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: March 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
- --------------------------------
(THE BRANDYWINE FUNDS LOGO)
MANAGED BY FRIESS ASSOCIATES, LLC SEMI-ANNUAL REPORT MARCH 31, 2006
DEAR FELLOW SHAREHOLDERS:
Investors shrugged off slower growth, higher interest rates and a new round
of energy-price jitters on their way to fueling a generally upbeat March-quarter
environment for stocks. Some areas, as always, fared better than others, and the
Brandywine Funds held many companies that were positioned to prosper.
Brandywine Fund grew 9.30 percent in the March quarter, outpacing gains in
the Russell 3000 and Russell 3000 Growth Indexes of 5.31 and 4.07 percent.
Brandywine Blue Fund added 7.57 percent while the S&P 500, Russell 1000 and
Russell 1000 Growth Indexes gained 4.21, 4.49 and 3.09 percent.
Amid signs of consumer fatigue, holdings that generate profits by selling
their wares to business customers were standout performers. Energy-related
holdings also notably contributed to the cause as the drive to boost supplies
continued, promoting persistent demand for providers of services and equipment
critical to production.
Within the industrial sector, diversified manufacturer Manitowoc
(Brandywine) surged as the non-residential construction and mining markets drove
demand for the company's cranes and related products, resulting in 147 percent
December-quarter earnings growth. United Rentals (Brandywine), which saw
increased demand for heavy equipment rentals, also aided results.
Larger industrial holdings Emerson Electric and Precision Castparts were
common to both Funds. Driven by robust demand from energy and aerospace
customers, respectively, Emerson Electric and Precision Castparts exceeded
expectations with 37 and 48 percent December-quarter earnings growth.
Weatherford International, a consistent contributor for both Funds for most
of the past two years, continued on its tear thanks to more good news on the
earnings front. The company, which helps facilitate and optimize drilling
operations, beat estimates with 67 percent December-quarter earnings growth.
Halliburton (sold during the quarter) and Diamond Offshore (Brandywine Blue)
also enjoyed returns that showed appreciation for their strong earnings gains.
With the industrial, aerospace, construction and energy markets all buzzing
at once, demand for raw materials remains strong. Metals makers, including
Carpenter Technology (Brandywine) and Commercial Metals (Brandywine), also
figured prominently in Brandywine's results.
Materials holdings played a smaller role in the Brandywine Blue portfolio.
Brandywine Blue's supporting contributions came from the tech sector, where
Oracle (both Funds), Cisco Systems (both Funds) and Corning (sold during the
quarter) climbed on the heels of 19, 18 and 83 percent earnings growth in their
most recent quarters.
BRANDYWINE BRANDYWINE BLUE
CUMULATIVE TOTAL RETURN % CHANGE % CHANGE
----------------------- ---------- ---------------
QUARTER 9.30 7.57
ONE YEAR 23.70 19.59
FIVE YEARS 31.96 36.49
TEN YEARS 148.92 155.48
INCEPTION 1,326.36*<F1> 660.81**<F2>
ANNUALIZED TOTAL RETURN
-----------------------
FIVE YEARS 5.70 6.42
TEN YEARS 9.55 9.83
INCEPTION 14.03*<F1> 14.26**<F2>
*<F1> 12/30/85 **<F2> 1/10/91
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 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.
Consumer-related holdings were among the most notable detractors. Sherwin-
Williams was the primary culprit in both Funds. Shares fell after a jury in
Rhode Island held Sherwin-Williams and two other companies liable for lead-paint
cleanup costs in the first case of its kind to succeed.
For more information on the holdings that influenced March-quarter
performance the most, please see "Roses & Thorns" on pages 4 and 6.
Tepid GDP growth in the December quarter sparked fresh concerns about the
economy, with the consumer shouldering most of the blame. Individual-company
earnings trends led to a significant reduction in exposure to companies
sensitive to consumer discretion in the summer of 2005, and consumer-
discretionary companies have played a more limited role in the portfolios since
that time.
Companies with fortunes linked to business customers, such as technology and
industrial companies, enjoy brighter earnings prospects and, as a result, hold
prominent positions in the portfolios. The persistent strength on the industrial
side of the economy, including encouraging trends in non-residential
construction, also continues to stoke demand for basic materials like cement and
steel. Energy-company exposure is down from past quarters mainly due to sales of
holdings that reached their target prices.
Overall, tech companies comprise the largest percentage of portfolio assets,
followed by industrial companies. Health-care holdings are not far behind. Here,
too, we've identified broad spending trends - from the Medicare prescription
plan to the ongoing migration toward service providers and insurers that can
help control spiraling costs - that certain companies are well-positioned to
capitalize on.
The Brandywine Funds lost a dear friend and longtime adviser with the
passing of Stig Ramel in March. Having known Stig since joining Friess
Associates nearly 25 years ago, I will miss his wise counsel and sense of humor
- - as I know many others here will as well. Also, Skip Schoenhals is ending his
seven-year run on the Brandywine Funds board to focus on his day job at the helm
of WSFS Financial. Given Skip's keen insight and no-nonsense style, his
replacement will have big shoes to fill. We will miss working closely with Skip.
The brief articles below go into more detail.
We're grateful for the opportunity to serve you, and we'll be working hard
to build on your March-quarter results.
/s/ Bill D'Alonzo
Bill D'Alonzo
Brandywine Funds President April 7, 2006
REMEMBERING A FRIEND
The extended Friess Associates family lost a longtime member in March when
Baron Stig Ramel passed away at the age of 79. A Swedish diplomat, scholar,
businessman and author, Stig possessed a rare combination of charm and intellect
that made him a sought-after adviser to dignitaries, corporations and world-
renowned organizations.
Among voluminous accomplishments in international finance and philanthropy,
Stig served as Executive Director of the Nobel Foundation from 1972 to 1992.
Whether skating, skiing or orienteering, he also maintained into the twilight of
his life a relentless energy and a passion for physical activity that belied his
years.
Stig made a lasting positive impact on our entire firm. His decision to
invest Nobel Foundation assets with Friess Associates in 1974 opened a critical
early chapter in our firm's history. Stig was an original member of the
Brandywine Funds Board of Directors, serving from Brandywine Fund's launch at
the end of 1985 until 2001.
The way Stig lived his life was an inspiration, and we are grateful for the
fond memories of him that we will carry with us for many years to come.
THANKS TO A DEPARTING BOARD MEMBER
Marvin "Skip" Schoenhals, who joined the Brandywine Funds board as an
independent director in 1999, decided to step down from the board to focus on
his full-time responsibilities as Chairman, President and Chief Executive
Officer of WSFS Financial Corp. The commitment to shareholders that Skip
demonstrated during his tenure contributed to the Funds receiving an overall
Stewardship Grade of "A" from Morningstar.
We were fortunate to benefit from the considerable leadership skills Skip
honed during his decades in banking. After presiding over the growth of two
banks in Michigan, Skip took over a storied-but-struggling WSFS in 1990 and
helped transform it into one of the nation's top performing banking
organizations. WSFS in 2005 marked its fifth consecutive year of record
earnings. Skip's business acumen and community involvement won him a spot in the
Delaware Business Leaders Hall of Fame in 2004.
The board is currently evaluating potential candidates for the vacant
independent director position. As a director, Skip set high standards that
reflected his personal character, and we greatly enjoyed and appreciated the
opportunity to work with him.
BRANDYWINE FUND
PERCENT CHANGE IN TOP TEN HOLDINGS FROM BOOK COST
1. Cisco Systems Inc. +9.3%
2. Oracle Corp. +2.8%
3. Weatherford International Ltd. +110.3%
4. CIGNA Corp. +8.9%
5. Emerson Electric Co. +20.7%
6. Hewlett-Packard Co. +4.3%
7. Precision Castparts Corp. +58.7%
8. Best Buy Co., Inc. +18.3%
9. Cemex S.A. de C.V. +1.1%
10. Fisher Scientific International Inc. +3.9%
EARNINGS GROWTH
YOUR COMPANIES 22%
S&P 500 11%
FORCASTED INCREASE IN EARNINGS PER SHARE
2006 VS 2005
ALL FIGURES ARE DOLLAR WEIGHTED AND BASED ON DATA FROM BASELINE. MARCH 31, 2006
YOUR COMPANIES' MARKET CAPITALIZATION
LARGE CAP
$10 billion and over
44.8%
MID CAP
$2 billion to $10 billion
44.4%
SMALL CAP
below $2 billion
8.5%
CASH
2.3%
TOP TEN INDUSTRY GROUPS
Communications Equipment (11.4%)
Managed Health Care (7.2%)
Aerospace & Defense (6.5%)
Health Care Equipment (5.8%)
Oil & Gas Equipment & Services (5.6%)
Electrical Components & Equipment (5.0%)
Steel (4.7%)
Systems Software (4.7%)
Semiconductors (4.0%)
Computer Hardware (3.8%)
All Other Industry Groups (39.0%)
Cash (2.3%)
BRANDYWINE FUND
MARCH QUARTER "ROSES AND THORNS"
$ GAIN
BIGGEST $ WINNERS (IN MILLIONS) % GAIN REASON FOR MOVE
----------------- ------------- ------ ---------------
Weatherford
International Ltd. $38.9 26.3 December-quarter earnings grew 43 percent, beating estimates. Revenue growth
of 66 percent reflected increased spending on the company's high-technology
oil and gas well drilling services as worldwide production continued to
expand. Weatherford's recent acquisition of Precision Drilling provides an
opportunity to increase revenues per well drilled, and the company's spending
on new technologies is creating a higher-margin product mix.
Best Buy Co., Inc. $30.8 24.4 The big-box electronics retailer grew February-quarter earnings 25 percent.
Same-store sales rose 7.3 percent on top of a 3.1 percent gain last year, due
to strong sales of flat panel TVs. Gross profit margins showed continued
improvement stemming from lower costs associated with the company's Geek Squad
segment, which provides technical services to individuals and small
businesses. With the bulk of training and other startup costs already
incurred, more revenue from the segment flows to the bottom line.
IPSCO, Inc. $22.2 24.9 December-quarter earnings growth beat consensus estimates by 19 percent.
Large-diameter pipe and energy tubular shipments increased both year-over-year
and sequentially as demand remained strong from energy producers. As North
America's largest producer of steel plate products, Ipsco also continues to
benefit from recently announced plate price increases.
Emerson Electric Co. $21.3 11.8 The maker of electronics products that facilitate the control of gas, liquid
and electricity grew December-quarter earnings 37 percent, marking 11 straight
quarters of topping analyst estimates. Five diverse business segments each
achieved sales growth. Particularly strong demand from oil, gas and power end-
markets drove demand for the company's process management products. The
company's climate technology division benefits from new environmental
standards for residential air conditioning systems.
Precision Castparts
Corp. $20.6 14.7 The manufacturer of precision fasteners and jet-engine parts grew December-
quarter earnings 48 percent, beating consensus estimates by 11 percent. Demand
increased as aircraft manufacturers and power companies worked to replace
critical, high-wear parts in jet engines and industrial gas turbines built
three to five years ago. Precision Castparts continues to leverage its
manufacturing prowess into market share gains by offering high-quality
products at attractive prices.
