diff -r a8e6ed6a3349 src/eval.c
--- a/src/eval.c	Fri Feb 03 09:03:08 2012 +0700
+++ b/src/eval.c	Fri Feb 03 09:15:04 2012 +0700
@@ -14325,23 +14325,20 @@
     typval_T	*rettv;
 {
     int		binary = FALSE;
+    int		failed = FALSE;
     char_u	*fname;
     FILE	*fd;
-    listitem_T	*li;
-#define FREAD_SIZE 200	    /* optimized for text lines */
-    char_u	buf[FREAD_SIZE];
-    int		readlen;    /* size of last fread() */
-    int		buflen;	    /* nr of valid chars in buf[] */
-    int		filtd;	    /* how much in buf[] was NUL -> '\n' filtered */
-    int		tolist;	    /* first byte in buf[] still to be put in list */
-    int		chop;	    /* how many CR to chop off */
-    char_u	*prev = NULL;	/* previously read bytes, if any */
-    int		prevlen = 0;    /* length of "prev" if not NULL */
-    char_u	*s;
-    int		len;
-    long	maxline = MAXLNUM;
-    long	cnt = 0;
-
+    char_u	buf[(IOSIZE/256)*256]; /* rounded to avoid odd + 1 */
+    int         io_size = sizeof(buf);                          
+    int		readlen;          /* size of last fread() */     
+    char_u	*prev    = NULL;  /* previously read bytes, if any */
+    long        prevlen  = 0;     /* length of data in prev */  
+    long        prevsize = 0;     /* size of prev buffer */     
+    long	maxline  = MAXLNUM;                                  
+    long	cnt      = 0;                                        
+    char_u      *p;               /* position in buf */         
+    char_u      *start;           /* start of current line */    
+    
     if (argvars[1].v_type != VAR_UNKNOWN)
     {
 	if (STRCMP(get_tv_string(&argvars[1]), "b") == 0)
@@ -14362,124 +14359,171 @@
 	return;
     }
 
-    filtd = 0;
     while (cnt < maxline || maxline < 0)
     {
-	readlen = (int)fread(buf + filtd, 1, FREAD_SIZE - filtd, fd);
-	buflen = filtd + readlen;
-	tolist = 0;
-	for ( ; filtd < buflen || readlen <= 0; ++filtd)
-	{
-	    if (readlen <= 0 || buf[filtd] == '\n')
-	    {
-		/* In binary mode add an empty list item when the last
-		 * non-empty line ends in a '\n'. */
-		if (!binary && readlen == 0 && filtd == 0 && prev == NULL)
-		    break;
-
-		/* Found end-of-line or end-of-file: add a text line to the
-		 * list. */
-		chop = 0;
-		if (!binary)
-		    while (filtd - chop - 1 >= tolist
-					  && buf[filtd - chop - 1] == '\r')
-			++chop;
-		len = filtd - tolist - chop;
-		if (prev == NULL)
-		    s = vim_strnsave(buf + tolist, len);
-		else
-		{
-		    s = alloc((unsigned)(prevlen + len + 1));
-		    if (s != NULL)
-		    {
-			mch_memmove(s, prev, prevlen);
-			vim_free(prev);
-			prev = NULL;
-			mch_memmove(s + prevlen, buf + tolist, len);
-			s[prevlen + len] = NUL;
-		    }
-		}
-		tolist = filtd + 1;
-
-		li = listitem_alloc();
-		if (li == NULL)
-		{
-		    vim_free(s);
-		    break;
-		}
-		li->li_tv.v_type = VAR_STRING;
-		li->li_tv.v_lock = 0;
-		li->li_tv.vval.v_string = s;
-		list_append(rettv->vval.v_list, li);
-
-		if (++cnt >= maxline && maxline >= 0)
-		    break;
-		if (readlen <= 0)
-		    break;
-	    }
-	    else if (buf[filtd] == NUL)
-		buf[filtd] = '\n';
+	readlen = (int)fread(buf, 1, io_size, fd);
+        /*
+         * This for loop processes what's read, but is also entered at end of
+         * file so that either:
+         *      an incomplete line gets written
+         *      a "binary" file gets an empty line at the end if it ends in a
+         *      newline.
