BRANDYWINE BLUE FUND, INC.
MANAGED BY FRIESS ASSOCIATES, INC.
QUARTERLY REPORT
JUNE 30, 1996
"MAJOR INDEXES DECLINE . . ." "DOW DECLINES . . .TECHS LOSE GROUND"
"NASDAQ'S LOSS WORST IN THREE MONTHS"
DEAR FELLOW SHAREHOLDERS:
In the context of these headlines we are pleased to see your Fund up 11.6
percent for the year to date, outpacing the S&P 500, the Russell 2000, the NYSE
and the S&P Midcap which all increased between 8.3 and 10 percent. Including the
rocky month of June, your quarterly results of 2.2 percent keep you on the
upward trend to which you have become accustomed.
Your 158 percent increase for the last five years is well ahead of all the major
indices as the Nasdaq Industrials and the Investor's Business Daily Mutual Fund
Index were each up 111 percent, the S&P 500 rose 108 percent, the S&P Midcap
gained 96 percent, and the NYSE climbed 77 percent. For the latest 12 months,
your Fund is up 17.2 percent.
MOST RECENT FIVE YEARS
NYSE 76.5%
S&P MIDCAP 95.7%
S&P 500*<F1> 107.6%
NASDAQ IND. 110.7%
YOUR FUND*<F1> 157.6%
*<F1>TOTAL RETURN
The steadfastness of these results stems from your time-tested strategy of
avoiding the astronomical price earnings ratios that are now being dramatically
shaved. We do not believe in buying growth "at any price."
Currently a study of all of the stocks in your and fellow Friess
clients'portfolios by O'Neil and Company, publishers of Investor's Business
Daily, reflects a PE ratio of 17 versus a PE ratio of 15 for the S&P 500 based
on next year's estimates.
The average growth in the latest quarterly earnings for your companies is 45
percent versus 12 percent for the S&P 500. Annual growth is 53 percent versus
23 percent according to the same report.
COMPANY GROWTH
AVERAGE INCREASE LATEST 12 MOS. EARNINGS
YOUR COMPANIES 53%
S&P 500 23%
AVERAGE INCREASE LATEST QUARTERLY EARNINGS
YOUR COMPANIES 45%
S&P 500 12%
All S&P figures are unweighted. Analysis by William O'Neil & Co., Inc. June 30,
1996.
It is "business as usual" at your three research centers in Phoenix, Jackson
Hole, and Wilmington. We are investing in INDIVIDUAL BUSINESSES rather than in
the stock market and taking advantage of the opportunities this June's market
retreat presented by buying great new stocks at lower prices and adding to
existing holdings which have suffered for no reason other than general market
weakness.
Concerns about the increase in credit card delinquencies, personal bankruptcies
and increasing interest rates triggered a sell-off in financial stocks in late
June. We believe the strength of the economy and the surprisingly low
unemployment statistics will help SELECTED financial holdings which actually
prospered during the quarter.
Likewise, the June quarter witnessed a record lease sale in the Gulf of Mexico
for offshore oil and gas exploration rights. Bids virtually tripled for
deepwater blocks from the spring of '95 and activity is strong in international
offshore markets as well.
During the quarter, your Chesapeake Energy was up 18 percent, Ensco
International grew 17 percent, and Tidewater rose 15 percent.
This heightened interest in oil exploration is fueled by dramatic technology
improvements that have driven down the cost of finding and producing oil, making
each project more profitable even with reduced oil prices relative to ten years
ago.
Modern 3D seismic technology, the ability to drill horizontally off an original
vertical hole punched in the ground, and production rigs that float on the
surface instead of needing thousand-foot-long "legs" are examples of the
fundamental changes your Friess Associates research team seeks.
Your winners this quarter resulted from the efforts of many on your research
team: David Harrington's Dell Computer increased 52 percent bringing you $1.1
million; Clarke Adams' 44 percent gain in HBO & Co. yielded you nearly $1
million; and Tellabs, picked by Andy Graves, was up 38 percent with gains of
$2.1 million.
Jon Fenn's Nike grew nearly $2.5 million or 23 per-cent during the quarter. The
suggestion of one of your outside consultants, Mike Davis, also prompted Jon
Fenn to pick United Waste Systems which was up 27 percent adding almost $1
million.
On the economic front there are no clear signs of any slowing. The over 3
percent increase in manufacturing output for the three months ended in May
continues to show a healthy, expanding economy. Further strength is echoed by
the Philadelphia Fed's index for June which may in part be due to a pickup in
export orders as foreign demand for products appears to be solid.
Exceptional dynamics in Japan may be offsetting European weakness. Japan's
economy actually took off during the first fiscal quarter at the fastest pace in
over 23 years with almost a 13 percent annualized gain in gross domestic
product! Consumer demand also soared as Japan's trade surplus dropped for the
18th straight month to a level which is 60 percent lower than last year at this
time.
While current momentum may give Alan Greenspan and the Fed some ammunition for
increasing rates this July, conflicting statistics like the one from the
National Association of Purchasing Managers which indicate a weakening pace of
economic activity for May, give the Fed some opportunity to "wait and see"
before further tightening.
All of us at Friess Associates are thankful that our generalist approach to
investing your valued assets prompted Smart Money magazine to list your sister
fund, Brandywine Fund, as one of only seven Superstar funds out of the 2,034
funds they reviewed.
Others are catching on to this strategy as many new shareholders joined with you
in adding nearly $45 million in assets during the quarter.
Your Friess Associates teammates, as well as friends and family members,
continue to have more than $15 million invested with you.
