the
above address. 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

You may obtain shares of the Funds by two different methods. (1) You may invest
directly with the Funds (using the following instructions) and you will not

22
<PAGE> 28

be charged a transaction fee. (2) You may purchase shares through an authorized
broker of your choice and the broker may charge an additional transaction fee
for its services. All applications to purchase shares are subject to acceptance
by the Funds.

For all types of accounts, the minimum initial investment for a direct purchase
from the Funds is $10,000 for each Fund. There are no minimum requirements on
subsequent purchases. Authorized brokers may have different minimum investments.
The public offering price is the net asset value per share at the next market
close after the transfer agent receives an order with all required
documentation.

BY MAIL. To purchase shares for new or 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 419612
Kansas City, MO 64141-6929

INCLUDE THE NAME OF THE FUND AND YOUR ACCOUNT NUMBER ON THE CHECK. THE FUNDS DO
NOT ACCEPT THIRD PARTY CHECKS.

If your check is returned because of insufficient funds or because you have
stopped payment, you will be responsible for any losses sustained by the Fund
from 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, the Fund
may collect losses by redeeming the appropriate amount from your account.

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

- - - Call the transfer agent at (800) 488-4191 to establish an account. Be prepared
to provide all information requested on the application. Your account number
will be assigned.

- - - Instruct your bank to wire funds as follows:

<TABLE>
<S> <C>
- State Street Bank, Boston, MA
- ABA routing number 011000028
- A/C# 9905-023-9
- Specify Longleaf Partners Funds # ___
#133 Longleaf Partners Fund
#135 Longleaf Partners Realty Fund
#134 Longleaf Partners Small-Cap Fund
- Your account number and your name
</TABLE>

Amounts transferred by bank wire are considered received on the same day they
are deposited in the Fund account if received before the close of the New York
Stock Exchange, usually at 4:00 p.m. Eastern Time. If received later, shares
will be purchased at the following business day's closing price. Wire transfers
should be initiated as early in the day as possible to assure receipt before the
close of the

23
<PAGE> 29

Exchange. A completed application must be sent to the Fund as soon as possible.
No redemptions can be paid until the Fund receives a completed application.

BY AUTOMATIC MONTHLY INVESTMENT. After you have opened an account, you can
arrange for automatic investments of $100 or more by filling in the Automatic
Monthly Investment Plan section of the application and sending a voided check
from your bank account. There is no charge for the Automatic Monthly Investment
Plan, but your bank or credit union may charge a service fee. Transfers will
occur on the business day on or about the 21st day of each month, as affected by
weekends and bank holidays. Cancellation of the plan or a change in the amount
of the withdrawal must be made in writing.

CERTIFICATES. To receive a stock certificate 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, 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. You may
purchase and redeem shares through securities brokerage firms having agreements
with the Longleaf Funds. The brokerage firm may charge transaction fees.
Investors using brokerage firms to purchase and redeem Fund shares will follow
the brokerage firm's procedures. Those procedures take precedence over any
instructions for opening accounts directly with the Fund. The brokerage firm is
responsible for supplying its clients who are Fund shareholders with periodic
account statements, Prospectus and financial reports.

BROKER/DEALER AND INSTITUTIONAL INVESTMENTS. Upon execution of formal trading
agreements, the Funds will accept telephone trade orders under $100,000 from
NASD members or other institutional investors. Larger phone orders require
special approval by the Funds. The Funds also offer automated trading through
their transfer agent, NFDS. In addition, institutional investors may establish
pre-authorized fax redemption privileges. Please contact the Funds directly to
obtain more information regarding these special processing options.

For ALL trading, full payment must be received within one day of the trade date.
The entity placing the order will be responsible for any loss resulting from
non-settlement. All purchase minimums and other requirements specified in
trading agreements must be followed to remain in good standing. The Funds may
withdraw trading privileges if it is in their best interests.

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<PAGE> 30

HOW TO REDEEM SHARES

PROCEDURES. At any time, you may withdraw any portion of your account in a
share or dollar amount. 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:

- Account number and fund name -- Longleaf Partners Fund (#133); Longleaf
Partners Realty Fund (#135); Longleaf Partners Small-Cap Fund (#134).

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

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

- Signature guarantees if required and applicable (see below)

- Fund certificates if applicable

- 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.

A 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 collected
payment for the initial share purchase has been received.

REDEMPTION PRICE AND FEES. The redemption price is the net asset value per
share at the next market close after receipt of a redemption request in good
order. The redemption price may be more or less than the shares' original cost.
The Funds charge no redemption fees. IRA accounts will remain subject to the
full $10 annual maintenance fee in the year of redemption.

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

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

The Funds suggest that you send redemption requests 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;
Telephone (800) 488-4191.

BY TELEPHONE. You may redeem up to $100,000 by telephone from your regular
account, if you have so elected on the application or by the change of

25
<PAGE> 31

status form. Telephone redemptions may not be used for IRA's. Proceeds of
telephone redemptions will be sent only to the address of record or will be
wired only to the pre-determined commercial bank account. 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 for your account must be made in
writing, with a signature guarantee. The transfer agent may verify these changes
before a redemption.

The transfer agent employs reasonable procedures to confirm that instructions
communicated by telephone are genuine. When these procedures are followed, the
Funds and the transfer agent are not liable for losses caused by following
telephone instructions which are reasonably believed to be genuine. The Funds
reserve the right to revise or terminate the telephone redemption privilege at
any time.

SIGNATURE GUARANTEE. Redemptions over $100,000 must be made in writing and
require a signature guarantee. The signatures must correspond to all 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 redemption rights or
postpone payments at times when the New York Stock Exchange is closed for other
than weekends or holidays or under emergency circumstances permitted by the U.S.
Securities and Exchange Commission.

SHAREHOLDER SERVICING

TRANSFER AGENT. National Financial Data Services ("NFDS"), an affiliate of
State Street Bank and Trust Company, serves as transfer agent and dividend
disbursing agent. NFDS maintains all shareholder accounts and records, processes
all transactions including purchases, redemptions, transfers and exchanges,
prepares and mails account confirmations and correspondence, issues stock
certificates, and handles all account inquiries. PLEASE DIRECT ALL QUESTIONS
REGARDING YOUR ACCOUNT TO NFDS AT (800) 488-4191. Southeastern Asset Management
does not process account transactions and will forward all correspondence to
NFDS in Kansas City, which will process the transaction when the materials are
received.

CONFIRMATION AND REPORTS. If you invest directly with the Funds, you will
receive a confirmation statement after each transaction and a statement of your
account status after the end of each calendar quarter. You will also receive all
tax

26
<PAGE> 32

documentation as required by the IRS. In addition, you will receive quarterly,
semi-annual and audited annual reports which provide information on the Funds'
portfolio of investments. If you invest through a brokerage firm, shareholder
materials will be sent by that firm.

HOW SHARES ARE PRICED

The net asset value per share 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, and dividing by the number of
shares outstanding. Presently, the New York Stock Exchange closes at 4:00 p.m.
Eastern Standard or Eastern Daylight 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 ask prices;

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

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

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

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

(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

DISTRIBUTIONS. Each Fund pays dividends from net investment income and
distributes realized capital gains, usually at the end of December. All
dividends and distributions are reinvested automatically in additional shares of
the Fund, unless you notify the transfer agent that you desire to receive cash
distributions. The reinvestment price is the net asset value on the ex-dividend
date.

27
<PAGE> 33

The net asset value per share on the ex-dividend date is calculated by reducing
the normal net asset value by the amount of the distribution. Any distribution
paid shortly after a purchase of shares will be fully taxable. In mid-December,
you may request information on projected dividend amounts and the record and
payment dates by calling (800) 488-4191.

TAXES. Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Federal Internal Revenue Code of 1986, and will distribute
substantially all net investment income and net realized capital gains as
dividends. Management expects that the Funds will not incur any significant
Federal income tax liability. Should a 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.

Promptly after the close of each taxable year, the Funds will provide
information on the proper classification of any net investment income and
capital gains distributions, and the amounts of any returns of capital or other
special reclassifications.

Shareholders subject to Federal income taxation must report all distributions as
income, even if reinvested, and states may also tax Fund distributions.

A portion of these distributions may qualify for the corporate
dividends-received deduction. Distributions from a REIT, and dividends
attributable to such distributions, will not constitute "dividends" for purposes
of the dividends-received deduction applicable to corporate shareholders. In
addition, rental income or income from the disposition of real property acquired
as a result of a default on securities could adversely affect the Funds' ability
to retain the tax status as a regulated investment company.

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

OTHER INFORMATION

SIGNIFICANCE OF FUND NAMES. The name "Longleaf", derived from the longleaf
pine, a majestic, sturdy tree indigenous to the southeastern United States,
represents the qualities of strength and endurance. A second element of the name
is the word "Partners." In selecting portfolio investments, Southeastern 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 corpo-

28
<PAGE> 34

rate resources intelligently. The Funds endeavor to be supportive long-term
"partners" with management of the companies in the portfolios. Correspondingly,
Southeastern's own partners, other personnel, and relatives, are major investors
in the Funds. Management considers itself a "partner" with Fund shareholders in
seeking long-term capital growth. The Funds desire loyal, long-term investors as
shareholders who view themselves as "partners" with Fund management.

CODE OF ETHICS. The Funds and Southeastern Asset Management, Inc. have adopted
a Code of Ethics which requires all employees to limit their investments in
publicly offered equity securities to shares of the Longleaf Partners Funds
unless prior clearance is received for any other personal securities
transactions. All employees must report their personal securities transactions
at the end of each quarter. Any material violation of the Code of Ethics is
reported to the Board of the Funds. The Board also reviews the administration of
the Code of Ethics on an annual basis.

Except for certain types of investments not appropriate for the Funds, the
independent Trustees of the Funds must also obtain clearance before making
personal securities investments to avoid conflicts of interest with purchases
and sales by the Funds. They have also adopted a policy requiring each
independent Trustee to invest in the Funds an amount at least equal to their
Trustees' fees.

PORTFOLIO BROKERAGE. Southeastern makes decisions to buy or sell investment
securities for the Funds under the supervision of the Board of Trustees.
Southeastern has authority to place orders with selected brokerage firms for the
Funds' investment portfolio transactions. Southeastern uses its best efforts to
obtain the most favorable price and execution, as more fully described in the
Statement of Additional Information. The Funds may pay higher commissions to
certain brokers for particular transactions than might be charged by a different
broker if Southeastern believes that the most favorable price and execution may
be obtained by doing so.

The Board of Trustees has authorized Southeastern to consider research and other
investment information provided by a brokerage firm, its sales of shares of the
Funds, and the supplying of other economic benefits which reduce the Funds'
expenses as factors in selecting brokerage firms qualified to execute portfolio
transactions for the Funds. The Funds may pay higher commissions to secure
research and investment services and other specific benefits, subject to review
by the Board of Trustees. Sales of Fund shares by a broker are one factor among
others that Southeastern considers in allocating portfolio transactions, but
higher commissions will not be paid solely for sales of Fund shares. The Funds
are not committed to execute portfolio transactions through any particular
brokerage firms which provide investment research information, or which sell
shares of the Funds or provide other benefits. The Board of Trustees monitors
executions of portfolio transactions at least quarterly.

29
<PAGE> 35

INVESTMENT PERFORMANCE INFORMATION. The Funds may publish their total returns
from time to time in advertisements and in communications to shareholders.
Performance is calculated 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 one, five, and
ten year periods (or since inception) ended at the close of the most recent
calendar quarter. Each Fund may also advertise or provide aggregate and average
total return information for different periods of time, such as the latest
calendar quarter or for the calendar year-to-date. Total return includes changes
in net assets value per share and reinvestment in additional shares of any
dividends from net investment income or other distributions.

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 total return for any prior periods
is not intended to represent future total returns.

Each Fund may compare its performance to that of widely recognized unmanaged
stock market indices, such as the Standard & Poor's 500 Stock Index as well as
other more specialized indices. The Funds may also compare their performance
with that of other mutual funds having similar investment objectives and with
the industry as a whole, as determined by outside services such as Lipper
Analytical Services, Inc., CDA Technologies, Morningstar, Inc., and The Value
Line Mutual Fund Survey. The Funds may also provide information on their
relative rankings as published in such newspapers and magazines as The Wall
Street Journal, Barron's, Forbes, Business Week, Money, Financial World, and
other similar publications.

STATE OF ORGANIZATION. 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 Realty Fund and
Longleaf Partners Small-Cap Fund. Each series may 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
registered address in the Commonwealth of Massachusetts is Two Oliver Street,
Boston, Massachusetts 02109.

30
<PAGE> 36

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 when required by the Investment Company Act of 1940. The Board
of Trustees will determine whether annual meetings will be held in the future
when not specifically required.

