BRANDYWINE BLUE FUND, INC.
MANAGED BY FRIESS ASSOCIATES, INC.
SEMI-ANNUAL REPORT
MARCH 31, 1997
DEAR FELLOW SHAREHOLDERS:
We are grateful that your Fund held well in the first quarter ended March
despite the hostile environment for the stocks comprising your portfolio. All
major indices declined from their peaks -- the S&P 500 dropped 7.2 percent, the
Nasdaq Industrials slipped 13 percent and the Russell 2000 sagged 7.6 percent.
The Montgomery Securities 500 index was off its high by 21.2 percent.
The 2.7 percent return for the S&P 500 during the quarter masks the performance
of the broader market. As was the case in 1996, the S&P's performance has been
driven by fewer and fewer stocks. Of the 97 mutual funds that Morningstar
categorizes as growth funds, 24 posted losses in excess of 10 percent for the
quarter. -----------------------
Of the 23 funds comprising the Investor's Business Daily Mutual Fund Index, only
THREE increased and each by only 2 percent. The 20 others declined, some by as
much as 19 to 21 percent. (See chart on p. 3).
The overall IBD index dropped 8.3 percent, the Hambrecht and Quist Growth index
declined 19.3 percent, and the Nasdaq Industrials slid more than
8 percent.
Your backtracking of 1.5 percent represents an outstanding job by your research
team by comparison.
We are mindful, however, that some of you are new shareholders and have only
experienced this market downdraft. We are particularly committed to getting you
to new highs in the months ahead.
Thanks to urging from your research team members Mark Lapolla and Bill D'Alonzo,
you moved to higher-than-normal cash positions during the quarter as some of
your huge gainers were harvested. Diane Hakala's Intel yielded a profit of $6.4
million, Andy Graves' Cisco Systems created a $4.5 million gain, and Jon Fenn's
Nike brought in nearly $1 million.
It took weeks to select the best new ideas, but the decision to cement these
gains in advance of finding the new ideas served you well and helps account for
your good relative performance.
Exiting networking stocks, resulting from the intensive research efforts with
customers of those companies by your researcher Andy Graves and consultant Hank
Bannister, was particularly timely. Your gigantic winner Cisco was sold at $67.
It has since declined 29 percent to $48. The Investor's Business Daily index for
Local Networks dropped 33 percent during the quarter while the S&P
Computers/Network index skidded 37 percent from its January peak!
Maintaining your portfolio value in backtracking markets is as important, if not
more so, as creating advances in up markets. When the inevitable retracements
occur, it is relevant to look at results from a longer term perspective than a
few weeks. Since January 1995, your Fund is up 61 percent.
For the last five years your Fund is up 149 percent, an average annualized gain
of 20 percent, compared to just 114 percent for the S&P 500 and only 51 percent
for the Nasdaq Industrials.
MOST RECENT FIVE YEARS
NASDAQ IND. 50.6%
IBD*<F1> 65.0%
NYSE 78.5%
S&P 500*<F1> 113.7%
YOUR FUND*<F1> 149.3%
*<F1>TOTAL RETURN
IBD = INVESTOR'S BUSINESS DAILY MUTUAL FUND INDEX
For the trailing twelve months which include the current market backtracking, as
well as last July's downturn, you are up 11.2 percent.
Those of you who have been with us for the last two years enjoy an average
annualized gain of 21.6 percent, or 47.8 percent cumulative.
The uncertainty of the interest rate environment cleared at the end of the
quarter when the Federal Reserve Board's Open Market Committee raised the
discount rate by 1/4 percent. This is the first action the Fed has taken in more
than one year and the first rate hike since early 1995. The increase was
construed as a preemptive strike against future inflation. It may not be the
last.
The increased volatility in the technology area allowed you to repurchase shares
of networking, computer and software companies at "ON SALE!" prices. Probable
positive earnings surprises, reasonable price/earnings ratios, and above all,
dynamic products and services that will drive investor confidence going forward
create enthusiasm among your research team for your new purchases.
Your biggest dollar gainer during the quarter was semiconductor manufacturer
Advanced Micro Devices purchased in January by David Harrington. Already, it has
brought in almost $3 million, rising 26 percent.
Some of your biggest percentage gainers during the quarter were John Ragard's
Healthsource, up 55 percent, Jon Fenn's Compuware Corp. which rose 25 percent
and Dollar General, recommended by Consultant Pete Steelman, was up 22 percent.
The suggestion from your Tulsa-based consultant Conrad Doenges of Footstar,
Inc., increased 19 percent.
We are encouraged that the companies you own experienced earnings growth
averaging 49 percent for the latest 12 months and 51 percent in the most recent
quarter. This compares to 13 percent and 17 percent for the S&P 500. You
purchased these companies at price/earnings ratios of about 18, virtually equal
to the market as measured by William O'Neil and Company, the publishers of
Investor's Business Daily.
COMPANY GROWTH
AVERAGE INCREASE LATEST 12 MOS. EARNINGS
YOUR COMPANIES 49%
S&P 500 13%
AVERAGE INCREASE LATEST QUARTERLY EARNINGS
YOUR COMPANIES 51%
S&P 500 17%
ALL S&P FIGURES ARE UNWEIGHTED. ANALYSIS BY WILLIAM O'NEIL & CO., INC. MARCH 28,
1997.
We remain steadfast to our credo "Never Invest in the Stock Market, Invest in
Individual Companies." Your research team of over thirty professionals continues
to use its ever growing information network to create an edge over other
investment management firms.
This network includes corporate managements and suppliers, competitors and
customers of the companies that you own.
We appreciate the fact that you are an important part of that network as well.
Please e-mail Kelli Fazler at [email protected] or fax her at 302-656-9015 if you
see developments in companies that we should know about.
Conditions in the U.S. economy remain healthy for a continuation of the current
expansion, and therefore increasing corporate profits. This expansion can
continue without a major resurgence in inflation due in large part to the
cautious actions of the Fed.
We appreciate the partnership that we forged with you, as we remain invested
right along with you having over $15 million in the Fund from Friess Associates
and family members.
