BRANDYWINE FUND, INC.
MANAGED BY FRIESS ASSOCIATES, INC.
ANNUAL REPORT
SEPTEMBER 30, 1996
DEAR FELLOW SHAREHOLDERS:
Your Fund hit historic new highs the last week of this quarter, a great way to
end your fiscal year! An article in the October 4 issue of Investor's Business
Daily listed Brandywine Fund among the 45 largest mutual funds based on total
assets as of August 31, 1996. Of those 45 funds, your Fund was the NUMBER ONE
PERFORMER for this September quarter as well as for the five years ended
September 30, 1996.
While we're delighted that for the 10 years ending September 30, 1996, Lipper
Analytical ranks Brandywine Fund the #1 performing no-load growth fund in the
U.S. currently available to the public, we also enjoy having a positive response
for the question, "What have you done for me lately?"
Your 6 percent growth for the September quarter compared most favorably to the
DECLINE of 0.3 percent on the Nasdaq Industrials. The S&P 500 rose 3.1 percent
and the Investor's Business Daily Mutual Fund Index 1.9 percent. Lipper's
average growth fund grew 3.9 percent.
For the twelve months ended September 30, your Fund is up 10 percent which
included the backtracking in last year's December quarter. After absorbing that,
your assets advanced a bold 21 percent as we write today.
PERFORMANCE 6/30/94 TO 9/30/96
June 30, 1994 100
September 30, 1994 105.6
December 31, 1994 106.4
March 31, 1995 115
June 30, 1995 134.8
September 30, 1995 153.6
December 31, 1995 144.5
March 31, 1996 153.5
June 30, 1996 159.5
September 30, 1996 169
Those of you with us for the last five years enjoyed a 148 percent increase in
your investment, 19.9 percent annualized, leaving behind the S&P 500 which rose
just 103 percent, the IBD Index's 93 percent gain, and the 88 percent climb in
the Nasdaq Industrials.
MOST RECENT FIVE YEARS
NYSE 72.2%
S&P MIDCAP 84.2%
NASDAQ IND. 87.7%
IBD*<F1> 92.9%
S&P 500*<F1> 102.9%
YOUR FUND*<F1> 148.2%
*<F1>TOTAL RETURN
IBD = Investor's Business Daily Mutual Fund Index
Your first nine months results through September 30 of 16.9 percent nicely
outpace the major indices. The Nasdaq Industrials grew 14.8 percent, the IBD
Index rose 14.3 percent, the S&P 500 climbed 13.5 percent, and the S&P Midcap
gained 11.1 percent. In the most recent two years, you've seen a 60 percent jump
in your Fund, or 26.5 percent on an average annualized basis.
In the last several weeks, mainstream economic thinking widely forecasted
Federal Reserve tightening to slow an overheated economy. The consensus took a
serious body blow in mid-September when indicators flashed that retail sales
were lackluster at the same time inflation indicators posted tepid results.
Those who thought interest rates would rise reversed field.
Two weeks later, declining durable goods orders and rising jobless claims began
painting a picture of economic activity slowing to sustainable levels on its own
accord, without federal interest rate intervention, again showing the wisdom of
Alan Greenspan's patient waiting strategy.
At Friess Associates we continue to focus on investments in companies whose
growth is based on the ability to gain market share with the introduction of
exciting new products. We emphasize companies whose margins are secured by an
ability to price their goods and services in a way that offsets the impact from
inflation. Companies whose profitability and growth depend solely on the overall
direction of the economy are systematically eliminated as candidates for your
Fund.
According to an analysis by O'Neil and Company, the growth of the companies in
your portfolio exceeds that of those making up the S&P 500 yet P/E ratios on
1997 estimates are a modest 17 times.
COMPANY GROWTH
AVERAGE INCREASE LATEST 12 MOS. EARNINGS
Your Companies 53%
S&P 500 14%
AVERAGE INCREASE LATEST QUARTERLY EARNINGS
Your Companies 50%
S&P 500 14%
All S&P figures are unweighted. Analysis by William O'Neil & Co., Inc. September
27, 1996.
Your well-balanced research team isolated many individual companies which
performed well for you this quarter. Some of the largest percentage gainers were
Jon Fenn's Shaw Group, up 70 percent, Mark Lapolla's Finish Line, up 64 percent,
and Insight Enterprises picked by Andy Graves rose 61 percent. Bill D'Alonzo's
Remedytemp, Inc., increased 52 percent, ESC Medical picked by Carl Gates climbed
38 percent, Diane Hakala's Mastec, Inc. pick grew 36 percent, and A.J. Berk's
Precision Response rose 23 percent.
Individual stock selection is what led us to participate in many energy-related
stocks as previously mentioned in June. After a correction in July, energy
stocks in your Fund resumed their upward trend. Cooper Cameron Corp. rose 31
percent, Energy Ventures grew 24 percent, and Reading & Bates increased 23
percent.
Worldwide hydrocarbon demand continues to outstrip supply, creating an
environment where oil prices are far more stable than in the past. This allows
more predictable cash flows and the confidence to increase drilling and
development.
Today, new technologies such as 3D and 4D seismic, directional drilling, and
floating production allow highly profitable field development at oil prices of
$17 to $20 and natural gas prices of $1.75 to $2.00. So far, cautious optimism
by the industry has mitigated the over-building of capacity which spoiled the
profitable expansion in the late 1970's.
Concerns that additional oil would come onto the markets with Iraq's agreement
to comply with United Nations' sanctions were alleviated by Saddam Hussein's
recent behavior. To put that inevitable increase in oil supply in perspective,
the expected 700,000 barrels per day from Iraq will represent less than one
percent of worldwide consumption and roughly 35 percent of one year's increase
in demand.
With global expansion being accelerated by increasing demand from fast-growing
Asian economies, the big question is where will the additional needs come from,
particularly since many mature fields such as the Alaskan North Slope and the
North Sea are peaking out or already declining in production.
Recent strength in technology stocks was sparked when Intel, Diane Hakala's pick
which rose 31 percent this quarter, pre-released its positive results. Why? Our
field research indicated all year that end demand for computers and related
electronics has been solid, yet many companies' first half earnings didn't truly
reflect this. Inventory corrections masked the real picture. When inventories
came down, fundamentals looked to be improving and lifted the wall of worry
concerning end demand.
Meanwhile, companies such as David Harrington's Dell Computer, up 53 percent
during the quarter, Clarke Adams' Gateway, up 41 percent, Jon Fenn's Adaptec, up
27 percent, and John Ragard's Western Digital, up 54 percent, among others,
benefit from lower component prices for their products. This results in stronger
gross margins and permits lower prices to consumers which in turn creates higher
demand.
Our challenge every day is to focus our intensive, bottom-up research process on
finding out what is really going on and then to compare what we have found to
Wall Street's perceptions, ONE STOCK AT A TIME!
This research strategy is what fuels your ten year growth of 473 percent, or
19.1 percent annualized, compared to the S&P 500's 303 percent gain, the Nasdaq
Industrials' 222 percent climb, and the IBD Mutual Fund Index's rise of 201
percent.
MOST RECENT TEN YEARS
NYSE 175.3%
IBD*<F2> 200.8%
NASDAQ IND. 221.9%
S&P 500*<F2> 303.5%
YOUR FUND*<F2> 473.2%
*<F2>TOTAL RETURN
One of Brandywine's largest shareholders, the Nobel Foundation, continues to
have more than $35 million invested with you. Your Friess Associates team also
remains committed to this strategy, with more than $30 million of their own
personal assets invested in your Fund.
During the quarter, $178 million in new assets were entrusted to our
stewardship. As always, we are honored by your confidence and grateful for your
long-term perspective. We continually look forward to putting our strategy to
work for your benefit as we shepherd your precious assets. Have a wonderful
autumn!
God Bless!
/S/ Foster Friess
Foster Friess
President
October 7, 1996
HIGHLIGHTS . . .
AUTOMOTIVE & RELATED
If you own a vehicle made by General Motors, Ford, or Chrysler, there's a good
chance you have some products made by SPX CORP. under the hood. Your company
makes parts and tools used to manufacture and repair automobiles, specializing
in brake parts and pumps.
A new management has cut costs and divested SPX from businesses which are least
profitable. In a recent conversation with VP of Investor Relations, John Tyson,
we learned that SPX relieved itself of two weaker businesses in Europe, selling
them to companies outside the industry.
The June quarter doubled earnings to $.72 from $.36 last year. For the year
ending December, analysts expect earnings to be up 135 percent.
Climbing 38 percent since purchase in April at $22, your shares trade today at
$30.
COMMUNICATIONS
Talking on the telephone, communicating over the Internet, and even watching
television involve data being transmitted over various wires and cables.
ADC TELECOM manufactures products which enhance data transmission. Ameritech,
GTE, and Sprint are some of your company's major customers.
