(Brandywine Fund, Inc. logo)
Managed by Friess Associates, Inc. Quarterly Report June 30, 1998
DEAR FELLOW SHAREHOLDERS:
We're grateful to report the black ink of your June quarter results contrasted
nicely to the declines of the S&P Midcap, Nasdaq Industrials and Russell 2000
which dropped 2.0 percent to nearly 5.0 percent. The 3.2 percent total return of
-------
the powerful S&P 500 surpassed your .8 percent gains.
JUNE QUARTER PERFORMANCE
RUSSELL 2000 -4.9
LIPPER SMALL CAP -3.9
S&P MIDCAP -2.4
NASDAQ IND. -2.0
IBD*<F1> 0.1
YOUR FUND *<F1> 0.8
S&P500*<F1> 3.2
*<F1> TOTAL RETURN
IBD = Investor's Business Daily Mutual Fund Index
The investment landscape in which your research team operates continues as the
mixed picture it was in the first quarter. S&P 500 earnings growth expectations
for the second quarter fell to only 1.4 percent, down from 12.5 percent at the
beginning of the year. Please reference the Declining Earnings Estimates table
found on page 2.
Pre-releases of poorer than expected 2nd quarter outlooks now streaming forth
threaten even the 1.4 percent estimate. The chart below reflects the dichotomy
between the S&P 500's 50 fastest growing companies and the remaining 450 on a
year over year basis. Notice 450 companies had an average 1.5 percent decline in
-------
1998's first quarter!
S&P 500 YEAR OVER YEAR EARNINGS PER SHARE CHANGE
The Total Reported The 50 Fastest Growing The Other 450
S&P 500 Index in the S&P 500 S&P 500 Cos.
---------------- --------------------- --------------
March Quarter 1997 13.6% 23.9% 8.0%
June 8.9 14.5 4.8
September 10.3 13.5 6.9
December 7.0 12.9 3.0
March Quarter 1998 0.9 5.6 -1.5
Despite the sharp drop in expectations, big cap stock prices remain firm. Your
stocks are expected to grow earnings 39 percent and sell at 22 times earnings --
almost three times the growth of the S&P 500 which sells at 23 times earnings.
1999 estimates imply a modest PE of 17 times for the typical Brandywine holding.
Extensive contacts with managements of your holdings as well as their customers,
competitors, and suppliers continue to be key to your Fund's success.
Your dynamic companies come mainly from the S&P Midcap, the Nasdaq Industrials,
the Russell 2000 Growth indices, and also, to a lesser extent, the S&P 500.
While the Nasdaq Industrials and Russell 2000 type companies currently lag the
S&P 500, these are the core of our excitement looking forward.
There is a 43 percent differential in the total returns of the S&P 500 and the
Russell 2000 indices since the divergence began in the middle of 1996's spring
quarter (May 15) through June 30 of this year. This divergence, which continued
in the June quarter -- S&P 500 up 3.2 percent, Russell 2000 down 4.6 percent --
----
should reverse soon. We eagerly look forward to a return of those conditions and
see signs of that developing now.
S&P 500 VS. RUSSELL 2000
Date S&P 500 Total Return Russell 2000 Total Return
5/15/96 100 100
5/31/96 100.7 101.1
6/30/96 101.1 97
7/31/96 96.67 88.63
8/30/96 98.7 93.72
9/30/96 104.2 97.33
10/31/96 107.06 95.84
11/30/96 115.09 99.72
12/31/96 112.82 102.26
1/31/97 119.82 104.26
2/18/97 120.76 101.76
3/31/97 115.84 97.04
4/30/97 122.7 97.28
5/31/97 130.12 108
6/30/97 135.92 112.55
7/31/97 146.67 117.75
8/31/97 138.5 120.38
9/30/97 146.04 129.09
10/31/97 141.2 123.4
11/30/97 147.69 122.57
12/31/97 150.21 124.75
1/31/98 151.87 122.87
2/28/98 162.76 132
3/31/98 171.05 137.5
4/30/98 172.77 138.25
5/31/98 169.81 130.89
6/29/98 176.39 132.7
Even the Nasdaq Composite itself has played host to this stark bias towards the
biggest cap companies. The Composite is up 0.5 percent through June 23 (latest
available breakout data) but the top 20 largest cap stocks were up 8.7 percent.
Without them, the index would have lost 5.4 percent. A six percentage point
differential between the reported index and the actual performance of all but
the 20 largest companies!
The impact of liquidity continues. Perhaps the current mania for "quality"
companies regardless of PE is best reflected by the comments of strategist A.C.
Moore, of Dunvagen Associates in Santa Barbara, who says, "What we are seeing is
still a great liquidity expansion that's seeking the best known names. For
those, investors are paying any price in order to participate."
DISAPPOINTING EARNINGS OUTLOOK
1Q98
1/9
1/20
1/28
Not applicable First Call overstated
2/5 5.9
2/12 5.7
2/19 4.8
2/26 4.4
3/5 3.8
3/12 2.9
3/19 1.5
4/2 0.4
4/8 -0.3
4/16 -1.4
4/23 1.0
4/30 1.2
5/7 1.3
5/16 1.5
5/21 1.8
5/28 1.5
6/4 1.6
6/11 1.6
6/18 1.6
6/25 1.7
7/1 1.8
2Q98
1/9 12.5
1/20 11.4
1/28 10.7
2/5 9.6
2/12 9.5
2/19 9.0
2/26 8.9
3/5 8.4
3/12 7.9
3/19 6.6
4/2 6.1
4/8 5.4
4/16 3.9
4/23 4.3
4/30 3.9
5/7 3.8
5/16 3.5
5/21 3.6
5/28 3.5
6/4 3.2
6/11 2.7
6/18 2.2
6/25 2.1
7/1 1.4
3Q98
1/9 15.1
1/20 14.0
1/28 13.9
2/5 13.9
2/12 13.9
2/19 13.3
2/26 13.3
3/5 12.8
3/12 12.5
3/19 12.0
4/2 11.7
4/8 11.2
4/16 10.8
4/23 10.3
4/30 10.2
5/7 10.2
5/16 9.8
5/21 10.0
5/28 9.8
6/4 9.5
6/11 9.2
6/18 8.5
6/25 8.2
7/1 8.0
4Q98
1/9 19.1
1/20 18.9
1/28 17.7
2/5 17.3
2/12 17.5
2/19 17.1
2/26 18.0
3/5 17.7
3/12 17.2
3/19 17.3
4/2 19.3
4/8 15.2
4/16 14.3
4/23 14.5
4/30 14.6
5/7 14.7
5/16 14.3
5/21 14.7
5/28 14.4
6/4 14.3
6/11 14.0
6/18 13.7
6/25 13.5
7/1 13.2
The tables of earnings expectations provided by Donaldson, Lufkin, and Jenrette
graphically show how analysts have revised down S&P 500 operating numbers from
the beginning of the year. The earnings reductions for the smaller, more dynamic
companies typically found in your Fund have been even more dramatic -- some
going from earnings growth to losses.
Treasury Department figures just released document the massive influx of foreign
investors into U.S. equities. Much of this money went into "big name" stocks
with uninspired fundamentals. Treasury figures show the $29 billion foreign
inflow into equities in the March quarter exceeded those inflows for 1994, 1995
and 1996 combined.
A classic example of the quest for these big name stocks is Nike's move from $44
to $54 in the last three weeks even though earnings estimates dropped 10 to 15
percent this week and the stock sells over 30 times May 1999 estimates. Nike's
recent quarterly earnings were $.04, down from $.52. Fundamental progress for
the next nine months to a year are not clear to us right now.
