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| Board of Directors | ||
| Lorraine Chang | ||
| 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 | ||
| Wells Fargo Bank Minnesota, | ||
| National Association | ||
| Transfer Agent and Dividend Paying Agent |
| Wallace R. Weitz & Company |
| Sub-Transfer Agent |
| National Financial Data Services, Inc. |
| This report has been prepared for the information of shareholders of Weitz Series Fund, Inc. — Value Fund. 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. | ||
| 11/01/2000 |
Value Fund
SEMI-ANNUAL
One Pacific Place, Suite 600
402-391-1980
www.weitzfunds.com
| Performance Since Inception | ||||||||
| Portfolio Manager’s Letter | ||||||||
| Schedule of Investments in Securities | ||||||||
| Financial Statements | ||||||||
| Notes to Financial Statements | ||||||||
A long-term perspective on the Value Fund’s performance is shown below. The table below shows how an investment of $25,000 in the Value Fund at its inception would have grown over the years (after deducting all fees and expenses and assuming reinvestment of all dividends). The table also sets forth average annual total return data for the Value Fund for the one, five and ten year periods ended September 30, 2000 calculated in accordance with SEC standardized formulas.
| Value of | Value of | Value of | ||||||||||||||||||||
| Initial | Cumulative | Cumulative | Total | Annual | ||||||||||||||||||
| $25,000 | Capital Gain | Reinvested | Value of | Rate of | ||||||||||||||||||
| Period Ended | Investment | Distributions | Dividends | Shares | Return | |||||||||||||||||
| May 9, 1986 | $ | 25,000 | $ | — | $ | — | $ | 25,000 | — | % | ||||||||||||
| Dec. 31, 1986 | 25,863 | — | — | 25,863 | 3.5 | † | ||||||||||||||||
| Dec. 31, 1987 | 24,253 | 264 | 1,205 | 25,722 | -0.5 | |||||||||||||||||
| Dec. 31, 1988 | 27,430 | 299 | 2,223 | 29,952 | 16.5 | |||||||||||||||||
| Dec. 31, 1989 | 30,763 | 2,103 | 3,701 | 36,567 | 22.1 | |||||||||||||||||
| Dec. 31, 1990 | 28,040 | 2,112 | 4,500 | 34,652 | -5.2 | |||||||||||||||||
| Dec. 31, 1991 | 33,940 | 3,811 | 6,475 | 44,226 | 27.6 | |||||||||||||||||
| Dec. 31, 1992 | 36,350 | 6,019 | 7,884 | 50,253 | 13.6 | |||||||||||||||||
| Dec. 31, 1993 | 42,010 | 9,114 | 9,199 | 60,323 | 20.0 | |||||||||||||||||
| Dec. 31, 1994 | 36,075 | 10,414 | 7,899 | 54,388 | -9.8 | |||||||||||||||||
| Dec. 31, 1995 | 45,955 | 17,447 | 11,855 | 75,257 | 38.4 | |||||||||||||||||
| Dec. 31, 1996 | 51,478 | 24,054 | 13,792 | 89,324 | 18.7 | |||||||||||||||||
| Dec. 31, 1997 | 62,878 | 42,824 | 18,398 | 124,100 | 38.9 | |||||||||||||||||
| Dec. 31, 1998 | 72,675 | 65,163 | 22,181 | 160,019 | 28.9 | |||||||||||||||||
| Dec. 31, 1999 | 82,700 | 83,540 | 27,328 | 193,568 | 21.0 | |||||||||||||||||
| Sept. 30, 2000 | 83,525 | 98,545 | 28,312 | 210,382 | 8.7 | †† | ||||||||||||||||
The fund’s average annual total return for the one, five and ten year periods ending September 30, 2000, was 16.2%, 23.8% and 20.2%, 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 $68,054, and the total amount of income distributions reinvested was $13,591. This information represents past performance of the fund 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 the Weitz Funds at the address listed on the front cover.
| † | Return is for the period 5/9/86 through 12/31/86 |
| †† | Return is for the period 1/01/00 through 9/30/00 |
2
October 12, 2000
Dear Fellow Shareholder:
The 3rd quarter of 2000 was a good one for the Value Fund in both relative and absolute terms. Our total return (income plus appreciation, after deducting expenses) was a gain of +10.3%. This compares to losses of -1.0% for the S&P 500 Index of large company stocks and +1.1% for the Russell 2000 Index of smaller company stocks. This brings our gain for the first 9 months of 2000 to +8.7% vs. -1.4% for the S&P and +4.2% for the Russell 2000. The table below shows the performance of the fund, the S&P 500, the Russell 2000, and our peer group of funds (according to Lipper Analytical Services) for various intervals over the past 10 years. (Performance numbers are after deducting fees and expenses from the fund and assume reinvestment of dividends.)
| 1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
| Value Fund | 16.2 | % | 22.2 | % | 23.8 | % | 20.2 | % | ||||||||
| S&P 500 Index | 13.3 | 16.4 | 21.7 | 19.4 | ||||||||||||
| Russell 2000 Index | 23.4 | 6.0 | 12.4 | 16.9 | ||||||||||||
| Average Growth and Income Fund | 13.9 | 10.8 | 16.9 | 16.5 | ||||||||||||
Market Commentary and Portfolio Review
In many ways the 3rd quarter of 2000 was a continuation of the 2nd quarter: declines in cable and telecom, severe punishment for companies whose short-term earnings did not live up to Wall Street’s expectations, and a rebound in financial services and real estate.
