(BRANDYWINE BLUE FUND, INC. LOGO)
MANAGED BY FRIESS ASSOCIATES, INC. QUARTERLY REPORT JUNE 30, 1998
DEAR FELLOW SHAREHOLDERS:
We're grateful to report the black ink of your June quarter results contrasted
nicely to the declines of the S&P Midcap and Nasdaq Industrials which dropped
-------
more than 2.0 percent each. The 3.2 percent total return of the powerful S&P 500
surpassed your .5 percent gains.
JUNE QUARTER PERFORMANCE
S&P MIDCAP -2.4
NASDAQ IND. -2.0
IBD* <F1> 0.1
YOUR FUND* <F1> 0.5
S&P500*<F1> 3.2
*<F1> TOTAL RETURN
IBD = Investor's Business Daily Mutual Fund Index
The investment landscape in which your research team operates continues as the
mixed picture it was in the first quarter. S&P 500 earnings growth expectations
for the second quarter fell to only 1.4 percent, down from 12.5 percent at the
beginning of the year. Please reference the Declining Earnings Estimates table
found on page 2.
Pre-releases of poorer than expected 2nd quarter outlooks now streaming forth
threaten even the 1.4 percent estimate. The chart below reflects the dichotomy
between the S&P 500's 50 fastest growing companies and the remaining 450 on a
year over year basis. Notice 450 companies had an average 1.5 percent decline in
-------
1998's first quarter!
S&P 500 YEAR OVER YEAR EARNINGS PER SHARE CHANGE
<TABLE>
The Total Reported The 50 Fastest Growing The Other 450
S&P 500 Index in the S&P 500 S&P 500 Cos.
--------------------- ---------------------- -------------
<S> <C> <C> <C>
March Quarter 1997 13.6% 23.9% 8.0%
June 8.9 14.5 4.8
September 10.3 13.5 6.9
December 7.0 12.9 3.0
March Quarter 1998 0.9 5.6 -1.5
</TABLE>
Despite the sharp drop in expectations, big cap stock prices remain firm. Your
stocks are expected to grow earnings 39 percent and sell at 22 times earnings --
almost three times the growth of the S&P 500 which sells at 23 times earnings.
1999 estimates imply a modest PE of 17 times for the typical Brandywine holding.
Extensive contacts with managements of your holdings as well as their customers,
competitors, and suppliers continue to be key to your Fund's success.
Your dynamic companies come mainly from the S&P Midcap, the Nasdaq Composite,
and also the S&P 500. While the Nasdaq type companies currently lag the S&P 500,
these are the core of our excitement looking forward.
The Nasdaq Composite itself has played host to this stark bias towards the
biggest cap companies now prevalent in the market. The Composite is up 0.5
percent through June 23 (latest available breakout data) but the top 20 largest
cap stocks were up 8.7 percent. Without them, the index would have lost 5.4
------------ ----
percent. That's a six percentage point differential between the reported index
and the actual performance of all but the 20 largest companies!
The impact of liquidity continues. Perhaps the current mania for "quality"
companies regardless of PE is best reflected by the comments of strategist A.C.
Moore, of Dunvagen Associates in Santa Barbara, who says, "What we are seeing is
still a great liquidity expansion that's seeking the best known names. For
those, investors are paying any price in order to participate."
Treasury Department figures just released document the massive influx of foreign
investors into U.S. equities. Much of this money went into "big name" stocks
with uninspired fundamentals. Treasury figures show the $29 billion foreign
inflow into equities in the March quarter exceeded those inflows for 1994, 1995
and 1996 combined.
A classic example of the quest for these big name stocks is Nike's move from $44
to $54 in the last three weeks even though earnings estimates dropped 10 to 15
percent this week and the stock sells over 30 times May 1999 estimates. Nike's
recent quarterly earnings were $.04, down from $.52. Fundamental progress for
the next nine months to a year are not clear to us right now.
U.S. interest rates continue to drop with the U.S. Treasury's benchmark 30-year
long bond near the all time low yield, at 5.6 percent, cheering believers in the
higher PE "blue chip" stocks. Reported inflation also continues very muted
despite U.S. consumers' buying, which is the strongest in six years.
