BRANDYWINE BLUE FUND, INC.
MANAGED BY FRIESS ASSOCIATES, INC.
ANNUAL REPORT
SEPTEMBER 30, 1997
DEAR FELLOW SHAREHOLDERS:
We are excited to report that you finished the fiscal year with a 19.9 percent
jump in performance for the quarter! Your return more than doubled the 7.5
percent gain in the S&P 500 and beat the 16.3 percent gain in the Nasdaq
Industrials and the 15.7 rise in the S&P Midcap. For the entire fiscal year, you
saw an increase of 41.6 percent as your Fund's net asset value per share grew
more than $10!
Our investment credo "Never Invest in the Stock Market, Invest in Individual
Businesses" caused Forbes to rank the Brandywine Funds family as the #1
performer with assets over $1 billion for the last 10 years as we reported to
you a few weeks ago.
The Forbes ranking highlights the long-term benefits of sticking to our time-
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tested strategy of investing in dynamic companies of all sizes that are
experiencing dramatic earnings growth. The latest quarter's surge in your Fund
provides a very good answer when people say "What have you done for us lately?"
Those of you who've been with us longer term can also ask that question and
receive a positive response. For the most recent five years, your Fund returned
234 percent, or 27.3 percent on average, compared to the S&P 500's 157 percent
rise.
MOST RECENT FIVE YEAR
NASDAQ IND. 121.5%
IBD*<F1> 125.1%
S&P MIDCAP 129.6%
LIPPER GROWTH*<F1> 137.7%
S&P 500*<F1> 156.7%
YOUR FUND*<F1> 234.1%
* <F1>TOTAL RETURN
IBD = Investor's Business Daily Mutual Fund Index
Your research team continues to garner kudos from professional investment
consultants, financial advisors, and financial planners who compare us to other
mutual fund managers for our ability to manage our growth and capitalize on the
resources this growth has provided.
We believe the secret to this success is organizing into small hard-hitting
teams which allows our forced displacement (Pigs at the Trough) theory to work
more effectively and also to maintain accountability on a very basic level. At
the end of the day, each one of your researchers clearly knows his or her reward
system is linked to how the stocks under each of their watchful eyes perform --
no committee system here!
Your companies' earnings grew 45 percent in the latest 12 months and 46 percent
in the most recent quarter, three times the S&P 500's companies' earnings growth
of 15 percent.
Based on next year's earnings estimates, your companies' average p/e ratio of 20
versus 19 for the S&P as measured by William O'Neil & Company, publishers of
Investor's Business Daily, gives superior growth for virtually the same p/e
level. We also expect these com-panies to do better than Wall Street's current
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estimates.
COMPANY GROWTH
AVERAGE INCREASE LATEST 12 MOS. EARNINGS
YOUR COMPANIES 45%
S&P 500 15%
AVERAGE INCREASE LATEST QUARTERLY EARNINGS
YOUR COMPANIES 46%
S&P 500 15%
One of your current biggest gainers, identified by researcher David Harrington,
is Compaq Computer, which gained over 87 percent in this quarter alone providing
you with nearly $11 million in gains. Phoenix-based researcher Diane Hakala
contributed EMC Corp. which added nearly $7 million to your Fund. Mark Lapolla's
SCI Systems, A.J. Berk's J. Ray McDermott, and Jon Fenn's CompUSA provided over
$3 million apiece this quarter.
Clarke Adams selected FIRSTPLUS Financial which leapt over 65 percent for the
quarter and John Ragard garnered a 60 percent return in Vintage Petroleum.
Consultant Hank Bannister's purchase of Micro Chip Tech gained 52 percent and
Jackson-based researcher Andy Graves picked Nordstrom which grew 30 percent.
Contributions were spread across your research team. In fact, I don't have
enough room to recognize everyone but I can tell you that 43 separate holdings
had gains of over 25 percent for you during the quarter!
The perceived negative impact a strong U.S. dollar could have on earnings of
mega-cap, multi-national companies like Coca-Cola, Proctor & Gamble and
McDonalds moves investor interest back to smaller and mid-cap companies that
conduct the vast majority of their business here in the U.S. and therefore don't
suffer from currency exchange issues. The dollar in recent months rose 8 percent
against the yen and nearly 5 percent against the pound.
The reduction of the maximum capital gains rate could unleash gains of large cap
companies which have experienced huge price earnings expansion over the last
couple of years. Individual investors who have been in large cap companies may
be more inclined to realize their gains.
Growth stocks provide their return through price appreciation (capital gain)
rather than dividends (taxed as ordinary income). Additionally, in the past 24
months the large companies of the S&P 500 soared 69 percent while the smaller
companies of the Nasdaq Industrials grew only 46 percent. These two factors
auger well for possible better performance from the more dynamic companies
comprising your portfolio.
We are very encouraged by the new, lower capital gains tax rate and its impact
on those of you who have entrusted your hard-earned assets to us to manage. I am
a strong supporter of empowering individuals, and any legislation leaving more
money in your hands as opposed to the government's is a step in the right
direction.
Fortunately, this legislation will have no impact on our investment process. We
will continue to buy and hold companies that have outstanding appreciation
potential until we are able to identify other companies that have MORE
appreciation potential to displace the original company. This sell discipline
has been a cornerstone of our process since 1974.
Along with the tax legislation there has been other news in Washington. The
Federal Reserve Board stood pat at their September 30 meeting in light of few
tangible signs of inflation. The Fed funds rate remains at 5.5 percent where it
has stayed since March 25.
Economic growth allowed the Congressional Budget Office to announce early in
September that the budget deficit for fiscal 1997 would be only $34 billion
versus the previously expected $115 billion and that there was a projected
surplus in 2002. When is the last time you heard budget surplus in the same
breath as government?
Thank you for your ongoing confidence. We are grateful for it. We are keenly
aware that it is what we do for you in the future that counts. We strive to
provide you the type of returns that all of our long-term shareholders have
enjoyed.
Since inception, your Fund is up 354 percent, 25.3 percent annualized, compared
to just 260 for the S&P 500 -- almost a five-fold increase!
SINCE INCEPTION
JANUARY 10, 1991
IBD*<F2> 169.9%
LIPPER GROWTH*<F2> 233.0%
NASDAQ IND. 249.3%
S&P 500*<F2> 259.9%
YOUR FUND*<F2> 354.4%
*<F2>TOTAL RETURN
We continue to be committed to the same investment strategy that provided these
returns, and are invested right along with you, having our Friess Associates
pension plan, and all of Lynn's and my equity assets in either Brandywine or
Brandywine Blue Funds.
Over $15 million of "insider" investments keep us ever focused on dedicating
each working day to growing your hard-earned assets. During the quarter an
additional $50 million was entrusted to the Fund, increasing our desire to
always warrant the trust you've placed in us.
