<PAGE>
- --------------------------------------------------------------------------------
WEITZ PARTNERS, INC.
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
Norwest Bank Minnesota, N.A.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Wallace R. Weitz & Company
This report has been prepared for the information of shareholders of Weitz
Partners, Inc. -- Partners 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.
PARTNERS VALUE FUND
SEMI-ANNUAL
REPORT
JUNE 30, 1998
ONE PACIFIC PLACE, SUITE 600
1125 SOUTH 103 STREET
OMAHA, NEBRASKA 68124-6008
402-391-1980
800-232-4161
402-391-2125 FAX
<PAGE>
HISTORICAL PERFORMANCE INFORMATION
The table below gives a long-term perspective of the Partners Value Fund (the
"Fund") and its predecessor, Weitz Partners II -- Limited Partnership (the
"Predecessor Partnership"). Performance numbers are after deducting all fees and
expenses and assume reinvestment of dividends. The Fund succeeded to
substantially all of the assets of the Predecessor Partnership, a Nebraska
investment limited partnership as of December 31, 1993. Wallace R. Weitz was
General Partner and portfolio manager for the Predecessor Partnership and is
portfolio manager for the Fund. The Fund's investment objectives and policies
are substantially identical to those of the Predecessor Partnership. The table
also sets forth average annual total return data for the Fund and the
Predecessor Partnership for the one, five and ten year periods ended June 30,
1998, calculated in accordance with SEC standardized formulas.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, PARTNERS II S&P 500
- ------------------------------------------ -------------- -----------
<S> <C> <C>
1983 (7 mos.) 9.9% 4.2%
1984 14.5 6.3
1985 40.7 31.7
1986 11.1 18.7
1987 4.3 5.3
1988 14.9 16.5
1989 20.3 31.6
1990 -6.3 -3.1
1991 28.1 30.2
1992 15.1 7.6
1993 23.0 10.1
<CAPTION>
PARTNERS VALUE
--------------
<S> <C> <C>
1994 -9.0 1.3
1995 38.7 37.5
1996 19.2 22.9
1997 40.6 33.4
1998 (6 mos.) 23.7 17.7
Cumulative 1,160.2 1,021.8
Average Annual Compound Growth
(Since inception June 1, 1983) 18.3 17.4
</TABLE>
Average annual total return for the Fund (inception 1/94) and for the
Predecessor Partnership (inception 6/83) for the one, five and ten year periods
ended June 30, 1998, was 49.3%, 24.0% and 18.7%, respectively. These returns
assume redemption at the end of each period.
This information represents past performance 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. The S&P 500 is an unmanaged index consisting of 500
companies. Information relating to the S&P 500 assumes reinvestment of
dividends. The performance data presented includes performance for the period
before the Fund became an investment company registered with the Securities and
Exchange Commission. During this time, the Fund was not registered under the
Investment Company Act of 1940 and therefore was not subject to certain
investment restrictions imposed by the 1940 Act. If the Fund had been registered
under the 1940 Act during this time period, the Fund's performance might have
been adversely affected. Additional information is available from the Weitz
Funds at the address listed on the front cover.
2
<PAGE>
WEITZ PARTNERS, INC. -- PARTNERS VALUE FUND
JUNE 30, 1998 - QUARTERLY REPORT
July 4, 1998
Dear Fellow Shareholder:
The 2nd quarter of 1998 was another good one for the Partners Value Fund.
Total return for the quarter was +6.1% (vs. +3.3% for the S&P 500). This brings
our first half return to +23.7% (vs. +17.7% for the S&P 500). The table below
shows the returns for our fund (after deducting all fees and expenses), the S&P
500, and the average mutual fund in our category (according to Lipper Analytical
Services).
<TABLE>
<CAPTION>
PERIODS ENDING JUNE 30, 1998
-------------------------------------
1 YEAR 5 YEARS 10 YEARS
----------- ----------- -----------
<S> <C> <C> <C>
Partners Value Fund 49.3% 24.0% 18.7%
S&P 500 Index 30.1% 23.1% 18.5%
Average Growth & Income Mutual Fund 22.9% 19.0% 15.8%
</TABLE>
For several years, our portfolio has been concentrated in three areas:
cable television and entertainment, cellular telecommunications, and financial
services. This concentration caused us to under-perform the market in 1994, but
generally it has served us well. These groups of stocks have been especially
strong in the past 18 months, and within the last 2 WEEKS, two of our largest
holdings have received takeover bids. The effect of takeovers in all 3 groups
have been direct, since we have owned several targets, and indirect, as
speculative buying in POTENTIAL takeover candidates drives up the prices of
other portfolio holdings. In short, nearly everything has gone our way in the
past several quarters.
