STATEMENT OF ADDITIONAL INFORMATION October 31, 2000
for the Brandywine Advisors Fund
series of Brandywine Blue Fund, Inc.
BRANDYWINE ADVISORS FUND
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectus of Brandywine Advisors Fund
dated October 31, 2000. Requests for copies of the prospectus should be made in
writing to Brandywine Advisors Fund, P.O. Box 4166, Greenville, Delaware, 19807,
Email: [email protected] or Website: www.brandywinefunds.com, or by calling
(877) 636-6460.
BRANDYWINE BLUE FUND, INC.
3711 Kennett Pike
Greenville, Delaware 19807
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BRANDYWINE ADVISORS FUND
Table of Contents
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Page No.
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GENERAL INFORMATION AND HISTORY................................................1
INVESTMENT RESTRICTIONS........................................................1
INVESTMENT CONSIDERATIONS......................................................2
DIRECTORS AND OFFICERS OF THE COMPANY..........................................4
PRINCIPAL STOCKHOLDERS.........................................................8
INVESTMENT ADVISER.............................................................8
SERVICE AGREEMENT.............................................................10
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE..............................10
DISTRIBUTION OF SHARES........................................................12
PURCHASE OF SHARES............................................................13
REDEMPTION OF SHARES..........................................................13
ALLOCATION OF PORTFOLIO BROKERAGE.............................................13
CUSTODIAN.....................................................................14
TAXES.........................................................................14
STOCKHOLDER MEETINGS..........................................................15
CAPITAL STRUCTURE.............................................................17
INDEPENDENT ACCOUNTANTS.......................................................17
DESCRIPTION OF SECURITIES RATINGS.............................................18
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated October 31, 2000 and, if given or made,
such information or representations may not be relied upon as having been
authorized by Brandywine Advisors Fund.
This Statement of Additional Information does not constitute an offer
to sell securities.
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GENERAL INFORMATION AND HISTORY
Brandywine Blue Fund, Inc. (the "Company") is an open-end, management
investment company, consisting of two diversified portfolios, Brandywine Blue
Fund and Brandywine Advisors Fund (the "Fund"), registered under the Investment
Company Act of 1940 (the "Act"). This statement of additional information
provides information about Brandywine Advisors Fund. The Company is a Maryland
corporation incorporated on November 13, 1990.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions which are
matters of fundamental policy and cannot be changed without approval of the
holders of the lesser of: (i) 67% of the Fund's shares present or represented at
a stockholder's meeting at which the holders of more than 50% of such shares are
present or represented; or (ii) more than 50% of the outstanding shares of the
Fund.
1. The Fund will not purchase securities on margin, participate in a
joint-trading account, sell securities short, or write or invest in put or call
options.
2. The Fund will not borrow money or issue senior securities, except
for temporary bank borrowings. The Fund may pledge its assets to secure
borrowings. The Fund will not purchase securities while it has any outstanding
borrowings.
3. The Fund will not lend money (except by purchasing debt securities
of a type normally acquired by institutional investors or entering into
repurchase agreements) and will not lend its portfolio securities.
4. The Fund will not make investments for the purpose of exercising
control or management of any company.
5. The Fund will limit its purchases of securities of any issuer
(other than the United States or an instrumentality of the United States) in
such a manner that it will satisfy at all times the requirements of Section
5(b)(1) of the Act (i.e., that at least 75% of the value of its total assets is
represented by cash and cash items (including receivables), U.S. Government
Securities, securities of other investment companies, and other securities for
the purpose of the foregoing limited in respect of any one issuer to an amount
not greater than 5% of the value of the total assets of the Fund and to not more
than 10% of the outstanding voting securities of such issuer.)
6. The Fund will not concentrate 25% or more of the value of its total
assets, determined at the time an investment is made, exclusive of U.S.
Government Securities, in securities issued by companies engaged in the same
industry.
7. The Fund will not act as an underwriter or distributor of
securities other than of its shares (except to the extent the Fund may be deemed
to be an underwriter within
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the meaning of the Securities Act of 1933, as amended, in the disposition of
restricted securities).
8. The Fund will not purchase interests in any oil, gas or any other
mineral exploration or development program.
