BRANDYWINE BLUE FUND, INC.
MANAGED BY FRIESS ASSOCIATES, INC. SEMI-ANNUAL REPORT MARCH 31, 1998
DEAR FELLOW SHAREHOLDERS:
Your Fund returned 3.5 percent this quarter held back by high cash levels
which dropped from a high of 79 percent to its current 40 percent. You
backtracked 8.7 percent the first half of fiscal '98.
Aided by the pleasant 20 percent September quarter increase, your trailing
twelve months performance of 25.2 percent normally would be embraced as a good
return. But because the market generally has been so strong, these results are
terrible.
We have not served you well this quarter and we want you to know we are very
upset about that fact. We are blessed with the best clients and shareholders
in the world and you deserve better.
With daily confirmation and validations of your research team's assessment
that there would be disappointing earnings, particularly in the technology
sector, why do so many stocks continue to go up? How could we be so right,
and yet so wrong, all at the same time?
It's because the market is being driven more by liquidity than by
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fundamentals. We were dead wrong in not correctly assessing the incredible
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amounts of money that would be awash in the system that had to find a home
some place. The U.S. suddenly looked like one of the best games in town. The
money supply grew an alarming 9 percent from Q4 '97 to Q1 '98. Money deposited
into equity mutual fund coffers exploded almost 50 percent higher in the early
weeks of 1998 compared to 1997.
Despite the growing signs of excessive speculation, the incredibly high PE
ratios of many stocks, and the deterioration of earnings growth in many
technology companies, the market has moved ahead. Meanwhile, the Japanese
economy, the world's second largest market, continues to deteriorate. Even
Sony Corporation chairman's shocking declaration Thursday: "We are going to
have a very, very severe 1998. Japan's economy is on the verge of collapse,"
seems to have had no effect on our market.
As analysts further lowered forecasts for earnings growth to reduced levels
not seen in 8 years, stocks have continued to climb. First Call's latest S&P
500 first-quarter forecast is 0.5 percent earnings growth over last year --
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down from 10.4 percent on January 2! Yet the S&P 500 was up 13.5 percent on
this disappointing earnings outlook.
The prospect of earnings for the year are an anemic 9.7 percent growth, down
significantly from much higher expectation levels just a month ago. In the
Friess Associates investment approach lower earnings drop stocks, growing
earnings make them go up.
Let me clearly articulate our investment strategy and what it is we do for you
and what it is we don't do, so we are all on the same page, in terms of
understanding how that affects the levels of cash.
Our first criterion is to isolate very rapidly growing companies. If you look
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at our portfolio at any given time, you'll find 90 percent of the companies
growing over 15-20 percent and our average growth rate often surpassing 50
percent.
Second, we buy lower PE ratio stocks. We do not own the Home Depots, the Coca-
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Colas, Gillettes and the AOLs -- the companies selling at 35, 40, 60 times
earnings, even though they are leading companies. Again, 90 percent of your
companies would be under 25 times.
The third criterion looks for companies doing better than people expect. When
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even a company leader reports a 35 percent earnings increase, the stock can go
down because analysts were predicting 45 percent. CompUSA's 5 point drop
Tuesday to $20, down from a recent high of $35, is but one example of this
phenomenon of a high quality company being punished for slowing earnings
growth. You sold the stock months ago.
Everyday, every one of our researchers scrutinizes each investment for which
he or she is responsible. If we believe it is going down, it is sold. If we
believe it is going up, it is held. If our sales at any given time exceed
purchases of those we are excited about, the cash in the Fund builds.
Some other times when this has happened were during the fall of the Shah in
Iran and during the Arab oil embargo in late 1973. Money was made in 1974
because of this excess cash even though the S&P 500 declined 26.5 percent.
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After our 1990 Kuwait-invasion inspired sales, the Dow Jones dropped over 400
points.
We have stuck to our discipline. We did not go out and buy Yahoo! at a PE
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measured in the hundreds or drug stocks with PE ratios of 40 and above. This
focused approach has been out of step before.
Many sophisticated investors believe that you should never sell, pointing to
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successes like Coca-Cola or Microsoft. Friess Associates does not look at the
investment world from this perspective. For every Coke, we can point to New
York Central and Pennsylvania Railroad, two companies for which the same
arguments were made. These were "high quality" companies. Neither exists today.
Had you bought Avon Products in 1973 at its high of $70, you would have
watched it sag to under $9 in the next eleven years, and waited 24 years before
it returned to $70. Seventeen of the 30 Dow Jones stocks of 25 years ago have
been replaced because of deteriorating fundamentals.
Had we subscribed to this buy and hold theory, we probably would not have sold
your Nike at $66 which now sells in the low $40s, or your Compaq at $31 after a
50 percent gain because both are classic, powerful companies. Compaq now trades
in the mid $20s. David Harrington was shrewd to perceive from talks with many
of its customers that an inventory glut was developing in the reseller channel.
Orders were also impacted because of a shift towards the new $1,000 and under
computers.
Bottom line, we want you to know that while some have construed our heavy cash
position as being "bearish" on the market or a "market call," it evolved from
the same investment disciplines we have been implementing for 30 years.
This time-tested strategy has earned recognition from financial publications,
investment gurus, and financial advisors throughout the country. Sticking with
this proven investment discipline is how you are currently enjoying smart gains
in your recent stock selections.
A.J. Berk's Citrix Systems pick rose 38 percent. Royal Caribbean Cruises,
chosen by David Harrington, jumped 32 percent. Fiserv, Inc. which Andy Graves
selected, was up 29 percent. Furniture Brands, Tripp Rudisill's pick, was up 28
percent, while Bill Dugdale saw his General Cable gain 25 percent.
If you'd invested five years ago, you'd enjoy a 157 percent cumulative return,
20.7 percent average annualized. And, since inception that figure is 315
percent, or 21.8 percent on average each year, essentially equal to the S&P
500's 22.1 average annualized return.
SINCE INCEPTION
JANUARY 10, 1991
(Average Annualized Returns)
IBD*<F1> 15.6%
NASDAQ IND. 18.7%
RUSSELL 2000 20.2%
YOUR FUND*<F1> 21.8%
S&P 500*<F1> 22.1%
*<F1>TOTAL RETURN
IBD = INVESTOR'S BUSINESS DAILY MUTUAL FUND INDEX
We are grateful for Kiplinger's Mutual Funds '98 showing that your sister fund
Brandywine's performance, with a 20.3 percent average annualized return, ranks
us as one of the top three no-load mutual funds in the U.S. for the ten years
---------
ended December 31, 1997 in the Long-Term Growth category!
