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WEITZ SERIES FUND, INC.
FIXED INCOME PORTFOLIO
QUARTERLY
REPORT
DECEMBER 31, 1996
ONE PACIFIC PLACE, SUITE 600
1125 SOUTH 103 STREET
OMAHA, NEBRASKA 68124-6008
402-391-1980
800-232-4161
402-391-2125 FAX
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WEITZ SERIES FUND, INC. -- FIXED INCOME PORTFOLIO
PERFORMANCE SINCE INCEPTION
A long-term perspective on our fund's performance is shown below. The table
shows how an investment of $10,000 in the Fixed Income Portfolio at its
inception would have grown over the years (after deducting all fees and expenses
and assuming reinvestment of all dividends). The table also sets forth average
annual total return data for the Fixed Income Portfolio for the one and five
year periods ended December 31, 1996, and for the period since inception,
calculated in accordance with SEC standardized formulas.
<TABLE>
<CAPTION>
VALUE OF VALUE OF VALUE OF
INITIAL CUMULATIVE CUMULATIVE TOTAL ANNUAL
$10,000 CAPITAL GAIN REINVESTED VALUE OF RATE OF
PERIOD ENDED INVESTMENT DISTRIBUTIONS DIVIDENDS SHARES RETURN
- ---------------- ----------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Dec. 23, 1988 $ 10,000 -- -- $ 10,000 --
Dec. 31, 1988 9,939 -- 68 10,007 --
Dec. 31, 1989 10,020 -- 900 10,920 9.1%
Dec. 31, 1990 10,232 12 1,661 11,905 9.0
Dec. 31, 1991 10,625 13 2,597 13,235 11.4
Dec. 31, 1992 10,557 13 3,396 13,966 5.5
Dec. 31, 1993 10,820 14 4,258 15,092 8.1
Dec. 31, 1994 9,961 13 4,763 14,737 -2.4
Dec. 31, 1995 10,847 14 6,199 17,060 15.8
Dec. 31, 1996 10,637 13 7,158 17,808 4.4
</TABLE>
The portfolio's average annual total return for the one and five year periods
ended December 31, 1996, and for the period since inception (December 23, 1988),
was 4.4%, 6.1% and 7.5%, respectively. These returns assume redemption at the
end of each period and reinvestment of dividends.
Since inception, the total amount of capital gains distributions reinvested in
shares was $13, and the total amount of "income" distributions reinvested was
$7,031. This information represents past performance of the portfolio and is not
indicative of future performance. The investment return and the principal value
of an investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than the original cost. Additional information is
available from Wallace R. Weitz & Co. at the address listed on the front cover.
1
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WEITZ SERIES FUND, INC. -- FIXED INCOME PORTFOLIO
DECEMBER 31, 1996 - QUARTERLY REPORT
January 4, 1997
Dear Fellow Shareholder:
The Fixed Income Portfolio grew by 2.9% in the fourth quarter, bringing
our total return for the year to +4.4%. This represents a combination of 6.3%
from net interest income (after deducting fees and expenses) and -1.9% from
(unrealized) depreciation of our bonds. The table below summarizes total return
data for our fund as well as the average intermediate-term, investment grade
fixed income fund. (Returns shown are after deducting all fees and expenses.)
<TABLE>
<CAPTION>
1 YEAR 5 YEARS
----------- -----------
<S> <C> <C>
Fixed Income Portfolio 4.4% 6.1%
Average Intermediate Investment Grade
Fixed Income Fund* 3.1% 6.5%
*Source: Lipper Analytical Services
</TABLE>
MARKET REVIEW
"Irrational exuberance". These two words uttered in a speech by Alan
Greenspan, president of the Federal Reserve, shook markets the world over in
early December but certainly did not reflect the mood of fixed income investors
in 1996. Above-trend growth in the economy in the first and second quarters,
coupled with the perception of an increasingly tight labor market, led bond
investors to fear that rising inflation lurked just around the corner. The
resultant rise in interest rates was partly reversed in the second half of the
year as those growth and inflation fears subsided, but longer term bonds still
produced negative total returns. In fact, inflation as measured by the
(over-stated) Consumer Price Index, remained about 3% for the fourth consecutive
year. The Federal Reserve has made no move to tighten credit, and we do not
expect any significant changes in interest rates over the next several quarters.
The market's action this year reinforced our belief that correctly
predicting interest rates involves more luck than skill. Our strategy will not
insulate us completely from large swings in interest rates, but by investing in
high quality, short to intermediate-term bonds, we feel we can continue to
capture most of the "coupon" returns of long-term bonds with less risk. Our
return for 1996, while less exciting than last year's, reflects that
conservative strategy.