U.S. interest rates continue to drop with the U.S. Treasury's benchmark 30-year
long bond near the all time low yield, at 5.6 percent, cheering believers in the
higher PE "blue chip" stocks. Reported inflation also continues very muted
despite U.S. consumers' buying, which is the strongest in six years.
The U.S. Department of Commerce's recent first quarter GDP growth estimate of
5.4 percent carries with it the hidden promise of a rare time in the economy --
strong growth and low inflation. Yet many perhaps do not sense the connection
between this seemingly contrary set of circumstances domestically and the global
events that are unfolding.
Much of the breathing room enjoyed by Alan Greenspan and the Federal Reserve can
be attributed to the very strong dollar as many global currencies fall, most
notably in Asia. This in turn depresses the U.S. pricing environment by
introducing an ongoing stream of ever cheaper imports as well as generating
rising difficulty for American exports.
We also sense that much of the strength in the first quarter data results from
escalating inventory accumulation. Nonfarm inventories grew $92 billion in the
quarter alone. Such inventory build rates are unsustainable and will be reversed
in the balance of this year, slowing the real U.S. economy, but also keeping
inflation in check.
The bright spot in the economy is the U.S. consumer who is one step removed from
Asian uncertainties. Companies serving consumers' needs such as retailers,
restaurants, numerous durable goods companies, and a number of service
companies, along with the related suppliers and producers, are experiencing
strong growth. These companies now represent a large portion of your portfolio.
We're pleased to be moving in the right direction this quarter even though the
powerful surge in the bigger companies, driven more by their liquidity and
"name" than their fundamentals, remains difficult to match. Making you money in
view of the declines in the S&P Midcap, Nasdaq Industrials and Russell 2000
encourages us that our strategy of isolating strong progress in companies and
shedding those companies with weak fundamentals is again being rewarded.
According to William O'Neil & Co., the companies in your portfolio have earnings
growth of 46 percent for the last 12 months compared to just 14 percent for the
companies in the S&P 500. For the most recent quarter, your companies' earnings
are growing 43 percent while the S&P 500's growth is 13 percent.
COMPANY GROWTH
AVERAGE INCREASE AVERAGE INCREASE
LATEST 12 MOS. EARNINGS LATEST QUARTERLY EARNINGS
YOUR COMPANIES 46% 43%
S&P 500 14% 13%
ALL S&P FIGURES ARE UNWEIGHTED. ANALYSIS BY WILLIAM O'NEIL & CO., INC. JUNE 26,
1998.
We still find the Asian crisis in full boil as we write. The dramatic fall in
the Japanese yen, requiring recent intervention by the U.S. Fed and the Bank of
Japan, highlights the bleak outlook. May vehicle production in Japan fell by 20
percent. Major bank stocks trade at par value, and auditors continue to uncover
growing evidence of failed swap and derivative agreements in Indonesia.
Asia's Pacific Rim, almost one-third of global GDP, remains in deep crisis, with
growing impact on U.S. companies.
Your research team continued to broaden its international research contacts to
accurately assess the impact of global change on your companies. A trip to
Europe led by Bill D'Alonzo visited key company and government officials in
London, Frankfurt, Amsterdam, Stockholm, Paris, and Helsinki. We're planning a
similar trip to South America this fall. In Helsinki, visits with Finnish
worldwide cellular leader Nokia added greatly to already extensive contacts with
Nokia's U.S. operations.
Your team is inspired by your faith in us and grateful that recent developments
this quarter -- particularly as the quarter continued -- head us toward more
gains.
However, the past good quarter is but a speck of time compared to where we have
been in the past ten years and where we, Lord willing, hope to be in the next
----
ten years.
We're grateful to have you invested with us. We are committed right along with
you with more than $35 million of our pension and personal funds invested in
Brandywine. The Nobel Foundation, your Fund's initial shareholder, has more than
$25 million, and growing all of these assets is, as always, our number one
objective.
Thanks for your ongoing trust!
God Bless!
/s/ Foster Friess
Foster Friess
President
July 3, 1998
HIGHLIGHTS...
AUTOMOTIVE & RELATED
The industry that invented the assembly line is becoming more and more just
that. Companies like Chrysler, General Motors, Toyota and Nissan turn to
FEDERAL-MOGUL CORP. to take on more of the research, design, and engineering
burden of supplying complete systems and modules for the interior and exterior
of their vehicles.
Your company's Powertrain systems, sealing systems, and general products for
engines, transmissions, and axles, averaged about 20 to 30 per vehicle a year
ago, are at 60 currently, and expect to grow to an estimated 200 to 300.
Pulling in the recent "Supplier of the Year" award from Ryobi Outdoor Products
reflects Federal-Mogul's investment in plant, equipment and people over the last
few years, according to CEO Richard Snell. He went on to say that your company's
Wausau facility has shipped over 5 million parts with zero defects and on-time
delivery over the last three years.
The March quarter showed revenue growth of 36 percent fueling a 97 percent jump
in earnings from $.32 to $.63.
One of your longer-term holdings, your shares sell today at $68, rising 123
percent since purchase in April of last year.
BUILDING & RELATED
DYCOM INDUSTRIES, INC. offers engineering, construction, and maintenance
services to telecommunications providers and utility line locating companies.
GTE, Sprint, Comcast, and the Regional Bell companies are some of Dycom's
customers.
The Telecommunications Reform Act, which allows major telephone, cable, utility,
and entertainment companies to compete for consumer business, helps drive this
industry. Your company benefits as it has the technical expertise to provide
installation, design, and engineering services to update cable, phone, and
telecommunication networks.
Chief Executive Officer Tom Pledger recently told us that the integration of two
recent acquisitions (ITI, Cablecom) went smoothly, as both firms originally were
owned by the same three-man team, which had worked closely with Dycom.
Earnings in the recent April quarter rose 38 percent to $.36 from $.26, on
revenue growth of 53 percent to $97 million. Long term contracts account for 70
percent of revenue.
Your shares are up 73 percent since their $20 purchase price in March 1997.
HOME/OFFICE & RELATED
It's a clear connection, lower interest rates means people are buying more new
homes. More new homes means there's a need for new furnishings. Who benefits?
Companies like LADD FURNITURE, INC.
With seven subsidiary companies manufacturing everything from wood adult and
youth bedroom furniture, mid-priced wood dining pieces, to upholstered sofas,
love seats, and chairs, Ladd offers a comprehensive line of furnishings in the
U.S. and 50 countries. Your company also provides furniture for the hotel and
motel industry through American of Martinsville as well as offering an
inexpensive residential line of products through Pilliod furniture. Its
Pennsylvania House subsidiary makes custom-order wood and fabric pieces for
casual and formal settings.
Earnings more than tripled in the recent March quarter, at $.30 up from $.07.
From what we learned in our conversations with Bill Creekmuir, CFO, these
results are not surprising. Bill explained that higher order rates have
increased both plant capacity and work force productivity.
Your shares are up 33 percent from $22 in March.
LEISURE & ENTERTAINMENT
Looking for a fun, relaxing, all-in-one, vacation? Interested in seeing the
sights of Alaska, the Bahamas, the Caribbean, Europe, Mexico, or the South
Pacific? Then consider a cruise on the world's largest overnight cruise ship
operator -- CARNIVAL CORP. Your company's fleet numbers more than 20, including
the popular newer superships, with at least seven more ships being added by
2002. The recent acquisition of the Cunard line brings Carnival into the luxury
segment of the industry.
Only a low percentage of the population has cruised, leaving lots of room for
new travelers seeking an affordable vacation that's fun and "user friendly."
