BRANDYWINE FUND, INC.
MANAGED BY FRIESS ASSOCIATES, INC. QUARTERLY REPORT DECEMBER 31, 1998
DEAR FELLOW SHAREHOLDERS:
Your Fund grew more than 50 percent since October 8 through yesterday's close.
But before we get too carried away, we want to acknowledge the shellacking
many stocks experienced in the first week of October, which dampened an
otherwise astounding December quarter. Despite that week, your Fund returned
18.1 percent this quarter.
Early October's steep sell-off impacted your Fund. Financial stocks were hit
particularly hard, as the market for asset-backed securities seized on the heels
of the Long Term Capital and Crimii Mae debacles. Restricted access to capital
cast doubt on the ability of some companies to fund growth during a crisis.
Holdings such as Capital One, Metris Companies, Dime Bancorp and others --
which had been growing earnings by as much as 50 percent -- were sharply
affected. Your research team exited companies unable to fund growth through this
credit crunch since no asset-backed security market participants could project
when the situation would stabilize. In retrospect, it would have been better to
keep some of those stocks as they recovered in step with improvement in the
asset-backed market.
Thank you for your long-term view recognizing that liquidity-driven markets
eventually end, allowing individual-company fundamentals to determine stock
prices in the long run. Your tremendous rebound of 44.3 percent since the
October 8 low to year end demonstrates that point dramatically. Thanks to a
revived interest in fundamentals, our process yielded strong results as you can
see below:
BRANDYWINE FUND PERCENTAGE RETURNS
December Year 5 10 OCTOBER 8
Quarter 1998 Years Years TO DATE
------- ---- ----- ----- ----------
Brandywine Fund 18.1 -0.7 88.8 433.9 50.3
(13.5 Ann.)(18.2 Ann.)
Your relative annual performance reflects the frustrations we encountered in
two isolated periods in 1998: our elevated cash position during several weeks in
the March quarter and the events of the first week of the December quarter
discussed above.
Much of Corporate America continues to deliver the disappointing earnings that
we first identified a year ago. Coca-Cola, Union Carbide, Rohm & Haas, Starwood
Lodging, 3M, Boeing and many other notable companies have warned the investment
community that they won't live up to analyst expectations. In fact, the same
analysts who last January predicted earnings for the average S&P 500 company
would grow by 10, 13, 15 and 19 percent in each of 1998's quarters now expect
earnings to be up a mere 1 percent for the year.
The market seems to have a more realistic outlook as 1999 begins. Seventy-
three percent of the chief executive officers that are members of the American
Business Conference say profits will be the same or lower this year. Now, more
than any time in 1998, it is important to pick stocks with strong fundamentals
based on real earnings performance, not hollow hopes and dreams.
Our process continues to lead us to modestly-priced companies delivering new
technology solutions that foster the Internet's growth, allowing sustained
pricing flexibility in an increasingly deflationary environment. Companies such
as Sun Microsystems, 3Com, and EMC Corp., selected by David Harrington, are
providing innovative solutions that enable continued improvement in data and
image transfer and storage in our newly networked world. During the quarter,
these companies rose 48, 41 and 47 percent.
Some big non-tech gainers for you this quarter were Pre-Paid Legal Services,
Bill Dugdale's pick, up 98 percent, AnnTaylor Stores, selected by Andy Graves
jumped 94 percent, and A.J. Berk's Sykes Enterprises, rose 79 percent. Elcor
Corp., isolated by Tripp Rudisill, was up 53 percent, and John Ragard chose
Atlas Air, which climbed 46 percent.
The double-digit gains in the S&P 500 and the Nasdaq Composite in 1998 came
despite weak earnings realities and incredible price-to-earnings multiples. The
gains were also narrow, as investors preferred well-known names to companies
with strong growth but more reasonable price earnings ratios.
Your companies, by contrast, reflect solid fundamentals with earnings growing
74 percent for the last 12 months compared to just 9 percent for the S&P 500.
Earnings growth is 87 percent for the most recent quarter for your companies
while just 8 percent for the S&P 500.
COMPANY GROWTH
YOUR COMPANIES S&P 500
-------------- -------
AVERAGE INCREASE
LATEST 12 MOS. EARNINGS 74% 9%
AVERAGE INCREASE
LATEST QUARTERLY EARNINGS 87% 8%
ALL FIGURES ARE UNWEIGHTED. ANALYSIS BY WILLIAM O'NEIL & CO., INC.
JANUARY 1, 1999.
Half the S&P 500 index's 26.7 percent 1998 gain can be attributed to its 10
biggest contributors: Microsoft, Wal-Mart, Lucent, Intel, Cisco, Dell, IBM,
Pfizer, Merck and GE. That group, which climbed 83.4 percent, has an average
1999 growth rate of 21 percent and a price-to-earnings ratio of 41.
The 20 most-capitalized companies in the Nasdaq Composite were up 105 percent
in 1998, while the 5,000-plus remaining Nasdaq stocks gained less than 8
percent. In fact, a study by Wilshire Associates found that were it not for the
250 most-capitalized companies in U.S. equity markets, U.S. stocks would have
lost value in 1998.
This environment was not conducive to your team's fundamentals-driven
approach. Many quality holdings were unreasonably punished when broad factors
took center stage. Take Providian Financial, which fell off a cliff when the
unraveling of Long Term Capital shook equity markets late in the third quarter.
The stock dropped more than 40 percent in the brief eight days between September
30 and October 8, yet there was no change in its earnings outlook.
Less than a week later, Providian beat expectations by 5 percent, reporting a
70 percent increase in September-quarter earnings. Still, its stock price didn't
return to its September 30 level until fears had subsided on November 5.
Providian shares then soared 29 percent above their November 5 level through the
end of the year.
We are encouraged to see earnings playing a more dominant role in determining
stock prices, but there are still certain developments that give us pause.
Continued price appreciation among the S&P 500's largest stocks and frenzied
demand for Internet stocks demonstrate that a large group of investors is still
operating without regard to time-tested valuation models.
The influence these overvalued stocks are having and will have on the indexes
should not be underestimated. A Wilshire Associates analysis showed that nearly
one-fifth of the Wilshire 5000 index's 21.7 percent gain could be attributed to
Internet-driven issues -- the index includes every U.S.-headquartered publicly
traded company.
The magnitude of price gains among Internet stocks dwarfs run-ups during any
previous speculative frenzy. If AOL, for example, were to grow earnings by 50
percent a year for the next five years, it would still sell at a multiple of
more than 55 times earnings in 2004, assuming its price stayed constant. Amgen,
which played a similar starring role in the biotechnology-stock craze early in
the decade, was unable to sustainably break its year-end 1991 price level until
1995.
The biotechnology sector should serve as an important lesson to Internet-stock
investors. According to Securities Data Company, only 44 of the 101
biotechnology companies that went public in 1991 are publicly traded today.