Since inception January 10, 1991, your Fund has enjoyed a 231 percent cumulative
increase in value, 21 percent annualized.
SINCE INCEPTION
IBD*<F2> 104.5%
NYSE 131.1%
NASDAQ IND. 158.6%
S&P 500*<F2> 185.1%
YOUR FUND*<F2> 231.2%
*<F2>TOTAL RETURN
We look forward to being able to create the same growth for all of you, and are
grateful for the chance we have to put our strategy to work to grow your assets.
Thank you for entrusting to us this significant responsibility and for your
continued confidence in our abilities throughout good and bad markets. We
appreciate your sharing our long-term perspective.
God Bless!
/s/ Foster Friess
Foster Friess
President
April 7, 1997
MARCH QUARTER PERFORMANCE OF BRANDYWINE BLUE FUND
AND THE 23 FUNDS IN IBD'S MUTUAL FUND INDEX
- -21%
- -20%
- -19%
- -16%
- -16%
- -14%
- -13%
- -12%
- -12%
- -11%
- -10%
- -7%
- -5%
- -2%
- -2%
- -2%
- -2%
0%
0%
2%
2%
2%
- -8.3 ---average % decline of 23 Funds
HIGHLIGHTS . . .
APPAREL & SHOES
With such well-known labels as Jones New York, Evan-Picone and Lauren by Ralph
Lauren, JONES APPAREL GROUP, INC. enjoys a reputation for a high-quality,
stylish product. These top lines offer the consumer high profile clothing at
affordable prices benefiting from strong career and casual offerings
for women.
As Chief Financial Officer Wes Carl tells us, Jones Apparel's advancement lies
in part because the company successfully landed the Lauren line in 1996 and
ended the year with Lauren in 275 stores, with sales of $50 million.
Customers like department stores Dillards and Nordstrom love your NYSE-listed
company's consistent, fashionable product and continue to give Jones more retail
selling space, accelerating growth.
During the recent December quarter, revenues rose 40 percent to $258 million, up
from $185 last year. Earnings, in turn, jumped 36 percent to $.30 from $.22.
For the year 1996, earnings were up 26 percent.
Purchased in December of '95 at $19, your shares are up 91 percent to $37.
COMPUTERS & RELATED
A company that cannot afford its computer systems to have any downtime turns to
STRATUS COMPUTER. Stratus systems offer 99.999 percent reliability. (Even 99.9
percent reliability means that a 911 line would have 40 minutes of downtime a
month.) Telecommunications companies like AT&T and MCI are Stratus customers, as
well as many banks, brokerage firms, and stock exchanges.
Your company makes systems for large and small computers that prevent system
crashes. If something goes wrong with the hardware there are automatic redundant
products in place to prevent the loss of data or operations as the result of a
small circuit problem.
Bob Donahue, CFO, explained that Stratus has new products in their dealer
channels and therefore inventory is reduced. Additionally, the company increased
the sales force in its international business.
Earnings grew 23 percent in the December quarter, climbing to $.74 from $.60, as
revenues increased by $10 million.
Your shares are up 31 percent to $31 from a purchase price of $24 in October.
SPECIALTY RETAILING
A spin-off of Melville Corporation, FOOTSTAR, INC. is debt-free, is consistently
beating earnings expectations, and yet only now is gaining recognition on Wall
Street.
Relatively undiscovered, this retailer of both athletic and discount footwear
through its two operating divisions, Footaction, which sells brand name athletic
footwear and apparel, and Meldisco, which sells discounted footwear within Kmart
stores, presented a great investment opportunity for your Fund.
Your NYSE-listed company now attracts more investors since Merrill Lynch and
Alex Brown both initiated coverage in March with buy ratings, and it's still
trading at a discount compared to its peer companies.
We recently learned from CFO Carlos Alberini that due to the success of the
Footaction stores, your company's growth in new square footage for 1997 will be
more than 26 percent.
The December quarter showed earnings rising 23 percent from $.64 last year to
$.79. Analysts predict that earnings will increase 67 percent in the March
quarter.
Since purchase in September at $21, your shares jumped 41 percent and now sell
at $30.
California's largest close-out retailer, MAC FRUGAL'S BARGAINS, operates 278
stores in 12 states selling merchandise at 40 to 70 percent off regular retail
prices. Customers can find nearly anything including clothing, beauty products,
books, luggage, and toys. The inventory is constantly changing and often
contains discontinued items.
Your company's stores have been made more attractive by paying attention to
cleanliness and neatness. The addition of consumable items such as food and
greeting cards attracts more and more customers. CEO Philip Carter told us that
same store sales increased by 16.5 percent in the month of February.
Because of Mac Frugal's limited need for capital spending and research, its cash
flow is substantial and its bank borrowings were paid back reducing long term
debt to just $6 million as of January 31, 1997 compared to $96 million of last
year.
Despite its strong balance sheet and management focus on enhancing shareholder
value, your company is still underfollowed by Wall Street. It is researched by
only three brokers.
Earnings rose 30 percent in the January quarter on a revenue increase of 12
percent. For the 1997 fiscal year ended January, earnings skyrocketed 200
percent to $1.67 from $.56 in 1996.
Purchased in September at $21, your shares sell now at $26.50, a 24 percent
increase.
TRANSPORTATION & RELATED
Known to most people as USAir, the recently renamed US AIRWAYS GROUP, INC. has
"not only spruced up its name but also its level of service to its customers,"
Senior Vice President Bob Fornaro tells us. He goes on to say, "US Airways' on-
time arrival performance has improved dramatically to make it #1 in the industry
during the December quarter."
Listed on the NYSE, your company is a classic example of misperception by Wall
Street. Few on the Street believed US Airways could grow or lower its cost
structure and become more competitive. But, when new management came on board in
1995, your company did just that.
The new team implemented dozens of task groups thereby reducing maintenance
costs and distribution expenses and increasing reservations productivity.
Excluding one time charges, earnings for the December quarter were $1.03 versus
$.54 -- a 91 percent increase. For calendar 1996, earnings more than tripled
from $.55 to $2.33.
