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
811-04447
Brandywine 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)
William F. D'Alonzo
3711 Kennett Pike
Greenville, Delaware 19807
--------------------------
(Name and address of agent for service)
(302) 656-3017
--------------
Registrant's telephone number, including area code:
Date of fiscal year end: September 30
Date of reporting period: 09/30/2004
ITEM 1. REPORTS TO STOCKHOLDERS.
- --------------------------------
THE BRANDYWINE FUNDS
MANAGED BY FRIESS ASSOCIATES, LLC ANNUAL REPORT SEPTEMBER 30, 2004
DEAR FELLOW SHAREHOLDERS:
Following a strong showing in the December quarter of 2003, broad concerns
about interest rates and energy prices put a lid on most growth stocks in the
first nine months of 2004. Growth indexes posted relatively modest gains over
the past year as a result. The Brandywine Funds, however, enjoyed a different
experience.
Brandywine grew 13.57 percent in the 12 months through September 30,
compared to a 7.82 percent return in the Russell 3000 Growth Index. Brandywine
Blue grew 17.80 percent, outpacing the Russell 1000 Growth Index by more than 10
percentage points and putting the Fund in the top 2 percent of Morningstar's
large-cap growth category.
Results in 2004 show the Brandywine Funds continuing to navigate a market
environment that grew less inspired with the passing of each quarter. A modest
rise in interest rates and a substantial surge in oil prices compounded the kind
of broad apprehension associated with the run-up to what could be a close
presidential election.
BRANDYWINE BRANDYWINE BLUE
CUMULATIVE TOTAL RETURN % CHANGE % CHANGE
----------------------- ---------- ---------------
QUARTER -1.47 0.12
ONE YEAR 13.57 17.80
FIVE YEARS 16.76 28.30
TEN YEARS 157.48 180.53
INCEPTION 915.41*<F1> 479.00**<F2>
ANNUALIZED TOTAL RETURN
-----------------------
FIVE YEARS 3.15 5.11
TEN YEARS 9.92 10.87
INCEPTION 13.16*<F1> 13.65**<F2>
*<F1> 12/30/85 **<F2> 1/10/91
Performance data quoted represents past performance; past performance does
--------------------------------------------------------------------------
not guarantee future results. The investment return and principal value of an
-----------------------------
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Current performance of the Funds
may be lower or higher than the performance quoted. Performance data current
to the most recent month end may be obtained by visiting
www.brandywinefunds.com.
By defining growth investments from the bottom up based on each company's
visible earnings power and particular fundamental strength, your team isolated
companies that fared well amid the evolving backdrop and avoided risks
shouldered by growth investors who fixate on entire sectors and other top-down
factors.
Adapting the portfolios to the changing earnings landscape was a primary
driver of performance. That meant exiting many technology holdings as their
earnings fortunes began to peak in order to fund new opportunities with
improving earnings prospects, most of which we identified in the energy and raw
materials sectors. Holdings from these two sectors fueled solid relative results
in a mostly uninspired September-quarter environment.
Brandywine retraced 1.47 percent in the quarter, while the Russell 3000 and
Russell 3000 Growth Indexes declined 1.90 and 5.29 percent. Brandywine Blue grew
0.12 percent versus declines in the S&P 500, Russell 1000 and Russell 1000
Growth Indexes of 1.87, 1.81 and 5.23 percent.
While oil prices kept most stocks in check during the quarter, companies
from the energy sector performed well. Holdings that provide goods and services
to oil and natural gas producers, including Weatherford International and Smith
International (held by both Funds), were among the biggest contributors. Other
standouts ranged from manufacturers of steel tubes used in drilling such as
Maverick Tube (Brandywine) to sea-based oil transporters such as General
Maritime (Brandywine).
Phelps Dodge (both Funds) led the way among a group of holdings involved in
the production of raw materials that attracted investor attention thanks to
notable earnings results driven by solid global demand. Years of withering
investment and consolidation eliminated many potential sources of incremental
supply, changing the supply dynamics in a way that benefits certain producers of
basic materials such as copper and steel at a time when Asian economies add heft
to demand.
Although investors recognized positive trends apparent among energy and raw
material holdings, the market lacked enthusiasm for technology and retail
holdings as general economic concerns grew with the price of oil.
Technology carried far less weight in the portfolios than year-ago levels,
but the tech holdings that remained represented one of the most significant
negative influences for the quarter. Rising semiconductor inventories
contributed to a generally unwelcoming climate for tech stocks, even in areas
mostly unaffected by the semiconductor sector's cyclical swings.
Holdings subject to consumer discretion faced a similar challenge, with
investors assuming sales of non-essential consumer goods would falter as more
household income is diverted to rising energy-related costs. Exceptions included
American Eagle Outfitters and Dick's Sporting Goods in Brandywine and Staples in
Brandywine Blue, but retailers as a group detracted from performance overall.
For more information on specific holdings that influenced September-quarter
results the most, please see "Roses & Thorns" on pages 4 and 6.
The market found plenty of reason for pause in the first three quarters of
2004, starting with interest rates, then oil prices and, more recently, the
possibility that earnings growth next year won't be as robust as it has been in
2004. A looming presidential election only piles on to the uncertainty.
It seems pretty clear to us, however, that market performance has not kept
pace with the earnings growth we've seen so far this year, making concerns
regarding 2005 a subject better revisited after stocks do some catching up.
Plus, consensus expectations are for slower growth next year, not a grinding
halt. As for interest rates, they remain very low by historical standards, and
nothing has surfaced to derail the Fed from its measured approach to reclaiming
stimulus.
These are conclusions we believe most investors are apt to embrace once
there's some clarity on the election and/or oil prices, with the former to be
decided on November 2. The futures market shows oil traders betting on
relatively high prices through winter. Whether it's getting the election behind
us, coming to a consensus that oil prices will remain at this level or, better
yet, a price decline that bumps oil from the top of the market mindset, one of
these factors could emerge as the catalyst to loosen the market's collective
restraint.
Thanks for your confidence in us to make the most of 2004's final three
months and beyond through our research-driven focus on individual companies.
We're grateful for the opportunity to serve you.
/s/Bill D'Alonzo
Bill D'Alonzo
Chief Executive Officer October 13, 2004
"SINCE ITS INCEPTION AT THE START OF 1986, BRANDYWINE HAS HANDILY BEATEN
THE S&P. And during the past five up-and-down years, Brandywine ran rings
around the average growth fund. It's a keeper."
Kiplinger's Personal Finance, "Saga of Wilbur the Pig," October 2004
FRIESS ASSOCIATES RECOGNIZED FOR "BEST PRINTED SHAREHOLDER NEWSLETTER" in
2004 among medium-sized mutual fund firms by the Mutual Fund Education
Alliance as part of the industry group's annual Star Awards for excellence
in shareholder communications.
September 2004
BRANDYWINE AND BRANDYWINE BLUE RECEIVE OVERALL GRADES OF "A" in
Morningstar's new fiduciary grading system meant to provide investors an
easy way to assess a mutual fund's "commitment to shareholders."
Morningstar deemed the Brandywine Funds either "good" or "excellent" in the
grading system's five categories, which include regulatory issues, board
quality, manager incentives, fees and corporate culture.
Morningstar, "Fiduciary Grade," August 2004
BRANDYWINE NAMED TO THE MONEY 100, "The Best Funds Around," for the seventh
consecutive year.
Money, "The Money 100," August 2004
BRANDYWINE FUND
PERCENT CHANGE IN TOP TEN HOLDINGS FROM BOOK COST
1. Tyco International Ltd. -3.9%
2. Phelps Dodge Corp. +20.4%
3. United States Steel Corp. +8.0%
4. MBNA Corp. -9.9%
5. Motorola, Inc. +9.4%
6. Aetna Inc. +13.5%
7. Weatherford International Ltd. +20.0%
8. Ingersoll-Rand Co. -3.9%
9. Allstate Corp. +20.8%
10. Avaya Inc. -1.9%
EARNINGS GROWTH
YOUR COMPANIES 82%
S&P 500 17%
FORECASTED INCREASE IN EARNINGS PER SHARE
2004 VS 2003
ALL FIGURES ARE DOLLAR WEIGHTED AND BASED ON DATA FROM BASELINE. SEPTEMBER
30, 2004.