With the passage of the telecommunication reform rules by the FTC earlier this
year, orders from telephone companies such as AT&T, Worldcom and the "Baby
Bells" accelerated. Chief Executive Officer Bill Cadigan told investors at the
Baird Conference recently that backlog of orders for all of ADC's equipment will
likely surpass $1 billion in the next 12 months, up from $600 million today.
We learned from Aimee Gallogly, Treasurer, that many ADC customers have been
testing your company's Homeworx platform for delivering pay-per-view video,
telephone service, and modem access to their cable subscribers. Analysts believe
these contacts have the potential for several millions of dollars in orders.
Revenues were $217 million for the recent July quarter, increasing 45 percent
from last year's $150 million and fueling earnings growth of 25 percent from
$.36 to $.45.
Purchased just in July at $44, your shares rose 46 percent to $64.
ELECTRONICS
Imagine printing the entire Bible on a piece of paper the size of a business
card. Impossible, right? ETEC SYSTEMS, INC.' s equipment can do just that. Your
company manufactures pattern generation equipment for the semiconductor
industry.
Etec produces the machines which make the masks used for printing circuits on
semiconductors. These masks serve the same purpose that negatives do in
photography. Demand for these machines is driven by the increasing number of
semiconductor chip designs and their complexity rather than by capacity needs
and commodity pricing.
Chips are becoming smaller and more intricate and so require finer lines for the
printed circuits -- moving from .8 micron to .5, down to .35 and eventually .25
micron. Etec is the only U.S. company currently shipping machines capable of
producing the .25 micron-width line. Also, chips are being designed with
multiple layers with each layer requiring a mask.
Phil Keon, CFO, told us recently that Etec can now produce a pattern generation
machine in half the time it took last year -- only 26 weeks compared with 52
weeks. Even so, its backlog has more than doubled from $65 million in July 1995
to $148 million in July 1996.
Your shares purchased in June at $21 are now worth 62 percent more at $34.
FINANCIAL BUSINESS SERVICES
Folks with a somewhat checkered credit history can often experience difficulty
obtaining a mortgage. AAMES FINANCIAL CORP. provides mortgage credit to these
individuals. Because of its credit scoring expertise and the fact that it loans
only 60 percent of the value of the home being purchased, your company has
experienced almost no losses in its history.
Chairman Gary Judis explains that unlike most lenders whose loans tend to show
problems in three years or so, Aames' problem borrowers become evident almost
immediately leaving very little uncertainty as to future credit quality trends.
With office openings in 30 new states this year, Aames is extending its presence
nationally with offices now in 37 states. Also, the acquisition of One-Stop
Mortgage should increase loans originated by 40 percent.
For the June quarter revenues exploded 185 percent from $15 million to $44
million with earnings soaring 97 percent from $.32 to $.63.
Your shares leapt 75 percent to $50 from their April purchase price of $29.
FOOD/RESTAURANTS . . .
CKE ENTERPRISES, which operates the Carl's Jr. restaurant chain in the western
United States, is witnessing same store sales growth near 11 percent. Listed on
the NYSE, CKE is the second largest fast food restaurant operator in the state
of California.
President Tom Thompson explained to us recently that CKE is remodeling four
restaurants each week. These refurbished locations see sales rise by 10 to 15
percent each. Your company is adding the Green Burrito Mexican food product to
one of the four remodeled stores, a concept called "dual-branding." Tom says
this concept is the next wave in the fast food industry. In the dual-brand
stores, sales increased by 20 to 25 percent.
The July quarter saw earnings jump 80 percent to $.27 from $.15 driven by the 18
percent climb in revenues to $128 million from $108 million.
When first purchased for you in July 1995, there were no Wall Street analysts
following CKE. Now four analysts cover the stock.
Your shares have surged 146 percent since purchase and now sell at $31.
NETWORKING
Best known for its high-end routers which allow computer networks to communicate
over long distances, CISCO SYSTEMS is the world's networking giant with annual
sales expected to exceed $5 billion for the current fiscal year.
Your company's recent acquisition of Stratacom helps position Cisco in the
telecom market as, according to Larry Carter, Chief Financial Officer,
Stratacom's frame relay and ATM switching technologies complement Cisco's
routing and Ethernet switching business.
With networking, the older mainframes are replaced by servers and "smart"
personal computers -- those with the Intel or Apple processors inside to make
them run more quickly and efficiently. These PC's are tied together into
intranets -- within a firm -- and the Internet, thereby building the Internet's
network of PC's, servers, and workstations.
Revenues exploded 108 percent during the recent July quarter to reach $1.2
billion, up from $621 million last year, fueling earnings growth of 80 percent
from $.25 to $.45.
Original shares purchased in April 1995 at $20 have more than tripled to $62.
Additional shares, purchased following the Stratacom acquisition in July, less
than three months ago, have already increased 18 percent.
OIL/GAS FIELD SERVICES
During the '80's and early '90's, when the oil and gas exploration industry was
experiencing a decline, many drilling companies would cannibalize used drill
pipe from older, abandoned rigs to complete a job. Now that this inventory of
used drill pipe is depleted, ENERGY VENTURES is seeing an increase in its
business.
Your company, listed on the NYSE, makes steel piping and special connecting
joints used to drill the holes to find oil and natural gas. As the world's
largest drill pipe manufacturer, Energy Ventures is enjoying the resurgence in
this industry.
In recent conversations with Chief Financial Officer Jim Kiley, we learned that
improvements in the efficiency of your company's manufacturing processes are
contributing to significant increases in profit margins.
Earnings last quarter came in at $.31, more than double the $.14 posted last
year as revenues grew 50 percent to $120 million from $80 million. Analysts
anticipate earnings growth of nearly 100 percent for the September quarter.
Selling now at $41, your shares have jumped 65 per-cent since their $25
September purchase price.
SEMICONDUCTORS & RELATED
Just as the commercial claims, if it says "Intel inside," you know the computer
contains a Pentium processor and therefore runs at high speed. Virtually all
personal computer manufacturers -- Compaq, IBM, Dell, and Gateway -- are
customers of INTEL CORP. which produces the Pentium.
Intel's CEO Andy Grove told us recently that your company's newly completed
Pentium plant in Chand-ler, Arizona, is designed not only for this chip, but
also for the next generation of chips. All that will be required is a simple
change in the equipment.
Your company is, by far, the major producer of microprocessors for PC's, its
newest being the Pentium Pro. These chips serve as the primary "brain" for the
PC and are becoming faster and able to handle even greater function than before.
With PC unit growth above expectations, Intel's earnings jumped 18 percent
during the June quarter to $1.17 from $.99 while revenues rose 19 percent to
$4.6 billion from $3.8 billion.
In just two months, your shares climbed 31 percent, selling now at $95 up from
the purchase price of $72.
SOFTWARE
As we quickly approach the next millennium, many corporations are concerned
about how their software will meet their needs in the year 2000. To ensure that
their equipment is well suited, these corporations turn to COMPUWARE
CORPORATION, with 5,500 employees worldwide, to help them switch from mainframe
computers to a client/server environment.
Most mainframe setups are designed only to handle two digits in every date
field. If a user enters "00" the computer will read that year as 1900, not
2000. Jeff Ray, VP of Professional Services, recently informed us that
Compuware sends its people out to companies to make changes to their computer
system so it will function properly after December 31, 1999.
Many Fortune 500 companies like AT&T, Ford, and Dow Chemical, outsource their
needs for software professionals to Compuware.
Last quarter earnings leapt 94 percent from $.17 to $.33 on revenue growth of 29
percent moving from $126 million to $162 million.
Up 23 percent since purchase in May at $37, your shares now sell at $46.
TRANSPORTATION
If you've ever gotten your car stuck in the mud or snow, chances are it's been a
tow truck made by MILLER INDUSTRIES that has pulled you out. The largest
manufacturer of towing and recovery equipment in the world, your company enjoys
growth opportunities that only the major players in a fragmented industry
experience.
According to Chief Executive Officer and Founder, Bill Miller, your company
broadened its presence geographically by acquiring two wrecker manufacturers in
Europe. The acquisition of four of Miller's distributors as well as Vulcan
International, a large U.S. wrecker manufacturer, strengthens your company's
position in the United States.
Revenues jumped 51 percent during the recent July quarter driving earnings up 43
percent from $.07 last year to $.10. For the fiscal year ended April revenues
were up 33 percent and earnings per share climbed 23 percent.
Your company's management owns 30 percent of Miller stock and is very much in
tune with the needs of their fellow stockholders. Recently your company won a
patent suit against a smaller competitor, reinforcing Miller's contention that
its technology is uniquely theirs.
Traded on the NYSE, your shares now at $39.50 are more than double their $18.50
January purchase price.
FELLOW SHAREHOLDER . . .
In 1971, Dr. Keith Phillips started a Christian Bible school in the Los Angeles
ghetto of Watts. He soon realized that to make a real difference in people's
lives he needed to have a long term relationship with them. Today his idea has
grown into the World Impact organization serving inner-city families in 13 urban
centers across America.
World Impact's center in Chester, Pennsylvania was launched in 1988 and now
includes classes for kids, after-school activities for teens, and programs for
adults.
