July 16, 2008

Dear Fellow Shareholder:

The bear market is in full swing and investor panic is spreading to nearly all parts of the stock and bond markets. The sense of fear and hopelessness among investors reminds me of 1974 when the Dow Industrials fell from over 1,000 to under 600. In that bear market, the first "oil shock" (OPEC asserted itself and oil prices rose from $3 to $10) and fears of recession and inflation—"stagflation"—led both individual and institutional investors to give up on stocks. Much of the bad news was real, and many businesses had depressed earnings for a while, but the selling of stocks "over-shot" logical price levels by a wide margin. Once the market bottomed in December 1974, it rose back to 1,000 within 15 months, a gain of 75% off the bottom.

The "credit crisis" that began in 2007 and triggered the current bear market is particularly unnerving because a number of large, well-known financial institutions are experiencing severe credit and liquidity problems. The unprecedented decline in home prices has raised questions about the value of mortgage collateral. The complexity of asset-backed securities and the absence of a trading market for these securities have made it impossible to assess the strength of the balance sheets of many institutions. Fear of the unknown has led to heavy selling.

Now the distress in financial markets is spilling over into the rest of the economy. Earnings estimates are being lowered. Unemployment is rising. Energy, agriculture, and other commodity-related stocks which until recently were islands of strength, are showing signs of weakness. When investors give up on equities in general and speculators are forced to sell because they can no longer borrow to hold their positions, stocks can fall well below their intrinsic values. We believe this is happening now and that it is creating good opportunities for value investors.

Our stock fund results have been poor. In round numbers, we are down 20% in the first half of 2008 and down 30% over the past 12 months. The details are shown in the table below. A small portion of our losses will not be recovered—we underestimated the speed and severity of credit deterioration and overestimated some companies’ ability to cope with credit and liquidity problems. Our exposure to this type of company is now very small.

For the vast majority of our companies, though, we believe that business values are holding their own or growing. Companies such as Berkshire Hathaway, WellPoint, Dell, Liberty Media-Interactive, Liberty Global, Telephone and Data Systems, etc. are suffering from investor angst but not from balance sheet distress or serious business problems. These companies are generating more cash than they need to reinvest in their businesses, they have strong balance sheets, and they are managed by people we trust to allocate capital well. Some are experiencing a cyclical slowdown—others are growing nicely in the face of a poor economy. Many have significant foreign operations that provide a measure of insulation from the problems of the U.S. economy. All are coping well with a challenging environment.

Our investment approach is very straightforward. We calculate the price that we believe an intelligent, informed investor would pay to buy 100% of a business and we try to buy shares in that business at a significant discount to that "business value." Not surprisingly, when the discount is greater—that is when stocks are cheaper—subsequent investment results tend to be better. By our calculations of business value, our stocks are cheaper today than they have been for many years. This does not mean they will not get even cheaper, but we think it means that our odds of earning good returns from current price levels are very good.

The letter from Brad and me which discusses the investment climate and reviews our investment results (this one) will remain a part of our quarterly reports. We will also continue to include several pages of data on each Fund—historical returns, top ten positions, performance attribution, etc. We are adding a separate "Management Discussion and Analysis" section for each Fund so that we can comment on Fund-specific investments or strategies. We have also added a new section called "Analyst Corner" which can be found immediately following this letter in the quarterly report. This column will give our analysts a chance to explain some of our more important positions and will let shareholders get to know our analysts.

The table below shows investment results over various intervals for our stock Funds (after deducting fees and expenses), the S&P 500 (larger companies), the Russell 2000 (smaller companies) and the Nasdaq Composite (a proxy for technology companies).

* All performance numbers assume reinvestment of dividends (except for the 15-, 20- and 25-year Nasdaq numbers for which reinvestment of dividend information was not available).

** As of December 31, 1993, the Partners Value Fund ("Partners Value") succeeded to substantially all of the assets of Weitz Partners II Limited Partnership and as of December 30, 2005, the Partners III Opportunity Fund ("Partners III") succeeded to substantially all of the assets of Weitz Partners III Limited Partnership (together with Weitz Partners II Limited Partnership, the "Partnerships"). The investment objectives, policies and restrictions of Partners Value and Partners III are materially equivalent to those of the respective Partnerships and the Partnerships were managed at all times with full investment authority by Wallace R. Weitz & Company. The performance information includes performance for the period before Partners Value and Partners III became investment companies registered with the Securities and Exchange Commission. During these periods, neither Partnership was registered under the Investment Company Act of 1940 and therefore were not subject to certain investment restrictions imposed by the 1940 Act. If either Partnership had been registered under the 1940 Act during these periods, the Partnership’s performance might have been adversely affected.

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

Each of our stock Funds is different, but there is enough "family resemblance" that a discussion of the top positions across all the Funds should be useful for all shareholders.