YOUR COMPANIES' MARKET CAPITALIZATION
LARGE CAP
$10 billion and over
34.9%
MID CAP
$2 billion to $10 billion
50.3%
SMALL CAP
below $2 billion
13.5%
CASH
1.3%
TOP TEN INDUSTRY GROUPS
Communications Equipment/Services (11.4%)
Oil/Gas Services (10.2%)
Miscellaneous Manufacturing (9.7%)
Machinery (8.7%)
Transportation Related (6.7%)
Raw & Intermediate Materials (5.5%)
Financial (4.9%)
Insurance (4.8%)
Medical/Managed Care (3.6%)
Building Related (3.5%)
All Others (29.7%)
Cash (1.3%)
BRANDYWINE FUND
SEPTEMBER QUARTER "ROSES AND THORNS"
$ GAIN
BIGGEST $ WINNERS (IN MILLIONS) % GAIN REASON FOR MOVE
----------------- ------------- ------ ---------------
Phelps Dodge Corp. $25.0 18.4 June-quarter earnings grew to $2.46 per share, compared to a loss of $0.26 a year
ago. The world's second largest copper producer is currently one of just a few
companies in the world able to bring on incremental supply to help meet the
surging global demand that has spot-market copper prices at nine-year highs.
Phelps Dodge recently announced increases in planned production for the rest of
this year and into 2005.
Aetna Inc. $19.2 17.6 September-quarter earnings jumped 33 percent to $1.70 per share, beating
estimates. The third largest health insurer in the U.S. benefits from its below-
average cost trend, strong enrollment gains and large cash position. Aetna is also
squarely positioned in the move toward consumer-driven health care with its
disability health-funds product at the forefront of health savings accounts and
health retirement accounts.
Weatherford
International Ltd. $14.8 13.4 The oil-field service provider grew June-quarter earnings 29 percent, beating
estimates. Weatherford's new yield-improving technologies are in strong demand as
drillers worldwide increase production to capitalize on higher energy prices. The
company's drilling services segment benefits from increased revenues associated
with its underbalanced drilling technology, which is being adopted around the
globe to develop previously undevelopable sites.
American Eagle
Outfitters, Inc. $13.3 25.6 The seller of casual youth apparel grew July-quarter earnings to $0.40 per share
from $0.11 a year ago, marking its fourth straight quarter of beating estimates.
Earnings forecasts continued to be revised upward as consolidated same-store sales
for the month of August increased 24 percent, with same-store sales for the
company's American Eagle brand up nearly 27 percent.
Motorola, Inc. $11.3 9.2 June-quarter earnings grew to $0.21 per share from $0.01 a year ago, topping
estimates by 17 percent. The cellular handset manufacturer continues to benefit
from strong new product momentum and market share gains. Average sale prices
remain firm due to increasing shipments of the company's mid- to high-end
products, many of which were recently launched. Shares received an added boost
when competitor Nokia upped sales and earnings guidance.
$ LOSS
BIGGEST $ LOSERS (IN MILLIONS) % LOSS REASON FOR MOVE
---------------- ------------- ------ ---------------
Andrew Corp. $34.0 45.7 The supplier of wireless infrastructure subsystems beat June-quarter earnings and
revenue expectations, but guided lower for the September quarter based on an
unexpected change in buying patterns from two significant customers. Your team
sold Andrew to fund an idea with greater near-term earnings prospects.
Tyco International Ltd. $13.5 7.5 June-quarter earnings jumped 41 percent, beating estimates. Although Tyco is a
diversified manufacturer, share price performance largely reflected investor
concerns regarding its electronics segment in a tough technology environment. Tyco
actually generates more than half of electronics segment revenues from industrial
and automotive customers, helping mitigate the current slowdown in computer and
communications markets.
Marvel Enterprises, Inc. $13.2 25.4 The licenser of its comic book characters grew June-quarter revenues 73 percent.
Shares traded off when management announced lower-than-anticipated sales of
Spiderman II movie-related toys. Our research indicates the shortfall will only
have a marginal effect on total revenues, in part evidenced by Marvel keeping
sales guidance for the full year unchanged.
Advance Auto
Parts, Inc. $12.9 14.6 June-quarter earnings growth of 16 percent beat estimates. The nation's second
largest retailer of auto parts lost ground with others in the industry as adverse
weather and higher gas prices overshadowed strong fundamentals. Your team sold
Advance Auto Parts at an overall gain during the quarter.
Sierra Wireless $10.4 51.5 The provider of wireless data communications equipment grew June-quarter earnings
to $0.22 per share from $0.04, beating estimates by 29 percent. Shares fell when
the company announced its business with a large customer would decline. Your team
sold Sierra Wireless to fund an idea with better near-term earnings visibility.
All gains/losses are calculated on an average cost basis
BRANDYWINE BLUE FUND
PERCENT CHANGE IN TOP TEN HOLDINGS FROM BOOK COST
1. Phelps Dodge Corp. +22.0%
2. Aetna Inc. +32.4%
3. Motorola, Inc. +5.2%
4. Tyco International Ltd. +0.5%
5. Ingersoll-Rand Co. -2.9%
6. MBNA Corp. -8.5%
7. Danaher Corp. +6.2%
8. Weatherford International Ltd. +20.4%
9. Nextel Communications, Inc. -4.7%
10. Burlington Northern Santa Fe Corp. +8.8%
EARNINGS GROWTH
YOUR COMPANIES 60%
S&P 500 17%
FORECASTED INCREASE IN EARNINGS PER SHARE
2004 VS 2003
ALL FIGURES ARE DOLLAR WEIGHTED AND BASED ON DATA FROM BASELINE. SEPTEMBER
30, 2004.
YOUR COMPANIES' MARKET CAPITALIZATION
LARGE CAP
$10 billion and over
59.8%
MID CAP
$2 billion to $10 billion
36.1%
CASH
4.1%
TOP TEN INDUSTRY GROUPS
Communications Equipment/Services (17.5%)
Oil/Gas Services (13.9%)
Machinery (12.1%)
Raw & Intermediate Materials (9.1%)
Miscellaneous Manufacturing (7.0%)
Leisure & Entertainment (4.9%)
Medical/Managed Care (4.9%)
Financial (4.3%)
Transportation Related (3.9%)
Department Stores (3.8%)
All Others (14.5%)
Cash (4.1%)
BRANDYWINE BLUE FUND
SEPTEMBER QUARTER "ROSES AND THORNS"
$ GAIN
BIGGEST $ WINNERS (IN MILLIONS) % GAIN REASON FOR MOVE
----------------- ------------- ------ ---------------
Phelps Dodge Corp. $4.6 19.2 June-quarter earnings grew to $2.46 per share, compared to a loss of $0.26 a
year ago. The world's second largest copper producer is currently one of just a
few companies in the world able to bring on incremental supply to help meet the
surging global demand that has spot-market copper prices at nine-year highs.
Phelps Dodge recently announced increases in planned production for the rest of
this year and into 2005.
Aetna Inc. $4.0 17.8 September-quarter earnings jumped 33 percent to $1.70 per share, beating
estimates. The third largest health insurer in the U.S. benefits from its
below-average cost trend, strong enrollment gains and large cash position.
Aetna is also squarely positioned in the move toward consumer-driven health
care with its disability health-funds product at the forefront of health
savings accounts and health retirement accounts.
Weatherford
International Ltd. $2.5 13.0 The oil-field service provider grew June-quarter earnings 29 percent, beating
estimates. Weatherford's new yield-improving technologies are in strong demand
as drillers worldwide increase production to capitalize on higher energy
prices. The company's drilling services segment benefits from increased
revenues associated with its underbalanced drilling technology, which is being
adopted around the globe to develop previously undevelopable sites.
Transocean Inc. $2.4 21.2 June-quarter earnings grew to $0.08 per share from a loss of $0.06 a year ago.
The operator of offshore drilling rigs experienced a dramatic increase in
dayrates (the daily rate at which offshore drillers are paid for their
services) in its deepwater asset class. Increasing requests for bids and
contracts awarded at higher rates caught some investors off guard and the stock
reacted quickly.
L.M. Ericsson
Telephone Co. $1.7 9.2 The Swedish manufacturer of wireless communications equipment grew June-quarter
earnings to $0.44 per share from a loss of $0.21. The company benefits as
carriers in Western Europe, Latin America and the U.S. that previously held
back capital spending now work to upgrade their wireless networks.
Additionally, the company is enjoying strong demand for its mobile handsets,
which it produces through a joint venture with Sony.
$ LOSS
BIGGEST $ LOSERS (IN MILLIONS) % LOSS REASON FOR MOVE
---------------- ------------- ------ ---------------
Taiwan Semiconductor
Manufacturing Co. $2.3 17.4 June-quarter earnings more than doubled, beating estimates by 15 percent. The
semiconductor manufacturer traded lower during the quarter amid investor
concerns over the pace of the economic recovery, particularly in the technology
sector where tepid seasonal demand has led to higher inventory levels. Your
team sold Taiwan Semiconductor to fund an idea with better near-term earnings
visibility.
Deere & Co. $2.3 10.7 July-quarter earnings grew 55 percent on revenue growth of 23 percent. Despite
Deere's raising estimates for its fiscal year ending this October, investors
grew cautious regarding the sustainability of strong tractor sales given rising
energy costs and declining grain prices. Your team sold Deere to fund an idea
with greater near-term earnings visibility.
