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
--------------------
(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: September 30, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
- --------------------------------
THE BRANDYWINE FUNDS
MANAGED BY FRIESS ASSOCIATES, LLC ANNUAL REPORT SEPTEMBER 30, 2005
DEAR FELLOW SHAREHOLDERS:
The Brandywine Funds fared well in the September quarter, contributing to
solid year-to-date performance in an environment marked by modest gains in major
indexes. Brandywine and Brandywine Blue grew 15.89 and 10.31 percent this year
through September, more than doubling the return of either Fund's best
performing benchmark.
Recent results capped off a strong fiscal year. Returns in the 12 months
through September for Brandywine and Brandywine Blue of 30.22 and 24.32 percent
surpassed benchmark returns ranging from 11.60 percent to 14.57 percent.
FISCAL YEAR PERFORMANCE
Brandywine Fund 30.22%
Brandywine Blue Fund 24.32%
Russell 3000 Index 14.57%
Russell 1000 Index 14.26%
S&P 500 Index 12.25%
Russell 3000 Growth Index 12.13%
Russell 1000 Growth Index 11.60%
Cumulative Total Returns, September 30, 2004 through September 30, 2005.
Brandywine's performance in the year ended September 30 ranked in the top 3
percent of the 785 funds in Morningstar's mid-cap growth category. Brandywine
Blue's trailing-year results ranked in the top 2 percent of the 1,359 funds in
Morningstar's large-cap growth category.
"Management's Discussion of Results" for Brandywine (page 7) and Brandywine
Blue (page 13) go into detail on performance over the past year.
Brandywine grew 11.62 percent in the September quarter, outpacing gains in the
Russell 3000 and Russell 3000 Growth Indexes of 4.01 and 4.21 percent.
Brandywine Blue posted a return of 8.97 percent versus gains in the S&P 500,
Russell 1000 and Russell 1000 Growth Indexes of 3.61, 3.95 and 4.01 percent.
Energy-related holdings were far and away the most significant contributors to
September-quarter results. Energy equipment and service providers went into the
quarter with pricing leverage driven by robust demand, only to see that position
bolstered when hurricanes Katrina and Rita damaged production assets in the Gulf
of Mexico.
Standout performers common to both Funds included Nabors Industries and
Weatherford International, which exceeded June-quarter earnings estimates with
173 and 60 percent growth.
While exposure to energy producers was small compared with service and
equipment suppliers, they figured prominently into September-quarter
performance. Land-based oil and gas producers Chesapeake Energy (both Funds) and
Southwestern Energy (Brandywine) gained ground after growing June-quarter
earnings 52 and 33 percent. They then rallied further as their relative lack of
exposure to hurricane-stricken areas positioned them for continued strength.
BRANDYWINE BRANDYWINE BLUE
CUMULATIVE TOTAL RETURN % CHANGE % CHANGE
----------------------- ---------- ---------------
QUARTER 11.62 8.97
ONE YEAR 30.22 24.32
FIVE YEARS 6.52 17.77
TEN YEARS 130.39 144.30
INCEPTION 1,222.26*<F1> 619.79**<F2>
ANNUALIZED TOTAL RETURN
FIVE YEARS 1.27 3.33
TEN YEARS 8.70 9.34
INCEPTION 13.97*<F1> 14.35**<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.
Although the portfolios were similar in terms of their commitment to energy
companies, they differed in the industrial sector, which comprised a greater
percentage of assets in Brandywine, and the health-care sector, where Brandywine
Blue dedicated a larger portion of assets. These differences played a role in
determining the source of performance contributions outside of energy.
Brandywine benefited from holdings in the industrial sector, where Precision
Castparts (Brandywine) was the lead contributor. Its 44 percent June-quarter
earnings growth highlighted how cost-cutting moves in years past position the
company to capitalize on an upgrade cycle among its aviation customers.
Joy Global (Brandywine), which makes mining equipment, and Union Pacific (both
Funds), which transports coal and other commodities, benefited from their links
to coal as the market focused on energy. Joy Global and Union Pacific beat
estimates with 185 and 47 percent earnings growth in their most recent quarters.
Brandywine Blue drew notable strength from health-care holdings, with Amgen
(Brandywine Blue) leading the way. The company reported 44 percent June-quarter
earnings growth, which topped estimates by 22 percent, and raised revenue and
earnings guidance for the full year. Coventry Health Care (both Funds) also
aided results, as record June-quarter earnings showed the company reaping
promised benefits from its acquisition of First Health. Coventry then raised
earnings guidance for the full year.
Holdings sensitive to consumer discretion were the most significant
performance detractors in both Funds. Although not particularly pronounced in
most cases, price declines were common among consumer-sensitive holdings during
the quarter as concerns grew that energy prices would weigh on consumer spending
power.
For more information on the holdings that influenced September-quarter
performance the most, please refer to "Roses and Thorns" on page 4 for
Brandywine and page 6 for Brandywine Blue.
With high gas prices and the government both discouraging discretionary
travel, people are cutting back on the spur-of-the-moment trips that might make
the difference between a good quarter and a bad one for a given retailer or
restaurant chain. Falling temperatures promise to compound matters as homeowners
get their first heating bills.
Our research currently finds fewer companies dependent on consumer discretion
poised to exceed expectations and, as a result, Brandywine and Brandywine Blue
begin the December quarter with their lowest exposure to the consumer
discretionary sector yet this year. Most new additions to the portfolios came
from the technology sector.
Many technology companies represent compelling values at a time when
corporations and the government are showing more willingness to spend. We've
identified the most opportunities in communications equipment, with solid demand
trends for everything from military radios and secure computing networks to call
center equipment and other telecom infrastructure.
THE AVERAGE BRANDYWINE FUNDS HOLDING IS EXPECTED TO GROW YEAR-OVER-YEAR EARNINGS
BY MORE THAN ONE-THIRD IN THE DECEMBER QUARTER.
We continue to perform exhaustive research to identify the individual-company
earnings trends your team will use to navigate the evolving market environment.
We're encouraged by recent performance, and we'll be working hard to build on it
in the final quarter of 2005.
If individual-company fundamentals continue to influence stock prices as much
as they have so far this year, we believe your companies should attract
attention - the average Brandywine Funds holding is expected to grow year-over-
year earnings by more than one-third in the December quarter.
Your team views each day as an opportunity to build on its insights from the
day before to ensure that your portfolio always represents a collection of our
best ideas. We look forward to putting our research-driven approach to work on
your behalf tomorrow and each new day that follows!
Bill D'Alonzo
Brandywine Funds President September 30, 2005
BRANDYWINE FUND
PERCENT CHANGE IN TOP TEN HOLDINGS FROM BOOK COST
1. Oracle Corp. -7.5%
2. Target Corp. -7.4%
3. Nabors Industries, Ltd. +46.9%
4. Allstate Corp. +32.8%
5. Fisher Scientific International Inc. +22.6%
6. Precision Castparts Corp. +41.9%
7. Union Pacific Corp. +11.9%
8. Phelps Dodge Corp. +37.3%
9. Coventry Health Care, Inc. +18.8%
10. Weatherford International Ltd. +63.6%
EARNINGS GROWTH
YOUR COMPANIES 37%
S&P 500 15%
FORECASTED INCREASE IN EARNINGS PER SHARE
2005 VS 2004
ALL FIGURES ARE DOLLAR WEIGHTED AND BASED ON DATA FROM BASELINE. SEPTEMBER 30,
2005
YOUR COMPANIES' MARKET CAPITALIZATION
LARGE CAP
$10 billion and over
43.6%
MID CAP
$2 billion to $10 billion
42.6%
SMALL CAP
below $2 billion
11.4%
CASH
2.4%
TOP TEN INDUSTRY GROUPS
Communications Equipment (9.9%)
Oil & Gas Equipment & Services (8.5%)
Aerospace & Defense (7.0%)
Oil & Gas Exploration & Production (6.2%)
Health Care Equipment (5.6%)
Systems Software (5.4%)
Oil & Gas Drilling (5.1%)
Semiconductors (4.3%)
General Merchandise Stores (3.9%)
Property & Casualty Insurance (3.7%)
All Other Industry Groups (38.0%)
Cash (2.4%)
BRANDYWINE FUND
SEPTEMBER QUARTER "ROSES AND THORNS"
$ GAIN
BIGGEST $ WINNERS (IN MILLIONS) % GAIN REASON FOR MOVE
----------------- ------------- ------ ---------------
Chesapeake Energy
Corp. $65.1 49.1 June-quarter earnings grew 52 percent on revenue growth of 82 percent. Continued
drilling success in several high-potential areas, including the Barnett Shale
area in North Texas, the Mountain Front area in Oklahoma and the Haley area in
West Texas, are driving results. In addition to owning considerable reserves,
Chesapeake drills the deepest natural gas wells in the U.S., helping it exceed
production expectations amid surging energy demand.
Phelps Dodge Corp. $52.9 40.7 The world's second largest copper producer grew June-quarter earnings 84
percent, beating estimates. Copper prices remain at elevated levels, and mining
issues at competitors Asarco and Falconbridge encouraged investors to focus on
Phelps Dodge's industry leading position. Copper producers will see increased
demand associated with rebuilding efforts on the Gulf Coast following two
catastrophic hurricanes.
Southwestern
Energy Co. $43.1 56.2 June-quarter earnings grew 33 percent as quarterly revenues jumped 13 percent to
$132 million. The integrated energy company focused on natural-gas and oil
production announced positive surprises for exploratory wells on its
Fayetteville Shale, Arkansas property, indicating greater production and reserve
growth than Wall Street anticipated. Natural-gas prices will likely remain
elevated throughout the winter following the infrastructure and production
damage wrought by two hurricanes in the Gulf of Mexico.
Precision Castparts
Corp. $38.5 36.3 The manufacturer of jet-engine parts grew June-quarter earnings 44 percent,
marking 21 consecutive quarters of surpassing consensus estimates. Demand
increased as aircraft manufacturers, utilities and power companies worked to
replace critical, high-wear parts in jet engines and industrial gas turbines
built three to five years ago.
Joy Global Inc. $23.8 43.1 The maker of mining equipment used to extract coal and other raw materials
grew July-quarter earnings 185 percent, beating estimates by 12 percent. Backlog
and pricing have risen as the company's customers look to benefit on favorable
supply and demand metrics in the energy and materials end markets. Your team
sold Joy Global when it reached our target price.
$ LOSS
BIGGEST $ LOSERS (IN MILLIONS) % LOSS REASON FOR MOVE
---------------- ------------- ------ ---------------
Triad Hospitals, Inc. $22.8 16.9 June-quarter earnings grew 27 percent, beating estimates. While Triad had
less exposure to the Gulf Coast hurricanes than many other hospital companies,
it experienced a large influx of patients transferred from the hospitals
severely affected. With uncertainty regarding the likelihood of payment for
these additional services rendered, investors worried that Triad's bad debt
expense would increase and hamper its earnings prospects. Your team sold Triad
to fund an idea with greater near-term earnings visibility.
Oracle Corp. $12.7 7.4 The world's third-largest software maker grew August-quarter earnings 40
percent. Shares retraced on news that license revenue was less than expected as
a few large deals were pushed into the November quarter. Additionally, some
investors expressed skepticism regarding the company's ability to integrate
large acquisitions Siebel Systems and PeopleSoft.
Target Corp. $12.4 7.4 The discount retailer grew July-quarter earnings 39 percent, beating estimates.
General concerns related to the effect higher energy costs will have on consumer
spending trends weighed on shares. With improving sales and margins and a new
store prototype running ahead of plan, we believe the reaction is overblown.
September same-store sales growth came in ahead of expectations at 5.6 percent
after the quarter closed.
Nike, Inc. $11.5 7.7 The athletic shoe manufacturer grew August-quarter earnings 33 percent, beating
estimates by 13 percent. Your team sold shares after contacts at numerous
sporting goods and footwear retailers in the U.S. and Europe reported slowing
overall sales. New products aren't due out until early next year, making a
slowdown in consumer spending more likely to impact the company.
Allstate Corp. $10.4 6.5 June-quarter earnings grew 13 percent to $1.66, beating estimates by 10 percent.
Shares suffered with those of other insurers on concerns that catastrophic
hurricanes in the Gulf of Mexico would generate big losses. While there remains
some uncertainty surrounding the actual costs of the hurricanes, our research
indicates that investors overreacted in the case of Allstate, whose book is less
exposed to these areas than many competitors. Meanwhile, the company continues
to reap the benefits associated with its new multi-tiered and segmented
underwriting models.
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. +34.5%
2. Coventry Health Care, Inc. +16.7%
3. Fisher Scientific International Inc. +1.2%
4. Nabors Industries, Ltd. +41.0%
5. Allstate Corp. +11.3%
6. Amgen Inc. +20.4%
7. Oracle Corp. -6.9%
8. Chesapeake Energy Corp. +70.4%
9. Target Corp. -4.7%
10. Union Pacific Corp. +11.6%
EARNINGS GROWTH
YOUR COMPANIES 35%
S&P 500 15%
FORECASTED INCREASE IN EARNINGS PER SHARE
2005 VS 2004
ALL FIGURES ARE DOLLAR WEIGHTED AND BASED ON DATA FROM BASELINE. SEPTEMBER 30,
2005
YOUR COMPANIES' MARKET CAPITALIZATION
LARGE CAP
$10 billion and over
68.0%
MID CAP
$2 billion to $10 billion
27.5%
CASH
4.5%
TOP TEN INDUSTRY GROUPS
Communications Equipment (10.7%)
Oil & Gas Equipment & Services (7.6%)
Semiconductors (6.9%)
Oil & Gas Drilling (5.6%)
Diversified Metals & Mining (5.0%)
Managed Health Care (4.8%)
Health Care Equipment (4.7%)
Property & Casualty Insurance (4.6%)
Biotechnology (4.5%)
Systems Software (4.3%)
All Other Industry Groups (36.8%)
Cash (4.5%)
BRANDYWINE BLUE FUND
SEPTEMBER QUARTER "ROSES AND THORNS"
$ GAIN
BIGGEST $ WINNERS (IN MILLIONS) % GAIN REASON FOR MOVE
----------------- ------------- ------ ---------------
Chesapeake Energy
Corp. $19.9 53.3 June-quarter earnings grew 52 percent on revenue growth of 82 percent.