In the last three years, your Fund has grown 71.6 percent, nicely beating the
S&P 500's gain of 61 percent. On an average annualized basis your return is
19.7 percent for the three years.
MOST RECENT THREE YEARS
S&P MIDCAP 40.5%
NYSE 44.2%
NASDAQ IND. 52.2%
S&P 500*<F2> 61.0%
YOUR FUND*<F2> 71.6%
*<F2>TOTAL RETURN
For those of you who have also been with us since the early days -- thank you
for your continued trust!
Since Brandywine Blue's inception five and a half years ago, Fund shares
appreciated 205 percent, 22.6 percent annualized, while the S&P rose 148
percent.
And, for those who started with us just two years ago, you have enjoyed a 26
percent average annualized rate of return.
For our IRA shareholders, you'll find important information about your account
on page 9, and, as next quarter will be the end of this fiscal year, we've also
included a short piece about the distribution that will take place in October,
affecting all taxable shareholders of record at that date, that you should find
helpful in your tax planning.
As we celebrate our nation's birth, we recognize the importance of the
traditions instituted by our founding fathers which make possible the "American
Dream." We're honored to serve your investment needs and help you realize your
financial goals in working toward that dream.
Remember, the success of individual companies will continue. Your Friess team
will be there to capitalize on those opportunities.
We work diligently each day to bring you the best possible long-term returns.
Your trust and faith in us and your loyalty through good and bad markets is what
keeps us going each day! Thanks for letting us serve you.
God Bless!
/s/ Foster Friess
Foster Friess
President
July 3, 1996
HIGHLIGHTS . . .
DISTRIBUTION
CORPORATE EXPRESS offers office supply purchasing services to large corporations
employing more than 100 people.
Early this year your company purchased a U.S. trucking business providing the
means to supply its customers, like General Motors, Exxon and Dow Chemical,
with whatever office products they need overnight. This sets a new standard of
performance within the industry.
Corporate Express software enables its customers to make purchases on an
automated basis eliminating staffing and warehousing requirements. In one
customer's case, the $26 million savings in purchasing overhead paid for one
year's worth of supplies!
In conversations this month with Chairman Jirka Rysavi, we learned that your
company cut back the number of office supply vendors they used in many product
lines from as many as 10 down to only about 2 currently. This improves inventory
controls, just in time delivery, and price per unit purchasing costs.
Earnings in the most recent quarter jumped 77 percent to $.16 versus $.09 on
sales of $468 million, more than double the $175 million figure reported last
year.
Since purchase in January, your shares have soared 61 percent to $40.
MISCELLANEOUS
Targeting mid-sized cities and highly industrialized areas, UNITED WASTE
SYSTEMS, INC. provides services for collection and disposal of solid waste to
more than 300,000 customers.
Your company operates 26 landfills and 33 waste collection businesses in
California, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Mississippi, New
Hampshire, New York, Pennsylvania, West Virginia, and Wisconsin.
In 1995, United Waste purchased 41 companies with annualized revenues of $161
million and CFO Mike Nolan says that your company is evaluating additional
acquisition opportunities to purchase its smaller competitors, thereby enhancing
its market position within the industry.
The most recent quarter saw a 57 percent hike in earnings to $.33 compared to
$.21 on a 66 percent jump in revenues -- $63 million versus $38 million. For the
year ended December revenues increased 66 percent driving earnings up 22 percent
to $1.53 from $1.25.
Purchased in January, your shares are up 46 percent selling at $32.25.
RETAILING
Each of COMPUSA, INC.'S 103 mammoth computer superstores offers tens of
thousands of hardware, software, and computer-related products at discounted
prices. Interactive displays allow both children and adults to "test drive"
hundreds of software titles before buying them.
In addition to direct retail sales your NYSE-listed company targets corporate,
government, educational, and even mail order customers.
CFO Jim Skinner told us that the recent acquisition of the mail order company,
PC's Compleat, dramatically increased the size of CompUSA's mail order business,
making your company the third largest non-captive mail order firm in the
country.
CompUSA also adds to its profits by offering a number of non-retail, high margin
businesses such as training courses for all experience levels, and 24-48 hour
repair service.
The March quarter saw earnings double from $.15 to $.30 fueled by revenue growth
of 29 percent.
Currently at $34, CompUSA has jumped 55 percent since your purchase in March.
One of every five pairs of shoes purchased in 1995 was bought at the largest
footwear retailer in the U.S. -- PAYLESS SHOESOURCE INCORPORATED.
With more than 4,300 stores, your company dominates the discount shoe industry
by offering a broad selection of approximately 1,000 styles at very moderate
prices.
The Payless senior management team has an average of 19 years of retail
experience who have helped grow your company's market share to near 20 percent.
A focused advertising strategy is increasing customer traffic, contributing to
Payless' sales growth of 10 percent for the year ended January 1996.
This year, Payless has closed 350 less profitable stores and plans to close a
total of 450. In May, your company saw a 6 percent rise in comparable store
sales, well ahead of the Street's expectation of 0-2 percent.
According to Steve Frazier, Vice President of Corporate Development, Payless has
automated its distribution system and upgraded its computer systems in order to
better manage its inventory with fewer pairs held in its distribution center.
An average store maintains 11,000 pairs in stock. And, every store maintains a
POS (Point of Sales equipment) system to track sales on a daily basis.
With the recent acquisition of Marshall's, TJX COMPANIES, INC. increased its
share of the off-price merchandise retailing outlets market from 40 to 60
percent.