9. The Fund will not purchase or sell real estate or real estate
mortgage loans. (This prohibition shall include limited partnership interests of
limited partnerships investing in real estate, but shall not include readily
marketable investments in real estate investment trusts or readily marketable
securities of companies investing in real estate.)
10. The Fund will not purchase or sell commodities or commodities
contracts, including futures contracts.
The following investment limitations are not fundamental and may be
changed without stockholder approval.
1. The Fund will not invest more than 5% of its total assets in
securities of unseasoned issuers, including their predecessors, which have been
in operation for less than 3 years.
2. The Fund will not invest more than 15% of the value of its net
assets in illiquid securities.
3. The Fund will not purchase securities of other investment companies
except (a) as part of a plan of merger, consolidation or reorganization approved
by the stockholders of the Fund or (b) securities of registered closed-end
investment companies on the open market where no commission or profit results,
other than the usual and customary broker's commission and where as a result of
such purchase the Fund would hold less than 3% of any class of securities,
including voting securities, of any registered closed-end investment company and
less than 5% of the Fund's assets, taken at current value, would be invested in
securities of registered closed-end investment companies.
4. The Fund's investments in money market instruments and cash will
not exceed 10% of the Fund's net assets, except for short-term portfolio
repositioning.
Except for investment restrictions relating to borrowing money or
investing in illiquid securities, unless specifically stated in an investment
restriction, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from changes in
value of a Fund's assets will not constitute a violation of that restriction.
INVESTMENT CONSIDERATIONS
The Fund invests mainly in common stocks of U.S. companies. However
when the Fund's investment adviser believes that securities other than common
stocks offer opportunity for long-term capital appreciation, the Fund may invest
up to 30% of its net assets
2
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in publicly distributed debt securities, preferred stocks, particularly those
which are convertible into or carry rights to acquire common stocks, and
warrants. (The Fund currently intends to invest not more than 10% of its net
assets in any of publicly distributed debt securities, preferred stocks or
warrants.) Investments in publicly distributed debt securities and
nonconvertible preferred stocks offer an opportunity for growth of capital
during periods of declining interest rates, when the market value of such
securities in general increases. The Fund will limit its investments in publicly
distributed debt securities to those which have been assigned one of the three
highest ratings of either Standard & Poor's Corporation (AAA, AA and A) or
Moody's Investors Service, Inc. (Aaa, Aa and A). In the event a publicly
distributed debt security is downgraded after investment, the Fund may retain
such security unless it is rated less than investment grade (i.e., less than BBB
by Standard & Poor's Corporation or Baa by Moody's Investors Service, Inc.). If
it is downgraded below investment grade, the Fund will promptly dispose of such
publicly distributed debt security. A description of the foregoing ratings is
set forth in "Description of Securities Ratings."
The Fund may invest in securities of foreign issuers or in American
Depository Receipts of such issuers. Such investments may involve risks which
are in addition to the usual risks inherent in domestic investments. The value
of the Fund's foreign investments may be significantly affected by changes in
currency exchange rates and the Fund may incur costs in converting securities
denominated in foreign currencies to U.S. dollars. In many countries, there is
less publicly available information about issuers than is available in the
reports and ratings published about companies in the United States.
Additionally, foreign companies are not subject to uniform accounting, auditing
and financial reporting standards. Dividends and interest on foreign securities
may be subject to foreign withholding taxes, which would reduce the Fund's
income without providing a tax credit for the Fund's stockholders. Although the
Fund intends to invest in securities of foreign issuers domiciled in nations
which the Fund's investment adviser considers as having stable and friendly
governments, there is the possibility of expropriation, confiscatory taxation,
currency blockage or political or social instability which could affect
investments in those nations.
The money market instruments in which the Fund invests include
conservative fixed-income securities, such as United States Treasury Bills,
certificates of deposit of U.S. banks (provided that the bank has capital,
surplus and undivided profits, as of the date of its most recently published
annual financial statements, with a value in excess of $100,000,000 at the date
of investment), commercial paper rated A-1 by Standard & Poor's Corporation,
commercial paper master notes and repurchase agreements. Commercial paper master
notes are unsecured promissory notes issued by corporations to finance
short-term credit needs. They permit a series of short-term borrowings under a
single note. Borrowings under commercial paper master notes are payable in whole
or in part at any time upon demand, may be prepaid in whole or in part at any
time, and bear interest at rates which are fixed to known lending rates and
automatically adjusted when such known lending rates change. There is no
secondary market for commercial paper master notes. The Fund's investment
adviser will monitor the creditworthiness of the issuers of the commercial paper
master notes while any borrowings are outstanding.