$ LOSS
BIGGEST $ LOSERS (IN MILLIONS) % LOSS REASON FOR MOVE
---------------- ------------- ------ ---------------
Juniper Networks, Inc. $20.7 20.3 The maker of equipment that directs Internet traffic grew December-quarter
earnings 33 percent. Despite solid results, your team sold Juniper after
concerns surfaced that increased competition resulting from industry
consolidation would weigh on sales of edge routers, used to route data between
one or more local area networks.
Comverse
Technology, Inc. $12.1 12.5 The world's largest maker of voice-mail software grew October-quarter earnings
113 percent, beating estimates. Shares slid when the company announced it
would forego providing January-quarter earnings results pending a review of
its accounting practices for stock option grants by its board of directors.
While the review may result in a restatement of GAAP results, we remain
confident that the business is strong, as evidenced by encouraging January-
quarter revenue and backlogged order trends.
Omnicare, Inc. $11.2 9.4 The provider of drugs and pharmacy services to nursing homes beat estimates
with 21 percent December-quarter earnings growth. While synergies associated
with the company's acquisition of NeighborCare last year provide new avenues
for growth, federal investigations into management practices at a number of
branch locations clouded its earnings outlook. Your team sold Omnicare during
the quarter.
Sherwin-Williams Co. $9.3 9.6 A Rhode Island jury found Sherwin-Williams and two other companies liable for
lead-paint cleanup costs in the state, representing the first decision of its
kind. Broader legal uncertainty related to the unexpected decision prompted
your team to sell Sherwin-Williams to make room for a company with clearer
earnings visibility.
Target Corp. $6.8 3.4 Investor concerns about decreasing purchasing power weighed on shares due to
the higher energy prices and borrowing costs consumers face. While cautious
sentiment regarding consumer spending patterns is likely to persist, the
discount retailer's focus on unique and stylish products at attractive price
points continues to create future growth potential.
All gains/losses are calculated on an average cost basis
BRANDYWINE BLUE FUND
PERCENT CHANGE IN TOP TEN HOLDINGS FROM BOOK COST
1. Weatherford International Ltd. +73.4%
2. Cisco Systems Inc. +10.1%
3. CIGNA Corp. +9.4%
4. Cemex S.A. de C.V. +1.5%
5. Hewlett-Packard Co. +4.8%
6. Oracle Corp. +4.1%
7. Aetna Inc. -1.0%
8. Emerson Electric Co. +19.7%
9. Fisher Scientific International Inc. +7.5%
10. Best Buy Co., Inc. +19.2%
EARNINGS GROWTH
YOUR COMPANIES 20%
S&P 500 11%
FORECASTED INCREASE IN EARNINGS PER SHARE
2006 VS 2005
ALL FIGURES ARE DOLLAR WEIGHTED AND BASED ON DATA FROM BASELINE. MARCH 31, 2006
YOUR COMPANIES' MARKET CAPITALIZATION
LARGE CAP
$10 billion and over
80.9%
MID CAP
$2 billion to $10 billion
16.7%
CASH
2.4%
TOP TEN INDUSTRY GROUPS
Managed Health Care (11.5%)
Communications Equipment (11.1%)
Aerospace & Defense (9.6%)
Oil & Gas Equipment & Services (5.1%)
Construction Materials (4.8%)
Computer Hardware (4.7%)
Systems Software (4.7%)
Electrical Components & Equipment (4.5%)
Drug Retail (4.4%)
Health Care Equipment (4.3%)
All Other Industry Groups (32.9%)
Cash (2.4%)
BRANDYWINE BLUE FUND
MARCH QUARTER "ROSES AND THORNS"
$ GAIN
BIGGEST $ WINNERS (IN MILLIONS) % GAIN REASON FOR MOVE
----------------- ------------- ------ ---------------
Weatherford
International Ltd. $17.5 26.3 December-quarter earnings grew 43 percent, beating estimates. Revenue growth of
66 percent reflected increased spending on the company's high-technology oil
and gas well drilling services as worldwide production continued to expand.
Weatherford's recent acquisition of Precision Drilling provides an opportunity
to increase revenues per well drilled, and the company's spending on new
technologies is creating a higher-margin product mix.
Best Buy Co., Inc. $14.4 26.1 The big-box electronics retailer grew February-quarter earnings 25 percent.
Same-store sales rose 7.3 percent on top of a 3.1 percent gain last year, due
to strong sales of flat panel TVs. Gross profit margins showed continued
improvement stemming from lower costs associated with the company's Geek Squad
segment, which provides technical services to individuals and small businesses.
With the bulk of training and other startup costs already incurred, more
revenue from the segment flows to the bottom line.
Halliburton Co. $10.7 23.1 December-quarter earnings more than doubled to $1.03 per share, beating
estimates by 16 percent. Strong international demand for oil-field services and
increased domestic spending on pressure pumping and infrastructure drove
results. Halliburton's announcement that it would spin-off a minority position
in its Kellogg, Brown & Root engineering and construction segment was also
viewed positively. Your team sold Halliburton when it reached our target price.
Diamond Offshore, Inc. $10.1 28.6 The provider of contract drilling services grew December-quarter earnings to
$0.78 per share from $0.06 a year ago, beating estimates by 28 percent. The
company's second-generation floating rigs used offshore at "mid-water" depths
continue to re-price above expectations as demand outpaces supply, driving
earnings estimates higher.
Emerson Electric Co. $7.9 11.8 The maker of electronics products that facilitate the control of gas, liquid
and electricity grew December-quarter earnings 37 percent, marking 11 straight
quarters of topping analyst estimates. Five diverse business segments each
achieved sales growth. Particularly strong demand from oil, gas and power end-
markets drove demand for the company's process management products. The
company's climate technology division benefits from new environmental standards
for residential air conditioning systems.
$ LOSS
BIGGEST $ LOSERS (IN MILLIONS) % LOSS REASON FOR MOVE
---------------- ------------- ------ ---------------
Juniper Networks, Inc. $10.0 18.9 The maker of equipment that directs Internet traffic grew December-quarter
earnings 33 percent. Despite solid results, your team sold Juniper after
concerns surfaced that increased competition resulting from industry
consolidation would weigh on sales of edge routers, used to route data between
one or more local area networks.
Omnicare, Inc. $7.1 13.0 The provider of drugs and pharmacy services to nursing homes beat estimates
with 21 percent December-quarter earnings growth. While synergies associated
with the company's acquisition of NeighborCare last year provide new avenues
for growth, federal investigations into management practices at a number of
branch locations clouded its earnings outlook. Your team sold Omnicare during
the quarter.
Sherwin-Williams Co. $5.6 10.5 A Rhode Island jury found Sherwin-Williams and two other companies liable for
lead-paint cleanup costs in the state, representing the first decision of its
kind. Broader legal uncertainty related to the unexpected decision prompted
your team to sell Sherwin-Williams to make room for a company with clearer
earnings visibility.
UnitedHealth Group Inc. $3.6 9.8 Despite beating estimates with 23 percent December-quarter earnings growth,
shares fell when an analyst downgraded the stock based on his belief that the
underwriting cycle for managed care had entered its late innings. Our research
shows otherwise. We expect UnitedHealth to continue to generate solid
enrollment growth amid continued strong pricing trends while costs remain
contained. It also benefits from productivity initiatives related to synergies
associated with its recent acquisition of PacifiCare.
Target Corp. $3.1 4.2 Investor concerns about decreasing purchasing power weighed on shares due to
the higher energy prices and borrowing costs consumers face. While cautious
sentiment regarding consumer spending patterns is likely to persist, the
discount retailer's focus on unique and stylish products at attractive price
points continues to create future growth potential.
All gains/losses are calculated on an average cost basis
BRANDYWINE FUND, INC.
STATEMENT OF NET ASSETS
March 31, 2006
(Unaudited)
SHARES COST VALUE
------ ---- -----
COMMON STOCKS - 97.7% (A)<F4>
CONSUMER DISCRETIONARY
APPAREL RETAIL - 0.3%
352,900 bebe stores, inc. $ 7,092,582 $ 6,500,418
173,800 Too Inc.*<F3> 5,414,293 5,970,030
COMPUTER & ELECTRONICS RETAIL - 3.6%
2,804,200 Best Buy Co., Inc. 132,578,145 156,838,906
GENERAL MERCHANDISE STORES - 2.0%
1,643,800 Target Corp. 90,124,343 85,494,038
HOMEBUILDING - 0.6%
660,600 Champion Enterprises, Inc.*<F3> 9,422,413 9,882,576
484,800 Desarrolladora Homex
S.A. de C.V. ADR*<F3> 17,071,311 17,127,984
LEISURE PRODUCTS - 0.3%
663,300 Callaway Golf Co. 10,276,169 11,408,760
-------------- --------------
TOTAL CONSUMER DISCRETIONARY 271,979,256 293,222,712
THIS SECTOR IS 7.8% ABOVE YOUR FUND'S COST.
CONSUMER STAPLES
DRUG RETAIL - 0.9%
1,323,300 CVS Corp. 36,780,859 39,526,971
PACKAGED FOODS & MEATS - 2.2%
2,435,800 Dean Foods Co.*<F3> 93,216,418 94,582,114
-------------- --------------
TOTAL CONSUMER STAPLES 129,997,277 134,109,085
THIS SECTOR IS 3.2% ABOVE YOUR FUND'S COST.
ENERGY
COAL & CONSUMABLE FUELS - 0.3%
474,100 Alpha Natural Resources, Inc.*<F3> 10,141,654 10,970,674
OIL & GAS EQUIPMENT & SERVICES - 5.6%
240,900 Basic Energy Services, Inc.*<F3> 5,021,305 7,178,820
62,000 Core Laboratories N.V.*<F3> 1,416,564 2,948,100
684,800 Dresser-Rand Group, Inc.*<F3> 16,525,366 17,017,280
643,200 Superior Energy Services, Inc.*<F3> 10,143,929 17,231,328
229,200 TETRA Technologies, Inc.*<F3> 4,312,233 10,781,568
83,600 W-H Energy Services, Inc.*<F3> 3,005,486 3,719,364
4,085,000 Weatherford International Ltd.*<F3> 88,879,742 186,888,750
OIL & GAS EXPLORATION & PRODUCTS - 0.1%
442,200 Compton Petroleum Corp.*<F3> 6,546,310 5,677,848
OIL & GAS STORAGE & TRANSPORTATION - 0.7%
1,608,500 OMI Corp. 30,461,050 28,985,170
-------------- --------------
TOTAL ENERGY 176,453,639 291,398,902
THIS SECTOR IS 65.1% ABOVE YOUR FUND'S COST.