Five years ago Keith Phillips visited Chester and spoke at some local churches.
Foster and Lynn Friess invited a group of people to meet him. It was there that
the seed of an idea was planted.
Lois Aldrich attended that gathering and heard Dr. Phillips' hopes of someday
offering vocational training that could help people in the inner city find jobs,
get off welfare, and turn their lives around. Lois says, "A light bulb went on
in my head." A nurse with experience in teaching nurse's aid certification, Lois
decided to put together a program.
After trudging through the bureaucracy and paperwork of a state-licensed
program, she obtained approval for her course, resigned from her other job, and
started a pilot program in summer 1993 at World Impact's Frederick Douglass
Christian School in Chester. Starting with two students, Lois is now teaching
her seventh class and counts 32 graduates of her program, including four men.
The students attend class for eight weeks, three days a week. Half their time
is spent in the classroom and half is spent in a nursing home learning how to
care for people who are not able to care for themselves.
But the program's purpose goes beyond job training. Lois spends a lot of
personal time with her students helping them to believe in their own self-worth
and to have confidence that they can make a positive contribution in the
workplace.
Some of the students are young, single mothers on welfare. Some students, in
their thirties with grown children who've given them grandchildren to care for,
are entering the job market for the first time.
Although a few students have gone through the program and not sought employment,
most of her graduates have jobs and feel good about themselves and their
accomplishments.
Lois lives in Kennett Square, Pennsylvania with her husband, an engineer with
the DuPont Company. Her daughter, just graduated from college, is a teacher,
and her son is a junior in college. When she has a little free time for herself
she enjoys working on craft projects, gardening, and camping with her family.
We salute Lois and her commitment to volunteer her time to improve the lives of
her students. World Impact is one of the outstanding organizations we number
among our fellow Brandy-wine Fund shareholders, and we are honored to support
their good works.
- - Margaret Barton
DON'T PANIC . . .
when you see your October 25th Fund quote in the newspapers. That day you will
receive a distribution of APPROXIMATELY $1.07 per share -- $.95 in long-term
capital gains and $.12 in short-term capital gains (treated as ordinary income)
- -- so your quote will be reduced accordingly.
WHILE INCOME TAX WILL HAVE TO BE PAID FOR THIS YEAR ON THE DISTRIBUTION, IT WILL
NOT HAVE TO BE PAID LATER ON THIS SAME AMOUNT IF AND WHEN THE SHARES ARE
REDEEMED.
Shares purchased on or after October 25, 1996 will not receive the distribution
and will not incur the consequent tax liability.
GROWING YOUR FUND . . .
We would not be able to create any gains for you in the Fund were it not for the
many folks at all the companies in your portfolio. The people on the shipping
docks, in secretarial pools, and on the assembly line are those who are really
responsible for your Fund's success. Because of their essential contribution we
want to highlight these individuals.
This quarter we would like to introduce you to Lysa Bryant, one of three
Investor Relations contacts at Compaq Computer, whom your consultant Mike Davis
met when he was researching new developments at the company.
Lysa admits that it took a little while to gain the confidence to speak for
Compaq, because she knows that what she says can have a big impact on the stock
as the Investor Relations group serves as the company's liaison to Wall Street.
When Compaq makes an announcement, or the press catches hold of a rumor about
the company, Lysa's department can be on the phone all day confirming, denying,
or explaining the issues.
As program manager for Investor Relations, Lysa sets up all the meetings with
the institutional investors and the analysts, and she handles all the details
when Compaq participates in a technology conference -- everything from catering
services to developing computerized multi-media presentations.
Lysa started at Compaq as a temporary worker in the software training
department. Two years later, when a permanent position opened up in the Investor
Relations office, she jumped at the chance.
Praising her boss, Alice McGuire, a good friend to Lysa who encourages her to
grow in her job, Lysa remembers, "I had been here two weeks, and Alice came to
my son's second birthday party. How many bosses do you know of who would do
that after just two weeks?"
With their two sons, Hayden and Colby, Lysa and her husband Mike live in
Tomball, Texas, outside of Houston, and are kept busy with soccer, baseball, and
Cub Scouts. When they find a little time to get away, they enjoy scuba diving
and motorcycling.
We applaud Lysa and the more than 17,000 employees at Compaq for adding value to
your investment in Brandywine. Compaq shares purchased during this quarter have
already brought in more than $17 million to your portfolio.
- - Margaret Barton
A.J. . . .
Researcher Andre "A.J." Berk, traces his interest in the stock market back to
his high school days, when he began investing in growth stocks. Upon entering
Wayne State University in Detroit, A.J. had already decided to major in Business
and earned a B.S. in Economics and Finance in 1986.
A.J. joined your Phoenix research team in December 1994 after spending seven
years as a financial analyst for a small money management firm located near his
home in the Detroit suburb of West Bloomfield. During his time there, he had
three years of continuous contact with researcher, Diane Hakala.
The two met at an investment conference and A.J. recalls, "I was instantly
impressed by Diane's in-depth knowledge of multiple industries and specific
companies. That research-intensive strategy is instrumental in our fulfilling
our important obligation to those depending on us to grow their assets."
According to senior researcher John Ragard, A.J. quickly and effectively grasped
the Friess strategy. "A.J. is an extraordinarily thorough researcher. As
teammates, we have the opportunity to regularly bounce stock ideas off each
other. In almost every instance when we discuss an issue about a company that
needs to be understood, A.J. has already thought it through and contacted
several industry sources about it."
Reflective of A.J.' s capabilities, PHP Healthcare, Benton Oil, Newbridge
Networks, Bush Industries, Shared Medical, and Praxair have together gained $108
million for your Fund.
With his interest in playing tennis and hockey and his active involvement in the
Cystic Fibrosis Foundation, A.J. keeps busy during his time away from the
office.
- Rebecca Buswell
CONRAD . . .
After three years as a researcher in both your Wilmington and Jackson offices,
Conrad Doenges went out on his own as a consultant two years ago and moved back
to his native Tulsa, Oklahoma.
While not a hub in the investment world, the location works perfectly for Conrad
as the "virtual office" concept at Friess Associates enables him to be near his
family and communicate with Friess researchers via Lotus Notes and fax just as
though he were visiting any of our three main offices.
"With the computer systems Friess has in place, your research team can more
effectively grow your investments and tap into company contacts in every major
city," Conrad explains.
"For example, in August I met in Tulsa with all the senior management of Apache
Corporation, a stock followed by Wilmington-based senior researcher, John
Ragard. My meeting saved John nearly two full work days as he didn't have to
travel to Tulsa and back."
In 1988, Conrad earned a B.A. in History from Davidson College where he served
as President of the student body his senior year. Upon graduating, he was a
corporate banking officer at NationsBank in both Charlotte and Chicago. There he
received rigorous financial analysis training he now implements in dissecting a
company's financial statement.
Some of those companies Conrad recommended for your Fund include Jones Apparel,
Scott Paper, LSI Logic, Wet Seal, and Input Output, which together have brought
you more than $115 million in gains.
Friess researcher and college buddy Andy Graves applauds Conrad's abilities.
"Conrad and I collaborate often on companies for your Fund, and he has a keen
eye for the finances of a business which can drive its success. His patience and
cool head give him an edge in this fast-paced and often tough business."
Aside from picking stocks, Conrad enjoys keeping fit and works out daily --
lifting weights and running. He is also active in his community, serving on the
boards of The Arts and Humanities Council of Tulsa, and Art After Five at
Philbrook Art Museum.
- - Rebecca Buswell
MIMI . . .
"As assistant to researcher Andy Graves, I understand the value of being a team
player, especially in an industry where timing is of the utmost importance. By
focusing on the variables that can significantly impact a stock's price like a
new product line or new management, and alerting Andy to those issues, I can
effectively empower him in his research efforts on behalf of our clients and
shareholders."
That's how research manager Mimi Wry describes her role at your Jackson Friess
Associates headquarters.
Lettering in four varsity sports all through high school, in Summit, New Jersey,
it's no surprise that Mimi thrives within the Friess team environment. "Everyone
makes a contribution. Everyone shares the same enthusiasm for fulfilling our
mission of growing the assets entrusted to us," Mimi relates.
Graduating from Bucknell University in Lewisburg, Pennsylvania with a degree in
psychology, Mimi went on to graduate studies in the social work program at
Rutgers University. She worked as a youth counselor with troubled teenagers,
first in New Jersey and later in Jackson. Then, for a total change of pace,
Mimi worked in technical support at a software company, testing new products and
helping clients solve technical problems.
Complimenting her organizational skills, Andy says, "Mimi's knack for
coordinating with three consultants located in San Francisco, Tulsa, and
Minneapolis, all from her office in Jackson, is an invaluable contribution to
our investment objective." Mimi's work helped in producing gains of more than
$200 million for your Fund from Andy's Cisco Systems, Tellabs, Tommy Hilfiger,
and Gap selections.