One of our best stocks during this period, Centennial Cellular, offers a
good example of the hazards, as well as the rewards, of concentration.
Centennial received a bid of $43 1/2 per share last week. At that price, we
would receive $11.8 million for stock with a cost basis of $4.0 million after a
weighted average holding period of roughly 2 years. HOWEVER, we bought our first
stock about 4 years ago at $20 per share and it promptly went down. We rechecked
our assumptions repeatedly and bought more shares all the way down, until nearly
3 years later, in April of 1997, we bought stock at $8 3/4. By that time, we
owned over 250,000 shares with an unrealized LOSS of about $2 million.
The doubling of the stock price from June 1994 to June 1998 represents an
average gain of about 20% per year, which probably (very) approximately matches
the gradual increase in business value over that period. The fact that the stock
dropped 56% during the first 2 3/4 years of this period didn't (necessarily)
mean that we had lost our collective investment minds, and the gain of 468%
during the subsequent 1 1/4 years did not mean we had found the secret of
3
<PAGE>
perpetual profits. It was just another typical multi-year period during which
investors' emotions determined the stock price in the short run, but economic
reality eventually prevailed.
We hope that our recent experience with mortgage REIT's will prove to be
the prelude to a similar story for some future report. Conditions in the
industry are currently awful, and the stocks have been very weak this year,
especially in the 2nd quarter. Falling interest rates have encouraged borrowers
to prepay their mortgages in order to refinance at lower rates, thus causing the
REIT's to lose valuable mortgage investments from their portfolios. Also, the
"spread" between their cost of funds and the yields on the mortgages in their
portfolio is narrower than usual, causing a squeeze on profits.
Our presumption is that the current conditions are temporary, and that for
REIT's which have acted conservatively and protected their balance sheets, the
outlook is very good. We have used weakness in Redwood Trust, Novastar
Financial, and Hanover Capital Mortgage to add significantly to our positions.
In fact, our funds, collectively, are the largest shareholders of each of these
three companies. We did not buy our initial positions EXPECTING the stocks to go
down, but if we turn out to be right about these stocks, our eventual returns
will be greater because we were able to "average down" in the early stages of
our investment, as we did with Centennial Cellular.
THE OUTLOOK
The short-term outlook is unfathomable, as usual. It still seems plausible
to me that investors have been "double-counting" the good economic news and that
stock prices are high. This is no disaster, but the odds of a correction -- or
at least an extended period of sideways movement -- are high.
What DOES trouble me is that some investors' expectations are becoming
unrealistic. Our shareholders are an unusually sensible, intelligent, patient
group, but there have been signs that some of our newer investors may have come
to our fund for the wrong reasons (e.g. strong recent short-term performance).
This prompted me to write an article on the subject for our recently distributed
newsletter, which I thought might be worth repeating below:
WHAT'S WRONG WITH THIS PICTURE?
"Playing" the stock market, especially through mutual funds, seems to be
the new national pastime. Newspaper mutual fund tables are starting to resemble
the sports pages, with rankings of the top performing funds over the past 5
years, 12 months, 4 WEEKS (!), etc., and lists of fund managers who have "hot
hands" at the moment. CNBC business news sounds a lot like ESPN, as breathless
reporters chase sound bites from money managers and corporate executives.
Magazine articles about funds and fund managers are sometimes educational, but
many seem to have been written for the purpose of selling reprints to fund
companies to use in marketing.
