<PAGE>
WEITZ SERIES FUND, INC.
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VALUE PORTFOLIO
FIXED INCOME PORTFOLIO
GOVERNMENT MONEY MARKET PORTFOLIO
HICKORY PORTFOLIO
1125 SOUTH 103 STREET, SUITE 600, OMAHA, NEBRASKA 68124-6008
402-391-1980 800-232-4161 FAX 402-391-2125
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The Value Portfolio, Fixed Income Portfolio, Government Money Market Portfolio
and Hickory Portfolio (each, a "Fund"), are series of Weitz Series Fund, Inc.
(the "Company"), a Minnesota corporation which is a no-load, open-end management
investment company. The Value, Fixed Income and Government Money Market
Portfolios are diversified investment companies. The Hickory Portfolio is a
non-diversified investment company. The investment objective of each of the
Funds is as follows:
THE VALUE AND HICKORY PORTFOLIOS seek to achieve capital appreciation
primarily through investing in equity securities and securities convertible
into equity such as rights, warrants, convertible bonds and preferred stock,
as well as bonds and other debt obligations of both corporate and government
issuers. The receipt of income is considered a secondary objective, as some
investments may yield dividends, interest or other income. Each Fund's
investment strategy is based on the concept of "value investing."
THE FIXED INCOME PORTFOLIO seeks to achieve a high level of current income
consistent with the preservation of capital primarily by investing in fixed
income securities such as U.S. Government securities, U.S. Government agency
securities, state and municipal obligations, bank obligations and corporate
debt securities.
THE GOVERNMENT MONEY MARKET PORTFOLIO seeks current income consistent with the
preservation of capital and maintenance of liquidity by investing
substantially all of its assets in debt obligations issued or guaranteed by
the U.S. Government, its agencies and instrumentalities and repurchase
agreements thereon with maturities not exceeding thirteen months. AN
INVESTMENT IN THE GOVERNMENT MONEY MARKET PORTFOLIO IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE
GOVERNMENT MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
For further information about the investment policies of each of the Funds,
see "Investment Objective & Policies."
Shares can be purchased directly without the payment of any sales charges by
contacting the Company. There are no "12b-1" fees, distribution fees or
redemption fees.
This Prospectus, which should be kept for future reference, sets forth
concisely certain information an investor should know about the Funds before
purchasing shares. More detailed information about each Fund can be found in the
Statement of Additional Information which has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Statement of
Additional Information, dated the date of this Prospectus, is available without
charge upon request by telephoning or writing the Company at the address shown
above.
PURCHASE OF SHARES OF THE FUNDS INVOLVES CERTAIN INVESTMENT RISKS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PROSPECTUS DATED JULY 15, 1997
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Fund Expenses.................................................................... 3
Financial Highlights
Value Portfolio................................................................ 4
Fixed Income Portfolio......................................................... 6
Hickory Portfolio.............................................................. 8
Government Money Market Portfolio.............................................. 10
Investment Management Information................................................ 11
Investment Objective and Policies.............................................. 11
Investment Securities.......................................................... 13
Investment Restrictions........................................................ 18
Investment Risks............................................................... 19
Purchasing Shares................................................................ 20
Opening a Regular New Account.................................................. 20
Opening a Retirement Account................................................... 20
Purchasing Shares of a Fund.................................................... 21
Changing Your Address.......................................................... 22
Confirmations and Shareholder Reports.......................................... 22
Redeeming Shares................................................................. 23
Redemption Procedures.......................................................... 23
Redemption Payments............................................................ 23
Signature Guarantees........................................................... 24
Other Redemption Information................................................... 24
Exchanging Shares................................................................ 25
Pricing of Shares................................................................ 26
Dividends, Distributions and Taxes............................................... 27
Management....................................................................... 28
Investment Adviser............................................................. 28
Transfer Agent and Administrative Services..................................... 29
Code of Ethics................................................................. 29
Additional Information........................................................... 30
Organization and Capital Structure............................................. 30
Performance Information........................................................ 30
Distributor.................................................................... 31
Custodian...................................................................... 31
Auditor........................................................................ 31
Legal Counsel.................................................................. 31
</TABLE>
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-2-
<PAGE>
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FUND EXPENSES
The purpose of the following table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in a Fund.
<TABLE>
<CAPTION>
VALUE FIXED GOVERNMENT HICKORY
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None None
Sales Load Imposed on Reinvested Dividends None None None None
Deferred Sales Load None None None None
Redemption Fees None None None None
Exchange Fees None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (after fee waivers)(1) 1.00% 0.50% 0.25% 1.00%
12b-1 Fees None None None None
Other Expenses
Administrative Fee (after fee waivers)(2) 0.20% 0.07% 0.00% 0.19%
All Other Expenses (after fee waivers)(3) 0.09% 0.18% 0.25% 0.31%
Total Fund Operating Expenses (after fee
waivers)(4) 1.29% 0.75% 0.50% 1.50%
EXAMPLE:
Based on the "Total Fund Operating 1 Year $ 13 $ 8 $ 5 $ 15
Expenses" set forth above, you would pay the 3 Years 41 24 16 47
following expenses on a $1,000 investment, 5 Years 71 42 28 82
assuming: (a) a 5% annual return; and 10 Years 156 93 63 179
(b) redemption at the end of each time period.
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE.ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN
ABOVE. THE ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT
REPRESENT, THE PROJECTED OR ACTUAL PERFORMANCE OF A FUND.
(1) Wallace R. Weitz & Company, the Funds' investment adviser (the "Adviser")
has agreed to reimburse the Funds up to the amount of advisory fees paid to the
extent that total expenses for the Value and Hickory Portfolios exceed 1.50% of
average daily net assets or total expenses for the Fixed Income and Government
Money Market Portfolios exceed 1.00% of average daily net assets. The investment
advisory fees for the Government Money Market Portfolio would have been .50%,
absent voluntary waivers.
(2) Under the Administration Agreement, the administrative fee is a monthly fee
representing the costs of providing administrative services to a Fund based upon
the Administrator's reasonable allocation of expenses, not to exceed .30% of
average daily net assets for the Value Portfolio and .25% of average daily net
assets for the Fixed Income, Government Money Market and Hickory Portfolios. The
Administrative Fee for the Fixed Income, Government Money Market and Hickory
Portfolios would have been .25%, absent voluntary waivers.
(3) "All Other Expenses" for the Government Money Market Portfolio would have
been .40%, absent voluntary waivers by the Adviser.
(4) "Total Fund Operating Expenses" for the Fixed Income, Government Money
Market and Hickory Portfolios would have been .93%, 1.15%, and 1.56%,
respectively, absent investment advisory fee, administrative fee and other
expense waivers.
-3-
<PAGE>
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FINANCIAL HIGHLIGHTS
VALUE PORTFOLIO
The following information provides selected data for a share of the
Value Portfolio and its predecessor outstanding throughout the periods
indicated. On April 1, 1990, Weitz Value Fund, Inc. was merged into the Fund and
renamed the Value Portfolio. Information prior to that date is for a share of
the Weitz Value Fund, Inc. Information for the year ended March 31, 1997, has
been audited by McGladrey & Pullen, LLP, independent certified public
accountants, whose report thereon, which is incorporated by reference, appears
in the Fund's Annual Report. The information for periods prior to April 1, 1996,
was audited by other certified public accountants.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 19.457 $ 15.552 $ 15.684 $ 15.526 $ 13.926 $ 12.842 $ 11.854 $ 11.772 $ 10.517 $ 10.792
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.178 0.157 0.144 0.089 0.221 0.360 0.319 0.421 0.335 0.326
Net gains or losses on
securities
(realized and unrealized) 2.580 5.247 0.452 0.683 2.199 1.445 1.117 0.720 1.238 (0.002)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations 2.758 5.404 0.596 0.772 2.420 1.805 1.436 1.141 1.573 0.324
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.125) (0.418) -- (0.023) (0.275) (0.324) (0.380) (0.430) (0.318) (0.487)
Distributions from realized
gains (1.102) (1.081) (0.728) (0.591) (0.545) (0.397) (0.068) (0.629) -- (0.112)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions (1.227) (1.499) (0.728) (0.614) (0.820) (0.721) (0.448) (1.059) (0.318) (0.599)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 20.988 $ 19.457 $ 15.552 $ 15.684 $ 15.526 $ 13.926 $ 12.842 $ 11.854 $ 11.772 $ 10.517
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN 14.3% 35.9% 4.1% 4.9% 18.3% 14.3% 12.6% 9.6% 15.2% 3.4%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
($000) $275,597 $170,509 $118,776 $103,840 $ 67,617 $ 35,948 $ 27,503 $ 24,540 $ 16,394 $ 9,219
Ratio of expenses to average
net assets 1.29% 1.35% 1.42% 1.41% 1.35% 1.40% 1.49% 1.46% 1.50% 1.50%
Ratio of net investment income
to average net assets 0.93% 0.91% 1.06% 0.64% 1.66% 2.75% 2.71% 3.71% 3.30% 3.47%
Portfolio turnover rate 39% 40% 28% 23% 23% 35% 29% 49% 25% 68%
Average commission rate paid
(per share) $0.0476* N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
*Required by regulations issued in 1995.
-4-
<PAGE>
The chart below depicts the change in the value of a $25,000 investment
for the period March 31, 1987, through March 31, 1997, for the Value Portfolio
and its predecessor, as compared with the growth of the Standard & Poor's 500
Index during the same period. The Standard & Poor's 500 Index is an unmanaged
index consisting of 500 companies. The information assumes reinvestment of
dividends and capital gains distributions. A $25,000 investment in the Value
Portfolio on March 31, 1987, would have been valued at $84,365 on March 31,
1997.
Value of $25,000 Investment
Value Portfolio 3/31/87 Through 3/31/97
<TABLE>
<CAPTION>
Value Portfolio S&P 500
--------------- ----------
Value Value
of $25,000 of $25,000
--------------- ----------
<S> <C> <C>
03/31/87 $25,000 $25,000
04/30/87 $24,733 $24,778
05/31/87 $24,683 $24,992
06/30/87 $24,963 $26,254
07/31/87 $25,447 $27,583
08/31/87 $25,696 $28,612
09/30/87 $25,703 $27,984
10/31/87 $23,993 $21,962
11/30/87 $23,487 $20,155
12/31/87 $23,834 $21,692
01/31/88 $24,942 $22,603
02/29/88 $25,569 $23,652
03/31/88 $25,839 $22,922
04/30/88 $26,243 $23,175
05/31/88 $26,394 $23,372
06/30/88 $26,991 $24,444
07/31/88 $27,085 $24,351
08/31/88 $26,931 $23,525
09/30/88 $27,612 $24,526
10/31/88 $27,753 $25,208
11/30/88 $27,335 $24,847
12/31/88 $27,756 $25,280
01/31/89 $28,819 $27,126
02/28/89 $28,970 $26,452
03/31/89 $29,777 $27,068
04/30/89 $31,333 $28,472
05/31/89 $32,809 $29,619
06/30/89 $32,218 $29,452
07/31/89 $33,452 $32,109
08/31/89 $33,559 $32,734
09/30/89 $33,896 $32,600
10/31/89 $33,424 $31,844
11/30/89 $33,556 $32,490
12/31/89 $33,884 $33,269
01/31/90 $32,413 $31,037
02/28/90 $32,617 $31,439
03/31/90 $32,642 $32,271
04/30/90 $32,531 $31,467
05/31/90 $34,199 $34,528
06/30/90 $34,176 $34,295
07/31/90 $33,587 $34,185
08/31/90 $31,857 $31,099
09/30/90 $30,866 $29,587
10/31/90 $29,466 $29,462
11/30/90 $31,232 $31,362
12/31/90 $32,110 $32,235
01/31/91 $34,125 $33,635
02/28/91 $35,909 $36,037
03/31/91 $36,765 $36,908
04/30/91 $37,033 $36,996
05/31/91 $38,069 $38,586
06/30/91 $36,814 $36,819
07/31/91 $37,762 $38,534
08/31/91 $38,359 $39,392
09/30/91 $39,050 $38,732
10/31/91 $39,326 $39,252
11/30/91 $38,479 $37,674
12/31/91 $40,981 $41,975
01/31/92 $41,304 $41,194
02/29/92 $41,877 $41,727
03/31/92 $42,037 $40,916
04/30/92 $42,280 $42,116
05/31/92 $42,640 $42,321
06/30/92 $42,810 $41,691
07/31/92 $43,305 $43,393
08/31/92 $42,476 $42,506
09/30/92 $42,961 $43,005
10/31/92 $42,444 $43,153
11/30/92 $45,180 $44,618
12/31/92 $46,565 $45,165
01/31/93 $47,824 $45,542
02/28/93 $48,929 $46,162
03/31/93 $49,723 $47,135
04/30/93 $48,210 $45,996
05/31/93 $49,523 $47,222
06/30/93 $50,491 $47,360
07/31/93 $51,228 $47,169
08/31/93 $54,334 $48,954
09/30/93 $53,993 $48,578
10/31/93 $55,459 $49,583
11/30/93 $54,588 $49,111
12/31/93 $55,896 $49,705
01/31/94 $56,409 $51,393
02/28/94 $54,689 $49,999
03/31/94 $52,171 $47,822
04/30/94 $52,319 $48,436
05/31/94 $53,636 $49,228
06/30/94 $52,620 $48,022
07/31/94 $53,405 $49,598
08/31/94 $54,597 $51,627
09/30/94 $53,077 $50,366
10/31/94 $53,405 $51,494
11/30/94 $51,196 $49,620
12/31/94 $50,397 $50,355
01/31/95 $51,860 $51,659
02/28/95 $53,966 $53,670
03/31/95 $54,316 $55,251
04/30/95 $55,458 $56,877
05/31/95 $58,119 $59,145
06/30/95 $60,457 $60,518
07/31/95 $63,057 $62,523
08/31/95 $65,782 $62,679
09/30/95 $66,956 $65,323
10/31/95 $66,174 $65,089
11/30/95 $69,098 $67,944
12/31/95 $69,734 $69,252
01/31/96 $72,773 $71,606
02/29/96 $74,173 $72,272
03/31/96 $73,812 $72,967
04/30/96 $74,605 $74,042
05/31/96 $76,206 $75,948
06/30/96 $76,965 $76,237
07/31/96 $72,135 $72,870
08/31/96 $75,254 $74,409
09/30/96 $77,886 $78,593
10/31/96 $78,129 $80,760
11/30/96 $81,726 $86,859
12/31/96 $82,769 $85,138
01/31/97 $85,683 $90,454
02/28/97 $88,071 $91,164
03/31/97 $84,365 $87,425
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
1-YEAR 5-YEARS 10-YEARS
----------- ------------ ------------
<S> <C> <C> <C>
VALUE PORTFOLIO 14.3% 14.9% 12.9%
Standard & Poor's 500 Index 19.8% 16.4% 13.3%
</TABLE>
The Adviser's investment strategy is to buy stocks of well-managed,
understandable, good businesses that are selling at significant discounts to the
Adviser's appraisal of their enterprise values. This conservative,
value-oriented approach often leads to under-performance (relative to the
Standard & Poor's 500 Index) in very strong markets, as the Fund's
price-sensitivity leads the Fund to sell early and to hold cash reserves rather
than pay inflated prices for stocks.
During the fiscal year ended March 31, 1997, the Fund held reserves in
the form of cash equivalents and relatively short-term fixed income securities
averaging 10-15% of the portfolio which dampened returns. Also, several stocks
in the Fund, especially cable television and cellular telephone company issues,
under-performed the S&P 500. As a result, in spite of strong contributions from
the majority of our portfolio, especially in the real estate and financial
areas, the portfolio under-performed the S&P 500 (14.3% vs. 19.8%) during the
period.
TOTAL RETURNS ARE BASED UPON PAST RESULTS AND ARE NOT A PREDICTION OF
FUTURE PERFORMANCE.
-5-
<PAGE>
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FINANCIAL HIGHLIGHTS
FIXED INCOME PORTFOLIO
The following information provides selected data for a share of the
Fixed Income Portfolio outstanding throughout the periods indicated. Information
for the year ended March 31, 1997, has been audited by McGladrey & Pullen, LLP,
independent certified public accountants, whose report thereon, which is
incorporated by reference, appears in the Fund's Annual Report. The information
for periods prior to April 1, 1996, was audited by other certified public
accountants.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.900 $ 10.608 $ 10.778 $ 11.105 $ 10.781 $ 10.644 $ 10.296 $ 10.236
-------- -------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.659 0.645 0.667 0.551 0.615 0.720 0.613 0.874
Net gains or losses on
securities (realized and
unrealized) (0.112) 0.312 (0.224) (0.290) 0.360 0.149 0.417 0.002
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations 0.547 0.957 0.443 0.261 0.975 0.869 1.030 0.876
-------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.677) (0.665) (0.613) (0.588) (0.651) (0.731) (0.671) (0.816)
Distributions from realized
gains -- -- -- -- -- (0.001) (0.011) --
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.677) (0.665) (0.613) (0.588) (0.651) (0.732) (0.682) (0.816)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.770 $ 10.900 $ 10.608 $ 10.778 $ 11.105 $ 10.781 $ 10.644 $ 10.296
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN 5.2% 9.2% 4.4% 2.3% 9.4% 8.6% 10.4% 8.9%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
($000) $ 22,349 $ 16,901 $ 11,824 $ 20,560 $ 19,655 $ 11,691 $ 6,261 $ 1,419
Ratio of expenses to average
net assets+ 0.75% 0.75% 0.75% 0.75% 0.76% 0.72% 0.73% 0.62%
Ratio of net investment income
to average net assets 6.30% 6.18% 6.16% 4.94% 6.22% 7.50% 8.45% 8.22%
Portfolio turnover rate 24% 28% 49% 12% 15% 31% 8% 30%
<CAPTION>
DEC. 23, 1988
(INCEPTION)
TO
MARCH 31,
1989
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.142
-------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.210
Net gains or losses on
securities (realized and
unrealized) (0.047)
-------------
Total from investment
operations 0.163
-------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.069)
Distributions from realized
gains --
-------------
Total distributions (0.069)
-------------
NET ASSET VALUE, END OF PERIOD $ 10.236
-------------
-------------
TOTAL RETURN 1.6%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
($000) $ 1,316
Ratio of expenses to average
net assets+ 1.00%*
Ratio of net investment income
to average net assets 9.32%*
Portfolio turnover rate 0%
</TABLE>
*Annualized
+Absent voluntary waivers, the expense ratio would have been 0.93% for the year
ended March 31, 1997 and 0.95% for the year ended March 31, 1996.
-6-
<PAGE>
The chart below depicts the change in the value of a $25,000 investment
for the period since inception of the Fixed Income Portfolio (December 23, 1988)
through March 31, 1997, as compared with the growth of the Lehman Brothers
Intermediate Government/Corporate Index during the same period. The Lehman
Brothers Intermediate Government/Corporate Index is a total return performance
benchmark consisting of government securities and publicly issued corporate debt
with maturities from one to ten years and rated at least BBB by Standard & Poors
or Baa by Moodys Investor Service. The information assumes reinvestment of
dividends and capital gains distributions. A $25,000 investment in the Fixed
Income Portfolio on December 23, 1988, would have been valued at $44,528 on
March 31, 1997.