Jack Fraser deserves kudos for the significant new research hires and also for
enhancing our external research resources. Clarke Adams, Diane Hakala, and Mark
Lapolla are fullfilling an entrepreneurial dream launching a hedge fund which
permits short sales, options, and leverage which the Friess Associates strategy
does not utilitze. We wish them well.
Our 39-person research team is now in place to accommodate growth to 50
percent before we'll need to add new people.
My 34 years of investment experience tends to side with a comment in this
week's The Economist:
"To ignore earnings and buy shares on the basis that lots of other people are
going to is another version of the greater fool theory that underpins market
bubbles."
At the end of the day, a stock is worth no more than the earnings attached to
it. Our goal over the next couple of quarters is to buy stocks that will
outperform the relevant indices AND meet our stringent earnings criteria, such
as General Cable, Maytag, Fred Meyer, and Pier 1 Imports, rising 46, 50, 107,
and 39 percent since purchase.
With earnings estimates coming down, we are seeing more opportunities to put
your money to work now that people are altering their expectations to what your
research team predicted months ago.
For those of you who have "hung tough" and contributed nearly $83 million in
new dollars, over the quarter, we thank you for your loyalty and confidence, and
you can bet we will work as hard as ever to retain your trust.
Our morale is sustained by encouraging emails and letters like one from a
shareholder in your sister fund who works at Lucent Technologies. She wrote,
"Brandywine is a growth fund and most of us should look to long term. Sometimes
long term cannot be reached without short term losses. The market is not a sure
thing, and I personally don't look for all milestones to be successful. Keep up
the good work and your spirits!" It's supportive comments like this that get us
to the office early!
Our most important priority is helping you achieve your financial goals --
from our longest-term shareholders, to those of you who are newest on the block.
Our own pension funds, much of the investments of our close friends and
families, and all of my personal stock market investments are in Brandywine and
Brandywine Blue Funds. Our mutual success is foremost on our minds each and
every workday.
God Bless!
/s/ Foster Friess
Foster Friess
President
April 7, 1998
HIGHLIGHTS . . .
COMMUNICATIONS
With sales figures tripling from many of its top 20 customers like Home Depot,
and new relationships with such well known companies as GTE, GENERAL CABLE
CORPORATION penetrates both international and domestic markets. Your company
manufactures and markets its wire and cable products to retailers, OEMs
(original equipment manufacturers) and distributors.
Canadian sales are up 40 percent, and upcoming acquisitions in Europe and
Mexico help strengthen General Cable's international presence.
According to CEO Steve Rabinowitz, these increased sales result from your
company's "Power of One" strategy which provides a one stop shopping solution
for its customers.
Key to this strategy is the fact that General Cable offers more products than
any other cable manufacturer or distributor and provides extraordinary customer
service in education about the products (which is unusual for a commodity
business like cable distribution). As management learns more about the
manufacturing process and its customers' needs, they find ways to further cut
costs.
Last quarter, earnings were $.62, bringing the year to $2.24. Analysts expect
to see growth of 31 percent in earnings for the March quarter, to $.51 from
$.39 last year.
Purchased for you in August, your shares are up 46 percent to $45.
DEPARTMENT STORES
Does purchasing groceries, apparel, home electronics, garden equipment, and
sporting goods all in one store seem unlikely? Not if you live in the western
U.S. and shop at one of FRED MEYER INC.' s 110 "multidepartment" stores. With
sales in the recent January quarter up 88 percent, it seems these super-stores
have popular appeal.
Fred Meyer recently acquired Ralph's Supermarkets, a supermarket chain based
in Southern California, and Quality Food Centers, a grocery chain in the
Pacific Northwest, making it the 4th largest supermarket operator in the nation.
CFO Dave Jessick says those acquisitions are now complete and analysts expect
they will create a doubling in sales. Revenues in calendar year '98 should
eclipse $15 billion. Additionally, your company will save approximately $100
million in calendar '98 and an additional $100 million in calendar '99 following
these mergers.
Your company recently beat Wall Street expectations by 5 cents when it reported
earnings for the January quarter of $.56, with same store sales rising over 10
percent. Analysts predict earnings will be $.31 next quarter, a gain of 30
percent.
Rising 107 percent since purchase in May at $22, your shares sell today at $46.
HOME/OFFICE & RELATED
Quality has always been associated with the MAYTAG CORP. name. You've likely
seen the Maytag repairman advertised as the loneliest guy in the business,
never receiving calls for repair visits.
Your company is the third largest manufacturer of large appliances in the
U.S., best known for its high and mid-range washing, cooking and cleaning
machines with respected brands such as Maytag, Jenn-Air, Magic Chef, and
Hoover.
New Maytag washers and the nationally top-selling Hoover vacuum cleaners, as
well as an expanded relationship with Sears, are driving revenue and earnings
growth.
Earnings jumped 50 percent the most recent quarter from $.36 to $.54 on
revenues of $945 million. Earnings in 1997 were up 37 percent from 1996.
Maytag's new Neptune line features a high-end machine using less water and
energy than the competitor's products, while laundering clothes as effectively
as is they were dry cleaned. Trade checks confirm that members of some police
forces are comfortable washing their uniforms in the Neptune instead of having
them professionally cleaned.
In conversations with Leonard Hadley, Chairman and CEO, we learned factories
are now organized to maximize production efficiency. Overall, the emphasis is
placed on delivering the higher-margin, premium-priced products that
consistently beat the competition.
Purchased in September, your shares have shot up 50 percent to $48.
SPECIALTY RETAILING
Looking for household items, but don't want to pay a lot? Then head to PIER 1
IMPORTS, INC. Known for its quality merchandise including furniture, rugs,
dinnerware, glassware, cutlery, ceramics, lamps and everything else you could
want to furnish a house, your company's 700 stores nationwide are enjoying a
resurgence in sales in recent years resulting from a successful move upscale
from its traditional rattan goods.
This remerchandizing and remodeling program has contributed to Pier 1's
healthy sales growth, according to CEO Clarke Johnson. Revenues were up 16
percent in the November quarter to $263 million, and were up 12 percent during
the previous two quarters of fiscal '98.
Earnings soared 53 percent in November from $.15 to $.23, and analysts expect
the company to finish the '98 fiscal year with 34 percent earnings growth.
Importing the majority of its merchandise from Asia, your company benefits
from the currently favorable Asian exchange rates. In turn, Pier 1's profits
are rising without raising prices to its customers. Surprising the Street,
your company's same store sales growth has beaten expectations over the last few
years at a rate exceeding all other retailers!
