UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number
811-06221
Brandywine Blue Fund, Inc.
--------------------------
(Exact name of registrant as specified in charter)
3711 Kennett Pike
Greenville, DE 19807
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(Address of principal executive offices) (Zip code)
Foster S. Friess
Friess Associates, LLC
115 East Snow King Avenue,
P. O. Box 576
Jackson, Wyoming 83001
----------------------
(Name and address of agent for service)
(302) 656-3017
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Registrant's telephone number, including area code:
Date of fiscal year end: 09/30/2003
Date of reporting period: 09/30/2003
ITEM 1. REPORTS TO STOCKHOLDERS.
- --------------------------------
BRANDYWINE ADVISORS FUND
Managed by Friess Associates, LLC Annual Report September 30, 2003
DEAR FELLOW SHAREHOLDERS:
Brandywine Advisors Fund grew 2.18 percent in the September quarter,
bringing its year-to-date gain to 16.62 percent. We're encouraged that this
solid absolute performance occurred despite an environment dominated by
excessively risky stocks and confident that our consistent focus on companies
with strong fundamentals will fuel improved relative results as the market
digests what's transpired so far this year.
Technology holdings were a notable positive force in the September quarter.
Standouts included Agilent Technologies and Scientific-Atlanta, which exceeded
June-quarter earnings estimates by 71 and 63 percent during the quarter.
Makers of durable consumer goods, including suppliers to the auto industry,
also aided results. Audio products maker Harman International and automotive
interior systems supplier Lear beat June-quarter earnings estimates with growth
of 45 and 21 percent.
While portfolio holdings that rose reported strong earnings growth, earnings
performance was not the overriding influence on stock prices during the quarter.
According to Morningstar, the type of stocks that outperformed by a wide margin
in the September quarter and in the six months through September fell into the
firm's "distressed" category.
CUMULATIVE TOTAL RETURN
---------- ------------
QUARTER 2.18
ONE YEAR 15.50
EFFECTIVE DATE -19.66*<F1>
ANNUALIZED
----------
EFFECTIVE DATE -7.23*<F1>
*<F1> 10/31/00
Past performance is no guarantee of future results. The principal value and
investment return of an investment will fluctuate so that when redeemed an
investor's shares may be worth more or less than their original cost. One-year
return is a standardized average total return.
At the same time, we can cite numerous examples of companies firing on all
cylinders whose results went largely unnoticed or actually led to declines
during this time. Aetna, a significant year-to-date performance contributor, was
a drag on September-quarter results. Shares began falling soon after Aetna
topped estimates by 25 percent with 300 percent June-quarter earnings growth and
raised guidance for future earnings growth.
Other health-care holdings generally lagged the overall market because of
investor focus on technology and other areas that top-down market strategists
deem to be more appealing in economic recoveries. As a result, health care as a
group was a performance detractor.
For more information on the specific holdings that influenced September-
quarter results the most, please see "Roses & Thorns" on page 7.
It's an odd position to be in when a double-digit gain through the first
nine months of the year begs explanation. But, like you, we're acutely aware of
relative performance. While Brandywine Advisors outpaces major indexes such as
the S&P 500 and Russell 3000 this year, we recognize that's not the case versus
some other commonly touted benchmarks. A closer look at indexes that currently
lead Brandywine Advisors in the short, year-to-date timeframe sheds some light
on relative results.
The Russell Midcap, for example, grew 6.43 percent in the September quarter
and is up 22.89 percent so far this year. A study by Prudential shows that
companies with no earnings were the largest performance contributors in both
-----------
periods! Companies in the index's top 20 percent in terms of price-to-earnings
ratios, a quintile with a median P/E of 40, represented the second greatest
positive performance influence.
The same reckless trend was evident in the Russell Midcap Growth. With a 116
percent year-to-date gain, Yahoo, a company with a 2003 P/E of 101, was the
index's top contributor. The top 15 contributors to the index this year have an
average P/E of 52.
We're growth investors that expect the stocks we identify to experience P/E-
multiple expansion as the broader investment community becomes aware of the
catalysts that drive earnings growth among the companies we hold. But we don't
throw caution to the wind.
We're also valuation-sensitive because the more a stock's price gets ahead
of underlying fundamentals the more likely it is to fall, and no one can predict
what will trigger the decline or when. Said simply, we don't bet your assets in
a game of chicken against the market's mood no matter how rosy things seem at a
given point in time.
A rally led by low-quality and overpriced stocks is unsustainable. A
stronger connection between stock prices and fundamentals will need to arise if
the market's progress is to continue, and we're already seeing evidence of such
a development as we approach earnings reporting season for the first three
months of the highly anticipated second half of the year.
Investors have pinned their hopes on a late-year economic recovery, and we
expect weak companies with results that belie this overarching thesis to be
punished while companies that provide positive confirmation on the grassroots
level invite rewards.
The average Brandywine Advisors holding sells at just 15 times 2004
estimates and is expected to grow earnings 25 percent next year. The average S&P
500 company sells at 17 times estimates with only 10 percent earnings growth
predicted. We sense investors will find the strong earnings trends and
reasonable valuations among the Fund's companies increasingly appealing in the
months ahead.
Thanks for your long-term focus and continued confidence. We're working hard
to build on the growth Brandywine Advisors achieved this year through September.
Your entire Friess team joins us in sending best wishes.
Sincerely,
/s/Bill D'Alonzo
Bill D'Alonzo
Chief Executive Officer October 17, 2003
LATE TRADING, MARKET TIMING AND THE BRANDYWINE FUNDS
By now you're probably aware of investigations involving mutual fund firms
that allegedly allowed "late trading," the placing of orders after the market's
close at a mutual fund's net asset value for that day. Late trading is illegal
under the Investment Company Act of 1940 and other federal securities laws. The
Brandywine Funds have never permitted late trading and would not even if there
was no law against it, as it is an obvious violation of the trust shareholders
place in mutual fund managers.
As distinguished from late trading, the market timing of mutual funds is an
investment strategy that certain investors pursue, and one that is not on its
face illegal. Nonetheless, to the best of our knowledge, the Brandywine Funds
are not used for market timing arbitrage activities. Additionally, we do not
have any special arrangements in place with intermediaries or other third
parties to permit or facilitate such arbitrage activities.
Like all mutual fund industry participants, at SEC Chairman William
Donaldson's request we are pro-actively examining our policies and procedures in
areas touched by the recent investigation to see whether they could be further
improved upon.
We take our obligations to you, our fellow shareholders, seriously. Thank
you for your continued confidence in the Brandywine Funds.
INVESTMENT MINIMUM LOWERED . . .
Many folks have asked that we reduce the $100,000 minimum investment for
Brandywine Advisors Fund. Well, we listened. The Brandywine Funds' board voted
to allow investments into the Brandywine Funds at $10,000, effective November 1,
2003. If you know of friends or family who passed on the Brandywine Funds
because the minimum was too high, please let them know.
FISHER SCIENTIFIC INTERNATIONAL, FSH
With hundreds of thousands of customer relationships spanning 145 countries,
Fisher Scientific long has been an avenue through which scores of suppliers sold
products. Such relationships grew so prevalent that nearly $9 of every $10 in
revenue stemmed from supplier arrangements. Fisher is now pursuing a new
strategy, deciding the best way to boost profitability is to do more of the
heavy lifting itself.
NYSE-listed Fisher Scientific International supplies the scientific research
and clinical laboratory markets with the basic tools they need to conduct their
work, encompassing more than 600,000 products from glassware and safety supplies
to chemicals and work stations. The company's customer base is so extensive that
Fisher generated nearly $3.5 billion in revenue in the 12 months through June
with an average order size of about $450.
Fisher topped June-quarter estimates with 38 percent earnings growth from a
revenue base of $865 million.
Increased in-house manufacturing has been the key to making more of the
company's revenue flow to the bottom line. For example, gross profit margins for
cell culture assays doubled when Fisher started making them itself rather than
relying on a supplier. Sales of in-house products went from 12 percent of total
revenue about five years ago to 20 percent more recently. The company since
acquired Stockholm-based Perbio Science, winning it production capacity to bring
in-house revenue to 24 percent of the total.
Your team spoke to Chief Financial Officer Kevin Clark about ways Fisher is
further structuring its revenue stream. He confirmed that the company continues
to push its product mix toward more consumable products that yield repeat
business.
Your team bought Fisher at just 17 times 2003 earnings estimates. Wall
Street expects the company to grow earnings 30 percent this year.
STAPLES, SPLS
It's not surprising that Wall Street underestimated Staples in each of the
past seven quarters considering that the company's profitability has been such a
moving target. Fortunately for Staples shareholders, that target keeps moving
higher and higher -- Staples achieved its best-ever operating profit margin in
its most recent quarter.
Nasdaq-listed Staples opened the first office-supply superstore, creating a
concept that's been repeatedly mimicked in the years since. Today Staples is the
industry leader with more than $12.4 billion in sales from about 1,500
superstores in North America and Europe, and the company is setting an example
through customer service and operating efficiency that will be tough for the
competition to emulate.
Revenues jumped more than $500 million, or 18 percent, to $2.9 billion in a
July quarter marked by strong demand here and abroad. Record operating margins
helped Staples exceed earnings estimates with 38 percent growth. Upon announcing
these results, Staples informed analysts that their expectations for the final
six months of the company's fiscal year were too low.
Your team spoke to Chief Financial Officer John Mahoney about the innovative
way that Staples is known to reach out to business customers to build broad,
lasting relationships. For example, Staples representatives work with business
customers to streamline supply purchases and offer delivery options that
eliminate the need for companies to stockpile supplies. The company also mines
its database to identify order patterns that point to sales leads, such as a
customer that buys only copier paper that might be interested to learn about
toner cartridges.
Your team bought Staples at about 18 times earnings estimates for the
company's fiscal year ending January 2004. Wall Street predicts the company will
finish the fiscal year with 22 percent earnings growth.
RANDI CENTRELLA
Friess Associates embraces a team structure for everything from
administrative duties to stock picking. We've always believed that unifying our
people under a common goal is a better way to generate results and deliver
service than a "star system" that elevates certain employees over others. A
versatile skill set and a committed attitude are needed to succeed in this
structure, and Randi Centrella thrives.
Randi supports two of our key client-service representatives, Joe Fields and
Gordon Kaiser. As the main points of contact for dozens of clients, Joe and
Gordon spend a great deal of time on the road. It's Randi's job to coordinate
everything related to their travel and to leverage their time and company
resources effectively by arranging other meetings in the area of their trips.
While Joe and Gordon are away, Randi must also ensure that clients seeking their
assistance receive the same level of attention as if they were in the office.
"A client's request can't wait simply because I happen to be traveling when
the call comes in, so it's an enormous help to know we can rely on Randi to
either handle the request herself or identify the teammate who's best suited to
get the job done right away," Gordon said. "Knowing that Randi is always there
'minding the store' enables us to more effectively serve the clients we visit by
allowing us to make them the sole focus of our attention."
In addition to being a one-person logistics center for Joe and Gordon and a
critical backup to ensure that clients receive a seamless service experience in
their absence, Randi regularly pitches in to lend a hand to teammates in other
areas. For instance, she assists the writing team with some of its day-to-day
responsibilities during especially busy times such as the end of a quarter.
Randi earned her bachelor's degree from Gettysburg College. She and her
husband John, who also works in the investment business, have been married for
three years. They share their home with two pet dachshunds, Winnie and Nestli.
Randi enjoys spending her free time outdoors and counts running and tennis among
her favorite activities.
SCOTT GATES
It's not just how much stock-picking experience but what kind of experience
that helps us determine whether someone deserves serious consideration to become
a member of your research team. A successful track record doesn't hold much sway
in our decision-making process unless it was generated using a strategy akin to
our own. Scott Gates, the most recent addition to your research team, employed
his skills prior to coming on board in a way that prepared him well to hit the
ground running.
"Scott was grilling research contacts and analyzing financial statements to
identify individual companies with rapid earnings growth potential and
reasonable price-to-earnings ratios for years before the opportunity arose for
him to join us," said Bill D'Alonzo, Chief Executive Officer. "His experience
helped make Scott's introduction to our team seamless and his potential for
contribution immediate."
Scott spent the last seven of his 14 years in the investment business
working for Gardner Lewis Asset Management, where he was a senior research
analyst. Two former Friess Associates employees, who worked for years in the
research trenches with Bill D'Alonzo and our Chairman and founder Foster Friess,
started Gardner Lewis.
Prior to becoming a researcher, Scott was a trader in the interbank currency
market. He credits his experience in the largest market in the world for
teaching him invaluable lessons about fundamental and technical analyses that
help him better understand all of the various moving parts of the companies he
follows today. Some years ago, Scott also earned firsthand management experience
as the owner and operator of a fast-food restaurant franchise.
Scott hasn't wasted any time finding names to contribute to results. He
bought Lear, a supplier of interior systems for cars, in mid-June. Before
hitting his target price, Lear posted June-quarter earnings growth of 21
percent, which was 22 percent above estimates.
Scott earned his undergraduate degree at Wake Forest University and his MBA
from Emory University. He and his wife Stephanie have two children, Laura and
Merritt.
ON THE CUTTING EDGE . . .
Samples of the innovative and interesting ideas that cross your team's radar
screen make it into this column each quarter. Opportunities to capitalize on
investment opportunities related to them may lie in the future or never surface.
NEXT BEST THING TO BEING THERE
If you can't make an on-site presentation, perhaps your digital double can man
the podium. Dallas-based Teleportec takes videoconferencing to a new level with
its "teleportation" technology that allows people in separate locations to
interact as though they occupy the same room. Digital teleportation projects a
life-size, three-dimensional image that enables real-time, face-to-face
interaction. In addition to making off-site speakers able to engage any audience
member verbally and visually, the technology is a promising distance education
tool for its ability to beam live 3-D images from a big-city operating room, for
example, to a rural hospital.
EXTREMELY REMOTE BACKUP
La Jolla, California-based TransOrbital, the first private company authorized by
the U.S. government for commercial flights to the moon, plans to pack its lunar
orbiter with servers, data, computers and digital cameras with the hope of
establishing a new frontier in the world of remote backup. The company says moon
storage promises to protect critical data from earthly disasters, though "delays
are implied" when it comes to accessing the data from earth. TransOrbital's
lunar orbiter, Trailblazer, which will also deliver business cards, cremated
remains and other items on behalf of paying customers, is scheduled for an
early-2004 launch.
NO SPECIAL GLASSES REQUIRED
Japanese electronics maker Sharp will be introducing the world's first 3-D
laptop, the Mebius PC-RD3D, this fall. It is targeted for people who design
three-dimensional software, but there will be a version for average consumers.
Sharp is looking to build on the positive momentum created by the 3-D capable
cell phones that it has been making for customers of Japanese wireless company
NTT DoCoMo since November 2002. The computer display produces 3-D images by
sending a slightly different image to the right and left eyes at once by bending
the images in different angles. The $3,000 laptop switches between its 3-D
feature and a regular display at the push of a button.
A LINK TO LOST LUGGAGE
Last one standing at an empty baggage carousel? About 250,000 passengers a month
in the U.S. alone experience the classic air traveler's nightmare. Globalbagtag
presents a cheap and simple baggage-tracking solution. Travelers buy a
Globalbagtag, which bears a unique seven-digit ID number and the words, "If
found, log on to www.globalbagtag.com." Globalbagtag stores customer information
on its database, enabling it to reunite customers and their stray belongings
after someone enters a lost bag's serial number on its web site. Finders receive
a free set of Globalbagtags for their honesty. Two tags and a two-year database
membership cost about $16.