2
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PORTFOLIO REVIEW
The entire portfolio is listed later in this report, but the following
table provides a snap-shot of some of the vital characteristics as of year-end:
<TABLE>
<S> <C>
Average Maturity 7.8 years
Average Duration 4.1 years
Average Coupon 7.1%
30-Day SEC Yield at 12-31-96 6.5%
Average Rating AA
</TABLE>
FIXED INCOME FUNDAMENTALS -- "DURATION"
"Duration" is a technical term which is foreign to most bond investors. If
this is true for you, and you want to keep it that way, please skip this
section. On the other hand, the concept of duration can be useful in analyzing
bond portfolios, so we thought it might be helpful to offer a brief description.
Bond price volatility is partly a function of maturity length. If a bond's
coupon rate and credit quality are held constant, the longer the time to
maturity, the more its price will fluctuate in response to a change in interest
rates.
Another factor in determining volatility is the size of the coupon. All
things being equal, if two bonds have the same maturity length, the one with the
higher coupon will be less volatile. Thus a high coupon bond with a short
maturity will clearly be less volatile than a lower coupon bond with a longer
maturity, but it is difficult to tell intuitively which variable, coupon or
maturity, is more important in comparing several bonds.
This is where duration comes in. Duration is calculated as a function of
both coupon and maturity. It attempts to measure the time-weighted flow of cash
from a bond. We'll spare you the arithmetic, but this number is related to how
fast a bond investor is repaid his original investment. The table below shows
examples of various bonds and their respective durations.
<TABLE>
<CAPTION>
ISSUER DURATION
- ---------------------------------------- -------------
<S> <C>
30 year zero coupon Treasury 30
30 year 6 1/2% coupon Treasury 13
10 year 6 1/2% coupon Treasury 7
Weitz Fixed Income Portfolio 4
1 year Treasury Bill 1
</TABLE>
You will notice that a zero coupon bond, which receives no cash prior to
maturity, has a duration equal to its maturity. This is true of a 30-year zero
coupon Treasury, or a one-year Treasury Bill which is a very short zero coupon
bond. Shortening the maturity and/or raising the coupon have the affect of
lowering the duration.
3
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There is no "good" or "bad" duration. It is simply a measurement of a
bond's (or bond portfolio's) sensitivity to changes in interest rates. It
explains, for example, why our portfolio, with its intentionally low duration,
has been less sensitive to interest rate changes over the years.
Duration also has limitations. The calculation is complicated by call
features, ignores differences in credit quality among bonds and assumes that
long-term and short-term interest rates move in tandem (often not the case).
However, duration can be a useful tool in comparing individual bonds or entire
bond portfolios in order to help make more informed investment decisions.
We would be happy to hear from you about any questions this letter may
have raised.
<TABLE>
<S> <C>
Best Regards,
/s/ Wallace R. Weitz /s/ Thomas D. Carney
- -------------------- --------------------
Wallace R. Weitz Thomas D. Carney
President, Portfolio Manager Portfolio Manager
</TABLE>
4
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WEITZ SERIES FUND, INC. -- FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS IN SECURITIES
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
RATING AMOUNT COST VALUE
- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS -- 30.6%
A $ 500,000 Lehman Brothers Holdings Notes 7.625% 7/15/99 $ 500,207 $ 511,612
BBB 500,000 Salomon, Inc. Sr. Notes 7.125% 8/1/99 500,000 505,022
A 500,000 Phillip Morris Notes 7.125% 8/15/02 500,000 504,647
BBB- 500,000 Tenneco, Inc. Notes 8.075% 10/1/02 498,150 528,210
Ba1 75,000 Homeside, Inc. 11.25% 5/15/03 75,000 82,875
AA- 1,000,000 Merrill Lynch Notes 7.25% 6/14/04 998,982 1,005,750
BBB 1,000,000 ConAgra, Inc. Sub. Notes 7.4% 9/15/04 1,000,000 1,019,764
A- 600,000 General Motors Acceptance Corp. Debs. 6.625% 10/15/05 596,996 583,056
BB 500,000 Dime Savings 10.5% 11/15/05 537,671 543,750