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Purchased at $20 in October, your shares are up 39 percent to $27.
After SAFEWAY INC. acquired Vons Supermarkets (a 316-unit grocery store chain
in Southern California), many of our contacts around the country began
noticing positive changes at local Vons stores in the quality of merchandise,
selection and service. The remodeled Vons were larger, and included a pharmacy,
bakery, and floral shop, with more and more customers shopping there.
Visits to competitor stores showed the new Safeway/Vons to be better
merchandised, particularly in meats and produce, with an overall superior,
customer-friendly layout.
After meeting with Chief Financial Officer Julian Day and Senior VP Finance
Melissa Plaisance, and touring a San Francisco Safeway store, we decided to
buy the stock for your Brandywine portfolio.
Safeway is the second largest food and drug retailer in the U.S. operating
1,368 food stores in 12 western states and five Canadian provinces. Your
company builds new stores and remodels older stores on a larger scale to
accommodate a wider selection of food and drug products for its consumers.
This, coupled with a focus on its private label "Select" brands, contributes
to its increased market share, strong same store sales, and accelerating
earnings.
The December quarter saw earnings climb 34 percent from $.32 to $.43. Revenues
were up 42 percent.
Since purchase at $30 in December, your shares rose 24 percent to $37.
FUND DIRECTOR . . .
Baron Stig Ramel met Foster Friess in 1972. Two years later, as the Executive
Director of The Nobel Foundation of Stockholm, Sweden, Ramel entrusted the
infant Friess Associates with $1 million of the Foundation's assets. Its first
dollar invested is now worth $120.
Throughout his distinguished career in international finance and investment,
Ramel served as chairman or director of more than twenty prestigious Swedish
and international financial and industrial companies such as Volvo, Swedish
Ford, Indusvarden, and PLM, as well as many philanthropies.
Early in his career, Stig was aide to Crown Prince Carl Gustaf, who is the
current king. We are so grateful to have his insights on the Brandywine Blue
board.
The Nobel Foundation was established in 1900 by Swedish industrialist and
inventor of dynamite Alfred Bernhard Nobel and is today led by Ramel's
successor Micha Sohlman. The Foundation bestows the most prestigious prizes
in the world; Nobel Laureates are recognized each year for promoting
international peace, and for achievements in economics, physics, chemistry,
medicine, and literature.
Stig is one of those energizing, inspiring people who doesn't have the word
"retirement" in his vocabulary. After his incredible twenty year stint as head
of the Nobel Foundation, where he helped orchestrate a 175 percent increase in
the prize due to his astute investing and management, he then headed the
Swedish government's distribution of 27 billion Swedish krona in pension funds
that had been built up to be distributed in the private sector.
When that mission was completed, he leapt into the authoring of personal
memoirs entitled, The Boy in the Door, which instantly became a Swedish
bestseller. Likewise, his more recent book on G.M. Armfelt, the George
Washington of Finland, has been equally successful and will soon be available
in Finnish. Stig travels around Sweden lecturing and educating the importance
of this man in the history of the region.
Stig was born into a family occupying the Hviderup estate in southern Sweden
for 300 years and is thrilled that one of his sons has recently acquired and
begun renovations on the property after decades out of family possession.
Ramel pursued law and economics in his studies and entered the Swedish Foreign
Service in 1953, serving in Paris and then in Washington until 1960.
Returning home, Ramel became the head of the section for Maritime and Atomic
Energy Affairs and then the Council for Information about Sweden abroad. Later,
he directed the Swedish Export Council.
Stig and Ann Marie, a gourmet cook and cookbook author, have been married
since 1953. His enthusiasm for his four children and three grandchildren
challenges that of most family-oriented men.
His energy level is reflected by intense sporting interests like orienteering,
common in Sweden, where, with a map and compass, you make a cross country road-
rally navigating through brush instead of roads. It's an arduous sport
requiring deft maneuvering of the forest environment.
Unless there is a severe snowstorm, Stig is seen peddling his bike to and from
work, explaining why no one believes he is over 70 years old. On cold winter
weekends, his skates carve flawless patterns in the thick ice that encases the
Stockholm Archipelago.
-Adam Rieger
BARBARA . . .
In June, Barbara Shea will mark 12 years at Friess Associates, and as one of
the most tenured of your team, she's seen remarkable change during her time
here. Joining Susan Morgan's solo operation on the trading desk, Barbara came
from Penn Mutual Life Insurance in Philadelphia. In 1986, Barbara and Susan
handled all trades and all settlements without the benefits of the fully
computerized setup we have in place today. They pushed a lot of paper!
Barbara reflects on the summer of 1990 when Foster decided to increase cash
levels following the Iraqi invasion of Kuwait. "Susan and I sat amidst piles of
paper, working 14 and 15 hour days to get all the trades allocated and settled
properly. We'd make numerous trades by phone, but had to manually record them
for each client separately. It was quite a challenge!" From those days, she and
Susan have been rightfully dubbed as "adeptly tackling the tasks it would take
five to do!"
Today's technology adds to Barbara's, as well as the entire trading team's,
ability to execute trades more efficiently. Handling $13 billion demands top-
notch equipment and software.
In the last year or so, various programs have been added, like Instinet, where
an order is simply typed into the computer, the trade is processed, and the
execution is sent back via computer. POSIT is a "matching system" where the
traders enter stocks they want to buy or sell and five times a day a list is
run indicating other buyers and sellers of that same stock. The program
"matches" the two and the trade is completed.
Barbara's years here yield a unique perspective. She came on board when there
was just $300 million under management and 12 teammates.
Enter the trading room, and you witness the pulse of the organization. Barbara
and your six other traders field calls from various brokerage houses across the
country, receiving information on stocks, opinion changes, earnings releases,
and lists of what's available for purchase and sale. "This kind of activity
ensures there's never a dull moment in my workday," Barbara exclaims.
Trading for research team leader Andy Graves, Barbara secured solid positions
in such holdings as Fiserv, Fred Meyer, and Rite Aid at average costs of $41,
$22, and $23, which have since risen 53, 107, and 51 percent. "Her years of
experience have garnered sound relationships with key brokers on the Street,
which augment Barbara's knack for knowing where to turn, and when, for the best
price possible," Andy relates.
While Barbara is valued for her sharp sense on the trading desk, she is also
highly regarded for her upbeat, cheerful, and positive attitude. Fellow Friess
veteran, Lynda Campbell echoes this praise. "Barbara is a genuine spark of
light, inspiring everyone with her infectious laughter and great sense of humor.