Value of $25,000 Investment
Fixed Income Portfolio Inception
(12/23/88) Through 3/31/97
<TABLE>
<CAPTION>
Lehman
Fixed Income Bond
Portfolio Index
--------------- ---------
Value of Value of
$25,000 $25,000
<S> <C> <C>
12/23/88 $25,000
12/31/88 $25,028 $ 25,000 *
01/31/89 $25,247 $ 25,263
02/28/89 $25,292 $ 25,159
03/31/89 $25,408 $ 25,267
04/30/89 $25,667 $ 25,772
05/31/89 $25,958 $ 26,283
06/30/89 $26,287 $ 26,945
07/31/89 $26,560 $ 27,497
08/31/89 $26,604 $ 27,142
09/30/89 $26,748 $ 27,270
10/31/89 $26,955 $ 27,848
11/30/89 $27,197 $ 28,112
12/31/89 $27,306 $ 28,191
01/31/90 $27,467 $ 28,011
02/28/90 $27,582 $ 28,115
03/31/90 $27,666 $ 28,151
04/30/90 $27,664 $ 28,053
05/31/90 $28,085 $ 28,670
06/30/90 $28,319 $ 29,054
07/31/90 $28,625 $ 29,458
08/31/90 $28,741 $ 29,337
09/30/90 $29,004 $ 29,563
10/31/90 $29,219 $ 29,906
11/30/90 $29,529 $ 30,360
12/31/90 $29,768 $ 30,776
01/31/91 $30,224 $ 31,090
02/28/91 $30,339 $ 31,338
03/31/91 $30,534 $ 31,552
04/30/91 $30,847 $ 31,895
05/31/91 $31,025 $ 32,090
06/30/91 $30,987 $ 32,113
07/31/91 $31,307 $ 32,473
08/31/91 $31,812 $ 33,093
09/30/91 $32,116 $ 33,662
10/31/91 $32,349 $ 34,046
11/30/91 $32,693 $ 34,437
12/31/91 $33,147 $ 35,278
01/31/92 $32,997 $ 34,957
02/29/92 $33,080 $ 35,093
03/31/92 $33,163 $ 34,956
04/30/92 $33,446 $ 35,264
05/31/92 $33,735 $ 35,810
06/30/92 $34,096 $ 36,340
07/31/92 $34,407 $ 37,064
08/31/92 $34,603 $ 37,434
09/30/92 $35,032 $ 37,944
10/31/92 $34,550 $ 37,450
11/30/92 $34,515 $ 37,308
12/31/92 $34,980 $ 37,808
01/31/93 $35,571 $ 38,542
02/28/93 $36,110 $ 39,151
03/31/93 $36,280 $ 39,307
04/30/93 $36,500 $ 39,621
05/31/93 $36,460 $ 39,534
06/30/93 $37,061 $ 40,155
07/31/93 $37,169 $ 40,253
08/31/93 $37,713 $ 40,891
09/30/93 $37,861 $ 41,061
10/31/93 $37,935 $ 41,171
11/30/93 $37,642 $ 40,941
12/31/93 $37,799 $ 41,129
01/31/94 $38,209 $ 41,586
02/28/94 $37,689 $ 40,971
03/31/94 $37,124 $ 40,295
04/30/94 $36,918 $ 40,020
05/31/94 $36,946 $ 40,047
06/30/94 $36,778 $ 40,053
07/31/94 $37,340 $ 40,629
08/31/94 $37,467 $ 40,756
09/30/94 $36,954 $ 40,381
10/31/94 $36,837 $ 40,376
11/30/94 $36,704 $ 40,193
12/31/94 $36,906 $ 40,335
01/31/95 $37,615 $ 41,015
02/28/95 $38,546 $ 41,865
03/31/95 $38,754 $ 42,104
04/30/95 $39,169 $ 42,625
05/31/95 $40,380 $ 43,913
06/30/95 $40,699 $ 44,208
07/31/95 $40,606 $ 44,214
08/31/95 $41,070 $ 44,616
09/30/95 $41,353 $ 44,939
10/31/95 $41,777 $ 45,440
11/30/95 $42,275 $ 46,037
12/31/95 $42,725 $ 46,520
01/31/96 $43,040 $ 46,921
02/29/96 $42,512 $ 46,370
03/31/96 $42,333 $ 46,131
04/30/96 $42,060 $ 45,968
05/31/96 $42,009 $ 45,934
06/30/96 $42,502 $ 46,422
07/31/96 $42,658 $ 46,560
08/31/96 $42,618 $ 46,596
09/30/96 $43,339 $ 47,245
10/31/96 $44,240 $ 48,080
11/30/96 $45,005 $ 48,714
12/31/96 $44,603 $ 48,402
01/31/97 $44,723 $ 48,590
02/28/97 $44,855 $ 48,683
03/31/97 $44,528 $ 48,347
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
1-YEAR 5-YEARS (DECEMBER 23, 1988)
------ ------------ -------------------------
<S> <C> <C> <C>
FIXED INCOME PORTFOLIO 5.2% 6.1% 7.2%
Lehman Brothers Intermediate/Corporate Index 4.8% 6.7% 8.3%*
</TABLE>
* Information for the Lehman Bond Index begins 12/31/88; such
information is only available monthly.
During the past fiscal year the Adviser maintained its policy of
investing in high quality bonds with relatively short maturities. As of March
31, 1997, approximately half of the Fixed Income Portfolio was invested in U.S.
Treasuries and government agency bonds with the balance in corporate bonds,
taxable municipal bonds, and cash equivalents. Cash reserves, invested in U.S.
Treasury Bills and a money market fund, were approximately 15% as of the end of
the year. The average dollar-weighted maturity of the portfolio was 7.1 years.
Taking into consideration interest income alone, the 30-day yield on the
portfolio was 6.1% at the end of fiscal year 1997.
TOTAL RETURNS ARE BASED UPON PAST RESULTS AND ARE NOT A PREDICTION OF FUTURE
PERFORMANCE.
-7-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
HICKORY PORTFOLIO
The following information provides selected data for a share of the
Hickory Portfolio outstanding throughout the periods indicated. Information for
the year ended March 31, 1997, has been audited by McGladrey & Pullen, LLP,
independent certified public accountants, whose report thereon, which is
incorporated by reference, appears in the Fund's Annual Report. The information
for periods prior to April 1, 1996, was audited by other certified public
accountants.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------
1997 1996+++ 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.564 $ 11.257 $ 12.227 $ 11.147
---------- ---------- ---------- ----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.045 0.004 (0.008) (0.290)
Net gains or losses on securities (realized and unrealized) 4.329 4.504 (0.508) 1.420
---------- ---------- ---------- ----------
Total from investment operations 4.374 4.508 (0.516) 1.130
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.002) (0.136) -- 0.083
Distributions from realized gains (1.037) (0.065) (0.454) (0.133)
---------- ---------- ---------- ----------
Total distributions (1.039) (0.201) (0.454) (0.050)
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 18.899 $ 15.564 $ 11.257 $ 12.227
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
TOTAL RETURN 28.2% 40.6% (4.2%) 10.1%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000) $ 12,221 $ 6,658 $ 3,619 $ 2,499
Ratio of expenses to average net assets+ 1.50% 1.50% 1.50% 1.50%
Ratio of net investment income (loss) to average net assets 0.33% 0.02% (0.17%) (2.92%)
Portfolio turnover rate 28% 28% 20% 29%
Average commission rate paid (per share) $0.0498++ N/A N/A N/A
</TABLE>
+ Absent voluntary waivers, the expense ratio would have been 1.56% for
the year ended March 31, 1997, and 1.61% for the year ended March 31,
1996.
++ Required by regulations issued in 1995.
+++ Calculated using average daily shares.
-8-
<PAGE>
The chart below depicts the change in the value of a $25,000 investment
for the period since inception of the Hickory Portfolio (April 1, 1993) through
March 31, 1997, as compared with the growth of the Standard & Poor's 500 Index
during the same period. The Standard & Poor's Index is an unmanaged index
consisting of 500 companies. The information assumes reinvestment of dividends
and capital gains distributions. A $25,000 investment in the Hickory Portfolio
on April 1, 1993, would have been valued at $47,530 on March 31, 1997.
Value of $25,000 Investment
Hickory Portfolio Inception
(4/1/93) Through 3/31/97
<TABLE>
<CAPTION>
Hickory
Portfolio S&P 500
--------- ---------
Value of Value of
$25,000 $25,000
<S> <C> <C>
03/31/93 $25,000 $ 25,000
04/30/93 $22,905 $ 24,396
05/31/93 $24,000 $ 25,046
06/30/93 $24,152 $ 25,119
07/31/93 $24,872 $ 25,018
08/31/93 $26,801 $ 25,965
09/30/93 $27,001 $ 25,765
10/31/93 $28,757 $ 26,298
11/30/93 $27,860 $ 26,048
12/31/93 $30,067 $ 26,363
01/31/94 $29,605 $ 27,258
02/28/94 $29,119 $ 26,519
03/31/94 $27,527 $ 25,364
04/30/94 $27,265 $ 25,690
05/31/94 $27,516 $ 26,110
06/30/94 $26,197 $ 25,470
07/31/94 $26,038 $ 26,306
08/31/94 $27,590 $ 27,382
09/30/94 $27,297 $ 26,714
10/31/94 $26,947 $ 27,312
11/30/94 $25,452 $ 26,318
12/31/94 $24,869 $ 26,708
01/31/95 $24,968 $ 27,400
02/28/95 $25,999 $ 28,466
03/31/95 $26,378 $ 29,305
04/30/95 $26,307 $ 30,167
05/31/95 $27,764 $ 31,370
06/30/95 $29,583 $ 32,098
07/31/95 $31,215 $ 33,162
08/31/95 $33,361 $ 33,244
09/30/95 $34,777 $ 34,647
10/31/95 $33,309 $ 34,523
11/30/95 $34,336 $ 36,037
12/31/95 $34,932 $ 36,731
01/31/96 $36,745 $ 37,979
02/29/96 $37,212 $ 38,332
03/31/96 $37,083 $ 38,701
04/30/96 $37,913 $ 39,271
05/31/96 $39,878 $ 40,282
06/30/96 $40,846 $ 40,435
07/31/96 $37,536 $ 38,650
08/31/96 $40,117 $ 39,466
09/30/96 $42,189 $ 41,685
10/31/96 $42,857 $ 42,834
11/30/96 $44,915 $ 46,069
12/31/96 $47,281 $ 45,156
01/31/97 $48,987 $ 47,976
02/28/97 $50,153 $ 48,352
03/31/97 $47,530 $ 46,369
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
1-YEAR 3-YEARS (APRIL 1, 1993)
----------- ------------ -------------------
<S> <C> <C> <C>
HICKORY PORTFOLIO 28.2% 20.0% 17.4%
Standard & Poor's 500 Index 19.8% 22.3% 16.7%
</TABLE>
The Adviser's investment strategy is to buy stocks of well-managed,
understandable, good businesses that are selling at significant discounts to the
Adviser's appraisal of their enterprise values. During the fiscal year ended
March 31, 1997, the Hickory Portfolio's investments were heavily weighted
towards financial companies since the portfolio manager was able to identify
many attractive investment opportunities in this sector. The Portfolio's
financial companies were strong performers during the fiscal year and
contributed significantly to the Portfolio's outperforming the S&P 500 Index for
the period.
TOTAL RETURNS ARE BASED UPON PAST RESULTS AND ARE NOT A PREDICTION OF FUTURE
PERFORMANCE.
-9-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
GOVERNMENT MONEY MARKET PORTFOLIO
The following information provides selected data for a share of the
Government Money Market Portfolio outstanding throughout the periods indicated.
Information for the year ended March 31, 1997, has been audited by McGladrey &
Pullen, LLP, independent certified public accountants, whose report thereon,
which is incorporated by reference, appears in the Fund's Annual Report. The
information for periods prior to April 1, 1996, was audited by other certified
public accountants.
<TABLE>
<CAPTION>
AUGUST 1,
1991
(INCEPTION)
YEAR ENDED MARCH 31, TO
---------------------------------------------------- MARCH 31,
1997 1996# 1995# 1994# 1993# 1992#
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $ 1.000
-------- -------- -------- -------- -------- -------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.047 0.051 0.042 0.028 0.031 0.031
-------- -------- -------- -------- -------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.047) (0.051) (0.042) (0.028) (0.031) (0.031)
-------- -------- -------- -------- -------- -------------
NET ASSET VALUE, END OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $ 1.000
-------- -------- -------- -------- -------- -------------
-------- -------- -------- -------- -------- -------------
TOTAL RETURN 4.8% 5.2% 4.2% 2.9% 3.2% 4.7%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000) $5,820 $4,142 $2,669 $1,918 $555 $ 278
Ratio of expenses to average net assets+ 0.50% 0.50% 0.50% 0.25% 0.26% 0.27%*
Ratio of net investment income to
average net assets 4.71% 4.95% 4.18% 2.81% 3.05% 4.65%*
</TABLE>
* Annualized
+ Absent voluntary waivers, the expense ratio would have been 1.15% for
the year ended March 31, 1997 and 1.14% for the year ended March 31, 1996.
# The per share amounts and total return figures have been restated from
the 1996 annual report to shareholders to reflect the correction of a
computational error.
-10-
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT MANAGEMENT INFORMATION
INVESTMENT OBJECTIVE & POLICIES
VALUE PORTFOLIO AND HICKORY PORTFOLIO
The investment objective of the Value Portfolio and the Hickory Portfolio is
capital appreciation. The receipt of income is considered a secondary objective,
as some investments may yield dividends, interest or other income. The
respective Funds seek to achieve their objective through investment in equity
securities (stocks). Each Fund's investment strategy (which is called "value
investing") is to (1) identify attractive businesses that we can understand and
which have honest, competent management, (2) determine the price that an
informed, rational buyer would pay for 100% of that business, and then (3) buy
shares in the business if they are available at a significant discount to this
"business value" or "private market value." The valuation process may focus on
asset values, earning power, the intangible value of a company's "franchise," or
a combination of these variables, depending on the type of business and other
factors. Purchasing shares at a discount to value is intended to provide what
Benjamin Graham called a "margin of safety." The margin of safety does not
eliminate risk, but it is intended to reduce the likelihood of permanent loss of
capital. Under-valued securities are, by definition, out of favor with
investors, and there is no way to predict when the securities may return to
favor. Thus, shareholders should invest in the respective Funds only if they
intend to be patient, long-term investors.
The Value Portfolio and Hickory Portfolio will be invested primarily in
common stocks and securities which are convertible into common stocks, such as
convertible bonds, preferred stocks, and warrants. The Adviser does not intend
to attempt to "time" the market, i.e. to sell a major portion of its equity
investments in anticipation of a general decline in stock prices, but it may
invest a portion (or all) of its assets in high quality United States
Government, Government Agency, or other high quality, short-term securities and
cash equivalents for temporary defensive purposes. Federal income tax
consequences to shareholders of the Funds will not be a factor in investment
decisions.
This investment strategy is generally characterized by relatively long
holding periods for stock positions and relatively low portfolio turnover. The
total portfolio turnover rate of each Fund is shown in the Financial Highlights
table for the respective Fund in this Prospectus.
-11-
<PAGE>
FIXED INCOME PORTFOLIO
The investment objective of the Fixed Income Portfolio is high current
income consistent with preservation of capital. Under normal market conditions,
the Fixed Income Portfolio will invest at least 65% of the value of its total
assets in fixed income securities. The fixed income securities in which the Fund
may invest include: (1) U.S. Government Securities (bills, notes, bonds, and
other debt securities issued by the U.S. Treasury); (2) U.S. Government Agency
Securities; (3) corporate debt securities; (4) bank obligations (certificates of
deposit and bankers' acceptances); (5) commercial paper; (6) repurchase
agreements on U.S. Government and U.S. Government agency securities; and (7)
securities of registered investment companies which invest in fixed income
securities.
The Adviser selects fixed income securities the yield on which is
sufficiently attractive in view of the risks of ownership. In deciding whether
the Fund should invest in particular fixed income securities, the Adviser
considers a number of factors such as the price, coupon and yield-to-maturity,
as well as the credit quality of the issuer. Additionally, the Adviser reviews
the terms of the fixed income security, including subordination, default,
sinking fund, and early redemption provisions. When the Adviser believes that
prevailing abnormal market or economic conditions warrant a temporary defensive
investment position, a greater portion of the Fund's portfolio may be retained
in cash or cash equivalents, such as money market fund shares, and repurchase
agreements on U.S. Government securities.
Under normal market conditions, the Fund will invest at least 65% of the
value of its total assets in fixed income securities. The Fund may invest up to
15% of its total assets in securities rated below BBB by Standard & Poors
Corporation ("Standard & Poors") or Baa by Moodys Investor's Service ("Moodys")
or in unrated securities which the Adviser determines are of comparable quality
to the rated securities in which the Fund may invest. Fixed income securities
rated below BBB or Baa are generally known as "junk bonds." The Fund will
normally not invest in fixed income securities which are rated below B or are
currently in default.
The total portfolio turnover rate of the Fixed Income Portfolio is shown in
the Financial Highlights table for the Fixed Income Portfolio in this
Prospectus.
GOVERNMENT MONEY MARKET PORTFOLIO
The investment objective of the Government Money Market Portfolio is current
income consistent with the preservation of capital and maintenance of liquidity.
The Fund invests substantially all of its assets in debt obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities and
repurchase agreements thereon with maturities not exceeding thirteen months. The
Fund may also participate in reverse repurchase agreements on U.S. Government
securities and invest in when-issued and delayed delivery transactions involving
U.S. Government securities. The Fund may also invest in shares of other money
market funds subject to the requirements of the Investment Company Act of 1940.
The Fund limits its average portfolio maturity to ninety days or less and buys
only securities with remaining maturities of thirteen months or less.
-12-
<PAGE>
INVESTMENT SECURITIES
The Funds invest in a variety of securities which have special features and
engage in certain investment practices in seeking to achieve their respective
investment objectives. Provided below is a brief description of certain
investment practices and types of securities in which the Funds may invest. See
the Statement of Additional Information for a more detailed discussion.
CONVERTIBLE BONDS AND DEBENTURES are corporate debt instruments, frequently
unsecured and subordinated to senior corporate debt, which may be converted into
common stock at a specified price. Such securities may trade at a premium over
their face amount when the price of the underlying common stock exceeds the
conversion price, but otherwise will normally trade at prices reflecting current
interest rate trends.
COVERED CALL OPTIONS are contracts sold on a national exchange or in the
over-the-counter options market which allow the purchaser to buy the underlying
security at a specified price (the "strike price") prior to a certain date.
"Covered" options are those in which the option seller (the "writer") owns the
underlying securities. The Value Portfolio and the Hickory Portfolio may write
covered call options to generate premium income which is considered by the
Adviser to be an acceptable investment result. Writing covered call options may
increase the income of the respective Fund since it receives a payment (the
"premium") for writing the option. To the extent that it writes covered call
options, the respective Fund will forego any opportunity for appreciation in the
underlying securities above the strike price during the term of the option. The
underlying securities will be subject to certain deposit procedures and
therefore unavailable for sale during the term of the option or until the Fund
buys back the option to close out the transaction.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S.
Government and may include U.S. Treasury bills, notes and bonds which are direct
obligations of the U.S. Government and obligations of its agencies and
instrumentalities. Obligations issued or guaranteed by the U.S. Government
agencies and instrumentalities include, for example, obligations of Federal
Intermediate Credit Banks, Federal Home Loan Banks, the Federal National
Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC),
the Government National Mortgage Association (GNMA) and the Farmers Home
Administration. Certain U.S. Government agency securities, such as those issued
by GNMA, FNMA and FHLMC, are mortgage-related securities which represent an
undivided ownership interest in a pool of mortgage loans. Ginnie Maes,
securities issued by GNMA, are interests in pools of mortgage loans insured by
the Federal Housing Administration. Ginnie Maes are backed by the full faith and
credit of the United States Government. Fannie Maes and Freddie Macs are
securities issued by FNMA and FHLMC, respectively. FNMA and FHLMC, which
guarantee payment of principal and interest on Fannie Maes and Freddie Macs, are
federally chartered corporations and act as governmental instrumentalities under
authority granted by Congress. Fannie Maes and Freddie Macs are not backed by
the full faith and credit of the United States Government; however, their close
relationship with the U.S. Government makes them high-quality securities with
minimal credit risk.
-13-
<PAGE>
Most mortgage-related securities are pass-through securities, which means
that they provide investors with payments consisting of both principal and
interest as the mortgages in the underlying mortgage pool are paid off. The
actual yield of such securities is influenced by the prepayment experience of
the mortgage pool underlying the securities. In periods of declining interest
rates, prepayments of the underlying mortgages tend to increase. If the
higher-yielding mortgages from the pool are prepaid, the yield on the remaining
pool will be reduced and it will be necessary for the Fund to reinvest such
prepayment, presumably at a lower interest rate. Although, depending on the
length of the mortgages in the pool, mortgage-related securities may have a
stated maturity of up to forty years, prepayments on the underlying mortgages
will make the effective maturity of the securities shorter. A security based on
a pool of forty-year mortgages may have an average life as short as two years.
The maturity of mortgage-related securities will be deemed to be the expected
effective maturity of the securities.
CORPORATE DEBT SECURITIES acquired by the Value Portfolio, the Hickory
Portfolio and the Fixed Income Portfolio, including convertible bonds and
debentures, will normally be of investment grade or better (rated BBB or better
by Standard & Poors and Baa or better by Moody's). Securities rated BBB/Baa are
considered "investment grade" by the financial community, but are described by
Standard & Poors and Moody's as "medium grade obligations" which have
"speculative characteristics." Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt securities. To the
extent that such securities are downgraded after acquisition, the Investment
Adviser will evaluate the risk of continuing to hold the securities or will
prudently dispose of them.
