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Excellent Mason Hawkins 3rd Q Letter


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Fantastic 3rd Q letter by Mason Hawkins.  I think there is a sheer disconnect between macroeconomic issues and what investors are perceiving to be risk in equities.  Hawkins does a great job clarifying what Buffett has also tried to get through to the public.  We are not buying the market, but individual securities.  Cheers!



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O. Mason Hawkins gives lectures at The Richard Ivey School of Business and at The Heibrunn Center for Graham & Dodd Investing at Columbia Business School.                                               


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at June 30,2002




by Mason Hawkins, Staley Cates, and John Buford


After the close of the quarter, the Partners Fund, together with Berkshire

Hathaway, Legg Mason, and Longleaf Partners Small-Cap Fund, completed a

private placement in Level 3 convertible notes. Although typically we neither

own corporate bonds nor do private placements, this was a compelling opportunity

that the Fund's flexible policies allowed us to pursue and that we did not

want to forego. The ten-year notes position Longleaf ahead of the common

equity, pay a 9% cash coupon, and are convertible at any time to common equity

at $3.41 per share - a price that is under the stock's current level, and is far

below the company's growing intrinsic value.


Level 3 owns the best fiber telecommunications network in the industry.

Importantly, most of its competitors struggle with huge debt levels and further

significant capital expenditure requirements. Many are now in bankruptcy.

Customers are universally worried about their service providers' reliability,

financial integrity, and ability to provision future needs. Level 3's superior

network infrastructure, its servicing capabilities, and its capital resources position

the company to become the clear industry winner. As we said in the press release

announcing the placement, We invested in Level 3 to take advantage of

consolidation opportunities in the telecommunications arena. We believe these

opportunities are substantial. Level 3 is uniquely and competitively positioned,

and its management team, led by Jim Crowe, is most able.



                                                      * * * * *



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