J.C. Penney
Company, Inc. $2.3 10.0 July-quarter earnings grew to $0.23 per share from a loss of $0.02 a year ago.
Retail stocks, particularly those catering to price-conscious consumers, came
under pressure as investors grew concerned that higher energy prices would
crimp consumer spending. After the quarter closed, J.C. Penney reported
September same-store sales met expectations, despite the negative impact of
four major hurricanes in the Southeast.
MGIC Investment $2.0 11.8 The provider of mortgage insurance to lenders grew June-quarter earnings 15
percent, beating estimates. Shares traded lower on concerns related to a lack
of growth in insurance in force (the annual premium payable on current
insurance contracts) as persistently low mortgage rates and related
refinancings offset new policies. Your team sold MGIC to fund an idea with
greater near-term earnings upside.
Nextel
Communications, Inc. $2.0 8.7 June-quarter earnings grew 93 percent, beating estimates. The wireless carrier
traded lower on concerns related to the capital investments required to
exchange spectrum with public safety agencies and costs associated with network
upgrades. Our analysis indicates Nextel will have more than adequate free cash
flow to address both.
All gains/losses are calculated on an average cost basis
MANAGEMENT'S DISCUSSION OF RESULTS, BRANDYWINE FUND
Brandywine Fund employs an investment strategy based on the premise that
each company's earnings performance ultimately determines its stock price.
Although other factors influenced stock prices at various times throughout the
12 months ended September 30, 2004, Brandywine's consistent focus on individual-
company earnings trends enabled the Fund to gain 13.57 percent despite an
environment for growth stocks that limited the Russell 3000 Growth Index's
return to 7.82 percent.
The economy showed clear signs of renewed life in the December quarter of
2003, and the 2004 earnings outlook was robust. Brandywine benefited from
companies on the leading edge of the economy's positive turn from the financial
services, technology and homebuilding sectors. Earnings drove stock prices,
helping the Fund to post double-digit growth for the quarter that outpaced major
index returns.
Momentum slowed in the March quarter of 2004 as the market digested the
healthy gains of 2003. Still, with relatively few macro distractions, investors
rewarded earnings strength. Brandywine continued to gain ground, led by
homebuilders, financial services and technology, even though tech stocks in
general didn't fare particularly well in the market as a whole. The climate was
conducive to selective stock picking for most of the quarter, and Brandywine
continued to surpass index performance.
By the beginning of the June quarter, the possibility of higher interest
rates became a preoccupying concern for investors amid continued economic
strength. Even though the Fed clearly signaled its intention to raise rates in
measured steps over time, investors viewed virtually all companies with any
exposure to rates unfavorably. This wholesale dismissal of the sector impacted
the Fund's financial services holdings despite earnings outlooks that remained
intact. Brandywine posted a slight decline versus slight index gains.
The June quarter also hosted changes to the Brandywine portfolio that
positioned it well for the environment ahead. Brandywine sold many tech and
consumer-related holdings as their earnings prospects peaked, funding new
purchases of companies with improving outlooks in areas such as energy and raw
materials. Holdings from these areas played the primary role in limiting the
Fund to a small September-quarter decline that compared favorably to index
returns in an apprehensive climate marked by a sharp rise in oil prices.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN BRANDYWINE FUND,
RUSSELL 3000 GROWTH(1)<F3>, RUSSELL 3000 INDEX(2)<F4> AND S&P 500 INDEX(3)<F5>
DATE BRANDYWINE FUND RUSSELL 3000 GROWTH S&P 500 RUSSELL 3000
---- --------------- ------------------- ------- ------------
9/30/1994 $10,000 $10,000 $10,000 $10,000
9/30/1995 $14,550 $13,180 $12,980 $12,603
9/30/1996 $16,005 $15,878 $15,628 $14,972
9/30/1997 $22,295 $21,451 $21,988 $20,726
9/30/1998 $16,119 $23,008 $23,989 $21,640
9/30/1999 $22,051 $28,754 $30,658 $27,336
9/30/2000 $31,491 $35,617 $34,731 $32,308
9/30/2001 $24,417 $19,458 $25,485 $23,291
9/30/2002 $20,318 $15,134 $20,265 $18,908
9/30/2003 $22,682 $19,211 $25,208 $23,809
9/30/2004 $25,759 $20,714 $28,705 $27,204
AVERAGE ANNUAL TOTAL RETURN
Since Inception
1-Year 5-Year 10-Year 12/30/85
------ ------ ------- ---------------
13.57% 3.15% 9.92% 13.16%
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 Russell 3000 Growth Index measures the performance of those
Russell 3000 Index companies with higher price-to-book ratios and
higher forecasted growth values. The stocks in this index are also
members of either the Russell 1000 Growth or the Russell 2000 Growth
Indexes.
(2)<F4> The Russell 3000 Index, 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.
(3)<F5> 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.
BRANDYWINE FUND, INC.
STATEMENT OF NET ASSETS
September 30, 2004
SHARES OR
PRINCIPAL AMOUNT COST VALUE
- ---------------- ---- -----
COMMON STOCKS - 98.7% (A)<F7>
AEROSPACE/DEFENSE - 0.3%
274,400 Rockwell Collins, Inc. $ 7,816,870 $ 10,191,216
THIS SECTOR IS 30.4% ABOVE YOUR FUND'S COST.
APPAREL & SHOE RETAILERS - 2.3%
588,200 American Eagle Outfitters, Inc. 14,335,673 21,675,170
610,000 The Men's Wearhouse, Inc.*<F6> 16,280,097 17,720,500
1,750,000 Pacific Sunwear
of California, Inc.*<F6> 32,996,575 36,837,500
200,000 Wolverine World Wide, Inc. 4,750,332 5,040,000
-------------- --------------
68,362,677 81,273,170
THIS SECTOR IS 18.9% ABOVE YOUR FUND'S COST.
AUTOMOTIVE RELATED - 0.4%
209,200 Cummins Inc. 10,409,252 15,457,788
THIS SECTOR IS 48.5% ABOVE YOUR FUND'S COST.
BUILDING RELATED - 3.5%
660,000 Centex Corp. 32,593,554 33,303,600
200,000 Chicago Bridge & Iron Co.
N.V.- NYS 5,216,080 5,998,000
50,000 Granite Construction Inc. 1,141,130 1,195,000
675,000 KB Home, Inc. 50,470,029 57,030,750
475,000 Standard Pacific Corp. 25,922,823 26,775,750
-------------- --------------
115,343,616 124,303,100
THIS SECTOR IS 7.8% ABOVE YOUR FUND'S COST.
BUSINESS/COMMUNICATION SERVICES - 3.3%
425,000 Affiliated
Computer Services, Inc.*<F6> 21,343,425 23,659,750
225,000 Anteon International Corp.*<F6> 7,279,571 8,246,250
300,000 Armor Holdings, Inc.*<F6> 11,482,199 12,483,000
250,000 Laureate Education Inc.*<F6> 9,273,215 9,305,000
1,312,000 Manpower Inc. 63,206,614 58,370,880
38,100 SafeNet, Inc.*<F6> 944,167 1,005,078
225,000 Sirva Inc.*<F6> 5,004,255 5,152,500
-------------- --------------
118,533,446 118,222,458
THIS SECTOR IS 0.3% BELOW YOUR FUND'S COST.
COMMUNICATIONS EQUIPMENT/SERVICES - 11.4%
7,200,000 Avaya Inc.*<F6> 102,320,325 100,368,000
2,915,200 Corning Inc.*<F6> 32,840,069 32,300,416
252,300 Dycom Industries, Inc.*<F6> 6,523,344 7,162,797
1,232,200 L.M. Ericsson Telephone Co. ADR*<F6> 33,137,822 38,493,928
50,000 j2 Global Communications, Inc.*<F6> 1,269,365 1,579,500
7,400,000 Motorola, Inc. 122,071,573 133,496,000
4,075,000 Nextel Communications, Inc.*<F6> 102,197,299 97,148,000
-------------- --------------
400,359,797 410,548,641
THIS SECTOR IS 2.5% ABOVE YOUR FUND'S COST.
COMPUTER/ELECTRONICS - 1.5%
230,000 Garmin Ltd. 9,327,135 9,947,500
1,100,000 Rockwell Automation Inc. 38,295,483 42,570,000
-------------- --------------
47,622,618 52,517,500
THIS SECTOR IS 10.3% ABOVE YOUR FUND' COST.
DEPARTMENT STORES - 2.5%
2,515,000 J.C. Penney Company, Inc. 98,631,196 88,729,200
THIS SECTOR IS 10.0% BELOW YOUR FUND'S COST.
ENERGY - 3.0%
775,000 Arch Coal, Inc. 24,872,885 27,504,750
1,885,000 CONSOL Energy Inc. 52,686,094 65,767,650
477,500 Headwaters Inc.*<F6> 12,586,729 14,735,650
-------------- --------------
90,145,708 108,008,050
THIS SECTOR IS 19.8% ABOVE YOUR FUND'S COST.