Continued drilling success in several high-potential areas, including the
Barnett Shale area in North Texas, the Mountain Front area in Oklahoma and the
Haley area in West Texas, are driving results. In addition to owning
considerable reserves, Chesapeake drills the deepest natural gas wells in the
U.S., helping it exceed production expectations amid surging energy demand.
Phelps Dodge Corp. $16.6 36.3 The world's second largest copper producer grew June-quarter earnings 84
percent, beating estimates. Copper prices remain at elevated levels, and
mining issues at competitors Asarco and Falconbridge encouraged investors to
focus on Phelps Dodge's industry leading position. Copper producers will see
increased demand associated with rebuilding efforts on the Gulf Coast
following two catastrophic hurricanes.
Halliburton Co. $12.2 35.3 The oil-field services and construction provider grew June-quarter earnings
124 percent, beating estimates by 36 percent. Results were driven by price
increases for the company's pressure pumping services as production companies
drilled more to bolster reserves and keep pace with rising demand.
Additionally, orders increased for the construction of new liquefied natural
gas (LNG) terminals that unload LNG from tankers and convert it back to gas.
Amgen Inc. $10.0 22.4 The world's largest biotechnology company grew June-quarter earnings 44
percent, beating estimates by 22 percent, and raised its earnings and revenue
guidance for 2005. Strong performance in the company's supportive care
franchise for oncology and dialysis patients aided results. Changes in the way
the Medicare program reimburses doctors haven't eroded sales of Amgen's
approved products. The company also has a broad array of new drugs in clinical
trials.
Nabors Industries, Ltd. $8.5 17.3 The world's largest on-shore oil and natural-gas contract driller grew June-
quarter earnings 173 percent, topping estimates by 14 percent. Strong pricing
trends for land rigs were magnified when damaging hurricanes in the Gulf of
Mexico forced energy producers to ramp up land drilling to offset production
declines.
$ LOSS
BIGGEST $ LOSERS (IN MILLIONS) % LOSS REASON FOR MOVE
---------------- ------------- ------ ---------------
Apollo Group, Inc. $4.9 10.8 The provider of higher education through its subsidiaries like the University
of Phoenix grew May-quarter earnings 28 percent, beating estimates.
Preliminary data for the August quarter showed a mix of student enrollments
that was skewed toward less profitable online students. Your team sold Apollo
to fund an idea with greater near-term earnings upside.
Seagate Technology $4.5 16.5 June-quarter earnings grew to $0.55 per share from $0.01 a year ago, beating
estimates. Shares fell on news that Apple Computer was shifting from Seagate's
hard drives to flash memory for its new iPod nano digital music player,
indicating that flash prices have declined enough to be competitive with hard
drives. Your team sold Seagate to fund an idea with greater near-term earnings
upside.
Oracle Corp. $3.9 6.9 The world's third-largest software maker grew August-quarter earnings 40
percent. Shares retraced on news that license revenue was less than expected
as a few large deals were pushed into the November quarter. Additionally, some
investors expressed skepticism regarding the company's ability to integrate
large acquisitions Siebel Systems and PeopleSoft.
Nike, Inc. $3.3 7.6 The athletic shoe manufacturer grew August-quarter earnings 33 percent,
beating estimates by 13 percent. Your team sold shares after contacts at
numerous sporting goods and footwear retailers in the U.S. and Europe reported
slowing overall sales. New products aren't due out until early next year,
making a slowdown in consumer spending more likely to impact the company.
Target Corp. $3.1 6.1 The discount retailer grew July-quarter earnings 39 percent, beating
estimates. General concerns related to the effect higher energy costs will
have on consumer spending trends weighed on shares. With improving sales and
margins and a new store prototype running ahead of plan, we believe the
reaction is overblown. September same-store sales growth came in ahead of
expectations at 5.6 percent after the quarter closed.
All gains/losses are calculated on an average cost basis
MANAGEMENT'S DISCUSSION OF RESULTS, BRANDYWINE FUND
Brandywine Fund's investment strategy emphasizes the relationship between
earnings performance and stock prices. While oil prices and other broad factors
influenced stocks at various times in the fiscal year ended September 30, 2005,
individual-company earnings trends emerged as the main influence on stocks
during the period.
Brandywine outpaced its primary benchmarks in each of the fiscal year's four
quarters. Overall, Brandywine grew 30.22 percent in the 12 months through
September, more than doubling gains in the S&P 500, Russell 3000 and Russell
3000 Growth Indexes of 12.25, 14.57 and 12.13 percent.
With the price of crude oil up 70 percent over the previous fiscal year, oil
prices commanded investor attention as the fiscal year began. Prices fell
notably during the December quarter of 2004, boosting economic expectations and
sparking a broad-based stock market rally.
Raw materials, industrial and homebuilding holdings fared particularly well as
the improved backdrop enabled investors to recognize earnings strength that the
Friess team identified earlier. Brandywine grew 12.36 percent in the December
quarter, putting it 2.20 percentage points ahead of its best performing
benchmark.
Enthusiasm waned in the March quarter of 2005 as oil prices resumed a steady
rise and the Fed remained committed to increasing short-term interest rates.
Most major indexes, including Brandywine's benchmarks, lost ground. Brandywine
grew 1.07 percent thanks to solid contributions from energy and raw materials
holdings. Based on individual-company earnings outlooks, the Fund also held
relatively few companies from the financial and technology sectors, which were
among the market's poorest performers.
During the March quarter, the Friess team sold a number of raw materials and
industrial holdings that reached their target prices and used the proceeds to
fund purchases in the consumer discretionary and energy sectors. Holdings from
these areas led Brandywine to a 2.73 percent gain in a generally positive June-
quarter environment. Benchmark returns ranged from 1.37 to 2.55 percent.
Energy holdings comprised one of Brandywine's largest percentages of assets as
the September quarter began. That worked in the Fund's favor as oil prices
climbed to a new all-time high and hurricanes damaged Gulf of Mexico production
assets, drawing investor attention to earnings strength among the Fund's energy
service and equipment holdings. Brandywine grew 11.62 percent in the quarter,
outpacing its nearest benchmark by 7.41 percentage points.
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 RUSSELL 3000 S&P 500
---- --------------- ------------------- ------------ -------
9/30/1995 $10,000 $10,000 $10,000 $10,000
9/30/1996 $11,000 $12,047 $11,880 $12,040
9/30/1997 $15,323 $16,275 $16,445 $16,940
9/30/1998 $11,079 $17,457 $17,171 $18,482
9/30/1999 $15,155 $21,816 $21,690 $23,620
9/30/2000 $21,643 $27,024 $25,635 $26,757
9/30/2001 $16,782 $14,763 $18,481 $19,634
9/30/2002 $13,964 $11,483 $15,003 $15,612
9/30/2003 $15,589 $14,576 $18,891 $19,421
9/30/2004 $17,704 $15,716 $21,585 $22,115
9/30/2005 $23,054 $17,622 $24,730 $24,824
AVERAGE ANNUAL TOTAL RETURN
Since Inception
1-Year 5-Year 10-Year 12/30/85
------ ------ ------- ---------------
30.22% 1.27% 8.70% 13.97%
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, 2005
SHARES COST VALUE
------ ---- -----
COMMON STOCKS - 97.6% (A)<F7>
CONSUMER DISCRETIONARY
APPAREL RETAIL - 0.4%
98,600 Charming Shoppes, Inc.*<F6> $ 1,065,738 $ 1,052,062
127,200 Gymboree Corp.*<F6> 2,129,363 1,735,008
139,800 Jos. A. Bank Clothiers, Inc.*<F6> 4,802,004 6,042,156
271,600 Too Inc.*<F6> 7,289,038 7,449,988
APPAREL, ACCESSORIES & LUXURY GOODS - 0.2%
320,600 Phillips-Van Heusen Corp. 9,453,623 9,945,012
CONSUMER ELECTRONICS - 2.6%
1,003,900 Harman International
Industries, Inc. 84,533,047 102,668,853
FOOTWEAR - 0.2%
348,500 Wolverine World Wide, Inc. 8,384,816 7,335,925
GERNERAL MERCHANDISE STORES - 3.9%
3,009,800 Target Corp. 168,705,710 156,298,914
HOMEBUILDING - 1.3%
337,200 Champion Enterprises, Inc.*<F6> 4,757,752 4,983,816
553,500 KB Home, Inc. 32,173,285 40,516,200
10,000 Meritage Homes Corp.*<F6> 728,550 766,600
400,000 Williams Scotsman
International Inc.*<F6> 6,400,000 6,400,000
HOUSEWARES & SPECIALTIES - 0.6%
545,200 Jarden Corp.*<F6> 21,671,915 22,391,364
LEISURE PRODUCTS - 0.5%
650,000 Callaway Golf Co. 10,070,393 9,808,500
230,000 Nautilus, Inc. 4,954,549 5,076,100
139,800 SCP Pool Corp. 4,561,186 4,883,214
SPECIALTY STORES - 0.2%
147,200 Tractor Supply Co.*<F6> 7,171,909 6,719,680
-------------- --------------
TOTAL CONSUMER DISCRETIONARY 378,852,878 394,073,392
THIS SECTOR IS 4.0% ABOVE YOUR FUND'S COST.
CONSUMER STAPLES
DRUG RETAIL - 2.9%
4,060,800 CVS Corp. 111,538,315 117,803,808
PERSONAL PRODUCTS - 0.1%
201,900 Playtex Products, Inc.*<F6> 2,290,586 2,220,900
-------------- --------------
TOTAL CONSUMER STAPLES 113,828,901 120,024,708
THIS SECTOR IS 5.4% ABOVE YOUR FUND'S COST.
ENERGY
COAL & CONSUMABLE FUELS - 0.1%
74,300 Foundation Coal Holdings, Inc. 2,887,461 2,856,835
OIL & GAS DRILLING - 5.1%
587,300 ENSCO International Inc. 26,224,127 27,362,307
2,081,000 Nabors Industries, Ltd.*<F6> 101,761,369 149,478,230
673,300 Todco 19,060,222 28,083,343
OIL & GAS EQUIPMENT & SERVICES - 8.5%
404,300 Cal Dive International, Inc.*<F6> 24,115,165 25,636,663
125,000 Core Laboratories N.V.*<F6> 2,925,329 4,032,500
380,000 Dresser-Rand Group, Inc.*<F6> 8,419,236 9,359,400
1,386,300 Halliburton Co. 70,877,718 94,989,276
218,900 Hornbeck Offshore
Services, Inc.*<F6> 7,747,346 8,018,307
102,800 Oceaneering
International, Inc.*<F6> 4,966,384 5,490,548
400,000 Stolt Offshore S.A. ADR*<F6> 3,157,110 4,632,000
643,200 Superior Energy
Services, Inc.*<F6> 10,143,929 14,851,488
225,000 TETRA Technologies, Inc.*<F6> 4,143,121 7,024,500
577,900 Tidewater Inc. 28,209,108 28,126,393
276,200 Veritas DGC Inc.*<F6> 6,374,439 10,114,444
1,878,700 Weatherford
International Ltd.*<F6> 78,832,441 128,991,542
OIL & GAS EXPLORATION & PRODUCTION - 6.2%
3,015,800 Chesapeake Energy Corp. 37,982,319 115,354,350
383,500 Comstock Resources, Inc.*<F6> 11,614,054 12,582,635
1,630,000 Southwestern Energy Co.*<F6> 47,779,438 119,642,000
OIL & GAS REFINING, MARKETING & TRANSPORTATION - 0.6%
1,365,000 OMI Corp. 26,105,417 24,392,550
-------------- --------------
TOTAL ENERGY 523,325,733 821,019,311
THIS SECTOR IS 56.9% ABOVE YOUR FUND'S COST.
FINANCIALS
PROPERTY & CASUALTY INSURANCE - 3.7%
2,701,200 Allstate Corp. 112,422,641 149,349,348
REGIONAL BANKS - 0.3%
235,000 SVB Financial Group*<F6> 11,040,950 11,430,400
-------------- --------------
TOTAL FINANCIALS 123,463,591 160,779,748
THIS SECTOR IS 30.2% ABOVE YOUR FUND'S COST.
HEALTH CARE
HEALTH CARE EQUIPMENT - 5.6%
1,108,600 Beckman Coulter, Inc. 61,144,179 59,842,228
649,800 Cytyc Corp.*<F6> 16,389,574 17,447,130
2,333,500 Fisher Scientific
International Inc.*<F6> 118,126,362 144,793,675
HEALTH CARE SERVICES - 0.3%
177,700 Pediatrix Medical Group, Inc.*<F6> 13,374,124 13,650,914
HEALTH CARE SUPPLIES - 0.6%
304,100 The Cooper Companies, Inc. 20,347,596 23,297,101
MANAGED HEALTH CARE - 3.4%
1,563,100 Coventry Health Care, Inc.*<F6> 113,193,717 134,457,862
PHARMACEUTICALS - 0.6%
627,400 Shire Pharmaceuticals Group
PLC - SP-ADR 23,228,628 23,207,526
-------------- --------------
TOTAL HEALTH CARE 365,804,180 416,696,436
THIS SECTOR IS 13.9% ABOVE YOUR FUND'S COST.