With hubs in Baltimore, Philadelphia, and Washington, DC, US Airways is the
Northeast's dominant air carrier, and the 5th largest airline in the U.S. In an
effort to connect its Northeastern customers to more of Europe and the West
Coast, your company is expanding its long-haul service.
Up 27 percent since purchase in April, your shares now trade at $24.50.
FELLOW SHAREHOLDER . . .
When one thinks "family portraits," there is probably one name that comes to
mind for many Americans more than any other -- Olan Mills. We are thrilled to
have both the company and the man, Olan Mills II, as fellow shareholders in
Brandywine and Brandywine Blue Fund.
Olan is currently Chairman of the Board at Olan Mills, after serving for many
years as the company's President and Chief Executive Officer. He is still active
in the business, meeting often with the new President and CEO (who is the first
outside the family to hold this position).
In Tuscaloosa, Alabama, Olan's father started the business when he took over an
old studio. The company began as a reproduction operation where Olan, Senior
would take old prints and return them as higher quality photos. An artist who
he met while reproducing these prints later became his wife, and together they
built Olan Mills Incorporated.
During the depths of the Depression, in 1932, many banks closed and so did the
itinerate reproduction business. But, after finding a bankrupt studio, Olan,
Senior launched a straight photography business. He traveled to small towns
bringing first class photography services and marketing his product door to
door.
He would sell a photo sitting to a family, the photographer would go to the home
and take the pictures, make the proofs overnight, show them to the family for
their selection, and then send the finished portrait through the mail. The
business continued in this fashion until the 1950's, when studios started
opening in various major U.S. cities.
Today, with headquarters in Chattanooga, Tennessee, Olan Mills operates more
than 1,000 portrait studios in the United States, Canada, and England with
13,000 employees, and is one of the foremost producers of church directories in
the U.S.
The younger Olan joined the family business in 1956 as Manager of Olan Mills of
Tennessee, following more than two years in the Army, during which he served in
Korea as a helicopter pilot. Prior to his Army service, Olan attended Princeton
University where he studied Public and International Affairs. In 1971 he assumed
management of Olan Mills U.S.
Introduced to Brandywine Fund and Brandywine Blue Fund about two years ago, Olan
describes the relationship as refreshing. "The communications are excellent, and
the information they contain is very helpful. The letters and quarterly reports
Foster spends the time to send lend a personalized feel to a business where that
often gets lost."
Olan and his wife Norma have three sons who all live in the Chattanooga area.
Given that Olan and Norma just became grandparents five weeks ago, having the
family close is a real blessing, allowing for frequent visits!
Serving on the Boards of The McCallie School, First Tennessee Bank of
Chattanooga, and the Public Education Foundation, Olan still finds the time to
enjoy reading, jogging, skiing, and traveling.
- -Rebecca Buswell
ED . . .
Looking back over his first year in the trading operation at Friess Associates,
Ed Abrams can point to a long list of changes. "We have moved the entire trading
operation, added two traders, installed a new telephone system and implemented a
more powerful version of our trading system -- Merrin. During the same period of
time the assets under management have almost doubled." Certainly, Ed's extensive
experience was instrumental in our ability to accommodate this growth.
Before joining the Friess team, Ed managed the trading operation in Philadelphia
for Lehman Brothers for five years. Prior to that, he spent two years at First
Boston following a seven-year stint as Associate Managing Director at Schroeder
Wertheim.
In the financial markets, brokerage firms are described as the "sell side" of
the business and investment firms like Friess Associates are called the "buy
side." Ed brings his broad background on the "sell side" to our "buy side"
trading desk.
Ed's job is intense and technical, but he says, in more simple terms, "My task
is essentially to move in and out of large blocks of stock at prices favorable
to our clients and shareholders." His greatest satisfaction comes from
accomplishing a large trade without disturbing the marketplace.
"In the thirty years I have been on Wall Street I have never experienced the
wonderful camaraderie that exists here at Friess Associates," is Ed's assessment
of the past year.
Ed grew up on Long Island where he attended Chaminade High School before
graduating from Mount Saint Mary's College in Maryland. He has two grown sons,
Michael, a Managing Director at Prudential Insurance, and Gary, who has followed
in his father's footsteps as a trader at Delaware Investment Management.
An all-around athlete, Ed's tennis, golf, and skiing have been severely limited
by a recent broken ankle. Considering the pace of his first 15 months at
Friess, Ed probably needed some time with his feet up.
- -Margaret Barton
PEGGY . . .
In November 1994, Margaret "Peggy" Barton came on board to get Friess Associates
on the Internet and to make sure that the researchers were covering all the
important financial magazines and trade journals. Peggy reads and recaps
articles and magazines for your team, researches and writes articles for this
report, and handles a myriad of other projects.
Last spring Peggy organized a small conference for various retail company
executives and members of your research team, and this past December she
assisted Lynn Friess in planning the Friess Associates Christmas gathering,
which, given the growth of the company, is now a mammoth undertaking.
Peggy explains, "I really enjoy the variety of projects I work on, and it is
rewarding to know I have delivered useful information to our researchers and,
through the quarterly report, directly to our shareholders. Whether I am
condensing materials, organizing events, or tackling special projects for
Foster, I know I am leveraging his and the researchers' effectiveness, thereby
increasing the value of our clients' and shareholders' portfolios."
A graduate of Mount Holyoke College, Peggy has a degree in Art History. She and
her husband Randy, a scientist with the DuPont Company, have one son who was
just married last June.
One of Peggy's favorite pastimes is gardening, so she is an enthusiastic
participant in her garden club. In 1989 this group resolved to improve the
appearance of Wilmington's downtown Rodney Square area. Eventually the group
rallied the support of both the private and public sectors and raised $2.5
million for the project. "I am very pleased to be a small part of this
restoration project and to see the difference it is making in our city."
Another special interest of Peggy's, the Delaware Antiques Show, supports the
children's educational programs at Winterthur. Held annually two weekends before
Thanksgiving, the show draws the finest dealers in American antiques.