Technology and telecommunications stocks had something of an “emperor’s new clothes” moment in mid-March. This was almost literally true for some of the new “dot-com” companies that had no clear path to profitability but a high “burn rate” of their initial capital. Venture capitalists withdrew promises of additional funding and Wall Street’s Initial Public Offering (IPO) window slammed shut. Some of these companies have already failed, and many others have seen the prices of their stocks fall by 50-95%.
Funding for telecommunications “infrastructure” plays and new competitive telecom services providers has also become scarcer. Equity and “high yield” (junk) bond financing has been unavailable to most issuers, and capital spending plans are being reassessed. This is potentially devastating for ambitious startups that need billions of dollars to complete their “build it and they will come” projects.
Then there are some terrific companies, such as Cisco, that are doing very well, but whose stock prices were pushed up to such heights that some correction was inevitable. These stocks are widely held by mutual funds and other institutional investors, and their softness has shaken the confidence of many investors.
3
We had no trouble avoiding the dot-coms, and could not make ourselves pay the asking prices of the Cisco’s. However, our performance has been hurt by the generalized weakness in established telecom stocks (e.g. Telephone and Data Systems and Citizens Communications) and sponsors of ambitious startups (e.g. Adelphia Cable is the parent of Adelphia Business Solutions, a new competitive local exchange carrier, or CLEC). We believe that these companies are sound and that their investments in new ventures do not threaten the well- being of the parents, but the stocks are depressed and may stay that way until the telecom glass is (at least) half full again.
The second factor affecting 3rd quarter results is the impact of “momentum investors” (an oxymoron, in my opinion) on several of our stocks. At least twenty years ago, certain growth stock investors began to study changes in the rate of change of companies’ revenues and profits. The idea was that if the growth rate was accelerating (or decelerating), the investor could get an early warning of a new growth spurt (or trouble ahead). This was a sensible idea for identifying stocks for further study, but in typical Wall St. fashion, it has been carried to an extreme. Today, a whole branch of the investment world buys and sells stocks on the basis of changes in earnings estimates by Wall St. analysts—not whether the stock is expensive or cheap based on its earnings or any other criteria.
We own several companies in stable, growing industries, that have suffered some very mild, temporary earnings disappointments, but whose stocks have been trashed as if they were failed technology companies. Valassis Communications (VCI) sells coupon advertising in local newspapers. It enjoys a cozy duopoly with News Corp., earns very high returns on invested capital, and has grown for years at 12-15% per year. Last year its growth rate jumped (temporarily) to about 20%, and when the company warned that the growth rate would fall back to only 12-15%, investors panicked. The shares, which had sold at $45 a year ago, fell to under $21 and finished the quarter at $22. With earnings per share estimated at $2.25 for this year and $2.50 next, and recognizing that almost all of reported earnings represent free cash flow, we believe the stock is significantly undervalued.
Similarly, Six Flags (cold, wet summer), Mail-Well (soft product prices and interest costs), and Insurance Auto Auctions (startup costs and execution lapses) delivered slightly disappointing results and their stocks have fallen 50-70% from their highs. In each case, we think investors have over-reacted and that the stocks are selling at large discounts from their business values.
Finally, in the good news column, “interest-sensitive” stocks, such as financial services and real estate, continued to rebound strongly from their March lows. The prices of many of these companies are up 50% and a few have risen 100% in the last 6-7 months. For the most part, we are dealing with slow-growth businesses in these sectors. Thrifts (savings and loan companies) suffer from several competitive disadvantages. Large mortgage companies (Countrywide, Wells Fargo) can originate and service loans more efficiently. Fannie Mae and Freddie Mac have lower cost of funds and can finance mortgages more cheaply. Finally, thrifts depend on continuing to gather low cost deposits from relatively unsophisticated investors, and the competition for these funds is fierce.
4
However, when we were able to buy solid thrifts with very little credit risk at 5-8 times current earnings per share, we thought the risk/reward ratio was very good.
Similarly, since real estate investment trusts like Host Marriott pay out most of their earnings in dividends, they have little to reinvest to grow their property portfolios. Thus, most of their growth comes from gradual price increases and improvements in occupancy, and it is difficult to expect more than about 5% per year growth in earnings and dividends. However, 5% growth with an 8-10% cash dividend yield suggests 13-15% average annual total returns. If we can buy the stocks at depressed prices and hold them until they return to “normal” valuation levels, we can enjoy additional appreciation.
These “low expectation” stocks have returned to more normal levels over the past several months, so we would not expect further dramatic gains. However, all of them are growing modestly and most pay reasonable dividends, so we expect them to serve us well if the general market continues to punish “high-expectation” stocks that disappoint.
