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- --------------------------------------------------------------------------------
WEITZ SERIES FUND, INC.
VALUE PORTFOLIO
QUARTERLY
REPORT
JUNE 30, 1996
ONE PACIFIC PLACE, SUITE 600
1125 SOUTH 103 STREET
OMAHA, NEBRASKA 68124-6008
402-391-1980
800-232-4161
402-391-2125 FAX
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WEITZ SERIES FUND, INC. -- VALUE PORTFOLIO
PERFORMANCE SINCE INCEPTION
A long-term perspective on our fund's performance is shown below. The table
below shows how an investment of $25,000 in the Value Portfolio at its inception
would have grown over the years (after deducting all fees and expenses and
assuming reinvestment of all dividends). The table also sets forth average
annual total return data for the Value Portfolio for the one, five and ten year
periods ended June 30, 1996, calculated in accordance with SEC standardized
formulas.
<TABLE>
<CAPTION>
VALUE OF VALUE OF VALUE OF
INITIAL CUMULATIVE CUMULATIVE TOTAL
$25,000 CAPITAL GAIN REINVESTED VALUE OF ANNUAL RATE
PERIOD ENDED INVESTMENT DISTRIBUTIONS DIVIDENDS SHARES OF RETURN
- ---------------------------- ----------- ------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
May 9, 1986 $ 25,000 -- -- $ 25,000 --
Dec. 31, 1986 25,863 -- -- 25,863 3.5%*
Dec. 31, 1987 24,253 264 1,205 25,722 -0.5
Dec. 31, 1988 27,430 299 2,223 29,952 16.5
Dec. 31, 1989 30,763 2,103 3,701 36,567 22.1
Dec. 31, 1990 28,040 2,112 4,500 34,652 -5.2
Dec. 31, 1991 33,940 3,811 6,475 44,226 27.6
Dec. 31, 1992 36,350 6,019 7,884 50,253 13.6
Dec. 31, 1993 42,010 9,114 9,199 60,323 20.0
Dec. 31, 1994 36,075 10,414 7,899 54,388 -9.8
Dec. 31, 1995 45,955 17,447 11,855 75,257 38.4
June 30, 1996 (6 Mos.) 50,720 19,256 13,084 83,060 10.4
</TABLE>
The Portfolio's average annual total return for the one, five and ten year
periods ending June 30, 1996, was 27.3%, 15.8%, and 12.5%, respectively. These
returns assume redemption at the end of each period.
Since inception, the total amount of capital gains distributions reinvested in
shares was $14,094, and the total amount of "income" distributions reinvested
was $8,015. This information represents past performance of the Portfolio and is
not indicative of future performance. The investment return and the principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost. Additional
information is available from Wallace R. Weitz & Co. at the address listed on
the front cover.
* Return is for the seven month period 5/9/86 through 12/31/86
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WEITZ SERIES FUND, INC. -- VALUE PORTFOLIO
JUNE 30, 1996 - QUARTERLY REPORT
July 7, 1996
Dear Fellow Shareholder:
I am pleased to report that the 2nd quarter of 1996 was another good one
for the Value Portfolio. The table below summarizes the total returns (income
plus appreciation, after deducting all fees and expenses) for our fund, the
average fund in our Lipper Analytical Services peer group (Growth and Income
funds), and the S&P 500:
<TABLE>
<CAPTION>
YEAR
2ND Q TO DATE 1 YEAR 5 YEARS 10 YEARS
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Value Portfolio 4.3% 10.4% 27.3% 15.8% 12.5%
Ave. G&I Fund 3.4 9.2 22.6 14.4 11.9
S&P 500* 4.5 10.1 26.0 15.7 13.8
* The S&P 500 index is an unmanaged index consisting of 500 companies. Information
assumes reinvestment of dividends, with no deductions for investment expenses.
Sources: Lipper Analytical Services; WALL STREET JOURNAL
</TABLE>
The table on page 1 shows how an investment in the fund has grown since
the inception of the fund.
MARKET COMMENTARY
The BUSINESS VALUE of a company is the present value of all of the net
cash that the business will earn for its owners over the next several DECADES.
Business value rises and falls, GRADUALLY, as the business' long-term prospects
evolve. Business value is not affected by weekly economic statistics or most of
the other factors reported in the business press.