3
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Repurchase agreements are agreements under which the seller of a
security agrees at the time of sale to repurchase the security at an agreed time
and price. The Fund will not enter into repurchase agreements with entities
other than banks or invest over 15% of its net assets in repurchase agreements
with maturities of more than seven days. If a seller of a repurchase agreement
defaults and does not repurchase the security subject to the agreement, the Fund
will look to the collateral security underlying the seller's repurchase
agreement, including the securities subject to the repurchase agreement, for
satisfaction of the seller's obligation to the Fund. In such event, the Fund
might incur disposition costs in liquidating the collateral and might suffer a
loss if the value of the collateral declines. In addition, if bankruptcy
proceedings are instituted against a seller of a repurchase agreement,
realization upon the collateral may be delayed or limited.
DIRECTORS AND OFFICERS OF THE COMPANY
As a Maryland corporation, the business and affairs of the Company are
managed by its officers under the direction of its Board of Directors. (The same
persons currently serve as directors and officers of both Brandywine Blue Fund,
Inc. and Brandywine Fund, Inc., another registered investment company advised by
the Fund's investment adviser.) The name, address, principal occupations during
the past five years and other information with respect to each of the directors
and officers of the Company are as follows:
FOSTER S. FRIESS*
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115 East Snow King Avenue
P. O. Box 576
Jackson, Wyoming
(PRESIDENT, TREASURER AND A
DIRECTOR OF THE COMPANY)
Mr. Friess, age 60, has served as President, Treasurer and a director
of both Brandywine Blue Fund, Inc. and Brandywine Fund, Inc. (the "Companies")
since their inceptions. He is also President and Chairman of the Board of Friess
Associates, Inc., an investment advisory firm which he co-founded in 1974 with
his wife, Lynnette E. Friess. Friess Associates, Inc. has been the investment
adviser for the Funds since their inception. Mr. Friess has been a Chartered
Financial Analyst since 1970. He is currently Chairman of the Life Enrichment
Foundation, Wilmington, Delaware. He is also a member of the Advisory Council of
the Royal Swedish Academy of Sciences and sits on the Board of Advisers for the
John Templeton Foundation.
4
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STIG RAMEL
----------
Resedavagen 8
171732 Solna
Sweden
(DIRECTOR)
Mr. Ramel, age 73, who is now retired, served as President of the
Nobel Foundation from 1972 to 1992 and was thereafter appointed by the Swedish
Government as Chairman of Fond 92-94, a nonprofit organization with the
responsibility of financing scientific research institutions. He is a member of
the Royal Swedish Academy of Sciences. Mr. Ramel has served as a director of the
Companies since their inception.
JOHN E. BURRIS
--------------
5th and McColley Street
Milford, Delaware
(DIRECTOR)
Mr. Burris, age 80, is Chairman of Burris Foods, Inc. He is a trustee
of the University of Delaware and a former member of the Board of Directors of
Wilmington Trust Company. He is a member of the board of directors of Milford
Memorial Hospital and is a member of the Private Industry Council for the State
of Delaware. He has served as a director of the Companies since their inception.
MARVIN N. SCHOENHALS
--------------------
9th and Market Streets
Wilmington, Delaware
(DIRECTOR)
Mr. Schoenhals, age 53, is President and Chief Executive Officer of
WSFS Financial Corp., a bank holding company. He has served as an officer of
WSFS Financial Corp. since 1990.
5
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LYNDA J. CAMPBELL
-----------------
3711 Kennett Pike
Greenville, Delaware
(VICE PRESIDENT AND SECRETARY)
Ms. Campbell, age 54, has served as Vice President of the Company
since May, 1998 and as Secretary since 1990. She is also an employee of Friess
Associates, Inc. and has been employed in various capacities with such firm
since December, 1985.