We look forward to a continuing long-term relationship. Please let us know how
we can serve you better. Thanks for the opportunity to work for you.
God Bless!
/s/ Foster Friess
President
October 8 1997
TOP TEN . . .
There were a few shifts in your Top Ten this quarter. Riding the $11 million in
gains in Compaq Computer which grew 87 percent in the quarter, Computers &
Related moved from number four in June to the 2nd spot currently. New purchases
in Creative Technology, Sun Microsystems, Silicon Graphics, and Unisys as well
as a net gain of 6.7 million in EMC Corp., also bumped up this group.
Semiconductors & Related moved up from number eight to number four this quarter.
You purchased Analog Devices, International Rectifier, Atmel, Credence Systems,
KLA-Tencor, and Texas Instruments which together have already netted more than
$3.2 million in gains.
You've added Cadence Design, up $630,000, Computer Associates, with $750,000,
and Synopsys with $408,000, to increase your Software holdings to the number one
group with 12.3 percent.
With gains of $1.9 million from new holdings Applied Power, Dana Corp. and
Trinity Industries, Machinery/Construction & Miscellaneous Manufacturing joins
the Top Ten this quarter with 5.5 percent. Financial/Business Services is also a
new group and is at number six. Department Stores and Electronics fell from your
Top 10 to make room for these new groups.
TO TEN INDUSTRY GROUPS
Software 12.3%
Computers & Related 11.1%
Oil/Gas Field Services 10.5%
Semiconductors & Related 9.8%
Specialty Retailing 9.6%
Financial/Business Services 6.2%
Machinery/Construction &
Miscellaneous Manufacturing 5.5%
Transportation & Related 5.3%
Communications 4.2%
Networking 3.6%
Cash 1.1%
All Others 20.8%
HIGHLIGHTS
COMMUNICATIONS
With sales figures tripling from many of its top 20 customers like Home Depot,
and new relationships with such well known companies as GTE, GENERAL CABLE CORP.
penetrates both international and domestic markets. Your company manufactures
and markets its wire and cable products to retailers, OEMs (original equipment
manufacturers) and distributors.
Canadian sales are up 40 percent, and upcoming acquisitions in Europe and Mexico
help strengthen General Cable's international presence.
According to CEO Steve Rabinowitz, these increased sales result from your
company's "Power of One" strategy which provides a one-stop-shopping solution
for its customers. Key to this strategy is the fact that General Cable offers
more products than any other cable manufacturer or distributor and provides
extraordinary customer service and education about the products (which is
unusual for a commodity business like cable distribution). As management learns
more about the manufacturing process and its customers' needs, they find ways to
cut costs even more.
With just two quarters on record, analysts predict earnings of $2.11 for this
year and expect 17 percent growth in earnings for 1998. Revenues in the June
quarter were $292 million, up from $251 million in March.
Purchased for you in August at $31, your shares are up to $36 today.
DEPARTMENT STORES
After suffering from increased competition from specialty retailers and sluggish
retail sales in California and the Pacific Northwest during 1995-1996,
NORDSTROM, INC. is staging a strong comeback this year. Driven by a more
fashion-conscious consumer, better sales of higher priced shoes, accessories,
and designer labels have propelled both same-store sales and margins.
Your company operates 86 stores in 18 states, with sales in the last 12 months
of over $4.6 billion. Nordstrom slowed store expansion when sales growth
weakened in the mid-1990s, but is now opening new stores at a faster clip than
most other full-line department store chains.
Dan Nordstrom, President, recently explained that the Garden City, NJ, West
Hartford, CT and Cleveland store openings in August and September will help
bring total square footage growth to 6 percent for 1997, with another 8-10
percent growth planned for 1998.
In the July quarter, Nordstrom expanded earnings 38 percent to $.76 on a 9
percent gain in revenues.
Purchased at $46 in May, your shares are at $64, a 39 percent increase.
OIL/GAS FIELD SERVICES
J. RAY MCDERMOTT is the largest marine construction company in the world. With
over 50 percent of the total market, your company designs, constructs, moves,
and installs platforms and pipelines for offshore oil and gas production in
Southeast Asia, the Middle East, the North Sea, and West Africa. Currently, most
of its projects are in the Gulf of Mexico.
With total backlog in primary contracts and joint ventures at approximately $4.2
billion and an exclusive, two-year contract with Shell for deep-water projects
approaching 3,000 feet, J. Ray dominates the industry.
A new management team led by CEO Roger Tetrault outlined a four-point program to
lead J. Ray to increased profitability through cost controls and more lucrative
levels of engineering from existing and new contracts. Roger tells us that
operating expenses will be cut back to $48 million in fiscal 1999 compared to
$67 million for fiscal 1997.
Earnings were up 44 percent last quarter from $.09 to $.13 and revenues climbed
19 percent to $465 million.
Your shares sell today at $49, a price 80 percent higher than when you purchased
it in June.
SOFTWARE
What do Chuck Yeager and Michael Jordan have in common? They're both part of a
creative consultant team which helps design such video games as Wing Commander
III, NBA Live '97, Road Rash, PGA Tour Golf, Madden Football and NHL Hockey for
entertainment software company, ELECTRONIC ARTS INC.
Operating much like a movie studio, your company works with producers who
coordinate artists, writers, animators, sound engineers, musicians, set
designers, and programmers to produce the games. This setup allows for quick
turnaround on all its products.
Electronic Arts products operate on PC's, Macs, SEGA, Saturn, Nintendo 64 and
Sony Playstation. The accelerating sales of Playstation particularly fuels sales
of EA's games.
In the recent June quarter, revenues were $118 million, rising 46 percent from
last year and earnings grew to $.03 versus $.01.
Electronic Arts is gaining market share. Stan McGee, CFO, told us about the
recent acquisition of Maxis and that once EA's distribution, sales, and
marketing functions are integrated and functioning there, your company should
benefit.
Jumping 45 percent since purchase in January, your shares are at $39 today.
TRANSPORTATION
During the recent UPS strike, a direct competitor to the shut-down company, RPS,
handled a record number of shipments. This small-package business-to-business
carrier is an operating unit of your company CALIBER SYSTEM, INC. Other
divisions include Viking Freight, a domestic carrier of shipments less than
10,000 pounds, and Roberts Express, which transports high-security, hazardous,
and fragile shipments.
New management, including Lou Valerio, CFO, improved on-time delivery of its RPS
unit after shutting down the less profitable operations of the company.
Caliber's largest subsidiary, Roadway Express, which dealt in the long-haul LTL
(less-than-truckload) business, was spun off in late 1995.
In the June quarter, earnings vaulted to $.62 versus only $.01 last year. For
calendar '97, analysts anticipate earnings to be ten times the $.25 posted for
'96.