INDUSTRIALS
AEROSPACE & DEFENSE - 7.0%
525,000 Armor Holdings, Inc.*<F6> 20,278,544 22,580,250
334,800 Embraer-Empresa Brasileira
de Aeronautica S.A. ADR 12,189,596 12,923,280
2,143,300 Goodrich Corp. 82,027,368 95,033,922
357,200 K&F Industries Holdings, Inc.*<F6> 6,258,361 5,975,956
2,719,200 Precision Castparts Corp. 101,776,550 144,389,520
AIRLINES - 0.1%
220,000 SkyWest, Inc. 5,361,778 5,900,400
COMMERCIAL PRINTING - 1.8%
1,885,400 R. R. Donnelley & Sons Co. 63,503,303 69,891,778
CONSTRUCTION & ENGINEERING - 1.0%
912,500 McDermott International, Inc.*<F6> 19,959,268 33,406,625
50,000 URS Corp.*<F6> 1,815,000 2,019,500
117,300 Washington Group
International, Inc.*<F6> 6,043,669 6,321,297
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS - 0.8%
150,000 Bucyrus International, Inc. 5,007,510 7,369,500
404,000 JLG Industries, Inc. 8,715,829 14,782,360
175,000 Manitowoc Company, Inc. 6,859,529 8,793,750
DIVERSIFIED COMMERCIAL SERVICES - 0.4%
298,600 Career Education Corp.*<F6> 11,638,609 10,618,216
142,400 Corrections Corporation
of America*<F6> 5,422,469 5,653,280
51,900 DeVry, Inc.*<F6> 977,687 988,695
ELECTRICAL COMPONENTS & EQUIPMENT - 0.8%
445,100 AMETEK, Inc. 15,075,271 19,125,947
400,000 Thomas & Betts Corp.*<F6> 12,327,815 13,764,000
ENVIRONMENTAL SERVICES - 0.3%
364,900 Waste Connections, Inc.*<F6> 12,577,832 12,800,692
INDUSTRIAL CONGLOMERATE - 0.8%
616,000 Walter Industries, Inc. 26,997,934 30,134,720
INDUSTRIAL MACHINERY - 0.3%
219,200 IDEX Corp. 8,639,898 9,326,960
146,500 Timken Co. 2,743,603 4,340,795
MARINE - 0.2%
409,400 Eagle Bulk Shipping Inc.*<F6> 5,731,600 7,021,210
OFFICE SERVICES & SUPPLIES - 0.5%
634,500 Herman Miller, Inc. 20,357,395 19,225,350
RAILROADS - 3.5%
1,977,400 Union Pacific Corp. 126,690,960 141,779,580
TRADING COMPANIES & DISTRIBUTORS - 0.7%
309,300 Aviall, Inc.*<F6> 9,212,574 10,448,154
885,500 United Rentals, Inc.*<F6> 17,544,578 17,453,205
-------------- --------------
TOTAL INDUSTRIALS 615,734,530 732,068,942
THIS SECTOR IS 18.9% ABOVE YOUR FUND'S COST.
INFORMATION TECHNOLOGY
APPLICATION SOFTWARE - 1.6%
1,420,200 Amdocs Ltd.*<F6> 41,563,835 39,382,146
2,611,600 Compuware Corp.*<F6> 20,912,981 24,810,200
COMMUNICATIONS EQUIPMENT - 9.9%
2,397,000 Comverse Technology, Inc.*<F6> 60,213,075 62,969,190
5,130,100 Corning Inc.*<F6> 57,060,305 99,164,833
506,300 L.M. Ericsson Telephone Co.
ADR 18,453,792 18,652,092
2,029,600 Harris Corp. 79,327,252 84,837,280
3,291,800 Juniper Networks, Inc.*<F6> 77,354,730 78,311,922
1,097,200 Motorola, Inc. 19,749,573 24,237,148
186,000 SafeNet, Inc.*<F6> 6,695,981 6,753,660
63,200 Tekelec*<F6> 1,152,659 1,324,040
1,793,800 Tellabs, Inc.*<F6> 18,789,254 18,870,776
COMPUTER HARDWARE - 0.0%
37,600 Jack Henry & Associates, Inc. 713,178 729,440
DATA PROCESSING & OUTSOURCED SERVICES - 2.2%
2,221,400 First Data Corp. 93,721,694 88,856,000
ELECTRONIC EQUIPMENT MANUFACTURERS - 1.1%
1,449,800 FLIR Systems, Inc.*<F6> 44,696,353 42,885,084
IT CONSULTING & OTHER SERVICES - 0.8%
254,500 Anteon International Corp.*<F6> 8,642,565 10,882,420
351,500 CACI International Inc.*<F6> 21,698,251 21,300,900
SEMICONDUCTOR EQUIPMENT - 0.5%
875,200 MEMC Electronic
Materials, Inc.*<F6> 15,073,407 19,945,808
SEMICONDUCTORS - 4.3%
3,982,900 Advanced Micro Devices, Inc.*<F6> 89,825,745 100,369,080
1,939,900 Analog Devices, Inc. 71,070,410 72,047,886
SYSTEMS SOFTWARE - 5.4%
1,537,600 McAfee, Inc.*<F6> 44,605,056 48,311,392
206,900 MICROS Systems, Inc.*<F6> 8,408,822 9,051,875
12,832,600 Oracle Corp.*<F6> 171,825,223 158,995,914
-------------- --------------
TOTAL INFORMATION TECHNOLOGY 971,554,141 1,032,689,086
THIS SECTOR IS 6.3% ABOVE YOUR FUND'S COST.
MATERIALS
CONSTRUCTION MATERIALS - 0.7%
498,200 Cemex S.A. de C.V. SP-ADR 24,897,596 26,055,860
DIVERSIFIED METALS & MINING - 3.5%
1,063,800 Phelps Dodge Corp. 100,636,477 138,219,534
STEEL - 1.5%
379,300 Carpenter Technology Corp. 23,506,273 22,230,773
508,400 Commercial Metals Co. 14,953,207 17,153,416
575,300 Steel Dynamics, Inc. 19,664,016 19,537,188
-------------- --------------
TOTAL MATERIALS 183,657,569 223,196,771
-------------- --------------
THIS SECTOR IS 21.5% ABOVE YOUR FUND'S COST.
Total common stocks 3,276,221,523 3,900,548,394
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS - 2.7% (A)<F7>
COMMERCIAL PAPER - 2.6%
$50,000,000 Countrywide Financial Corp.,
due 10/03/05, discount of 3.85% 49,989,306 49,989,306
29,000,000 Countrywide Financial Corp.,
due 10/04/05, discount of 3.83% 28,990,744 28,990,744
27,000,000 Countrywide Financial Corp.,
due 10/05/05, discount of 3.86% 26,988,420 26,988,420
-------------- --------------
Total commercial paper 105,968,470 105,968,470
VARIABLE RATE DEMAND NOTE - 0.1%
2,561,286 U.S. Bank, N.A., 3.59% 2,561,286 2,561,286
-------------- --------------
Total short-term investments 108,529,756 108,529,756
-------------- --------------
Total investments $3,384,751,279 4,009,078,150
--------------
--------------
Liabilities, less cash and
receivables (0.3%) (A)<F7> (13,496,469)
--------------
NET ASSETS $3,995,581,681
--------------
--------------
Net Asset Value Per Share
($0.01 par value, 500,000,000
shares authorized), offering
and redemption price
($3,995,581,681 / 126,845,383
shares outstanding) $31.50
------
------
*<F6> Non-dividend paying security.
(A)<F7> Percentages for the various classifications relate to net assets.
ADR - American Depository Receipts
N.V. - Netherlands Antillies Limited Liability Corp.
The accompanying notes to financial statements are an integral part of this
statement.
BRANDYWINE FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2005
INCOME:
Dividends $ 27,020,925
Interest 2,553,838
------------
Total income 29,574,763
------------
EXPENSES:
Management fees 36,924,678
Transfer agent fees 1,462,478
Administrative services 619,180
Printing and postage expense 336,759
Board of Directors fees and expenses 268,339
Custodian fees 210,781
Professional fees 62,437
Insurance expense 62,268
Registration fees 49,400
Other expenses 47,608
------------
Total expenses 40,043,928
------------
NET INVESTMENT LOSS (10,469,165)
------------
NET REALIZED GAIN ON INVESTMENTS 682,236,498
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 311,487,501
------------
NET GAIN ON INVESTMENTS 993,723,999
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $983,254,834
------------
------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2005 and 2004
2005 2004
---- ----
OPERATIONS:
Net investment loss $ (10,469,165) $ (20,471,883)
Net realized gain on investments 682,236,498 279,692,234
Net increase in unrealized appreciation on investments 311,487,501 196,081,197
-------------- --------------
Net increase in net assets resulting from operations 983,254,834 455,301,548
-------------- --------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (12,144,409 and 15,923,002 shares, respectively) 337,444,419 381,959,569
Cost of shares redeemed (33,555,852 and 26,634,617 shares, respectively) (911,910,269) (636,057,970)
-------------- --------------
Net decrease in net assets derived from Fund share activities (574,465,850) (254,098,401)
-------------- --------------
TOTAL INCREASE 408,788,984 201,203,147
NET ASSETS AT THE BEGINNING OF THE YEAR 3,586,792,697 3,385,589,550
-------------- --------------
NET ASSETS AT THE END OF THE YEAR $3,995,581,681 $3,586,792,697
(Includes accumulated net investment loss of ($687,992) and ($421,602), respectively) -------------- --------------
-------------- --------------
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE FUND, INC.
FINANCIAL HIGHLIGHTS
(Selected data for each share of the Fund outstanding throughout each year)
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $24.19 $21.30 $19.08 $22.93 $46.23
Income from investment operations:
Net investment loss(1)<F8> (0.08) (0.13) (0.10) (0.12) (0.09)
Net realized and unrealized gains (losses)
on investments 7.39 3.02 2.32 (3.73) (7.10)
------ ------ ------ ------ ------
Total from investment operations 7.31 2.89 2.22 (3.85) (7.19)
Less distributions:
Dividend from net investment income -- -- -- -- --
Distribution from net realized gains -- -- -- -- (16.11)
------ ------ ------ ------ ------
Total from distribution -- -- -- -- (16.11)
------ ------ ------ ------ ------
Net asset value, end of year $31.50 $24.19 $21.30 $19.08 $22.93
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN 30.22% 13.57% 11.64% (16.79%) (22.46%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 3,995,582 3,586,793 3,385,590 3,196,859 4,302,986
Ratio of expenses to average net assets 1.08% 1.08% 1.09% 1.08% 1.06%
Ratio of net investment loss
to average net assets (0.25%) (0.55%) (0.53%) (0.52%) (0.32%)
Portfolio turnover rate 183.4% 247.0% 279.3% 272.9% 284.3%
(1)<F8> Net investment loss per share was calculated using average shares
outstanding.
The accompanying notes to financial statements are an integral part of this
statement.
DEFINITIONS AND DISCLOSURES
(THIS SECTION IS NOT PART OF THE AUDITED FINANCIAL STATEMENTS.)
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.
The Funds' investment objectives, risks, charges and expenses must be considered
carefully before investing. The prospectus contains this and other important
information about the investment companies, and it may be obtained by calling
1-800-656-3017, or visiting www.brandywinefunds.com. Read it carefully before
investing.
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 9/30/05, unless listed in the accompanying financial
statements. 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. Baseline Financial Services, Inc.
(Baseline) provides analytical information and services to the investment
community.
The Russell 1000, Russell 1000 Growth, Russell 3000, Russell 3000 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, 2005,
the Russell 1000 Index's average annual total returns for 1, 5 and 10 years were
14.26, -1.27 and 9.65 percent; the Russell 1000 Growth Index's were 11.60, -8.64
and 6.89 percent; the Russell 3000 Index's were 14.57, -0.72 and 9.54 percent;
the Russell 3000 Growth Index's were 12.13, -8.20 and 6.62 percent; and the S&P
500 Index's were 12.25, -1.49 and 9.49 percent. The S&P 500 Index's average
annual total return since Brandywine Fund's inception on 12/30/85 was 11.97
percent.
Morningstar Inc.' 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 most favorable) percentile rank is 1 and the lowest (or least
favorable) percentile rank is 100. The top-performing fund in a category will
always receive a rank of 1. Percentile ranks within categories are most useful
in those categories that have a large number of funds. Brandywine Fund was
ranked in the 3, 22 and 47 percentiles out of the 785, 464 and 166 funds in
Morningstar's Mid-Cap Growth category for the 1-, 5- and 10-year periods,
respectively, as of September 30, 2005. Over the same periods, Brandywine Blue
Fund was ranked in the 2, 2 and 16 percentiles out of the 1359, 842 and 276
funds in Morningstar's Large-Cap Growth category.
MANAGEMENT'S DISCUSSION OF RESULTS, BRANDYWINE BLUE FUND (UNAUDITED)
Brandywine Blue Fund's consistent focus on individual-company earnings
prospects served it well in the fiscal year ended September 30, 2005. Despite
rising energy prices, increased interest rates and other broad influences on
market sentiment, the correlation between earnings performance and stock prices
was solid during the period.
Brandywine Blue grew 24.28 percent in the 12 months through September. Its
main benchmarks, the S&P 500, Russell 1000 and Russell 1000 Growth Indexes,
gained 12.25, 14.26 and 11.60 percent.
Following a period in which a sustained rise in oil prices topped investor
concerns, the market seemed set for more of the same as the December quarter of
2004 began. Investors grew increasingly optimistic as oil soon retreated from
its high, fueling a favorable environment for a wide range of stocks. Holdings
from the raw materials, industrial and homebuilding sectors drove results as
investors rewarded their strong earnings growth. Brandywine Blue grew 12.69
percent in the quarter, outpacing its best performing benchmark by 2.89
percentage points.
The market's mood shifted in the March quarter of 2005. Oil prices regained
upward momentum and the Fed remained committed to raising short-term interest
rates. Most major indexes declined. Although Brandywine Blue's energy,
industrial and raw material holdings generally fared well, technology and
financial holdings struggled amid concerns about the economy due to rising
energy prices and interest rates. Brandywine Blue retraced 2.50 percent, putting
it between benchmark declines ranging from 1.91 to 4.09 percent.
By relying on company-by-company research rather than macro trends, Brandywine
Blue was well-positioned for the June quarter. Holdings in the retail and
homebuilding sectors reported earnings results that belied economic concerns
raised in the previous quarter. Select technology and financial holdings aided
results as well. Brandywine Blue outperformed its benchmarks with a 3.83 percent
return.
Energy holdings comprised one of the largest percentages of assets at the
start of the September quarter, and their presence increased as the Friess team
isolated new opportunities. They performed well as oil prices reached a new all-
time high and hurricanes damaged Gulf of Mexico production assets, prompting
investors to recognize earnings strength among the Brandywine Blue energy
service and equipment holdings. Brandywine Blue grew 8.94 percent for the
quarter, more than doubling returns in its benchmarks.