Outlook
Over the past several years, I have been complaining about a “two-tier” market in which a few popular growth stocks have attracted more than their share of investment capital, at the expense of the rest of the public companies. There are signs that the top tier is faltering, and that investors are looking to the second tier for bargains and places of refuge. This is positive for us.
The correction that is underway could go on for several quarters (or years), and as unjust as it may seem, our cheap stocks may get cheaper—temporarily—in the process. However, I am optimistic about our portfolio, and I believe it will produce very reasonable returns for us over the years.
Sincerely, Wallace R. Weitz Portfolio Manager |
||||
5
| Shares | ||||||||||||
| or units | Cost | Value | ||||||||||
| COMMON STOCKS — 83.3% | ||||||||||||
| Auto Services — 0.4% | ||||||||||||
| 645,100 | Insurance Auto Auctions, Inc.* | $ | 7,525,098 | $ | 10,442,556 | |||||||
|
Banking — 21.5% |
||||||||||||
| 415,500 | Astoria Financial Corp. | 12,646,868 | 16,048,688 | |||||||||
| 1,663,420 | Commercial Federal Corp. | 34,640,064 | 31,812,907 | |||||||||
| 67,500 | First Federal Bankshares, Inc. | 672,813 | 586,406 | |||||||||
| 5,749,900 | Golden State Bancorp, Inc. | 107,092,904 | 135,841,387 | |||||||||
| 4,388,500 | Greenpoint Financial Corp. | 108,392,519 | 130,009,313 | |||||||||
| 367,300 | Local Financial Corp.* | 3,387,722 | 3,489,350 | |||||||||
| 5,604,500 | North Fork Bancorporation, Inc. | 98,290,374 | 121,197,313 | |||||||||
| 244,000 | Port Financial Corp.* | 2,687,610 | 4,331,000 | |||||||||
| 1,764,200 | U.S. Bancorp | 41,543,851 | 40,135,550 | |||||||||
| 3,487,602 | Washington Mutual, Inc. | 100,947,340 | 138,850,155 | |||||||||
| 510,302,065 | 622,302,069 | |||||||||||
|
Cable Television — 5.0% |
||||||||||||
| 4,282,633 | Adelphia Communications Corp. CL A* | 134,426,078 | 118,040,072 | |||||||||
| 1,766,200 | Insight Communications Co.* | 24,469,001 | 28,038,425 | |||||||||
| 158,895,079 | 146,078,497 | |||||||||||
|
Consumer Products and Services — 2.3% |
||||||||||||
| 683,400 | American Classic Voyages Co.* | 11,297,188 | 9,994,725 | |||||||||
| 4,875 | Lady Baltimore Foods, Inc. CL A | 227,781 | 234,609 | |||||||||
| 2,744,000 | Protection One, Inc.* | 14,948,651 | 3,773,000 | |||||||||
| 3,294,600 | Six Flags, Inc.* | 59,858,971 | 51,066,300 | |||||||||
| 86,332,591 | 65,068,634 | |||||||||||
|
Federal Agencies — 1.9% |
||||||||||||
| 1,140,400 | USA Education, Inc. | 33,920,583 | 54,953,025 | |||||||||
6
| Shares | ||||||||||||
| or units | Cost | Value | ||||||||||
|
Financial Services — 7.8% |
||||||||||||
| 743,800 | Allied Capital Corp. | $ | 12,603,120 | $ | 15,433,850 | |||||||
| 227,100 | American Capital Strategies, Ltd. | 3,860,700 | 5,379,431 | |||||||||
| 585 | Berkshire Hathaway, Inc. CL A* | 25,010,024 | 37,674,000 | |||||||||
| 66,917 | Berkshire Hathaway, Inc. CL B* | 129,904,212 | 138,518,190 | |||||||||
| 2,835,500 | Imperial Credit Industries, Inc.* | 37,083,542 | 4,519,078 | |||||||||
| 340,450 | The PMI Group, Inc. | 9,654,280 | 23,065,487 | |||||||||
| 300,000 | United Panam Financial Corp.* | 2,019,813 | 365,625 | |||||||||
| 220,135,691 | 224,955,661 | |||||||||||
|
Health Care — 0.2% |
||||||||||||
| 608,350 | LabOne, Inc. | 8,035,870 | 5,703,281 | |||||||||
| 40,900 | Lincare Holdings, Inc.* | 1,012,280 | 1,173,319 | |||||||||
| 9,048,150 | 6,876,600 | |||||||||||
|
Information and Data Processing — 0.0% |
||||||||||||
| 180,000 | Intelligent Systems Corp. | 380,869 | 742,500 | |||||||||
|