EXCEPTIONS TO INVESTMENT MINIMUM. The minimum initial purchase requirement is
not applicable to Trustees or officers of the Funds 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 in one Fund may open
an account with a minimum initial investment of $5,000 in the same Fund.
Personnel of clients having private accounts of at least $2,000,000 may also
open Fund accounts with a minimum initial investment of $5,000. Any investor
seeking one of the above exceptions must obtain prior approval of Fund
management.

YEAR 2000 ISSUES. Southeastern has focused on the year 2000 computer conversion
issue and management believes that there should be a smooth transition on the
part of suppliers of services to the Funds. The portfolio accounting system used
by Southeastern for its advisory clients is supplied by a publicly traded
company, which has stated in a release that the year 2000 problem has been
overcome by re-engineering its computer system to handle the century date. The
fund accounting software used by the Funds is supplied by an outside vendor, and
that system has been running on four-digit year information since 1996. The
Funds' custodian bank, transfer agent, and outside pricing services, all of
which have a significant presence in the mutual fund industry, have reported
that the necessary conversion process is in progress, and they appear to have
dedicated the appropriate level of resources to solve the problem.

31
<PAGE> 37

LOGO
LONGLEAF PARTNERS FUNDS
Send completed application and check to:
Longleaf Partners Funds, P.O. Box 419929, Kansas City, MO 64141-6929

NEW ACCOUNT APPLICATION

DO NOT USE THIS FORM TO OPEN AN IRA. For an IRA application or for more
information, call (800) 488-4191. PLEASE PRINT. Remember to complete and sign
section 8 on the reverse of this application and retain a copy.

1. ACCOUNT REGISTRATION (CHECK ONE BOX ONLY)

[ ] INDIVIDUAL

- - --------------------------------------------------------------------------------
OWNER'S NAME (FIRST, INITIAL, LAST)

- - --------------------------------------------------------------------------------
OWNER'S SOCIAL SECURITY BIRTHDAY (MO/DAY/YR)

[ ] JOINT

- - --------------------------------------------------------------------------------
JOINT OWNER'S NAME (FIRST, INITIAL, LAST)

- - --------------------------------------------------------------------------------
JOINT OWNER'S SOCIAL SECURITY BIRTHDAY (MO/DAY/YR)

[ ] GIFT TO MINOR

- - --------------------------------------------------------------------------------
ADULT CUSTODIAN'S NAME (ONE NAME ONLY. FIRST, INITIAL, LAST)

- - --------------------------------------------------------------------------------
MINOR'S NAME (ONE NAME ONLY. FIRST, INITIAL, LAST)

- - --------------------------------------------------------------------------------
MINOR'S STATE OF RESIDENCE

- - --------------------------------------------------------------------------------
MINOR'S SOCIAL SECURITY NUMBER MINOR'S BIRTHDAY (MO/DAY/YR)

[ ] TRUST [ ] CORPORATION [ ]401(K) [ ] OTHER
(check one)

- - --------------------------------------------------------------------------------
NAME OF TRUST OR ENTITY

- - --------------------------------------------------------------------------------
TRUSTEE NAME

- - --------------------------------------------------------------------------------
ADDITIONAL TRUSTEE NAME, IF ANY

- - --------------------------------------------------------------------------------
BENEFICIARY'S OR CLIENT'S NAME IF DIFFERENT THAN TRUST OR ENTITY NAME

- - --------------------------------------------------------------------------------
DATE OF TRUST AGREEMENT (MO/DAY/YR) TAXPAYER ID NUMBER

2. MAILING ADDRESS

- - --------------------------------------------------------------------------------
STREET OR P.O. BOX NUMBER

- - --------------------------------------------------------------------------------
OTHER INFORMATION (SUITE, ATTENTION, ETC.)

- - --------------------------------------------------------------------------------
CITY, STATE, ZIP

( ) ( )
- - --------------------------------------------------------------------------------
DAYTIME PHONE EVENING PHONE

ARE YOU A U.S. CITIZEN? [ ] Yes [ ] No
If not a U.S. citizen, specify country of permanent residence:

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

3. INITIAL INVESTMENT ($10,000 MINIMUM PER ACCOUNT)

NOTE: THE FUNDS DO NOT ACCEPT THIRD-PARTY CHECKS.

[ ] Partners Fund (Fund #133) $ Closed
---------------------

[ ] Realty Fund (Fund #135) $
---------------------

[ ] Small-Cap Fund (Fund #134) $ Closed
---------------------
Total $
=====================

[ ] Check Make payable to Longleaf Partners Funds and mail to the address at
the top of this form.

[ ] Wire Prior to wiring funds, call (800) 488-4191 to set up an account. Wire
as follows:
State Street Bank and Trust Company
Boston, Massachusetts
ABA #011000028
For Longleaf Partners Fund #
--------------------------
Account #9905-023-9
For credit to: (your name as account is registered)
Shareholder account #: (your account number)

Note: You must send a completed application to the Fund. No redemption can occur
until the completed application has been received.

4. DIVIDENDS AND CAPITAL GAINS PAYMENTS

All distributions will be reinvested in additional shares unless you select one
or both options below:

[ ] Distribute all capital gains by check.
[ ] Distribute all dividends by check.

5. TELEPHONE REDEMPTION AND EXCHANGE PRIVILEGE
($100,000 MAXIMUM)

You may redeem or exchange up to $100,000 by phone unless you decline these
privileges.

Exchanges can be made only between Longleaf accounts that have the same
ownership.

Proceeds from a telephone redemption will be sent to the address of record; or,
if you want redemption proceeds wired to your bank, you must enclose a voided
check from your bank account and fill in the information below. One common name
must appear on your Longleaf and your bank accounts.

[ ] Please send redemption proceeds by wire to:

- - --------------------------------------------------------------------------------
(NAME ON ACCOUNT)

- - --------------------------------------------------------------------------------
(ACCOUNT #) (ABA ROUTING #)

- - --------------------------------------------------------------------------------
(BANK NAME)

- - --------------------------------------------------------------------------------
(BANK ADDRESS)

- - --------------------------------------------------------------------------------
(CITY) (STATE) (ZIP)

[ ] I do NOT want the telephone exchange feature.
[ ] I do NOT want the telephone redemption feature.
<PAGE> 38

6. AUTOMATIC INVESTMENT PLAN ($100 MONTHLY MINIMUM)

This service lets you automatically invest $100 or more per month from your bank
account to your Longleaf account. Changes must be in writing. Longleaf does not
charge a fee for this service, but your bank may.

To establish this feature, complete the information below and staple to the left
a voided check from your bank account. One common name must appear on your
Longleaf and bank accounts.

[ ] TRANSFER THE FOLLOWING AMOUNT AROUND THE 21ST OF EACH MONTH:
Partners Fund Amount $
------------

Realty Fund Amount $
------------

Small-Cap Fund Amount $
------------

[ ] BEGINNING DATE
------------------------
MO/YR

(Automatic Investment Plans normally become active 20 business days after your
application is processed.)

7. DUPLICATE SHAREHOLDER STATEMENTS

Complete only if you would like the person named below to receive copies of your
account statements.

- - --------------------------------------------------------------------------------
NAME (FIRST, INITIAL, LAST)

- - --------------------------------------------------------------------------------
COMPANY NAME

- - --------------------------------------------------------------------------------
STREET OR P.O. BOX NUMBER

- - --------------------------------------------------------------------------------
CITY, STATE, ZIP

PROSPECT IDENTIFICATION NUMBER (For Internal Use Only)

8. SIGNATURE
EACH OWNER MUST SIGN THIS SECTION.

By signing this application, I certify that:

- - - I have received and read the prospectus for the Fund and I agree to its terms.
I have the authority and legal capacity to purchase mutual fund shares, am of
legal age and believe each investment to be suitable for me.

- - - I understand that this Fund is not a bank, and Fund shares are not backed or
guaranteed by any bank nor insured by the FDIC.

- - - I ratify any instructions, including telephone instructions, given on this
account. I understand that the Fund or National Financial Data Services (NFDS)
will employ reasonable procedures to confirm the genuineness of my
instructions. I agree that neither the Fund nor NFDS will be liable for any
loss, cost, or expense for acting upon any instructions believed to be genuine
and in accordance with reasonable procedures designed to prevent unauthorized
transactions.

- - - If I am a non-resident alien, as indicated above, I certify under penalties of
perjury that I am not a U.S. citizen or resident alien and that I am an
"exempt foreign person" as defined under IRS regulations.

- - - IF I AM A U.S. CITIZEN OR RESIDENT ALIEN, AS INDICATED ABOVE, I CERTIFY UNDER
PENALTIES OF PERJURY THAT (1) THE SOCIAL SECURITY OR TAXPAYER IDENTIFICATION
NUMBER PROVIDED ABOVE IS CORRECT, AND (2) I AM NOT SUBJECT TO IRS BACKUP
WITHHOLDING BECAUSE (A) I AM EXEMPT FROM BACKUP WITHHOLDING, OR (B) I HAVE NOT
BEEN NOTIFIED BY THE IRS THAT I AM SUBJECT TO BACKUP WITHHOLDING, OR (C)
BECAUSE I HAVE BEEN NOTIFIED BY THE IRS THAT I AM NO LONGER SUBJECT TO BACKUP
WITHHOLDING.

[ ] CHECK HERE IF YOU ARE SUBJECT TO BACKUP WITHHOLDING.

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.

[ ]Check if more than one authorized signature is
required to execute a transaction.
--------------------------
(number required)

X
- - --------------------------------------------------------------------------------
SIGNATURE OF OWNER/AUTHORIZED SIGNER (DATE)

X
- - --------------------------------------------------------------------------------
SIGNATURE OF JOINT OWNER/AUTHORIZED SIGNER (DATE)

X
- - --------------------------------------------------------------------------------
(ADDITIONAL INSTITUTIONAL SIGNATURE) (DATE)

X
- - --------------------------------------------------------------------------------
(ADDITIONAL INSTITUTIONAL SIGNATURE) (DATE)
<PAGE> 39

INVESTMENT COUNSEL
Southeastern Asset Management, Inc.
6410 Poplar Avenue, Suite 900
Memphis, TN 38119

TRANSFER AND DIVIDEND AGENT
National Financial Data Services ("NFDS")
P.O. Box 419929
Kansas City, MO 64141-6929

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
<PAGE> 40

LONGLEAF
PARTNERS
FUNDS

(LONGLEAF PARTNERS FUNDS(SM) LOGO)

MANAGED BY:
SOUTHEASTERN ASSET MANAGEMENT, INC.
6410 POPLAR AVE.
SUITE 900
MEMPHIS, TN 38119
Fund Information Requests
(800) 445-9469

Shareholder Account Inquiries
(800) 488-4191

Inquiries About Fund Operations
(901) 761-2474

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.
<PAGE> 41

LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS REALTY FUND
LONGLEAF PARTNERS SMALL-CAP FUND

PART B

INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION

<PAGE> 42

STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 1998
---------------------

LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS REALTY FUND
LONGLEAF PARTNERS SMALL-CAP FUND

Series of

LONGLEAF PARTNERS FUNDS TRUST

TABLE OF CONTENTS
(LONGLEAF LOGO)

<TABLE>
<S> <C>
- - - Additional Information About Investment Objectives and
Policies
Fundamental Investment Objectives....................... 2
General Investment Policies............................. 2
- - - Investment Restrictions
Fundamental Investment Restrictions..................... 3
Non-Fundamental Investment Restrictions................. 4
- - - Additional Information About Types of Investments and
Investment Techniques
Repurchase Agreements................................... 5
Warrants................................................ 5
Real Estate Investment Trusts........................... 5
Futures Contracts....................................... 6
Options on Securities and Stock Indices................. 6
Foreign Currency Contracts.............................. 7
Lending of Portfolio Securities......................... 8
- - - Management of the Funds................................... 9
- - - Control Persons and Principal Holders of Securities....... 10
- - - Investment Advisory Services.............................. 10
- - - Investment Performance and Total Return................... 11
- - - Other Management Related Services......................... 12
- - - Terms of Agreements....................................... 14
- - - Additional Tax Information................................ 14
- - - Allocation of Brokerage Commissions....................... 15
- - - Distribution of Fund Shares............................... 17
- - - Redemption of Fund Shares................................. 17
- - - Custodian of Fund Assets.................................. 17
- - - Independent Certified Public Accountants.................. 17
- - - Legal Counsel............................................. 18
- - - Limitation of Liability................................... 18
- - - Table of Bond and Preferred Stock Ratings................. 19
- - - Financial Statements
Report of Independent Public Accountants................ 22
Longleaf Partners Fund -- Portfolio of Investments...... 23
Longleaf Partners Realty Fund -- Portfolio of
Investments............................................ 25
Longleaf Partners Small-Cap Fund -- Portfolio of
Investments............................................ 27
Statement of Assets and Liabilities..................... 29
Statement of Operations................................. 31
Statement of Changes in Net Assets...................... 34
Notes to Financial Statements........................... 35
</TABLE>

MANAGED BY
SOUTHEASTERN ASSET MANAGEMENT, INC.
6410 POPLAR AVENUE; SUITE 900
MEMPHIS, TN 38119
---------------------

THIS STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1998, IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF LONGLEAF
PARTNERS FUNDS TRUST, ALSO DATED MAY 1, 1998, WHICH MAY BE OBTAINED WITHOUT
CHARGE UPON REQUEST MADE TO SOUTHEASTERN ASSET MANAGEMENT, INC.

