LONGLEAF PARTNERS FUNDS TRUST, DEF 14A, 1997-04-07

LONGLEAF PARTNERS FUNDS TRUST
DEF 14A, 1997-04-07

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<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>

LONGLEAF PARTNERS FUND
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[ ] Fee paid previously with preliminary materials:

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:
<PAGE> 2

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1997

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

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

SCHEDULE 14A INFORMATION

DEFINITIVE 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> 3

April 2, 1997

Dear Fellow Shareholder:

The enclosed proxy statement represents the response of Longleaf
Partners Fund and Longleaf Partners Small-Cap Fund to recent changes
in securities legislation as well as your Board's effort to improve
our investment flexibilites. Last year Congress passed a law that
eliminated state investment restrictions. As a result many of the
restrictions placed on the Funds are no longer required. This proxy
asks shareholders to eliminate unnecessary investment limitations and
expand management's investment powers.

It is important for all shareholders to understand that the
items in this proxy do not imply that the Funds will be managed
differently. Southeastern Asset Management, the Funds' advisor, has
used the same investment disciplines for the last 22 years, and our
investment approach remains unchanged. We are asking shareholders to
expand the tools available for implementing our philosophy. Many of
these tools were previously unavailable because of individual state
requirements which no longer exist.

When Longleaf Partners Realty Fund was created last year, the
prospectus was written with the flexibility we are now seeking for
our other two funds. This investment flexibility has been very
beneficial in managing the Realty Fund, and we believe the same
portfolio management capabilities will equally enhance the other two
funds. In addition, many of these same tools have been deployed
successfully in the management of our non-mutual fund assets over the
two decades since Southeastern Asset Management, Inc. was founded. If
shareholders approve the items in this proxy, the investment
guidelines and restrictions for all three Longleaf Partners Funds
will be identical. This will allow one prospectus for all three
funds, reducing printing and mailing expenses.

The primary changes relate to two areas -- diversification and
investment restrictions. The Funds' portfolios have always been
concentrated in Southeastern's best ideas, generally with fewer than
30 companies. The Board would like to enable the Funds to be more
heavily concentrated when Southeastern finds truly great
opportunities. Changing to a "non-diversified" fund would essentially
double the number of companies which could have more than 5% of
assets invested, and would allow broader concentration. The proposed
changes related to investment restrictions provide the Funds with
additional tools which will enable Southeastern to manage investment
risk better. Several of these capabilities will also let Southeastern
manage tax liabilities more efficiently.

The Board and employees of Southeastern and affiliates are one
of the largest shareholder groups in each of the Longleaf Funds and
we have one simple objective in proposing this proxy -- to make
available the investment tools required for compounding our own
capital at the highest possible return commensurate with the lowest
possible risk.

We cannot overemphasize the importance of reviewing the enclosed
proxy statement and returning your proxy card immediately. THE BOARD
AND MANAGEMENT STRONGLY URGE YOU TO SUPPORT THESE IMPORTANT CHANGES.
If you have any questions regarding the enclosed proxy or need any
assistance in voting your shares, please contact our proxy solicitor.
D.F. King & Co., Inc. at 1-800-859-8511.

Thank you for your prompt response.

Sincerely,

/s/ O. MASON HAWKINS, CFA

O. MASON HAWKINS, CFA

Chairman of the Board

LOGO
<PAGE> 4

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"),
each a series of Longleaf Partners Funds Trust, 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 re-state certain fundamental
investment restrictions, as separately discussed in the Proxy Statement,
and thereby expand the Fund's investment flexibility.

4. To approve or disapprove a proposal to re-state all remaining
fundamental investment restrictions as non-fundamental restrictions, as
separately discussed in the Proxy Statement, thereby eliminating those no
longer required under state law and expanding the Fund's investment
flexibility.

