1999 Annual Report
BERWYN FUND
a series of THE BERWYN FUNDS
February 14, 2000
Dear Berwyn Fund Shareholder:
In 1999 the Berwyn Fund's (BF's) net asset value per share dropped from
$16.96 to $16.18, a 4.6 percent loss on a total return basis. The loss
arose from our inability to recover from a 15.7 percent setback
experienced in the first quarter, which drove the Fund's share price to
a low of $14.30 on March 31, 1999. The Fund was managed in a tax
efficient manner in 1999, thus eliminating the need to declare a taxable
dividend.
The Fund's performance was reflective of the stock market's focus on
buying "growth" and selling "value". Put differently, investors chose
the "new" economy over the "old" economy and momentum investing over
fundamental investing. In our opinion, investors continued a process of
selling low and buying high that has proven to be successful for the
past three years. This behavior has caused a two-year bear market for
most stocks while investors' assets have become concentrated in fewer
and fewer securities. In spite of the fact that during 1999 the Dow
Jones Industrial Average and S&P 500 gained 27.2 percent and 21.0
percent, respectively, in the week ending December 17th 1,116 stocks out
of 3,865 stocks on the New York Stock Exchange were making new 52 week
lows.
Some investors believe the stock market ultimately acts as a proxy for
the intrinsic value of a company. The management of your Fund
subscribes to that point of view. We have continued to focus on buying
companies with experienced management teams, sound balance sheets and
good business prospects at prices believed to be below their private
market value. In the past two years, we have watched the valuations of
our investments contract from a range of 10 to 12 times trailing 12-
month earnings in 1997 to as low as 4.5 times earnings at the present
time.
Our frustration has been heightened by the apparent ease with which
other investors, some less experienced than we, have made money in this
same time frame. Investors, both professional and private, have often
been rewarded by buying popular stocks in companies that have no
earnings or sell at price-to-earnings ratios that can only be described
as astronomical by past standards.
At the same time, we are painfully aware of the need for us to earn
money for our shareholders. In the past year, we have worked hard to
develop new investment ideas which are consistent with both the
marketplace's perception of the new economy and our own value investing
standards. This has not been an easy task, but one that we have pursued
with enthusiasm. Our research has uncovered a number of stocks with
great long-term promise in the new economy, yet sell at reasonable
valuations. Ansys, a software firm whose products are directed toward the
engineering and scientific communities, and Microtouch, a manufacturer of
"touch screens" for the banking, gaming and retailing industries, are
examples of our efforts in this regard.
Other companies in our portfolio are rapidly adapting the technology of the
new economy to maintain their competitive edge. Blair, a catalog retailer,
has employed IBM to set up an interactive web-site, which is planned to be
operational later this year. First American Financial is no longer just a
title insurer, but a provider of financial and information services whose
products can be accessed over the Internet. Printronix, a long-term holding
of the Fund, is targeting its bar code and verification printing technology
to the e-commerce market. We believe that the old economy and the new
economy will meld as market forces continue to demand higher efficiencies
and productivity. Another effect will be a reduction in the disparity
between new and old economy market valuations. The drop in AOL stock
subsequent to its proposed merger with Time-Warner is an example of this
process.
We cannot predict when the exodus from value investing will end. However,
it is possible that the nadir for our Fund's share price occurred last
March and we are now in the early stages of a turnaround that will
manifest itself in a long-term bull market. If true, then investors
are missing a major opportunity that is masked by the current speculation
in high technology stocks. Insider buying patterns and corporate share
repurchases suggest that the management teams and boards of directors of
the companies we own agree with our point of view. Many of the companies
in the portfolio, including Blair, Drew, Ducommun, First American Financial,
Hardinge, Lindberg, Patrick Industries and Printronix, have been using
excess cash to repurchase shares at what they consider to be unusually
attractive price levels.