This enhanced your company's ability to lower administrative costs, leverage
marketing dollars through better advertising programs, and be a stronger player
in negotiations with suppliers as manufacturers purchasing volumes soar.
A day of shopping at TJ Maxx or Marshall's is often like a treasure hunt. The
consumer never knows exactly what merchandise will be available, but does know
that it will be high quality, brand-name merchandise selling at 50 percent below
department store prices.
These bargain prices are accelerating same store sales performance for May to
near 8 percent at TJ Maxx and 13 percent at Marshall's.
TJX customers are at the high end of the consumer affluency scale very much like
those who shop at department stores like Macy's.
In recent talks with Steve Wishner, Treasurer, we learned that management is
pleased with the same store sales progress of Chadwick's of Boston, TJX's mail
order catalog for men's and women's apparel. For the middle of May period,
same store sales were up 7 percent.
During the April quarter earnings nearly tripled for your NYSE-listed company
coming in at $.33 compared to $.09 a year ago. Revenues for the quarter were up
76 percent.
Purchased in March at $23.85, your shares have since increased 42 percent.
FELLOW SHAREHOLDER . . .
At 90, most of us would not even be working let alone starting each day at 7:00
AM. Yet up until just recently, Art Connolly, Sr. was still going strong at
the law firm he founded in 1942 in Wilmington, Delaware.
Art's exciting accomplishments can best be described by his son, Art, Jr., a
shareholder in your sister Fund, Brandywine Fund, in an address he gave for his
father's retirement celebration five years ago.
In 1924, as a way to finance his education, Dad shipped out on a steamer for the
summer.
An old sailor befriended him and on the unbearably hot nights they would sit up
on the deck and talk. The old sailor gave him the advice, "If you ever have any
money the best way to invest it is in a whorehouse."
(I don't want to go into the reasons the sailor gave for this advice but it was
more logical than some of the financial newsletters that are circulated.)
Instead of accepting this advice Dad became a lawyer. He thus chose not to
become involved in the world's oldest profession, but many things in the
practice of law are very similar.
After working in DuPont's patent department for eight or ten years, he went out
on his own. The small law firm he founded quickly grew and had many blue chip
companies as clients (Pfizer, Scott Paper, General Foods, General Motors, Kodak,
Phillips, for example).
Some of these clients came in after being involved in litigation where Dad was
on the other side. They respected his work and they also did not want to be on
opposite sides of him again.
Dad became known as one of, if not the top, patent litigators in the country.
One story illustrates his effective cross examination:
He was cross examining a witness in the Pfizer criminal anti-trust trial in the
Southern District of New York. The witness was very cocky and was rocking back
and forth in the old wooden chair which was in the witness stand while the noose
was getting tighter with each question (I realized exactly what was happening
because I had been cross examined by Dad since I was five years old).
When the witness was finally caught in the trap he pushed his chair back
slightly further and flipped over backwards and all you could see were his feet.
Fortunately only the witness' pride was injured. Even Perry Mason never knocked
a witness out of his chair!
I met a former CEO of a company who had been opposite Dad in litigation who told
me that the people at his company called Dad "Ten miles of bad road Connolly."
He then went on to state that having gotten to know Dad, he could not believe he
was the same person who had been involved in the litigation since he was so
warm, friendly and easy going.
That is a side some of us see quite frequently -- others see less frequently.
Dad loves a challenge -- what he really loves is a fight.
For many years, Art served as President of The Laffey-McHugh Found-ation, an
organization which gives about 100 grants a year benefiting many local
charities.
And incredibly, up until the last eight or nine months, Art, father of 6,
grandfather of 13, and great-grandfather of 3, could be found enjoying regular
vigorous bike rides!
He is an inspiration and we are honored to have worked with him for nearly 20
years to achieve his investment goals for the Foundation.
- - Rebecca Buswell
JON . . .
During his seven years as an investment banker with William Blair & Company, Jon
Fenn worked in mergers and acquisitions and was responsible for completing
initial offerings of new companies going public. At Friess Jon continues his
interest in new products and ideas.
"Speaking with customers, suppliers, and competitors is really exciting when I
come across a hot new product or technology that has yet been undiscovered by
Wall Street. I like to see our clients benefit when Wall Street recognizes a
new technology we have already uncovered," says Jon.
According to Friess consultant Mike Davis, "I know when Jon wants to buy a new
idea, not only has he talked to the company, but he has already called a few
competitors and customers. Once the stock is purchased, he gets even more
aggressive about talking to his contacts. Jon does his homework and is a great
team player."
Jon earned his Bachelor of Science degree in Business Administration from the
University of Denver and his MBA from the Kellogg School of Management at
Northwestern University.
When Jon joined Friess in 1994, he and his wife Annie, an obstetrician and
gynecologist in a solo practice, were thrilled to move to Jackson Hole.
Jon spends his free time pursuing his favorite outdoor sports. He used to be a
competitive freestyle skier and one of the top mogul skiers in the Rocky
Mountain Region.
Today, he still enjoys skiing as well as mountain biking, backpacking, and
hunting, but he is most enthusiastic about flyfishing.
"His investment in Nike which brought in nearly $2.5 million in gains for your
Fund just this quarter, is a perfect example of how effectively Jon does his
hard-hitting research to come up with winners," says fellow researcher Mark
Lapolla.
- -Margaret Barton
ALL IS NOT ROSES . . .
As in every quarter, there were some of your holdings that did not perform as
well as we would have liked. Six stocks retraced more than $750,000 during the
quarter including Madge Networks, Trans World Airlines, FileNet Corp., EMC
Corp., Eli Lilly, and IVAX Corp. The latter three were sold from your
portfolio.