5. 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

April 2, 1997

YOUR VOTE IS IMPORTANT

PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, SIGN
AND DATE IT, AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH NEEDS NO POSTAGE IF
MAILED IN THE UNITED STATES. IN ORDER TO SAVE THE FUND ANY ADDITIONAL EXPENSE
OF FURTHER SOLICITATION, PLEASE MAIL YOUR PROXY PROMPTLY. IF YOU HAVE ANY
QUESTIONS REGARDING THE ENCLOSED PROXY MATERIAL OR NEED ASSISTANCE IN VOTING
YOUR SHARES, PLEASE CONTACT OUR PROXY SOLICITOR, D.F. KING & CO. AT
1-800-859-8511. YOUR INTEREST AND PARTICIPATION IN THE AFFAIRS OF YOUR FUND
ARE APPRECIATED.

<PAGE> 5

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 100,512,145 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 an
omnibus brokerage account.

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 19,926,855 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 16.1% in an omnibus brokerage
account; clients of National Financial Services Corp., a registered brokerage
firm, owned approximately 9.4%

<PAGE> 6

in an omnibus brokerage account; Mr. O. Mason Hawkins, Chairman, owned
beneficially approximately 5.2%; other directors, trustees, officers and
employees of Southeastern Asset Management, Inc. and Southeastern's profit
sharing plan, and members of their families owned an additional 17.5%, but 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 April 2, 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.

Availability of Annual Report. 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. As a "diversified" fund, the ability to invest more than 5% of assets
in a single company is limited to 25% of total assets; each company held in the
remaining 75% diversified portion of total assets may not exceed 5% of assets.

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,

2
<PAGE> 7

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 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 RE-STATE CERTAIN FUNDAMENTAL INVESTMENT RESTRICTIONS AND THEREBY
EXPAND THE FUND'S INVESTMENT FLEXIBILITY.

The specific revisions and changes in fundamental investment restrictions
and their resulting effects and risks are discussed separately on pages 11
through 15 of the text.

4. PROPOSAL TO RE-STATE ALL REMAINING FUNDAMENTAL INVESTMENT RESTRICTIONS AS
NON-FUNDAMENTAL RESTRICTIONS, THEREBY ELIMINATING THOSE NO LONGER REQUIRED BY
STATE LAW AND EXPANDING THE FUND'S INVESTMENT FLEXIBILITY.

In October of 1996, the National Securities Markets Improvements Act of
1996 became effective. 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 the Securities and Exchange Commission.

Because of the continually evolving regulatory changes in investment
restrictions, the Board proposes that the Funds' remaining fundamental
investment restrictions be re-stated so as to include as fundamental
restrictions (restrictions which cannot be changed without shareholder approval)
only those related to diversification requirements and those required by
Securities and Exchange Commission rules to be fundamental. All others would be
restated to eliminate restrictions which are no longer required in their present
form and to expand the Fund's investment flexibility, as discussed in the
summary to Proposal 3. As re-stated, these investment restrictions would be
non-fundamental investment restrictions which could be amended by the Board of
Trustees to respond to further charges in securities regulation without the
expense of holding a formal meeting of shareholders.

The specific revisions and changes in fundamental investment restrictions
and their resulting effects and risks are discussed separately on pages 16
through 20 of the text.

5. 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 on page 20 of the
text.

3
<PAGE> 8

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, which acts
only on matters affecting that particular Fund. Each Board of Trustees has
continuing oversight responsibility, 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 these are independent of and not affiliated
with Southeastern Asset Management, Inc. and otherwise qualify as non
"interested" or non-affiliated 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

4
<PAGE> 9

<TABLE>
<CAPTION>
NOMINEES (AGE)
POSITION WITH FUND SHARES BENEFICIALLY
AND YEAR FIRST ELECTED 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 354,885
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, 452,291
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 21,892
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 23,478
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 Partners Fund
Trustee, President -- Marketing, Jacksonville 155
Partners Fund, since 1997 Jaguars, Ltd., Jacksonville, Florida Small-Cap Fund
Small-Cap Fund, since 1997 (National Football League franchise); 97
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> 10

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

* 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> 11

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
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
845 Crossover Lane
Ste. 140
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 20
and 21 of the text.

