PORTFOLIO MANAGER'S DISCUSSION & ANALYSIS – SHORT-INTERMEDIATE INCOME FUND

DECEMBER 31, 2009

Portfolio Manager:  Thomas D. Carney

The Short-Intermediate Income Fund had a solid year, returning +10.8% for the 12 months ended December 31, compared to a +5.2% return for the Barclays Capital Intermediate U.S. Government/Credit Index (BCIGC), our Fund’s primary benchmark. For the fourth calendar quarter the Short-Intermediate Income Fund returned +0.7%, compared to a +0.3% return for the BCIGC.

Corporate bonds and other credit sensitive securities continued to be the performance leaders in the fourth quarter. Strong inflows into fixed-income funds as investors reallocated portfolios away from near-zero return money market and/or equity funds and hints of economic recovery helped to push credit spreads to their lowest point of the year. A broad measure of corporate bond spreads (the incremental return investors demand above U.S. Treasury bonds for owning corporate debt) composed by Merrill Lynch fell to 190 basis points as of December 31, down an additional 45 basis points in the fourth quarter (a basis point represents one one-hundredth of a percentage point). Since the beginning of the year, corporate bond spreads have declined more than 4% (400 basis points) for higher quality bonds and 10% (1,000 basis points) for lower quality or non-investment grade bonds. This re-pricing of credit risk in 2009 and rally in corporate bond prices has helped to generate sizable returns for investors, our Fund included.

U.S. Treasury bond prices declined in the fourth quarter amid evidence of economic improvement, fears of rising inflation and the prospect of continued heavy supply of Treasury bonds to finance our gaping deficit. Yields for longer-term Treasury bonds rose as much as 50 basis points (1/2 percent) causing the yield curve, the difference between short-term and long-term interest rates, to widen to a record in the quarter. Overall, the rise in Treasury bond yields in the quarter, the base rates upon which all other bonds are priced, dampened the strong corporate bond performance and left most bond investors with modest returns in the quarter.

Principal contributors to our Fund’s results in the quarter came from the financial segment of our corporate bond investments, as well as most of our non-investment grade holdings. Key financial segment contributors included bonds issued by American Express, Goldman Sachs, JP Morgan, Swiss RE and Wells Fargo. Together they represented approximately 10% of Fund net assets at quarter end. Our non-investment grade investments, also about 10% of Fund net assets, continued to perform well in the quarter. Host Hotels and Resorts, Level 3 Financing, Liberty Media and USG Corp bonds exhibited strong price appreciation, supplementing their already strong interest income cash flows. Our corporate bond weighting rose modestly in the quarter to 35% at quarter end from 34% at September 30.

Principal detractors to Fund results included the approximately 2% of Fund net assets in the common stock of Redwood Trust, down 5% in the quarter and our small exposure, about 8%, to U.S. Treasury bonds. We believe our investment in Redwood Trust, a seasoned investor in residential real estate, has and will provide solid cash dividend returns for our Fund over time. In addition, we believe capital appreciation for this shareholder-oriented company is possible as it judiciously deploys capital and should the gap close between today’s stock price and our estimate of business value.

The balance of our portfolio performed reasonably well in the quarter, generating mostly coupon income returns with modest price depreciation.

Investment activity was balanced in the quarter as we selectively added to most segments of our portfolio (corporate bonds, mortgage-backed securities, agency step-up bonds and our small common equity position mentioned above) as we identified securities with favorable risk/reward characteristics over our extended investment horizon.

Overall portfolio metrics changed modestly during the quarter with the average maturity increasing to 3.8 years from 3.5 years at September 30 and average duration increasing to 2.0 from 1.7 years. The average credit quality for the portfolio remains solid at AA-.

The dramatic re-pricing of credit risk last year was a welcome benefit to our Fund’s 2009 results as both absolute and relative returns were strong. Today’s lower credit spreads and low Treasury interest rates, however, leave us with a more subdued outlook for future bond investor returns as those returns are principally driven by the interest income earned (and reinvested) over the life of the investment. While the prospects for inflation, the bond investor’s boogeyman, appear low in 2010, the longer term outlook holds the possibility for much higher rates of inflation. Consequently, we expect to continue to position the Fund defensively relative to interest rate exposure while we patiently seek out areas of opportunity. We will continue to invest one security at a time, relying on a fundamental research-based investment approach and are well positioned to take advantage of any market weakness.

Click here to obtain December 31, 2009 performance information.

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.