PORTFOLIO MANAGER LETTER –
VALUE, HICKORY, PARTNERS VALUE, PARTNERS III OPPORTUNITY
September 30, 2007 – SEMI-ANNUAL REPORT

October 17, 2007

Dear Fellow Shareholder:

Over the years, our investors have gotten used to seeing our Funds zig while the market zagged. We write regularly, and with conviction, about our willingness to be "out of step" with the market. In the 3^rd quarter of calendar 2007, we outdid ourselves.

As the table below shows, our 3^rd quarter and year-to-date results were negative while the general market numbers were positive. This is my 97^th quarterly letter to shareholders and there is a certain sense of déjà vu in writing about short-term performance. We have always recovered from these dips (which is also illustrated in the table), but I know that many shareholders want to know why the numbers were poor and why we expect them to improve. We will give chapter and verse on both subjects later in this letter, but for those who prefer a few short headlines:

• Errors of omission. Energy, industrials and commodities bound for China attracted lots of investor capital. The stocks did not meet our investment criteria and they went up without us;
• Errors of commission. Countrywide Financial was more vulnerable to a liquidity crisis than we had realized and it declined sharply;
• "Good ideas that have not worked yet." Many of our businesses met or exceeded our expectations but their stocks lagged due to investor apathy or short-term concerns that we do not share;
• Looking ahead, there are lots of things to worry about (there always are), but we feel very good about the prospects for the businesses we own and their stock prices.

The table below shows investment results over various intervals for our equity Funds (after deducting fees and expenses) and for 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- and 20-year Nasdaq numbers for which reinvestment of dividend information was not available).

The strongest S&P 500 sectors in the first nine months of 2007 were Energy (+29%) and Materials (+22%). We were virtually unrepresented in those areas. Avoiding investments that depend on correct predictions of commodity price trends (or interest rates, or fashion, etc.) has served us well over the years, but that is small consolation when others are winning without us.

Turning to the stocks that we did own, our mortgage companies made the difference between the Value Fund being up 4% and down 4% for the 9-month period. Within the financials category, insurance and diversified financial (Berkshire Hathaway, American Express, and AIG) were modestly positive contributors, GSE’s (Fannie Mae and Freddie Mac) and banks (Wells Fargo) were neutral, and mortgage companies (primarily Countrywide and Redwood Trust) were very negative.

Our two other major areas of concentration, consumer and healthcare, were positive on balance. Media gains were significant and consumer services gains more than offset modest net retail declines. Our healthcare stocks (primarily UnitedHealth and WellPoint) were weak due to concerns about commercial account cost trends and possible business environment changes under a Democratic administration, even though they generated lots of free cash and repurchased shares at favorable prices. Other sectors, on balance, were modestly positive.

The vast majority of our stocks fit the "good, but early" category. For example, Redwood Trust’s business performed as we had hoped and expected, yet its stock was down 39%. Having built liquidity for two years in anticipation of the very mortgage market chaos that is unfolding this year, they are very well-positioned for the future and we consider it one of the cheapest stocks we own.

Sub-prime lender bankruptcies and isolated hedge fund failures in the first half of 2007 gave way to a full-fledged worldwide liquidity crisis in the third quarter. What had been labeled a sub-prime credit problem turned out to be the bursting of an enormous asset-based lending bubble. Banks owning hundreds of billions of dollars worth of asset-backed securities, financed with short-term borrowings in the commercial paper market, and held in off-balance sheet accounts called Structured Investment Vehicles (SIVs), began to have difficulty "rolling" or renewing their financing.

In August, facing the prospect of forced sales of collateral in quantities the markets might not be able to handle, central banks injected billions of dollars of liquidity into the banking system and made funds available at their "discount windows" to institutional borrowers whose normal funding sources were disappearing. As I write this letter, major banks—with a nudge from the U.S. Treasury—are working to create a $100 billion dollar emergency fund, dubbed a "super-conduit," to be used to support the prices of these asset-backed securities (ABS). The August crisis has passed and some liquidity has returned to the market for ABS, but the markets are still quite wary. This episode apparently got the attention of borrowers, lenders and regulators. We are hopeful that the markets will gradually return to normal, but we are taking nothing for granted.

The liquidity crisis caused serious problems for various financial services companies. Thornburg Mortgage (which we do not own) was forced to sell $22 billion of prime, AAA-quality mortgages at a $1.1 billion loss (roughly 25% of the company’s net worth) because its lenders wanted—or needed—their money back and refused to renew their loans. These mortgages were in no danger of incurring material credit losses, but Thornburg lacked the liquidity to hold them.

Countrywide (which we do own) also had a liquidity problem in August. Countrywide typically holds mortgages for the several week period between origination and sale. The financing for this "pipeline" inventory is generally commercial paper or other short-term borrowing. When the capital markets "froze," Countrywide was unable to roll its commercial paper and had to draw down its backup bank lines of credit. Backup lines are arranged for just such occasions, but it is rare and embarrassing to actually have to use them.

We underestimated Countrywide’s vulnerability to a liquidity crisis. Its failure to slow its originations and to focus on higher quality loans in the face of obvious problems in the mortgage market earlier this year was a symptom of its culture of aggressively pursuing market share and low operating costs. Being caught without adequate liquidity was expensive as Countrywide was forced to sell 15% of its equity to Bank of America.

Looking forward, we believe that Countrywide’s liquidity is now adequate and that loan losses on the mortgages it holds in its bank (not to be confused with the $1.3 trillion of mortgages it does not own but services for others) will be manageable. The mortgage market will recover and we expect Countrywide to remain a major player in the industry. The company has been vilified in the press, and no doubt some of the criticism is deserved, adding insult to injury for shareholders. Nevertheless, we think the stock is trading at a significant discount to its business value.

Outlook

Although the immediate liquidity crisis has eased, financial markets are quite uneasy. Financial institutions, central banks, and regulators are working diligently to keep the asset-backed securities markets functioning and we believe they will succeed. The U.S. economy appears to be slowing, especially in housing-related areas, and recession is not out of the question. Asian economies have been very strong, but it seems likely that they will feel some impact if their best customers are forced to moderate their consumption.

In the face of these economic negatives, we own some credit- and economically-sensitive stocks. The underlying businesses are very strong and should be able to take market share in a tough environment and grow nicely when conditions improve. We have been early, but stocks have a way of going up long before the news turns positive. Based on relatively modest assumptions, we believe that most of our stocks may have the potential to rise by 50% or more over the next 2-3 years.

We have been here before and we feel good about the long-term outlook. In the meantime, we appreciate your patience. As always we invite you to call or email with questions.

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

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