Your shares finished the quarter at $54, up 54 percent since purchase in June.
As we go to press today, we learned that yesterday Federal Express announced
that it would buy the company in a stock swap. Caliber closed at $59.25 as a
result.
FELLOW SHAREHOLDER . . .
In 1993 at a charity event in Palm Springs, Orville Krieger met Foster Friess,
and was so impressed by their discussion about your sister Brandywine Fund, that
Orv did some investigating on the Fund's performance on his own. "My only
regret," Orv laments, "is that I did not meet Foster earlier. I am extremely
pleased with my results and have made many new friends by telling them about
Brandywine."
Orv is a real estate guru, particularly in the hospitality property business. He
and his wife, Mary, founded Krieger Nationwide Real Estate in 1960, a company
dealing exclusively in the brokerage of hospitality properties throughout the
U.S.
In 1982, they moved to Phoenix where Orv formed a partnership with Jay Snyder to
launch Krieger & Snyder Nationwide Real Estate, nationally recognized brokers of
fine hotels and resorts.
"IT IS MY FERVENT DESIRE TO HELP MATCHPOINT GO NATIONWIDE AND TO SPEND THE REST
OF MY LIFE SERVING HIM IN THIS MANNER."
Noted for his business acumen, it didn't take long for Orv to also be recognized
for his commitment to the Christian principles by which he lives.
In 1976, seizing a good opportunity, Orv purchased a 140-unit Holiday Inn just
minutes from the airport in Spokane, Washington. Others in the industry
applauded Orv's keen business sense until they learned he would close the
hotel's primary money maker -- the bar.
He didn't feel comfortable running a business that so strongly conflicted with
his own personal beliefs. In its first five years of operation under Orv's
leadership, the hotel's food sales went up 20 per-cent while room bookings rose
30 percent. And, while the business could thrive even more from alcohol sales,
Orv doesn't mind as he grins and says, "Beliefs aren't worth much if a fella's
not ready to live by them."
Orv continues to follow this credo. His latest project, MatchPoint, is a perfect
example. After two years of planning, MatchPoint was launched last spring and
seeks to stop the cycle of crime by intervening when a life of crime just
begins, in adolescence.
So many children today -- particularly those in the inner-cities -- lack the
parental guidance they need to develop into mature, responsible adults. These
rebellious, angry, lonely, misguided youth often come from poor, abusive,
single-parent homes, and they are looking for a role model who will be a friend,
confidant, advisor, and listener. Oftentimes, the only example these children
have is a drug-addicted parent, shackled by the pain that comes from living in
and out of prison.
MatchPoint takes these at-risk children (ages 8-13) and pairs them up with a
kind, caring, dependable adult mentor in hopes to provide them with support,
encouragement, and a sense of self-worth. MatchPoint feels that the single most
effective way to change the negative course in a child's life is the presence of
one committed adult.
A ministry of Prison Fellowship, MatchPoint exists just in Phoenix currently,
but plans are underway to expand nationally. Orv is committed to this cause. "It
is my fervent desire to help MatchPoint go nationwide and to spend the rest of
my life serving Him in this manner."
We applaud Orv for his desire to help others, and we are honored to have the
chance to grow his assets, which, in turn, will help this worthwhile effort.
- - Rebecca Buswell
DIANE . . .
You currently have the U.S. national champion female stunt pilot picking stocks
for your Fund! Phoenix-based researcher, Diane Hakala, is a member of the United
States Aerobatic Team and most recently won the United States National
Championship in Sherman, Texas! Prior to this her best performance was a 2nd
second place finish at the International Aerobatic Club Championships held in
Fond du Lac, Wisconsin in August. Last year she flew to a 4th place finish among
women and 14th overall at the World Championships.
An ace in the air, Diane is also an expert in selecting companies for you and
sees similarities between her flying and stock-picking. "Central to our
investment strategy is finding those companies that are performing better than
others expect. To do that, I have to analyze and combine critical information
quickly, just as I do in flight. And, I have to be confident enough to make
decisions fast."
"CENTRAL TO OUT INVESTMENT STRATEGY IS FINDING THOSE COMPANIES THAT ARE
PERFORMING BETTER THAN OTHERS EXPECT."
Never was that more important in her flying experience than three years ago when
her plane's engine failed completely and Diane had ten seconds to decide her
course of action. She landed the plane without power, completely destroying her
craft but emerging with just a fractured ankle.
Diane joined Friess Associates' Delaware office in 1991, but in 1993 when we
opened an office in Phoenix, she eagerly moved there to enjoy the open desert
spaces perfect for practicing her flying maneuvers. Before Friess, she worked at
International Telephone and Telegraph as a computer programmer and at Morgan
Stanley & Co. as a systems analyst. Her knack for picking computer stocks comes
from this experience.
Some of the big winners she's chosen include EMC Corp., BMC Software, Bay
Networks, Autodesk and Texas Instruments, together bringing in more than $20
million in gains.
Originally from central Massachusetts, Diane stayed in New England for college
and attended Wesleyan University, graduating Cum Laude with a BA in History.
During college and high school, Diane became an accomplished trumpeter and
played with the Worcester Symphony Orchestra and the Greater Boston Youth
Symphony.
When she's not working, you can find Diane out on the golf course or in a karate
studio. But, looking to bring home the Gold for the United States next July,
you're most likely to see Diane in the air practicing her moves!
- -Rebecca Buswell
We were thrilled to receive postcards and notes from over 2,500 of our fellow
shareholders whose investments are handled through such organizations as Charles
Schwab and Fidelity. Thanks for your comments, and welcome to the family. We
would love to hear from the rest of you. If you invest through an intermediary,
please allow us to include you in our database by sending your name and address
to Jenni Weldon at the P.O. Box or Internet address listed on the back page.
PAUL . . .
Coming to Friess Associates from Texas, Paul Hopkins joined your trading desk
nearly a year ago, bringing with him more than ten years experience. Just prior
to making trades for your Fund, Paul spent seven years as the head trader at the
$48 billion Texas Teachers' Retirement System in Austin.
Paul graduated with a BBA in Finance and Accounting from Texas A&M University in
1984. Following graduation, he returned to his native Houston and began his
career in the investment business with AIM Management as an account
administrator on the money market desk. After only a year, Paul moved to the
equity desk. Paul then headed for Austin to join TRS which turned out to be a
wise move as he met and married his wife, Carol, who also worked there.
"My role at Friess Associates is to buy and sell large blocks of stock as
discreetly and efficiently as possible for the benefit of our shareholders and
clients," Paul explains. "Accomplishing that task depends on our ability to
prioritize and process the vast amount of information we receive every day. The
price, the position and the timing have to be right, and the teamwork atmosphere
on the desk enables us to facilitate this part of the job rather smoothly."
