We have been delighted with MR.'s Cates & Hawkins performance in managing the Longleaf Small Cap Fund and are happpy to have chosen Longleaf. Thank You Very Much. You guys have done a Great Job!

It does however, bother me that Southeastern Asset Management persists in implying that this fund is still somehow a small cap(1*) fund. By almost any traditional measure but their own, this is a mid-cap(2*) fund. I believe it is disingenuous for Southeastern to have redefined small cap to include companies with a market cap of up to 9.7 Billion with the Median Market Cap of its holdings at 3.6B.

I think that I understand how this happened. Longleaf concentrates their positions in approximately 20 companies and Mutual Funds are restricted in the percentage stake they are allowed to hold in a single company. The sheer size of the Small Cap Fund simply does not make it practical for them to limit the number of equity holdings to 20 while limiting it to small cap(1*) companies.

I appreciate Longleaf's position and dilemma. I believe that management has responded properly by closing the fund to (most?) new investors. I can not get past the feeling however, that management bends the definition of small cap to suit the circumstances. I am sorry to say that this: "It's, whatever I say it is" sort definition strikes me as alarmingly Skillingesque. It also seems entirely out of character for Mr.'s Cates & Hawkins.

There is certainly no shame in admitting that Management's success has caused the Fund to outgrow its' name. I would be more comfortable however, if management were straightforward about it and changed the name of the Fund to reflect this reality.

And if they ever decide to open a new Small Cap Fund, I would very much like to have this team managing a fund with a serious effort made to limit the size of the fund to approximately $500 million so that Southeasterns' non-diversified strategy could be more easily applied to investing small cap(1*) opportunities. It might also be worthwhile to consider that in order to maintain a $500 million ceiling, it might be necessary to close the fund at times to prohibit a-n-y additional purchases including the reinvestment of dividends and capital gains! It might also be worthwhile to consider limiting such an offering to investors in the other Longleaf Partners Funds. Also, I understand that the cost of managing a fund with a smaller asset base might necessitate Southeasterns' need to collect a higher percentage management fee. So long as the charges were reasonable, this would not be a problem for me.

Forbes Investopedia Defines
(1*) Small Cap as: companies with a market capitalization of between $300 million and $2 billion.

(2*) & Mid cap as: companies having a market capitalization between $2 and $10 billion.

I wrote Southeastern 3 weeks ago about this matter. I'm still waiting to hear back from them.