4
<PAGE>
Our funds have been the beneficiaries of some of this publicity, and I
think it has helped us connect with many serious, intelligent, long-term
investors. On the other hand, there are a few new shareholders who trade in and
out of the funds on a weekly (or even daily) basis or ask questions that betray
their lack of understanding of our long-term approach to investing. It is very
important to us that our clients have realistic expectations, so I thought it
might be helpful to list some of our working assumptions:
- Investing is more art than science -- we have confidence in our investment
approach, but the timing and pattern of returns is absolutely
unpredictable;
- Periodic general market declines of 15-20% are inevitable, and 50%
declines (as in 1973-74) are possible. We believe that our approach
lessens the risk of PERMANENT loss of capital, but volatility is a fact of
stock investing life;
- In managing the funds, we try to take advantage of the misperceptions and
emotional over-reactions of other investors -- going counter to the crowd.
Thus, our portfolio will be different from "the market," and will suffer
periods (sometimes extended periods) of under-performance.
We take your investment seriously, we invest our own money in the same
funds so we have a coincidence of interest, and we believe the long-term results
will be good. However, if any of these assumptions troubles you, our fund may
not be the right investment for you -- in fact, stock investing may not be right
for you. Assuming we ARE on the same wavelength, I look forward to many years of
helping you get rich slowly.
Sincerely,
/s/ Wallace R. Weitz
Wallace R. Weitz
President, Portfolio
Manager
5
<PAGE>
WEITZ PARTNERS, INC. -- PARTNERS VALUE FUND
SCHEDULE OF INVESTMENTS IN SECURITIES
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR UNITS COST VALUE
- ------------ ------------- -------------
<C> <S> <C> <C>
COMMON STOCKS -- 84.5%
AUTO SERVICES -- 0.2%
30,000 Insurance Auto Auctions, Inc.* $ 330,000 $ 423,750
------------- -------------
BANKING -- 2.0%
10,000 Wells Fargo & Co. 1,754,758 3,690,000
------------- -------------
CABLE TELEVISION -- 16.8%
64,000 Adelphia Communications Corp. CL A* 485,513 2,376,000
455,000 Century Communications Corp. CL A* 2,656,136 8,531,250
140,000 Comcast Corp. Special CL A 1,717,504 5,683,132
170,000 Tele-Communications, Inc. CL A* 2,093,622 6,534,375
190,000 MediaOne Group, Inc.* 3,356,690 8,348,125
------------- -------------
10,309,465 31,472,882
------------- -------------
CONSUMER PRODUCTS AND SERVICES -- 2.2%
26,000 American Classic Voyages Co.* 251,125 383,500
100,000 Lab Holdings, Inc. 2,628,185 2,318,750
6,650 Lady Baltimore Foods, Inc. 212,725 357,438
100,000 Protection One, Inc. 171,893 1,093,750
------------- -------------
3,263,928 4,153,438
------------- -------------
FEDERAL AGENCIES -- 4.3%
50,000 Federal Home Loan Mortgage Corp. 138,785 2,353,125
40,000 Federal National Mortgage Association 759,888 2,430,000
67,500 SLM Holding Corp. 1,127,678 3,290,625
------------- -------------
2,026,351 8,073,750
------------- -------------
FINANCIAL SERVICES -- 8.7%
45,000 American Express, Co. 1,347,134 5,130,000
60 Berkshire Hathaway, Inc. CL A* 78,698 4,698,300
15,000 Capital One Financial Corp. 316,525 1,862,813
100,000 Imperial Credit Industries, Inc.* 2,144,836 2,350,000
20,000 PS Group, Inc. 181,200 245,000
60,000 United Asset Management Corp. 1,603,039 1,563,750
50,000 United Panam Financial Corp.* 581,828 512,500
------------- -------------
6,253,260 16,362,363
------------- -------------
INFORMATION AND DATA PROCESSING -- 1.3%
96,000 BRC Holdings, Inc.* 626,796 1,842,000
175,000 Intelligent Systems Corp.* 164,183 557,812
------------- -------------
790,979 2,399,812
------------- -------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
WEITZ PARTNERS, INC. -- PARTNERS VALUE FUND
SCHEDULE OF INVESTMENTS IN SECURITIES, CONTINUED
<TABLE>
<CAPTION>
SHARES
OR UNITS COST VALUE
- ------------ ------------- -------------
<C> <S> <C> <C>
MEDIA AND ENTERTAINMENT -- 9.1%
23,000 Daily Journal Corp.* $ 231,501 $ 861,063