To get the energy she needs for her busy life, Peggy starts most days with an
early morning aerobics class. In her spare time she enjoys tennis, paddle
tennis, and is taking up golf.
- -Rebecca Buswell
ALL IS NOT ROSES . . .
It's important to share with you those stocks that didn't perform as well as we
had hoped during the quarter. There were ten companies that gave up more than
$850,000 each.
Chesapeake Energy was your biggest disappointment dropping back by $1.7 million.
Aspect Telecommunications lost $1.6 million, Comp USA backtracked $1.4 million,
and 3Com Corp. dropped $1.2 million. Toys R Us, Seagate Technology, Columbia
Healthcare and U.S. Office Products retraced $1 million apiece, while Applied
Magnetics and United Meridian Corp. each lost $900,000.
You no longer hold Chesapeake, Toys R Us, Applied Magnetics or 3Com. The latter
was sold at a profit of nearly $800,000 despite its decline. It subsequently
dropped $23 a share, a 42 percent decline, after your sale.
The good news coming from your top gainers for the quarter was Advanced Micro
Devices with a $2.8 million gain, Healthsource's $1.6 million rise, Compuware's
$925,000 gain, Schlumberger and Conseco with almost $900,000 each, Compaq and
Liz Claiborne with more than $860,000 apiece and EMC Corp. at $850,000.
GROWING YOUR FUND . . .
Each quarter, we are pleased to introduce you to one of the many contributors at
the companies in which we invest. It is their talents and skills which create
profits in their companies which in turn add value to your Fund.
This quarter, meet J. R. Caton of Quorum Health Group, a company which offers
leadership, education, and strategic planning to small, independent hospitals.
J.R. is the CEO of Logan Hospital and Medical Center in Guthrie, Oklahoma, a 50
bed hospital in a community of 11,000 good Americans.
Quorum Health Group owns and operates 18 hospitals, but it also manages 260
additional hospitals in 44 states, such as the hospital in Guthrie. J.R. has
worked for Quorum since 1988, and before coming to Guthrie 14 months ago, he
headed the hospital in Atoka, Oklahoma.
As the director of a small medical center, J. R. wears many hats. He tackles
public relations and customer complaints while overseeing the staff and
reporting to the board. On the day we spoke with him, J. R. had started his day
at 7:00 AM with a staff meeting and was hoping to get home by 9:00 PM after a
Chamber of Commerce meeting.
J.R. has implemented changes at Logan which have converted an annual loss of a
quarter of a million dollars to a profit of one million dollars.
J. R. is a modest man, but he reflected, "In my job you realize how important it
is to be a contributing member of society. I really believe that I make a
difference. I think Atoka is in good shape, but I thought Guthrie needed help
and I wanted to try to improve it.
"Years ago people were skeptical about outside management teams. Now, because of
our reputation and our ability to turn around regional hospitals, we are
enjoying their respect. I am pleased I work for this company."
- -Margaret Barton
HUBIE . . .
In October, 1987, Hubie Selz responded to an ad in the paper for a driver at
Friess Associates thinking he'd "try it out" if he were hired. Now, nearly ten
years later, Hubie is still here and says, "I've never had a more enjoyable ten
years in my work. Everyday there's something new. With Foster and everyone at
Friess, each day brings the unexpected."
Hubie is part of a four-man team responsible for driving your researchers to
company meetings, to client presentations, and to the airport and train station
for their many out of town trips.
He also picks up visiting clients and brings them to our offices and has had the
opportunity to meet with many CFO's and CEO's as well as dignitaries such as
Baron Stig Ramel, former President of the Nobel Foundation which is one of your
longest standing and largest fellow shareholders. Last year, Hubie's most famous
passenger was Charlton Heston!
"Being part of the mission to grow the assets entrusted to us is such a
privilege," Hubie explains. "Knowing that the researchers are able to focus more
closely on their work rather than having to fret about how they'll get from one
meeting to the next and how they'll make their flight is rewarding."
Senior researcher Bill D'Alonzo relates, "Hubie's work is invaluable to all of
us. We never have to worry about any of the travel details because he's always
there to handle it. We can get in the van and keep right on working." Each
Friess Associates van is equipped with a fax and telephone.
Before joining Friess, Hubie worked for 30 years at DuPont as a research
technician. He started in the Engineering Department and then went to the
Central Research Department. His focus was on fiber wear and friction studies.
Hubie grew up in Cincinnati, and right after graduating from high school, he
enlisted in the Navy and fought in World War II. After boot camp in Newport,
Rhode Island, he was assigned to the USS Quincy CA39 and went through the
Caribbean and the Panama Canal to San Diego and finally to Guadal-canal. While
there, the Japanese sunk his 1200-man ship and Hubie clung to a liferaft for
hours before being rescued. Nearly 600 men aboard perished.
Following his discharge in 1945, Hubie began his studies at Ohio University
earning a Bachelor of Fine Arts in Commercial Art & Advertising. While there,
he met Nancy, who later became his wife and the mother of his two children,
Randy and Cheryl.
Hubie is an avid golfer, playing three or four times a week during the warmer
months. He was the senior champion at the DuPont Country Club in 1983, '86, and
'92 and laments that his then 3 or 4 handicap is now more like 8 or 9!
- -Rebecca Buswell
KERRY . . .
When Kerry Polini came to Friess Associates through an agency to fulfill a
temporary staffing requirement in the Fall of 1994, she had no idea that in
April 1995 she would once again be called back to fulfill another temporary
need. That second temporary spot turned permanent, and Kerry came on board full
time in September 1995.
Kerry's superb organizational skills and attention to details made her the
perfect candidate to augment your operations team's ability to meet the demands
of our increasing growth.
She assumed the responsibilities of handling shareholder inquiries, assembling
materials for client and potential client meetings, maintaining all office
supplies -- from paper to printers -- and tracking the whereabouts of all Friess
teammates in each of our four offices.
The very same qualities that fueled Kerry's success in operations led to her
leaving that area and moving into research to become Jack Fraser's research
manager. Jack recognized Kerry's quick thinking and thorough follow through and
believed they would make a good team.