Lodging and Gaming — 6.6% |
||||||||||||
| 1,477,200 | Extended Stay America, Inc.* | 9,160,888 | 19,572,900 | |||||||||
| 546,000 | Harrah’s Entertainment, Inc.* | 7,985,042 | 15,015,000 | |||||||||
| 7,594,900 | Hilton Hotels Corp. | 71,147,500 | 87,816,031 | |||||||||
| 4,491,500 | Park Place Entertainment Corp.* | 30,454,203 | 67,933,938 | |||||||||
| 118,747,633 | 190,337,869 | |||||||||||
|
Media and Entertainment — 4.6% |
||||||||||||
| 4,497,500 | AT&T Corp. – Liberty Media Group A* | 42,271,197 | 80,955,000 | |||||||||
| 58,700 | Daily Journal Corp.* | 1,306,716 | 1,680,288 | |||||||||
| 61,318 | Gabelli Global Multimedia Trust, Inc. | 551,391 | 827,793 | |||||||||
| 2,179,300 | Valassis Communications, Inc.* | 47,706,014 | 48,489,425 | |||||||||
| 91,835,318 | 131,952,506 | |||||||||||
7
| Shares | ||||||||||||
| or units | Cost | Value | ||||||||||
|
Mortgage Banking — 5.9% |
||||||||||||
| 4,357,700 | Countrywide Credit Industries, Inc. | $ | 143,597,170 | $ | 164,503,175 | |||||||
| 1,380,400 | Resource Bancshares Mtg. Grp., Inc. | 18,271,246 | 7,851,025 | |||||||||
| 161,868,416 | 172,354,200 | |||||||||||
|
Printing Services — 0.6% |
||||||||||||
| 3,948,600 | Mail-Well, Inc.* | 41,492,073 | 17,521,913 | |||||||||
|
Real Estate and Construction — 2.9% |
||||||||||||
| 3,615,100 | Catellus Development Corp.* | 46,508,516 | 63,264,250 | |||||||||
| 545,600 | Forest City Enterprises, Inc. CL A | 11,075,278 | 19,641,600 | |||||||||
| 57,583,794 | 82,905,850 | |||||||||||
|
Real Estate Investment Trusts — 7.8% |
||||||||||||
| 1,571,500 | Capital Automotive REIT | 20,768,123 | 20,429,500 | |||||||||
| 416,000 | Dynex Capital, Inc.* | 11,646,215 | 546,000 | |||||||||
| 1,337,980 | Fortress Investment Corp. | 24,369,219 | 20,069,700 | |||||||||
| 301,300 | Hanover Capital Mortgage Holdings, Inc. | 3,265,468 | 1,506,500 | |||||||||
| 62,805 | Healthcare Financial Partners Units** | 6,264,799 | 5,332,145 | |||||||||
| 13,725,700 | Host Marriott Corp. | 123,808,283 | 154,414,125 | |||||||||
| 465,000 | IMPAC Mortgage Holdings, Inc. | 6,507,830 | 1,255,500 | |||||||||
| 475,000 | NovaStar Financial, Inc.* | 7,282,611 | 1,840,625 | |||||||||
| 1,381,117 | Redwood Trust, Inc. | 30,860,027 | 21,062,034 | |||||||||
| 234,772,575 | 226,456,129 | |||||||||||
|
Restaurants — 0.6% |
||||||||||||
| 275,000 | Applebee’s International | 6,278,711 | 6,325,000 | |||||||||
| 109,400 | CBRL Group, Inc. | 1,444,285 | 1,572,625 | |||||||||
| 416,000 | Papa John’s International, Inc.* | 9,325,501 | 10,426,000 | |||||||||
| 17,048,497 | 18,323,625 | |||||||||||
|
Retail Discount — 1.6% |
||||||||||||
| 3,345,000 | Consolidated Stores Corp.* | 47,723,929 | 45,157,500 | |||||||||
8
| Shares | |||||||||||||
| or units | Cost | Value | |||||||||||
|
Satellite Services — 0.4% |
|||||||||||||
| 1,317,300 | Orbital Sciences Corp.* | $ | 17,920,702 | $ | 11,032,387 | ||||||||
| Telecommunications — 10.9% AT&T Corp. | 64,647,142 | 59,778,125 | |||||||||||
| 2,035,000 | Centennial Communications Corp.* | 3,721,762 | 20,438,000 | ||||||||||
| 929,000 | Citizens Communications Co.* | 76,667,584 | 98,779,063 | ||||||||||
| 7,351,000 | Corecomm, Ltd.* | 1,442,028 | 3,624,262 | ||||||||||
| 456,600 | Telephone and Data Systems, Inc. | 48,693,177 | 131,102,010 | ||||||||||
| 1,184,300 | United States Cellular Corp.* | 1,794,528 | 2,667,000 | ||||||||||
| 38,100 | |||||||||||||
196,966,221 |
316,388,460 |
||||||||||||
| Utilities — 2.3% Empire District Electric Co. | 615,996 | 632,625 | |||||||||||
| 24,100 | Western Resources, Inc. | 69,492,344 | 67,171,575 | ||||||||||