Her keen wit and her spirit, combined with a true sense of caring for all of us,
shines through!" Chief among her hobbies of traveling, music, tennis, and water
aerobics is decorating her new home. A job Barbara really enjoys!
- Rebecca Buswell
ANDY . . .
Senior researcher and team leader Andy Graves moved to our Jackson
headquarters in 1993 from the Delaware office where he started at Friess in May
of '91. Attending an investor conference as an analyst for the Perritt Capital
Growth Fund, a small cap growth fund, Andy met Bill D'Alonzo and Carl Gates who
lured him away from Chicago to come back east and put his research skills to
work at Friess Associates.
"We noticed Andy in the same meetings, investigating the same stocks, and
asking the same kinds of questions we were, and knew he was someone who could
add a lot to our research effort. And what a great find he has been!" Bill
D'Alonzo compliments Andy's savvy stock-picking ability. "Andy has a great
nose for stocks, he knows what questions to ask and how to probe to get to the
meat of the issue affecting a company's performance. His 'can-do' attitude means
he will tackle whatever is thrown his way. He's a real team player."
Andy's background as a financial analyst and writer at the famed Morningstar
organization, as well as his stint as managing editor of the financial
newsletters Investment Horizons and The Mutual Fund Letter, give him a
particular perspective which was quickly recognized and utilized in our
research strategy.
Some of Andy's big winners include Cisco Systems, Tellabs, Liz Claiborne, and
Gap, which since the beginning of last year have realized more than $17 million
from purchase to sale.
While our researchers are generalists, Andy concentrates primarily on retail,
apparel, networking, telecommunications equipment, and restaurant companies.
"Through our intensive research strategy which focuses on getting to know the
managements of not only our target company, but also its customers,
competitors, and suppliers, I've been fortunate to forge relationships with
many executives in these industries," Andy explains. "Their input is invaluable
to our investigation of what companies will be solid holdings for our
shareholders."
Paul Charron, CEO of Liz Claiborne, is one of Andy's close contacts and was
eager to share some remarks about his experience working with Andy. "In talking
with him, it is clear Andy has done his research and knows what questions to
ask. He can leave a 20 minute conversation with all the information he needs to
remain an intelligent investor. I've always been impressed with how hard he
works to understand the dynamics of this business rather than just looking at
it as a number on a sheet."
Paul emphasized that Andy's low-key but intense personality, and friendly,
supportive attitude, is integral to sustaining their positive relationship.
Andy spent much of his childhood in Williamsburg, Virginia, before heading to
New Hampshire for high school to attend Phillips Exeter Academy where he
graduated with honors in 1984. He then went on to earn a BA in Economics at
Davidson College in Davidson, North Carolina. His parents now live in
Wilmington, Delaware, so a trip to see them also usually means a visit to the
Delaware office for a few days' work.
Living in Jackson, Andy can enjoy the outdoor sports he loves -- golf, hiking,
running and skiing. Another favorite pastime of Andy's is vacationing abroad.
He's traveled to Europe, Australia, the Caribbean, Canada and Mexico all within
the last five years.
- Rebecca Buswell
GROWING YOUR FUND . . .
The performance of your Fund depends on bright, talented people who work at
the companies in which you are invested. Because your stake in Borders Group
has added $3 million of gains to your holdings, we are featuring an employee at
a Borders bookstore this quarter.
While sometimes money managers get credit for the increases in a portfolio, we
always must be cognizant that the ultimate success is dependent on the people
running the companies. Without them, there is no success.
Millions of people each day commit their lives to make our American system
work. By recognizing Henry, we acknowledge the importance of each and every
worker that has created the values that now reside in your portfolio.
Henry Torrie is the periodicals clerk at the Borders bookstore in Wilmington,
Delaware. "I run my own newsstand with the advantage that I have Borders behind
me. Our corporate buyers have the foresight and experience to know what is
going to be hot and to make sure we order sufficient copies."
While Henry carries 800 magazines and periodicals which are available at all
Borders stores, he also has the freedom to order hundreds of additional titles
based on his knowledge of what his customers want. Henry's large in-store
newsstand reflects a wide range of special interests, offering two magazines
devoted to collecting Beanie Babies, one on hooking rugs, and others for train
buffs, woodworkers, and on and on.
His own current favorite is the Fortean Times. Charles Fort was an eccentric
American writer and collector of anomalies. The pages of this magazine are
filled with accounts of extraordinary events and possible explanations for
them, a combination of science and silliness.
Henry graduated from Temple University in Philadelphia with a degree in
Anthropology, a great background for a job that certainly requires studying the
diverse social and cultural orientations of the surrounding community.
Stephen Geist, Henry's boss, says, "We hire intelligent, friendly people and
we encourage them to be individuals. No uniforms, no cookie-cutter clerks.
Because it is a great place to work, we are able to attract well-educated staff
members like Henry. Henry is open to new ideas and that keeps his newsstand
fresh and exciting. Just the way we want it to be!"
Borders encourages browsing, offers coffee and desserts, and even features
lectures, concerts, and workshops. With the "welcome mat" always out, Borders
has become more than a megabookstore. It is a destination where people can
relax and enjoy themselves. Henry always makes sure his newsstand looks
inviting.
Away from work, Henry studies Buddhist teachings and works with a Tibetan
monk translating teachings into English. He has a special girlfriend and plans
to be married next year.
- Margaret Barton
TOP TEN . . .
There were many changes to your Top Ten industries this quarter as seven new
categories joined the group. Computers & Related, Apparel & Shoes,
Communications, and Transportation & Related all saw purchases to once again
bring them into the Top Ten, while Networking, Building & Related, and Computer
Systems were industries re-entering your portfolio this quarter.
Leaving the Top Ten were Oil/Gas Field Services, Pharmaceuticals, Department
Stores, Leisure & Entertainment, Distribution, and Insurance to make room for
the new groups.
Computers & Related fills the number two slot with 5.5 percent. Large
positions in Bay Networks as well as Computer Sciences Corp., already up
$385,000, and a gain of $350,000 in Premiere Technologies, helped fuel this
group's growth.
You added many Financial/Business Services companies this quarter to bring
this group to the top spot at 11.8 percent compared to 7.1 percent in
December. Large positions in Dime Bancorp and ContiFinancial Corporation were
secured, which together have gained more than $360,000. You also saw Capital
One Financial increase more than $2.2 million and Fiserv rise nearly $1 million
to grow this sector.
Jones Apparel Group, Liz Claiborne and Tommy Hilfiger are once again part of
your portfolio, bringing Apparel & Shoes to number four. They have gained
almost $475,000 since purchase.