DISAPPOINTING EARNINGS OUTLOOK
1Q98
1/9
1/20
1/28
Not Applicable First Call overstated
2/5 5.9
2/12 5.7
2/19 4.8
2/26 4.4
3/5 3.8
3/12 2.9
3/19 1.5
4/2 0.4
4/8 -0.3
4/16 -1.4
4/23 1.0
4/30 1.2
5/7 1.3
5/16 1.5
5/21 1.8
5/28 1.5
6/4 1.6
6/11 1.6
6/18 1.6
6/25 1.7
7/1 1.8
2Q98
1/9 12.5
1/20 11.4
1/28 10.7
2 9.6
2/12 9.5
9.0
2/26 8.9
3/5 8.4
3/12 7.9
3/19 6.6
4/2 6.1
4/8 5.4
4/16 3.9
4/23 4.3
4/30 3.9
5/7 3.8
5/16 3.5
5/21 3.6
5/28 3.5
6/4 3.2
6/11 2.7
6/18 2.2
6/25 2.1
7/1 1.4
3Q98
1/9 15.1
1/20 14.0
1/28 13.9
2/5 13.9
2/12 13.9
2/19 13.3
2/26 13.3
3/5 12.8
3/12 12.5
3/19 12.0
4/2 11.7
4/8 11.2
4/16 10.8
4/23 10.3
4/30 10.2
5/7 10.2
5/16 9.8
5/21 10.0
5/28 9.8
6/4 9.5
6/11 9.2
6/18 8.5
6/25 8.2
7/1 8.0
4Q98
1/9 19.1
1/20 18.9
1/28 17.7
2/5 17.3
2/12 17.5
2/19 17.1
2/26 18.0
3/5 17.7
3/12 17.2
3/19 17.3
4/2 19.3
4/8 15.2
4/16 14.3
4/23 14.5
4/30 14.6
5/7 14.7
5/16 14.3
5/21 14.7
5/28 14.4
6/4 14.3
6/11 14.0
6/18 13.7
6/25 13.5
7/1 13.2
The tables of earnings expectations provided by Donaldson, Lufkin, and Jenrette
graphically show how analysts have revised down S&P 500 operating numbers from
the beginning of the year. The earnings reductions for the smaller, more
dynamic companies typically found in your Fund have been even more dramatic -
some going from earnings growth to losses.
The U.S. Department of Commerce's recent first quarter GDP growth estimate of
5.4 percent carries with it the hidden promise of a rare time in the economy --
strong growth and low inflation. Yet many perhaps do not sense the connection
between this seemingly contrary set of circumstances domestically and the global
events that are unfolding.
Much of the breathing room enjoyed by Alan Greenspan and the Federal Reserve can
be attributed to the very strong dollar as many global currencies fall, most
notably in Asia. This in turn depresses the U.S. pricing environment by
introducing an ongoing stream of ever cheaper imports as well as generating
rising difficulty for American exports.
We also sense that much of the strength in the first quarter data results from
escalating inventory accumulation. Nonfarm inventories grew $92 billion in the
quarter alone. Such inventory build rates are unsustainable and will be reversed
in the balance of this year, slowing the real U.S. economy, but also keeping
inflation in check.
The bright spot in the U.S. economy is the consumer who is one step removed from
Asian uncertainties. Companies serving consumers' needs such as retailers,
restaurants, numerous durable goods companies, and a number of service
companies, along with the related suppliers and producers, are experiencing
strong growth. These companies now represent a large portion of your portfolio.
According to William O'Neil & Co., the companies in your portfolio have earnings
growth of 46 percent for the last 12 months compared to just 14 percent for the
companies in the S&P 500. For the most recent quarter, your companies' earnings
are growing 43 percent while the S&P 500's growth is 13 percent.
COMPANY GROWTH
AVERAGE INCRESE AVERAGE INCREASE
LATEST 12 MOS. EARNINGS LATEST QUARTERLY EARNINGS
----------------------- -------------------------
YOUR COMPANIES 46% 43%
S&P 500 14% 13%
ALL S&P FIGURES ARE UNWEIGHTED. ANALYSIS BY WILLIAM O'NEIL & CO., INC.
JUNE 26, 1998.
We're pleased to be moving in the right direction this quarter even though the
powerful surge in the bigger companies, driven more by their liquidity and
"name" than their fundamentals, remains difficult to match. In view of the
declines in the S&P Midcap and Nasdaq Industrials we are encouraged that our
strategy of isolating strong progress in companies and shedding those companies
with weak fundamentals is again being rewarded.
We still find the Asian crisis in full boil as we write. The dramatic fall in
the Japanese yen, requiring recent intervention by the U.S. Fed and the Bank of
Japan, highlights the bleak outlook. May vehicle production in Japan fell by 20
percent. Major bank stocks trade at par value, and auditors continue to uncover
growing evidence of failed swap and derivative agreements in Indonesia.
Asia's Pacific Rim, almost one-third of global GDP, remains in deep crisis, with
growing impact on U.S. companies.
Your research team continued to broaden its international research contacts to
accurately assess the impact of global change on your companies. A trip to
Europe led by Bill D'Alonzo included visits to key company and government
officials in London, Frankfurt, Amsterdam, Stockholm, Paris, and Helsinki. We're
planning a similar trip to South America this fall. In Helsinki, visits with
Finnish worldwide cellular leader Nokia added greatly to already extensive
contacts with Nokia's U.S. operations.
Your team is inspired by your faith in us and grateful that recent developments
this quarter -- particularly as the quarter continued -- head us toward more
gains.
However, the past good quarter is but a speck of time compared to where we have
been in the past ten years and where we, Lord willing, hope to be in the next
----
ten years.
We're grateful to have you invested with us. We are committed right along with
you with more than $35 million of our pension and personal funds invested in
Brandywine and Brandywine Blue. Growing all of these assets is, as always, our
number one objective.
Thanks for your ongoing trust!
God Bless!
/s/ Foster Friess
Froster Friess
President
July 7, 1998
FELLOW SHAREHOLDER . . .