| 3,106,200 | |||||||||||||
70,108,340 |
67,804,200 |
||||||||||||
| Total Common Stocks | 2,082,607,624 |
2,411,654,181 |
|||||||||||
| WARRANTS — 0.0% NovaStar Financial, Inc., Expiring 2/03/01* | 175,000 | 350 | |||||||||||
| 350,000 | |||||||||||||
| CONVERTIBLE PREFERRED STOCKS — 0.4% NovaStar Financial, Inc. 7% Pfd. Class B Cumulative | 13,911,099 | 11,991,000 | |||||||||||
| 2,100,000 | |||||||||||||
| NON-CONVERTIBLE PREFERRED STOCKS — 0.0% Crown American Realty Trust 11.0% Pfd. Series A | 667,500 | 577,500 | |||||||||||
| 15,000 | Prime Retail, Inc. 10.5% Pfd. Series A | 645,000 | 205,313 | ||||||||||
| 30,000 | RB Asset, Inc. 15.0% Pfd. Series A | 845,750 | 510,000 | ||||||||||
| 34,000 | |||||||||||||
| Total Non-Convertible Preferred Stocks | 2,158,250 |
1,292,813 |
|||||||||||
9
| Face | |||||||||||||
| amount | Cost | Value | |||||||||||
| CORPORATE BONDS — 0.2% | |||||||||||||
| $ | 4,500,000 | USA Networks, Inc. 7.0% 7/01/03 | $ | 4,439,701 | $ | 4,494,375 | |||||||
| 750,000 | Local Financial Corp. 11.0% 9/08/04 | 750,000 | 750,000 | ||||||||||
| 2,000,000 | Harcourt General 6.5% 5/15/11 | 1,947,029 | 1,730,000 | ||||||||||
| Total Corporate Bonds | 7,136,730 | 6,974,375 | |||||||||||
|
U.S. GOVERNMENT AND AGENCY SECURITIES — 2.6% |
|||||||||||||
| 40,000,000 | Freddie Mac 5.0% 2/15/01 | 39,873,269 | 39,767,520 | ||||||||||
| 25,000,000 | Fannie Mae 5.88% 3/25/04 | 24,848,434 | 24,418,625 | ||||||||||
| 3,000,000 | Federal Home Loan Bank 6.04% 9/08/05 | 3,000,000 | 2,899,731 | ||||||||||
| 1,000,000 | Federal Home Loan Bank 6.44% 11/28/05 | 1,000,852 | 994,525 | ||||||||||
| 6,000,000 | Fannie Mae 6.56% 11/26/07 | 6,000,000 | 5,813,562 | ||||||||||
| Total U.S. Government and Agency Securities | 74,722,555 | 73,893,963 | |||||||||||
|
SHORT-TERM SECURITIES — 12.9% |
|||||||||||||
| 47,242,127 | Wells Fargo Government Money Market Fund | 47,242,127 | 47,242,127 | ||||||||||
| 25,000,000 | Freddie Mac Discount Note 10/12/00 | 24,951,073 | 24,955,150 | ||||||||||
| 24,000,000 | U.S. Treasury Bill 10/12/00 | 23,956,216 | 23,961,864 | ||||||||||
| 24,000,000 | U.S. Treasury Bill 10/19/00 | 23,931,000 | 23,934,600 | ||||||||||
| 15,000,000 | Freddie Mac Discount Note 10/31/00 | 14,920,000 | 14,921,940 | ||||||||||
| 20,000,000 | Federal Home Loan Bank Discount Note 11/24/00 | 19,808,900 | 19,810,380 | ||||||||||
| 50,000,000 | U.S. Treasury Bill 11/24/00 | 49,547,750 | 49,559,800 | ||||||||||
| 25,000,000 | Fannie Mae Discount Note 11/30/00 | 24,734,167 | 24,736,150 | ||||||||||
| 21,000,000 | U.S. Treasury Bill 11/30/00 | 20,788,250 | 20,794,872 | ||||||||||
| 25,000,000 | Federal Home Loan Bank Discount Note 12/08/00 | 24,699,667 | 24,701,300 | ||||||||||
| 50,000,000 | Freddie Mac Discount Note 12/14/00 | 49,344,792 | 49,349,100 | ||||||||||
10
| Face | |||||||||||||
| amount | Cost | Value | |||||||||||
|
SHORT-TERM SECURITIES (Continued) |
|||||||||||||
| $ | 20,000,000 | Fannie Mae Discount Note 1/10/01 | $ | 19,642,011 | $ | 19,643,880 | |||||||
| 30,000,000 | U.S. Treasury Bill 1/11/01 | 29,488,725 | 29,493,330 | ||||||||||
| Total Short-Term Securities | 373,054,678 | 373,104,493 | |||||||||||
| Total Investments in Securities | $ | 2,553,765,936 | 2,878,911,175 | ||||||||||
| Other Assets Less Liabilities — 0.6% | 17,917,039 | ||||||||||||
| Total Net Assets — 100% | $ | 2,896,828,214 | |||||||||||
| Net Asset Value Per Share | $ | 33.41 | |||||||||||
| ** | Each unit, which is restricted as to sale, consists of five shares of common stock and one stock purchase warrant. The company distributed an additional warrant per unit to unitholders during 1998. The warrants currently have no value or cost assigned to them. |