FROM LAB TO RING FINGER...TO PC?
Engineers have produced diamond crystals for industrial purposes for decades.
Now companies with names such as Gemesis and Apollo Diamond are capitalizing on
advances in diamond-making techniques to create gem-quality stones for jewelry.
If consumers embrace them, mass-produced diamonds could introduce pricing
pressure to the $7 billion, cartel-controlled diamond industry and, perhaps,
eventually reshape the market for semiconductors. With the highest thermal
conductivity of any known substance, diamonds could allow microprocessors to run
at speeds that would produce enough heat to liquefy silicon.
BRANDYWINE ADVISORS FUND
PERCENT CHANGES IN TOP TEN HOLDINGS FROM BOOK COST AS OF SEPTEMBER 30, 2003
1. Supervalu, Inc. +4.3%
2. DST Systems, Inc. -2.0%
3. Diebold, Inc. +22.5%
4. Autozone, Inc. +0.5%
5. SunGard Data Systems Inc. +0.4%
6. State Street Corp. +4.4%
7. Williams-Sonoma, Inc. -10.1%
8. Fisher Scientific International Inc. +1.2%
9. Express Scripts, Inc. -1.4%
10. BJ Services Co. -6.1%
EARNINGS GROWTH
THE FUNDS' HOLDINGS 25%
S&P 500 INDEX 10%
FORECASTED INCREASE IN EARNINGS PER SHARE
2004 VS 2003
ALL FIGURES ARE DOLLAR WEIGHTED AND BASED ON DATA FROM BASELINE,
SEPTEMBER 30, 2003.
THE PORTFOLIO'S MARKET CAPITALIZATION
LARGE CAP
above $15 billion
2.9%
MID CAP
$1 billion to $15 billion
91.8%
SMALL CAP
below $2 billion
3.1%
CASH
2.2%
TOP TEN INDUSTRY GROUPS
Financial/Business Services (12.5%)
Software (11.2%)
Health Care Related (9.4%)
Automotive Related (7.9%)
Computer/Electronics (7.7%)
Oil/Gas Services (7.0%)
Specialty Retailing (7.0%)
Food/Restaurants (6.1%)
Media Group (5.7%)
Semiconductor Related (4.8%)
All Others (18.5%)
Cash (2.2%)
BRANDYWINE ADVISORS FUND
SEPTEMBER QUARTER "ROSES AND THORNS"
$ GAIN
BIGGEST $ WINNERS (IN THOUSANDS) % GAIN REASON FOR MOVE
----------------- ------------- ------ ---------------
Agilent Tech $1,109.0 23.8 The provider of electronic solutions for the communications, life sciences
and health-care industries beat July-quarter earnings estimates by 71
percent. Revenue in the company's largest division, test and measurement,
grew 18 percent to $618 million, while the company reduced overall costs by
$100 million. The Fund sold Agilent when it reached its target price.
Diebold, Inc. $740.0 17.1 June-quarter earnings matched consensus forecasts as the provider of ATMs
begins to benefit from an upgrade cycle caused by the Check 21 Act, which
requires that all ATM machines scan deposits so checks clear instantly.
Diebold also announced new sales contracts to provide electronic voting
machines to a number of states.
Best Buy Co. $719.3 17.9 Strong back-to-school computer sales helped the electronics retailer boost
August-quarter same-store sales 7.5 percent from year-ago levels. Earnings
jumped to $0.42 per share from $0.24 a year ago on demand for high-margin
digital products, such as televisions, phones and cameras. The Fund sold Best
Buy when it reached its target price.
Scientific-Atlanta $647.5 20.1 June-quarter earnings topped estimates by 63 percent. The supplier of digital
content distribution systems like set-top boxes for television benefits as
cable operators across the country roll out high-definition TV service and
personal video recorders. The Fund sold Scientific-Atlanta when it reached
its target price.
Lear Corp. $586.4 13.6 Lear posted June-quarter earnings growth of 21 percent, 23 percent ahead of
consensus estimates. The leading supplier of interior systems for automobiles
slashed costs and improved its profitability while building an order backlog
of roughly $4 billion. The Fund sold Lear when it reached its target price.
$ LOSS
BIGGEST $ LOSERS (IN THOUSANDS) % LOSS REASON FOR MOVE
---------------- ------------- ------ ---------------
WebMD Corp. $785.4 24.5 June-quarter earnings jumped to $0.11 per share from $0.04 a year ago,
beating estimates by 10 percent. Shares of the operator of medical-
information websites fell after the government raided company offices in New
Jersey and Florida as part of a probe of a dealer-acquisition program in its
software business.
Aetna Inc. $525.0 10.1 June-quarter earnings grew to $1.28 from $0.32 a year ago, beating estimates
by 25 percent. However, shares fell on membership and revenue declines, which
should have been expected as the health insurer aggressively cut unprofitable
members in a bid to improve its profitability. Additionally, an analyst's
report raised concerns that health insurers may not be able to increase
prices or add members if the job market doesn't turn around. The Fund sold
Aetna and locked in a substantial profit.
Williams-Sonoma, Inc. $497.7 10.1 The owner of Pottery Barn and Williams-Sonoma specialty stores grew June-
quarter earnings 25 percent. Fears that a fragile economic recovery would
falter were exacerbated by an analyst inferring that a change in the
company's hiring plans was driven by declining sales trends. Williams-Sonoma
raised its earnings guidance for the October quarter.
Teradyne, Inc. $357.6 9.9 June-quarter earnings beat estimates by 10 percent. Semiconductors as a
group traded down late in September on broad concerns, including a sharp
increase in the value of the Yen and a trade group report that industry
orders were less than expected in July. Teradyne sells semiconductor-test
equipment to large chip manufacturers and benefits as demand recovers.
Entercom
Communications $325.4 8.5 June-quarter earnings beat estimates, but shares traded lower as a rebound in
advertising spending failed to materialize as quickly as anticipated. While
it's the fourth largest radio broadcasting company in the U.S., Entercom's
portfolio of stations is highly concentrated in major markets.
All gains/losses are calculated on an average cost basis
MANAGEMENT'S DISCUSSION OF RESULTS,
BRANDYWINE ADVISORS FUND
Brandywine Advisors is a growth fund, one that values companies based on
their ability to grow earnings. Earnings did not drive stock prices for most of
the 12 months through September 2003, and companies with poor fundamentals
prospered.
Advanced Micro Devices, a company expected to lose money in 2003 and 2004,
typified this dominant market trend. Analysts now believe the company's losses
will be 91 and 200 percent worse in those years than they predicted just six
months ago. Despite the company's deteriorating outlook, Advanced Micro shares
soared 108 percent in the year ended September 30.
The trend toward low-quality stocks was especially pronounced in the
December quarter of 2002, when investors made sector bets on semiconductors and
other broad groups based on general optimism about the economy rather than the
actual earnings prospects of the specific companies in the sectors. For example,
the Philadelphia Stock Exchange Semiconductor Index grew 21 percent in the
quarter at the same time 2003 earnings estimates for the companies in the index
fell 25 percent.
Brandywine Advisors did not hold the kind of earnings-challenged technology-
related stocks that performed best in the December quarter, so it trailed most
major indexes during the period. In the March quarter of 2003, however,
Brandywine Advisors fared better than most indexes as the prelude to the Iraq
war prompted investors to rethink the highly risky bets they placed in the
months before.
Aggressive investing with little regard to individual-company fundamentals
resumed with the commencement and rapid progress of military operations in Iraq.
While the continuation of the speculative mentality of the December quarter was
the guiding trend, the elimination of pre-war uncertainty also fueled a positive
environment for companies with solid fundamentals.
Brandywine Advisors' results improved markedly in the first three quarters
of 2003, though it did trail some indexes such as the Russell Midcap as
companies we wouldn't own contributed to its rise. According to a study by
Prudential, companies with no earnings contributed most to the index's calendar
year-to-date gain. Meanwhile, the Fund kept pace with "the market" as measured
by the Russell 3000 while outperforming the S&P 500 in this nine-month stretch.
HYPOTHETICAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
BRANDYWINE ADVISORS FUND, S&P 500 INDEX(1)<F2>, NASDAQ INDUSTRIALS INDEX(2)<F3>
AND RUSSELL MIDCAP INDEX(3)<F4>
BRANDYWINE ADVISORS FUND S&P 500 NASDAQ INDUSTRIALS RUSSELL MIDCAP
------------------------ ------- ------------------ --------------
10-31-00 10000 10000 10000 10000
12-31-00 10267 9257 8035 9793
03-31-01 8864 8159 6664 8765
06-30-01 9198 8637 8215 9600
09-30-01 7958 7369 5900 7885
12-31-01 8292 8157 7526 9241
03-31-02 8254 8180 7638 9634
06-30-02 7853 7084 6485 8714
09-30-02 6956 5859 5069 7177
12-31-02 6889 6353 5579 7745
03-31-03 6842 6153 5538 7563
06-30-03 7863 7101 6785 8944
09-30-03 8034 7289 7577 9519
AVERAGE ANNUAL TOTAL RETURN
Since Effective Date
1-Year 10/31/00
------ --------------------
15.50% -7.23%
Past performance is not predictive of future performance. The graph and the
table do not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
(1)<F2> The S&P 500 Index consists of 500 stocks, mostly on the New York Stock
Exchange, selected by the Standard & Poor's Ratings Group. Each
stock's weighting is based on its relative total market value. Stocks
may be added or deleted from the Index which assumes reinvestment of
dividends.
(2)<F3> The NASDAQ Industrials Index is capitalization-weighted to measure the
performance of all NASDAQ stocks in the industrial sector and does not
include income.
(3)<F4> The Russell MidCap Index, a trademark of the Frank Russell Company,
measures the performance of the smallest 800 companies in the Russell
1000 Index and includes income.
BRANDYWINE ADVISORS FUND
STATEMENT OF NET ASSETS
September 30, 2003
SHARES OR
PRINCIPAL
AMOUNT COST VALUE
- --------- ---- -----
COMMON STOCKS - 97.8% (A)<F6>
AEROSPACE/DEFENSE - 1.4%
40,600 L-3 Communications
Holdings, Inc.*<F5> $ 1,682,028 $ 1,755,950
THIS SECTOR IS 4.4% ABOVE YOUR FUND'S COST.
APPAREL & SHOE RETAILERS - 0.8%
27,900 Talbots, Inc. 1,001,782 972,315
THIS SECTOR IS 2.9% BELOW YOUR FUND'S COST.
AUTOMOTIVE RELATED - 7.9%
57,300 Advance Auto Parts, Inc.*<F5> 3,114,962 4,062,570
54,000 AutoZone, Inc.*<F5> 4,809,360 4,834,620
12,400 Harman International
Industries, Inc. 606,575 1,219,540
------------ ------------
8,530,897 10,116,730
THIS SECTOR IS 18.6% ABOVE YOUR FUND'S COST.
BUILDING RELATED - 3.3%
30,000 Pulte Homes, Inc. 1,965,832 2,040,300
59,200 Standard Pacific Corp. 2,086,307 2,243,680
------------ ------------
4,052,139 4,283,980
THIS SECTOR IS 5.7% ABOVE YOUR FUND'S COST.
COMPUTER/ELECTRONICS - 7.7%
17,200 AVX Corp. 236,367 235,468
64,000 Computer Sciences Corp.*<F5> 2,545,896 2,404,480
136,100 Maxtor Corp.*<F5> 1,467,235 1,656,337
16,600 Tektronix, Inc. 415,969 410,850
175,000 Teradyne, Inc.*<F5> 3,612,593 3,255,000
75,000 Vishay Intertechnology, Inc.*<F5> 1,268,717 1,314,000
49,000 Western Digital Corp.*<F5> 649,291 631,610
------------ ------------
10,196,068 9,907,745
THIS SECTOR IS 2.8% BELOW YOUR FUND'S COST.
FINANCIAL/BUSINESS SERVICES - 12.5%
100,000 Diebold, Inc. 4,135,751 5,065,000
450,000 E*TRADE Group, Inc.*<F5> 3,719,081 4,167,000
32,700 Fiserv, Inc.*<F5> 1,004,369 1,186,683
18,700 Northern Trust Corp. 805,806 791,945
101,200 State Street Corp. 4,361,773 4,554,000
14,100 Total System Services, Inc. 370,639 371,535
------------ ------------
14,397,419 16,136,163
THIS SECTOR IS 12.1% ABOVE YOUR FUND'S COST.
FOOD/RESTAURANTS - 6.1%
76,100 Brinker International, Inc.*<F5> 2,249,038 2,538,696
225,000 SUPERVALU INC. 5,147,833 5,368,500
------------ ------------
7,396,871 7,907,196
THIS SECTOR IS 6.9% ABOVE YOUR FUND'S COST.
HEALTH CARE RELATED - 9.4%
70,000 Express Scripts, Inc.*<F5> 4,339,608 4,277,700
110,000 Fisher Scientific
International Inc.*<F5> 4,314,969 4,365,900
104,000 McKesson Corp. 3,495,236 3,462,160
------------ ------------
12,149,813 12,105,760
THIS SECTOR IS 0.4% BELOW YOUR FUND'S COST.
HOME/OFFICE RELATED - 2.1%
125,000 Leggett & Platt, Inc. 2,709,152 2,703,750
THIS SECTOR IS 0.2% BELOW YOUR FUND'S COST.
LEISURE & ENTERTAINMENT - 1.5%
67,800 Royal Caribbean Cruises Ltd. 1,949,278 1,905,858
THIS SECTOR IS 2.2% BELOW YOUR FUND'S COST.
MEDIA GROUP - 5.7%
78,300 Entercom Communications Corp.*<F5> 3,793,241 3,509,406
136,900 Fox Entertainment Group, Inc.*<F5> 4,088,439 3,831,831
------------ ------------
7,881,680 7,341,237
THIS SECTOR IS 6.9% BELOW YOUR FUND'S COST.
MEDICAL/DENTAL PRODUCTS & SERVICES - 3.5%
53,200 Cytyc Corp.*<F5> 683,578 798,532
19,300 Henry Schein, Inc.*<F5> 926,224 1,094,503
4,500 Omnicare, Inc. 161,943 162,270
270,000 WebMD Corp.*<F5> 3,201,925 2,416,500
------------ ------------
4,973,670 4,471,805
THIS SECTOR IS 10.1% BELOW YOUR FUND'S COST.
MEDICAL/MANAGED CARE - 2.0%
50,000 Coventry Health Care, Inc.*<F5> 2,559,107 2,637,000
THIS SECTOR IS 3.0% ABOVE YOUR FUND'S COST.
OIL/GAS EXPLORATION & PRODUCTION - 2.5%
125,000 Pioneer Natural Resources Co.*<F5> 2,970,903 3,182,500
THIS SECTOR IS 7.1% ABOVE YOUR FUND'S COST.
OIL/GAS SERVICES - 7.0%
123,900 BJ Services Co.*<F5> 4,510,144 4,233,663
70,000 Nabors Industries, Ltd.*<F5> 2,663,438 2,608,200
90,000 Rowan Companies, Inc.*<F5> 2,216,332 2,212,200
------------ ------------
9,389,914 9,054,063
THIS SECTOR IS 3.6% BELOW YOUR FUND'S COST.
PHARMACEUTICALS - 1.4%
34,200 Biovail Corp.*<F5> 1,294,884 1,270,530
7,700 Pharmaceutical Resources, Inc.*<F5> 526,478 525,294
------------ ------------
1,821,362 1,795,824
THIS SECTOR IS 1.4% BELOW YOUR FUND'S COST.