We are excited to report that just the top three gainers during the quarter,
Nike, Tellabs, and Gap with $2 million each, contributed over $800,000 more than
the six backtrackers gave up.
Your other big gainers during the quarter, rising by more than $750,000 each,
were Newbridge Networks, HBO & Co., and Dell Computer with $1 million each, TJX
Companies at $950,000, Sun Microsystems and United Waste gaining $800,000 each,
and Cisco Systems bringing in $760,000.
FUND BROKER . . .
Since 1992, Terry Hoy has worked with your Friess researchers on such companies
as Tellabs and Smith International which together have contributed more than
$3.5 million to your Fund.
With 10 years combined experience in the telecommunications industry at MCI and
IBM, Terry joined Robert Baird in 1991 as a Vice President.
"Because Terry has taken the time to understand our investment philosophy we
know he thinks like we do," praises researcher Carl Gates. "When he makes a
recommendation, we look into it quickly."
A shareholder in your sister fund, Brandywine Fund, Terry understands the
importance of a sound investment strategy. "This is a results oriented business
and the Friess team is keenly aware of what drives the performance of individual
stocks. They have a talent for sifting through the maze of information and
identifying those companies poised for growth."
Terry earned his BS in Finance at Marquette University, and after graduation was
reacquainted with an elementary school pal, Holly, whom he went on to marry.
They have four children Emily, 10; Isabelle, 6; Scarlett, 5; and Trevor, 3.
Most of Terry's free time is spent with his family in their suburban Milwaukee
home, but he also enjoys playing golf and tennis, skiing, and coaching soccer.
"I am impressed that Friess Associates, now approaching $10 billion in total
assets, remains so nimble and consistently ahead of the investment pack," Terry
comments. "Their investment strategy works."
- -Rebecca Buswell
CINDY . . .
In addition to helping run your Jackson research office, Cindy's primary
responsibility is assisting researcher Mark Lapolla.
"Cindy's capacity for handling many things at once -- research prospecting,
industry trade checks, and office support -- improves my efficiency to do hard-
hitting investigative research," Mark comments.
"She can interface with brokers and filter through only that information which
is pertinent to our research. This hastens my ability to make sound investment
decisions."
Upon receiving her B.A. in English/Communications, Cindy lived in her native New
Jersey working for a State Senator on his gubernatorial campaign.
She then went on to work in the legal profession gaining the experience which
enables Cindy to juggle many tasks simultaneously, a skill she utilizes daily in
her work at Friess Associates.
Also contributing to Cindy's knack for handling a myriad of tasks is the fact
that she is mother to as many as six children.
With her two children, Lindsey and Daniel, always at home and her husband Jeff's
four children there much of the time, they often have six adolescents under one
roof! What a challenge!
Cindy's favorite leisure time is spent with her family enjoying Jackson's
popular outdoor activities. She is active in the Jackson Hole Presbyterian
Church singing in the choir and serving as a deacon.
And, Cindy never misses her yearly trip back east to see family and go to the
beach.
- -Rebecca Buswell
MARKET CAP . . .
This quarter, your biggest market cap shift occurred in your large cap holdings
- -- those above $5 billion -- which were pared back to 31.6 percent of the
portfolio from 36.5 percent in March.
You sold your positions in Eli Lilly, Pfizer, Computer Associates, Halliburton,
and Seagate Technology from this group, but not before realizing more than $6
million in gains.
Purchases in Associates First Capital, Qualcomm, Inc., Apache Corp., Nine West,
and Western Digital helped move your mid-cap holdings from 52.1 percent in March
to 55.4 percent this quarter. Already, these four companies combined have
brought nearly $2 million in gains to your portfolio.
Your small cap holdings increased from 10.9 percent last quarter to 11.3 percent
as Intimate Brands, Waters Corp., and Quick & Reilly were added.
YOUR COMPANIES' MARKET CAPITALIZATION
CASH 1.7%
SMALL CAP 11.3%
MID CAP 55.4%
LARGE CAP 31.6%
STAYING CONNECTED . . .
Thanks to the overwhelming number of you who took the time to respond to our
requests in the March report. We received several cards back to remove
duplicate mailings along with ideas you have about the reports, the Fund, and
what trends you see as noteworthy that we should investigate. And, we
appreciate the many comments we received in emails from you. Your thoughts are
worthwhile and we want to make sure we keep connected with you in the future.
Please email us at [email protected], fax us at (302) 656-3859 or (302) 656-
9614, or write us at P.O. Box 4166, Greenville, DE, 19807 and we'll pass your
thoughts along to Foster and the rest of your research team.
- -Rebecca Buswell & Lynda Campbell
BRIAN . . .
Maintaining the three Delaware area Friess Associates personal and business
properties is a challenging job. For seven years, Brian DiStefano has been
managing these properties expertly, handling everything from landscaping to
vehicle maintenance to supervising all contractors to ensure that their work is
up to Friess Associates standards.
"I appreciate the opportunity to do the kind of work I enjoy most," relates
Brian. "Friess Associates researchers can bring clients to our Delaware office
feeling confident that everything will be up to par. I worry about the
condition of the building and how the grounds look, enabling them to focus
solely on their important responsibility -- growing the assets of our clients
and shareholders."