FINANCIAL - 4.9%
371,700 Investors Financial Services Corp. 16,690,552 16,774,821
5,375,000 MBNA Corp. 150,263,822 135,450,000
684,000 Silicon Valley Bancshares*<F6> 23,163,673 25,424,280
-------------- --------------
190,118,047 177,649,101
THIS SECTOR IS 6.6% BELOW YOUR FUND'S COST.
HOME/OFFICE RELATED - 1.8%
600,000 Harman International
Industries, Inc. 14,713,877 64,650,000
THIS SECTOR IS 339.4% ABOVE YOUR FUND'S COST.
INSURANCE - 4.8%
2,461,600 Allstate Corp. 97,812,284 118,132,184
1,272,700 ChoicePoint Inc.*<F6> 45,203,180 54,280,655
-------------- --------------
143,015,464 172,412,839
THIS SECTOR IS 20.6% ABOVE YOUR FUND'S COST.
LEISURE & ENTERTAINMENT - 2.6%
775,000 Hilton Hotels Corp. 13,532,900 14,601,000
100,000 JAKKS Pacific, Inc.*<F6> 1,962,250 2,300,000
530,100 Marriott International, Inc. 25,275,331 27,543,996
2,670,200 Marvel Enterprises, Inc.*<F6> 54,004,082 38,878,112
400,000 Nautilus Group, Inc. 8,660,677 9,036,000
-------------- --------------
103,435,240 92,359,108
THIS SECTOR IS 10.7% BELOW YOUR FUND'S COST.
MACHINERY - 8.7%
2,100 Applied Industrial
Technologies, Inc. 49,216 75,054
50,000 Briggs & Stratton Corp. 3,960,768 4,060,000
1,190,000 Danaher Corp. 59,082,952 61,023,200
810,000 Eaton Corp. 48,025,789 51,362,100
1,805,000 Ingersoll-Rand Co. 127,702,352 122,685,850
1,700,000 Pentair, Inc. 54,069,907 59,347,000
100,000 Roper Industries, Inc. 5,076,290 5,746,000
300,500 The Timken Co. 5,886,214 7,398,310
-------------- --------------
303,853,488 311,697,514
THIS SECTOR IS 2.6% ABOVE YOUR FUND'S COST.
MEDICAL/DENTAL PRODUCTS & SERVICES - 3.2%
500,000 eResearch Technology, Inc.*<F6> 9,309,699 6,665,000
1,550,000 Fisher Scientific
International Inc.*<F6> 69,002,993 90,411,500
315,900 Serologicals Corp.*<F6> 6,421,704 7,369,947
580,800 VISX, Inc.*<F6> 11,863,717 11,964,480
-------------- --------------
96,598,113 116,410,927
THIS SECTOR IS 20.5% ABOVE YOUR FUND'S COST.
MEDICAL/MANAGED CARE - 3.6%
1,286,400 Aetna Inc. 113,240,884 128,549,952
THIS SECTOR IS 13.5% ABOVE YOUR FUND'S COST.
MISCELLANEOUS MANUFACTURING - 9.7%
196,600 Carlisle Companies Inc. 11,429,175 12,568,638
100,000 Cleveland-Cliffs Inc.*<F6> 6,605,452 8,087,000
150,000 IPSCO, Inc. 3,653,808 4,207,500
493,700 Maverick Tube Corp.*<F6> 11,235,779 15,210,897
5,474,400 Tyco International Ltd. 174,723,092 167,845,104
3,775,000 United States Steel Corp. 131,531,976 142,015,500
-------------- --------------
339,179,282 349,934,639
THIS SECTOR IS 3.2% ABOVE YOUR FUND'S COST.
OIL/GAS EXPLORATION - 3.1%
6,304,500 Chesapeake Energy Corp. 83,538,359 99,800,235
125,000 Meridian Resource Corp.*<F6> 964,055 1,103,750
475,000 Plains Exploration
& Production Co.*<F6> 9,005,323 11,333,500
-------------- --------------
93,507,737 112,237,485
THIS SECTOR IS 20.0% ABOVE YOUR FUND'S COST.
OIL/GAS SERVICES - 10.2%
220,000 Cal Dive International, Inc.*<F6> 6,183,470 7,836,400
453,300 Cooper Cameron Corp.*<F6> 22,647,075 24,858,972
87,500 Core Laboratories N.V.*<F6> 2,004,340 2,151,625
545,900 FMC Technologies, Inc.*<F6> 14,446,196 18,233,060
275,000 GlobalSantaFe Corp. 7,917,042 8,428,750
1,225,000 Grant Prideco, Inc.*<F6> 19,621,922 25,100,250
1,350,000 Input/Output, Inc.*<F6> 9,567,281 13,918,500
1,500,000 Nabors Industries, Ltd.*<F6> 62,876,427 71,025,000
225,000 Noble Corp.*<F6> 8,319,547 10,113,750
800,000 Smith International, Inc.*<F6> 42,235,776 48,584,000
85,000 Todco*<F6> 1,420,302 1,474,750
215,000 Transocean Inc.*<F6> 6,839,691 7,692,700
2,450,000 Weatherford International Ltd.*<F6> 104,184,646 124,999,000
-------------- --------------
308,263,715 364,416,757
THIS SECTOR IS 18.2% ABOVE YOUR FUND'S COST.
PHARMACEUTICALS - 2.6%
850,000 Covance Inc.*<F6> 33,172,095 33,974,500
300,000 K-V Pharmaceutical Co.*<F6> 4,316,836 5,370,000
1,975,000 Thermo Electron Corp.*<F6> 58,230,966 53,364,500
-------------- --------------
95,719,897 92,709,000
THIS SECTOR IS 3.1% BELOW YOUR FUND'S COST.
RAW & INTERMEDIATE MATERIALS - 5.5%
1,062,300 Companhia Vale do
Rio Doce-ADR 23,592,065 23,869,881
275,000 Freeport-McMoRan
Copper & Gold, Inc. Cl B 11,234,083 11,137,500
1,750,000 Phelps Dodge Corp. 133,741,803 161,052,500
-------------- --------------
168,567,951 196,059,881
THIS SECTOR IS 16.3% ABOVE YOUR FUND'S COST.
SEMICONDUCTOR RELATED - 0.2%
249,000 Benchmark Electronics, Inc.*<F6> 6,371,807 7,420,200
THIS SECTOR IS 16.5% ABOVE YOUR FUND'S COST.
SOFTWARE - 0.5%
20,000 FindWhat.com*<F6> 282,523 374,600
62,000 SERENA Software, Inc.*<F6> 1,161,323 1,037,260
1,784,500 TIBCO Software Inc.*<F6> 12,171,511 15,186,095
-------------- --------------
13,615,357 16,597,955
THIS SECTOR IS 21.9% ABOVE YOUR FUND'S COST.
SPECIALTY RETAILING - 1.9%
562,700 Dick's Sporting Goods, Inc.*<F6> 18,243,622 20,043,374
716,300 Hughes Supply, Inc. 21,089,024 21,539,141
322,600 MSC Industrial Direct Co., Inc. 9,152,295 10,994,208
550,000 Staples, Inc. 13,104,361 16,401,000
-------------- --------------
61,589,302 68,977,723
THIS SECTOR IS 12.0% ABOVE YOUR FUND'S COST.
TRANSPORTATION RELATED - 6.7%
150,000 Arkansas Best Corp. 4,786,455 5,493,000
1,400,000 Burlington Northern
Santa Fe Corp. 48,720,677 53,634,000
455,200 CP Railway Ltd. 11,409,996 11,735,056
585,200 General Maritime Corp.*<F6> 14,484,782 20,382,516
858,900 Hunt (J.B.) Transport Services, Inc. 23,946,169 31,899,546
150,000 Old Dominion Freight Line, Inc.*<F6> 4,330,860 4,321,500
975,000 Ryder System, Inc. 34,043,459 45,864,000
200,000 Top Tankers, Inc.*<F6> 2,200,000 3,198,000
300,000 Tsakos Energy Navigation Ltd. 8,780,500 10,545,000
150,000 Werner Enterprises, Inc. 2,784,525 2,896,500
1,075,000 Yellow Roadway Corp.*<F6> 46,332,181 50,406,750
-------------- --------------
201,819,604 240,375,868
THIS SECTOR IS 19.1% ABOVE YOUR FUND'S COST.
MISCELLANEOUS - 0.5%
331,000 Fossil, Inc.*<F6> 8,053,350 10,241,140
215,000 Jarden Corp.*<F6> 8,068,897 7,845,350
-------------- --------------
16,122,247 18,086,490
THIS SECTOR IS 12.2% ABOVE YOUR FUND'S COST.
