LONGLEAF PARTNERS FUNDS TRUST, PRE 14A, 1997-03-05

LONGLEAF PARTNERS FUNDS TRUST
PRE 14A, 1997-03-05

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1997

REGISTRATION NO. 33-10472
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

SCHEDULE 14A INFORMATION

PROXY STATEMENT
PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
PRELIMINARY PROXY STATEMENT FILED BY THE REGISTRANT

LONGLEAF PARTNERS FUND (SERIES ONE)
LONGLEAF PARTNERS SMALL-CAP FUND (SERIES TWO)
(COMBINED IN ONE PROXY STATEMENT)

LONGLEAF PARTNERS REALTY FUND (SERIES THREE)
(SEPARATE PROXY STATEMENT)

LONGLEAF PARTNERS FUNDS TRUST
(Exact Name of registrant as specified in charter)
c/o Southeastern Asset Management, Inc.
6075 Poplar Avenue; Suite 900
Memphis, TN 38119
(Address of principal executive offices)

Registrant's Telephone Number, Including Area Code (901) 761-2474

CHARLES D. REAVES, ESQ.
Executive Vice President
Longleaf Partners Funds Trust
c/o Southeastern Asset Mgmt., Inc.
6075 Poplar Ave., Ste. 900
Memphis, TN 38119
(901) 761-2474

Copy to:
ALAN ROSENBLAT, ESQ.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005

(Name and address of agent for service)
================================================================================
<PAGE> 2

NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS

LONGLEAF PARTNERS FUND
AND
LONGLEAF PARTNERS SMALL-CAP FUND
SERIES OF LONGLEAF PARTNERS FUNDS TRUST

TUESDAY, MAY 13, 1997
5:30 P.M. CENTRAL DAYLIGHT TIME

MEMPHIS BOTANIC GARDEN
Hardin Hall
750 CHERRY ROAD
MEMPHIS, TENNESSEE 38117

The 1997 Annual Meeting of Shareholders of Longleaf Partners Fund (the
"Partners Fund") and Longleaf Partners Small-Cap Fund (the "Small-Cap Fund")
will be held concurrently, beginning at 5:30 p.m. on Tuesday, May 13, 1997, in
Hardin Hall at the Memphis Botanic Garden, 750 Cherry Road, Memphis, Tennessee.
The Partners Fund and the Small-Cap Fund are separate series or funds of
Longleaf Partners Funds Trust, a series Massachusetts business trust which is
registered with the Securities and Exchange Commission as an open-end management
investment company.

Shareholders of each series or Fund will consider and vote separately upon
the following proposals, which are described in the accompanying Proxy
Statement:

1. Re-election of the Board of Trustees of each Fund, composed of six
members, four of whom are independent or non-affiliated.

2. To approve or disapprove a proposal to adopt the diversification
standards of the Internal Revenue Code as fundamental investment
restrictions and thereby change the classification of the Fund under the
Investment Company Act from a "diversified" fund to a "non-diversified"
fund.

3. To approve or disapprove a proposal to revise and re-state all
investment restrictions other than the diversification requirements as
non-fundamental policies, to eliminate restrictions no longer necessary,
and to expand the Fund's investment flexibility.

4. Ratification of selection of Coopers & Lybrand, L.L.P., as the
independent certified public accountants authorized to sign or certify
financial statements to be filed with the Securities and Exchange
Commission.

To transact such other business as may properly come before the Meeting.

The Board of Trustees of each Fund has fixed the close of business on March
14, 1997 as the record date for determining shareholders eligible to vote at the
Meeting.

By Order of the Board of Trustees

/s/ O. MASON HAWKINS, CFA
--------------------------------------
O. MASON HAWKINS, CFA
Chairman of the Board and Chief
Executive Officer
March 28, 1997

Shareholders can assist the fund in assuring a quorum and avoiding the expense
of sending follow-up letters by promptly returning the enclosed proxy in the
postage paid envelope. Even if you expect to be present in person, please mark,
date, sign and return the enclosed proxy card, which is solicited by the board
of trustees of each fund. The proxy is revocable and may be revoked should you
decide to vote in person at the meeting.
<PAGE> 3

PROXY STATEMENT

LONGLEAF PARTNERS FUND
AND
LONGLEAF PARTNERS SMALL-CAP FUND
SERIES OF LONGLEAF PARTNERS FUNDS TRUST

1997 ANNUAL MEETING OF SHAREHOLDERS

5:30 P.M., CENTRAL DAYLIGHT TIME; TUESDAY, MAY 13, 1997
MEMPHIS BOTANIC GARDEN -- HARDIN HALL
750 CHERRY ROAD; MEMPHIS, TENNESSEE

The enclosed Proxy is solicited separately by the Board of Trustees of
Longleaf Partners Fund (the "Partners Fund") and the Board of Trustees of
Longleaf Partners Small-Cap Fund (the "Small-Cap Fund"), which are series or
Funds of Longleaf Partners Funds Trust, in connection with the Annual Meeting of
Shareholders ("the Meeting") to be held on Tuesday, May 13, 1997, at 5:30 p.m.
Central Daylight Time, at the location shown above.

The Annual Meetings of these Funds will be held concurrently, but
shareholders of each series will vote as separate groups on the proposals
presented. Since the issues and information with respect to all proposals are
common to both Funds, their discussion is combined in the following
presentation.

If you are a shareholder of both the Partners Fund and the Small-Cap Fund,
you must return a separate proxy card for each Fund if you intend to vote in the
Meeting of each Fund's shareholders.

Each Proxy returned in time to be voted at the Meeting will be voted, and
if a specification is made with respect to any proposal the Proxy will be voted
accordingly. If no specification is made, the Proxy will be voted in favor of
the proposals. Anyone giving a Proxy may revoke it prior to its exercise by
filing with the Fund a written notice of revocation, by delivering a duly
executed proxy bearing a later date or by attending the Meeting and voting in
person.

Shares Entitled to Vote -- Longleaf Partners Fund. At the close of
business on March 14, 1997, the record date for determination of shareholders
entitled to notice of and to vote at the Meeting, there were 100,652,843 shares
of beneficial interest outstanding, the only class of shares of capital stock.
Each share is entitled to one vote and there is no provision for cumulative
voting.

As of the record date, management was aware of the following shareholders
who beneficially owned as much as 5% of the outstanding shares of capital stock
of the Partners Fund: clients of Charles Schwab & Company, a registered
brokerage firm, owned approximately 15.4% of the outstanding shares in several
omnibus brokerage accounts.

Shares Entitled to Vote -- Longleaf Partners Small-Cap Fund. At the close
of business on March 14, 1997, the record date for determination of shareholders
entitled to notice of and to vote at the Meeting, there were 14,121,918 shares
of beneficial interest outstanding, the only class of shares of capital stock.
Each share is entitled to one vote and there is no provision for cumulative
voting.

As of the record date, management was aware of the following shareholders
who beneficially owned as much as 5% of the outstanding capital stock of
Longleaf Partners Small-Cap Fund: clients of Charles Schwab & Company, a
registered brokerage firm, owned approximately 15.8% in an omnibus brokerage
account; clients of National Financial Services Corp., a registered brokerage
firm, owned approximately
<PAGE> 4

10.1% in an omnibus brokerage account; Mr. O. Mason Hawkins, Chairman, owned
individually approximately %; Mr. W. Reid Sanders, Trustee and President,
other directors, trustees, officers and employees of Southeastern Asset
Management, Inc. and Southeastern's profit sharing plan, and members of their
immediate families owned an additional %, although no individual in this
group owned as much as 5% of the outstanding shares.

Mailing Information. This Proxy Statement is being mailed to shareholders
on or about March 28, 1997. In the event that proxies representing a majority of
the shares outstanding on the record date have not been received by the Meeting
date, a person named as proxy may propose one or more adjournments of the
Meeting for a period or periods of not more than 30 days in the aggregate to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of the holders of a majority of the shares present at the
Meeting in person or by proxy.

The Annual Report of Longleaf Partners Fund and Longleaf Partners Small-Cap
Fund for the fiscal year ended December 31, 1996, containing financial
statements examined by Coopers & Lybrand, L.L.P., certified public accountants,
was mailed to shareholders prior to March 1, 1997. The Fund will furnish,
without charge, a copy of the Annual Report to any shareholder who so requests
by calling the Fund at (800) 761-2509.

SUMMARY OF PROPOSALS

Detailed information on each proposal is included in the text of the Proxy
Statement and the following summary is subject to the more expanded discussion
of the text.

1. RE-ELECTION OF MEMBERS OF THE BOARD OF TRUSTEES.

At the 1994 Annual Meeting of Shareholders, the Funds elected a Board of
Trustees of six members, four of whom were independent of and non-affiliated
with the Funds' Investment Counsel, Southeastern Asset Management, Inc.
("Southeastern"). Mr. John R. McCarroll, Jr., one of the independent Trustees
first elected in 1987 at the inception of the Funds, was appointed by the
Governor of the State of Tennessee as a state circuit court judge on August 29,
1996, and he resigned as a member of the Board to accept that appointment. The
Board elected Mr. Daniel W. Connell, Jr., who is also an independent Trustee, as
Mr. McCarroll's successor at the meeting held on December 16, 1996. The slate of
six nominees proposed for re-election therefore includes the five remaining
Trustees elected at the most recent Annual Meeting of Shareholders, held in July
of 1994, and Mr. Connell as the successor Trustee.

Detailed information on the backgrounds of the nominees is contained on
pages 4 through 6 of the text.

2. PROPOSAL TO ADOPT THE DIVERSIFICATION STANDARDS OF THE INTERNAL REVENUE CODE
AS FUNDAMENTAL INVESTMENT RESTRICTIONS AND THEREBY CHANGE THE CLASSIFICATION
OF THE FUND FROM A "DIVERSIFIED" FUND TO A "NON-DIVERSIFIED" FUND UNDER THE
INVESTMENT COMPANY ACT OF 1940.

As an integral part of its investment philosophy, Southeastern may conclude
that investing more than 5% of the Fund's assets in several companies which it
believes to be significantly undervalued could increase potential investment
returns. By changing to a "non-diversified" fund under the Investment Company
Act and simultaneously adopting the diversification standards of the Internal
Revenue Code as fundamental investment restrictions, the Fund would continue to
be diversified with respect to 50% of its total assets (compared with 75% at
present as a diversified fund). However, the Fund could be non-diversified with

2
<PAGE> 5

respect to the remaining 50% of its total assets (compared with 25% at present).
Thus, the net effect of the proposed change would be a reduction of the
diversified percentage of total assets from 75% to 50% and an increase in the
non-diversified percentage from 25% to 50% of total assets -- a net change of
25%.

The specific amendments to be made in investment policy and restrictions
and their effects and investment risks are discussed in more detail on pages 8
through 10 of the text.

3. PROPOSAL TO REVISE AND RE-STATE ALL INVESTMENT RESTRICTIONS OTHER THAN THE
DIVERSIFICATION REQUIREMENTS AS NON-FUNDAMENTAL POLICIES, TO ELIMINATE
RESTRICTIONS NO LONGER NECESSARY, AND TO AUTHORIZE THE USE OF ADDITIONAL
INVESTMENT TECHNIQUES.

When Longleaf Partners Funds Trust was originally formed in 1986, certain
investment restrictions then required by various states and the Securities and
Exchange Commission ("SEC") were adopted as fundamental investment policies.
Some of the state policies pre-dated an evolving modernization of the securities
markets, and are now unduly restrictive. Under the National Securities Markets
Improvements Act of 1996, Congress pre-empted the authority of states to impose
investment restrictions on investment companies having registration statements
with the SEC. In addition, the SEC has eased certain of its own investment
restrictions, which the Funds had also adopted as fundamental policies.

Because of the continually evolving regulatory changes in investment
restrictions, the Board proposes that the Funds' fundamental investment
restrictions be revised and re-stated so as to include as fundamental
restrictions (restrictions which cannot be changed without shareholder approval)
only those related to diversification requirements. All others will be revised
to eliminate restrictions which are no longer required in their present form,
and to expand the Fund's investment flexibility. The predominate purpose of this
proposal is to enable Southeastern to reduce investment risk, manage foreign
currency exposure, allow for the ability to hedge the portfolio, and to manage
potential income tax liabilities. As re-stated, these investment restrictions
would be non-fundamental investment restrictions which would not require
shareholder approval for future amendment should such be desirable or necessary
to respond to further changes in the securities markets or their regulation.

The specific revisions and changes in fundamental investment restrictions
and their resulting effects and risks are discussed on pages 10 through 17 of
the text.

4. RATIFICATION OF THE SELECTION OF COOPERS & LYBRAND, L.L.P. AS THE FUNDS'
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.

Coopers & Lybrand, L.L.P. has served as the independent certified public
accountants for all of the Funds since their initial formation, and the Board of
Trustees of each Fund has again selected the firm to serve in that capacity for
the 1997 fiscal year. Ratification of this selection is presented to
shareholders as a routine issue. More information is set forth in the text on
page 18.

3
<PAGE> 6

PROPOSAL 1.

ELECTION OF THE BOARD OF TRUSTEES

Authority of the Board of Trustees. Longleaf Partners Fund and Longleaf
Partners Small-Cap Fund each elects a separate Board of Trustees, composed of
six members, which acts only on matters affecting that particular Fund. Each
Board of Trustees has the continuing oversight responsibility for that
particular Fund, which includes review of all issues required by the Investment
Company Act of 1940. The Board of Trustees of each Fund would, as a separate
board, consider matters which might affect the Master Trust as a whole, such as
the creation of additional series or matters involving amendment of the
Declaration of Trust and other issues which arise outside of the requirements of
the Investment Company Act of 1940. The Trustees conduct concurrent meetings of
their Boards.

Composition of the Boards of Trustees. Under the Investment Company Act of
1940, which governs mutual fund operations, an "interested" Trustee is a person
having an interest in or an affiliation with the investment advisor, any
underwriter or securities broker, or a servicing agent such as a fund
administrator. Funds having no principal underwriter or affiliated brokers, such
as the Partners Fund and the Small-Cap Fund, may have 60% of their directors or
Trustees classified as "interested" Trustees. Management believes, however, that
having a majority of the membership of each Board composed of independent or non
"interested" Trustees constitutes good corporate governance and eliminates
actual or perceived conflicts of interest.

If all of the nominees listed in the following table should be re-elected,
the membership of each of the Boards of Trustees will be identical, consisting
of the same six individuals, four of whom will be Trustees who are independent
of and not affiliated with Southeastern Asset Management, Inc. and who otherwise
qualify as "non-interested" Trustees as defined by the provisions of Sec.
2(a)(19) of the Investment Company Act of 1940. All of these nominees have
indicated a willingness to serve as Trustees until the next annual or special in
lieu of annual meeting of shareholders if so elected.