SEMICONDUCTOR RELATED - 4.8%
600,000 Agere Systems Inc.*<F5> 1,654,432 1,842,000
240,500 Flextronics International Ltd.*<F5> 3,190,957 3,419,910
72,000 Micron Technology, Inc.*<F5> 1,030,222 966,240
------------ ------------
5,875,611 6,228,150
THIS SECTOR IS 6.0% ABOVE YOUR FUND'S COST.
SOFTWARE - 11.2%
137,500 DST Systems, Inc.*<F5> 5,276,204 5,170,000
70,000 PeopleSoft, Inc.*<F5> 1,229,410 1,278,900
115,000 Reynolds & Reynolds Co. 3,051,280 3,168,250
180,000 SunGard Data Systems Inc.*<F5> 4,718,000 4,735,800
------------ ------------
14,274,894 14,352,950
THIS SECTOR IS 0.5% ABOVE YOUR FUND'S COST.
SPECIALTY RETAILING - 7.0%
23,700 Michaels Stores, Inc. 1,052,688 966,012
150,000 Staples, Inc.*<F5> 3,004,261 3,576,000
165,000 Williams-Sonoma, Inc.*<F5> 4,949,369 4,451,700
------------ ------------
9,006,318 8,993,712
THIS SECTOR IS 0.1% BELOW YOUR FUND'S COST.
------------ ------------
Total common stocks 122,818,906 125,852,688
SHORT-TERM INVESTMENTS - 3.1% (A)<F6>
COMMERCIAL PAPER - 1.7%
$2,200,000 Alcoa Inc.,
due 10/01/03, discount of 1.13% 2,200,000 2,200,000
VARIABLE RATE DEMAND NOTE - 1.4%
1,743,679 Wisconsin Corporate Central
Credit Union 1,743,679 1,743,679
------------ ------------
Total short-term investments 3,943,679 3,943,679
------------ ------------
Total investments $126,762,585 129,796,367
------------
------------
Liabilities, less cash and
receivables (0.9%) (A)<F6> (1,190,466)
------------
NET ASSETS $128,605,901
------------
------------
Net Asset Value Per Share
($0.01 par value 100,000,000
shares authorized), offering
and redemption price
($128,605,901 / 15,274,290
shares outstanding) $8.42
-----
-----
*<F5> Non-dividend paying security.
(a)<F6> Percentages for the various classifications relate to net assets.
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2003
INCOME:
Dividends $ 473,204
Interest 70,591
-----------
Total income 543,795
-----------
EXPENSES:
Management fees 1,171,968
Distribution fees 76,900
Professional fees 37,057
Custodian fees 26,069
Registration fees 24,847
Transfer agent fees 23,162
Administrative services 22,815
Printing and postage expense 20,470
Board of Directors fees 16,509
Other expenses 6,351
-----------
Net expenses 1,426,148
-----------
NET INVESTMENT LOSS (882,353)
-----------
NET REALIZED GAIN ON INVESTMENTS 12,196,149
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 5,980,227
-----------
NET GAIN ON INVESTMENTS 18,176,376
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,294,023
-----------
-----------
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE ADVISORS FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2003 and 2002
2003 2002
---- ----
OPERATIONS:
Net investment loss $ (882,353) $ (752,109)
Net realized gain (loss) on investments 12,196,149 (15,915,557)
Net increase (decrease) in unrealized appreciation on investments 5,980,227 (3,555,464)
------------ ------------
Net increase (decrease) in net assets resulting from operations 17,294,023 (20,223,130)
------------ ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (2,360,782 and 13,109,460 shares, respectively) 17,684,750 113,475,726
Cost of shares redeemed (2,005,405 and 1,389,249 shares, respectively) (15,065,169) (11,247,199)
------------ ------------
Net increase in net assets derived from Fund share activities 2,619,581 102,228,527
------------ ------------
TOTAL INCREASE 19,913,604 82,005,397
NET ASSETS AT THE BEGINNING OF THE YEAR 108,692,297 26,686,900
------------ ------------
NET ASSETS AT THE END OF THE YEAR $128,605,901 $108,692,297
------------ ------------
------------ ------------
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
FOR THE PERIOD
FOR THE PERIOD 10/01/00
FOR THE YEARS ENDED SEPTEMBER 30, 10/31/00 (COMMENCEMENT
--------------------------------- (EFFECTIVE DATE) OF OPERATIONS)
2003 2002 THROUGH 9/30/01 THROUGH 10/31/00
---- ---- ---------------- ----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $7.29 $8.34 $10.48 $10.00
Income from investment operations:
Net investment loss(1)<F7> (0.06) (0.06) (0.08) 0.00
Net realized and unrealized gains (losses)
on investments 1.19 (0.99) (2.06) 0.48
----- ----- ----- ------
Total from investment operations 1.13 (1.05) (2.14) 0.48
Less distributions:
Dividend from net investment income -- -- -- --
Distribution from net realized gains -- -- -- --
----- ----- ----- ------
Total from distributions -- -- -- --
----- ----- ----- ------
Net asset value, end of period $8.42 $7.29 $8.34 $10.48
----- ----- ----- ------
----- ----- ----- ------
TOTAL INVESTMENT RETURN 15.50% (12.59%) (20.42%)*<F8> 4.80%*<F8>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 128,606 108,692 26,687 26,456
Ratio of expenses to average net assets 1.22% 1.25% 1.68%**<F9> 1.73%**<F9>
Ratio of net investment loss
to average net assets (0.75%) (0.77%) (0.94%)**<F9> (0.58%)**<F9>
Portfolio turnover rate 269.5% 258.7% 264.5% 20.6%
(1)<F7> In 2003 and 2002, net investment loss per share was calculated using
average shares outstanding. In all other periods, net investment loss
per share was calculated using ending balances prior to consideration
of adjustments for book and tax differences.
*<F8> Not Annualized.
**<F9> Annualized.
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE ADVISORS FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies of Brandywine
Advisors Fund (the "Fund"). The Fund is registered as a diversified open-
end management company under the Investment Company Act of 1940, as
amended, and is a series of the Brandywine Blue Fund, Inc. (the "Blue
Fund"). The Blue Fund was incorporated under the laws of Maryland on
November 13, 1990. The Fund was privately offered from October 1, 2000
(commencement of operations) to October 31, 2000 (effective date), the date
shares were first offered to the public. The assets and liabilities of each
series in the Blue Fund are segregated and a shareholder's interest is
limited to the fund in which the shareholder owns shares. The investment
objective of the Fund is to produce 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 investment
securities with maturities of 60 days or less are valued at amortized
cost which approximates market value. For financial reporting
purposes, investment transactions are recorded on the trade date.
(b) Net realized gains and losses on sales of securities are computed on
the identified cost basis.
(c) Dividend income is recorded on the ex-dividend date. Interest income
is recorded on the accrual basis.
(d) 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 nonperformance by these
counterparties is not anticipated.
(e) Accounting principles generally accepted in the United States of
America ("GAAP") require that permanent differences between income for
financial reporting and tax purposes be reclassified in the capital
accounts.
(f) The preparation of financial statements in conformity with GAAP
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.
(g) No provision has 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 shareholders and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES
The Fund has a management agreement with Friess Associates, LLC (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.
The Adviser entered into a sub-advisory agreement with its affiliate,
Friess Associates of Delaware, LLC (the "Sub-Adviser"), to assist it in the
day-to-day management of the Fund. The Adviser and, if so delegated, the
Sub-Adviser supervise the investment portfolio of the Fund, directing the
purchase and sale of investment securities in the day-to-day management of
the Fund. The Adviser pays the Sub-Adviser a fee equal to 110% of the
monthly expenses the Sub-Adviser incurs in performing its services as Sub-
Adviser.
Each Director who is not affiliated with the Fund receives an annual fee
for service as a Director and is eligible to participate in a deferred
compensation plan with respect to these fees. Participants in the plan may
designate their deferred Director's fees as if invested in the Fund. The
value of each Director's deferred compensation account will increase or
decrease as if it were invested in shares of the Fund. The Fund maintains
its proportionate share of the liability for deferred fees.
The Fund has adopted a Service and Distribution Plan (the "Plan") persuant
to Rule 12b-1 under the Investment Company Act of 1940. The Plan provides
that the Fund may incur certain costs which may not exceed a maximum amount
equal to 0.25% per annum of the Fund's average net assets. Payments made
pursuant to the Plan may only be used to pay distribution expenses incurred
in the current year.
(3) DISTRIBUTION TO SHAREHOLDERS
Net investment income and net realized gains, if any, will be distributed
to shareholders at least annually.
(4) INVESTMENT TRANSACTIONS
For the year ended September 30, 2003, purchases and proceeds of sales of
investment securities (excluding short-term investments) for the Fund were
$306,029,636 and $301,135,984, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of September 30, 2003, liabilities of the Fund included the following:
Payable to brokers for investments purchased $ 1,602,960
Payable to Adviser for management fees 109,133
Deferred compensation plan for Directors 30,123
Other liabilities 37,609
(6) SOURCES OF NET ASSETS
As of September 30, 2003, the sources of net assets were as follows:
Fund shares issued and outstanding $134,417,964
Net unrealized appreciation on investments 3,033,782
Accumulated net realized losses (8,845,845)
------------
$128,605,901
------------
------------
(7) INCOME TAX INFORMATION
The following information for the Fund is presented on an income tax basis
as of September 30, 2003:
GROSS GROSS NET UNREALIZED DISTRIBUTABLE DISTRIBUTABLE
COST OF UNREALIZED UNREALIZED APPRECIATION ORDINARY LONG-TERM
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS INCOME CAPITAL GAINS
----------- ------------ ------------ -------------- ------------- -------------
$126,991,339 $6,382,018 $3,576,990 $2,805,028 $ 0 $ 0
The difference between the cost amount for financial statement and federal
income tax purposes is due primarily to timing differences in recognizing
certain gains and losses in security transactions.
The tax components of dividends paid during the years ended September 30,
2003 and 2002, capital loss carryovers (expiring in varying amounts through
2011), as of September 30, 2003, and tax basis post-October losses as of
September 30, 2003, which are not recognized for tax purposes until the
first day of the following fiscal year are:
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------------------------------------------------------ -------------------------------
ORDINARY LONG-TERM NET CAPITAL ORDINARY LONG-TERM
INCOME CAPITAL GAINS LOSS POST-OCTOBER INCOME CAPITAL GAINS
DISTRIBUTION DISTRIBUTIONS CARRYOVERS LOSSES DISTRIBUTION DISTRIBUTION
----------- ------------ ------------ -------------- ------------- -------------
$ 0 $ 0 $8,612,871 $ 0 $ 0 $ 0
The Fund has utilized $15,732,933 of its post-October losses from the prior
year to increase current year net capital losses or reduce any net capital
gains.
Since there were no ordinary distributions paid for the year ended
September 30, 2003, there were no distributions designated as qualifying
for the dividends received deduction for corporate shareholders.
(PRICEWATERHOUSECOOPERS LOGO)
100 EAST WISCONSIN AVENUE
SUITE 1500
MILWAUKEE, WI 53202
(414) 212-1600
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF BRANDYWINE ADVISORS FUND
In our opinion, the accompanying statement of net assets of Brandywine Advisors
Fund (the "Fund," one of the portfolios constituting the Brandywine Blue Fund,
Inc.) and the related statements of operations and of changes in net assets and
the financial highlights present fairly, in all material respects, the financial
position of the Fund at September 30, 2003, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/PricewaterhouseCoopers LLP
October 10, 2003
BRANDYWINE ADVISORS FUND DIRECTORS AND OFFICERS
"Disinterested Persons" of the Funds
Term of Office and Length of
Time Served and Number of
Name, Age, Address Portfolios in Fund Complex Principal Occupation Other Directorships Held
and Position Overseen by Director or Officer During Past Five Years by Director or Officer
- ------------------ ------------------------------- ---------------------- ------------------------
Robert F. Birch, 67 Indefinite Term Mr. Birch has been Chairman and Hyperion Funds
8 Knollwood Drive since October, 2001 President of the New America High (4 portfolios), New
Dover, MA 02030 3 Portfolios Income Fund since 1992, a high-yield America High Income Fund
Director bond fund traded on the New York
Stock Exchange.
C. Quentin S. Jackson, 59 Indefinite Term Mr. Jackson is President and Chief None
c/o Nuclear Electric since October, 2001 Executive Officer of Nuclear Electric
Insurance Ltd. 3 Portfolios Insurance Ltd., a multibillion-dollar
1201 Market Street company mutually owned by energy
Suite 1200 companies. He has been with Nuclear
Wilmington, DE 19801 Electric since 1980.
Director
Stuart A. McFarland, 56 Indefinite Term Mr. McFarland is a Managing Partner Basis 100 Inc., NCRIC Inc.
c/o Federal City since October, 2001 at Federal City Capital Advisors. and Newcastle Investment
Capital Advisors 3 Portfolios From 1999 until 2002, he served Corporation
3000 K Street NW, Suite 125 as President and Chief Executive
Washington, DC 20007 of Pedestal Inc. Mr. McFarland also
Director served as Chief Financial Officer
of Fannie Mae, and an officer of
G.E. Capital.
W. Richard Scarlett III, 64 Indefinite Term Mr. Scarlett is Chairman, President United Bancorporation
c/o United Bancorporation since October, 2001 and Chief Executive Officer of of Wyoming, Inc.
of Wyoming, Inc. 3 Portfolios United Bancorporation of Wyoming,
112 Center Street Inc., having been with the Bank
Jackson, WY 83001 since 1981.
Director
Marvin N. Schoenhals, 56 Indefinite Term Mr. Schoenhals is Chairman and WSFS Financial Corp.
c/o WSFS Corporation since October, 1998 President of WSFS Financial
838 Market Street 3 Portfolios Corporation, a bank holding company.
Wilmington, DE 19801 Mr. Schoenhals first began serving
Director as a Brandywine Funds director in 1998.
James W. Zug, 63 Indefinite Term Mr. Zug is a retired Partner of Episcopal Academy, Kimmel
5 Radnor Corporate Center, since October, 2001 PricewaterhouseCoopers LLP. He was Center for the Performing
Suite 520 3 Portfolios employed with PricewaterhouseCoopers Arts, Philadelphia
100 Matsonford Road and its predecessors from 1964 Orchestra, Merion Golf
Radnor, PA 19087 until 2000. Club, SPS Technologies,
Director Stackpole, Ltd., and Amkor
Technologies.
"Interested Persons" of the Funds*<F10>
William F. D'Alonzo, 48 Indefinite Term since Mr. D'Alonzo joined Friess Delaware Community
c/o Friess Associates October, 2001 Associates in 1981 as part of Foundation and Delaware
3711 Kennett Pike Vice President since the research team, became Chief Wild Lands.
Greenville, DE 19807 1990 Investment Officer in 1997 and
Director and Vice President 3 Portfolios Chief Executive Officer in 2002.
Foster S. Friess, 63 Indefinite Term since Mr. Friess founded Friess The Advisory Council of the
c/o Friess Associates October, 1990 Associates in 1974 with his wife, Royal Swedish Academy of
115 East Snow King Avenue President and Lynnette E. Friess. Serving as Science of Stockholm, The
Jackson, WY 83001 Treasurer since 1990 Chairman of the Board since Council for National
Director, President and 3 Portfolios Brandywine Blue's inception in Policy, and the John M.
Treasurer 1990, he also serves as Chairman Templeton Foundation.
of Friess Associates, LLC, the
Funds' advisor.