FINANCIALS
PROPERTY & CASUALTY INSURANCE - 2.5%
2,130,700 Allstate Corp. 84,951,783 111,030,777
THRIFTS & MORTGAGE FINANCE - 2.7%
569,800 MGIC Investment Corp. 38,021,728 37,965,774
1,788,300 The PMI Group, Inc. 80,389,981 82,118,736
-------------- --------------
TOTAL FINANCIALS 203,363,492 231,115,287
THIS SECTOR IS 13.6% ABOVE YOUR FUND'S COST.
HEALTH CARE
HEALTH CARE EQUIPMENT - 5.8%
1,465,700 Beckman Coulter, Inc. 79,615,514 79,983,249
661,500 Cytyc Corp.*<F3> 16,704,660 18,641,070
2,168,800 Fisher Scientific
International Inc.*<F3> 142,077,826 147,586,840
250,900 Symmetry Medical Inc.*<F3> 4,680,227 5,321,589
HEALTH CARE SERVICES - 3.1%
1,231,000 DaVita, Inc.*<F3> 72,385,401 74,118,510
1,221,200 IMS Health Inc. 30,243,555 31,470,324
177,700 Pediatrix Medical Group, Inc.*<F3> 13,374,124 18,239,128
222,100 TriZetto Group, Inc.*<F3> 3,788,716 3,906,739
202,100 Ventiv Health, Inc.*<F3> 5,278,987 6,713,762
MANAGED HEALTH CARE - 7.2%
2,957,100 Aetna Inc. 147,024,905 145,311,894
1,288,600 CIGNA Corp. 154,494,482 168,316,932
PHARMACEUTICALS - 1.3%
1,411,200 Endo Pharmaceuticals
Holdings Inc.*<F3> 42,274,288 46,301,472
376,500 First Horizon
Pharmaceutical Corp.*<F3> 8,750,298 9,491,565
-------------- --------------
TOTAL HEALTH CARE 720,692,983 755,403,074
THIS SECTOR IS 4.8% ABOVE YOUR FUND'S COST.
INDUSTRIALS
AEROSPACE & DEFENSE - 6.5%
525,000 Armor Holdings, Inc.*<F3> 20,278,544 30,602,250
527,200 Embraer-Empresa Brasileira de
Aeronautica S.A. ADR 19,572,724 19,427,320
138,000 Esterline Technologies Corp.*<F3> 4,997,027 5,899,500
2,719,200 Precision Castparts Corp. 101,776,550 161,520,480
1,200,100 Rockwell Collins, Inc. 57,657,526 67,625,635
AIRLINES - 0.1%
303,000 AirTran Holdings, Inc.*<F3> 5,399,183 5,487,330
CONSTRUCTION & ENGINEERING - 1.9%
373,400 Infrasource Services Inc.*<F3> 6,534,563 6,426,214
1,154,800 McDermott International, Inc.*<F3> 29,922,482 62,878,860
117,300 Washington Group
International, Inc. 6,043,669 6,731,847
197,400 Williams Scotsman
International Inc.*<F3> 3,158,400 4,944,870
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS - 0.6%
274,800 Manitowoc Company, Inc. 13,695,011 25,048,020
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 0.2%
180,000 West Corp.*<F3> 7,504,746 8,038,800
ELECTRICAL COMPONENTS & EQUIPMENT - 5.0%
814,200 AMETEK, Inc. 30,371,266 36,606,432
2,006,200 Emerson Electric Co. 139,047,133 167,778,506
300,600 Thomas & Betts Corp.*<F3> 9,262,410 15,444,828
ENVIRONMENTAL SERVICES & FACILITIES SERVICES - 0.5%
199,500 Clean Harbors, Inc.*<F3> 5,618,509 5,919,165
364,900 Waste Connections, Inc.*<F3> 12,577,832 14,526,669
INDUSTRIAL CONGLOMERATES - 1.6%
1,050,300 Walter Industries, Inc. 66,743,151 69,970,986
INDUSTRIAL MACHINERY - 0.2%
93,900 Gardner Denver Inc.*<F3> 4,241,670 6,122,280
85,200 IDEX Corp. 3,331,485 4,444,884
MARINE - 0.1%
440,800 Eagle Bulk Shipping Inc. 6,147,650 6,149,160
TRADING COMPANIES & DISTRIBUTORS - 0.9%
1,169,100 United Rentals, Inc.*<F3> 24,336,616 40,333,950
-------------- --------------
TOTAL INDUSTRIALS 578,218,147 771,927,986
THIS SECTOR IS 33.5% ABOVE YOUR FUND'S COST.
INFORMATION TECHNOLOGY
APPLICATION SOFTWARE - 2.2%
743,300 Cognos, Inc.*<F3> 25,954,030 28,914,370
596,400 Hyperion Solutions Corp.*<F3> 20,254,824 19,442,640
619,200 Jack Henry & Associates, Inc. 12,403,615 14,161,104
1,011,680 Parametric Technology Corp.*<F3> 15,773,333 16,520,735
1,792,500 TIBCO Software Inc.*<F3> 15,433,909 14,985,300
50,000 Witness Systems, Inc.*<F3> 1,054,025 1,270,000
COMMUNICATIONS EQUIPMENT - 11.4%
520,600 Alcatel SA - SP-ADR*<F3> 7,327,957 8,017,240
864,400 Arris Group Inc.*<F3> 8,702,959 11,894,144
2,215,300 Avaya Inc.*<F3> 25,960,916 25,032,890
8,861,200 Cisco Systems Inc.*<F3> 175,693,184 192,022,204
818,500 Comverse Technology, Inc.*<F3> 19,817,756 19,259,305
1,778,700 L.M. Ericsson
Telephone Co. ADR 58,704,388 67,092,564
1,798,100 Foundry Networks, Inc.*<F3> 25,699,511 32,653,496
2,624,800 Harris Corp. 103,574,334 124,126,792
346,000 NETGEAR, Inc.*<F3> 6,558,990 6,577,460
460,100 Polycom, Inc.*<F3> 8,165,477 9,974,968
COMPUTER HARDWARE - 3.8%
5,053,100 Hewlett-Packard Co. 159,437,403 166,246,990
COMPUTER STORAGE & PERIPHERALS - 0.4%
607,300 Electronics for Imaging, Inc.*<F3> 16,812,658 16,986,181
ELECTRONIC EQUIPMENT MANUFACTURERS - 0.5%
592,000 Tektronix, Inc. 14,214,880 21,140,320
ELECTRONIC MANUFACTURING SERVICES - 1.7%
248,800 Benchmark Electronics, Inc.*<F3> 8,708,540 9,541,480
1,094,300 Celestica Inc.*<F3> 12,025,139 12,529,735
675,400 Molex Inc. 21,778,974 22,423,280
650,700 Trimble Navigation Ltd.*<F3> 28,060,115 29,314,035
IT CONSULTING & OTHER SERVICES - 0.5%
233,100 CACI International Inc.*<F3> 14,311,448 15,326,325
132,600 Gartner, Inc.*<F3> 1,830,633 1,849,770
155,800 SRA International, Inc.*<F3> 5,737,779 5,878,334
SEMICONDUCTOR EQUIPMENT - 1.5%
3,887,800 Teradyne, Inc.*<F3> 63,296,921 60,299,778
290,200 Veeco Instruments Inc.*<F3> 6,214,721 6,776,170
SEMICONDUCTORS - 4.0%
3,143,600 Analog Devices, Inc. 112,321,082 120,368,444
2,708,800 Fairchild Semiconductor
International, Inc.*<F3> 48,191,309 51,656,816
75,600 Semtech Corp.*<F3> 1,374,807 1,352,484
143,700 Zoran Corp.*<F3> 2,868,691 3,144,156
SYSTEMS SOFTWARE - 4.7%
216,200 MICROS Systems, Inc.*<F3> 8,859,903 9,960,334
13,939,100 Oracle Corp.*<F3> 185,679,214 190,826,279
147,100 RSA Security Inc.*<F3> 2,382,597 2,638,974
TECHNOLOGY DISTRIBUTORS - 2.1%
1,118,100 Avnet, Inc.*<F3> 27,123,776 28,377,378
3,195,900 Ingram Micro Inc.*<F3> 63,969,900 63,918,000
-------------- --------------
TOTAL INFORMATION TECHNOLOGY 1,336,279,698 1,432,500,475
THIS SECTOR IS 7.2% ABOVE YOUR FUND'S COST.
MATERIALS
CONSTRUCTION MATERIALS - 3.4%
2,274,400 Cemex S.A. de C.V. SP-ADR 146,822,335 148,472,832
STEEL - 4.7%
348,400 Allegheny Technologies, Inc. 20,466,913 21,315,112
379,300 Carpenter Technology Corp. 23,506,273 35,851,436
508,400 Commercial Metals Co. 14,953,207 27,194,316
1,023,500 IPSCO, Inc. 80,165,103 106,536,115
280,300 Oregon Steel Mills, Inc.*<F3> 7,248,016 14,342,951
-------------- --------------
TOTAL MATERIALS 293,161,847 353,712,762
-------------- --------------
THIS SECTOR IS 20.7% ABOVE YOUR FUND'S COST.
Total common stocks 3,710,146,339 4,263,390,283
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS - 1.4% (A)<F4>
COMMERCIAL PAPER - 1.4%
$48,000,000 New Center Asset Trust,
due 4/03/06, discount of 4.84% 47,987,093 47,987,093
12,000,000 Morgan Stanley
Dean Witter & Co. Inc.,
due 4/04/06, discount of 4.77% 11,995,230 11,995,230
-------------- --------------
Total commercial paper 59,982,323 59,982,323
VARIABLE RATE DEMAND NOTE - 0.0%
2,704,940 U.S. Bank, N.A., 4.57% 2,704,940 2,704,940
-------------- --------------
Total short-term investments 62,687,263 62,687,263
-------------- --------------
Total investments $3,772,833,602 4,326,077,546
--------------
--------------
Cash and receivables, less
liabilities 0.9% (A)<F4> 39,917,814
--------------
NET ASSETS $4,365,995,360
--------------
--------------
Net Asset Value Per Share
($0.01 par value, 500,000,000
shares authorized), offering
and redemption price
($4,365,995,360 / 128,481,189
shares outstanding) $33.98
------
------
*<F3> Non-dividend paying security.
(A)<F4> Percentages for the various classifications relate to net assets.
ADR- American Depository Receipts
N.V.-Netherlands Antillies Limited Liabilty Corp.
The accompanying notes to financial statements are an integral part of this
statement.