The Fixed Income Portfolio may also invest up to 15% of its total assets in
securities rated lower than "BBB/Baa," generally known as "junk bonds" or in
unrated securities if the Adviser determines such securities are of a quality
comparable to the rated securities in which it invests. The Fixed Income
Portfolio will normally not invest in fixed income securities which are rated
below B or are currently in default.
Investments by the Fixed Income Portfolio in "junk bonds" may entail greater
risk of principal and income (including the possibility of default or bankruptcy
of the issuers of such securities), and involve greater volatility of price
(especially during periods of economic uncertainty or change) than investments
in higher rated securities. Because yields may vary over time, no specific level
of income can ever be assured. Junk bonds generally tend to reflect economic
changes and the outlook for economic growth as well as short-term corporate
industry developments and the market's perception of their credit quality
(especially during times of adverse publicity) to a greater extent than higher
rated securities which react primarily to fluctuations in the general level of
interest rates, although these lower rated fixed income securities are also
affected by changes in interest rates. Prices for such securities may also be
affected from time to time by legislative and regulatory developments. The
market for lower rated bonds may, in addition, be less liquid than the market
for investment grade fixed income securities and the liquidity of lower rated
bonds may be affected by the market's perception of the credit quality.
See Appendix B to the Statement of Additional Information for a description
of ratings.
-14-
<PAGE>
BANK OBLIGATIONS include negotiable certificates of deposit and bankers'
acceptances which evidence the obligation of the banking institution to repay
funds deposited with it for a specified period of time at a stated interest
rate. Certificates of deposit generally have penalties for early withdrawal, but
can be sold to third parties subject to the same risks as other fixed income
securities.
COMMERCIAL PAPER consists of short-term unsecured promissory notes. The
Value, Fixed Income and Hickory Portfolios will purchase only commercial paper
rated Prime 1 by Moody's or A-1 by Standard & Poors, or if not rated, issued or
guaranteed as to payment of principal and interest by companies which at the
date of investment have an outstanding debt issue rated AA or better by Standard
& Poors or Aa or better by Moody's. See Appendix B to the Statement of
Additional Information for a description of ratings.
FOREIGN SECURITIES purchased by the Value Portfolio, Hickory Portfolio or
Fixed Income Portfolio must be listed on a principal foreign securities exchange
or over-the-counter market, or be represented by American Depository Receipts
which are listed on a domestic securities exchange or traded in the United
States over-the-counter market. The respective Fund may occasionally convert
U.S. dollars into foreign currency, but only to effect securities transactions
on a foreign securities exchange and not to hold such currency as an investment.
The respective Fund will not invest in forward foreign currency contracts. While
the respective Fund does not intend to invest any significant portion of its
assets in foreign securities, it reserves the right to invest not more than 25%
of the value of its total assets in the securities of foreign issuers and
obligors.
Investors should recognize that investments in foreign companies involve
certain risks that are not typically associated with investing in domestic
companies. An investment may be affected by changes in currency rates and in
exchange control regulations. Foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies, and there may be less publicly available
information about a foreign company than about a domestic company. Some foreign
stock markets may have substantially less trading activity than the American
securities markets, and securities of some foreign companies may be less liquid
than securities of comparable domestic companies. Also, commissions on
transactions in foreign securities may be higher than similar transactions on
domestic stock markets and foreign governments may impose taxes on securities
transactions or ownership. There is generally less governmental regulation of
stock exchanges, brokers, and listed and unlisted companies in foreign countries
than in the United States. In addition, individual foreign economies may differ
favorably or unfavorably from the economy of the United States in such respects
as growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
-15-
<PAGE>
REPURCHASE AGREEMENTS involve the purchase of U.S. Government Securities and
a simultaneous agreement with the seller to "repurchase" the securities at a
specified price and time, thereby determining the yield during the purchaser's
holding period. This results in a fixed rate of return insulated from market
fluctuations during such period. Repurchase agreements usually are for short
periods, such as one week. If a repurchase agreement is construed to be a
collateralized loan, the underlying securities will not be considered to be
owned by the respective Fund but only constitute collateral for the seller's
obligation to pay the repurchase price and, in the event of a default by the
seller, the respective Fund may suffer delays and incur costs or losses in
connection with the disposition of the collateral. A repurchase agreement may
involve certain risks not associated with a direct purchase of U.S. Government
Securities. For example, the bank or broker selling the repurchase agreement may
default on its obligations to deliver additional securities or to maintain the
value of collateral underlying the repurchase agreement or it may fail to
repurchase the underlying securities at a time when the value has declined. A
Fund may incur a loss as a result of such default if the liquidation of the
collateral results in proceeds less than the repurchase price. In an effort to
minimize such risks, the Funds will only enter into repurchase agreements with
member banks of the Federal Reserve with assets, surplus and undivided profits
of $100,000,000 or more or recognized regional or national securities dealers.
REVERSE REPURCHASE AGREEMENTS involve the temporary transfer of a security
in the portfolio of the Government Money Market Portfolio to another party, such
as a bank or broker dealer, in return for cash, and an agreement to buy the
security back at a future date and price. The Government Money Market Portfolio
can invest the cash it receives or use it to meet redemption requests. If the
Government Money Market Portfolio reinvests the cash at a rate higher than the
cost of the agreement, it may earn additional income. At the same time, the
Government Money Market Portfolio is exposed to greater potential fluctuations
in the value of its assets when engaging in reverse repurchase agreements.
During the time a reverse repurchase agreement is outstanding, the Government
Money Market Portfolio will maintain cash and liquid securities in a segregated
account at the Custodian with a value at least equal to its obligations under
the agreement.
WHEN ISSUED OR FORWARD COMMITMENT transactions involve the purchase or sale
of a security by a Fund with payment and delivery taking place in the future to
secure what is considered an advantageous yield and price to the Fund at the
time of entering into the transaction. To the extent a Fund enters into such
forward commitments, it will maintain a segregated account with the Custodian
with an aggregate value equal to the amount of its commitment in connection with
such purchase transactions.
-16-
<PAGE>
INVESTMENT COMPANY SECURITIES consist of the shares of other open or closed
end investment companies registered under the 1940 Act. Investing in the shares
of other registered investment companies involves the risk that such other
registered investment companies will not achieve their objectives or will
achieve a yield or return that is lower than that of the Fund. Investing in the
shares of other registered investment companies indirectly results in the
investor paying not only the advisory fee and related fees charged by the Fund,
but also the advisory and related fees charged to the other investment
companies. The respective Fund will only invest in investment company securities
to the extent allowed by the 1940 Act or the fundamental investment restrictions
for the respective Fund.
SHORT SALES involve the sale of a security that a Fund does not own (but
instead has borrowed) in anticipation of a decline in the value of the security.
The Value Portfolio, Hickory Portfolio and Fixed Income Portfolio may engage in
short sales. To the extent that a Fund engages in short sales, the Fund will
place in a segregated account a sufficient amount of cash and securities as
required by applicable federal securities regulations in order to cover the
transaction. In the event that the value of the security sold short increases in
value rather than decreases, the Fund would suffer a loss when it purchases the
security sold short. Since there is, theoretically, no limit to how high the
price of the stock might rise, the potential loss from the short sale is greater
than the original proceeds of the short sale. The Value Portfolio, Hickory
Portfolio and Fixed Income Portfolio may also engage in short sales "against the
box." A short sale "against the box" is a form of short sale in which the
respective Fund contemporaneously owns or has the right to obtain at no
additional cost securities identical to those sold short. The segregation of
cash or other securities is not required for short sales "against the box." In
the event that a Fund were to sell securities short "against the box" and the
price of such securities were to then increase rather than decrease, the Fund
would forego the potential realization of the increased value of the shares sold
short.
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INVESTMENT RESTRICTIONS
Each Fund has adopted a number of investment restrictions set forth in the
Statement of Additional Information. Each Fund's investment objective described
above and certain of each Fund's investment restrictions are fundamental
policies which cannot be changed without a vote of a majority of the outstanding
shares of the Fund. Certain nonfundamental investment restrictions have also
been adopted by each Fund and are subject to change by the Board of Directors of
the Company without shareholder approval.
The Value Portfolio and the Fixed Income Portfolio's fundamental investment
restrictions, among others, include the following:
1. With respect to 75% of its total assets, the Value Portfolio and the
Fixed Income Portfolio may not invest more than 5% of its total assets,
taken at market value at the time of a particular purchase, in
securities of any one issuer (other than obligations issued, or
guaranteed by, the United States of America, its agencies or
instrumentalities), or own more than 10% of the outstanding voting
securities of any one issuer; and
2. The Value Portfolio and the Fixed Income Portfolio may not invest more
than 25% of its total assets, taken at market value at the time of a
particular purchase, in securities of issuers in any one industry (other
than obligations issued, or guaranteed by, the United States of America,
its agencies or instrumentalities).
The Hickory Portfolio's fundamental investment restrictions, among others,
include the following:
1. With respect to 50% of its total assets, the Hickory Portfolio may not
invest more than 5% of its total assets, taken at market value at the
time of a particular purchase, in securities of any one issuer (other
than obligations issued, or guaranteed by, the United States of America,
its agencies or instrumentalities); and
2. The Hickory Portfolio may not invest more than 25% of its total assets,
taken at market value at the time of a particular purchase, in
securities of issuers in any one industry (other than obligations
issued, or guaranteed by, the United States of America, its agencies or
instrumentalities).
The Government Money Market Portfolio's fundamental investment restrictions
require the Fund to comply with the provisions of Rule 2a-7 of the Investment
Company Act of 1940, which includes, among other things, certain maturity and
quality standards for the Fund's investments. Certain of those requirements are
set forth below:
1. The average portfolio maturity of the Government Money Market Portfolio
must be maintained at 90 days or less;
2. The securities in the Fund's portfolio must have maturities no greater
than 13 months; and
3. The Government Money Market Portfolio may not invest more than 5% of its
total assets in the securities of any one issuer (other than U.S.
Government securities).
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INVESTMENT RISKS
You should be aware of the fact that an investment in the Funds involves
certain risks. Portions of the section titled "Investment Securities" discuss
certain risks which could be present if a Fund acquires particular kinds of
investments.
Prices of the securities in the Value Portfolio, Fixed Income Portfolio and
Hickory Portfolio will generally fluctuate daily depending on general market
conditions. Therefore, the value of the shares of the Value Portfolio, Fixed
Income Portfolio and Hickory Portfolio will also fluctuate. Because the Hickory
Portfolio is nondiversified, it may, with respect to 50% of its total assets,
concentrate its investments by investing more than 5% of its total assets in the
securities of any one issuer. As a result, its shares may be more susceptible to
adverse changes in the value of the securities of a particular company.
The Fixed Income Portfolio is subject to various market forces which
influence the value of fixed income securities. There is an inverse relationship
between the market value of fixed income securities and the yield of such
securities. As interest rates rise, the market value of fixed income securities
falls; conversely, as interest rates fall, the market value of such securities
rises. Therefore the price of shares of the Fixed Income Portfolio can be
expected to fluctuate in response to changes in interest rates. The average
dollar weighted maturity and quality of the Fixed Income Portfolio may be
adjusted to react to the changing conditions in the bond market. A shorter
average maturity generally results in a lower level of volatility in the share
prices of the Fixed Income Portfolio. A longer average maturity may result in a
greater volatility in such share prices.
There can be no assurance that the investment objectives of the Value
Portfolio, Fixed Income Portfolio or Hickory Portfolio can be achieved, and the
value of your investment upon redemption may be more or less than the purchase
price.
Although the Government Money Market Portfolio attempts to maintain a
constant price of $1.00 per share, there is no guarantee that it will always be
able to maintain such a constant price. An investment in the Government Money
Market Portfolio is neither insured nor guaranteed by the U.S. Government.
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PURCHASING SHARES
OPENING A REGULAR NEW ACCOUNT
You can open a new account by completing and signing a Purchase Application,
enclosing a check made payable to WEITZ SERIES FUND, INC. and mailing the
application and check to:
Weitz Series Fund, Inc.
1125 South 103rd Street, Suite 600
Omaha, NE 68124-6008
PLEASE NOTE THAT THE MINIMUM INVESTMENT REQUIRED TO OPEN A REGULAR ACCOUNT IS
$25,000 WHICH MAY BE ALLOCATED AMONG THE FUNDS. SUBSEQUENT MINIMUM INVESTMENTS
OF $5,000 MAY BE REQUIRED, SUBJECT TO CERTAIN EXCEPTIONS. The Company reserves
the right, in its sole discretion, to reject any order, to waive initial and
subsequent investment minimums for new accounts, including such accounts opened
by or for family members of existing shareholders, and to modify investment
minimums from time to time. All purchase orders are subject to acceptance by
authorized officers of the Company and are not binding until so accepted.
OPENING A RETIREMENT ACCOUNT
Certain individuals may be eligible to open an IRA or a SEP-IRA. In
addition, existing IRA accounts and certain qualified pension and profit sharing
plans can be rolled over or transferred into a new IRA account, which can be
invested in shares of one or more of the Funds. You can request the IRA
Application Kit which contains an explanation of IRAs, including certain tax
considerations, by calling the Company at 402-391-1980 or 800-232-4161. After
reading the information included in the kit, complete the IRA application and
the transfer form, if applicable, and mail it to the address shown above. IRA
accounts are currently charged an annual maintenance fee of $20.
Monies deposited into other types of pension or profit sharing plans may
also be invested in shares of any of the Funds. Although the Company will
endeavor to provide assistance to investors in such plans, it does not have
forms of such plans for adoption and does not undertake to offer advice relating
to the establishment of such plans or compliance with ongoing requirements for
such plans. The investor should seek the guidance of a professional adviser
before investing retirement monies in shares of the Funds.
The minimum investment requirement for the purchase of a Fund's shares may
be waived for purchases in retirement accounts.
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PURCHASING SHARES OF A FUND
The purchase of shares of a Fund is not subject to any sales commissions or
any other transaction fees. The price you pay for the shares you buy in a Fund
will be the respective Fund's next-determined net asset value after the Company
receives your request, provided we receive your request prior to the close of
trading on the New York Stock Exchange (ordinarily 3:00 p.m., Central time). See
"Pricing of Shares". The shares you are purchasing must be qualified for sale in
your state of residence. You can purchase shares in the following manner:
BY MAIL. To purchase additional shares in an existing account, send a check
payable to WEITZ SERIES FUND, INC. together with the remittance stub which is
the bottom portion of your most recent transaction statement to:
Weitz Series Fund, Inc.
1125 South 103rd Street, Suite 600
Omaha, NE 68124-6008
If the remittance stub is not available, please indicate on your check or on a
separate piece of paper the account name, your address and the account number.
If the purchase is for a new account, include your completed Purchase
Application as described above.
BY WIRE. To purchase shares with payment by bank wire:
1. Call the Company at 402-391-1980 or 800-232-4161 and furnish your
account name, address and account number together with the amount being
wired and the name of the wiring bank.
2. Instruct the bank to wire funds as follows:
Norwest Bank Nebraska, N.A.
1919 Douglas Street
Omaha, NE 68102
ABA #104000058
Capital Management & Trust Department
#1150-001-521
For credit to: Weitz Series Fund, Inc.
Value #25301300
Fixed Income #25304100
Govt Money Mkt #25305200
Hickory #25307000
For the Account of: Your Account
Number and Name
THE COMPANY WILL NOT BE RESPONSIBLE FOR THE CONSEQUENCES OF DELAYS IN THE BANK
OR FEDERAL RESERVE WIRE SYSTEM. BANKS MAY IMPOSE A CHARGE FOR THE WIRE TRANSFER
OF FUNDS.
If you are purchasing shares by wire for a new account, a completed Purchase
Application must be sent to the Company at the address set forth above prior to
your purchase. Wired funds are considered received on the day they are deposited
in the respective Fund's account if they are deposited prior to the close of
business on the New York Stock Exchange, usually 3:00 p.m. Central time. If
received after the close of business of the exchange, shares will be purchased
at the price determined on the following day. See "Pricing of Shares."
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BY AUTOMATIC INVESTMENT. At the time you open an account, you can choose to
make automatic investments in shares of a Fund at regular intervals (on the 1st
or the 15th day of the month or, if such day is not a business day, on the next
following business day) by completing the Automatic Investment Plan section of
the Purchase Application and sending a voided check from your bank account. You
can add or cancel the automatic investment service or change the amount by
sending a request in writing to the Company.
If your automatic investment transaction or check mailed for purchase of
shares is returned by the bank, the Company may hold you responsible for any
costs to the Company resulting from (i) fees charged to the Company or (ii) a
decline in the net asset value of a Fund when the shares issued are canceled.
Shares of the Funds may also be purchased through certain broker-dealers
that have entered into selling agreements or related arrangements with the
Adviser. The Adviser may, from time to time, make payments to broker-dealers or
other financial institutions for certain services to the Funds and/or their
shareholders, including sub-administration, sub-transfer agency and shareholder
servicing. Such payments are made out of the Adviser's own resources and do not
involve additional costs to the Funds or their shareholders.
CHANGING YOUR ADDRESS
You can change the address on your account by sending a written request to
the Company. The written request must be signed by all registered owners of the
account and should include your account name(s), account number(s) and both the
new and old addresses. To protect you and the Company, redemptions from an
account are not allowed if the written request to change an address has been
received by the Company within 24 hours of the redemption request.
CONFIRMATIONS AND SHAREHOLDER REPORTS
Each time you purchase, redeem or exchange shares, you will receive a
confirmation of the transaction from the Company. At the end of each calendar
quarter you will receive a statement which will include complete information on
activity in your account during that quarter. At the end of each year your
statement will include detailed information on all transactions for that year.
You should save the year-end statement for tax purposes. In addition, the
Company provides quarterly shareholder reports which include a listing of the
securities in the respective portfolio at the end of that quarter, together with
a letter from the portfolio manager discussing, among other things, investment
results for the quarter. The report for the period ending September 30 will also
include unaudited financial statements. The annual report for the period ending
March 31 will include the respective Fund's audited financial statements for the
previous fiscal year.
It is the Company's practice to send a single copy of each quarterly report to a
shareholder with multiple accounts (single, retirement, joint, etc.) if such
accounts have the same tax identification number and the same address. A
shareholder may request that additional copies of such report be sent by
notifying the Company.
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REDEEMING SHARES
REDEMPTION PROCEDURES
The Company will redeem your shares or any portion of your shares at any
time if you request such a redemption in writing. Shares will be redeemed at the
net asset value next determined after receipt of a redemption request in good
order. See "Pricing of Shares". There are no fees for redeeming shares. You
must, however, have a completed application on file with the Company before a
redemption request will be accepted. In addition, the Company must have received
payment for the shares being redeemed and may delay the redemption payment
(normally not more than 15 days) until the purchase funds have cleared. Such
delays can be avoided by purchasing shares with a certified or cashier's check
or by wire transfer.
A redemption request in good order can be sent by mail or facsimile
transmission to:
Weitz Series Fund, Inc.
1125 South 103rd Street, Suite 600
Omaha, NE 68124-6008
Fax Number 402-391-2125
A redemption request in good order should include the following information:
1. Your account name, account number and Fund name;
2. The amount of the transaction (specified in dollars or shares);
3. The signatures of ALL owners exactly as they are registered on the
account; if you are a corporate or trust shareholder, the signature must
be by an authorized person with an indication of the capacity in which
such person is signing;
4. A signature guarantee if required;
5. Other supporting legal documents that may be required in the case of
estates, trusts, guardianships, custodianships, partnerships,
corporations and certain other accounts.
You may call the Company at 402-391-1980 or 800-232-4161 if you have
questions about the requirements for redemption requests.
REDEMPTION PAYMENTS
Payment for the shares redeemed will be made as soon as possible, but no
later than seven days after the date of the Company's receipt of your redemption
request in good order. Payment will normally be made by check. Payment may also
be made by wire transfer in accordance with wire transfer instructions provided
in writing to the Company accompanied by a signature guarantee. See "Signature
Guarantees" below. The Company reserves the right to require you to pay for the
cost of transmitting the wire transfer. Your bank may also impose a charge to
receive the wire transfer.
A redemption of shares is treated as a sale for tax purposes and, for the
Value, Fixed Income and Hickory Portfolios, will generally result in a short-
term or long-term capital gain or loss, depending on how long you have owned the
shares.