TOP TEN INDUSTRY GROUPS
Cash (40.4%)
Financial/Business Services (11.8%)
Computers & Related (5.5%)
Specialty Retailing (5.1%)
Apparel & Shoes (5.0%)
Software (4.4%)
Communications (3.7%)
Transportation & Related (2.9%)
Networking (2.8%)
Building & Related (2.6%)
Computer Systems (1.9%)
All Others (13.9%)
ON THE CUTTING EDGE . . .
During the process of our investment research we often find remarkable
developments, but the companies involved may not always meet our investment
criteria. Their achievements are impressive nonetheless, and we thought you'd
like to hear about them.
IMPROVED DRUG DELIVERY FOR ASTHMATICS
While vastly improved asthma drugs have been introduced in recent years, most
must still be breathed in through small devices called metered-dose inhalers
(MDIs) that are tricky to use. Patients must coordinate their breathing with
the pumping action -- a technique that 70 percent of asthmatics fail to
master -- to ensure the right dosage. Aradigm Corp. has a smart alternative -
- - an MDI with a built-in microprocessor, SmartMist. This device uses red and
green indicator lights to guide a patient's breathing and dispenses the drug
automatically once it senses the desired flow rate is reached. It also stores
data on the patient's dosage and inhalation patterns, which can be downloaded
by physicians to monitor treatment.
CLOSING THE GAP
Doctors use sutures and staples to close internal surgical wounds, but these
products do not always seal leaks, especially with wounds near tissues under
pressure such as lungs, spinal cord, and brain. Leaking wounds can lead to
longer hospital stays, pain, and infection. Focal, Inc. makes liquid surgical
sealants that are applied after a wound has been closed. About to be sold in
Europe and now in trials in the U.S., the company's FocalSeal-L lung surgery
sealant may revolutionize recovery from lung surgery. In the container, the
water-based sealant is a thick liquid, but when exposed to light it quickly
solidifies. The sealant stays flexible so that it can stretch with the
tissue, and it is absorbed by the body after the wound heals.
CATARACT BREAKTHROUGH POSSIBLE
Surgical methods have improved dramatically, but conventional surgery remains
difficult and expensive, big drawbacks for what has become the most frequent
operation for people over 60. Optex Opthalmologics, Inc. has developed a
technique called Catarex that requires far less surgical skill than
conventional methods. Not yet in clinical trials, the method uses a
specially designed spinning blade that draws the clouded lens nucleus toward
it so that it can be chopped up and removed. Because Catarex can be done
through a tiny hole in the lens capsule, it opens up the possibility of
replacing the lens with an injectable, gel-like substance instead of a rigid
plastic contact lens. A soft and pliable lens could more closely mimic the
eye's natural function. Cataract patients would no longer need to wear
special glasses for reading.
THE TRANSISTOR TURNS FIFTY
The basic building block of all modern electronics was invented fifty years
ago at Bell Telephone Laboratories on December 16, 1947. The transistor
replaced vacuum tubes and serves as a switch that turns electrical current on
and off and a device that can make signals, like a voice on the telephone,
louder or softer. Without this gizmo there would be no electronic age. We
would still be in the time when most important machines overheated, clanked,
groaned, wobbled, and hissed. The strangest aspect of this indispensable and
universal device is that you will never see it. It is too small!
CAPITAL GAINS UPDATE . . .
Planning your taxes? While the distribution for '98 is still six months away,
we know some of you appreciate receiving the most current information on what
we expect. As of March 31, 1998, the approximate amounts were:
-----------
$.20 ordinary income
$.98 in long term capital gains
$.68 in short term capital gains (treated as ordinary income)
----
$1.86 total potential distribution per share as of 3/31/98
There remain net unrealized gains of $1.66.
--
ALL IS NOT ROSES . . .
During the quarter, ten of your stocks declined by more than $500,000 apiece.
Some of those stocks dipped because they were sold prior to the market's
strength that occurred later in the quarter. The good news is that twice as
many went up by more than $500,000.
Nordstrom dropped back after fears over lower same store sales for December
and January. The potential impact lower oil prices would have on new business
psychologically affected EVI Inc. and McDermott International. And, when the
price of oil fell from $19 to $13, Street analysts became concerned, causing
J. Ray McDermott and Veritas DGC to decline.
Xilinx, Altera Corp., and Lowe's Companies were other backtrackers. It took
just three of your strong stocks to offset all ten of your decliners.
Best Buy Co. was your top gainer, leaping $8.6 million. Capitol One
Financial increased $2.3 million as a strong economy is keeping interest
rates low and consumers are reporting fewer delinquencies, so credit card
companies' charge offs for bad debts have decreased. Gap, fueled by
stronger-than-expected same store sales in January and February, was your
third best with a $1.3 million increase.
Other big gainers, over $1 million each, were Steris Corp. Family Dollar
Stores, Safeway, Electronics Arts, and Royal Caribbean Cruises.
Smaller gains, yet in excess of $750,000, were achieved by Fiserv, Sterling
Software, Apple Computer, Symantec Corp., Pier 1 Imports, and B.F. Goodrich.
BRANDYWINE BLUE FUND, INC.
STATEMENT OF NET ASSETS
March 31, 1998
(Unaudited)
QUOTED
MARKET
SHARES COST VALUE
- ------ ---- ------
LONG-TERM INVESTMENTS - 59.6% (A)<F3>
COMMON STOCKS - 59.3% (A)<F3>
APPAREL & SHOES - 5.0%
165,900 Fruit of the Loom, Inc.*<F2> $5,478,097 $5,080,687
58,500 Intimate Brands, Inc. 1,177,133 1,583,185
110,300 Jones Apparel Group, Inc.*<F2> 5,871,234 6,073,449
150,000 Liz Claiborne, Inc. 7,258,067 7,481,250
24,700 Payless ShoeSource, Inc.*<F2> 1,494,190 1,858,675
53,500 Tommy Hilfiger Corporation*<F2>3,165,335 3,213,371
75,000 The Warnaco Group, Inc. 2,109,235 2,943,750
----------- -----------
............... 26,553,291 28,234,367
THIS SECTOR IS 6.3% ABOVE YOUR FUND'S COST.
AUTOMOTIVE & RELATED - 0.4%
40,000 Federal-Mogul Corp. 1,140,125 2,127,520
THIS SECTOR IS 86.6% ABOVE YOUR FUND'S COST.