Cruisers hop on the ship -- essentially a moving hotel -- and can visit
different destinations without the hassles of carrying around their baggage or
changing accommodations. Or, they can remain aboard as the ship has virtually
everything to offer, from great food, recreational activities, and top-notch
entertainment.
Vice Chairman and Chief Operating Officer Howard Frank explained to us recently
that ships are now being built with Azipods which pull the ship rather than push
it, resulting in reduced vibration, more maneuverability, more speed and 8
percent fuel savings. He also told us your company recently introduced its
brand-new supership, Elation, to the Los Angeles market, an area which normally
gets older ships. Travel agents and consumers alike gave this new ship a
fabulous response.
Latest quarterly earnings show a 26 percent increase from $.21 to $.27, on
revenues of $661 million.
Since purchase in October, your shares jumped 65 percent.
NETWORKING
If a corporation has offices in remote sites, chances are it uses high-speed ATM
(asynchronous transfer mode) technology, and FORE SYSTEMS, a pioneer in ATM
technology, makes both hardware and software to create advanced computer
networks for these businesses.
Fore has more than 50 offices worldwide marketing its ATM switches,
internetworking software and network management software for both local area and
wide area networks. Time Warner uses FORE ATM products for its high-speed cable
web access in Florida, and your company supplies Unisys with ATM technology for
its nationwide network.
This quarter, FORE formed a strategic alliance with Intel, whereby the two
companies will jointly develop integrated Ethernet and ATM networking solutions.
Chief Executive Officer Tom Gill recently told us that this alliance enables
FORE to have increased access to Intel's market base of small and medium-sized
businesses as customers in addition to the larger enterprises it traditionally
serves.
Last quarter revenues rose 29 percent, driving earnings to $.13, up 44 percent
from $.09 in 1997.
Purchased just in April at $19, your shares sell today at $27, a 43 percent
jump.
SPECIALTY RETAILING
A strong domestic economy and rising employment numbers have been encouraging
shoppers to spend. No part of the retail market has benefited more than
discounters. Everybody loves a bargain, which has added to VALUE CITY DEPT.
STORES INC.' S bottom line.
Value City buys name brand closeout, overproduction, off-season, and irregular
goods and sells them at 50 to 70 percent below department store prices.
Specific departments at Value City, such as health and beauty aids, shoes, toys,
and sporting goods are operated through licenses with separate companies. Value
City recently bought Shonac Corporation, previously their shoe licensee.
Earnings vaulted 133 percent during the most recent quarter, well ahead of Wall
Street's expectations. Sales for the four weeks ended May 30, 1998 increased
10.3 percent over sales in the comparable year-earlier period.
Martin Doolan, President and CEO says, "We give our customers respect, service,
brand names, quality, selection, and values every single day. We believe that's
a winning formula for continued success."
Purchased in early March, your shares have already grown 35 percent to $21.
FELLOW SHAREHOLDER. . .
Gail Zess may know our shareholders even better than we do. As Relationship
Manager for Brandywine Funds at Firstar Trust Company, Gail's capable hands are
in virtually every aspect of delivering services to Brandywine shareholders --
from handling difficult tax issues, to making sure an IRA transfer is carried
out properly, to overseeing sizable new purchases. If you have a tricky
situation in your Brandywine Fund account that needs attention, Gail's the
person to handle it.
"I serve as the 'focal point' for our clients, communicating Firstar's policies
and procedures to them, and then making sure everyone at Firstar knows about the
clients' particular needs and interests," Gail explains. She works closely with
the representatives answering your calls so they're up to speed on every
question you might ask.
The recent introduction of the Roth IRA created many inquiries and provided the
perfect opportunity for Gail to work one-on-one with shareholders to help
determine what was best for each particular case. "I enjoy that close
interaction," recounts Gail. "It helps bring a real sense of purpose and
personality to my job."
Gail not only deals directly with shareholders, she also works with principals
at other custodial banks to iron out any problems that may arise in transferring
money into or out of Brandywine. Gail will contact the other party and find out
what transpired so you don't have to.
As primary contact for your Fund's administrative team, Gail is in daily
communication with Lynda Campbell, Fund Secretary and Vice President. "In the
last few years, Gail's responsibilities have increased tremendously as the Fund
has grown. We rely on her to be our eyes and ears for the thousands of you
writing and calling about service and performance issues -- communications we
used to be able to manage here in-house back when the Fund was first starting
out." Lynda praises Gail, saying, "She is invaluable to us, and the fact that
she is a shareholder allows her to really connect with all of our shareholders."
Having just celebrated their 13th wedding anniversary, Gail and husband Mike
have two young girls. In her spare time (that is, when she's not "chauffeuring"
Morgan and Lindsay to various places) Gail can be found decorating and
landscaping their new home. Gail also enjoys escaping to her family's cottage in
northern Wisconsin -- ideal for snowmobiling in the winter and fishing in the
summer -- and perfecting her golf game.
"Everyone associated with Friess Associates and the Brandywine Fund are
wonderful to work with; Lynda Campbell and her associates always make sure that
we have the up-to-date information we need to effectively service shareholders,"
Gail relates. The shareholders are a great group of people too; I am grateful to
count myself and my family among them."
- -Rebecca Buswell
TRIPP . . .
According to senior researcher John Ragard, Tripp Rudisill began contributing to
our research process the minute he was on board. Having been a
telecommunications analyst at both Equitable Securities and Raymond James &
Associates before joining Friess last November, Tripp's in-depth knowledge of
the communications equipment industry adds a new dimension to our research team.
"Tripp brings to Friess Associates and our clients and shareholders an
additional network of contacts in the communications equipment industry to
reinforce our already solid relationships in this important arena," John
relates. "His influence is beneficial because of the new folks he's networking
us with, and he makes good stock-picking decisions. Additionally, he's always
willing to pitch-in for the team and help make calls to add to anyone's research
effort."
After receiving a BA in Political Science from the University of North Carolina
- - Chapel Hill, Tripp spent two years as an associate in the strategic planning
and regulatory policy department at Northern Telecom -- perfect preparation for
his stint as a telecommunications analyst.
He then returned to school to pursue an MBA in Finance at Vanderbilt University.
While in Nashville, he met his wife, Kamie. They celebrated their second
anniversary in May and are eagerly anticipating their first child this fall.
Tripp's experience on the sell side of the business at both Equitable and
Raymond James provided him the opportunity to work with many mutual fund
managers and analysts. "I had never met any that asked as many difficult
questions as the researchers at Friess did," recounts Tripp. "They were the ones
always most prepared and looking for an edge." When Tripp was offered the
opportunity to come on board, he felt confident he was joining a team that was
relentless in its research efforts.
So far this year, Tripp's selections of Nokia Corp., Mohawk Carpet, Ladd
Furniture, Lucent Technologies, and Broadcom have together gained $77 million
for your Fund.
Meeting and getting to know the managements of the companies he investigates is
something Tripp enjoys as he seeks to pick the winning stocks for you, the part
of his job he relishes most.
Tripp says the Friess system works. "We do not base our stock selections on
sell-side recommendations, but instead use our intensive questioning style to
break down buying a stock into a disciplined, well-planned process which can be
executed with confidence because we know we've asked the right, probing
questions of the key players involved."
Born and raised in North Carolina, Tripp is happy to be back on the east coast.
He and Kamie love to travel and enjoy almost any outdoor activity, including
skiing, fly fishing and golf. On many a weekend, you'll find Tripp out on the
links at one of the many local courses.
- - Rebecca Buswell
PAUL . . .
