December 2007            

Dear Fellow Shareholder:

Our Funds are having a very poor year in both relative and absolute terms. We under-estimated Countrywide’s vulnerability to liquidity risk and we were early in assuming that the effects of the housing market collapse were priced into various high quality consumer stocks. We discussed our portfolios at some length in our last quarterly letter and will do so again when we write the next quarterly report.

In the meantime, we have received calls and emails from shareholders asking how we are dealing with the current market and what our outlook is. Without going into specific transactions, we thought it might be helpful to make a few general comments:

1. We are continually re-assessing each company’s prospects and financial strength, and we have made some portfolio changes that we believe reduce our exposure to future credit problems while maintaining considerable upside potential.  We believe we are being realistic and willing to adjust to an evolving environment;
    
2. While few financial company stocks have escaped unscathed (Berkshire Hathaway, our largest holding, being a notable exception), we believe that the market has over-reacted to the potential credit exposure of many good companies;
    
3. Many stocks’ prices already appear to discount a recession that may or may not occur.  We believe our companies are priced at discounts to their intrinsic values whether or not their earnings and cash flows are depressed for a few quarters by a weak economy.

We have seen markets like this before—e.g. 1974, 1982, 1987, 1990, 1994, 1998, and 2002—when it was hard to imagine how stocks could ever go up again. In various combinations, Iraq and other geopolitical uncertainties, oil and other commodity prices, speculative excesses in securities markets, and credit problems periodically shake the economy and scare investors. The size and pervasiveness of the credit and liquidity issues today seem more daunting than ever, but this kind of environment has always presented great opportunities for investors. We have no idea when the panic will subside, but stocks have a way of bottoming long before all the uncertainties are removed. In the meantime, our companies are making lots of money and investing it wisely.

Each of us on the investment team has a substantial investment in our Funds, and we have all added to our holdings over the past few months. This does not guarantee that the Funds will go up, but we feel very good about our stocks and the Funds’ prospects. We appreciate our shareholders’ patience and support during this period and we welcome your calls and emailed questions.

Sincerely,

wally@weitzfunds.com