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 RUSSELL 1000 S&P 500
---- -------------------- ------------------- ------------ -------
9/30/1995 $10,000 $10,000 $10,000 $10,000
9/30/1996 $10,890 $12,139 $11,945 $12,040
9/30/1997 $15,420 $16,546 $16,568 $16,940
9/30/1998 $11,334 $18,384 $17,742 $18,482
9/30/1999 $15,323 $23,323 $22,527 $23,620
9/30/2000 $20,752 $28,788 $26,540 $26,757
9/30/2001 $16,618 $15,649 $18,997 $19,634
9/30/2002 $14,271 $12,126 $15,291 $15,612
9/30/2003 $16,688 $15,268 $19,135 $19,421
9/30/2004 $19,659 $16,415 $21,795 $22,115
9/30/2005 $24,432 $19,471 $24,902 $24,835
AVERAGE ANNUAL TOTAL RETURN
Since Inception
1-Year 5-Year 10-Year 01/10/91
------ ------ ------- ---------------
24.28% 3.32% 9.34% 14.35%
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, 2005
SHARES COST VALUE
------ ---- -----
COMMON STOCKS - 95.5% (A)<F13>
CONSUMER DISCRETIONARY
CONSUMER ELECTRONICS - 3.5%
110,000 Garmin Ltd. $ 5,627,933 $ 7,461,300
348,900 Harman International
Industries, Inc. 30,219,595 35,682,003
GENERAL MERCHANDISE STORES - 3.9%
931,200 Target Corp. 50,717,726 48,357,216
HOMEBUILDING - 3.3%
553,200 KB Home, Inc. 40,109,846 40,494,240
-------------- --------------
TOTAL CONSUMER DISCRETIONARY 126,675,100 131,994,759
THIS SECTOR IS 4.2% ABOVE YOUR FUND'S COST.
CONSUMER STAPLES
DRUG RETAIL - 3.7%
1,578,200 CVS Corp. 41,246,561 45,783,582
-------------- --------------
TOTAL CONSUMER STAPLES 41,246,561 45,783,582
THIS SECTOR IS 11.0% ABOVE YOUR FUND'S COST.
ENERGY
OIL & GAS DRILLING - 5.6%
253,000 ENSCO International Inc. 11,513,013 11,787,270
797,800 Nabors Industries, Ltd.*<F12> 40,643,466 57,305,974
OIL & GAS EQUIPMENT & SERVICES - 7.6%
684,800 Halliburton Co. 29,748,354 46,922,496
685,600 Weatherford
International Ltd.*<F12> 33,989,296 47,073,296
OIL & GAS EXPLORATION & PRODUCTION - 4.1%
1,306,500 Chesapeake Energy Corp. 29,332,329 49,973,625
-------------- --------------
TOTAL ENERGY 145,226,458 213,062,661
THIS SECTOR IS 46.7% ABOVE YOUR FUND'S COST.
FINANCIALS
PROPERTY & CASUALTY INSURANCE - 4.6%
1,027,700 Allstate Corp. 51,070,405 56,821,533
-------------- --------------
TOTAL FINANCIALS 51,070,405 56,821,533
THIS SECTOR IS 11.3% ABOVE YOUR FUND'S COST.
HEALTH CARE
BIOTECHNOLOGY - 4.5%
688,400 Amgen Inc.*<F12> 45,569,897 54,844,828
HEALTH CARE EQUIPMENT - 4.7%
924,200 Fisher Scientific
International Inc.*<F12> 56,662,511 57,346,610
MANAGED HEALTH CARE - 4.8%
681,100 Coventry Health Care, Inc.*<F12> 50,188,477 58,588,222
PHARMACEUTICALS - 1.0%
338,000 Shire Pharmaceuticals Group
PLC - SP-ADR 12,484,062 12,502,620
-------------- --------------
TOTAL HEALTH CARE 164,904,947 183,282,280
THIS SECTOR IS 11.1% ABOVE YOUR FUND'S COST.
INDUSTRIALS
AEROSPACE & DEFENSE - 0.8%
265,700 Embraer-Empresa Brasileira de
Aeronautica S.A. ADR 9,634,845 10,256,020
COMMERCIAL PRINTING - 2.9%
975,500 R. R. Donnelley & Sons Co. 33,790,054 36,161,785
ELECTRICAL COMPONENTS & EQUIPMENT - 2.7%
457,000 Emerson Electric Co. 31,858,349 32,812,600
RAILROADS - 3.9%
674,200 Union Pacific Corp. 43,320,689 48,340,140
-------------- --------------
TOTAL INDUSTRIALS 118,603,937 127,570,545
THIS SECTOR IS 7.6% ABOVE YOUR FUND'S COST.
INFORMATION TECHNOLOGY
APPLICATION SOFTWARE - 2.6%
1,135,300 Amdocs Ltd.*<F12> 33,567,628 31,481,869
COMMUNICATIONS EQUIPMENT - 10.7%
2,210,300 Corning Inc.*<F12> 28,871,413 42,725,099
815,800 L.M. Ericsson
Telephone Co. ADR 26,371,398 30,054,072
1,570,600 Juniper Networks, Inc.*<F12> 36,856,129 37,364,574
965,300 Motorola, Inc. 18,912,365 21,323,477
DATA PROCESSING & OUTSOURCED SERVICES - 3.8%
1,167,800 First Data Corp. 48,161,116 46,712,000
SEMICONDUCTORS - 6.9%
1,826,000 Advanced Micro Devices, Inc.*<F12> 41,748,976 46,015,200
1,035,800 Analog Devices, Inc. 38,240,269 38,469,612
SYSTEMS SOFTWARE - 4.3%
4,258,000 Oracle Corp.*<F12> 56,679,410 52,756,620
-------------- --------------
TOTAL INFORMATION TECHNOLOGY 329,408,704 346,902,523
THIS SECTOR IS 5.3% ABOVE YOUR FUND'S COST.
MATERIALS
CONSTRUCTION MATERIALS - 0.6%
151,900 Cemex S.A. de C.V. SP-ADR 7,591,326 7,944,370
DIVERSIFIED METALS & MINING - 5.0%
478,900 Phelps Dodge Corp. 46,263,447 62,223,477
-------------- --------------
TOTAL MATERIALS 53,854,773 70,167,847
-------------- --------------
THIS SECTOR IS 30.3% ABOVE YOUR FUND'S COST.
Total common stocks 1,030,990,885 1,175,585,730
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS - 2.6% (A)<F13>
COMMERCIAL PAPER - 2.4%
$ 5,000,000 Countrywide Financial Corp.,
due 10/04/05, discount of 3.83% 4,998,404 4,998,404
10,000,000 Countrywide Financial Corp.,
due 10/05/05, discount of 3.85% 9,995,723 9,995,723
15,200,000 Countrywide Financial Corp.,
due 10/06/05, discount of 3.86% 15,191,851 15,191,851
-------------- --------------
Total commercial paper 30,185,978 30,185,978
VARIABLE RATE DEMAND NOTE - 0.2%
2,219,027 U.S. Bank, N.A., 3.59% 2,219,027 2,219,027
-------------- --------------
Total short-term investments 32,405,005 32,405,005
-------------- --------------
Total investments $1,063,395,890 1,207,990,735
--------------
--------------
Cash and receivables, less
liabilities 1.9% (A)<F13> 22,945,528
--------------
NET ASSETS $1,230,936,263
--------------
--------------
Net Asset Value Per Share
($0.01 par value, 100,000,000
shares authorized), offering
and redemption price
($1,230,936,263 / 39,283,551
shares outstanding) $31.33
------
------
*<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, 2005
INCOME:
Dividends $ 6,505,614
Interest 1,178,766
------------
Total income 7,684,380
------------
EXPENSES:
Management fees 8,021,661
Transfer agent fees 325,092
Administrative services 146,940
Printing and postage expense 133,375
Registration fees 116,273
Board of Directors fees and expenses 63,239
Professional fees 56,305
Custodian fees 47,684
Insurance expense 15,033
Other expenses 24,209
------------
Total expenses 8,949,811
------------
NET INVESTMENT LOSS (1,265,431)
------------
NET REALIZED GAIN ON INVESTMENTS 67,387,191
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 108,286,530
------------
NET GAIN ON INVESTMENTS 175,673,721
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $174,408,290
------------
------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2005 and 2004
2005 2004
---- ----
OPERATIONS:
Net investment loss $ (1,265,431) $ (1,398,938)
Net realized gain on investments 67,387,191 33,958,803
Net increase in unrealized appreciation on investments 108,286,530 28,410,380
-------------- ------------
Net increase in net assets resulting from operations 174,408,290 60,970,245
-------------- ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (22,380,835 and 8,853,587 shares, respectively) 642,136,150 215,636,391
Cost of shares redeemed (4,180,668 and 2,384,780 shares, respectively) (117,123,835) (57,816,638)
-------------- ------------
Net increase in net assets derived from Fund share activities 525,012,315 157,819,753
-------------- ------------
TOTAL INCREASE 699,420,605 218,789,998
NET ASSETS AT THE BEGINNING OF THE YEAR 531,515,658 312,725,660
-------------- ------------
NET ASSETS AT THE END OF THE YEAR $1,230,936,263 $531,515,658
(Includes accumulated net investment loss of ($173,297) and ($112,007), respectively) -------------- ------------
-------------- ------------
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,
----------------------------------------------------------------
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $25.21 $21.40 $18.30 $21.31 $37.39
Income from investment operations:
Net investment loss(1)<F14> (0.04) (0.08) (0.08) (0.05) (0.05)
Net realized and unrealized gains (losses)
on investments 6.16 3.89 3.18 (2.96) (5.32)
------ ------ ------ ------ ------
Total from investment operations 6.12 3.81 3.10 (3.01) (5.37)
Less distributions:
Dividend from net investment income -- -- -- -- --
Distribution from net realized gains -- -- -- (10.71)
------ ------ ------ ------ ------
Total from distributions -- -- -- (10.71)
------ ------ ------ ------ ------
Net asset value, end of year $31.33 $25.21 $21.40 $18.30 $21.31
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN 24.28% 17.80% 16.94% (14.12%) (19.92%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 1,230,936 531,516 312,726 217,738 271,947
Ratio of expenses to average net assets 1.12% 1.13% 1.14% 1.13% 1.09%
Ratio of net investment loss
to average net assets (0.13%) (0.32%) (0.41%) (0.26%) (0.18%)
Portfolio turnover rate 180.5% 247.4% 300.0% 310.7% 274.5%
(1)<F14> Net investment loss per share was calculated using average shares
outstanding.
The accompanying notes to financial statements are an integral part of this
statement.
THE BRANDYWINE FUNDS
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(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. The fair value of a
security may differ from the last quoted price and the Fund may not be
able to sell a security at the fair value. Market quotations may not
be available, for example, if trading in particular securities has
halted during the day and not resumed prior to the close of trading on
the New York Stock Exchange. 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; however, for purposes of executing shareholder
transactions, the Funds record changes in holdings of portfolio
securities no later than the first business day after the trade date
in accordance with Rule 2a-4 of the Investment Company Act.
Accordingly, certain differences between net asset value for financial
reporting and for executing shareholder transactions may arise.
(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.
The Brandywine Fund and Blue Fund pay each of the six independent directors
annual fees of $20,000 and $5,000, respectively. The lead independent
director and chairman of the audit committee are paid additional fees of
$5,000 and $2,500 annually, divided proportionately among all the Funds.
All of the independent directors have elected to defer the receipt of all
of the compensation they earn as directors through a deferred compensation
plan. Under the plan, the compensation credited to the directors is in the
form of phantom shares of the Funds. Therefore, the amounts deferred under
the plan increase or decrease in value as if they had been invested in
shares of the applicable Fund. Each Fund maintains a payable for the
directors' deferred compensation and recognizes its change in value as an
expense. The Funds also reimburse directors for travel costs incurred in
order to attend meetings of the Board of Directors. For the year ended
September 30, 2005, the Funds expensed the following directors fees and
costs:
Brandywine Blue
Fund Fund
---------- ----
Directors Fees and Travel Costs
Paid during the Period $127,403 $33,312
Appreciation in Deferred Compensation
Plan Phantom Shares 140,936 29,927
-------- -------
Total Director Fees and Related Costs $268,339 $63,239
The Board of Directors have agreed to terminate the deferred compensation
plan for the Directors. The plan is expected to liquidate on October 31,
2005, and Directors will receive shares in the respective Fund or cash. All
subsequent director fees will be paid in shares of the Funds.
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, 2005, neither Fund borrowed against their Agreement.
The Credit Agreements expire on December 18, 2005.
(4) DISTRIBUTIONS TO SHAREHOLDERS
Net investment income and net realized gains, if any, are distributed to
shareholders at least annually. The Board of Directors has approved a
distribution of net realized gains on October 27, 2005 to Brandywine Blue
Fund shareholders of record on October 26, 2005. These distributions, which
are subject to change, are expected to be $35,062,276 from net short-term
capital gains and $11,307,366 from net long-term gains.
(5) INVESTMENT TRANSACTIONS AND RELATED COSTS
For the year ended September 30, 2005, 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 $6,640,260,747 $7,270,900,052 $19,024,789 0.52%
Blue Fund 1,885,098,569 1,394,266,029 4,133,045 0.52%
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, 2005, liabilities of each Fund included the following:
Brandywine Blue
Fund Fund
---------- ----
Payable to brokers for investments purchased $ 174,606,078 $ 27,507,177
Payable to Adviser for management fees 3,199,528 949,369
Deferred compensation plan for Directors 687,992 173,297
Payable to shareholders for redemptions -- 177,515
Other liabilities 419,207 197,670
(7) SOURCES OF NET ASSETS
As of September 30, 2005, the sources of net assets were as follows:
Fund shares issued and outstanding $3,696,855,011 $1,040,145,642
Net unrealized appreciation on investments 624,326,871 144,594,845
Accumulated net realized (losses) gains (324,912,209) 46,369,073
Accumulated net investment loss (687,992) (173,297)
-------------- --------------
$3,995,581,681 $1,230,936,263
-------------- --------------
-------------- --------------
(8) INCOME TAX INFORMATION
The following information for the Funds is presented on an income tax basis
as of September 30, 2005:
GROSS GROSS NET UNREALIZED DISTRIBUTABLE DISTRIBUTABLE
COST OF UNREALIZED UNREALIZED APPRECIATION ORDINARY LONG-TERM
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS INCOME CAPITAL GAINS
----------- ------------ ------------ -------------- ------------- -------------
Brandywine Fund $3,385,021,786 $670,056,924 $46,000,560 $624,056,364 $ -- $ --
Blue Fund 1,063,396,460 157,228,296 12,634,021 144,594,275 35,062,276 11,307,366
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,
2005 and 2004, 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, 2005, and tax basis
post-October losses as of September 30, 2005, which are not recognized for
tax purposes until the first day of the following fiscal year are:
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------------------------------------------------------- -------------------------------
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 $ -- $ -- $324,641,701 $ -- $ -- $ --
Blue Fund $ -- $ -- $ -- $ -- $ -- $ --
The Brandywine Fund and the Blue Fund have utilized $683,813,443 and
$20,690,320, respectively, of their capital loss carryovers during the year
ended September 30, 2005.