190,000 Tele-Communications Liberty Media CL A* 2,093,600 7,374,375
200,000 Tele-Communications TCI-Ventures Grp A* 1,630,639 4,012,500
125,000 Valassis Communications, Inc.* 1,968,217 4,820,312
------------- -------------
5,923,957 17,068,250
------------- -------------
MORTGAGE BANKING -- 6.5%
83,700 Countrywide Credit Industries, Inc. 1,276,319 4,247,775
8,000 Franchise Mortgage Acceptance Co.* 141,025 208,500
128,000 New Century Financial Corp.* 1,262,250 1,280,000
280,000 Resource Bancshares Mtg. Grp., Inc. 3,516,277 5,215,000
56,666 WMF Group, Limited* 518,494 1,303,318
------------- -------------
6,714,365 12,254,593
------------- -------------
REAL ESTATE AND CONSTRUCTION -- 1.5%
45,000 Catellus Development Corp.* 257,950 795,937
30,000 Forest City Enterprises, Inc. CL A 671,825 1,775,625
10,000 SLH Corp.* 31,917 182,500
------------- -------------
961,692 2,754,062
------------- -------------
REAL ESTATE INVESTMENT TRUSTS -- 13.3%
350,000 Fortress Investment Corp. 7,000,000 7,000,000
245,500 Hanover Capital Mortgage Holdings, Inc. 3,755,004 2,332,250
24,000 Healthcare Financial Partners Units** 2,400,000 2,400,000
350,300 NovaStar Financial, Inc. 6,025,982 5,736,163
423,952 Redwood Trust, Inc. 9,690,050 7,445,657
------------- -------------
28,871,036 24,914,070
------------- -------------
TELECOMMUNICATIONS -- 18.6%
185,000 360 Communications Co.* 3,397,293 5,920,000
30,000 Airtouch Communications, Inc.* 797,086 1,753,125
271,000 Centennial Cellular Corp. CL A* 3,854,686 10,111,687
211,400 Corecomm, Inc.* 4,205,239 5,549,250
180,000 Telephone and Data Systems, Inc. 7,806,820 7,087,500
235,000 Vanguard Cellular Systems, Inc. CL A* 3,895,946 4,435,625
------------- -------------
23,957,070 34,857,187
------------- -------------
OTHER -- 0.0%
8,300 ONI International, Inc.* 62,630 83
------------- -------------
Total Common Stocks 91,219,491 158,424,240
------------- -------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
WEITZ PARTNERS, INC. -- PARTNERS VALUE FUND
SCHEDULE OF INVESTMENTS IN SECURITIES, CONTINUED
<TABLE>
<CAPTION>
SHARES
OR UNITS COST VALUE
- ------------ ------------- -------------
<C> <S> <C> <C>
WARRANTS -- 1.6%
399,500 Hanover Capital Mtg. Holdings, Inc., Expiring 9/15/00 $ 1,168,484 $ 449,438
370,000 NovaStar Financial, Inc., Expiring 2/03/01 2,201,800 2,590,000
------------- -------------
3,370,284 3,039,438
------------- -------------
<CAPTION>
FACE
AMOUNT
- ------------
<C> <S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES -- 5.7%
$ 3,000,000 U.S. Treasury Note 5.50% 3/31/00 2,995,492 2,998,125
2,000,000 Federal Natl. Mtg. Assn. 6.625% 7/12/00 2,000,000 2,036,875
2,500,000 Federal Home Loan Bank 6.44% 11/28/05 2,502,916 2,605,859
3,000,000 Federal Natl. Mtg. Assn. 6.56% 11/26/07 3,000,000 3,051,276
------------- -------------
Total U.S. Government and Agency Securities 10,498,408 10,692,135
------------- -------------
SHORT-TERM SECURITIES -- 7.6%
11,182,538 Norwest U.S. Government Money Market Fund 11,182,538 11,182,538
3,000,000 U.S. Treasury Bill 8/20/98 2,979,042 2,979,175
------------- -------------
14,161,580 14,161,713
------------- -------------
Total Investments in Securities $ 119,249,763 $ 186,317,526
------------- -------------
-------------
Covered Call Options Written at Market Value -- (0.3%) (601,844)
Other Assets Less Liabilities -- 0.9% 1,706,439
-------------
Total Net Assets -- 100% $ 187,422,121
-------------
-------------
Net Asset Value Per Share $ 16.945
-------------
-------------
<CAPTION>
EXPIRATION
NO. OF DATE/STRIKE
CONTRACTS PRICE VALUE
- ------------ ------------- -------------
<C> <S> <C> <C>
COVERED CALL OPTIONS WRITTEN AT
MARKET VALUE
75 Capital One Financial Corp. Sept 1998/80 $ (338,438)
75 Capital One Financial Corp. Sept 1998/95 (227,344)
150 Countrywide Credit Industries, Inc. July 1998/50 (29,062)
140 Valassis Communications, Inc. July 1998/40 (7,000)
-------------
Total Written Call Options (premiums received $266,936) $ (601,844)
-------------
-------------
</TABLE>
*Non-income producing
**Each unit consists of five shares of common stock and one stock purchase
warrant.