-------------- --------------
Total common stocks 3,226,957,192 3,539,796,562
SHORT-TERM INVESTMENTS - 2.9% (A)<F7>
COMMERCIAL PAPER - 2.9%
$47,000,000 Mortgage Interest Networking Trust,
due 10/01/04, discount of 1.88% 47,000,000 47,000,000
57,000,000 Morgan Stanley Dean Witter,
due 10/05/04, discount of 1.78% 56,988,726 56,988,726
-------------- --------------
Total commercial paper 103,988,726 103,988,726
VARIABLE RATE DEMAND NOTE - 0.0%
1,895,359 U.S. Bank, N.A., 1.59% 1,895,359 1,895,359
-------------- --------------
Total short-term investments 105,884,085 105,884,085
-------------- --------------
Total investments $3,332,841,277 3,645,680,647
--------------
--------------
Liabilities, less cash and
receivables (1.6%) (A)<F7> (58,887,950)
--------------
NET ASSETS $3,586,792,697
--------------
--------------
Net Asset Value Per Share
($0.01 par value 500,000,000
shares authorized), offering
and redemption price
($3,586,792,697 / 148,256,826
shares outstanding) $24.19
------
------
*<F6> Non-dividend paying security.
(a)<F7> Percentages for the various classifications relate to net assets.
ADR - American Depository Receipts
N.V.- Netherlands Antilles Limited Liability Corporation
NYS - New York Registered Shares
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2004
INCOME:
Dividends $ 18,174,938
Interest 1,494,977
------------
Total income 19,669,915
------------
EXPENSES:
Management fees 37,003,798
Transfer agent fees 1,562,176
Administrative services 541,625
Printing and postage expense 362,212
Custodian fees 276,140
Board of Directors fees 172,308
Professional fees 71,733
Insurance expense 64,082
Registration fees 58,082
Other expenses 29,642
------------
Total expenses 40,141,798
------------
NET INVESTMENT LOSS (20,471,883)
------------
NET REALIZED GAIN ON INVESTMENTS 279,692,234
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 196,081,197
------------
NET GAIN ON INVESTMENTS 475,773,431
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $455,301,548
------------
------------
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, 2004 and 2003
2004 2003
---- ----
OPERATIONS:
Net investment loss $ (20,471,883) $ (16,751,575)
Net realized gain on investments 279,692,234 204,896,466
Net increase in unrealized appreciation on investments 196,081,197 156,935,580
-------------- --------------
Net increase in net assets resulting from operations 455,301,548 345,080,471
-------------- --------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (15,923,002 and 21,107,528 shares, respectively) 381,959,569 410,081,518
Cost of shares redeemed (26,634,617 and 29,685,813 shares, respectively) (636,057,970) (566,431,690)
-------------- --------------
Net decrease in net assets derived from Fund share activities (254,098,401) (156,350,172)
-------------- --------------
TOTAL INCREASE 201,203,147 188,730,299
NET ASSETS AT THE BEGINNING OF THE YEAR 3,385,589,550 3,196,859,251
-------------- --------------
NET ASSETS AT THE END OF THE YEAR $3,586,792,697 $3,385,589,550
-------------- --------------
-------------- --------------
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each year)
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $21.30 $19.08 $22.93 $46.23 $35.09
Income from investment operations:
Net investment loss(1)<F8> (0.13) (0.10) (0.12) (0.09) (0.25)
Net realized and unrealized gains (losses)
on investments 3.02 2.32 (3.73) (7.10) 14.51
------ ------ ------ ------ ------
Total from investment operations 2.89 2.22 (3.85) (7.19) 14.26
Less distributions:
Dividend from net investment income -- -- -- -- --
Distributions from net realized gains -- -- -- (16.11) (3.12)
------ ------ ------ ------ ------
Total from distributions -- -- -- (16.11) (3.12)
------ ------ ------ ------ ------
Net asset value, end of year $24.19 $21.30 $19.08 $22.93 $46.23
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN 13.57% 11.64% (16.79%) (22.46%) 42.81%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 3,586,793 3,385,590 3,196,859 4,302,986 5,983,163
Ratio of expenses to average net assets 1.08% 1.09% 1.08% 1.06% 1.04%
Ratio of net investment loss
to average net assets (0.55%) (0.53%) (0.52%) (0.32%) (0.61%)
Portfolio turnover rate 247.0% 279.3% 272.9% 284.3% 244.0%
(1)<F8> In 2004, 2003, 2002 and 2001, 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 Fund's consistent focus on the earnings prospects of
individual companies served the Fund well in the 12 months through September 30,
2004. The Fund grew 17.80 percent in an environment for large-cap growth stocks
that limited the Russell 1000 Growth Index to a 7.51 percent return. Brandywine
Blue's results outpaced 98 percent of the funds in Morningstar's large-cap
growth category.
The period began on a solidly positive note in the December quarter of 2003,
when renewed prospects for the economy and expectations for robust earnings
growth in 2004 fueled a welcoming environment for a broad range of stocks.
Nearly every economic sector represented in the portfolio contributed to the
Fund's double-digit gain, with the greatest influence coming from holdings in
the financial services and technology sectors.
Although still generally positive, the environment in the March quarter was
more cautious following the outsized gains stocks posted in 2003. Brandywine
Blue thrived in this more selective climate in which stock picking drove
performance. Homebuilders joined financial services and tech holdings among the
portfolio's strongest contributors. Brandywine Blue outperformed its best
performing benchmark in the period, the Russell 1000 Index, by more than 5
percentage points.
While financial services holdings factored prominently in the Fund's growth
in the prior two quarters, they weighed on performance in the June quarter amid
concerns about the Federal Reserve's intention to begin raising interest rates
in June. Homebuilders also detracted because of investor misperceptions that
higher mortgage rates would dramatically crimp sales. Rate concerns outweighed
positive earnings trends that remained intact among these holdings, fueling a
small decline in the Fund versus small gains in large-cap indexes.
Portfolio changes undertaken in and after the June quarter positioned
Brandywine Blue to outperform in the September quarter. Investors rewarded
earnings strength among energy and raw materials holdings in what was an
otherwise uneventful quarter for stocks thanks to a sharp rise in oil prices.
While most large-cap indexes declined in the quarter, including a 5.23 percent
drop in the Russell 1000 Growth, Brandywine Blue posted a small gain.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN BRANDYWINE BLUE FUND,
RUSSELL 1000 GROWTH(1)<F9>, RUSSELL 1000 INDEX(2)<F10> AND S&P 500 INDEX(3)<F11>
DATE BRANDYWINE BLUE FUND RUSSELL 1000 GROWTH S&P 500 RUSSELL 1000
---- -------------------- ------------------- ------- ------------
9/30/1994 $10,000 $10,000 $10,000 $10,000
9/30/1995 $14,280 $13,470 $12,980 $12,658
9/30/1996 $15,551 $16,351 $15,628 $15,120
9/30/1997 $22,020 $22,287 $21,988 $20,971
9/30/1998 $16,185 $24,762 $23,989 $22,458
9/30/1999 $21,882 $31,416 $30,658 $28,515
9/30/2000 $29,634 $38,777 $34,731 $33,594
9/30/2001 $23,730 $21,079 $25,485 $24,046
9/30/2002 $20,379 $16,334 $20,265 $19,355
9/30/2003 $23,831 $20,566 $25,208 $24,221
9/30/2004 $28,073 $22,111 $28,705 $27,588
AVERAGE ANNUAL TOTAL RETURN
Since Inception
1-Year 5-Year 10-Year 01/10/91
------ ------ ------- ---------------
17.80% 5.11% 10.87% 13.65%
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 Russell 1000 Growth Index measures the performance of those
Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values.
(2)<F10> The Russell 1000 Index, 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.
(3)<F11> 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.
BRANDYWINE BLUE FUND
STATEMENT OF NET ASSETS
September 30, 2004
SHARES OR
PRINCIPAL
AMOUNT COST VALUE
--------- ---- -----
COMMON STOCKS - 95.9% (A)<F13>
BUILDING RELATED - 2.2%
230,000 Centex Corp. $ 11,334,054 $ 11,605,800
THIS SECTOR IS 2.4% ABOVE YOUR FUND'S COST.
BUSINESS/COMMUNICATION SERVICES - 2.1%
200,100 Affiliated Computer
Services, Inc.*<F12> 10,102,527 11,139,567
THIS SECTOR IS 10.3% ABOVE YOUR FUND'S COST.
COMMUNICATIONS EQUIPMENT/SERVICES - 17.5%
1,425,000 Avaya Inc.*<F12> 20,939,940 19,864,500
1,375,000 Corning Inc.*<F12> 15,662,150 15,235,000
392,000 L.M. Ericsson Telephone Co. ADR*<F12> 10,574,371 12,246,080
1,363,800 Motorola, Inc. 23,380,765 24,602,952
876,300 Nextel Communications, Inc.*<F12> 21,929,006 20,890,992
------------ ------------
92,486,232 92,839,524
THIS SECTOR IS 0.4% ABOVE YOUR FUND'S COST.