BRANDYWINE FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 2006
(Unaudited)
INCOME:
Dividends $ 10,958,757
Interest 2,514,240
------------
Total income 13,472,997
------------
EXPENSES:
Management fees 20,219,667
Transfer agent fees 720,613
Administrative services 309,766
Printing and postage expense 183,131
Custodian fees 115,486
Insurance expense 47,438
Registration fees 46,245
Professional fees 32,200
Board of Directors fees and expenses 18,855
Other expenses 391
------------
Total expenses 21,693,792
------------
NET INVESTMENT LOSS (8,220,795)
------------
NET REALIZED GAIN ON INVESTMENTS 398,060,619
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (71,082,927)
------------
NET GAIN ON INVESTMENTS 326,977,692
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $318,756,897
------------
------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended March 31, 2006 (Unaudited)
and for the Year Ended September 30, 2005
2006 2005
---- ----
OPERATIONS:
Net investment loss $ (8,220,795) $ (10,469,165)
Net realized gain on investments 398,060,619 682,236,498
Net (decrease) increase in unrealized appreciation on investments (71,082,927) 311,487,501
-------------- --------------
Net increase in net assets resulting from operations 318,756,897 983,254,834
-------------- --------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (10,119,565 and 12,144,409 shares, respectively) 321,488,204 337,444,419
Cost of shares redeemed (8,483,759 and 33,555,852 shares, respectively) (269,831,422) (911,910,269)
-------------- --------------
Net increase (decrease) in net assets derived from Fund share activities 51,656,782 (574,465,850)
-------------- --------------
TOTAL INCREASE 370,413,679 408,788,984
NET ASSETS AT THE BEGINNING OF THE PERIOD 3,995,581,681 3,586,792,697
-------------- --------------
NET ASSETS AT THE END OF THE PERIOD $4,365,995,360 $3,995,581,681
(Includes accumulated net investment loss of $0 and $687,992, 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 period)
For the Six Months Years Ended September 30,
ended March 31, 2006 -----------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
-------------------- ---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $31.50 $24.19 $21.30 $19.08 $22.93 $46.23
Income from investment operations:
Net investment loss(1)<F7> (0.06) (0.08) (0.13) (0.10) (0.12) (0.09)
Net realized and unrealized
gains (losses) on investments 2.54 7.39 3.02 2.32 (3.73) (7.10)
------ ------ ------ ------ ------ ------
Total from investment operations 2.48 7.31 2.89 2.22 (3.85) (7.19)
Less distributions:
Dividend from net investment income -- -- -- -- -- --
Distributions from net realized gains -- -- -- -- (16.11)
------ ------ ------ ------ ------ ------
Total from distributions -- -- -- -- (16.11)
------ ------ ------ ------ ------ ------
Net asset value, end of period $33.98 $31.50 $24.19 $21.30 $19.08 $22.93
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 7.87%(a) 30.22% 13.57% 11.64% (16.79%) (22.46%)
<F5>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 4,365,995 3,995,582 3,586,793 3,385,590 3,196,859 4,302,986
Ratio of expenses to average net assets 1.07%(b) 1.08% 1.08% 1.09% 1.08% 1.06%
<F6>
Ratio of net investment loss
to average net assets (0.41%)(b) (0.25%) (0.55%) (0.53%) (0.52%) (0.32%)
<F6>
Portfolio turnover rate 103.0% 183.4% 247.0% 279.3% 272.9% 284.3%
(a)<F5> Not Annualized.
(b)<F6> Annualized.
(1)<F7> Net investment loss per share was calculated using average shares
outstanding.
The accompanying notes to financial statements are an integral part of this
statement.
BRANDYWINE BLUE FUND
STATEMENT OF NET ASSETS
March 31, 2006
(Unaudited)
SHARES COST VALUE
------ ---- -----
COMMON STOCKS - 97.6% (A)<F9>
CONSUMER DISCRETIONARY
COMPUTER & ELECTRONICS RETAIL - 4.3%
1,246,800 Best Buy Co., Inc. $ 58,511,364 $ 69,733,524
DEPARTMENT STORES - 2.3%
634,600 J.C. Penney Company, Inc.
(Holding Co.) 33,843,270 38,336,186
GENERAL MERCHANDISE STORES - 1.7%
525,200 Target Corp. 27,585,429 27,315,652
HOME IMPROVEMENT RETAIL - 2.3%
575,100 Lowe's Companies, Inc. 39,613,325 37,059,444
-------------- --------------
TOTAL CONSUMER DISCRETIONARY 159,553,388 172,444,806
THIS SECTOR IS 8.1% ABOVE YOUR FUND'S COST.
CONSUMER STAPLES
DRUG RETAIL - 4.4%
1,170,900 CVS Corp. 32,639,325 34,974,783
841,800 Walgreen Co. 36,507,172 36,306,834
-------------- --------------
TOTAL CONSUMER STAPLES 69,146,497 71,281,617
THIS SECTOR IS 3.1% ABOVE YOUR FUND'S COST.
ENERGY
OIL & GAS DRILLING - 3.7%
508,900 Diamond Offshore Drilling, Inc. 35,519,280 45,546,550
188,100 Transocean Inc.*<F8> 15,253,527 15,104,430
OIL & GAS EQUIPMENT & SERVICES - 5.1%
1,832,900 Weatherford International Ltd.*<F8> 48,353,291 83,855,175
-------------- --------------
TOTAL ENERGY 99,126,098 144,506,155
THIS SECTOR IS 45.8% ABOVE YOUR FUND'S COST.
FINANCIALS
PROPERTY & CASUALTY INSURANCE - 2.7%
831,800 Allstate Corp. 39,717,965 43,345,098
THRIFTS & MORTGAGE FINANCE - 1.3%
315,300 MGIC Investment Corp. 21,218,015 21,008,439
-------------- --------------
TOTAL FINANCIALS 60,935,980 64,353,537
THIS SECTOR IS 5.6% ABOVE YOUR FUND'S COST.
HEALTH CARE
HEALTH CARE EQUIPMENT - 4.3%
1,031,000 Fisher Scientific
International Inc.*<F8> 65,265,890 70,159,550
HEALTH CARE SERVICES - 1.9%
520,800 DaVita, Inc.*<F8> 31,032,847 31,357,368
MANAGED HEALTH CARE - 11.5%
1,480,000 Aetna Inc. 73,441,364 72,727,200
618,900 CIGNA Corp. 73,913,140 80,840,718
593,100 UnitedHealth Group Inc. 32,848,528 33,130,566
-------------- --------------
TOTAL HEALTH CARE 276,501,769 288,215,402
THIS SECTOR IS 4.2% ABOVE YOUR FUND'S COST.
INDUSTRIALS
AEROSPACE & DEFENSE - 9.6%
502,200 Embraer-Empresa Brasileira de
Aeronautica S.A. ADR 18,711,719 18,506,070
812,800 General Dynamics Corp. 50,410,527 52,002,944
538,100 Precision Castparts Corp. 27,397,280 31,963,140
955,300 Rockwell Collins, Inc. 46,775,087 53,831,155
AIR FREIGHT & LOGISTICS - 2.4%
486,500 United Parcel Service, Inc. Cl B 37,401,987 38,618,370
ELECTRICAL COMPONENTS & EQUIPMENT - 4.5%
868,100 Emerson Electric Co. 60,670,231 72,599,203
INDUSTRIAL MACHINERY - 2.5%
827,100 Dover Corp. 35,916,730 40,163,976
-------------- --------------
TOTAL INDUSTRIALS 277,283,561 307,684,858
THIS SECTOR IS 11.0% ABOVE YOUR FUND'S COST.
INFORMATION TECHNOLOGY
COMMUNICATIONS EQUIPMENT - 11.1%
316,100 Alcatel SA - SP-ADR*<F8> 4,474,862 4,867,940
3,843,800 Cisco Systems Inc.*<F8> 75,646,714 83,295,146
1,624,700 L.M. Ericsson
Telephone Co. ADR 53,238,929 61,283,684
604,500 QUALCOMM Inc. 30,048,384 30,593,745
COMPUTER HARDWARE - 4.7%
2,344,700 Hewlett-Packard Co. 73,600,122 77,140,630
SEMICONDUCTORS - 3.2%
1,350,800 Analog Devices, Inc. 49,153,129 51,722,132
SYSTEMS SOFTWARE - 4.7%
5,573,500 Oracle Corp.*<F8> 73,298,092 76,301,215
-------------- --------------
TOTAL INFORMATION TECHNOLOGY 359,460,232 385,204,492
THIS SECTOR IS 7.2% ABOVE YOUR FUND'S COST.
MATERIALS
CONSTRUCTION MATERIALS - 4.8%
1,194,400 Cemex S.A. de C.V. SP-ADR 76,815,965 77,970,432
DIVERSIFIED METALS & MINING - 1.4%
279,400 Phelps Dodge Corp. 21,892,203 22,500,082
STEEL - 0.4%
110,200 Allegheny Technologies, Inc. 6,704,974 6,742,036
-------------- --------------
TOTAL MATERIALS 105,413,142 107,212,550
THIS SECTOR IS 1.7% ABOVE YOUR FUND'S COST.
UTILITIES
ELECTRIC UTILITIES - 2.8%
862,900 Exelon Corp. 48,508,303 45,647,410
-------------- --------------
TOTAL UTILITIES 48,508,303 45,647,410
-------------- --------------
THIS SECTOR IS 5.9% BELOW YOUR FUND'S COST.
Total common stocks 1,455,928,970 1,586,550,827
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS - 3.1% (A)<F9>
COMMERCIAL PAPER - 2.8%
$30,000,000 Countrywide Financial Corp.,
due 4/03/06, discount of 4.85% 29,991,916 29,991,916
16,000,000 New Center Asset Trust, due 4/03/06,
discount of 4.84% 15,995,698 15,995,698
-------------- --------------
Total commercial paper 45,987,614 45,987,614
VARIABLE RATE DEMAND NOTE - 0.3%
3,962,922 U.S. Bank, N.A., 4.57% 3,962,922 3,962,922
-------------- --------------
Total short-term investments 49,950,536 49,950,536
-------------- --------------
Total investments $1,505,879,506 1,636,501,363
--------------
--------------
Liabilities, less cash and
receivables (0.7%) (A)<F9> (12,141,648)
--------------
NET ASSETS $1,624,359,715
--------------
--------------
Net Asset Value Per Share
($0.01 par value, 100,000,000
shares authorized), offering
and redemption price
($1,624,359,715 / 51,045,726
shares outstanding) $31.82
------
------
*<F8> Non-dividend paying security.
(A)<F9> Percentages for the various classifications relate to net assets.