NOMINEES FOR BOARD OF TRUSTEES
LONGLEAF PARTNERS FUND
LONGLEAF PARTNERS SMALL-CAP FUND

<TABLE>
<CAPTION>
NOMINEES (AGE)
POSITION WITH FUND
AND YEAR FIRST ELECTED SHARES OWNED ON
AS TRUSTEE RECENT BUSINESS EXPERIENCE MARCH 14, 1997
---------------------- -------------------------- ---------------
<S> <C> <C>
O. Mason Hawkins, CFA (49)* Southeastern Asset Management, Inc. since its Partners Fund
Chairman of the Board of founding in 1975; presently Chairman and
Trustees and Chief C.E.O.; previously employed as Director of Small-Cap
Executive Officer; Research, First Tennessee Investment Fund
Trustee, Management Company, Memphis, Tennessee,
Partners Fund, since 1987 1974-75; Director of Research, Atlantic
Small-Cap Fund, since 1988 National Bank, Jacksonville, Florida,
1972-74. Received B.S. B.A. degree in
Finance (1970), University of Florida;
M.B.A. degree (1971), University of Georgia.
Director, Mid-America Apartment Communities,
Inc.
</TABLE>

4
<PAGE> 7
<TABLE>
<CAPTION>
NOMINEES (AGE)
POSITION WITH FUND
AND YEAR FIRST ELECTED SHARES OWNED ON
AS TRUSTEE RECENT BUSINESS EXPERIENCE MARCH 14, 1997
---------------------- -------------------------- ---------------
<S> <C> <C>
W. Reid Sanders (47)* Southeastern Asset Management, Inc. since its Partners Fund
Trustee and President; founding in 1975; presently Executive Vice
Trustee, President and a director; previously Small-Cap
Partners Fund, since 1987 employed as Investment Officer, First Fund
Small-Cap Fund, since 1988 Tennessee Investment Management Company,
Memphis, Tennessee, 1973-75; credit analyst
and commercial lending official, Union
Planters National Bank, Memphis, Tennessee,
1972-73. Received B.A. degree in Economics
(1971), University of Virginia.
Chadwick H. Carpenter, Jr. Since 1993, Senior Executive Officer in charge Partners Fund
(46) of corporate development, Progress Software
Trustee, Corporation, Bedford, Massachusetts, (a Small-Cap
Partners Fund, since 1993 corporation engaged in the development and Fund
Small-Cap Fund, since 1993 marketing of software products used by
developers to build and deploy commercial
applications); previously, Senior Vice
President, Sales and Services, 1986 to 1993;
Vice President-Product Services, 1983-1986;
previously manager of MIMS Systems Operation
of General Electric Information Services
Company; Senior Consultant for Touche Ross &
Company. Received B.S. degree (1971) and
M.S. degree (1972) in Electrical
Engineering, Massachusetts Institute of
Technology.
Daniel W. Connell, Jr. (48) Since 1994, Senior Vice
Trustee, President -- Marketing, Jacksonville
Partners Fund, since 1997 Jaguars, Ltd., Jacksonville, Florida
Small-Cap Fund, since 1997 (National Football League franchise);
Previously 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. Received B.S.B.A., (1970)
University of Florida.
</TABLE>

5
<PAGE> 8
<TABLE>
<CAPTION>
NOMINEES (AGE)
POSITION WITH FUND
AND YEAR FIRST ELECTED SHARES OWNED ON
AS TRUSTEE RECENT BUSINESS EXPERIENCE MARCH 14, 1997
---------------------- -------------------------- ---------------
<S> <C> <C>
Steven N. Melnyk (49) Chairman of the Executive Committee and Partners Fund
Trustee, President, Riverside Golf Group, Inc.,
Partners Fund, since 1991 Jacksonville, Florida (a company engaged in Small-Cap Fund
Small-Cap Fund, since 1991 the design, construction, and operation
through ownership of golf courses), 1987 to
present; golf commentator and sports
marketing executive, CBS Sports (1982-91)
and ABC Sports (since 1991); 1969 U.S.
Amateur Golf Champion; 1971 British Amateur
Golf Champion; Director and a founder of
First Coast Community Bank, Fernandina
Beach, Florida. Received B.S.B.A. degree in
Industrial Management (1969), University of
Florida.
C. Barham Ray (50) Chairman of the Board and Secretary, SSM Partners Fund
Trustee, Corp., Memphis, Tennessee (a corporation
Partners Fund, since 1992 which serves as a financial advisor in the Small-Cap
Small-Cap Fund, since 1992 evaluation of private businesses, in the Fund
negotiation and structuring of purchase and
sale transactions of private businesses and
as a venture capital investor), 1974 to the
present; Director of Financial Federal
Savings Bank, Memphis, Tennessee. Received
B.A. degree (1968), Vanderbilt University;
M.B.A. degree (1973), University of
Virginia.
</TABLE>

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

* Trustees who are considered "interested persons" of the Fund within the
meaning of the Investment Company Act of 1940, as amended, on the basis of
their affiliation with Southeastern Asset Management, Inc., the Investment
Counsel.

OTHER INFORMATION CONCERNING THE BOARD OF TRUSTEES

The Board of Trustees held four regular quarterly meetings and one special
telephone conference call Board meeting during 1996. All members attended all
regular meetings, and all participated in the meeting held by telephone
conference call.

The Board has established an Audit Committee, with Mr. Carpenter serving as
Chairman. The Audit Committee, composed of all independent or "non-interested"
Trustees, reviews the audit plan and results of audits, and monitors the
performance of the independent certified public accountants. The Committee met
with representatives of the accounting firm in formal meetings on March 1, 1996,
and March 5, 1997, after completion of the audits for the preceding fiscal
years. The Board has not established a nominating committee and the entire Board
considers nominees for members of the Board.

The independent or non-affiliated members of the Board of Trustees invest
at least their full Trustees' fees in shares of the mutual funds. The schedule
of Trustees fees paid during 1996 by each Series to each non-interested Trustee
is as follows: Longleaf Partners Fund -- $15,000 per annum; Longleaf Partners
Small-Cap Fund -- $7,500 per annum; Longleaf Partners Realty Fund -- $5,000 per
annum. The following table shows the aggregate compensation received from all of
the Longleaf Funds during 1996 by the Trustees presently standing for election:

6
<PAGE> 9

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

<TABLE>
<CAPTION>
TOTAL
NAME OF PERSON; AGGREGATE COMPENSATION
POSITION COMPENSATION FROM
ADDRESS FROM FUNDS FUNDS**
--------------- ------------ ------------
<S> <C> <C>
O. Mason Hawkins*
Chairman of the Board and CEO............................. None None
Chadwick H. Carpenter, Jr.
Trustee
Progress Software Corp.
14 Oak Park
Bedford, MA 01730......................................... $27,500 $27,500
Steven N. Melnyk
Trustee
111 Riverside Ave.
Ste. 330
Jacksonville, FL 32202.................................... $27,500 $27,500
C. Barham Ray
Trustee
785 Crossover Lane
Ste. 218
Memphis, TN 38117......................................... $27,500 $27,500
W. Reid Sanders*
Trustee and President..................................... None None
</TABLE>

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

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

Mr. John R. McCarroll, Jr., who resigned as a Trustee on August 29, 1996,
received aggregate Trustees fees of $18,234 through the date of his resignation.
Mr. Daniel W. Connell, Jr. became a Trustee effective January 1, 1997, and
accordingly did not receive any compensation during 1996.

A listing of the executive officers of the Funds is set forth on pages 18
and 19 of the text.
- --------------------------------------------------------------------------------

7
<PAGE> 10

Each member of the Board of Trustees is to be elected by plurality vote,
provided a quorum, consisting of a majority of issued and outstanding shares, is
present at the Meeting in person or by proxy.

THE BOARD OF TRUSTEES OF EACH FUND RECOMMENDS THAT THE NOMINEES NAMED ABOVE
BE ELECTED TO SERVE AS TRUSTEES UNTIL THE NEXT ANNUAL OR SPECIAL IN LIEU OF
ANNUAL MEETING OF SHAREHOLDERS OR UNTIL A SUCCESSOR HAS BEEN DULY QUALIFIED.

PROPOSAL 2

APPROVAL OR DISAPPROVAL OF A PROPOSAL TO ADOPT THE
DIVERSIFICATION STANDARDS OF THE INTERNAL REVENUE CODE AS
FUNDAMENTAL INVESTMENT RESTRICTIONS AND THEREBY CHANGE THE FUND'S
CLASSIFICATION FROM A "DIVERSIFIED" FUND TO A "NON-DIVERSIFIED" FUND
UNDER THE INVESTMENT COMPANY ACT OF 1940.

Both Longleaf Partners Fund and Longleaf Partners Small-Cap Fund were
originally formed as "diversified" investment companies, as that term is defined
by Section 5(b)(1) of the Investment Company Act of 1940 (the "Investment
Company Act"). Any mutual fund which is not diversified under the requirements
of Section 5(b)(1) is classified as a "non-diversified" fund even though it
follows other diversification standards such as the Internal Revenue Code
diversification rules.

The Funds adopted three specific fundamental investment restrictions,
derived from the language of the Investment Company Act, to establish their
status as diversified funds. Contained in the Prospectus, the first controls the
percentage of total assets which may be invested in a single company, the second
controls how much of a company's voting stock may be acquired, and the third
states that not more than 25% of the Fund's total assets may be invested in a
single industry. Under this proposal, the first and second restrictions would be
amended, but the third restriction would continue in its present form as a
fundamental investment restriction.

Percentage of Assets Restriction. The first restriction, set forth as
Restriction No. 1 in the Fund's Prospectus, states that the Fund may not:

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

To comply with this restriction, the Fund must be diversified with respect
to 75% of its assets. In this 75% diversified "basket", the Fund may not invest
more than 5% of its assets in a single company. However, with respect to the
remaining 25% of total assets, the Fund is presently allowed to be
non-diversified. In this 25% non-diversified "basket", the Fund may invest more
than 5% of its assets in one or more companies as long as the aggregate cost of
these investments does not exceed 25% of assets.

Applying this rule, the minimum number of companies in which the Fund could
now invest would be 16. There could be 15 companies at a maximum of 5% of total
assets each in the 75% diversified basket and one company at 25% of total assets
in the 25% non-diversified basket. Although, Southeastern is not likely to
invest 25% of assets in a single company, the ability to place several companies
in the non-diversified basket at more than 5% of total assets is severely
limited. For example, the Fund could not invest 8% of its assets in

8
<PAGE> 11

more than 3 companies and could not invest 10% of its assets in more than 2
companies, and it is this type of diversification limitation for which relief is
now being sought.

Adoption of Internal Revenue Code Diversification Standards. Management
intends to continue to qualify for favorable tax treatment available to mutual
funds under Sub-Chapter M of the Internal Revenue Code of 1986, which relieves
funds from Federal income taxation if certain tests are satisfied and
substantially all net investment income and realized capital gains are
distributed to shareholders each year. In order for a non-diversified fund to
qualify for this favorable tax treatment it must satisfy specific
diversification requirements of the Internal Revenue Code. These requirements
are less restrictive than those applied to diversified funds under the
Investment Company Act, but nevertheless continue to place precise and clearly
stated limits on a fund's diversification.

Under the Internal Revenue Code diversification requirements, found in
Sections 851(b)(4)(A) and (b)(4)(B) of the Code, 50% of a fund's assets must be
diversified (as contrasted with 75% for diversified funds under the Investment
Company Act). In this "diversified basket", no portfolio positions may exceed 5%
of total assets. In the remaining 50% of assets (as contrasted with 25% under
the Investment Company Act), investments in particular positions may exceed 5%
of total assets, but a single position cannot exceed 25% of total assets.

Applying the Internal Revenue Code diversification rules, a fund must hold
at least 12 different portfolio investments, as compared with 16 under the
Investment Company Act. Thus, in the 50% "diversified basket", the Fund would be
required to hold at least 10 companies, each at not more than 5% of total assets
when purchased. In the 50% "non-diversified" basket, the Fund must hold at least
2 companies, which would have comprised not more than 25% of total assets each
when acquired. It is anticipated, however, that Southeastern will usually
recommend investing in at least 5 to 8 companies in this non-diversified basket.

Restriction on Percentage of Voting Stock of a Portfolio Company. The
second defining restriction on diversification relates to limits on the
percentage of a company's voting stock which may be acquired. This restriction,
set forth as Restriction No. 2 in the Prospectus, states that the Fund may not:

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

To comply with this restriction, which is also a part of the definition of
"diversified", the Fund in its 75% "diversified basket" may not acquire more
than 10% of the voting stock of a portfolio company. However, in its 25%
"non-diversified basket", the Fund may acquire more than 10% of the voting stock
of portfolio companies so long as the cost of the investments in all companies
in which the Fund owns more than 10% of the voting stock does not exceed 25% of
total Fund assets.

Under the restriction found in the Internal Revenue Code, there are also
stated limits on the percentage of a company's voting stock which may be
purchased. In the 50% "diversified" basket (compared with 75% at present), the
Fund will not be able to acquire more than 10% of a company's voting stock. In
the 50% "non-diversified" basket, the Fund may acquire interests which exceed
10% of the company's voting stock, but it may not invest more than 25% of its
total assets in any one company or related companies.

Reason For Reclassification. As a key element in its investment
philosophy, Southeastern invests in a limited number of companies believed to be
undervalued and to have unrecognized intrinsic value. Over time, the number of
portfolio positions held by the Partners Fund and the Small-Cap Fund has
generally not exceeded 35, and has usually been less than 30.

9
<PAGE> 12

As part of this philosophy, Southeastern may conclude that investing more
than 5% of the Fund's total assets in several companies which it believes to be
unusually undervalued is desirable and is in the best interests of shareholders.
Investing a larger percentage of assets in companies believed to be
significantly undervalued has the potential of generating substantially greater
absolute and relative investment returns for the portfolio as a whole over time
if Southeastern's valuations prove to be accurate. The corresponding risk of
investing greater portions of assets in particular companies is the possibility
of magnified losses in the event of a substantial decline in the market prices
of the particular companies comprising more than 5% of assets. However, there
would continue to be clearly stated limits on the Fund's ability to be
non-diversified. The net effect of the proposed change is therefore to enable
the Fund to be non-diversified with respect to an additional 25% of its total
assets, increasing this authority from 25% of total assets at present to 50%.

Proposed Amendments. Both Funds would be re-classified as
"non-diversified" investment companies under Section 5(b)(2) of the Investment
Company Act, and Fundamental Investment Restrictions 1 and 2, set forth above
and in the Funds' Prospectus, would be replaced by fundamental investment
restrictions derived from Sections 851(b)(4)(A) and 851(b)(4)(B) of the Internal
Revenue Code of 1986.

Under Proposal 2, these two fundamental investment restrictions would be
restated as a single restriction, which would then read 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."

Minimum Vote Required. Amending a fundamental investment restriction or
changing a fund's classification from diversified to non-diversified requires
shareholder approval. Under the requirements of the Investment Company Act, the
vote necessary for approval of Proposal 2 is the affirmative vote of a majority
of the outstanding securities, which is defined as the affirmative vote of the
lesser of (1) more than 50% of the outstanding shares or (2) 67% of the shares
voting if more than 50% of the outstanding shares are represented at the meeting
in person or by proxy.

THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" PROPOSAL
2 -- TO ADOPT THE DIVERSIFICATION STANDARDS OF THE INTERNAL REVENUE CODE AS
FUNDAMENTAL INVESTMENT RESTRICTIONS AND THEREBY CHANGE THE CLASSIFICATION OF THE
FUND FROM A "DIVERSIFIED" FUND TO A "NON-DIVERSIFIED" FUND UNDER THE INVESTMENT
COMPANY ACT OF 1940.

10
<PAGE> 13

PROPOSAL 3

APPROVAL OR DISAPPROVAL OF A PROPOSAL TO REVISE AND RE-STATE ALL INVESTMENT
RESTRICTIONS OTHER THAN THE DIVERSIFICATION REQUIREMENTS AS NON-FUNDAMENTAL
POLICIES, TO ELIMINATE RESTRICTIONS NO LONGER NECESSARY, AND TO EXPAND THE
FUND'S INVESTMENT FLEXIBILITY.

INTRODUCTION

At the time of their inception, Longleaf Partners Fund (formed in 1986) and
Longleaf Partners Small-Cap Fund (formed in 1988) adopted a series of
fundamental investment restrictions. Most of these restrictions were then
required by the various states in which the Funds' shares were to be sold. Some
of the state restrictions had been in effect since at least the 1960's, and
pre-dated the evolving modernization of the securities markets. Over the period
from the late 1960's to the early 1990's, some state securities restrictions
were modified or repealed. For example, the requirement that no investment could
exceed 5% of assets and the requirement that operating expenses were limited to
1.5% of net assets were repealed. Despite these and other state reforms, the
state regulatory pattern continued to impose a variety of restrictions on mutual
funds, some of which were out of step with changes in the securities markets.