BUILDING & RELATED - 2.6%
241,100 Centex Corporation 8,803,138 9,191,937
159,200 Lennar Corporation 5,092,018 5,482,530
----------- -----------
............... 13,895,156 14,674,467
THIS SECTOR IS 5.6% ABOVE YOUR FUND'S COST.
COMMUNICATIONS - 3.7%
92,600 Essex International, Inc.*<F2> 3,705,031 3,657,700
20,000 General Cable Corporation 620,000 907,500
109,000 Nokia Corp. "A" ADR 11,444,671 11,765,242
185,000 Xylan Corporation*<F2> 4,340,002 4,509,375
----------- -----------
............... 20,109,704 20,839,817
THIS SECTOR IS 3.6% ABOVE YOUR FUND'S COST.
COMPUTERS & RELATED - 5.5%
410,500 Bay Networks, Inc.*<F2> 11,314,892 11,134,813
338,100 Computer Sciences Corp.*<F2> 18,209,765 18,595,500
50,000 Premiere Technologies,
Inc.*<F2> 1,206,250 1,731,250
------------ -----------
............... 30,730,907 31,461,563
THIS SECTOR IS 2.4% ABOVE YOUR FUND'S COST.
COMPUTER SYSTEMS - 1.9%
398,800 Apple Computer, Inc.*<F2> 10,089,612 10,967,000
THIS SECTOR IS 8.7% ABOVE YOUR FUND'S COST.
DEPARTMENT STORES - 1.1%
106,200 Family Dollar Stores, Inc. 1,425,984 4,035,600
53,600 Fred Meyer, Inc.*<F2> 1,195,781 2,475,677
------------ -----------
............... 2,621,765 6,511,277
THIS SECTOR IS 148.4% ABOVE YOUR FUND'S COST.
DISTRIBUTION - 1.1%
34,800 CellStar Corporation.*<F2> 1,293,582 1,113,600
128,700 Tech Data Corp.*<F2> 5,717,726 4,954,950
------------ -----------
............... 7,011,308 6,068,550
THIS SECTOR IS 13.4% BELOW YOUR FUND'S COST.
FABRIC/TEXTILES - 0.3%
50,000 Unifi, Inc. 1,596,750 1,862,500
THIS SECTOR IS 16.6% ABOVE YOUR FUND'S COST.
FINANCIAL/BUSINESS SERVICES - 11.8%
166,600 AccuStaff Incorporated*<F2> 5,548,717 5,747,700
75,000 AMRESCO, Inc.*<F2> 2,163,461 2,456,250
65,000 Avis Rent A Car, Inc.*<F2> 2,219,168 2,108,470
91,500 Capital One Financial Corp. 4,241,380 7,217,063
73,700 CMAC Investment
Corporation 4,965,611 4,919,475
100,000 ContiFinancial
Corporation*<F2> 2,731,000 3,050,000
203,200 Dime Bancorp, Inc. 6,057,952 6,108,802
66,600 Finova Group, Inc. 3,132,246 3,921,075
59,600 First Union Corporation
(N.C.) 2,896,868 3,382,300
66,000 Fiserv, Inc.*<F2> 2,735,798 4,182,750
554,800 WorldCom, Inc.*<F2> 24,225,736 23,891,352
------------ -----------
............... 60,917,937 66,985,237
THIS SECTOR IS 10.0% ABOVE YOUR FUND'S COST.
FOOD/RESTAURANTS - 0.5%
55,000 CKE Restaurants, Inc. 1,988,070 2,021,250
90,000 Food Lion, Inc. CL B 980,000 987,210
------------ -----------
............... 2,968,070 3,008,460
THIS SECTOR IS 1.4% ABOVE YOUR FUND'S COST.
HEALTHCARE & RELATED - 1.9%
75,000 Columbia/HCA
Healthcare Corp. 2,383,113 2,418,750
160,000 HEALTHSOUTH Corp.*<F2> 4,238,686 4,490,080
100,000 Integrated Health
Services, Inc. 3,904,810 3,931,300
------------ -----------
............... 10,526,609 10,840,130
THIS SECTOR IS 3.0% ABOVE YOUR FUND'S COST.
HOME/OFFICE & RELATED - 0.8%
35,900 Furniture Brands
International, Inc.*<F2> 901,844 1,155,549
9,000 Knoll, Inc.*<F2> 330,165 347,067
30,000 Maytag Corp. 956,844 1,434,390
40,200 Herman Miller, Inc. 853,302 1,347,946
------------ -----------
............... 3,042,155 4,284,952
THIS SECTOR IS 40.9% ABOVE YOUR FUND'S COST.
INSURANCE - 1.7%
75,000 Century Business
Services, Inc.*<F2> 1,330,095 1,326,600
150,000 Conseco, Inc. 7,807,695 8,493,750
------------ -----------
............... 9,137,790 9,820,350
THIS SECTOR IS 7.5% ABOVE YOUR FUND'S COST.
LEISURE & ENTERTAINMENT - 1.7%
43,100 Carnival Corporation 2,289,028 3,006,225
100,000 Midway Games Inc.*<F2> 2,349,570 2,293,800
59,000 Royal Caribbean
Cruises Ltd. 2,424,452 4,133,717
------------ -----------
............... 7,063,050 9,433,742
THIS SECTOR IS 33.6% ABOVE YOUR FUND'S COST.
NETWORKING - 2.8%
180,000 3Com Corp.*<F2> 6,591,531 6,468,840
256,200 Ascend Communications,
Inc.*<F2> 9,309,835 9,703,575
------------ -----------
............... 15,901,366 16,172,415
THIS SECTOR IS 1.7% ABOVE YOUR FUND'S COST.
OIL/GAS FIELD SERVICES - 1.6%
83,700 Halliburton Company 4,379,988 4,200,736
34,100 J. Ray McDermott, S.A.*<F2> 920,775 1,436,462
19,500 McDermott International,
Inc. 812,432 805,604
95,000 Noble Drilling
Corporation*<F2> 2,938,757 2,903,485
------------ -----------
............... 9,051,952 9,346,287
THIS SECTOR IS 3.3% ABOVE YOUR FUND'S COST.
SEMICONDUCTOR & RELATED - 1.8%
112,500 Altera Corporation*<F2> 4,836,444 4,246,875
170,600 Integrated Device Technology,
Inc.*<F2> 2,491,190 2,399,148
100,000 Xilinx, Inc.*<F2> 4,419,538 3,743,800
------------ -----------
............... 11,747,172 10,389,823
THIS SECTOR IS 11.6% BELOW YOUR FUND'S COST.