Since there were no ordinary distributions paid for either Fund for the
year ended September 30, 2005, 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, 2005, 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),
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, 2005 by correspondence with the
custodian, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 14, 2005
CAPITAL GAINS UPDATEE
Brandywine Blue Fund will make an October capital gains distribution. The
distribution is based on gains realized during the Fund's fiscal year ended
September 30, and will be made October 27 to shareholders of record as of
October 26. Gains to be distributed total approximately $1.18 per share,
including $0.29 in long-term gains and $0.89 in short-term gains.
Other than shareholders investing through IRAs and other tax-advantaged
accounts, the distribution will be taxable to anyone owning shares on the
October record date. Please consult your tax adviser if you have questions on
how the distribution affects your personal tax situation.
The realized gains that triggered the distribution reflect the success
Brandywine Blue experienced in recent years. Realized gains associated with
Brandywine Blue's 19.64 percent annualized return in the three years through
September allowed it to offset capital loss carryovers that made distributions
unnecessary in the prior four fiscal years.
Brandywine Fund will not make an October distribution. While Brandywine
continues to reduce its capital loss carryovers from previous years, about $2.56
per share remains available to offset gains realized in the future.
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 April 1, 2005 through September
30, 2005.
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*<F15>
4/01/05 9/30/05 4/01/05-9/30/05
------- ------- ---------------
Brandywine Actual $1,000 $1,000.00 $1,147.10 $5.81
Hypothetical (5% return before expenses) $1,000.00 $1,019.65 $5.47
Brandywine Blue Actual $1,000 $1,000.00 $1,131.05 $6.04
Hypothetical (5% return before expenses) $1,000 $1,000.00 $1,019.40 $5.72
*<F15> Expenses are equal to the Funds' annualized expense ratios of 1.08% and
1.12%, multiplied by the average account value over the period,
multiplied by 183/365 (to reflect the one-half year period between
April 1, 2005 and September 30, 2005).
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, 2005 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. The Funds' Forms N-Q are available on the Commission's website. 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.
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 Other Directorships Held
Name, Age, Address by Director or Officer During Past Five Years by Director or Officer
- ------------------ ------------------------- ---------------------- ------------------------
Robert F. Birch, 69 Director Mr. Birch has been President and Director of Hyperion Funds (5
8 Knollwood Drive Indefinite Term since the New America High Income Fund since 1992, portfolios), New America
Dover, MA 02030 October, 2001 a high-yield bond fund traded on the New York High Income Fund
3 Portfolios Stock Exchange.
C. Quentin S. Jackson, 61 Lead Independent Mr. Jackson is President and Chief Executive None
c/o Nuclear Electric Director Officer of Nuclear Electric Insurance Ltd., a
Insurance Ltd. Indefinite Term since multibillion-dollar company mutually owned by
1201 Market Street October, 2001 energy companies. He has been with Nuclear
Suite 1200 3 Portfolios Electric since 1980.
Wilmington, DE 19801
Stuart A. McFarland, 58 Director Mr. McFarland is Chairman and Chief Executive Newcastle Investment
c/o Assurance Partners Bank Indefinite Term since Officer at Federal City Bancorp and Assurance Corporation
6903 Rockledge Drive October, 2001 Partners Bank. From 1999 until 2002, he served
Suite 525 Audit Committee as President and Chief Executive of Pedestal
Bethesda, MD 20817 Chairman, June 2004 Inc. Mr. McFarland also served as Chief
3 Portfolios Financial Officer of Fannie Mae, and an
officer of G.E. Capital.
W. Richard Scarlett III, 66 Director Mr. Scarlett is Chairman and Chief Executive United Bancorporation of
c/o United Bancorporation Indefinite Term since Officer of United Bancorporation of Wyoming, Wyoming, Inc.
of Wyoming, Inc. October, 2001 Inc., having been with the Bank since 1981.
50 Buffalo Way 3 Portfolios
Jackson, WY 83001
Marvin N. Schoenhals, 58 Director Mr. Schoenhals is Chairman and President of WSFS Financial Corp.
c/o WSFS Financial Indefinite Term since WSFS Financial Corporation, a bank holding
Corporation October, 1998 company.
838 Market Street 3 Portfolios
Wilmington, DE 19801
James W. Zug, 65 Director Mr. Zug is a retired Partner of Amkor Technology, Inc.
5 Radnor Corporate Center, Indefinite Term since PricewaterhouseCoopers LLP. He was employed and Teleflex Inc.
Suite 520 October, 2001 with PricewaterhouseCoopers and its
100 Matsonford Road 3 Portfolios predecessors from 1964 until 2000.
Radnor, PA 19087
"Interested Persons" of the Funds*<F16>
Position, Term of Office
and Length of Time Served
and Number of Portfolios
in Fund Complex Overseen Principal Occupation Other Directorships Held
Name, Age, Address by Director or Officer During Past Five Years by Director or Officer
- ------------------ ------------------------- ---------------------- ------------------------
William F. D'Alonzo*<F16>, 50 Indefinite Term since Mr. D'Alonzo joined Friess Associates in 1981 None
c/o Friess Associates October, 2001 as part of the research team, became Chief
3711 Kennett Pike President since 2003 Investment Officer in 1997 and Chief Executive
Greenville, DE 19807 Chairman since 2004 Officer in 2002.
3 Portfolios
Foster S. Friess*<F16>, 65 Director Mr. Friess founded Friess Associates in 1974 None
c/o Friess Associates Indefinite Term since with his wife, Lynnette E. Friess. He serves
115 East Snow King Avenue October, 1985 as Chairman of the Friess Companies.
Jackson, WY 83001 Founder
3 Portfolios
Lynda J. Campbell*<F16>, 59 Vice President since 1998 Ms. Campbell joined Friess Associates in 1985, None
c/o Friess Associates Secretary since 1990 the year of Brandywine Fund's inception. Ms.
3711 Kennett Pike 3 Portfolios Campbell is currently Chief Administrative
Greenville, DE 19807 Officer of the Friess Companies.
Christopher G. Long*<F16>, 39 Vice President since 2002 Mr. Long joined Friess Associates in 1996, and None
c/o Friess Associates Treasurer since 2003 became Chief Operating Officer of the Friess
3711 Kennett Pike 3 Portfolios Companies in 2001.
Greenville, DE 19807
David D. Marky*<F16>, 40 Vice President since 2002 Mr. Marky joined Friess Associates in 2000, None
c/o Friess Associates Chief Compliance Officer following 13 years with PFPC, Inc. He
3711 Kennett Pike since 2004 currently serves as Chief Compliance Officer
Greenville, DE 19807 3 Portfolios for the Friess Companies and the Brandywine
Funds.
Paul R. Robinson*<F16>, 82 Vice President since Mr. Robinson has been a consultant to Friess None
c/o Friess Associates 1990 Associates, LLC since June 1985, just six
3711 Kennett Pike 3 Portfolios months before Brandywine Fund's launch.
Greenville, DE 19807
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.
*<F16> Messrs. D'Alonzo, Friess, 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.
Brandywine listed among The Wall Street Journal's "Category Kings" for total
return in the year ended September 30, 2005. Brandywine earned the distinction
by posting the seventh-highest return out of the 720 funds that Lipper includes
in its Multicap Core category.
The Wall Street Journal, "Category Kings in 19 Realms," October 4, 2005.
"Since it was launched 20 years ago...the Brandywine Fund has been one of the
country's top mid-cap growth funds. From its inception through July 2005, the
fund had an annualized rate of return of 13.8% - topping the S&P 500 Index by an
average of 1.7 percentage points each year."
Bottom Line/Personal, "Growth Stocks From Bill D'Alonzo's Legendary Brandywine
Fund," September 15, 2005.
"All said, we think Brandywine's stock-picking approach gives it a leg up that's
sustainable, making this one of our favorites."
Morningstar, Inc., "Morningstar's Take - Brandywine defies the norm with
unmatched success," August 29, 2005.
"The [Friess] team has had no shortage of ideas and has ably gleaned things that
haven't been obvious to the market."
Morningstar, Inc., "Morningstar's Take - We're impressed by Brandywine Blue's
success with large-caps," August 12, 2005
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, Founder; William D'Alonzo, Chairman and President;
Lynda Campbell, Vice President and Secretary; 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, David Marky, Adam Rieger
IRA INVESTORS . . .
For IRA shareholders, the annual $15 maintenance fee is due on November 4, 2005.
For your convenience, US Bancorp will automatically deduct this amount from your
IRA on the due date. If you would prefer not to have the fee swept from your
account, please send a check to US Bancorp by the due date.
BRANDYWINE ADVISORS FUND
Managed by Friess Associates, LLC Annual Report September 30, 2005
DEAR FELLOW SHAREHOLDERS:
Brandywine Advisors Fund fared well in the September quarter, contributing to
solid year-to-date performance in an environment marked by modest gains in major
indexes. Brandywine Advisors grew 20.25 percent this year through September,
more than doubling the return of its best performing benchmark.
YEAR-TO-DATE PERFORMANCE
Brandywine Advisors Fund 20.25%
Russell Midcap Index 10.07%
Russell Midcap Growth Index 8.37%
S&P 500 Index 2.77%
Cumulative Total Returns, December 31, 2004 through September 30, 2005.
Recent results capped off a strong fiscal year. The Fund's 33.30 percent
return in the 12 months through September surpassed benchmark returns ranging
from 12.25 percent for the S&P 500 Index to 25.10 percent for the Russell Midcap
Index.
Brandywine Advisors' total return in the year ended September 30 ranked in the
top 1 percent of the 785 funds in Morningstar's mid-cap growth category.
"Management's Discussion of Results" on page 7 goes into detail on performance
over the past year.
Brandywine Advisors grew 14.11 percent in the September quarter, outpacing
gains in the Russell Midcap, Russell Midcap Growth and S&P 500 Indexes of 5.92,
6.55 and 3.61 percent. Holdings from sectors comprising the Fund's largest
percentages of assets, energy and industrials, were among the biggest
contributors to results.
Energy-related holdings were far and away the most significant contributors to
September-quarter results. Energy equipment and service providers went into the
quarter with pricing leverage driven by robust demand, only to see that position
bolstered when hurricanes Katrina and Rita damaged production assets in the Gulf
of Mexico.
Standout performers included Nabors Industries and Weatherford International,
which exceeded June-quarter earnings estimates with 173 and 60 percent growth.
Land-based oil and gas producers Chesapeake Energy and Southwestern Energy
gained ground after growing June-quarter earnings 52 and 33 percent. They then
rallied further as their relative lack of exposure to hurricane-stricken areas
positioned them for continued strength.
Precision Castparts was among the industrial sector's most notable
contributors. June-quarter earnings growth of 44 percent highlighted how cost-
cutting moves in years past position the company to capitalize on an upgrade
cycle among its aviation customers. Joy Global, which makes mining equipment,
benefited from its link to coal as the market focused on energy. Joy Global beat
estimates with 185 percent earnings growth in the July quarter.
The health care sector detracted from results, primarily because of Triad
Hospitals. The company executed on the earnings front as we expected, but came
under pressure following hurricanes Katrina and Rita. While Triad did not
experience significant direct damage from the hurricanes, it handled scores of
patients from competitors that did. Uncertainty regarding the likelihood of
receiving payment for all the extra services rendered fueled concerns that
Triad's bad debt expenses could impact its future earnings prospects.
BRANDYWINE ADVISORS
CUMULATIVE TOTAL RETURN % CHANGE
----------------------- --------
QUARTER 14.11
ONE YEAR 33.30
INCEPTION - 10/31/00 17.27
ANNUALIZED TOTAL RETURN
-----------------------
INCEPTION - 10/31/00 3.29
Performance data quoted represent 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 Fund
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.
For more information on the holdings that influenced September-quarter
performance the most, please refer to "Roses and Thorns" on page 6.
At a conference attended by some members of your team in September, the Chief
Executive of Clorox discussed the careful balance that must be struck in today's
climate between the costs that go into making products and the prices charged
for them. Said Clorox's CEO, "Typically we're just not recovering all our costs
right now."
Clorox is a great company run by a capable management team, and we're not
making a statement about its outlook. A growing number of companies are
grappling with this issue.
The companies we hold in the energy sector are in a different position. Many
of them perform services for or supply equipment to energy producers eager to
increase production, and the damage wrought by Katrina and Rita only strengthens
the favorable demand and pricing trends they enjoyed before hurricane season.
Rising costs will likely be a persistent theme in the economic conversation
that will unfold through the end of the year and beyond. The Fed's decision to
continue its series of interest-rate hikes despite calls for a breather
following the hurricanes speaks to the issue's importance.
The most important task for us will be to continue to perform grassroots
research to identify which individual companies put themselves in the best
positions to grow earnings despite whatever macro headwinds they face. Once we
get insight into a company's concrete earnings prospects, the most important
price consideration we will make is whether the company's stock price represents
a good buy relative to earnings power.
With high gas prices and the government both discouraging discretionary
travel, people are cutting back on the spur-of-the-moment trips that might make
the difference between a good quarter and a bad one for a given retailer or
restaurant chain. Falling temperatures promise to compound matters as homeowners
get their first heating bills.
Our research currently finds fewer companies dependent on consumer discretion
poised to exceed expectations and, as a result, Brandywine Advisors begins the
December quarter with notably lower exposure to the consumer discretionary
sector. Most new additions to the portfolio came from the technology and health
care sectors.
Many technology companies represent compelling values at a time when
corporations and the government are showing more willingness to spend. We've
identified the most opportunities in communications equipment, including Harris
Corp. (page 3). The health care additions we made, including Coventry Health
Care (page 3), enjoy solid profit-growth potential in an environment where
pricing power in general is getting harder to come by.