In October of 1996, the National Securities Markets Improvements Act of
1996 became effective. The Act grew out of a Congressional examination of a need
for legislation to modernize and rationalize the nation's securities regulatory
system. Congress realized that the system of dual Federal and state securities
regulation had resulted in duplicative and unnecessary regulation. As a result,
among other reforms, Congress pre-empted the authority of states to impose
investment restrictions on investment companies having registered with the SEC
under the Investment Company Act, and having effective registration statements
under the Securities Act of 1933. As a result of this recent legislation, the
Longleaf Partners Funds may now amend or modify many of the various investment
restrictions imposed in past years by the states, to the extent that similar
limits are not also required by rules or regulations of the Securities and
Exchange Commission.

The first element in the proposed changes in investment restrictions is to
convert all investment restrictions (other than those related to diversification
requirements) to non-fundamental restrictions. Amendment or modification of
fundamental investment restrictions requires shareholder approval. However, the
Board of Trustees may amend or eliminate non-fundamental investment
restrictions. Because of the continually evolving regulatory changes in
investment restrictions, the Board, proposes that the Fund's fundamental
investment restrictions (other than those related to diversification) be revised
and re-stated so as to be non-fundamental policies. Should there be further
changes in Securities and Exchange Commission regulations or should management
conclude that other modifications in these restrictions would be beneficial, the
Fund would not need to incur the expenses of holding a formal meeting of
shareholders to implement appropriate modification. Instead, the Board of
Trustees, after due deliberation, could adopt the necessary or desirable
amendments.

The second element of the proposed change in investment restrictions is to
expand the Fund's investment flexibility. The predominate purpose of this
proposal is to enable Southeastern to reduce investment risk, manage foreign
currency exposure, allow for the ability to hedge the portfolio, and to manage
potential income tax liabilities. When Southeastern's first Fund was organized
in 1986, its investment restrictions were adopted because of the requirements of
various states. To the extent that these restrictions

11
<PAGE> 14

are no longer necessary in their present form, revising or re-stating them as
non-fundamental restrictions within the context of current market developments
will provide the Fund with greater investment flexibility.

DISCUSSION OF FUNDAMENTAL INVESTMENT RESTRICTIONS
AND PROPOSED AMENDMENTS

Southeastern Asset Management, Inc. as Investment Counsel to the Fund and
the Board of Trustees of the Fund are therefore proposing a series of
significant, non-fundamental investment restrictions which will continue to
provide a reasonable investment limitation structure for the Fund while
simultaneously providing expanded investment flexibility in a manner commonly
used by other investment companies having long-term capital growth as an
investment objective.

If this additional investment flexibility is conservatively used, as is
Southeastern's intention, investment risks can be managed more efficiently and
can be reduced. For example, Southeastern will have the investment flexibility
on behalf of the Fund to lower risk by hedging the Fund's foreign currency
exposure, to manage tax liabilities by using puts and calls, or to effectively
build a position in a desired security by writing puts if immediate purchase is
not possible. Although this added flexibility could be used speculatively,
Southeastern anticipates that it will be used primarily to hedge against
possible investment risks in situations where the effect would be to protect or
improve long-term investment returns.

Under Proposal 3, the following fundamental investment restrictions
presently applicable to Longleaf Partners Fund and Longleaf Partners Small-Cap
Fund would be amended and converted to non-fundamental objectives, as separately
described in the following discussion.

LIMITATION ON INVESTING IN NEWLY FORMED COMPANIES.

The Fund may not:

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

This restriction, which appears as Restriction No. 4 in the Prospectus, was
a relatively common requirement in several states. Because this restriction is
no longer necessary, it will be deleted.

LIMITATION ON BORROWING OR LEVERAGING.

The Fund may not:

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

12
<PAGE> 15

Under this restriction, which appears as Restriction No. 1 in the Statement
of Additional Information ("SAI"), the Fund may borrow only for temporary or
emergency purposes to clear portfolio transactions or to satisfy redemptions,
but borrowing may not exceed 15% of total assets. Southeastern believes that the
conservative use of borrowing for investment purposes as well as to satisfy
short-term cash needs such as clearing portfolio trades and processing
redemptions will increase the Fund's investment flexibility and Southeastern's
ability to manage investment risk and potential tax liability. The practice of
borrowing is subject to specific SEC rules and regulations with respect to
minimum coverage of 300% and other aspects of the transaction. The Board
therefore proposes that the fundamental restriction limiting borrowing to a
maximum of 15% of total assets be replaced by the following non-fundamental
restriction allowing borrowing up to 30% of total assets for investment purposes
as well as for clearance of portfolio and redemption transactions:

The Fund may not:

"Borrow money, except that it may borrow for
investment purposes and for temporary or emergency
purposes in an amount not to exceed 30% of total assets in
the manner authorized by the Investment Company Act of
1940."

PLEDGING LIMITED TO 15% OF ASSETS.

The Fund may not:

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

This restriction, No. 2 in the SAI, is related to the present restriction
on borrowing, which may not exceed 15% of total assets. It will be eliminated as
a fundamental policy and replaced with the following non-fundamental restriction
allowing pledging of assets up to the amount necessary for permitted borrowings.

The Fund may not:

"Pledge, mortgage or hypothecate its assets
except in connection with permitted borrowings."

PURCHASE OF SECURITIES OF OTHER INVESTMENT COMPANIES.

The Fund may not:

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

This restriction, No. 3 in the S.A.I., regulates investments in other
investment companies. This practice is governed by Sec. 12(d)(1) of the
Investment Company Act of 1940, and related rules, which limits such investments
to a maximum of 5% of the Fund's total assets. The Fund has always invested
directly in the securities markets and has never invested in other investment
companies. However, to preserve the ability to

13
<PAGE> 16

invest in money market funds or other types of investment companies to the
extent allowed by the SEC, this restriction will be re-classified as
non-fundamental, and will then read as follows:

The Fund may not:

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

UNDERWRITING OF SECURITIES OF OTHER ISSUERS AND LIMITATION ON PURCHASES OF
RESTRICTED SECURITIES.

The Fund may not:

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

This restriction, No. 4 in the SAI, covers two subjects, and will be split
into two sections.

(i). The restriction against underwriting, governed by specific SEC rules,
will be restated as a non-fundamental restriction, as follows:

The Fund may not:

"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 its own
portfolio securities."

(ii). The Fund's present limitation on investing in restricted
(non-registered) securities and illiquid securities is 10% of total assets,
the maximum limit allowed by the SEC at the time of the Fund's formation.
The SEC has subsequently increased that percentage to 15%, and has excluded
securities eligible for resale under Rule 144A, a rule made effective after
the Funds were organized. Accordingly, the restriction applicable to
restricted and illiquid securities will be restated as a non-fundamental
policy, as follows:

The Fund 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.)"

14
<PAGE> 17

PROHIBITION AGAINST INVESTMENTS IN REAL ESTATE.

The Fund may not:

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

This restriction, number 5 in the SAI, will be amended to allow the holding
and sale of real estate acquired through a distribution from a company which was
an authorized investment, and will be restated as a non-fundamental policy, as
follows:

The Fund may not:

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

RESTRICTION ON INVESTING IN COMMODITIES OR COMMODITIES FUTURES CONTRACTS.

The Fund may not:

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

This restriction, number 6 in the SAI, will be expanded to allow the
investment in financial futures contracts, options on such contracts, and other
similar instruments, including forward foreign currency contracts, to be used on
a limited basis primarily for hedging, and will be re-stated as a
non-fundamental policy, as follows:

The Fund may not:

"Purchase or sell commodities or commodity futures
contracts except that the Fund may invest in financial
futures contracts, options thereon, forward foreign
currency contracts, and similar instruments."

PROHIBITION AGAINST SHORT SALES AND WRITING PURCHASE PUTS AND CALLS.

The Fund may not:

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

This restriction, number 7 in the SAI, covers two subjects, and will be
split into two restrictions.

(i). The absolute prohibition against short sales will be eliminated,
and the following non-fundamental restriction allowing short sales subject
to specific limits will be adopted:

15
<PAGE> 18

The Fund may not:

"Make short sales whereby the dollar amount of short
sales at any one time would exceed 25% of the net assets
of the Fund, and the value of securities of any one issuer
in which the Fund is short would exceed the lesser of 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."

(ii). The absolute prohibition against writing purchase puts and calls
will be eliminated, and the following non-fundamental policy allowing
within specified limits both the purchase of and the writing (sale) of
puts, calls, straddles, and combinations thereof, to be used on a limited
basis primarily for hedging, will be adopted:

The Fund may not:

"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."

PROHIBITION AGAINST LOANS, EXCEPT FOR LENDING PORTFOLIO SECURITIES AND
PURCHASING PUBLIC DEBT INSTRUMENTS.

The Fund may not:

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

This restriction, number 8 in the SAI, will be re-stated as a
non-fundamental restriction to allow lending of portfolio securities up to
one-third of assets, and the purchase of any type of debt securities, as
follows:

The Fund may not:

"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 except to the extent that the
purchase of debt obligations of any type are considered to
be loans."

16
<PAGE> 19

PROHIBITION AGAINST MARGIN PURCHASES.

The Fund may not:

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

Mutual funds are not presently allowed to purchase securities on margin,
and this restriction, number 9 in the SAI, will be continued as a
non-fundamental restriction. However, it will modified to provide that the
deposit or payment of initial variation margin in connection with futures
contracts or related options is permissible, and will then read as follows:

The Fund may not:

"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."

PROHIBITION AGAINST ISSUING SENIOR SECURITIES.

The Fund may not:

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

The concept of senior securities under the Investment Company Act is highly
technical, and is regulated in detail by SEC rules and no-action letters. This
restriction, number 10 in the SAI, will be re-stated as a non-fundamental
restriction to enable the Fund to enter into a variety of securities
transactions permissible under SEC rules and allowed as the result of the
previous amendments to the fundamental restrictions. The new, non-fundamental
restriction will then read as follows:

The Fund may not:

"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."

Minimum Vote Required. Amending a fundamental investment restriction
requires shareholder approval. Under the requirements of the Investment Company
Act, the vote necessary for approval of Proposal 3 is the affirmative vote of a
majority of the outstanding securities, which is defined as the affirmative vote
of the lesser of (1) more than 50% of the outstanding shares or (2) 67% of the
shares voting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.

THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" PROPOSAL
3 -- TO REVISE AND RE-STATE ALL INVESTMENT RESTRICTIONS OTHER THAN THE
DIVERSIFICATION REQUIREMENTS AS NON-FUNDAMENTAL POLICIES, TO ELIMINATE
RESTRICTIONS NO LONGER NECESSARY, AND TO AUTHORIZE THE USE OF ADDITIONAL
INVESTMENT TECHNIQUES.

17
<PAGE> 20

PROPOSAL 4.

RATIFICATION OF SELECTION OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

The financial statements of Longleaf Partners Fund and Longleaf Partners
Small-Cap Fund have been examined at the close of each fiscal year since
inception by Coopers & Lybrand, L.L.P. independent certified public accountants.
In addition, the firm reviews each Fund's federal and state income tax returns.

The Board of Trustees has selected Coopers & Lybrand, L.L.P. as independent
certified public accountants for the current fiscal year ending December 31,
1997, and will thereafter consider the firm for service in this capacity in
future fiscal years. Coopers & Lybrand, L.L.P. is a large, international public
accounting firm and serves numerous other management investment companies and
investment company groups. The firm has informed the Board of Trustees that it
has no material direct or indirect financial interest in either fund. A
representative of the firm is expected to be present at the Annual Meeting to
respond to questions.

The selection of the independent certified public accountants is to be
ratified or rejected by plurality vote, provided a quorum, consisting of a
majority of issued and outstanding shares, is present at the meeting in person
or by proxy.

THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION
OF THE SELECTION OF COOPERS & LYBRAND, L.L.P. AS THE INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS FOR EACH FUND FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.

OTHER INFORMATION ON INVESTMENT COMPANY OPERATIONS

EXECUTIVE OFFICERS OF THE INVESTMENT COMPANIES

In addition to Mr. Hawkins, Chairman of the Board and Chief Executive
Officer, and Mr. Sanders, a Trustee and President, both nominees for election as
Trustees, the following are the executive officers of Longleaf Partners Fund and
Longleaf Partners Small-Cap Fund. The first three officers listed are primarily
involved with the operations of the Funds, while the others devote a substantial
portion of their time to matters involving the private accounts managed by
Southeastern Asset Management, Inc.

CHARLES D. REAVES, Executive Vice President.

Professional Experience: General Counsel, Southeastern Asset
Management, Inc. (since 1988); Vice President in corporate finance, Porter,
White & Yardley, Inc. Birmingham, AL (1986-1988); Senior Vice
President -- Finance and Secretary (1981-1986) and Vice President and
General Counsel (1974-1981), Saunders System Inc., Birmingham, AL.

Education: J.D., University of Alabama, 1961; LL.M (Taxation),
Georgetown University Law Center, 1966; M.B.A., Emory University, 1981.

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

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

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

18
<PAGE> 21

LEE B. HARPER, Executive Vice President -- Marketing.

Professional Experience: Southeastern Asset Management, Inc. (since
1993); Consultant, IBM Corporation, Memphis, TN (1989-1993); Business
Analyst, McKinsey & Company, Atlanta, GA (1985-1987).

Education: B.A., University of Virginia, 1985; M.B.A., Harvard
University, 1989.

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

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

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

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

Professional Experience: Vice President, Southeastern Asset
Management, Inc. (since 1984); Portfolio Manager and Analyst, Montag &
Caldwell, Atlanta, GA (1974-1984); Investment Officer, Atlantic National
Bank, Jacksonville, FL (1972-1974).

Education: B.S., Management, Georgia Institute of Technology, 1964;
Graduate study, Emory University, 1965; M.B.A., Marketing, University of
Florida, 1970.

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

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

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

RANDY D. HOLT, CPA, Vice President, Secretary.

Professional Experience: Vice President and Secretary, Southeastern
Asset Management, Inc. (since 1994); Secretary/Treasurer (1985-1994); Ott,
Baxter, Holt (1983-1985); A.M. Pullen & Co. (1982-1983); Harry M. Jay &
Associates (1978-1982).

Education: B.S., Accounting, University of Tennessee, 1976.

EXPENSES OF ANNUAL MEETING

Costs and expenses of preparing, printing, assembling and mailing materials
in connection with the solicitation of proxies of each Fund will be paid by that
particular Fund. In addition to the use of the mails, certain Trustees or
officers of the Fund or of the Investment Counsel may solicit proxies by
telephone or in person, but no special payment will be made to these persons for
such services. The Fund would pay the expenses of any outside proxy
solicitation.

Neither the persons named in the enclosed Proxy nor members of the Board of
Trustees are aware of any matters that will be presented for action at the
meeting other than matters set forth herein. Should any other matters requiring
a vote of shareholders properly arise, the proxy in the accompanying form will
confer upon the persons entitled to vote the shares represented by such proxy
discretionary authority to vote the shares in accordance with their best
judgement in the interests of the Fund.

19
<PAGE> 22

ALL SHAREHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THE PROXY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.

By order of the Board of Trustees:

/s/ O. MASON HAWKINS, CFA

O. MASON HAWKINS, CFA
Chairman of the Board of Trustees
and Chief Executive Officer

/s/ CHARLES D. REAVES

CHARLES D. REAVES
Executive Vice President
General Counsel

March 28, 1997

20
<PAGE> 23

FORM OF PROXY

<TABLE>
<C> <S>
PROXY -- LONGLEAF PARTNERS FUND THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF TRUSTEES
</TABLE>

KNOW ALL MEN BY THESE PRESENTS: That the undersigned, revoking any previous
proxies for such shares, hereby appoints O. Mason Hawkins, W. Reid Sanders, and
Charles D. Reaves or any one of them, attorneys of the undersigned with full
power of substitution, to vote all shares of LONGLEAF PARTNERS FUND (the "Fund")
which the undersigned is entitled to vote at the 1997 Annual Meeting of
Shareholders of the Fund, to be held at 5:30 p.m. on Tuesday, May 13, 1997, in
Hardin Hall at the Memphis Botanic Garden, 750 Cherry Road, Memphis, Tennessee,
and at any and all adjournments thereof. Receipt of the Notice and Proxy
Statement for said Meeting is hereby acknowledged.