ADR- American Depository Receipts
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 2006
(Unaudited)
INCOME:
Dividends $ 4,556,325
Interest 1,335,945
------------
Total income 5,892,270
------------
EXPENSES:
Management fees 6,931,833
Transfer agent fees 292,795
Printing and postage expense 164,276
Registration fees 75,321
Administrative services 73,565
Custodian fees 40,205
Professional fees 30,999
Insurance expense 16,742
Board of Directors fees and expenses 9,992
Other expenses 12,185
------------
Total expenses 7,647,913
------------
NET INVESTMENT LOSS (1,755,643)
------------
NET REALIZED GAIN ON INVESTMENTS 102,380,777
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (13,972,988)
------------
NET GAIN ON INVESTMENTS 88,407,789
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 86,652,146
------------
------------
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE BLUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended March 31, 2006 (Unaudited)
and for the Year Ended September 30, 2005
2006 2005
---- ----
OPERATIONS:
Net investment loss $ (1,755,643) $ (1,265,431)
Net realized gain on investments 102,380,777 67,387,191
Net (decrease) increase in unrealized appreciation on investments (13,972,988) 108,286,530
-------------- --------------
Net increase in net assets resulting from operations 86,652,146 174,408,290
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains ($1.1388 per share) (46,370,407) --
-------------- --------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (14,942,284 and 22,380,835 shares, respectively) 453,259,576 642,136,150
Net asset value of shares issued in distributions reinvested (1,398,551 shares) 38,795,789 --
Cost of shares redeemed (4,578,660 and 4,180,668 shares, respectively) (138,913,652) (117,123,835)
-------------- --------------
Net increase in net assets derived from Fund share activities 353,141,713 525,012,315
-------------- --------------
TOTAL INCREASE 393,423,452 699,420,605
NET ASSETS AT THE BEGINNING OF THE PERIOD 1,230,936,263 531,515,658
-------------- --------------
NET ASSETS AT THE END OF THE PERIOD $1,624,359,715 $1,230,936,263
(Includes accumulated net investment loss of $0 and $173,297, respectively) -------------- --------------
-------------- --------------
FINANCIAL HIGHLIGHTS
(Selected data for each share of the Fund outstanding throughout each period)
For the Six Months Years Ended September 30,
ended March 31, 2006 -----------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
-------------------- ---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $31.33 $25.21 $21.40 $18.30 $21.31 $37.39
Income from investment operations:
Net investment loss(1)<F12> (0.04) (0.04) (0.08) (0.08) (0.05) (0.05)
Net realized and unrealized
gains (losses) on investments 1.67 6.16 3.89 3.18 (2.96) (5.32)
------ ------ ------ ------ ------ ------
Total from investment operations 1.63 6.12 3.81 3.10 (3.01) (5.37)
Less distributions:
Dividend from net investment income -- -- -- -- -- --
Distributions from net realized gains (1.14) -- -- -- -- (10.71)
------ ------ ------ ------ ------ ------
Total from distributions (1.14) -- -- -- -- (10.71)
------ ------ ------ ------ ------ ------
Net asset value, end of period $31.82 $31.33 $25.21 $21.40 $18.30 $21.31
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN 5.70%(a) 24.28% 17.80% 16.94% (14.12%) (19.92%)
<F10>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 1,624,360 1,230,936 531,516 312,726 217,738 271,947
Ratio of expenses to average net assets 1.10%(b) 1.12% 1.13% 1.14% 1.13% 1.09%
<F11>
Ratio of net investment loss
to average net assets (0.25%)(b) (0.13%) (0.32%) (0.41%) (0.26%) (0.18%)
<F11>
Portfolio turnover rate 102.7% 180.5% 247.4% 300.0% 310.7% 274.5%
(a)<F10> Not Annualized.
(b)<F11> Annualized.
(1)<F12> Net investment loss per share was calculated using average shares
outstanding.
The accompanying notes to financial statements are an integral part of these
statements.
THE BRANDYWINE FUNDS
NOTES TO FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
(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 in shares of the Funds worth $20,000 and $7,500, respectively.
The lead independent director and chairman of the audit committee are paid
additional shares worth $5,000 and $2,500 annually, respectively, divided
proportionately among all the Funds. The Funds also reimburse directors for
travel costs incurred in order to attend meetings of the Board of
Directors. For the six months ended March 31, 2006, the Funds expensed the
following directors fees and costs:
Brandywine Blue
Fund Fund
---------- ----
Directors Fees (in shares of the Funds)
and Travel Costs Paid during the Period $18,855 $9,992
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 six
months ended March 31, 2006, neither Fund borrowed against their Agreement.
The Credit Agreements expire on December 18, 2006.
(4) DISTRIBUTIONS TO SHAREHOLDERS
Net investment income and net realized gains, if any, are distributed to
shareholders at least annually.
(5) INVESTMENT TRANSACTIONS AND RELATED COSTS
For the six months ended March 31, 2006, 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 $4,088,716,833 $4,052,081,468 $9,010,920 0.22%
Blue Fund 1,688,125,685 1,365,564,997 2,878,830 0.21
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 March 31, 2006, liabilities of each Fund included the following:
Brandywine Blue
Fund Fund
---------- ----
Payable to brokers for investments purchased $32,600,515 $58,686,114
Payable to Adviser for management fees 3,649,539 1,324,451
Payable to shareholders for redemptions 1,010,055 131,921
Other liabilities 677,329 300,170
(7) SOURCES OF NET ASSETS
As of March 31, 2006, the sources of net assets were as follows:
Fund shares issued and outstanding $3,739,603,006 $1,393,114,058
Net unrealized appreciation on investments 553,243,944 130,621,857
Accumulated net realized gains 73,148,410 100,623,800
-------------- --------------
$4,365,995,360 $1,624,359,715
-------------- --------------
-------------- --------------
(8) INCOME TAX INFORMATION
The following information for the Funds is presented on an income tax basis
as of March 31, 2006:
GROSS GROSS NET UNREALIZED
COST OF UNREALIZED UNREALIZED APPRECIATION
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS
----------- ------------ ------------ --------------
Brandywine Fund $3,773,063,583 $573,596,888 $20,582,925 $553,013,963
Blue Fund 1,505,880,076 139,729,233 9,107,946 130,621,287
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.
DEFINITIONS AND DISCLOSURES
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 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 3/31/06, unless listed in the accompanying statements of
net assets. References to the earnings growth rates of the Funds refer solely to
the estimated earnings growth rates of the average investment holding of the
Funds based on consensus estimates from Baseline and not to the actual
performance of the Funds themselves. Baseline Financial Services, Inc.
(Baseline) provides analytical information and services to the investment
community.
The Russell 3000 Index measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market. The 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 S&P 500 Index is a market-value
weighted index consisting of 500 U.S. stocks chosen for market size, liquidity
and industry group representation. The Russell 1000 Index measures the
performance of the 1,000 largest companies in the Russell 3000 Index, which
represents approximately 92% of the total market capitalization of the Russell
3000 Index. The Russell 1000 Growth Index measures the performance of those
Russell 1000 companies with higher price-to-book ratios and higher forecasted
growth values. You cannot invest directly in an index.
As of March 31, 2006, the Russell 3000 Index's average annual total returns for
1, 5 and 10 years were 14.28, 5.33 and 9.19 percent; the Russell 3000 Growth
Index's were 14.40, 2.21 and 6.35 percent; the Russell 1000 Index's were 13.20,
4.74 and 9.18 percent; the Russell 1000 Growth Index's were 13.14, 1.66 and 6.50
percent; and the S&P 500 Index's were 11.73, 3.97 and 8.95 percent. Morningstar,
Inc. is an independent mutual fund research and rating service. The Morningstar
Fiduciary Grade is based on the evaluation of five areas critical for mutual
fund governance and operations: Regulatory Issues, Board Quality, Manager
Incentives, Fees and Corporate Culture. Funds are assigned a letter grade from A
(best) to F (worst) based on the cumulative total of points they received from
each category.
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 October 1, 2005 through March 31,
2006.
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*<F13>
10/01/05 3/31/06 10/01/05-3/31/06
--------- ------- -------------------
Brandywine Actual $1,000.00 $1,078.70 $5.54
Hypothetical (5% return before expenses) $1,000.00 $1,019.60 $5.39
Brandywine Blue Actual $1,000.00 $1,057.00 $5.64
Hypothetical (5% return before expenses) $1,000.00 $1,019.40 $5.54
*<F13> Expenses are equal to the Funds' annualized expense ratios of 1.07% and
1.10%, multiplied by the average account value over the period,
multiplied by 182/365 (to reflect the one-half year period between
October 1, 2005 and March 31, 2006).
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 FUNDS ADVISORY AGREEMENTS
On December 5, 2005, the Board of Directors of the Funds approved the
continuation of the advisory agreements with Friess Associates, LLC ("Friess").
Prior to approving the continuation of the advisory agreements, the Board
considered:
o the nature, extent and quality of the services provided by Friess
o the investment performance of the Funds
o the costs of the services to be provided and profits to be realized by
Friess from its relationship with the Funds
o the extent to which economies of scale would be realized as the Funds
grow and whether fee levels reflect these economies of scale
o the expense ratios of the Funds
o the manner in which portfolio transactions for the Funds are conducted,
including the use of soft dollars
In considering the nature, extent and quality of the services provided by
Friess, the Board of Directors reviewed a report describing the portfolio
management, shareholder communication and support and regulatory compliance
services provided by Friess to the Funds. The Board concluded that Friess was
providing essential services to the Funds. In particular, the Board concluded
that Friess was preparing reports to shareholders in addition to those required
by law.
The Directors compared the performance of the Funds to benchmark indices
over various periods of time and concluded that the performance of the Funds
warranted the continuation of the advisory agreements.
In concluding that the advisory fees payable by the Funds were reasonable,
the Directors reviewed a report of the costs of services provided by and the
profits realized by Friess from its relationship with the Funds and concluded
that such profits were reasonable and not excessive. The Directors also reviewed
reports comparing the expense ratios and advisory fees paid by the Funds to
those paid by other comparable mutual funds and concluded that the advisory fees
paid by the Funds were higher than the average advisory fees paid by comparable
mutual funds, but the expense ratios of the Funds were lower than the average
expense ratios of comparable mutual funds. The Directors also noted that all
clients of Friess pay the same 1% advisory fee. They noted that this fee would
not be adjusted if economies of scale were realized during the current cont-ract
period as the Funds grew, but did not consider that factor to be significant in
light of the other factors considered.
Finally, the Board reviewed reports discussing the manner in which portfolio
transactions for the Funds were conducted, including the use of soft dollars.
Based on these reports, the Board concluded that the research obtained by Friess
was beneficial to the Funds and that Friess was executing the Funds portfolio
transactions in a manner designed to obtain best execution for the Funds.
CAPITAL GAINS UPDATE . . .
Halfway through the fiscal year it appears the Brandywine Funds could be on
their way to distributing capital gains in October. Brandywine Fund finished the
March quarter with realized gains representing $0.57 per share. Brandywine Blue
Fund finished with realized gains of $1.97 per share.
These realized gain figures are provided to keep shareholders updated on the
status of the capital gains situation as the fiscal year progresses. Gains and
losses realized over the next six months will determine whether distributions
are in order and, if so, dictate the amounts of capital gains to be distributed.
"The folks at Brandywine do their homework - boy, do they ever. Manager Bill
D'Alonzo and his two dozen associates hunt for fast-growing companies by
conducting as many as 1,000 phone and face-to-face interviews each week."
Brandywine Fund named to Kiplinger's list of "Our Favorite 15 Funds."
Kiplinger's Mutual Funds 2006, "Our 15 Favorite Funds," January 2006
"Friess Associates does not stop at investing in its own funds. Brandywine
Funds' directors get paid in fund shares...and retail investors pay the same
management fee - 1 percent - as institutional investors. Employees, from the
chairman to the receptionist, make up a major shareholder group."