Nevertheless, Internet speculation continues with Internet IPOs producing first-
day price gains five times greater than their biotechnology predecessors.
The outlook for the broader U.S. economy is cautious. Corporate layoffs are
accelerating as deflationary forces compel consolidation and other cost-cutting
moves. Boeing, Citicorp and Lockheed Martin are just a few examples of companies
that helped push the number of layoffs in 1998 beyond any previous year.
According to consultant Challenger, Gray & Christmas, U.S. companies cut 677,795
jobs last year, surpassing the previous high set in 1993.
The U.S. consumer remains resilient in light of low inflation and real wage
increases reaching levels not seen since 1985. Your holdings in retailers such
as AnnTaylor and The Gap benefited by offering the right mix of merchandise for
today's selective shoppers. These stocks were up 94 and 46 percent in the
December quarter, reflecting the market's recognition of the strengths your
research team isolated earlier.
Additionally pressures are building on the Federal Reserve to reverse the
liquidity injected to avert a full financial crisis in the fall. The December
quarter's 15 percent M-2 money supply growth now compels the Fed to drain
liquidity as it did in 1998's aftermath.
Coming quarters could be impacted by political instability in Washington. As
the Clinton scandal drags into a full-blown Senate trial, whether President
Clinton is removed from office, resigns, or holds on, the number of potential
implications escalates at home and abroad.
With Congress and the White House focused on impeachment, we may react too
slowly to the deteriorating situation in Brazil or some other crisis, as IMF
action and other issues become mired in the hyper-politicized climate. Next
week, Friess researcher Jon Fenn is leading a fact-finding trip to South America
that includes visits to Brazil, Argentina and Mexico. He and other teammates
will meet with key executives in the energy, telecommunications and banking
industries to get a first-hand feel for the region and establish contacts for
the future.
The deflationary environment squeezing most of the world's commodity exporters
has not spared an economically-challenged Japan. Deflation resulting from a
fast-rising yen -- making imports cheaper and exports more expensive -- may be
the final ingredient that spoils that nation's long-simmering economic stew of
deficit spending, inefficient capital markets, and sinking equity and real-
estate values.
A shock wave from Japan or South America could set off a chain reaction that
trips up U.S. markets as we saw in August when money-center banks and hedge
funds led a late-summer plunge in stock prices after Russia's devaluation. There
is no doubt other Long Term Capital Managements and Crimii Maes exist that would
roll over in this fragile environment on significant bad news.
In this mixed setting, stock selection will determine your results. We are
excited to have 20 industrious researchers working to uncover the next Dell,
Cisco Systems or The Gap. Our expanded team allows each researcher to focus on
about 12 companies, compared with as many as 25 companies a decade ago.
Your research team has been focused on isolating companies with superior
fundamentals in a difficult pricing environment for more than a year. This
experience is paying off, as reflected by your recent gains. Our process may
fall out of favor from time to time, but it is never outdated. Earnings drive
stock prices and over time your results will reflect that.
We're pleased to announce that Joe Fields, who has been a principal at Alex.
Brown Capital for five years, joins our team this month. He was a member of the
firm's operating and investment policy committees, as well as responsible for
Alex. Brown Capital's institutional business. Before Alex. Brown, Joe spent 10
successful years in senior management positions with Salomon Smith Barney.
In addition to his research insights, Joe will assist us in better serving our
shareholders and the consultant community. We hope you will give us feedback on
how we could more effectively communicate with you and fulfill your investment
needs. Please critique your Fund's website at www.brandywinefunds.com and the
message we record bi-monthly for you at 1-800-656-3017.
If you invest with us via a third party broker, bank, or financial advisor, we
would gladly add the appropriate person you deal with there to our list and also
get a better idea of those firms and individuals who are our partners in
realizing your personal investment strategy. Please let us know of your
existence, too, as the large "fund supermarkets" we participate in do not
forward your name and address to us; we always welcome the opportunity to serve
each shareholder even more effectively by putting you on a direct mailing list.
------
We're delighted that the enclosed Investor's Business Daily article heralds
our process and the companies impacting your recent performance. Since that
article, we repurchased Nokia, which has climbed 53 percent from its purchase
price.
Additionally, we're grateful that Don Phillips, president of mutual fund
tracking firm Morningstar, in late December recommended Brandywine Fund for 1999
during a USA Today interview. It is also exciting to see a top international
financial consulting firm, whose business is analyzing money managers, commit an
additional $3.9 million of its pension monies recently alongside the more than
$30 million of our own firm's pension assets, and all of my personal equity
investments.
Thanks for giving us the opportunity to serve you and sticking with us to
benefit from the fundamentals-driven environment we now encounter. We look
forward to maintaining our positive momentum into 1999 just as much as you do.
God Bless!
/s/ Foster Friess
Foster Friess
President
January 7, 1999
FELLOW SHAREHOLDER . . .
It's 7 A.M. Tuesday, December 22. The Saint Clare Medical Van is parked in
front of the Emmanuel Dining Room soup kitchen, one block North of Interstate 95
in Wilmington, Delaware. An anxious group of homeless men, single mothers and
recent immigrants is already forming a line outside the 35-foot mobile unit. For
the past six years, this has been one of several weekly stops for fellow
shareholder Dr. Thom Scott, who offers free medical care to those in need.
After a brief prayer with his staff, Dr. Scott opens the door to the hulking
vehicle with a smile, ready to deliver a dose of spiritual encouragement along
with his medical expertise. This is just what Dr. Scott had in mind when he
promised God he would start tending to the poor after attending a Christian
Medical and Dental Society conference in 1991.
"I've never had so much fun and enjoyment, but I've also never worked so
hard," the 72-year-old doctor says with a chuckle. He adds, "There is a great
sense of fulfillment in helping people so vulnerable and being able to carry out
the teachings of Galatians 6:2." The verse reads "Carry each other's burdens,
and in this way fulfill the law of Christ."
The medical van's success has been a lesson in faith for all involved. Dr.
Scott explained how "God provided for all of our needs from the very beginning,
even when at times we didn't have two nickels to rub together." Four foundations
bought into the idea of the mobile clinic and purchased the van. It is sustained
by St. Francis Hospital and private donations from individuals, churches and
organizations.
Each day, the staff treats approximately 26 people without medical insurance.
High blood pressure, asthma, diabetes, skin ailments and respiratory infection
are common illnesses among the transient population of the inner city. Some
patients are HIV-positive, drugs addicts or victims of gang violence. More than
30,000 patient visits have been logged since the van started making rounds in
April 1992.
"We offer care with no strings attached and minister to the entire person --
mind, body and soul," Dr. Scott says. "I've seen people be given new leases on
life."
Just recently, a fellow named Sam came to the van in dire need of sinus
surgery. As with any surgical procedure, Dr. Scott referred him to a local
surgeon. The doctor, who performed the operation pro bono, was so impressed with
Sam's attitude and enthusiasm that he offered him a job in his office.