This proxy must be returned in order for your shares to be voted. The shares
represented by this proxy will be voted on the following matters as specified
below by the undersigned. If no specification is made, this proxy will be voted
in favor of all such matters.

<TABLE>
<S> <C> <C>
1. Re-Election of Board of Trustees.
[ ] FOR the following nominees [ ] WITHHOLD AUTHORITY
(except those whose names are inserted on the line below) to vote for any of the nominees
</TABLE>

TRUSTEES: O. Mason Hawkins; W. Reid Sanders; Chadwick H. Carpenter, Jr.,
Daniel W. Connell, Jr.; Steven N. Melnyk; C. Barham Ray

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

2. To approve or disapprove a proposal to adopt the diversification standards
of the Internal Revenue Code as fundamental investment restrictions and
thereby change the classification of the Fund under the Investment Company
Act from a "diversified" fund to a "non-diversified" fund.

FOR [ ] AGAINST [ ] ABSTAIN [ ]
(Over)

3. To approve or disapprove a proposal to revise and re-state all investment
restrictions other than the diversification requirements as non-fundamental
policies, to eliminate restrictions no longer necessary and to expand the
Fund's investment flexibility.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

4. To ratify the selection of Coopers & Lybrand, L.L.P., as Independent
Certified Public Accountants for the Fund.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

As to any other matter upon which the Shareholders are permitted to vote, or if
any of the nominees named in the Proxy Statement are not available for election,
said attorneys shall vote in accordance with their judgment.

THE TRUSTEES RECOMMEND A "FOR"
VOTE ON ALL MATTERS.

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

--------------------------------
Please sign exactly as your name
or names appear on left.

Dated: , 1997
-------------------
<PAGE> 24

FORM OF PROXY

<TABLE>
<C> <S>
PROXY -- LONGLEAF PARTNERS THIS PROXY IS SOLICITED ON BEHALF
SMALL-CAP FUND OF THE BOARD OF TRUSTEES
</TABLE>

KNOW ALL MEN BY THESE PRESENTS: That the undersigned, revoking any previous
proxies for such shares, hereby appoints O. Mason Hawkins, W. Reid Sanders, and
Charles D. Reaves or any one of them, attorneys of the undersigned with full
power of substitution, to vote all shares of LONGLEAF PARTNERS SMALL-CAP FUND
(the "Fund") which the undersigned is entitled to vote at the 1997 Annual
Meeting of Shareholders of the Fund, to be held at 5:30 p.m. on Tuesday, May 13,
1997, in Hardin Hall at the Memphis Botanic Garden, 750 Cherry Road, Memphis,
Tennessee, and at any and all adjournments thereof. Receipt of the Notice and
Proxy Statement for said Meeting is hereby acknowledged.

TRUSTEES: O. Mason Hawkins; W. Reid Sanders; Chadwick H. Carpenter, Jr.,
Daniel W. Connell, Jr.; Steven N. Melnyk; C. Barham Ray

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

2. To approve or disapprove a proposal to adopt the diversification standards
of the Internal Revenue Code as fundamental investment restrictions and
thereby change the classification of the Fund under the Investment Company
Act from a "diversified" fund to a "non-diversified" fund.

FOR [ ] AGAINST [ ] ABSTAIN [ ]
(Over)

3. To approve or disapprove a proposal to revise and re-state all investment
restrictions other than the diversification requirements as non-fundamental
policies, to eliminate restrictions no longer necessary and to expand the
Fund's investment flexibility.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

4. To ratify the selection of Coopers & Lybrand, L.L.P., as Independent
Certified Public Accountants for the Fund.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

THE TRUSTEES RECOMMEND A "FOR"
VOTE ON ALL MATTERS.

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

--------------------------------
Please sign exactly as your name
or names appear on left.

Dated: , 1997
------------------
<PAGE> 25

NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS

LONGLEAF PARTNERS REALTY FUND

TUESDAY, MAY 13, 1997
5:30 P.M. CENTRAL DAYLIGHT TIME

MEMPHIS BOTANIC GARDEN
Hardin Hall
750 CHERRY ROAD
MEMPHIS, TENNESSEE 38117

The 1997 Annual Meeting of Shareholders of Longleaf Partners Realty Fund
(the "Fund") will be held at 5:30 p.m. on Tuesday, May 13, 1997, in Hardin Hall
at the Memphis Botanic Garden, 750 Cherry Road, Memphis, Tennessee. The Fund is
a separate series or fund of Longleaf Partners Funds Trust, a series
Massachusetts business trust which is registered with the Securities & Exchange
Commission as an open-end management investment company.

Shareholders of the Fund will consider and vote upon the following
proposals, which are described in the accompanying Proxy Statement:

1. Re-election of the Board of Trustees, composed of six members, four
of whom are independent or non-affiliated.

2. To approve or disapprove a proposal to ratify adoption of the
Investment Counsel Agreement and the Fund Administration Agreement with
Southeastern Asset Management, Inc., and to extend the term for a one-year
period beginning August 1, 1997 and ending July 31, 1998.

3. To approve or disapprove a proposal to adopt the diversification
standards of the Internal Revenue Code as fundamental investment policies
and to re-classify all investment restrictions other than the
diversification standards as non-fundamental policies.

4. Ratification of selection of Coopers & Lybrand, L.L.P. as the
independent certified public accountants authorized to sign or certify
financial statements to be filed with the Securities & Exchange Commission.

To transact such other business as may properly come before the Meeting.

The Board of Trustees of each Fund has fixed the close of business on March
14, 1997 as the record date for determining shareholders eligible to vote at the
Meeting.

By Order of the Board of Trustees

/s/ O. MASON HAWKINS, CFA
--------------------------------------
O. MASON HAWKINS, CFA
Chairman of the Board and Chief
Executive Officer
March 28, 1997

SHAREHOLDERS CAN ASSIST THE FUND IN ASSURING A QUORUM AND AVOIDING THE EXPENSE
OF SENDING FOLLOW-UP LETTERS BY PROMPTLY RETURNING THE ENCLOSED PROXY IN THE
POSTAGE PAID ENVELOPE. EVEN IF YOU EXPECT TO BE PRESENT IN PERSON, PLEASE MARK,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD, WHICH IS SOLICITED BY THE BOARD
OF TRUSTEES OF EACH FUND. THE PROXY IS REVOCABLE AND MAY BE REVOKED SHOULD YOU
DECIDE TO VOTE IN PERSON AT THE MEETING.
<PAGE> 26

PROXY STATEMENT

LONGLEAF PARTNERS REALTY FUND
A SERIES OF LONGLEAF PARTNERS FUNDS TRUST

1997 ANNUAL MEETING OF SHAREHOLDERS

5:30 P.M., CENTRAL DAYLIGHT TIME; TUESDAY, MAY 13, 1997
MEMPHIS BOTANIC GARDEN -- HARDIN HALL
750 CHERRY ROAD; MEMPHIS, TENNESSEE

The enclosed Proxy is solicited by the Board of Trustees of Longleaf
Partners Realty Fund (the "Fund"), which is a separate series or Fund of
Longleaf Partners Funds Trust, in connection with the Annual Meeting of
Shareholders ("the Meeting") to be held on Tuesday, May 13, 1997, at 5:30 p.m.
Central Daylight Time, at the location shown above.

Shares Entitled to Vote. At the close of business on March 14, 1997, the
record date for determination of shareholders entitled to notice of and to vote
at the Meeting, there were 11,165,607 shares of beneficial interest outstanding,
the only class of shares of capital stock. Each share is entitled to one vote
and there is no provision for cumulative voting.

As of the record date, management was aware of the following shareholders
who beneficially owned as much as 5% of the outstanding shares of capital stock
of the Realty Fund: clients of Charles Schwab & Company, a registered brokerage
firm, owned approximately 29.5% of the outstanding shares in an omnibus
brokerage account; clients of National Financial Services Corp., a registered
brokerage firm, owned approximately 5.2% in an omnibus brokerage account; Mr. O.
Mason Hawkins, Chairman, owned individually approximately %; Mr. W. Reid
Sanders, Trustee and President, other directors, trustees, officers and
employees of Southeastern Asset Management, Inc. and Southeastern's profit
sharing plan, and members of their immediate families owned an additional %.

The Annual Report of Longleaf Partners Realty Fund for the fiscal year
ended December 31, 1996, containing financial statements examined by Coopers &
Lybrand, L.L.P., certified public accountants, was mailed to shareholders prior
to March 1, 1997. The Fund will furnish, without charge, a copy of the Annual
Report to any shareholder who so requests by calling the Fund at (800) 761-2509.
<PAGE> 27

SUMMARY OF PROPOSALS

Detailed information on each proposal is included in the text of the Proxy
Statement and the following summary is subject to the more expanded discussion
of the text.

1. RE-ELECTION OF MEMBERS OF THE BOARD OF TRUSTEES.

Mr. O. Mason Hawkins, Chairman of the Board and Chief Executive Officer of
Southeastern Asset Management, Inc. ("Southeastern"), the Fund's Investment
Counsel, contributed the initial $100,000 in seed money to form the Fund. As the
sole shareholder on January 2, 1996, Mr. Hawkins elected a Board of Trustees of
six members, four of whom were independent of and non-affiliated with
Southeastern. One of the independent Trustees, Mr. John R. McCarroll, Jr., was
appointed by the Governor of the State of Tennessee as a state circuit court
judge on August 29, 1996, and he resigned as a member of the Board to accept
that appointment. The Board elected Mr. Daniel W. Connell, Jr., who is also an
independent Trustee, as Mr. McCarroll's successor at the meeting held on
December 16, 1996. The slate of six nominees proposed for re-election therefore
includes the five remaining Trustees originally elected and Mr. Connell as the
successor Trustee.

Detailed information on the backgrounds of the nominees is contained on
pages 5 and 6 of the text.

2. PROPOSAL TO RATIFY THE ADOPTION OF THE INVESTMENT COUNSEL AGREEMENT AND THE
FUND ADMINISTRATION AGREEMENT WITH SOUTHEASTERN ASSET MANAGEMENT, INC. AND TO
EXTEND THE TERM OF EACH AGREEMENT FOR A ONE YEAR PERIOD BEGINNING AUGUST 1,
1997 AND ENDING JULY 31, 1998.

The Investment Counsel Agreement and the Fund Administration Agreement were
approved by the Board of Trustees at the Fund's organizational meeting, and were
adopted by Mr. O. Mason Hawkins as the sole initial shareholder on January 2,
1996. Public shareholders of the Fund now have the opportunity of ratifying
these two operating agreements and extending their terms from August 1, 1997 to
July 31, 1998. Detailed information on the provisions of the Agreements and
background information on Southeastern Asset Management, Inc. is contained on
pages 8 through 14 of the text.

3. PROPOSAL TO ADOPT THE DIVERSIFICATION STANDARDS OF THE INTERNAL REVENUE CODE
AS FUNDAMENTAL INVESTMENT POLICIES AND TO RE-CLASSIFY ALL INVESTMENT
RESTRICTIONS OTHER THAN THE DIVERSIFICATION REQUIREMENTS AS NON-FUNDAMENTAL
POLICIES.

Under the National Securities Markets Improvements Act of 1996, Congress
has pre-empted the authority of states to impose investment restrictions on
investment companies registered with the SEC. In addition, the Securities and
Exchange Commission from time to time amends certain of its requirements for
investment restrictions. Because of the continually evolving regulatory changes
in investment restrictions, the Board proposes that the Fund's fundamental
investment restrictions be re-classified to include as fundamental restrictions
(restrictions which cannot be changed without shareholder approval) only those
related to diversification requirements. All others will be re-classified as
non-fundamental investment restrictions which would not require shareholder
approval for future amendment.

The specific changes in fundamental investment restrictions are discussed
on pages 15 through 17 of the text.

2
<PAGE> 28

4. RATIFICATION OF THE BOARD'S SELECTION OF COOPERS & LYBRAND, L.L.P. AS THE
FUNDS' INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.

Coopers & Lybrand, L.L.P., served as the Fund's independent certified
public accountants for the year ended December 31, 1996. The Board of Trustees
has again selected the firm to serve in that capacity for the 1997 fiscal year.
Ratification of this selection is presented to shareholders as a routine issue.
More information is set forth on page 18 of the text.

3
<PAGE> 29

PROPOSAL 1.

RE-ELECTION OF THE BOARD OF TRUSTEES

Authority of the Board of Trustees. Each series of Longleaf Partners Funds
Trust elects a separate Board of Trustees, composed of six members, which acts
only on matters affecting that particular Fund. Each Board of Trustees has the
continuing oversight responsibility for that particular Fund, which includes
review of all issues required by the Investment Company Act of 1940. The Board
of Trustees of each Fund would, as a separate board, consider matters which
might affect the Master Trust as a whole, such as the creation of additional
series or matters involving amendment of the Declaration of Trust and other
issues which arise outside of the requirements of the Investment Company Act of
1940. The Trustees (six for each series) conduct concurrent meetings of their
Boards.

Composition of the Boards of Trustees. Under the Investment Company Act of
1940, which governs mutual fund operations, an "interested" Trustee includes a
person having an interest in or an affiliation with the investment advisor, any
underwriter or securities broker, or a servicing agent such as a fund
administrator. Funds such as the Realty Fund having no principal underwriter or
affiliated broker, may have 60% of their directors or Trustees classified as
"interested" Trustees. Management believes, however, that having a majority of
each Board composed of independent or "non-interested" Trustees having no
affiliation with the Investment Counsel or with any securities brokerage firm
constitutes good corporate governance and eliminates actual or perceived
conflicts of interest.

If shareholders should re-elect all of the nominees listed in the table
below, the membership of all of the Boards of Trustees of the three series or
Funds of Longleaf Partners Funds Trust will be identical, consisting of the same
six individuals, four of whom will be Trustees who are independent of and not
affiliated with Southeastern Asset Management, Inc. and who otherwise qualify as
"non-interested" Trustees as defined by the provisions of Sec. 2(a)(19) of the
Investment Company Act of 1940. All of these nominees have indicated a
willingness to serve as Trustees until the next annual or special in lieu of
annual meeting of shareholders if so elected.