"HIS GRASP OF THE ELECTRONIC TRADING NETWORKS INSTINET & POSIT HAS BROUGHT A
NEW DIMENSION TO OUR FIRM..." Pat Kealey
Executing buy orders from researcher Carl Gates, Paul was able to secure
relatively low (between $13 and $14) average cost prices for CellStar and DSP
Group, whose prices are now approaching $40. And, when researcher Mark Lapolla
determined it was time to get out of ESS Technology, Paul completed selling it
at $22 before it subsequently dropped to $13. These buy and sell decisions are
made by the research team, but it is Paul and the rest of the traders that
actually implement them for you.
Not only are Paul's trading skills impressive, but he also knows very well the
computer programs that our trading team now uses daily. Fellow trader Pat Kealey
applauds Paul, saying, "His grasp of the electronic trading networks INSTINET &
POSIT has brought a new dimension to our firm that directly benefits our
shareholders and clients. These networks allow for complete trading anonymity.
Our trades take place around the last listed executions without any real market
impact. Paul has been instrumental in our ability to use and master these
networks."
Paul's favorite time is spent with Carol and their two-year-old daughter,
Alison. But, you'll also find him enjoying sports, especially basketball and
golf, as well as camping, and working in the yard.
- - Rebecca Buswell
"EXTERNAL" RESEARCH RESOURCE . . .
When Greg Cote joined Robertson Stephens, he also joined the external research
resource network for Friess Associates. This year alone, such top winners as
Texas Instruments, Compaq Computer, DSC Communications, and Cisco Systems were
all in your Fund thanks to Greg's work.
"What sets Friess Associates apart from the rest of Wall Street is their ability
to anticipate change. My role with Friess is to help the research team manage
inflection points of the stocks they follow," Greg explains. "Those changing
points could be caused by a shift in the fundamentals, a new product, or
modified earnings numbers. I try to be on the lookout for these changes so Andy,
David, Diane, or any of the Friess research team can sell or buy at the right
time."
"GREG LOOKS AT THE ENTIRE INDUSTRY, INCLUDING COMPETITORS, WHICH ALLOWS HIM TO
ASSESS PITFALLS THAT MIGHT LIE AHEAD."
David Harrington, who selected Compaq, says Greg is an excellent idea generator.
"His interaction with company managements affords him the opportunity to better
understand how a company adapts to a particular product cycle or transition
within their industry," relates David. "Greg looks at the entire industry,
including competitors, which allows him to assess pitfalls that might lie
ahead."
Greg gleans this information for your Fund by attending conferences, following
road shows, and visiting with company managements. Oftentimes a Friess
researcher will join him at these conferences and it was on just such an
occasion that Greg met his wife, Mary Jo. He was at a technology conference in
Las Vegas with a few of your research team. So, Greg's affinity for working with
your researchers goes beyond sharing a knack for picking great stocks -- they
were around when he picked his wife!
Before Greg moved to San Francisco to launch his career with Robertson Stephens,
he worked at C.J. Lawrence, which is now DMG. Prior to that he was an investment
banker. Greg earned a BS in Finance from Lehigh University.
Born and raised in New Jersey, Greg is a transplanted westerner, but likes
living out West mainly because it puts him in close proximity to the Rockies
where he enjoys hitting the slopes. When Greg travels to Jackson Hole and visits
with our research team there, he tacks on a few extra days in order to get in
some skiing.
- -Rebecca Buswell
ALL IS NOT ROSES . . .
Or is it? This quarter was a banner one for you, with 14 stocks gaining more
than $2 million apiece, while only one holding dropped back by that amount. That
sole holding was Hollywood Entertainment, which was sold.
There were three stocks which lost more than $1 million this quarter -- Western
Digital, Corning Inc., and Cognos Corp. You've sold Corning and Cognos, but
still own Western Digital.
Your largest gainer this quarter was Compaq Computer, bringing in $11 million!
The next big winner was EMC Corp. with $7 million, followed by National
Semiconductor, Comp USA, SCI Systems, and J. Ray McDermott which each gained
over $3 million. Dell Computer, Bay Networks, Caliber Systems, Conseco, and Best
Buy Co. each rose by more than $2.5 million during the quarter.
Vintage Petroleum, BJ Services, and BMC Software, rounded out the over $2
million gainers, and there were 18 other companies that rose more than $1
million this quarter.
KUDOS FOR YOUR SISTER FUND . . .
FORBES -- Brandywine is the #1 performing fund family for the last ten years
for all those managing more than $1 billion in assets. August 1997
----
MONEY -- Out of a total of 368 funds, Brandywine Fund named among those that
"Refuse to Lose." One of only ten funds that made money every calendar year for
the last ten years, Brandywine's ten and five year returns outpaced the other
nine funds listed. May 1997
--------
THE WALL STREET JOURNAL -- For the five years ended May 31, 1997, Brandywine is
the #1 performer of the 45 largest U.S. equity mutual funds with its 189 percent
return which outdistanced the closest competitor by 25 percentage points.
June 1997
- ---------
WORTH -- Brandywine is dubbed an "Emerging Fund Family . . . having ranked in
the top 5 percent of their peer group over five years." May 1997
--------
MUTUAL FUNDS MAGAZINE -- Brandywine picked as one of 13 funds to choose if you
want to "Get the Most Bang for Your Buck." April 1997
----------
(PRICE WATERHOUSE LOGO)
PRICE WATERHOUSE LLP
100 EAST WISCONSIN AVENUE
SUITE 1500
MILWAUKEE, WI 53202
REPORT OF INDEPENDENT ACCOUNTANTS
October 7, 1997
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF BRANDYWINE BLUE FUND, INC.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Brandywine Blue Fund, Inc. (the "Fund") at September 30, 1997, 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 six years in the period then ended and for the period from January 10,
1991 (commencement of operations) to September 30, 1991, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
BRANDYWINE BLUE FUND, INC.
STATEMENT OF NET ASSETS
September 30, 1997
SHARES QUOTED
OR PRINCIPAL MARKET
AMOUNT COST VALUE
------------ ----- -------
COMMON STOCKS - 98.9% (A)<F4>
APPAREL & SHOES - 1.6%
80,000 Intimate Brands, Inc. $1,461,273 $1,865,040
102,200 Liz Claiborne, Inc. 2,925,530 5,614,664
75,000 The Warnaco Group, Inc. 2,109,235 2,381,250
------------ -----------
6,496,038 9,860,954
THIS SECTOR IS 51.8% ABOVE YOUR FUND'S COST.
AUTOMOTIVE & RELATED - 0.2%
40,000 Federal-Mogul Corp. 1,140,125 1,485,000
THIS SECTOR IS 30.2% ABOVE YOUR FUND'S COST.