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

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 nominees 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.

7
<PAGE> 12

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"). These rules require that the Fund maintain a "diversified basket"
of securities consisting of 75% of total assets in which investments in single
companies are limited to 5% of total assets and not more than 10% of any such
company's voting stock. The remaining 25% of total assets can be invested
without following these requirements. In this "non-diversified basket", more
than 5% of total assets can be invested in a single company and the Fund may own
more than 10% of the company's voting stock. A fund which does not follow these
Investment Company Act diversification standards is "non-diversified", even
though it may follow other diversification standards such as those used in
determining that a fund qualifies for favorable tax treatment under the Internal
Revenue Code.

Upon their formation, the Funds adopted two specific fundamental investment
restrictions, derived from the language of the Investment Company Act, to
establish their status as diversified funds. These investment restrictions
cannot be changed without shareholder approval. Contained in the Prospectus, the
first controls the percentage of total assets which may be invested in a single
company and the second controls how much of a company's voting stock may be
acquired. These restrictions are as follows:

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)."

When fully invested, the minimum number of companies in which the Fund can
now invest is 16. There can 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 firm's ability to place several companies
in the "non-diversified" basket at more than 5% of total assets is severely
limited. For example, the Fund cannot now invest 8% of its assets in more than 3
companies and cannot now invest 10% of its assets in more than 2 companies. The
Board is now seeking relief from this type of diversification limitation.

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<PAGE> 13

Internal Revenue Code Diversification Standards. The Board proposes to
adopt as fundamental policy the diversification standards contained in
Sub-Chapter M of the Internal Revenue Code of 1986. These standards are less
restrictive than those applied to diversified funds under the Investment Company
Act of 1940, but nevertheless contain precise and clearly stated requirements 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 Internal Revenue 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. Further, the Board is not proposing a change in the fundamental
investment restriction which limits the Fund's investments in a single industry
to a maximum of 25% of total assets.

Applying the Internal Revenue Code diversification standards, a fund when
fully invested would hold at least 12 different portfolio investments, as
compared with 16 under the diversification rules of the Investment Company Act.
Thus, in the 50% "diversified basket", the Fund would hold at least 10
companies, each at not more than 5% of total assets when purchased. In the 50%
"non-diversified basket", the Fund when fully invested would hold at least 2
companies which would comprise not more than 25% of total assets each when
acquired. Southeastern anticipates that it will usually recommend investing in
at least 5 to 8 companies in this "non-diversified basket", with each company
comprising more than 5% of total assets.

Restriction on Percentage of Voting Stock of a Portfolio Company. The
second defining restriction on diversification adopted by the Fund 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, the Fund in its 75% "diversified basket"
cannot acquire more than 10% of a company's voting stock. However, in its 25%
"non-diversified basket", the Fund may acquire more than 10% of a company's
voting stock.

Internal Revenue Code Diversification Standards. The Internal Revenue Code
restrictions also place 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 own more than
10% of a company's voting stock, but it may not invest more than 25% of its
assets in any one company or in any two 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.

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.
Southeastern believes that concentrating investments in relatively few companies

9
<PAGE> 14

which are substantially discounted from its appraisal of their intrinsic worth
provides a margin of safety and lowers the commensurate risk. Thus, investing a
larger percentage of assets in companies believed by Southeastern to be
particularly undervalued has the potential of generating substantially greater
absolute and relative investment returns for the portfolio over time. 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 these particular companies.

Proposed Amendments. As discussed above, by adopting the Internal Revenue
Code diversification standards, there will continue to be clearly stated limits
on the Fund's ability to be non-diversified. The net effect of the proposed
change will 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% of total assets. Both Funds would be re-classified as
"non-diversified" investment companies under Section 5(b)(2) of the Investment
Company Act. Fundamental Investment Restrictions 1 and 2, set forth above and in
the Funds' Prospectus, would be replaced by a fundamental investment restriction
derived from Sections 851(b)(4)(A) and 851(b)(4)(B) of the Internal Revenue
Code. The two fundamental investment restrictions controlling diversification
would then be restated as a single, fundamental investment restriction, which
would 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.