11
| Assets: | ||||||
| Investment in securities at value (cost $2,553,765,936) | $ | 2,878,911,175 | ||||
| Accrued interest and dividends receivable | 6,303,401 | |||||
| Receivable for securities sold | 29,885,805 | |||||
| Total assets | 2,915,100,381 | |||||
| Liabilities: | ||||||
| Due to adviser | 2,505,341 | |||||
| Payable for securities purchased | 15,434,126 | |||||
| Other expenses | 332,700 | |||||
| Total liabilities | 18,272,167 | |||||
| Net assets applicable to outstanding capital stock | $ | 2,896,828,214 | ||||
| Net assets represented by: | ||||||
| Paid-in capital (note 4) | 2,465,999,371 | |||||
| Accumulated undistributed net investment income | 20,074,597 | |||||
| Accumulated undistributed net realized gains | 85,609,007 | |||||
| Net unrealized appreciation of investments | 325,145,239 | |||||
| Total representing net assets applicable to shares outstanding | $ | 2,896,828,214 | ||||
| Net asset value per share of outstanding capital stock | ||||||
| (86,700,879 shares outstanding) | $ | 33.41 | ||||
12
| Investment income: | ||||||||||
| Dividends | $ | 24,705,264 | ||||||||
| Interest | 10,248,788 | |||||||||
| Total investment income | 34,954,052 | |||||||||
| Expenses: | ||||||||||
| Investment advisory fee | 13,223,875 | |||||||||
| Administrative fee | 927,548 | |||||||||
| Directors fees | 20,708 | |||||||||
| Other expenses | 680,792 | |||||||||
| Total expenses | 14,852,923 | |||||||||
| Net investment income | 20,101,129 | |||||||||
| Realized and unrealized gain on investments: | ||||||||||
| Net realized gain on securities | 85,952,923 | |||||||||
| Net unrealized appreciation of investments | 204,632,325 | |||||||||
| Net realized and unrealized gain on investments | 290,585,248 | |||||||||
| Net increase in net assets resulting from operations | $ | 310,686,377 | ||||||||
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| Six months ended | |||||||||||
| Sept. 30, 2000 | Year ended | ||||||||||
| (Unaudited) | March 31, 2000 | ||||||||||
| Increase in net assets: | |||||||||||
| From operations: | |||||||||||
| Net investment income | $ | 20,101,129 | $ | 32,488,809 | |||||||
| Net realized gain | 85,952,923 | 251,896,171 | |||||||||
| Net unrealized appreciation (depreciation) | 204,632,325 | (119,706,379 | ) | ||||||||
| Net increase in net assets resulting from operations | 310,686,377 | 164,678,601 | |||||||||
| Distributions to shareholders from: | |||||||||||
| Net investment income | (8,869,800 | ) | (27,983,268 | ) | |||||||
| Net realized gains | (176,611,060 | ) | (121,700,923 | ) | |||||||
| Total distributions | (185,480,860 | ) | (149,684,191 | ) | |||||||
| Capital share transactions: | |||||||||||
| Proceeds from sales | 416,329,254 | 1,857,579,347 | |||||||||
| Payments for redemptions | (290,594,909 | ) | (1,230,245,336 | ) | |||||||
| Reinvestment of distributions | 174,672,271 | 137,856,163 | |||||||||
| Total increase from capital share transactions | 300,406,616 | 765,190,174 | |||||||||
| Total increase in net assets | 425,612,133 | 780,184,584 | |||||||||
| Net assets: | |||||||||||
| Beginning of period | 2,471,216,081 | 1,691,031,497 | |||||||||
| End of period (including undistributed investment income | |||||||||||
| of $20,074,597 and $8,843,269, respectively) | $ | 2,896,828,214 | $ | 2,471,216,081 | |||||||
14
The following information provides selected data for a share of the Value Fund outstanding throughout the periods indicated.