Gail Zess may know our shareholders even better than we do. As Relationship
Manager for Brandywine Funds at Firstar Trust Company, Gail's capable hands are
in virtually every aspect of delivering services to Brandywine Blue shareholders
- -- from handling difficult tax issues, to making sure an IRA transfer is carried
out properly, to overseeing sizable new purchases. If you have a tricky
situation in your Brandywine Blue Fund account that needs attention, Gail's the
person to handle it.
"I serve as the 'focal point' for our clients, communicating Firstar's policies
and procedures to them, and then making sure everyone at Firstar knows about the
clients' particular needs and interests," Gail explains. She works closely with
the representatives answering your calls so they're up to speed on every
question you might ask.
The recent introduction of the Roth IRA created many inquiries and provided the
perfect opportunity for Gail to work one-on-one with shareholders to help
determine what was best for each particular case. "I enjoy that close
interaction," recounts Gail. "It helps bring a real sense of purpose and
personality to my job."
Gail not only deals directly with shareholders, she also works with principals
at other custodial banks to iron out any problems that may arise in transferring
money into or out of Brandywine Blue. Gail will contact the other party and find
out what transpired so you don't have to.
As primary contact for your Fund's administrative team, Gail is in daily
communication with Lynda Campbell, Fund Secretary and Vice President. "In the
last few years, Gail's responsibilities have increased tremendously as
Brandywine Funds have grown. We rely on her to be our eyes and ears for the
thousands of you writing and calling about service and performance issues --
communications we used to be able to manage here in-house back when the Funds
were first starting out." Lynda praises Gail, saying, "She is invaluable to us,
and the fact that she herself is a Brandywine shareholder allows her to really
connect with all of our shareholders."
Having just celebrated their 13th wedding anniversary, Gail and husband Mike
have two young girls. In her spare time (that is, when she's not "chauffeuring"
Morgan and Lindsay to various places) Gail can be found decorating and
landscaping their new home. Gail also enjoys escaping to her family's cottage in
northern Wisconsin -- ideal for snowmobiling in the winter and fishing in the
summer -- and perfecting her golf game.
"Everyone associated with Friess Associates and the Brandywine Funds are
wonderful to work with; Lynda Campbell and her associates always make sure that
we have the up-to-date information we need to effectively service shareholders,"
Gail relates. The shareholders are a great group of people too; I am grateful to
count myself and my family among them."
- -Rebecca Buswell
TRIPP . . .
According to senior researcher John Ragard, Tripp Rudisill began contributing to
our research process the minute he was on board. Having been a
telecommunications analyst at both Equitable Securities and Raymond James &
Associates before joining Friess last November, Tripp's in-depth knowledge of
the communications equipment industry adds a new dimension to our research team.
"Tripp brings to Friess Associates and our clients and shareholders an
additional network of contacts in the communications equipment industry to
reinforce our already solid relationships in this important arena," John
relates. "His influence is beneficial because of the new folks he's networking
us with, and he makes good stock-picking decisions. Additionally, he's always
willing to pitch-in for the team and help make calls to add to anyone's research
effort."
After receiving a BA in Political Science from the University of North Carolina
- - Chapel Hill, Tripp spent two years as an associate in the strategic planning
and regulatory policy department at Northern Telecom -- perfect preparation for
his stint as a telecommunications analyst.
He then returned to school to pursue an MBA in Finance at Vanderbilt University.
While in Nashville, he met his wife, Kamie. They celebrated their second
anniversary in May and are eagerly anticipating their first child this fall.
Tripp's experience on the sell side of the business at both Equitable and
Raymond James provided him the opportunity to work with many mutual fund
managers and analysts. "I had never met any that asked as many difficult
questions as the researchers at Friess did," recounts Tripp. "They were the ones
always most prepared and looking for an edge." When Tripp was offered the
opportunity to come on board, he felt confident he was joining a team that was
relentless in its research efforts.
So far this year, Tripp's selections of Nokia Corp., and Lucent Technologies
have together gained more than $3 million for your Fund.
Meeting and getting to know the managements of the companies he investigates is
something Tripp enjoys as he seeks to pick the winning stocks for you, the part
of his job he relishes most.
Tripp says the Friess system works. "We do not base our stock selections on
sell-side recommendations, but instead use our intensive questioning style to
break down buying a stock into a disciplined, well-planned process which can be
executed with confidence because we know we've asked the right, probing
questions of the key players involved."
Born and raised in North Carolina, Tripp is happy to be back on the east coast.
He and Kamie love to travel and enjoy almost any outdoor activity, including
skiing, fly fishing and golf. On many a weekend, you'll find Tripp out on the
links at one of the many local courses.
- - Rebecca Buswell
PAUL . . .
Born and raised in Colorado, the opportunity to work in Jackson, Wyoming was a
western homecoming for researcher Paul Berg. Thanks to his four years as a
consumer goods equity analyst at Morgan Keegan's Memphis office, Paul was
equally comfortable settling into our research effort.
As part of the hard-hitting research team under Jon Fenn's leadership, Paul
plays a primary role in isolating dynamic changes in individual companies that
can be harnessed by your portfolio.