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SIGNATURE GUARANTEES
The Company reserves the right to require a signature guarantee on all
redemptions. Signature guarantees will be required in the following
circumstances:
1. A redemption request which is payable to anyone other than the
shareholder(s) of record;
2. A redemption request which is to be mailed to an address other than the
address of record;
3. A redemption request which is payable to a bank account other than the
bank account of record; and
4. Instructions to establish or change wire instructions.
A SIGNATURE GUARANTEE MUST BE OBTAINED FROM AN INSTITUTION PARTICIPATING IN
THE SECURITIES TRANSFER AGENT MEDALLION PROGRAM. SUCH INSTITUTIONS TYPICALLY
INCLUDE COMMERCIAL BANKS THAT ARE FDIC MEMBERS, TRUST COMPANIES, AND MEMBER
FIRMS OF A DOMESTIC STOCK EXCHANGE. A NOTARY PUBLIC IS NOT AN ELIGIBLE
GUARANTOR.
OTHER REDEMPTION INFORMATION
The Company reserves the right to automatically redeem any account balance
in cases where (i) the account balance falls below $500; or (ii) the shareholder
has failed to provide the Company a tax identification number. Shareholders will
be notified in writing at least 60 days prior to the automatic redemption of
their account. Such automatic redemptions will reduce unnecessary administrative
expenses and, therefore, benefit the majority of shareholders.
Redemption payments normally will be made wholly in cash. The Company may,
however, redeem the shares of a Fund through the distribution of portfolio
securities if and to the extent that redemptions by the same shareholder during
any 90-day period exceed the lesser of (i) $250,000, or (ii) one percent of the
net assets of the respective Fund at the beginning of the period. Shareholders
whose shares are redeemed in kind may be subject to brokerage commissions or
other transaction charges upon the resale of the distributed securities.
The Company may suspend redemption privileges or postpone payment at times
when the New York Stock Exchange is closed for other than weekends or holidays,
or under emergency circumstances as permitted by the U.S. Securities and
Exchange Commission.
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EXCHANGING SHARES
You can exchange shares of one Fund for shares of another Fund or for shares
of Weitz Partners, Inc. - Partners Value Fund ("Partners Value Fund"). EXCHANGES
WILL ONLY BE MADE BETWEEN ACCOUNTS WITH IDENTICAL REGISTRATIONS. The ability to
initiate such exchanges by telephone is automatically established on your
account unless you request otherwise. You should be aware that although there
are no sales commissions or other transaction fees related to exchanging shares,
such an exchange involves the redemption of shares from a Fund and the purchase
of shares of the other Fund or of Partners Value Fund and any gain or loss on
the redemption will be reportable on your tax return. The price for the shares
being exchanged will be the net asset value of the respective shares next
determined after the Company receives your exchange request. See "Pricing of
Shares".
You can request the exchange of shares by telephone or in writing in the
following manner:
1. If you are exchanging for shares of Partners Value Fund and do not
currently have an account in Partners Value Fund, request an application
and prospectus for Partners Value Fund by calling 402-391-1980 or
800-232-4161. Read the prospectus, complete the application and return
it to the Company at the address set forth under the caption "Purchasing
Shares". The shares being acquired must be qualified for sale in your
state of residence.
2. If you are exchanging for shares of another Fund in Weitz Series Fund,
Inc. or have an account in Partners Value Fund, provide the name of the
Fund, the account name, your address and account number and the dollar
amount of shares to be exchanged.
The Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, which will include use of specific
identifying information. When such procedures are followed, the Company will not
be liable for losses caused by following telephone instructions which are
reasonably believed to be genuine. The Company reserves the right to revise or
terminate the telephone exchange privilege at any time.
The exchange privilege is offered as a convenience to shareholders and is
not intended to be a means of speculating on short-term movements in securities
prices. The Company reserves the right at any time upon sixty days' prior notice
to suspend, limit, modify or terminate exchange privileges in order to prevent
transactions considered to be harmful to existing shareholders.
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PRICING OF SHARES
Each Fund's net asset value per share is determined once each day as of the
close of trading on the New York Stock Exchange (ordinarily 3:00 p.m., Central
time) on days on which the New York Stock Exchange is open for business.
Currently the New York Stock Exchange and the Fund are closed for business on
the following holidays (or on the nearest Monday or Friday if the holiday falls
on a weekend): New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The net asset value per share is determined by calculating the market value
of all a Fund's assets, deducting total liabilities and dividing the result by
the number of shares outstanding.
In calculating net asset value of the shares of the Value, Fixed Income and
Hickory Portfolios:
1. Securities traded on a national or regional securities exchange and
over-the-counter securities traded on the NASDAQ national market are
valued at the last sales price; if there were no sales on that day,
securities are valued at the mean between the latest available and
representative bid and asked prices;
2. Securities not listed on an exchange are valued at the mean between the
latest available and representative bid and asked prices;
3. The value of certain debt securities for which market quotations are not
readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors; and
4. The value of securities for which market quotations are not readily
available, including restricted and not readily marketable securities,
is determined in good faith under the supervision of the Company's Board
of Directors.
The securities in the Government Money Market Portfolio are valued on an
amortized-cost basis. Under this method of valuation, each security is initially
valued at its acquisition cost, and thereafter, amortization of any discount or
premium is assumed each day, regardless of the impact of fluctuating interest
rates on the market value of the security. The Adviser believes that under most
conditions it will be possible to maintain the net asset value of the Government
Money Market Portfolio at $1.00 per share. Periodic calculations are made to
compare the value of the securities the Fund owns valued at amortized cost with
the market values of such securities. If a deviation of 1/2 of 1% or more were
to occur between the net asset value calculated by reference to market values
and the Fund's per share net asset value, or if there were any other deviation
that the Board of Directors of the Company believed would result in a material
dilution to shareholders, the Board of Directors would promptly consider what
action, if any, should be initiated.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund has qualified and intends to continue to qualify under Subchapter
M of the Internal Revenue Code of 1986 as a "regulated investment company" in
part by distributing substantially all of its net income and capital gains to
its shareholders. As a result, the Funds should not incur any significant
federal income tax liability. Should a Fund fail to distribute the required
amounts, it would be subject to a non-deductible 4% excise tax on certain
undistributed taxable income and realized capital gains.
Dividends and distributions will be paid at such times as may be required to
maintain the status of the Fund as a "regulated investment company." The Fixed
Income Portfolio intends to declare dividends and distribute its net income on a
quarterly basis. The Government Money Market Portfolio declares dividends each
business day. Dividends in the Government Money Market Portfolio are accrued and
credited to your account each business day and reinvested or distributed in cash
within five days of the first business day of the following month.
Unless you have elected otherwise by checking the appropriate box on the
Purchase Application either when you became a shareholder or by subsequently
amending your Purchase Application, all income dividends and capital gains
distributions will automatically be reinvested in additional shares of a Fund
when paid. Cash payment of dividends and distributions, if requested, will
generally be mailed within five days of the date such dividends and
distributions are paid. Shareholders subject to federal income taxation must
report dividends and distributions as income. Ordinary income distributions,
such as distributions from net investment income and distributions of short-term
capital gains, are taxable to shareholders as ordinary income whether received
in cash or in additional shares. In addition, capital gains distributions,
whether received in cash or in additional shares, are taxable as long-term
capital gains regardless of how long you have owned shares of a Fund. A portion
of the distributions paid by a Fund may qualify for the corporate
dividends-received deduction.
The information you will need in order to report the amount and type of
dividends and distributions you receive on your tax return will be sent to you
by the Company early each calendar year.
You should consider the tax implications of buying shares of the Value,
Fixed Income or Hickory Portfolios immediately prior to a distribution. If you
purchase shares shortly before the record date for a distribution, you will pay
a price for such shares that includes the value of the anticipated distribution
and you will be taxed on the distribution when it is received even though the
distribution represents a return of a portion of the purchase price.
Each Fund is required by the Internal Revenue Code of 1986 to withhold 31%
of distributions, redemptions, exchanges and other payments made from your
account if you have not complied with certain regulations of the Internal
Revenue Service. In order to avoid this withholding requirement, you must
certify on your Purchase Application that the Social Security Number or Taxpayer
Identification Number you have provided to the Company is correct and that
either you are not currently subject to backup withholding or are exempt from
backup withholding.
For additional information relating to taxes, see "Taxation" in the
Statement of Additional Information. You are advised to consult your own tax
advisor for more detailed information concerning federal, state and local income
taxation of Fund distributions as applied to your particular circumstances.
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MANAGEMENT
INVESTMENT ADVISER
Each Fund's Investment Adviser is Wallace R. Weitz & Company, a Nebraska
corporation formed in March, 1983 and wholly owned by Wallace R. Weitz. The
Adviser provides investment advice to each Fund and is responsible for the
overall management of the Company's business affairs, subject to the supervision
of the Company's Board of Directors. Under the terms of individual investment
advisory contracts with each Fund, the Adviser receives a monthly fee equal to
1% per annum of the average daily net assets of the Value and Hickory Portfolios
and .5% of the average daily net assets of the Fixed Income and Government Money
Market Portfolios.
Each Fund pays all expenses directly attributable to it. Certain expenses
such as fees of the Company's directors and other fees not directly attributable
to a particular Fund are allocated among the Funds based upon the total assets
of the Funds. The Adviser has agreed to reimburse the Value and Hickory
Portfolios or pay directly for a portion of the Value and Hickory Portfolio's
operating expenses to the extent of the advisory fee paid if the total of such
expenses exceeds 1.50% of the respective Fund's annual average net assets. The
Adviser has also agreed to reimburse the Fixed Income and Government Money
Market Portfolios or to pay directly for a portion of the Fixed Income or
Government Money Market Portfolio's operating expenses to the extent of the
advisory fee paid if the total of such expenses exceeds 1% of the respective
Fund's annual average net assets.
Wallace R. Weitz is primarily responsible for the day-to-day management of
the Value Portfolio. Mr. Weitz has been in the securities business since 1970,
serving as an account executive and securities analyst with G.A. Saxton & Co.,
Inc. from 1970 to 1973 and with Chiles, Heider & Co., from 1973 to 1983. Mr.
Weitz also provides investment advice to Weitz Partners, Inc., a registered
investment company consisting of one portfolio. In addition, he manages an
equity-oriented private investment partnership, an income private investment
partnership and certain individual accounts.
Mr. Weitz and Thomas D. Carney are primarily responsible for the day-to-day
management of the Fixed Income and Government Money Market Portfolios. Mr.
Carney, who was previously a municipal securities analyst with Smith Barney,
joined the Adviser as a fixed income analyst and securities trader in February,
1995 and became a co-portfolio manager for the Fixed Income and Government Money
Market Portfolios in January, 1996. Mr. Weitz has managed the Fixed Income
Portfolio since its inception in 1988 and the Government Money Market Portfolio
since its inception in 1991.
Richard F. Lawson is primarily responsible for the day-to-day management of
the Hickory Portfolio. Mr. Lawson, a Vice President of the Adviser and a
Chartered Financial Analyst, is a graduate of the Harvard Business School and
has previously been associated with Temple, Barker & Sloan, a management
consulting firm. Mr. Lawson has been an analyst with the Adviser since March,
1991 and a vice president since December, 1992.
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TRANSFER AGENT AND ADMINISTRATIVE SERVICES
Wallace R. Weitz & Company also serves as the Transfer Agent, Dividend
Disbursing Agent and Administrator for the Funds pursuant to the terms of an
administration agreement. In this capacity it provides various administrative
and compliance services to each Fund, including, among others, daily pricing of
Fund shares, disbursing income dividends and capital gains distributions,
maintaining shareholder accounts, shareholder servicing and monitoring
compliance with recordkeeping and other regulatory requirements.
CODE OF ETHICS
The Company and Wallace R. Weitz & Company have each adopted a written Code
of Ethics which, among other things, requires all employees to obtain
preclearance before executing any personal securities transactions. In addition,
employees are required to report their personal securities transactions at the
end of each quarter. The Code of Ethics also restricts employees from executing
personal trades in a security if there are any pending orders in that security
by a Fund or other clients of Wallace R. Weitz & Company, restricts portfolio
managers from executing personal trades in a security for a period seven days
before and seven days after a transaction in that security by any Fund managed
by that portfolio manager, and prohibits employees from profiting from the
purchase and sale of the same security within a period of 60 days. The Board of
Directors of the Company, which reviews the administration of the Code of Ethics
on an annual basis, may impose penalties for violations of the Code of Ethics.
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ADDITIONAL INFORMATION
ORGANIZATION AND CAPITAL STRUCTURE
Weitz Series Fund, Inc., a Minnesota corporation, is authorized to issue a
total of one hundred million shares of common stock in series with a par value
of $.001 per share. The Board of Directors has authorized eighty million of
these shares to be issued in four series, designated Value Portfolio, Fixed
Income Portfolio, Government Money Market Portfolio and Hickory Portfolio. The
Value Portfolio and the Government Money Market Portfolio each are authorized to
issue 30 million shares. The Hickory Portfolio and the Fixed Income Portfolio
each are authorized to issue 10 million shares. Upon receipt of payment for the
shares, all issued and outstanding shares are fully paid, nonassessable,
redeemable and fully transferable. All shares, which have no preemptive or
conversion rights, have equal voting rights and can be issued as full or
fractional shares. A fractional share has pro rata the same kind of rights and
privileges as a full share.
On certain issues, such as the election of directors, all shares of Weitz
Series Fund, Inc. vote together. The shareholders of a particular Fund, however,
would vote separately on issues affecting only that particular Fund, such as the
approval of a change in a fundamental investment restriction for that Fund.
Annual shareholder meetings must be held only in certain specific situations
required by the Investment Company Act of 1940 or if called by the shareholders
pursuant to Minnesota law. Whether annual meetings will be held in the future
when not specifically required will be at the discretion of the Board of
Directors of the Company.
PERFORMANCE INFORMATION
The Funds may include their total returns in advertisements or reports to
shareholders or prospective investors. Total return is the percentage change in
the net asset value of a Fund share over a given period of time, with dividends
and distributions treated as reinvested. Performance of a Fund may be shown by
presenting one or more performance measurements, including cumulative total
return or average annual total return. Cumulative total return is the actual
total return of an investment in a Fund over a specific period of time and does
not reflect how much the value of the investment may have fluctuated during the
period of time indicated. Average annual total return is the annual compound
total return of a Fund over a specific period of time that would have produced
the cumulative total return over the same period if the Fund's performance had
remained constant throughout the period.
The Government Money Market Portfolio may also provide information on its
yield which is calculated by measuring the income generated by an investment in
the Fund over a seven-day period (net of fund expenses). This income is then
annualized. That is, the amount of income generated by the investment over the
seven-day period is assumed to be generated over each similar period each week
throughout a full year and is shown as a percentage of the investment. The
effective yield is calculated in a similar manner but, when annualized, the
income earned by the investment is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of the
assumed reinvestment.
The Fixed Income Portfolio may also provide information on its yield which
is calculated by dividing net investment income per share earned during a 30-day
period by the net asset value per share on the last day of the period. Net
investment income includes interest and dividend income earned on the Fund's
securities; it is net of all expenses. The yield calculation assumes that net
investment income earned over 30 days is compounded semiannually and then
annualized. Methods used to calculate advertised yields are standardized for all
bond mutual funds. However, these methods differ from the accounting methods
used by the Fund to maintain its books and records, and so the advertised 30-day
yield may not fully reflect the income paid to your own account.
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<PAGE>
YOU SHOULD UNDERSTAND THAT ANY PERFORMANCE DATA PRESENTED REPRESENTS PAST
PERFORMANCE OF A FUND AND IS NOT INTENDED TO BE REPRESENTATIVE OF FUTURE
PERFORMANCE. INVESTMENT RESULTS WILL FLUCTUATE OVER A PERIOD OF TIME SO THAT
SHARES IN THE VALUE, FIXED INCOME AND HICKORY PORTFOLIOS WHEN REDEEMED MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THERE CAN BE NO ASSURANCE THAT THE
GOVERNMENT MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
The Value Portfolio and Hickory Portfolio may compare their respective
performance to that of certain widely managed stock indices including the Dow
Jones Industrial Average, the Standard & Poor's 500 Stock Index, the Lipper
Growth Fund (Hickory Portfolio), the Lipper Growth and Income Fund Index (Value
Portfolio) and the NASDAQ and Value Line Composites. The Fixed Income Portfolio
may compare its performance to that of indices of bond prices and yields
prepared by Lehman Brothers and Salomon Brothers, Inc. The Funds may also use
comparative performance information compiled by entities that monitor the
performance of mutual funds generally such as Lipper Analytical Services, Inc.,
Morningstar, Inc. and The Value Line Mutual Fund Survey.
DISTRIBUTOR
The Funds are distributed by Weitz Securities, Inc., a Nebraska corporation
which is affiliated with Wallace R. Weitz & Company, the Funds' investment
adviser. Weitz Securities, Inc. is wholly owned by Wallace R. Weitz. Shares of
each Fund are sold without any sales commissions or other transaction fees.
Weitz Securities, Inc. pays any sales or promotional costs incurred in
connection with the sale of shares of the Funds.
CUSTODIAN
Norwest Bank Nebraska, N.A., 1919 Douglas Street, Omaha, Nebraska 68102, is
the Custodian for the Funds.
AUDITOR
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, is the
independent certified public accountant and auditor for the Company.
LEGAL COUNSEL
Dechert Price & Rhoads, 1500 K Street NW, Washington, D.C. 20005 is the
Company's legal counsel.
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No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus. If given or
made, such other information or representations must not be relied upon as
having been authorized by the Company, the Investment Adviser or the
Distributor. This Prospectus does not constitute an offering by the Distributor
in any state in which such offering may not lawfully be made.
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WEITZ SERIES FUND, INC.
- --------------------------------------------------------------------------------
VALUE PORTFOLIO
FIXED INCOME PORTFOLIO
GOVERNMENT MONEY
MARKET PORTFOLIO
HICKORY PORTFOLIO
---------------------------
---------------------------
PROSPECTUS
JULY 15, 1997
------------------------------------
INVESTMENT ADVISER
WALLACE R. WEITZ & COMPANY
One Pacific Place, Suite 600
1125 South 103 Street
Omaha, Nebraska 68124-6008
----------------------------------------
<PAGE>
Weitz Series Fund, Inc.
STATEMENT OF ADDITIONAL INFORMATION
July 15, 1997
Table of Contents
Page
----
General Information
Investment Objective and Policies
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Objective, Policies and Restrictions-
Value Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Objective, Policies and Restrictions-
Fixed Income Portfolio . . . . . . . . . . . . . . . . . . . . . . 6
Investment Objective, Policies and Restrictions-
Government Money Market Portfolio. . . . . . . . . . . . . . . . . 8
Investment Objective, Policies and Restrictions-
Hickory Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . 10
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . 15
Investment Advisory and Other Services . . . . . . . . . . . . . . . . 17
Portfolio Transactions and Brokerage Allocations . . . . . . . . . . . 20
Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . 23
Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Calculation of Performance Data. . . . . . . . . . . . . . . . . . . . 26
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 29
Appendix A - Interest Rate Futures Contracts, Bond
Index Futures, and Related Options . . . . . . . . . . . . . . . . A-1
Appendix B - Ratings of Corporate Obligations
and Commercial Paper . . . . . . . . . . . . . . . . . . . . . . . B-1
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus of the Value Portfolio, Fixed
Income Portfolio, Government Money Market Portfolio and Hickory Portfolio dated
July 15, 1997, and should be read in conjunction therewith. Copies of the
Prospectus may be obtained from the Company at 1125 South 103 Street, Suite 600,
Omaha, Nebraska, 68124-6008.
<PAGE>
GENERAL INFORMATION
The shares of Weitz Series Fund, Inc. (the "Company") are offered in series
with each series designated as and representing a separate portfolio of
investments with its own investment objectives, policies and restrictions (such
series referred to herein as a "Fund" or, collectively, as the "Funds"). At the
present time, only four series are authorized and are designated Value
Portfolio, Fixed Income Portfolio, Government Money Market Portfolio and Hickory
Portfolio. The investment objective and policies of each Fund are set forth
below.
INVESTMENT OBJECTIVES AND POLICIES The Value Portfolio, Fixed Income
Portfolio and Government Money Market Portfolio are diversified investment
management companies as defined under the Investment Company Act of 1940 ("1940
Act") and the Hickory Portfolio is a nondiversified investment management
company as defined under the 1940 Act. All Funds are diversified investment
management companies as determined in Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). See "Investment Objective, Policies and
Restrictions" for each Fund below and see "Taxation".