"Kerry is a terrific resource for me. She keeps track of all that I'm handling
and she never lets anything fall through the cracks. In short, she manages me!"
Jack exclaims.
Kerry enjoys the daily challenges that are part of having more than $11 billion
under management. "Knowing that my efforts in working with Jack -- making sure
he can concentrate on research and management -- help to grow the assets
entrusted to us makes this job very rewarding."
Born and raised in Delaware, Kerry attended the University of Delaware and
earned a BA in Psychology. She worked at MBNA and Olsten Staffing Services
before joining Friess Associates.
Kerry's favorite spot is the beach. She spent her summers on Delaware's coast
with her family throughout much of her childhood and once June rolls around, she
still grabs every chance she can to get there on the weekends. Cooking, reading,
and traveling are other activities Kerry enjoys, and she's a regular at the YMCA
three times a week for her workout!
- -Rebecca Buswell
CAPITAL GAINS WATCH . . .
The upcoming October distribution may be six months away, but we want to let you
know what we're anticipating. As of 3/31/97, the net realized capital gains
amounts were: ------------ ------- --------
$1.50 in long term capital gains
$1.40 in short term capital gains (treated as ordinary income)
- -----
$2.90 total potential distribution per share
There remain unrealized gains of $2.45 and unrealized losses of $1.15 as of
3/31/97. -- --
- -------
It's important to remember that if you have a taxable account, you will have to
pay income tax next April on this distribution, but you will not have to pay a
gain on this same amount when your shares are eventually redeemed.
Here's why. The value of your existing shares will be reduced by the per share
amount of the distribution. For example, if shares purchased at $20 per share
become worth $30, you have a potential taxable gain of $10 per share. However,
if a $3.00 distribution is made, the share value will drop to an ex-dividend
price of $27. This leaves only $7 instead of $10 as the potential future capital
gain.
TOP TEN . . .
You saw considerable changes in your Top Ten Industry Groups in the second
quarter of your fiscal year. Last quarter's number one group, Specialty
Retailing, moved to 10 percent and occupies the number three spot as Sports
Authority and Toys R Us were sold. Gap and some of your Payless Shoe Source
were also removed from your portfolio, generating more than $1.3 million in
gains.
Computers & Related is now your number one position. It grew from 11.8 percent
of the portfolio to 14.2 percent aided by combined appreciation of more than
$2.2 million in EMC Corp., Quantum Corp., and Compaq Computer.
Oil/Gas Field Services was number two in your December quarter with 12.2
percent. This quarter with 7 percent, it shares the number six spot with
Financial/Business Services. BJ Services, Global Marine, Inc., Reading & Bates,
and Schlumberger Ltd. were all sold from your portfolio after providing more
than $6 million in gains.
Moving up from number nine last quarter to become your second largest industry
group is Semiconductors & Related. Purchases in Advanced Micro Devices, LSI
Logic, Jabil Circuit, Inc., Micron Electronics, Inc., and Xilinx fueled this
sector's growth to 11.6 percent of your portfolio. The addition to your National
Semiconductor holding and its subsequent $690,000 gain was also a factor. Thanks
to David Harrington's pick of Advanced Micro Devices you gained $2.8 million
since your purchase, further contributing to the growth of this sector.
Timely sales in Networking removed that group completely from your Top Ten this
quarter. Healthcare with 3.1 percent now occupies the number ten spot.
TOP TEN INDUSTRY GROUPS
Cash 1.4%
Healthcare 3.1%
Communications 4.3%
Department Stores 4.8%
Oil/Gas Field Services 7.0%
Financial/Business Services 7.0%
Apparel & Shoes 8.1%
Software 9.7%
Specialty Retailing 10.0%
Semiconductors & Related 11.6%
Computers & Related 14.2%
BRANDYWINE BLUE FUND, INC.
STATEMENT OF NET ASSETS
March 31, 1997
(Unaudited)
QUOTED
SHARES COST MARKET
- ----------- ---- -------
COMMON STOCKS - 98.6% (A)<F4>
APPAREL & SHOES - 8.1%
100,000 Fruit of the Loom, Inc.*<F3> $3,607,825 $4,150,000
108,300 Gucci Group, N.V. 7,632,001 7,811,137
80,000 Intimate Brands, Inc. 1,461,273 1,510,000
115,800 Jones Apparel Group, Inc.*<F3> 2,248,901 4,299,075
172,200 Liz Claiborne, Inc. 5,338,260 7,512,225
109,800 Russell Corp. 4,151,118 3,925,350
75,000 The Warnaco Group, Inc. 2,109,235 2,231,250
------------ ------------
26,548,613 31,439,037
THIS SECTOR IS 18.4% ABOVE YOUR FUND'S COST.
COMMUNICATIONS - 4.3%
90,000 Andrew Corp.*<F3> 2,980,685 3,251,250
90,000 Andrew Corp. Rights (attached)*<F3> 0 0
30,000 Ascend Communications, Inc.*<F3> 1,497,265 1,222,500
131,200 Aspect Telecommunications Corp.*<F3> 3,645,181 2,558,400
40,000 Boston Technology, Inc.*<F3> 1,032,412 755,000
9,750 MasTec, Inc.*<F3> 298,188 275,437
237,300 Scientific-Atlanta, Inc. 4,352,181 3,618,825
136,900 Tellabs, Inc.*<F3> 3,362,909 4,945,513
------------ ------------
17,168,821 16,626,925
THIS SECTOR IS 3.2% BELOW YOUR FUND'S COST.
COMPUTERS & RELATED - 14.2%
10,000 Adaptec, Inc.*<F3> 200,612 357,500
175,000 American Power Conversion Corp.*<F3> 3,737,661 3,784,375
80,000 Compaq Computer Corp.*<F3> 4,150,578 6,130,000
160,000 Dell Computer Corp.*<F3> 10,455,870 10,820,000
349,700 EMC Corp. (Mass.)*<F3> 10,749,809 12,414,350
50,000 Lexmark International Group, Inc.*<F3> 1,401,990 1,212,500
58,000 Quantum Corp.*<F3> 2,254,175 2,240,250
212,900 Seagate Technology, Inc.*<F3> 10,244,932 9,553,887
5,100 Stratus Computer, Inc.*<F3> 118,881 158,100
143,900 Western Digital Corp.*<F3> 4,939,051 8,148,338
------------ ------------
48,253,559 54,819,300
THIS SECTOR IS 13.6% ABOVE YOUR FUND'S COST.