Born and raised in Colorado, the opportunity to work in Jackson, Wyoming was a
western homecoming for researcher Paul Berg. Thanks to his four years as a
consumer goods equity analyst at Morgan Keegan's Memphis office, Paul was
equally comfortable settling into our research effort.
As part of the hard-hitting research team under Jon Fenn's leadership, Paul
plays a primary role in isolating dynamic changes in individual companies that
can be harnessed by your portfolio. He's led us to Michael Stores and Ross
Stores, purchased late this quarter, which each rose more than 5 percent in just
the first week owned.
Jon is excited about Paul's insights and keen awareness of industry trends. "His
persistence and experience from covering various retailers at Morgan Keegan
generates quality contacts and enables us to gather even more valuable
information from top executives in the business."
Paul is quick to emphasize the benefits of our team approach and the selfless
decisions made each day, which help create a cooperative rather than an
aggressively competitive environment. Paul, and fellow researcher Bill Dugdale,
both uncovered the upside potential of a particular stock at the same time. Paul
turned primary coverage over to Bill because of his more extensive knowledge of
the company's customers, competitors, suppliers and other key players in the
industry.
"I was very comfortable with this decision as I knew Bill could cover the stock
with an added edge given his contacts," Paul said. "I know that he, or any
researcher, would do the same were the situation reversed." According to Paul,
this kind of team effort is unusual in the investment arena where analysts tend
to base decisions on self-interest or "office politics" rather than what will
collectively benefit the clients.
Paul received an undergraduate degree from Colorado State University in Business
Administration with a concentration in finance and accounting, and an MBA from
Vanderbilt. During his second year at Vanderbilt, he worked as a researcher at
Tennessee Consolidated Retirement Systems, which managed the State's pension
assets. He earned his CFA designation during his tenure at Morgan Keegan.
While in Memphis, Paul met his wife, Sarah, and together they enjoy almost every
outdoor activity including fly-fishing, biking, golfing, and basketball.
Excitedly, they await the arrival of their first child in late July!
- -Adam Rieger
IRA SHAREHOLDERS . . .
Even though fiscal year end is a few months off this is the last quarterly
report to alert you of the $12.50 Firstar earns to maintain your account for
the year. If you prefer it not be automatically deducted from your account in
September, please send a personal check for $12.50 to Firstar Trust Co. at P.O.
Box 701, Milwaukee, WI 53201 before September 21.
GROWING YOUR FUND . . .
Perhaps one reason the team concept is gaining popularity in business is that
millions of Americans participate in team sports. Their life experience shows
them that working together gets the job done, and that harnessing the particular
talents of each team member is the secret to success in business, just as in
sports.
Each quarter we like to acknowledge the efforts of the men and women who work in
the companies your Fund invests in. This quarter we cheer on Hazel Norman, a
checker and stock clerk in the Safeway on Shattuck Place in Berkeley, California
- -- one of the people whose commitment to doing her job well has added to the
value of your Fund.
Many customers in Hazel Norman's Safeway consider her an old friend. Some were
toddlers in strollers when Hazel started in 1974, and now are shopping with
their own children. Over 23 years of service, Hazel has witnessed many changes
in America. "When I first started, only women were shopping, but now it seems
like more men than women shop. And people are buying more healthy foods . . .
fat free, fresh vegetables. They buy more Safeway brand products, too."
"I like working with people, and I like to see everybody happy," is Hazel's
motto. In 1997 she was nominated by her co-workers for the Donald J. Smith Award
recognizing an employee's commitment to promoting Safeway's goals. "I was
shocked," said Hazel, "because I just do things naturally. I try to give the
kind of service to my customers that I would expect when I go to another store."
Hazel has served eight terms as the president of her district's Safeway
Employees Association, a position which involves organizing the annual company
picnic. "People bring their families, and it's fun because you get to catch up
with old friends at other stores."
Every three months, Hazel makes sure they have a "pot-luck" at her store.
Everybody fixes a dish and adds it to a big table. "When you eat your lunch or
take your break, you help yourself. It's just to keep the camaraderie
flourishing." No wonder her co-workers call her "Mother Hazel." Store manager
Fran Cairo says, "Hazel is concerned about her store, her fellow employees, and
her community. She is just a prime example of a great employee!"
Hazel attends church every Sunday and records the service for broadcast on the
radio. After each holiday, Hazel buys the reduced price candy and delivers it
with flowers to senior citizens. "I don't want the old people to feel they are
forgotten. If I can make them happy, it makes me happy."
Her husband died four years ago, but Hazel's three children, 11 grandchildren,
and two great-grandchildren live nearby. In her free time she enjoys bowling and
sewing for her grandchildren.
Since purchase in December 1997, your shares in Safeway Inc. have added $32
million of gains to your portfolio.
- -Margaret Barton
ON THE CUTTING EDGE . . .
In this column, we like to feature some of the exciting inventions and
developments that will be showing up in your home and, maybe, your portfolio in
the future.
GO AHEAD, SWALLOW THAT THERMOMETER!
The U.S. team that climbed to the summit of Mt. Everest on May 19 wore medical
monitors created in the Media Lab at Massachusetts Institute of Technology.
Lightweight vests recorded the climbers' blood oxygen level, heart rate, and
skin temperature and sent the data to a laptop in base camp for monitoring. Each
team member also swallowed a pill containing a thermometer and a mini-radio
transmitter to measure core body temperature. Under the extreme conditions of
high altitudes, constant monitoring helps protect climbers from disaster, but
the ultimate application for telemedicine is to enable better quality medical
care anywhere, anytime.
A DO-IT-ALL PHONE LINE
Promising to end busy signals, broken connections, and sluggish Internet
downloads, Sprint recently announced a revolutionary new capability to handle
virtually every telecommunications function. The new system should allow users
to log onto the Internet, send a fax, play a video game, and conduct a telephone
conversation simultaneously over a single existing telephone line. While Sprint
may be the first, analysts say virtually every phone company is working on a
similar network. Sprint calls its system Integrated-On-Demand Network or ION and
will make it available to business customers later this year and household
customers by late 1999.
NEW TELEPHONE HARNESSES BONE-BORNE SOUND
Naturally you hear sounds with your ears, but, as many deaf people know, you
also can listen with your bones. Sound waves travel through the skull and
stimulate the inner ear. A new telephone has a handset with a normal speaker
plus an oscillator pad that hearing-impaired people can press against their
head. According to Opentec USA Inc. in Lyndhurst, New Jersey, the big benefit is
that these bone sounds are not distorted by excessive amplification.
TOP TEN . . .
This quarter you'll likely notice some shifts in company placement in your
portfolio. We're now grouping some companies differently based on sector
breakdowns used by Bloomberg and William O'Neil & Co. For example, many of your
Apparel & Shoes companies from last quarter are now found in a new category,
Textiles/Apparel Manufacturing. Jones Apparel, Tommy Hilfiger, Liz Claiborne,
and Fruit of the Loom are some large holdings that switched into this new group,
now occupying the number eight spot with 5.3 percent of the portfolio.
You purchased several new Communications companies to grow this group to number
two with 10 percent from 5.3 percent in March. New to your portfolio are ECI
Telecom, Lucent Technologies, Northern Telecom, US LEC Corp., SkyTel
Communications, and World Access Inc., with net gains of more than $18 million
since purchase. A $55 million gain in Nokia Corp. and the $20 million rise in
WorldCom during the quarter further expanded this group.
Once again at the number five position this quarter is Software. You added to
many existing holdings -- Citrix Systems, Cognos Inc., Computer Associates,
Electronic Arts, The Learning Company, Software AG Systems, and Sterling
Software -- growing this category to 8.7 percent up from 3.5 percent last
quarter. Together these companies have netted you nearly $64 million in gains
since purchase.