COMMUNICATIONS - 4.2%
40,000 Allen Telecom Inc.*<F3> 998,708 1,140,000
40,000 Boston Technology, Inc.*<F3> 1,032,412 1,355,000
32,100 Comverse Technology, Inc.*<F3> 1,579,026 1,693,275
206,400 DSC Communications Corp.*<F3> 5,863,842 5,560,003
110,000 DSP Communications, Inc.*<F3> 1,765,621 2,303,180
114,300 ECI Telecom Ltd. 2,719,352 3,700,463
20,000 Essex International, Inc.*<F3> 767,152 770,000
20,000 General Cable Corporation*<F3> 620,000 710,000
171,900 Tellabs, Inc.*<F3> 5,715,728 8,852,850
------------ -----------
21,061,841 26,084,771
THIS SECTOR IS 23.8% ABOVE YOUR FUND'S COST.
COMPUTERS & RELATED - 11.1%
312,500 Compaq Computer Corp.*<F3> 13,333,445 23,359,375
50,000 Creative Technology Ltd.*<F3> 1,088,540 1,278,150
2,500 Dell Computer Corp.*<F3> 21,722 242,187
349,700 EMC Corp. (Mass.)*<F3> 10,749,809 20,413,738
36,000 Sequent Computer Systems, Inc.*<F3> 976,500 893,268
115,500 Silicon Graphics, Inc.*<F3> 3,000,046 3,031,875
112,900 Sun Microsystems, Inc.*<F3> 5,227,337 5,285,188
75,400 Symbol Technologies, Inc. 3,331,160 3,312,925
100,000 Unisys Corporation*<F3> 1,395,350 1,531,300
225,000 Western Digital Corp.*<F3> 10,142,840 9,014,175
------------ -----------
49,266,749 68,362,181
THIS SECTOR IS 38.8% ABOVE YOUR FUND'S COST.
DEPARTMENT STORES - 2.8%
210,000 Family Dollar Stores, Inc. 3,077,410 4,790,730
120,000 Federated Department Stores, Inc.*<F3> 5,027,492 5,175,000
26,800 Fred Meyer, Inc.*<F3> 1,195,781 1,427,100
95,000 Nordstrom, Inc. 4,378,768 6,056,250
------------ -----------
13,679,451 17,449,080
THIS SECTOR IS 27.6% ABOVE YOUR FUND'S COST.
DISTRIBUTION - 0.8%
103,200 Kent Electronics Corp.*<F3> 3,323,633 4,076,400
25,000 Tech Data Corp.*<F3> 736,980 1,150,000
------------ -----------
4,060,613 5,226,400
THIS SECTOR IS 28.7% ABOVE YOUR FUND'S COST.
ELECTRONICS - 3.4%
20,000 The DII Group Inc.*<F3> 570,000 655,620
18,900 Microchip Technology Inc.*<F3> 612,995 853,448
180,000 SCI Systems, Inc.*<F3> 3,565,625 8,921,340
45,000 Teradyne, Inc.*<F3> 1,914,187 2,421,585
45,000 Varian Associates, Inc. 2,671,807 2,795,625
114,200 Waters Corp.*<F3> 3,743,405 5,046,270
------------ -----------
13,078,019 20,693,888
THIS SECTOR IS 58.2% ABOVE YOUR FUND'S COST.
FABRIC/TEXTILES - 0.6%
50,000 Unifi, Inc. 1,596,750 2,046,900
40,400 WestPoint Stevens Inc.*<F3> 1,333,200 1,666,500
------------ -----------
2,929,950 3,713,400
THIS SECTOR IS 26.7% ABOVE YOUR FUND'S COST.
FINANCIAL/BUSINESS SERVICES - 6.2%
212,700 AccuStaff Inc.*<F3> 5,622,894 6,700,050
75,000 AMRESCO, Inc.*<F3> 2,163,461 2,784,375
76,500 Danka Business Systems PLC ADR 3,437,865 3,404,250
44,800 Finova Group, Inc. 4,218,164 4,239,200
4,000 FIRSTPLUS Financial Group, Inc.*<F3> 132,000 224,500
68,500 First Union Corporation (N.C.) 3,346,439 3,429,315
66,000 FIserv, Inc.*<F3> 2,735,798 2,895,750
25,000 Herman Miller, Inc. 1,063,798 1,337,500
164,000 Ogden Corp. 3,412,512 3,874,500
105,000 Providian Financial Corporation 3,555,889 4,167,240
50,000 United Companies Financial Corp. 1,597,320 1,575,000
116,000 Valassis Communications, Inc.*<F3> 2,871,131 3,697,500
------------ -----------
34,157,271 38,329,180
THIS SECTOR IS 12.2% ABOVE YOUR FUND'S COST.
FOOD/RESTAURANTS - 0.9%
100,000 Brinker International, Inc.*<F3> 1,711,320 1,781,300
50,000 CKE Restaurants, Inc. 1,988,070 2,100,000
19,000 Foodmaker, Inc.*<F3> 365,702 357,447
46,000 Outback Steakhouse, Inc.*<F3> 1,127,876 1,270,750
------------ -----------
5,192,968 5,509,497
THIS SECTOR IS 6.1% ABOVE YOUR FUND'S COST.
HEALTHCARE - 0.9%
125,000 Beverly Enterprises, Inc.*<F3> 1,856,262 2,171,875
105,000 Integrated Health Services, Inc. 3,748,148 3,510,990
------------ -----------
5,604,410 5,682,865
THIS SECTOR IS 1.4% ABOVE YOUR FUND'S COST.
HOME/OFFICE & RELATED - 0.3%
30,000 Maytag Corp. 956,844 1,023,750
40,000 Office Depot, Inc.*<F3> 678,328 807,520
------------ -----------
1,635,172 1,831,270
THIS SECTOR IS 12.0% ABOVE YOUR FUND'S COST.
INSURANCE - 1.5%
185,000 Conseco, Inc. 4,137,219 9,030,405
THIS SECTOR IS 118.3% ABOVE YOUR FUND'S COST.
LEISURE & ENTERTAINMENT - 3.0%
70,000 Callaway Golf Co. 2,201,171 2,441,250
90,000 Doubletree Corp.*<F3> 4,492,500 4,342,500
70,700 La Quinta Inns, Inc. 1,533,026 1,665,904
85,300 Polaroid Corp. 3,873,423 4,366,336
50,000 Prime Hospitality Corp.*<F3> 835,802 1,128,150
45,000 Promus Hotel Corporation*<F3> 2,081,516 2,016,585
59,000 Royal Caribbean Cruises Ltd. 2,424,452 2,581,250
------------ -----------
17,441,890 18,541,975
THIS SECTOR IS 6.3% ABOVE YOUR FUND'S COST.