See accompanying notes to financial statements.
8
<PAGE>
WEITZ PARTNERS, INC. -- PARTNERS VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investment in securities at value (cost $119,249,763) $186,317,526
Deposits with brokers for covered call options written 270,137
Receivable for securities sold 1,236,790
Accrued interest and dividends receivable 365,278
Cash 342,270
Other 10,495
------------
Total assets 188,542,496
------------
Liabilities:
Due to adviser 166,625
Payable for securities purchased 326,000
Covered call options written, at value (proceeds received $266,936) 601,844
Other expenses 25,906
------------
Total liabilities 1,120,375
------------
Net assets applicable to outstanding capital stock $187,422,121
------------
------------
Net assets represented by:
Additional paid-in capital (note 4) 108,907,236
Accumulated undistributed net investment income 219,821
Accumulated undistributed net realized gains 11,562,209
Net unrealized appreciation of investments 66,732,855
------------
Total representing net assets applicable
to shares outstanding $187,422,121
------------
------------
Net asset value per share of outstanding capital stock
(11,060,737 shares outstanding) $ 16.945
------------
------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
WEITZ PARTNERS, INC. -- PARTNERS VALUE FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Dividends $ 273,328
Interest 861,102
-----------
Total investment income 1,134,430
-----------
Expenses (note 3):
Investment advisory fee 777,584
Administrative fee 107,769
Directors fees 4,200
Other expenses 69,322
-----------
Total expenses 958,875
-----------
Net investment income 175,555
-----------
Realized and unrealized gain on investments:
Realized gain on investments 11,682,139
Net unrealized appreciation of investments 21,177,339
-----------
Net realized and unrealized gain on investments 32,859,478
-----------
Net increase in net assets resulting from operations $33,035,033
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
WEITZ PARTNERS, INC. -- PARTNERS VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- ------------------
<S> <C> <C>
Increase in net assets:
From operations:
Net investment income $ 175,555 $ 1,246,461
Net realized gain 11,682,139 15,266,989
Unrealized appreciation 21,177,339 22,301,165
----------------- ------------------
Net increase in net assets resulting from operations 33,035,033 38,814,615
----------------- ------------------
Distributions to shareholders from:
Net investment income (1,450,837) --
Net realized gains (15,020,586) (4,460,935)
----------------- ------------------
Total distributions (16,471,423) (4,460,935)
----------------- ------------------
Capital share transactions (note 4):
Proceeds from sales 33,235,376 7,020,324
Payments for redemptions (9,922,195) (6,051,840)
Reinvestment of distributions 13,808,276 3,568,479
----------------- ------------------
Total increase from capital share transactions 37,121,457 4,536,963
----------------- ------------------
Total increase in net assets 53,685,067 38,890,643
----------------- ------------------
Net assets:
Beginning of period 133,737,054 94,846,411
----------------- ------------------
End of period $ 187,422,121 $ 133,737,054
----------------- ------------------
----------------- ------------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
WEITZ PARTNERS, INC. -- PARTNERS VALUE FUND
FINANCIAL HIGHLIGHTS
The following financial information provides selected data for a share of the
Partners Value Fund outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1998 ----------------------------------
(UNAUDITED) 1997 1996 1995 1994*
------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD: $ 15.453 $11.524 $10.384 $ 8.275 $10.000
------------ ------- ------- ------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.044 0.134 0.057 0.084 0.057
Net gains or losses on securities (realized and unrealized) 3.285 4.326 1.933 3.108 (0.964)
------------ ------- ------- ------- -------
Total from investment operations 3.329 4.460 1.990 3.192 (0.907)
------------ ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.168) -- (0.061) (0.237) --
Distributions from realized gains (1.669) (0.531) (0.789) (0.846) (0.818)
------------ ------- ------- ------- -------
Total distributions (1.837) (0.531) (0.850) (1.083) (0.818)
------------ ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 16.945 $15.453 $11.524 $10.384 $ 8.275
------------ ------- ------- ------- -------
------------ ------- ------- ------- -------
TOTAL RETURN 23.7% 40.6% 19.2% 38.7% -9.0%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period ($000) 187,422 133,737 94,846 73,781 51,287
Ratio of expenses to average net assets 1.23%** 1.24% 1.23% 1.27% 1.29%
Ratio of net investment income to average net assets 0.23%** 1.11% 0.51% 0.82% 0.67%
Portfolio turnover rate 23% 30% 37% 51% 33%
</TABLE>
* Fund commenced public offering of shares on January 1, 1994.