TELEPHONE (800) 445-9469; (901) 761-2474.
<PAGE> 43

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

LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS REALTY FUND
LONGLEAF PARTNERS SMALL-CAP FUND
---------------------

ADDITIONAL INFORMATION ABOUT INVESTMENT
OBJECTIVES AND POLICIES

Longleaf Partners Fund (the "Partners Fund"), Longleaf Partners Realty Fund (the
"Realty Fund"), and Longleaf Partners Small-Cap Fund (the "Small-Cap Fund") are
portfolios or series of Longleaf Partners Funds Trust, a Massachusetts business
trust. Prior to 1994, the Partners Fund was known as Southeastern Asset
Management Value Trust and the Small-Cap Fund was known as Southeastern Asset
Management Small-Cap Fund.

Each of the three Funds is operated as a separate mutual fund and each has its
own particular investment objective. The investment philosophy, policies and
restrictions of all Funds are similar.

Those investment objectives and restrictions classified as fundamental cannot be
changed without approval of a majority of the outstanding voting securities.
Under the Investment Company Act of 1940, "approval of a majority of the
outstanding voting securities" means the affirmative vote of the lesser of (1)
more than 50% of the outstanding shares of the particular Fund or (2) 67% or
more of the shares present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. To the
extent not designated as fundamental, other investment policies and
restrictions, the Funds' investment philosophy, the discussion of types of
securities in which the Funds may invest and the investment techniques used by
each Fund may be changed by approval of the Board of Trustees.

Fundamental Investment Objectives. The fundamental investment objective of both
the Partners Fund and the Small-Cap Fund is to seek long-term capital growth.
The fundamental investment objective of the Realty Fund is to obtain maximum
total return over the long-term through investment primarily in real estate
oriented companies.

General Investment Policies. The Partners Fund and the Small-Cap Fund invest
primarily in the common stocks of a limited number of companies believed by
Southeastern Asset Management, Inc. ("Southeastern"), the Investment Counsel, to
have unrecognized intrinsic value and the potential to grow their economic
worth. The Partners Fund invests primarily in companies with a market
capitalization of more than $1 billion, while the Small-Cap Fund invests at
least 65% of its assets in companies with a market capitalization of less than
$1 billion. Neither Fund seeks current income and the realization of current
income is incidental.

The Realty Fund normally invests at least 65% of its total assets in the equity
securities of a limited number of companies in the real estate industry or
related industries or in companies which own significant real estate assets, and
which are believed by Southeastern to have unrecognized intrinsic value.
Investments are selected based upon the potential for long-term capital growth
or the realization of current income, consistent with the overall objective of
maximizing total return.

2
<PAGE> 44

INVESTMENT RESTRICTIONS

FUNDAMENTAL INVESTMENT RESTRICTIONS.

The following investment restrictions have been adopted as fundamental. Except
for the restriction limiting industry concentration, all restrictions are
identical for all Funds. The Funds may engage in these transactions only to the
extent authorized by the particular restriction.

Diversification Requirements. The diversification requirements of the Internal
Revenue Code of 1986, adopted by each of the Funds as fundamental policy, are as
follows:

With respect to 50% of its total assets, the Fund will not purchase more
than 10% of the outstanding voting securities of any one issuer or invest
more than 5% of the value of its total assets in the securities of any one
issuer, except securities issued by the U.S. Government, its agencies or
instrumentalities; with respect to the remaining 50% of its assets, the
Fund will not invest more than 25% of the value of its total assets in the
securities of any one issuer (other than U.S. Government securities), or
invest more than 25 percent of the value of its total assets in the
securities of two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.

Restrictions on Industry Concentration. Neither the Partners Fund nor the
Small-Cap Fund may invest 25% or more of the value of 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.

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 other publicly available
information. Industry category groupings shown in the Funds' printed reports
sent quarterly to shareholders may contain more than one SIC Industry Code, and
these broader industry groupings are intended to be functionally descriptive
presentations rather than being limited to a single SIC industry category.

The Realty Fund may not invest as much as 25% of its assets in any one industry
other than the real estate industry or related industries. More information on
the definitions which apply to this restriction appear in the Prospectus on
pages 10 and 11.

Other Fundamental Investment Restrictions. Except as specifically authorized,
each of the Funds considered separately may not:

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

- - - Issue any senior securities, except that collateral arrangements with respect
to transactions such as forward contracts, futures contracts, short sales or
options, including deposits of initial and variation margin, shall not be
considered to be the issuance of a senior security for purposes of this
restriction;

3
<PAGE> 45

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

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

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

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

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS.

The following investment restrictions are non-fundamental, and may be changed at
the discretion of the Board of Trustees. Except as specifically authorized, each
of the Funds considered separately may not:

- - - 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);

- - - Acquire or retain securities of any investment company, except that the Fund
may (a) acquire securities of investment companies up to the limits permitted
by Sec. 12(d)(l) of the Investment Company Act of 1940, 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;

- - - 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 lessor of 5% of the
value of the Fund's net assets or 5% 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;

- - - Invest in puts, calls, straddles, spreads or any combination thereof, except
that the Fund may (a) purchase and sell put and call options on securities and
securities indexes, and (b) write covered put and call options on securities
and securities indexes and combinations thereof; provided that the securities
underlying such options are within the investment policies of the Fund and the
value of the underlying securities on which options may be written at any one
time does not exceed 25% of total assets;

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

- - - Pledge, mortgage or hypothecate its assets except in connection with permitted
borrowings;

4
<PAGE> 46

- - - 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.

Prior to enactment of the National Securities Markets Improvements Act of 1996,
several states imposed investment restrictions or limitations on the Funds'
investment transactions in addition to those of the Securities and Exchange
Commission. These special state restrictions no longer apply and those which had
been adopted by the Funds have been eliminated with the approval of the Board of
Trustees.

ADDITIONAL INFORMATION ABOUT TYPES OF INVESTMENTS
AND INVESTMENT TECHNIQUES

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

Warrants. Each of the Funds may invest in warrants for the purchase of equity
securities at a specific price for a stated period of time. Warrants may be
considered more speculative than other types of investments in that they do not
entitle a holder to dividends or voting rights for the securities which may be
purchased nor do they represent any rights in the assets of the issuing company.
The value of a warrant does not necessarily change with the value of the
underlying securities and a warrant ceases to have value if it is not exercised
prior to the expiration date.

Real Estate Investment Trusts. REITs are sometimes described as equity REITs,
mortgage REITs and hybrid REITs. An equity REIT invests primarily in the fee
ownership or leasehold ownership of land and buildings and derives its income
primarily from rental income. An equity REIT may also realize capital gains (or
losses) by selling real estate properties in its portfolio that have appreciated
(or depreciated) in value. A mortgage REIT invests primarily in mortgages on
real estate, which may secure construction, development or long-term loans. A
mortgage REIT generally derives its income primarily from interest payments on
the credit it has extended. A hybrid REIT combines the characteristics of equity
REITs and mortgage REITs, generally by holding both ownership interests and
mortgage interests in real estate.

Equity REITs may be further characterized as operating companies or financing
companies. To the extent that an equity REIT provides operational and management
expertise to the properties held in its portfolio, the REIT generally exercises
some degree of control over the number and identity of tenants, the terms of
their tenancies, the acquisition, construction, repair and maintenance of
properties and other operational issues. A mortgage REIT or an equity REIT that
provides financing rather than operational and management expertise to the
properties in its portfolio will generally not have control over the operations
that are conducted on the real estate in which the REIT has an interest.

5
<PAGE> 47

Futures Contracts. Primarily for hedging purposes, the Funds may purchase and
sell financial futures contracts. Although some financial futures contracts call
for making or taking delivery of the underlying securities, in most cases these
obligations are closed out before the settlement date. The closing of a
contractual obligation is accomplished by purchasing or selling an identical
offsetting futures contract. Other financial futures contracts by their terms
call for cash settlements.

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

At the time one of the Funds purchases a futures contract, an amount of cash,
U.S. Government securities, or other liquid securities equal to the market value
of the futures contract will be deposited in a segregated account with the
Fund's Custodian. When writing a futures contract, the Fund will maintain with
the Custodian similar liquid assets that, when added to the amounts deposited
with a futures commission merchant or broker as margin, are equal to the market
value of the instruments underlying the contract. Alternatively, the Fund may
"cover" the position by owning the instruments underlying the contract (or, in
the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Custodian).

Options on Securities and Stock Indices. The Funds may write covered put and
call options and purchase put and call options on securities or stock indices.
An option on a security is a contract that gives the purchaser of the option, in
return for the premium paid, the right to buy a specified security (in the case
of a call option) or to sell a specified security (in the case of a put option)
from or to the writer of the option at a designated price during the term of the
option. An option on a securities index gives the purchaser of the option, in
return for the premium paid, the right to receive from the seller cash equal to
the difference between the closing price of the index and the exercise price of
the option.

The Funds may write a call or put option only if the option is "covered." A call
option on a security written by one of the Funds is covered if the Fund owns the
underlying security subject to the call, has an absolute and immediate right to
acquire that security without additional cash consideration (or for additional
cash consideration held in a segregated account by its Custodian) upon
conversion or exchange of other securities held in its portfolio, or the call is
otherwise covered with assets held in a segregated account. A call option on a
security is also covered if the Fund holds a call on the same security and in
the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, liquid securities or money market instruments in
a segregated account with its Custodian. A put option on a security written by
the Fund is covered if the Fund maintains similar liquid assets with a value
equal to the exercise price in a segregated account with its Custodian, or holds
a put on the same security and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written.

A Fund may cover call options on stock indices through a segregated account or
by owning securities whose price changes, in the opinion of the Investment
Counsel, are expected to be similar to those of the index, or

6
<PAGE> 48

in such other manner as may be in accordance with the rules of the exchange on
which the option is traded and applicable laws and regulations. Nevertheless,
where a Fund covers a call option on a stock index through ownership of
securities, such securities may not match the composition of the index. In that
event, the Fund will not be fully covered and could be subject to risk of loss
in the event of adverse changes in the value of the index. A Fund may cover put
options on stock indices by segregating assets equal to the option's exercise
price, or in such other manner as may be in accordance with the rules of the
exchange on which the option is traded and applicable laws and regulations.

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

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

A Fund may purchase call options on individual securities to hedge against an
increase in the price of securities that the Fund anticipates purchasing in the
future. Similarly, a Fund may purchase call options to attempt to reduce the
risk of missing a broad market advance, or an advance in an industry or market
segment, at a time when the Fund holds uninvested cash or short-term debt
securities awaiting investment. When purchasing call options, the Fund will bear
the risk of losing all or a portion of the premium paid if the value of the
underlying security or index does not rise.

There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers,
or the options exchange could suspend trading after the price has risen or
fallen more than the maximum specified by the exchange. Although the Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, it may experience losses in some cases as a result of such
inability.

Foreign Currency Contracts. As a method of hedging against foreign currency
exchange rate risks, the Funds may enter into forward foreign currency exchange
contracts and foreign currency futures contracts, as well as purchase put or
call options on foreign currencies, as described below. The Funds may also
conduct foreign currency exchange transactions on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market.

7
<PAGE> 49

A Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk from adverse changes in the
relationship between the U.S. dollar and foreign currencies. A forward contract
is an obligation to purchase or sell a specific currency for an agreed price at
a future date which is individually negotiated and privately traded by currency
traders and their customers. The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. dollar price of
the security. In addition, for example, when Southeastern believes that a
foreign currency may suffer or enjoy a substantial movement against another
currency, a Fund may enter into a forward contract to sell an amount of the
former foreign currency approximating the value of some or all of its portfolio
securities denominated in such foreign currency. This second investment practice
is generally referred to as "cross-hedging." Because an amount of the Fund's
assets equal to the amount of the purchase will be held aside or segregated to
be used to pay for the commitment, the Fund will always have cash, cash
equivalents or high quality liquid securities available sufficient to cover any
commitments under these contracts or to limit any potential risk. The segregated
account will be marked-to-market on a daily basis. In addition, the fund will
not enter into such forward contracts if, as a result, it will have more than
30% of the value of its total assets committed to such contracts. While these
contracts are not presently regulated by the Commodity Future Trading Commission
("CFTC"), the CFTC may in the future assert authority to regulate forward
contracts. In such event, the Fund's ability to utilize forward contracts in the
manner set forth above may be restricted. Forward contracts may limit potential
gain from a positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may result in
poorer overall performance for the Fund than if it had not engaged in such
contracts.