COMPUTER/ELECTRONICS - 2.3%
318,900 Rockwell Automation Inc. 10,567,820 12,341,430
THIS SECTOR IS 16.8% ABOVE YOUR FUND'S COST.
DEPARTMENT STORES - 3.8%
575,000 J.C. Penney Company, Inc. 22,542,219 20,286,000
THIS SECTOR IS 10.0% BELOW YOUR FUND'S COST.
FINANCIAL - 4.3%
901,400 MBNA Corp. 24,813,775 22,715,280
THIS SECTOR IS 8.5% BELOW YOUR FUND'S COST.
INSURANCE - 3.2%
352,600 Allstate Corp. 14,178,099 16,921,274
THIS SECTOR IS 19.3% ABOVE YOUR FUND'S COST.
LEISURE & ENTERTAINMENT - 4.9%
554,300 Hilton Hotels Corp. 9,838,749 10,443,012
299,000 Marriott International, Inc. 14,212,006 15,536,040
------------ ------------
24,050,755 25,979,052
THIS SECTOR IS 8.0% ABOVE YOUR FUND'S COST.
MACHINERY - 12.1%
434,500 Danaher Corp. 20,980,582 22,281,160
300,000 Eaton Corp. 17,756,272 19,023,000
340,200 Ingersoll-Rand Co. 23,806,900 23,123,394
------------ ------------
62,543,754 64,427,554
THIS SECTOR IS 3.0% ABOVE YOUR FUND'S COST.
MEDICAL/MANAGED CARE - 4.9%
262,800 Aetna Inc. 19,833,178 26,261,604
THIS SECTOR IS 32.4% ABOVE YOUR FUND'S COST.
MISCELLANEOUS MANUFACTURING - 7.0%
399,000 General Electric Co. 12,104,738 13,398,420
773,000 Tyco International Ltd. 23,582,475 23,700,180
------------ ------------
35,687,213 37,098,600
THIS SECTOR IS 4.0% ABOVE YOUR FUND'S COST.
OIL/GAS EXPLORATION - 2.6%
241,700 Kerr-McGee Corp. 12,770,248 13,837,325
THIS SECTOR IS 8.4% ABOVE YOUR FUND'S COST.
OIL/GAS SERVICES - 13.9%
267,700 GlobalSantaFe Corp. 7,688,311 8,205,005
343,200 Nabors Industries, Ltd.*<F12> 14,368,676 16,250,520
226,700 Smith International, Inc.*<F12> 12,368,204 13,767,491
390,000 Transocean Inc. *<F12> 11,517,584 13,954,200
427,500 Weatherford International Ltd.*<F12> 18,122,612 21,811,050
------------ ------------
64,065,387 73,988,266
THIS SECTOR IS 15.5% ABOVE YOUR FUND'S COST.
RAW & INTERMEDIATE MATERIALS - 9.1%
650,000 Companhia Vale do
Rio Doce-ADR 13,222,554 14,605,500
122,000 Freeport-McMoRan Copper
& Gold, Inc. Cl B 4,987,471 4,941,000
309,900 Phelps Dodge Corp. 23,384,668 28,520,097
------------ ------------
41,594,693 48,066,597
THIS SECTOR IS 15.6% ABOVE YOUR FUND'S COST.
SPECIALTY RETAILING - 2.1%
374,700 Staples, Inc. 7,496,332 11,173,554
THIS SECTOR IS 49.1% ABOVE YOUR FUND'S COST.
TRANSPORTATION RELATED - 3.9%
544,800 Burlington Northern Santa Fe Corp. 19,178,114 20,871,288
THIS SECTOR IS 8.8% ABOVE YOUR FUND'S COST.
------------ ------------
Total common stocks 473,244,400 509,552,715
SHORT-TERM INVESTMENTS - 3.8% (A)<F13>
COMMERCIAL PAPER - 3.4%
$ 8,000,000 Mortgage Interest Networking Trust,
due 10/01/04, discount of 1.88% 8,000,000 8,000,000
10,000,000 Morgan Stanley Dean Witter,
due 10/05/04, discount of 1.78% 9,998,022 9,998,022
------------ ------------
Total commercial paper 17,998,022 17,998,022
VARIABLE RATE DEMAND NOTE - 0.4%
2,153,152 U.S. Bank, N.A., 1.59% 2,153,152 2,153,152
------------ ------------
Total short-term investments 20,151,174 20,151,174
------------ ------------
Total investments $493,395,574 529,703,889
------------
------------
Cash and receivables, less
liabilities 0.3% (A)<F13> 1,811,769
------------
NET ASSETS $531,515,658
------------
------------
Net Asset Value Per Share
($0.01 par value 100,000,000
shares authorized), offering
and redemption price
($531,515,658 / 21,083,384
shares outstanding) $25.21
------
------
*<F12> Non-dividend paying security.
(a)<F13> Percentages for the various classifications relate to net assets.
ADR - American Depository Receipts
The accompanying notes to financial statements are an integral part of this
statement.
BRANDYWINE BLUE FUND
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2004
INCOME:
Dividends $ 3,213,406
Interest 325,260
-----------
Total income 3,538,666
-----------
EXPENSES:
Management fees 4,381,479
Administrative services 136,745
Transfer agent fees 118,836
Registration fees 80,981
Professional fees 69,317
Printing and postage expense 48,974
Board of Directors fees 44,166
Custodian fees 32,264
Insurance expense 14,523
Other expenses 10,319
-----------
Total expenses 4,937,604
-----------
NET INVESTMENT LOSS (1,398,938)
-----------
NET REALIZED GAIN ON INVESTMENTS 33,958,803
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 28,410,380
-----------
NET GAIN ON INVESTMENTS 62,369,183
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $60,970,245
-----------
-----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2004 and 2003
2004 2003
---- ----
OPERATIONS:
Net investment loss $ (1,398,938) $ (1,068,556)
Net realized gain on investments 33,958,803 32,634,458
Net increase in unrealized appreciation on investments 28,410,380 8,824,716
------------ ------------
Net increase in net assets resulting from operations 60,970,245 40,390,618
------------ ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (8,853,587 and 4,710,513 shares, respectively) 215,636,391 93,274,187
Cost of shares redeemed (2,384,780 and 1,993,790 shares, respectively) (57,816,638) (38,676,807)
------------ ------------
Net increase in net assets derived from Fund share activities 157,819,753 54,597,380
------------ ------------
TOTAL INCREASE 218,789,998 94,987,998
NET ASSETS AT THE BEGINNING OF THE YEAR 312,725,660 217,737,662
------------ ------------
NET ASSETS AT THE END OF THE YEAR $531,515,658 $312,725,660
------------ ------------
------------ ------------
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE BLUE FUND
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each year)
Years Ended September 30,
----------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $21.40 $18.30 $21.31 $37.39 $29.46
Income from investment operations:
Net investment loss(1)<F14> (0.08) (0.08) (0.05) (0.05) (0.21)
Net realized and unrealized gains (losses)
on investments 3.89 3.18 (2.96) (5.32) 10.32
------ ------ ------ ------ ------
Total from investment operations 3.81 3.10 (3.01) (5.37) 10.11
Less distributions:
Dividend from net investment income -- -- -- -- --
Distributions from net realized gains -- -- -- (10.71) (2.18)
------ ------ ------ ------ ------
Total from distributions -- -- -- (10.71) (2.18)
------ ------ ------ ------ ------
Net asset value, end of year $25.21 $21.40 $18.30 $21.31 $37.39
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN 17.80% 16.94% (14.12%) (19.92%) 35.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 531,516 312,726 217,738 271,947 407,839
Ratio of expenses to average net assets 1.13% 1.14% 1.13% 1.09% 1.07%
Ratio of net investment loss
to average net assets (0.32%) (0.41%) (0.26%) (0.18%) (0.56%)
Portfolio turnover rate 247.4% 300.0% 310.7% 274.5% 245.7%
(1)<F14> In 2004, 2003, 2002 and 2001, 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, 2004
(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 "Brandywine Funds" or 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. Securities that are traded on the Nasdaq National
Market or the Nasdaq SmallCap Market are valued at the Nasdaq Official
Closing Price, 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 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. This relationship does not increase the annual management fee the
Funds pay to the 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.
In the normal course of business the Funds enter into contracts with
service providers that contain general indemnification clauses. The Funds'
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Funds that have not yet
occurred. However, based on experience, the Funds expect the risk of loss
to be remote.