Twenty-seven percent of the patients are children. "It was overwhelming to
find so many women and children coming to the van," Dr. Scott says. "It saddens
my heart to see little boys and girls not getting basic medical care. It's just
not right."
The care doesn't end when a patient leaves the van. On Sunday morning, Scott
and others drop by local shelters to pick people up for church. Scott and his
wife Catherine often invite patients to their home for a meal after church.
"These people were made in the image of God and they should be treated with
dignity and respect," Dr. Scott says. "I consider them good friends."
This year Dr. Scott's work and vision was replicated in six inner cities
nationwide and plans have been drawn up for three more cities in 1999.
The new vans have painted on them this message taken from 2 Kings 20:5: "I
have heard your prayers and seen your tears. I will heal you."
-Adam Rieger
JOHN . . .
New to your trading desk, but certainly not the industry, is John Walter, who
came on board in July. Three years on the desk at BT Alex Brown in Baltimore
followed trading at CS First Boston in Philadelphia for seven years. Jack
Fraser, one of Friess Associates' top management and investment leaders, worked
closely with John at First Boston and knew what a great addition he would be to
our own trading efforts.
"John's experience on the sell side helps round out the desk," Jack explains.
"During our years together at First Boston I was always impressed by John's
ability to not only find the other side of the trades he was executing but also
by how adept he was at getting the best possible price. That experience
translates well for our shareholders and clients."
Also helpful is John's working relationships with several of the brokers he
now trades with here at Friess. Having a rapport already established with some
of our key contacts made his transition especially smooth.
Having known Friess Associates for 10 years made the decision to come on board
an easy one. John relates, "I always respected the Friess strategy and
performance, and admired every person I'd gotten to know there." That group
included all of the traders. "It's a Osmall world' in the trading business, and
I was fortunate to become friends with many folks at Friess over the years,"
John continues.
There were few firms on the buy side John would consider working for, and
Friess Associates was top on that select list. "It's rewarding now to see the
trades I execute benefiting our clients and shareholders. I was glad to give up
the mercenary style of the sell-side, where I covered more than 30 accounts. The
closer contact is a welcome change."
Away from the desk, John's favorite activities are those spent with his wife
of 10 years, Bonnie, and their three sons. They are busy keeping track of
Johnny, 7, Alex, 5, and Jake, 1. Johnny and Alex play soccer, and John likes
being their amateur coach. Were they playing football, John would consider
himself a much more proficient coach given his four years under Joe Paterno's
tutelage at Penn State where he played linebacker and tight end. John was part
of Penn State's National Championship team in 1982, and counts that as one of
his most memorable and exciting experiences. He graduated with a BS in
Engineering in 1985 and earned an MBA in 1987.
John enjoys all sports and is just now experimenting with his golf game. He'll
eagerly pack up for a fishing trip, and if there's a project to complete, John
jumps right in! He refinishes furniture and tackles any other Bob Vila-esque
task at their summer residence on the Jersey shore.
"These first six months at Friess Associates have been a great learning
experience for me with the market's volatile swings," John says. "This kind of
environment reflects how trading can be every bit as important as the research
effort, which makes my job all the more meaningful."
- Rebecca Buswell
EXTERNAL RESEARCH RESOURCE . . .
Indianapolis-based Jon Evans has been in the investment business for nearly 10
years. Before joining the Friess Associates network of outside resources in
1994, he helped run variable annuity funds at Conseco Capital Management for
more than three years, employing the same type of research strategy, seeking
accelerating growth. During his time at Heartland Capital Management, he came to
know some of the folks here at Friess, and began thinking how he could be part
of our efforts on behalf of our clients and shareholders.
"The biggest strength I'd come to recognize in the Friess strategy was
isolating inflection points (points of change) in stocks or finding a stock that
all of a sudden goes from growing 5-10 percent to upwards of 20-25 percent
before the Street catches on. Once they do," Jon continues, "positive revisions
are made and Friess' clients and shareholders reap the rewards of the subsequent
price advances." Jon enjoys being part of this effort and seeks companies where
both earnings and multiples are understated. "When the model is better
understood and they both increase, the potential for the stock's growth is huge.
It's so exciting to see that happen."
A good example of that is Family Dollar Stores, which your Fund bought at an
inflection point after the store instituted its everyday low pricing concept. No
longer reliant on the "opium" of retail -- the weekly circular detailing special
sales -- same store sales have been beating expectations for 38 straight months.
Jon also says when Family Dollar began offering more weekly consumable goods
like detergent, food items, and household supplies as well as more basic,
everyday apparel articles like shoes, customer traffic increased, and sales
accelerated.
Senior researcher David Harrington is quick to recognize Jon's stock-picking
savvy. "Jon has provided research on several big winners for us, including
Family Dollar, Rent Way, and JB Hunt Transportation. Together this year these
companies gained more than $48 million. His familiarity with the type of
research we do made him an ideal candidate to add to the external research
network we've implemented. Jon is a key player in finding just the kind of
stocks we want for Brandywine and every client's portfolio."
Chief among Jon's hobbies out of the office is running around after his three
little ones. With Timmy, 3, Jacob 2, and infant Will, Jon and his wife Katie
find very few moments of precious free time. When he does manage to grab a
moment or two, Jon enjoys all sports, especially football, basketball and
baseball. Jon is excited for warm weather to arrive in the spring so he can make
good use of the catcher's mask he just bought for Timmy.
Armed with a degree in Finance from Butler University, Jon is astute at
reading between the lines on a company's financial reports and picking up on
trends someone else might miss. "This kind of teamwork is integral to the
research effort," explains Bill D'Alonzo. "Everyone is eager to share their
insights with others on the team for the collective benefit of our shareholders.
We're thrilled that Jon's a part of our extended research team."
- Rebecca Buswell
GROWING YOUR FUND . . .
"A few good men." Of course that famous phrase describes the United States
Marines, but the inherent vision applies to good employees as well. A group of
outstanding men and women working together at a dynamic company can accomplish
great things.
Each quarter we enjoy introducing you to an employee at one of the companies
in your portfolio in order to acknowledge your Fund's debt to these dedicated
workers who generate the sales and create the earnings that add value to your
investments.
Doug Turley is the Southwest Regional Sales Manager for Medicis Pharmaceutical
Corporation headquartered in Phoenix, Arizona.
Medicis is now one of the market leaders in the dermatology drug field, but
when Doug came on board five years ago the company was small and struggling to
deliver good customer service. Doug started by covering all the dermatologists
in southwest Texas.
Doug carefully pre-plans his days to maximize the number of contacts he can
make, and he has learned everything he can about the entire Medicis product line
as well as those of its competitors. His efficiency and hard work have earned
him the trust of the physicians in his region.
Based in Houston, Doug today equates his job to being a coach: leading,
motivating, and developing territory managers across eight states. He spends 90
percent of his time with his managers on calls to physicians.