4
<PAGE> 30

NOMINEES FOR BOARD OF TRUSTEES
LONGLEAF PARTNERS REALTY FUND

<TABLE>
<CAPTION>
NOMINEES (AGE) SHARES OWNED
POSITION WITH FUND BENEFICIALLY ON
AND YEAR FIRST ELECTED MARCH 14,
AS TRUSTEE RECENT BUSINESS EXPERIENCE 1997
---------------------- -------------------------- ---------------
<S> <C> <C>
O. Mason Hawkins, CFA Southeastern Asset Management, Inc. since its
(49)* founding in 1975; presently Chairman and C.E.O.;
Chairman of the Board of previously employed as Director of Research, First
Trustees and Chief Tennessee Investment Management Company, Memphis,
Executive Officer; Tennessee, 1974-75; Director of Research, Atlantic
Trustee since January 1996 National Bank, Jacksonville, Florida, 1972-74.
Received B.S. B.A. degree in Finance (1970),
University of Florida; M.B.A. degree (1971),
University of Georgia. Director, Mid-America
Apartment Communities, Inc.
W. Reid Sanders (47)* Southeastern Asset Management, Inc. since its
Trustee and President founding in 1975; presently Executive Vice
Trustee since January 1996 President and a director; previously employed as
Investment Officer, First Tennessee Investment
Management Company, Memphis, Tennessee, 1973-75;
credit analyst and commercial lending official,
Union Planters National Bank, Memphis, Tennessee,
1972-73. Received B.A. degree in Economics (1971),
University of Virginia.
Chadwick H. Carpenter, Jr. Since 1993, Senior Executive Officer in charge of
(46) corporate development, Progress Software
Trustee since January 1996 Corporation, Bedford, Massachusetts, (a corporation
engaged in the development and marketing of
software products used by developers to build and
deploy commercial applications); previously, Senior
Vice President, Sales and Services, 1986 to 1993;
Vice President -- Product Services, 1983-1986;
previously manager of MIMS Systems Operation of
General Electric Information Services Company;
Senior Consultant for Touche Ross & Company.
Received B.S. degree (1971) and M.S. degree (1972)
in Electrical Engineering, Massachusetts Institute
of Technology.
Daniel W. Connell, Jr. Since 1994, Senior Vice President -- Marketing,
(48) Jacksonville Jaguars, Ltd., Jacksonville, Florida
Trustee since January 1997 (National Football League franchise); previously
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. Received B.S.B.A. (1970),
University of Florida.
</TABLE>

5
<PAGE> 31
<TABLE>
<CAPTION>
NOMINEES (AGE) SHARES OWNED
POSITION WITH FUND BENEFICIALLY ON
AND YEAR FIRST ELECTED MARCH 14,
AS TRUSTEE RECENT BUSINESS EXPERIENCE 1997
---------------------- -------------------------- ---------------
<S> <C> <C>
Steven N. Melnyk (49) Chairman of the Executive Committee and President, 92
Trustee since January 1996 Riverside Golf Group, Inc., Jacksonville, Florida
(a company engaged in the design, construction, and
operation through ownership of golf courses), 1987
to present; golf commentator and sports marketing
executive, CBS Sports (1982-91) and ABC Sports
(since 1991); 1969 U.S. Amateur Golf Champion; 1971
British Amateur Golf Champion; Director and a
founder of First Coast Community Bank, Fernandina
Beach, Florida. Received B.S.B.A. degree in
Industrial Management (1969), University of
Florida.
C. Barham Ray (50) Chairman of the Board and Secretary, SSM Corp.,
Trustee since January 1996 Memphis, Tennessee (a corporation which serves 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), 1974
to the present; Director of Financial Federal
Savings Bank, Memphis, Tennessee. Received B.A.
degree (1968) Vanderbilt University; M.B.A. degree
(1973), University of Virginia.
</TABLE>

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

OTHER INFORMATION CONCERNING THE BOARD OF TRUSTEES

The Board has established an Audit Committee, with Mr. Carpenter serving as
Chairman. The Audit Committee, composed of all independent or "non-interested"
Trustees, reviews the audit plan and results of audits, and monitors the
performance of the independent certified public accountants. The Committee met
with representatives of the accounting firm in a formal meeting on March 5,
1997, after completion of the audit for the fiscal year ended December 31, 1996.
The Board has not established a nominating committee and the entire Board
considers nominees for members of the Board.

All independent or non-affiliated members of the Board of Trustees invest
an amount at least equal to their full Trustees' fees in shares of the mutual
funds. The schedule of Trustees fees paid during 1996 by each Series to each
"non-interested" Trustee is as follows: Longleaf Partners Fund -- $15,000 per
annum; Longleaf Partners Small-Cap Fund -- $7,500 per annum; Longleaf Partners
Realty Fund -- $5,000 per annum. The following table shows the aggregate
compensation received from all of the Longleaf Funds during 1996 by the Trustees
presently standing for election:

6
<PAGE> 32

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

<TABLE>
<CAPTION>
TOTAL
NAME OF PERSON; AGGREGATE COMPENSATION
POSITION COMPENSATION FROM
ADDRESS FROM FUNDS FUNDS**
--------------- ------------ ------------
<S> <C> <C>
O. Mason Hawkins*........................................... None None
Chairman of the Board and CEO
Chadwick H. Carpenter, Jr................................... $27,500 $27,500
Trustee
Progress Software Corp.
14 Oak Park
Bedford, MA 01730
Steven N. Melnyk............................................ $27,500 $27,500
Trustee
111 Riverside Ave.
Ste. 330
Jacksonville, FL 32202
C. Barham Ray............................................... $27,500 $27,500
Trustee
785 Crossover Lane
Ste. 218
Memphis, TN 38117
W. Reid Sanders*............................................ None None
Trustee and President
</TABLE>

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

Unless authority to vote for election of one or more trustees is withheld
by checking the appropriate block on the Proxy, the enclosed Proxy will be used
to vote in favor of the election of the six nominees. If any nominee should not
be available for election, the proxies named will vote for such other nominees
as the present Trustees who are not "interested persons" of the Fund may
approve. Each member of the Board of Trustees is to be elected by plurality
vote, provided a quorum, consisting of a majority of issued and outstanding
shares, is present at the Meeting in person or by proxy.

7
<PAGE> 33

THE BOARD OF TRUSTEES OF EACH FUND RECOMMENDS THAT THE NOMINEES NAMED ABOVE
BE RE-ELECTED TO SERVE AS TRUSTEES UNTIL THE NEXT ANNUAL OR SPECIAL IN LIEU OF
ANNUAL MEETING OF SHAREHOLDERS OR UNTIL A SUCCESSOR HAS BEEN DULY QUALIFIED.

PROPOSAL 2

APPROVAL OR DISAPPROVAL OF A PROPOSAL TO ADOPT THE INVESTMENT
COUNSEL AGREEMENT AND THE FUND ADMINISTRATION AGREEMENT WITH
SOUTHEASTERN ASSET MANAGEMENT, INC., AND TO EXTEND THE TERMS OF THE
AGREEMENTS FOR A ONE-YEAR PERIOD FROM AUGUST 1, 1997 TO JULY 31, 1998.

The existing Investment Counsel Agreement and Fund Administration Agreement
between the Fund and Southeastern Asset Management, Inc. ("Southeastern") were
initially approved by the Board of Trustees at the organizational meeting of the
Fund on September 5, 1995. On January 2, 1996, the initial seed capital of
$100,000 was provided by Mr. Mason Hawkins, Chairman of the Board of
Southeastern, and he became the Fund's sole initial shareholder. As sole
shareholder, he adopted these Agreements for a two year term, effective January
2, 1996.

The public shareholders of the Fund now have the opportunity of approving
and adopting these Agreements, and are being requested to establish a new
contract term for each Agreement, beginning on August 1, 1997 and terminating on
July 31, 1998. Thereafter, the Agreements will be subject to renewal from year
to year on the annual termination date of July 31. The Agreements between the
Realty Fund and Southeastern will then have beginning and ending dates which are
the same as the similar agreements between Southeastern and the other investment
companies which it manages -- Longleaf Partners Fund and Longleaf Partners
Small-Cap Fund. Future renewals of all of these Agreements can then be
considered and acted upon at the same time by the Boards of Trustees or by
shareholders.

SUMMARY OF CERTAIN PROVISIONS OF THE INVESTMENT COUNSEL AGREEMENT

Pertinent provisions of the Investment Counsel Agreement are summarized in
the following discussion, but shareholders are referred to Exhibit A, beginning
on page 19, for the full text of the Agreement, which takes precedence over the
summary.

Investment Counsel Fee. Under the Investment Counsel Agreement,
Southeastern manages the Fund's portfolio. The Investment Counsel receives from
the Fund an annual fee of 1% of average net assets for the investment advisory
function. This fee is higher than the investment advisory fees paid by most
mutual funds. However, should normal operating expenses of either Fund (other
than interest, taxes, brokerage commissions, and extraordinary expenses, but
including all management fees) exceed 1.5% of average net assets per annum or,
if lower, the limitation mandated by any state, the Investment Counsel Agreement
requires that Southeastern reduce its investment counsel fee to the extent
necessary to limit all such normal operating expenses to the applicable maximum
expense limitation.

For the fiscal year ended December 31, 1996, this provision limiting
operating expenses had the effect of reducing the Investment Counsel fee paid by
the Fund to the extent necessary to lower operating expenses of the Fund from
1.6% of average net assets to 1.5%, the maximum allowed under the limitation. In
the absence of a fee reduction, the Investment Counsel fee would have been
$438,484; after the fee reduction, the fee paid for the year was $391,283.

8
<PAGE> 34

Other Operating Expenses. The Fund pays all of its expenses of operations,
as listed in Paragraph 7 of the Investment Counsel Agreement, as shown on page
22. These expenses include the following: professional fees, insurance and
bonding premiums, association dues, fees charged by Federal and state regulatory
authorities for registration of Fund shares, expenses of preparation, printing
and distributing prospectuses and financial reports to shareholders, costs of
obtaining daily prices for the securities held in the portfolio, costs of forms
and supplies, telephone and postage and any extraordinary expenses.

Southeastern is responsible for the compensation and employee benefits of
the executive officers of the Fund, all of whom are employees of Southeastern,
and for supplying office space and related facilities for conducting these
operations.

Limitation of Liability. Southeastern as Investment Counsel agrees to use
its best efforts in managing the investment portfolio of the Fund. The
Investment Counsel Agreement provides that there shall be no liability on the
part of Southeastern for any act or omission, including a mistake of judgement,
in the absence of a showing of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations.

Termination. The Investment Counsel Agreement may be terminated without
penalty upon sixty days prior written notice by the Board of Trustees or by vote
of a majority of the outstanding voting securities of the Fund, and may be
terminated by the Investment Counsel on like notice. There are provisions for
automatic termination without penalty in the event of assignment as defined by
the Investment Company Act of 1940.

SUMMARY OF CERTAIN PROVISIONS OF THE FUND ADMINISTRATION AGREEMENT

Pertinent provisions of the Fund Administration Agreement are summarized in
the following discussion, but shareholders are referred to Exhibit B, beginning
on page 26, for the full text of the Agreement, which takes precedence over the
summary.

Under the Fund Administration Agreement, Southeastern provides all services
required to carry on the Fund's general business and administrative affairs,
including supplying executive personnel, clerical staff and office space for
these functions. Southeastern conducts each Fund's business operations,
including organizing Board meetings, negotiating contracts with nonaffiliated
suppliers, preparing reports and documents required for Federal and state
regulatory compliance and performing the accounting, record keeping and pricing
functions. For these administrative services each Fund pays Southeastern a fee
computed at the rate of 0.10% per annum of average net assets, which is accrued
daily and paid monthly. For 1996, such fees were $43,848.

The Fund together with the related investment companies also reimburses
Southeastern for the expenses of leasing or otherwise acquiring computer
programs or software used exclusively for processing Fund transactions, and for
the salary of the Fund's Executive Vice President and Treasurer, with the
reimbursement for these expenses being equitably allocated among the related
Funds in a manner approved by the Boards of Trustees. In 1996, such reimbursible
expenses were $30,397 for the Realty Fund.

Other Provisions. The provisions with respect to limitation of liability,
standard of care, indemnification, and term of the Fund Administration Agreement
are identical with those of the Investment Counsel Agreement.

9
<PAGE> 35

COMPARATIVE INFORMATION ON RELATED MUTUAL FUNDS

Southeastern also serves as Investment Counsel to and as Fund Administrator
for Longleaf Partners Fund, established in 1987, and Longleaf Partners Small-Cap
Fund, established in 1989. Both of these related funds have long-term capital
growth as their primary investment objective, and have no industry or sector
concentration. In many situations, the portfolios of these two mutual funds are
substantially similar to those of the private accounts managed by Southeastern.

The Realty Fund concentrates its investments in real estate oriented
companies, most of which do not fit the investment objectives of Southeastern's
other accounts. As a result of this and also because many new funds now being
organized have adopted an investment advisory fee of 1% per annum, the
Investment Counsel fee of the Realty Fund is 1% of average net assets. All three
related mutual funds have an operating expense limitation agreement which is
identical. This expense limitation, presently 1.5% of average net assets, had
the effect of reducing the investment counsel fee for Longleaf Partners Fund at
the close of its first two fiscal periods ended October 31, 1987 and 1988, and
for Longleaf Partners Small-Cap Fund for its first fiscal period ended October
31, 1989. As previously disclosed, this limitation also reduced the Investment
Counsel fee paid by the Realty Fund during 1996.

The following table contains comparative information on contractual fees
and expense limitations as a percentage of average net assets, and the assets of
each fund at the close of the last fiscal year:

<TABLE>
<CAPTION>
INVESTMENT TOTAL NET
COUNSEL ADMINISTRATION ASSETS EXPENSE
FEE FEE AT 12/31/96 LIMITATION
------------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Longleaf Partners Fund 1% on 1st 0.10% $2,300,079,176 1.5%
$400 million;
0.75% on
remainder
Longleaf Partners Small-Cap Fund 1% on 1st 0.10% $ 252,156,957 1.5%
$400 million;
0.75% on
remainder
Longleaf Partners Realty Fund 1% of average 0.10% $ 156,009,224 1.5%
net assets
</TABLE>

10
<PAGE> 36

INFORMATION ABOUT THE INVESTMENT COUNSEL

Southeastern Asset Management, Inc., ("Southeastern") founded in 1975, is
registered with the Securities and Exchange Commission as an investment advisor.
Its business activities involve primarily the management of securities
portfolios for individuals, pension and profit sharing plans, and other
institutions. Southeastern presently manages more than $7.6 billion in
investment client assets. Included within this figure are $2.7 billion in assets
of the three related investment companies. The basic investment objectives,
policies, investment techniques, and methods of selecting portfolio securities
for the three investment companies are substantially the same as those for the
separate or managed accounts.

Southeastern is a Tennessee corporation, and is owned and controlled by its
directors and executive officers. As of the date of this Proxy Statement, the
following persons own or have the right to vote 10% or more of the issued and
outstanding shares; Mr. O. Mason Hawkins -- 59.1%, Mr. G. Staley Cates -- 14.5%.
The remaining shares are held by other directors or officers, none of whom own
or have the right to vote as much as 10% of the issued and outstanding shares.

The directors of Southeastern reside in Memphis, Tennessee. Their ages and
principal occupations during the past five years are as follows:

O. Mason Hawkins,
CFA(48)................. Chairman of the Board and Chief Executive Officer;
Southeastern Asset Management, Inc.

G. Staley Cates, CFA(32)... Southeastern Asset Management, Inc.; President
since 1994; Previously Vice
President -- Investments.

W. Reid Sanders(46)........ Executive Vice President; Southeastern Asset
Management, Inc.

Frank N. Stanley, III,
CFA(55).................. Vice President -- Investments; Southeastern Asset
Management, Inc.

Mr. Hawkins is the chief executive officer of the Southeastern and is also
the chief executive officer of the Realty Fund and the two related investment
companies. Mr. Cates is President of Southeastern and co-portfolio manager of
the Fund. Mr. Sanders is Executive Vice President of Southeastern and is
President of the Realty Fund and the two related investment companies. Mr.
Stanley holds the same position with each of the related investment companies as
with Southeastern.

11
<PAGE> 37

OTHER EXECUTIVE OFFICERS

The following table lists the other executive officers of the Realty Fund,
all of whom are also officers or employees of Southeastern. The compensation and
employee benefits of all Fund executive officers are paid by Southeastern. Mr.
Fitzpatrick is the lead co-portfolio manager of the Realty Fund; the other
co-portfolio managers are Mr. Hawkins and Mr. Cates. Mr. Reaves, Ms. Douglas,
and Ms. Harper are involved primarily with management and operations of the
three related mutual funds, including the Realty Fund.