A company's STOCK PRICE, however, is an entirely different matter. The
cornerstone of value investing is that over LONG periods of time (e.g. 5 years),
the stock price will reflect the economic performance of the company. However,
in the short-run, stock prices are determined by the ebb and flow of an enormous
pool of capital in restless pursuit of high returns. The pool is directed by
humans, many of whom are intelligent, well-informed, and highly-motivated, but
who are subject to hopes, fears, greed, intellectual laziness, pressure from
clients to perform, and all sorts of other counter-productive, short-term
influences.
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So, it should come as no surprise that stocks are "MISPRICED" a good part
of the time (though proponents of the "Efficient Market Theory" will dispute
this). Investors seem more likely to notice the discrepancy between value and
price when stocks are low, since they are being punished by the market's pricing
"error." When stocks are high relative to their business values, investors are
being rewarded, and it is easier to rationalize that maybe the market is right,
after all. In strong markets, greed and hubris are more in evidence than usual,
common sense gives way to "new investment paradigms," and otherwise intelligent
people begin to believe that, in fact, this time IS different.
One of my favorite illogical ideas is that if you buy the stock of a great
company, it does not matter what price you pay. Ben Graham wrote about how this
idea contributed to the stock mania of the twenties, and it was the guiding
principle behind the "one-decision stocks" of the "Nifty Fifty" era (which ended
with the 1973-74 bear market). Today's "momentum investors" seem to be carrying
on the tradition. Consider the following quotation from the June 23, 1996, NEW
YORK TIMES. It is part of an article on Gary Pilgrim, manager of the fabulously
successful PBHG Growth Fund (which, in the interest of full disclosure, I will
acknowledge has out-performed our fund over the past 10 years).
What does not enter into this quest for growth is any
consideration of a stock's price. For the most part, Mr. Pilgrim and
his colleagues ignore traditional measures of valuation like
price-to-earnings or price-to-book multiples. This disdain for
price-based decisions is clear. Three of the top five holdings in PBHG
Growth and PBHG Emerging Growth are priced at more than 100 times
trailing earnings. Inso, a fledgling software developer, for example,
has a multiple of 216, while Cascade Communications . . . recently had
a multiple of 181. None of the stocks had multiples below 50.
Mr. Pilgrim says there is little evidence that using any kind of
valuation measure helps bolster returns. "I frankly don't believe that
I've lost any serious money because of overvaluation," he says.
PBHG's mutual fund assets have ballooned from $160 million at the
beginning of 1994 to $7 billion today. It seems possible to me (even likely)
that the huge influx of cash into aggressive funds like these and the subsequent
investment of the cash without regard for price, has created some over-valuation
that needs to be corrected.
OUTLOOK FOR OUR PORTFOLIO
During the last year and a half, conditions for stocks have been nearly
ideal. The S&P 500 has risen 51% while the Value Fund is up 53%. This is not a
sustainable rate of growth, and it would not be at all surprising to see a
general market correction at some point of 10-25%. If this
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were to occur, our stocks would not be immune, but I don't believe we would
suffer any PERMANENT losses because our businesses are sound and their stock
prices are reasonable, relative to their business values.
From a tactical point of view, I have taken profits in some of our more
speculative stocks and have focused new purchases on higher quality companies. I
have allowed some extra cash reserves to accumulate, but I do not plan to make
any extreme moves to raise cash because of the transaction costs, taxes (for
some), and the impossibility of getting both the exit and re-entry points right.
I am still finding (and buying) a few stocks that are selling at 35-50%
discounts to their conservatively estimated current business values, and I have
not sold any of my Value Fund shares. In short, it seems like a good time to
turn off CNBC (try the History channel) and to try to avoid short-term thoughts
about your long-term investment.
If you would like to talk to someone about your investments, please feel
free to call me or Eric Ball. Eric is an experienced security analyst and
portfolio manager who enjoys helping people organize their investment lives and
make investment plans. Tom Carney is also available, especially if your
questions involve bonds, and Mary Bickels would be happy to help with questions
about your account and with information on our various funds.
ANNUAL MEETING
About 160 shareholders gathered at the Omaha Marriott on May 29 for our
annual meeting. We celebrated the 10th anniversary of the Value Fund with a
slide show that combined Value Fund history with some illustrations of the
practical application of our investment philosophy. We then had a question and
answer session that covered a lot of investment ground. It would be impossible
to reproduce the whole Q and A session, but there were a couple of questions
that come up so regularly that it seems appropriate to include them in this
letter.