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

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

Lending of Portfolio Securities. The Funds may from time to time lend portfolio
securities to brokers or dealers, banks and other institutional investors and
receive collateral in the form of United States Government obligations or money
market funds. Under current practices, the loan collateral must be maintained at
all times in an amount equal to at least 100% of the current market value of the
loaned securities, and will not be used to leverage the portfolio. In
determining whether to lend securities to a particular broker/dealer or
financial institution, Southeastern will consider all relevant facts and
circumstances, including the credit-worthiness of the broker or financial
institution. If the borrower should fail to

8
<PAGE> 50

return the loaned securities, the particular Fund could use the collateral to
acquire replacement securities, but could be deprived of immediate access to
such assets for the period prior to such replacement. The Funds may pay
reasonable finders, administrative and custodial fees in connection with such a
loan of securities. The Funds will not lend portfolio securities in excess of
one-third of the value of total assets, nor will the Funds lend portfolio
securities to any officer, director, trustee, employee of affiliate of the Funds
or Southeastern.

MANAGEMENT OF THE FUNDS

Each of the Funds is supervised by its Board of Trustees, which implements
policies through the particular Fund's principal executive officers. Day to day
portfolio management and fund administration is provided by Southeastern Asset
Management, Inc. ("Southeastern") in its capacity as Investment Counsel and as
Fund Administrator under contracts which must be renewed 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 about members of the Board of Trustees and the Funds' executive
officers are set forth in the Prospectus on pages 20 and 21. The following table
provides information on the schedule of Trustees' fees paid by all of the Funds
for the fiscal year ended December 31, 1997:

1997 COMPENSATION TABLE

<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
FROM EACH FUND TOTAL
NAME OF PERSON; ----------------------------- COMPENSATION
POSITION (AGE) PARTNERS REALTY SMALL-CAP FROM ALL
ADDRESS FUND FUND FUND FUNDS**
--------------- -------- ------ --------- ------------
<S> <C> <C> <C> <C>
O. Mason Hawkins*
Chairman of the Board and CEO (50)............ None None None None
Chadwick H. Carpenter, Jr.
Trustee (47)
Private Investor
14 Oak Park; Bedford, MA 01730
10660 East Tamarisk Way; Scottsdale, AZ
85262......................................... $15,000 $7,500 $7,500 $30,000
Daniel W. Connell, Jr.
Trustee (49)
One Stadium Place
Jacksonville, FL 32202........................ $15,000 $7,500 $7,500 $30,000
Steven N. Melnyk
Trustee (51)
111 Riverside Ave.
Ste. 330
Jacksonville, FL 32202........................ $15,000 $7,500 $7,500 $30,000
</TABLE>

9
<PAGE> 51

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

* Trustee is an "interested" person because of employment by Southeastern as
Investment Counsel. The "interested" Trustees and all executive officers of
the Fund are officers or employees of Southeastern, which pays their salaries
and other employee benefits. Its address is 6410 Poplar Ave., Ste. 900,
Memphis, TN 38119.

** The Funds have no pension or retirement plan for Trustees who are classified
as independent or non-"interested".

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Each Fund is controlled by its respective Board of Trustees. Each Board of
Trustees consists of six members, four of whom are independent of Southeastern
and are not "interested persons" as that term is defined in the Investment
Company Act of 1940. The following entities owned of record or beneficially 5%
or more of the outstanding shares of the designated Funds at December 31, 1997:

<TABLE>
<CAPTION>
PARTNERS REALTY SMALL-CAP
FUND FUND FUND
-------- ------ ---------
<S> <C> <C> <C>
Clients of Charles Schwab & Co., a brokerage firm...... 16.40% 31.90% 27.26%
Clients of National Financial Service Corp., a
brokerage firm.......................................
Sun Microsystems, Inc. 401(k) Plan..................... 6.51% 7.89% 6.39%
Litton Industries, Inc................................. 5.23%
Litton Master Trust.................................... 7.35%
</TABLE>

In addition, the Trustees and officers of the Funds, the directors and officers
of Southeastern Asset Management, Inc., their relatives, and Southeastern's
profit sharing plan own in the aggregate, of record or beneficially, more than
5% of the outstanding shares of the Realty Fund and the Small-Cap Fund. However,
no individual or entity owns of record or beneficially as much as 5% of the
outstanding shares of any of the Funds.

10
<PAGE> 52

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 Investment Counsel. The firm is owned and controlled by its principal
officers, who are listed in the Prospectus as affiliated Trustees and Executive
Officers of each Fund. Mr. O. Mason Hawkins, Chairman of the Board and Chief
Executive Officer of Southeastern, owns a majority of its outstanding voting
stock.

Formed in 1975, Southeastern manages institutional and individual assets in
private or separate accounts as well as mutual funds, and is responsible for
managing more than $10.0 billion in client assets. It has served as investment
adviser to each of the Funds since their respective inception dates. Additional
information with respect to the investment advisory function is contained in the
Prospectus under the caption "Investment Management," beginning on page 12.

The annual Investment Counsel fee for the Partners Fund and the Small-Cap Fund,
calculated daily and paid monthly, is 1% of average daily net assets on the
first $400 million and 0.75% of average daily net assets above $400 million. The
annual Investment Counsel fee for the Realty Fund is 1% of average daily net
assets. The Investment Counsel Agreement 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 Fund's average net assets in any fiscal year through a reduction of the
Investment Counsel fees. No reduction was required in the Investment Counsel
fees paid by any of the Funds for the fiscal year ended December 31, 1997. The
Investment Counsel fee for the Realty Fund was reduced by $47,201 during 1996,
its first year of operations. Investment Counsel fees paid by each Fund for the
last three fiscal years are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Partners Fund................................... $20,885,285 $17,004,356 $11,548,213
Small-Cap Fund.................................. $ 5,697,623 $ 1,735,200 $ 1,217,369
Realty Fund..................................... $ 5,064,551 $ 391,283 --
</TABLE>

INVESTMENT PERFORMANCE AND TOTAL RETURN

Total Return Calculation. The average annual total return on an investment in
shares of each of the Funds for a particular period is calculated using a
specific formula required by the Securities & Exchange Commission. The formula
takes into account any appreciation or depreciation in the portfolio, assumes
reinvestment of all dividends and capital gains distributions, and then
mathematically averages the return over the length of time covered by the
calculation. The formula used for computing average annual total return, as
specified by regulation, is as follows:

"Average Annual Total Return" shall mean the average annual compounded
rate of return, computed according to the following formula:

p(1+T) to the nth power = ERV

<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years (or fractional portions thereof)
ERV = ending value of a hypothetical $1,000 investment made at the
beginning of the period (or fractional portion thereof).
</TABLE>

11
<PAGE> 53

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

<TABLE>
<CAPTION>
PARTNERS SMALL-CAP REALTY
FUND FUND FUND
-------- --------- ------
<S> <C> <C> <C>
1997............................................. 28.25% 29.04% 29.73%
1996............................................. 21.02% 30.64% 40.69%
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 the Partners Fund for the five years and
ten years ended December 31, 1997; for the Small-Cap Fund for the five years and
from its first public offering on February 21, 1989 through December 31, 1997;
and for the Realty Fund for the year ended December 31, 1997, and since
inception on January 2, 1996, as follows:

<TABLE>
<S> <C>
PARTNERS FUND
5 years ended 12/31/97.................................... 21.38%
10 years ended 12/31/97................................... 19.94%
SMALL-CAP FUND
5 years ended 12/31/97.................................... 19.95%
Public offering on 2/21/89 through 12/31/97............... 12.54%
REALTY FUND
1 year ended 12/31/97..................................... 29.73%
Inception on 1/2/96 through 12/31/97...................... 35.15%
</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 and contain different
and generally more numerous securities than the Fund's portfolios. Some market
indices are not adjusted for reinvested dividends. Further, no adjustment is
made in the Funds' total returns or the total returns of any market indices for
taxes payable on distributions.

An investment in the Funds is an equity investment. As a result, total returns
will fluctuate over time, and total return for any past period is not an
indication or representation as to future rates of total return. When comparing
each Fund's total returns with those of other alternatives such as fixed income
investments, investors should understand that an equity fund may be subject to
greater market risks than are money market or fixed income investments, and that
the Funds are designed for investors who are willing to accept such greater
market risks for the possibility of realizing greater long-term gains. There is
no assurance that the Funds' investment objectives will be achieved.

12
<PAGE> 54

OTHER MANAGEMENT RELATED SERVICES

Southeastern, as the Fund Administrator, manages and performs all business and
administrative operations of each Fund, including the following:

- - - Preparation and maintenance of all accounting records

- - - Preparation and filing of all required financial reports and tax returns

- - - Securities registrations and reports of sales of shares

- - - Calculation of the daily net asset value per share

- - - 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

- - - Supplying office space and administrative support for the above functions.

Each Fund pays an Administration Fee equal to 0.10% per annum of the average
daily net assets, which is accrued daily and paid monthly in arrears.
Administration fees paid by each Fund for the last three fiscal years are as
follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Partners Fund..................................... $2,651,375 $2,133,914 $1,406,428
Small-Cap Fund.................................... $ 632,636 $ 173,520 $ 121,737
Realty Fund....................................... $ 506,455 $ 43,848 --
</TABLE>

The Funds also reimburse the Administrator for the charges for computer programs
and hardware solely used to process Fund transactions and for the salary of the
Funds' Treasurer. These reimbursable expenses are allocated among the portfolios
taking into account their respective assets and number of shareholders. The
Administrator has not been leasing computer hardware equipment for dedicated use
by the Fund and has not requested reimbursement for costs or charges related to
computer hardware. Reimbursable expenses paid by each Fund for the last three
fiscal years are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Partners Fund......................................... $192,492 $168,016 $133,072
Small-Cap Fund........................................ $ 26,959 $ 15,838 $ 56,425
Realty Fund........................................... $ 19,076 $ 30,397 --
</TABLE>

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

13
<PAGE> 55

TERMS OF AGREEMENTS

Each Fund has entered into agreements with Southeastern Asset Management, Inc.,
as the Investment Counsel and separately as the Fund Administrator, initially
effective for a period of two years. Each agreement must be renewed prior to
August 1 of each year by the affirmative vote of a majority of the outstanding
voting securities of each Fund or by a majority of members of the Board of
Trustees, including a majority of the Trustees who are not "interested"
Trustees. Such Agreements will automatically terminate in the event of
assignment as defined in the Investment Company Act of 1940. The Funds may
terminate such Agreements, without penalty, upon 60 days' written notice by a
majority vote of the Board of Trustees or by a majority of the outstanding
voting securities of the particular Fund.

ADDITIONAL TAX INFORMATION

Each Fund intends to qualify for favorable tax treatment applicable to regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986, as
amended. Qualification does not involve supervision of management or investment
practices or policies by the Internal Revenue Service. In order to qualify as a
regulated investment company, a Fund must, among other things, derive at least
90% of its gross income from dividends, interest, payments with respect to
proceeds from securities loans, gains from the sale or other disposition of
securities and other income (including gains from options future and forward
foreign currency contracts) derived with respect to its business of investing in
such securities. Each Fund must also diversify its holdings so that, at the end
of each quarter of its taxable year, (i) at least 50% of the market value of
total assets is represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer, to an amount not greater than
5% of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities). Further, a regulated investment company may not invest more than 25
percent of the value of its total assets in the securities of two or more
issuers which the Fund controls and which are engaged in the same or similar
trades or businesses or related trades or businesses. 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, each 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
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.

Certain of the debt securities which may be acquired may be secured in whole or
in part by interests in real estate. If a Fund were to acquire real estate by
foreclosure, income generated by that real estate (including rental income and
gain on its disposition) may not be regarded as qualifying income. If the Fund's
non-qualifying income for a taxable year 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

14
<PAGE> 56

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 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.