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<PAGE> 15

PROPOSAL 3

APPROVAL OR DISAPPROVAL OF A PROPOSAL TO RE-STATE CERTAIN FUNDAMENTAL
INVESTMENT RESTRICTIONS AND THEREBY EXPAND THE FUND'S INVESTMENT FLEXIBILITY.

The predominate purpose of this proposal is to expand the Fund's investment
flexibility so as to enable Southeastern to reduce investment risk through
hedging the portfolio when appropriate, managing foreign currency exposure, and
managing potential income tax liabilities. Southeastern intends to use this
additional investment flexibility primarily to reduce risk rather than for
speculation. 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 provide a
basis for building a position in a desired security by writing puts at a
favorable strike price if immediate purchase of the security is not possible at
an acceptable price.

Shareholders must approve changes to fundamental investment restrictions,
while the Board of Trustees can approve changes to non-fundamental restrictions.
Each of the investment restrictions included in this proposal are presently
fundamental restrictions. As re-stated, these restrictions would continue to be
fundamental restrictions, requiring future shareholder approval before other
changes could be made.

Each of these proposed amendments is numbered and discussed separately in
the following discussion. A shareholder may vote for all proposals by simply
signing the Proxy Form without designating a vote on any particular proposal. A
shareholder desiring to vote against any of these proposals or to abstain from a
vote should make such a designation on the Proxy Form.

PROPOSAL 3(A). TO APPROVE OR DISAPPROVE AN AMENDMENT TO THE FUND'S LIMITATION ON
BORROWING

The present limitation on borrowing is Restriction No. 1 in the Statement
of Additional Information ("SAI"). The Fund is authorized to borrow only for
temporary or emergency purposes, such as clearing portfolio transactions or to
satisfy redemptions. All borrowing may not exceed 15% of total assets, and the
Fund may not borrow to increase its portfolio holdings. The present restriction
is as follows:

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."

Borrowing, either for temporary or emergency purposes or to increase
portfolio holdings is subject to specific Securities and Exchange Commission
rules with respect to minimum coverage of at least 300% and other protective
requirements. Borrowing to increase portfolio assets is a relatively common
practice among equity funds. While borrowing for this purpose has the potential
of accelerating an increase in the Fund's total return, it may also accelerate a
loss in the event the value of the securities purchased using borrowed funds
should decline rapidly. Southeastern desires the additional borrowing
flexibility primarily to be able to hedge the Fund's portfolio when believed to
be beneficial and thereby manage investment risk and potential tax liability.

11
<PAGE> 16

The Board therefore proposes that the Fund's borrowing limit be increased
from 15% to 30% of total assets, and that the Fund be allowed to borrow for
investment purposes as well as for temporary or emergency purposes. The
re-stated fundamental investment restriction would then read as follows:

The Fund may not:

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

PROPOSAL 3(B). TO APPROVE OR DISAPPROVE AN AMENDMENT TO THE FUND'S LIMITATION

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

The present restriction, No. 4 in the SAI, includes both a prohibition
against underwriting of securities of other issuers and a 10% limitation on the
Fund's ownership of illiquid and restricted securities, the sale of which could
be considered to be an underwriting. That restriction presently reads as
follows:

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."

Because the present restriction covers two subjects, it will be split into
separate sections. The portion applicable to underwriting the securities of
other issuers will continue to be a fundamental policy and will specifically
allow sales of any portfolio securities if such sales could be considered to be
an underwriting. As re-stated, this restriction will read 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
portfolio securities."

The section of Restriction No. 4 which will become non-fundamental covers
the level of ownership of restricted or illiquid securities. 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 Securities
and Exchange Commission at the time of the Fund's formation. The SEC
subsequently increased that percentage to 15%, and now excludes from that
percentage securities eligible for resale under Rule 144A which the Board has
determined to be liquid. Accordingly, the Board proposes that the restriction
applicable to

12
<PAGE> 17

restricted and illiquid securities be updated to include these changes and 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.)"