Mimi loves most outdoor activities, particularly skiing and backpacking, and she
also enjoys playing tennis and ice hockey. Last summer, Mimi climbed the Grand
Teton. Now her teammates are just waiting to see what adventure she will tackle
next!
- - Margaret Barton
The investment community is filled with experts who publish information for the
investing public about where to put their money. We at Brandywine Fund recognize
that these folks help grow our Fund since many of our shareholders decide to
pool their assets with ours based in part on the articles and materials they
read. Because we understand how important this influence is to our business, we
are launching this feature to highlight these individuals in future reports.
FUND EXPERT . . .
With so many mutual funds in the marketplace today, the $320 million asset
management firm, Litman/Gregory & Company, based in San Francisco, uses a
screening system to select which funds to include for their clients.
Co-founder Ken Gregory looks for the following characteristics in a fund's
manager: an experienced track record relative to its appropriate peer group; a
willingness to think independently and act upon that; an intense focus; and,
most importantly, a passion for the business. Ken says he finds all of these in
your Friess Associates research team.
"Friess Associates is one of the very few examples of an investment firm that
has grown rapidly but maintained its ability to manage more money and more
people effectively," Ken states. "Many firms who grow stumble and trip in terms
of delivering the same quality and performance they provided when they were
small. This has not been the case with Friess."
Just after launching Litman/Gregory in 1987, Ken discovered Friess Associates
and Brandywine Fund and wanted to offer Brandywine to their clients. Their firm
is set up to invest only through Charles Schwab, so they could not initially
propose Brandywine as an option to their clients because, at that time,
Brandywine was only available through direct investment.
Ken's enthusiasm about the opportunities Brandywine could create for his clients
finally convinced Foster to form a relationship with Schwab exclusively for
Litman/Gregory. Since 1989, Litman/Gregory clients, primarily individuals whose
average account size is $2 million, have been fellow Brandywine shareholders.
Litman/Gregory's newsletter, The No-Load Fund Analyst is one of the most widely
respected publications in the financial press and, according to Ken, has been
instrumental in fueling the company's growth. "We have never marketed our
services, but, instead, have focused on generating good performance for our
clients -- the best advertising of all."
Before joining up with Craig Litman, Ken worked in the investment industry as
president of an asset management company and as a financial adviser. He earned
his MBA at the University of Michigan and returned to his native San Francisco
where he and his wife of 15 years, Erica, live and raise their three children.
A shareholder himself, Ken understands how the Friess strategy works and
explains, "I'm impressed with Brandywine's obsessiveness in knowing their
companies well and understanding what's driving revenues and earnings. This
business is filled with bright people, but being bright isn't enough. To really
be successful, you must be obsessed with getting any edge on the competition
that you can. The Brandywine team does just that."
- - Rebecca Buswell
ALL IS NOT ROSES . . .
The old adage, "You win some, you lose some" applies to nearly everything,
including the activity in your Fund's portfolio. The trick is to win more than
you lose. Fortunately, this was a quarter in which you did just that.
There were nine companies that gave up more than $10 million each during the
quarter. Glenayre Technology, Dayton Hudson, WorldCom, Intimate Brands, Analog
Devices, and Office Depot were all sold from your portfolio. You still hold
Newbridge Networks, Sears Roebuck and Gap, all solid holdings, together bringing
in more than $27 million since initial purchase.
You saw 15 companies contribute more than $10 million a piece during the
quarter, eight of which exceeded gains of $20 million each. Your largest
gainer, Dell Computer with $66 million, alone gave you more than what your three
leading decliners lost.
Other major winners for you were Intel Corp. bringing in $60 million, 3Com Corp.
and BMC Software with $37 million a piece, Nike at $29 million, Gateway 2000
contributing $27 million, Cisco Systems gaining $26 million, and Adaptec with
$23 million.
ON THE CUTTING EDGE . . .
CUTTING BOARDS PROTECTING AGAINST SALMONELLA AND E. COLI . . . HOSPITAL GOWNS
KILLING STAPH GERMS ON CONTACT
By adding bacteria-killing chemicals to plastics and synthetic fibers, Microban
Products Co. in Huntersville, N.C. is making these and other products with
built-in antibacterial protection. The pellet-encased ingredient is colorless,
odorless, and, unlike surface coating, does not wash off. Hasbro is test-
marketing a child's high-chair with the ingredient molded into the food tray.
STOPPING DISABLED PLANES
"Foamcrete," a mixture of cement, water, and foaming agents, manufactured by
Engineered Systems in Aston, Pennsylvania, can stop a runaway Boeing 727
traveling at 60 mph within 400 feet. Disabled planes making an emergency landing
would roll onto a strip of foamcrete laid out at the end of the runway.
Currently, foamcrete is being installed at New York's Kennedy Airport; the
Boston and Seattle airports may soon follow.
"BATTERIES NOT INCLUDED" -- BUT THIS TIME THEY ARE NOT NECESSARY
Trevor Bayless, a British inventor, has created the Bayless Clockwork Radio.
Simply wind it up like an old-time phonograph, and listen to AM, FM, or short
wave for half an hour. A grant from the British government is making the radios
available for $4 a piece for aid agencies to distribute in African villages.
The hope is the radios will be a good source for distance learning and health
information. The "Freeplay" radio makes a logical emergency set here in the U.S.
because it can be stored unwound and wrapped in watertight plastic without
worrying about batteries leaking. The retail price here is about $100.
SOMETIMES LESS IS MORE
Personal digital assistants are those "pocket computers" that are usually too
heavy, slow, and complicated to be useful. Palm Computing's Pilot fits in a
pocket, weighs 5.7 ozs., and has one goal -- to keep you organized. Set the
Pilot into a special cradle attached to your personal computer, press one
button, and the two devices exchange updates of their data -- phone numbers,
addresses, appointments. Since the Pilot was introduced in April, retailers can
barely keep the $299 device in stock. Palm's parent company is U.S. Robotics
Corp.
TOP TEN . . .
There were no new industries appearing in your top ten this quarter, but some
rearrangement did occur.
The greatest shift took place in your Retailing category, which decreased from
16.3 percent in June to 12.5 percent this quarter, still maintaining the number
one position. A major portion of your Sears position and your entire Dayton
Hudson position were sold, reducing the size of this group. You also sold
American Eagle Outfitters, Estee Lauder, and some of your Gap stock, realizing
more than $17 million in gains.
Your number two group in June, Oil/Gas Field Services, still occupies that spot
but was pared back from 14.6 percent to 11.7 percent. Profits of nearly $20
million were created when Benton Oil, Digicon, Ensco International, Global
Industries, and Tidewater were all removed from your portfolio.
With the addition of Adobe Systems, Cheyenne Software, Computer Associates,
Informix, McAfee Associates, and Structural Dynamics to your portfolio during
the quarter, your Software category grew from 7.2 percent in June to 11.7
percent to occupy the number three position. So far, these companies have added
close to $40 million to your Fund.
TOP TEN INDUSTRY GROUPS
Cash 0.8%
Healthcare 2.9%
Semiconductors & Related 4.6%
Communications 5.7%
Networking 7.1%
Financial/Business Services 7.4%
Apparel & Shoes 7.8%
Computers & Related 10.7%
Software 11.7%
Oil/Gas Field Services 11.7%
Retailing 12.5%
BRANDYWINE FUND, INC.
STATEMENT OF NET ASSETS
September 30, 1996
QUOTED
MARKET
SHARES OR PRINCIPAL AMOUNT COST VALUE
- -------------------------- ---- -------
COMMON STOCKS - 99.2%(A)<F4>
APPAREL & SHOES - 7.8%
136,000 Brown Group, Inc. $2,614,288 $3,162,000
642,700 Jones Apparel Group, Inc.*<F3> 24,764,804 40,972,125
181,000 Kenneth Cole Productions Inc.*<F3> 3,387,276 3,416,375
2,111,200 Liz Claiborne, Inc. 60,123,949 78,642,200
1,515,100 NIKE, Inc. Cl B 76,333,651 184,084,650
926,900 Nine West Group Inc.*<F3> 45,410,656 50,284,325
109,800 Pacific Sunwear of California, Inc.*<F3> 1,770,206 3,609,675
1,076,100 The Sports Authority, Inc.*<F3> 23,775,387 28,651,162
403,600 St. John Knits, Inc. 17,101,841 20,230,450
225,000 The Stride Rite Corp. 2,112,335 2,025,000
819,250 Tommy Hilfiger Corp.*<F3> 24,409,880 48,540,563
160,000 Vans, Inc.*<F3> 1,741,250 3,060,000
180,000 The Wet Seal, Inc.*<F3> 3,654,472 6,480,000
------------ -----------
287,199,995 473,158,525
THIS SECTOR IS 64.7% ABOVE YOUR FUND'S COST.