The preceding chart compares BF with the Russell 2000 Index (Index) on a
total return basis. Through 1997 the Fund showed a close correlation with
the Index, but has underperformed the Index in the past two years. We think
the reason for the lack of correlation in 1998 and 1999 is due to the
differences in valuation investors are placing upon smaller cap "value"
stocks and smaller cap "high technology" stocks. This fact, coupled with
the weighting by capitalization, has resulted in the Index's superior
performance. Similar phenomena are evident in the performance
differentials between the components of the S&P 500 and NASDAQ Composite
Indices.
In 1999 the assets of the Fund decreased to $39.3 million. Operations
continue to run efficiently; 1999's annual expense ratio was 1.39 percent.
Portfolio turnover decreased to 6 percent.
Although market volatility remains high and value investing remains out-of-
favor, we are excited about the longer term opportunities.
Very truly yours,
/s/ Robert E. Killen /s/ Kevin M. Ryan
Robert E. Killen Kevin M. Ryan
President Secretary-Treasurer
Long Term Fund Performance* (12/31/99)
(Average Annual Compounded Return)
Fund 1 year 5 year 10 year
BF -4.60% 5.85% 8.38%
*Past performance is not a guarantee of future results.
Note:
The investment return and the principal value of an investment in BF will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Returns for the Berwyn Fund are net of all expenses, advisory fees and
commission charges and include the reinvestment of dividends (total return).
All index returns listed herein also include the reinvestment of dividends
(total return).
To the Trustees and
Shareholders of Berwyn Fund
In our opinion, the accompanying statement of assets and liabilities,
including the statement of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Berwyn Fund
(one of the portfolios constituting The Berwyn Funds, hereafter referred to
as the "Fund") at December 31, 1999, the results of its operations for
the year then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted
in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
February 16, 2000
BERWYN FUND
A SERIES OF THE BERWYN FUNDS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
Assets:
Investments in Securities, at Market Value $39,252,321
(Cost $34,088,881) (Note 2)
Cash 42,451
Receivables:
Dividends
15,010
Interest 3,176
Investment Securities Sold 149,116
Total Assets 39,462,074
Liabilities:
Investment Securities Purchased 105,207
Accrued Expenses 14,879
Investment Advisory Fee Payable 32,392
Total Liabilities 152,478
Net Assets: (1)
Applicable to 2,429,635 Outstanding Shares of
Common Stock, $1.00 Par Value
(Authorized 20,000,000 Shares) $39,309,596
Net Asset Value and Offering Price Per Share
($39,309,596 / 2,429,635 Outstanding Shares) $ 16.18
Minimum Redemption Price Per Share (Note 1) $ 16.02
(1) On December 31, 1999 Net Assets consisted of the following:
Common Stock, Par Value $1.00 2,429,635
Paid-in Capital 31,777,695
Accumulated Net Realized Capital Loss (61,174)
Net Unrealized Appreciation of Investment Securities 5,163,440
$39,309,596
The accompanying notes are an integral part of these financial statements.
BERWYN FUND
A SERIES OF THE BERWYN FUNDS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
Investment Income:
Dividends $427,112
Interest 45,611
Total Investment Income $ 472,723
Expenses:
Investment Advisory Fee (Note 3) 476,594
Transfer Agent Fees 37,633
Custodian Fees 31,063
Professional Fees 34,119
Registration Fees 18,398
Directors' Fees 3,200
Printing Expenses 23,572
Office Expenses 25,098
Insurance 5,365
Taxes (Other than Income Tax) 5,024
Total Expenses 660,066
Net Investment Loss (187,343)
Realized and Unrealized Loss on Investments:
Net Realized Loss from Sales of Securities (61,174)
Net Change in Unrealized Appreciation on
Investment Securities (2,837,951)
Net Realized and Unrealized Loss on Investments (2,899,125)
Net Decrease in Net Assets Resulting from Operations $(3,086,468)
The accompanying notes are an integral part of these financial statements.