PROPOSAL 3(C). TO APPROVE OR DISAPPROVE AN AMENDMENT TO THE FUND'S LIMITATION ON
INVESTMENTS IN REAL ESTATE.

The Fund is presently prohibited from investing directly in real estate,
but is authorized to invest in securities of companies engaged in the real
estate business. This restriction, No. 5 in the SAI, will be continued as a
fundamental restriction, but will be amended to allow the Fund to hold and sell
a direct ownership of real estate which has been acquired by the Fund through a
distribution from a company which was an authorized investment.

The present restriction is as follows.

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."

The proposed revision which will continue to be a fundamental policy, is 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."

PROPOSAL 3(D). TO APPROVE OR DISAPPROVE AN AMENDMENT TO THE FUND'S LIMITATION ON
INVESTING IN COMMODITIES OR COMMODITIES FUTURES CONTRACTS.

The following restriction, No. 6 in the SAI, now prohibits all investments
in commodity futures contracts and direct investments in oil, gas, or other
mineral exploration or development programs.

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."

Because this restriction covers two subjects, it will be split into
separate sections. The section covering commodities and commodities futures
contracts will continue to be fundamental and will be expanded to allow the
investment in financial futures contracts, options on such contracts, and other
similar instruments, including forward foreign currency contracts.

13
<PAGE> 18

Southeastern anticipates that this increased flexibility will be used on a
limited basis, primarily for hedging and risk reduction rather than for
speculation. When used separately, there are risks in the use of options and
futures. For example, the price movements of the securities underlying the
options and futures may not follow the price movements of the portfolio
securities subject to the hedge. Gains on investments in options and futures
depend on the portfolio manager's ability to predict correctly the direction of
stock prices, interest rates, and other economic factors. Where a liquid
secondary market for options or futures does not exist, the Fund may not be able
to close its position and in such an event, the loss is theoretically unlimited.
However, when puts and calls are used in conjunction with each other for hedging
purposes, market risks can be reduced. As restated, this fundamental restriction
will read 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."

The portion of Restriction No. 6 covering direct investments in mineral
exploration programs will be continued as a non-fundamental policy, and will
then read as follows:

The Fund may not:

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

PROPOSAL 3(E). TO APPROVE OR DISAPPROVE AN AMENDMENT TO
THE FUND'S LIMITATION ON LOANS

This restriction, No. 8 in the SAI, now generally prohibits the Fund from
making loans of its assets, but allows loans of portfolio securities up to a
maximum of 20% of the portfolio's assets. Lending of portfolio securities is a
relatively common practice in which certificates are loaned to brokerage firms
in return for a premium and proper collateralization. This restriction also
allows the purchase of public debt securities and evidences of indebtedness with
banks, such as repurchase agreements. These transactions can be considered to be
loans in some circumstances. This restriction presently reads as follows:

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."

Restriction No. 8 will be continued as a fundamental restriction, but will
be expanded to increase the authorization for lending portfolio securities from
20% at present to one-third of its assets, and will continue to allow
investments in repurchase agreements. In addition, it will allow investments in
all types of debt securities, in accordance with the investment policies stated
in the Fund's offering documents.

Southeastern must consider the adequacy of the collateral and the financial
strength and solvency of any brokerage firm borrowing securities from the Fund
in managing the risk associated with securities lending. Similar credit
considerations must be reviewed before entering into repurchase agreements with
banks or other financial institutions and in purchasing corporate debt
securities. If the counterparty to a collateralized

14
<PAGE> 19

loan transaction defaults, the Fund could encounter a delay in taking possession
of any collateral or in otherwise recouping its assets. This re-stated
fundamental restriction will read 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 by the purchase of debt
securities, all in accordance with its investment
policies."