Q: THE AVERAGE MUTUAL FUND HAS FAILED TO OUT-PERFORM THE S&P 500 IN
RECENT YEARS, SO WHY SHOULDN'T INVESTORS SIMPLY GIVE UP ON "ACTIVE" PORTFOLIO
MANAGERS AND BUY AN INDEX FUND?
A: As an active manager, I am biased on this matter, but I would suggest
that:
(a) in a strongly rising stock market, which is what we have enjoyed for
much of the last 20 years, cash held for defensive purposes, or to maintain
flexibility, hurts performance. If the market sees a more normal mix of rising
and falling markets over the next 10-20 years, the ability to hold cash from
time to time may be a positive for portfolio managers;
(b) if indexing becomes too popular (a point we may have reached), cash
moves from potentially good investments in non-index companies into the stocks
in the index, regardless of
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the attractiveness of the businesses or the prices being paid. This is another
case of an essentially good idea which, when carried to an extreme, virtually
guarantees a poor result for the latecomers; and
(c) there are expenses and implementation problems associated with
managing an index fund (e.g. when the composition of the index is changed,
stocks are sold and replaced by many index fund managers at the same time,
sometimes causing sharp price fluctuations). Therefore, index funds often
under-perform the index that they are trying to track.
Q: WHY DON'T YOU INVEST MORE IN FOREIGN STOCKS?
A: Investing in domestic stocks is difficult enough, and moving to the
foreign stock arena is not just a matter of learning to pronounce a new set of
company names. There are undoubtedly some wonderful investment opportunities in
stock markets around the world, but I don't feel competent to do a good job of
researching and investing in foreign stocks. We like to invest where we have
edge, and when dealing with foreign currencies, customs, accounting, and
managements we do not know, we are at a distinct disadvantage. So, we leave
foreign stocks to others who are better at it or who are oblivious to the
obstacles.
The good news is that we can take advantage of some of the growth
opportunities of global markets without buying foreign stocks. Disney and Time
Warner have significant global entertainment businesses. Our cellular telephone
companies have significant global interests. (Approximately 50% of the business
value of AirTouch lies in its operations outside the U.S.) Coca Cola (owned
through Berkshire Hathaway) earns about 80% of its profits abroad. TCI, Comcast,
and Century Communications have major cable interests in Europe and around the
world. American Express' business is global, and Bank of America, Wells Fargo,
and even real estate developer Catellus are direct beneficiaries of the growth
in Pacific Rim business activity. So, even though we feel compelled to stay
within our circle of competence and focus on domestic stocks, we can still
participate in the growth of emerging markets.
The annual meeting provides a good opportunity to ask your investment
questions of me and the other analysts and portfolio managers and to meet the
rest of the staff that you work with by phone. We keep the format as informal as
possible, and I think people have a good time. I hope you will try to join us
next year if you can.
Best regards,
/s/ Wallace R. Weitz
Wallace R. Weitz
President
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WEITZ SERIES FUND, INC. -- VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS IN SECURITIES
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR UNITS COST MARKET VALUE
- ------------ ------------- -------------
<C> <S> <C> <C>
COMMON STOCKS -- 86.0%
BANKING -- 15.2%
85,000 Bank America Corp. $ 4,541,788 $ 6,438,750
150,000 Bank Plus Corp.* 1,216,250 1,312,500
50,000 Bostonfed Bancorp, Inc. 587,500 600,000
250,000 Dime Bancorp, Inc. 2,837,275 3,281,250
25,000 First Keystone Financial, Inc.* 340,100 431,250