Lynda J. Campbell, 57 Vice President Ms. Campbell joined Friess Associates Mom's House of
c/o Friess Associates since 1998 in 1985. Ms. Campbell is currently Wilmington Inc.
3711 Kennett Pike Secretary since 1990 Chief Administrative Officer of
Greenville, DE 19807 3 Portfolios Friess Associates of Delaware, LLC.
Vice President and
Secretary
Carl S. Gates, 71 Vice President Mr. Gates joined Friess Associates None
c/o Friess Associates since 1994 in 1988, following 34 years at the
3711 Kennett Pike 3 Portfolios DuPont Co., where he ran the half-
Greenville, DE 19807 a-billion-dollar-a-year Riston
Vice President Division.
Christopher G. Long, 37 Vice President Mr. Long joined Friess Associates in Marion T. Academy, Young de
c/o Friess Associates since 2002 1996, and became Chief Operating Tocqueville Society of the
3711 Kennett Pike 3 Portfolios Officer of Friess Associates of United Way of Delaware,
Greenville, DE 19807 Delaware, LLC in 2001. member of The Council for
Vice President National Policy.
David D. Marky, 38 Vice President Mr. Marky joined Friess Associates None
c/o Friess Associates since 2002 in 2000, following 13 years with
3711 Kennett Pike 3 Portfolios PFPC, Inc., where he served as a
Greenville, DE 19807 Director of Fund Accounting and
Vice President Administration. He currently serves
as Compliance Officer for Friess
Associates.
Paul R. Robinson, 80 Vice President Mr. Robinson has been a consultant None
c/o Friess Associates since 1990 to Friess Associates since June
3711 Kennett Pike 3 Portfolios 1985. Prior to Friess Associates,
Greenville, DE 19807 Mr. Robinson spent 40 years at
Vice President the DuPont Co.
For additional information about the Directors and Officers, please call (800)
656-3017 and request a Statement of Additional Information. One will be mailed
to you free of charge.
*<F10> Messrs. D'Alonzo, Friess, Gates, Long, Marky and Robinson and Ms.
Campbell are "interested persons" of the Funds as that term is defined
in the Investment Company Act of 1940 by reason of their being officers
of the Funds and employees of Friess Associates, LLC.
CAPITAL GAINS UPDATE . . .
Brandywine Advisors Fund realized net capital gains during the fiscal year
ended September 2003, but those gains were less than the capital loss carry-
forward from prior years. As a result, there will be no October capital gains
distribution, and it is unlikely there will be a year-end distribution.
Brandywine Advisors finished September with a net realized loss position of
approximately $0.58 per share, meaning the Fund can realize gains equal to this
amount before triggering a taxable capital gains distribution. These numbers
will change, so please look to future quarterly reports for updated estimates.
THE BRANDYWINE FUNDS HIGHLIGHTED IN THE LIST OF "Who Runs the Best Funds
- 10 Families That Still Do It Right."
Kiplinger's, August 2003
P.O. Box 4166, Greenville, DE 19807
(877) 636-6460 www.brandywinefunds.com bfunds@friess.com
Investment Adviser: FRIESS ASSOCIATES, LLC
Investment Sub-Adviser: FRIESS ASSOCIATES OF DELAWARE, LLC
Custodian: U.S. BANK, N.A.
Transfer Agent: U.S. BANCORP FUND SERVICES, LLC
Independent Auditors: PRICEWATERHOUSECOOPERS LLP
Legal Counsel: FOLEY & LARDNER
Distributor: QUASAR DISTRIBUTORS, LLC
OFFICERS: Foster S. Friess, President and Treasurer; Lynda Campbell, Vice
President and Secretary; William D'Alonzo, Vice President; Carl Gates, Vice
President; Christopher Long, Vice President; David Marky, Vice Preisdent; and
Paul Robinson, Vice President
Report Staff: Chris Aregood, Dave Marky, Adam Rieger, Rebecca Schuster
Past performance does not guarantee future results. This material is appropriate
- ---------------------------------------------------
for use by prospective investors only when preceded or accompanied by a current
Brandywine Advisors Fund prospectus, which contains more complete information,
including risks, fees and expenses. Please read it carefully before investing.
The principal value and investment return of an investment will fluctuate so
that when redeemed, an investor's shares may be worth more or less than their
original cost.
Fund holdings and sector weightings are subject to change at any time and are
not recommendations to buy or sell any securities. Securities discussed were not
held by the Fund as of 9/30/03, unless listed in the accompanying financial
statements.
The Russell Midcap Growth Index measures the performance of those Russell Midcap
companies with higher price-to-book ratios and higher forecasted growth values.
The stocks are also members of the Russell 1000 Growth Index. The Russell 3000
Index measures the performance of the 3,000 largest U.S. companies based on
total market capitalization, which represents approximately 98% of the
investable U.S. equity market. The Philadelphia Stock Exchange Semiconductor
Index is a price-weighted index composed of 18 companies primarily involved in
the design, distribution, manufacture, and sale of semiconductors. You cannot
invest directly in an index.
As of September 30, 2003, the Russell Midcap Index's average annual total
returns for one year and since Brandywine Advisors Fund's October 31, 2000
inception were 32.63 and -1.68 percent; the Russell 3000 Index's were 25.92 and
- -9.50 percent; the Russell Midcap Growth Index's were 38.89 and -15.70 percent;
and the S&P 500 Index's were 24.40 and -10.28 percent. For the nine months ended
September 30, 2003, the total returns for the S&P 500 and Russell 3000 Indexes
were 14.72 and 16.57 percent. Baseline Financial Services, Inc. (Baseline)
provides analytical information and services to the investment community.
10/03
THE BRANDYWINE FUNDS
Managed by Friess Associates, LLC Annual Report September 30, 2003
DEAR FELLOW SHAREHOLDERS:
Brandywine and Brandywine Blue grew 2.1 and 1.9 percent in the September-
quarter, bringing their year-to-date gains to 16.5 and 16.2 percent. We're
encouraged that this solid performance occurred despite an environment dominated
by excessively risky stocks and confident that our focus on companies with
strong fundamentals will increasingly benefit the Brandywine Funds as the market
digests what's transpired so far this year.
Makers of durable consumer goods were a notable positive force in the
September quarter. Portfolio holdings handily outperformed the sector as a whole
thanks to company-specific factors that drew attention to Nissan Motors (in both
funds) and audio-equipment maker Harman International (Brandywine). Harman, for
example, built on its lengthy string of positive earnings surprises with 45
percent June-quarter earnings growth.
Retail and technology holdings helped Brandywine Blue maintain its year-to-
date lead on large-cap indexes such as the S&P 500 and Russell 1000, which are
up 14.7 and 15.7 percent so far this year. While holdings from those sectors
also contributed to Brandywine's performance, they didn't bolster relative
performance versus mid-cap indexes by quite as much.
For more information on the specific holdings that influenced September-
quarter results the most, please see "Roses & Thorns" on pages 4 and 6.
BRANDYWINE BRANDYWINE BLUE
CUMULATIVE % CHANGE % CHANGE
---------- ---------- ---------------
QUARTER 2.11 1.90
ONE YEAR 11.64 16.94
FIVE YEARS 40.69 47.27
TEN YEARS 123.57 144.87
INCEPTION 794.10*<F1> 391.50**<F2>
ANNUALIZED
----------
FIVE YEARS 7.07 8.05
TEN YEARS 8.38 9.37
INCEPTION 13.14*<F1> 13.33**<F2>
*<F1> 12/30/85 **<F2> 1/10/91
Past performance is no guarantee of future results. The principal value and
investment return of an investment will fluctuate so that when redeemed an
investor's shares may be worth more or less than their original cost.
One of Wall Street's better-known axioms is that smaller companies lead the
market in the early stage of an economic recovery, and investors have used this
to justify speculative bets on small and midsize companies with lackluster
fundamentals, high valuations or both.
For example, a key reason Brandywine didn't capture the full rise in tech
stocks in the quarter was that we harvested gains in many tech stocks when their
price-to-earnings ratios hit 25 or 30, only to watch them run up to frothy
levels of 40, 50 or higher. Another reason was that weak stocks fueled much of
tech's rise.
According to Morningstar, the type of stocks that outperformed by a wide
margin in the September quarter and in the six months through September fell
into the firm's "distressed" category. Meanwhile, we can cite numerous examples
of companies firing on all cylinders whose results went unnoticed or actually
led to declines during this time. Aetna, a big year-to-date contributor, was a
drag on September-quarter results. Shares began falling soon after Aetna topped
estimates by 25 percent with 300 percent June-quarter earnings growth and raised
guidance for future earnings growth.
Aetna's decline offset a sizable rise in Brandywine holding Pharmaceutical
Resources. Other health-care holdings generally lagged the overall market
because of the focus on tech and other areas that top-down market strategists
deem more appealing in economic recoveries. As a result, health care as a group
was a performance detractor.
It's an odd position to be in when a double-digit gain through the first
nine months of the year begs explanation. But, like you, we're acutely aware of
relative performance. While Brandywine outpaces major indexes such as the S&P
500 this year, we recognize that's not the case versus some other commonly
touted benchmarks. A closer look at indexes that currently lead Brandywine
portfolio in the short, year-to-date timeframe sheds some light on relative
results.
The Russell Midcap, for example, grew 6.4 percent in the September quarter
and is up 22.9 percent so far this year. A study by Prudential shows that
companies with no earnings were the largest performance contributors in both
-----------
periods! Companies in the index's top 20 percent in terms of price-to-earnings
ratios, a quintile with a median P/E of 40, represented the second greatest
positive performance influence.
The same reckless trend was evident in the Russell Midcap Growth. With a 116
percent year-to-date gain, Yahoo, a company with a 2003 P/E of 101, was the
index's top contributor. The top 15 contributors to the index this year have an
average P/E of 52.
We're growth investors that expect the stocks we identify to experience P/E-
multiple expansion as the broader investment community becomes aware of the
catalysts that drive earnings growth among the companies we hold. But we don't
throw caution to the wind.
We're also valuation-sensitive because the more a stock's price gets ahead
of underlying fundamentals the more likely it is to fall, and no one can predict
what will trigger the decline or when. Said simply, we don't bet your assets in
a game of chicken against the market's mood no matter how rosy things seem at a
given point in time.
A rally led by low-quality and overpriced stocks is unsustainable. A
stronger connection between stock prices and fundamentals will need to arise if
the market's progress is to continue, and we're already seeing evidence of such
a development as we approach earnings reporting season for the first three
months of the highly anticipated second half of the year.
Investors have pinned their hopes on a late-year economic recovery, and we
expect weak companies with results that belie this overarching thesis to be
punished while companies that provide positive confirmation on the grassroots
level invite rewards.
The average Brandywine Funds holding sells at just 16 times 2004 estimates
and is expected to grow earnings 29 percent next year, versus a P/E of over 17
and an earnings growth rate of only 10 percent for the average S&P 500 company.
We sense investors will find the strong earnings trends and reasonable
valuations among your companies increasingly appealing in the months ahead.
Thanks for your long-term focus and continued confidence. We're working hard
to build on the growth your portfolio achieved this year through September. Your
entire Friess team joins me in sending best wishes.
Sincerely,
/s/ Bill D'Alonzo
Bill D'Alonzo
Chief Executive Officer October 10, 2003
LATE TRADING, MARKET TIMING AND THE BRANDYWINE FUNDS
By now you're probably aware of investigations involving mutual fund firms
that allegedly allowed "late trading," the placing of orders after the market's
close at a mutual fund's net asset value for that day. Late trading is illegal
under the Investment Company Act of 1940 and other federal securities laws. The
Brandywine Funds have never permitted late trading and would not even if there
was no law against it, as it is an obvious violation of the trust shareholders
place in mutual fund managers.
As distinguished from late trading, the market timing of mutual funds is an
investment strategy that certain investors pursue, and one that is not on its
face illegal. Nonetheless, to the best of our knowledge, the Brandywine Funds
are not used for market timing arbitrage activities. Additionally, we do not
have any special arrangements in place with intermediaries or other third
parties to permit or facilitate such arbitrage activities.
Like all mutual fund industry participants, at SEC Chairman William
Donaldson's request we are pro-actively examining our policies and procedures in
areas touched by the recent investigation to see whether they could be further
improved upon.
We take our obligations to you, our fellow shareholders, seriously. Thank
you for your continued confidence in the Brandywine Funds.
INVESTMENT MINIMUM LOWERED . . .
Over the years, many folks asked that we reduce the $25,000 minimum
investment for Brandywine and Brandywine Blue. Well, we listened. The Funds'
board voted to allow investments into the Brandywine Funds at $10,000, effective
November 1, 2003. If you know of friends or family who passed on the Brandywine
Funds because the $25,000 minimum was too high, please let them know.
BRANDYWINE FUND
PERCENT CHANGE IN TOP TEN HOLDINGS FROM BOOK COST
1. UnitedHealth Group, Inc. -6.7%
2. State Street Corp. +3.7%
3. Autozone, Inc. +0.7%
4. Nextel Communications, Inc. +32.4%
5. Williams-Sonoma, Inc. -10.3%
6. Oracle Corp. -11.7%
7. Fox Entertainment Group, Inc. -6.8%
8. Boston Scientific Corp. -4.1%
9. Express Scripts, Inc. -0.9%
10. BJ Services Co. -6.1%
EARNINGS GROWTH
YOUR COMPANIES 27%
S&P 500 10%
FORECASTED INCREASE IN EARNINGS PER SHARE
2004 VS 2003
ALL FIGURES ARE DOLLAR WEIGHTED AND BASED ON DATA FROM BASELINE.
SEPTEMBER 30, 2003.
YOUR COMPANIES' MARKET CAPITALIZATION
LARGE CAP
$9 billion and over
28.8%
MID CAP
$2 billion to $9 billion
52.4%
SMALL CAP
below $2 billion
16.4%
CASH
2.4%
TOP TEN INDUSTRY GROUPS
Financial/Business Services (10.4%)
Specialty Retailing (8.2%)
Computer/Electronics (7.8%)
Medical/Dental Products & Services (7.6%)
Automotive Related (7.4%)
Software (7.1%)
Semiconductor Related (6.0%)
Medical/Managed Care (5.8%)
Communications Equipment/Services (5.5%)
Health Care Related (5.3%)
All Others (26.5%)
Cash (2.4%)
BRANDYWINE FUND
SEPTEMBER QUARTER "ROSES AND THORNS"
$ GAIN
BIGGEST $ WINNERS (IN MILLIONS) % GAIN REASON FOR MOVE
----------------- ------------- ------ ---------------
Nissan Motor Co. $19.7 17.6 Nissan continued to gain U.S. market share through sales of new models such as its
Quest minivan. The popularity of its new line of offerings allowed Japan's third-
largest automaker to sell 700,215 vehicles representing $13.7 billion in revenue
in the three months through June without the costly incentives that are common
among its competitors.
Best Buy Co. $18.4 18.1 Strong back-to-school computer sales helped the electronics retailer boost August-
quarter same-store sales 7.5 percent from year-ago levels. Earnings jumped to
$0.42 per share from $0.24 a year ago on demand for high-margin digital products,
such as televisions, phones and cameras. Your team sold Best Buy when it reached
its target price.
Pharmaceutical
Resources $15.7 40.2 The manufacturer and distributor of generic drugs grew June-quarter earnings 19
percent, beating Wall Street expectations. The company announced it will sell a
generic version of GlaxoSmithKline's antidepressant drug Paxil, which had 2002
sales of $2 billion. Pharmaceutical Resources raised revenue guidance for
calendar-year 2003 on September 30.