WILLIAM F. D'ALONZO
-------------------
3711 Kennett Pike
Greenville, Delaware
(VICE PRESIDENT)
Mr. D'Alonzo, age 45, has been an analyst for Friess Associates, Inc.
since 1981. He also has served as a Vice President of the Company since April,
1990.
CARL S. GATES
-------------
3711 Kennett Pike
Greenville, Delaware
(VICE PRESIDENT)
Mr. Gates, age 68, has been an analyst for Friess Associates, Inc.
since 1988. He has served as a Vice President of the Company since April, 1994.
JOHN P. RAGARD
--------------
3711 Kennett Pike
Greenville, Delaware
(VICE PRESIDENT)
Mr. Ragard, age 46, has been an analyst for Friess Associates, Inc.
since 1993. He has served as a Vice President of the Company since May, 1998.
6
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PAUL R. ROBINSON
----------------
3711 Kennett Pike
Greenville, Delaware
(VICE PRESIDENT AND ASSISTANT SECRETARY)
Mr. Robinson, age 77, has been a consultant for Friess Associates,
Inc. since June, 1985. He has served as a Vice President of the Company since
1990.
------------------
* Mr. Friess is the only director who is an "interested person" of the
Company as that term is defined in the Act.
For the fiscal year ending September 30, 2001, the standard method of
compensating directors of the Companies is for Brandywine Fund, Brandywine Blue
Fund and Brandywine Advisors Fund to pay each disinterested director an annual
fee of $20,000, $5,000 and $2,500, respectively. Directors may elect to defer
the receipt of some or all of the compensation they earn as directors. Amounts
deferred increase or decrease in value as if they had been invested in shares of
the applicable Fund. Each of the Funds also may reimburse directors for travel
expenses incurred in order to attend meetings of the Boards of Directors.
The table below sets forth the compensation paid by Brandywine
Advisors Fund to each of the directors of the Company during the fiscal year
ended September 30, 2000:
<TABLE>
COMPENSATION TABLE
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated Annual from Fund and
Compensation As Part of Fund Benefits Upon Fund Complex(1)(2)
Name of Person From Fund(1)(2) Expenses Retirement Paid to Directors
-------------- -------------- -------- ---------- -----------------
<S> <C> <C> <C> <C>
Foster S. Friess $0 $0 $0 $0
Stig Ramel(3) $3,750 $0 $0 $23,750
John E. Burris(3) $3,750 $0 $0 $23,750
Marvin N. Schoenhals(3) $3,750 $0 $0 $23,750
---------------
(1) Includes amounts deferred at the election of the director.
(2) Brandywine Fund and Brandywine Blue Fund were the only funds in the Fund Complex during the fiscal year ended
September 30, 2000 as Brandywine Advisors Fund will commence operations on or after October 31, 2000.
(3) At September 30, 2000 the total amount of deferred compensation payable to each of Mr. Burris, Mr. Ramel and Mr.
Schoenhals was $8,217.
</TABLE>
7
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The Companies and Friess Associates, Inc. (the "Adviser") have adopted
a code of ethics pursuant to Rule 17j-1 under the Act. The code of ethics
permits personnel subject thereto to invest in securities, including securities
that may be purchased or held by the Funds. The code of ethics generally
prohibits, among other things, persons subject thereto from purchasing or
selling securities if they know at the time of such purchase or sale that the
security is being considered for purchase or sale by a Fund or is being
purchased or sold by a Fund.
PRINCIPAL STOCKHOLDERS
At July 31, 2000, all officers and directors of the Company as a group
(9 persons) beneficially owned 2,433,078 shares of common stock of Brandywine
Blue Fund, or 20.50% of the then outstanding shares. At such date, Foster S.
Friess and Lynette E. Friess, P.O. Box 4166, Greenville, Delaware 19807, owned
2,361,302 shares of the Brandywine Blue Fund's common stock, or 19.90% of the
then outstanding shares, of which 1,129,227 shares (9.52% of the outstanding
shares) were held as trustee; Charles Schwab & Co., Inc., 101 Montgomery Street,
San Francisco, California 94111, owned of record 661,671 shares of the
Brandywine Blue Fund's common stock, or 5.58% of the then outstanding shares,
and Wells Fargo Bank MN NA Tr., FBO Worldspan Employees Pension Plan, P.O. Box
1533, Minneapolis, MN 55480 owned 660,298 shares of Brandywine Blue Fund's
common stock, or 5.56% of the then outstanding shares;. All of the shares owned
by Charles Schwab & Co., Inc. were owned of record only.