AAA 1,000 Berkshire Hathaway, Inc. Debs. 9.75% 1/15/18 1,063 1,058
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Total Corporate Bonds 5,208,069 5,285,744
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MORTGAGE-BACKED SECURITIES -- 9.6%
AAA 50,657 Federal Home Loan Mtg. REMIC Planned Amortization 50,657 50,657
Class 9.0% 11/15/19 (Avg. Life 0.4 years)
AAA 73,487 Federal Natl. Mtg Assn. 11.0% 1/1/01 (Avg. Life 1.6 years) 75,225 76,427
AAA 86,006 Federal Home Loan Mtg. Corp. 9.5% 9/1/03 86,006 89,231
(Avg. Life 2.6 years)
AAA 500,000 Federal Natl. Mtg. Assn. REMIC Planned Amortization 485,258 481,094
Class 6.5% 10/25/18 (Avg. Life 6.8 years)
AAA 500,000 Federal Home Loan Mtg. Corp. REMIC Planned 490,030 480,469
Amortization Class 6.65% 9/15/21 (Avg. Life 7.5 years)
AAA 500,000 Federal Home Loan Mtg. Corp. REMIC Planned 495,167 483,594
Amortization Class 7.0% 7/15/21 (Avg. Life 11.3 years)
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Total Mortgage-Backed Securities 1,682,343 1,661,472
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TAXABLE MUNICIPAL BONDS -- 5.1%
AA+ 140,000 Missouri Hsg. Dev. Comm. 8.6% 9/1/05 140,907 140,700
AAA 250,000 Oklahoma Hsg. Fin. Auth. 8.7% 9/1/13 250,000 251,250
AAA 500,000 Oklahoma Hsg. Fin. Auth. 7.3% 12/1/14 500,000 493,085
------------ ------------
Total Taxable Municipal Bonds 890,907 885,035
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</TABLE>
5
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WEITZ SERIES FUND, INC. -- FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS IN SECURITIES, CONTINUED
<TABLE>
<CAPTION>
FACE
RATING AMOUNT COST VALUE
- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES -- 49.4%
AAA $ 100,125 U.S. Treasury Zero Coupon Receipts 2/15/97 $ 99,184 $ 99,462
AAA 100,100 U.S. Treasury Zero Coupon Receipts 2/15/98 94,021 93,741
AAA 99,960 U.S. Treasury Zero Coupon Receipts 2/15/99 88,166 87,850
AAA 200,000 Federal Home Loan Bank 6.0% 4/12/01 199,886 199,584
AAA 500,000 Federal Home Loan Mtg. Corp. 7.16% 5/16/01 501,277 500,700
AAA 500,000 Federal Home Loan Bank 6.50% 4/15/04 500,543 500,533
AAA 2,500,000 Federal Natl. Mtg. Assn. 7.55% 6/10/04 2,498,439 2,534,435
AAA 500,000 Federal Natl. Mtg. Assn. 8.05% 7/14/04 503,465 503,683
AAA 100,000 U.S. Treasury Note 8.25% 5/15/05 104,344 105,641
AAA 1,000,000 Federal Home Loan Mtg. Corp. 7.09% 6/1/05 1,002,536 995,544
AAA 500,000 Federal Home Loan Bank 6.44% 11/28/05 500,700 494,063
AAA 1,000,000 Federal Natl. Mtg. Assn. 6.64% 2/02/06 1,000,000 965,626
AAA 500,000 Federal Home Loan Mtg. Corp. 6.407% 2/22/06 496,579 480,603
AAA 1,000,000 Federal Home Loan Mtg. Corp. 6.77% 3/21/11 922,220 955,781
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Total U.S. Government and Agency Securities 8,511,360 8,517,246
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SHORT-TERM SECURITIES -- 4.1%
707,087 Norwest U.S. Government Money Market Fund 707,087 707,087
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Total Investments in Securities $ 16,999,766 17,056,584
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------------
Other Assets Less Liabilities -- 1.2% 206,484
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Total Net Assets -- 100% $ 17,263,068
------------
------------
Net Asset Value Per Share $ 10.788
------------
------------
</TABLE>
6
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WEITZ SERIES FUND, INC.
BOARD OF DIRECTORS
John W. Hancock
Richard D. Holland
Thomas R. Pansing, Jr.
Delmer L. Toebben
Wallace R. Weitz
OFFICERS
Wallace R. Weitz, President
Mary K. Beerling, Vice-President & Secretary
Linda L. Lawson, Vice-President
Richard F. Lawson, Vice-President
INVESTMENT ADVISER
Wallace R. Weitz & Company
DISTRIBUTOR
Weitz Securities, Inc.
CUSTODIAN
Norwest Bank Nebraska, N.A.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Wallace R. Weitz & Company
This report has been prepared for the information of shareholders of Weitz
Series Fund, Inc. -- Fixed Income Portfolio. For more detailed information about
the Fund, its investment objectives, management, fees and expenses, please see a
current prospectus. This report is not authorized for distribution to
prospective investors unless preceded or accompanied by a current prospectus.