BERWYN FUND
A SERIES OF THE BERWYN FUNDS
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
12/31/99 12/31/98
Increase in Net Assets from Investment Activities:
Net Investment Loss $ (187,343) $ (379,294)
Net Realized Gain (Loss) from Sales of
Investment Securities (61,174) 3,217,798
Net Change in Unrealized Appreciation
on Investment Securities (2,837,951) (18,672,695)
Net Decrease in Net Assets Resulting
from Operations (3,086,468) (15,834,191)
Distribution to Shareholders:
From Net Realized Gains from Sales of Securities 0
(3,020,287)
Total Distributions 0 (3,020,287)
Capital Share Transactions (1):
Net Proceeds from Sales of Shares 3,354,310 10,881,238
Cost of Shares Redeemed (23,819,858) (32,474,603)
Distributions Reinvested 0 2,903,515
Net Decrease in Net Assets from
Capital Share Transactions (20,465,548) (18,689,850)
Total Decrease in Net Assets (23,552,016) (37,544,328)
Net Assets:
Beginning of Year 62,861,612 100,405,940
End of Year $39,309,596 $ 62,861,612
(1) Capital Shares Issued and Redeemed:
Shares Sold 210,352 516,002
Shares Redeemed (1,488,224) (1,549,296)
Shares Reinvested 0 179,673
(1,277,872) (853,621)
The accompanying notes are an integral part of these financial statements.
BERWYN FUND
A SERIES OF THE BERWYN FUNDS
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR
ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
Net Asset Value, Beginning of Year $16.96 $22.01 $19.69 $19.43 $17.55
_____ _____ _____ _____ _____
Income from Investment Operations:
Net Investment Income (Loss) (0.08) (0.09) 0.00 (0.02) 0.00
Net Realized and Unrealized Gains
(Losses) on Securities (0.70) (4.11) 5.06 2.78 3.34
_____ _____ _____ _____ _____
Total Income from Investment
Operations (0.78) (4.20) 5.06 2.76 3.34
_____ _____ _____ _____ _____
Less Distributions:
Dividends from Net Investment Income 0.00 0.00 0.00 0.00 (0.01)
Distributions from Net Realized Gains 0.00 (0.85) (2.74) (2.50) (1.45)
_____ _____ _____ _____ _____
Total Distributions 0.00 (0.85) (2.74) (2.50) (1.46)
_____ _____ _____ _____ _____
Net Asset Value, End of Year $16.18 $16.96 $22.01 $19.69 $19.43
Total Return (4.60%) (18.90%) 26.05% 14.35% 19.18%
Ratios/Supplemental Data:
Net Assets, End of Year (000) $39,310 $62,862 $100,406 $94,056 $97,234
Ratio of Expenses to Average Net Assets 1.39% 1.20% 1.20% 1.21% 1.23%
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.39%) (0.45%) (0.02%) (0.10%) 0.04%
Portfolio Turnover Rate 6% 19% 26% 32% 32%
The accompanying notes are an integral part of these financial statements.
BERWYN FUND
A SERIES OF THE BERWYN FUNDS
STATEMENT OF INVESTMENTS
DECEMBER 31, 1999
Number of
Shares
COMMON STOCKS - 99.2% Value*
AEROSPACE / DEFENSE - 2.1%
77,366 Ducommun Inc. + $ 841,354
89,641 ALCOHOLIC BEVERAGE - 2.1% 817,974
Todhunter International Corp. +
AUTOMOTIVE AND TRUCK PARTS - 2.0%
249,334 National Standard Co. + 779,169
BANKING - 2.6%
42,320 BSB Bancorp Inc. 814,660
7,000 First Essex Bancorp, Inc. 99,750
10,500 Lawrence Savings Bank 80,063
994,473
CHEMICALS - 0.3%
16,000 Carbide/Graphite + 102,000
COMMERCIAL PRINTING - 4.7%
77,767 Courier Corp. 1,808,083
7,000 Ennis Business Forms 54,250
1,862,333
COMPUTER & PERIPHERALS -11.0%
6,000 Ansys Inc. + 66,000
239,855 Data I/O Corp. + 659,601
44,150 Inacom Corp. + 322,847
4,000 Microtouch Systems 50,500
41,000 Plaintree Systems + 11,480
138,002 Printronix, Inc. + 3,139,545
4,249,973
DIVERSIFIED MANUFACTURING - 1.6%
83,404 Lindberg Corp. 635,955
The accompanying notes are an integral part of these financial statements.