DEPARTMENT STORES - 4.8%
125,000 Consolidated Stores Corp.*<F3> 2,794,150 4,406,250
90,000 Family Dollar Stores, Inc. 1,828,276 2,103,750
362,200 Federated Department Stores, Inc.*<F3>11,799,706 11,907,325
------------ ------------
16,422,132 18,417,325
THIS SECTOR IS 12.1% ABOVE YOUR FUND'S COST.
DISTRIBUTION - 0.7%
112,000 U.S. Office Products Co.*<F3> 4,017,958 2,772,000
THIS SECTOR IS 31.0% BELOW YOUR FUND'S COST.
ELECTRICAL EQUIPMENT MANUFACTURERS - 0.3%
25,000 Precision Castparts Corp. 1,254,625 1,275,000
THIS SECTOR IS 1.6% ABOVE YOUR FUND'S COST.
ELECTRONICS - 2.9%
65,200 AVX Corp. 1,445,655 1,361,050
60,000 KEMET Corp.*<F3> 1,347,476 1,125,000
90,000 SCI Systems, Inc.*<F3> 3,565,625 4,556,250
75,000 Tektronix, Inc. 3,719,529 3,787,500
7,900 Waters Corp.*<F3> 231,549 211,325
------------ ------------
10,309,834 11,041,125
THIS SECTOR IS 7.1% ABOVE YOUR FUND'S COST.
FABRIC/TEXTILES - 1.7%
50,000 Unifi, Inc. 1,596,750 1,525,000
135,000 WestPoint Stevens Inc.*<F3> 4,624,376 5,146,875
------------ ------------
6,221,126 6,671,875
THIS SECTOR IS 7.2% ABOVE YOUR FUND'S COST.
FINANCIAL/BUSINESS SERVICES - 7.0%
50,000 AMRESCO, Inc.*<F3> 1,267,500 837,500
26,500 Comdisco, Inc. 758,664 824,812
238,000 Conseco, Inc. 5,838,545 8,478,750
129,000 COREStaff Inc.*<F3> 2,954,266 2,547,750
75,000 Credit Acceptance Corp.*<F3> 1,511,877 1,331,250
125,250 Diebold, Inc. 4,617,137 4,712,531
4,000 FIRSTPLUS FINANCIAL*<F3> 132,000 120,500
100,000 Nationwide Financial Services Inc.*<F3>2,682,100 2,575,000
65,000 The PMI Group, Inc. 3,279,020 3,258,125
107,500 United Companies Financial Corp. 2,965,739 2,217,188
------------ ------------
26,006,848 26,903,406
THIS SECTOR IS 3.4% ABOVE YOUR FUND'S COST.
FOOD/RESTAURANTS - 0.5%
150,000 Food Lion Cl A 1,185,000 1,228,200
96,400 Food Lion CL B 766,737 774,188
------------ ------------
1,951,737 2,002,388
THIS SECTOR IS 2.6% ABOVE YOUR FUND'S COST.
HEALTHCARE - 3.1%
150,000 Beverly Enterprises, Inc.*<F3> 2,227,515 2,137,500
61,000 Cardinal Health, Inc. 3,660,156 3,316,875
117,300 Columbia/HCA Healthcare Corp. 5,030,130 3,944,212
60,500 MedPartners, Inc.*<F3> 1,316,805 1,285,625
45,800 Quorum Health Group, Inc.*<F3> 1,098,426 1,414,075
------------ ------------
13,333,032 12,098,287
THIS SECTOR IS 9.3% BELOW YOUR COST.
HOME/OFFICE & RELATED - 0.5%
50,000 Heilig-Meyers Co. 806,045 793,750
25,000 Samsonite Corp.*<F3> 1,050,000 1,081,250
------------ ------------
1,856,045 1,875,000
THIS SECTOR IS 1.0% ABOVE YOUR FUND'S COST.
LEISURE & ENTERTAINMENT - 1.4 %
55,000 Callaway Golf Co. 1,743,595 1,574,375
10,800 Doubletree Corp.*<F3> 404,000 383,400
48,750 Hasbro, Inc. 1,269,633 1,334,531
28,000 Interstate Hotels Company*<F3> 647,928 791,000
70,700 La Quinta Inns, Inc. 1,533,026 1,449,350
------------ ------------
5,598,182 5,532,656
THIS SECTOR IS 1.2% BELOW YOUR FUND'S COST.
MACHINERY/CONSTRUCTION & MISCELLANEOUS MANUFACTURING - 1.2%
50,000 AGCO Corp. 1,425,000 1,381,250
96,300 Coltec Industries Inc.*<F3> 1,528,352 1,781,550
62,600 Stewart & Stevenson Services, Inc. 1,783,220 1,252,000
------------ ------------
4,736,572 4,414,800
THIS SECTOR IS 6.8% BELOW YOUR FUND'S COST.
MEDICAL/DENTAL PRODUCTS & SERVICES - 2.2%
50,000 Ballard Medical Products 969,200 1,043,750
131,500 Biomet, Inc. 2,206,659 2,219,063
170,600 STERIS Corp.*<F3> 4,735,704 4,158,375
36,100 Sybron International Corp.*<F3> 1,015,768 1,001,775
------------ ------------
8,927,331 8,422,963
THIS SECTOR IS 5.6% BELOW YOUR FUND'S COST.