Financial/Business Services remains unchanged from March, still your top group
with 10.7 percent. Falling off the Top Ten are Apparel & Shoes, Leisure &
Entertainment, and Oil/Gas Field Services.
TOP TEN INDUSTRY GROUPS
Financial/Business Services (10.7%)
Communications (10.0%)
Specialty Retailing (9.5%)
Computers & Related (9.2%)
Software (8.7%)
Networking (5.9%)
Transportation & Related (5.5%)
Textiles/Apparel Manufacturing (5.3%)
Machinery & Miscellaneous Manufacturing (4.8%)
Food/Restaurant (4.8%)
Cash (5.5%)
All Others (20.1%)
ALL IS NOT ROSES . . .
In an unsettled quarter such as this one, we were not surprised to find some
underperformers in your portfolio. There were 12 stocks that dropped back $10
million or more. The good news is that your four biggest gainers erased all the
losses of these 12 and had an additional $40 million of gains to boot.
Topping that group were two oil-related stocks -- Noble Drilling Corp., losing
$24 million, and EVI Weatherford, declining $21 million. These drops, and the
$17 million drop in Transocean Offshore, were caused mainly by lower oil prices
throughout the industry.
Bay Networks fell $18 million after experiencing a deterioration in prices on
the low end of the switch market and some product delays. Thermo Electron Corp.
lost $16 million when concern arose over the company's ability to find and close
a very large acquisition. Due to fears that the unusual move in the yen would
hurt earnings outlook, IBM suffered a $15 million loss. PhyCor's $14 million
decline resulted from investor concern over the company walking away from a
merger with Medpartners.
Following the acquisition of Greentree Financial, Conseco dropped $13 million.
Some major accounting problems caused Cendant also to drop $13 million. 3Com
lost $12 million, and Pairgain Tech and Tenneco round out the group dropping $11
million apiece. All but two of your backtrackers were sold.
The winners to cheer about during the quarter were led by the $67 million gain
in Ascend Communications. Capital One Financial rose $60 million, Nokia Corp.
rose $55 million and Computer Sciences increased $40 million. Jones Apparel
gained $27 million, Staples was up $22 million, and WorldCom's gains were $20
million. Tyco International and Lucent Technologies were up more than $16
million each, and FORE Systems, Electronic Arts, and Mylan Labs saw gains of
$11 million or more.
Rounding out the above $10 million gainers are Kansas City Southern, Safeway,
and Costco, along with Lowe's, Carnival, Citrix Systems, and Federal-Mogul. You
can read more about Federal Mogul and Carnival in the Highlights section.
CAPITAL GAINS UPDATE. . .
Just one more quarter until we mark the end of fiscal '98. All shareholders of
record as of October 23, 1998 will receive the distribution which will be made
on October 26, 1998. The date your account will acutally be paid is October 27,
1998. As of June 30, 1998 the APPROXIMATE amounts expected are:
$0.28 income dividend
1.05 in long term capital gains
.00 in mid term capital gains
-----
$1.33 total potential distribution per share
There remain net unrealized gains of $4.09.
BRANDYWINE FUND, INC.
STATEMENT OF NET ASSETS
June 30, 1998
(Unaudited)
Quoted
Market
Shares Cost Value (B)<F3>
- -------------- -------------- --------------
LONG-TERM INVESTMENTS - 94.5% (A) <F2>
COMMON STOCKS - 94.2% (A) <F2>
APPAREL & SHOE RETAILERS - 2.6%
1,525,500 Abercrombie & Fitch Co. $64,527,445 $67,122,000
375,300 AnnTaylor Stores Corp. 7,772,727 7,951,856
75,000 Bebe stores, Inc. 890,625 984,375
69,150 The Buckle, Inc. 1,669,418 2,039,925
100,000 Candie's Inc. 767,812 775,000
250,000 The Cato Corp. 3,515,625 4,351,500
252,300 Dress Barn, Inc. 3,316,199 6,275,963
331,700 Footstar, Inc. 14,830,820 15,921,600
343,400 Just For Feet, Inc. 7,213,653 9,786,900
207,700 Kenneth Cole
Productions, Inc. 4,306,276 5,374,238
130,000 Steven Madden, Ltd. 1,353,216 1,503,190
424,600 The Stride Rite Corp. 5,660,002 6,395,750
169,800 Timberland Co. 12,190,530 12,215,072
1,121,600 TJX Companies, Inc. 27,339,357 27,058,600
------------- ------------
155,353,705 167,755,969
THIS SECTOR IS 8.0% ABOVE YOUR FUND'S COST.
AUTOMOTIVE & RELATED - 0.8%
62,000 CSK Auto Corp. 1,430,995 1,565,500
714,900 Federal-Mogul Corp. 21,684,063 48,255,750
56,000 Keystone Automotive
Industries, Inc. 1,371,690 1,295,000
------------- ------------
24,486,748 51,116,250
THIS SECTOR IS 108.8% ABOVE YOUR FUND'S COST.
BUILDING & RELATED - 2.0%
62,000 Comfort Systems USA, Inc. 1,113,136 1,449,250
175,100 Dycom Industries, Inc. 3,419,973 5,909,625
466,000 Eagle Hardware &
Garden, Inc. 8,406,123 10,776,250
59,100 Elcor Corp. 1,640,844 1,492,275
361,600 Group Maintenance
America Corp. 5,129,526 6,508,800
524,600 Hussmann
International, Inc. 9,935,504 9,738,150
176,100 Integrated Electrical
Services, Inc. 3,561,269 3,544,012
1,729,200 Lowe's Companies, Inc. 58,548,290 70,141,540
15,000 NVR, Inc. 591,480 615,945
32,300 Pameco Corp. 603,525 646,000
99,000 Service Experts, Inc. 2,742,140 3,415,500
321,800 Standard Pacific Corp. 5,624,538 6,637,125
143,300 Watsco, Inc. 4,135,012 5,042,440
191,000 York International Corp. 9,378,316 8,320,533
------------- ------------
114,829,676 134,237,445
THIS SECTOR IS 16.9% ABOVE YOUR FUND'S COST.
COMMUNICATIONS - 10.0%
1,018,800 ECI Telecom Ltd. 30,852,392 38,587,050
2,372,600 Lucent Technologies Inc. 175,241,509 197,371,849
2,445,500 Nokia Corp. "A" ADR 129,192,837 177,452,816
170,400 Northern Telecom Limited 9,643,192 9,670,200
1,282,600 SkyTel
Communications, Inc. 31,947,755 30,020,536
25,000 US LEC Corp. CL A 465,625 521,875
496,500 World Access Inc. 17,583,180 14,895,000
3,896,100 WorldCom, Inc. 168,432,480 188,719,292
------------- ------------
563,358,970 657,238,618
THIS SECTOR IS 16.7% ABOVE YOUR FUND'S COST.
COMPUTERS & RELATED - 9.2%
4,668,800 Apple Computer, Inc. $117,586,757 $133,938,534
100,000 Aztec Technology
Partners, Inc. 900,000 762,500
185,000 BISYS Group, Inc. 7,400,628 7,585,000
4,344,800 Computer Sciences Corp. 235,033,183 278,067,200
121,200 Comverse Technology, Inc. 6,023,743 6,287,250
151,000 Cotelligent Group, Inc. 2,762,177 3,529,625
75,000 CSG Systems
International, Inc. 3,255,355 3,515,625
2,245,100 EMC Corporation (Mass.) 92,323,538 100,609,666
149,000 MicroTouch Systems, Inc. 2,479,125 2,765,887
234,500 Peerless Systems Corp. 4,224,954 4,865,875
110,000 SPR Inc. 3,150,642 3,423,750
487,500 Sykes Enterprises, Inc. 10,075,843 9,780,713
250,000 Systems & Computer
Technology Corp. 5,445,437 6,750,000
1,399,800 Unisys Corp. 36,535,066 39,544,350
------------- ------------
527,196,448 601,425,975
THIS SECTOR IS 14.1% ABOVE YOUR FUND'S COST.