Doug told us, "I want my team members to communicate that Medicis is in
business to serve the physicians and that our goal is to deliver solutions now
and into the future."
"Medicis has great products to sell. You cannot open a magazine without seeing
ads for health products geared to improving people's lives. With Lustra, for
example, we have matched our product exactly to what people want. It is now the
number one product to counteract uneven skin pigmentation. It is really fun to
help launch a new product, watch it grow, and then celebrate its tremendous
success!"
Medicis Chairman and Chief Executive Officer Jonah Shacknai told us, "Doug is
full of energy . . . he's always on the go! He manages his sales region with
intense commitment and unbridled enthusiasm. His achievements directly
contribute to our success."
Doug and his wife Lisa have a 10-month-old son, Connor. When Doug is not
traveling, they enjoy water and downhill snow skiing and attending all the home
football games at their alma mater, the University of Texas. Doug has just
purchased his dream car, a 1967 Corvette 427 Convertible. He likes to pull it
out of the garage on Saturday and shine it up for a Sunday drive.
Researcher A. J. Berk, in our Phoenix office, bought Medicis in March of this
year at $42. The stock is now trading at $60, adding $6.6 million to your fund.
You can read more about Medicis in Highlights.
-Margaret Barton
HIGHLIGHTS . . .
APPAREL & SHOES
THE GAP is a household name bringing to mind images of classically-styled, high-
quality casual clothing for men, women, and children. It seems every mall in
this country has a Gap store, attracting fashion-conscious consumers looking for
anything from a simple pair of jeans to a stylish pair of shoes.
In addition to its Gap, GapKids, and babyGap stores, your company sells the Old
Navy and Banana Republic brand names, extending its reach to value-oriented
customers as well as those willing to pay a little more for a high-fashion look.
Currently The Gap's 2,140 stores in the U.S., Canada, the UK, Europe and Japan
are performing above Street expectations. Especially impressive are
international sales with Japan, Canada and the UK seeing more than 20 percent
increases.
The stores' success drives revenue and earnings growth. In the October quarter,
earnings were up 48 percent to $.40 from $.27 on revenue increases of 36
percent. Its unique advertisements featuring well-known performers such as
Johnny Mathis and Lena Horne, as well as those dancers "swinging" in Gap khakis
seem to be working.
Purchased for you in September, shares sell today 47 percent higher at $56.
COMPUTER & RELATED
When you open up your telephone, cable TV, or cellular phone bill, you might be
looking at a product made by AMDOCS LTD. Your company supplies billing software
to companies like Southwestern Bell, AT&T, Bell South, and Netcom to track
customer usage of their services.
Don Haharav, CFO, said that Amdocs' new software billing system landed the
company several significant new contracts recently, including France Telecom and
Rogers Cantel of Canada.
As the communications industry continues to consolidate, more companies will
have to integrate their billing systems into one platform and Amdocs is the
leader in this industry, with 80 percent of its calendar year 99 revenues
already in backlog.
Earnings were $.06 last quarter on revenues of $117 million. Analysts expect
that in the current December quarter, as Amdocs marks its first year as a
publicly traded company, earnings will be up 45 percent to $.09 from $.06 last
year.
Selling at $17, your shares purchased in September jumped 46 percent.
Who can make sure your computer is ready for the year 2000? COMPLETE BUSINESS
SOLUTIONS will convert and test software to make sure it's Y2K compliant, as
well as offer a myriad of technical consulting services helping customers
implement, maintain, adapt, or better understand their computers, software, and
related technology. Your company will even place a full-time employee at the
customer's location every day through the entire learning process.
With customers ranging from financial companies like Citibank, retail companies
like Hasbro and Land's End, automobile companies like Chrysler, Ford Motor
Company, and General Motors, and governments like the state of Indiana and
Nevada, Complete Business Solutions is strongly diversified, so it shouldn't
suffer if downturns occur in certain areas.
According to CEO Raj Vattikuti, your company has 90 percent visibility at the
beginning of a quarter because of strong relationships with customers and
monthly billing. GM is so impressed with Complete Business Solutions that it's
suggesting to 200 of its vendors that CBSI can help them, too.
Earnings shot up 92 percent in September to $.24 from $.13, on revenue growth of
over 200 percent. Analysts are looking for earnings to double in the December
quarter.
Purchased at $23 in October, your shares increased 47 percent to $34 today.
FINANCIAL/BUSINESS SERVICES
There are holograms on virtually every major credit card, ID card, or any
important product which requires protection from potential tampering or
counterfeiting. And now the market for holograms is expanding to include, drugs,
food products, currency, and proprietary consumer items.
Last year, it was estimated that secure holograms made up 62 percent of the
worldwide holography market and AMERICAN BANK NOTE HOLOGRAM, the world leader in
origination, production, and marketing of secure holograms, benefits with
approximately 8 percent market share.
Well known customers include MasterCard, Visa, Discover, Intel, IBM, Merck, and
agencies of the U.S. and foreign governments. In addition to security
applications, American Bank Note's holograms are used for product authentication
of consumer and industrial products, as well as by licensors to monitor their
licensees to enforce agreements and collect royalty payments.
President Joshua Cantor and CFO Rich Macchiarulo shared with us recently that
your company has just signed new agreements with several new well known
customers. Additionally, they mentioned the strength of being exclusive provider
to MasterCard for credit cards through 2003, and the sole provider of security
holograms for Intel's Pentium II chips.
A recent spin-off from its parent company, American Banknote, your company's
second quarter earnings were $.20, and analysts expect $.26 in December. For
1999, earnings should show 22 percent growth.
At $17.50 today, your shares are up 86 percent from their $9 purchase price in
November.
FOOD/RESTAURANTS
One of the nation's largest casual-dining steakhouse chains, OUTBACK STEAKHOUSE,
INC. operates 470 restaurants that serve steaks, prime rib, chicken, fish and
pasta at moderate prices in an Australian setting, complete with boomerangs and
other trinkets from "Down-Under" adorning the walls.
Your company also runs 60 Carrabba's Italian Grill restaurants which serve
pizza, pasta, and other Italian specialties in a traditional Italian exhibition
kitchen where diners can watch.
Same store sales for both restaurants are positive this year after being
negative last year.
CFO Bob Merritt tells us that Outback is beginning to see significant reduction
in butter, poultry and other food costs. Lettuce and tomatoes on the other hand
are more expensive. Tomatoes went from $12.50 per case to $40 per case in the
last two months.
In the recent September quarter, your company reported $.49 versus $.41, up 20
percent, while revenues climbed 18 percent during the period.
Your shares are up 24 percent to $40 since October purchase price of $32.
LEISURE & ENTERTAINMENT
How frustrating is it to come home, expecting to watch a program you'd recorded,
only to find you had not properly set your VCR? Well, thanks to Henry Yuen, CEO
of GEMSTAR INTERNATIONAL GROUP, you may never have to experience that same
frustration again. Henry launched Gemstar after he disappointingly realized that
instead of recording an important Red Sox game he taped a screen full of "snow."