PROPOSAL 3(F). TO APPROVE OR DISAPPROVE AN AMENDMENT TO THE FUND'S LIMITATION
AGAINST ISSUING SENIOR SECURITIES.

The prohibition against issuing senior securities (establishing a senior
class of creditors) appears in Restriction No. 10 in the SAI, and now reads as
follows:

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 issuing senior securities or establishing a senior class of
creditors is highly technical, and is regulated in detail by Securities and
Exchange rules and no-action letters. This restriction will be re-stated to
clarify that the Fund may enter into a variety of permissible securities
transactions now allowed by the various amendments to the Fund's present
investment restrictions as discussed in Proposals 3 and 4. The new fundamental
restriction relating to issuing senior securities 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 RE-STATE THE FUNDAMENTAL INVESTMENT RESTRICTIONS DISCUSSED ABOVE AND
THEREBY EXPAND THE FUND'S INVESTMENT FLEXIBILITY.

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<PAGE> 20

PROPOSAL 4

APPROVAL OR DISAPPROVAL OF A PROPOSAL TO RE-STATE ALL REMAINING FUNDAMENTAL
INVESTMENT RESTRICTIONS AS NON-FUNDAMENTAL INVESTMENT RESTRICTIONS, THEREBY
ELIMINATING THOSE NO LONGER REQUIRED UNDER STATE LAW AND EXPANDING THE FUND'S
INVESTMENT FLEXIBILITY.

In the Fall of 1996, Congress enacted the National Securities Markets
Improvements Act. The Act grew out of a need for legislation to modernize and
rationalize the nation's securities regulatory system. Because the system of
dual Federal and state securities regulation had resulted in a degree of
duplicative and unnecessary regulation, Congress pre-empted the authority of
states to impose investment restrictions on investment companies regulated by
the Securities and Exchange Commission. As a result, the Longleaf Partners Funds
may now modify various investment restrictions imposed in past years by the
states, to the extent that the Securities and Exchange Commission does not
require similar limits.

Shareholders must approve changes to fundamental investment restrictions,
while the Board of Trustees can approve changes to non-fundamental restrictions.
In the past, the Board of Trustees could not respond to state law changes in
state required restrictions which had been adopted as fundamental without
incurring the costs of holding a meeting of shareholders. To facilitate future
responses to changes in restrictions which are not otherwise required to be
fundamental, the Board proposes to convert all such investment restrictions to
non-fundamental restrictions. If management should later conclude that other
modifications in these restrictions would be beneficial to Fund shareholders,
the Fund would therefore not need to incur the expenses of a formal meeting of
shareholders to implement the desired amendments.

A second element in Proposal 4 is to expand the Fund's investment
flexibility. As discussed in Proposal 3, the predominate purpose of this
proposal is to enable Southeastern to take reasonable steps to reduce investment
risk by managing foreign currency exposure, allowing for the ability to hedge
the portfolio, and managing potential income tax liabilities. The Fund will
continue to have the fundamental investment restrictions defining its required
diversification and those additional fundamental restrictions discussed in
Proposal 3. Under Proposal 4, the Fund will also have a series of significant,
non-fundamental investment restrictions which will provide a reasonable
investment limitation structure while simultaneously authorizing the use of
expanded investment techniques now widely used by many other investment
companies.

PROPOSAL 4(A). TO APPROVE OR DISAPPROVE ELIMINATION OF THE FUND'S RESTRICTION ON
INVESTING IN NEWLY FORMED COMPANIES

The following restriction, which appears as Restriction No. 4 in the
Prospectus, was a relatively common restriction in several states.

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."

16
<PAGE> 21

Because this restriction is no longer required by state law, the Board
proposes that it be deleted.

PROPOSAL 4(B). TO APPROVE OR DISAPPROVE AN AMENDMENT TO THE FUND'S LIMITATION ON
PLEDGING

This following restriction, No. 2 in the SAI limiting pledging to 15% of
assets, is related to the present restriction on borrowing, which may not exceed
15% of total 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."