COSMETICS/PERSONAL CARE - 0.5%
291,700 Helen of Troy Ltd. 5,760,242 6,417,400
164,300 Rexall Sundown, Inc. 5,327,285 5,791,575
276,500 Twinlab Corp. 8,652,344 12,079,732
264,400 Windmere-Durable
Holdings Inc. 8,350,363 9,468,957
------------- ------------
28,090,234 33,757,664
THIS SECTOR IS 20.2% ABOVE YOUR FUND'S COST.
DEPARTMENT STORES - 0.4%
265,900 Elder-Beerman Stores Corp. 6,427,862 7,096,339
447,600 Proffitt's Inc. 5,127,934 18,071,850
------------- ------------
11,555,796 25,168,189
THIS SECTOR IS 117.8% ABOVE YOUR FUND'S COST.
DISTRIBUTION - 0.8%
1,150,100 Tech Data Corp. 51,739,668 49,310,537
THIS SECTOR IS 4.7% BELOW YOUR FUND'S COST.
ELECTRONICS - 0.7%
879,500 DSP Communications, Inc. 14,488,381 12,093,125
75,000 EFTC Corp. 970,624 975,000
934,650 General Cable Corp. 13,226,278 26,988,019
150,000 Rayovac Corp. 2,100,000 3,403,200
------------- ------------
30,785,283 43,459,344
THIS SECTOR IS 41.2% ABOVE YOUR FUND'S COST.
FINANCIAL/BUSINESS SERVICES - 10.7%
2,032,000 AccuStaff Inc. 69,354,077 63,500,000
31,400 American Capital
Strategies, Ltd. 714,350 718,275
503,200 AmeriCredit Corp. 8,614,962 17,958,202
958,900 AMRESCO, Inc. 26,491,061 27,927,962
1,325,100 Capital One
Financial Corp. 63,400,043 164,561,519
649,900 CMAC Investment Corp. 41,334,868 39,968,850
335,100 Comdisco, Inc. 6,272,580 6,366,900
920,950 Concord EFS, Inc. 20,201,897 24,059,819
804,000 Consolidated Capital Corp. 16,080,000 18,077,136
360,600 ContiFinancial Corp. 10,625,333 8,338,875
30,000 Cunningham Graphics
International, Inc. 570,500 517,500
1,522,900 Dime Bancorp, Inc. 45,183,433 45,592,580
200,000 Federated Investors, Inc. 3,891,470 3,700,000
420,600 Finova Group, Inc. 19,702,432 23,816,475
1,597,300 First Union Corp. (N.C.) 89,199,062 93,042,725
45,800 Fleet Financial Group, Inc. 3,815,429 3,824,300
155,000 Franchise Mortgage Acceptance
Co. LLC 3,083,252 4,039,765
841,000 Green Tree Financial Corp. 36,056,800 36,005,733
227,300 Heller Financial, Inc. 6,137,100 6,819,000
356,900 The Hertz Corp. 16,860,571 15,815,310
184,500 Hooper Holmes, Inc. 3,555,142 3,874,500
508,000 Household International, Inc. 23,338,434 25,273,000
350,000 Interim Services Inc. 10,281,250 11,243,750
84,300 The Kroll-O'Gara Co. 1,747,650 1,801,912
198,000 Leasing Solutions, Inc. 4,624,444 5,692,500
75,000 Medallion Financial Corp. 2,038,750 2,062,500
315,800 NOVA Corp. 9,689,489 11,289,850
150,000 RCM Technologies, Inc. 3,150,000 3,046,950
61,500 Staff Leasing, Inc. 1,777,269 1,814,250
1,115,700 UniCapital Corp. 21,342,660 21,337,763
221,300 U.S. Rentals, Inc. 6,489,482 8,727,629
------------- ------------
575,623,790 700,815,530
THIS SECTOR IS 21.7% ABOVE YOUR FUND'S COST.
FOOD/RESTAURANTS - 4.8%
1,056,400 Apple South, Inc. 14,740,592 13,799,753
2,000,500 Brinker International, Inc. 46,715,306 38,509,625
495,200 Buffets, Inc. 6,901,150 7,768,698
1,170,620 CKE Restaurants, Inc. 28,333,689 48,288,075
536,100 Landry's Seafood
Restaurants, Inc. 11,342,628 9,700,193
229,000 Michael Foods, Inc. 6,845,802 6,726,875
159,450 O'Charleys Inc. 2,208,075 2,391,750
285,000 Omega Protein Corp. 4,807,008 4,381,875
633,500 Outback Steakhouse, Inc. 24,969,780 24,706,500
237,200 Ruby Tuesday, Inc. 3,881,014 3,676,600
2,937,200 Safeway Inc. 87,904,582 119,508,794
561,900 Suiza Foods Corp. 32,855,187 33,538,687
------------- ------------
271,504,813 312,997,425
THIS SECTOR IS 15.3% ABOVE YOUR FUND'S COST.
HEALTHCARE SERVICES & MEDICAL/DENTAL PRODUCTS - 2.7%
73,500 Brookdale Living
Communities, Inc. 1,736,438 1,883,437
423,800 Cooper Companies, Inc. 13,475,761 15,442,424
125,700 CryoLife, Inc. 2,102,817 1,979,775
1,126,500 HEALTHSOUTH Corp. 31,003,885 30,064,032
1,304,500 Integrated Health Services, Inc. 50,706,234 48,918,750
302,000 Lifecore Biomedical, Inc. 6,836,204 4,983,000
398,000 Mentor Corp. 10,937,176 9,651,500
1,704,100 PharMerica, Inc. 24,736,942 20,556,558
313,700 SangStat Medical Corp. 9,916,000 9,842,338
850,900 St. Jude Medical, Inc. 32,799,160 31,324,182
50,000 VISX, Inc. 2,987,500 2,975,000
------------- ------------
187,238,117 177,620,996
THIS SECTOR IS 5.1% BELOW YOUR FUND'S COST.
HOME/OFFICE & RELATED - 0.9%
100,000 LADD Furniture, Inc. 2,251,562 3,000,000
886,700 Maytag Corp. 28,291,497 43,780,813
122,500 Mohawk Industries, Inc. 3,123,750 3,881,780
225,000 WestPoint Stevens, Inc. 6,987,073 7,425,000
------------- ------------
40,653,882 58,087,593
THIS SECTOR IS 42.9% ABOVE YOUR FUND'S COST.
INSURANCE - 3.0%
415,000 Amerin Corp. 11,441,056 12,113,020
3,405,700 Conseco, Inc. 170,350,026 159,216,475
782,400 Old Republic
International Corp. 23,674,538 22,934,491
------------- ------------
205,465,620 194,263,986
THIS SECTOR IS 5.5% BELOW YOUR FUND'S COST.