OIL/GAS FIELD SERVICES - 7.0%
35,000 Cooper Cameron Corp.*<F3> 2,303,308 2,397,500
40,900 Energy Ventures, Inc.*<F3> 1,980,991 2,520,462
20,000 Ensco International Inc.*<F3> 828,092 985,000
180,200 Noble Drilling Corp.*<F3> 2,638,059 3,108,450
15,000 Nuevo Energy Co.*<F3> 748,125 575,625
140,000 Rowan Companies, Inc.*<F3> 2,309,076 3,167,500
109,400 Smith International, Inc.*<F3> 4,364,547 4,991,375
99,000 Tidewater Inc. 5,032,265 4,554,000
154,500 United Meridian Corp.*<F3> 5,551,702 4,654,313
------------ ------------
25,756,165 26,954,225
THIS SECTOR IS 4.7% ABOVE YOUR FUND'S COST.
PHARMACEUTICALS - 0.5%
56,000 Watson Pharmaceuticals Inc.*<F3> 2,327,919 2,002,000
THIS SECTOR IS 14.0% BELOW YOUR FUND'S COST.
SEMICONDUCTORS & RELATED 11.6%
336,100 Advanced Micro Devices, Inc.*<F3> 11,061,421 13,948,150
108,200 Intel Corp. 16,028,238 15,053,325
22,500 Jabil Circuit, Inc.*<F3> 918,750 1,013,918
25,000 Lattice Semiconductor Corp.*<F3> 1,250,000 1,143,750
85,000 LSI Logic Corp.*<F3> 2,783,468 2,953,750
50,000 Micron Electronics, Inc.*<F3> 1,014,325 956,250
279,500 National Semiconductor Corp.*<F3> 6,625,206 7,686,250
41,600 Xilinx, Inc.*<F3> 1,926,192 2,028,000
------------ ------------
41,607,600 44,783,393
THIS SECTOR IS 7.6% ABOVE YOUR FUND'S COST.
SOFTWARE - 9.7%
143,000 Autodesk, Inc. 4,819,857 4,433,000
170,000 BMC Software, Inc.*<F3> 7,907,974 7,841,250
38,600 Cognos Inc.*<F3> 907,100 1,003,600
73,000 Compuware Corp.*<F3> 2,749,269 4,580,750
68,800 Electronic Arts Inc.*<F3> 2,145,184 1,831,800
137,200 Electronics for Imaging, Inc.*<F3> 5,128,408 5,470,850
80,000 Parametric Technology Corp.*<F3> 4,160,596 3,610,000
69,200 Sterling Commerce Inc.*<F3> 2,006,800 2,006,800
84,100 Sterling Software, Inc. 2,605,372 2,323,263
309,400 Symantec Corp.*<F3> 5,044,976 4,408,950
------------ ------------
37,475,536 37,510,263
THIS SECTOR IS 0.1% ABOVE YOUR FUND'S COST.
SPECIALTY RETAILING - 10.0%
190,000 Borders Group, Inc.*<F3> 3,414,357 3,586,250
174,700 Claire's Stores, Inc. 2,663,069 2,926,225
100,000 CompUSA Inc.*<F3> 1,768,390 1,575,000
20,000 Costco Companies, Inc.*<F3> 544,656 552,500
115,000 CVS Corporation 4,346,863 5,304,375
62,500 Dollar General Corp. 1,634,335 1,953,125
60,000 Footstar, Inc.*<F3> 1,258,644 1,777,500
125,000 General Nutrition Companies, Inc.*<F3> 2,292,305 2,531,250
55,000 Gymboree Corp.*<F3> 1,330,040 1,478,125
30,000 Mac Frugal's Bargainso
Close-outs Inc.*<F3> 638,994 795,000
10,000 PayLess ShoeSource, Inc.*<F3> 298,067 418,750
78,400 Pier 1 Imports, Inc. 1,339,790 1,381,800
130,000 Ross Stores, Inc. 3,124,536 3,298,750
120,000 Staples, Inc.*<F3> 2,661,666 2,415,000
49,300 Tiffany & Co. 1,721,751 1,873,400
160,200 TJX Companies, Inc. 4,900,741 6,848,550
------------ ------------
33,938,204 38,715,600
THIS SECTOR IS 14.1% ABOVE YOUR FUND'S COST.
TRANSPORTATION & RELATED - 2.6%
38,300 America West Holdings*<F3> 570,643 598,437
85,000 Comair Holdings, Inc. 1,858,500 1,848,750
211,900 Southwest Airlines Co. 4,925,960 4,688,288
125,500 US Airways Group, Inc.*<F3> 2,413,013 3,074,750
------------ ------------
9,768,116 10,210,225
THIS SECTOR IS 4.5% ABOVE YOUR FUND'S COST.
MISCELLANEOUS - 4.3%
159,300 The B.F. Goodrich Company 6,807,894 5,834,363
60,400 Corning Inc. 2,657,739 2,680,250
302,000 The Dial Corp. 4,407,766 4,869,750
99,000 Ogden Corp. 2,093,612 2,091,375
75,000 RPM, INC. 1,268,587 1,246,875
------------ ------------
17,235,598 16,722,613
THIS SECTOR IS 3.0% BELOW YOUR FUND'S COST.
Total common stocks 360,715,553 381,210,406
SHARES OR QUOTED
PRINCIAL AMOUNT COST MARKET
- --------------- ---- -------
SHORT-TERM INVESTMENTS - 1.4% (A)<F4>
COMMERCIAL PAPER - 1.0%
$4,000,000 Ford Credit Co., 4,000,000 4,000,000
due 04/01/97, discount of 5.52%
Variable Rate Demand Notes - 0.4%
667,104 Johnson Controls, Inc. 667,104 667,104
610,000 Wisconsin Electric Power Co. 610,000 610,000
------------ ------------
Total variable rate demand notes 1,277,104 1,277,104
------------ ------------
Total short-term investments 5,277,104 5,277,104
------------ ------------
Total investments $365,992,657 386,487,510
============
Liabilities, less cash and
receivables (0.0%) (A)<F4> (27,354)
------------
Net Assets $386,460,156
===========
Net Asset Value Per Share
($0.01 par value 100,000,000
shares authorized), offering
and redemption price
($386,460,156 / 14,816,307
shares outstanding) $26.08
======
*<F3>Non-income producing security.