AUTOMOTIVE & RELATED - 0.5%
179,700 Arvin Industries, Inc. 4,288,833 4,425,112
140,500 Borg-Warner Automotive, Inc. 4,789,428 4,987,750
276,100 Lear Corporation*<F3> 8,469,228 9,111,300
274,900 SPX Corp. 5,931,140 8,212,638
108,000 Tower Automotive, Inc.*<F3> 2,670,549 2,767,500
------------ -----------
26,149,178 29,504,300
THIS SECTOR IS 12.8% ABOVE YOUR FUND'S COST.
BUILDING & RELATED - 0.5%
264,900 AMRE, Inc.*<F3> 4,247,560 3,675,487
210,000 Champion Enterprises, Inc.*<F3> 4,642,100 4,751,250
362,800 Dal-Tile International Inc.*<F3> 5,077,476 5,940,850
150,000 Pacific Greystone Corp.*<F3> 1,673,330 1,556,250
476,000 U.S. Industries, Inc.*<F3> 12,651,853 12,495,000
------------ -----------
28,292,319 28,418,837
THIS SECTOR IS 0.4% ABOVE YOUR FUND'S COST.
COMMUNICATIONS - 5.7%
585,600 ADC Telecommunications, Inc.*<F3> 25,488,852 37,478,400
310,000 Andrew Corp.*<F3> 15,715,578 15,461,250
179,300 Aspect Telecommunications
Corp.*<F3> 9,603,245 11,161,425
34,000 Cable Design Technologies Corp.*<F3> 1,167,100 1,360,000
636,000 Comverse Technology, Inc.*<F3> 15,379,670 24,724,500
80,000 Digital Systems International, Inc.*<F3> 1,349,375 1,430,000
500,000 Dynatech Corp.*<F3> 17,081,253 22,875,000
634,000 ECI Telecom Ltd. 13,476,488 13,314,000
476,000 MasTec, Inc.*<F3> 15,140,538 16,303,000
101,000 Metro One
Telecommunications, Inc.*<F3> 962,250 1,363,500
53,000 MICROS Systems, Inc.*<F3> 1,510,500 1,563,500
339,900 Octel Communications Corp.*<F3> 8,981,743 9,857,100
2,117,500 Tellabs, Inc.*<F3> 82,242,103 149,548,437
620,800 U.S. Robotics Corp.*<F3> 44,169,939 40,119,200
----------- -----------
252,268,634 346,559,312
THIS SECTOR IS 37.4% ABOVE YOUR FUND'S COST.
COMPUTERS & RELATED - 10.7%
1,826,300 Adaptec, Inc.*<F3> 83,187,610 109,578,000
782,100 American Power Conversion Corp.*<F3> 10,596,372 11,438,212
318,800 Applied Magnetics Corp.*<F3> 5,383,630 5,658,700
646,700 Auspex Systems, Inc.*<F3> 10,221,638 9,943,013
69,800 BancTec, Inc.*<F3> 1,455,638 1,457,075
75,000 CHS Electronics, Inc.*<F3> 947,500 1,021,875
2,373,600 Compaq Computer Corp.*<F3> 134,582,582 152,207,100
260,800 Control Data Systems, Inc.*<F3> 6,096,553 6,031,000
396,300 Data General Corp.*<F3> 5,335,920 5,548,200
1,539,300 Dell Computer Corp.*<F3> 50,366,387 119,680,575
78,000 Eltron International, Inc.*<F3> 2,275,218 2,525,250
1,946,600 Gateway 2000, Inc.*<F3> 76,382,688 93,193,475
135,000 MicroTouch Systems, Inc.*<F3> 2,285,302 2,531,250
164,000 PAR Technology Corp.*<F3> 2,450,500 2,316,500
35,300 Pomeroy Computer Resource, Inc.*<F3> 970,288 1,156,075
1,193,400 Sun Microsystems, Inc.*<F3> 57,266,753 74,139,975
1,209,200 Western Digital Corp.*<F3> 29,559,008 48,519,150
----------- -----------
479,363,587 646,945,425
THIS SECTOR IS 35.0% ABOVE YOUR FUND'S COST.
DISTRIBUTION - 1.2%
286,100 Black Box Corp.*<F3> 6,870,024 9,441,300
195,000 InaCom Corp.*<F3> 4,215,501 6,678,750
435,000 MicroAge, Inc.*<F3> 6,535,348 8,210,625
707,300 Tech Data Corp.*<F3> 11,433,279 19,715,987
780,000 U.S. Office Products Co.*<F3> 31,212,712 27,982,500
----------- -----------
60,266,864 72,029,162
THIS SECTOR IS 19.5% ABOVE YOUR FUND'S COST.
ELECTRICAL EQUIPMENT MANUFACTURERS - 1.7%
247,000 AAR CORP. 5,721,962 5,711,875
163,000 Aviation Sales Company*<F3> 3,235,270 3,137,750
206,100 BE Aerospace, Inc.*<F3> 4,030,310 4,250,812
594,300 Honeywell Inc. 34,458,391 37,515,188
350,000 Precision Castparts Corp. 14,149,510 16,975,000
847,200 Sundstrand Corp. 29,823,605 33,040,800
------------ ------------
91,419,048 100,631,425
THIS SECTOR IS 10.1% ABOVE YOUR FUND'S COST.
ELECTRONICS - 1.5%
175,000 Computer Products, Inc.*<F3> 3,685,310 3,828,125
269,100 Etec Systems, Inc.*<F3> 5,632,988 9,149,400
153,000 Reptron Electronics, Inc.*<F3> 2,505,375 2,715,750
1,102,400 SCI Systems, Inc.*<F3> 44,216,879 62,010,000
447,400 Waters Corp.*<F3> 11,856,100 14,652,350
------------ -----------
67,896,652 92,355,625
THIS SECTOR IS 36.0% ABOVE YOUR FUND'S COST.
FINANCIAL/BUSINESS SERVICES - 7.4%
192,000 AamesFinancial Corp. 5,520,710 9,672,000
836,600 AccuStaff Inc.*<F3> 21,894,377 21,647,025
569,100 AmeriCredit Corp.*<F3> 9,812,912 10,457,212
90,800 Amerin Corp.*<F3> 2,015,670 2,043,000
2,211,300 Associates First Capital
Corporation 76,650,092 90,663,300
640,500 Beneficial Corp. 33,612,789 36,828,750
137,500 CMAC Investment Corp. 7,963,360 8,731,250
123,600 Comdisco, Inc. 3,497,561 3,568,950
1,200,000 Conseco, Inc. 53,633,358 59,100,000
123,300 CORT Business Services
Corporation*<F3> 2,343,135 2,512,237
527,900 Credit Acceptance Corp.*<F3> 9,962,923 14,517,250
550,800 Diebold, Inc. 29,320,501 32,152,950
681,000 Employee Solutions, Inc.*<F3> 11,876,889 11,747,250
62,000 ITI Technologies, Inc.*<F3> 1,659,000 2,185,500
528,300 Metromail Corporation*<F3> 10,770,446 11,424,488
745,000 MGIC Investment Corp. 48,087,415 50,194,375
148,000 MIM Corporation*<F3> 2,087,915 2,146,000
641,350 The Money Store, Inc. 10,811,193 16,995,775
451,000 Norrell Corp. 5,098,572 14,206,500
249,000 Personnel Group of America, Inc.*<F3> 3,773,595 6,474,000
367,100 The PMI Group, Inc. 16,719,422 19,502,188
363,700 The Quick & Reilly Group, Inc. 11,243,713 9,547,125
170,200 RemedyTemp, Inc.*<F3> 2,405,639 3,616,750
278,900 StaffMark, Inc.*<F3> 3,630,869 3,939,462
78,000 Ultrak, Inc.*<F3> 1,403,910 2,145,000
135,000 Warrantech Corp.*<F3> 1,074,375 1,316,250
------------ ------------
386,870,341 447,334,587
THIS SECTOR IS 15.6% ABOVE YOUR FUND'S COST.
FOOD/RESTAURANTS - 1.2%
253,300 CKE Restaurants, Inc. 3,125,912 7,788,975
286,200 Dean Foods Co. 7,848,278 8,085,150
541,100 Flowers Industries, Inc. 9,964,930 11,024,912
397,000 Food Lion Cl A 3,148,728 3,573,000
488,000 Food Lion CL B 3,827,230 4,331,000
45,000 Foodmaker, Inc.*<F3> 455,200 450,000
656,600 The Kroger Co.*<F3> 28,423,875 29,382,850
53,000 Morton's Restaurant Group, Inc.*<F3> 943,930 927,500
122,600 ShowBiz Pizza Time, Inc.*<F3> 1,985,708 2,222,125
147,000 Sonic Corp.*<F3> 3,191,718 3,730,125
------------ -----------
62,915,509 71,515,637
THIS SECTOR IS 13.7% ABOVE YOUR FUND'S COST.