Other than the foregoing, the Fund is not aware of any person who, as
of July 31, 2000, owned of record or beneficially 5% or more of the shares of
Brandywine Blue Fund. (The Brandywine Advisors Fund will commence operations on
or after October 31, 2000.)
INVESTMENT ADVISER
The investment adviser to the Fund is Friess Associates, Inc. (the
"Adviser"). The Adviser is controlled by Foster and Lynnette Friess, who are its
sole directors and stockholders. Pursuant to an investment advisory agreement
between the Fund and the Adviser (the "Advisory Agreement") the Adviser
furnishes continuous investment advisory services and management to the Fund.
The Adviser supervises and manages the investment portfolio of the Fund and,
subject to such policies as the Board of Directors of the Company may determine,
directs the purchase or sale of investment securities in the day-to-day
management of the Fund's investment portfolio. Under the Advisory Agreement, the
Adviser at its own expense and without reimbursement from the Fund, furnishes
office space and all necessary office facilities, equipment and executive
personnel for managing the investments of the Fund and pays salaries and fees of
all officers and directors of the Company (except the fees paid to directors who
are not interested persons of the Adviser).
The Fund has not paid any investment advisory fees to the Adviser
pursuant to the Advisory Agreement as the Fund will commence operations on or
after October 31, 2000.
8
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The Fund pays all of its expenses not assumed by the Adviser
including, but not limited to, the costs of preparing and printing its
registration statement required under the Securities Act of 1933 and the Act and
any amendments thereto, the expense of registering its shares with the
Securities and Exchange Commission and in the various states, the printing and
distribution cost of prospectuses mailed to existing stockholders, the cost of
stock certificates, director and officer liability insurance, reports to
stockholders, reports to government authorities and proxy statements, interest
charges, brokerage commissions, and expenses incurred in connection with
portfolio transactions. Such expenses may include administrative services
performed by the Adviser for which the Adviser will be reimbursed by the Fund.
The Fund also pays the fees of directors who are not interested
persons of the Adviser, salaries of administrative and clerical personnel,
association membership dues, auditing and accounting services, fees and expenses
of any custodian or trustees having custody of assets of the Fund, expenses of
calculating the Fund's net asset value and repurchasing and redeeming shares,
and charges and expenses of dividend disbursing agents, registrars, and stock
transfer agents, including the cost of keeping all necessary stockholder records
and accounts and handling any problems related thereto.
The Adviser has undertaken to reimburse the Fund to the extent that
the aggregate annual operating expenses, including the investment advisory fee
but excluding interest, taxes, brokerage commissions and extraordinary items,
exceed that percentage of the average net assets of the Fund for such year, as
determined by valuations made as of the close of each business day of the year,
which is the most restrictive percentage provided by the state laws of the
various states in which the Fund's shares are qualified for sale, or if the
states in which the Fund's shares are qualified for sale impose no such
restrictions, 1.95%. As of the date hereof, no such state law provision was
applicable to the Fund. The Fund monitors its expense ratio at least on a
monthly basis. If the accrued amount of the expenses of the Fund exceeds the
applicable expense limitation, the Fund creates an account receivable from the
Adviser for the amount of such excess. In such a situation the monthly payment
of the Adviser's fee will be reduced by the amount of such excess, subject to
adjustment month by month during the balance of the Fund's fiscal year if
accrued expenses thereafter fall below this limit. No reimbursement has been
required of the Adviser as the Fund will commence operations on or after October
31, 2000.
The Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually, by (i) the Board of
Directors of the Company, or by the vote of a majority (as defined in the Act)
of the outstanding shares of the Fund, and (ii) by the vote of a majority of the
directors of the Company who are not parties to the Advisory Agreement or
interested persons of the Adviser, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement provides that it may
be terminated at any time without the payment of any penalty, by the Board of
Directors of the Company or by vote of a majority of the applicable Fund's
stockholders, on sixty days written notice to the Adviser, and by the Adviser on
the same notice to the Fund and that it shall be automatically terminated if it
is assigned.