<TABLE>
<CAPTION>
NAME, AGE, AND OFFICE WITH
OFFICE WITH FUND INVESTMENT COUNSEL PRINCIPAL OCCUPATION
---------------- ------------------ --------------------
<S> <C> <C>
C. T. Fitzpatrick, III, CFA (33) Vice President -- Southeastern Asset Management, Inc.
Co-Portfolio Manager and Vice Investments since 1990. Financial analyst,
President -- Investments Merrill Lynch Capital Markets,
1986-1988.
Charles D. Reaves (61) Vice President & Southeastern Asset Management, Inc.
Executive Vice President General Counsel since 1988; Porter, White & Yardley,
(General Counsel) Inc., Birmingham, AL (securities
broker/dealer) Vice President and
Principal, (1986-88); Saunders
Leasing System, Inc., Birmingham, AL
(truck transportation company) Senior
Vice President -- Finance and Vice
President & General Counsel
(1974-86).
Julie M. Douglas, CPA (35) Fund Accountant Southeastern Asset Management, Inc.
Executive Vice President -- since 1989; Coopers & Lybrand,
Operations & Treasurer certified public accountants,
Birmingham, AL and Pittsburgh, PA
(1984-89)
Lee B. Harper (33) Marketing Analyst Southeastern Asset Management, Inc.
Executive Vice President -- 1993- present; 1989-1993 -- IBM
Marketing Corp., Memphis, TN, Consultant;
1985-1987, McKinsey & Company,
Atlanta, GA, Business Analyst.
Randy D. Holt, CPA (42) Vice President & Southeastern Asset Management, Inc.
Vice President & Secretary Secretary since 1985; Ott, Baxter & Holt
(certified public accountants),
Memphis, TN, (1983-85)
</TABLE>

The following persons are officers of Southeastern but are not officers of
the Realty Fund; Mr. John B. Buford, CFA, (33), Vice President -- Investments
and Ms. Deborah L. Sullivan, CFA, (38), Vice President, who serves as
Southeastern's head trader. Both have been employed by Southeastern for more
than 5 years.

FACTORS CONSIDERED BY THE BOARD OF TRUSTEES IN RECOMMENDING APPROVAL OF THE
INVESTMENT COUNSEL AGREEMENT AND THE FUND ADMINISTRATION AGREEMENT WITH
SOUTHEASTERN ASSET MANAGEMENT, INC.

The Boards of Trustees considered a wide range of factors in their
conclusion to adopt the Investment Counsel Agreement and the Fund Administration
Agreement and to recommend ratification and extension

12
<PAGE> 38

of the terms of these Agreements by shareholders. These factors include: a
review of the investment strategy employed by Southeastern as Investment
Counsel; its investment reputation and success in implementing its philosophy in
the management of institutional and private accounts since its formation in
1975; its financial and employment stability; its support in building Fund
assets and the level of personal investment in the Funds by its principals; and
the separate investment performance of each Fund for recent periods and since
inception.

Under Southeastern's investment philosophy, 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, stocks are viewed as
ownership units in a business enterprise which has an unrecognized business or
"intrinsic" value subject to determination through careful securities analysis
and the use of established disciplines consistently applied over long periods of
time. Stocks which can be identified and purchased at a price significantly
discounted from this intrinsic worth not only protect investment capital from
significant loss but also facilitate major rewards when the true business value
is ultimately recognized.

Using these investment principles, Southeastern's management of the Fund's
portfolio of investments produced a total return for the year as a whole and
during each of the first three quarters of the year which outpaced the total
returns of the market indices selected as the Fund's benchmarks. As a result,
the Fund ranked No. 4 out of 46 real estate funds followed by Lipper Analytical
Services, Inc. during its first year of operations. Those investment results
were as follows:

<TABLE>
<CAPTION>
WILSHIRE
LONGLEAF PARTNERS REAL ESTATE NAREIT
REALTY FUND* SECURITIES INDEX* INDEX*
----------------- ----------------- ------
<S> <C> <C> <C>
Year ended 12/31/96............................... 40.69% 37.02% 35.27%
Fourth quarter ended 12/31/96..................... 10.87% 18.39% 18.85%
Third quarter ended 9/30/96....................... 8.55% 5.90% 6.54%
Second quarter ended 6/30/96...................... 7.84% 4.78% 4.45%
First quarter ended 3/31/96....................... 8.40% 4.30% 2.27%
</TABLE>

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

* The Fund's inception date was January 2, 1996. Fund returns and those of the
Wilshire Real Estate Securities Index and the NAREIT Index are shown with all
dividends reinvested. The stock market indices shown are unmanaged. Past
performance is no guarantee of future performance, and the value of an
investment when redeemed may be more or less than the purchase price.

OTHER SUPPORT BY SOUTHEASTERN ASSET MANAGEMENT, INC.

In recommending ratification of the Agreement by shareholders, the Board
also gave consideration to other support provided by Southeastern which goes
beyond providing pure investment advice. In summary, these factors are as
follows:

Building of Fund Assets. Southeastern has been instrumental in building
the Fund's assets, particularly during the first several months of its life.
Substantial initial investments were made by Mr. Mason Hawkins, Chairman, Mr.
Reid Sanders, President, other Southeastern personnel, and Southeastern's profit
sharing plan. At the close of the year, Southeastern's directors, officers,
employees, their family members and Southeastern's profit sharing plan formed
the single largest related group of shareholders, constituting approximately
13.6% of assets or approximately $21.2 million. As a result, Southeastern's
officers and

13
<PAGE> 39

employees are personally investing as partners with other Fund shareholders, and
are subject to the same risks and rewards as other shareholders.

Additionally, a number of large accounts are the result of Southeastern's
institutional contacts. Consultants and fee paid investment advisers who have
long relationships with Southeastern and its other funds have recommended the
Realty Fund as an investment medium for individual or institutional clients. As
a result, many large shareholders of the Fund have a prior relationship of some
nature with Southeastern and have invested in the Realty Fund because of an
existing confidence level in Southeastern's investment management capabilities.

Possible Future Application of Expense Limitation. Should expenses of
operation exceed the expense limitation of 1.5% per annum in 1997, Southeastern
would be required to continue the fee reduction which occurred during the first
year of operations. In the future, a decrease in assets and/or an increase in
expenses could cause other reductions in management fees.

Expenses of Computer Equipment. The Fund currently reimburses Southeastern
for all specialized software lease expenses (software which can be used only for
Fund operations). The Fund also has an obligation to reimburse Southeastern for
costs of computer hardware equipment only if it becomes necessary to lease
computer equipment from an outside vendor which would be dedicated solely to the
use of any pooled accounts such as the Fund, subject to approval of the Boards
of Trustees of the Fund. No such dedicated equipment is presently being leased,
and Southeastern is supplying all computer hardware equipment and general
computer software programs without charge to the Fund.

Possible Assumption of Loss on Processing Errors. Under the Fund
Administration Agreement, Southeastern determines the daily per share net asset
value of the Funds, a price used by the Fund's transfer agent in processing
shareholder purchases and redemptions. The Fund Administration Agreement
contains normal language relieving Southeastern from monetary liability for
processing errors caused by factors other than gross negligence or reckless
disregard of its contractual responsibilities. However, it is possible that
Southeastern could be required to absorb losses for processing errors caused by
mistake or simple negligence. As a result, Southeastern might be required in the
future to assume financial responsibility for any pricing or other processing
losses which it might cause, despite the existence of exculpatory or protective
language in the agreements limiting such reimbursement to situations involving
gross negligence or reckless disregard of duties.

Minimum Vote Required. Under the requirements of the Investment Company
Act, the vote necessary for approval of Proposal 2 is the affirmative vote of a
majority of the outstanding securities, which is defined as the affirmative vote
of the lesser of (1) more than 50% of the outstanding shares or (2) 67% of the
shares voting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.

THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION
OF THE INVESTMENT COUNSEL AGREEMENT AND THE FUND ADMINISTRATION AGREEMENT WITH
SOUTHEASTERN ASSET MANAGEMENT, INC., AND EXTENSION OF THE TERMS OF SUCH
AGREEMENTS FOR A PERIOD BEGINNING AUGUST 1, 1997 AND ENDING JULY 31, 1998.

14
<PAGE> 40

PROPOSAL 3

APPROVAL OR DISAPPROVAL OF A PROPOSAL TO ADOPT THE DIVERSIFICATION
STANDARDS OF THE INTERNAL REVENUE CODE AS FUNDAMENTAL POLICY AND TO RE-CLASSIFY
ALL INVESTMENT RESTRICTIONS OTHER THAN THE DIVERSIFICATION REQUIREMENTS AS
NON-FUNDAMENTAL POLICIES.

DIVERSIFICATION STANDARDS

Since its inception, the Realty Fund has been classified as a
"non-diversified" investment company under the provisions of Sec. 5(b)(2) of the
Investment Company Act of 1940. This classification is a fundamental investment
policy which cannot be changed without shareholder approval. The Fund has also
adopted a series of investment restrictions, both fundamental and
non-fundamental. A fundamental policy can be amended only with shareholder
approval, while the Board of Trustees may amend non-fundamental investment
policies or restrictions.

Management intends to continue to qualify for favorable tax treatment
available to mutual funds under Sub-Chapter M of the Internal Revenue Code of
1986, which relieves funds from Federal income taxation if certain tests are
satisfied and substantially all net investment income and realized capital gains
are distributed to shareholders each year. For a fund classified as
non-diversified under the Investment Company Act to qualify for this favorable
tax treatment, it must satisfy the specific diversification requirements of the
Internal Revenue Code.

Under these diversification requirements, found in Sections 851(b)(4)(A)
and (b)(4)(B) of the Code, 50% of a fund's assets must be diversified, which
means that no portfolio position may exceed 5% of total assets. In the remaining
50% of assets, investments in particular positions may exceed 5% of total
assets, but a single position cannot exceed 25% of total assets.

Applying the Internal Revenue Code diversification rules, a fund must hold
at least 12 different portfolio investments, as compared with 16 under the
Investment Company Act. Thus, in the 50% "diversified basket", the Fund must
hold at least 10 companies, each at not more than 5% of total assets when
purchased. In the 50% "non-diversified" basket, the Fund must hold at least 2
companies, which would have comprised not more than 25% of total assets each
when acquired.

Another defining restriction on diversification under the Internal Revenue
Code limits the percentage of a company's voting stock which may be acquired. To
comply with this requirement, the Fund in its 50% "diversified basket" may not
acquire more than 10% of the voting stock of a portfolio company. However, in
its 50% "non-diversified basket", the Fund may acquire more than 10% of the
voting stock of a portfolio company, but it may not invest more than 25% of its
assets in any single company or related companies.

Under Proposal 3, the Fund will adopt the specific diversification
standards of the Internal Revenue Code as a fundamental investment restrictions,
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 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

15
<PAGE> 41

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."

OTHER FUNDAMENTAL INVESTMENT RESTRICTIONS WHICH WOULD BE
RE-CLASSIFIED AS NON-FUNDAMENTAL INVESTMENT RESTRICTIONS

At its inception, the Fund also adopted the investment restrictions set
forth below as fundamental investment restrictions. Some of these restrictions
were required by various states and pre-dated an evolving modernization of the
securities markets. Under the National Securities Markets Improvements Act of
1996, Congress pre-empted the authority of states to impose investment
restrictions on investment companies registered with the SEC. In addition, the
SEC from time to time changes its specific requirements and eases some of its
own investment restrictions.

Because of the continually evolving regulatory changes in investment
restrictions, the Board proposes that the Fund's fundamental investment
restrictions be revised and re-stated so as to include as fundamental
restrictions (restrictions which cannot be changed without shareholder approval)
only those related to diversification requirements. All others will be
re-classified as non-fundamental investment restrictions which would not require
shareholder approval for future amendment should such be desirable or necessary
to respond to further changes in the securities markets or their regulation.
Thus, the Board of Trustees could make appropriate changes from time to time in
response to developments in securities regulations without incurring the costs
of a Fund shareholder meeting.

Under Proposal 3, the following fundamental investment restrictions will be
re-classified in their present form as non-fundamental investment restrictions
which may be amended in the future by the Board of Trustees.

"The Fund may not:

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

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

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

(4) Purchase or sell real estate, except that the Fund may
invest in securities of companies that deal in real estate or are
engaged in the real estate business, including real estate
investment trusts, and securities secured by real estate or
interests therein and the Fund may hold and sell real estate
acquired through default, liquidation, or other

16
<PAGE> 42

distributions of an interest in real estate as a result of the Fund's
ownership of such securities;

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

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

Minimum Vote Required. Under the requirements of the Investment Company
Act, the vote necessary for approval of Proposal 3 is the affirmative vote of a
majority of the outstanding securities, which is defined as the affirmative vote
of the lesser of (1) more than 50% of the outstanding shares or (2) 67% of the
shares voting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.

THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
THE PROPOSAL 3, TO ADOPT AS FUNDAMENTAL INVESTMENT RESTRICTIONS THE
DIVERSIFICATION STANDARDS OF THE INTERNAL REVENUE CODE SET FORTH ABOVE, AND TO
RE-CLASSIFY ALL INVESTMENT RESTRICTIONS OTHER THAN THE DIVERSIFICATION
STANDARDS, AS SET FORTH ABOVE, AS NON-FUNDAMENTAL INVESTMENT RESTRICTIONS.

17
<PAGE> 43

PROPOSAL 4

RATIFICATION OF SELECTION OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

The financial statements of Longleaf Partners Realty Fund for the fiscal
year ended December 31, 1996, were examined by Coopers & Lybrand, L.L.P.,
independent certified public accountants. In addition, the firm reviewed the
Fund's federal and state income tax returns.

The Board of Trustees has selected Coopers & Lybrand, L.L.P. as independent
certified public accountants for the current fiscal year ending December 31,
1997, and will thereafter consider the firm for service in this capacity in
future fiscal years. The firm is a large, international public accounting firm
and serves numerous other management investment companies and investment company
groups. The firm has informed the Board of Trustees that it has no material
direct or indirect financial interest in either fund. A representative of the
firm is expected to be present at the Annual Meeting to respond to questions.

EXPENSES OF ANNUAL MEETING

ALL SHAREHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THE PROXY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.

By order of the Board of Trustees:

/s/ O. MASON HAWKINS, CFA
O. MASON HAWKINS, CFA
Chairman of the Board of Trustees
and Chief Executive Officer

/s/ CHARLES D. REAVES
CHARLES D. REAVES
Executive Vice President
General Counsel

March 28, 1997

18
<PAGE> 44

EXHIBIT A

INVESTMENT COUNSEL AGREEMENT

AGREEMENT made as of the 29th day of December, 1995, between Longleaf
Partners Realty Fund (the "Fund") the third series of LONGLEAF PARTNERS FUNDS
TRUST, a Massachusetts business trust, ("the Master Trust"), and SOUTHEASTERN
ASSET MANAGEMENT, INC., a Tennessee corporation, (hereinafter referred to as
"the Investment Counsel").

In consideration of the mutual agreements herein made, the Fund and the
Investment Counsel understand and agree as follows:

1.(a) The Investment Counsel agrees, during the term of this
Agreement, to supervise the investment activities of the Fund and to
furnish the Fund with investment research and advice and continuously to
furnish the Fund with an investment program for its assets in a manner
consistent with the investment objectives and policies as adopted by the
Fund's Board of Trustees and shareholders. Such investment program shall
include the timing of the purchase and sales of portfolio securities and
the placing of orders for the purchase and sale of portfolio securities on
behalf of the Fund.

(b) The Investment Counsel shall be responsible for making
recommendations as to the selection of members of securities exchanges,
brokers and dealers (such members, brokers and dealers being hereinafter
referred to as "brokers") for the execution of the Fund's portfolio
transactions and, when applicable, the negotiation of commissions in
connection therewith. The Fund, through the Board of Trustees and pursuant
to such procedures as it shall adopt, shall be responsible for the final
decisions as to these matters. The Investment Counsel shall be responsible
for the actual placement of purchase and sale orders and its officers or
other personnel who place such orders shall be compensated by the
Investment Counsel for such services. The same individual, in his capacity
as an officer, employee or agent of the Investment Counsel, may make the
recommendations in question and, in his capacity as a Trustee or as an
officer of the Fund, make the decisions allocating the purchase or sale
order to a broker for execution on behalf of the Fund. The officer of the
Fund making such decisions and placements may be affiliated with brokers
who effect transactions for the Fund; provided, however, no such officer
may allocate any transactions to the broker with which he is affiliated
unless such allocation is authorized by the President or another officer of
the Fund.