110,000 Glendale Federal Bank 1,349,810 1,993,750
210,000 Greenpoint Financial Corp. 5,719,475 6,011,250
10,000 Mercantile Bancorporation 303,100 445,000
50,000 PFF Bancorp, Inc.* 531,250 556,250
100,000 Poughkeepsie Savings Bank 511,875 500,000
65,200 Wells Fargo & Co. 10,353,186 15,574,650
------------- -------------
28,291,609 37,144,650
------------- -------------
CABLE TELEVISION -- 15.3%
235,500 Adelphia Communications CL A* 1,877,843 1,766,250
255,000 Century Communications Corp. CL A* 2,052,211 2,167,500
685,000 Comcast Corporation CL A 10,953,831 12,672,500
580,000 Tele-Communications, Inc. CL A* 9,758,810 10,512,500
200,000 Tele-Communications Liberty Media CL A* 4,750,730 5,300,000
100,000 Time Warner, Inc. 3,120,908 3,925,000
60,000 U.S. West Media Group* 1,183,415 1,095,000
------------- -------------
33,697,748 37,438,750
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CONSUMER PRODUCTS AND SERVICES -- 2.4%
140,000 American Classic Voyages Co.* 1,446,363 1,032,500
4,875 Lady Baltimore Foods 227,781 214,500
95,000 Protection One, Inc.* 566,500 1,555,625
80,000 Seafield Capital Corp. 2,929,202 3,000,000
------------- -------------
5,169,846 5,802,625
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FEDERAL AGENCIES -- 5.5%
40,000 Federal Home Loan Mortgage Corp. 1,523,197 3,420,000
140,000 Federal National Mortgage Association 2,790,950 4,672,500
70,000 Student Loan Marketing Association 2,964,637 5,250,000
------------- -------------
7,278,784 13,342,500
------------- -------------
FINANCIAL SERVICES -- 7.9%
100,000 American Express 3,354,046 4,462,500
110 Berkshire Hathaway, Inc.* 640,550 3,377,000
55,000 Central Financial Acceptance Corp.* 660,000 763,125
128,000 Capital One Financial Corp. 3,107,958 3,648,000
75,000 Imperial Credit Industries, Inc.* 899,025 2,268,750
125,000 Imperial Thrift & Loan Association* 1,493,950 1,843,750
</TABLE>
6
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WEITZ SERIES FUND, INC. -- VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS IN SECURITIES, CONTINUED
<TABLE>
<CAPTION>
SHARES
OR UNITS COST MARKET VALUE
- ------------ ------------- -------------
<C> <S> <C> <C>
FINANCIAL SERVICES -- CONTINUED
30,000 PS Group, Inc.* $ 278,125 $ 416,250
60,000 Salomon, Inc. 2,167,071 2,640,000
------------- -------------
12,600,725 19,419,375
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INFORMATION AND DATA PROCESSING -- 2.3%
144,500 BRC Holdings, Inc.* 3,652,688 5,202,000
192,600 Intelligent Systems Corp.* 391,376 481,500
------------- -------------
4,044,064 5,683,500
------------- -------------
MORTGAGE BANKING -- 6.8%
480,000 Countrywide Credit, Inc. 8,548,754 11,880,000
400,055 Resource Bancshares Mtg. Grp.* 5,008,501 4,850,667
------------- -------------
13,557,255 16,730,667
------------- -------------
PUBLISHING AND BROADCASTING -- 3.7%
52,700 Daily Journal Corp.* 1,122,366 1,449,250
40,100 Gabelli Global Multimedia Trust, Inc. 283,106 280,700
60,000 Katz Media Group, Inc.* 881,038 862,500
261,000 Valassis Communications, Inc.* 4,014,485 4,828,500
25,000 Walt Disney Co. 1,498,375 1,571,875
------------- -------------
7,799,370 8,992,825
------------- -------------
REAL ESTATE AND CONSTRUCTION -- 7.1%
800,000 Catellus Development Corp.* 5,762,108 7,400,000
60,000 Forest City Enterprises CL A 2,159,453 2,460,000
340,000 NHP, Inc.* 5,203,520 7,012,500
431,500 Presley Companies CL A* 1,071,414 647,250
------------- -------------
14,196,495 17,519,750
------------- -------------
REAL ESTATE INVESTMENT TRUSTS -- 7.6%
120,000 First Washington Realty Trust, Inc. 2,003,200 2,400,000
150,000 Innkeepers USA Trust 1,382,088 1,500,000
417,091 Redwood Trust, Inc. 7,865,408 11,678,548
130,000 Redwood Trust, Inc. Warrants** 480,000 1,690,000
79,700 Thornburg Mortgage Asset Corp. 1,158,095 1,295,125
------------- -------------
12,888,791 18,563,673
------------- -------------
TELECOMMUNICATIONS -- 12.2%