LEISURE & ENTERTAINMENT - 1.8%
76,500 American Coin
Merchandising, Inc. 1,367,438 1,510,875
2,313,800 Carnival Corp. 55,587,915 91,684,325
140,000 Royal Caribbean Cruises Ltd. 7,532,387 11,130,000
438,500 Servico, Inc. 6,358,250 6,577,500
175,000 Silverleaf Resorts, Inc. 4,201,135 2,668,750
135,000 T-HQ, Inc. 3,794,691 4,151,250
------------- ------------
78,841,816 117,722,700
THIS SECTOR IS 49.3% ABOVE YOUR FUND'S COST.
MACHINERY & MISCELLANEOUS MANUFACTURING - 4.8%
462,750 AAR Corp. 11,490,189 13,680,278
128,600 A.O. Smith Corp. 6,748,884 6,647,077
699,100 Coltec Industries Inc. 16,856,711 13,894,613
766,400 Mail-Well, Inc. 14,073,662 16,621,683
51,800 The Manitowoc Company, Inc. 2,035,191 2,088,213
549,000 MotivePower Industries, Inc. 7,839,750 13,450,500
212,100 Ogden Corp. 5,888,855 5,872,625
16,100 Pentair, Inc. 648,059 684,250
75,000 SunSource Inc. 2,118,750 1,631,250
1,167,800 Tenneco, Inc. 52,554,323 44,449,971
618,800 Terex Corp. 18,437,888 17,635,800
2,842,600 Tyco International Ltd. 162,137,065 179,083,800
------------- ------------
300,829,327 315,740,060
THIS SECTOR IS 5.0% ABOVE YOUR FUND'S COST.
NETWORKING - 5.9%
5,885,000 Ascend Communications, Inc. 219,599,553 291,678,255
1,866,800 FORE Systems, Inc. 34,609,486 49,470,200
571,000 Xircom, Inc. 8,458,273 8,886,473
1,205,800 Xylan Corp. 28,305,449 35,948,515
------------- ------------
290,972,761 385,983,443
THIS SECTOR IS 32.7% ABOVE YOUR FUND'S COST.
OIL/GAS FIELD SERVICES - 0.6%
146,600 Hanover Compressor Co. 3,557,774 3,967,436
233,500 J. Ray McDermott, S.A. 6,306,270 9,690,250
653,400 McDermott
International, Inc. 27,102,783 22,501,789
------------- ------------
36,966,827 36,159,475
THIS SECTOR IS 2.2% BELOW YOUR FUND'S COST.
PHARMACEUTICALS - 1.9%
165,500 Jones Pharma Inc. 6,078,700 5,482,188
97,100 Kendle International Inc. 1,447,354 2,937,275
498,600 Medicis
Pharmaceutical Corp. 21,077,462 18,198,900
3,346,800 Mylan Laboratories Inc. 89,390,352 100,614,848
------------- ------------
117,993,868 127,233,211
THIS SECTOR IS 7.8% ABOVE YOUR FUND'S COST.
REAL ESTATE OPERATIONS - 0.5%
458,000 Bluegreen Corp. 3,645,366 4,036,354
1,325,700 Fairfield Communities, Inc. 17,485,081 25,437,532
40,000 Trammell Crow Co. 918,700 1,337,520
------------- ------------
22,049,147 30,811,406
THIS SECTOR IS 39.7% ABOVE YOUR FUND'S COST.
SEMICONDUCTOR & RELATED - 0.3%
458,000 Cree Research, Inc. 8,206,173 6,870,000
100,000 MIPS Technologies, Inc. 1,400,000 1,343,800
732,700 VLSI Technology, Inc. 14,869,568 12,295,439
------------- ------------
24,475,741 20,509,239
THIS SECTOR IS 16.2% BELOW YOUR FUND'S COST.
SOFTWARE - 8.7%
126,200 Ardent Software, Inc. 1,584,811 1,735,250
1,273,800 Autodesk, Inc. 53,998,086 49,200,525
351,400 Avant! Corp. 8,051,836 8,697,150
353,500 AXENT Technologies, Inc. 10,381,365 10,825,937
360,000 Boole & Babbage, Inc. 8,454,050 8,595,000
302,500 Business Objects S.A. SP ADR 5,381,581 5,104,687
755,900 Citrix Systems, Inc. 35,521,374 51,684,663
1,016,700 Cognos Inc. 28,101,975 27,085,905
2,455,200 Computer Associates
International, Inc. 137,447,042 136,418,278
212,900 DataWorks Corp. 4,889,698 2,820,925
1,491,700 Electronic Arts Inc. 54,600,209 80,551,800
671,600 The Learning Company, Inc. 15,910,287 19,896,150
421,600 Mercury Interactive Corp. 9,493,140 18,813,900
318,000 Platinum Software Corp. 5,591,141 7,751,250
281,700 Platinum Technology, Inc. 7,075,037 8,046,197
233,900 QuadraMed Corp. 5,363,190 6,388,511
1,613,900 Rational Software Corp. 25,886,877 24,611,975
211,600 Software AG Systems, Inc. 5,131,996 6,189,300
1,859,800 Sterling Software, Inc. 34,575,934 54,981,267
616,400 Structural Dynamics
Research Corp. 15,527,993 14,254,250
605,900 Synopsys, Inc. 25,219,782 27,719,925
------------- ------------
498,187,404 571,372,845
THIS SECTOR IS 14.7% ABOVE YOUR FUND'S COST.
SPECIALTY RETAILING - 9.5%
505,600 Ames Department Stores, Inc. 10,131,045 13,303,853
294,700 BJ'S Wholesale Club, Inc. 11,608,466 11,972,187
778,600 Borders Group, Inc. 13,986,177 28,808,200
225,000 Brylane, Inc. 10,350,000 10,350,000
1,256,800 Consolidated Stores Corp. 47,223,253 45,559,000
240,000 Cost Plus, Inc. - California 7,374,421 7,140,000
1,426,700 Costco Companies, Inc. 79,370,382 89,971,982
822,100 Family Dollar Stores, Inc. 5,451,209 15,208,850
404,900 Fingerhut Companies, Inc. 12,926,030 13,361,700
330,500 Furniture Brands
International, Inc. 8,673,477 9,274,821
1,080,400 General Nutrition
Companies, Inc. 36,728,735 33,627,450
145,100 Michaels Stores, Inc. 4,933,371 5,119,273
184,800 Movado Group, Inc. 5,604,183 5,590,200
1,276,400 Office Depot, Inc. 41,844,162 40,287,013
115,000 Petco Animal Supplies, Inc. 2,374,062 2,292,870
830,300 Pier 1 Imports, Inc. 16,828,465 19,823,413
38,000 Ross Stores, Inc. 1,591,577 1,634,000
4,344,300 Staples, Inc. 78,914,474 125,715,353
355,700 Trans World
Entertainment Corp. 13,344,597 15,339,563
329,800 Value City Dept. Stores Inc. 5,121,923 6,925,800
3,803,500 Viking Office Products, Inc. 111,481,064 119,334,813
------------- ------------
525,861,073 620,640,341
THIS SECTOR IS 18.0% ABOVE YOUR FUND'S COST.
TEXTILES/APPAREL MANUFACTURING - 5.3%
60,000 Ashworth, Inc. 895,626 832,500
10,000 Cutter & Buck Inc. 260,250 270,000
1,678,400 Fruit of the Loom, Inc. 54,534,445 55,702,739
2,992,000 Jones Apparel Group, Inc. 81,552,690 109,396,496
1,175,800 Liz Claiborne, Inc. 57,291,580 61,435,550
275,800 Nautica Enterprises Inc. 7,796,025 7,395,026
214,900 Quiksilver, Inc. 3,790,785 4,284,676
97,700 Tefron Ltd. 2,071,961 2,149,400
985,000 Tommy Hilfiger Corp. 57,656,503 61,562,500
403,200 Unifi, Inc. 12,892,943 13,809,600
697,600 The Warnaco Group, Inc. 21,528,389 29,604,749
------------- ------------
300,271,197 346,443,236
THIS SECTOR IS 15.4% ABOVE YOUR FUND'S COST.