(3) CREDIT AGREEMENT
U.S. Bank, N.A. has made available to each Fund a credit facility pursuant
to Credit Agreements effective July 22, 2004, for the purpose of having
cash available to cover incoming redemptions. The Brandywine Fund has a
$50,000,000 credit facility and the Blue Fund has a $10,000,000 credit
facility. Principal and interest of such loan under the Credit Agreements
are due not more than 31 days after the date of the loan. Amounts under the
credit facilities bear interest at a rate per annum equal to the current
prime rate minus one on the amount borrowed. Advances will be
collateralized by securities owned by the respective Fund. During the year
ended September 30, 2004, neither Fund borrowed against their Agreement.
The Credit Agreements expire on December 18, 2004.
(4) DISTRIBUTIONS TO SHAREHOLDERS
Net investment income and net realized gains, if any, are distributed to
shareholders at least annually.
(5) INVESTMENT TRANSACTIONS AND RELATED COSTS
For the year ended September 30, 2004, purchases and proceeds of sales of
investment securities (excluding short-term investments) for the Funds were
as follows:
SALE TRANSACTION RATIO OF COST TO
PURCHASES PROCEEDS COST AVERAGE NET ASSETS
--------- -------- ----------- ------------------
Brandywine Fund $8,854,033,274 $9,094,380,153 $31,439,329 0.85%
Blue Fund 1,182,049,959 1,022,178,807 3,433,968 0.78%
Transaction cost represents the total commissions paid by each Fund on its
respective purchases and sales of investment securities. These costs are
added to the cost basis of the securities purchased and are deducted from
the proceeds of securities sold, thereby reducing the realized gains or
increasing the realized losses upon the sale of the securities.
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of September 30, 2004, liabilities of each Fund included the following:
Brandywine Blue
Fund Fund
---------- ----
Payable to brokers for investments purchased $97,857,026 $8,519,084
Due to custodian 3,186,280 --
Payable to Adviser for management fees 2,900,926 419,512
Deferred compensation plan for Directors 421,602 112,007
Payable to shareholders for redemptions 67,512 10,000
Other liabilities 494,512 103,691
Brandywine Blue
Fund Fund
---------- ----
(7) SOURCES OF NET ASSETS
As of September 30, 2004, the sources of net assets were as follows:
Fund shares issued and outstanding $4,281,523,636 $515,350,341
Net unrealized appreciation on investments 312,839,370 36,308,315
Accumulated net realized losses (1,007,148,707) (20,030,991)
Accumulated net investment loss (421,602) (112,007)
-------------- ------------
$3,586,792,697 $531,515,658
-------------- ------------
-------------- ------------
(8) INCOME TAX INFORMATION
The following information for the Funds is presented on an income tax basis
as of September 30, 2004:
GROSS GROSS NET UNREALIZED DISTRIBUTABLE DISTRIBUTABLE
COST OF UNREALIZED UNREALIZED APPRECIATION ORDINARY LONG-TERM
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS INCOME CAPITAL GAINS
----------- ------------ ------------ -------------- ------------- -------------
Brandywine Fund $3,313,100,506 $388,573,669 $74,320,440 $314,253,229 $ -- $ --
Blue Fund 496,605,023 45,697,068 8,695,584 37,001,484 -- --
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,
2004 and 2003, capital loss carryovers, which may be used to offset future
capital gains, subject to Internal Revenue Code limitations, (expiring in
varying amounts through 2011), as of September 30, 2004, and tax basis
post-October losses as of September 30, 2004, which are not recognized for
tax purposes until the first day of the following fiscal year are:
SEPTEMBER 2004 SEPTEMBER 2003
----------------------------------------------------------------- ------------------------------
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 $ -- $ -- $1,008,483,332 $ -- $ -- $ --
Blue Fund $ -- $ -- $ 20,690,340 $ -- $ -- $ --
The Brandywine Fund and the Blue Fund have utilized $279,658,978 and
$32,658,100, respectively, of their capital loss carryovers during the year
ended September 30, 2004.
Since there were no ordinary distributions paid for either Fund for the
year ended September 30, 2004, there were no distributions designated as
qualifying for the dividends received deduction for corporate shareholders
nor as qualified dividend income under the Jobs and Growth Tax Relief Act
of 2003.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF BRANDYWINE FUND, INC. AND BRANDYWINE BLUE FUND
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Brandywine Fund, Inc. and Brandywine Blue Fund (a series of the Brandywine Blue
Fund, Inc.) (the "Funds") at September 30, 2004, 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 standards of the Public Company Accounting Oversight Board (United States).
Those standards 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 13, 2004
BRANDYWINE FUND AND BRANDYWINE BLUE FUND DIRECTORS AND OFFICERS
Position, Term of Office
and Length of Time Served
and Number of Portfolios
in Fund Complex Overseen Principal Occupation During Other Directorships Held
Name, Age and Address by Director or Officer Past Five Years by Director or Officer
- --------------------- ------------------------- --------------------------- ------------------------
Robert F. Birch, 68 Director Mr. Birch has been President and Hyperion Funds (5
8 Knollwood Drive Indefinite Term since Director of the New America High portfolios), New America
Dover, MA 02030 October, 2001 Income Fund since 1992, a high-yield High Income Fund
3 Portfolios bond fund traded on the New York
Stock Exchange.
C. Quentin S. Jackson, 60 Lead Independent Director Mr. Jackson is President and Chief None
c/o Nuclear Electric Insurance Ltd. Indefinite Term since Executive Officer of Nuclear Electric
1201 Market Street, Suite 1200 October, 2001 Insurance Ltd., a multibillion-dollar
Wilmington, DE 19801 3 Portfolios company mutually owned by energy
companies. He has been with Nuclear
Electric since 1980.
Stuart A. McFarland, 57 Director Mr. McFarland is a Managing Partner NCRIC Group, Inc. and
c/o Federal City Capital Advisors Indefinite Term since at Federal City Capital Advisors. Newcastle Investment
3050 K Street NW, Suite 125 October, 2001 From 1999 until 2002, he served as Corporation
Washington, DC 20007 Audit Committee President and Chief Executive of
Chairman, June 2004 Pedestal Inc. Mr. McFarland also
3 Portfolios served as Chief Financial Officer
of Fannie Mae, and an officer of
G.E. Capital.
W. Richard Scarlett III, 65 Director Mr. Scarlett is Chairman and Chief United Bancorporation
c/o United Bancorporation Indefinite Term since Executive Officer of United of Wyoming, Inc.
of Wyoming, Inc. October, 2001 Bancorporation of Wyoming, Inc.,
50 Buffalo Way 3 Portfolios having been with the Bank
Jackson, WY 83001 since 1981.
Marvin N. Schoenhals, 57 Director Mr. Schoenhals is Chairman and WSFS Financial Corp.
c/o WSFS Corporation Indefinite Term since President of WSFS Financial Corporation,
838 Market Street October, 1998 a bank holding company. Mr. Schoenhals
Wilmington, DE 19801 3 Portfolios first began serving as a Brandywine
Funds director in 1998.
James W. Zug, 64 Director Mr. Zug is a retired Partner of Amkor Technology, Inc.
5 Radnor Corporate Center, Indefinite Term since PricewaterhouseCoopers LLP. He was and Teleflex Inc.
Suite 520 October, 2001 employed with PricewaterhouseCoopers
100 Matsonford Road 3 Portfolios and its predecessors from 1964 until
Radnor, PA 19087 2000.
William F. D'Alonzo*<F15>, 49 Director Mr. D'Alonzo joined Friess Associates None
c/o Friess Associates Indefinite Term since in 1981 as part of the research team,
3711 Kennett Pike October, 2001 became Chief Investment Officer in
Greenville, DE 19807 President since 2003 1997 and Chief Executive Officer
3 Portfolios in 2002.
Foster S. Friess*<F15>, 64 Director Mr. Friess founded Friess Associates None
c/o Friess Associates Indefinite Term since in 1974 with his wife, Lynnette E.
115 East Snow King Avenue October, 1985 Friess. Serving as Chairman of the
Jackson, WY 83001 Chairman since 2003 Board since Brandywine's inception
3 Portfolios in 1985, he also serves as Chairman
of Friess Associates, LLC, the Funds'
advisor.
Lynda J. Campbell*<F15>, 58 Vice President since 1998 Ms. Campbell joined Friess Associates None
c/o Friess Associates Secretary since 1990 in 1985, the year of Brandywine Fund's
3711 Kennett Pike 3 Portfolios inception. Ms. Campbell is currently
Greenville, DE 19807 Chief Administrative Officer of Friess
Associates, LLC.
Carl S. Gates*<F15>, 72 Vice President since 1994 Mr. Gates joined Friess Associates in None
c/o Friess Associates 3 Portfolios 1988, where he serves as a Research
3711 Kennett Pike Team Leader.
Greenville, DE 19807
Christopher G. Long*<F15>, 38 Vice President since 2002 Mr. Long joined Friess Associates in None
c/o Friess Associates Treasurer since 2003 1996, and became Chief Operating
3711 Kennett Pike 3 Portfolios Officer of Friess Associates, LLC
Greenville, DE 19807 in 2001.