ALLOCATION OF BROKERAGE COMMISSIONS

Southeastern, in its capacity as Investment Counsel, is responsible under the
supervision of the Board of Trustees for the selection of members of securities
exchanges, brokers and dealers (referred to as "brokers") for the execution of
portfolio transactions and, when applicable, the negotiation of brokerage
commissions. On behalf of each Fund, Southeastern is also responsible for
investment decisions and for the placement and execution through selected
brokers of purchase and sale orders. All investment decisions and placements of
trades for the purchase and sale of portfolio securities are made in accordance
with the following principles:

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

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

3. Southeastern is authorized to recommend and the Fund is authorized
to allocate brokerage and principal purchase and sales transactions to
brokers who have provided brokerage and research services, as such services
are defined in Section 28(e) of the Securities Exchange Act of 1934 (the
"1934 Act"), and for other services which benefit the Fund directly through
reduction of the Fund's expense obligations, such as a reduction in the
Fund's share of the lease charges for computer expenses. Southeastern could
cause the Fund to pay a commission for effecting a securities transaction
in excess of the amount another broker would have charged for effecting
that transaction, if Southeastern in making the recommendation in question
determines in good faith that the commission is reasonable in relation to
the value of the brokerage and research services or other benefits provided
the Fund by such broker. In reaching such determination, neither
Southeastern nor the officer of the Fund making the decision is required to
place a specific dollar value on the research or execution services of a
broker. In demonstrating that such determinations were made in good faith,
Southeastern and the officer of the 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

15
<PAGE> 57

commissions known to be charged by other brokers on comparable
transactions, but there shall be taken into account the Fund's policies (i)
that paying the lowest commission is deemed secondary to obtaining a
favorable price and (ii) that the quality, comprehensiveness and frequency
of research studies which are provided for the Fund and Southeastern may be
useful to Southeastern in performing its services under its Agreement with
the Fund but are not subject to precise evaluation. Research services
provided by brokers to the Fund or to Southeastern are considered to be
supplementary to, and not in lieu of services required to be performed by
Southeastern.

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

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

Investment decisions for each Fund are made independently from those of the
other Funds or accounts of other clients advised by Southeastern, but the same
security may be held in the portfolios of more than one Fund or one account.
When several accounts and the Funds' portfolios simultaneously purchase or sell
the same security, the prices and amounts will be equitably allocated among all
such accounts. In some situations this procedure could adversely affect the
price or quantity of the security available to one or more of the Funds, but in
other situations the ability to participate in larger volume transactions may
enable a Fund to realize better executions, prices, and lower commissions.
Southeastern does not own an interest in any brokerage firm and places trades
for the Funds through independent brokerage firms.

Total brokerage Commissions paid by each Fund for the last three fiscal years
are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Partners Fund..................................... $4,707,780 $2,172,895 $1,681,102
Small-Cap Fund.................................... $1,632,755 $ 576,550 $ 236,927
Realty Fund....................................... $1,791,258 $ 427,047 --
</TABLE>

16
<PAGE> 58

DISTRIBUTION OF FUND SHARES

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

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

REDEMPTION OF FUND SHARES

Shareholders are referred to the Prospectus for procedures for redeeming shares.
The Funds have 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 Fund has committed 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.
The purpose of this election is to assure that at least $250,000 of a redemption
will be paid in cash.

The Funds have followed the practice since inception of paying all redemptions
in cash, and have never distributed portfolio securities in lieu of cash. Should
a Fund elect to limit its cash payments on redemption to $250,000, the balance
of a redemption request in excess of that amount 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.

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 Funds.

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Coopers & Lybrand, L.L.P., an international public accounting firm, serves as
the independent certified public accountants.

17
<PAGE> 59

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 Funds. 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 Funds.

LIMITATION OF LIABILITY

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 Trust
indemnifies each such person against all such losses other than the excepted
losses. The agreements between the Trust and, respectively, the Investment
Counsel and the Fund Administrator provide for indemnification and relieve each
such entity of liability for any act or omission in the course of its
performance under the particular agreement, including any mistake of judgment,
in the absence of willful misfeasance, bad faith or gross negligence.
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 mutual fund which is a series of a
Massachusetts business trust could, in theory, be held personally liable for
certain obligations of the particular series. The 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 Funds and
third parties. The Declaration of Trust also provides for indemnification from
the assets of each series for any shareholder liability for applicable acts or
obligations should any shareholder be held liable under these provisions for
having been a shareholder.

18
<PAGE> 60

TABLE OF BOND AND PREFERRED STOCK RATINGS

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

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

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

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

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

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

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

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

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

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

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

19
<PAGE> 61

aa -- An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.

a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than the aaa and
aa classifications, earnings and asset protection are, nevertheless, expected to
be maintained at adequate levels.

baa -- An issue which is rated baa is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.

ba -- An issue which is rated ba is considered to have speculative elements, and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.

b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

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

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

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

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

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

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

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

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

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

20
<PAGE> 62

capacity or willingness to pay interest and repay principal. The B rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied B or BB rating.

CCC -- Securities rated CCC have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied B or B- rating.

Plus (+) or Minus (-): The ratings from A to CCC may be modified by the addition
of a plus or minus sign to show relative standing within major rating
categories.

FINANCIAL STATEMENTS

The financial statements for the fiscal year ended December 31, 1997, 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 30, 1998 are included in this Statement of Additional
Information.

21
<PAGE> 63

- - --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of
Longleaf Partners Funds

We have audited the accompanying statements of assets and liabilities of
Longleaf Partners Fund, Longleaf Partners Small-Cap Fund, and Longleaf Partners
Realty Fund (the three Funds comprising Longleaf Partners Funds Trust),
including the schedules of portfolio investments, as of December 31, 1997, and
the related statements 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 related financial highlights for each of the periods indicated. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion of 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 audits 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, 1997 by correspondence with 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 positions of
Longleaf Partners Fund, Longleaf Partners Small-Cap Fund, and Longleaf Partners
Realty Fund (the three Funds comprising Longleaf Partners Funds Trust) as of
December 31, 1997 and the results of each of their operations for the year then
ended, changes in each of their net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated in conformity with generally accepted accounting principles.

/s/ COOPERS & LYBRAND L.L.P.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
January 30, 1998

22
<PAGE> 64

- - --------------------------------------------------------------------------------
PARTNERS FUND - PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1997

<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Common Stock 109.8%
Beverages 5.7%
4,604,800 The Seagram Company Ltd. ...................................... $148,792,600
Broadcasting 6.2%
7,284,362 The News Corporation Limited................................... 162,532,327
Business Services 0.3%
279,200 * The Union Corporation.......................................... 8,777,350
Cable 12.9%
11,686,100 * U S West Media Group........................................... 337,436,138
Environmental Services 6.6%
6,236,400 Waste Management, Inc.......................................... 171,501,000
Food 9.1%
3,000,000 The Quaker Oats Company........................................ 158,250,000
846,500 Ralston Purina Company......................................... 78,671,594
------------
236,921,594
------------
Lodging 8.9%
7,552,000 * Host Marriott Corporation...................................... 148,208,000
1,203,800 Marriott International, Inc.................................... 83,363,150
------------
231,571,150
------------
Multi-Industry 8.4%
1,565,000 Alexander & Baldwin, Inc....................................... 42,744,062
2,903,800 Philips Electronics N.V........................................ 175,679,900
------------
218,423,962
------------
Natural Resources 6.1%
1,237,700 The Pioneer Group, Inc......................................... 34,810,312
2,900,000 Rayonier Inc.(b)............................................... 123,431,250
------------
158,241,562
------------
Property & Casualty Insurance 7.7%
112,828 * Alleghany Corp................................................. 32,127,773
25,046,000 Mitsui Marine and Fire Insurance Company, Ltd.................. 128,291,762
6,603,000 The Nippon Fire & Marine Insurance Company, Ltd................ 24,833,408
3,373,000 The Yasuda Fire and Marine Insurance Company, Ltd.............. 14,475,604
------------
199,728,547
------------
</TABLE>

See Notes to Financial Statements.

<PAGE> 65

- - --------------------------------------------------------------------------------
PARTNERS FUND - PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1997

<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- --------------
<S> <C> <C> <C> <C> <C>
Pharmaceuticals 2.6%
1,770,350 Mallinckrodt Inc. ............................................ $ 67,273,300

Publishing 13.0%
6,500,000 Knight-Ridder, Inc.(b)........................................ 338,000,000

Real Estate 5.5%
6,224,291 TrizecHahn Corporation........................................ 144,325,748

Telecommunications 4.8%
6,143,637 * 360 degrees Communications Company(b)......................... 124,024,672

Transportation 12.0%
3,234,800 * Federal Express Corporation................................... 197,524,975
3,617,600 Kansas City Southern Industries, Inc.......................... 114,858,800
--------------
312,383,775
--------------
TOTAL COMMON STOCKS (COST $2,090,857,614)..................... 2,859,933,725
--------------
Short-Term Obligations 2.8%
Repurchase Agreement with State Street Bank,
5.0% due 1-2-98.................................................................. 72,999,000
--------------
TOTAL INVESTMENTS (COST $2,163,856,614)(A).................................. 112.6% 2,932,932,725
SHAREHOLDER DISTRIBUTION PAYABLE............................................ (12.8) (333,437,885)
OTHER ASSETS AND LIABILITIES, NET........................................... 0.2 5,575,335
----- --------------
NET ASSETS.................................................................. 100.0% $2,605,070,175
===== ==============
NET ASSET VALUE PER SHARE.......................................................... $25.98
==============
</TABLE>

* Non-income producing security
(a) Also represents aggregate cost for Federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $801,685,719 and ($32,609,608),
respectively.
(b) Affiliated company. See Note 7.

Open Forward Currency Contracts -- See Note 2

<TABLE>
<CAPTION>
CURRENCY CURRENCY SOLD AND CURRENCY UNREALIZED
UNITS SOLD SETTLEMENT DATE MARKET VALUE GAIN
- - -------------- ------------------------------------------------- ------------ ----------
<C> <S> <C> <C>
2,864,692,545 Japanese Yen 1/6/98.............................. $22,053,168 $1,861,799
1,239,727,950 Japanese Yen 1/28/98............................. 9,576,520 948,380
11,847,114,197 Japanese Yen 2/10/98............................. 91,695,521 2,259,405
3,939,690,935 Japanese Yen 2/27/98............................. 30,570,799 575,181
------------ ----------
Total Forward Contracts.......................... $153,896,008 $5,644,765
============ ==========
</TABLE>

See Notes to Financial Statements.

24
<PAGE> 66

- - --------------------------------------------------------------------------------
REALTY FUND - PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1997

<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Common Stock 93.2%
Real Estate Industry 93.0%
Diversified Realty 16.6%
2,558,700 * Catellus Development Corporation............................... $ 51,174,000
619,100 Forest City Enterprises, Inc. - Class A........................ 35,985,188
61,200 Forest City Enterprises, Inc. - Class B........................ 3,530,475
783,000 Sizeler Property Investors, Inc. (REIT)(b)..................... 8,221,500
1,012,300 TrizecHahn Corporation......................................... 23,472,706
------------
122,383,869
------------
Lodging 16.0%
3,770,100 * Host Marriott Corporation...................................... 73,988,212
102,300 Marriott International, Inc.................................... 7,084,275
1,999,600 * Red Roof Inns, Inc.(b)......................................... 30,618,875
41,600 * Sunburst Hospitality Corporation............................... 410,800
558,346 * Supertel Hospitality, Inc.(b).................................. 5,583,460
------------
117,685,622
------------
Mortgage Financing 3.3%
674,500 Bay View Capital Corp.(b)...................................... 24,450,625
Natural Resources/Land 15.3%
1,427,600 * Castle & Cooke, Inc.(b)........................................ 24,090,750
650,000 Deltic Timber Corporation(b)................................... 17,793,750
650,000 The Pioneer Group, Inc......................................... 18,281,250
261,000 Rayonier Inc................................................... 11,108,812
5,701,900 TimberWest Timber Trust(b)..................................... 41,240,157
------------
112,514,719
------------
Office 29.1%
892,400 Alexandria Real Estate Equities, Inc. (REIT)(b)................ 28,166,375
1,507,000 Arden Realty, Inc. (REIT)...................................... 46,340,250
1,047,900 Boston Properties Inc. (REIT).................................. 34,646,194
504,900 Cousins Properties Incorporated (REIT)......................... 14,799,881
1,850,000 Prime Group Realty Trust (REIT)(b)............................. 37,462,500
3,398,000 * Wellsford Real Properties, Inc.(b)(c).......................... 53,093,750
------------
214,508,950
------------
Retail 12.7%
1,223,800 Getty Realty Corp.(b).......................................... 27,076,575
993,800 * IHOP Corp.(b).................................................. 32,298,500
2,442,100 Prime Retail, Inc. (REIT)(b)................................... 34,647,294
------------
94,022,369
------------
</TABLE>

See Notes to Financial Statements.