2. All recommendations and decisions with respect to brokers in
connection with the placements of orders for the purchase and sale of
portfolio securities shall be made in accordance with the following
principles:

(a) Purchase and sale orders will usually be placed with brokers
which are recommended by the Investment Counsel and/or selected by the
Fund as able to achieve "best execution" of such orders. "Best
execution" shall mean prompt and reliable execution at the most
favorable security price. 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, without
limitation, 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 where a large block is involved,
availability of the broker to stand ready to execute possibly difficult
transactions in the future, and the financial strength and stability of
the broker. Such considerations are judgmental and are weighed by the
Investment Counsel and the Fund in determining the overall
reasonableness of brokerage commissions.

19
<PAGE> 45

(b) In recommending brokers for portfolio transactions and in
selecting such brokers, the Investment Counsel and the Fund shall take
into account their past experience as to brokers qualified to achieve
"best execution."

(c) The Investment Counsel is authorized to recommend, and the Fund
is authorized to allocate, brokerage and principal business to brokers
who have provided brokerage and research services, (as such services are
defined in Section 28(e)(3) of the Securities Exchange Act of 1934 (the
"1934 Act"), for the Fund and/or other accounts, if any, for which from
time to time the Investment Counsel exercises investment discretion (as
defined in Section 3(a)(35) of the 1934 Act) and, as to transactions in
the United States as to which fixed minimum commission rates are not
applicable, to cause the Fund to pay a commission for effecting a
securities transaction in excess of the amount another broker would have
charged for effecting that transaction, if the Investment Counsel in
making the recommendation in question determines in good faith that such
amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker, viewed in terms
of either that particular transaction or the Investment Counsel's
overall responsibilities with respect to the Fund and the other
accounts, if any, as to which it exercises investment discretion. In
reaching such determination, neither the Investment Counsel nor the
Officer or Officers of the Fund making the decision will be required to
place or attempt to place a specific dollar value on the research or
execution services of a broker or on the portion of any commission
reflecting either of said services. In demonstrating that such
determinations were made in good faith, the Investment Counsel and the
officer or officers of the Fund who have made the recommendations and
decisions in question shall be prepared to show that all commissions
were allocated and paid for purposes contemplated by the Fund's
brokerage policy, that commissions were not allocated or paid for
products or services which were readily and customarily available and
offered to the public on a commercial basis and that the commissions
paid were within a reasonable range. Whether commissions were within a
reasonable range shall be based on any available information as to the
level of commissions known to be charged by other brokers on comparable
transactions, but there shall be taken into account the Fund's policies
that (i) obtaining a low commission is deemed secondary to obtaining a
favorable securities price since it is recognized that usually it is
more beneficial to the Fund to obtain a favorable price than to pay the
lowest commission; and (ii) the quality, comprehensiveness and frequency
of research studies that are provided for the Fund and the Investment
Counsel are useful to the Investment Counsel in performing its advisory
activities under this Agreement. Research services provided by brokers
to the Fund or the Investment Counsel are considered to be in addition
to, and not in lieu of, services required to be performed by the
Investment Counsel under this Agreement. In addition, to the extent not
otherwise prohibited under applicable securities laws and regulations,
the Investment Counsel may cause the Fund to pay a commission for
effecting a securities transaction in excess of the amount another
broker would have charged for effecting the transaction if the
Investment Counsel in making the recommendation in question determines
in good faith that such amount is reasonable in relation to the value of
other goods and services provided the Fund by such broker, subject to
the same principles applied in the payment of commissions paid for
brokerage and research services.

(d) Purchases and sales of portfolio securities other than on a
securities exchange shall be executed with primary market makers acting
as principal except where, in the judgement of the Investment Counsel,
better prices and execution may be obtained on a commission basis or
from other sources.

20
<PAGE> 46

(e) Sales of the Fund's shares made 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, purchase in underwritings or tenders in response
to tender offers) for the account of this Fund to that broker; provided
that the broker shall furnish "best execution", as defined in paragraph
2(a) above, and that such allocation shall be within the scope of the
Fund's other policies as stated above; 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 of the commissions
or other compensation paid to such broker beyond a reasonable amount of
commission or other compensation determined, as set forth in
subparagraph 2(c) hereof, on the basis of best execution plus research
services, without taking account of or placing any value upon such sale
of the Fund's shares.

(f) The Fund may purchase and/or sell securities which are also
purchased or sold by the Investment Counsel or its owners or their
affiliates or other investment advisory clients of the Investment
Counsel. When other clients of the Investment Counsel desire to purchase
or sell a security at the same time such security is purchased or sold
for the Fund, it is understood that such purchases and sales will be
made in a manner designed to be fair to all parties.

3. The Investment Counsel shall, at its own expense, maintain such
staff and employ or retain such personnel and consult with such other
persons as it shall from time to time determine to be necessary or useful
to the performance of its obligations under this Agreement. Without
limiting the generality of the foregoing, the staff and personnel of the
Investment Counsel shall be deemed to include persons employed or otherwise
retained by the Investment Counsel to furnish statistical and other factual
data, advice regarding economic factors and trends, information with
respect to technical and scientific developments, and such other
information, advice and assistance as the Investment Counsel may desire.
The Investment Counsel shall provide the Fund or any Administrator or other
entity having the responsibility of maintaining on behalf of the Fund such
records as are required under the Investment Company Act of 1940 with
prompt and timely information about all aspects of the purchases and sales
of the Fund's portfolio securities and with full information with respect
to brokers executing such securities so as to facilitate the proper
maintenance of all such records. The Investment Counsel shall maintain such
records as may be required to be maintained by an investment counsel under
the Investment Advisers Act of 1940, and all such records shall be made
available to the Trust, upon the request of its Board of Trustees or
President.

4. The Fund will require the Fund's Administrator, or other entity
having the responsibility for maintaining such records as are required by
the Investment Company Act of 1940, to make available to the Investment
Counsel from time to time such financial reports, proxy statements and
other information relating to the business and affairs of the Fund as the
Investment Counsel may reasonably require in order to discharge its duties
and obligations hereunder or to comply with any applicable law and
regulations.

5. The Investment Counsel shall bear the cost of rendering the
investment advisory services to be performed by it under this Agreement and
shall, at its own expense, pay the compensation of the directors, officers
and employees, if any, of the Fund who are also employed by the Investment
Counsel, and such clerical and bookkeeping services as the Investment
Counsel shall reasonably require in performing its duties hereunder, as
required by the Investment Advisers Act of 1940 (other than records
maintained by the Fund as required by the Investment Company Act of 1940).

21
<PAGE> 47

6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Counsel, the Fund shall pay to the
Investment Counsel an Investment Counsel Fee which shall be accrued daily
and paid monthly in arrears equal to 1.00% per annum of the Fund's average
daily net assets. Such calculations shall be made by applying 1/365ths of
the annual rate to the Fund's net assets each day determined as of the time
the net asset value is determined on that day or if the net asset value is
not determined on the day, on the last previous business day it was so
determined. If this Agreement becomes effective subsequent to the first day
of a month or shall terminate before the last day of a month, compensation
for the part of the month this Agreement is in effect shall be prorated in
a manner consistent with the calculation of the fees as set forth above.
Subject to the provisions of paragraph 8 hereof, payment of the
compensation of the Investment Counsel for the preceding month shall be
made as promptly as possible after completion of the computations described
in paragraph 8 hereof.

7. The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, but not being limited to the charges and
expenses of any Administrator, any transfer agent, and/or any dividend
disbursing agent; the charges and expenses of any registrar, any custodian,
sub-custodian or depository appointed by the Fund for the safekeeping of
its cash, portfolio securities and other assets and the settlement of its
portfolio securities transactions; all taxes, including securities issuance
and transfer taxes, and fees payable by the Fund to federal, state or other
governmental agencies or pursuant to any foreign laws; the cost and expense
of engraving or printing of any certificates representing shares of the
Fund; all costs and expenses in connection with the registration and
maintenance of registration of the Fund and its shares with the Securities
and Exchange Commission and various states and other jurisdictions or
pursuant to any foreign laws (including filing fees and legal fees and
disbursements of counsel); the cost and expense of printing, including
typesetting, and distributing prospectuses of the Fund and supplements
thereto the Fund's shareholders; all expenses of shareholders' and
Trustees' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not
employees of the Investment Counsel; all expenses incident to the payment
of any dividend, distribution, withdrawal or redemption whether in shares
or in cash; charges and expenses of any outside service used for pricing of
the Fund's shares; charges and expenses of legal counsel, including counsel
to the Trustees of the Fund who are not "interested persons" (as defined in
the Investment Company Act of 1940) of the Trust or the Investment Counsel,
and or independent accountants, in connection with any matter relating to
the Fund; membership dues of industry associations; interest payable on
Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Trustees) of the Fund which inure to its benefit;
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto);
and all organizational costs and all other charges and costs of the Fund's
operations unless otherwise explicitly provided herein; provided, however,
that all such expenses to be paid by the Fund shall be subject to review
and approval by the Board of Trustees of the Fund as to the reasonableness
thereof.

8. In the event the operating expenses of the Fund, including amounts
payable to the Investment Counsel pursuant to paragraph 6 hereof but
excluding all extraordinary expenses, for any fiscal year ending on a date
on which this Agreement is in effect, exceed the expense limitations
applicable to the Fund imposed by state securities laws or regulations
thereunder, as such limitations may be raised or lowered from time to time,
the Investment Counsel shall reduce its Investment Counsel Fee to the
extent of such excess and, if required pursuant to any such laws or
regulations, will reimburse the Fund for annual operating expenses in the
amount of such excess of any expense limitation that may be

22
<PAGE> 48

applicable; provided, however, there shall be excluded from such expenses
the amount of any interest, taxes, brokerage commissions, distribution fees
and extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto)
paid or payable by the Fund. Such reduction, if any, shall be based upon
the expense limitation, if any, applicable to the Fund at the end of the
last business day of the fiscal year of the Fund. Each such monthly
calculation shall be based on the Fund's average daily net assets and
expenses for the period beginning on the first day of the fiscal year of
the Fund (or, in its first year, the first day of the Fund's operations).
Should two or more such expense limitations be applicable at the end of the
last business day of the month, that expense limitation which results in
the largest reduction in the applicable fees or the largest expense
reimbursements shall be applicable. In the absence of any applicable
expense limitations under state laws or regulations which are more
favorable to the Fund than the following undertaking, the Investment
Counsel agrees that the Investment Counsel Fee shall be reduced and
reimbursement of the Fund shall be required to the extent necessary to
limit operating expenses (other than interest, taxes, brokerage
commissions, distribution fees, and extraordinary expenses) as defined
above, to a maximum during any fiscal year of 1.5% per annum of average net
assets of the Fund; provided, however, that the Investment Counsel shall
not be required pursuant to this undertaking to provide reimbursement to
the Fund for any fiscal year in excess of the amount of its Investment
Counsel Fee which would otherwise be earned for that fiscal year.

9. The Investment Counsel will use its best efforts in the supervision
and management of the investment advisory activities of the Trust. 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
for, or any damages, expenses or losses incurred in connection with, any
act or omission connected with or arising out of any services rendered
under this Agreement, including any mistake of judgement, 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 this Agreement. Notwithstanding the foregoing, the Investment Counsel
shall not be liable to the Fund for the acts and omissions of any party
engaged by it to execute purchases and sales of portfolio securities for or
on behalf of the Fund under this Agreement, except to the extent that such
party is liable to the Investment Counsel for such acts and omissions. Any
person, even though also employed by the Investment Counsel, who may be or
become an employee of and paid by the Fund shall be deemed, when acting
within the scope of his or her employment by the Fund, to be acting in such
employment solely for the Fund and not as the employee or agent of the
Investment Counsel.

10. Nothing contained in this Agreement shall prevent the Investment
Counsel or any affiliated person of the Investment Counsel from acting as
investment adviser or manager for any other person, firm, corporation
and/or other entity and nothing contained in this Agreement shall in any
way bind or restrict the Investment Counsel or any such affiliated person
from buying, selling or trading any securities or commodities for their own
accounts or for the account of others for whom they may be acting. Nothing
in this Agreement shall limit or restrict the right of any Trustee, or
officer or employee of the Investment Counsel to engage in any other
business or to devote his time and attention in part to the management or
other aspects of any other business whether of a similar or dissimilar
nature.

11. This Agreement shall remain in effect for a period of two (2)
years and from year to year thereafter, provided such continuance is
approved at least annually by the vote of holders of a majority, as defined
in the Investment Company Act of 1940, of the outstanding voting securities
of the Fund or

23
<PAGE> 49

by the Trustees of the Fund; provided, that in either event such
continuance is also approved annually by the vote of a majority of the
Trustees of the Fund who are not parties to this Agreement or who are not
otherwise "interested persons" (as defined in the Investment Company Act of
1940) of any such party, which vote must be cast in person at a meeting
called for the purpose of voting on such approval; provided, however, that
(a) the Fund may, at any time and without the payment of any penalty,
terminate this Agreement upon sixty days written notice to the Investment
Counsel, either by majority vote of the Trustees of the Fund or by the vote
of a majority of the outstanding voting securities of the Fund; (b) this
Agreement shall immediately terminate in the event of its assignment
(within the meaning of the Investment Company Act of 1940) unless such
automatic termination shall be prevented by an exemptive order of the
Securities and Exchange Commission; and (c) the Investment Counsel may
terminate this Agreement without payment of penalty on sixty days written
notice to the Fund. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed post-paid, to the other party
at the principal office of such party.

12. This Agreement may be amended by the parties without the vote or
consent of the shareholders of the Fund to supply any omission, to cure,
correct or supplement any ambiguous, defective or inconsistent provision
hereof, or if they deem it necessary to confirm this Agreement to the
requirements of applicable federal laws or regulations, but neither the
Fund nor the Investment Counsel shall be liable for failing to do so.

13. This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts and the applicable provisions of the
Investment Company Act of 1940. To the extent the applicable laws of the
Commonwealth of Massachusetts, or any of the provisions herein, conflict
with the applicable provisions of the Investment Company Act of 1940, the
latter shall control.

14. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, or rule or otherwise, the remainder of the
Agreement shall not be affected thereby and, to this extent, the provisions
of this Agreement shall be deemed to be severable.

15. Nothing herein shall be construed as constituting the Investment
Counsel as an agent of the Fund.

16. The Declaration of Trust establishing the Fund, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that
the name of the Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no
Trustee, shareholder, officer, employee or agent of the Fund shall be held
to any personal liability, nor shall resort be had to their private
property (other than as specifically provided in the said Declaration of
Trust) for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Fund, but the Fund's assets and estate
only shall be liable.

24
<PAGE> 50

IN WITNESS WHEREOF, the parties hereto have executed this Agreement this
29th day of December, 1995.

Longleaf Partners Funds Trust
(the Master Trust)
and
Longleaf Partners Realty Fund
(Third Series)

By: /s/ CHARLES D. REAVES
------------------------------------
Charles D. Reaves
Executive Vice President

Southeastern Asset Management, Inc.
(the Investment Counsel)

By: /s/ W. REID SANDERS
------------------------------------
W. Reid Sanders
Executive Vice President

25
<PAGE> 51

EXHIBIT B

FUND ADMINISTRATION AGREEMENT

AGREEMENT made as of the 29th day of December 1995, between Longleaf
Partners Realty Fund (the "Fund"), the third series of LONGLEAF PARTNERS FUNDS
TRUST, a Massachusetts business trust, ("the Master Trust") and SOUTHEASTERN
ASSET MANAGEMENT, INC., a Tennessee corporation, (hereinafter referred to as
"the Administrator"). In consideration of the mutual agreements herein made, the
Fund appoints the Administrator and the Administrator agrees to serve as the
Fund Administrator on the terms and conditions set forth herein.