Outside of work, Brian is just as active and still eager to be outdoors. He
enjoys golfing and in-line speed skating. He has won amateur races in
Philadelphia, Virginia, New York City and in Delaware in which proceeds
benefited organizations fighting Multiple Sclerosis, SIDS (Sudden Infant Death
Syndrome) and AIDS, and every year Brian participates in a golf tournament which
supports the Boys & Girls Club of Delaware.
Brian is an ice hockey enthusiast -- both as a fan and a player. And, he always
finds time to spend with his wife of seven years, Lisa. Together they love to
fish and travel, especially to the beaches of North Carolina.
"Brian is invaluable to us," says Doug McMinn, who helps run the Administrative
area of Friess Associates. "Whatever task is asked of him, whether it be
installing ergonomic office equipment or getting new carpeting laid, Brian
handles it efficiently and promptly. Once Brian accepts responsibility for
something, we can forget about it knowing that it will be taken care of in the
most professional manner."
- -Rebecca Buswell
HARD AT WORK . . .
During our research we are always taken with how our American system is so
dependent on those people "in the trenches" everyday at the companies in which
we invest. These workers -- in the accounting departments, shipping docks and
secretary pools -- are essential in any well run business.
We want to highlight one of these people as a way to emphasize our dependence on
them to generate positive returns for our clients and shareholders.
Meet Cindy Pfister at HealthPlan Services, headquartered in Tampa, Florida,
whose enthusiasm comes across in her positive approach to her job and to her
family responsibilities.
Cindy has been at HealthPlan Services for 12 years, starting in the clerical
department and working her way up to secretary, then to senior secretary, and
now to accounts payable specialist.
"I enjoy my job and the people I work with. I am a numbers person. I liked
math in school and always knew I would work with numbers. But you have to make
your job fun! I am a people person, too," Cindy explains. Like Cindy, Health
Plan Services is people oriented and wants their customers to hear their
employees smile over the phone.
Born and raised in Tampa, Cindy and her husband Frank live there with their only
child, Megan, who has cystic fibrosis.
When Megan was a year old, Cindy and Frank learned that she had the disease, and
at the tender age of six, Megan has already had to endure five surgeries and
weighs just 30 pounds, needing force-feeding tubes at night to maintain that
weight. The costs are not covered by insurance and the care-giving needs are
constant.
"Frank and I take it day to day and live every day to the fullest. Megan's life
span is limited unless they can find a cure. We just have to hope they will.
We have to think about it that way."
For four years, Cindy has organized a bowling fundraiser for the Cystic Fibrosis
Foundation, an event which has raised more than $10,000. Cindy is quick to give
others credit, saying, "I got the people and they raised the money."
She also organized a fundraiser for CF at work when her co-workers paid for the
privilege of dressing casually.
We applaud Cindy for all she does to make Health-Plan Services a great company
and a profitable investment for your Fund, already gaining $1.7 million in gains
since purchased only in May.
- -Margaret Barton
SHAREHOLDERS WITH IRA'S . . .
Your $12.50 yearly maintenance fee will be automatically deducted on September
20th. If you prefer to have this amount remain in your account to continue to
grow, please send a check directly to Firstar Trust Company attn: Brandywine
Fund, P.O. Box 701, Milwaukee, WI 53201-0701, by September 15th.
THE TAX MAN COMETH . . .
All shareholders of the record date in October will receive the distribution of
the net gains realized by the Fund on sales of stocks during the entire fiscal
------
year ending September 30.
We anticipate that there will be at least a small distribution this year as the
chances of selling some of your companies and realizing a gain between now and
September are highly probable. The final distribution amount will be determined
by any additional gains taken through September 30.
The good news is, no matter what taxes may have to be paid now on the
distribution, when shares are eventually redeemed, the value of the shares will
have been reduced by the amount of the distribution. This is true regardless of
when the shares were purchased. The taxes which will have to be paid upon
redemption will be less than if the October distribution had not taken place.
Let's put this tax into perspective. If the eventual distribution proved to be
as much as $3.00, any assumed tax might be $.90 a share -- that is how much the
shares could move up (or down) in less than a week.
KUDOS FOR YOUR FUND'S MANAGER . . .
BARRON'S --". . . they're (Friess Associates) one of the few organizations out
there that's grown the business intelligently. They've built up their research
capability all over the country, but still maintained a decent team of smart
people who think alike and work well together. That's tough to do." June 1996
---------
INDIVIDUAL INVESTOR -- Friess named as one of seven "Macho Managers" for
steering Brandywine Fund to a five year average annual return of 23.5 percent.
"You can count on the managers profiled here . . . to compete for every basis
point of return when you hire them to invest your hard-earned dollars." April
-----
1996
- ----
TOP TEN . . .
Retailing remains your number one industry group this quarter, but moves up from
14.0 percent in March to 16.5 percent currently. New purchases were made in
Dayton Hudson, Estee Lauder Companies, and Payless ShoeSource. And, you added to
your position in Gap which increased $2 million during the quarter.
The most notable change in your top ten occurred in Oil/Gas Field Services which
grew to 15.2 percent from 11.7 last quarter. Apache Corp., Global Marine, Oryx
Energy, Phillips Petroleum, Schlumberger, and Tosco Corp. are all new to your
portfolio. Gains of $1.3 million during the quarter from your existing Oil/Gas
Field Services companies also contributed to this category's growth.
Your Networking companies shifted from 5.8 percent in March to 3.7 percent
currently as Madge Networks was replaced by 3Com and positions in Cisco Systems
and Newbridge Networks were trimmed down and nearly $3 million in gains
realized.