Cytyc Corp. $9.8 43.0 The developer of diagnostic tests for women turned in record June-quarter results,
driven by 10 percent quarterly sequential volume growth of its ThinPrep Pap Test
for cervical cancer. The company also received FDA approval for an imaging system
that reads ThinPrep slides.
Nextel
Communications $9.0 9.1 June-quarter earnings per share quadrupled to $0.28, beating estimates by 13
percent. The wireless carrier's nationwide rollout of "direct connect" continues
to drive subscriber growth and increase revenue generated per user. The company
lowered its interest expense during the quarter by refinancing debt and improved
its debt-to-capital ratio.
$ LOSS
BIGGEST $ LOSERS (IN MILLIONS) % LOSS REASON FOR MOVE
---------------- ------------- ------ ---------------
Oracle Corp. $12.1 11.7 The enterprise software developer matched August-quarter earnings growth forecasts
of 14 percent, but lost ground because of weaker-than-expected license revenues.
August is typically a weak quarter for the company and overall improving trends in
technology spending coincide with the start of an upgrade cycle in database
products, which account for 80 percent of Oracle's license revenues.
Aetna Inc. $10.9 9.8 June-quarter earnings grew to $1.28 per share from $0.32 a year ago, beating
estimates by 25 percent. However, shares fell on membership and revenue declines,
which should have been expected as the health insurer aggressively cut
unprofitable members in a bid to improve its profitability earlier this year.
Additionally, an analyst's report raised concerns that health insurers may not be
able to increase prices or add members if the job market doesn't turn around. Your
team sold Aetna and locked in a substantial profit.
Williams-Sonoma, Inc. $10.6 10.3 The owner of Pottery Barn and Williams-Sonoma specialty stores grew June-quarter
earnings 25 percent. Fears that a fragile economic recovery would falter were
exacerbated by an analyst inferring that a change in the company's hiring plans
was driven by declining sales trends. Williams-Sonoma raised its earnings guidance
for the October quarter.
Cardinal Health $9.4 10.0 June-quarter earnings grew 20 percent, but the pharmaceutical wholesaler lowered
its long-term growth expectations. A lack of new drugs hitting the market and
longer regulatory reviews for those in the pipeline has tightened the inventory
channel and made products less profitable. Your team sold Cardinal Health to fund
an idea with better near-term prospects.
UnitedHealth Group $9.2 6.7 Despite 41 percent June-quarter earnings growth that exceeded estimates, shares
declined as investors migrated into speculative names and away from solid,
predictable growth companies in the "conservative" health-care sector. The
provider of health-care coverage has a long history of surpassing Wall Street's
earnings expectations, which currently predict calendar-year 2003 earnings growth
of 35 percent.
All gains/losses are calculated on an average cost basis
BRANDYWINE BLUE FUND
PERCENT CHANGE IN TOP TEN HOLDINGS FROM BOOK COST
1. Nextel Communications, Inc. +34.5%
2. UnitedHealth Group Inc. -5.7%
3. Autozone, Inc. +0.0%
4. State Street Corp. +4.3%
5. Texas Instruments Inc. -1.3%
6. Fox Entertainment Group, Inc. -7.2%
7. America Movil +10.9%
8. Hewlett-Packard Co. -4.9%
9. Oracle Corp. -11.4%
10. Baxter International Inc. -3.2%
EARNINGS GROWTH
YOUR COMPANIES 32%
S&P 500 10%
FORECASTED INCREASE IN EARNINGS PER SHARE
2004 VS 2003
ALL FIGURES ARE DOLLAR WEIGHTED AND BASED ON DATA FROM BASELINE.
SEPTEMBER 30, 2003.
YOUR COMPANIES' MARKET CAPITALIZATION
LARGE CAP
$9 billion and over
57.2%
MID CAP
$2 billion to $9 billion
34.7%
CASH
8.1%
TOP TEN INDUSTRY GROUPS
Financial/Business Services (10.2%)
Specialty Retailing (9.9%)
Semiconductor Related (9.5%)
Communications Equipment/Services (8.9%)
Medical/Dental Products & Services (7.4%)
Software (7.0%)
Automotive Related (6.9%)
Computer/Electronics (6.3%)
Oil/Gas Services (5.4%)
Medical/Managed Care (4.8%)
All Others (15.6%)
Cash (8.1%)
BRANDYWINE BLUE FUND
SEPTEMBER QUARTER "ROSES AND THORNS"
$ GAIN
BIGGEST $ WINNERS (IN MILLIONS) % GAIN REASON FOR MOVE
----------------- ------------- ------ ---------------
Best Buy Co. $2.5 17.5 Strong back-to-school computer sales helped the electronics retailer boost August-
quarter same-store sales 7.5 percent from year-ago levels. Earnings jumped to
$0.42 per share from $0.24 a year ago on demand for high-margin digital products,
such as televisions, phones and cameras. Your team sold Best Buy when it reached
its target price.
Nissan Motor Co. $2.3 17.6 Nissan continued to gain U.S. market share through sales of new models such as its
Quest minivan. The popularity of its new line of offerings allowed Japan's third-
largest automaker to sell 700,215 vehicles representing $13.7 billion in revenue
in the three months through June without the costly incentives that are common
among its competitors.
Staples, Inc. $1.5 17.0 July-quarter earnings jumped 38 percent, beating estimates by 13 percent, as the
operator of office-supply superstores attracted more business customers and
enjoyed record operating profit margins. Sales in the three months ended August
surged 18 percent to nearly $2.9 billion.
Intel Corp. $1.4 18.1 June-quarter earnings grew 56 percent, topping consensus estimates. The
manufacturer of microprocessors for computers raised guidance by 21 percent in
September. Personal computer sales rose and the mix shifted to higher-margin
notebook computers utilizing Intel's recently introduced Centrino chip, which
enables wireless Internet access. Your team sold Intel when it reached its target
price.
Nextel
Communications $1.3 9.1 June-quarter earnings per share quadrupled to $0.28, beating estimates by 13
percent. The wireless carrier's nationwide rollout of "direct connect" continues
to drive subscriber growth and increase revenue generated per user. The company
lowered its interest expense during the quarter by refinancing debt and improved
its debt-to-capital ratio.
$ LOSS
BIGGEST $ LOSERS (IN MILLIONS) % LOSS REASON FOR MOVE
---------------- ------------- ------ ---------------
Oracle Corp. $1.5 11.4 The enterprise software developer matched August-quarter earnings growth forecasts
of 14 percent, but lost ground because of weaker-than-expected license revenues.
August is typically a weak quarter for the company and overall improving trends in
technology spending coincide with the start of an upgrade cycle in database
products, which account for 80 percent of Oracle's license revenues.
Aetna Inc. $1.1 9.9 June-quarter earnings grew to $1.28 from $0.32 a year ago, beating estimates by 25
percent. However, shares fell on membership and revenue declines, which should
have been expected as the health insurer aggressively cut unprofitable members in
a bid to improve its profitability. Additionally, an analyst's report raised
concerns that health insurers may not be able to increase prices or add members if
the job market doesn't turn around. Your team sold Aetna and locked in a
substantial profit.
XL Capital CL A $1.1 7.0 June-quarter earnings per share grew to $1.94 from $0.18 a year ago. The provider
of insurance and reinsurance coverage sold off as hurricane Isabel moved toward
the East Coast. Your team sold XL Capital to fund an idea with greater near-term
earnings visibility.
Cardinal Health $0.9 9.7 June-quarter earnings grew 20 percent, but the pharmaceutical wholesaler lowered
its long-term growth expectations. A lack of new drugs hitting the market and
longer regulatory reviews for those in the pipeline has tightened the inventory
channel and made products less profitable. Your team sold Cardinal Health to fund
an idea with better near-term prospects.
Fox Entertainment
Group $0.9 7.3 Shares fell when a competitor reduced its full-year revenue forecast, saying that
advertising sales in local markets were falling short of expectations. June-
quarter earnings per share grew to $0.29 from $0.08 a year ago, topping estimates
by 21 percent. Fox has experienced an increase in upfront advertising spending due
to hit shows like "American Idol."
All gains/losses are calculated on an average cost basis
MANAGEMENT'S DISCUSSION OF RESULTS, BRANDYWINE FUND
Brandywine is a growth fund, one that values companies based on their
ability to grow earnings. Earnings did not drive stock prices for most of the 12
months through September, and companies with poor fundamentals prospered.
Advanced Micro Devices, a company expected to lose money in 2003 and 2004,
typified this dominant market trend. Analysts now believe the company's losses
will be 91 and 200 percent worse in those years than they predicted just six
months ago. Despite the company's deteriorating outlook, Advanced Micro soared
108 percent in the year ended September 30.
The trend toward low-quality stocks was especially pronounced in the
December quarter of 2002, when investors made sector bets on semiconductors and
other broad groups based on general optimism about the economy rather than the
actual earnings prospects of the specific companies in the sectors. For example,
the Philadelphia Stock Exchange Semiconductor Index grew 21 percent in the
quarter at the same time 2003 earnings estimates for the companies in the index
fell 25 percent.
Brandywine did not hold the kind of earnings-challenged technology-related
stocks that performed best in the December quarter, so it trailed most major
indexes during the period. In the March quarter of 2003, however, Brandywine
fared better than most indexes as the prelude to the Iraq war prompted investors
to rethink the highly risky bets they placed in the months before.
Aggressive investing with little regard to individual-company fundamentals
resumed with the commencement and rapid progress of military operations in Iraq.
While the continuation of the speculative mentality of the December quarter was
the guiding trend, the elimination of pre-war uncertainty also fueled a positive
environment for companies with solid fundamentals.
Brandywine's results improved markedly in the first three quarters of 2003,
though it did trail some indexes such as the Russell Midcap Growth as companies
we wouldn't own contributed to its rise. For instance, Yahoo, which sports a
2003 price-to-earnings ratio of 101, contributed most to the index's year-to-
date performance through September with its 116 percent gain. Meanwhile,
Brandywine kept pace with "the market" as measured by the Russell 3000 while
outperforming the S&P 500 in this nine-month stretch.
Comparison of Change in Value of $10,000 Investment in Brandywine Fund,
S&P 500 INDEX(1)<F3>, NASDAQ Industrials Index(2)<F4> and Russell 3000
Index(3)<F5>
BRANDYWINE FUND S&P 500 NASDAQ INDUSTRIALS RUSSELL 3000
--------------- ------- ------------------ ------------
1993 10000 10000 10000 10000
1994 9860 10360 9970 9997
1995 14346 13447 12592 12599
1996 15781 16191 14204 14968
1997 21983 22780 17641 20720
1998 15894 24853 13231 21634
1999 21742 31762 20640 27328
2000 31050 35980 27652 32299
2001 24076 26397 14733 23284
2002 20033 20991 12640 18902
2003 22364 26111 18930 23801
AVERAGE ANNUAL TOTAL RETURN
Since Inception
1-Year 5-Year 10-Year 12/30/85
------ ------ ------- ---------------
11.64% 7.07% 8.38% 13.14%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE GRAPH AND THE
TABLE DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
(1)<F3> The S&P 500 Index consists of 500 stocks, mostly on the New York Stock
Exchange, selected by the Standard & Poor's Ratings Group. Each
stock's weighting is based on its relative total market value. Stocks
may be added or deleted from the Index which assumes reinvestment of
dividends.
(2)<F4> The NASDAQ Industrials is capitalization-weighted to measure the
performance of all NASDAQ stocks in the industrial sector and does not
include income.
(3)<F5> The Russell 3000, a trademark of the Frank Russell Company, is 3,000
of the largest publicly traded companies in the United States equity
market and includes income.
BRANDYWINE FUND, INC.
STATEMENT OF NET ASSETS
September 30, 2003
SHARES OR
PRINCIPAL
AMOUNT COST VALUE
- --------- ---- -----
COMMON STOCKS - 97.6% (A)<F7>
AEROSPACE/DEFENSE - 1.6%
100,000 DRS Technologies, Inc.*<F6> $ 2,492,062 $ 2,413,000
1,200,000 L-3 Communications
Holdings, Inc.*<F6> 49,069,369 51,900,000
-------------- --------------
51,561,431 54,313,000
THIS SECTOR IS 5.3% ABOVE YOUR FUND'S COST.
APPAREL & SHOE RETAILERS - 1.7%
850,000 Aeropostale, Inc.*<F6> 23,037,061 22,992,500
83,000 Kellwood Co. 2,774,714 2,776,350
380,000 The Men's Wearhouse, Inc.*<F6> 10,244,402 9,747,000
600,000 Talbots, Inc. 21,528,140 20,910,000
-------------- --------------
57,584,317 56,425,850
THIS SECTOR IS 2.0% BELOW YOUR FUND'S COST.
AUTOMOTIVE RELATED - 7.4%
750,000 Advance Auto Parts, Inc.*<F6> 37,581,903 53,175,000
1,310,200 AutoZone, Inc.*<F6> 116,480,166 117,302,206
644,700 Cooper Tire & Rubber Co. 11,228,624 10,231,389
650,800 Goodyear Tire & Rubber Co. 5,042,661 4,275,756
300,000 Harman International
Industries, Inc. 14,713,877 29,505,000
1,700,000 Nissan Motor Co., Ltd. SP-ADR 24,550,184 36,941,000
-------------- --------------
209,597,415 251,430,351
THIS SECTOR IS 20.0% ABOVE YOUR FUND'S COST.
BUILDING RELATED - 3.3%
56,000 Chicago Bridge & Iron Co.
N.V. - NYS 1,218,000 1,520,960
500,000 Pulte Homes, Inc. 32,910,789 34,005,000
686,800 Ryland Group, Inc. 46,941,274 50,211,948
660,000 Standard Pacific Corp. 22,538,703 25,014,000
-------------- --------------
103,608,766 110,751,908
THIS SECTOR IS 6.9% ABOVE YOUR FUND'S COST.
COMMUNICATIONS EQUIPMENT/SERVICES - 5.5%
2,550,000 America Movil S.A. de C.V.
ADR Series L 53,413,202 58,930,500
800,000 Andrew Corp.*<F6> 10,742,708 9,664,000
5,511,900 Nextel Communications, Inc.*<F6> 82,055,530 108,639,549
150,000 NII Holdings Inc. Cl B*<F6> 8,955,045 8,902,500
250,000 Westell Technologies, Inc.*<F6> 2,591,700 1,872,500
-------------- --------------
157,758,185 188,009,049
THIS SECTOR IS 19.2% ABOVE YOUR FUND'S COST.
COMPUTER/ELECTRONICS - 7.8%
500,000 Arrow Electronics, Inc.*<F6> 9,464,270 9,195,000
125,000 AVX Corp. 1,729,388 1,711,250
800,000 Computer Sciences Corp.*<F6> 31,998,278 30,056,000
450,000 Cray, Inc.*<F6> 4,616,307 4,927,500
100,000 Dot Hill Systems Corp.*<F6> 1,550,000 1,377,000
465,000 Enterasys Networks, Inc.*<F6> 1,847,468 1,860,000
3,695,200 Hewlett-Packard Co. 75,317,730 71,539,072
1,279,600 Maxtor Corp.*<F6> 14,038,754 15,572,732
1,043,600 PerkinElmer, Inc. 14,731,476 15,977,516
300,000 Tektronix, Inc. 7,573,671 7,425,000
3,400,000 Teradyne, Inc.*<F6> 69,643,322 63,240,000
1,295,000 Vishay Intertechnology, Inc.*<F6> 21,980,124 22,688,400
1,350,000 Western Digital Corp.*<F6> 17,890,725 17,401,500
-------------- --------------
272,381,513 262,970,970
THIS SECTOR IS 3.5% BELOW YOUR FUND'S COST.