** Annualized
See accompanying notes to financial statements.
12
<PAGE>
WEITZ PARTNERS, INC. -- PARTNERS VALUE FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
(1) ORGANIZATION AND BUSINESS CHANGES
Weitz Partners, Inc. (the "Company"), is registered under the Investment
Company Act of 1940 as an open-end management investment company. At
present, there is only one series authorized by the Company, the Partners
Value Fund (the "Fund"). The accompanying financial statements present the
financial position and results of operations of 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. The following accounting policies are in accordance with
accounting policies generally accepted in the investment company industry.
(2) SIGNIFICANT ACCOUNTING POLICIES
(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 asked 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 Fund'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
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
13
<PAGE>
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.
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 and 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
issue 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 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.
14
<PAGE>
(3) RELATED PARTY TRANSACTIONS
The Fund has retained Wallace R. Weitz & Company (the "Adviser") as its
exclusive investment adviser. In addition, the Company has an agreement with
Weitz Securities, Inc. (the "Distributor") 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 the Distributor.
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 June 30, 1998.
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 Fund for which the
Adviser is being paid a monthly fee. During the six months ended June 30,
1998, the fee was calculated at an average annual rate of .14% of the Fund's
average daily net assets.
The Distributor received no compensation for distribution of the Fund's
shares.
(4) CAPITAL STOCK
The Company is authorized to issue a total of 1,000,000,000 shares of common
stock with a par value of $.00001 per share. Fifty million of these shares
have been authorized by the Board of Directors to be issued by the Fund. The
Board of Directors may authorize additional shares in series without
shareholder approval. Each share of stock will have a pro rata interest in
the assets of the Fund to which the stock of that series relates and will
have no other interest in the assets of any other series.
Transactions in the capital stock of the Fund are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1998 1997
----------------- -------------
<S> <C> <C>
Transactions in shares:
Shares issued....................................................... 2,082,079 575,844
Shares redeemed..................................................... (616,568) (478,830)
Reinvested dividends................................................ 940,685 326,905
----------------- -------------
Net increase...................................................... 2,406,196 423,919
----------------- -------------
----------------- -------------
</TABLE>
(5) SECURITIES TRANSACTIONS
Purchases and proceeds from maturities or sales of investment securities of
the Fund, other than short-term securities, aggregated $51,477,602 and
$32,311,705, respectively. The cost of investments for Federal income tax
purposes is $119,371,531. At June 30, 1998, the aggregate gross unrealized
appreciation and depreciation, based on cost for Federal income tax
purposes, were $73,636,746 and $7,025,659, respectively.
15
<PAGE>
Transactions relating to covered call options during the six months ended
June 30, 1998, are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS PREMIUM
----------- -----------
<S> <C> <C>
Options written, beginning of period............................................ -- --
Options written, during the period.............................................. 44,000 266,936
Options exercised, during the period............................................ -- --
----------- -----------
Options outstanding, end of period.............................................. 44,000 266,936
----------- -----------
----------- -----------
</TABLE>
16