Gemstar's primary product is VCR Plus+, the videorecording system dubbed "so
easy to use even the family dog could master it." VCR Plus+ is world standard
for VCR programming allowing users to record a television show simply by
entering a numeric code which is published in television program guides.
Customers love the feature-rich, user-friendly product enabling them to select a
show, enter the code, and voila, the programming is complete.
Other systems your company offers include automatic on-screen indexing and
playback of home-recorded videotapes, interactive electronic television guides,
and interactive advertising systems. Licensees RCA, Proscan, Magnavox, and Sony
incorporate Gemstar's popular technology into their own TVs, digital cable
modems and VCRs.
Last quarter revenues climbed 34 percent, driving earnings up 45 percent to
$.29.
Your shares are $57 today, up 31 percent from $44 when purchased in August.
MEDICAL & RELATED
Many major pharmaceutical companies have shifted focus away from market niches
like dermatology, leaving room for MEDICIS PHARMACEUTICAL to succeed in this
specialized area. Your company offers a full line of dermatological treatments,
including prescription, over-the-counter, and physician-dispensed products.
Chairman and CEO Jonah Shacknai discussed with us recently how the company's
highly trained sales force focuses on the 3200 dermatologists across the country
who write 80 percent of all prescriptions in the specialty. They prescribe
Medicis's Dynacin and Triaz for acne and Lustra for treating skin
discolorations.
Lustra continues to gain market share, up 10 basis points in November to 5.3
percent since the beginning of the year, fueled in part possibly by Medicis
announcing the strategic acquisition of dermatology products from Hoechst Marion
Roussel.
Also positive for your newly-listed NYSE company is the fact that more than 80
million Americans will turn 50 between now and 2010, offering opportunity for
growth in several new dermatological treatments.
Earnings in September rose 68 percent to $.42 from $.25. Revenues grew 78
percent for the period.
Up 39 percent since March purchase, your shares are selling at $60.
SOFTWARE
When a company like Lucent Technologies, Hewlett Packard, or Cisco Systems
starts developing new software programs, they turn to RATIONAL SOFTWARE. Your
company makes software products for each phase of software development, from
initial analysis of what the new program should do, through detailed design,
testing, and maintenance.
Rational is one of a few companies that has the only full suite of software
development tools and customers are buying multiple sets of tools to get their
bug-free quality products to the market quickly and efficiently.
Your company's sales are driven by Fortune 1000 companies seeking to develop
web-based products to utilize the Internet. CEO Paul Levy told us recently that
custom website development work tripled from a year ago and now represents more
than 10 percent of revenues.
Besides those mentioned above, other customers include Eastman Kodak, Ericsson,
Ford Motor Company, Goldman Sachs and Boeing.
Beating analysts' estimates for the second straight quarter, your company
reported earnings of $.14 in September, compared with a loss last year. Revenues
were up 26 percent.
Rising 65 percent since purchase in April, your shares now sell at $26.50.
ON THE CUTTING EDGE . . .
YOUR COMPUTER WILL BE LISTENING TO YOU
General Magic has a product called Portico which lets users call in to retrieve
voice and e-mail messages. A computerized voice reads the messages back. The
speech recognition software can be synchronized with a desktop computer or with
electronic devices such as the PalmPilot. Another speech recognition company,
Lernout & Hauspie, has plans to add speech recognition to its translation
software. Right now iTranslator lets a company translate the text on its website
in almost real-time to Spanish, German, and French. In the future, the company
foresees people speaking into the computer and the software will translate the
speech into text in another language. But that's still a few years away!
YOUR TELEVISION MAY BE LEAKING
Appliances such as TVs, garage door openers, and battery rechargers drain power
even when not being used. The energy loss from such devices in U.S. homes alone
adds up to billions of watts per year. Power Integrations in Sunnyvale,
California has a new chip that can cut up to 90 percent of the juice that flows
into unused equipment. The company's TinySwitch senses when cordless appliances
are inactive and shuts them down. Nokia plans to use the chips in future AC
adapters for their cell-phones. The switch could also reduce carbon dioxide
emissions.
BANDAID ADHESIVES WON'T MAKE YOU FLINCH IN THE FUTURE
Removing medical dressings that use adhesives is a particular problem for
patients with fragile skin, such as the elderly. In some cases, it even strips
off layers of skin. Scientists at Smith & Nephew Research Centre in York,
England have developed a light-switchable, pressure-sensitive adhesive that
enables a wound dressing to be removed without pain. The dressing is backed by
two layers laminated together, one opaque and the other transparent to visible
light. When the top opaque layer is peeled away, light deactivates the adhesive,
allowing the dressing to be removed painlessly.
NEW FUND DIRECTOR . . .
In December, we welcomed a fourth Director to your Fund. We're thrilled to
have Marvin N. "Skip" Schoenhals join Foster, Jack, and Stig and serve on the
Board of Directors for Brandywine Fund. Skip is Chairman, President and Chief
Executive Officer of WSFS Financial Corp., in Wilmington, Delaware. Skip joined
WSFS in 1990 as President and Chief Executive Officer. He was named Chairman in
1992. Please look for a complete story on Skip in next quarter's report. We know
you'll quickly see why we're confident he'll be a real asset to all our fellow
shareholders.
ALL IS NOT ROSES . . .
Even in a strong quarter like this one, some stocks underperform, regardless
of underlying fundamentals or earnings prospects. There were ten companies that
dropped more than $10 million apiece this quarter.
Capital One Financial was your biggest disappointment, losing $69 million
after a sudden collapse in the asset-backed securitization market. Compaq
Computer lost $52 million when earnings were revised from the September quarter.
Concerns that its Radio Shack stores would have weaker sales in November caused
Tandy Corp. to drop $23 million.
Best Buy's $14 million decrease resulted initially from "recession fears" in
October. Consumer electronic companies tend to do very poorly in a recession
environment, and the stock suffered from the news. A $12 million decline in Tech
Data Corp. was mainly precipitated by its competitor Ingram Micro preannouncing
that it would have a bad quarter. Fears that the new iMac, which was released in
August and quickly became the fastest selling personal computer line, was not
selling through as well as expected caused Apple Computer to tumble more than
$12 million.
BMC Software and CMAC Investments dropped more than $11 million each, while
Dime Bancorp rounds out the group, falling $10 million. All but Dime and BMC
were sold from your portfolio.
The bright spot is the gains from just your top three winning stocks more than
made up for the total losses of those ten companies. Nokia Corp. gained $95
million, Gap was up $79 million, and Sun Microsystems rose $75 million.
Ascend Communications also shone with a $75 million jump, and Tyco
International was up $71 million. EMC Corp. saw a $61 million gain, 3Com Corp.
was up $53 million, Genzyme rose $37 million, and Amgen jumped $35 million.