Jon is excited about Paul's insights and keen awareness of industry trends. "His
persistence and experience from covering various retailers at Morgan Keegan
generates quality contacts and enables us to gather even more valuable
information from top executives in the business."
Paul is quick to emphasize the benefits of our team approach and the selfless
decisions made each day, which help create a cooperative rather than an
aggressively competitive environment. Paul, and fellow researcher Bill Dugdale,
both uncovered the upside potential of a particular stock at the same time. Paul
turned primary coverage over to Bill because of his more extensive knowledge of
the company's customers, competitors, suppliers and other key players in the
industry.
"I was very comfortable with this decision as I knew Bill could cover the stock
with an added edge given his contacts," Paul said. "I know that he, or any
researcher, would do the same were the situation reversed." According to Paul,
this kind of team effort is unusual in the investment arena where analysts tend
to base decisions on self-interest or "office politics" rather than what will
collectively benefit the clients.
Paul received an undergraduate degree from Colorado State University in Business
Administration with a concentration in finance and accounting, and an MBA from
Vanderbilt. During his second year at Vanderbilt, he worked as a researcher at
Tennessee Consolidated Retirement Systems, which managed the State's pension
assets. He earned his CFA designation during his tenure at Morgan Keegan.
While in Memphis, Paul met his wife, Sarah, and together they enjoy almost every
outdoor activity including fly-fishing, biking, golfing, and basketball.
Excitedly, they await the arrival of their first child in late July!
- -Adam Rieger
CAPITAL GAINS UPDATE . . .
Just one more quarter until we mark the end of fiscal '98. All shareholders of
record as of October 23, 1998 will receive the distribution which will be made
on October 26, 1998. The date your account will actually be paid is October 27,
1998. As of June 30, 1998 the APPROXIMATE amounts expected are:
$0.21 income dividend
$0.62 in long term capital gains
$0.52 in mid term capital gains
-----
$1.35 total potential distribution per share
There remain net unrealized gains of $2.86.
--
IRA SHAREHOLDERS . . .
Even though fiscal year end is a few months off this is the last quarterly
report to alert you to the $12.50 Firstar earns to maintain your account for the
year. If you prefer it not be automatically deducted from your account in
September, please send a personal check for $12.50 to Firstar Trust Co. at P.O.
Box 701, Milwaukee, WI 53201 before September 21.
GROWING YOUR FUND . . .
Perhaps one reason the team concept is gaining popularity in business is that
millions of Americans participate in team sports. Their life experience shows
them that working together gets the job done, and that harnessing the particular
talents of each team member is the secret to success in business, just as in
sports.
Each quarter we like to acknowledge the efforts of the men and women who work in
the companies your Fund invests in. This quarter we cheer on Hazel Norman, a
checker and stock clerk in the Safeway on Shattuck Place in Berkeley, California
- -- one of the people whose commitment to doing her job well has added to the
value of your Fund.
Many customers in Hazel Norman's Safeway consider her an old friend. Some were
toddlers in strollers when Hazel started in 1974, and now are shopping with
their own children. Over 23 years of service, Hazel has witnessed many changes
in America. "When I first started, only women were shopping, but now it seems
like more men than women shop. And people are buying more healthy foods . . .
fat free, fresh vegetables. They buy more Safeway brand products, too."
"I like working with people, and I like to see everybody happy," is Hazel's
motto. In 1997 she was nominated by her co-workers for the Donald J. Smith Award
recognizing an employee's commitment to promoting Safeway's goals. "I was
shocked," said Hazel, "because I just do things naturally. I try to give the
kind of service to my customers that I would expect when I go to another store."
Hazel has served eight terms as the president of her district's Safeway
Employees Association, a position which involves organizing the annual company
picnic. "People bring their families, and it's fun because you get to catch up
with old friends at other stores."
Every three months, Hazel makes sure they have a "pot-luck" at her store.
Everybody fixes a dish and adds it to a big table. "When you eat your lunch or
take your break, you help yourself. It's just to keep the camaraderie
flourishing." No wonder her co-workers call her "Mother Hazel." Store manager
Fran Cairo says, "Hazel is concerned about her store, her fellow employees, and
her community. She is just a prime example of a great employee!"
Hazel attends church every Sunday and records the service for broadcast on the
radio. After each holiday, Hazel buys the reduced price candy and delivers it
with flowers to senior citizens. "I don't want the old people to feel they are
forgotten. If I can make them happy, it makes me happy."
Her husband died four years ago, but Hazel's three children, 11 grandchildren,
and two great-grandchildren live nearby. In her free time she enjoys bowling and
sewing for her grandchildren.
Since purchase in December 1997, your shares in Safeway Inc. have added $2
million of gains to your portfolio.
- -Margaret Barton
TOP TEN . . .
This quarter you'll likely notice some shifts in company placement in your
portfolio. We're now grouping some companies differently based on sector
breakdowns used by Bloomberg and William O'Neil & Co. For example, many of your
Apparel & Shoes companies from last quarter are now found in a new category,
Textiles/Apparel Manufacturing. Jones Apparel, Tommy Hilfiger, Liz Claiborne,
and Fruit of the Loom are some large holdings that switched into this new group,
now occupying the number seven spot with 6.0 percent of the portfolio.