MACHINERY/CONSTRUCTION & MISCELLANEOUS MANUFACTURING - 5.5%
23,700 Applied Power Inc. 1,410,093 1,491,631
105,000 Carpenter Technology Corp. 4,509,100 5,197,500
215,000 Cincinnati Milacron Inc. 5,659,172 5,778,125
295,800 Coltec Industries Inc.*<F3> 5,672,095 6,396,675
100,000 Dana Corp. 4,654,122 4,937,500
145,000 Trinity Industries, Inc. 5,501,903 6,996,250
108,400 Tubos de Acero de Mexico SA ADR*<F3> 2,587,776 2,513,579
25,000 Wyman-Gordon Co.*<F3> 671,875 656,250
------------ -----------
30,666,136 33,967,510
THIS SECTOR IS 10.8% ABOVE YOUR FUND'S COST.
MEDICAL/DENTAL PRODUCTS & SERVICES - 0.3%
50,000 VIVUS, Inc.*<F3> 1,787,650 1,875,000
THIS SECTOR IS 4.9% ABOVE YOUR FUND'S COST.
NETWORKING - 3.6%
98,000 3Com Corp.*<F3> 3,488,981 5,022,500
248,000 Bay Networks, Inc.*<F3> 6,248,784 9,579,000
100,500 Cisco Systems Inc.*<F3> 6,246,400 7,342,831
------------ -----------
15,984,165 21,944,331
THIS SECTOR IS 37.3% ABOVE YOUR FUND'S COST.
OIL/GAS FIELD SERVICES - 10.5%
100,100 BJ Services Co.*<F3> 4,680,785 7,432,425
37,700 Cooper Cameron Corp.*<F3> 1,240,496 2,707,350
102,400 EVI, Inc.*<F3> 4,796,634 6,553,600
139,800 J. Ray McDermott, S.A.*<F3> 3,805,408 6,850,200
10,900 Marine Drilling Companies, Inc.*<F3> 196,200 340,625
155,000 McDermott International, Inc. 4,120,008 5,657,500
3,500 Noble Drilling Corp.*<F3> 49,210 112,875
55,600 Nuevo Energy Co.*<F3> 2,032,300 2,661,850
73,100 Pride International, Inc.*<F3> 2,071,919 2,485,400
155,000 Rowan Companies, Inc.*<F3> 2,594,130 5,521,875
41,600 Smith International, Inc.*<F3> 3,048,416 3,231,821
20,000 USX-Marathon Group 677,532 743,760
105,000 Varco International, Inc.*<F3> 3,146,357 5,092,500
142,200 Veritas DGC Inc.*<F3> 4,123,806 6,052,459
131,400 Vintage Petroleum, Inc. 4,178,986 6,471,450
54,000 Weatherford Enterra Inc.*<F3> 2,094,613 2,878,902
------------ -----------
42,856,800 64,794,592
THIS SECTOR IS 51.2% ABOVE YOUR FUND'S COST.
PHARMACEUTICALS - 0.9%
121,000 Mylan Laboratories Inc. 2,571,398 2,714,998
45,500 Watson Pharmaceuticals Inc.*<F3> 2,197,162 2,718,625
------------ -----------
4,768,560 5,433,623
THIS SECTOR IS 13.9% ABOVE YOUR FUND'S COST.
SEMICONDUCTORS & RELATED - 9.8%
79,700 Advanced Micro Devices, Inc.*<F3> 2,197,391 2,595,271
30,000 Altera Corp.*<F3> 1,674,249 1,537,500
150,000 Analog Devices, Inc.*<F3> 4,750,587 5,025,000
40,000 Applied Materials, Inc.*<F3> 3,723,190 3,810,000
165,000 Atmel Corp.*<F3> 5,391,143 6,012,270
61,000 Credence Systems Corp.*<F3> 2,073,993 2,973,750
10,000 Cypress Semiconductor Corp.*<F3> 144,850 155,000
63,500 International Rectifier Corp.*<F3> 1,082,284 1,484,313
70,000 KLA-Tencor Corp.*<F3> 4,333,190 4,729,410
150,000 LSI Logic Corp.*<F3> 4,897,700 4,818,750
156,100 Micron Electronics, Inc.*<F3> 2,994,901 2,731,750
320,000 National Semiconductor Corp.*<F3> 7,658,064 13,120,000
64,000 Texas Instruments Inc. 7,914,490 8,648,000
90,000 VLSI Technology, Inc.*<F3> 2,045,415 3,121,920
------------ -----------
50,881,447 60,762,934
THIS SECTOR IS 19.4% ABOVE YOUR FUND'S COST.
SOFTWARE - 12.3%
142,000 Autodesk, Inc. 4,783,938 6,443,250
215,000 BMC Software, Inc.*<F3> 9,991,345 13,921,250
146,700 Cadence Design Systems, Inc.*<F3> 7,218,457 7,848,450
94,300 Citrix Systems, Inc.*<F3> 4,779,392 4,747,439
183,100 Computer Associates
International, Inc. 12,398,703 13,148,960
116,300 Electronic Arts Inc.*<F3> 2,890,218 4,492,088
137,200 Electronics for Imaging, Inc.*<F3> 5,128,408 6,997,200
60,000 McAfee Associates, Inc.*<F3> 3,633,819 3,180,000
206,600 Sterling Software, Inc.*<F3> 6,520,535 7,411,775
234,400 Symantec Corp.*<F3> 4,240,307 5,332,600
50,500 Synopsys, Inc.*<F3> 1,738,193 2,146,250
------------ -----------
63,323,315 75,669,262
THIS SECTOR IS 19.5% ABOVE YOUR FUND'S COST.
SPECIALTY RETAILING - 9.6%
303,400 Best Buy Co., Inc.*<F3> 4,979,275 7,490,339
190,000 Borders Group, Inc.*<F3> 3,414,357 5,225,000
236,300 CompUSA Inc.*<F3> 4,738,706 8,270,500
20,000 Costco Companies, Inc.*<F3> 544,656 752,500
134,200 Gap, Inc. 6,537,529 6,718,455
51,700 The Home Depot, Inc. 2,761,198 2,694,862
30,000 Mac Frugal's Bargains o
Close-outs Inc.*<F3> 638,994 915,000
180,000 OfficeMax, Inc.*<F3> 2,637,536 2,733,840
300,000 PETsMART, Inc.*<F3> 2,917,565 3,112,500
145,500 Rite Aid Corp. 6,583,927 8,066,229
81,400 Staples, Inc.*<F3> 1,799,705 2,248,675
41,300 Stein Mart, Inc.*<F3> 1,174,333 1,352,575
209,000 Tandy Corp. 6,947,920 7,027,625
49,300 Tiffany & Co. 1,721,751 2,095,250
30,000 Zale Corp.*<F3> 762,174 778,140
------------ -----------
48,159,626 59,481,490
THIS SECTOR IS 23.5% ABOVE YOUR FUND'S COST.