9
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The Advisory Agreement provides that the Adviser shall not be liable
to the Fund or its stockholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations or duties. The
Advisory Agreement also provides that the Adviser and its officers, directors
and employees may engage in other businesses, devote time and attention to any
other business whether of a similar or dissimilar nature, and render investment
advisory services to others.
SERVICE AGREEMENT
The Fund has entered into a Service Agreement with Fiduciary
Management, Inc., 225 East Mason Street, Milwaukee, Wisconsin 53202. Pursuant to
the Service Agreement, Fiduciary Management, Inc. serves as the Fund's
administrator and in this capacity is responsible for (a) calculating daily the
Fund's net asset value, (b) recordkeeping and (c) preparing financial
statements, excise tax returns and reports required by the Securities and
Exchange Commission. For these services the Fund pays Fiduciary Management, Inc.
a negotiated annual fee and varying fees for blue sky filing services. For the
fiscal year ending September 30, 2001 the negotiated fee initially will be
20,000, but may be subject to renegotiation depending on the amount of net
assets of the Fund.
The Service Agreement may be terminated at any time by either the Fund
or Fiduciary Management, Inc. upon 90 days written notice. The Service Agreement
provides that Fiduciary Management, Inc. shall not be liable to the Fund, the
Adviser or any stockholders of the Fund for anything other than willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties. Fiduciary Management, Inc. performs similar services for
other investment companies.
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
The net asset value of the Fund will be determined as of the close of
trading on each day the New York Stock Exchange is open for trading. The New
York Stock Exchange is open for trading Monday through Friday except New Year's
Day, Dr. Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Additionally, if any of the aforementioned holidays falls on a Saturday, the New
York Stock Exchange will not be open for trading on the preceding Friday and
when any such holiday falls on a Sunday, the New York Stock Exchange will not be
open for trading on the succeeding Monday, unless unusual business conditions
exist, such as the ending of a monthly or the yearly accounting period. The New
York Stock Exchange also may be closed on national days of mourning.
The net asset value (or "price") per share of the Fund is determined
by dividing the total value of the Fund's investments and other assets less any
liabilities, by the number of its outstanding shares. In calculating the Fund's
net asset value, securities traded on any national stock exchange or quoted on
the NASDAQ National Market System are valued on the basis of the last sale price
on the date of valuation or, in the absence of any sale on that date, the most
recent bid price. Other securities are valued at the most recent bid price, if
market quotations are readily available. Debt securities (other than short term
instruments) are valued
10
<PAGE>
at the latest bid prices furnished by independent pricing services. Any
securities for which there are no readily available market quotations and other
assets are valued at their fair value as determined in good faith by the Board
of Directors. Securities with maturities of 60 days or less are valued at
amortized cost.
From time to time the Fund may provide performance information in
advertisements, sales literature or information to stockholders. Fund
performance may be quoted numerically or may be represented in a table, graph or
other illustration by presenting one or more performance measurements, including
total return and average annual compounded rate of return. The Fund's average
annual compounded rate of return is the rate of return which, if applied to an
initial investment in the Fund at the beginning of a stated period and
compounded annually over the period, would result in the redeemable value of the
investment in the Fund at the end of the stated period. The performance
information quoted by the Fund ignores individual income tax consequences to
stockholders.
Any total rate of return quotation for the Fund will be for a period
of three or more months and will assume the reinvestment of all dividends and
capital gains distributions which were made by the Fund during that period. Any
period total rate of return quotation of the Fund will be calculated by dividing
the net change in value of a hypothetical stockholder account established by an
initial payment of $1,000 at the beginning of the period by 1,000. The net
change in the value of a stockholder account is determined by subtracting $1,000
from the product obtained by multiplying the net asset value per share at the
end of the period by the sum obtained by adding (A) the number of shares
purchased at the beginning of the period plus (B) the number of shares purchased
during the period with reinvested dividends and distributions. Any average
annual compounded rate of return quotation of the Fund will be calculated by
dividing the redeemable value at the end of the period (i.e., the product
referred to in the preceding sentence) by $1,000. A root equal to the period,
measured in years, in question is then determined and 1 is subtracted from such
root to determine the average annual compounded total rate of return.