SOFTWARE - 4.4%
17,300 Citrix Systems, Inc.*<F2> 680,982 937,452
70,000 Cognos Inc.*<F2> 2,024,687 1,973,160
115,000 Computer Associates
International, Inc. 6,399,907 6,641,250
116,300 Electronic Arts Inc.*<F2> 2,890,218 5,458,889
59,100 Sterling Software, Inc.*<F2> 1,739,917 3,339,150
83,300 Structural Dynamics
Research Corp.*<F2> 2,003,485 2,072,088
167,600 Symantec Corp.*<F2> 2,791,582 4,514,809
------------ -----------
............... 18,530,778 24,936,798
THIS SECTOR IS 34.6% ABOVE YOUR FUND'S COST.
SPECIALTY RETAILING - 5.1%
190,000 Borders Group, Inc.*<F2> 3,414,357 6,471,970
25,000 Brylane, Inc.*<F2> 1,150,000 1,401,575
75,000 Casey's General Stores,
Inc. 1,190,625 1,200,000
100,000 Claire's Stores, Inc. 2,222,020 2,293,800
170,000 Pier 1 Imports, Inc. 3,328,634 4,611,250
101,000 Rite Aid Corp. 2,225,975 3,459,250
202,200 Safeway Inc.*<F2> 6,040,725 7,468,863
77,100 Staples, Inc.*<F2> 1,136,423 1,787,795
------------ -----------
............... 20,708,759 28,694,503
THIS SECTOR IS 38.6% ABOVE YOUR FUND'S COST.
TRANSPORTATION & RELATED - 2.9%
85,000 ASA Holdings, Inc. 3,102,502 3,129,105
100,000 Continental Airlines,
Inc. Cl B*<F2> 5,909,880 5,881,300
175,000 Kansas City Southern
Industries, Inc. 7,780,768 7,700,000
------------ -----------
............... 16,793,150 16,710,405
THIS SECTOR IS 0.5% BELOW YOUR FUND'S COST.
MISCELLANEOUS - 0.7%
79,400 The B.F. Goodrich
Company 3,285,205 4,054,402
THIS SECTOR IS 23.4% ABOVE YOUR FUND'S COST.
------------ -----------
Total common stocks 303,422,611 337,424,565
REITS - 0.3% (A)<F3>
50,000 Glenborough Realty
Trust, Inc. 1,250,000 1,456,250
THIS SECTOR IS 16.5% ABOVE YOUR FUND'S COST.
------------ -----------
Total long-term
investments .. 304,672,611 338,880,815
SHORT-TERM INVESTMENTS - 46.2% (A)<F3>
COMMERCIAL PAPER - 45.4%
$25,000,000 Baker Hughes Inc.,
discount of 6.00%;
due 04/01/98 ... 25,000,000 25,000,000
25,000,000 General Electric Co.,
discount of 6.00%;
due 04/01/98 ... 25,000,000 25,000,000
25,000,000 Merrill Lynch & Co., Inc.,
discount of 5.87%;
due 04/02/98 ... 24,995,924 24,995,924
23,000,000 Ford Motor Credit Co.,
discount of 5.57%;
due 04/03/98 ... 22,992,883 22,992,883
15,000,000 Household International,
Inc.,
discount of 5.60%;
due 04/06/98 ... 14,988,333 14,988,333
$20,000,000 Bell Atlantic Network
Funding, discount of 5.54%;
due 04/07/98 ... 19,981,533 19,981,533
25,000,000 Deere & Co.,
discount of 5.54%;
due 04/08/98 .. 24,973,069 24,973,069
25,000,000 Sears Roebuck Acceptance
Corp., discount of 5.55%;
due 04/09/98 ... 24,969,167 24,969,167
25,000,000 Chrysler Financial Corp.,
discount of 5.53%;
due 04/13/98 ... 24,953,917 24,953,917
25,000,000 American Express Credit
Corp., discount of 5.53%;
due 04/15/98 ... 24,946,236 24,946,236
25,000,000 IBM Credit Corporation,
discount of 5.52%;
due 04/17/98 ... 24,938,667 24,938,667
------------ -----------
Total commercial paper 257,739,729 257,739,729
VARIABLE RATE DEMAND NOTES - 0.8%
$ 4,623,009 General Mills, Inc. 4,623,009 4,623,009
------------ -----------
Total short-term
investments .... 262,362,738 262,362,738
------------ -----------
Total investments $567,035,349 601,243,553
------------
------------
Liabilities, less cash and
receivables (5.8%) (A)<F3> (33,083,920)
-----------
NET ASSETS .... $568,159,633
------------
------------
Net Asset Value Per Share
($0.01 par value 100,000,000
shares authorized), offering
and redemption price
($568,159,633/20,658,945
shares outstanding) $27.50
------
------
*<F2>Non-income producing security.
(a)<F3>Percentages for the various classifications relate to net assets.
STATEMENT OF OPERATIONS
For the Period Ended March 31, 1998
(Unaudited)
INCOME:
Dividends $1,055,802
Interest 6,264,296
----------
Total income 7,320,098
----------
EXPENSES:
Management fees 2,990,805
Registration fees.............................. 65,928
Administrative services........................ 51,000
Printing and postage fees...................... 42,907
Custodian fees................................. 33,759
Professional fees.............................. 19,048
Transfer agent fees............................ 9,794
Other expenses................................. 10,564
----------
Total expenses 3,223,805
----------
NET INVESTMENT INCOME 4,096,293
----------
NET REALIZED GAIN ON INVESTMENTS 35,711,195
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (95,969,198)
----------
NET LOSS ON INVESTMENTS (60,258,003)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(56,161,710)
----------
----------
The accompanying notes to financial statements are an
integral part of these statements.