TRANSPORTATION & RELATED - 5.3%
170,000 Caliber System, Inc. 5,972,049 9,222,500
142,000 CNF Transportation Inc. 3,985,320 6,185,946
19,800 Comair Holdings, Inc. 410,355 532,125
50,900 Gulfstream Aerospace Corp.*<F3> 1,461,581 1,476,100
45,000 Hertz Corp. 1,411,758 1,695,960
211,900 Southwest Airlines Co. 4,925,960 6,767,662
160,400 US Airways Group, Inc.*<F3> 4,306,892 6,636,550
------------ -----------
22,473,915 32,516,843
THIS SECTOR IS 44.7% ABOVE YOUR FUND'S COST.
MISCELLANEOUS - 3.6%
59,400 The B.F. Goodrich Company 2,385,059 2,687,850
533,400 The Dial Corp. 8,313,654 9,301,429
60,500 The Lubrizol Corp. 2,245,677 2,541,000
286,000 Philip Services Corp.*<F3> 4,470,140 5,219,500
40,200 Precision Castparts Corp. 2,233,968 2,613,000
------------ -----------
19,648,498 22,362,779
------------ -----------
THIS SECTOR IS 13.8% ABOVE YOUR FUND'S COST.
------------ -----------
Total common stocks 480,431,828 610,609,230
SHORT-TERM INVESTMENTS - 1.7% (A)<F4>
COMMERCIAL PAPER - 1.6%
$5,000,000 Smith Barney,
due 10/01/97, discount of 5.80% 5,000,000 5,000,000
5,000,000 Ford Motor Credit Co.,
due 10/02/97, discount of 5.90% 4,999,181 4,999,181
------------ -----------
Total commercial paper 9,999,181 9,999,181
VARIABLE-RATE DEMAND NOTES - 0.1%
663,368 Wisconsin Electric Power Company 663,368 663,368
------------ -----------
Total short-term investments 10,662,549 10,662,549
------------ -----------
Total investments $491,094,377 621,271,779
============
LIABILITIES, LESS CASH AND
RECEIVABLES (0.6%) (A)<F4> (3,910,127)
-------------
NET ASSETS $617,361,652
=============
Net Asset Value Per Share
($0.01 par value 100,000,000
shares authorized), offering
and redemption price
($617,361,652 / 17,254,004
shares outstanding) $35.78
=======
*<F3>Non-income producing security.
(a)<F4>Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
BRANDYWINE BLUE FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1997
INCOME:
Dividends $1,812,619
Interest 807,034
------------
Total income 2,619,653
------------
EXPENSES:
Management fees 4,414,637
Custodian fees 113,164
Administrative services 93,575
Registration fees 69,110
Professional fees 34,486
Printing and postage fees 28,928
Transfer agent fees 13,581
Other expenses 7,156
------------
Total expenses 4,774,637
------------
NET INVESTMENT LOSS (2,154,984)
------------
NET REALIZED GAIN ON INVESTMENTS 97,695,857
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 69,826,600
------------
NET GAIN ON INVESTMENTS 167,522,457
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $165,367,473
============
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1997 and 1996
1997 1996
----- -----
OPERATIONS:
Net investment loss $(2,154,984) $(1,144,852)
Net realized gain (loss) on investments 97,695,857 (7,503,424)
Net increase in unrealized appreciation on
investments 69,826,600 37,923,232
------------ -----------
Net increase in net assets resulting
from operations 165,367,473 29,274,956
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains
($1.10564 per share) -- (7,884,335)*<F5>
------------ -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (7,155,367 and
9,072,193 shares, respectively) 205,952,295 209,837,352
Net asset value of shares issued in
distributions 0 and 344,224 shares,
respectively) -- 7,555,722
Cost of shares redeemed (3,815,950 and
2,271,339 shares, respectively) (105,417,172) (52,267,216)
------------ -----------
Net increase in net assets derived from
Fund share activities 100,535,123 165,125,858
------------ -----------
TOTAL INCREASE 265,902,596 186,516,479
NET ASSETS AT THE BEGINNING OF THE YEAR 351,459,056 164,942,577
------------ -----------
NET ASSETS AT THE END OF THE YEAR $617,361,652 $351,459,056
============ ============
*<F5>Total distribution includes $6,929,563 of ordinary income, of which 5% is
eligible for the corporate dividends received deduction.
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE BLUE FUND, INC.
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1997 1996 1995 1994 1993 1992 1991+<F6>
----- ----- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $25.26 $24.37 $17.18 $19.11 $12.95 $13.09 $10.01
Income from investment operations:
Net investment (loss) income (0.10)(1) (0.05)(1) 0.00 0.04 (0.06) (0.04) 0.03
<F7> <F7>
Net realized and unrealized
gains on investments 10.62 2.05 7.30 0.36 6.22 0.52 3.05
----- ----- ------ ------ ------ ------ -------
Total from investment operations 10.52 2.00 7.30 0.40 6.16 0.48 3.08
Less distributions:
Dividend from net investment income -- -- -- -- -- (0.03) --
Distributions from net realized gains -- (1.11) (0.11) (2.33) -- (0.59) --
----- ----- ------ ------ ------ ------ -------
Total from distributions -- (1.11) (0.11) (2.33) -- (0.62) --
----- ----- ------ ------ ------ ------ -------
Net asset value, end of period $35.78 $25.26 $24.37 $17.18 $19.11 $12.95 $13.09
======= ======= ======= ======= ======= ======= =======
Total Investment Return 41.6% 8.9% 42.8% 2.8% 47.6% 4.0% 45.1%*<F8>
Ratios/Supplemental Data:
Net assets, end of period
(in 000's $) 617,362 351,459 164,943 29,086 6,373 4,270 3,975
Ratio of expenses (after
reimbursement) to average
net assets**<F9> 1.08% 1.13% 1.31% 1.80% 2.00% 2.00% 1.97%*<F8>
Ratio of net investment (loss)
income to average net assets***<F10>(0.5%) (0.4%) (0.4%) (0.4%) (0.6%) (0.3%) 0.6%*<F8>
Portfolio turnover rate 202.1% 196.9% 174.1% 220.3% 144.3% 191.9% 115.3%*<F8>
Average commission rate paid****<F11>$0.0593 $0.0599
+<F6>For the period from January 10, 1991 (commencement of operations) to
September 30, 1991.
(1)<F7>Net investment loss per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax differences.
*<F8>Annualized.
**<F9>Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratio would have been
2.09% and 2.44% for the years ended September 30, 1993 and 1992, respectively,
and 3.00%*<F8> for the period ended September 30, 1991.