| Six months | ||||||||||||||||||||||||||
| ended | Year ended March 31, | |||||||||||||||||||||||||
| Sept. 30, 2000 | ||||||||||||||||||||||||||
| (Unaudited) | 2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||||||||||||
| Net asset value, beginning of | ||||||||||||||||||||||||||
| period | $ | 32.00 | $ | 31.02 | $ | 29.31 | $ | 20.99 | $ | 19.46 | $ | 15.55 | ||||||||||||||
| Income from investment | ||||||||||||||||||||||||||
| operations: | ||||||||||||||||||||||||||
| Net investment income | 0.23 | 0.38 | 0.27 | 0.22 | 0.18 | 0.16 | ||||||||||||||||||||
| Net gains on securities | ||||||||||||||||||||||||||
| (realized and unrealized) | 3.54 | 2.64 | 4.62 | 11.02 | 2.58 | 5.25 | ||||||||||||||||||||
| Total from investment | ||||||||||||||||||||||||||
| operations | 3.77 | 3.02 | 4.89 | 11.24 | 2.76 | 5.41 | ||||||||||||||||||||
| Less distributions: | ||||||||||||||||||||||||||
| Dividends from net | ||||||||||||||||||||||||||
| investment income | (0.11 | ) | (0.37 | ) | (0.17 | ) | (0.31 | ) | (0.13 | ) | (0.42 | ) | ||||||||||||||
| Distributions from realized | ||||||||||||||||||||||||||
| gains | (2.25 | ) | (1.67 | ) | (3.01 | ) | (2.61 | ) | (1.10 | ) | (1.08 | ) | ||||||||||||||
| Total distributions | (2.36 | ) | (2.04 | ) | (3.18 | ) | (2.92 | ) | (1.23 | ) | (1.50 | ) | ||||||||||||||
| Net asset value, end of period | $ | 33.41 | $ | 32.00 | $ | 31.02 | $ | 29.31 | $ | 20.99 | $ | 19.46 | ||||||||||||||
| Total return | 12.4% | † | 9.7% | 18.0% | 58.8% | 14.3% | 35.9% | |||||||||||||||||||
| Ratios/supplemental data: | ||||||||||||||||||||||||||
| Net assets, end of period | ||||||||||||||||||||||||||
| ($000) | $ | 2,896,828 | $ | 2,471,216 | $ | 1,691,031 | $ | 448,276 | $ | 275,597 | $ | 170,509 | ||||||||||||||
| Ratio of expenses to | ||||||||||||||||||||||||||
| average net assets | 1.12% | * | 1.19% | 1.26% | 1.27% | 1.29% | 1.35% | |||||||||||||||||||
| Ratio of net investment | ||||||||||||||||||||||||||
| income to average net assets | 1.52% | * | 1.39% | 1.35% | 0.87% | 0.93% | 0.91% | |||||||||||||||||||
| Portfolio turnover rate | 13% | † | 31% | 36% | 39% | 39% | 40% | |||||||||||||||||||
* Annualized
The accompanying notes form an integral part of these financial statements.
15
(1) Organization
| Weitz Series Fund, Inc. (the “Company”), is registered under the Investment Company Act of 1940 as an open-end diversified management investment company issuing shares in series, each series representing a distinct portfolio with its own investment objectives and policies. At September 30, 2000, the Company had four series: the Value Fund, the Fixed Income Fund, the Government Money Market Fund, and the Hickory Fund. The accompanying financial statements present the financial position and results of operations of the Value Fund (the “Fund”). | |
| The Fund’s investment objective is capital appreciation. The Fund invests principally in common stocks, preferred stocks and a variety of securities convertible into equity such as rights, warrants, preferred stocks and convertible bonds. |
(2) Significant Accounting Policies
| The following accounting policies are in accordance with accounting policies generally accepted in the investment company industry. | |
| (a) Valuation of Investments |
| Investments are carried at value determined using the following valuation methods: |
| • | 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 ask prices. | |
| • | Securities not listed on an exchange are valued at the mean between the latest available and representative bid and ask prices. | |
| • | 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. | |
| • | 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. |
| When the Fund writes a call option, an amount equal to the premium received by the Fund is included in the Fund’s statement of assets and liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option |
16
| written. The current market value of a traded option is the last sales price on the principal exchange on which such option is traded, or, in the absence of such sale, the latest ask quotation. When an option expires on its stipulated expiration date or the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was sold) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. When a call option is exercised, the Fund realizes a gain or loss from the sale of the underlying security and the proceeds from such sale are increased by the premium originally received. Although no call options were written in the six months ended September 30, 2000, such options are authorized. | |
| The risk in writing a call option is that the Fund gives up the opportunity of profit if the market price of the security increases. The Fund also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. |
| (b) Federal Income Taxes |
| Since the Fund’s policy is to comply with all sections of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders, no provision for income or excise taxes is required. | |
| Net investment income and net realized gains may differ for financial statement and tax purposes. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for Federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains were recorded by the Fund. |
| (c) Security Transactions and Distributions to Shareholders |
| Security transactions are accounted for on the date the securities are purchased or sold (trade date). Income dividends and dividends on short positions are recorded on the ex-dividend date. Interest, including amortization of discount or premium, is accrued as earned. Distributions to shareholders are recorded on the ex-dividend date. | |
| Realized gains or losses are determined by specifically identifying the security sold. |
| (d) Use of Estimates |
| The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the period. Actual results could differ from those estimates. |
| (e) Securities Sold Short |
| The Fund periodically engages in selling securities short, which obligates the Fund to replace a security borrowed by purchasing the same security at the current market value. The Fund would incur a loss if the price of the security increases between the date of the |