Liberty Global, Liberty Entertainment, and Liberty Interactive (12.2% collectively) are three separate entities controlled by cable legend John Malone. Global provides cable TV and programming in Eastern and Western Europe and Japan. Entertainment is a collection of video distribution and content assets, the most important of which is DirectTV. Interactive owns QVC. These companies generate large amounts of free cash flow and have excellent records of making good acquisitions and buying back their own stock at attractive prices.

Berkshire Hathaway (11.1% of aggregate assets) entered 2008 with $66 billion in cash and bonds. Each quarter Berkshire’s operating companies send additional billions to Omaha for Warren Buffett to invest. Over the past several quarters, he has bought entire companies, large minority stakes in Wrigley and Dow Chemical, and marketable stocks and bonds that were severely depressed because of forced selling by banks and hedge funds. He has even started a new bond insurance company to fill the vacuum created by the downgrades at MBIA and Ambac. Berkshire’s stock is down about 20% so far this year, but as Warren invests cash in higher-return assets, the underlying intrinsic value of the business is growing.

Telephone and Data Systems (5.0%) is a regional wireless (U.S. Cellular) and wireline telephone service provider. It is very conservatively managed and financed. The good news/bad news story of TDS is that management apparently turned down a $100 per share cash offer for the company earlier this year. (Current market price is $41.) The good news is that a strategic buyer thought the company was worth more than twice what it is currently selling for. The bad news is that management rejected the bid. We are hopeful that this valuation gap can be closed, but in any event we have a significant "margin of safety."

WellPoint (4.9%) is the largest health benefits company in terms of commercial membership in the United States. It operates as the Blue Cross or Blue Cross and Blue Shield licensee in 14 states. WellPoint has grown steadily over the years and its business model generates copious amounts of free cash flow. Price competition, rising medical costs and higher unemployment have dampened near-term earnings, and investors apparently fear a less hospitable healthcare environment under a new administration. As a result, the stock is down 49% this year and sells at 7-8 times our estimate of 2009 cash earnings per share. We believe investors are overly fearful and that the stock has significant recovery and future growth potential.

Omnicare (4.2%) is a distributor of drugs to nursing homes and assisted living facilities across the United States. Following a painful transition in the industry’s reimbursement structure, the company appears to have stabilized margins and has improved cash collections. Importantly, Omnicare is nearing the completion of a significant upgrade to its distribution network, an effort that could boost the company’s earnings by as much as $0.60 per share (on a base of $1.75 in GAAP earnings). Recent favorable changes to the company’s board of directors give us additional confidence in Omnicare’s capital allocation and strategic direction.

Dell (4.1%) is a terrific business that is in the midst of regaining its operating focus under the leadership of its founder, Michael Dell. We believe the company has significant revenue growth and margin improvement opportunities ahead and that the stock trades at a significant discount to the company’s underlying business value. Dave Perkins discusses Dell in more detail in our "Analyst Corner" following this letter in the quarterly report.

Redwood Trust (4.1%) is a mortgage real estate investment trust. Its business is evaluating mortgage credit risk and investing in mortgage-backed securities (MBS). Needless to say, in today’s environment, investors are highly skeptical about any company’s ability to navigate the minefields of the mortgage market. We have owned Redwood since it was formed in 1994 and have confidence in management’s ability to invest profitably and safely within their "circle of competence." They have been preparing for this credit crisis for years and should be able to benefit from distressed sales of mortgage assets by banks and hedge funds. They do not use debt to finance their investments and they hold considerable cash reserves to be able to take advantage of future opportunities. We think it has the capacity to grow book value and dividends significantly over the next few years.

American Express (3.7%) earns transaction fees and collects a "royalty" on spending by traditional card members. These are great, low risk, high return businesses. In recent years, the company has also begun providing revolving credit to its customers, and it is this business that has raised investors fears. American Express is certainly not immune to rising credit losses as the recession deepens and its customers’ spending patterns may slow for a period, but the stock appears to more than discount such worries at roughly 12-13 times our estimate of Amex’ core earnings power. Even assuming net credit charge-offs reach early 1990’s levels, we believe prices in the high-$30’s offer a compelling risk-reward opportunity to a long-term owner.

We are experiencing a financial crisis of global proportions and the headlines are likely to remain unpleasant and frightening for some time. We plan to be vigilant, flexible and conservative as we work our way through this period. We feel somewhat battered and bruised by the events of the past year, but we feel very good about the companies in our portfolios.

These are scary times for investors, but market bottoms tend to occur when gloom is thickest and before the news turns positive. We cannot predict when the market will recover, but if you have questions about our companies or our investment strategy, we encourage you to call our client service representatives.

Sincerely,

Wallace R. Weitz	Bradley P. Hinton
Co-manager Value and Partners Value	Co-manager Value and Partners Value
Portfolio Manager Hickory and Partners III	brad@weitzfunds.com
wally@weitzfunds.com

Investors should consider carefully the investment objectives, risks, and charges and expenses of the Funds before investing. The Funds’ Prospectus contains this and other information about the Funds. The Prospectus 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. See the Schedule of Investments in Securities included in the Funds’ quarterly report for the percent of assets of each Fund invested in particular industries or sectors.

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