Unless otherwise indicated, the investment restrictions as set forth
separately below for the Value Portfolio, Fixed Income Portfolio, Government
Money Market Portfolio and Hickory Portfolio are considered fundamental policies
and cannot be changed without the vote of the holders of a majority of the
respective Fund's outstanding shares. "Majority," as used herein means the
lesser of (a) 67% of the Fund's outstanding shares voting at a meeting of
shareholders at which more than 50% of the outstanding shares are represented in
person or by proxy or (b) a majority of the respective Fund's outstanding
shares.
Any investment restriction or limitation referred to below or in the
Prospectus, except the borrowing policy, which involves a maximum percentage of
securities or assets, shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities and
results therefrom.
PORTFOLIO TURNOVER The portfolio turnover rate for the Value Portfolio,
Fixed Income Portfolio and Hickory Portfolio is the ratio of the lesser of
annual purchases or sales of securities for the respective Fund to the average
monthly value of such securities, excluding all securities for which the
maturity or expiration date at the time of the acquisition is one year or less.
Because the Government Money Market Portfolio invests solely in short term
securities, portfolio turnover is not relevant. A 100% portfolio turnover rate
would occur, for example, if the lesser of the value of purchases or sales of
securities for a particular year were equal to the average monthly value of the
securities owned during such year. The portfolio turnover for the Value
Portfolio for the periods ending March 31, 1997 and March 31, 1996 was 39% and
40% respectively. The portfolio turnover for the Fixed Income Portfolio for the
periods ending March 31, 1997 and March 31, 1996 was 24% and 28% respectively.
The portfolio turnover for the Hickory Portfolio for each of the periods ending
March 31, 1997 and March 31, 1996, was 28%. The Value Portfolio, Fixed Income
Portfolio and Hickory Portfolio are not expected to have a portfolio turnover
rate in excess of 100%. The turnover rate will not be a limiting factor when
management deems portfolio changes appropriate.
<PAGE>
The higher a portfolio's turnover rate, the higher will be its expenditures for
brokerage commissions and related transaction costs.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS-VALUE PORTFOLIO
GENERAL Ordinarily, the Value Portfolio will be principally invested in
common stocks and other securities convertible to equity, such as rights,
warrants, convertible bonds and preferred stock. The Fund has, however, adopted
a policy which permits Wallace R. Weitz & Company (the "Investment Adviser") to
invest a portion or all of its assets in high quality nonconvertible preferred
stock, high quality nonconvertible debt securities and high quality United
States Government, state and municipal and governmental agency and
instrumentality obligations, or retain funds in cash or cash equivalents, such
as money market mutual fund shares when the Investment Adviser believes that
prevailing market or economic conditions warrant a temporary defensive
investment position. Securities issued or guaranteed by the United States
Government may include, for example, Treasury Bills, Bonds and Notes which are
direct obligations of the United States Government. Obligations issued or
guaranteed by United States Government agencies or instrumentalities may
include, for example, those of Federal Intermediate Credit Banks, Federal Home
Loan Banks, Federal National Mortgage Association and Farmers Home
Administration. Such securities will include, for example, those supported by
the full faith and credit of the United States Treasury or the right of the
agency or instrumentality to borrow from the Treasury as well as those supported
only by the credit of the issuing agency or instrumentality. State and
municipal obligations, which are typically tax exempt, may include both general
obligation and revenue obligations, issued for a variety of public purposes such
as highways, schools, sewer and water facilities, as well as industrial revenue
bonds issued by public bodies to finance private commercial and industrial
facilities.
INDUSTRY CONCENTRATION Although the Value Portfolio will not concentrate
its investments in any one industry, it reserves the right to invest up to 25%
of the value of its assets (at the time of purchase and after giving effect
thereto) in the securities of companies principally engaged in a particular
industry.
CONVERTIBLE SECURITIES In addition to common and preferred stocks, the
Value Portfolio may invest in other securities having equity features because
they are convertible into, or represent the right to purchase, common stock.
Convertible bonds and debentures are corporate debt instruments, frequently
unsecured and subordinated to senior corporate debt, which may be converted into
common stock at a specified price. Such securities may trade at a premium over
their face amount when the price of the underlying common stock exceeds the
conversion price, but otherwise will normally trade at prices reflecting current
interest rate trends. Convertible corporate debt securities purchased by the
Value Portfolio will primarily be of investment grade (e.g., Moody's Investors
Service rating Aaa, Aa, A or Baa; Standard & Poor's Corporation rating AAA, AA,
A or BBB), as evidenced by ratings of established rating agencies or similar
criteria.
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<PAGE>
WARRANTS AND RIGHTS Warrants and rights are options to purchase common
stock at a specified price for a specified period of time. Their trading price
will normally reflect the relationship between the option price and the current
market price of the underlying common stock. If not sold or exercised before
their expiration date they become valueless.
INVESTMENT COMPANY SHARES The Value Portfolio may purchase securities of
other investment companies subject to the restrictions of the 1940 Act. The
Value Portfolio does not intend to purchase any such securities involving the
payment of a front-end sales load, but may purchase shares of investment
companies specializing in securities in which the Value Portfolio has a
particular interest or shares of closed-end investment companies which
frequently trade at a discount from their net asset value.
FOREIGN SECURITIES The Value Portfolio may purchase foreign securities
that are listed on a principal foreign securities exchange or over-the-counter
market, or which are represented by American Depository Receipts and are listed
on a domestic securities exchange or traded in the United States
over-the-counter market. The Value Portfolio may occasionally convert U.S.
dollars into foreign currency, but only to effect securities transactions on a
foreign securities exchange and not to hold such currency as an investment. The
Value Portfolio will not invest in forward foreign currency contracts. While
the Value Portfolio has no present intention to invest any significant portion
of its assets in foreign securities, it reserves the right to invest not more
than 25% of the value of its total assets (at time of purchase, giving effect
thereto) in the securities of foreign issuers and obligors.
Investors should recognize that investments in foreign companies involve
certain considerations that are not typically associated with investing in
domestic companies. An investment may be affected by changes in currency rates
and in exchange control regulations. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies, and there may be less
publicly available information about a foreign company than about a domestic
company. Some foreign stock markets may have substantially less trading
activity than the American securities markets, and securities of some foreign
companies may be less liquid than securities of comparable domestic companies.
Also, commissions on transactions in foreign securities may be higher than
similar transactions on domestic stock markets and foreign governments may
impose taxes on securities transactions or ownership. There is generally less
governmental regulation of stock exchanges, brokers, and listed and unlisted
companies in foreign countries than in the United States. In addition,
individual foreign economies may differ favorably or unfavorably from the United
States' economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
RESTRICTED/ILLIQUID SECURITIES The Value Portfolio may invest in
securities acquired in a privately negotiated transaction directly from the
issuer or a holder of the issuer's securities and which, therefore, could not
ordinarily be sold by the Fund except in another private placement or pursuant
to an effective registration statement under the Securities Act of 1933 or an
available
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<PAGE>
exemption from such registration requirements. The Value Portfolio will not
invest in any such restricted or illiquid securities which will cause the then
aggregate value of all such securities to exceed 10% of the value of the Value
Portfolio's total assets (at the time of investment, giving effect thereto).
Restricted and illiquid securities will be valued in such manner as the Board of
Directors in good faith deems appropriate to reflect their fair value. See
"Pricing of Shares" in the Prospectus. The purchase price, subsequent valuation
and resale price of restricted securities normally reflect a discount from the
price at which such securities trade when they are not restricted, since the
restriction makes them less marketable. The amount of the discount from the
prevailing market price will vary depending upon the type of security, the
character of the issuer, the party who will bear the expenses of registering the
restricted securities, and prevailing supply and demand conditions.
COVERED CALL OPTIONS The Value Portfolio may write covered call options to
generate premium income which is considered by the Investment Adviser to be an
acceptable investment result. Covered call options are contracts sold on a
national exchange or in the over-the-counter options market which allow the
purchaser to buy the underlying security at a specified price (the "strike
price") prior to a certain date, normally within 270 days. "Covered" options
are those in which the option seller (the "writer") owns the underlying
securities. Writing covered call options may increase the Value Portfolio's
income since it receives a payment (the "premium") for writing the option. To
the extent that it writes covered call options, the Value Portfolio will forego
any opportunity for appreciation in the underlying securities above the strike
price during the term of the option, as the underlying securities will be
subject to certain deposit procedures and, therefore, unavailable for sale. The
Value Portfolio may attempt to protect itself against a decline in the price of
the underlying security or may attempt to benefit from an anticipated increase
in such price, by "closing out" the covered call, that is, purchasing an
identical call in the open market. However, there is no assurance that such
calls will always be available for purchase in the secondary market at a price
which will produce the desired result. The absence of a liquid secondary market
in such securities could result from numerous circumstances, such as
insufficient trading interest, restrictions imposed by exchanges as to options
trading generally or suspensions affecting particular securities, inadequacy of
exchange or clearing corporation facilities or decisions by exchanges to
discontinue or limit operations trading.
SHORT SALES, PUT AND CALL OPTIONS The Value Portfolio may engage in short
sales and sell put and call options. Short sales involve the sale of a security
that the Value Portfolio does not own (but instead has borrowed) in anticipation
of a decline in the value of the security. To the extent that the Value
Portfolio engages in short sales, the Fund will place in a segregated account a
sufficient amount of cash and securities as required by applicable federal
securities regulations in order to cover the transaction. In the event that the
value of the security sold short increases in value rather than decreases, the
Value Portfolio would suffer a loss when it purchases the security sold short.
Since there is, theoretically, no limit to how high the price of the stock might
rise, the potential loss from the short sale is greater than the original
proceeds of the short sale. The Value Portfolio may also engage in short sales
"against the box." A short sale "against the box" is a form of short sale in
which the Value Portfolio contemporaneously owns or has the right to obtain at
no additional cost securities identical to those sold short. The segregation of
cash or other securities is not required for
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<PAGE>
short sales "against the box." In the event that the Value Portfolio were to
sell securities short "against the box" and the price of such securities were to
then increase rather than decrease, the Value Portfolio would forego the
potential realization of the increased value of the shares sold short.
Options such as puts and calls are contracts giving the holder the right to
either buy or sell a financial instrument at a specified price before a
specified time. Investments in puts and calls involve certain risks including
the risk that since puts and calls are options which have an expiration date,
the Value Portfolio could lose the entire cost of those puts and calls which
expire worthless.
FUNDAMENTAL INVESTMENT RESTRICTIONS The Value Portfolio may not:
1. Underwrite the securities of other issuers, except the Value Portfolio
may acquire restricted securities under circumstances such that, if the
securities are sold, the Fund might be deemed to be an underwriter for purposes
of the Securities Act of 1933.
2. Purchase or sell real estate or interests in real estate, but the
Value Portfolio may purchase marketable securities of companies holding real
estate or interests in real estate.
3. Purchase or sell commodities or commodity futures contracts.
4. Issue any senior securities (as defined in the Investment Company Act
of 1940, as amended) other than that as set forth below in restriction number 6,
except to the extent that the Fund is permitted to use options.
5. Make loans to other persons except by the purchase of a portion of an
issue of publicly distributed bonds, debentures or other debt securities;
provided that the Value Portfolio may purchase privately sold bonds, debentures
or other debt securities immediately convertible into equity securities, subject
to the 10% restriction applicable to the purchase of not readily marketable
securities.
6. Borrow money except for temporary or emergency purposes and then only
from banks and in an aggregate amount not exceeding 5% of the value of the Value
Portfolio's net assets at the time any borrowing is made.
7. Purchase securities on margin, but the Value Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities.
8. Participate on a joint or joint and several basis in any securities
trading account.
9. Invest in companies for the purpose of exercising management or
control.
10. As to 75% of its total assets, invest more than 5% of its total
assets, taken at market value at the time of a particular purchase, in
securities of any one issuer (other than in U.S.
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<PAGE>
Government securities), nor own more than 10% at the time of, and giving effect
to, a particular purchase of the outstanding voting securities of any one
issuer.
11. Adopt any investment objective otherwise than as described under
"Investment Objective and Policies" in the Prospectus.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS-
FIXED INCOME PORTFOLIO
REPURCHASE AGREEMENTS The Fixed Income Portfolio may invest in repurchase
agreements on U.S. Government Securities. The Fund's Custodian will hold the
securities underlying any repurchase agreement or such securities will be part
of the Federal Reserve Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the collateral falls below the repurchase price
of the repurchase agreement (including any accrued interest), the Fixed Income
Portfolio will promptly provide additional collateral so that the total
collateral is an amount at least equal to the repurchase price plus accrued
interest.
INTEREST RATE FUTURES, BOND INDEX FUTURES, AND RELATED OPTIONS THEREON The
Fixed Income Portfolio may utilize interest rate futures and index futures and
related options. See Appendix A hereto for a general discussion of Interest
Rate Futures, Bond Index Futures and Related Options and the risks thereof.
FUNDAMENTAL INVESTMENT RESTRICTIONS-FIXED INCOME PORTFOLIO Unless otherwise
specified below, the Fixed Income Portfolio will not:
1. Invest 25% or more of the value of its total assets in the securities
of issuers conducting their principal business activities in any one industry.
This restriction does not apply to securities of the U.S. Government or its
agencies and instrumentalities and repurchase agreements relating thereto. The
various types of utilities companies, such as gas, electric, telephone,
telegraph, satellite and microwave communications companies, are considered as
separate industries.
2. Invest more than 5% of the value of its total assets in the securities
of any issuers which, with their predecessors, have a record of less than three
years' continuous operation. (Securities of such issuers will not be deemed to
fall within this limitation if they are guaranteed by an entity in continuous
operation for more than three years. The value of all securities issued or
guaranteed by such guarantor and owned by the Fixed Income Portfolio shall not
exceed 10% of the value of the total assets of the Fixed Income Portfolio.)
3. Issue any senior securities (as defined in the Investment Company Act
of 1940, as amended), other than as set forth in restriction number 4 below and
except to the extent that using options and futures contracts may be deemed to
constitute issuing a senior security.
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<PAGE>
4. Borrow money except from banks for temporary or emergency purposes and
then only in an amount not exceeding 5% of the value of the Fixed Income
Portfolio's net assets at the time any borrowing is made.
5. Mortgage, pledge or hypothecate its assets except in an amount not
exceeding 10% of the value of its total assets to secure temporary or emergency
borrowing. For purposes of this policy, collateral arrangements for margin
deposits on futures contracts or with respect to the writing of options are not
deemed to be a pledge of assets.
6. Make short sales of securities or maintain a short position; except
that the Fixed Income Portfolio may make short sales against the box or maintain
short positions if at all times when a short position is open the Fixed Income
Portfolio owns an equal amount of identical securities equal in amount to the
securities sold short; and no more than 10% of the Fixed Income Portfolio's net
assets (taken at current value) will be held as collateral for such short sales
at any one time. (A short position in a futures contract is not considered a
short sale for this purpose.)
7. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions and except that
the Fixed Income Portfolio may make margin deposits in connection with futures
contracts.
8. Write, purchase or sell puts, calls and purchase and sell puts and
calls or bond index futures except as bona fide hedging activities as described
in Appendix A hereto.
9. Invest for the purpose of exercising control or management.
10. Purchase or sell commodities or commodity futures contracts, except
that the Fixed Income Portfolio may purchase and sell interest rate futures,
bond index futures and options thereon for bona fide hedging purposes.
11. Purchase or sell real estate or real estate mortgage loans, except
that the Fixed Income Portfolio may invest in securities secured by real estate
or interests therein or issued by companies that invest in real estate or
interests therein.
12. Purchase or sell oil, gas or other mineral leases, rights or royalty
contracts, except that the Fixed Income Portfolio may purchase or sell
securities of companies investing in the foregoing.
13. Participate on a joint or a joint and several basis in any securities
trading account (as prohibited by Section 12(a)2 of the Investment Company Act
of 1940) except to the extent that the staff of the Securities and Exchange
Commission may in the future grant exemptive relief therefrom.
14. Act as an underwriter of securities of other issuers, except the Fixed
Income Portfolio may acquire restricted securities under circumstances such
that, if the securities are sold, the Fund might be deemed an underwriter for
purposes of the Securities Act of 1933.
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<PAGE>
15. Invest more than 10% of the Fixed Income Portfolio's net assets in (i)
restricted securities and other illiquid assets, such as securities with no
readily available market quotation, (ii) securities of other investment
companies purchased pursuant to Section 12(d)(1)(F) to the extent that such
securities of any one issuer would exceed 1% of such issuer's total outstanding
securities, or (iii) repurchase agreements with maturities of more than seven
days.
16. Invest more than 5% of its total assets in foreign securities.
17. Purchase the securities of other investment companies, except as
provided by Section 12(d)(1)(F) of the Investment Company Act of 1940, in the
open market where to the best information of the Investment Adviser no
commission, profit, or sales load to a sponsor or dealer (other than the
customary broker's commission) results from such a purchase where immediately
after such purchase or acquisition (i) not more than 3% of the total outstanding
stock of such issuer is owned by the Fixed Income Portfolio and all affiliated
persons of the Fixed Income Portfolio, (ii) no issuer of a security acquired by
the Fixed Income Portfolio pursuant to this restriction is obligated to redeem
such security in an amount exceeding 1% of the issuer's total outstanding
securities during any period of less than 30 days, and (iii) the purchase of
such securities does not exceed 10% of the total assets of the Fixed Income
Portfolio.
18. As to 75% of its total assets, invest more than 5% of its total
assets, taken at market value at the time of a particular purchase, in
securities of any one issuer (excluding U.S. Government securities), nor own
more than 10% at the time of, and giving effect to, a particular purchase of the
outstanding voting securities of any one issuer.
19. Make loans to other persons except that the Fixed Income Portfolio may
purchase fixed income securities and enter into repurchase agreements on U.S.
Government securities.
20. Invest more than 15% of its total assets in (i) securities rated below
BBB by Standard & Poor's or Baa by Moody's, or (ii) unrated securities which
have been determined by the Investment Adviser to be of a quality at least equal
to the rated securities in which the Fixed Income Portfolio is permitted to
invest.
While the Fixed Income Portfolio is permitted to make short sales in
compliance with Investment Restriction No. 6 and invest in illiquid securities
in compliance with Investment Restriction No. 15, the Investment Adviser does
not intend to engage in such transactions at this time and will not do so in the
future unless the Prospectus is amended to disclose such practices.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
GOVERNMENT MONEY MARKET PORTFOLIO
INVESTMENT POLICIES The Government Money Market Portfolio will invest
substantially all of its assets (not less than 90%) in debt obligations with
maturities of not exceeding 13 months
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issued or guaranteed by the U.S. Government and its agencies and
instrumentalities and repurchase agreements thereon. The Government Money
Market Portfolio may invest in obligations which are subject to repurchase
agreements with any member bank of the Federal Reserve System or primary dealer
in U.S. Government securities. As a matter of operating policy, the Government
Money Market Portfolio will not enter into repurchase agreements with more than
seven days to maturity if it would result in the investment of more than 10% of
the value of the Government Money Market Portfolio's assets in such repurchase
agreements. The Government Money Market Portfolio may purchase such securities
on a when issued or forward commitment basis and will maintain a segregated
account with the custodian of cash or liquid U.S. Government obligations in an
aggregate amount equal to the amount of its commitment in connection with such
purchases.
FUNDAMENTAL INVESTMENT RESTRICTIONS The Government Money Market Portfolio
may not:
1. Purchase securities except in compliance with Rule 2a-7 under the
Investment Company Act of 1940.
2. Purchase any securities except debt obligations issued or guaranteed
by the U.S. Government, its agencies and instrumentalities, repurchase and
reverse repurchase agreements thereon or the securities of other registered
management investment companies which are sold without a sales charge and which
are "Money Market Funds" complying with Rule 2a-7 of the Investment Company Act
of 1940 and which have investment objectives and policies comparable to those of
the Government Money Market Portfolio;
3. Underwrite the securities of other issuers;
4. Purchase or sell real estate or investments in real estate;
5. Purchase or sell commodities or commodities futures contracts;
6. Issue any senior securities (as defined in the Investment Company Act
of 1940) other than that as set forth below in restriction number 7.