You purchased several new Specialty Retailing companies to grow this group to
number two with 11.3 percent from 5.1 percent in March. New to your portfolio
are BJ's Wholesale Club, Consolidated Stores, Costco Companies, Furniture
Brands, General Nutrition, Office Depot, and Viking Office Products. More than
$2 million in gains from Borders Group and Staples during the quarter further
expanded this group.
Moving up to the number three position this quarter is Software. You added to
many existing holdings -- Citrix Systems, Cognos Inc., Computer Associates,
Electronic Arts, and Sterling Software -- growing this category to 10.4 percent
up from 4.4 percent last quarter. Together these companies have netted you
nearly $2 million in gains since purchase. The Learning Company and Synopsys are
new to your portfolio and are already up $1.8 million.
Financial/Business Services remains your top group with 13.6 percent. Falling
off the Top Ten are Apparel & Shoes, Building & Related, and Computer Systems.
TOP TEN INDUSTRY GROUPS
Financial/Business Services (13.6%)
Specialty Retailing (11.3%)
Software (10.4%)
Computers & Related (8.7%)
Communications (8.1%)
Transportation & Related (6.4%)
Textiles/Apparel Manufacturing (6.0%)
Networking (5.8%)
Food/Restaurant (4.9%)
Machinery & Miscellaneous Manufacturing (3.6%)
Cash (5.5%)
All Others (15.7%)
HIGHLIGHTS . . .
BUILDING & RELATED
LOWE'S COMPANIES, INC. is the second largest retailer of home improvement
products in the world (after The Home Depot), serving four million "do-it-
yourself" customers and small contractors each week.
Home remodeling and repair is now a $300 billion market. Feedback from consumers
in Dallas and Atlanta told your Friess researchers that customers like the
bright, friendly Lowe's stores.
Lowe's was recently ranked in Fortune magazine's list of "The 100 Best Companies
to Work for in America" and currently employs more than 65,000 people.
In addition to building materials, the company also sells major appliances and
consumer electronics. Carson Anderson, VP of Finance, explained that appliance
sales have grown 59 percent this year as the company has successfully
implemented same-day delivery in most metropolitan centers.
Last quarter earnings rose 32 percent to $.54 from $.41 while revenues grew 34
percent to $94.5 million.
Up 18 percent since purchase just in April, your shares sell today at $41.
NETWORKING
Internet usage is doubling every four months. Key enablers to this growth are
companies like ASCEND COMMUNICATIONS, INC., which provides hardware allowing
computers to pass information to each other more rapidly.
Your company develops, manufactures, sells, and services wide area networking
(WAN) solutions for telecommunications carriers, Internet Service Providers
(ISP) and corporate customers worldwide. Ascend's products make it possible for
you to dial onto the Internet and exchange email as well as letting business
users easily exchange voice, video, and data with networks at their main
offices.
In the core switching business, Ascend's premium products include the new GSX
550, its carrier-class "smart core" WAN ATM Switch. CFO Michael Ashby told us
the GSX 550 was highlighted at the SuperComm Communications Conference in
Atlanta in June and they are excited about the customer reponse to date.
AT&T, Bell Atlantic, GTE, Williams Communications, and Sprint are some of
Ascend's customers.
Your shares are up 33 percent from $37 since purchase in late March.
SOFTWARE
Corporate America is increasingly decentralized, with fewer and fewer business
people leading the typical 9 to 5 workday at the office. Men and women who work
from home or other remote locations can actually do their job as if they were in
the office thanks to the products made by CITRIX SYSTEMS.
Several people can concurrently share an application server, database, or
software program with your company's WinFrame and WinView products. Each user
has a "virtual" window system but the actual program operates elsewhere, yet at
similar speeds to a local area network.
Just 24 percent of Citrix's sales are international, according to Treasurer
Scott Davidson, and the company is building European and Asian channels. This
expansion creates opportunity for solid growth in revenue and earnings per share
going forward.
Microsoft, Compaq Computer and Computer Associates have teamed up with Citrix to
gear their product lines to the emerging client-server software approach, taking
advantage of lower-cost computing this system provides. FedEx and National
Semiconductor are other Citrix customers.
Earnings took off 108 percent in March from $.17 to $.36 on revenues of $49
million, more than doubling from 1997's $22 million.
Up 46 percent since March, your shares are at $67 today.
BRANDYWINE BLUE FUND, INC.
STATEMENT OF NET ASSETS
June 30, 1998
(Unaudited)
Quoted
Market
Shares Cost Value (B) <F3>
- ------ ----- ---------------
COMMON STOCKS - 94.5% (A) <F2>
APPAREL & SHOE RETAILERS - 0.9%
25,000 Footstar, Inc. $ 1,126,500 $ 1,200,000
152,000 TJX Companies, Inc. 3,805,028 3,667,000
------------- -------------
4,931,528 4,867,000
THIS SECTOR IS 1.3% BELOW YOUR FUND'S COST.
AUTOMOTIVE & RELATED - 0.5%
40,000 Federal-Mogul Corp. 1,140,125 2,700,000
THIS SECTOR IS 136.8% ABOVE YOUR FUND'S COST.