MCI WorldCom, Advanced Micro Devices, Dayton Hudson, Biogen, and Citrix
Systems each rose more than $20 million apiece, and 15 other companies increased
by more than $10 million.
TOP TEN . . .
Your largest three groups jumped up significantly during the quarter.
Communications joins the Top Ten at number one, Computer & Related moves up from
number four last quarter to your second largest group and Software climbed from
number seven to number three.
You added several new Communications companies to your portfolio, bringing
this category to 14.5 percent from 3.4 percent in September. AT&T, Century
Telephone, Frontier Corp., General Instruments, and Scientific-Atlanta together
gained nearly $50 million since purchase. The addition to your Nokia holding and
its subsequent $95 million gain also helped.
With new positions in Comverse Technology, Complete Business Solutions, Envoy
Corp., Hutchinson Technology, Sterling Commerce, and Sun Microsystems, your
Computer & Related category grew from 8.7 percent to 13.9 percent. These
companies have already provided a $117 million boost to your portfolio.
Software companies Electronics for Imaging, Parametric Technology, Symantec
Corp., and Check Point Software together saw gains of nearly $12 million since
joining your Fund. The purchase of BMC Software also contributed to this group's
growth from 6.7 percent in September to 11.2 percent currently.
Financial/Business Services fell from the number two position with 11.8
percent to number eight with 6.6 percent. You sold substantial positions in
Capital One Financial, CMAC Investments, Household International, The Sabre
Group Holdings, as well as some of your Providian Financial, decreasing this
category.
Completing your Top Ten is the new group Pharmaceuticals, with 2.7 percent.
All your Distribution holdings, last quarter's number ten category at 4.8
percent, were sold.
TOP TEN INDUSTRY GROUPS
Communications 14.5%
Computer & Related 13.9%
Software 11.2%
Specialty Retailing 8.6%
Networking 7.6%
Medical & Related 7.4%
Apparel & Shoes 6.7%
Financial/Business Services 6.6%
Machinery & Miscellaneous Manufacturing 5.9%
Pharmaceuticals 2.7%
Cash 2.0%
All Ohters 12.9%
LAS VEGAS OR BUST . . .
The 7th Annual Louis Rukeyser Investment Conference will be held February 27-
28, 1999 at the MGM Grand in Las Vegas. Foster will be a guest speaker again
this year on a panel with six fellow money managers. He will be speaking on
Saturday, February 27 from 1:00-2:30 PM on the topic of "Investing for the Next
12 Months."
Additionally, this year Friess Associates will have a booth at the conference
staffed with several of the folks working for your Fund. If you are planning on
attending the Rukeyser Investment Conference, please let us know. We'd sure like
to meet any of our fellow shareholders in person!
MARKET CAP . . .
Some slight shifting occurred in your companies' market capitalization this
quarter. There was a small decrease in your large-cap holdings, those over $5
billion, from 62.8 percent in September to 57.2 percent currently. You sold
Amgen, Inc., Apple Computer, and Computer Sciences realizing gains of over $87
million. Large positions in Compaq Computer, Household International, HBO & Co.,
Capital One Financial, and Tandy Corp. were also sold reducing this group.
New purchases in your mid-cap holdings, those between $1 and $5 billion, moved
this category up to 34.7 percent from 27.2 percent last quarter. More than $35
million in gains have come in from Parametric Technology, Forest Laboratories,
SCI Systems, Tommy Hilfiger, and Scientific-Atlanta, all joining your Fund's
mid-cap group during the quarter.
Your smallest companies, those below $1 billion, were pared back slightly from
7.0 percent in September to 6.1 percent today. You no longer hold CMAC
Investments, United Stationers, Cognos Corp., and Sabre Group Holdings.
YOUR COMPANIES' MARKET CAPITALIZATION
LARGE CAP 57.2%
MID CAP 34.7%
SMALL CAP 6.1%
CASH 2.0%
BRANDYWINE FUND, INC.
STATEMENT OF NET ASSETS
December 31, 1998
(Unaudited)
QUOTED
MARKET
SHARES COST VALUE(B)<F2>
------ ----- ------------
LONG-TERM INVESTMENTS - 98.0% (A)<F1>
COMMON STOCKS - 98.0% (A)<F1>
APPAREL & SHOES - 6.7%
426,300 AnnTaylor Stores Corp. $ 8,923,025 $ 16,812,419
2,932,650 Gap, Inc. 109,985,559 164,961,562
230,000 Intimate Brands, Inc. 6,933,677 6,871,250
87,700 Paul Harris Stores, Inc. 1,105,949 712,563
353,100 Ross Stores, Inc. 12,066,230 13,903,313
320,600 Talbots, Inc. 9,774,631 10,058,825
2,013,700 TJX Companies, Inc. 52,887,857 58,397,300
845,800 Tommy Hilfiger Corp. 49,554,705 50,748,000
126,100 The Wet Seal, Inc. 3,712,504 3,806,707
------------- -------------
254,944,137 326,271,939
THIS SECTOR IS 28.0% ABOVE YOUR FUND'S COST.
AUTOMOTIVE & RELATED - 0.9%
62,000 CSK Auto Corp. 1,430,995 1,654,656
629,900 Federal-Mogul Corp. 35,983,553 37,479,050
78,100 SPX Corp. 4,998,441 5,232,700
------------- -------------
42,412,989 44,366,406
THIS SECTOR IS 4.6% ABOVE YOUR FUND'S COST.
BUILDING & RELATED - 0.4%
44,100 Dycom Industries, Inc. 516,634 2,519,212
59,100 Elcor Corp. 1,640,844 1,909,698
152,000 Granite Construction Inc. 5,018,465 5,101,576
542,300 Hussmann International, Inc. 10,228,616 10,507,063
22,400 Integrated Electrical Services, Inc. 478,782 498,400
------------- -------------
17,883,341 20,535,949
THIS SECTOR IS 14.8% ABOVE YOUR FUND'S COST.
COMMUNICATIONS - 14.5%
351,300 ANTEC Corp. 6,597,975 7,069,913
1,091,600 AT&T Corp. 63,690,408 82,142,900
436,300 Century Telephone Enterprises, Inc. 24,511,629 29,450,250
30,000 E-Tek Dynamics, Inc. 702,626 802,500
1,767,800 Frontier Corp. 52,195,564 60,105,200
1,056,800 General Instrument Corp. 24,266,128 35,865,678
121,400 InterVoice, Inc. 3,448,624 4,188,300
50,500 Melita International Corp. 773,020 1,060,500
2,274,200 Nokia Corp. "A" ADR 182,238,383 273,900,100
66,100 Plantronics, Inc. 4,280,605 5,684,600
25,000 Polycom, Inc. 425,000 556,250
2,071,800 Scientific-Atlanta, Inc. 42,754,532 47,263,973
292,500 Superior TeleCom Inc. 12,918,154 13,820,625
453,100 Tel-Save.com, Inc. 6,446,405 7,589,425
2,000,000 Tellabs, Inc. 131,770,464 137,126,000
------------- -------------
557,019,517 706,626,214
THIS SECTOR IS 26.9% ABOVE YOUR FUND'S COST.