David D. Marky*<F15>, 39 Vice President since 2002 Mr. Marky joined Friess Associates None
c/o Friess Associates Chief Compliance Officer in 2000, following 13 years with PFPC,
3711 Kennett Pike since 2004 Inc. He currently serves as Chief
Greenville, DE 19807 3 Portfolios Compliance Officer for Friess
Associates, LLC.
Paul R. Robinson*<F15>, 81 Vice President since 1990 Mr. Robinson has been a consultant None
c/o Friess Associates 3 Portfolios to Friess Associates since June 1985,
3711 Kennett Pike just six months before Brandywine
Greenville, DE 19807 Fund's launch.
*<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.
ADDITIONAL DIRECTOR INFORMATION, PROXY VOTING POLICY AND QUARTERLY PORTFOLIO
SCHEDULES
For additional information about the Directors and Officers or for a description
of the policies and procedures that the Funds use to determine how to vote
proxies relating to portfolio securities, please call (800) 656-3017 and request
a Statement of Additional Information. One will be mailed to you free of charge.
The Statement of Additional Information is also available on the website of the
Securities and Exchange Commission (the "Commission") at http://www.sec.gov.
Information on how the Funds voted proxies relating to portfolio securities
during the twelve month period ending June 30, 2004 is available on the Funds'
website at http://www.brandywinefunds.com or the website of the Commission. The
Funds file their complete schedule of portfolio holdings with the Commission for
the first and third quarters of each fiscal year on Form N-Q; (ii) the Funds'
Forms N-Q are available on the Commission's website; and (iii) the Funds' Forms
N-Q may be reviewed and copied at the Commission's Public Reference Room in
Washington, DC, and that information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
CAPITAL GAINS UPDATE . . .
There will be no capital gains distribution in October. As of September 30,
Brandywine and Brandywine Blue can realize gains of approximately $6.80 and
$0.95 per share, respectively, before triggering a distribution. These estimates
may change, so please look to the December-quarter report for final year-end
figures.
IRA INVESTORS . . .
The annual $15 maintenance fee is due on November 5, 2004. For your convenience,
US Bancorp will automatically deduct this amount from your IRA on the due date,
or if you'd prefer, please send a check to US Bancorp by November 5.
COST DISCUSSION
Mutual fund shareholders incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments, reinvested dividends, or
other distributions; redemption fees; and exchange fees; and (2) ongoing costs,
including management fees; distribution [and/or service] (12b-1) fees; and other
fund expenses. Brandywine and Brandywine Blue do not have 12b-1 distribution
fees. This example is intended to help you understand your ongoing costs (in
dollars) of investing in the Brandywine Funds and to compare these costs with
the ongoing costs of investing in other mutual funds.
In addition to the costs highlighted and described below, the only Fund
transaction costs you might currently incur would be wire fees ($15 per wire),
if you choose to have proceeds from a redemption wired to your bank account
instead of receiving a check. Additionally, U.S. Bank charges an annual
processing fee ($15) if you maintain an IRA account with the Funds. To determine
your total costs of investing in the Funds, you would need to add any applicable
wire or IRA processing fees you've incurred during the period to the costs
provided in the example below.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period from March 31, 2004 through September
30, 2004.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs. While the
Brandywine Funds currently do not assess sales charges, redemption or exchange
fees, other funds do, and those costs will not be reflected in their expense
example tables. Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds.
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*<F16>
3/31/04 9/30/04 3/31/04-9/30/04
------- ------- ---------------
Brandywine Actual $1,000 $1,000.00 $ 964.10 $5.30
Hypothetical (5% return before expenses) $1,000.00 $1,025.00 $5.47
Brandywine Blue Actual $1,000 $1,000.00 $ 989.40 $5.62
Hypothetical (5% return before expenses) $1,000 $1,000.00 $1,025.00 $5.72
*<F16> Expenses are equal to the Funds' annualized expense ratios of 1.08% and
1.13%, multiplied by the average account value over the period,
multiplied by 183/366 (to reflect the one-half year period between
March 31, 2004 and September 30, 2004).
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 Registered Public Accounting Firm: PRICEWATERHOUSECOOPERS LLP
Legal Counsel: FOLEY & LARDNER LLP
OFFICERS: Foster S. Friess, Chairman; William D'Alonzo, President; Lynda
Campbell, Vice President and Secretary; Carl Gates, Vice President; Christopher
Long, Vice President and Treasurer; David Marky, Chief Compliance Officer, Vice
President and Assistant Secretary; and Paul Robinson, Vice President
Report Editor: Chris Aregood
Report Staff: Rebecca Buswell, Dave Marky, Adam Rieger
Must be preceded or accompanied by prospectus. Please refer to the prospectus
for important information about the investment companies, including investment
objectives, risks, charges and expenses.
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 9/30/04, unless listed in the accompanying statements of
net assets. References to the earnings growth rates of the Funds refer solely to
the estimated earnings growth rates of the average investment holding of the
Funds based on consensus estimates from Baseline and not to the actual
performance of the Funds themselves. The Russell 3000, Russell 3000 Growth,
Russell 1000, Russell 1000 Growth and S&P 500 Indexes are unmanaged indexes
commonly used to measure the performance of U.S. stocks. You cannot invest
directly in an index. As of September 30, 2004, the Russell 3000 Index's average
annual total returns for 1, 5 and 10 years were 14.26, -0.10 and 10.87 percent;
the Russell 3000 Growth Index's were 7.82, -6.35 and 8.36 percent; the Russell
1000 Index's were 13.90, -0.66 and 11.07 percent; the Russell 1000 Growth
Index's were 7.51, -6.78 and 8.72 percent; and the S&P 500 Index's were 13.87,
- -1.31 and 11.09 percent. Morningstar's "percent rank in category" is a fund's
trailing total return percentile rank relative to all funds that have the same
Morningstar category. The highest, or best, percentile rank is 1 and the lowest
is 100. Brandywine Blue Fund was ranked in the 2, 2 and 11 percentiles out of
the 1,268, 681 and 239 funds in Morningstar's large-cap growth category for the
1-, 5- and 10-year periods, respectively, as of 9/30/04. 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. Robert F.
Birch, are audit committee financial experts. Messrs. McFarland, Schoenhals and
Birch are "independent" as such term is defined in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -----------------------------------------------
(a) Audit Fees
$25,400 (FY 2004) and $24,200 (FY 2003) are the aggregate fees billed for each
of the last two fiscal years for professional services rendered by the principal
accountant to the registrant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
(b) Audit-Related Fees
There were no fees billed in each of the last two fiscal years for Audit-Related
Fees.
(c) Tax Fees
$5,075 (FY 2004) and $6,850 (FY 2003) are the aggregate fees billed in each of
the last two fiscal years for professional services rendered by the principal
accountant to the registrant for tax compliance, tax advice, tax planning and
tax return preparation.
(d) All Other Fees
There were no fees billed in each of the last two fiscal years for products and
services provided by the principal accountant to the registrant, other than the
services reported in paragraphs (a) - (c) of this Item 4.
(e) (1) None
(e) (2) None
(f) Not applicable.
(g) $28,245 (FY 2004) and $16,800 (FY 2003) in non-audit fees were billed to
the registrant's investment adviser for tax return preparation and AIMR
performance verification services.
(h) The Audit Committee of the registrant determined that the non-
audit fees billed to the registrant's investment adviser by the principal
accountant disclosed in paragraph (g) of this Item 4, was compatible with
maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
- ----------------------------------------------
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
- --------------------------------
Not applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
- -------------------------------------------------------------------------
MANAGEMENT INVESTMENT COMPANIES
- -------------------------------
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
- --------------------------------------------------------------------------
COMPANY AND AFFILIATED PURCHASERS.
- ----------------------------------
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
None.
ITEM 10. CONTROLS AND PROCEDURES.
- ---------------------------------
(a) The disclosure controls and procedures of the Brandywine Fund, Inc. are
periodically evaluated. As of October 26, 2004, the date of the last
evaluation, we concluded that our disclosure controls and procedures are
adequate.
(b) The internal controls of the Brandywine Fund, Inc. are periodically
evaluated. Since, October 26, 2004, the date of the last evaluation, there
have been no significant changes in the Brandywine 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 11. 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 Fund, Inc.
---------------------
Registrant
By /s/ William F. D'Alonzo
-----------------------------------------------
William F. D'Alonzo Principal Executive Officer
Date October 26, 2004
---------------------------------------------
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 Fund, Inc.
---------------------
Registrant
By /s/ Christopher G. Long
------------------------------------------------
Christopher G. Long, Principal Financial Officer
Date October 26, 2004
----------------------------------------------