January 14, 2008

Dear Fellow Shareholder:

The Short-Intermediate Income Fund’s total return for the fourth quarter of 2007 was +2.2%. Our return consisted of approximately 1.1% from net interest and dividend income (after deducting fees and expenses) and approximately 1.1% from realized and unrealized appreciation of our investments. For the year, our total return was +6.1%, less than the 7.4% of the Lehman Brothers Intermediate U.S. Government / Credit Index, our Fund’s primary benchmark.

While a significant portion of our portfolio performed well in 2007 (particularly Treasuries, government agency and high quality MBS, mortgage-backed securities), the shorter duration and average life of our portfolio relative to the Lehman Index mitigated the benefits of declining interest rates that occurred during the year. The small credit-oriented portion of our Fund (corporate bond, preferred and common stock ownership) also detracted from performance for the year (more details below).

Total returns for longer periods of time as of December 31, 2007 are listed in the table below. Two additional Lehman Brothers Indexes (1-3 and 1-5 year) with a shorter average maturity are included in the table for added perspective, given our Fund’s history of having a shorter duration and average life than the Fund’s primary benchmark.

The following tables show a profile of our portfolio and asset allocation as of December 31:

The fourth quarter was a good one for most fixed-income investors, our Fund included. Our portfolio performed well, driven by our large exposure to Treasury bonds, government agency and high quality MBS, which together comprise approximately 85% of our Fund at year-end.

Interest income was enhanced by capital gains as interest rates generally declined in response to broadening economic weakness. The ripple effects from the continued fallout in the housing market were felt in declining consumer confidence, disappointing holiday sales and concern that corporate profits would be negatively impacted. The Fed responded by continuing to lower short-term interest rates, further supporting bond investor returns in the quarter.

A noteworthy, and ongoing, development in the quarter was an overall re-pricing of credit risk. Investor complacency which led to very narrow credit spreads, and discussed in last year’s 4^th quarter report, is being replaced with a growing sense of fear and wider credit spreads. Credit spreads represent the extra return that fixed-income investors demand for lending money to any entity other than the U.S. Treasury and are typically measured from a comparably maturing Treasury bond. For example, a 5-year corporate bond should always yield more than a 5-year Treasury bond no matter how solid the corporation’s credit quality happens to be. When economic times are good and investors worry less about return of principal, the difference in yields (credit spread) between this hypothetical 5-year corporate bond and a 5-year Treasury bond could be, and has been, very narrow. But should the economy weaken or the prospects of a particular company become less clear, this difference in yields can widen, sometimes significantly, as investors demand more return (higher yield) for the risks they assume.

This widening of credit spreads has been dramatic in recent months. For instance, high-yield bond spreads have doubled, or more, from their near-historic lows reached mid-year and produced negative returns for high-yield bond investors in the second half of 2007, according to Merrill Lynch’s High Yield Master Index.

The risk re-pricing negatively impacted the Fund’s small holdings of credit sensitive investments (less than 5% at December 31). Harrah’s Entertainment and Countrywide Credit corporate bonds, Six Flags convertible preferred stock, and Newcastle Investment Corp. and Redwood Trust common stock together reduced quarterly and full-year performance by approximately ½ percent and 1 percent, respectively. While the price declines of these investments are annoying, we are optimistic about the future return potential they represent for our Fund. In January, for example, Countrywide Credit agreed to be purchased by Bank of America, resulting in sizable appreciation as of this writing.

Outlook

Much discussion in the press lately has dealt with the likelihood of a recession and whether or not it has already begun. It seems plausible that many factors (housing weakness, rising unemployment and declining profits, to name a few) may be conspiring to set the stage for the next recession. However, we’re mindful of the difficulty in accurately predicting these economic turning points. It has been said, tongue in cheek, that economists have successfully predicted 10 of the last 3 recessions. Whether a recession is imminent, our goal will be to continue to select investments one security at a time, being mindful of the risk/reward attributes that each adds to our portfolio.

The recent sharp decline in U.S. Treasury interest rates, with yields at or below 3% for maturities of 5 years or less while the ten-year Treasury yields 3.8% (as of this writing), seem to be discounting dire economic consequences and has led us to become even more defensively positioned (i.e. shorter average life). This may cause our performance to lag our primary benchmark should interest rates continue to fall since the benchmark has a longer duration relative to our Fund. Given an elevated inflation and falling dollar risk, with its attendant negative consequences for fixed-income investors, this posture seems warranted while we search for qualifying investments. Should the flight from risk in the financial markets continue, the coming year may provide us increasing opportunities to invest on more favorable terms.

Government Money Market Fund Overview

The Government Money Market Fund closed the fourth quarter with a 7-day effective yield of 4.03%. (An investment in the Fund is neither insured nor guaranteed by the U.S. Government. There can be no assurance that the Fund will be able to maintain a stable net asset value. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.)

Our Fund’s yield declined during the fourth quarter as the primary rate-setter of short-term interest rates, the Federal Reserve, lowered short-term interest rates by 25 basis points at both of their October and December meetings. Housing market weakness and the tightening of credit conditions caused by the ongoing turmoil in the financial markets were the primary reasons for the Fed’s decision to continue making adjustments to monetary policy.

The strategy in our Government Money Market Fund remains, by nature, conservative. We invest in short-term government and government agency securities that have a weighted average maturity of less than ninety days. The types of securities we typically invest in consist of U.S. Treasury bills, government agency discount notes (such as Federal Home Loan Banks and the Federal Farm Credit Banks) and repurchase agreements, typically overnight or one-day, with high-quality counterparties backed by U.S. Treasury securities.

While the credit quality of our investments is high, the expected returns on these investments are primarily affected by near-term monetary policy (as mentioned above). A change in the "going rate" in the short-term government security market impacts our yields fairly quickly. Recent statements by Ben Bernanke, the Chairman of the Federal Open Market Committee, would seem to suggest that short-term rates may need to be adjusted lower. If so, our reinvestment opportunities may also decline.

If you have any questions about the mechanics of either Fund or our investment strategy, please call. As always, we welcome your comments and questions.

Best Regards,

Thomas D. Carney
Portfolio Manager

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 Schedules of Investments in Securities included in the Funds’ quarterly report for the percent of assets of each Fund invested in particular industries or sectors.