COMPUTER & RELATED - 13.9%
42,000 Advanced Digital Information Corp. 617,874 672,000
453,100 Amdocs Limited 5,304,520 7,759,337
120,700 Bell & Howell Co. 3,281,230 4,564,029
105,400 BISYS Group, Inc. 4,189,650 5,441,275
244,300 Complete Business Solutions, Inc. 5,647,239 8,275,662
571,700 Comverse Technology, Inc. 28,613,474 40,590,700
106,800 CSG Systems International, Inc. 4,325,804 8,437,200
1,953,600 EMC Corp. (Mass.) 79,361,696 166,056,000
560,700 ENVOY Corp. 22,113,868 32,660,775
641,500 Hutchinson Technology Inc. 18,425,359 22,853,438
20,800 Javelin Systems, Inc. 282,794 312,000
43,900 National Data Corp. 1,520,844 2,137,403
127,000 NCR Corp. 5,065,100 5,302,250
300,000 Oracle Corp. 13,263,420 12,937,500
1,163,700 Saville Systems PLC IREL-SP ADR 23,084,809 22,110,300
4,427,900 Seagate Technology, Inc. 111,592,090 133,943,975
725,000 Sterling Commerce, Inc. 20,826,304 32,625,000
1,945,100 Sun Microsystems, Inc. 94,539,249 166,549,188
381,300 Systems & Computer Technology Corp. 6,764,309 5,242,875
------------- -------------
448,819,633 678,470,907
THIS SECTOR IS 51.2% ABOVE YOUR FUND'S COST.
FINANCIAL/BUSINESS SERVICES - 6.6%
103,900 Advance Paradigm, Inc. 2,848,823 3,636,500
143,900 Allmerica Financial Corp. 7,407,811 8,328,212
118,700 American Bank Note Holographics, Inc. 1,116,684 2,077,250
1,562,800 Bank One Corp. 83,421,795 79,801,256
1,114,800 The CIT Group, Inc. 30,182,616 35,465,132
830,000 Concord EFS, Inc. 31,136,888 35,171,250
20,000 Diamond Technology Partners Inc. 383,674 382,500
49,100 Dime Bancorp, Inc. 1,256,224 1,298,106
50,700 First American Financial Corp. 1,363,579 1,628,738
494,400 Heller Financial, Inc. 13,166,435 14,523,000
338,500 International Telecomunications
Data Systems 8,677,951 4,992,875
95,600 Medical Manager Corp. 2,327,181 2,999,450
398,500 NOVA Corp./Georgia 12,205,991 13,823,168
97,700 Pre-Paid Legal Services, Inc. 1,630,046 3,224,100
1,138,900 Providian Financial Corp. 44,719,427 85,417,500
10,000 Remedy Corp. 130,000 139,380
306,200 StaffMark, Inc. 6,073,195 6,851,225
487,500 Sykes Enterprises, Inc. 10,075,843 14,868,750
123,500 Valassis Communications, Inc. 5,948,677 6,375,688
------------- -------------
264,072,840 321,004,080
THIS SECTOR IS 21.6% ABOVE YOUR FUND'S COST.
FOOD/RESTAURANTS - 2.3%
103,500 Bob Evans Farms, Inc. 2,221,377 2,697,520
1,114,900 Brinker International, Inc. 25,410,540 32,192,737
252,400 CEC Entertainment Inc. 5,814,177 7,004,100
50,000 Merkert American Corp. 755,982 756,250
380,900 Outback Steakhouse, Inc. 12,253,459 15,188,388
150,000 Performance Food Group Co. 3,281,250 4,218,750
237,200 Ruby Tuesday, Inc. 3,881,013 5,040,500
477,000 U.S. Foodservice, Inc. 20,689,193 23,373,000
491,900 Whole Foods Market, Inc. 20,679,048 23,795,663
------------- -------------
94,986,039 114,266,908
THIS SECTOR IS 20.3% ABOVE YOUR FUND'S COST.
INSURANCE - 0.1%
100,000 Healthcare Recoveries, Inc. 1,567,650 1,700,000
51,400 Stewart Information Services Corp. 2,623,772 2,981,200
------------- -------------
4,191,422 4,681,200
THIS SECTOR IS 11.7% ABOVE YOUR FUND'S COST.
LEISURE & ENTERTAINMENT - 2.0%
1,519,000 Gemstar International Group Limited 66,445,456 86,962,750
94,300 Harley-Davidson, Inc. 3,835,250 4,467,462
204,500 T-HQ, Inc. 5,033,413 5,726,000
------------- -------------
75,314,119 97,156,212
THIS SECTOR IS 29.0% ABOVE YOUR FUND'S COST.
MACHINERY & MISCELLANEOUS MANUFACTURING - 5.9%
623,700 The Dial Corp. 16,066,993 18,009,338
3,537,800 Tyco International Ltd. 199,942,968 266,884,556
195,200 Wallace Computer Services, Inc. 5,080,151 5,148,400
------------- -------------
221,090,112 290,042,294
THIS SECTOR IS 31.2% ABOVE YOUR FUND'S COST.
MEDICAL & RELATED - 7.4%
1,212,000 Biogen, Inc. 72,982,828 100,596,000
91,600 CareMatrix Corp. 2,418,780 2,805,250
1,853,400 Foundation Health Systems, Inc. 25,166,911 22,125,889
2,671,800 Genzyme Corp. (General Division) 94,367,238 132,922,050
1,059,100 Humana Inc. 21,386,002 18,865,749
765,900 Orthodontic Centers of America Inc. 12,522,368 14,887,564
697,600 Sybron International Corp. 16,309,024 18,966,349
979,400 United Healthcare Corp. 46,932,724 42,175,902
89,700 Wellpoint Health Networks Inc. 6,822,882 7,803,900
------------- -------------
298,908,757 361,148,653
THIS SECTOR IS 20.8% ABOVE YOUR FUND'S COST.
MISCELLANEOUS - 2.8%
221,000 Blyth Industries, Inc. 7,414,646 6,906,250
286,600 Mohawk Industries, Inc. 7,758,623 12,055,256
396,700 Safety-Kleen Corp. 4,957,360 5,603,387
170,800 Shaw Industries, Inc. 3,681,322 4,141,900
2,353,800 Waste Management, Inc. 107,324,433 109,745,925
------------- -------------
131,136,384 138,452,718
THIS SECTOR IS 5.6% ABOVE YOUR FUND'S COST.
