MANAGEMENT DISCUSSION & ANALYSIS – SHORT-INTERMEDIATE INCOME FUND

MARCH 31, 2009

Portfolio Manager:  Thomas D. Carney

The Short-Intermediate Income Fund returned +2.1% in the first quarter, compared to a -0.1% return for the Barclays Capital Intermediate U.S. Government/Credit Index (BCIGC), our Fund’s primary benchmark. For the fiscal year ended March 31, 2009, the Short-Intermediate Income Fund’s total return was +2.1%, compared to a +2.0% return for the BCIGC. The table at the conclusion of this discussion shows returns for our Fund (after deducting fees and expenses) over various holding periods and returns for three Barclays Capital U.S. Government/Credit Indexes (Intermediate, 1-5 year and 1-3 year) for comparison purposes.

The past year witnessed some of the widest range of returns on record for fixed-income investors as the ongoing credit crisis resulted in a dramatic re-pricing of risk among all asset classes. A broad index of U.S. Treasury bonds composed by Merrill Lynch returned +7.6% in the past year while a similarly broad corporate bond index declined -8.1%. High yield bonds performed even more poorly, returning -20.3% according to Merrill Lynch global bond indices.

Our portfolio performed reasonably well in the past year, slightly exceeding the BCIGC. Compared to a year ago, the average maturity of our Fund has increased to 3.3 from 3.0 years. The duration has increased to 1.8 from 1.7 years, and the average coupon has risen to 4.8% from 4.2%. The overall credit quality of our portfolio remains high with approximately 61% of the portfolio invested in AAA-rated securities, U.S. Treasury, U.S. government agency-guaranteed Mortgage-Backed Securities (MBS) and cash.

U.S. Treasury bonds continue to represent a declining portion of Fund assets, approximately 1% from 6% a year ago. This segment has added materially to our performance in the past few years. Repeating what we said in our last quarterly report, we believe U.S. Treasury bonds no longer provide sufficient return prospects given the potential inflationary implications of the government’s massive stimulus actions. We, therefore, believe it is prudent to have an all-time low exposure to Treasuries. Our current, and only, Treasury bond exposure is in inflation-protected securities (TIPS) that may benefit if and when the government’s ‘kitchen sink’ reflationary policy efforts begin to take hold. Warren Buffett may have said it best, as he often does, when speaking about fixed-income investing in the Berkshire Hathaway 2008 annual report – "When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary."

Mortgage-Backed Securities (MBS) exposure declined to approximately 39% of Fund net assets from 49% a year ago. Our mortgage investments are concentrated in seasoned (mortgages issued in 2005 or earlier) Fannie Mae and Freddie Mac MBS, currently 35% of Fund net assets. This segment contributed to our results in the past fiscal year, particularly in the last two quarters. These securities performed well after the government’s decision to place Fannie Mae and Freddie Mac in conservatorship and were given an added boost when the Federal Reserve announced its intention to purchase MBS of these agencies directly with the hope of lowering mortgage rates for homeowners. This has resulted in increased prepayment rates for our MBS investments. At present, these prepayments have been manageable and have allowed us to reinvest assets in other areas, particularly corporate bonds.

Corporate bonds, after many years of small exposure in our Fund, have increased to approximately 35% of Fund net assets from less than 5% a year ago. This segment detracted from Fund performance early in the past fiscal year as most of our investments declined in value. It became a contributor to results in the past quarter as some of the investments we made in the past few months rose in value. We have written in the past about our historical rationale for a low corporate bond weighting – namely, the lack of compensation (i.e. incremental yield over U.S. Treasury bonds) for taking on the added credit risk. However, the dramatic re-pricing of credit risk in the past few years has allowed us to invest on much more favorable terms than have been available in some time. The following chart, compliments of Bianco Research L.L.C. in Chicago, may help to put this risk re-pricing in perspective. Not since the Great Depression have spreads been as wide as they became (and remain) in the past year. Once again, Warren Buffett in Berkshire Hathaway’s 2008 annual letter – "The investment world has gone from underpricing risk to overpricing it." We tend to agree and have therefore acted accordingly.

Corporate bond defaults are likely to increase significantly, so security selection is critical. Our investments to date have focused in three broad categories. The first and largest includes good-grade companies with low leverage that generate sizable and recurring free cash flow. Examples include AT&T, Time Warner Cable, Comcast Corporation, and WellPoint. We were able to purchase these 3-6 year bonds with high single-digit expected yields to maturity. The second category includes companies that may be experiencing near-term pressure on their business but possess sizable asset value and earnings potential when conditions improve. Examples include Mohawk, Martin Marietta Materials and Host Hotels with expected double-digit returns. Finally, the smallest portion has included non-investment or ‘high yield’ bonds with equity-like risk profiles and expected returns (Level 3 Financing, Texas Industries and Liberty Media LLC).

As of this writing, credit conditions appear to have improved somewhat but remain at levels that appear to provide us with attractive investment opportunities. We remain well positioned to continue taking advantage of these opportunities in the marketplace.

Our investment approach consists primarily of investing in a portfolio of mostly high quality, short-to-intermediate-term bonds where we believe we can capture most of the "coupon" returns of long-term bonds with materially less interest-rate risk. We do not try to mimic any particular index as we construct our portfolio. We select assets for our portfolio one security at a time based on our view of opportunities in the marketplace. Our corporate bond research is supplemented by credit work we do on companies and industries in the course of our equity analysis.

Over the years, our portfolio has often been constructed with a shorter average life (i.e. duration) and higher quality than the BCIGC. We chose this benchmark to highlight that we could periodically invest longer term and/or lower quality when conditions warranted. The effect over time of our portfolio construction (typically shorter average life) has been a penalty when interest rates fall but a boost to performance when rates rise.

For a small portion of our portfolio (currently about 9% but never larger than 15%), we may also invest in other fixed-income related investments that have favorable risk/reward characteristics (such as high-yield and convertible bonds, preferred and convertible preferred stock, or high dividend paying common stock). These types of investments have generally enhanced our Fund’s historical returns.

Overall, we strive to be adequately compensated for the risks assumed in order to maximize our investment (or reinvestment) yield and avoid making interest rate "bets," particularly ones that depend on interest rates going down. We are willing to trade some upside in a rapidly falling interest-rate environment in exchange for enhanced capital preservation.

While disinflation or pockets of deflation may be the near-term direction for the economy, we remain wary of the longer-term inflationary implications of the enormous deficit spending to combat the credit crisis. For the time being, we expect to maintain our shorter duration compared to that of our Fund’s primary benchmark (1.8 versus 3.9 years for the BCIGC at fiscal year-end) while we continue searching for qualifying investments with favorable terms for investors.

* All performance numbers assume reinvestment of dividends.

# Index performance is hypothetical and is for illustrative purposes only.

Investors should consider carefully the investment objectives, risks, and charges and expenses of the Fund before investing. The Fund’s Prospectus contains this and other information about the Fund and should be read carefully before investing. Portfolio composition is subject to change at any time and references to specific securities, industries, and sectors referenced in this letter are not recommendations to purchase or sell any particular security. Current and future portfolio holdings are subject to risk. See the Schedule of Investments in Securities included in the Fund’s quarterly report for the percent of assets of the Fund invested in particular industries or sectors.

Weitz Securities, Inc. is the distributor of The Weitz Funds.