As discussed in Proposal 3(a), the Fund's authority to borrow will be
increased from 15% to 30% of total assets. Under this Proposal 4(b), the
limitation on pledging will track the authorization for borrowing, and the
restriction will become non-fundamental. The re-stated, non-fundamental
restriction will then read as follows:

The Fund may not:

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

PROPOSAL 4(C). TO APPROVE OR DISAPPROVE AN AMENDMENT TO THE FUND'S LIMITATION ON
THE PURCHASE OF SECURITIES OF OTHER INVESTMENT COMPANIES

The following restriction, No. 3 in the SAI, governs the conditions under
which the Fund may make investments in 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."

Investments in other mutual funds are specifically covered by Sec. 12(d)(1)
of the Investment Company Act of 1940, which limits an investment in a single
investment company to a maximum of 5% of the Fund's total assets and 3% of the
company's outstanding voting stock, with a maximum of 10% of the Fund's total
assets being invested in all such investment companies. The Fund has always
invested directly in the securities markets and has never invested in other
investment companies. However, to preserve the ability to invest in money market
funds or other types of investment companies to the extent allowed by the
Securities and Exchange Commission, this restriction will be continued as
non-fundamental and will be restated to 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

17
<PAGE> 22

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."

PROPOSAL 4(D). TO APPROVE OR DISAPPROVE AN AMENDMENT TO THE FUND'S LIMITATION
AGAINST SHORT SALES AND WRITING PURCHASE PUTS AND CALLS

The following restriction, No. 7 in the SAI, covers both 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."

Because this fundamental restriction covers two subjects, it will be split
into separate, non-fundamental restrictions. The absolute prohibition against
short sales will be eliminated and short sales will then be allowed within
specified limits. Short sales are generally used by investment managers in
anticipation of declining securities prices. Where the Fund does not own the
securities sold short, the Securities and Exchange Commission requires that a
segregated account containing collateral consisting of other liquid securities
be maintained and marked to market daily to enable the Fund to close out its
short sale position.

Under Proposal 4(d), the following non-fundamental restriction allowing
short sales subject to specific limits will be adopted:

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."

The present Restriction No. 7 also contains an absolute prohibition against
writing purchase puts and calls. The use of put and call options on securities
or securities indices, either separately or together, can be used effectively in
hedging the portfolio. If the Fund writes a put option, Securities and Exchange
rules require that a segregated account containing liquid securities be
established and marked to market daily with sufficient collateral to close the
put option. Call options must also be covered either by ownership of the

18
<PAGE> 23

security or establishment of a segregated account. As a protective measure, the
securities underlying the options must be within the investment policies of the
Fund, and the value of the underlying securities on which options will be
written may not exceed 25% of total assets.

As an example of an expected use of this added investment flexibility, the
Fund could write a put option with a favorable strike price, receiving a premium
for the option, as a method of building a new portfolio position where the
current price of the security is higher than desired or the security is not
available for purchase.

Under this portion of Proposal 4(d), the following non-fundamental policy
allowing the purchase of and the writing (sale) of puts, calls, straddles, and
combinations thereof 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."

PROPOSAL 4(E). TO APPROVE OR DISAPPROVE AN AMENDMENT TO THE FUND'S LIMITATION
AGAINST MARGIN PURCHASES.

The following restriction, No. 9 in the SAI, prohibits margin purchases,
and also states that clearance credits do not constitute margin.

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."

Under Proposal 4(e), this restriction will become non-fundamental, but will
not be modified substantially. Clearance credits continue to be excluded from
the definition of margin purchases, and the restriction will be expanded to
clarify that required deposits in connection with options or futures contracts
will also not be considered to be margin purchases. The re-stated
non-fundamental restriction 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."

19
<PAGE> 24

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 4 TO
RE-STATE ALL REMAINING FUNDAMENTAL INVESTMENT RESTRICTIONS AS NON-FUNDAMENTAL
INVESTMENT RESTRICTIONS, AS DISCUSSED ABOVE, THEREBY ELIMINATING THOSE NO LONGER
REQUIRED UNDER STATE LAW AND EXPANDING THE FUND'S INVESTMENT FLEXIBILITY.