The Philadelphia Inquirer, "Keeping it in the Family," March 19, 2006
BOARD OF DIRECTORS
Robert F. Birch
President and Director
New America High Income Fund
Dover, Massachusetts
William F. D'Alonzo
CEO and CIO
Friess Associates
Greenville, Delaware
Foster S. Friess
Chairman
Friess Associates
Jackson, Wyoming
Quentin Jackson
President and CEO
Nuclear Electric Insurance Limited
Wilmington, Delaware
Stuart A. McFarland
Chairman and CEO
Federal City Bancorp and
American Partners Bank
Bethesda, Maryland
W. Richard Scarlett, III
Chairman and CEO
United Bancorporation of Wyoming, Inc.
Jackson, Wyoming
James W. Zug
Former Senior Partner
PricewaterhouseCoopers LLP
Radnor, Pennsylvania
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 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
(BRANDYWINE ADVISORS FUND LOGO)
MANAGED BY FRIESS ASSOCIATES, LLC SEMI-ANNUAL REPORT MARCH 31, 2006
DEAR FELLOW SHAREHOLDERS:
Investors shrugged off slower growth, higher interest rates and a new round
of energy-price jitters on their way to fueling a generally upbeat March-quarter
environment for stocks. Some areas, as always, fared better than others, and
Brandywine Advisors Fund held many companies that were positioned to prosper.
The portfolio grew 8.72 percent in the March quarter, outpacing gains in the
S&P 500, Russell Midcap and Russell Midcap Growth Indexes of 4.21, 7.61 and 7.61
percent. Individual-company earnings trends appeared to be a primary influence
on share prices during the quarter.
Amid signs of consumer fatigue, holdings that generate profits by selling
their wares to business customers were standout performers. Energy-related
holdings also notably contributed to the cause as the drive to boost supplies
continued, promoting persistent demand for providers of services and equipment
critical to production.
Within the industrial sector, diversified manufacturer Manitowoc surged as
the non-residential construction and mining markets drove demand for the
company's cranes and related products. Manitowoc exceeded estimates with 147
percent December-quarter earnings growth.
Holdings that cater to aerospace customers such as Precision Castparts,
which makes an array of aircraft parts, and Rockwell Collins, which produces
avionics communications and electronics systems, aided results as well.
Precision Castparts and Rockwell Collins topped expectations with 48 and 18
percent December-quarter earnings growth.
Weatherford International, a consistent contributor for most of the past two
years, led the contribution from energy-sector holdings thanks to continued good
news on the earnings front. The company, which helps facilitate and optimize
drilling operations, beat estimates with 67 percent December-quarter earnings
growth. The Fund sold Weatherford International when it reached our target
price.
With the industrial, aerospace, construction and energy markets all buzzing
at once, demand for raw materials remained strong. Metals makers, including
Ipsco and Carpenter Technology, also figured prominently in quarterly results.
Consumer-related holdings were among the most notable detractors. Sherwin-
Williams was the primary culprit. Shares fell after a jury in Rhode Island held
Sherwin-Williams and two other companies liable for lead-paint cleanup costs in
the first case of its kind to succeed. Given potential for damages and
additional legal implications in the wake of the unexpected decision, the Fund
sold Sherwin-Williams during the quarter to deploy assets in a company with
clearer near-term earnings prospects.
For more information on the holdings that influenced March-quarter
performance the most, please see "Roses & Thorns" on page 4.
BRANDYWINE ADVISORS
CUMULATIVE TOTAL RETURN % CHANGE
----------------------- -------------------
QUARTER 8.72
ONE YEAR 25.39
FIVE YEARS 39.70
INCEPTION - 10/31/00 23.84
ANNUALIZED TOTAL RETURN
-----------------------
FIVE YEARS 6.91
INCEPTION - 10/31/00 4.03
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.
Tepid GDP growth in the December quarter sparked fresh concerns about the
economy, with the consumer shouldering most of the blame. Individual-company
earnings trends led to a significant reduction in exposure to companies
sensitive to consumer discretion in the summer of 2005, and consumer-
discretionary companies have played a more limited role in the portfolio since
that time.
Companies with fortunes linked to business customers, such as industrial and
technology companies, enjoy brighter earnings prospects and, as a result, hold
prominent positions in the portfolio. The persistent strength on the industrial
side of the economy also continues to stoke demand for basic materials like
steel.
Non-residential construction is emerging as a notable demand source, as
multiple factors converge to drive some of the most robust activity in recent
memory. Highway and energy bills signed into law last year promise to spur
infrastructure spending. This comes at a time when the residential construction
boom drives the need for supermarkets, doctor's offices and other buildings, as
big, new developments, particularly in the Southwest, evolve into full-fledged
communities.
Overall, industrial companies comprise the largest percentage of portfolio
assets, followed closely by tech companies. Health-care holdings are next.
Here, too, we've identified broad spending trends - from the Medicare
prescription plan to the ongoing migration toward service providers and insurers
that can help control spiraling costs - that certain companies are well-
positioned to capitalize on.
The Brandywine Funds lost a dear friend and longtime adviser with the
passing of Stig Ramel in March. Having known Stig since joining Friess
Associates nearly 25 years ago, I will miss his wise counsel and sense of humor
- - as I know many others here will as well. Also, Skip Schoenhals is ending his
seven-year run on the Brandywine Funds board to focus on his day job at the helm
of WSFS Financial. Given Skip's keen insight and no-nonsense style, his
replacement will have big shoes to fill. We will miss working closely with Skip.
The brief articles below go into more detail.
We're grateful for the opportunity to serve you, and we'll be working hard
to build on your March-quarter results.
/s/ Bill D'Alonzo
Bill D'Alonzo
Chief Executive Officer April 14, 2006
REMEMBERING A FRIEND
The extended Friess Associates family lost a longtime member in March when
Baron Stig Ramel passed away at the age of 79. A Swedish diplomat, scholar,
businessman and author, Stig possessed a rare combination of charm and intellect
that made him a sought-after adviser to dignitaries, corporations and world-
renowned organizations.
Among voluminous accomplishments in international finance and philanthropy,
Stig served as Executive Director of the Nobel Foundation from 1972 to 1992.
Whether skating, skiing or orienteering, he also maintained into the twilight of
his life a relentless energy and a passion for physical activity that belied his
years.
Stig made a lasting positive impact on our entire firm. His decision to
invest Nobel Foundation assets with Friess Associates in 1974 opened a critical
early chapter in our firm's history. Stig was an original member of the
Brandywine Funds Board of Directors, serving from Brandywine Fund's launch at
the end of 1985 until 2001.
The way Stig lived his life was an inspiration, and we are grateful for the
fond memories of him that we will carry with us for many years to come.
THANKS TO A DEPARTING BOARD MEMBER
Marvin "Skip" Schoenhals, who joined the Brandywine Funds board as an
independent director in 1999, decided to step down from the board to focus on
his full-time responsibilities as Chairman, President and Chief Executive
Officer of WSFS Financial Corp. The wisdom and dedication Skip demonstrated
during his tenure made him a particularly effective steward of shareholder
interests.
We were fortunate to benefit from the considerable leadership skills Skip
honed during his decades in banking. After presiding over the growth of two
banks in Michigan, Skip took over a storied-but-struggling WSFS in 1990 and
helped transform it into one of the nation's top performing banking
organizations. WSFS in 2005 marked its fifth consecutive year of record
earnings. Skip's business acumen and community involvement won him a spot in the
Delaware Business Leaders Hall of Fame in 2004.
The board is currently evaluating potential candidates for the vacant
independent director position. As a director, Skip set high standards that
reflected his personal character, and we greatly enjoyed and appreciated the
opportunity to work with him.
BRANDYWINE ADVISORS FUND
PERCENT CHANGE IN TOP TEN HOLDINGS FROM BOOK COST
1. Precision Castparts Corp. +62.7%
2. Harris Corp. +23.3%
3. Dean Foods Co. +1.9%
4. Fisher Scientific International Inc +27.8%
5. McDermott International, Inc. +46.0%
6. Manitowoc Company, Inc. +32.5%
7. Beckman Coulter, Inc. -1.6%
8. DaVita, Inc. +2.8%
9. The PMI Group, Inc. +3.8%
10. Rockwell Collins, Inc. +13.8%
EARNINGS GROWTH
THE FUND'S COMPANIES 20%
S&P 500 11%
FORCASTED INCREASE IN EARNINGS PER SHARE
2006 VS 2005
ALL FIGURES ARE DOLLAR WEIGHTED AND BASED ON DATA FROM BASELINE. MARCH 31, 2006
THE PORTFOLIO'S MARKET CAPITALIZATION
MID CAP
$1 billion to $10 billion
97.3%
CASH
2.7%
TOP TEN INDUSTRY GROUPS
Aerospace & Defense (10.5%)
Health Care Equipment (10.1%)
Communications Equipment (9.4%)
Construction & Engineering (6.3%)
Health Care Services (5.9%)
Thrifts & Mortgage Finance (5.2%)
Steel (5.0%)
Technology Distributors (5.0%)
Electrical Components & Equipment (4.6%)
Packaged Foods & Meats (4.6%)
All Other Industry Groups (30.7%)
Cash (2.7%)
BRANDYWINE ADVISORS FUND
MARCH QUARTER "ROSES AND THORNS"
$ GAIN
BIGGEST $ WINNERS (IN THOUSANDS) % GAIN REASON FOR MOVE
----------------- -------------- ------ ---------------
Manitowoc
Company, Inc. $2,270.2 32.5 December-quarter earnings grew 147 percent, surpassing consensus estimates.
Manitowoc's large crane business continues to experience strong demand from
infrastructure and commercial construction markets as non-residential
construction expenditures continue to recover. The company is also well
positioned to benefit from large ticket projects such as Gulf Coast
reconstruction and building projects associated with the 2008 Beijing Olympic
Games.
IPSCO, Inc. $1,663.0 23.3 December-quarter earnings growth beat consensus estimates by 19 percent.
Large-diameter pipe and energy tubular shipments increased both year-over-year
and sequentially as demand remained strong from energy producers. As North
America's largest producer of steel plate products, Ipsco also continues to
benefit from recently announced plate price increases.
Intercontinental
Exchange Inc. $1,632.7 52.7 Intercontinental is a leading electronic exchange in the growing energy-
derivatives sector, with a significant presence in the futures and over-the-
counter energy markets. Purchased during its initial public offering in
November last year, shares traded higher following the company's launch of an
electronically traded West Texas Intermediate (WTI) crude oil futures contract
in February that competes directly with NYMEX's benchmark product. The Fund
sold Intercontinental when shares reached our target price.
McDermott
International, Inc. $1,608.5 21.0 December-quarter earnings beat analysts' forecasts by 23 percent. Backlogged
orders at the company's J. Ray division increased to $1.8 billion from $1.2
billion a year ago as more international energy producers invested in the
company's deepwater drilling and subsea infrastructure products in order to
tap into new reserves. Demand for the company's power-related products and
services, particularly related to coal-fired power generation, also
contributed to results.