BERWYN FUND
STATEMENT OF INVESTMENTS (Continued)
Number of
Shares COMMON STOCKS (Continued) Value*
ELECTRONIC PRODUCTS - 3.5%
357,417 Scan-Optics $ 603,141
54,700 Trans-Lux Corp. 386,319
121,275 Wells-Gardner Electronics 378,984
1,368,444
FOREST & PAPER PRODUCTS - 3.4%
32,100 Greif Brothers Corp. 952,969
9,506 MAXXAM Inc. 407,570
1,360,539
FURNITURE MANUFACTURING - 3.8%
75,698 Ladd Furniture + 1,495,036
HEALTH CARE - 0.5%
10,000 Rehabcare Group + 211,250
INDUSTRIAL EQUIPMENT - 0.6%
25,000 Airgas Inc. 237,500
INSURANCE - 2.2%
69,063 First American Financial Corp. 858,971
MACHINERY MANUFACTURING - 5.4%
39,750 Hardinge, Inc. 519,234
58,744 Terex Corp. + 1,630,145
2,149,379
MANUFACTURED HOUSING - 3.5%
85,700 Drew Ind. + 771,300
84,000 Kevco Inc. + 168,000
47,000 Patrick Industries 431,813
1,371,113
MARITIME INDUSTRY - 4.6%
111,311 Anangel-American Shipholders ADR 633,081
269,405 B & H Ocean Carriers 437,783
53,600 Stolt-Nielsen S.A. ADR 763,800
1,834,664
MEDICAL PRODUCTS & SERVICES - 5.9%
330,676 Quidel Corp.+ 2,263,080
The accompanying notes are an integral part of these financial statements.
BERWYN FUND
STATEMENT OF INVESTMENTS (Continued)
Number of
Shares COMMON STOCKS (Continued) Value*
METALS & MINING - 12.1%
300,139 Campbell Resources, Inc. + $ 51,594
46,200 Impala Platnium-UNSPON ADR 1,868,245
144,600 Kaiser Aluminum + 1,111,613
200,110 Nord Pacific Limited ADR+ 102,056
496,350 Westmoreland Coal Co. +** 1,613,138
4,746,646
OIL & GAS EXPLORATION & PRODUCTION - 6.9%
24,300 Berry Petroleum Co. 367,538
87,600 Callon Petroleum + 1,297,575
17,496 Louis Dreyfus Natural Gas Corp. + 317,115
213,364 Ranger Oil Ltd. 666,763
12,000 World Fuel Services 90,000
2,738,991
OIL REFINING - 5.9%
321,744 Frontier Oil Corp. 2,171,772
18,000 Giant Industries 150,750
2,322,522
PRECISION INSTRUMENTS - 3.5%
118,170 Esterline Technology Corp. + 1,366,341
RETAIL INDUSTRY - 1.0%
29,100 Blair Corporation 407,400
STEEL & STEEL PRODUCTS - 2.1%
40,100 AK Steel Holding Corp. 756,888
13,828 Keystone Consolidated Inc. + 82,104
838,992
TELECOMMUNICATIONS - 2.8%
21,066 Commonwealth Telephone Enterprise + 1,105,965
TEXTILES - 5.1%
93,540 Culp, Inc. 590,471
189,649 Dixie Group, Inc. + 1,398,661
1,989,132
TOTAL COMMON STOCKS (Cost $33,588,881) $38,949,196
The accompanying notes are an integral part of these financial statements.