If individual-company fundamentals continue to influence stock prices as much
as they have so far this year, we believe the Fund's companies should attract
attention - the average Brandywine Advisors holding is expected to grow year-
over-year earnings by more than one-third in the December quarter.
We serve many clients and work with many companies that have and continue to
help in hurricane-stricken areas through donations and actions. We won't mention
any for fear of leaving someone out, but we want to take this opportunity to
applaud the sacrifice and selflessness of the great folks we do business with.
Thank you all.
We're encouraged by recent performance, and we'll be working hard to build on
it in the final quarter of 2005. Best wishes from your entire Friess team.
Bill D'Alonzo
Brandywine Funds President September 30, 2005
Brandywine Advisors Fund listed among The Wall Street Journal's "Category Kings"
for total return in the year ended September 30, 2005. Brandywine Advisors
earned the distinction by posting the fourth-highest return out of the 276 funds
selected by the Journal from Lipper's Midcap Core category (Actual Lipper
ranking was 5 out of 284 funds).
The Wall Street Journal, "Category Kings in 19 Realms," October 4, 2005.
COVENTRY HEALTH CARE, INC., CVH
Coventry Health Care, Inc. has historically employed a shrewd approach in a
consolidating industry, acquiring underperforming regional insurance plans,
mainly those run by hospitals, and improving their profitability through its
scale and expertise. Its acquisition of First Health Group earlier this year
moves this strategy onto a national stage.
NYSE-listed Coventry is a managed healthcare company with plans under local
names in 15 states. Its plans include point of service, HMOs and Preferred
Provider Organizations, as well as Medicare and Medicaid products. The company
has 2.5 million members, with 60 percent of its membership in commercial, fully
insured products.
Coventry integrated nearly a dozen struggling regional plans in recent years,
paying hundreds of dollars less per member than the industry average. First
Health, which serves group health, workers' compensation and state agency
markets, represents its biggest undertaking so far to improve an underperforming
set of businesses. Coventry is expected to garner $75 million in savings and
revenue enhancements by year-end 2006 related to the acquisition.
March-quarter earnings grew 30 percent, extending a streak of 26 consecutive
quarters of meeting or exceeding consensus estimates. Revenues rose 26 percent
to $1.7 billion. Coventry generated $440 million in operating cash flow in the
first half of 2005, nearly matching the $450 million it posted for all of 2004.
Your team recently spoke with Chief Executive Dale Wolfe about the opportunity
new Medicare Part D prescription drug plans represent for the company. Starting
next month, Coventry and other insurers will market competing prescription plans
to an estimated 30 million senior citizens.
Your team purchased Coventry at 14 times 2006 earnings estimates. Analysts
expect the company to complete 2005 with 27 percent earnings growth.
HARRIS CORP., HRS
Disaster response, military operations and intelligence work are among our
nation's most pressing priorities. None of these critical missions can be
effectively executed without secure and reliable communications equipment, a
reality that positions Harris Corp. for strong growth in the foreseeable future.
NYSE-listed Harris makes communications equipment ranging from tactical,
handheld radios used by the United States, NATO and governments around the world
to antennas and digital transmitters used by radio and television broadcasters.
Customers include all branches of the U.S. military, the Department of Homeland
Security, ABC, CBS and Clear Channel Communications. Revenues grew 17 percent to
$3 billion in the fiscal year ended June.
Having built the first hotline between the White House and the Kremlin
following the Cuban missile crisis, Harris enjoys a long, storied history
handling sensitive projects. The company's new Falcon III recently became the
first and only radio using the military's next-generation radio architecture to
win National Security Agency verification, foreshadowing new orders for a Harris
division already growing robustly. The division, RF Communications, grew June-
quarter revenues 37 percent, with new orders outpacing shipments.
Harris grew June-quarter earnings 80 percent, exceeding estimates for the
fourth consecutive quarter. The quarter completed a fiscal year in which Harris
grew earnings 58 percent. While military radio sales led other areas, all four
of the company's operating divisions showed improvement.
Your team spoke with Robert Henry, President of Harris' Government
Communications division, about the company's impressive historical win rate in
bids for U.S. government contracts. The company owes much of that success to the
division, which exists to study and address the specific needs of its government
customers.
Your team bought Harris at about 20 times earnings estimates for the fiscal
year ending June 2006. Wall Street predicts Harris will grow earnings 25 percent
in the fiscal year.
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. This example is intended to help you understand your ongoing
costs (in dollars) of investing in Brandywine Advisors Fund 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 Fund. To determine
your total costs of investing in the Fund, 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 at the end of this article.
The example is based on $1,000 invested at the beginning of the period and
held for the entire period from April 1, 2005 through September 30, 2005.
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 Brandywine
Advisors currently does 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*<F1>
4/01/05 9/30/05 4/01/05-9/30/05
--------- ------- ------------------
Brandywine Advisors Actual $1,000.00 $1,187.40 $6.36
Hypothetical (5% return
before expenses) $1,000.00 $1,019.30 $5.87
*<F1> Expenses are equal to the Fund's annualized expense ratio of 1.16%,
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period between April 1, 2005 and
September 30, 2005).
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 Fund uses to determine how
to vote proxies relating to portfolio securities, please call (877) 636-6460 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 Fund voted proxies relating to
portfolio securities during the twelve month period ending June 30, 2005 is
available on the Fund's website at http://www.brandywinefunds.com or the website
of the Commission. The Fund files its complete schedule of portfolio holdings
with the Commission for the first and third quarters of each fiscal year on Form
N-Q. The Fund's Form N-Q is available on the Commission's website. The Fund's
Form 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.
BRANDYWINE ADVISORS FUND
PERCENT CHANGE IN TOP TEN HOLDINGS FROM BOOK COST AS OF SEPTEMBER 30, 2005
1. Precision Castparts Corp. +45.4%
2. Chesapeake Energy Corp. +199.6%
3. Southwestern Energy Co. +149.5%
4. Fisher Scientific International Inc. +38.8%
5. Harris Corp. +9.7%
6. Beckman Coulter, Inc. -2.7%
7. Coventry Health Care, Inc. +18.8%
8. The Cooper Companies, Inc. +13.5%
9. KB Home, Inc. +59.4%
10. Goodrich Corp. +15.8%
EARNINGS GROWTH
THE FUND'S COMPANIES 42%
S&P 500 15%
FORECASTED INCREASE IN EARNINGS PER SHARE
2005 VS 2004
ALL FIGURES ARE DOLLAR WEIGHTED AND BASED ON DATA FROM BASELINE. SEPTEMBER 30,
2005
THE PORTFOLIO'S MARKET CAPITALIZATION
MID CAP
$1 billion to $15 billion
90.2%
CASH
9.8%
TOP TEN INDUSTRY GROUPS
Health Care Equipment (9.8%)
Aerospace & Defense (9.5%)
Oil & Gas Exploration & Production (9.0%)
Communications Equipment (7.0%)
Oil & Gas Equipment & Services (5.9%)
Oil & Gas Drilling (4.9%)
Homebuilding (4.4%)
Application Software (3.6%)
Managed Health Care (3.4%)
Consumer Electronics (3.3%)
All Other Industry Groups (29.4%)
Cash (9.8%)
BRANDYWINE ADVISORS FUND
SEPTEMBER QUARTER "ROSES AND THORNS"
$ GAIN
BIGGEST $ WINNERS (IN THOUSANDS) % GAIN REASON FOR MOVE
----------------- -------------- ------ ---------------
Chesapeake Energy
Corp. $3,950.0 50.9 June-quarter earnings grew 52 percent on revenue growth of 82 percent.
Continued drilling success in several high-potential areas, including the
Barnett Shale area in North Texas, the Mountain Front area in Oklahoma and the
Haley area in West Texas, are driving results. In addition to owning
considerable reserves, Chesapeake drills the deepest natural gas wells in the
U.S., helping it exceed production expectations amid surging energy demand.
Southwestern
Energy Co. $3,305.4 47.9 June-quarter earnings grew 33 percent as quarterly revenues jumped 13 percent
to $132 million. The integrated energy company focused on natural-gas and oil
production announced positive surprises for exploratory wells on its
Fayetteville Shale, Arkansas property, indicating greater production and
reserve growth than Wall Street anticipated. Natural-gas prices will likely
remain elevated throughout the winter following the infrastructure and
production damage wrought by two hurricanes in the Gulf of Mexico.
Precision Castparts
Corp. $2,657.4 36.3 The manufacturer of jet-engine parts grew June-quarter earnings 44 percent,
marking 21 consecutive quarters of surpassing consensus estimates. Demand
increased as aircraft manufacturers, utilities and power companies worked to
replace critical, high-wear parts in jet engines and industrial gas turbines
built three to five years ago.
Joy Global Inc. $2,253.6 42.9 The maker of mining equipment used to extract coal and other raw materials grew
July-quarter earnings 185 percent, beating estimates by 12 percent. Backlog and
pricing have risen as the company's customers look to benefit on favorable
supply and demand metrics in the energy and materials end markets. The Fund
sold Joy Global when it reached our target price.
Harman International
Industries, Inc. $1,738.1 25.2 The manufacturer of in-car multimedia "infotainment" systems grew June-quarter
earnings 33 percent, marking its fourteenth consecutive quarter of beating
estimates. Despite slower automobile production growth due mainly to softness
in North America and Europe, Harman's technology is being incorporated in a
wider range of new vehicles. Estimates for infotainment sales predict 48
percent growth this year.
$ LOSS
BIGGEST $ LOSERS (IN THOUSANDS) % LOSS REASON FOR MOVE
---------------- -------------- ------ ---------------
Triad Hospitals, Inc. $1,347.8 16.0 June-quarter earnings grew 27 percent, beating estimates. While Triad had less
exposure to the Gulf Coast hurricanes than many other hospital companies, it
experienced a large influx of patients transferred from the hospitals severely
affected. With uncertainty regarding the likelihood of payment for these
additional services rendered, investors worried that Triad's bad debt expense
would increase and hamper its earnings prospects. The Fund sold Triad to fund
an idea with greater near-term earnings visibility.
Advance Auto Parts, Inc. $675.4 11.4 The auto-parts retailer grew June-quarter earnings 28 percent, beating
estimates. Despite strong results, shares fell on management's conservative
forward guidance due to broad concerns about consumer spending. The Fund sold
Advance Auto Parts to fund an idea with greater near-term earnings upside.
Pentair, Inc. $535.1 10.7 The diversified manufacturer with a focus on water-related businesses grew
June-quarter earnings 50 percent. Shares traded lower when management cited
delays in realizing $30 million in targeted cost-related synergies from its
recent WICOR acquisition. The Fund sold Pentair to fund an idea with greater
near-term earnings upside.
Avid Technology, Inc. $522.5 22.5 The supplier of digital editing software and systems for manipulating video,
film and audio came under pressure when large deals it expected to close in the
June quarter were pushed out. Additionally, the company's announcement that it
would acquire underperforming Pinnacle was met with mixed reviews. The Fund
sold Avid in July to fund an idea with greater near-term earnings upside.
Tempur-Pedic
International Inc. $508.4 28.8 June-quarter earnings grew 39 percent as revenues jumped 27 percent. Hurricanes
Katrina and Rita have strained industry-wide production of polyurethane foam.
Shares also traded lower on concerns that pricing for the company's high-end
foam mattresses would suffer amid increased competition and cannibalization
from Tempur-Pedic's new line of lower-price-point mattresses. The Fund sold
Tempur-Pedic to fund an idea with greater near-term upside.
All gains/losses are calculated on an average cost basis
MANAGEMENT'S DISCUSSION OF RESULTS, BRANDYWINE ADVISORS FUND
Brandywine Advisors Fund's investment strategy emphasizes the relationship
between earnings performance and stock prices. While oil prices and other broad
factors influenced stocks at various times in the fiscal year ended September
30, 2005, individual-company earnings trends emerged as the main influence on
stocks during the period.
Brandywine Advisors grew 33.30 percent in the 12 months through September,
outpacing its primary benchmarks and 99 percent of the funds in Morningstar's
mid-cap growth category. The S&P 500, Russell Midcap and Russell Midcap Growth
Indexes gained 12.25, 25.10 and 23.47 percent.
With the price of crude oil up 70 percent over the previous fiscal year, oil
prices commanded investor attention as the fiscal year began. Prices fell
notably during the December quarter of 2004, boosting economic expectations and
sparking a broad-based rally.
Raw materials, homebuilding and industrial holdings fared particularly well as
the improved backdrop enabled investors to recognize earnings strength that the
Friess team identified earlier. Brandywine Advisors grew 10.85 percent in the
December quarter, putting it between benchmark returns ranging from 9.23 to
13.94 percent.
Enthusiasm waned in the March quarter of 2005 as oil prices resumed a steady
rise and the Fed remained committed to increasing short-term interest rates.
Most major indexes, including the Fund's benchmarks, lost ground during the
quarter. Brandywine Advisors grew 1.27 percent thanks to solid contributions
from energy and raw materials holdings. Based on individual-company earnings
outlooks, the Fund also held relatively few companies from the financial and
technology sectors, which were among the market's poorest performers.
During the March quarter, the Friess team sold a number of raw materials and
industrial holdings that reached their target prices and used the proceeds to
fund purchases in the energy and consumer sectors. Holdings from these areas
fueled a 4.06 percent gain in a generally positive June-quarter environment.
Benchmark returns ranged from 1.37 to 4.18 percent.
Energy holdings comprised the largest percentage of assets as the September
quarter began. That worked in the Fund's favor as oil prices reached a new all-
time high and hurricanes damaged Gulf of Mexico production assets, drawing
investor attention to earnings strength among the Fund's energy holdings.
Brandywine Advisors grew 14.11 percent in the quarter, more than doubling the
performance of its best performing benchmark.
HYPOTHETICAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
BRANDYWINE ADVISORS FUND, RUSSELL MIDCAP GROWTH INDEX(1)<F2>,
RUSSELL MIDCAP INDEX(2)<F3> AND S&P 500 INDEX(3)<F4>
BRANDYWINE RUSSELL
DATE ADVISORS FUND MIDCAP GROWTH RUSSELL MIDCAP S&P 500
---- ------------- ------------- -------------- -------
10/31/00 $10,000 $10,000 $10,000 $10,000
12/31/00 $10,267 $8,239 $9,793 $9,257
3/31/01 $8,864 $6,172 $8,765 $8,159
6/30/01 $9,198 $7,170 $9,600 $8,637
9/30/01 $7,958 $5,177 $7,885 $7,369
12/31/01 $8,292 $6,578 $9,241 $8,157
3/31/02 $8,254 $6,462 $9,634 $8,180
6/30/02 $7,853 $5,282 $8,714 $7,084
9/30/02 $6,956 $4,374 $7,177 $5,859
12/31/02 $6,889 $4,775 $7,745 $6,353
3/31/03 $6,842 $4,774 $7,563 $6,153
6/30/03 $7,863 $5,670 $8,944 $7,101
9/30/03 $8,034 $6,076 $9,519 $7,289
12/31/03 $8,874 $6,814 $10,848 $8,176
3/31/04 $9,027 $7,143 $11,406 $8,315
6/30/04 $8,969 $7,218 $11,571 $8,458
9/30/04 $8,798 $6,906 $11,474 $8,300
12/31/04 $9,752 $7,869 $13,042 $9,066
3/31/05 $9,876 $7,737 $13,009 $8,871
6/30/05 $10,277 $8,003 $13,553 $8,993
9/30/05 $11,727 $8,527 $14,355 $9,317
AVERAGE ANNUAL TOTAL RETURN
Since Effective Date
1-Year 10/31/00
------ --------------------
33.30% 3.29%
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 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.
(2)<F3> 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.
(3)<F4> 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 ADVISORS FUND
SCHEDULE OF INVESTMENTS
September 30, 2005
SHARES COST VALUE
------ ---- -----
COMMON STOCKS - 90.2% (A)<F6>
CONSUMER DISCRETIONARY
CONSUMER ELECTRONICS - 3.3%
17,700 Garmin Ltd. $ 887,705 $ 1,200,591
53,700 Harman International
Industries, Inc. 4,303,416 5,491,899
HOMEBUILDING - 4.4%
88,000 KB Home, Inc. 4,040,253 6,441,600
31,900 Meritage Homes Corp.*<F5> 2,338,192 2,445,454
HOUSEWARES & SPECIALTIES - 2.8%
134,500 Jarden Corp.*<F5> 5,452,808 5,523,915
SPECIALTY STORES - 1.2%
53,300 Tractor Supply Co.*<F5> 2,742,779 2,433,145
------------ ------------
TOTAL CONSUMER DISCRETIONARY 19,765,153 23,536,604
THIS SECTOR IS 19.1% ABOVE YOUR FUND'S COST.
ENERGY
OIL & GAS DRILLING - 4.9%
88,100 ENSCO International Inc. 3,834,764 4,104,579
80,900 Nabors Industries, Ltd.*<F5> 3,824,029 5,811,047
OIL & GAS EQUIPMENT & SERVICES - 5.9%
71,300 Cal Dive International, Inc.*<F5> 4,329,133 4,521,133
33,200 Stolt Offshore S.A. ADR*<F5> 398,086 384,456
28,400 Tidewater Inc. 1,386,292 1,382,228
81,200 Weatherford International Ltd.*<F5> 3,458,656 5,575,192
OIL & GAS EXPLORATION & PRODUCTION - 9.0%
239,500 Chesapeake Energy Corp. 3,057,880 9,160,875
121,700 Southwestern Energy Co.*<F5> 3,580,062 8,932,780
------------ ------------
TOTAL ENERGY 23,868,902 39,872,290
THIS SECTOR IS 67.0% ABOVE YOUR FUND'S COST.
FINANCIALS
PROPERTY & CASUALTY INSURANCE - 0.3%
17,800 Aspen Insurance Holdings Ltd. 525,098 525,990
------------ ------------
TOTAL FINANCIALS 525,098 525,990
THIS SECTOR IS 0.2% ABOVE YOUR FUND'S COST.
HEALTH CARE
HEALTH CARE EQUIPMENT - 9.8%
131,100 Beckman Coulter, Inc. 7,273,797 7,076,778
151,700 Cytyc Corp.*<F5> 3,808,780 4,073,145
137,800 Fisher Scientific
International Inc.*<F5> 6,161,211 8,550,490
HEALTH CARE SUPPLIES - 3.3%
85,000 The Cooper Companies, Inc. 5,737,119 6,511,850
MANAGED HEALTH CARE - 3.4%
79,100 Coventry Health Care, Inc.*<F5> 5,726,328 6,804,182
PHARMACEUTICALS - 2.2%
119,500 Shire Pharmaceuticals Group
PLC - SP-ADR 4,424,351 4,420,305
------------ ------------
TOTAL HEALTH CARE 33,131,586 37,436,750
THIS SECTOR IS 13.0% ABOVE YOUR FUND'S COST.
INDUSTRIALS
AEROSPACE & DEFENSE - 9.5%
72,100 Embraer-Empresa Brasileira de
Aeronautica S.A. ADR 2,669,725 2,783,060
141,700 Goodrich Corp. 5,424,848 6,282,978
187,800 Precision Castparts Corp. 6,856,863 9,972,180
COMMERCIAL PRINTING - 1.8%
99,800 R. R. Donnelley & Sons Co. 3,257,336 3,699,586
CONSTRUCTION & ENGINEERING - 1.2%
65,900 McDermott International, Inc.*<F5> 2,204,600 2,412,599
DIVERSIFIED COMMERCIAL SERVICES - 0.7%
38,300 Career Education Corp.*<F5> 1,452,391 1,361,948
ELECTRICAL COMPONENTS & EQUIPMENT - 1.5%
52,200 AMETEK, Inc. 1,779,239 2,243,034
24,400 Thomas & Betts Corp.*<F5> 834,431 839,604
INDUSTRIAL MACHINERY - 3.0%
39,400 IDEX Corp. 1,671,687 1,676,470
143,800 Timken Co. 3,558,223 4,260,794
OFFICE SERVICES & SUPPLIES - 2.0%
130,000 Herman Miller, Inc. 4,168,161 3,939,000
------------ ------------
TOTAL INDUSTRIALS 33,877,504 39,471,253
THIS SECTOR IS 16.5% ABOVE YOUR FUND'S COST.
INFORMATION TECHNOLOGY
APPLICATION SOFTWARE - 3.6%
180,200 Amdocs Ltd.*<F5> 5,323,355 4,996,946
240,000 Compuware Corp.*<F5> 1,924,690 2,280,000
COMMUNICATIONS EQUIPMENT - 7.0%
215,900 Comverse Technology, Inc.*<F5> 5,371,902 5,671,693
178,000 Harris Corp. 6,779,932 7,440,400
88,100 Tellabs, Inc.*<F5> 922,807 926,812
ELECTRONIC EQUIPMENT MANUFACTURERS - 1.7%
114,800 FLIR Systems, Inc.*<F5> 3,547,606 3,395,784
SEMICONDUCTOR EQUIPMENT - 3.1%
269,500 MEMC Electronic Materials, Inc.*<F5> 4,699,012 6,141,905
SYSTEMS SOFTWARE - 2.7%
172,800 McAfee, Inc.*<F5> 5,000,269 5,429,376
------------ ------------
TOTAL INFORMATION TECHNOLOGY 33,569,573 36,282,916
THIS SECTOR IS 8.1% ABOVE YOUR FUND'S COST.
MATERIALS
DIVERSIFIED METALS & MINING - 1.9%
29,900 Phelps Dodge Corp. 2,814,948 3,884,907
------------ ------------
TOTAL MATERIALS 2,814,948 3,884,907
------------ ------------
THIS SECTOR IS 38.0% ABOVE YOUR FUND'S COST.
Total common stocks 147,552,764 181,010,710
PRINCIPAL
AMOUNT
- ---------
SHORT-TERM INVESTMENTS - 6.9% (A)<F6>
COMMERCIAL PAPER - 6.1%
$7,300,000 Countrywide Financial Corp.,
due 10/03/05, discount of 3.92% 7,298,410 7,298,410
5,000,000 Countrywide Financial Corp.,
due 10/04/05, discount of 3.83% 4,998,404 4,998,404
------------ ------------
Total commercial paper 12,296,814 12,296,814
VARIABLE RATE DEMAND NOTE - 0.8%
1,480,621 Wisconsin Corporate
Central Credit Union, 3.50% 1,480,621 1,480,621
------------ ------------
Total short-term investments 13,777,435 13,777,435
------------ ------------
Total investments - 97.1% (a)<F6> $161,330,199 194,788,145
------------ ------------
------------
Other assets and
liabilies - 2.9% (a)<F6> 5,805,220
------------
Net assets - 100% $200,593,365
------------
------------
*<F5> Non-dividend paying security.
(A)<F6> Percentages for the various classifications relate to net assets.
ADR - American Depository Receipts
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2005
ASSETS:
Investments in securities, at value (cost $161,330,199) $194,788,145
Cash 1,202,434
Receivable from investments sold 10,067,321
Receivable from shareholders for purchases 1,227,678
Dividends and interest receivable 69,446
Other assets 1,324
------------
Total assets $207,356,348
------------
------------
LIABILITIES:
Payable to brokers for investments purchased $ 6,487,040
Payable to adviser for management fees 156,642
Deferred compensation plan for Directors 82,457
Other liabilities 36,844
------------
Total liabilities 6,762,983
------------
NET ASSETS:
Capital Stock, $0.01 par value; 100,000,000
shares authorized; 16,326,497 shares outstanding 145,576,247
Net unrealized appreciation on investments 33,457,946
Accumulated net realized gain on investments 21,641,629
Accumulated net investment loss (82,457
------------
Net assets 200,593,365
------------
Total liabilities and net assets $207,356,348
------------
------------
CALCULATION OF NET ASSET VALUE PER SHARE:
Net asset value, offering and redemption price per share
($200,593,365 / 16,326,497 shares outstanding) $12.29
------
------
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE ADVISORS FUND
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2005
INCOME:
Dividends $ 902,919
Interest 190,171
-----------
Total income 1,093,090
-----------
EXPENSES:
Management fees 1,611,374
Service and Distribution expenses 63,550
Professional fees 47,569
Administrative services 38,355
Board of Directors fees and expenses 35,883
Registration fees 32,951
Transfer agent fees 23,744
Printing and postage expense 19,961
Custodian fees 17,854
Insurance expense 7,896
Other expenses 14,637
-----------
Net expenses 1,913,774
-----------
NET INVESTMENT LOSS (820,684)
-----------
NET REALIZED GAIN ON INVESTMENTS 29,354,327
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 19,048,051
-----------
NET GAIN ON INVESTMENTS 48,402,378
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $47,581,694
-----------
-----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2005 and 2004
2005 2004
---- ----
OPERATIONS:
Net investment loss $ (820,684) $ (1,051,732)
Net realized gain on investments 29,354,327 1,919,896
Net increase in unrealized appreciation on investments 19,048,051 11,376,113
------------ ------------
Net increase in net assets resulting from operations 47,581,694 12,244,277
------------ ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (1,493,573 and 615,166 shares, respectively) 16,668,564 5,613,006
Cost of shares redeemed (416,442 and 640,090 shares, respectively) (4,302,727) (5,817,350)
------------ ------------
Net increase (decrease) in net assets derived from Fund share activities 12,365,837 (204,344)
------------ ------------
TOTAL INCREASE 59,947,531 12,039,933
NET ASSETS AT THE BEGINNING OF THE YEAR 140,645,834 128,605,901
------------ ------------
NET ASSETS AT THE END OF THE YEAR $200,593,365 $140,645,834
(Includes accumulated net investment loss of ($82,457) and ($48,522), respectively) ------------ ------------
------------ ------------
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE ADVISORS FUND
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)
2005 2004 2003 2002 through 9/30/01 through 10/31/00
---- ---- ---- ---- ---------------- ----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $9.22 $8.42 $7.29 $8.34 $10.48 $10.00
Income from investment operations:
Net investment loss(1)<F7> (0.05) (0.07) (0.06) (0.06) (0.08) 0.00
Net realized and unrealized gains (losses)
on investments 3.12 0.87 1.19 (0.99) (2.06) 0.48
------ ----- ----- ----- ----- ------
Total from investment operations 3.07 0.80 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 $12.29 $9.22 $8.42 $7.29 $8.34 $10.48
------ ----- ----- ----- ----- ------
------ ----- ----- ----- ----- ------
TOTAL RETURN 33.30% 9.50% 15.50% (12.59%) (20.42%)*<F8> 4.80%*<F8>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 200,593 140,646 128,606 108,692 26,687 26,456
Ratio of expenses to average net assets 1.19% 1.20% 1.22% 1.25% 1.68%**<F9> 1.73%**<F9>
Ratio of net investment loss
to average net assets (0.51%) (0.75%) (0.75%) (0.77%) (0.94%)**<F9> (0.58%)**<F9>
Portfolio turnover rate 206.8% 269.5% 269.5% 258.7% 264.5% 20.6%
(1)<F7> In 2005, 2004, 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 this
statement.
BRANDYWINE ADVISORS FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(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. 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. The fair value of a
security may differ from the last quoted price and the Fund may not be
able to sell a security at the fair value. Market quotations may not
be available, for example, if trading in particular securities has
halted during the day and not resumed prior to the close of trading on
the New York Stock Exchange. 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; however, for purposes of executing
shareholder transactions, the Fund records changes in holdings of
portfolio securities no later than the first business day after the
trade date in accordance with Rule 2a-4 of the Investment Company Act.
Accordingly certain differences between net asset value for financial
reporting and for executing shareholder transactions may arise.
(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 an 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. This relationship does not increase the annual management fee the
Fund pays to the Adviser.
The Fund pays each of the six independent directors annual fees of $2,500.
The Lead Independent Director and Chairman of the Audit Committee are paid
additional fees of $5,000 and $2,500 annually, divided proportionately
among all the Brandywine Funds. All of the independent directors have
elected to defer the receipt of all of the compensation they earn as
directors through a deferred compensation plan. Under the plan, the
compensation credited to the directors is in the form of phantom shares of
the Fund. Therefore, the amounts deferred under the plan increase or
decrease in value as if they had been invested in shares of the Fund. The
Fund maintains a payable for the directors' deferred compensation and
recognizes its change in value as an expense. The Fund also reimburses
directors for travel costs incurred in order to attend meetings of the
Board of Directors. For the year ended September 30, 2005 the Fund expensed
the following directors fees and costs:
Directors Fees and Travel Costs Paid during the Period $17,630
Appreciation in Deferred Compensation Plan Phantom Shares 18,253
-------
Total Director Fees and Related Costs $35,883
The Board of Directors have agreed to terminate the deferred compensation
plan for the Directors. The plan is expected to liquidate on October 31,
2005, and Directors will receive shares in the Fund or cash. All subsequent
director fees will be paid in shares of the Fund.