NETWORKING - 7.6%
3,776,100 3Com Corp. 115,005,392 169,218,369
1,724,600 Ascend Communications, Inc. 61,933,877 113,392,450
3,655,500 FORE Systems, Inc. 65,637,015 66,943,171
225,000 MMC Networks, Inc. 3,164,185 2,981,250
570,100 Newbridge Networks Corp. 14,335,831 17,316,788
------------- -------------
260,076,300 369,852,028
THIS SECTOR IS 42.2% ABOVE YOUR FUND'S COST.
PHARMACEUTICALS - 2.7%
533,700 AmeriSource Health Corp. 28,282,853 34,690,500
615,500 Dura Pharmaceuticals, Inc. 7,580,034 9,348,214
1,204,500 Forest Laboratories, Inc. 56,319,708 64,064,946
393,600 Medicis Pharmaceutical Corp. 16,533,719 23,468,400
------------- -------------
108,716,314 131,572,060
THIS SECTOR IS 21.0% ABOVE YOUR FUND'S COST.
REAL ESTATE OPERATIONS - 0.1%
458,000 Bluegreen Corp. 3,645,366 3,463,854
70,200 Fairfield Communities, Inc. 837,438 776,623
------------- -------------
4,482,804 4,240,477
THIS SECTOR IS 5.4% BELOW YOUR FUND'S COST.
SEMICONDUCTOR & RELATED - 2.6%
1,284,900 Advanced Micro Devices, Inc. 28,185,566 37,182,436
79,600 Aeroflex Inc. 1,006,200 1,203,950
105,800 DSP Communications, Inc. 1,580,868 1,620,116
276,000 Sanmina Corp. 14,121,917 17,250,000
573,100 Sawtek Inc. 12,399,502 10,029,250
849,000 SCI Systems, Inc. 34,349,367 49,029,750
723,200 Unitrode Corp. 12,496,871 12,656,000
------------- -------------
104,140,291 128,971,502
THIS SECTOR IS 23.8% ABOVE YOUR FUND'S COST.
SOFTWARE - 11.2%
20,000 Advent Software, Inc. 751,876 942,500
121,200 Ardent Software, Inc. 1,513,561 2,787,600
87,900 Avid Technology, Inc. 2,140,414 2,054,663
2,856,300 BMC Software, Inc. 138,927,627 127,285,297
28,900 Caere Corp. 385,375 404,600
735,000 Citrix Systems, Inc. 34,114,571 71,341,305
340,400 Check Point Software
Technologies Ltd. 11,491,812 15,594,745
21,100 Documentum, Inc. 751,002 1,127,542
907,400 Electronic Arts Inc. 28,050,576 50,927,825
555,900 Electronics for Imaging, Inc. 12,177,993 22,340,509
121,300 Genesys Telecommunications
Laboratories 2,948,203 2,698,925
123,100 GT Interactive Software Corp. 793,328 615,500
7,627,800 Parametric Technology Corp. 116,968,724 123,951,750
1,671,000 Platinum technology, inc. 33,584,104 31,957,875
246,000 QuadraMed Corp. 5,630,681 5,043,000
1,407,600 Rational Software Corp. 22,432,696 37,301,400
211,600 Software AG Systems, Inc. 5,131,996 3,835,250
1,443,700 Sterling Software, Inc. 23,464,183 39,070,853
428,300 Symantec Corp. 8,672,998 9,315,525
25,000 Wall Data Inc. 428,875 600,000
------------- -------------
450,360,595 549,196,664
THIS SECTOR IS 21.9% ABOVE YOUR FUND'S COST.
SPECIALTY RETAILING - 8.6%
216,000 BJ's Wholesale Club, Inc. 7,895,964 10,003,608
6,835,600 Cendant Corp. 134,143,800 130,307,043
988,700 Circuit City Stores-
Circuit City Group 39,899,103 49,373,701
3,153,300 Dayton Hudson Corp. 145,320,222 171,066,525
99,200 Electronic Boutique Holdings Corp. 1,762,796 2,021,200
1,296,200 Family Dollar Stores, Inc. 12,152,560 28,516,400
1,084,600 Pier 1 Imports, Inc. 10,606,058 10,507,605
82,300 Tiffany & Co. 3,464,756 4,269,312
460,800 Zale Corp. 12,610,138 14,860,800
------------- -------------
367,855,397 420,926,194
THIS SECTOR IS 14.4% ABOVE YOUR FUND'S COST.
TRANSPORTATION & RELATED - 1.7%
305,450 AAR Corp. 7,451,390 7,292,619
544,900 ASA Holdings, Inc. 21,229,135 16,619,450
35,000 Atlantic Coast Airlines Holdings 225,312 875,000
255,400 Atlas Air, Inc. 9,024,963 12,498,765
861,600 Gulfstream Aerospace Corp. 44,768,676 45,880,200
------------- -------------
82,699,476 83,166,034
THIS SECTOR IS 0.6% ABOVE YOUR FUND'S COST.
------------- -------------
Total common stocks 3,789,110,467 4,790,948,439
WARRANTS - 0.0% (A)<F1>
43 Sound Advice, Inc.
Warrants, 06/14/99 0 0
------------- -------------
Total long-term investments 3,789,110,467 4,790,948,439
SHORT-TERM INVESTMENTS - 1.9% (A)<F1>
COMMERCIAL PAPER - 1.7%
$18,000,000 Ford Credit Co.,
due 01/04/99, discount of 5.00% 17,992,500 17,992,500
25,000,000 Nellie Mae Corp.,
due 01/04/99, discount of 6.90% 24,985,625 24,985,625
25,000,000 Household International,
due 01/05/99, discount of 6.05% 24,983,195 24,983,195
15,000,000 American General Finance ECN,
due 01/06/99, discount of 5.84% 14,987,833 14,987,833
------------- -------------
Total commercial paper 82,949,153 82,949,153
VARIABLE RATE DEMAND NOTES - 0.2%
9,646,134 Firstar Bank U.S.A., N.A. 9,646,134 9,646,134
------------- -------------
Total short-term investments 92,595,287 92,595,287
------------- -------------
Total investments $3,881,705,754 4,883,543,726
-------------
-------------
Cash and receivables, less
liabilities 0.1% (A)<F1> 6,457,311
-------------
NET ASSETS $4,890,001,037
-------------
Net Asset Value Per Share
($0.01 par value 500,000,000
shares authorized), offering
and redemption price
($4,890,001,037 / 161,468,115
shares outstanding) $30.28
------
------
(a)<F1>Percentages for the various classifications relate to net assets.
(b)<F2>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. Short-term investments are valued at amortized cost which
approximates quoted market value.
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
Marvin N. Schoenhals
Chairman
WSFS Financial Corp.
Wilmington, Delaware
P.O. Box 4166, Greenville, DE 19807
(800) 656-3017 www.brandywinefunds.com [email protected]
Investment Adviser: FRIESS ASSOCIATES, INC.
Independent Accountants: PRICEWATERHOUSECOOPERS 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 Buswell Report Staff: Chris Aregood,
Margaret Barton, Adam Rieger,
Jennifer Weldon