7. Borrow money (including reverse repurchase agreements) except for
temporary or emergency purposes and then only from banks and in an aggregate
amount not exceeding 5% of the value of the Government Money Market Portfolio's
net assets at the time any borrowing is made;
8. Purchase securities on margin, except to obtain short term credits as
may be necessary for the clearance of purchases and sales of securities;
9. Make loans to other persons, except by the purchase of a portion of an
issue of publicly distributed bonds or other debt instruments and engaging in
reverse repurchase agreements;
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10. Make short sales of securities or sell puts, calls, straddles, spreads
or combinations thereof;
11. Purchase the securities of other investment companies, except as
provided by Section 12(d)(1)(F) of the Investment Company Act of 1940, in the
open market where to the best information of the Investment Adviser no
commission, profit, or sales load to a sponsor or dealer (other than the
customary broker's commission) results from such a purchase and where
immediately after such purchase or acquisition (i) not more than 3% of the total
outstanding stock of such issuer is owned by the Government Money Market
Portfolio and all affiliated persons of the Government Money Market Portfolio,
(ii) no issuer of a security acquired by the Government Money Market Portfolio
pursuant to this restriction is obligated to redeem such security in an amount
exceeding 1% of the issuer's total outstanding securities during any period of
less than 30 days, and (iii) the purchase of such securities does not exceed 10%
of the total assets of the Government Money Market Portfolio;
12. Purchase or sell oil, gas or other mineral leases, rights or royalty
contracts;
13. Pledge, mortgage or hypothecate its assets, except as is necessary to
secure borrowings permitted by restriction number 7 above, so long as such
pledge of securities does not exceed 25% of the value of the Government Money
Market Portfolio's assets;
14. Invest in securities for the purpose of exercising control;
15. Purchase any security other than obligations of the U.S. Government,
its agencies or instrumentalities, if as a result more than 5% of the value of
the Government Money Market Portfolio total assets would then be invested in
securities of any single issuer.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS-HICKORY PORTFOLIO
GENERAL Ordinarily, the Hickory Portfolio will be principally invested in
common stocks and other securities convertible to equity, such as rights,
warrants, convertible bonds and preferred stock. The Fund has, however, adopted
a policy which permits the Investment Adviser to invest a portion or all of its
assets in high quality nonconvertible preferred stock, high quality
nonconvertible debt securities and high quality United States Government and
governmental agency and instrumentality obligations, or funds may be retained in
cash or cash equivalents, such as money market mutual fund shares when the
Investment Adviser believes that prevailing market or economic conditions
warrant a temporary defensive investment position. Securities issued or
guaranteed by the United States Government may include, for example, Treasury
Bills, Bonds and Notes which are direct obligations of the United States
Government. Obligations issued or guaranteed by United States Government
agencies or instrumentalities may include, for example, those of Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association and Farmers Home Administration. Such securities will include, for
example, those supported by the full faith and
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credit of the United States Treasury or the right of the agency or
instrumentality to borrow from the Treasury as well as those supported only by
the credit of the issuing agency or instrumentality. State and municipal
obligations, which are typically tax exempt, may include both general obligation
and revenue obligations, issued for a variety of public purposes such as
highways, schools, sewer and water facilities, as well as industrial revenue
bonds issued by public bodies to finance private commercial and industrial
facilities.
INDUSTRY CONCENTRATION Although the Hickory Portfolio will not concentrate
its investments in any one industry, it reserves the right to invest up to 25%
of the value of its assets (at the time of purchase and after giving effect
thereto) in the securities of companies principally engaged in a particular
industry.
CONVERTIBLE SECURITIES In addition to common and preferred stocks, the
Hickory Portfolio may invest in other securities having equity features because
they are convertible into, or represent the right to purchase, common stock.
Convertible bonds and debentures are corporate debt instruments, frequently
unsecured and subordinated to senior corporate debt, which may be converted into
common stock at a specified price. Such securities may trade at a premium over
their face amount when the price of the underlying common stock exceeds the
conversion price, but otherwise will normally trade at prices reflecting current
interest rate trends. Convertible corporate debt securities purchased by the
Hickory Portfolio will primarily be of investment grade (e.g., Moody's Investors
Service rating Aaa, Aa, A or Baa; Standard & Poor's Corporation rating AAA, AA,
A or BBB), as evidenced by ratings of established rating agencies or similar
criteria.
WARRANTS AND RIGHTS Warrants and rights are options to purchase common
stock at a specified price for a specified period of time. Their trading price
will normally reflect the relationship between the option price and the current
market price of the underlying common stock. If not sold or exercised before
their expiration date they become valueless.
INVESTMENT COMPANY SHARES The Hickory Portfolio may purchase securities of
other investment companies subject to the restrictions of the 1940 Act. The
Hickory Portfolio does not intend to purchase any such securities involving the
payment of a front-end sales load, but may purchase shares of investment
companies specializing in securities in which the Hickory Portfolio has a
particular interest or shares of closed-end investment companies which
frequently trade at a discount from their net asset value.
FOREIGN SECURITIES The Hickory Portfolio may purchase foreign securities
that are listed on a principal foreign securities exchange or over-the-counter
market, or which are represented by American Depository Receipts and are listed
on a domestic securities exchange or traded in the United States
over-the-counter market. The Hickory Portfolio may occasionally convert U.S.
dollars into foreign currency, but only to effect securities transactions on a
foreign securities exchange and not to hold such currency as an investment. The
Hickory Portfolio will not invest in forward foreign currency contracts. While
the Hickory Portfolio has no present intention to invest any significant portion
of its assets in foreign securities, it reserves the right to invest not more
than 25% of the
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value of its total assets (at time of purchase, giving effect thereto) in the
securities of foreign issuers and obligors.
Investors should recognize that investments in foreign companies involve
certain considerations that are not typically associated with investing in
domestic companies. An investment may be affected by changes in currency rates
and in exchange control regulations. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies, and there may be less
publicly available information about a foreign company than about a domestic
company. Some foreign stock markets may have substantially less trading
activity than the American securities markets, and securities of some foreign
companies may be less liquid than securities of comparable domestic companies.
Also, commissions on transactions in foreign securities may be higher than
similar transactions on domestic stock markets and foreign governments may
impose taxes on securities transactions or ownership. There is generally less
governmental regulation of stock exchanges, brokers, and listed and unlisted
companies in foreign countries than in the United States. In addition,
individual foreign economies may differ favorably or unfavorably from the United
States' economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
RESTRICTED/ILLIQUID SECURITIES The Hickory Portfolio may invest in
securities acquired in a privately negotiated transaction directly from the
issuer or a holder of the issuer's securities and which, therefore, could not
ordinarily be sold by the Fund except in another private placement or pursuant
to an effective registration statement under the Securities Act of 1933 or an
available exemption from such registration requirements. The Hickory Portfolio
will not invest in any such restricted securities which will cause the then
aggregate value of all such securities to exceed 10% of the value of the Hickory
Portfolio's net assets (at the time of investment, giving effect thereto).
Restricted securities will be valued in such manner as the Board of Directors in
good faith deems appropriate to reflect their fair value. See "Pricing of
Shares" in the Prospectus. The purchase price, subsequent valuation and resale
price of restricted securities normally reflect a discount from the price at
which such securities trade when they are not restricted, since the restriction
makes them less marketable. The amount of the discount from the prevailing
market price will vary depending upon the type of security, the character of the
issuer, the party who will bear the expenses of registering the restricted
securities, and prevailing supply and demand conditions.
COVERED CALL OPTIONS The Hickory Portfolio may write covered call options
to generate premium income which, as previously discussed, is considered by the
Investment Adviser to be an acceptable investment result. Covered call options
are contracts sold on a national exchange or in the over-the-counter options
market which allow the purchaser to buy the underlying security at a specified
price (the "strike price") prior to a certain date, normally within 270 days.
"Covered" options are those in which the option seller (the "writer") owns the
underlying securities. Writing covered call options may increase the Hickory
Portfolio's income since it receives a payment (the "premium") for writing the
option. To the extent that it writes covered call options, the Hickory
Portfolio will forego any opportunity for appreciation in the underlying
securities above the strike
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<PAGE>
price during the term of the option, as the underlying securities will be
subject to certain deposit procedures and, therefore, unavailable for sale. The
Hickory Portfolio may attempt to protect itself against a decline in the price
of the underlying security or may attempt to benefit from an anticipated
increase in such price, by "closing out" the covered call, that is, purchasing
an identical call in the open market. However, there is no assurance that such
calls will always be available for purchase in the secondary market at a price
which will produce the desired result. The absence of a liquid secondary market
in such securities could result from numerous circumstances, such as
insufficient trading interest, restrictions imposed by exchanges as to options
trading generally or suspensions affecting particular securities, inadequacy of
exchange or clearing corporation facilities or decisions by exchanges to
discontinue or limit operations trading.
SHORT SALES, PUT AND CALL OPTIONS The Hickory Portfolio may engage in
short sales and sell put and call options. Short sales involve the sale of a
security that the Hickory Portfolio does not own (but instead has borrowed) in
anticipation of a decline in the value of the security. To the extent that the
Hickory Portfolio engages in short sales, the Fund will place in a segregated
account a sufficient amount of cash and securities as required by applicable
federal securities regulations in order to cover the transaction. In the event
that the value of the security sold short increases in value rather than
decreases, the Hickory Portfolio would suffer a loss when it purchases the
security sold short. Since there is, theoretically, no limit to how high the
price of the stock might rise, the potential loss from the short sale is greater
than the original proceeds of the short sale. The Hickory Portfolio may also
engage in short sales "against the box." A short sale "against the box" is a
form of short sale in which the Hickory Portfolio contemporaneously owns or has
the right to obtain at no additional cost securities identical to those sold
short. The segregation of cash or other securities is not required for short
sales "against the box." In the event that the Hickory Portfolio were to sell
securities short "against the box" and the price of such securities were to then
increase rather than decrease, the Hickory Portfolio would forego the potential
realization of the increased value of the shares sold short.
Options such as puts and calls are contracts giving the holder the right to
either buy or sell a financial instrument at a specified price before a
specified time. Investments in puts and calls involve certain risks including
the risk that since puts and calls are options which have an expiration date,
the Hickory Portfolio could lose the entire cost of those puts and calls which
expire worthless.
FUNDAMENTAL INVESTMENT RESTRICTIONS The Hickory Portfolio may not:
1. Underwrite the securities of other issuers, except the Hickory
Portfolio may acquire restricted securities under circumstances such that, if
the securities are sold, the Fund might be deemed to be an underwriter for
purposes of the Securities Act of 1933.
2. Purchase or sell real estate or interests in real estate, but the
Hickory Portfolio may purchase marketable securities of companies holding real
estate or interests in real estate.
3. Purchase or sell commodities or commodity futures contracts.
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<PAGE>
4. Issue any senior securities (as defined in the Investment Company Act
of 1940, as amended) other than that as set forth below in restriction number 6.
5. Make loans to other persons except by the purchase of a portion of an
issue of publicly distributed bonds, debentures or other debt securities;
provided that the Hickory Portfolio may purchase privately sold bonds,
debentures or other debt securities immediately convertible into equity
securities, subject to the 10% restriction applicable to the purchase of
restricted or illiquid securities.
6. Borrow money except for temporary or emergency purposes and then only
from banks and in an aggregate amount not exceeding 5% of the value of the
Hickory Portfolio's total assets at the time any borrowing is made.
7. Purchase securities on margin, but the Hickory Portfolio may obtain
such short-term credits as may be necessary for the clearance of purchases and
sales of securities.
8. Participate on a joint or joint and several basis in any securities
trading account.
9. Invest in companies for the purpose of exercising management or
control.
10. As to 50% of its total assets, invest more than 5% of its total
assets, taken at market value at the time of a particular purchase, in
securities of any one issuer (other than in government securities), nor at the
time of, and giving effect to, a particular purchase, own more than 10% of the
outstanding voting securities of any one issuer.
11. Adopt any investment objective otherwise than as described under
"Investment Objective and Policies" in the Prospectus.
PURCHASE OF SHARES
See "Purchasing Shares" in the Prospectus for basic information on how to
purchase shares of the Portfolios.
To purchase shares, a shareholder should complete a Purchase Application
and transfer funds for such purchase either by sending a check or a wire
transfer to the Fund. The price paid for such shares will be the next
determined net asset value after the Fund receives the application and payment
for the shares. All purchase orders are subject to acceptance by authorized
officers of the Fund and are not binding until so accepted. Net asset value of
a Fund's shares is determined once each day at the close of the New York Stock
Exchange (ordinarily 3:00 p.m. Central time). If the completed order is
received before such time, an order will be effective the same day and the
investor will become a shareholder of record that day. If the order is received
after such time the
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<PAGE>
investor will become a shareholder of record at the net asset value determined
the following business day.
When an investor purchases shares of the Funds, a shareholder's investment
account is opened in his/her name on the books of the Company. No certificates
for shares are issued. A continuing permanent record of each shareholder's
investment account is maintained by the Company. After every transaction
shareholders will receive a statement showing the details of the transaction and
the number of shares held in the shareholder's investment account. Dividends
and capital gains distributions will be invested in additional shares of the
Funds, unless the shareholder has elected on the Purchase Application or has
subsequently directed the Company that the shareholder will receive such
distributions in cash.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
officers and directors of the Fund:
Wallace R. Weitz* President, Wallace R. Weitz & Company, a
President, Treasurer registered investment adviser, since July
and Director 1983; President, Weitz Securities, Inc., a
Age: 48 registered broker-dealer, since its inception in
January 1986; President, Treasurer and Director,
Weitz Value Fund, Inc., a registered investment
company, January 1986 until March 1990; President,
Treasurer and Director, Weitz Partners, Inc., a
registered investment company, since July, 1993;
previously employed as account executive and
financial analyst for Chiles, Heider & Co., Inc.
(1973-1983) and G. A. Saxton & Co., Inc.
(1970-1973); Chartered Financial Analyst and 1970
graduate of Carleton College with degree in
economics.
John W. Hancock Partner, Hancock & Dana (certified public
Director accountants) since its inception in 1985; Vice
Age: 49 President, Wallace R. Weitz & Company, July
1988-December 1988; Director, Weitz Value Fund,
Inc., January 1986 until March 1990; Director,
Weitz Partners, Inc. since July 1993; Senior Tax
Manager, Peat, Marwick, Mitchell & Co. (Omaha,
Nebraska) from 1978 to 1985.
Thomas R. Pansing, Jr.* Partner, Gaines, Mullen, Pansing & Hogan,
Director attorneys, since 1973; Director, Weitz Value Fund,
Age: 52 Inc., January 1986 until March 1990; Director,
Weitz Partners, Inc. since July, 1993.
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Richard D. Holland Prior to his retirement in 1984, Mr. Holland was
Director Vice Chairman, Rollheiser, Holland & Kahler
Age: 76 (1979-1984) (advertising) and President of
Holland, Dreves & Reilly (1954-1979)
(advertising); Director, Weitz Partners, Inc.
since June, 1995.
Delmer L. Toebben President, Curzon Advertising & Display, Inc.
Director since 1977; Director, Weitz Partners, Inc., since
Age: 66 July, 1996.
Lorraine Chang Independent Consultant (organizational change
Director strategies-government and non-profit
Age: 46 organizations) since 1995; Associate Assistant
Secretary, United States Department of Labor
(1993-1995); General Manager, Union Pacific
Railroad (1980-1987); Law Department, Union
Pacific Railroad (1980-1987); Director, Weitz
Partners, Inc. since June, 1997.
Mary K. Beerling Vice President, Wallace R. Weitz & Company since
Vice President and July 1994; Vice President, Weitz Securities,
Secretary Inc., since July 1994; Vice President and
Age: 56 Secretary, Weitz Partners Inc., July 1994;
Partner, Kutak Rock, attorneys, from 1989 to 1994.
Linda L. Lawson Vice President, Wallace R. Weitz & Company since
Vice President June, 1992; Vice President, Weitz Partners, Inc.
Age: 43 since July, 1993; Manager, Marketing Financial
Management, Mutual of Omaha, Omaha, NE, 1988-1992;
Assistant Treasurer, Farm Credit Banks, Omaha, NE,
1983-1988. Ms. Lawson is the sister of Richard F.
Lawson.
Richard F. Lawson Vice President, Wallace R. Weitz & Company since
Vice President and December 1992 and a financial analyst since
Assistant Secretary January 1991; Portfolio Manager, Weitz Series
Age: 39 Fund, Inc., since 1992; Vice President and
Assistant Secretary, Weitz Partners, Inc. since
July 1993; Vice President and Director, Weitz
Securities, Inc. Since March, 1995; Associate,
Temple, Barker & Sloane, Inc., Massachusetts,
July, 1984-September, 1989; Chartered Financial
Analyst; MBA, Harvard Business School, 1984. Mr.
Lawson is the brother of Linda L. Lawson.
*Mr. Weitz and Mr. Pansing are "interested persons" (as that term is
defined in the Investment Company Act of 1940) of the Fund and the Investment
Adviser. The mailing address of all officers and directors of the Fund is 1125
South 103 Street, Suite 600, Omaha, Nebraska 68124-6008.
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COMPENSATION TABLE The table below sets forth certain information with
respect to compensation of all directors of the company for the fiscal year
ended March 31, 1997. Under the Advisory Agreement remuneration of officers is
paid by the Investment Adviser.
COMPENSATION TABLE
Total compensation from
Aggregate Fund and Weitz Partners
Name of compensation from Fund, Inc. paid to
Person, Position the Fund directors
---------------- ----------------- -----------------------
Lorraine Chang (1) $ -0- $ -0-
Carroll E. Fredrickson, Director (2) 2,004 2,700
John W. Hancock, Director 6,206 8,200
Richard D. Holland, Director 5,506 7,300
Thomas R. Pansing, Jr., Director 5,904 7,600
Delmer L. Toebben (3) 4,000 5,000
Wallace R. Weitz, Director (4) N/A N/A
(1) Ms. Chang became a member of the Board of Directors June 2, 1997.
(2) Mr. Fredrickson resigned his position as a member of the Board of
Directors effective July 29, 1996.
(3) Mr. Toebben became a member of the Board of Directors July 24, 1996.
(4) As a director who is also an officer of the Investment Adviser, Mr.
Weitz received no compensation for his service as a director.
MANAGEMENT OF THE INVESTMENT ADVISER Mr. Weitz is president, treasurer, a
director and sole shareholder of the Investment Adviser. He intends to devote
substantially all his time to the business of the Investment Adviser.
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL The investment adviser and administrator for the Funds is Wallace
R. Weitz & Company. The Investment Adviser acts as such pursuant to a written
agreement with each Fund which will be periodically approved by the directors or
the shareholders of the respective Fund. Weitz Securities, Inc. acts as the
Fund's distributor ("Distributor"). The address for the Investment Adviser and
Distributor is 1125 South 103 Street, Suite 600, Omaha, Nebraska, 68124-6008.
CONTROL OF THE ADVISER AND THE DISTRIBUTOR The Adviser and Distributor are
wholly owned by Wallace R. Weitz.
THE INVESTMENT ADVISORY AGREEMENTS Wallace R. Weitz & Co. acts as the
Investment Adviser to the Funds under individual Management and Investment
Advisory Agreements ("Advisory Agreements") with each Fund. The Advisory
Agreement with respect to the Fixed Income Portfolio was last approved by the
Board of Directors on February 10, 1997, and was approved by the shareholders of
the Fixed Income Portfolio at the meeting of shareholders on July 19, 1989. The
Advisory Agreement with respect to the Value Portfolio was last approved by the
Board of Directors on February 10, 1997, and approved by the sole shareholder
Weitz Value Fund,
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Inc. pursuant to authority granted by the shareholders of Weitz Value Fund, Inc.
on March 30, 1990, in connection with the merger of Weitz Value Fund, Inc. into
the Fund. The Advisory Agreement for the Government Money Market Portfolio was
last approved by the Board of Directors on February 10, 1997, and was approved
by its shareholders on June 17, 1992. The Investment Advisory Agreement for the
Hickory Portfolio was last approved by the Board of Directors on February 10,
1997.
The Advisory Agreements terminate automatically in the event of assignment.
In addition, the Advisory Agreements are terminable at any time, without
penalty, by the Board of Directors of the Company or by vote of a majority of
each Funds' outstanding voting securities on not more than 60 days' written
notice to the Investment Adviser, or by the Investment Adviser, on not more than
on 60 days' written notice to the Company. Unless sooner terminated, the
Advisory Agreements shall continue in effect for more than two years after their
execution only so long as such continuance is specifically approved at least
annually by either the Board of Directors or by a vote of a majority of the
outstanding voting securities of the respective Fund, provided that in either
event such continuance is also approved by a vote of a majority of the directors
who are not parties to such agreement, or interested persons of such parties,
cast in person at a meeting called for the purpose of voting on such approval.