***<F10>The ratio of net investment income (loss) prior to adviser's
expense limitation undertaking to average net assets for the years ended
September 30, 1993 and 1992 and for the period ended September 30, 1991 would
have been (0.7%), (0.7%) and (0.5%)*<F8>, respectively.
****<F11>Disclosure required for fiscal years beginning after September 1, 1995.
The accompanying notes to financial statements are an integral part of this
statement.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies of Brandywine
Blue Fund, Inc. (the "Fund"), which is registered under the Investment Company
Act of 1940. The Fund was incorporated under the laws of Maryland on
November 13, 1990. The investment objective of the Fund is to produce long-term
capital appreciation principally through investing in common stocks.
(a) Each security, excluding short-term investments, is valued at the last
sale price reported by the principal security exchange on which the issue is
traded, or if no sale is reported, the latest bid price. Securities which
are traded over-the-counter are valued at the latest bid price. Securities for
which quotations are not readily available are valued at fair value as
determined by the investment adviser under the supervision of the Board of
Directors. Short-term investments are valued at amortized cost which
approximates quoted market value. Investment transactions are recorded no later
than the first business day after the trade date. The cost amount of securities
for Federal income tax purposes aggregates $491,344,082. The difference between
cost amounts for book purposes and tax purposes is due to deferred wash losses.
(b) Net realized gains and losses on common stock are com-puted on the
basis of the cost of specific certificates.
(c) Provision has not been made for Federal income taxes since the Fund
has elected to be taxed as a "regulated investment company" and intends to
distribute substantially all net investment company taxable income and net
capital gains to its shareholders and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies.
(d) Dividend income is recorded on the ex-dividend date. Interest income
is recorded on the accrual basis.
(e) The Fund has investments in short-term variable rate demand notes,
which are unsecured instruments. The Fund may be susceptible to credit risk with
respect to these notes to the extent the issuer defaults on its payment
obligation. The Fund's policy is to monitor the creditworthiness of the issuer
and does not anticipate nonperformance by these counterparties.
(f) Generally accepted accounting principles require that permanent
financial reporting and tax differences be reclassified to capital stock.
(g) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES
The Fund has a management agreement with Friess Associates, Inc. (the
"Adviser"), with whom certain officers and directors of the Fund are affiliated,
to serve as investment adviser and manager. Under the terms of the agreement,
the Fund will pay the Adviser a monthly management fee at the annual rate of one
percent (1%) on the daily net assets of the Fund. Also, the Adviser is
reimbursed for administrative services rendered to the Fund by a consultant paid
by the Adviser.
(3) DISTRIBUTION TO SHAREHOLDERS
Net investment income and net realized gains, if any, are distributed to
shareholders. The Fund intends to declare a distribution of all net realized
gains to be paid on October 28, 1997 to shareholders of record of October 24,
1997. Net realized gains to be distributed will be offset by net capital losses
of $2,505,300 which originated in the fiscal year ended September 30, 1996.
(4) INVESTMENT TRANSACTIONS
For the year ended September 30, 1997, purchases and proceeds of sales of
investment securities (excluding short-term investments) were $954,306,813 and
$859,157,748, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of September 30, 1997, liabilities of the Fund included the following:
Payable to brokers for investments purchased $8,278,666
Payable to Adviser for management fees 492,737
Other liabilities 66,929
(6) SOURCES OF NET ASSETS
As of September 30, 1997, the sources of net assets were as follows:
Fund shares issued and outstanding $399,146,801
Net unrealized appreciation on investments 130,177,402
Undistributed net realized gains and losses 88,037,449
-------------
$617,361,652
=============
Aggregate net unrealized appreciation as of September 30, 1997 consisted of
the following:
Aggregate gross unrealized appreciation $134,137,964
Aggregate gross unrealized depreciation (3,960,562)
-------------
Net unrealized appreciation $130,177,402
=============
CAPITAL GAINS WATCH . . .
You had an excellent year! And, that means the fast approaching October
distribution will be big. As of September 30, the APPROXIMATE amount is $5.08
per share, $2.30 in short term gains and $2.78 long term gains. These amounts
may change slightly before the distribution is made on October 27, 1997. All
shareholders of record as of October 24, 1997 will receive the distribution
which will be paid to you on October 28, 1997.
With the new tax bill signed this summer including a maximum 20 percent tax rate
on some of those gains, there are sure to be differences in how much tax you'll
actually have to pay. Updated data will be sent with 1997 Form 1099s to enable
you to have accurate information to complete your 1997 Schedule D to be included
with your income tax returns.
Please continue emailing us your comments. You can write us at
[email protected]. Lynda Campbell, Al Kirchner, Jenni Weldon, or I will be glad
to answer your emails. We look forward to hearing from you!
Rebecca Buswell
ON THE CUTTING EDGE . . .
X-RAY BY COMPUTER
Standard dental X-rays may become a thing of the past. Schick Technologies, Inc.
of Long Island City, New York has developed a technology called CDR (computed
dental radiography). The system produces digitized X-ray images that are larger
and sharper than traditional X-ray films, making diagnosis easier and more
accurate. CDR eliminates the time and cost of processing negatives, and it can
easily transmit images over phone lines to obtain a second opinion or insurance
approval.
20/20 VISION WITHOUT GLASSES, CONTACTS, OR LASER SURGERY
The University of California San Francisco is participating in large scale
clinical trials of the Intrastromal Corneal Ring Segment, a new technology to
give nearsighted people clear vision without using corrective lenses or
undergoing surgeries that cut the center of the optical zone. Two thin polymer
ring segments are inserted at the very front of the eye to reshape the cornea.
This quick out-patient procedure is reversible and adjustable; the corneal ring
cannot be felt and is about as visible as a contact lens.
INFORMATION OVERLOAD
Too many I.D. cards, too many passwords, too many pin numbers? Vissage
Technology in Littleton, Massachusetts offers one alternative -- a patented
facial recognition software for instant identification. Their system snaps a
digital picture, converts key facial features into a series of numerical values,
and stores the information on a database. Searching for one face among millions
takes only seconds. So far, seven states have converted their drivers' licenses
to the system; Massachusetts and New York's welfare agencies have started using
the system to reduce fraud.
BOARD OF DIRECTORS
John E. Burris
Chairman
Burris Foods, Inc.
Milford, Delaware
Foster S. Friess
President
Friess Associates, Inc.
Jackson, Wyoming
Stig Ramel
Former President
Nobel Foundation
Stockholm, Sweden
(800) 656-3017
P.O. Box 4166, Greenville, DE 19807
[email protected]
Investment Adviser: FRIESS ASSOCIATES, INC.
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. Past performance is not indicative of future
performance. Investment return and principal value of an investment may
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
Report editor: Rebecca A. Buswell
Report Staff: Margaret Barton, Adam Rieger, Paul R. Robinson, Jennifer Weldon