TRANSPORTATION & RELATED - 5.5%
855,700 America West Holdings
Corp. Cl B 25,539,852 24,441,359
544,900 ASA Holdings, Inc 21,229,135 27,040,662
235,000 Atlantic Coast
Airlines Holdings 1,865,574 7,050,000
569,200 Coach USA, Inc. 26,102,039 25,969,750
1,295,000 Continental
Airlines, Inc. Cl B 76,506,580 78,833,125
480,000 Covenant Transport, Inc. 8,088,750 9,360,000
123,000 DeCrane Aircraft
Holdings, Inc. 2,091,000 2,137,125
692,500 J.B. Hunt Transport
Services, Inc. 12,088,831 24,670,313
1,996,800 Kansas City Southern
Industries, Inc. 87,784,868 99,091,200
446,000 Mesa Air Group, Inc. 3,859,082 3,623,750
75,000 SkyWest, Inc. 2,206,253 2,100,000
683,900 US Airways Group, Inc. 52,025,007 54,199,075
------------- ------------
319,386,971 358,516,359
THIS SECTOR IS 12.3% ABOVE YOUR FUND'S COST.
MISCELLANEOUS - 0.3%
166,400 Carpenter Technology Corp. 8,197,564 8,361,600
370,500 Central Garden & Pet Co. 9,334,037 11,531,813
200,000 Northland Cranberries, Inc. 2,800,000 3,087,600
------------- ------------
20,331,601 22,981,013
THIS SECTOR IS 13.0% ABOVE YOUR FUND'S COST.
------------- ------------
Total common stocks 5,324,050,483 6,161,368,849
WARRANTS - 0.0%
43 Sound Advice, Inc.
Warrants, 06/14/99 0 0
REITS - 0.3%
620,400 CCA Prison Realty Trust 21,198,341 18,999,750
THIS SECTOR IS 10.4% BELOW YOUR FUND'S COST.
------------- ------------
Total long-term investments 5,345,248,824 6,180,368,599
PRINCIPAL
AMOUNT
- --------
SHORT-TERM INVESTMENTS - 7.3% (A)<F2>
COMMERCIAL PAPER - 7.2%
$25,000,000 Associate First Capital Corp,
due 07/08/98, discount of 5.58% 24,972,875 24,972,875
25,000,000 Chevron USA Inc.,
due 07/10/98, discount of 5.60% 24,965,000 24,965,000
25,000,000 Ford Credit Co.,
due 07/01/98, discount of 6.01% 25,000,000 25,000,000
20,000,000 FPL Group Capital Inc.,
due 07/01/98, discount of 6.40% 20,000,000 20,000,000
25,000,000 General Electric Capital Services,
due 07/09/98, discount of 5.62% 24,968,778 24,968,778
50,000,000 General Motors Corp.
due 07/09/98-07/13/98,
discounts of 5.60%-5.65% 49,921,806 49,921,806
20,000,000 Goldman Sachs,
due 07/02/98, discount of 5.90% 19,996,722 19,996,722
35,000,000 Hertz Corp.,
due 07/02/98-07/06/98,
discounts of 5.61%-5.67% 34,978,946 34,978,946
25,000,000 HFC Domestic Corp.,
due 07/07/98, discount of 5.58% 24,976,750 24,976,750
25,000,000 IBM Credit Corp.
due 07/10/98, discount of 5.61% 24,964,937 24,964,937
37,000,000 Merrill Lynch & Co., Inc.,
due 07/10/98-07/13/98,
discounts of 5.60%-5.62% 36,936,473 36,936,473
10,000,000 Morgan Stanley Dean Witter,
due 07/01/98, discount of 6.25% 10,000,000 10,000,000
25,000,000 New York Life Capital Corp.,
due 07/07/98, discount of 5.58% 24,976,750 24,976,750
25,000,000 Principal Mutual Life Co.,
due 07/07/98, discount of 5.60% 24,976,667 24,976,667
25,000,000 Sears Roebuck Acceptance Corp.,
due 07/01/98, discount of 5.80% 25,000,000 25,000,000
50,000,000 Salomon Smith Barney,
due 07/06/98-0708/98,
discounts of 5.58%-5.77% 49,952,840 49,952,840
25,000,000 Texaco Inc.,
due 07/02/98, discount of 5.70% 24,996,042 24,996,042
------------- ------------
Total commercial paper 471,584,586 471,584,586
VARIABLE RATE DEMAND NOTES - 0.1%
6,657,260 Firstar Bank U.S.A., N.A. 6,657,260 6,657,260
------------- ------------
Total short-term investments 478,241,846 478,241,846
-------------
Total investments $5,823,490,670 6,658,610,445
-------------
-------------
Liabilities, less cash and
receivables (1.8%) (A)<F2> (120,484,562)
------------
NET ASSETS $6,538,125,883
--------------
--------------
Net Asset Value Per Share
($0.01 par value 500,000,000
shares authorized), offering
and redemption price
($6,538,125,883 / 204,083,270
shares outstanding) $32.04
-------
-------
(a) <F2> Percentages for the various classifications relate to net assets.
(b) <F3> 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 lates
bid price. Short-term investments are valued at amortized cost which
approximates quoted market value.
MARKET CAP . . .
You made several new purchases in your $5 billion-plus large cap stocks this
quarter which have been successful. Lucent Technologies, your largest new
position, rose $19 million since purchase, and Tyco International posted a $17
million gain. Costco Companies and Lowe's were added, yielding more than $10
million each, and EMC Corp. joined your portfolio, rising $8 million during the
quarter.
Unisys Corp., US Airways, and Household International, which together grew by
more than $7 million, were also added.
With substantial gains in your existing midcap stocks like Apple Computer, which
rose $5 million, Jones Apparel, which was up $27 million, Electronic Arts, which
climbed $12 million, and Continental Airlines, which grew $2 million, this $1 to
$5 billion group now comprises 37.7 percent of your portfolio. New purchases,
and subsequent gains of $35 million, in Mylan Labs, Viking Office Products, and
Fore Systems also helped fuel this growth.
Your small cap holdings, those below $1 billion, when added to the midcap
category, comprise 50.3 percent of your total portfolio. Some of these companies
are highlighted in the President's Letter.
YOUR COMPANIES' MARKET CAPITALIZATION
LARGE CAP 44.2% OVER $5 BILLION
MID CAP 37.7% $1 BILLION TO $5 BILLION
SMALL CAP 12.6% UNDER $1 BILLION
CASH 5.5%
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 P.O. Box 4166, Greenville, DE 19807 [email protected]
Investment Adviser: FRIESS ASSOCIATES, INC.
Independent Accountants: PRICE WATERHOUSE LLP
Custodian, Transfer Agent: FIRSTAR TRUST COMPANY
Legal Counsel: FOLEY & LARDNER
OFFICERS: Foster S. Friess, President and Treasurer; Lynda Campbell, Vice
President and Secretary; William D'Alonzo, Vice President; John Fraser,
Vice President; Carl Gates, Vice President; Andrew Graves, Vice President;
David Harrington, Vice President; John Ragard, Vice President; and Paul
Robinson, Vice President
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. Past performance is not indicative of
future performance. Investment return and principal value of an investment
may fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
Report editor: Rebecca A. Buswell Report Staff: Margaret Barton, Adam
Rieger, Paul R. Robinson, Jennifer Weldon