BUILDING & RELATED - 1.0%
84,000 Lowe's Companies, Inc. 2,889,252 3,407,292
45,200 York International Corp. 2,206,328 1,969,048
------------- -------------
5,095,580 5,376,340
THIS SECTOR IS 5.5% ABOVE YOUR FUND'S COST.
COMMUNICATIONS - 8.1%
70,700 ECI Telecom Ltd. 2,147,787 2,677,763
162,600 Lucent Technologies Inc. 11,926,890 13,526,369
82,300 Nokia Corp. "A" ADR 4,270,210 5,971,935
50,000 Northern Telecom Limited 2,829,575 2,837,500
160,400 SkyTel Communications, Inc. 3,982,647 3,754,322
264,400 WorldCom, Inc. 11,427,389 12,807,007
------------- -------------
36,584,498 41,574,896
THIS SECTOR IS 13.6% ABOVE YOUR FUND'S COST.
COMPUTERS & RELATED - 8.7%
398,800 Apple Computer, Inc. 10,089,612 11,440,774
296,600 Computer Sciences Corp. 15,914,286 18,982,400
20,000 CSG Systems International, Inc. 868,300 937,500
225,000 EMC Corporation (Mass.) 9,067,247 10,082,925
115,300 Unisys Corp. 2,997,900 3,257,225
------------- -------------
38,937,345 44,700,824
THIS SECTOR IS 14.8% ABOVE YOUR FUND'S COST.
COSMETICS/PERSONAL CARE - 0.2%
30,000 Helen of Troy Ltd. 540,000 660,000
6,100 Rexall Sundown, Inc. 204,312 215,025
------------- -------------
744,312 875,025
THIS SECTOR IS 17.6% ABOVE YOUR FUND'S COST.
DISTRIBUTION - 1.1%
128,700 Tech Data Corp. 5,717,726 5,518,012
THIS SECTOR IS 3.5% BELOW YOUR FUND'S COST.
ELECTRONICS - 0.6%
90,000 General Cable Corp. 2,238,974 2,598,750
16,700 Mettler-Toledo International Inc. 334,000 335,044
------------- -------------
2,572,974 2,933,794
THIS SECTOR IS 14.0% ABOVE YOUR FUND'S COST.
FINANCIAL/BUSINESS SERVICES - 13.6%
258,700 AccuStaff Inc. 8,736,186 8,084,375
75,000 AMRESCO, Inc. 2,163,460 2,184,375
91,500 Capital One Financial Corp. 4,241,380 11,363,202
80,400 CMAC Investment Corp. 5,362,226 4,944,600
100,000 Comdisco, Inc. 1,874,872 1,900,000
165,000 Concord EFS, Inc. 3,623,125 4,310,625
40,000 ContiFinancial Corp. 1,092,400 925,000
178,200 Dime Bancorp, Inc. 5,310,385 5,334,952
50,000 Federated Investors, Inc. 950,000 925,000
186,600 First Union Corp. (N.C.) 10,638,005 10,869,450
20,000 Fleet Financial Group, Inc. 1,666,126 1,670,000
132,000 Green Tree Financial Corp. 5,656,855 5,651,316
98,000 The Hertz Corp. 4,651,240 4,342,674
116,000 Household International, Inc. 5,322,222 5,771,000
50,000 NOVA Corp. 1,500,000 1,787,500
------------- -------------
62,788,482 70,064,069
THIS SECTOR IS 11.6% ABOVE YOUR FUND'S COST.
FOOD/RESTAURANTS - 4.9%
151,000 Brinker International, Inc. 3,593,223 2,906,750
55,000 CKE Restaurants, Inc. 1,988,070 2,268,750
106,500 Outback Steakhouse, Inc. 4,194,696 4,153,500
202,200 Safeway Inc. 6,040,725 8,227,114
133,500 Suiza Foods Corp. 7,822,819 7,968,348
------------- -------------
23,639,533 25,524,462
THIS SECTOR IS 8.0% ABOVE YOUR FUND'S COST.
HEALTHCARE SERVICES & MEDICAL/DENTAL PRODUCTS - 3.1%
160,000 HEALTHSOUTH Corp. 4,238,686 4,270,080
125,000 Integrated Health Services, Inc. 4,878,498 4,687,500
215,900 PharMerica, Inc. 3,075,503 2,604,401
115,600 St. Jude Medical, Inc. 4,403,117 4,255,583
------------- -------------
16,595,804 15,817,564
THIS SECTOR IS 4.7% BELOW YOUR FUND'S COST.
HOME/OFFICE & RELATED - 0.3%
30,000 Maytag Corp. 956,844 1,481,250
THIS SECTOR IS 54.8% ABOVE YOUR FUND'S COST.
INSURANCE - 3.1%
300,000 Conseco, Inc. 15,157,130 14,025,000
60,000 Old Republic International Corp. 1,794,024 1,758,780
------------- -------------
16,951,154 15,783,780
THIS SECTOR IS 6.9% BELOW YOUR FUND'S COST.