Intimate Brands, Nine West, The Sports Authority, and St. John Knits are new to
your portfolio and you increased your positions in Liz Claiborne and Nike to
move your Apparel & Shoes category from 7.6 percent to 10 percent. Already
these companies combined have brought in gains of $2.6 million.
Eli Lilly, Pfizer, and Pharmacia UpJohn were all sold from your portfolio,
dropping Pharmaceuticals, your number three group last quarter, from your Top
Ten to just 2.5 percent of your Fund's assets.
TOP TEN INDUSTRY GROUPS
Cash 1.7%
Semiconductors & Related 2.9%
Networking 3.7%
Software 4.5%
Healthcare 5.0%
Computers & Related 6.5%
Financial/Business Services 7.3%
Communications 8.3%
Apparel & Shoes 10.0%
Oil/Gas Field Services 15.2%
Retailing 16.5%
BRANDYWINE BLUE FUND, INC.
STATEMENT OF NET ASSETS
June 30, 1996
(Unaudited)
QUOTED
MARKET
SHARES OR PRINCIPAL AMOUNT COST VALUE (B)<F5>
--------------------------- ---- ---------
LONG-TERM INVESTMENTS - 98.3% (A)<F4>
COMMON STOCKS - 98.3% (A)<F4>
APPAREL & SHOES - 10.0%
138,700 Intimate Brands, Inc. $2,941,791 $3,172,762
57,900 Jones Apparel Group, Inc.*<F3> 2,248,901 2,844,338
172,200 Liz Claiborne, Inc. 5,338,260 5,962,425
70,000 Nautica Enterprises Inc.*<F3> 1,251,250 2,012,500
94,900 NIKE, Inc. Cl B 5,483,736 9,750,975
52,100 Nine West Group Inc.*<F3> 2,431,682 2,663,613
70,000 The Sports Authority, Inc.*<F3> 2,317,548 2,292,500
9,400 St. John Knits, Inc. 401,539 419,475
41,050 Tommy Hilfiger Corp.*<F3> 1,178,546 2,201,306
----------- -----------
23,593,253 31,319,894
THIS SECTOR IS 32.7% ABOVE YOUR COST.
AUTOMOTIVE & RELATED - 2.2%
80,000 Autozone, Inc.*<F3> 2,703,012 2,780,000
39,000 Borg-Warner Automotive, Inc. 1,602,015 1,540,500
69,400 Lear Corporation.*<F3> 2,011,073 2,446,350
----------- -----------
6,316,100 6,766,850
THIS SECTOR IS 7.1% ABOVE YOUR COST.
COMMUNICATIONS - 8.3%
51,600 Cincinnati Bell Inc. 2,465,680 2,689,650
44,200 Dynatech Corp.*<F3> 1,415,550 1,436,500
80,000 ECI Telecom Ltd. 1,759,184 1,860,000
65,000 Glenayre Technologies, Inc.*<F3> 3,324,846 3,250,000
70,000 QUALCOMM Inc.*<F3> 3,250,836 3,718,750
140,000 Storage Technology Corp.*<F3> 5,894,598 5,355,000
114,300 Tellabs, Inc.*<F3> 4,478,856 7,643,812
------------ -----------
22,589,550 25,953,712
THIS SECTOR IS 14.9% ABOVE YOUR COST.
COMPUTERS & RELATED - 6.5%
55,000 Adaptec, Inc.*<F3> 2,303,754 2,605,625
65,000 Dell Computer Corp.*<F3> 2,310,201 3,306,875
77,000 Gateway 2000, Inc.*<F3> 3,101,202 2,618,000
35,000 Mylex Corp.*<F3> 915,835 621,250
60,000 Seagate Technology, Inc.*<F3> 2,873,938 2,700,000
86,400 Sun Microsystems, Inc.*<F3> 4,274,943 5,086,800
126,300 Western Digital Corp.*<F3> 3,143,381 3,299,587
----------- -----------
18,923,254 20,238,137
THIS SECTOR IS 6.9% ABOVE YOUR COST.
DISTRIBUTION - 1.8%
81,500 Corporate Express, Inc.*<F3> 2,025,952 3,260,000
58,700 U.S. Office Products Co.*<F3> 2,490,141 2,465,400
----------- -----------
4,516,093 5,725,400
THIS SECTOR IS 26.8% ABOVE YOUR COST.
ELECTRONICS - 1.0%
30,000 SCI Systems, Inc.*<F3> 1,262,046 1,218,750
57,300 Waters Corp.*<F3> 1,543,198 1,890,900
----------- -----------
2,805,244 3,109,650
THIS SECTOR IS 10.9% ABOVE YOUR COST.
FINANCIAL/BUSINESS SERVICES - 7.3%
50,000 AccuStaff Inc.*<F3> 1,350,000 1,362,500
141,900 ADT Ltd.*<F3> 2,190,226 2,678,362
183,700 Associates First Capital
Corporation*<F3> 6,437,128 6,911,713
31,000 Beneficial Corp. 1,588,492 1,739,875
50,000 Countrywide Credit Industries, Inc. 1,189,990 1,237,500
15,000 Credit Acceptance Corp.*<F3> 283,125 315,000
115,000 Equifax Inc. 2,901,474 3,018,750
113,500 The Money Store, Inc. 1,997,459 2,511,187
15,000 Olsten Corp. 464,002 440,625
83,000 The Quick & Reilly Group, Inc. 2,575,249 2,697,500
----------- -----------
20,977,145 22,913,012
THIS SECTOR IS 9.2% ABOVE YOUR COST.