HEALTHCARE - 2.9%
357,500 Genesis Health Ventures, Inc.*<F3> 9,677,465 10,054,687
210,000 Health Images, Inc. 2,523,986 2,808,750
207,200 HealthCare COMPARE Corp.*<F3> 9,221,842 9,816,100
68,100 HealthPlan Services Corp.*<F3> 1,002,214 1,489,688
1,380,500 HEALTHSOUTH Corp.*<F3> 48,483,891 52,976,688
100,700 MedCath Inc.*<F3> 1,748,819 1,711,900
1,046,892 MedPartners, Inc.*<F3> 20,553,529 23,816,793
988,600 OrNda HealthCorp*<F3> 25,361,913 27,062,925
411,500 Pacificare Health Systems, Inc.*<F3> 33,084,113 35,594,750
410,000 Quorum Health Group, Inc.*<F3> 9,884,110 10,147,500
----------- -----------
161,541,882 175,479,781
THIS SECTOR IS 8.6% ABOVE YOUR FUND'S COST.
HOME/OFFICE & RELATED - 1.9%
395,400 Apogee Enterprises, Inc. 13,635,848 13,839,000
282,500 Central Garden & Pet Co.*<F3> 5,215,857 5,685,312
278,400 HON INDUSTRIES Inc. 11,093,660 11,066,400
155,000 Hughes Supply, Inc. 5,495,523 5,735,000
1,633,900 Lowe's Companies, Inc. 62,670,396 66,785,663
243,300 Herman Miller, Inc. 8,016,078 9,853,650
------------ ------------
106,127,362 112,965,025
THIS SECTOR IS 6.4% ABOVE YOUR FUND'S COST.
LEISURE & ENTERTAINMENT - 1.0%
526,000 Action Performance Cos. Inc. 6,260,651 6,772,250
532,200 American Greetings Corp. Cl A 14,756,861 15,234,225
122,500 CACI International Inc.*<F3> 1,913,547 2,128,437
120,000 Cannondale Corp.*<F3> 2,633,400 2,790,000
327,800 Lewis Galoob Toys, Inc.*<F3> 7,058,093 9,588,150
511,500 Interstate Hotels Company*<F3> 11,779,546 14,130,188
206,800 National Media Corp.*<F3> 3,559,254 3,076,150
420,000 Red Roof Inns, Inc.*<F3> 6,071,370 5,722,500
------------ -----------
54,032,722 59,441,900
THIS SECTOR IS 10.0% ABOVE YOUR FUND'S COST.
MACHINERY/CONSTRUCTION & MISCELLANEOUS MANUFACTURING - 0.6%
167,300 Applied Power Inc. 4,962,611 5,332,687
146,200 Chart Industries, Inc. 2,235,265 2,576,775
141,300 Chicago Miniature Lamp, Inc.*<F3> 1,327,977 4,274,325
221,400 Dycom Industries, Inc.*<F3. 2,810,775 2,822,850
880,500 JLG Industries, Inc. 5,176,738 16,509,375
261,250 PAXAR Corp.*<F3> 4,277,215 4,277,969
101,700 The Shaw Group, Inc.*<F3> 2,031,369 3,534,075
----------- -----------
22,821,950 39,328,056
THIS SECTOR IS 72.3% ABOVE YOUR FUND'S COST.
MEDICAL PRODUCTS & SUPPLIES - 1.2%
210,000 ADAC Laboratories 4,988,128 4,226,250
148,000 Advanced Technology
Laboratories, Inc.*<F3> 4,800,147 4,736,000
480,000 AmeriSource Health Corp.*<F3> 15,034,002 21,360,000
126,500 Ballard Medical Products 2,377,943 2,466,750
345,800 CNS, Inc.*<F3> 7,631,252 6,137,950
298,500 ESC Medical Systems Ltd.*<F3> 7,009,622 9,552,000
351,500 Graham-Field Health Products, Inc. 3,283,236 2,416,563
229,500 Physio-Control International Corp.*<F3> 5,214,312 5,794,875
155,000 Spine-Tech, Inc.*<F3> 4,184,374 4,340,000
289,700 Sybron International Corp.*<F3> 8,164,887 8,401,300
122,100 UROHEALTH Systems, Inc.*<F3> 1,673,656 1,556,775
------------ -----------
64,361,559 70,988,463
THIS SECTOR IS 10.3% ABOVE YOUR FUND'S COST.
NETWORKING - 7.1%
2,686,400 3Com Corp.*<F3> 124,467,837 161,353,243
3,623,200 Cisco Systems Inc.*<F3> 125,129,299 224,866,662
448,100 Newbridge Networks Corp.*<F3> 27,610,251 28,566,375
270,800 Uniphase Corp.*<F3> 4,499,149 11,441,300
200,000 Xircom, Inc.*<F3> 2,700,375 3,250,000
------------ ------------
284,406,911 429,477,580
THIS SECTOR IS 51.0% ABOVE YOUR FUND'S COST.
OIL/GAS FIELD SERVICES - 11.7%
1,248,800 Apache Corp. 36,937,628 37,151,800
717,400 BJ Services Co.*<F3> 23,042,422 26,005,750
375,800 Camco International Inc. 13,431,173 14,045,525
313,700 Chesapeake Energy Corporation*<F3> 15,995,948 19,645,462
334,700 Cooper Cameron Corp.*<F3> 13,822,975 19,203,412
160,000 Daily Petroleum Services Corp.*<F3> 1,320,628 1,400,000
887,368 Diamond Offshore Drilling, Inc.*<F3> 39,913,285 48,805,240
218,200 Energy Ventures, Inc.*<F3> 5,351,175 8,837,100
3,181,600 Global Marine Inc.*<F3> 46,700,599 50,110,200
150,000 Houston Exploration Company*<F3> 2,476,060 2,550,000
174,100 J. Ray McDermott, S.A.*<F3> 4,283,014 5,070,662
1,091,500 Marine Drilling Companies, Inc.*<F3> 11,505,152 10,505,687
2,779,100 Noble Drilling Corp.*<F3> 34,396,596 42,033,888
156,600 Nuevo Energy Co.*<F3> 6,278,795 6,361,875
2,897,100 Oryx Energy Co.*<F3> 47,321,807 51,423,525
605,100 Pennzoil Co. 29,739,351 31,994,663
1,201,700 Phillips Petroleum Co. 50,342,714 51,372,675
938,500 Reading & Bates Corp.*<F3> 11,560,459 25,456,813
1,012,300 Rowan Companies, Inc.*<F3> 16,707,247 18,854,088
2,197,800 Schlumberger Ltd. 191,712,892 185,714,100
416,300 Smith International, Inc.*<F3> 11,868,332 14,622,538
328,600 Swift Energy Co.*<F3> 7,927,108 7,886,400
851,200 Varco International, Inc.*<F3> 15,601,121 15,002,400
536,200 Vintage Petroleum, Inc. 12,290,244 15,750,875
----------- -----------
650,526,725 709,804,678
THIS SECTOR IS 9.1% ABOVE YOUR FUND'S COST.
PHARMACEUTICALS - 2.3%
480,000 Bio-Technology General Corp.*<F3> 3,952,290 3,810,240
1,642,200 Genzyme Corp.*<F3> 48,696,169 41,876,100
121,400 Medicis Pharmaceutical Corp.*<F3> 5,304,670 5,857,550
354,200 R.P. Scherer Corp.*<F3> 17,147,603 17,267,250
100,000 Serologicals Corp.*<F3> 2,619,500 3,475,000
1,377,600 Teva Pharmaceutical Industries
Ltd. ADR 61,786,474 63,886,200
------------ ------------
139,506,706 136,172,340
THIS SECTOR IS 2.4% BELOW YOUR FUND'S COST.
RETAILING - 12.5%
963,300 Claire's Stores, Inc. 9,666,762 20,590,538
1,096,800 CompUSA Inc.*<F3> 27,416,650 59,227,200
882,000 Consolidated Stores Corp.*<F3> 27,538,718 35,280,000
1,162,875 Dollar General Corp. 28,766,768 36,194,484
425,000 French Fragrances Inc.*<F3> 2,550,000 2,975,000
5,498,000 Gap, Inc. 131,404,148 158,754,750
453,100 Hollywood Entertainment Corp.*<F3> 9,683,751 9,288,550
368,200 Mac Frugal's Bargainso
Close-outs Inc.*<F3> 8,120,023 8,698,725
2,153,700 Melville Corp. 94,570,025 95,032,012
290,700 NBTY Inc.*<F3> 3,669,756 4,796,550
61,600 Neiman-Marcus Group, Inc.*<F3> 2,161,722 2,171,400
122,500 The North Face, Inc.*<F3> 1,987,501 3,460,625
1,191,200 Payless ShoeSource, Inc.*<F3> 38,000,420 40,054,100
874,100 Pier 1 Imports, Inc. 11,685,268 14,094,863
222,800 Proffitt's Inc.*<F3> 5,052,445 8,800,600
3,535,800 Sears, Roebuck and Co. 150,043,388 158,227,050
433,100 Sunglass Hut International, Inc.*<F3> 6,814,266 6,902,748
478,400 Thrifty PayLess Holdings, Inc. Cl B*<F3> 7,944,103 8,910,200
2,232,400 TJX Companies, Inc. 63,055,117 80,087,350
------------ ------------
630,130,831 753,546,745
THIS SECTOR IS 19.6% ABOVE YOUR FUND'S COST.