PROPOSAL 5.

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" PROPOSAL 5 TO
RATIFY 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 with their ages and information on their
backgrounds. 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(61)

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.

20
<PAGE> 25

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 (35).

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

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

LEE B. HARPER, Executive Vice President -- Marketing (33).

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 (32).

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 (55).

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 (33).

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 (42).

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, certain Trustees or officers of the Fund or of the
Investment Counsel may solicit proxies by telephone or in person, but no

21
<PAGE> 26

special payment will be made for such services. The Fund will pay the expenses
of D.F. King & Co., the fund's proxy solicitor.

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.

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 /s/ CHARLES D. REAVES

O. MASON HAWKINS, CFA CHARLES D. REAVES
Chairman of the Board of Trustees Executive Vice President
and Chief Executive Officer General Counsel

April 2, 1997

22
<PAGE> 27

APPENDIX A

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 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 [ ]

3. To approve a proposal to re-state certain fundamental investment
restrictions,
as separately discussed in the Proxy Statement, and thereby expand the Fund's
investment flexibility.

[ ] FOR ALL SUB-PROPOSALS [ ] AGAINST ALL SUB-PROPOSALS [ ] ABSTAIN FROM
ALL SUB-PROPOSALS

TO VOTE SEPARATELY ON THE SUB-PROPOSALS, CHECK THE FOLLOWING BOXES

<TABLE>
<CAPTION>
<S> <C> <C> <C>
3(a). To approve an amendment to the Fund's Limitation on
Borrowing. FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(b). To approve an amendment to the Fund's Limitation on
Underwriting of Securities of Other Issuers and Purchases of
Restricted Securities. FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(c). To approve an amendment to the Fund's Limitation on
Investments in Real Estate. FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(d). To approve an amendment to the Fund's Limitation on
Investing in Commodities or Commodities Futures Contracts. FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(e). To approve an amendment to the Fund's Limitation on Loans. FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(f). To approve an amendment to the Fund's Limitation Against
Issuing Senior Securities. FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>

4. To approve a proposal to re-state all remaining fundamental investment
restrictions as non-fundamental
restrictions, as separately discussed in the Proxy Statement, thereby
eliminating those no longer required
under state law and expanding the Fund's investment flexibility.

[ ] FOR ALL SUB-PROPOSALS [ ] AGAINST ALL SUB-PROPOSALS [ ] ABSTAIN FROM
ALL SUB-PROPOSALS

TO VOTE SEPARATELY ON THE SUB-PROPOSALS, CHECK THE FOLLOWING BOXES

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
4(a). To approve elimination of the Fund's Restriction on
Investing in Newly Formed Companies. FOR [ ] AGAINST [ ] ABSTAIN [ ]
4(b). To approve an Amendment to the Fund's Limitation on
Pledging. FOR [ ] AGAINST [ ] ABSTAIN [ ]
4(c). To approve an Amendment to the Fund's Limitation on the
purchase of securities of other investment companies. FOR [ ] AGAINST [ ] ABSTAIN [ ]
4(d). To approve an Amendment to the Fund's Limitation on Against
Short Sales and Writing Purchase Puts and Calls. FOR [ ] AGAINST [ ] ABSTAIN [ ]
4(e). To approve an Amendment to the Fund's Limitation Against
Margin Purchases. FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>

5. 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> 28

APPENDIX B

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

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

3. To approve a proposal to re-state certain fundamental investment
restrictions,
as separately discussed in the Proxy Statement, and thereby expand the Fund's
investment flexibility.
[ ] FOR ALL SUB-PROPOSALS [ ] AGAINST ALL SUB-PROPOSALS [ ] ABSTAIN
FROM ALL SUB-PROPOSALS

TO VOTE SEPARATELY ON THE SUB-PROPOSALS, CHECK THE FOLLOWING BOXES

5. 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