FOOD/RESTAURANTS - 2.2%
53,000 Dole Food Co., Inc. 2,169,016 2,279,000
160,000 Food Lion CL B 1,273,750 1,240,000
38,500 Hershey Foods Corp. 2,834,240 2,824,938
10,000 Ryan's Family Steak Houses, Inc.*<F3> 93,750 92,500
50,000 Shoney's Inc.*<F3> 650,685 543,750
----------- -----------
7,021,441 6,980,188
THIS SECTOR IS 0.6% BELOW YOUR COST.
HEALTHCARE - 5.0%
82,700 Caremark International, Inc. 2,177,995 2,088,175
47,800 HBO & Co. 2,119,134 3,238,450
145,000 HEALTHSOUTH Corp.*<F3> 4,747,235 5,220,000
89,600 Quorum Health Group, Inc.*<F3> 2,148,886 2,363,200
70,000 RISCORP, Inc.*<F3> 1,532,503 1,277,500
62,000 Universal Health Services,
Inc. CL B*<F3> 1,770,871 1,619,750
----------- -----------
14,496,624 15,807,075
THIS SECTOR IS 9.0% ABOVE YOUR COST.
HOME/OFFICE & RELATED - 1.0%
30,000 Heilig-Meyers Co. 688,008 720,000
40,000 Lowe's Companies, Inc. 1,513,616 1,445,000
50,000 Office Depot, Inc.*<F3> 1,135,985 1,018,750
----------- -----------
3,337,609 3,183,750
THIS SECTOR IS 4.6% BELOW YOUR COST.
LEISURE & ENTERTAINMENT - 1.8%
123,000 Interstate Hotels Company*<F3> 2,846,257 2,736,750
85,000 La Quinta Inns, Inc. 2,890,663 2,847,500
----------- -----------
5,736,920 5,584,250
THIS SECTOR IS 2.7% BELOW YOUR COST.
MEDICAL PRODUCTS & SUPPLIES - 0.9%
85,000 AmeriSource Health Corp.*<F3> 2,675,000 2,826,250
THIS SECTOR IS 5.7% ABOVE YOUR COST.
NETWORKING - 3.7%
75,000 3Com Corp.*<F3> 3,521,352 3,431,250
75,600 Cisco Systems Inc.*<F3> 1,435,019 4,280,850
60,000 Newbridge Networks Corp.*<F3> 2,238,838 3,930,000
----------- -----------
7,195,209 11,642,100
THIS SECTOR IS 61.8% ABOVE YOUR COST.
OIL/GAS FIELD SERVICES - 15.2%
100,000 Apache Corp. 2,960,736 3,287,500
50,000 BJ Services Co.*<F3> 1,572,247 1,756,250
10,000 Chesapeake Energy Corporation*<F3> 762,942 898,750
26,500 Cooper Cameron Corp.*<F3> 1,026,737 1,159,375
44,000 Diamond Offshore Drilling, Inc.*<F3> 1,828,515 2,519,000
80,000 Ensco International Inc.*<F3> 2,039,120 2,600,000
210,000 Global Marine Inc.*<F3> 2,983,337 2,913,750
80,000 Nabors Industries, Inc.*<F3> 1,268,942 1,300,000
160,000 Noble Drilling Corp.*<F3> 2,409,360 2,220,000
185,000 Oryx Energy Co.*<F3> 3,069,820 3,006,250
70,000 Phillips Petroleum Co. 2,949,221 2,931,250
145,000 Reading & Bates Corp.*<F3> 1,785,312 3,208,125
100,000 Schlumberger Ltd. 8,651,489 8,425,000
98,000 Smith International, Inc.*<F3> 2,913,991 2,952,250
82,300 Tidewater Inc. 2,366,445 3,610,913
50,000 Tosco Corp. 2,638,630 2,512,500
83,200 Weatherford Enterra Inc.*<F3> 2,424,206 2,496,000
------------ -----------
43,651,050 47,796,913
THIS SECTOR IS 9.5% ABOVE YOUR COST.
PHARMACEUTICALS - 2.5%
40,800 Elan Corp. plc*<F3> 2,690,366 2,330,700
60,000 Genzyme Corp.*<F3> 3,519,200 3,015,000
65,000 Watson Pharmaceuticals Inc.*<F3> 2,664,317 2,461,875
----------- -----------
8,873,883 7,807,575
THIS SECTOR IS 12.0% BELOW YOUR COST.
RETAILING - 16.5%
110,000 CompUSA Inc.*<F3> 2,419,564 3,753,750
100,000 Consolidated Stores Corp.*<F3> 2,794,150 3,675,000
63,900 Dayton Hudson Corp. 6,488,383 6,589,687
100,000 Dollar General Corp. 2,441,450 2,925,000
30,000 Estee Lauder Companies Inc. 1,115,367 1,267,500
472,400 Gap, Inc. 11,989,567 15,175,850
86,000 Payless ShoeSource, Inc.*<F3> 2,708,462 2,730,500
245,700 Sears, Roebuck and Co. 10,851,286 11,947,163
110,200 TJX Companies, Inc. 2,611,981 3,719,250
----------- -----------
43,420,210 51,783,700
THIS SECTOR IS 19.3% ABOVE YOUR COST.
SEMICONDUCTORS & RELATED - 2.9%
80,000 Analog Devices, Inc.*<F3> 2,198,861 2,040,000
50,000 Atmel Corp.*<F3> 1,912,500 1,506,250
80,000 ESS Technology Inc.*<F3> 1,603,750 1,480,000
96,200 International Rectifier Corp.*<F3> 2,017,756 1,551,225
65,000 MEMC Electronic Materials, Inc.*<F3> 2,540,458 2,535,000
----------- ----------
10,273,325 9,112,475
THIS SECTOR IS 11.3% BELOW YOUR COST.