BERWYN FUND
STATEMENT OF INVESTMENTS (Continued)
Face
Amount CORPORATE BONDS - 0.7% Value*
$250,000 Campbell Resources 7.5% CV 07/20/04 $ 88,125
250,000 TransLux 7.5% CV 12/01/06 215,000
303,125
TOTAL CORPORATE BONDS (Cost $500,000) 303,125
TOTAL INVESTMENTS (Cost $34,088,881) - 99.9% 39,252,321
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.1% 57,275
NET ASSETS - 100% $39,309,596
______________________________________
* See Note 2 to the Financial Statements
** Considered to be an affiliate under the Investment Company Act of
1940
+ Non-Income Producing Security
ADR American Depositary Receipt
CV Convertible Security
UNSPON Unsponsored
The accompanying notes are an integral part of these financial statements.
BERWYN FUND
A SERIES OF THE BERWYN FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - ORGANIZATION
On April 30, 1999, The Berwyn Fund, Inc. (the "Fund") reorganized as a
separate portfolio of The Berwyn Funds, a Delaware Business Trust. The Berwyn
Funds is registered under the Investment Company Act of 1940, as amended, as
an open-end management company. Berwyn Fund is a portfolio series of The
Berwyn Funds. The Fund's primary investment objective is long-term capital
appreciation. For redemptions of capital shares of the Fund held less than
one year, the Fund charges a redemption fee of 1% of the net asset value of
the capital shares being redeemed.
NOTE 2 - ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management of the Fund to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
Security Valuation: Securities listed on a national securities exchange are
valued at the last quoted sales price as of the close of trading on the New
York Stock Exchange (4:00 p.m. Eastern Time). Securities not traded on the
valuation date and securities not listed are valued at the last quoted bid
price. Short-term investments are valued at amortized cost which approximates
market value. The value of other assets and securities for which no
quotations are readily available is determined in good faith at fair value
using methods determined by the Trustees.
Federal Income Taxes: The Fund intends to continue to qualify as a regulated
investment company and distribute all of its taxable income and otherwise
comply with the provisions of the Internal Revenue Code of 1986, as amended.
Accordingly, no provision for Federal income tax is required in the financial
statements.
Securities Transactions and Investment Income: Securities transactions are
accounted for on the date the securities are purchased or sold. Costs used in
determining realized gains and losses on sales of investment securities are
those of specific securities sold. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income is
recorded as earned.
Distributions to Shareholders: The Fund distributes annually all of its net
investment income and any net realized capital gains. The amounts of
distributions from net investment income and net realized capital gains are
determined in accordance with Federal income tax regulations, which may differ
from those amounts determined under generally accepted accounting principles.
These book/tax differences are either temporary or permanent in nature. To
the extent these differences are permanent, they are adjusted to reflect their
tax treatment in the period the differences arise.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY
TRANSACTIONS
Under the terms of the investment advisory agreement, the Fund has agreed to
pay The Killen Group, Inc. (the "Investment Adviser") an investment advisory
fee at an annual rate of 1% of the Fund's average daily net assets. The
Investment Adviser and the Directors and Officers of the Investment Adviser,
together with their families, owned 360,867 shares of the Fund at December 31,
1999. Certain Trustees and Officers of the Fund are also Directors and
Officers of the Investment Adviser.
During the period ended December 31, 1999, the Fund paid $81,752 in
commissions to Berwyn Financial Services, a brokerage company affiliated with
the Investment Adviser, to execute certain portfolio transactions.
NOTE 4 - SECURITY TRANSACTIONS
During the period, the Fund made purchases of $2,903,810 and sales of
$23,458,152 of investment securities other than U.S. Government securities and
temporary cash investments.
Cost of securities owned at December 31, 1999 and the net realized gains or
losses on securities sold for the period then ended for Federal income tax
purposes were not materially different from amounts reported for financial
reporting purposes.
At December 31, 1999, net unrealized appreciation for financial reporting and
Federal income tax purposes aggregated $5,163,440 of which $14,286,390 related
to appreciated securities and $9,122,950 related to depreciated securities.
At December 31, 1999, the Fund had a capital loss carryforward of
approximately $61 thousand to offset capital gains realized through December
31, 2007. Gains offset will not be distributed to shareholders.