Pursuant to the Advisory Agreements, the Fund agrees to pay to the
Investment Adviser a monthly advisory fee equal to .5% on an annual basis of the
Fixed Income Portfolio's and the Government Money Market Portfolio's average
daily net assets and 1% of the Value Portfolio's and Hickory Portfolio's average
daily net assets. The total amount of advisory fees paid to the Investment
Adviser for the fiscal years ended March 31, 1997, 1996 and 1995 was $2,514,149,
$1,429,179, and $1,118,554 respectively for the Value Portfolio, $88,889,
$50,292, and $31,185 respectively for the Hickory Portfolio, and $86,579,
$71,277, and $88,597 respectively for the Fixed Income Portfolio. Advisory fees
owed by the Government Money Market Portfolio were $26,351, $17,638 and $10,322
for the fiscal years ended March 31, 1997, 1996 and 1995, respectively. After
fee waivers the Government Money Market Portfolio paid $13,175, $8,819 and
$5,161, respectively, for such fiscal years.
Under the Advisory Agreements, the Investment Adviser is responsible for
selecting the Funds' securities. The Investment Adviser will also provide
certain management and certain other personnel to the Fund. The Distributor,
Weitz Securities, Inc., in its capacity of principal underwriter, will bear any
sales or promotional costs incurred in connection with the sale of the shares of
the Funds.
The Company will pay all expenses of operations not specifically assumed by
the Investment Adviser. These will include, without limitation: custodian,
administrative, transfer agent and shareholder recordkeeping charges; charges
for the services of legal counsel and independent public accountants;
compensation of directors other than those directors who are also officers of
the Investment Adviser and expenses incurred by them in connection with their
services to the Fund; expenses of printing and distributing to shareholders
notices, proxy solicitation material, prospec-
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tuses and reports; brokers' commissions; taxes; interest, payment of
premiums for certain insurance carried by the Company; and expenses of
complying with federal, state and other laws. Such expenses will be
charged to the Fund for which such items were incurred, but if such items
are not directly related to a Fund, they will be allocated among the Funds
based upon the relative net assets of the Funds.
The Advisory Agreements provide that neither the Investment Adviser nor any
of its officers or directors, agents or employees will have any liability to the
Company or its shareholders for any error of judgment, mistake of law or any
loss arising out of any investments, or for any other act or omission in the
performance of its duties as Investment Adviser under the Advisory Agreement,
except for liability resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by the Investment Adviser of its obligations
under the Advisory Agreement. The Investment Adviser has contractually retained
all rights to the use of the name "Weitz" by the Fund. In the event the Company
entered into an agreement with another investment adviser the Company could be
required to change its corporate name.
The Adviser has voluntarily agreed to reimburse the Value Portfolio and the
Hickory Portfolio, to the extent of the advisory fee paid, to the extent that
expenses, excluding interest, taxes and brokerage commissions, exceed 1.50%
annually of its average daily net assets and has agreed to reimburse the Fixed
Income Portfolio and the Government Money Market Portfolio to the extent of the
advisory fee paid, for their expenses, excluding interest, taxes and brokerage
commissions, which exceed 1% annually of their respective average daily net
assets.
THE ADMINISTRATOR The Adviser has also been engaged as the Fund's
Administrator under an Administration Agreement. Under this Agreement the Funds
pay a monthly fee based upon the costs to the Administrator of providing
services to the Fund based upon the Administrator's reasonable allocation of
expenses, but not to exceed .30% of average daily net assets for the Value
Portfolio and .25% of average daily net assets for the Fixed Income, Government
Money Market and Hickory Portfolios. Services provided under the Administration
Agreement include, without limitation, customary services related to fund
accounting, recordkeeping, compliance, registration, transfer agent and dividend
disbursing. The cap of .30% or .25%, as the case may be, may be decreased from
time to time. The cap cannot, however, be increased without the approval of the
Board of Directors of the Fund. The administrative fees for the fiscal year
ended March 31, 1997 were .20% for the Value Portfolio, and after fee waivers
were .07% for the Fixed Income Portfolio, 0.0% for the Government Money Market
Portfolio, and .19% for the Hickory Portfolio. The total amount of fees owed
under the Administration Agreement for the fiscal years ended March 31, 1997,
1996 and 1995, respectively, was $504,410, $346,065 and $319,758 for the Value
Portfolio, $43,290, $35,532 and $39,684 for the Fixed Income Portfolio, $13,175,
$8,819 and $5,161 for the Government Money Market Portfolio and $22,222, $12,573
and $7,024 for the Hickory Portfolio. After fee waivers, the Fixed Income
Portfolio paid $11,982, $10,821 and $13,614 for such fiscal years and the
Hickory Portfolio paid $17,068, $6,922 and $4,027 for such fiscal years. All
administrative fees for the
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Government Money Market Portfolio were waived in such fiscal years. No
administrative fees were waived for the Value Portfolio in such fiscal years.
THE DISTRIBUTOR The Distributor offers shares of the Funds on a continuous
basis without compensation from the Company.
OTHER SERVICES The custodian for the Funds is Norwest Bank, N.A., Omaha,
Nebraska. The Company's accountant is McGladrey & Pullen, LLP, New York, New
York. The Company's legal counsel is Dechert Price & Rhoads, Washington, DC.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS
The Investment Adviser furnishes advice and recommendations with respect to
the Funds' investment decisions and determines the broker to be used in each
specific transaction. Principal market makers will be used for the execution of
transactions of unlisted securities unless it has been determined that better
price and execution are available elsewhere.
The Investment Adviser attempts to obtain from brokers the most favorable
price and execution available. In determining the most favorable price and
execution all factors relevant to the Funds' best interest are considered,
including, for example, price, the size of the transaction, the nature of the
market for the security, the amount of commission, the timing of the transaction
taking into account market prices and trends, the reputation, experience and
financial stability of the broker-dealer involved and the quality of service
rendered by the broker-dealer in other transactions. Subject to these
considerations, the Investment Adviser may place orders for the purchase or sale
of Fund securities with brokers or dealers who have provided research,
statistical or other financial information.
Because of such factors, most of which are subject to the best judgment of
the Investment Adviser, the Investment Adviser may pay a broker which provides
brokerage and research services to a Fund an amount of commission for effecting
a securities transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, provided that
the Investment Adviser has determined in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by the broker effecting the transactions, viewed in terms of
either that particular transaction or the ability to execute possibly difficult
transactions in the future. Such research services furnished by brokers through
whom the Investment Adviser effects securities transactions are used by the
Investment Adviser in servicing all of its accounts and are not used exclusively
with respect to transactions for the Funds.
Brokerage and research services, as provided in Section 28(e)(3) of the
Securities Exchange Act of 1934, include advice as to the value of securities,
the advisability of investing in, purchasing or selling securities, the
availability of securities or purchasers or sellers of securities; furnishing
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analyses and reports concerning issuers, industries, securities, economic
factors and trends, Fund strategy and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such as
clearance and settlement).
During the fiscal years ended March 31, 1997, 1996 and 1995, the Fund paid
the following brokerage commissions for securities transactions in the
Portfolios:
Fiscal Years Ended March 31,
PORTFOLIOS 1997 1996 1995
---------- ---- ---- ----
Value 689,400 452,206 264,700
Fixed Income 8,538 9,647 4,500
Government Money Market 234 -0- -0-
Hickory 41,382 29,572 16,137
The percent of total commissions paid by each Fund during the fiscal year
ended March 31, 1997 to firms that provided research service to the Investment
Adviser was 85% for the Value Portfolio, 44% for the Fixed Income Portfolio, 0%
for the Government Money Market Portfolio and 93% for the Hickory Portfolio.
As of March 31, 1997, Fixed Income Portfolio owned $1,002,679 aggregate
amount of the securities of Merrill, Lynch & Co., a regular broker-dealer of the
Funds within the meaning of Rule 10b-1 of the Investment Company Act of 1940.
OPTION TRADING LIMITS The writing by the Company of options on securities
is subject to limitations established by each of the registered securities
exchanges on which such options are traded. Such limitations govern the maximum
number of options in each class which may be written by a single investor or
group of investors acting in concert, regardless of whether the options are
written on the same or different securities exchanges or are held or written in
one or more accounts or through one or more brokers. Thus, the number of
options which one Fund may write may be affected by options written by the other
Funds, if any, and by other investment advisory clients of the Adviser. An
exchange may order the liquidations of positions found to be in excess of these
limits, and it may impose certain other sanctions. The Investment Adviser
believes it is unlikely that the level of option trading by the Company will
exceed applicable limitations.
CAPITAL STOCK
On June 30, 1997, the Fund had 13,870,198, 2,090,630, 6,477,225 and 770,244
shares outstanding designated Value Portfolio, Fixed Income Portfolio,
Government Money Market Fund and Hickory Portfolio respectively. As of such
date the directors and officers of the Company owned collectively the amounts of
each Fund set forth below. Also of such date the persons set forth below owned
5% or more of the shares of a Fund.
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VALUE PORTFOLIO
The Officers and Directors of the Fund owned 698,429 shares or 5.0% of the
Value Portfolio's outstanding shares.
No persons owned of record or were known to own beneficially 5% or more of the
shares of the Value Portfolio.
FIXED INCOME PORTFOLIO
The Officers and Directors of the Fund owned 492,572 shares or 23.6% of the
outstanding shares of the Fixed Income Portfolio.
NAME AND ADDRESS SHARES/NATURE OF OWNERSHIP %
The Holland Foundation 352,395 16.9%
Richard D. Holland, President Record
1501 South 80th Street
Omaha, NE 68124
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GOVERNMENT MONEY MARKET
The Officers and Directors of the Fund owned 72,526 shares or 1.1% of the
Government Money Market Portfolio's outstanding shares.
NAME AND ADDRESS SHARES/NATURE OF OWNERSHIP %
Oral Maxillofacial Surgeon 1,244,394 19.2%
Pension Plan & Trust Record
220 N. 89th Street
Omaha, NE 68114
Richard L. Brennan 596,975 9.2%
9924 Devonshire Record
Omaha, NE 68114
Eye Physicians Omaha Retirement 589,666 9.1%
FBO R. Meissner Record
R. Meissner, Trustee
4353 Dodge Street
Omaha, NE 68131
Seim Johnson Sestak & Quist LLP 497,940 7.7%
Employee Savings Trust Record
10843 Old Mill Road #400
Omaha, NE 68154
HICKORY PORTFOLIO
The Officers and Directors of the Fund owned 151,765 or 19.7% of the
Hickory Portfolio's outstanding shares.
NAME AND ADDRESS SHARES/NATURE OF OWNERSHIP %
The Scoular Company 401(k) 75,821 9.8%
Thrift Savings Plan Record
Norwest Bank Nebraska, Trustee
P.O. Box 3959
Omaha, NE 68103
Wallace R. Weitz 74,789 9.7%
1125 South 103 Street, Suite 600 Record
Omaha, NE 68124
Seim Johnson Sestak & Quist LLP 64,858 8.4%
Employee Savings Trust Record
10843 Old Mill Road #400
Omaha, NE 68154
Richard F. Lawson 43,998 5.7%
1125 South 103 Street, Suite 600 Record
Omaha, NE 68124
The Articles of Incorporation provide that the shareholders have the right
to remove directors upon the vote of two-thirds of the outstanding shares at a
meeting called for such purpose. The Board of Directors must promptly call a
meeting for the removal of a director if recordholders of not less than 10% of
the outstanding shares request in writing that such a meeting be held. The
Company is obligated to facilitate shareholder communications by providing
shareholder lists and related information only if 10 or more shareholders, who
have been shareholders for at least six months before application and who own,
in the aggregate, shares having a net asset value of at least $25,000 or at
least 1% of the outstanding shares, whichever is less, apply to the Board of
Directors in writing, stating they wish to communicate with other shareholders
with a view to obtaining signatures to request a meeting. Such application must
be accompanied by the form of communication proposed.
DETERMINATION OF NET ASSET VALUE
The method for determining the public offering price of the Value
Portfolio, Fixed Income Portfolio, Government Money Market Portfolio or Hickory
Portfolio shares is described in the Prospectus in the text under the captions
"Pricing of Shares." The net asset value of the Fund shares is determined each
day that the New York Stock Exchange is open, provided that the net asset value
need not be determined on days when no shares are tendered for redemption and no
order for shares is received. Currently the New York Stock Exchange and the
Fund are closed for business on the following holidays (or on the nearest Monday
or Friday if the holiday falls on a weekend): New
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Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The Securities and Exchange Commission adopted Rule 2a-7 under the
Investment Company Act of 1940 which permits the Company to compute the
Government Money Market Portfolio's net asset value per share using the
amortized cost method of valuing portfolio securities. As a condition for using
the amortized cost method of valuation, the Board of Directors must establish
procedures to stabilize the Fund's net asset value at $1.00 per share. These
procedures include a review by the Board of Directors as to the extent of any
deviation of net asset value based on available market quotations from the
Fund's $1.00 amortized cost value per share. If such deviation exceeds $.005,
the Board of Directors will consider what action, if any, should be initiated to
reasonably eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio securities prior to maturity, withholding dividends or utilizing a net
asset value per share as determined by using available market quotations. In
addition, the Fund must maintain a dollar-weighted average portfolio maturity
appropriate to its investment objective, but in any event, not longer than 90
days, must limit portfolio investments to those instruments which the Board of
Directors determines present minimal credit risks, and must observe certain
other reporting and recordkeeping procedures.
Under the amortized cost method of valuation, a security is initially
valued at cost on the date of purchase and, thereafter, any discount or premium
is amortized on a straight-line basis to maturity, regardless of the effect of
fluctuating interest rates or the market value of the security. Accordingly,
U.S. Government obligations held by the Fund will be valued at their amortized
cost, which normally will be their face amount. Other assets and securities are
valued at a fair value determined, in good faith, by the Board of Directors.
The amortized cost method of valuation may result in some dilution of a
shareholder's interest in the Fund insofar as general market increases and
decreases of interest rates usually have an inverse effect on the value of debt
instruments. However, the significance of the effect of such general market
increases and decreases in interest rates directly corresponds to the maturity
of the debt instruments, that is, the change in the market value of the
underlying debt instruments and the corresponding change in the premium or
discount of such instruments is greater when maturities are larger and less when
maturities are shorter.
The portfolio securities of the Value Portfolio, Fixed Income Portfolio and
Hickory Portfolio fluctuate in value, and hence, the net asset value per share
of these Funds also fluctuates. On March 31, 1997, the net asset value per
share for the Value Portfolio was calculated as follows:
Net Assets $275,597,375 = Net Asset Value per
----------------------------- Share $20.988
Shares Outstanding 13,131,071
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On March 31, 1997, the net asset value per share for the Fixed Income Portfolio
was calculated as follows:
Net Assets $22,349,040 = Net Asset Value per
---------------------------- Share $10.770
Shares Outstanding 2,075,027
On March 31, 1997, the net asset value per share for the Hickory Portfolio was
calculated as follows:
Net Assets $12,221,336 = Net Asset Value per
-------------------------- Share $18.899
Shares Outstanding 646,671
REDEMPTION
Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Funds of securities owned by them
is not reasonably practicable, or it is not reasonably practicable for the Funds
fairly to determine the value of their net assets, or (d) during any other
period when the Securities and Exchange Commission, by order, so permits,
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist.
TAXATION
The Company intends to qualify each of its Funds as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended, so
as to be relieved of federal income tax on its capital gains and net investment
income distributed to shareholders. To qualify as a regulated investment
company, a Fund must, among other things, receive at least 90% of its gross
income each year from dividends, interest, gains from the sale or other
disposition of securities and certain other types of income including, with
certain exceptions, income from options and futures contracts. However, gains
from the sale or other disposition of stock or securities held for less than
three months must constitute less than 30% of each Fund's gross income. This
restriction may limit the extent to which a Fund may effect sales of securities
held for less than three months or transactions in futures contracts and options
even when the Investment Adviser otherwise would deem such transaction to be in
the best interest of a Fund. The Code also requires a regulated investment
company to diversify its holdings. This means that a Fund must have at least
50% of its total assets in cash and cash items and other securities and as to
the securities held, the entire amount of the securities of any one issuer owned
by a Fund may not exceed 5% of the value of 50% of a Fund's assets.
Additionally, a Fund may not invest more than 25% of its total assets in the
securities of any one issuer. This diversification test is in contrast to the
diversification test under the 1940 Act which restricts a Portfolio's investment
in any one issuer to 5% as to 75% of the Portfolio's assets.
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The Value Portfolio, Fixed Income Portfolio and Government Money Market
Portfolio are diversified under both the 1940 Act and the Code, while the
Hickory Portfolio is nondiversified under the 1940 Act, but is diversified under
the Code. The Internal Revenue Service has not made its position clear
regarding the treatment of futures contracts and options for purposes of the
diversification test, and the extent to which a Fund could buy or sell futures
contracts and options may be limited by this requirement.
The Code requires that all regulated investment companies pay a
nondeductible 4% excise tax to the extent the regulated investment company does
not distribute 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined, in general, on an October 31 year end.
The required distributions are based only on the taxable income of a regulated
investment company.
Ordinarily, distributions and redemption proceeds earned by a Fund
shareholder are not subject to withholding of federal income tax. However, if a
shareholder fails to furnish a tax identification number or social security
number, or certify under penalties of perjury that such number is correct, the
Fund may be required to withhold federal income tax at the current rate ("backup
withholding") from all dividend, capital gain and/or redemption payments to such
shareholder. Dividends and capital gain distributions may also be subject to
backup withholding if a shareholder fails to certify under penalties of perjury
that such shareholder is not subject to backup withholding or is exempt from
back-up withholding. These certifications are contained in the purchase
application enclosed with the Prospectus.
CALCULATION OF PERFORMANCE DATA
From time to time the Fixed Income Portfolio may quote yield in
advertisements or in reports and other communications to shareholders. For
this purpose, yield is calculated by dividing net investment income per share
earned during a 30-day period by the net asset value per share on the last
day of the period. Net investment income includes interest and dividend
income earned on the Fund's securities; it is net of all expenses. The yield
calculation assumes that net investment income earned over 30 days is
compounded semiannually and then annualized. Methods used to calculate
advertised yields are standardized for all bond mutual funds. However, these
methods differ from the accounting methods used by the Fund to maintain its
books and records, and so the advertised 30-day yield may not fully reflect
the income paid to a shareholder's account. The Fixed Income Portfolio's net
investment income changes in response to fluctuations in interest rates and
in the expenses of the Fund. Consequently, any given quotation should not be
considered as representative of what the Fixed Income Portfolio's yield may
be for any specified period in the future.
Yield information may be useful in reviewing the Fixed Income Portfolio's
performance and for providing a basis for comparison with other investment
alternatives. However, the Fixed Income Portfolio's yield will fluctuate,
unlike other investments which pay a fixed yield for a stated period of time.
Current yield should be considered together with fluctuations in the Fixed
Income
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Portfolio's net asset value over the period for which yield has been calculated,
which, when combined, will indicate the Fixed Income Portfolio's total return to
shareholders for that period. In addition, investors should give consideration
to the quality and maturity of the Fixed Income Portfolio securities of the
respective investment companies when comparing investment alternatives.
Investors should recognize that in periods of declining interest rates the
Fixed Income Portfolio's yield will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates the Fixed Income
Portfolio's yield will tend to be somewhat lower. Also, when interest rates are
falling, the inflow of net new money to the Fixed Income Portfolio from the
continuous sale of its shares will likely be invested in instruments producing
lower yields than the balance of the Fixed Income Portfolio's holdings, thereby
reducing the current yield of the Fixed Income Portfolio. In periods of rising
interest rates, the opposite can be expected to occur. The Fixed Income
Portfolio's yield based on the 30-day or one-month period ended March 31, 1997
was 6.1%.
The Fixed Income Portfolio may also quote the indices of bond prices and
yields prepared by Lehman Brothers and Salomon Brothers Inc., leading
broker-dealer firms. These indices are not managed for any investment goal.
Their composition may, however, be changed from time to time.