FINANCIAL/BUSINESS SERVICES - 10.4%
875,000 Bank of New York Company, Inc. 27,033,829 25,471,250
305,000 CACI International Inc.*<F6> 9,853,202 13,069,250
200,000 Corrections Corporation
of America*<F6> 5,273,451 4,934,000
1,050,000 Diebold, Inc. 43,910,034 53,182,500
7,300,000 E*TRADE Group, Inc.*<F6> 64,181,834 67,598,000
461,000 Fiserv, Inc.*<F6> 14,162,640 16,729,690
26,500 Gartner, Inc.*<F6> 257,278 292,030
400,000 ITT Educational Services, Inc.*<F6> 12,341,178 19,168,000
447,300 Northern Trust Corp. 19,251,262 18,943,155
2,750,000 State Street Corp. 119,332,491 123,750,000
69,300 Sylvan Learning Systems, Inc.*<F6> 1,925,889 1,899,513
250,000 Total System Services, Inc. 6,543,598 6,587,500
-------------- --------------
324,066,686 351,624,888
THIS SECTOR IS 8.5% ABOVE YOUR FUND'S COST.
FOOD/RESTAURANTS - 4.0%
1,400,000 Brinker International, Inc.*<F6> 41,718,205 46,704,000
425,000 CBRL Group, Inc. 16,504,924 15,113,000
1,570,200 McDonald's Corp. 27,785,784 36,962,508
1,500,000 SUPERVALU INC. 33,989,934 35,790,000
-------------- --------------
119,998,847 134,569,508
THIS SECTOR IS 12.1% ABOVE YOUR FUND'S COST.
HEALTH CARE RELATED - 5.3%
1,400,000 Express Scripts, Inc.*<F6> 86,355,316 85,554,000
1,250,000 Fisher Scientific
International Inc.*<F6> 49,034,019 49,612,500
1,325,000 McKesson Corp. 44,334,498 44,109,250
-------------- --------------
179,723,833 179,275,750
THIS SECTOR IS 0.2% BELOW YOUR FUND'S COST.
HOME/OFFICE RELATED - 0.7%
87,200 HON INDUSTRIES Inc. 2,882,329 3,222,912
900,000 Leggett & Platt, Inc. 19,722,706 19,467,000
85,500 Herman Miller, Inc. 1,783,767 1,946,835
-------------- --------------
24,388,802 24,636,747
THIS SECTOR IS 1.0% ABOVE YOUR FUND'S COST.
LEISURE & ENTERTAINMENT - 2.3%
1,150,000 Marvel Enterprises, Inc.*<F6> 22,852,221 25,587,500
1,805,200 Royal Caribbean Cruises Ltd. 52,004,864 50,744,172
-------------- --------------
74,857,085 76,331,672
THIS SECTOR IS 2.0% ABOVE YOUR FUND'S COST.
MEDIA GROUP - 3.8%
850,000 Entercom Communications
Corp.*<F6> 41,687,128 38,097,000
3,200,000 Fox Entertainment Group, Inc.*<F6> 96,083,685 89,568,000
-------------- --------------
137,770,813 127,665,000
THIS SECTOR IS 7.3% BELOW YOUR FUND'S COST.
MEDICAL/DENTAL PRODUCTS & SERVICES - 7.6%
2,250,000 Baxter International Inc. 67,666,723 65,385,000
1,350,000 Boston Scientific Corp.*<F6> 89,779,080 86,130,000
1,600,000 Cytyc Corp.*<F6> 19,412,031 24,016,000
625,000 Henry Schein, Inc.*<F6> 29,661,403 35,443,750
50,000 Omnicare, Inc. 1,799,365 1,803,000
600,000 QLT Inc.*<F6> 10,357,478 9,594,000
140,000 Respironics, Inc.*<F6> 5,142,871 5,856,200
50,000 Sybron Dental Specialties, Inc.*<F6> 1,143,315 1,253,500
3,100,000 WebMD Corp.*<F6> 35,146,598 27,745,000
-------------- --------------
260,108,864 257,226,450
THIS SECTOR IS 1.1% BELOW YOUR FUND'S COST.
MEDICAL/MANAGED CARE - 5.8%
225,000 American Medical Security
Group, Inc.*<F6> 3,192,969 4,569,750
300,000 AMERIGROUP Corp.*<F6> 8,766,268 13,389,000
975,000 Coventry Health Care, Inc.*<F6> 50,342,692 51,421,500
2,550,000 UnitedHealth Group Inc. 137,549,898 128,316,000
-------------- --------------
199,851,827 197,696,250
THIS SECTOR IS 1.1% BELOW YOUR FUND'S COST.
OIL/GAS EXPLORATION & PRODUCTION - 1.2%
1,550,000 Pioneer Natural Resources Co.*<F6> 36,064,476 39,463,000
THIS SECTOR IS 9.4% ABOVE YOUR FUND'S COST.
OIL/GAS SERVICES - 4.3%
2,100,000 BJ Services Co.*<F6> 76,438,142 71,757,000
100,000 Core Laboratories N.V.*<F6> 984,952 1,405,000
1,250,000 Nabors Industries, Ltd.*<F6> 47,764,719 46,575,000
1,000,000 Rowan Companies, Inc.*<F6> 24,551,134 24,580,000
160,000 Unit Corp.*<F6> 3,147,297 3,014,400
-------------- --------------
152,886,244 147,331,400
THIS SECTOR IS 3.6% BELOW YOUR FUND'S COST.
PHARMACEUTICALS - 2.4%
525,000 Biovail Corp.*<F6> 19,968,384 19,503,750
315,000 K-V Pharmaceutical Co.*<F6> 4,551,836 7,087,500
800,000 Pharmaceutical Resources, Inc.*<F6> 37,724,860 54,576,000
125,000 QIAGEN N.V.*<F6> 1,218,000 1,326,250
-------------- --------------
63,463,080 82,493,500
THIS SECTOR IS 30.0% ABOVE YOUR FUND'S COST.
SEMICONDUCTOR RELATED - 6.0%
6,450,000 Agere Systems Inc.*<F6> 17,823,542 19,801,500
1,800,000 Fairchild Semiconductor
International, Inc.*<F6> 30,108,449 29,844,000
4,350,000 Flextronics International Ltd.*<F6> 57,795,979 61,857,000
135,000 Lexar Media, Inc.*<F6> 954,477 2,303,100
2,700,000 Micron Technology, Inc.*<F6> 38,956,794 36,234,000
200,000 Semtech Corp.*<F6> 3,812,910 3,702,000
2,200,000 Texas Instruments Inc. 50,021,892 50,160,000
-------------- --------------
199,474,043 203,901,600
THIS SECTOR IS 2.2% ABOVE YOUR FUND'S COST.
SOFTWARE - 7.1%
300,000 Autodesk, Inc. 5,220,093 5,106,000
1,350,000 DST Systems, Inc.*<F6> 51,612,435 50,760,000
8,065,000 Oracle Corp.*<F6> 102,795,819 90,731,250
1,900,000 PeopleSoft, Inc.*<F6> 34,022,906 34,713,000
647,300 Reynolds & Reynolds Co. 16,277,258 17,833,115
185,000 SERENA Software, Inc.*<F6> 3,576,273 3,413,250
1,400,000 SunGard Data Systems Inc.*<F6> 36,545,188 36,834,000
-------------- --------------
250,049,972 239,390,615
THIS SECTOR IS 4.3% BELOW YOUR FUND'S COST.
SPECIALTY RETAILING - 8.2%
715,000 Barnes & Noble, Inc.*<F6> 16,226,697 18,168,150
150,000 Bombay Company, Inc.*<F6> 1,458,726 1,477,500
1,200,000 Borders Group, Inc.*<F6> 21,817,092 22,704,000
900,000 Hollywood Entertainment Corp.*<F6> 14,211,364 15,300,000
1,650,000 Home Depot, Inc. 47,048,940 52,552,500
450,000 Michaels Stores, Inc. 20,318,978 18,342,000
436,300 Regis Corp. 12,448,256 14,005,230
1,588,400 Staples, Inc.*<F6> 32,527,921 37,867,456
3,441,600 Williams-Sonoma, Inc.*<F6> 103,461,179 92,854,368
200,000 Yankee Candle Company, Inc.*<F6> 4,036,120 5,096,000
-------------- --------------
273,555,273 278,367,204
THIS SECTOR IS 1.8% ABOVE YOUR FUND'S COST.
TRANSPORTATION RELATED - 0.5%
125,000 ExpressJet Holdings, Inc.*<F6> 1,762,178 1,725,000
225,000 Frontier Airlines, Inc.*<F6> 3,815,645 3,699,000
457,100 Werner Enterprises, Inc. 10,084,671 10,495,016
-------------- --------------
15,662,494 15,919,016
THIS SECTOR IS 1.6% ABOVE YOUR FUND'S COST.
MISCELLANEOUS - 0.7%
100,000 GrafTech International Ltd.*<F6> 762,495 800,000
190,000 Peabody Energy Corp. 6,029,537 5,960,300
175,000 StanCorp Financial Group, Inc. 9,489,242 10,053,750
970,000 Tesoro Petroleum Corp.*<F6> 7,360,565 8,206,200
-------------- --------------
23,641,839 25,020,250
THIS SECTOR IS 5.8% ABOVE YOUR FUND'S COST.
-------------- --------------
Total common stocks 3,188,055,805 3,304,813,978
SHORT-TERM INVESTMENTS - 2.7% (A)<F7>
COMMERCIAL PAPER - 2.6%
$27,000,000 Alcoa Inc.,
due 10/01/03, discount of 1.13% 27,000,000 27,000,000
63,000,000 Mortgage Interest Networking Trust,
due 10/01/03 -- 10/02/03,
discounts of 1.10% 62,999,083 62,999,083
-------------- --------------
Total commercial paper 89,999,083 89,999,083
VARIABLE RATE DEMAND NOTE - 0.1%
2,741,458 U.S. Bank, N.A. 2,741,458 2,741,458
-------------- --------------
Total short-term investments 92,740,541 92,740,541
-------------- --------------
Total investments $3,280,796,346 3,397,554,519
--------------
--------------
Liabilities, less cash and
receivables (0.3%) (A)<F7> (11,964,969)
--------------
NET ASSETS $3,385,589,550
--------------
--------------
Net Asset Value Per Share
($0.01 par value 500,000,000
shares authorized), offering
and redemption price
($3,385,589,550 / 158,968,441
shares outstanding) $21.30
------
------
*<F6> Non-dividend paying security.
(a)<F7> Percentages for the various classifications relate to net assets.
NYS - NY Registered Shares
ADR -- American Depository Receipts
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2003
INCOME:
Dividends $ 15,527,322
Interest 1,859,013
------------
Total income 17,386,335
EXPENSES:
Management fees 31,476,934
Transfer agent fees 1,190,983
Administrative services 547,585
Printing and postage expense 357,437
Custodian fees 308,022
Board of Directors fees 114,039
Registration fees 47,403
Professional fees 44,583
Other expenses 50,924
------------
Total expenses 34,137,910
------------
NET INVESTMENT LOSS (16,751,575)
------------
NET REALIZED GAIN ON INVESTMENTS 204,896,466
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 156,935,580
------------
NET GAIN ON INVESTMENTS 361,832,046
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $345,080,471
------------
------------
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2003 and 2002
2003 2002
---- ----
OPERATIONS:
Net investment loss $ (16,751,575) $ (20,527,578)
Net realized gain (loss) on investments 204,896,466 (403,830,527)
Net increase (decrease) in unrealized appreciation on investments 156,935,580 (234,611,174)
-------------- --------------
Net increase (decrease) in net assets resulting from operations 345,080,471 (658,969,279)
-------------- --------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (21,107,528 and 21,852,014 shares, respectively) 410,081,518 479,222,817
Cost of shares redeemed (29,685,813 and 41,977,386 shares, respectively) (566,431,690) (926,380,230)
-------------- --------------
Net decrease in net assets derived from Fund share activities (156,350,172) (447,157,413)
-------------- --------------
TOTAL INCREASE (DECREASE) 188,730,299 (1,106,126,692)
NET ASSETS AT THE BEGINNING OF THE YEAR 3,196,859,251 4,302,985,943
-------------- --------------
NET ASSETS AT THE END OF THE YEAR $3,385,589,550 $3,196,859,251
-------------- --------------
-------------- --------------
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each year)
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $19.08 $22.93 $46.23 $35.09 $25.99
Income from investment operations:
Net investment loss(1)<F8> (0.10) (0.12) (0.09) (0.25) (0.20)
Net realized and unrealized gains (losses)
on investments 2.32 (3.73) (7.10) 14.51 9.64
------ ------ ------ ------ ------
Total from investment operations 2.22 (3.85) (7.19) 14.26 9.44
------ ------ ------ ------ ------
Less distributions:
Dividend from net investment income -- -- -- -- (0.27)
Distributions from net realized gains -- -- (16.11) (3.12) (0.07)
------ ------ ------ ------ ------
Total from distributions -- -- (16.11) (3.12) (0.34)
------ ------ ------ ------ ------
Net asset value, end of year $21.30 $19.08 $22.93 $46.23 $35.09
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 11.64% (16.79%) (22.46%) 42.81% 36.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 3,385,590 3,196,859 4,302,986 5,983,163 4,194,917
Ratio of expenses to average net assets 1.09% 1.08% 1.06% 1.04% 1.05%
Ratio of net investment loss
to average net assets (0.53%) (0.52%) (0.32%) (0.61%) (0.66%)
Portfolio turnover rate 279.3% 272.9% 284.3% 244.0% 208.7%
(1)<F8> In 2003, 2002, 2001 and 1999, net investment loss per share was
calculated using average shares outstanding. In 2000, net investment
loss per share was calculated using ending balances prior to
consideration of adjustments for book and tax differences.
The accompanying notes to financial statements are an integral part of these
statements.
MANAGEMENT'S DISCUSSION OF RESULTS
BRANDYWINE BLUE FUND
Brandywine Blue follows an investment strategy based on the earnings
prospects of individual companies. While earnings did not drive stock prices
among larger-cap stocks in the first three months of the year ended September
30, 2003, Brandywine Blue's consistent focus on individual-company fundamentals
enabled the Fund to outpace large-cap indexes over the final nine months of the
period.
The prospect of war and economic uncertainty contributed to an ugly start to
the 12 months through September, with major indexes hitting multiyear lows on
October 9, 2002. Mild signs of life on the economic front, however, quickly
changed the market's mood, sparking a rally from depressed levels.
Speculation marked the December quarter of 2002, as investors made sector
bets on semiconductors and other broad groups based on general optimism about
the economy rather than the actual earnings prospects of the companies in the
sectors. For example, the Philadelphia Stock Exchange Semiconductor Index grew
21 percent in the quarter even as 2003 earnings estimates for the companies in
the index fell 25 percent.
Brandywine Blue's avoidance of companies with weak fundamentals kept it from
the stocks that fared best in this climate and, as a result, the Fund didn't
keep pace with large-cap indexes in this three-month period. Soon after, the
prelude to war in Iraq prompted investors to rethink the highly risky bets they
placed in the months before, fueling a cautious March-quarter environment in
which Brandywine Blue outperformed the S&P 500 and Russell 1000.