25
<PAGE> 67

- - --------------------------------------------------------------------------------
REALTY FUND - PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1997

<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Non-Realty 0.2%
14,500 * White River Corporation........................................ $ 1,152,750
------------
TOTAL COMMON STOCKS (COST $598,970,233)........................ 686,718,904
------------
CONTRACTS Options 1.2%
----------
Put Options Written
5,494 Newhall Land and Farming Company, expiring
April '99 @ $20 (Premiums received $1,076,268)................. (60,434)
2,967 Newhall Land and Farming Company, expiring October '99 @ $25
(Premiums received $709,919)................................... (272,964)
Call Options Purchased
5,494 Newhall Land and Farming Company, expiring
April '99 @ $20 (Cost $1,761,493).............................. 6,499,402
2,967 Newhall Land and Farming Company, expiring October '99 @ $25
(Cost $1,225,243).............................................. 2,533,818
------------
8,699,822
------------
PRINCIPAL Corporate Bonds 3.0%
AMOUNT
----------
34,000,000 Marriott International, Inc. Liquid Yield
Option Notes (LYONs), zero coupon conv. sub. notes due 2011
(Cost $19,410,087)............................................. 22,142,500
------------
Short-Term Obligations 6.9%
34,995,188
U.S. Treasury Bill, 5.03% due 1-2-98............................................
16,179,000
Repurchase Agreement with State Street Bank, 5.00% due 1-2-98...................
------------
51,174,188
------------
TOTAL INVESTMENTS (COST $670,755,057)(A)..................................... 104.3% 768,735,414
SHAREHOLDER DISTRIBUTION PAYABLE............................................. (4.5) (32,851,014)
OTHER ASSETS AND LIABILITIES, NET............................................ 0.2 1,417,804
----- ------------
NET ASSETS................................................................... 100.0% $737,302,204
===== ============
NET ASSET VALUE PER SHARE........................................................... $17.35
======
</TABLE>

* Non-income producing security
(a) Also represents aggregate cost for Federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $122,830,438 and ($24,850,081),
respectively.
(b) Affiliated company. See Note 7.
(c) Illiquid security. See Note 8.

See Notes to Financial Statements.

26
<PAGE> 68

- - --------------------------------------------------------------------------------
SMALL-CAP FUND - PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1997

<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Common Stock 93.3%
Advertising 0.5%
15,100 Grey Advertising Inc. - Class A................................ $ 4,952,800
Beverages 0.7%
215,000 * Celestial Seasonings, Inc.(b).................................. 6,772,500
Building Materials 1.7%
506,400 Zurn Industries, Inc........................................... 15,919,950
Business Services 2.5%
587,000 * Pinkerton's, Inc............................................... 13,794,500
300,000 * The Union Corporation(b)....................................... 9,431,250
------------
23,225,750
------------
Cable 12.2%
5,184,800 * Shaw Communications Inc. -- Class B(b)......................... 55,072,648
1,980,000 * U S West Media Group........................................... 57,172,500
------------
112,245,148
------------
Commercial Lighting 0.5%
223,350 Thomas Industries, Inc......................................... 4,411,162
Financial Services 4.0%
209,700 Duff & Phelps Credit Rating Co................................. 8,519,063
351,200 * White River Corporation(b)..................................... 27,920,400
------------
36,439,463
------------
Gaming 5.1%
1,600,000 Showboat, Inc. (b)............................................. 47,000,000
Investment Management Companies 2.4%
87,600 Baker, Fentress & Company...................................... 1,598,700
836,000 United Asset Management Corporation............................ 20,429,750
------------
22,028,450
------------
Manufacturing 3.1%
850,000 * American Safety Razor Company(b)............................... 17,000,000
407,500 AMETEK, Inc.................................................... 11,002,500
------------
28,002,500
------------
Mortgage Financing 3.7%
930,000 Bay View Capital Corp.(b)...................................... 33,712,500
Natural Resources 14.5%
845,000 Deltic Timber Corporation(b)................................... 23,131,875
2,748,496 Gendis Inc. -- Class A(b)...................................... 40,814,493
865,000 The Pioneer Group, Inc......................................... 24,328,125
6,100,000 TimberWest Timber Trust(b)..................................... 44,119,497
------------
132,393,990
------------
Property & Casualty Insurance 15.1%
126,273 * Alleghany Corporation.......................................... 35,956,237
1,019,000 The Chiyoda Fire and Marine Insurance Company, Ltd............. 3,056,504
</TABLE>

See Notes to Financial Statements.

27
<PAGE> 69

- - --------------------------------------------------------------------------------
SMALL-CAP FUND - PORTFOLIO INVESTMENTS
AT DECEMBER 31, 1997

<TABLE>
<CAPTION>
SHARES MARKET VALUE
---------- ------------
<S> <C> <C> <C> <C> <C>
Property & Casualty Insurance 15.1% (Continued)
2,584,000 The Dai-Tokyo Fire and Marine Insurance Company, Ltd........... $ 8,903,416
1,777,400 Hilb, Rogal and Hamilton Company(b)............................ 34,326,038
1,702,000 The Koa Fire and Marine Insurance Company, Ltd................. 6,414,190
6,155,000 The Nissan Fire & Marine Insurance Company, Ltd................ 18,793,373
660,800 Orion Capital Corporation...................................... 30,685,900
------------
138,135,658
------------
Real Estate 12.7%
1,500,700 * Catellus Development Corporation............................... 30,014,000
1,135,400 Cousins Properties Incorporated................................ 33,281,412
552,900 * IHOP Corp.(b).................................................. 17,969,250
1,520,000 TrizecHahn Corporation......................................... 35,245,000
------------
116,509,662
------------
Restaurants 1.9%
982,400 * VICORP Restaurants, Inc.(b).................................... 17,192,000
Retail 4.1%
325,730 Dart Group Corporation -- Class A.............................. 37,784,680
Telecommunications 3.8%
1,703,000 * Corecomm, Inc.(b).............................................. 17,242,875
1,349,109 * Vanguard Cellular Systems, Inc. -- Class A..................... 17,201,140
------------
34,444,015
------------
Transportation 4.8%
712,400 * Federal Express Corporation.................................... 43,500,925
------------
TOTAL COMMON STOCKS (COST $691,357,333).................................... 854,671,153
------------
Short-Term Obligations 11.1%
Federal Home Loan Mortgage Corporation, 5.7% due 1-9-98............................. 79,901,156
Repurchase Agreement with State Street Bank, 5.0%, due 1-2-98....................... 21,391,000
------------
101,292,156
------------
TOTAL INVESTMENTS (COST $792,649,489)(A)..................................... 104.4% 955,963,309
SHAREHOLDER DISTRIBUTION PAYABLE............................................. (3.9) (35,733,571)
OTHER ASSETS AND LIABILITIES, NET............................................ (0.5) (4,970,603)
----- ------------
NET ASSETS................................................................... 100.0% $915,259,135
===== ============
NET ASSET VALUE PER SHARE........................................................... $22.18
======
</TABLE>

* Non-income producing security
(a) Also represents aggregate cost for Federal income tax purposes. Aggregate
unrealized appreciation and depreciation are $195,668,020 and ($32,354,200),
respectively.
(b) Affiliated company. See Note 7.
Open Forward Currency Contracts -- See Note 2

<TABLE>
<CAPTION>
CURRENCY CURRENCY SOLD AND CURRENCY UNREALIZED
UNITS SOLD SETTLEMENT DATE MARKET VALUE GAIN
- - ------------- ------------------------------------------------------------ ------------ ----------
<C> <S> <C> <C>
1,535,436,260 Japanese Yen 2/27/98........................................ $11,914,517 $ 66,948
3,737,523,927 Japanese Yen 5/13/98........................................ 29,331,234 574,595
71,992,494 Canadian Dollars 10/28/98................................... 50,495,725 1,451,494
----------- ----------
Total Forward Contracts..................................... $91,741,476 $2,093,037
=========== ==========

</TABLE>

See Notes to Financial Statements.

28
<PAGE> 70

(This page intentionally left blank)

29
<PAGE> 71

- - --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1997

<TABLE>
<CAPTION>
PARTNERS FUND

<S> <C>
ASSETS:
Investments:
Securities, at market value (cost $2,090,857,614,
$601,956,969, and $691,357,333, respectively) (Note 2)..
Short-term cash equivalents...............................
Repurchase agreement (Note 2).............................
Corporate bonds (cost $19,410,087)........................
TOTAL INVESTMENTS
Cash........................................................
Receivable for:
Forward currency contracts (Note 2).......................
Dividends and interest....................................
Prepaid assets..............................................
Insurance reserve premium...................................
TOTAL ASSETS
LIABILITIES:
Payable for:
Shareholder Distribution..................................
Investment Counsel fee (Note 3)...........................
Administration fee (Note 4)...............................
Securities purchased......................................
Fund shares sold..........................................
Options written, at market value (premiums received
$1,786,187)...............................................
Other accrued expenses......................................
TOTAL LIABILITIES
NET ASSETS:
Net assets consist of:
Paid-in capital...........................................
Undistributed net investment income.......................
Accumulated net realized gain(loss).......................
Unrealized appreciation of investments....................
Unrealized foreign exchange gain..........................
Net Assets
NET ASSET VALUE PER SHARE...................................
FUND SHARES ISSUED AND OUTSTANDING..........................
</TABLE>

See Notes to Financial Statements.

30
<PAGE> 72

- - --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1997

<TABLE>
<CAPTION>
PARTNERS FUND REALTY FUND SMALL-CAP FUND
- - -------------- ------------ --------------
<S> <C> <C>
$2,859,933,725 $695,752,124 $ 854,671,153
- 34,995,188 79,901,156
72,999,000 16,179,000 21,391,000
- 22,142,500 -
- - -------------- ------------ ------------
2,932,932,725 769,068,812 955,963,309
798 894 968
5,644,765 - 2,093,037
2,168,234 2,295,203 1,623,480
108,948 37,528 39,430
52,272 - 7,274
- - -------------- ------------ ------------
2,940,907,742 771,402,437 959,727,498
- - -------------- ------------ ------------

333,437,885 32,851,014 35,733,571
1,938,916 646,434 688,193
247,198 64,643 80,435
- - 7,742,011
56,000 - -
- 333,398 -
157,568 204,744 224,153
- - -------------- ------------ ------------
335,837,567 34,100,233 44,468,363
- - -------------- ------------ ------------
$2,605,070,175 $737,302,204 $915,259,135
============== ============ ============
1,835,103,781 639,246,346 751,847,302
89,373 24,232 22,599
(4,843,855) 46,795 (2,022,091)
774,720,876 97,980,357 165,406,857
- 4,474 4,468
- - -------------- ------------ ------------
$2,605,070,175 $737,302,204 $915,259,135
============== ============ ============
$25.98 $17.35 $22.18
======= ======= =======
100,282,071 42,498,080 41,262,786
</TABLE>

See Notes to Financial Statements.

31
<PAGE> 73

- - --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends (net of foreign tax withheld of $565,817,
$182,876, and $210,058, respectively) (Note 7).........
Interest..................................................
Total income......................................
EXPENSES:
Investment Counsel fee (Note 3)...........................
Administration fee (Note 4)...............................
Transfer Agent fee........................................
Registration and filing fees..............................
Supplies and postage......................................
Reimbursable administration expenses (Note 4).............
Printing..................................................
Annual meeting expenses...................................
Trustees' fees............................................
Custodian fee.............................................
Insurance expense.........................................
Professional fees.........................................
Miscellaneous.............................................
Total expenses....................................
Net investment income.............................

REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on securities...........................
Net unrealized appreciation on securities.................
Net unrealized appreciation on options....................
Net unrealized foreign exchange gain......................
Net realized and unrealized gain on investments...
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........
</TABLE>

See Notes to Financial Statements.

32
<PAGE> 74

- - --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
PARTNERS SMALL-CAP
FUND REALTY FUND FUND
- - ------------- ------------ --------------
<S> <C> <C>
$ 28,815,668 $ 6,154,534 $ 5,512,300
17,581,204 3,716,063 8,851,576
- - ------------ ------------ ------------
46,396,872 9,870,597 14,363,876
- - ------------ ------------ ------------
20,885,285 5,064,551 5,697,623
2,651,375 506,455 632,636
451,053 85,587 106,930
58,614 189,211 209,864
167,354 52,666 62,391
192,492 19,076 26,959
135,801 40,089 41,414
122,670 38,535 29,478
60,000 27,500 30,000
35,309 25,171 23,385
47,458 8,244 10,099
21,915 15,556 19,803
146,999 21,947 27,992
- - ------------ ------------ ------------
24,976,325 6,094,588 6,918,574
- - ------------ ------------ ------------
21,420,547 3,776,009 7,445,302
- - ------------ ------------ ------------

306,865,056 27,323,623 26,187,400
322,569,345 74,200,344 114,470,656
- 7,499,273 -
- 4,474 4,468
- - ------------ ------------ ------------
629,434,401 109,027,714 140,662,524
- - ------------ ------------ ------------
$650,854,948 $112,803,723 $148,107,826
============ ============ ============
</TABLE>

See Notes to Financial Statements.