The Fixed Income Portfolio may quote the yield or total return of Ginnie
Maes, Fannie Maes, Freddie Macs, corporate bonds and Treasury bonds and notes,
either as compared to each other or as compared to the Fixed Income Portfolio's
performance. In considering such yields or total returns, investors should
recognize that the performance of securities in which the Fixed Income Portfolio
may invest does not reflect the Fixed Income Portfolio's performance, and does
not take into account either the effects of portfolio management or of
management fees or other expenses; and that the issuers of such securities
guarantee that interest will be paid when due and that principal will be fully
repaid if the securities are held to maturity, while there are no such
guarantees with respect to shares of the Fixed Income Portfolio. Investors
should also be aware that the mortgages underlying mortgage-related securities
may be prepaid at any time. Prepayment is particularly likely in the event of
an interest rate decline, as the holders of the underlying mortgages seek to pay
off high-rate mortgages or renegotiate them at potentially lower current rates.
Because the underlying mortgages are more likely to be prepaid at their par
value when interest rates decline, the value of certain high-yielding
mortgage-related securities may have less potential for capital appreciation
than conventional debt securities (such as U.S. Treasury bonds and notes) in
such markets. At the same time, such mortgage-related securities have a similar
potential for capital depreciation when interest rates rise.
The Fund may also advertise the yield of the Government Money Market
Portfolio. Yield for money market funds is determined by computing the net
change, exclusive of capital changes in the value of a hypothetical preexisting
account at the beginning and ending of a seven day period having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting expenses and dividing the difference by the value of the account at
the beginning of the period to obtain the base period return and then
multiplying the base period return by 365/7 and rounding the result to the
nearest one hundredth of one cent. The Government Money Market
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Portfolio's yield and effective yield for the 7-day period ended March 31, 1997,
was 4.8% and 4.9%, respectively.
The Value Portfolio and Hickory Portfolio may include their respective
total return in advertisements or reports to shareholders or prospective
investors. Total return is the percentage change in the net asset value of a
Fund share over a given period of time, with dividends and distributions treated
as reinvested. Performance of the Value Portfolio and Hickory Portfolio may be
shown by presenting one or more performance measurements, including cumulative
total return or average annual total return. Cumulative total return is the
actual total return of an investment in the respective Fund over a specific
period of time and does not reflect how much the value of the investment may
have fluctuated during the period of time indicated. Average annual total
return is the annual compound total return of the respective Fund over a
specific period of time that would have produced the cumulative total return
over the same period if the Fund's performance had remained constant throughout
the period.
The Value Portfolio and Hickory Portfolio may compare their respective
performance to that of certain widely managed stock indices including the Dow
Jones Industrial Average, the Standard & Poor's 500 Stock Index, the Lipper
Growth Fund Index (Hickory Portfolio), the Lipper Growth and Income Fund Index
(Value Portfolio) and the NASDAQ and Value Line Composites. The Funds may also
use comparative performance information compiled by entities that monitor the
performance of mutual funds generally such as Lipper Analytical Services, Inc.,
Morningstar, Inc. and The Value Line Mutual Fund Survey.
The average annual total return for the Value Portfolio for the one, five
and ten year periods ended March 31, 1997, was 14.3%, 14.9%, 12.9%,
respectively. Cumulative total return for the Value Portfolio from inception
(May 9, 1986) to March 31, 1997, was 264.2%. The total return and cumulative
return for the Value Portfolio includes the performance of Weitz Value Fund,
Inc., the predecessor to the Value Portfolio. The average annual total return
for the Fixed Income Portfolio for the one and five year periods ended March 31,
1997 and for the period since inception (December 23, 1988) to March 31, 1997
was 5.2%, 6.1% and 7.2%, respectively. Cumulative total return for the Fixed
Income Portfolio from inception to March 31, 1997 was 78.1%. The average annual
total return for the Hickory Portfolio for the one year period ended March 31,
1997 and for the period since inception (April 1, 1993) to March 31, 1997 was
28.2% and 17.4%, respectively. Cumulative total return for the Hickory
Portfolio from inception to March 31, 1997 was 90.1%.
YOU SHOULD UNDERSTAND THAT ANY PERFORMANCE DATA PRESENTED REPRESENTS PAST
PERFORMANCE OF A FUND AND IS NOT INTENDED TO BE REPRESENTATIVE OF FUTURE
PERFORMANCE. INVESTMENT RESULTS WILL FLUCTUATE OVER A PERIOD OF TIME SO THAT
YOUR SHARES IN THE VALUE PORTFOLIO, FIXED INCOME PORTFOLIO OR HICKORY PORFOLIO
WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
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FINANCIAL STATEMENTS
The audited statements and notes included in the Annual Reports for the
Value Portfolio, Fixed Income Portfolio, Government Money Market Portfolio and
the Hickory Portfolio dated March 31, 1997 and filed with the Securities and
Exchange Commission are incorporated herein by reference. An additional copy of
such Annual Report may be obtained without charge by directing a request for
such report to the Company at its address or phone number shown on the cover
page of this Statement of Additional Information.
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APPENDIX A
INTEREST RATE FUTURES CONTRACTS, BOND INDEX FUTURES
AND RELATED OPTIONS
FUTURES - IN GENERAL Although most futures contracts by their terms call
for actual delivery or acceptance of commodities or securities, in most cases
the contracts are closed out before the settlement date without the making or
taking of delivery. Closing out a short position is effected by purchasing a
futures contract for the same aggregate amount of the specific type of financial
instrument or commodity and the same delivery month. If the price of the
initial sale of the futures contract exceeds the price of the offsetting
purchase, the seller is paid the difference and realizes a gain. Conversely, if
the price of the offsetting purchase exceeds the price of the initial sale, the
trader realizes a loss. Similarly, the closing out of a long position is
effected by the purchaser entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes a gain,
and if the purchase price exceeds the offsetting sale price, he realizes a loss.
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the Adviser and the relevant contract
market, which varies but is generally about 5% of the contract amount, must be
deposited with the custodian in the name of the broker. This amount is known as
"initial margin," and represents a "good faith" deposit assuring the performance
of both the purchaser and the seller under the futures contract. Subsequent
payments to and from the broker, known as "variation margin," are required to be
made on a daily basis as the price of the futures contract fluctuates, making
the long or short positions in the futures contract more or less valuable, a
process known as "marking to the market." Prior to the settlement date of the
futures contract, the position may be closed out by taking an opposite position
which will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker, and the purchaser realizes a loss or gain.
In addition, a commission is paid on each completed purchase and sale
transaction.
INTEREST RATE FUTURES CONTRACTS The Fixed Income Portfolio may purchase
and sell interest rate futures contracts and options thereon. An interest rate
futures contract creates an obligation on the part of the seller (the "short")
to deliver, and an offsetting obligation on the part of the purchaser (the
"long") to accept delivery of, the type of financial instrument called for in
the contract in a specified delivery month for a stated price. A majority of
transactions in interest rate futures contracts, however, do not result in the
actual delivery of the underlying instrument, but are settled through
liquidation, i.e., by entering into an offsetting transaction. The interest
rate futures contracts to be traded by the Fixed Income Portfolio are traded
only on commodity exchanges--known as "contract markets"--approved for such
trading by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant contract market. These contract markets, through their
clearing corporations, guarantee that the contracts will be performed.
Presently, futures contracts are based on such debt securities as long-term
U.S. Treasury Bonds, Treasury Notes, Government National
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Mortgage Association modified pass-through mortgage-backed securities,
three-month U.S. Treasury Bills and bank certificates of deposit.
The purpose of the acquisition or sale of an interest rate futures contract
by the Fixed Income Portfolio as the holder of fixed income securities, is to
hedge against fluctuations in rates on such securities without actually buying
or selling fixed income securities. For example, if interest rates are expected
to increase, the Fixed Income Portfolio might sell interest rate futures
contracts. Such a sale would have much the same effect as selling some of the
fixed income securities held by the Fixed Income Portfolio. If interest rates
increase as anticipated by the Adviser, the value of certain fixed income
securities in the Fixed Income Portfolio would decline, but the value of the
Fixed Income Portfolio's interest rate futures contracts would increase at
approximately the same rate, thereby keeping the net asset value of the Fixed
Income Portfolio from declining as much as it otherwise would have. Of course,
since the value of the securities held by the Fixed Income Portfolio will far
exceed the value of the interest rate futures contracts sold by the Fixed Income
Portfolio, an increase in the value of the futures contracts could only
mitigate--but not totally offset--the decline in the value of the Fixed Income
Portfolio.
Similarly, when it is expected that interest rates may decline, interest
rate futures contracts could be purchased to hedge against the Fixed Income
Portfolio's anticipated purchases of fixed income securities, at higher prices.
Since the rate of fluctuation in the value of interest rate futures contracts
should be similar to that of the fixed income securities, the Fixed Income
Portfolio could take advantage of the anticipated rise in the value of bonds
without actually buying them until the market had stabilized. At that time, the
interest rate futures contracts could be liquidated and the Fixed Income
Portfolio's cash could then be used to buy bonds on the cash market. The Fixed
Income Portfolio could accomplish similar results by selling bonds with longer
maturities and investing in bonds with shorter maturities when interest rates
are expected to increase or by buying bonds with longer maturities and selling
bonds with shorter maturities when interest rates are expected to decline.
However, in circumstances when the market for bonds may not be as liquid as that
for futures contracts, the ability to invest in such contracts could enable the
Fixed Income Portfolio to react more quickly to anticipated changes in market
conditions or interest rates.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS An interest rate futures
contract provides for the future sale by one party and the purchase by the other
party of a certain amount of a specific financial instrument (debt security) at
a specified price, date, time and place. An option on an interest rate futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in an
interest rate futures contract at a specified exercise price at any time prior
to the expiration date of the option. Options on interest rate futures
contracts are similar to options on securities, which give the purchaser the
right, in return for the premium paid, to purchase securities. A call option
gives the purchaser of such option the right to buy, and obliges its writer to
sell, a specified underlying futures contract at a specified exercise price at
any time prior to the expiration date of the option. A purchaser of a put
option has the right to sell, and the writer has the obligation to buy, such
contract at the exercise price during the option period. Upon exercise of an
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
in the writer's future margin account, which represents the amount by which the
market price of the futures contract
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exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. If an option is exercised
on the last trading day prior to the expiration date of the option, the
settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing price of the interest rate futures
contract on the expiration date. The potential loss related to the purchase of
an option on interest rate futures contracts is limited to the premium paid for
the option (plus transaction costs). Because the value of the option is fixed
at the point of sale, there are no daily cash payments to reflect changes in the
value of the underlying contract; however, the value of the option does change
daily and that change would be reflected in the net asset value of the Fixed
Income Portfolio.
The Fixed Income Portfolio will purchase put and call options on interest
rate futures contracts which are traded on a United States exchange or board of
trade as a hedge against changes in interest rates, and will enter into closing
transactions with respect to such options to terminate existing positions. The
Fixed Income Portfolio will purchase put options on interest rate futures
contracts securities if the Adviser anticipates a rise in interest rates. The
purchase of put options on interest rate futures contracts is analogous to the
purchase of put options on debt securities so as to hedge a portfolio of debt
securities against the risk of rising interest rates. Because of the inverse
relationship between the trends in interest rates and values of debt securities,
a rise in interest rates would result in a decline in the value of debt
securities held in the Fixed Income Portfolio. Because the value of an interest
rate futures contract moves inversely in relation to changes in interest rates,
as is the case with debt securities, a put option on such a contract becomes
more valuable as interest rates rise. By purchasing put options on interest
rate futures contracts at a time when the Adviser expects interest rates to
rise, the Fixed Income Portfolio will seek to realize a profit to offset the
loss in value of its portfolio securities, without the need to sell such
securities.
The Fixed Income Portfolio will purchase call options on interest rate
futures contracts if the Adviser anticipates a decline in interest rates. The
purchase of a call option on an interest rate futures contract represents a
means of obtaining temporary exposure to market appreciation at limited risk.
It is analogous to the purchase of a call option on an individual debt security,
which can be used as a substitute for a position in the debt security itself.
Depending upon the pricing of the option compared to either the futures contract
upon which it is based or to the price of the underlying debt securities, it may
or may not be less risky than ownership of the futures contract or underlying
debt. The Fixed Income Portfolio will purchase a call option on an interest
rate futures contract to hedge against a market advance when the Fixed Income
Portfolio is holding cash. The Fixed Income Portfolio can take advantage of the
anticipated rise in the value of long-term securities without actually buying
them until the market has stabilized. At that time, the options can be
liquidated and the Fixed Income Portfolio's cash can be used to buy long-term
securities.
The Fixed Income Portfolio could also write options on an interest rate
futures contract. The writer of an option on an interest rate futures contract
assumes the opposite position from the purchaser of the option. The writer of a
call option, for example, receives the premium paid by the purchaser of the
call, and in return assumes the responsibility to enter into a seller's position
in the underlying futures contract at any time the call is exercised. Because
the writer of an option assumes the obligation to purchase or sell the
underlying futures contract at a fixed price at any time, regardless of market
fluctuations, writing options involves more risk than purchasing options. To
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alleviate this risk in part, the Fixed Income Portfolio would cover any option
it wrote, either by owning a position whose price changes would offset the Fixed
Income Portfolio's obligation under the option (for example, by purchasing the
underlying futures contract if the Fixed Income Portfolio had written a call
option) or by segregating assets sufficient to cover its obligations under
options it had written. In addition, the Fixed Income Portfolio would be
required to make futures margin payments with respect to options written on
futures contracts. An option on an interest rate futures contract written by
the Fixed Income Portfolio could be terminated by exercise, or the Fixed Income
Portfolio could seek to close out the option on a futures exchange by purchasing
an identical option at the current market price. Writing an option would
provide the Fixed Income Portfolio with income in the form of the option
premium. In addition, writing a call option would provide a partial hedge
against declines in the value of securities the Fixed Income Portfolio owned
(but would also limit potential capital appreciation in the securities), and
writing a put option would provide a partial hedge against an increase in the
value of securities the Fixed Income Portfolio intended to purchase (but also
would expose the Fixed Income Portfolio to the risk of a market decline).
The Fixed Income Portfolio will sell put and call options on interest rate
futures contracts only as a substitute for the purchase of a futures contract
for the purpose of hedging and as part of closing sale transactions to terminate
its options positions. There is no guarantee that such closing transactions can
be effected.
There are several risks relating to options on interest rate futures
contracts. The holder of an option on a futures contract may terminate the
position by selling or purchasing an offsetting option of the same series.
There is no guarantee that such closing transactions can be effected. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid secondary market. In addition, the Fixed Income
Portfolio's purchase of put or call options will be based upon predictions as to
anticipated interest rate trends by the Adviser, which could prove to be
inaccurate. Even if the expectations of the Adviser are correct, there may be
an imperfect correlation between the change in the value of the options and of
the Fixed Income Portfolio's securities.
BOND INDEX FUTURES CONTRACTS Bond index futures contracts are commodity
contracts listed on commodity exchanges. A bond index assigns relative values
to bonds included in the index and the index fluctuates with the value and
interest rate of the bonds so included. A futures contract is a legal agreement
between a buyer or seller and the clearing house of a futures exchange in which
the parties agree to make a cash settlement on a specified future date in an
amount determined by the bond index on the last trading day of the contract.
The amount is a specified dollar amount (usually $100 or $500) times the
difference between the index value on the last trading day and the value on the
day the contract was struck.
The Fixed Income Portfolio intend to use bond index futures contracts and
related options for hedging and not for speculation. Hedging permits the Fixed
Income Portfolio to gain rapid exposure to or protect itself from changes in the
market. For example, the Fixed Income Portfolio may find itself with a high
cash position at the beginning of a market rally. Conventional procedures of
purchasing a number of individual issues entail the lapse of time and the
possibility of missing a significant market movement. By using bond index
futures, the Fixed Income Portfolio can obtain immediate exposure to the market
and benefit from the beginning stages of a rally. The buying
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program can then proceed, and once it is completed (or as it proceeds), the
contracts can be closed. Conversely, in the early stages of a market decline,
market exposure can be promptly offset by entering into bond index futures
contracts to sell units of an index and individual bonds can be sold over a
longer period under cover of the resulting short contract position.
The Fixed Income Portfolio may enter into contracts with respect to any
bond index or sub-index. To hedge the Fixed Income Portfolio successfully,
however, the Fixed Income Portfolio must enter into contracts with respect to
indexes or sub-indexes whose movements will have a significant correlation with
movements in the prices of the Fixed Income Portfolio's securities.
OPTIONS ON BOND INDEX FUTURES Bond indices are calculated based on the
prices of securities traded on national securities exchanges. An option on a
bond index is similar to an option on a futures contract except all settlements
are in cash. A portfolio exercising a put, for example, would receive the
difference between the exercise price and the current index level. Such options
would be used in a manner identical to the use of options on futures contracts.
As with options on bonds, the holder of an option on a bond index may
terminate a position by selling an option covering the same contract or index
and having the same exercise price and expiration date. Trading in options on
bond indexes began only recently. The ability to establish and close out
positions on such options will be subject to the development and maintenance of
a liquid secondary market. It is not certain that this market will develop.
The Fixed Income Portfolio will not purchase options unless and until the market
for such options has developed sufficiently so that the risks in connection with
options are not greater than the risks in connection with bond index futures
contracts transactions themselves. Compared to using futures contracts,
purchasing options involves less risk to a portfolio because the maximum amount
at risk is the premium paid for the options (plus transaction costs). There may
be circumstances, however, when using an option would result in a greater loss
to a portfolio than using a futures contract, such as when there is no movement
in the level of the bond index.
REGULATORY MATTERS The Commodity Futures Trading Commission (the "CFTC"),
a federal agency, regulates trading activity on the exchanges pursuant to the
Commodity Exchange Act, as amended. The CFTC requires the registration of
"commodity pool operators," defined as any person engaged in a business which is
of the nature of an investment trust, syndicate or a similar form of enterprise,
and who, in connection therewith, solicits, accepts, or receives from others
portfolios, securities, or property for the purpose of trading in any commodity
for future delivery on or subject to the rules of any contract market. The CFTC
has adopted Rule 4.5, which provides an exclusion from the definition of
commodity pool operator for any registered investment company which (i) will use
commodity futures or commodity option contracts solely for bona fide hedging
purposes (provided, however, that in the alternative, with respect to each long
position in a commodity future or commodity option contract, an investment
company may meet certain other tests set forth in Rule 4.5); (ii) will not enter
into commodity futures and commodity options contracts for which the aggregate
initial margin and premiums exceed 5% of its assets; (iii) will not be marketed
to the public as a commodity pool or as a vehicle for investing in commodity
interests; (iv) will disclose to its investors the purposes of and limitations
on its commodity interest trading; and (v) will submit to special calls of the
CFTC for information.
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APPENDIX B
RATINGS OF CORPORATE OBLIGATIONS AND COMMERCIAL PAPER
RATINGS OF CORPORATE OBLIGATIONS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. Such bonds may be in default
or there may be present elements of danger with respect to principal and
interest.
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Ca: Bonds rated Ca represent obligations which are speculative in a high
degree. Such bonds are often in default or have other marked shortcomings.
Those securities in the A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols A-1 and Baa-1.
Other A and Baa securities comprise the balance of their respective groups.
These rankings (1) designate the securities which offer the maximum in security
within their quality groups, (2) designate securities which can be bought for
possible upgrading in quality, and (3) additionally afford the investor an
opportunity to gauge more precisely the relative attractiveness of offerings in
the marketplace.
STANDARD & POOR'S CORPORATION
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Although they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories. Bonds
rated BBB are regarded as having speculation characteristics.
BB--B--CCC-CC: Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation among such bonds and CC the highest degree of
speculation. Although such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
STANDARD & POOR'S CORPORATION
Commercial paper ratings are graded into four categories, ranging from "A"
for the highest quality obligations to "D" for the lowest. Issues assigned the
A rating are regarded as having the greatest capacity for timely payment.
Issues in this category are further refined with the designation 1, 2 and 3 to
indicate the relative degree of safety. The "A-l" designation indicates that
the degree
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of safety regarding timely payment is very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus sign
designation.
MOODY'S INVESTORS SERVICE, INC.
Moody's commercial paper ratings are opinions of the ability of the issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations
are exempt from registration under the Securities Act of 1933, nor does it
represent that any specific note is a valid obligation of a rated issuer or
issued in conformity with any applicable law. Moody's employs the following
three designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Prime-1 Superior capacity for repayment
Prime-2 Strong capacity for repayment
Prime-3 Acceptable capacity for repayment
B-3