SEMICONDUCTORS & RELATED - 4.6%
327,000 Digital Microwave Corp.*<F3> 6,731,205 7,521,000
2,599,100 Intel Corp. 187,540,404 248,052,906
130,000 Jabil Circuit, Inc.*<F3> 2,230,818 2,275,000
55,000 Photronics, Inc.*<F3> 1,540,418 1,705,000
287,300 Sanmina Corp.*<F3> 7,251,211 11,563,825
72,500 Semtech Corp.*<F3> 895,512 915,312
437,300 Xicor, Inc.*<F3> 5,015,352 5,083,613
----------- -----------
211,204,920 277,116,656
THIS SECTOR IS 31.2% ABOVE YOUR FUND'S COST.
SOFTWARE - 11.7%
837,000 Adobe Systems Inc. 30,200,523 31,178,250
1,854,900 BMC Software, Inc.*<F3> 68,804,980 147,464,550
827,450 Cadence Design Systems, Inc.*<F3> 11,356,098 29,581,337
521,400 Cheyenne Software, Inc.*<F3> 9,364,303 11,210,100
966,900 Cognos Inc.*<F3> 11,047,564 31,545,112
3,641,000 Computer Associates International,
Inc. 202,953,366 217,549,750
935,000 Compuware Corp.*<F3> 34,826,529 42,776,250
265,000 Datastream Systems, Inc.*<F3> 6,710,397 8,016,250
276,000 Datawatch Corp.*<F3> 2,960,788 2,311,500
271,000 IKOS Systems, Inc.*<F3> 3,624,500 5,386,125
3,275,100 Informix Corp.*<F3> 82,531,777 91,293,413
140,000 Insight Enterprises, Inc.*<F3> 3,611,293 5,232,500
110,500 Kronos Inc.*<F3> 3,524,249 3,397,875
616,300 McAffee Associates, Inc.*<F3> 32,249,222 42,524,700
208,400 Parametric Technology Corp.*<F3> 9,173,990 10,289,750
376,700 PC DOCS Group International Inc.*<F3> 7,128,145 5,085,450
46,000 Project Software & Development,
Inc.*<F3> 1,474,489 1,943,500
546,100 Structural Dynamics Research Corp.*<F3> 10,578,367 13,038,138
296,800 Vanstar Corporation*<F3> 4,236,632 7,197,400
----------- -----------
536,357,212 707,021,950
THIS SECTOR IS 31.8% ABOVE YOUR FUND'S COST.
TRANSPORTATION - 1.0%
259,900 AirNet Systems Inc.*<F3> 3,877,584 3,703,575
548,900 Comair Holdings, Inc. 13,267,786 12,899,150
505,400 Mesa Air Group, Inc.*<F3> 6,730,315 4,611,775
257,800 Miller Industries, Inc.*<F3> 4,742,485 10,183,100
200,000 SkyWest, Inc. 3,789,424 2,850,000
1,601,400 USAir Group, Inc.*<F3> 29,720,974 26,423,100
----------- -----------
62,128,568 60,670,700
THIS SECTOR IS 2.3% BELOW YOUR FUND'S COST.
MISCELLANEOUS - 2.5%
371,900 CALPINE Corporation*<F3> 5,950,400 5,950,400
171,800 Fairfield Communities, Inc.*<F3> 2,863,958 3,199,775
477,200 Genesco Inc.*<F3> 4,352,560 4,473,750
384,300 The B. F. Goodrich Company 16,528,651 17,341,538
178,900 Olin Corp. 14,834,098 15,027,600
1,512,600 Praxair, Inc. 49,215,339 65,041,800
541,100 UCAR International Inc.*<F3> 22,112,636 21,914,550
461,300 United Waste Systems, Inc.*<F3> 8,931,662 16,030,175
------------ -----------
124,789,304 148,979,588
THIS SECTOR IS 19.4% ABOVE YOUR FUND'S COST.
WARRANTS - 0.0%
43 Sound Advice, Inc.
Warrants*<F3>, 06/14/99 0 0
------------- -------------
Total common stocks 4,790,578,779 5,989,446,297
SHORT-TERM INVESTMENTS - 0.9% (A)<F4>
COMMERCIAL PAPER - 0.7%
$20,000,000 The CIT Group Holdings, Inc.,
due 10/01/96, discount of 5.66% 20,000,000 20,000,000
10,000,000 Prudential Funding Corp.,
due 10/02/96, discount of 5.33% 9,998,519 9,998,519
10,000,000 The CIT Group Holdings, Inc.,
due 10/04/96, discount of 5.35% 9,995,542 9,995,542
5,000,000 General Electric Capital Corp.,
due 10/07/96, discount of 5.35% 4,995,542 4,995,542
------------- ------------
Total commercial paper 44,989,603 44,989,603
VARIABLE RATE DEMAND NOTES - 0.2%
6,251,136 Johnson Controls, Inc. 6,251,136 6,251,136
4,185,000 Wisconsin Electric Power Co. 4,185,000 4,185,000
------------- -------------
Total variable rate demand notes 10,436,136 10,436,136
------------- -------------
Total short-term investments 55,425,739 55,425,739
------------- -------------
Total investments $4,846,004,518 6,044,872,036
-------------
-------------
LIABILITIES, LESS CASH AND
RECEIVABLES (0.1%) (A)<F4> (6,571,359)
-------------
NET ASSETS $6,038,300,677
-------------
-------------
Net Asset Value Per Share
($0.01 par value 500,000,000
shares authorized), offering
and redemption price
($6,038,300,677 / 183,925,965
shares outstanding) $32.83
------
------
* <F3>Non-income producing security.
(a)<F4>Percentages of various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
NEWS FROM YOUR CUSTODIAN . . .
You'll notice a change on your next statement from Firstar Trust. In order to
prevent the possibility of fraudulent use of your social security number or tax
identification number, it will no longer be printed on any statement unless your
statement reflects an initial purchase into the Fund. In the box where the
number normally appeared, it will read "on file" if Firstar has your number or
"specify" if they need it from you.
BRANDYWINE FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1996
INCOME:
Dividends $25,149,470
Interest 7,029,642
-----------
Total income 32,179,112
-----------
EXPENSES:
Management fees 49,114,962
Custodian fees 842,386
Registration fees 801,335
Transfer agent fees 538,835
Printing and postage expense 395,133
Administrative services 345,075
Professional fees 37,606
Other expenses 139,030
-----------
Total expenses 52,214,362
-----------
NET INVESTMENT LOSS (20,035,250)
-----------
NET REALIZED GAIN ON INVESTMENTS 214,708,928
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 362,502,998
-----------
NET GAIN ON INVESTMENTS 577,211,926
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $557,176,676
-----------
-----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1996 and 1995
1996 1995
----- ------
OPERATIONS:
Net investment loss $(20,035,250) $(10,067,903)
Net realized gain on investments 214,708,928 486,983,910
Net increase in unrealized appreciation
on investments 362,502,998 676,704,147
------------ ------------
Net increase in net assets resulting
from operations 557,176,676 1,153,620,154
----------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains
($3.84486 and $1.45255 per share, <F5>
respectively) (479,170,817)* (132,629,398)
------------ -------------
Fund Share Activities:
Proceeds from shares issued (68,912,081 and
41,807,549 shares, respectively) 2,054,823,129 1,178,735,039
Net asset value of shares issued in distributions
(15,557,840 and 5,354,806 shares, respectively) 439,669,031 123,963,752
Cost of shares redeemed (22,514,291 and
15,663,300 shares, respectively) (671,681,532) (426,759,741)
------------ ------------
Net increase in net assets derived from
Fund share activities 1,822,810,628 875,939,050
------------- ------------
TOTAL INCREASE 1,900,816,487 1,896,929,806
NET ASSETS AT THE BEGINNING OF THE YEAR 4,137,484,190 2,240,554,384
------------- -------------
NET ASSETS AT THE END OF THE YEAR $6,038,300,677 $4,137,484,190
------------- --------------
------------- --------------
*<F5>Total distribution includes $386,543,539 of ordinary income, of which 3% is
eligible for the corporate dividends received deduction.
The accompanying notes to financial statements are an integral part of these
statements.
<TABLE>
BRANDYWINE FUND, INC.