The environment grew increasingly positive with the commencement of the Iraq
war and the ensuing military progress. The improved geopolitical backdrop
allowed investors to shift their focus to the strong earnings trends and
reasonable prices among Brandywine Blue's holdings, fueling double-digit June-
quarter results. Following the significant gains of the June quarter, Brandywine
Blue and large-cap indexes posted more modest gains in the September quarter.
The same strategy that prevented Brandywine Blue from fully participating in
the speculative rally of the December quarter positioned the Fund to outperform
in the first nine months of 2003. Brandywine Blue grew 16.2 percent in the nine
months through September versus gains in the S&P 500 and Russell 1000 of 14.7
and 15.7 percent.
Comparison of Change in Value of $10,000 Investment in Brandywine Blue Fund,
S&P 500 INDEX(1)<F9>, NASDAQ Industrials Index(2)<F10> and Russell 1000
Index(3)<F11>
BRANDYWINE BLUE FUND S&P 500 NASDAQ INDUSTRIALS RUSSELL 3000
-------------------- ------- ------------------ ------------
1993 10000 10000 10000 10000
1994 10280 10360 9970 9981
1995 14680 13447 12592 12634
1996 15986 16191 14204 15091
1997 22637 22780 17641 20932
1998 16638 24853 13231 22416
1999 22495 31762 20640 28461
2000 30463 35980 27652 33530
2001 24395 26397 14733 24001
2002 20949 20991 12640 19318
2003 24498 26111 18930 24175
AVERAGE ANNUAL TOTAL RETURN
Since Inception
1-Year 5-Year 10-Year 01/10/91
------ ------ ------- ---------------
16.94% 8.05% 9.37% 13.33%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE GRAPH AND THE
TABLE DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
(1)<F9> The S&P 500 Index consists of 500 stocks, mostly on the New York
Stock Exchange, selected by the Standard & Poor's Ratings Group.
Each stock's weighting is based on its relative total market value.
Stocks may be added or deleted from the Index which assumes
reinvestment of dividends.
(2)<F10> The NASDAQ Industrials is capitalization-weighted to measure the
performance of all NASDAQ stocks in the industrial sector and does
not include income.
(3)<F11> The Russell 1000, a trademark of the Frank Russell Company, is the
largest 1,000 companies of the 3,000 largest publicly traded
companies in the United States equity market and includes income.
BRANDYWINE BLUE FUND
STATEMENT OF NET ASSETS
September 30, 2003
SHARES OR
PRINCIPAL
AMOUNT COST VALUE
--------- ---- -----
COMMON STOCKS - 91.9% (A)<F13>
AUTOMOTIVE RELATED - 6.9%
160,000 AutoZone, Inc.*<F12> $ 14,322,843 $ 14,324,800
329,100 Nissan Motor Co., Ltd. SP-ADR 4,746,955 7,151,343
------------ ------------
19,069,798 21,476,143
THIS SECTOR IS 12.6% ABOVE YOUR FUND'S COST.
BUILDING RELATED - 2.9%
373,000 Masco Corp. 9,194,995 9,131,040
THIS SECTOR IS 0.7% BELOW YOUR FUND'S COST.
COMMUNICATIONS EQUIPMENT/SERVICES - 8.9%
519,900 America Movil S.A. de C.V.
ADR Series L 10,832,811 12,014,889
799,400 Nextel Communications, Inc.*<F12> 11,713,852 15,756,174
------------ ------------
22,546,663 27,771,063
THIS SECTOR IS 23.2% ABOVE YOUR FUND'S COST.
COMPUTER/ELECTRONICS - 6.3%
203,600 Computer Sciences Corp.*<F12> 8,190,806 7,649,252
615,000 Hewlett-Packard Co. 12,517,848 11,906,400
------------ ------------
20,708,654 19,555,652
THIS SECTOR IS 5.6% BELOW YOUR FUND'S COST.
FINANCIAL/BUSINESS SERVICES - 10.2%
250,000 Bank of New York Company, Inc. 7,732,542 7,277,500
146,800 Fiserv, Inc.*<F12> 4,520,631 5,327,372
100,000 Northern Trust Corp. 4,316,618 4,235,000
300,000 State Street Corp. 12,940,181 13,500,000
61,200 Total System Services, Inc. 1,617,768 1,612,620
------------ ------------
31,127,740 31,952,492
THIS SECTOR IS 2.6% ABOVE YOUR FUND'S COST.
FOOD/RESTAURANTS - 2.7%
358,400 McDonald's Corp. 6,334,301 8,436,736
THIS SECTOR IS 33.2% ABOVE YOUR FUND'S COST.
HEALTH CARE RELATED - 2.2%
205,500 McKesson Corp. 6,707,004 6,841,095
THIS SECTOR IS 2.0% ABOVE YOUR FUND'S COST.
LEISURE & ENTERTAINMENT - 2.9%
320,000 Royal Caribbean Cruises Ltd. 9,158,294 8,995,200
THIS SECTOR IS 1.8% BELOW YOUR FUND'S COST.
MEDIA GROUP - 3.9%
440,000 Fox Entertainment Group, Inc.*<F12> 13,277,792 12,315,600
THIS SECTOR IS 7.2% BELOW YOUR FUND'S COST.
MEDICAL/DENTAL PRODUCTS & SERVICES - 7.4%
400,000 Baxter International Inc. 12,008,407 11,624,000
180,000 Boston Scientific Corp.*<F12> 11,988,135 11,484,000
------------ ------------
23,996,542 23,108,000
THIS SECTOR IS 3.7% BELOW YOUR FUND'S COST.
MEDICAL/MANAGED CARE - 4.8%
300,000 UnitedHealth Group Inc. 16,004,571 15,096,000
THIS SECTOR IS 5.7% BELOW YOUR FUND'S COST.
OIL/GAS SERVICES - 5.4%
300,000 BJ Services Co.*<F12> 10,835,949 10,251,000
180,000 Nabors Industries, Ltd.*<F12> 6,787,732 6,706,800
------------ ------------
17,623,681 16,957,800
THIS SECTOR IS 3.8% BELOW YOUR FUND'S COST.
PHARMACEUTICALS - 1.0%
84,900 Biovail Corp.*<F12> 3,229,312 3,154,035
THIS SECTOR IS 2.3% BELOW YOUR FUND'S COST.
SEMICONDUCTOR RELATED - 9.5%
598,200 Flextronics International Ltd.*<F12> 7,945,583 8,506,404
653,000 Micron Technology, Inc.*<F12> 9,366,822 8,763,260
546,500 Texas Instruments Inc. 12,621,691 12,460,200
------------ ------------
29,934,096 29,729,864
THIS SECTOR IS 0.7% BELOW YOUR FUND'S COST.
SOFTWARE - 7.0%
1,050,000 Oracle Corp.*<F12> 13,333,159 11,812,500
279,000 PeopleSoft, Inc.*<F12> 4,960,775 5,097,330
185,600 SunGard Data Systems Inc.*<F12> 4,877,385 4,883,136
------------ ------------
23,171,319 21,792,966
THIS SECTOR IS 5.9% BELOW YOUR FUND'S COST.
SPECIALTY RETAILING - 9.9%
305,000 Costco Wholesale Corp.*<F12> 9,177,968 9,500,750
350,000 Home Depot, Inc. 9,308,122 11,147,500
435,000 Staples, Inc.*<F12> 8,863,549 10,370,400
------------ ------------
27,349,639 31,018,650
THIS SECTOR IS 13.4% ABOVE YOUR FUND'S COST.
------------ ------------
Total common stocks 279,434,401 287,332,336
SHORT-TERM INVESTMENTS - 5.8% (A)<F13>
COMMERCIAL PAPER - 4.8%
$ 4,000,000 Alcoa Inc.,
due 10/01/03, discount of 1.13% 4,000,000 4,000,000
11,000,000 Mortgage Interest Networking Trust,
due 10/01/03 -- 10/02/03,
discounts of 1.10% 10,999,847 10,999,847
------------ ------------
Total commercial paper 14,999,847 14,999,847
VARIABLE RATE DEMAND NOTE - 1.0%
3,308,047 U.S. Bank, N.A. 3,308,047 3,308,047
------------ ------------
Total short-term investments 18,307,894 18,307,894
------------ ------------
Total investments $297,742,295 305,640,230
------------
------------
Cash and receivables, less
liabilities 2.3% (A)<F13> 7,085,430
------------
NET ASSETS $312,725,660
------------
------------
Net Asset Value Per Share
($0.01 par value 100,000,000
shares authorized), offering
and redemption price
($312,725,660 / 14,614,577
shares outstanding) $21.40
------
------
*<F12> Non-dividend paying security.
(a)<F13> Percentages for the various classifications relate to net assets.
ADR -- American Depository Receipts
Statement of Operations
For the Year Ended September 30, 2003
INCOME:
Dividends $ 1,658,649
Interest 250,751
-----------
Total income 1,909,400
-----------
EXPENSES:
Management fees 2,618,506
Administrative services 139,140
Transfer agent fees 53,484
Professional fees 46,629
Registration fees 41,278
Board of Directors fees 33,570
Custodian fees 21,217
Printing and postage expense 11,416
Other expenses 12,716
-----------
Total expenses 2,977,956
-----------
NET INVESTMENT LOSS (1,068,556)
-----------
NET REALIZED GAIN ON INVESTMENTS 32,634,458
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 8,824,716
-----------
NET GAIN ON INVESTMENTS 41,459,174
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $40,390,618
-----------
-----------
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE BLUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2003 and 2002
2003 2002
---- ----
OPERATIONS:
Net investment loss $ (1,068,556) $ (645,110)
Net realized gain (loss) on investments 32,634,458 (24,371,957)
Net increase (decrease) in unrealized appreciation on investments 8,824,716 (10,561,189)
------------ ------------
Net increase (decrease) in net assets resulting from operations 40,390,618 (35,578,256)
------------ ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (4,710,513 and 2,442,936 shares, respectively) 93,274,187 49,601,985
Cost of shares redeemed (1,993,790 and 3,303,815 shares, respectively) (38,676,807) (68,233,500)
------------ ------------
Net increase (decrease) in net assets derived from Fund share activities 54,597,380 (18,631,515)
------------ ------------
TOTAL INCREASE (DECREASE) 94,987,998 (54,209,771)
NET ASSETS AT THE BEGINNING OF THE YEAR 217,737,662 271,947,433
------------ ------------
NET ASSETS AT THE END OF THE YEAR $312,725,660 $217,737,662
------------ ------------
------------ ------------
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each year)
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $18.30 $21.31 $37.39 $29.46 $22.13
Income from investment operations:
Net investment loss(1)<F14> (0.08) (0.05) (0.05) (0.21) (0.18)
Net realized and unrealized gains (losses)
on investments 3.18 (2.96) (5.32) 10.32 7.85
------ ------ ------ ------ ------
Total from investment operations 3.10 (3.01) (5.37) 10.11 7.67
Less distributions:
Dividend from net investment income -- -- -- -- (0.21)
Distributions from net realized gains -- -- (10.71) (2.18) (0.13)
------ ------ ------ ------ ------
Total from distributions -- -- (10.71) (2.18) (0.34)
------ ------ ------ ------ ------
Net asset value, end of year $21.40 $18.30 $21.31 $37.39 $29.46
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 16.94% (14.12%) (19.92%) 35.53% 35.22%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 312,726 217,738 271,947 407,839 311,984
Ratio of expenses to average net assets 1.14% 1.13% 1.09% 1.07% 1.08%
Ratio of net investment loss
to average net assets (0.41%) (0.26%) (0.18%) (0.56%) (0.67%)
Portfolio turnover rate 300.0% 310.7% 274.5% 245.7% 228.4%
(1)<F14> In 2003, 2002, 2001 and 1999, net investment loss per share was
calculated using average shares outstanding. In 2000, net investment
loss per share was calculated using ending balances prior to
consideration of adjustments for book and tax differences.
The accompanying notes to financial statements are an integral part of these
statements.
The Brandywine Funds
NOTES TO FINANCIAL STATEMENTS
September 30, 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies of Brandywine
Fund, Inc. (the "Brandywine Fund") and Brandywine Blue Fund (the "Blue
Fund," one of two Funds in a series of the Brandywine Blue Fund, Inc.)
(collectively the "Funds"). Each Fund is registered as a diversified open-
end management company under the Investment Company Act of 1940, as
amended. The assets and liabilities of each Fund are segregated and a
shareholder's interest is limited to the Fund in which the shareholder owns
shares. The Brandywine Fund was incorporated under the laws of Maryland on
October 9, 1985. The Blue Fund was incorporated under the laws of Maryland
on November 13, 1990. The investment objective of each 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 with
maturities of 60 days or less are valued at amortized cost which
approximates market value. For financial reporting purposes,
investment transactions are recorded on the trade date.
(b) Net realized gains and losses on sales of securities are computed on
the identified cost basis.
(c) Dividend income is recorded on the ex-dividend date. Interest income
is recorded on the accrual basis.
(d) The Funds have investments in short-term variable rate demand notes,
which are unsecured instruments. The Funds may be susceptible to
credit risk with respect to these notes to the extent the issuer
defaults on its payment obligation. The Funds' policy is to monitor
the creditworthiness of the issuer and nonperformance by these
counterparties is not anticipated.
(e) Accounting principles generally accepted in the United States of
America ("GAAP") require that permanent differences between income for
financial reporting and tax purposes be reclassified in the capital
accounts.
(f) The preparation of financial statements in conformity with GAAP
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.
(g) No provision has been made for Federal income taxes since the Funds
have elected to be taxed as "regulated investment companies" and
intend to distribute substantially all net investment company taxable
income and net capital gains to shareholders and otherwise comply with
the provisions of the Internal Revenue Code applicable to regulated
investment companies.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENTS AND TRANSACTIONS WITH RELATED
PARTIES
Each Fund has a management agreement with Friess Associates, LLC (the
"Adviser"), with whom certain officers and directors of the Funds are
affiliated, to serve as investment adviser and manager. Under the terms of
the agreements, each Fund will pay the Adviser a monthly management fee at
the annual rate of one percent (1%) on the daily net assets of such Fund.
Also, the Adviser is reimbursed for administrative services rendered to
each Fund by a consultant paid by the Adviser.
The Adviser entered into sub-advisory agreements with its affiliate, Friess
Associates of Delaware, LLC (the "Sub-Adviser"), to assist it in the day-
to-day management of each of the Funds. The Adviser and, if so delegated,
the Sub-Adviser supervise the investment portfolios of the Funds, directing
the purchase and sale of investment securities in the day-to-day management
of the Funds. The Adviser pays the Sub-Adviser a fee equal to 110% of the
monthly expenses the Sub-Adviser incurs in performing its services as Sub-
Adviser.
Each Director who is not affiliated with the Funds receives an annual fee
for service as a Director and is eligible to participate in a deferred
compensation plan with respect to these fees. Participants in the plan may
designate their deferred Director's fees as if invested in the respective
Funds. The value of each Director's deferred compensation account will
increase or decrease as if it were invested in shares of the selected Fund.
The Funds maintain their proportionate share of the Fund's liability for
deferred fees.
(3) DISTRIBUTION TO SHAREHOLDERS
Net investment income and net realized gains, if any, are distributed to
shareholders at least annually.