Precision Castparts
Corp. $1,423.9 14.7 The manufacturer of precision fasteners and jet-engine parts grew December-
quarter earnings 48 percent, beating consensus estimates by 11 percent. Demand
increased as aircraft manufacturers and power companies worked to replace
critical, high-wear parts in jet engines and industrial gas turbines built
three to five years ago. Precision Castparts continues to leverage its
manufacturing prowess into market share gains by offering high-quality
products at attractive prices.
$ LOSS
BIGGEST $ LOSERS (IN THOUSANDS) % LOSS REASON FOR MOVE
----------------- -------------- ------ ---------------
Omnicare, Inc. $1,202.5 13.2 The provider of drugs and pharmacy services to nursing homes beat estimates
with 21 percent December-quarter earnings growth. While synergies associated
with the company's acquisition of NeighborCare last year provide new avenues
for growth, federal investigations into management practices at a number of
branch locations clouded its earnings outlook. The Fund sold Omnicare during
the quarter.
Sherwin-Williams Co. $1,103.7 12.0 A Rhode Island jury found Sherwin-Williams and two other companies liable for
lead-paint cleanup costs in the state, representing the first decision of its
kind. Broader legal uncertainty related to the unexpected decision prompted
the Fund to sell Sherwin-Williams to make room for a company with clearer
earnings visibility.
Jarden Corp. $963.9 18.3 December-quarter earnings growth of 19 percent was at the low end of
management's guidance range due to the negative impact of increased commodity
costs and integration difficulties with The Holmes Group, acquired last July.
The Fund sold the maker of various consumer products to fund an idea with
better near-term earnings visibility.
Comverse
Technology, Inc. $787.8 11.3 The world's largest maker of voice-mail software grew October-quarter earnings
113 percent, beating estimates. Shares slid when the company announced it
would forego providing January-quarter earnings results pending a review of
its accounting practices for stock option grants by its board of directors.
While the review may result in a restatement of GAAP results, we remain
confident that the business is strong, as evidenced by encouraging January-
quarter revenue and backlogged order trends.
PartnerRe Ltd. $344.1 7.3 December-quarter earnings growth beat estimates by 26 percent. Disciplined
underwriting and a diversified portfolio positioned the company better than
others to deal with reinsurance capital losses and to capitalize on firmer
pricing following hurricanes in the Gulf Coast. However, insurers raised more
capital than needed to pay claims, limiting the expected improvements in
industry pricing and prompting the Fund to sell PartnerRe.
All gains/losses are calculated on an average cost basis
BRANDYWINE ADVISORS FUND
STATEMENT OF NET ASSETS
March 31, 2006
(Unaudited)
SHARES COST VALUE
------ ---- -----
COMMON STOCKS - 97.3% (A)<F15>
CONSUMER STAPLES
PACKAGED FOODS & MEATS - 4.6%
246,800 Dean Foods Co.*<F14> $ 9,406,863 $ 9,583,244
------------ ------------
TOTAL CONSUMER STAPLES 9,406,863 9,583,244
THIS SECTOR IS 1.9% ABOVE YOUR FUND'S COST.
ENERGY
OIL & GAS EQUIPMENT & SERVICES - 1.5%
110,400 Dresser-Rand Group, Inc.*<F14> 2,970,170 2,743,440
12,900 Superior Energy Services, Inc.*<F14> 336,059 345,591
OIL & GAS EXPLORATION & PRODUCTION - 0.2%
28,700 Compton Petroleum Corp.*<F14> 474,394 368,508
------------ ------------
TOTAL ENERGY 3,780,623 3,457,539
THIS SECTOR IS 8.5% BELOW YOUR FUND'S COST.
FINANCIALS
THRIFTS & MORTGAGE FINANCE - 5.2%
57,400 MGIC Investment Corp. 3,841,764 3,824,562
149,900 The PMI Group, Inc. 6,633,294 6,883,408
------------ ------------
TOTAL FINANCIALS 10,475,058 10,707,970
THIS SECTOR IS 2.2% ABOVE YOUR FUND'S COST.
HEALTH CARE
HEALTH CARE EQUIPMENT - 10.1%
130,700 Beckman Coulter, Inc. 7,250,942 7,132,299
151,700 Cytyc Corp.*<F14> 3,808,781 4,274,906
140,000 Fisher Scientific
International Inc.*<F14> 7,455,410 9,527,000
HEALTH CARE SERVICES - 5.9%
115,600 DaVita, Inc.*<F14> 6,770,712 6,960,276
206,500 IMS Health Inc. 5,139,704 5,321,505
PHARMACEUTICALS - 2.7%
167,800 Endo Pharmaceuticals
Holdings Inc.*<F14> 5,015,652 5,505,518
------------ ------------
TOTAL HEALTH CARE 35,441,201 38,721,504
THIS SECTOR IS 9.3% ABOVE YOUR FUND'S COST.
INDUSTRIALS
AEROSPACE & DEFENSE - 10.5%
107,100 Embraer-Empresa Brasileira de
Aeronautica S.A. ADR 3,995,539 3,946,635
187,600 Precision Castparts Corp. 6,848,953 11,143,440
119,100 Rockwell Collins, Inc. 5,899,116 6,711,285
CONSTRUCTION & ENGINEERING - 6.3%
170,500 McDermott International, Inc.*<F14> 6,357,961 9,283,725
93,200 URS Corp.*<F14> 3,891,527 3,751,300
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS - 4.5%
101,500 Manitowoc Company, Inc. 6,981,511 9,251,725
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 1.7%
78,700 West Corp.*<F14> 3,203,955 3,514,742
ELECTRICAL COMPONENTS & EQUIPMENT - 4.6%
115,400 AMETEK, Inc. 4,406,803 5,188,384
84,200 Thomas & Betts Corp.*<F14> 2,872,923 4,326,196
INDUSTRIAL CONGLOMERATES - 3.1%
96,100 Walter Industries, Inc. 6,157,607 6,402,182
INDUSTRIAL MACHINERY - 1.1%
43,000 IDEX Corp. 1,820,388 2,243,310
------------ ------------
TOTAL INDUSTRIALS 52,436,283 65,762,924
THIS SECTOR IS 25.4% ABOVE YOUR FUND'S COST.
INFORMATION TECHNOLOGY
APPLICATION SOFTWARE - 3.6%
90,000 Cognos, Inc.*<F14> 3,249,920 3,501,000
68,600 Hyperion Solutions Corp.*<F14> 2,331,807 2,236,360
72,800 Jack Henry & Associates, Inc. 1,595,339 1,664,936
COMMUNICATIONS EQUIPMENT - 9.4%
172,000 Avaya Inc.*<F14> 1,990,750 1,943,600
58,400 Comverse Technology, Inc.*<F14> 1,423,459 1,374,152
327,700 Foundry Networks, Inc.*<F14> 4,683,403 5,951,032
213,200 Harris Corp. 8,176,869 10,082,228
ELECTRONIC EQUIPMENT MANUFACTURERS - 2.4%
141,900 Tektronix, Inc. 3,575,273 5,067,249
ELECTRONIC MANUFACTURING SERVICES - 4.0%
147,000 Celestica Inc.*<F14> 1,626,694 1,683,150
81,300 Molex Inc. 2,628,508 2,699,160
85,400 Trimble Navigation Ltd.*<F14> 3,618,877 3,847,270
IT CONSULTING & OTHER SERVICES - 0.9%
50,300 SRA International, Inc.*<F14> 1,872,397 1,897,819
SEMICONDUCTOR EQUIPMENT - 2.1%
273,500 Teradyne, Inc.*<F14> 4,504,349 4,241,985
SEMICONDUCTORS - 2.9%
314,200 Fairchild Semiconductor
International, Inc.*<F14> 5,561,481 5,991,794
TECHNOLOGY DISTRIBUTORS - 5.0%
153,000 Avnet, Inc.*<F14> 3,746,412 3,883,140
327,500 Ingram Micro Inc.*<F14> 6,527,300 6,550,000
------------ ------------
TOTAL INFORMATION TECHNOLOGY 57,112,838 62,614,875
THIS SECTOR IS 9.6% ABOVE YOUR FUND'S COST.
MATERIALS
STEEL - 5.0%
16,400 Allegheny Technologies, Inc. 948,549 1,003,352
14,400 Carpenter Technology Corp. 1,282,952 1,361,088
19,300 Cleveland-Cliffs Inc. 1,744,390 1,681,416
60,100 IPSCO, Inc. 4,234,657 6,255,809
------------ ------------
TOTAL MATERIALS 8,210,548 10,301,665
------------ ------------
THIS SECTOR IS 25.5% ABOVE YOUR FUND'S COST.
Total common stocks 176,863,414 201,149,721
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS - 2.9% (A)<F15>
COMMERCIAL PAPER - 2.4%
$4,900,000 New Center Asset Trust,
due 4/03/06, discount of 4.84% 4,898,682 4,898,682
VARIABLE RATE DEMAND NOTES - 0.5%
434,750 American Family
Financial Services, 4.47% 434,750 434,750
584,109 Wisconsin Corporate Central
Credit Union, 4.49% 584,109 584,109
------------ ------------
Total variable rate demand notes 1,018,859 1,018,859
------------ ------------
Total short-term investments 5,917,541 5,917,541
------------ ------------
Total investments $182,780,955 207,067,262
------------
------------
Liabilities, less cash and
receivables (0.2%) (A)<F15> (399,492)
------------
NET ASSETS $206,667,770
------------
------------
Net Asset Value Per Share
($0.01 par value, 100,000,000
shares authorized), offering
and redemption price
($206,667,770 / 18,216,603
shares outstanding) $11.35
------
------
*<F14> Non-dividend paying security.
(A)<F15> Percentages for the various classifications relate to net assets.