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each year)
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $33.92 $24.77 $28.04 $19.36 $20.52 $15.79 $17.87
Income from investment operations:
Net investment (loss) income (0.08)(1) (0.10) 0.03 (0.02) 0.04 0.27 0.11
Net realized and unrealized gains (losses) <F6>
on investments 2.83 10.70 (0.43) 9.25 1.04 5.74 (1.48)
------- ------- -------- -------- -------- -------- --------
Total from investment operations 2.75 10.60 (0.40) 9.23 1.08 6.01 (1.37)
Less distributions:
Dividends from net investment
income -- -- -- (0.01) (0.13) (0.28) (0.03)
Distributions from net realized
gains (3.84) (1.45) (2.87) (0.54) (2.11) (1.00) (0.68)
------- ------- -------- -------- -------- -------- --------
Total from distributions (3.84) (1.45) (2.87) (0.55) (2.24) (1.28) (0.71)
------- ------- -------- -------- -------- -------- --------
Net asset value, end of year $32.83 $33.92 $24.77 $28.04 $19.36 $20.52 $15.79
------- ------- -------- -------- -------- -------- --------
------- ------- -------- -------- -------- -------- --------
Total Investment Return 10.0% 45.5% (1.4%) 48.6% 5.9% 41.4% (7.9%)
Ratios/Supplemental Data:
Net assets, end of year (in 000's $) 6,038,301 4,137,484 2,240,554 1,413,253 695,128 527,808 271,856
Ratio of expenses to average net assets 1.06% 1.07% 1.09% 1.08% 1.10% 1.09% 1.12%
Ratio of net investment (loss) income
to average net assets (0.4%) (0.4%) 0.1% (0.1%) 0.2% 1.5% 0.9%
Portfolio turnover rate 202.8% 193.7% 190.2% 150.4% 188.9% 187.9% 157.7%
Average Commission Per Share*<F7> 0.0599
(1)<F6>Net investment loss per share is calculated using ending balances
prior to consideration of adjustments for book and tax differences.
*<F7>Disclosure required for fiscal years beginning after 9/1/95.
</TABLE>
YEARS ENDED SEPTEMBER 30,
-------------------------
1989 1988 1987
----- ----- ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $12.89 $17.00 $11.01
Income from investment operations:
Net investment (loss) income 0.03 0.06 (0.02)
Net realized and unrealized gains (losses)
on investments 4.99 (3.29) 6.04
------- ------- -------
Total from investment operations 5.02 (3.23) 6.02
Less distributions:
Dividends from net investment
income (0.04) -- (0.03)
Distributions from net realized
gains -- (0.88) --
------- ------- -------
Total from distributions (0.04) (0.88) (0.03)
------- ------- -------
Net asset value, end of year $17.87 $12.89 $17.00
------- ------- -------
------- ------- -------
Total Investment Return 39.0% (17.6%) 54.8%
Ratios/Supplemental Data:
Net assets, end of year (in 000's $) 169,745 122,863 127,777
Ratio of expenses to average net assets 1.13% 1.16% 1.18%
Ratio of net investment (loss) income
to average net assets 0.2% 0.3% (0.2%)
Portfolio turnover rate 91.0% 107.4% 146.8%
Average Commission Per Share*<F7>
(1)<F6>investment loss per share is calculated using ending balances
prior to consideration of adjustments for book and tax differences.
*<F7>losure required for fiscal years beginning after 9/1/95.
The accompanying notes to financial statements are an integral part of this
statement.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies of Brandywine
Fund, Inc. (the "Fund"), which is registered under the Investment Company Act of
1940. The Fund was incorporated under the laws of Maryland on October 9, 1985.
The investment objective of the Fund is to produce long-term capital
appreciation principally through investing in common stocks.
(a) Each security, excluding short-term investments, is valued at the last
sale price reported by the principal security exchange on which the issue is
traded, or if no sale is reported, the latest bid price. Securities which
are traded over-the-counter are valued at the latest bid price. Securities for
which quotations are not readily available are valued at fair value as
determined by the investment adviser under the supervision of the Board of
Directors. Short-term investments are valued at amortized cost which
approximates quoted market value. Investment transactions are recorded no later
than the first business day after the trade date. The cost amount of securities
for Federal income tax purposes aggregates $4,850,447,168. The difference
between cost amounts for book purposes and tax purposes is due to deferred wash
losses.
(b) Net realized gains and losses on common stock are com-puted on the
basis of the cost of specific certificates.
(c) Provision has not been made for Federal income taxes since the Fund
has elected to be taxed as a "regulated investment company" and intends to
distribute substantially all net investment company taxable income and net
capital gains to its shareholders and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies.
(d) Dividend income is recorded on the ex-dividend date. Interest income
is recorded on the accrual basis.
(e) The Fund has investments in short-term variable rate demand notes,
which are unsecured instruments. The Fund may be susceptible to credit risk with
respect to these notes to the extent the issuer defaults on its payment
obligation. The Fund's policy is to monitor the creditworthiness of the issuer
and does not anticipate nonperformance by these counterparties.
(f) Generally accepted accounting principles require that permanent
financial reporting and tax differences be reclassified to capital stock. At
September 30, 1996 the Fund had no such permanent differences.
(g) 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 revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES
The Fund has a management agreement with Friess Associates, Inc. (the
"Adviser"), with whom certain officers and directors of the Fund are affiliated,
to serve as investment adviser and manager. Under the terms of the agreement,
the Fund will pay the Adviser a monthly management fee at the annual rate of one
percent (1%) on the daily net assets of the Fund. Also, the Adviser is
reimbursed for administrative services rendered to the Fund by a consult-ant
paid by the Adviser.
(3) DISTRIBUTION TO SHAREHOLDERS
Net investment income and net realized gains are distributed to
shareholders. The Board of Directors of the Fund has declared a distribution of
all net realized gains to be paid on October 28, 1996 to shareholders of record
of October 24, 1996. The percentage of ordinary income which is eligible for the
corporate dividends received deduction for this income distribution is 100%.
(4) INVESTMENT TRANSACTIONS
For the year ended September 30, 1996, purchases and proceeds of sales of
investment securities (excluding short-term investments)
were $11,125,269,004 and $9,801,980,086, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of September 30, 1996, liabilities of the Fund included the following:
Payable to brokers for
investments purchased $134,205,761
Payable to Adviser for management fees 4,789,075
Other liabilities 798,899
(6) SOURCES OF NET ASSETS
As of September 30, 1996, the sources of net assets were as follows:
Fund shares issued and outstanding $4,647,019,440
Net unrealized appreciation
on investments 1,198,867,518
Undistributed net realized gains
and losses 192,413,719
-------------
$6,038,300,677
--------------
--------------
Aggregate net unrealized appreciation as of September 30, 1996 consisted of
the following:
Aggregate gross
unrealized appreciation $1,244,575,905
Aggregate gross unrealized
depreciation (45,708,387)
--------------
Net unrealized appreciation $1,198,867,518
--------------
--------------
(PRICE WATERHOUSE LLP LOGO)
3100 MULTIFOODS TOWER
33 SOUTH SIXTH STREET
MINNEAPOLIS, MN 55402
REPORT OF INDEPENDENT ACCOUNTANTS
October 7, 1996
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF BRANDYWINE FUND, INC.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Brandywine Fund, Inc. (the "Fund") at September 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the ten years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
MARKET CAP . . .
The most considerable shift in your market cap this quarter occurred in your
large cap holdings -- those above $5 billion -- increasing from 36.3 percent of
the June portfolio to 40 percent currently. The purchase of Intel Corp. and its
subsequent 31 percent gain, as well as a 53 percent increase in the market price
of Dell Computer which moved it up into the large cap category, helped raise
your investment in this group.
Also, new purchases and subsequent gains in Compaq Computer, Cisco Systems, and
Computer Associates contributed to your large cap growth. Together, these
companies brought in nearly $60 million during the quarter.
Your companies in the mid cap category were tapered back from 44.7 percent to
43.4 percent this quarter as you sold Ensco International, Seagate Technology
while trimming your positions in Beneficial Corp., Apache Corp., and Cadence
Design System, and nailing down $22 million in profits.
The sale of Intimate Brands, Global Industries, FileNet Corp., Trans World
Airlines, and Coventry Corp. brought your small cap holdings to 15.7 percent
from 17.5 percent in June.
YOUR COMPANIES' MARKET CAPTIALIZATION
CASH 0.9%
SMALL CAP 15.7%
MID CAP 43.4%
LARGE CAP 40.4%
BOARD OF DIRECTORS
John E. Burris
Chairman
Burris Foods, Inc.
Milford, Delaware
Foster S. Friess
President
Friess Associates, Inc.
Jackson, Wyoming
Stig Ramel
Former President
Nobel Foundation
Stockholm, Sweden
(800) 656-3017
Investment Adviser: FRIESS ASSOCIATES, INC.
Custodian, Transfer Agent: FIRSTAR TRUST COMPANY
Independent Accountants: PRICE WATERHOUSE LLP
Legal Counsel: FOLEY & LARDNER
OFFICERS: Foster S. Friess, President and Treasurer; Clarke Adams, Vice
President;
William F. D'Alonzo, Vice President; Carl S. Gates, Vice President; Paul R.
Robinson, Vice President; and Lynda J. Campbell, Secretary
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of Brandywine Fund unless accompanied or preceded by the
Fund's current prospectus.
Report editor: Lynda J. Campbell
Report Staff: Margaret Barton, Rebecca A. Buswell, Paul R. Robinson