LEISURE & ENTERTAINMENT - 1.6%
86,200 Carnival Corp. 2,289,028 3,415,675
59,000 Royal Caribbean Cruises Ltd. 2,424,452 4,690,500
------------- -------------
4,713,480 8,106,175
THIS SECTOR IS 72.0% ABOVE YOUR FUND'S COST.
MACHINERY & MISCELLANEOUS MANUFACTURING - 3.6%
80,000 Coltec Industries Inc. 1,864,948 1,590,000
10,000 The Manitowoc Company, Inc. 400,600 403,130
114,100 Ogden Corp. 3,187,309 3,159,201
113,100 Tenneco, Inc. 5,042,106 4,304,925
145,000 Tyco International Ltd. 8,163,805 9,135,000
------------- -------------
18,658,768 18,592,256
THIS SECTOR IS 0.4% BELOW YOUR FUND'S COST.
NETWORKING - 5.8%
402,200 Ascend Communications, Inc. 14,945,080 19,934,238
171,500 FORE Systems, Inc. 3,228,234 4,544,750
185,000 Xylan Corp. 4,340,002 5,515,405
------------- -------------
22,513,316 29,994,393
THIS SECTOR IS 33.2% ABOVE YOUR FUND'S COST.
OIL/GAS FIELD SERVICES - 1.2%
34,100 J. Ray McDermott, S.A. 920,776 1,415,150
139,500 McDermott International, Inc. 5,826,188 4,804,101
------------- -------------
6,746,964 6,219,251
THIS SECTOR IS 7.8% BELOW YOUR FUND'S COST.
PHARMACEUTICALS - 1.5%
266,300 Mylan Laboratories Inc. 6,838,180 8,005,777
THIS SECTOR IS 17.1% ABOVE YOUR FUND'S COST.
REAL ESTATE OPERATIONS - 0.1%
25,000 Fairfield Communities, Inc. 553,438 479,700
THIS SECTOR IS 13.3% BELOW YOUR FUND'S COST.
SEMICONDUCTOR & RELATED - 0.5%
100,000 MIPS Technologies, Inc. 1,400,000 1,343,800
60,000 VLSI Technology, Inc. 1,240,936 1,006,860
------------- -------------
2,640,936 2,350,660
THIS SECTOR IS 11.0% BELOW YOUR FUND'S COST.
SOFTWARE - 10.4%
130,000 Autodesk, Inc. 5,458,843 5,021,250
75,000 Citrix Systems, Inc. 3,874,028 5,128,125
110,000 Cognos Inc. 3,129,687 2,930,510
259,600 Computer Associates
International, Inc. 14,386,444 14,424,155
141,300 Electronic Arts Inc. 3,957,611 7,630,200
252,900 The Learning Company, Inc. 5,875,650 7,492,162
100,000 Rational Software Corp. 1,576,210 1,525,000
143,200 Sterling Software, Inc. 2,438,292 4,233,422
83,300 Structural Dynamics Research Corp. 2,003,485 1,926,312
75,000 Synopsys, Inc. 3,175,000 3,431,250
------------- -------------
45,875,250 53,742,386
THIS SECTOR IS 17.1% ABOVE YOUR FUND'S COST.
SPECIALTY RETAILING - 11.3%
75,700 BJ'S Wholesale Club, Inc. 2,967,518 3,075,312
190,000 Borders Group, Inc. 3,414,357 7,030,000
25,000 Brylane, Inc. 1,150,000 1,150,000
127,800 Consolidated Stores Corp. 4,916,530 4,632,750
65,000 Costco Companies, Inc. 3,559,710 4,099,095
50,000 Fingerhut Companies, Inc. 1,640,887 1,650,000
74,400 Furniture Brands International, Inc. 2,115,076 2,087,887
148,300 General Nutrition Companies, Inc. 5,006,445 4,615,838
143,800 Office Depot, Inc. 4,741,552 4,538,759
170,000 Pier 1 Imports, Inc. 3,328,634 4,058,750
353,400 Staples, Inc. 7,953,310 10,226,689
362,900 Viking Office Products, Inc. 10,668,813 11,385,988
------------- -------------
51,462,832 58,551,068
THIS SECTOR IS 13.8% ABOVE YOUR FUND'S COST.
TEXTILES/APPAREL MANUFACTURING - 6.0%
165,900 Fruit of the Loom, Inc. 5,478,097 5,505,889
220,600 Jones Apparel Group, Inc. 5,871,234 8,065,798
150,000 Liz Claiborne, Inc. 7,258,067 7,837,500
45,000 Nautica Enterprises Inc. 1,280,250 1,206,585
58,500 Tommy Hilfiger Corp. 3,456,295 3,656,250
50,000 Unifi, Inc. 1,596,750 1,712,500
75,000 The Warnaco Group, Inc. 2,109,235 3,182,850
------------- -------------
27,049,928 31,167,372
THIS SECTOR IS 15.2% ABOVE YOUR FUND'S COST.