(4) INVESTMENT TRANSACTIONS
For the year ended September 30, 2003, purchases and proceeds of sales of
investment securities (excluding short-term investments) for the Brandywine
Fund were $8,461,733,330 and $8,583,599,828, respectively; purchases and
proceeds of sales of investment securities (excluding short-term
investments) for the Blue Fund were $764,939,209 and $730,764,052,
respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of September 30, 2003, liabilities of each Fund included the following:
Brandywine Blue
Fund Fund
---------- ----
Payable to brokers for investments purchased $51,122,399 $2,693,737
Payable to Adviser for management fees 2,867,397 262,824
Deferred compensation plan for Directors 260,856 67,841
Payable to shareholders for redemptions 125,740 --
Other liabilities 421,660 46,345
(6) SOURCES OF NET ASSETS
As of September 30, 2003, the sources of net assets were as follows:
Brandywine Blue
Fund Fund
---------- ----
Fund shares issued and outstanding $4,555,672,318 $358,817,519
Net unrealized appreciation on investments 116,758,173 7,897,935
Accumulated net realized losses (1,286,840,941) (53,989,794)
-------------- ------------
$3,385,589,550 $312,725,660
-------------- ------------
-------------- ------------
(7) INCOME TAX INFORMATION
The following information for the Funds is presented on an income tax basis
as of September 30, 2003:
GROSS GROSS NET UNREALIZED DISTRIBUTABLE DISTRIBUTABLE
COST OF UNREALIZED UNREALIZED APPRECIATION ORDINARY LONG-TERM
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS INCOME CAPITAL GAINS
----------- ------------ ------------ -------------- ------------- -------------
Brandywine Fund $3,284,478,885 $213,553,259 $100,477,625 $113,075,634 $ 0 $ 0
Brandywine Blue Fund $ 297,742,295 $ 16,034,753 $ 8,136,818 $ 7,897,935 $ 0 $ 0
The difference, if any, between the cost amounts for financial statement
and federal income tax purposes is due primarily to timing differences in
recognizing certain gains and losses in security transactions.
The tax components of dividends paid during the years ended September 30,
2003 and 2002, capital loss carryovers (expiring in varying amounts through
2011), as of September 30, 2003, and tax basis post-October losses as of
September 30, 2003, which are not recognized for tax purposes until the
first day of the following fiscal year are:
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
---------------------------------------------------------------- -----------------------------
ORDINARY LONG-TERM NET CAPITAL ORDINARY LONG-TERM
INCOME CAPITAL GAINS LOSS POST-OCTOBER INCOME CAPITAL GAINS
DISTRIBUTIONS DISTRIBUTIONS CARRYOVERS LOSSES DISTRIBUTIONS DISTRIBUTIONS
------------- ------------- ---------- ------------ ------------- -------------
Brandywine Fund $ 0 $ 0 $1,288,142,310 $ 0 $ 0 $ 0
Brandywine Blue Fund $ 0 $ 0 $ 53,348,440 $ 0 $ 0 $ 0
The Brandywine Fund and Blue Fund have utilized $370,353,672 and $23,883,957,
respectively, of their post-October losses from the prior year to increase
current year net capital losses or reduce any net capital gains.
Since there were no ordinary distributions paid for either Fund for the year
ended September 30, 2003, there were no distributions designated as
qualifying for the dividends received deduction for corporate shareholders.
(PRICEWATERHOUSECOOPERS LOGO)
100 EAST WISCONSIN AVENUE
SUITE 1500
MILWAUKEE, WI 53202
(414) 212-1600
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF BRANDYWINE FUND, INC. AND BRANDYWINE BLUE FUND
In our opinion, the accompanying statements of net assets of Brandywine Fund,
Inc. and Brandywine Blue Fund (a series of the Brandywine Blue Fund, Inc.) (the
"Funds") and the related statements of operations and of changes in net assets
and the financial highlights present fairly, in all material respects, the
financial position of each of the Funds at September 30, 2003, the results of
each of their operations for the year then ended, the changes in each of their
net assets for each of the two years in the period then ended and their
financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Funds' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/PricewaterhouseCoopers LLP
October 10, 2003
BRANDYWINE FUND AND BRANDYWINE BLUE FUND DIRECTORS AND OFFICERS
"Disinterested Persons" of the Funds
Term of Office and Length of
Time Served and Number of
Name, Age, Address Portfolios in Fund Complex Principal Occupation Other Directorships Held
and Position Overseen by Director or Officer During Past Five Years by Director or Officer
- ------------------ ------------------------------- ---------------------- ------------------------
Robert F. Birch, 67 Indefinite Term Mr. Birch has been Chairman and Hyperion Funds
8 Knollwood Drive since October, 2001 President of the New America High (4 portfolios), New
Dover, MA 02030 3 Portfolios Income Fund since 1992, a high- America High Income Fund
Director yield bond fund traded on the New
York Stock Exchange.
C. Quentin S. Jackson, 59 Indefinite Term Mr. Jackson is President and Chief None
c/o Nuclear Electric since October, 2001 Executive Officer of Nuclear Electric
Insurance Ltd. 3 Portfolios Insurance Ltd., a multibillion-dollar
1201 Market Street company mutually owned by energy
Suite 1200 companies. He has been with Nuclear
Wilmington, DE 19801 Electric since 1980.
Director
Stuart A. McFarland, 56 Indefinite Term Mr. McFarland is a Managing Partner Basic 100 Inc., NCRIC
c/o Federal City since October, 2001 at Federal City Capital Advisors. group, Inc. and Newcastle
Capital Advisors 3 Portfolios From 1999 until 2002, he served as Investment Corporation
3000 K Street NW, Suite 125 President and Chief Executive of
Washington, DC 20007 Pedestal Inc. Mr. McFarland also
Director served as Chief Financial Officer
of Fannie Mae, and an officer of
G.E. Capital.
W. Richard Scarlett III, 64 Indefinite Term Mr. Scarlett is Chairman, President United Bancorporation
c/o United Bancorporation since October, 2001 and Chief Executive Officer of United of Wyoming, Inc.
of Wyoming, Inc. 3 Portfolios Bancorporation of Wyoming, Inc.,
112 Center Street having been with the Bank since 1981.
Jackson, WY 83001
Director
Marvin N. Schoenhals, 56 Indefinite Term Mr. Schoenhals is Chairman and WSFS Financial Corp.
c/o WSFS Corporation since October, 1998 President of WSFS Financial Corporation,
838 Market Street 3 Portfolios a bank holding company. Mr. Schoenhals
Wilmington, DE 19801 first began serving as a Brandywine
Director Funds director in 1998.
James W. Zug, 63 Indefinite Term Mr. Zug is a retired Partner of Episcopal Academy, Kimmel
5 Radnor Corporate Center, since October, 2001 PricewaterhouseCoopers LLP. He was Center for the Performing
Suite 520 3 Portfolios employed with PricewaterhouseCoopers Arts, Philadelphia
100 Matsonford Road and its predecessors from 1964 until Orchestra, Merion Golf
Radnor, PA 19087 2000. Club, SPS Technologies,
Director Stackpole, Ltd., and Amkor
Technologies.
"Interested Persons" of the Funds*<F15>
William F. D'Alonzo, 48 Indefinite Term since Mr. D'Alonzo joined Friess Associates Delaware Community
c/o Friess Associates October, 2001 in 1981 as part of the research team, Foundation, Delaware Wild
3711 Kennett Pike Vice President since became Chief Investment Officer in Lands, United Way of
Greenville, DE 19807 1990 1997 and Chief Executive Officer in Delaware's Alexis de
Director and Vice President 3 Portfolios 2002. Tocqueville Society,
Delaware Safety Council,
and Ducks Unlimited.
Foster S. Friess, 63 Indefinite Term since Mr. Friess founded Friess The Advisory Council of the
c/o Friess Associates October, 1985 Associates in 1974 with his wife, Royal Swedish Academy of
115 East Snow King Avenue President and Lynnette E. Friess. Serving as Science of Stockholm, The
Jackson, WY 83001 Treasurer since 1985 Chairman of the Board since Council for National
Director, President and 3 Portfolios Brandywine's inception in 1985, Policy, and the John M.
Treasurer he also serves as Chairman of Templeton Foundation.
Friess Associates, LLC, the Funds'
advisor.
Lynda J. Campbell, 57 Vice President Ms. Campbell joined Friess Associates Mom's House of
c/o Friess Associates since 1998 in 1985, the year of Brandywine Fund's Wilmington Inc.
3711 Kennett Pike Secretary since 1990 inception. Ms. Campbell is currently
Greenville, DE 19807 3 Portfolios Chief Administrative Officer of Friess
Vice President and Secretary Associates of Delaware, LLC.
Carl S. Gates, 71 Vice President Mr. Gates joined Friess Associates in None
c/o Friess Associates since 1994 1988, following 34 years at the DuPont
3711 Kennett Pike 3 Portfolios Co., where he ran the half-a-billion-
Greenville, DE 19807 dollar-a-year Riston Division.
Vice President
Christopher G. Long, 37 Vice President Mr. Long joined Friess Associates in Marion T. Academy, Young de
c/o Friess Associates since 2002 1996, and became Chief Operating Tocqueville Society of the
3711 Kennett Pike 3 Portfolios Officer of Friess Associates of United Way of Delaware,
Greenville, DE 19807 Delaware, LLC in 2001. member of The Council for
Vice President National Policy.
David D. Marky, 38 Vice President Mr. Marky joined Friess Associates None
c/o Friess Associates since 2002 in 2000, following 13 years with
3711 Kennett Pike 3 Portfolios PFPC, Inc., where he served as a
Greenville, DE 19807 Director of Fund Accounting and
Vice President Administration. He currently serves
as Compliance Officer for Friess
Associates.
Paul R. Robinson, 80 Vice President Mr. Robinson has been a consultant None
c/o Friess Associates since 1990 to Friess Associates since June 1985,
3711 Kennett Pike 3 Portfolios just six months before Brandywine
Greenville, DE 19807 Fund's launch. Prior to Friess
Vice President Associates, Mr. Robinson spent 40
years at the DuPont Co.
For additional information about the Directors and Officers, please call (800)
656-3017 and request a Statement of Additional Information. One will be mailed
to you free of charge.
*<F15> Messrs. D'Alonzo, Friess, Gates, Long, Marky and Robinson and Ms.
Campbell are "interested persons" of the Funds as that term is defined
in the Investment Company Act of 1940 by reason of their being officers
of the Funds and employees of Friess Associates, LLC.
CAPITAL GAINS UPDATE . . .
Both Brandywine and Brandywine Blue realized net capital gains during the
fiscal year ended September 2003, but those gains were less than the capital
loss carry-forward from prior years. As a result, there will be no October
capital gains distribution, and it is unlikely there will be a year-end
distribution. Brandywine and Brandywine Blue finished September with net
realized loss positions of approximately $8.10 and $3.70 per share, meaning the
Funds can realize gains equal to those amounts before triggering a taxable
capital gains distribution. These numbers will change, so please look to future
quarterly reports for updated estimates.
THE BRANDYWINE FUNDS HIGHLIGHTED IN THE LIST OF "Who Runs the Best Funds
-- 10 Families That Still Do It Right."
Kiplinger's, August 2003
BRANDYWINE FUND HIGHLIGHTED AMONG "OUR FAVORITE MID-CAP GROWTH FUNDS" by
Morningstar Analysts. "This is an aggressive fund with a sensitive side
. . . it has been one of the least volatile funds in the category
because it sets high standards for the companies it owns."
Morningstar.com, October 6, 2003
P.O. Box 4166, Greenville, DE 19807
(800) 656-3017 www.brandywinefunds.com bfunds@friess.com
Investment Adviser: FRIESS ASSOCIATES, LLC
Investment Sub-Adviser: FRIESS ASSOCIATES OF DELAWARE, LLC
Custodian: U.S. BANK, N.A.
Transfer Agent: U.S. BANCORP FUND SERVICES, LLC
Independent Auditors: PRICEWATERHOUSECOOPERS LLP
Legal Counsel: FOLEY & LARDNER
OFFICERS: Foster S. Friess, President and Treasurer; Lynda Campbell, Vice
President and Secretary; William D'Alonzo, Vice President; Carl Gates, Vice
President; Christopher Long, Vice President; David Marky, Vice President; and
Paul Robinson, Vice President
Report Editor: Chris Aregood
Report Staff: Dave Marky, Adam Rieger, Rebecca Schuster
This material is appropriate for use by prospective investors only when
preceded or accompanied by a current Brandywine Funds' prospectus. Past
----
performance does not guarantee future results. The principal value and
- ----------------------------------------------
investment return of an investment will fluctuate so that when redeemed, an
investor's shares may be worth more or less than their original cost. Fund
holdings and sector weightings are subject to change at any time and are not
recommendations to buy or sell any securities. Securities discussed were not
held by the Funds as of 9/30/03, unless listed in the accompanying financial
statements.
The Russell Midcap Index measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represent approximately 26 percent of
the total market capitalization of the Russell 1000 Index. The Russell Midcap
Growth Index measures the performance of those Russell Midcap companies with
higher price-to-book ratios and higher forecasted growth values. The stocks are
also members of the Russell 1000 Growth Index. The Philadelphia Stock Exchange
Semiconductor Index is a price-weighted index composed of 18 companies primarily
involved in the design, distribution, manufacture and sale of semiconductors.
As of September 30, 2003, the Russell 1000 Index's average annual total
returns for 1, 5 and 10 years were 25.14, 1.52 and 9.91 percent; the Russell
3000 Index's were 25.92, 1.93 and 9.68; the Russell Midcap Index's were 32.63,
8.06 and 10.86; the Russell Midcap Growth Index's were 38.89, 4.49 and 8.50; and
the S&P 500 Index's were 24.40, 1.00 and 10.05 percent. Baseline Financial
Services, Inc. (Baseline) provides analytical information and services to the
investment community.
ITEM 2. CODE OF ETHICS.
- -----------------------
Registrant has adopted a code of ethics. See attached Exhibit 10 (a).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
- ----------------------------------------
Registrant's Board of Directors has determined that 3 members of its audit
committee, Mr. Stuart A. McFarland, Mr. Marvin N. Schoenhals and Mr. James W.
Zug, are audit committee financial experts. Messrs. McFarland, Schoenhals and
Zug are "independent" as such term is defined in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -----------------------------------------------
Not required for annual reports filed for periods ending before December 15,
2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
- ----------------------------------------------
Not applicable.
ITEM 6. [RESERVED]
- ------------------
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
- -------------------------------------------------------------------------
MANAGEMENT INVESTMENT COMPANIES
- -------------------------------
Not applicable.
ITEM 8. [RESERVED]
- ------------------
ITEM 9. CONTROLS AND PROCEDURES.
- --------------------------------
(a) The disclosure controls and procedures of the Brandywine Blue Fund, Inc.
are periodically evaluated. As of October 22, 2003, the date of the last
evaluation, we concluded that our disclosure controls and procedures are
adequate.
(b) The internal controls of the Brandywine Blue Fund, Inc. are periodically
evaluated. Since, October 22, 2003, the date of the last evaluation, there
have been no significant changes in the Brandywine Blue Fund's internal
controls or in other factors that could have had a significant effect on
such controls. There have also been no significant deficiencies or
material weaknesses identified since the last evaluation that required any
corrective action.
ITEM 10. EXHIBITS.
- -----------------
(a) Any code of ethics or amendment thereto. Filed herewith.
(b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
(c) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Brandywine Blue Fund, Inc.
--------------------------
Registrant
By /s/ William F. D'Alonzo
-----------------------------------------------
William F. D'Alonzo Principal Executive Officer
Date 10/22/03
----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Brandywine Blue Fund, Inc.
--------------------------
Registrant
By /s/ William F. D'Alonzo
------------------------------------------------
William F. D'Alonzo, Principal Financial Officer
Date 10/22/03
----------------------------------