Clad in a plain dark suit, Hawkins stands only five feet, six inches tall and doesn't wear a name tag. But one after another, shareholders manage to find him in the crowd. Tim McCarthy, a retired seafood executive, has traveled from San Diego to ask about Longleaf's growing investment in Japan. J. Floyd Kyser, a retired surgeon from Little Rock, has come to look Longleaf's managers in the eye and see if they are as sincere in person as they appear to be in their quarterly letters to shareholders.

Of the more than 700 firms that run mutual funds, only a handful--Acorn, Aquila, Baron, Benham, FAM and Longleaf among them--bother giving their shareholders the opportunity to attend regular meetings and get their questions answered. That's one reason it's tempting to call Mason Hawkins the Warren Buffett of the mutual fund business. He makes competing portfolio managers look like monkeys and, like Buffett, he devotes enormous effort to treating his shareholders fairly. And that's why, even though two of Longleaf's three funds are closed, I think smart investors (and other mutual fund companies) can learn a lot from the way this firm does business.

THE US VS. THEM MENTALITY

The folks at Longleaf share a bedrock belief: Fund investing should be a partnership between the portfolio managers and the investing public. The first page of Longleaf's prospectus is devoid of the usual boilerplate; instead, it features the firm's statement of principles. The first: "We will treat your investment in Longleaf as if it were our own." The second: "We will remain significant investors with you in Longleaf."

To understand that that's not just talk, it helps to know how Longleaf got started. Southeastern Asset Management had been in business for a dozen years, building a track record as one of the best value investors around, before Hawkins introduced the Longleaf Partners Fund in April 1987. The firm did no advertising or direct mail to whip up interest in its new fund. For three months, it wasn't even listed in the newspaper tables.

That's because Hawkins started the fund primarily so he and his colleagues could pool their money with that of their clients without creating the conflicts of interest that tend to arise when money managers buy and sell stocks for their own accounts. As Hawkins says, "How can you in good conscience allocate a good investment to yourself at the expense of your customer?" So the fund bought the same stocks Southeastern had already selected for its private clients, and Hawkins and his colleagues put all their money in it. The same kind of thinking went into the subsequent start-ups of Longleaf Small-Cap, which Hawkins co-manages with G. Staley Cates, and Longleaf Realty, whose lead manager is C.T. Fitzpatrick and which is the one Longleaf fund that remains open to new investors (with a $10,000 minimum).

That's a far cry from the way the typical fund gets started, explains Don Phillips, president of Morningstar, the fund research firm: "Most fund companies see themselves as product developers, manufacturing whatever will sell well at the time. It's an 'us vs. them' mentality: 'Let's sell this fund to them.' Instead, Longleaf has a 'we' mentality: 'Let's invest in this fund of ours.'"

Hawkins went even further: He prohibited Southeastern's employees (as well as their families) from buying any stocks or funds outside of Longleaf. Those employees are even required to invest 100% of their bonuses and profit-sharing payments in the firm's funds.

So far as I know, no other fund company puts such a hammerlock on its employees' investments. In fact, in the past few years, managers at Invesco, Janus, Montgomery and Oppenheimer have been fined by the Securities and Exchange Commission for making personal trades that allegedly raised conflicts of interest. Most fund executives say they can't ban personal trading, lest they harm their ability to recruit talented managers. But when I asked Hawkins if his ban on trading has scared off potential employees, he just laughed. Longleaf gets more than 400 unsolicited resumes a year and has just hired Andrew McDermott, an investment banker at J.P. Morgan, as a foreign-stock analyst. (McDermott will also help launch, possibly later this year, Longleaf's first international fund.)

Instead of trading stocks for their own account, Longleaf's employees and directors, along with their families, have more than $175 million invested in the firm's three funds, which together have total assets of $5.8 billion. "Our substantial stake in these funds," executive vice president Lee Harper tells the audience at the shareholders' meeting, "ensures that we will always seek to lower their expenses. We're interested in making money with you as partners rather than from you through fees."