(a)<F4>Percentages for the various classifications relate to net assets.
BRANDYWINE BLUE FUND, INC.
STATEMENT OF OPERATIONS
For the Period Ended March 31, 1997
(Unaudited)
INCOME:
Dividends $677,267
Interest 583,477
----------
Total income 1,260,744
----------
EXPENSES:
Management fees 1,953,280
Registration fees 74,713
Custodian fees 53,354
Administrative services 42,500
Printing and postage expense 21,861
Professional fees 20,015
Transfer agent fees 6,695
Other expenses 2,862
----------
Total expenses 2,175,280
----------
NET INVESTMENT LOSS (914,536)
----------
NET REALIZED GAIN ON INVESTMENTS 51,975,857
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (39,855,949)
----------
NET GAIN ON INVESTMENTS 12,119,908
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $11,205,372
==========
The accompanying notes to financial statements are an integral part of these
statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended March 31, 1997 (Unaudited)
and For the Year Ended September 30, 1996
1997 1996
----- -----
OPERATIONS:
Net investment loss $(914,536) $(1,144,852)
Net realized gain (loss) on investments 51,975,857 (7,503,424)
Net (decrease) increase in unrealized
appreciation on investments (39,855,949) 37,923,232
------------ -----------
Net increase in net assets
resulting from operations 11,205,372 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 (3,496,602 and
9,072,193 shares, respectively) 93,536,779 209,837,352
Net asset value of shares issued in
distributions (344,224 shares) -- 7,555,722
Cost of shares redeemed (2,594,882 and 2,271,339
shares, respectively) (69,741,051) (52,267,216)
------------ ------------
Net increase in net assets derived from Fund
share activities 23,795,728 165,125,858
------------ -----------
TOTAL INCREASE 35,001,100 186,516,479
NER ASSETS AT THE BEGINNING OF THE PERIOD 351,459,056 164,942,577
------------ ------------
NET ASSETS AT THE END OF THE PERIOD $386,460,156 $351,459,056
============ ============
*<F5>Total distribution includes $6,929,563 of ordinary income, of which 5% is
eligible for the corporate dividends received deduction.
BRANDYWINE BLUE FUND, INC.
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period.)
<TABLE>
<CAPTION>
FOR THE PERIOD
ENDED MARCH 31,
1997 YEARS ENDED SEPTEMBER 30,
(UNAUDITED) 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 (0.05) (0.05)(1)<F7> 0.00 0.04 (0.06) (0.04) 0.03
Net realized and unrealized gains
on investments 0.87 2.05 7.30 0.36 6.22 0.52 3.05
------ ------ ------ ------ ------ ------ ------
Total from investment operations 0.82 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 $26.08 $25.26 $24.37 $17.18 $19.11 $12.95 $13.09
====== ====== ====== ====== ====== ====== ======
Total Investment Return 6.6%*<F8> 8.9% 42.8% 2.8% 47.6% 4.0% 45.1%*<F8>
Ratios/Supplemental Data:
Net assets, end of period (in 000's $) 386,460 351,459 164,943 29,086 6,373 4,270 3,975
Ratio of expenses (after reimbursement)
to average net assets**<F9> 1.11%*<F8> 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%)*<F8> (0.4%) (0.4%) (0.4%) (0.6%) (0.3%) 0.6%*<F8>
Portfolio turnover rate 214.6%*<F8> 196.9% 174.1% 220.3% 144.3% 191.9% 115.3%*<F8>
Average Commission Per Share****<F11> $0.0597 $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 financial statements are an integral part of these
statements.
</TABLE>
BRANDYWINE BLUE FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
(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 Nov-
ember 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.
(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. The Fund
has $2,505,300 of net capital losses which expire September 30, 2004 and
$4,705,965 of post-October losses, both of which may be used to offset capital
gains in future years to the extent provided by tax regulations.
(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.
(4) INVESTMENT TRANSACTIONS
For the period ended March 31, 1997, purchases and proceeds of sales of
investment securities (excluding short-term investments) were $410,204,134 and
$389,051,572, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of March 31, 1997, liabilities of the Fund included the following:
Payable to brokers for investments purchased $265,950
Payable to Adviser for management fees 345,912
Other liabilities 123,575
(6) SOURCES OF NET ASSETS
As of March 31, 1997, the sources of net assets were
as follows:
Fund shares issued and outstanding $322,407,491
Net unrealized appreciation
on investments 20,494,853
Undistributed net realized gains
and losses 43,557,812
-----------
$386,460,156
============
Aggregate net unrealized appreciation as of March 31, 1997 consisted of the
following:
Aggregate gross
unrealized appreciation $39,361,091
Aggregate gross unrealized
depreciation (18,866,238)
------------
Net unrealized appreciation $20,494,853
===========
MARKET CAP . . .
Your large cap companies, those greater than $5 billion, moved from 33 percent
of the portfolio in December to 27 percent currently as a result of harvesting
some of your major gainers. Positions in networking holdings Cisco Systems and
3Com Corp, the retailing giant Sears Roebuck, and familiar brand names of Gap
and Nike, were all sold during the quarter nailing down solid gains.
Cisco Systems contributed $4 million before your researcher Andy Graves' timely
sale at $67. Cisco subsequently succumbed to as low as $48, down 29 percent from
your sale. 3Com brought in $775,000. Oil exploration company Schlumberger Ltd.
created a $2 million profit, and $830,000 came from the specialty chemical
company Praxair. You enjoyed a $630,000 gain from Sears. Nike and Gap gained
nearly $1 million each before being sold.
Those companies in the mid-cap category comprise 61 percent of your March
portfolio compared to 59 percent in December. Your smaller companies, under $1
billion, grew from 7 percent to 11 percent during the quarter.
YOUR COMPANIES' MARKET CAPITALIZATION
CASH 1.4%
SMALL CAP 10.8%
MID CAP 60.8%
LARGE CAP 27.0%
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 [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: Lynda J. Campbell Report Staff: Margaret Barton, Rebecca A.
Buswell, Paul R. Robinson, Jennifer Weldon