33
<PAGE> 75

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

<TABLE>
<CAPTION>
PARTNERS FUND
---------------------------------
YEAR ENDED DECEMBER 31,
1997 1996
---------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 21,420,547 $ 34,373,697
Net realized gain on securities........................... 306,865,056 213,673,408
Net unrealized appreciation on securities................. 322,569,345 158,628,871
Net unrealized appreciation on options.................... - -
Net unrealized foreign exchange gain...................... - -
-------------- --------------
Net increase in net assets resulting from operations... 650,854,948 406,675,976
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................ (21,460,363) (34,349,264)
From net realized gain on investments..................... (311,977,522) (213,539,413)
From return of capital.................................... - -
-------------- --------------
Net decrease in net assets resulting from
distributions........................................ (333,437,885) (247,888,677)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares.......................... 477,572,262 415,870,054
Net asset value of shares issued to shareholders for
reinvestment of shareholder distributions.............. - 234,252,018
Cost of shares redeemed................................... (489,998,326) (385,297,441)
-------------- --------------
Net increase(decrease) in net assets from fund share
transactions......................................... (12,426,064) 264,824,631
-------------- --------------
Total increase in net assets........................... 304,990,999 423,611,930
NET ASSETS:
Beginning of year......................................... 2,300,079,176 1,876,467,246
-------------- --------------
End of year............................................... $2,605,070,175 $2,300,079,176
============== ==============
Undistributed net investment income included in net assets
at end of year......................................... $ 89,373 $ 129,189
============== ==============
</TABLE>

See Notes to Financial Statements.

34
<PAGE> 76

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

<TABLE>
<CAPTION>
REALTY FUND SMALL-CAP FUND
-------------------------------------- --------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1996 1997 1996
---------------- -------------- ---------------- --------------
<S> <C> <C> <C>
$ 3,776,009 $ 405,735 $ 7,445,302 $ 305,763
27,323,623 490,532 26,187,400 13,416,172
74,200,344 16,280,740 114,470,656 33,330,915
7,499,273 - - -
4,474 - 4,468 -
-------------- -------------- -------------- --------------
112,803,723 17,177,007 148,107,826 47,052,850
-------------- -------------- -------------- --------------
(3,757,696) (399,816) (7,427,301) (313,153)
(27,280,191) (487,169) (28,306,270) (13,335,532)
(1,813,127) (159,496) - -
-------------- -------------- -------------- --------------
(32,851,014) (1,046,481) (35,733,571) (13,648,685)
-------------- -------------- -------------- --------------
685,515,315 150,091,326 770,142,361 108,358,068
- 999,870 - 12,582,527
(184,175,044) (11,212,498) (219,414,438) (38,164,599)
-------------- -------------- -------------- --------------
501,340,271 139,878,698 550,727,923 82,775,996
-------------- -------------- -------------- --------------
581,292,980 156,009,224 663,102,178 116,180,161
156,009,224 0 252,156,957 135,976,796
-------------- -------------- -------------- --------------
$ 737,302,204 $ 156,009,224 $ 915,259,135 $ 252,156,957
============== ============== ============== ==============
$24,233 $5,919 $22,599 $4,598
========= ======= ========= =======
</TABLE>

See Notes to Financial Statements.

35
<PAGE> 77

- - --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
NOTES TO FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION

The Funds are each a series of Longleaf Partners Funds Trust, a Massachusetts
business trust which is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. Capitalization for each
fund was provided by principals of Southeastern Asset Management, Inc., the
Investment Counsel, as follows:

<TABLE>
<CAPTION>
PARTNERS FUND REALTY FUND SMALL-CAP FUND
----------------- ------------------ -----------------
<S> <C> <C> <C>
Organization date............................ November 26, 1986 September 12, 1995 December 21, 1988
Initial capitalization date.................. March 24, 1987 January 2, 1996 December 28, 1988
Amount of initial capitalization............. $100,000 $100,000 $1,500,000
Shares issued at capitalization.............. 10,000 10,000 150,000
Shares authorized............................ Unlimited Unlimited Unlimited
Public offering date......................... April 8, 1987 January 2, 1996 February 21, 1989
</TABLE>

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Security Valuation
(1) Portfolio securities listed or traded on a securities exchange and
over-the-counter securities traded on the NASDAQ national market are
valued at the last sales price. If there are no transactions in the
security that day, securities are valued at the midpoint between the
closing bid and ask prices.
(2) All other portfolio securities for which over-the-counter market
quotations are readily available are valued at the midpoint between the
closing bid and ask prices. Repurchase agreements are valued at cost
which, combined with accrued interest, approximates market. Short-term
U.S. Government obligations are valued at amortized cost which
approximates current market value.
(3) Option contracts are marked-to-market daily. Listed options are valued at
the latest closing price. If there are no transactions that day, the
options are valued at the midpoint between the closing bid and ask prices.
Over-the-counter options are valued as determined in good faith under
procedures established by the Funds' trustees.
(4) When market quotations are not readily available, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Funds' Trustees.
In determining fair value, the Board considers all relevant qualitative
and quantitative information available. These factors are subject to
change over time and are reviewed periodically. Estimated values may
differ from the values that would have been used had a ready market of the
investment existed.

Accounting for Investments
The Funds follow industry practice and record security transactions on trade
date plus one. 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.

Distributions to Shareholders
Dividends and distributions to shareholders are recorded on the ex-dividend
date.

36
<PAGE> 78

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

Foreign Currency Translations
The books and records of the Funds are maintained in U.S. dollars. Securities
denominated in currencies other than U.S. dollars are subject to changes in
value due to fluctuations in exchange rates. Purchases and sales of securities
and income and expenses are translated into U.S. dollars at the prevailing
exchange rate on the respective date of each transaction. The market value of
investment securities, assets and liabilities are translated into U.S. dollars
daily.

The Funds do not isolate the portion of net realized and unrealized gains or
losses in equity security investments which is attributable to changes in
foreign exchange rates. Accordingly, the impact of foreign currency conversions
is included in the realized and unrealized gains or losses on the underlying
equity securities.

Forward Currency Contracts
The Funds may execute forward currency contracts to reduce their exposure to
currency risk on portfolio investments denominated in foreign currency. Forward
currency contracts are commitments to purchase or sell a foreign currency at a
future maturity date. The resulting obligation is marked-to-market daily using
foreign currency exchange rates supplied by an independent pricing service. An
unrealized gain or loss is recorded for the difference between the contract
opening value and its current value. When a contract is closed or delivery is
taken, this gain or loss is realized. For federal tax purposes, open forward
contracts are treated as realized and subject to distribution at our excise tax
year-end date.

Options
Upon the purchase of a put or call option, the premium paid is recorded as an
investment. When the Funds write a put or a call option, the premium received by
the Funds is recorded as a liability. When a purchased option expires, a loss is
recognized for the cost of the option. When a written option expires, a gain is
realized for the premium received. When the Funds enter into a closing sale
transaction, a gain or loss is recognized based on the difference between the
proceeds of the closing transaction and the cost of the option.

Risk of Foreign Currency Contracts and Options
Using puts and calls in conjunction with each other for hedging purposes can
reduce market risks. However, when used separately, options and forwards have
risks. For example, the price movements of the securities underlying the options
and forwards may not follow the price movements of the portfolio securities
subject to the hedge. Gains on investments in options and forwards depend on the
ability to predict correctly the direction of stock prices, interest rates, and
other economic factors. Where a liquid secondary market for options or forwards
does not exist, the Funds may not be able to close their positions and in such
an event, the loss is theoretically unlimited.

Repurchase Agreements
The Funds may engage in repurchase agreement transactions. The Funds' custodian
bank sells U.S. government securities to each Fund under agreements to
repurchase these securities from each Fund at a stated repurchase price
including interest for the term of the agreement, which is usually overnight or
over a weekend. Each Fund, through its custodian, receives delivery of the
underlying U.S. government securities as collateral, whose market value is
required to be at least equal to the repurchase price. If the custodian

37
<PAGE> 79

becomes bankrupt, the Fund might be delayed, or may incur costs or possible
losses of principal and income, in selling the collateral.

NOTE 3. INVESTMENT COUNSEL AGREEMENT

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

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

The Realty Fund fee is calculated on the same basis at 1.00% per annum on all
asset levels.

Southeastern has agreed to reduce its fees on a pro rata basis to the extent
that the Funds' normal annual operating expenses (excluding taxes, interest,
brokerage fees, and extraordinary expenses) exceed 1.5% of average annual net
assets. No such reductions were necessary for the current year.

NOTE 4. FUND ADMINISTRATOR

Southeastern also serves as the Fund Administrator and in this capacity is
responsible for managing, performing or supervising the administrative and
business operations of the Funds. Functions include the preparation of all
registration statements, prospectuses, tax returns and proxy statements, daily
valuation of the portfolios and calculation of daily net asset values per share.
The Funds pay a fee as compensation for these services, accrued daily and paid
monthly, of 0.10% per annum of average daily net assets.

Reimbursable administration expenses paid by the Funds to Southeastern consist
of the cost of computer software dedicated to valuation calculations and a
portion of the Funds' Treasurer's salary allocated in accordance with Trustee
review and approval.

NOTE 5. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------
PARTNERS FUND REALTY FUND SMALL-CAP FUND
------------- ----------- --------------
<S> <C> <C> <C>
Shares sold............................................ 18,272,322 42,365,845 37,816,017
Shares redeemed........................................ (18,643,094) (11,033,373) (10,675,148)
----------- ----------- -----------
(370,772) 31,332,472 27,140,869
=========== =========== ===========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------
PARTNERS FUND REALTY FUND SMALL-CAP FUND
------------- ----------- --------------
<S> <C> <C> <C>
Shares sold............................................ 18,238,896 11,949,427 6,357,663
Reinvestment of shareholder distribution............... 10,180,444 71,778 706,090
Shares redeemed........................................ (16,493,540) (855,598) (2,348,601)
----------- ----------- -----------
11,925,800 11,165,607 4,715,152
=========== =========== ===========
</TABLE>

38
<PAGE> 80

NOTE 6. INVESTMENT TRANSACTIONS

Purchases and sales of equity securities and related brokerage commissions for
the period (excluding short-term obligations) are summarized below:

<TABLE>
<CAPTION>
PARTNERS FUND REALTY FUND SMALL-CAP FUND
-------------- ------------ --------------
<S> <C> <C> <C>
Purchases......................................... $1,179,765,879 $604,005,753 $552,436,450
Sales............................................. 874,988,296 127,844,694 79,801,615
Brokerage commissions............................. 4,707,780 1,791,258 1,632,755
</TABLE>

NOTE 7. AFFILIATED COMPANIES

Under Section 2(a)(3) of the Investment Company Act of 1940, a portfolio company
is defined as "affiliated" if a Fund owns five percent or more of its voting
stock. At December 31, 1997, each Fund held at least five percent of the
outstanding voting stock of the following companies:

<TABLE>
<CAPTION>
DIVIDEND
% INCOME
OUTSTANDING MARKET IN THE
SHARES OF VALUE AT YEAR ENDED
THE DECEMBER 31, DECEMBER 31,
COMPANY 1997 1997
----------- ------------ ------------
<S> <C> <C> <C>
PARTNERS FUND
Knight-Ridder, Inc. 7.7 $338,000,000 $5,187,920
Rayonier Inc. 9.9 123,431,250 3,480,000
360 DEGREES Communications Company 5.0 124,024,672 -
------------ ----------
$585,455,922 $8,667,920
============ ==========
REALTY FUND
Alexandria Real Estate Equities, Inc. 7.8% $28,166,375 $ 189,628
Bay View Capital Corp. 5.4 24,450,625 238,722
Castle & Cooke, Inc. 7.1 24,090,750 -
Deltic Timber Corporation 5.1 17,793,750 153,169
Getty Realty Corp. 9.1 27,076,575 125,622
IHOP Corp. 10.3 32,298,500 -
Prime Group Realty Trust 14.9 37,462,500 229,400
Prime Retail, Inc. 9.0 34,647,294 -
Red Roof Inns, Inc. 7.1 30,618,875 -
Sizeler Property Investors, Inc. 9.3 8,221,500 355,077
Supertel Hospitality, Inc. 11.5 5,583,460 -
TimberWest Timber Trust 8.2 41,240,157 539,037
Wellsford Real Properties, Inc. (See Note 8) 20.5 53,093,750 -
------------ ----------
$364,744,111 $1,830,655
============ ==========
</TABLE>