+         */
+	for (p = buf, start = buf; p < buf + readlen
+                    || (readlen <= 0
+                        && (prevlen > 0 || binary)); ++p)
+	{
+	    if (*p == '\n' || readlen <= 0)
+	    {
+                listitem_T  *li;
+                char_u      *s  = NULL;
+                long_u      len = p - start;
+
+                /* remove CRs before NL */
+                if (readlen > 0 && !binary)
+                {
+                    while (len > 0 && start[len - 1] == '\r')
+                        --len;
+                    /* removal may cross back to the prev string */
+                    if (len == 0)
+                        while (prevlen > 0 && prev[prevlen - 1] == '\r')
+                            --prevlen;
+                }
+                if (prevlen == 0)
+                    s = vim_strnsave(start, len);
+                else
+                {
+                    /* Change prev buffer to be just right.  This way the bytes
+                     * are only copied once, and very long lines are allocated
+                     * only once.  */
+                    if ((s = vim_realloc(prev, prevlen + len + 1)) != NULL)
+                    {
+                        mch_memmove(s + prevlen, start, len);
+                        s[prevlen + len] = NUL;
+                        prev = NULL; /* the list will own the string */
+                        prevlen = prevsize = 0;
+                    }
+                }
+                if (s == NULL)
+                {
+                    do_outofmem_msg((long_u) prevlen + len + 1);
+                    failed = TRUE;
+                    break;
+                }
+
+                if ((li = listitem_alloc()) == NULL)
+                {
+                    vim_free(s);
+                    failed = TRUE;
+                    break;
+                }
+                li->li_tv.v_type        = VAR_STRING;
+                li->li_tv.v_lock        = 0;
+                li->li_tv.vval.v_string = s;
+                list_append(rettv->vval.v_list, li);
+
+                start = p + 1; /* step over newline */
+                if ((++cnt >= maxline && maxline >= 0) || readlen <= 0)
+                    break;
+            }
+            else if (*p == NUL)
+                *p = '\n';
 #ifdef FEAT_MBYTE
-	    else if (buf[filtd] == 0xef
-		    && enc_utf8
-		    && filtd + 2 < buflen
-		    && !binary
-		    && buf[filtd + 1] == 0xbb
-		    && buf[filtd + 2] == 0xbf)
-	    {
-		/* remove utf-8 byte order mark */
-		mch_memmove(buf + filtd, buf + filtd + 3, buflen - filtd - 3);
-		--filtd;
-		buflen -= 3;
-	    }
-#endif
-	}
-	if (readlen <= 0)
-	    break;
-
-	if (tolist == 0)
-	{
-	    if (buflen >= FREAD_SIZE / 2)
-	    {
-		/* "buf" is full, need to move text to an allocated buffer */
-		if (prev == NULL)
-		{
-		    prev = vim_strnsave(buf, buflen);
-		    prevlen = buflen;
-		}
-		else
-		{
-		    s = alloc((unsigned)(prevlen + buflen));
-		    if (s != NULL)
-		    {
-			mch_memmove(s, prev, prevlen);
-			mch_memmove(s + prevlen, buf, buflen);
-			vim_free(prev);
-			prev = s;
-			prevlen += buflen;
-		    }
-		}
-		filtd = 0;
-	    }
-	}
-	else
-	{
-	    mch_memmove(buf, buf + tolist, buflen - tolist);
-	    filtd -= tolist;
-	}
-    }
-
+            /* check for utf8 "bom"; U+FEFF is encoded as ef bb bf */
+            else if (   *p == 0xbf
+                     && enc_utf8
+                     && !binary)
+            {
+                /* Find the two bytes before the 0xbf.  If p is at buf, or buf
+                 * + 1, these may be in the prev string. */
+                char_u back1 =
+                    p >= buf + 1 ? p[-1]             :
+                    prevlen >= 1 ? prev[prevlen - 1] :
+                                   NUL;
+                char_u back2 =
+                    p >= buf + 2                 ? p[-2]             :
+                    p == buf + 1 && prevlen >= 1 ? prev[prevlen - 1] :
+                                    prevlen >= 2 ? prev[prevlen - 2] :
+                                                   NUL;
+
+                if (   back2 == 0xef
+                    && back1 == 0xbb )
+                {
+                    char_u *dest = p - 2;
+                    /* usually a bom is at the beginning of a file, and so at
+                     * the beginning of a line; then we can just step over it */
+                    if (start == dest)
+                        start = p + 1; 
+                    else
+                    {   /* have to shuffle buf to close gap */
+                        int adjust_prevlen = 0;
+                        if (dest < buf)
+                        {
+                            adjust_prevlen = buf - dest; /* must be 1 or 2 */
+                            dest = buf;
+                        }
+                        if (readlen > p - buf + 1)
+                            mch_memmove(dest, p + 1,
+                                        readlen - (p - buf) - 1);
+                        readlen -= 3 - adjust_prevlen;
+                        prevlen -= adjust_prevlen;
+                        p = dest - 1;
+                    }
+                }
+            }
+#endif
+        } /* for */
+
+        if (failed || (cnt >= maxline && maxline >= 0) || readlen <= 0)
+            break;
+        if (start < p)
+        {
+            /* There's part of a line in buf, store it in prev. */
+            if (p - start + prevlen >= prevsize)
+            {
+                /* need bigger prev buffer */
+                char_u *newprev;
+
+                /* A common use case is ordinary text files and prev gets a
+                 * fragment of a line, so the first allocation is made
+                 * small, to avoid repeatedly 'allocing' large and
+                 * 'reallocing' small. */
+                if (prevsize == 0)
+                    prevsize = p - start;
+                else
+                    prevsize = max((prevsize * 3)/2, /* grow by 50% */
+                                   (p - start) * 2 + prevlen);
+                if ((newprev = vim_realloc(prev, prevsize)) == NULL)
+                {
+                    do_outofmem_msg((long_u)prevsize);
+                    failed = TRUE;
+                    break;
+                }
+                prev = newprev;
+            }
+            /* add part to end of prev */
+            mch_memmove(prev + prevlen, start, p - start);
+            prevlen += p - start;
+        }
+    } /* while */
     /*
      * For a negative line count use only the lines at the end of the file,
      * free the rest.
      */
-    if (maxline < 0)
+    if (!failed && maxline < 0)
 	while (cnt > -maxline)
 	{
 	    listitem_remove(rettv->vval.v_list, rettv->vval.v_list->lv_first);
-	    --cnt;
-	}
-
+            --cnt;
+        }
+
+    if (failed)
+    {
+        list_free(rettv->vval.v_list, TRUE);
+        /* readfile doc says an empty list is returned on error */
+        rettv->vval.v_list = list_alloc();
+    }
+    
     vim_free(prev);
     fclose(fd);
 }