THE INTELLIGENT INVESTOR

Mason Hawkins, 50, grew up in the small town of Thomasville, Ga. His parents grew timber, specializing in lumber cut from longleaf pine, a local species that lives for centuries and produces remarkably durable, weather-resistant planks that have long been favored for use in seagoing ships.

For a value investor like Hawkins, longleaf pine is rich in symbolism: When its seedlings first sprout, they hunker down in the grass for several years, building a deep network of roots and waiting for brush fires to roar harmlessly overhead. Then, in a sudden rush, the longleaf grows as much as five feet in a year and takes off from there--much the way undervalued stocks often lie dormant for years and then shoot up suddenly when the market recognizes their worth. Today, Southeastern Asset Management's offices are paneled in longleaf planks that were recovered from river bottoms in Alabama, Florida and Georgia, where they had lain submerged for as long as 200 years.

In a place of honor on a sideboard in the lobby of Southeastern's offices, under a painting of a stand of longleaf pines, is a well-thumbed copy of Benjamin Graham's The Intelligent Investor. When Hawkins was a senior in high school, his father gave him this copy of the classic stock guide, written by the father of value investing. "It made an indelible impression on me," recalls Hawkins. "The single thing that Graham talks about that allows for success is establishing firmly what a company is worth." Adds Hawkins: "Only if you've done rigorous analytical work that has a high probability of being right can you control your emotions and act against the collective mind-set of the moment."

Hawkins has built his career on investing against the grain. In 1974, he became director of stock research at First Tennessee Bank in Memphis--just as the stock market was suffering its worst crash since the Great Depression. Around the country, hundreds of money managers were quitting the business in despair. Undaunted, Hawkins joined with four partners, each ponying up $5,000, and set up Southeastern Asset Management as an independent firm in September 1975. The timing was equally inauspicious when Hawkins opened Longleaf Partners in April 1987, right before the October crash. But instead of selling, Hawkins bought, reducing his fund's cash level from 40% in July 1987 to just 13% a year later, much the way he's buying in Japan today.

In a nutshell, Hawkins and his team look for stocks selling at 60% of their appraisal of intrinsic value, creating the price cushion that Graham called the margin of safety. But Hawkins and his team of seven analysts and managers are extremely choosy. In 1996, they researched approximately 180 large stocks and bought three (Philips, Nabisco and United HealthCare); last year, they studied some 200 and bought three (MediaOne, News Corp. and Host Marriott). Unlike most fund managers, who reduce the risk of underperforming the market by amassing more than 100 stocks, Longleaf rarely owns more than two dozen per fund. Explains Staley Cates: "We believe risk goes down if you put your money only in the investments you understand very well." Longleaf holds its typical stock for five years; of the 24 holdings in the flagship Partners fund, four date back to 1988 (Knight Ridder, Alleghany Corp., 360[degree] Communications and Federal Express).

The result: one of the best track records around. Over the past decade, Longleaf Partners has outperformed 96% of all other funds with an average annual return of 19.8%. Over the past five years, Longleaf Small-Cap has beaten 91% of all other funds, compounding at 20.6% annually. And over the past year, Longleaf Realty has beaten 60% of all funds and 81% of all real estate funds.

But it's not only this superb performance that sets the Longleaf funds apart. More so than any other firm I know, Longleaf takes the term "fund family" literally, treating its shareholders as true partners. Over the past decade, a cascade of research has proved that the past performance of mutual funds is a poor guide to future returns. Investors do better when they focus on a fund's more durable qualities: Does it charge fair fees? Does it keep out short-term speculators? Does it seek to keep taxes low? Do its managers have incentives to stay? Do they believe in what they're doing enough to invest alongside their shareholders? Do they have the integrity to stop taking new money, or will they imperil the fund's performance for the sake of higher fees?