ADR- American Depository Receipts
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 2006
(Unaudited)
INCOME:
Dividends $ 389,570
Interest 243,829
-----------
Total income 633,399
-----------
EXPENSES:
Management fees 966,768
Service and Distribution expenses 54,100
Registration fees 29,758
Transfer agent fees 28,131
Professional fees 26,735
Administrative services 20,360
Printing and postage expense 12,505
Custodian fees 9,483
Insurance expense 5,580
Board of Directors fees and expenses 2,138
Other expenses 8,960
-----------
Net expenses 1,164,518
-----------
NET INVESTMENT LOSS (531,119)
-----------
NET REALIZED GAIN ON INVESTMENTS 19,917,437
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (9,171,639)
-----------
NET GAIN ON INVESTMENTS 10,745,798
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $10,214,679
-----------
-----------
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE ADVISORS FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended March 31, 2006 (Unaudited)
and for the Year Ended September 30, 2005
2006 2005
---- ----
OPERATIONS:
Net investment loss $ (531,119) $ (820,684)
Net realized gain on investments 19,917,437 29,354,327
Net (decrease) increase in unrealized appreciation on investments (9,171,639) 19,048,051
------------ ------------
Net increase in net assets resulting from operations 10,214,679 47,581,694
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains ($1.40103 per share) (22,982,674) --
------------ ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (2,603,628 and 1,493,573 shares, respectively) 27,346,992 16,668,564
Net asset value of shares issued in distributions reinvested (610,242 shares) 6,004,139 --
Cost of shares redeemed (1,323,764 and 416,442 shares, respectively) (14,508,731) (4,302,727)
------------ ------------
Net increase in net assets derived from Fund share activities 18,842,400 12,365,837
------------ ------------
TOTAL INCREASE 6,074,405 59,947,531
NET ASSETS AT THE BEGINNING OF THE PERIOD 200,593,365 140,645,834
------------ ------------
NET ASSETS AT THE END OF THE PERIOD $206,667,770 $200,593,365
(Includes accumulated net investment loss of $0 and $82,457, respectively) ------------ ------------
------------ ------------
FINANCIAL HIGHLIGHTS
(selected data for each share of the Fund outstanding throughout each period)
FOR THE PERIOD
FOR THE SIX FOR THE PERIOD 10/01/00
MONTHS ENDED FOR THE YEARS ENDED SEPTEMBER 30, 10/31/00 (COMMENCEMENT
MARCH 31, 2006 -------------------------------------- (EFFECTIVE DATE) OF OPERATIONS)
(UNAUDITED) 2005 2004 2003 2002 THROUGH 9/30/01 THROUGH 10/31/00
-------------- ---- ---- ---- ---- --------------- ----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $12.29 $9.22 $8.42 $7.29 $8.34 $10.48 $10.00
Income from investment operations:
Net investment loss(1)<F16> (0.03) (0.05) (0.07) (0.06) (0.06) (0.08) 0.00
Net realized and unrealized
gains (losses) on investments 0.49 3.12 0.87 1.19 (0.99) (2.06) 0.48
------ ------ ------ ------ ------ ------ ------
Total from investment operations 0.46 3.07 0.80 1.13 (1.05) (2.14) 0.48
------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividend from net investment income -- -- -- -- -- -- --
Distribution from net realized gains (1.40) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total from distributions (1.40) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $11.35 $12.29 $9.22 $8.42 $7.29 $8.34 $10.48
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 5.60%* 33.30% 9.50% 15.50% (12.59%) (20.42%)* 4.80%*
<F17> <F17> <F17>
RATIOS/SUPPLEMENTAL DATA:
Net assets,
end of period (in 000's $) 206,668 200,593 140,646 128,606 108,692 26,687 26,456
Ratio of expenses
to average net assets 1.20%** 1.19% 1.20% 1.22% 1.25% 1.68%** 1.73%**
<F18> <F18> <F18>
Ratio of net investment loss
to average net assets (0.55%)** (0.51%) (0.75%) (0.75%) (0.77%) (0.94%)** (0.58%)**
<F18> <F18> <F18>
Portfolio turnover rate 118.2% 206.8% 269.5% 269.5% 258.7% 264.5% 20.6%
(1)<F16> In 2006, 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.
*<F17> Not Annualized.
**<F18> Annualized.
The accompanying notes to financial statements are an integral part of these
statements.
BRANDYWINE ADVISORS FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
(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 in shares
of the Fund worth $2,500. The Lead Independent Director and Chairman of the
Audit Committee are paid additional shares worth $5,000 and $2,500
annually, divided proportionately among all the Brandywine Funds. The Fund
also reimburses directors for travel costs incurred in order to attend
meetings of the Board of Directors. For the six months ended March 31, 2006
the Fund expensed the following directors fees and costs:
Directors Fees (in shares of the Fund)
and Travel Costs Paid during the Period $2,138
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 is 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 March 31, 2006, approximately 82% 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 six months
ended March 31, 2006, the Fund did not borrow against its Agreement. The
Credit Agreement expires on December 18, 2006.
(4) DISTRIBUTIONS TO SHAREHOLDERS
Net investment income and net realized gains, if any, are distributed to
shareholders at least annually. On December 29, 2005 the Fund distributed
$1,340,870 from long-term realized gains ($0.07335 per share). The
distribution was paid on December 29, 2005 to shareholders of record on
December 28, 2005.
(5) INVESTMENT TRANSACTIONS AND RELATED COSTS
For the six months ended March 31, 2006, 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
--------- -------- ----------- -----------------
$226,140,189 $216,744,098 $503,926 0.26%
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 March 31, 2006, liabilities of the Fund included the following:
Payable to brokers for investments purchased $ 1,125,970
Payable to Adviser for management fees 171,718
Other liabilities 66,887
(7) SOURCES OF NET ASSETS
As of March 31, 2006, the sources of net assets were as follows:
Fund shares issued and outstanding $164,336,190
Net unrealized appreciation on investments 24,286,307
Accumulated net realized gains 18,045,273
------------
$206,667,770
------------
------------
8) INCOME TAX INFORMATION
The following information for the Fund is presented on an income tax basis
as of March 31, 2006:
Gross Gross Net Unrealized
Cost of Unrealized Unrealized Appreciation
Investments Appreciation Depreciation on Investments
----------- ------------ -------------- --------------
$182,781,546 $25,547,493 $1,261,777 $24,285,716
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:
September 30, 2005 September 30, 2004
---------------------------------------------------------------- ------------------------------
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.
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 October 1, 2005 through March 31, 2006.
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*<F19>
10/01/05 3/31/06 10/01/05-3/31/06
-------- ------- ----------------
Brandywine Advisors Actual $1,000.00 $1,056.00 $6.15
Hypothetical (5% return
before expenses) $1,000.00 $1,018.90 $6.04
*<F19> Expenses are equal to the Fund's annualized expense ratio of 1.20%,
multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one- half year period between October 1, 2005
and March 31, 2006).
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'S ADVISORY AGREEMENT
On December 5, 2005, the Board of Directors of the Fund approved the
continuation of the advisory agreement with Friess Associates, LLC ("Friess").
Prior to approving the continuation of the advisory agreement, the Board
considered:
o the nature, extent and quality of the services provided by Friess
o the investment performance of the Fund
o the costs of the services to be provided and profits to be realized by
Friess from its relationship with the Fund
o the extent to which economies of scale would be realized as the Fund
grows and whether fee levels reflect these economies of scale
o the expense ratio of the Fund
o the manner in which portfolio transactions for the Fund are conducted,
including the use of soft dollars
In considering the nature, extent and quality of the services provided by
Friess, the Board of Directors reviewed a report describing the portfolio
management, shareholder communication and support and regulatory compliance
services provided by Friess to the Fund. The Board concluded that Friess was
providing essential services to the Fund. In particular, the Board concluded
that Friess was preparing reports to shareholders in addition to those required
by law.
The Directors compared the performance of the Fund to benchmark indices over
various periods of time and concluded that the performance of the Fund warranted
the continuation of the advisory agreement.
In concluding that the advisory fees payable by the Fund were reasonable,
the Directors reviewed a report of the costs of services provided by and the
profits realized by Friess from its relationship with the Fund and concluded
that such profits were reasonable and not excessive. The Directors also reviewed
reports comparing the expense ratio and advisory fee paid by the Fund to those
paid by other comparable mutual funds and concluded that the advisory fee paid
by the Fund was higher than the average advisory fee paid by comparable mutual
funds, but the expense ratio of the Fund was lower than the average expense
ratio of comparable mutual funds. The Directors also noted that all clients of
Friess pay the same 1% advisory fee. They noted that this fee would not be
adjusted if economies of scale were realized during the current contract period
as the Fund grew, but did not consider that factor to be significant in light of
the other factors considered.
Finally, the Board reviewed reports discussing the manner in which portfolio
transactions for the Fund were conducted, including the use of soft dollars.
Based on these reports, the Board concluded that the research obtained by Friess
was beneficial to the Fund and that Friess was executing the Fund's portfolio
transactions in a manner designed to obtain best execution for the Fund.
CAPITAL GAINS UPDATE . . .
Halfway through the fiscal year it appears the Brandywine Advisors Fund
could be on its way to distributing capital gains in October. Brandywine
Advisors finished the March quarter with realized gains representing $0.99 per
share.
This realized gain figure is provided to keep shareholders updated on the
status of the capital gains situation as the fiscal year progresses. Gains and
losses realized over the next six months will determine whether a distribution
is in order and, if so, dictate the amount of capital gains to be distributed.
BOARD OF DIRECTORS
Robert F. Birch
President and Director
New America High Income Fund
Dover, Massachusetts
William F. D'Alonzo
CEO and CIO
Friess Associates
Greenville, Delaware
Foster S. Friess
Chairman
Friess Associates
Jackson, Wyoming
Quentin Jackson
President and CEO
Nuclear Electric Insurance Limited
Wilmington, Delaware
Stuart A. McFarland
Chairman and CEO
Federal City Bancorp and
American Partners Bank
Bethesda, Maryland
W. Richard Scarlett, III
Chairman and CEO
United Bancorporation of Wyoming, Inc.
Jackson, Wyoming
James W. Zug
Former Senior Partner
PricewaterhouseCoopers LLP
Radnor, Pennsylvania
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, Dave 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 3/31/06, unless listed in the accompanying statement of
net assets. The Price to Earnings (P/E) Ratio is calculated by dividing current
price of the stock by the company's estimated earnings per share for the current
calendar year. 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. Baseline Financial Services, Inc. (Baseline)
provides analytical information and services to the investment community. The
S&P 500, Russell Midcap, and Russell Midcap Growth Indexes are unmanaged indices
commonly used to measure the performance of U.S. stocks. You cannot invest
directly in an index.
As of March 31, 2006, the S&P 500 Index's average annual total returns for 1, 5
and 10 years were 11.73, 3.97 and 8.95 percent; the Russell Midcap Index's were
21.54, 12.52 and 12.66 percent; and the Russell Midcap Growth Index's were
22.68, 8.99 and 9.39 percent.
4/06
ITEM 2. CODE OF ETHICS.
- -----------------------
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
- ----------------------------------------
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -----------------------------------------------
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
- ----------------------------------------------
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
- --------------------------------
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
- -------------------------------------------------------------------------
MANAGEMENT INVESTMENT COMPANIES.
- --------------------------------
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
- -------------------------------------------------------------------------
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
- --------------------------------------------------------------------------
COMPANY AND AFFILIATED PURCHASERS.
- ----------------------------------
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
None.
ITEM 11. CONTROLS AND PROCEDURES.
- ---------------------------------
(a) The disclosure controls and procedures of the Brandywine Blue Fund, Inc.
are periodically evaluated. As of April 13, 2006, 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.
- ------------------
(a) Any code of ethics or amendment thereto. Not applicable.
(b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
(c) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Brandywine Blue Fund, Inc.
--------------------------
Registrant
By /s/ William F. D'Alonzo
-----------------------------------------------
William F. D'Alonzo Principal Executive Officer
Date April 13, 2006
--------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Brandywine Blue Fund, Inc.
--------------------------
Registrant
By /s/ Christopher G. Long
------------------------------------------------
Christopher G. Long, Principal Financial Officer
Date April 13, 2006
---------------------------------------------