SOFTWARE - 4.5%
70,400 BMC Software, Inc.*<F3> 2,734,436 4,206,400
87,300 Cadence Design Systems, Inc.*<F3> 1,656,281 2,946,375
30,000 Compuware Corp.*<F3> 1,117,500 1,185,000
49,000 FileNet Corp.*<F3> 2,638,812 1,788,500
80,000 Mentor Graphics Corp.*<F3> 1,432,728 1,300,000
12,100 Microsoft Corp.*<F3> 1,316,400 1,453,513
64,000 Network General Corp.*<F3> 1,540,626 1,376,000
----------- -----------
12,436,783 14,255,788
THIS SECTOR IS 14.6% ABOVE YOUR COST.
TRANSPORTATION - 1.6%
184,100 Trans World Airlines, Inc.*<F3> 2,782,638 2,623,425
125,500 USAir Group, Inc.*<F3> 2,413,013 2,259,000
----------- -----------
5,195,651 4,882,425
THIS SECTOR IS 6.0% BELOW YOUR COST.
MISCELLANEOUS - 3.4%
70,000 Champion Enterprises, Inc.*<F3> 1,733,367 1,461,250
68,800 Praxair, Inc. 2,178,628 2,906,800
75,000 UCAR International Inc.*<F3> 3,056,001 3,121,875
100,000 United Waste Systems, Inc.*<F3> 2,209,165 3,225,000
----------- -----------
9,177,161 10,714,925
----------- -----------
THIS SECTOR IS 16.8% ABOVE YOUR COST.
Total common stocks 273,211,505 308,404,069
----------- -----------
Total long-term investments 273,211,505 308,404,069
SHORT-TERM INVESTMENTS - 1.3% (A)<F4>
VARIABLE RATE DEMAND NOTES - 1.3%
$718,230 American Family Financial
Services 718,230 718,230
2,155,000 Johnson Controls, Inc. 2,155,000 2,155,000
1,290,000 Wisconsin Electric Power
Company 1,290,000 1,290,000
----------- -----------
Total variable rate demand notes 4,163,230 4,163,230
----------- -----------
Total investments $277,374,735 312,567,299
-----------
-----------
CASH AND RECEIVABLES, LESS
LIABILITIES 0.4% (A)<F4> 1,052,873
-----------
NET ASSETS $313,620,172
-----------
-----------
Net Asset Value Per Share
($0.01 par value 100,000,000
shares authorized), offering
and redemption price
($313,620,172 / 13,081,844
shares outstanding) $23.97
------
------
*<F3>Non-income producing security.
(a)<F4>Percentages for the various classifications relate to net assets.
(b)<F5>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.
ON THE CUTTING EDGE . . .
YOUR FRIESS TEAM IS ALWAYS "WIRED"
When your researchers travel, they are always connected to the office and fellow
teammates using cell phones, pagers, and laptop computers. Our brokers are now
connected to us via Lotus Notes, delivering their research ideas electronically
in a uniform format that meets our needs. This helps the brokers reduce their
voluminous 30 page reports into a half page of "meat" we can use.
NEW YORK TO BOSTON IN THREE HOURS . . . BY TRAIN
Currently this trip takes five hours, but state-of-the-art high speed rail
equipment is scheduled to go into service on Amtrak's Northeast Corridor route
from Washington, D.C. to New York to Boston in 1999. Amtrak has chosen the
consortium of Bombardier of Canada and GEC-Altsom to supply the trains which
will combine 150 miles per hour speed with tilt technology to barrel through the
curves in comfort.
LONG DISTANCE CALLS ARE CHEAP OVER THE INTERNET
For the price of the necessary software and Internet-access fees, you can make
all the calls you want -- to anybody who has the same setup. Phone companies
charge by time and distance, but Internet connections are sold at flat monthly
fees even though they travel the same wires. The person at the other end has to
know you are calling and sound quality is not yet up to snuff, but it is great
for faxes. Leading software is from Vocaltec.
NEW PC CONNECTORS WILL MAKE SETUP A SNAP
The Universal Serial Bus (USB), which is being promoted by a group led by Intel,
will let you hook up your printer, scanner, external drive, modem, etc. using a
single connector which will transfer data at 12 million bits per second, a speed
up to 100 times faster than the current links.
BOARD OF DIRECTORS
John E. Burris
Chairman
Burris Foods, Inc.
Milford, Delaware
Foster S. Friess
President
Friess Associates, Inc.
Jackson, Wyoming
Stig Ramel
Former President
Nobel Foundation
Stockholm, Sweden
(800) 656-3017
Investment Adviser: FRIESS ASSOCIATES, INC.
Custodian, Transfer Agent: FIRSTAR TRUST COMPANY
Independent Accountants: PRICE WATERHOUSE LLP
Legal Counsel: FOLEY & LARDNER
OFFICERS: Foster S. Friess, President and Treasurer; Clarke Adams, Vice
President;
William F. D'Alonzo, Vice President; Carl S. Gates, Vice President; Paul R.
Robinson, Vice President;
and Lynda J. Campbell, Secretary
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of Brandywine Blue Fund unless accompanied or preceded by
the Fund's current prospectus.
Report editor: Lynda J. Campbell Report Staff: Margaret Barton, Rebecca A.
Buswell, Jennifer Fidance, Paul R. Robinson