TRANSPORTATION & RELATED - 6.4%
105,200 America West Holdings Corp. Cl B 3,132,792 3,004,828
85,000 ASA Holdings, Inc. 3,102,502 4,218,125
40,000 Coach USA, Inc. 1,931,208 1,825,000
100,000 Continental Airlines, Inc. Cl B 5,909,880 6,087,500
70,000 J. B. Hunt Transport Services, Inc. 2,023,125 2,493,750
175,000 Kansas City Southern Industries, Inc. 7,780,767 8,684,375
20,000 SkyWest, Inc. 588,334 560,000
80,000 US Airways Group, Inc. 6,084,817 6,340,000
------------- -------------
30,553,425 33,213,578
THIS SECTOR IS 8.7% ABOVE YOUR FUND'S COST.
------------- -------------
Total common stocks 434,262,422 487,639,632
PRINCIPAL
AMOUNT
- --------
SHORT-TERM INVESTMENTS - 7.9% (A) <F2>
COMMERCIAL PAPER - 6.8%
$ 5,000,000 Ford Credit Co.,
due 07/01/98, discount of 6.01% 5,000,000 5,000,000
5,000,000 FPL Group Capital Inc.,
due 07/01/98, discount of 6.40% 5,000,000 5,000,000
5,000,000 Goldman Sachs,
due 07/02/98, discount of 5.90% 4,999,181 4,999,181
5,000,000 Merrill Lynch & Co., Inc.,
due 07/02/98, discount of 6.02% 4,999,164 4,999,164
5,000,000 Morgan Stanley Dean Witter,
due 07/01/98, discount of 6.25% 5,000,000 5,000,000
5,000,000 Sears Roebuck Acceptance Corp.,
due 07/01/98, discount of 5.80% 5,000,000 5,000,000
5,000,000 Salomon Smith Barney,
due 07/06/98, discount of 5.77% 4,995,993 4,995,993
------------- -------------
Total commercial paper 34,994,338 34,994,338
VARIABLE RATE DEMAND NOTES - 1.1%
$5,842,251 Firstar Bank U.S.A., N.A. 5,842,251 5,842,251
------------- -------------
Total short-term investments 40,836,589 40,836,589
-------------
Total investments $475,099,011 528,476,221
-------------
-------------
Liabilities, less cash and
receivables (2.4%) (A)<F2> (12,442,954)
-------------
NET ASSETS $516,033,267
-------------
-------------
Net Asset Value Per Share
($0.01 par value 100,000,000
shares authorized), offering
and redemption price
($516,033,267 / 18,668,748
shares outstanding) $27.64
------
------
(a)<F2> Percentages for the various classifications relate to net assets.
(b)<F3> Each security, excluding short-term investments, is valued at the last
sale price reported by the principal security exchange on which the issue is
traded, or if no sale is reported, the latest bid price. Securities which are
traded over-the-counter are valued at the latest bid price. Short-term
investments are valued at amortized cost which approximates quoted market value.
ALL IS NOT ROSES . . .
In an unsettled quarter such as this one, we were not surprised to find some
underperformers in your portfolio. There were 13 stocks that dropped back $1
million or more. The good news is that you had 17 stocks increase by more than
$1 million, making up for what your losers gave up.
Topping the decliners was EVI Weatherford losing $2.3 million. Lower oil prices
throughout the industry caused EVI's drop as well as the $1.8 million, $1.4
million, and $1 million drops in three other oil-related stocks -- Noble
Drilling Corp., Transocean Offshore and McDermott International.
Thermo Electron Corp. lost nearly $2 million when concern arose over the
company's ability to find and close a very large acquisition. Following the
acquisition of Greentree Financial, Conseco dropped $1.8 million. Some major
accounting problems at Cendant caused it to drop $1.3 million. Bay Networks fell
$1.2 million after experiencing a deterioration in prices on the low end of
switch market and some product delays, and PhyCor's $1.2 million decline
resulted from investor concern over walking away from a merger with Medpartners.
3Com Corp. and PharMerica, Inc. dropped a little over a $1 million while
Integrated Device lost almost $1.3 million. Lennar Corp. backtracked $1.4
million to round out the group. All but three of your backtrackers were sold.
The winners to cheer about during the quarter were led by the $4.6 million gain
in Ascend Communications. Capital One Financial rose $4.1 million, Nokia Corp.
jumped $3.3 million and Computer Sciences increased $2.7 million. Jones Apparel
gained $2 million, and Staples and The Learning Co. were up $1.6 million each.
Worldcom's profits were $1.4 million. Fore Systems grew $1.3 million and Mylan
Labs climbed $1.2 million. Electronic Arts, ASA Holdings, EMC Corp., and Xylan
Corp. were up more than $1 million apiece.
The other $1 million gainers are Citrix Systems, Kansas City Southern, and Tyco
International.
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.
Independent Accountants: PRICE WATERHOUSE LLP
Custodian, Transfer Agent: FIRSTAR TRUST COMPANY
Legal Counsel: FOLEY & LARDNER
OFFICERS: Foster S. Friess, President and Treasurer; Lynda Campbell, Vice
President and Secretary; William D'Alonzo, Vice President; John Fraser,
Vice President; Carl Gates, Vice President; Andrew Graves, Vice President;
David Harrington, Vice President; John Ragard, Vice President; and Paul
Robinson, Vice President
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of Brandywine 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