BRANDYWINE BLUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended March 31, 1998 (Unaudited)
and For the Year Ended September 30, 1997
1998 1997
---- ----
OPERATIONS:
Net investment income (loss) $ 4,096,293 $ (2,154,984)
Net realized gain on investments 35,711,195 97,695,857
Net (decrease) increase in
unrealized appreciation on
investments (95,969,198) 69,826,600
----------- -----------
Net (decrease) increase in
net assets resulting from
operations (56,161,710) 165,367,473
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net
realized gains ($5.085142
per share) (88,287,212) --
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(6,047,682 and 7,155,367
shares, respectively) 169,111,436 205,952,295
Net asset value of shares issued
in distributions (3,001,160 and
0 shares, respectively) 81,361,466 --
Cost of shares redeemed
(5,643,901 and 3,815,950
shares, respectively) (155,225,999) (105,417,172)
----------- -----------
Net increase in net assets
derived from Fund share
activities 95,246,903 100,535,123
----------- -----------
TOTAL (DECREASE) INCREASE (49,202,019) 265,902,596
NET ASSETS AT THE BEGINNING OF
THE PERIOD 617,361,652 351,459,056
----------- -----------
NET ASSETS AT THE END OF THE PERIOD
(INCLUDING UNDISTRIBUTED NET
INVESTMENT INCOME OF $4,096,293
AND 0, RESPECTIVELY) $568,159,633 $617,361,652
----------- -----------
----------- -----------
<TABLE>
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
For the Period
ended March 31,
1998
(Unaudited) Years Ended September 30,
---------- 1997 1996 1995 1994 1993 1992 1991+<F4>
---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $35.78 $25.26 $24.37 $17.18 $19.11 $12.95 $13.09 $10.01
Income from investment operations:
Net investment income (loss) 0.23 (0.10)(1) (0.05)(1) 0.00 0.04 (0.06) (0.04) 0.03
<F5> <F5>
Net realized and unrealized
(loss) gains on investments (3.42) 10.62 2.05 7.30 0.36 6.22 0.52 3.05
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations (3.19) 10.52 2.00 7.30 0.40 6.16 0.48 3.08
Less distributions:
Dividend from net investment
income -- -- -- -- -- -- (0.03) --
Distributions from net
realized gains (5.09) -- (1.11) (0.11) (2.33) -- (0.59) --
------ ------ ------ ------ ------ ------ ------ ------
Total from distributions (5.09) -- (1.11) (0.11) (2.33) -- (0.62) --
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $27.50 $35.78 $25.26 $24.37 $17.18 $19.11 $12.95 $13.09
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Total Investment Return (8.7%) 41.6% 8.9% 42.8% 2.8% 47.6% 4.0% 45.1%*<F6>
Ratios/Supplemental Data:
Net assets, end of period
(in 000's $) 568,160 617,362 351,459 164,943 29,086 6,373 4,270 3,975
Ratio of expenses (after
reimbursement) to
average net assets**<F7> 1.08%*<F6> 1.08% 1.13% 1.31% 1.80% 2.00% 2.00% 1.97%*<F6>
Ratio of net investment
income (loss) to average net
assets***<F8> 1.4%*<F6> (0.5%) (0.4%) (0.4%) (0.4%) (0.6%) (0.3%) 0.6%*<F6>
Portfolio turnover rate 279.9%*<F6> 202.1% 196.9% 174.1% 220.3% 144.3% 191.9% 115.3%*<F6>
Average commission rate
paid****<F9> $0.0579 $0.0593 $0.0599
+ <F4>For the period from January 10, 1991 (commencement of operations) to September 30, 1991.
(1)<F5>Net investment loss per share is calculated using ending balances prior
to consideration of adjustments for permanent book and tax differences.
*<F6>Annualized.
**<F7>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%*<F6>
for the period ended September 30, 1991.
***<F8>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%)*<F6>, respectively.
****<F9>Disclosure required for fiscal years beginning after September 1, 1995.
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE BLUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(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
November 13, 1990. The investment objective of the Fund is to produce long-
term capital appreciation principally through investing in common stocks.
(a) Each security, excluding short-term investments, is valued at the last
sale price reported by the principal security exchange on which the issue
is traded, or if no sale is reported, the latest bid price. Securities
which are traded over-the-counter are valued at the latest bid price.
Securities for which quotations are not readily available are valued at
fair value as determined by the investment adviser under the supervision of
the Board of Directors. Short-term investments are valued at amortized cost
which approximates quoted market value. Investment transactions are
recorded no later than the first business day after the trade date.
(b) Net realized gains and losses on common stock are computed on the basis
of the cost of specific certificates.
(c) Provision has not been made for Federal income taxes since the Fund has
elected to be taxed as a "regulated investment company" and intends to
distribute substantially all net investment company taxable income and net
capital gains to its shareholders and otherwise comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies.
(d) Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis.
(e) The Fund has investments in short-term variable rate demand notes, which
are unsecured instruments. The Fund may be susceptible to credit risk with
respect to these notes to the extent the issuer defaults on its payment
obligation. The Fund's policy is to monitor the creditworthiness of the
issuer and does not anticipate nonperformance by these counterparties.
(f) Generally accepted accounting principles require that permanent financial
reporting and tax differences be reclassified to capital stock.
(g) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES
The Fund has a management agreement with Friess Associates, Inc. (the
"Adviser"), with whom certain officers and directors of the Fund are
affiliated, to serve as investment adviser and manager. Under the terms of
the agreement, the Fund will pay the Adviser a monthly management fee at the
annual rate of one percent (1%) on the daily net assets of the Fund. Also,
the Adviser is reimbursed for administrative services rendered to the Fund by
a consultant paid by the Adviser.
(3) DISTRIBUTION TO SHAREHOLDERS
Net investment income and net realized gains, if any, are distributed to
shareholders.
(4) INVESTMENT TRANSACTIONS
For the period ended March 31, 1998, purchases and proceeds of sales of
investment securities (excluding short-term investments) were $542,875,958
and $754,393,170, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of March 31, 1998, liabilities of the Fund included the following:
Payable to brokers for
investments purchased $ 32,779,104
Payable to Adviser for management
fees 494,775
Other liabilities 87,453
(6) SOURCES OF NET ASSETS
As of March 31, 1998, the sources of net assets were as follows:
Fund shares issued and outstanding $494,393,704
Net unrealized appreciation
on investments 34,208,204
Undistributed net realized gains
and losses 35,461,432
Undistributed net investment income 4,096,293
------------
$568,159,633
------------
------------
Aggregate net unrealized appreciation as of March 31, 1998 consisted of the
following:
Aggregate gross unrealized appreciation $ 38,512,859
Aggregate gross unrealized
depreciation (4,304,655)
------------
Net unrealized appreciation $ 34,208,204
------------
------------
FUND INFO . . .
If you're looking for the most current insights of your research team about
Brandywine Blue, just call (800) 656-3017, and select #4. You'll hear a
researcher offering a tidbit or two!
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; William F. D'Alonzo, Vice
President; Carl S. Gates, Vice President; Paul R. Robinson, Vice President; and
Lynda J. Campbell, Secretary
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of Brandywine Blue Fund unless accompanied or preceded by
the Fund's current prospectus. Past performance is not indicative of future
performance. Investment return and principal value of an investment may
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
Report editor: Rebecca A. Buswell Report Staff: Margaret Barton, Adam Rieger,
Paul R. Robinson, Jennifer Weldon