39
<PAGE> 81

<TABLE>
<CAPTION>
DIVIDEND
% INCOME
OUTSTANDING MARKET IN THE
SHARES OF VALUE AT YEAR ENDED
THE DECEMBER 31, DECEMBER 31,
COMPANY 1997 1997
----------- ------------ ------------
<S> <C> <C> <C>
SMALL-CAP FUND
American Safety Razor Company 7.0% $17,000,000 $ -
Bay View Capital Corp. 7.5 33,712,500 282,376
Celestial Seasonings, Inc. 5.3 6,772,500 -
Corecomm, Inc. 13.0 17,242,875 -
Deltic Timber Corporation 6.6 23,131,875 194,125
Gendis, Inc. - Class A 16.4 40,814,493 54,976
Hilb, Rogal and Hamilton Company 13.9 34,326,038 1,012,491
IHOP Corp. 5.7 17,969,250 -
Shaw Communications Inc. -- Class B 7.4 55,072,648 -
Showboat, Inc. 9.9 47,000,000 50,463
TimberWest Timber Trust 8.8 44,119,497 901,050
The Union Corporation 5.2 9,431,250 -
VICORP Restaurants, Inc. 10.8 17,192,000 -
White River Corporation 7.2 27,920,400 -
------------ ----------
$391,705,326 $2,495,481
============ ==========
</TABLE>

Realized net gains on the sales of affiliated companies were:

<TABLE>
<CAPTION>
Gain
----------
<S> <C> <C>
Partners Fund.......................... Knight-Ridder, Inc. $1,352,592
Realty Fund............................ None --
Small-Cap Fund......................... Celestial Seasonings, Inc. 307,411
Corecomm, Inc. 163,996
</TABLE>

NOTE 8. ILLIQUID SECURITIES

The Realty Fund holds 3,398,000 shares of Wellsford Real Properties, Inc.
carried at its current market value of $53,093,750 or $15.625 per share. These
shares were acquired in a private placement which closed June 2, 1997. The
securities are valued in good faith under guidelines established by the Fund
Trustees. This investment represents 7.2% of the Realty Fund at December 31,
1997.

NOTE 9. COLLATERAL

Securities with the following aggregate market value were segregated to
collateralize portfolio obligations at December 31, 1997:

<TABLE>
<CAPTION>
Market
Value of
Segregated
Obligation Assets
-------------------------------------- ------------
<S> <C> <C>
Partners Fund......................... Forward Currency Contracts $337,436,138
Realty Fund........................... Newhall-Land and Farming Company Put
Options Written 35,325,000
Small-Cap Fund........................ Forward Currency Contracts 109,507,663
</TABLE>

40
<PAGE> 82

- - --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
FINANCIAL HIGHLIGHTS

The following condensed financial information, including total returns, has been
audited by
this report and should be read in conjunction with this condensed financial
information.

<TABLE>
<CAPTION>
NET
GAINS
NET ON DISTRI-
ASSET SECURITIES TOTAL DIVIDENDS BUTIONS
VALUE NET REALIZED FROM FROM NET FROM RETURN
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT CAPITAL OF
OF PERIOD INCOME(E) UNREALIZED OPERATIONS INCOME GAINS CAPITAL
--------- ---------- ---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PARTNERS FUND
Year ended December 31,
1997...................................... $22.85 $.21 $ 6.24 $ 6.45 $ (.21) $(3.11) $ -
1996...................................... 21.15 .37 4.09 4.46 (.38) (2.38) -
1995...................................... 17.13 .30 4.40 4.70 (.24) (.44) -
1994...................................... 16.92 .21 1.30 1.51 (.16) (1.14) -
1993...................................... 14.70 .10 3.16 3.26 (.09) (.95) -
1992...................................... 13.34 .07 2.65 2.72 (.07) (1.29) -
REALTY FUND
Year ended December 31, 1997.................. 13.97 .19 3.96 4.15 (0.09) (0.64) (0.04)
January 2, 1996 (Initial Capitalization)
through December 31, 1996................. 10.00 .16 3.91 4.07 (.04) (.05) (.01)
SMALL-CAP FUND
Year ended December 31,
1997...................................... 17.86 .25 4.94 5.19 (.18) (.69) -
1996...................................... 14.46 .03 4.40 4.43 (.02) (1.01) -
1995...................................... 13.28 .12 2.35 2.47 (.12) (1.17) -
1994...................................... 13.49 (.03) .52 .49 - (.70) -
1993...................................... 11.40 (.06) 2.32 2.26 - (.17) -
1992...................................... 10.67 (.01) .74 .73 - - -
</TABLE>

* Annualized
(a) Aggregate, not annualized.
(b) Not applicable for prior periods prior to 1996.
(c) Before expense limitation fee waiver, this ratio was 1.60%.
(d) Before expense limitation fee waiver, this ratio was .82%.
(e) Calculated based on weighted average shares outstanding for the period.

41
<PAGE> 83

- - --------------------------------------------------------------------------------
LONGLEAF PARTNERS FUNDS
FINANCIAL HIGHLIGHTS

Coopers & Lybrand L.L.P. The audit report on the 1997 financial statements
appears in
The presentation is for a share outstanding throughout each period.

<TABLE>
<CAPTION>
RATIO OF
NET EXPENSES RATIO OF
ASSET NET ASSETS TO NET
TOTAL VALUE END OF AVERAGE INCOME TO PORTFOLIO AVERAGE
DISTRI- END OF TOTAL PERIOD NET AVERAGE TURNOVER COMMISSION
BUTIONS PERIOD RETURN (THOUSANDS) ASSETS NET ASSETS RATE RATE PAID(B)
------- ------ ------ ----------- -------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(3.32) $25.98 28.25%(a) $2,605,070 .94% 0.81% 38.07% $0.0514
(2.76) 22.85 21.02 2,300,079 .95 1.61 33.18 0.0750
(.68) 21.15 27.50 1,876,467 1.01 1.45 12.60
(1.30) 17.13 8.96 753,527 1.17 1.18 27.39
(1.04) 16.92 22.20 397,282 1.26 .63 19.12
(1.36) 14.70 20.47 243,678 1.29 .50 29.12

(0.77) 17.35 29.73 737,302 1.20 0.75 28.66 0.0739

(.10) 13.97 40.69 156,009 1.50(c) .92(d) 4.28 0.0613
(.87) 22.18 29.04 915,259 1.09 1.18 16.95 0.0514

(1.03) 17.86 30.64 252,157 1.23 .18 27.97 0.0605
(1.29) 14.46 18.61 135,977 1.30 .84 32.95
(.70) 13.28 3.64 99,609 1.38 (.22) 19.79
(.17) 13.49 19.83 85,087 1.45 (.45) 14.37
- 11.40 6.87 62,181 1.45 (.03) 25.80
</TABLE>

42
<PAGE> 84

INVESTMENT COUNSEL
Southeastern Asset Management, Inc.
6410 Poplar Avenue, Suite 900
Memphis, TN 38119
(901) 761-2474

TRANSFER AND DIVIDEND AGENT
National Financial Data Services
("NFDS")
P.O. Box 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

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
FUNDS TRUST(SM) LOGO)

MANAGED BY:
SOUTHEASTERN ASSET
MANAGEMENT, INC.
6410 POPLAR AVE.
SUITE 900
MEMPHIS, TN 38119
(901) 761-2474

(800) 445-9469
(LONGLEAF
PARTNERS
FUNDS(SM))

STATEMENT OF
ADDITIONAL INFORMATION
MAY 1, 1998

--------------------------------------------------------------
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS
REALTY FUND
LONGLEAF PARTNERS
SMALL-CAP FUND

--------------------------------------------------------------
MANAGED BY
SOUTHEASTERN ASSET MANAGEMENT, INC.
6410 POPLAR AVENUE; SUITE 900
MEMPHIS, TN 38119

--------------------------------------------------------------
TELEPHONE (800) 445-9469;
(901) 761-2474.
<PAGE> 85
LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 19

PART C. OTHER INFORMATION

Item 24 Financial Statement and Exhibits

(a) Financial Statements. Included in Part B of Post-Effective Amendment No.
19.

(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 - Individual Retirement Account
("IRA")(6)
(15) Plan pursuant to Rule 12b-1 - None
(16) Schedule of Performance Calculations. See pages 11 and 12 of the
Statement of Additional Information.
(17) Financial Data Schedule - filed herewith
(18) Rule 18f-3 Plan - Not applicable

____________________________________________________________
(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
(6) Incorporated by reference from Post-Effective Amendment 18

<PAGE> 86

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 19

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 series 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 March 31, 1998, there were 16,253 shareholders of the
single class of shares outstanding of Longleaf Partners Fund, 6,268
shareholders of the single class of shares outstanding of Longleaf
Partners Small-Cap Fund, and 6,233 shareholders of the single class of
shares outstanding of Longleaf Partners Realty Fund. The above accounts
are separate accounts maintained by the transfer agent, NFDS, and do not
include sub-accounts of various omnibus accounts maintained by brokerage
firms or retirement plan administrators.

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> 87

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 19

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> 88

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 19

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> 89

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 19

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> 90

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 19

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. 19 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> 91
LONGLEAF PARTNERS FUNDS TRUST
Post-Effective Amendment No. 18

<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 6410 Poplar Avenue
Suite 900; Memphis, TN 38119.

<PAGE> 92
LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 19

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, 6410 Poplar Avenue; Memphis, TN 38119. Transfer Agent records are
maintained in the possession of National Financial Data Services, Inc., 1004
Baltimore, 5th Floor, Kansas City, MO 64105.

ITEM 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) Not applicable

(c) 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> 93

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. 19 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, 1997, 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. 18 on July 3, 1997, the last
Post-Effective Amendment containing a Prospectus for the Registrant.

SIGNATURES*

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Longleaf Partners Funds Trust, a
Massachusetts business trust (the Master Trust) having three series or
portfolios, Longleaf Partners Fund (Series One), Longleaf Partners Small-Cap
Fund (Series Two), and Longleaf Partners Realty Fund (Series Three), have duly
caused this Post-Effective Amendment No. 19 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 30th day of April, 1998.

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)

By /s/ Charles D. Reaves
-------------------------------
Charles D. Reaves
Executive Vice President

<PAGE> 94

LONGLEAF PARTNERS FUNDS TRUST

Post-Effective Amendment No. 19

SIGNATURES (Continued)*

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 19 to the Registration Statement of Longleaf Partners Funds Trust
on Form N-1A has been signed below by the following persons in the capacities
and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
/s/ O. Mason Hawkins
- - --------------------------
O. Mason Hawkins Trustee; Chairman of the April 30, 1998
Board and Chief Executive
Officer

/s/ W. Reid Sanders
- - --------------------------
W. Reid Sanders Trustee and President April 30, 1998
(Chief Operating Officer)

/s/ Chadwick H. Carpenter, Jr.
- - ------------------------------
Chadwick H. Carpenter, Jr. Trustee April 30, 1998

/s/ Daniel W. Connell, Jr.
- - --------------------------
Daniel W. Connell, Jr. Trustee April 30, 1998

/s/ Steven N. Melnyk
- - --------------------------
Steven N. Melnyk Trustee April 30, 1998

/s/ C. Barham Ray
- - --------------------------
C. Barham Ray Trustee April 30, 1998
</TABLE>

(*) As of the date of this Post-Effective Amendment No. 19, 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
EXHIBIT 10

LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS SMALL-CAP FUND
LONGLEAF PARTNERS REALTY FUND

c/o Southeastern Asset Management, Inc.
6410 Poplar Avenue; Suite 900
Memphis, TN 38119

April 30, 1998

Securities and Exchange Commission and
Boards 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. 19 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 Longleaf
Partners Fund, Longleaf Partners Small-Cap Fund, and Longleaf Partners Realty
Fund, each of which is a 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. 19 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 FUND (SERIES ONE)
LONGLEAF PARTNERS SMALL-CAP FUND (SERIES TWO)
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. 19 to this
Registration Statement on Form N-1A (File No. 33-10472), of our report dated
January 30, 1998 on our audit of the financial statements and financial
highlights of Longleaf Partners Fund, Longleaf Partners Small-Cap Fund, and
Longleaf Partners Realty Fund (the three Funds comprising Longleaf Partners
Funds Trust), which report is included in the Annual Report to Shareholders for
the year ended December 31, 1997 which is included in the Post-Effective
Amendment No. 19 to the Registration Statement. We also consent to the
reference to our Firm under the headings, "Independent Certified Public
Accoutants" 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
April 30, 1998