The Fund has adopted a Service and Distribution Plan (the "Plan") pursuant
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.
In the normal course of business the Fund enters into contracts with
service providers that contain general indemnification clauses. The Fund's
maximum exposure under these arrangements in unknown as this would involve
future claims that may be made against the Fund that have not yet occurred.
However, based on experience, the Fund expects the risk of loss to be
remote.
At September 30, 2005, approximately 83% of the outstanding shares of the
Fund are owned by one of the Fund's Directors.
(3) CREDIT AGREEMENT
U.S. Bank, N.A. has made available to the Fund a $4,000,000 uncommitted
credit facility pursuant to a Credit Agreement, which was booked on
December 6, 2004, for the purpose of having cash available to cover
incoming redemptions. Principal and interest of such loan under the Credit
Agreement is due not more than 31 days after the date of the loan. Amounts
under the credit facility bear interest at a rate per annum equal to the
current prime rate minus one on the amount borrowed. During the year ended
September 30, 2005, the Fund did not borrow against its Agreement. The
Credit Agreement expires on December 18, 2005.
(4) DISTRIBUTIONS TO SHAREHOLDERS
Net investment income and net realized gains, if any, are distributed to
shareholders at least annually. The Board of Directors has approved a
distribution of net realized gains on October 27, 2005 to shareholders of
record on October 26, 2005. These distributions, which are subject to
change, are expected to be $13,635,488 from net short-term capital gains
and $8,006,141 from net long-term gains.
(5) INVESTMENT TRANSACTIONS AND RELATED COSTS
For the year ended September 30, 2005, purchases and proceeds of sales of
investment securities (excluding short-term investments) for the Fund were
as follows:
SALE TRANSACTION RATIO OF COST TO
PURCHASES PROCEEDS COST AVERAGE NET ASSETS
--------- -------- ----------- ------------------
$320,840,522 $322,160,875 $761,622 0.47%
Transaction cost represents the total commissions paid by the Fund on its
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, 2005, liabilities of the Fund included the following:
Payable to brokers for investments purchased $ 6,487,040
Payable to Adviser for management fees 156,642
Deferred compensation plan for Directors 82,457
Other liabilities 36,844
(7) SOURCES OF NET ASSETS
As of September 30, 2005, the sources of net assets were as follows:
Fund shares issued and outstanding $145,576,247
Net unrealized appreciation on investments 33,457,946
Accumulated net realized gains 21,641,629
Accumulated net investment loss (82,457)
------------
$200,593,365
------------
------------
(8) INCOME TAX INFORMATION
The following information for the Fund is presented on an income tax basis
as of September 30, 2005:
GROSS GROSS NET UNREALIZED DISTRIBUTABLE DISTRIBUTABLE
COST OF UNREALIZED UNREALIZED APPRECIATION ORDINARY LONG-TERM
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS INCOME CAPITAL GAINS
----------- ------------ ------------ -------------- ------------- -------------
$161,330,199 $34,823,376 $1,365,430 $33,457,946 $13,635,488 $8,006,141
The difference, if any, 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,
2005 and 2004, capital loss carryovers, which may be used to offset future
capital gains, subject to Internal Revenue Code limitations, as of
September 30, 2005, and tax basis post-October losses as of September 30,
2005, which are not recognized for tax purposes until the first day of the
following fiscal year are:
ORDINARY LONG-TERM NET CAPITAL ORDINARY LONG-TERM
INCOME CAPITAL GAINS LOSS POST-OCTOBER INCOME CAPITAL GAINS
DISTRIBUTION DISTRIBUTIONS CARRYOVERS LOSSES DISTRIBUTION DISTRIBUTION
------------ ------------- ----------- ------------ ------------ -------------
$ -- $ -- $ -- $ -- $ -- $ --
The Fund utilized $38,921 of post-October losses from the prior year to
decrease current year capital gains.
The Fund also utilized $6,996,561 of its capital loss carryovers during the
year ended September 30, 2005.
Since there were no ordinary distributions paid for the year ended
September 30, 2005, 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 ADVISORS FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 Advisors Fund (the
"Fund," a series of the Brandywine Blue Fund, Inc.) at September 30, 2005, 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 standards of the Public
Company Accounting Oversight Board (United States), 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, 2005 by correspondence with the custodian, provide a reasonable
basis for our opinion.
/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 14, 2005
BRANDYWINE ADVISORS FUND DIRECTORS AND OFFICERS
Position, Term of Office
and Length of Time Served
and Number of Portfolios
in Fund Complex Overseen Principal Occupation Other Directorships Held
Name, Age, Address by Director or Officer During Past Five Years by Director or Officer
- ------------------ ------------------------- ---------------------- ------------------------
Robert F. Birch, 69 Director Mr. Birch has been President and Director Hyperion Funds (5
8 Knollwood Drive Indefinite Term since of the New America High Income Fund since portfolios), New America
Dover, MA 02030 October, 2001 1992, a high-yield bond fund traded on the High Income Fund
3 Portfolios New York Stock Exchange.
C. Quentin S. Jackson, 61 Lead Independent Mr. Jackson is President and Chief None
c/o Nuclear Electric Director Executive Officer of Nuclear Electric
Insurance Ltd. Indefinite Term since Insurance Ltd., a multibillion-dollar
1201 Market Street October, 2001 company mutually owned by energy
Suite 1200 3 Portfolios companies. He has been with Nuclear
Wilmington, DE 19801 Electric since 1980.
Stuart A. McFarland, 58 Director Mr. McFarland is Chairman and Chief Newcastle Investment
c/o Assurance Partners Bank Indefinite Term since Executive Officer at Federal City Bancorp Corporation
6903 Rockledge Drive October, 2001 and Assurance Partners Bank. From 1999
Suite 525 Audit Committee until 2002, he served as President and
Bethesda, MD 20817 Chairman, June 2004 Chief Executive of Pedestal Inc. Mr.
3 Portfolios McFarland also served as Chief Financial
Officer of Fannie Mae, and an officer of
G.E. Capital.
W. Richard Scarlett III, 66 Director Mr. Scarlett is Chairman and Chief United Bancorporation of
c/o United Bancorporation Indefinite Term since Executive Officer of United Bancorporation Wyoming, Inc.
of Wyoming, Inc. October, 2001 of Wyoming, Inc., having been with the
50 Buffalo Way 3 Portfolios Bank since 1981.
Jackson, WY 83001
Marvin N. Schoenhals, 58 Director Mr. Schoenhals is Chairman and President WSFS Financial Corp.
c/o WSFS Financial Corporation Indefinite Term since of WSFS Financial Corporation, a bank
838 Market Street October, 1998 holding company.
Wilmington, DE 19801 3 Portfolios
James W. Zug, 65 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 and
100 Matsonford Road 3 Portfolios its predecessors from 1964 until 2000.
Radnor, PA 19087
"Interested Persons" of the Funds*<F10>
Position, Term of Office
and Length of Time Served
and Number of Portfolios
in Fund Complex Overseen Principal Occupation Other Directorships Held
Name, Age, Address by Director or Officer During Past Five Years by Director or Officer
- ------------------ ------------------------- ---------------------- ------------------------
William F. D'Alonzo*<F10>, 50 Director Mr. D'Alonzo joined Friess Associates in None
c/o Friess Associates Indefinite Term since 1981 as part of the research team, became
3711 Kennett Pike October, 2001 Chief Investment Officer in 1997 and Chief
Greenville, DE 19807 President since 2003 Executive Officer in 2002.
Chairman since 2004
3 Portfolios
Foster S. Friess*<F10>, 65 Director Mr. Friess founded Friess Associates in None
c/o Friess Associates Indefinite Term since 1974 with his wife, Lynnette E. Friess.
115 East Snow King Avenue October, 1990 He serves as Chairman of the Friess
Jackson, WY 83001 Founder Companies.
3 Portfolios
Lynda J. Campbell*<F10>, 59 Vice President since 1998 Ms. Campbell joined Friess Associates in None
c/o Friess Associates Secretary since 1990 1985. Ms. Campbell is currently Chief
3711 Kennett Pike 3 Portfolios Administrative Officer of the Friess
Greenville, DE 19807 Companies.
Christopher G. Long*<F10>, 39 Vice President since 2002 Mr. Long joined Friess Associates in 1996, None
c/o Friess Associates Treasurer since 2003 and became Chief Operating Officer of the
3711 Kennett Pike 3 Portfolios Friess Companies in 2001.
Greenville, DE 19807
David D. Marky*<F10>, 40 Vice President since 2002 Mr. Marky joined Friess Associates in None
c/o Friess Associates Chief Compliance Officer 2000, following 13 years with PFPC, Inc.
3711 Kennett Pike since 2004 He currently serves as Chief Compliance
Greenville, DE 19807 3 Portfolios Officer for the Friess Companies and the
Brandywine Funds.
Paul R. Robinson*<F10>, 82 Vice President since Mr. Robinson has been a consultant to None
c/o Friess Associates 1990 Friess Associates, LLC since June 1985.
3711 Kennett Pike 3 Portfolios
Greenville, DE 19807
For additional information about the Directors and Officers, please call
(877) 636-6460 and request a Statement of Additional Information. One will be
mailed to you free of charge.
*<F10> Messrs. D'Alonzo, Friess, Long, Marky and Robinson and Ms. Campbell
are "interested persons" of the Fund as that term is defined in the
Investment Company Act of 1940 by reason of their being officers of
the Fund and employees of Friess Associates, LLC.
CAPITAL GAINS UPDATE...
Brandywine Advisors Fund will make an October capital gains distribution. The
distribution is based on gains realized during the Fund's fiscal year ended
September 30, and will be made October 27 to shareholders of record as of
October 26. Gains to be distributed total approximately $1.33 per share,
including $0.49 in long-term gains and $0.84 in short-term gains.
Other than shareholders investing through IRAs and other tax-advantaged
accounts, the distribution will be taxable to anyone owning shares on the
October record date. Please consult your tax adviser if you have questions on
how the distribution affects your personal tax situation.
The realized gains that triggered the distribution reflect the success
Brandywine Advisors Fund experienced in recent years. Realized gains associated
with Brandywine Advisors' 19.02 percent annualized return in the three years
through September allowed it to offset capital loss carryovers that made
distributions unnecessary in prior fiscal years.
IRA INVESTORS...
For IRA shareholders, the annual $15 maintenance fee is due on November 4, 2005.
For your convenience, US Bancorp will automatically deduct this amount from your
IRA on the due date. If you would prefer not to have the fee swept from your
account, please send a check to US Bancorp by the due date.
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 Registered Public Accounting Firm : PRICEWATERHOUSECOOPERS LLP
Legal Counsel: FOLEY & LARDNER LLP
Distributor: QUASAR DISTRIBUTORS, LLC
OFFICERS: Foster S. Friess, Founder; William D'Alonzo, Chairman and President;
Lynda Campbell, Vice President and Secretary; 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, David Marky, Adam Rieger
The Fund's investment objectives, risks, charges and expenses must be considered
carefully before investing. The prospectus contains this and other important
information about the investment company, and it may be obtained by calling
1-877-636-6460, or visiting www.brandywinefunds.com. Read it carefully before
investing.
MUTUAL FUND INVESTING INVOLVES RISK. PRINCIPAL LOSS IS POSSIBLE. 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 9/30/05, unless listed in the accompanying financial
statements. References to the earnings growth rates of the Fund refer solely to
the estimated earnings growth rates of the average investment holding of the
Fund based on consensus estimates from Baseline and not to the actual
performance of the Fund itself. "Bought" date highlighted in stock charts
represents the initial purchase date by Friess Associates and is not necessarily
the Fund's initial purchase date. Baseline Financial Services, Inc. (Baseline)
provides analytical information and services to the investment community.
As of September 30, 2005 the Russell Midcap Index's average annual total returns
for 1, 5 and 10 years were 25.10, 7.17 and 12.59 percent; the Russell Midcap
Growth Index's were 23.47, -4.50 and 9.10 percent; and the S&P 500 Index's were
12.25, -1.49 and 9.49 percent. You cannot invest directly in an index.
Morningstar Inc.' 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 most favorable) percentile rank is 1 and the lowest (or least
favorable) percentile rank is 100. Percentile ranks within categories are most
useful in those categories that have a large number of funds. The Wall Street
Journal's "Category King" ranking is based on Lipper data. However, the WSJ only
considers the largest class of a Fund in their "pool" of Funds for any
particular category, whereas Lipper counts every class of a Fund as a separate
ranking entity. Because the number of Funds in the WSJ ranking category may be
smaller than the Lipper category, the WSJ ranking for the Fund may be higher
than the Lipper ranking.
10/05
ITEM 2. CODE OF ETHICS.
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Registrant has adopted a code of ethics. See attached Exhibit 12 (a).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
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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.
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(a) Audit Fees
$41,300 (FY 2005) and $38,600 (FY 2004) 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
$11,421 (FY 2005) and $10,100 (FY 2004) 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) $18,100 (FY 2005) and $28,245 (FY 2004) 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.
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Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
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Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
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MANAGEMENT INVESTMENT COMPANIES
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Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
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Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
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COMPANY AND AFFILIATED PURCHASERS.
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Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None.
ITEM 11. CONTROLS AND PROCEDURES.
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(a) The disclosure controls and procedures of the Brandywine Blue Fund, Inc.
are periodically evaluated. As of October 25, 2005, 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. There were no changes to Brandywine Blue Fund's internal control
over financial reporting that occurred during the second fiscal quarter of
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, such controls.
ITEM 12. EXHIBITS.
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(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.
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Registrant
By /s/ William F. D'Alonzo
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William F. D'Alonzo Principal Executive Officer
Date October 26, 2005
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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.
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Registrant
By /s/ Christopher G. Long
-----------------------
Christopher G. Long, Principal Financial Officer
Date October 26, 2005
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