17
| short sale and the date on which the Fund replaces the borrowed security. The Fund would realize a gain if the price of the security declines between those dates. | |
| The Fund is required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale. 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. |
(3) Related Party Transactions
| The Company and Fund have retained Wallace R. Weitz & Company (the “Adviser”) as their investment adviser. In addition, the Company has an agreement with Weitz Securities, Inc. to act as distributor for the Fund’s shares. Certain officers and directors of the Company are also officers and directors of the Adviser and Weitz Securities, Inc. | |
| Under the terms of a management and investment advisory agreement, the Adviser receives an investment advisory fee equal to 1% per annum of the Fund’s average daily net asset value. The Adviser has agreed to reimburse the Fund up to the amount of advisory fees paid to the extent that total expenses exceed 1.50% of the Fund’s average annual daily net asset value. The expenses incurred by the Fund did not exceed the percentage limitation during the six months ended September 30, 2000. | |
| Under the terms of an administration agreement, certain services are being provided including the transfer of shares, disbursement of dividends, fund accounting and related administrative services of the Company for which the Adviser is being paid a monthly fee. During the six months ended September 30, 2000, the fee was calculated at an average annual rate of 0.07% of the Fund’s average daily net assets. | |
| Weitz Securities, Inc. as distributor, received no compensation for distribution of Fund shares. |
(4) Capital Stock
| The Company is authorized to issue a total of five billion shares of common stock in series with a par value of $.001. One hundred fifty million of these shares have been authorized by the Board of Directors to be issued in the series designated Value Fund. The Board of Directors may authorize additional shares in other series of the Company’s shares without shareholder approval. Each share of stock will have a pro rata interest in the assets of the series to which the stock of that series relates and will have no interest in the assets of any other series. |
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| Transactions in the capital stock of the Fund are summarized as follows: |
| Six months ended | ||||||||||
| Sept. 30, 2000 | Year ended | |||||||||
| (Unaudited) | March 31, 2000 | |||||||||
| Transactions in shares: | ||||||||||
| Shares issued | 12,889,592 | 56,874,094 | ||||||||
| Shares redeemed | (9,032,386 | ) | (38,377,112 | ) | ||||||
| Reinvested dividends | 5,627,328 | 4,196,062 | ||||||||
| Net increase | 9,484,534 | 22,693,044 | ||||||||
(5) Securities Transactions
| Purchases and proceeds from maturities or sales of investment securities of the Fund, other than short-term securities, aggregated $303,143,339 and $400,186,480 respectively. The cost of investments for Federal income tax purposes is $2,553,951,412. At September 30, 2000, the aggregate gross unrealized appreciation and depreciation, based on cost for Federal income tax purposes, were $497,526,490 and $172,566,727, respectively. |
(6) Affiliated Issuers
| Affiliated issuers, as defined under the Investment Company Act of 1940, are those in which the Fund’s holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of the Fund’s holdings in the securities of such issuers is set forth below: |
| Number of | |||||||||||||||||
| Shares or | |||||||||||||||||
| Units Held | Value | Dividend | Realized | ||||||||||||||
| Name of Issuer | Sept. 30, 2000 | Sept. 30, 2000 | Income | Gains/(Losses) | |||||||||||||
| Capital Automotive REIT | 1,571,500 | $ | 20,429,500 | $ | 1,158,981 | $ | — | ||||||||||
| Fortress Investment Corp. | 1,337,980 | 20,069,700 | 668,990 | — | |||||||||||||
| Hanover Capital Mortgage Holdings, Inc. | 301,300 | 1,506,500 | 78,338 | — | |||||||||||||
| Host Marriott Corp. | 13,725,700 | 154,414,125 | 6,095,168 | 475,878 | |||||||||||||
| Imperial Credit Industries, Inc. | 2,835,500 | 4,519,078 | — | — | |||||||||||||
| Insurance Auto Auctions, Inc. | 645,100 | 10,442,556 | — | — | |||||||||||||
| Mail-Well, Inc. | 3,948,600 | 17,521,913 | — | — | |||||||||||||
| NovaStar Financial, Inc. | 475,000 | 1,840,625 | — | — | |||||||||||||
| NovaStar Financial, Inc. Warrants, Expiring | |||||||||||||||||
| 2/03/01 | 350,000 | 350 | — | — | |||||||||||||
| NovaStar Financial, Inc. 7% Pfd Class B | |||||||||||||||||
| Cumulative | 2,100,000 | 11,991,000 | 514,500 | — | |||||||||||||
| Redwood Trust, Inc. | 1,381,117 | 21,062,034 | 1,075,316 | — | |||||||||||||
| Resource Bancshares Mtg. Grp., Inc. | 1,380,400 | 7,851,025 | 303,688 | — | |||||||||||||
| Totals | $ | 271,648,406 | $ | 9,894,981 | $ | 475,878 | |||||||||||
19
(7) Line of Credit
| A $40,000,000 unsecured line of credit has been made available to the Hickory and Value Funds of the Weitz Series Fund, Inc. and to the Partners Value Fund of the Weitz Partners, Inc. (collectively, the “Funds”). Borrowings under this arrangement bear interest, at the option of the Funds, at either (i) the prime rate of interest as announced by the lending bank (but not less than the Federal Funds Base Rate plus 0.50%) or (ii) the Federal Funds Base Rate plus 0.75%. The line of credit is available until December 14, 2000 when all outstanding advances are to be repaid. As compensation for holding available the lending commitment, the Funds will pay a 0.15% per annum fee of the maximum commitment payable in arrears on the last day of each quarter. The fee will initially be paid by the Hickory Fund until such time as the Value Fund and/or the Partners Value Fund have a need to access the line of credit at which time the allocation methodology will be re-evaluated. |
20
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