GENERAL AUTHORITY AND FACILITIES

1.01 STANDARD OF SERVICE OF THE ADMINISTRATOR

The Administrator will use its best efforts to provide efficient,
effective, and accurate administrative services for the Fund, as defined in
Section II herein, and will seek innovative and continuing technological
improvements for the said functions for which it has assumed responsibilities.
The Administrator will not be liable or responsible for delays or errors by
reason of circumstances beyond its control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical breakdown
beyond its control, flood or catastrophe, acts of God, insurrection, war, riots
or failure beyond its control of transportation, communication or power supply.
The Administrator will provide services equal in quality to those
administration, accounting, and shareholder services performed for any other
management investment companies which the administrator may serve in a similar
capacity.

1.02. FACILITIES AND EMPLOYEES

(a) The Administrator shall, at its own expense, furnish directly or
through subsidiaries, office facilities, including space, furniture and
equipment and, to the extent that such services are not being provided by others
under contract with the Fund, personnel for managing the affairs of the Fund,
maintaining and servicing the records with respect to the investments and
shareholders of the Fund, and maintaining and servicing all other books and
records of the Fund, as required by the Investment Company Act of 1940, but not
including such duties, services, or records which are customarily performed or
maintained for an open-end management investment company by its custodian,
transfer agent, independent auditors, and/or outside legal counsel.

(b) The Administrator shall provide personnel satisfactory to the Board of
Trustees of the Fund to serve as officers of the Fund, including a President,
one or more Executive Vice Presidents or Vice Presidents, a Secretary, a
Treasurer, and such additional officers and employees as may reasonably be
necessary for the performance of its duties under this Agreement.

(c) The personnel and facilities provided by the Administrator shall be
subject to the control and direction of the Board of Trustees of the Fund,
notwithstanding that some or all of their compensation and expenses of their
employment may be paid by the Administrator. The Administrator is responsible
for the employment, control and conduct of its agents and employees and for
injury to such agents or employees or to others through its agents or employees.
The Administrator assumes full responsibility for its agents and employees under
applicable statutes and agrees to pay all employment taxes thereunder. The
Administrator will maintain appropriate insurance at its own expense against
public liability in a reasonable amount.

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<PAGE> 52

1.03. DOCUMENTS TO BE FURNISHED TO ADMINISTRATOR

The Fund shall from time to time provide the Administrator with: (1) a copy
of the Declaration of Trust of the Fund and all amendments thereto; (2) a copy
of the Bylaws of the Fund as amended from time to time; (3) certified copies of
votes of the Board of Trustees of the Fund relating to the issues of Shares of
the Fund; (4) any amended certificate for Shares of the Fund in the form adopted
by the Board; (5) specimen signatures of the officers of the Funds; (6) such
other documents as the Administrator may reasonably request.

1.04. PROTECTION OF ADMINISTRATOR; INDEMNIFICATION

(a) The Administrator may rely on certifications of the President, any
Executive Vice President or Vice President, the Secretary or the Treasurer of
the Fund as to proceedings, facts or other matters in connection with any action
taken by the shareholders or the Board of Trustees of the Fund, and upon
instructions not inconsistent with this Agreement, from the President or any
Executive Vice President or Vice President and the Treasurer or any Assistant
Treasurer. The Administrator may apply to counsel for the Fund or to its own
counsel for advice whenever it deems it expedient. With respect to any action
taken on the basis of such certifications or instructions or in accordance with
the advice of counsel for the Fund, the Fund will indemnify and hold harmless
the Administrator from any and all liability and expense.

(b) The Administrator shall be indemnified and held harmless by the Fund
against any loss or damage by reason of any act done by it in good faith and in
reliance upon any instrument or certificate for Shares believed by it (a) to be
genuine and (b) to be signed, countersigned or executed by any person or persons
authorized to sign, countersign, or execute such instrument or certificate;
provided, however, that the Administrator shall not be so indemnified in the
event of its failure to obtain a proper signature guarantee.

(c) If any officer of the Fund shall no longer be vested with authority to
sign for the Fund, written notice thereof shall forthwith be given to the
Administrator by the Fund and until receipt of such notice by it, the
Administrator shall be fully indemnified and held harmless by the Fund in
recognizing and acting upon certificates or other instruments bearing the
signatures or facsimile signatures of such officer.

(d) Except as may otherwise be required by the Investment Company Act of
1940 or the rules thereunder, neither the Administrator nor its stockholders,
officers, directors, employees or agents shall be subject to any liability for,
or any damages, expenses or losses incurred in connection with, any act or
omission connected with or arising out of any services rendered under this
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 this
Agreement. Notwithstanding the foregoing, the Administrator shall not be liable
to the Fund for the acts and omissions of any party engaged by it to execute
purchases and sales of portfolio securities for or on behalf of the Fund under
this Agreement, except to the extent that such party is liable to the
Administrator for such acts and omissions. Any person, even though also employed
by the Administrator, who may be or become an employee of the Fund shall be
deemed, when acting within the scope of his or her employment by the Fund, to be
acting in such employment solely for the Fund and not as the employee or agent
of the Administrator.

(e) The Administrator shall for all purposes herein be deemed to be an
independent contractor. As such, the Administrator has no authority to act for
or represent the Fund in any way and is not an agent of the Fund.

27
<PAGE> 53

ACCOUNTING AND ADMINISTRATION FUNCTIONS

2.01. MAINTENANCE OF RECORDS

The Administrator will maintain records on behalf of the Fund in compliance
with the Rules and Regulations of the Securities and Exchange Commission,
including, but not limited to, any such records required to be maintained
pursuant to Section 31(a) of the Investment Company Act of 1940 and the Rules
and Regulations thereunder. Such records will at all times be available for
inspection and use by the Fund and upon termination of this Agreement be
transferred upon instructions of the Fund to any successor administrator or to
the Fund itself.

2.02. RESPONSIBILITIES AND FUNCTIONS

The Administrator shall have the responsibility of managing, performing, or
supervising the administrative and business operations of the Fund, other than
those related to the management of the Fund's portfolio of securities and the
distribution and sale of the Fund's shares. The duties and responsibilities to
be performed by the Administrator shall include the following:

(1) Preparation or supervision of the preparation of all registration
statements and prospectuses, and the filing thereof with the appropriate
regulatory authorities.

(2) Preparation or supervision of the preparation of all public
financial statements and financial reports, the filing thereof with the
appropriate regulatory authorities, and the distribution to shareholders of
the Fund.

(3) Preparation or the supervision of the preparation of all tax
returns and the filing thereof with the appropriate regulatory authorities.

(4) Preparation or the supervision of the preparation of any Proxy
Statements, assistance in the conduct of any meetings of shareholders,
tabulation of proxies and ballots of shareholders, and the maintenance of
minutes of such meetings.

(5) Daily valuation of the Fund's portfolio and the daily calculation
of the Fund's net asset value per share.

(6) Co-ordination and liaison between the Fund and its Investment
Counsel, its Custodian, its Transfer Agent and the reconciliation of all
accounts and records provided by such entities.

(7) Management and scheduling of regular quarterly meetings of the
Fund's Board of Trustees, and in connection therewith, providing all
necessary assistance in the conduct of such meetings, and the maintenance
of minutes of such meetings.

(8) Establishment of internal accounting controls and procedures and
the continuing monitoring thereof.

(9) Co-ordination with the Fund's independent certified public
accountants and outside legal counsel.

(10) Management of audits and inspections by the Fund's independent
certified public accountants and by all regulatory authorities.

28
<PAGE> 54

(11) Supplying or obtaining on behalf of the Fund such other advice or
assistance as may be necessary or desirable in the continuing
administration of the Fund's business affairs.

2.03. ADMINISTRATION FEES AND EXPENSES

(a) The Administrator shall be entitled to receive and the Fund shall be
obligated to pay to the Administrator for the services specified in this Section
II an Administration Fee, which shall be accrued daily and paid monthly in
arrears of 0.10% per annum of average daily net assets. The Fund shall also
reimburse the Administrator for the Fund's equitable and appropriate share of
the salary of the Fund's Treasurer, as allocated among the Fund and any other
Fund or series and any other commingled investment or insurance product served
by the Administrator and the Fund's Treasurer, subject to review of and approval
by the Board of Trustees, and shall pay or provide reimbursement for all other
operational expenses, as provided in Paragraphs 2.03(b) and 2.03(c) of this
Agreement.

2.03(b) The Fund shall pay all of its costs and expenses of operation,
except those specifically stated herein to be borne or payable by the
Administrator. The expenses payable by the Fund shall include, but shall not be
limited to: (i) the fees of the Fund's Investment Counsel, and Administrator;
(ii) the fees of any Custodian and Transfer Agent of the Fund; (iii)
compensation of the Fund's independent certified public accountants and any
legal counsel retained by the Fund, including compensation and costs relating to
litigation, and the fees, compensation and expenses of the "non-interested"
Trustees of the Fund; (iv) franchise, income, business license and original
issue taxes relating to the Fund and its securities; (v) fees and legal expenses
incurred in qualifying the shares of the Fund for sale with any state regulatory
agency in the several states, and the fees and expenses of maintaining,
renewing, increasing or amending such qualifications; (vi) insurance and bonding
premiums and association dues; (vii) fees and expenses involved in registering
and maintaining registrations of the Fund and of its shares with the Securities
and Exchange Commission, including the preparation and printing of prospectuses
for shareholders; (viii) costs of printing and mailing to shareholders
prospectuses, proxy statements, dividend notices, routine and special reports
and other communications to shareholders, as well as all expenses of
shareholders and Trustees meetings; (ix) costs of printing of any stock
certificates; (x) interest expense and brokers' commissions and issue and
transfer taxes chargeable to the Fund in connection with securities transactions
to which the Fund is a party; (xi) the costs of obtaining prices of the Fund's
portfolio securities; and (xii) any extraordinary expenses including
extraordinary legal expenses; provided, however, that all such expenses to be
paid by the Fund shall be subject to review and approval by the Board of
Trustees of the Fund as to the reasonableness thereof.

2.03(c) The Fund shall reimburse the Administrator for the Fund's equitable
and appropriate share of the costs and expenses of the following items, such
costs and expenses to be allocated among the Fund and any other Funds or series
and any other commingled investment or insurance products served by the
Administrator, subject to review of and approval by the Board of Trustees of the
Fund as to the method of allocation and the reasonableness of the costs and
expenses:

(1) Costs and expenses of leasing or acquiring specialized computer
programs or computer software and software support contracts used
exclusively by the Fund and any other Funds or commingled products.

(2) Costs and expenses of leasing or acquiring specialized computer
equipment or hardware and appropriate support contracts for computer
equipment purchased exclusively for and dedicated solely to processing of
transactions for the Fund and any other Funds or commingled products.

29
<PAGE> 55

(3) Organizational expenses amortized in a manner as permitted by
generally accepted accounting principles and the Securities & Exchange
Commission, limited to the particular series or Fund.

(4) Costs and expenses of stationery, appropriate forms, envelopes,
checks, postage, telephone, telegraph, and overnight or other courier
charges and other similar items, to the extent such costs and expenses have
not been paid directly by the Fund.

III

TERMINATION, AMENDMENTS, AND OTHER PROVISIONS

3.01. RENEWAL AND TERMINATION

This Agreement shall remain in effect for a period of two (2) years and
from year to year thereafter, provided such continuance is approved at least
annually by the vote of holders of a majority, as defined in the Investment
Company Act (the "Act"), of the outstanding voting securities of the Fund or by
the Trustees of the Fund; provided, that in either event such continuance is
also approved annually by the vote of a majority of the Trustees of the Fund who
are not parties to this Agreement or who are not otherwise "interested persons"
(as defined in the Investment Company Act of 1940) or any such party, which vote
must be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that (a) the Fund may, at any time and without the
payment of any penalty, terminate this Agreement upon sixty days written notice
to the Administrator, either by majority vote of the Trustees of the Fund or by
the vote of a majority of the outstanding voting securities of the Fund; (b)
this Agreement shall immediately terminate in the event of its assignment
(within the meaning of the Investment Company Act of 1940) unless such automatic
termination shall be prevented by an exemptive order of the Securities and
Exchange Commission; and (c) the Administrator may terminate this Agreement
without penalty on sixty days written notice to the Fund. Any notice under this
Agreement shall be given in writing, addressed and delivered, or mailed
post-paid, to the other party at the principal office of such party.

3.02. SUCCESSOR ADMINISTRATOR

In the event that a successor to any of the Administrator's duties or
responsibilities hereunder is designated by the Fund by written notice to the
Administrator, the Administrator will, promptly upon such termination and at the
expense of the Fund, transfer to such successor all other relevant books,
records, correspondence and other data established or maintained by the
Administrator under this Agreement in form reasonably acceptable to the Fund (if
such form differs from the form in which the Administrator has maintained the
same, the Fund shall pay any expenses associated with transferring the same to
such form), and will cooperate in the transfer of such duties and
responsibilities, including provision for assistance from the Administrator's
personnel in the establishment of books, records, and other data by such
successor.

3.03. AMENDMENT

This Agreement may be amended by the parties without the vote or consent of
the shareholders of the Fund to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to confirm this Agreement to the requirements of applicable
federal laws or regulations.

30
<PAGE> 56

3.04. FURTHER ASSURANCES

Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes of this Agreement.

3.05. MISCELLANEOUS

(a) This Agreement shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts.

(b) The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions of this
Agreement or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument.

(c) The Declaration of Trust establishing the Fund, a copy of which,
together will all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that the
name of the Trust refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the said Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise, in connection with the
affairs of said Trust, but the Trust assets and estate only shall be liable.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement this
29th day of December, 1995.

Longleaf Partners Funds Trust
(the Master Trust)
and
Longleaf Partners Realty Fund
(Third Series)

By: /s/ CHARLES D. REAVES
------------------------------------
Charles D. Reaves
Executive Vice President

Southeastern Asset Management, Inc.
(the Investment Counsel)

By: /s/ W. REID SANDERS
------------------------------------
W. Reid Sanders
Executive Vice President

31
<PAGE> 57

FORM OF PROXY

<TABLE>
<C> <S>
PROXY -- LONGLEAF PARTNERS THIS PROXY IS SOLICITED ON BEHALF
REALTY FUND OF THE BOARD OF TRUSTEES
</TABLE>

KNOW ALL MEN BY THESE PRESENTS: That the undersigned, revoking any previous
proxies for such shares, hereby appoints O. Mason Hawkins, W. Reid Sanders, and
Charles D. Reaves or any one of them, attorneys of the undersigned with full
power of substitution, to vote all shares of LONGLEAF PARTNERS REALTY FUND (the
"Fund") which the undersigned is entitled to vote at the 1997 Annual Meeting of
Shareholders of the Fund, to be held at 5:30 p.m. on Tuesday, May 13, 1997, in
Hardin Hall at the Memphis Botanic Garden, 750 Cherry Road, Memphis, Tennessee,
and at any and all adjournments thereof. Receipt of the Notice and Proxy
Statement for said Meeting is hereby acknowledged.

TRUSTEES: O. Mason Hawkins; W. Reid Sanders; Chadwick H. Carpenter, Jr.,
Daniel W. Connell, Jr.; Steven N. Melnyk; C. Barham Ray

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

2. To approve or disapprove a proposal to ratify adoption of the Investment
Counsel Agreement and the Fund Administration Agreement with Southeastern
Asset Management, Inc., and to extend the term for a one-year period
beginning August 1, 1997 and ending July 31, 1998,

FOR [ ] AGAINST [ ] ABSTAIN [ ]
(Over)

FOR [ ] AGAINST [ ] ABSTAIN [ ]

4. To ratify the selection of Coopers & Lybrand, L.L.P. as Independent
Certified Public Accountants for the Fund.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

THE TRUSTEES RECOMMEND A "FOR"
VOTE ON ALL MATTERS.

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

--------------------------------
Please sign exactly as your name
or names appear on left.

Dated: , 1997
-------------------