220,000 360 Communications Co.* 5,118,628 5,280,000
190,000 Airtouch Communications, Inc.* 5,503,713 5,367,500
205,000 Cellular Communications of Puerto Rico, Inc.* 5,582,400 6,662,500
575,400 Centennial Cellular Corp. CL A* 9,087,515 9,709,875
45,800 CommNet, Cellular, Inc.* 1,240,792 1,374,000
33,200 Telephone and Data Systems, Inc. 1,223,094 1,498,150
------------- -------------
27,756,142 29,892,025
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Total Common Stocks 167,280,829 210,530,340
------------- -------------
</TABLE>
7
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WEITZ SERIES FUND, INC. -- VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS IN SECURITIES, CONTINUED
<TABLE>
<CAPTION>
SHARES
OR UNITS COST MARKET VALUE
- ------------ ------------- -------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS -- 1.0%
244,527 Forest Oil Corp. $.75 Cv. Pfd. $ 2,197,368 $ 2,506,402
------------- -------------
NON-CONVERTIBLE PREFERRED STOCKS -- 1.5%
10,000 Community Bank Inc. 13% Pfd. 257,550 267,500
30,000 Prime Retail Inc. 10.5% Pfd. 645,000 735,000
69,941 Riggs National 10.75% Pfd. 1,852,839 1,967,091
34,000 River Bank America 15.0% Pfd. 845,750 799,000
------------- -------------
Total Non-Convertible Preferred Stocks 3,601,139 3,768,591
------------- -------------
<CAPTION>
FACE
AMOUNT
- ------------
<C> <S> <C> <C>
CORPORATE BONDS -- 0.6%
$ 500,000 Salomon, Inc. Notes 7.125% 8/01/99 500,000 501,117
900,000 Dime Savings 10.5% 11/15/05 969,279 972,000
------------- -------------
Total Corporate Bonds 1,469,279 1,473,117
------------- -------------
U.S. GOVERNMENT AND AGENCY SECURITIES -- 9.3%
1,655,000 U.S. Treasury Bill 5.068% 7/05/96**** 1,654,089 1,653,613
4,600,000 U. S. Treasury Bill 5.212% 10/03/96**** 4,539,366 4,537,532
1,000,000 U.S. Treasury Note 6.75% 5/31/97 1,000,000 1,008,281
250,000 U.S. Treasury Note 6.0% 5/31/98 248,724 249,414
4,500,000 Federal Natl. Mtg. Assn. 6.625% 7/12/00 4,499,931 4,471,213
3,000,000 Federal Home Loan Bank 6.535% 3/21/01 3,000,000 2,967,586
4,500,000 Federal Home Loan Bank 6.55% 11/15/02 4,500,000 4,397,257
2,500,000 Federal Natl. Mtg. Assn. 7.55% 6/10/04 2,497,796 2,489,844
1,000,000 Federal Home Loan Bank 6.44% 11/28/05 1,001,482 961,724
------------- -------------
Total U.S. Government and Agency Securities 22,941,388 22,736,464
------------- -------------
SHORT-TERM SECURITIES -- 1.7%
4,228,725 Norwest U.S. Government Money Market Fund, 4.9% 4,228,725 4,228,725
------------- -------------
Total Investments in Securities $ 201,718,728*** 245,243,639
------------- -------------
-------------
Other Liabilities in Excess of Other Assets -- ( 0.1%) (16,637)
-------------
Total Net Assets -- 100% $245,227,002
-------------
-------------
Net Asset Value Per Share $ 20.288
-------------
-------------
</TABLE>
*Non-income producing
**Each warrant allows for the purchase of 1 share of common stock at $14.99;
expiration date is 12/31/97
***Also approximates cost for federal income tax purposes
****Interest rates presented for treasury bills are based upon yield to maturity
rate(s) at date(s) of purchase
8
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WEITZ SERIES FUND, INC.
BOARD OF DIRECTORS
Carroll E. Fredrickson
John W. Hancock
Richard D. Holland
Thomas R. Pansing, Jr.
Wallace R. Weitz
OFFICERS
Wallace R. Weitz, President
Mary K. Beerling, Vice-President & Secretary
Linda L. Lawson, Vice-President
Richard F. Lawson, Vice-President
INVESTMENT ADVISER
Wallace R. Weitz & Company
DISTRIBUTOR
Weitz Securities, Inc.
CUSTODIAN
Norwest Bank Nebraska, N.A.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Wallace R. Weitz & Company
This report has been prepared for the information of shareholders of Weitz
Series Fund, Inc. -- Value Portfolio and is not authorized for distribution to
prospective investors unless preceded or accompanied by a current prospectus
which describes the Fund's objectives, policies and other information.