The foregoing computation may also be expressed by the following
formula:
P(1+T)n = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the stated periods
at the end of the stated periods.
The Fund will commence operations on or after October 31, 2000 and
therefore has no performance information to provide investors.
11
<PAGE>
Any reported performance results will be historical and should not be
considered indicative of the future performance of the Fund. An investment in
the Fund will fluctuate in value, and at redemption its value may be more or
less than the initial investment.
The Fund may compare its performance to other mutual funds with
similar investment objectives and to the industry as a whole, as quoted by
ranking services and publications of general interest. For example, this may
include Morningstar, Inc. and Lipper Analytical Services, Inc. (independent fund
ranking services) and magazines, such as Money, Forbes and Business Week. In
addition, the Fund may compare its performance to that of other selected mutual
funds or recognized market indicators, including the Standard & Poor's 500 Stock
Index, S&P MidCap 400 Index, Russell 2000 Index, Nasdaq Industrials Index and
the Dow Jones Industrial Average. Such performance rankings or comparisons may
be made with mutual funds that may have different investment restrictions,
objectives, policies or techniques than the Fund, and such other funds or market
indicators may be comprised of securities that differ from those the Fund holds
or may purchase.
DISTRIBUTION OF SHARES
The Fund has adopted a Service and Distribution Plan (the "Plan") in
anticipation that the Fund will benefit from the Plan through increased sales of
shares, thereby reducing the Fund's expense ratio and providing the Adviser with
greater flexibility in management. 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 daily net assets. Payments made pursuant to the Plan may only
be used to pay distribution expenses incurred in the current year. Amounts paid
under the Plan by the Fund may be spent by the Fund on any activities or
expenses primarily intended to result in the sale of shares of the Fund,
including but not limited to, advertising, compensation for sales and sales
marketing activities of financial institutions and others, such as dealers or
distributors, shareholder account servicing, the printing and mailing of
prospectuses to other than current stockholders, and the printing and mailing of
sales literature. Distribution expenses may be authorized by the officers of the
Company or the Fund's distributor. The Fund's distributor is Quasar
Distributors, LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202. To the
extent any activity financed by the Plan is one which the Fund may finance
without a 12b-1 plan, the Fund may also make payments to finance such activity
outside of the Plan and not be subject to its limitations.
The Plan may be terminated by the Fund at any time by a vote of the
directors of the Company who are not interested persons of the Company and who
have no direct or indirect financial interest in the Plan or any agreement
related thereto (the "Rule 12b-1 Directors") or by a vote of a majority of the
outstanding shares of the Fund. Messrs. Burris, Ramel and Schoenhals are
currently the Rule 12b-1 Directors. Any change in the Plan that would materially
increase the distribution expenses of the Fund provided for in the Plan requires
approval of the stockholders of the Fund and the Board of Directors, including
the Rule 12b-1 Directors.
While the Plan is in effect, the selection and nomination of directors
who are not interested persons of the Company will be committed to the
discretion of the directors of
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the Company who are not interested persons of the Company. The Board of
Directors of the Company must review the amount and purposes of expenditures
pursuant to the Plan quarterly as reported to it by a distributor, if any, or
officers of the Company. The Plan will continue in effect for as long as its
continuance is specifically approved at least annually by the Board of
Directors, including the Rule 12b-1 Directors. No distribution expenses have
been incurred by the Fund under the Plan as the Fund will commence operations on
or after October 31, 2000.
PURCHASE OF SHARES
The Fund has adopted procedures pursuant to Rule 17a-7 under the Act
pursuant to which the Fund may effect a purchase and sale transaction with an
affiliated person of the Fund (or an affiliated person of such an affiliated
person) in which the Fund issues its shares in exchange for securities of a
character which is a permitted investment for the Fund. For purposes of
determining the number of shares of the Fund to be issued, the securities to be
exchanged will be valued in accordance with the requirements of Rule 17a-7. No
such transactions will be made with respect to any person in which an affiliated
person of the Fund has a beneficial interest.
REDEMPTION OF SHARES
A stockholder's right to redeem shares of the Fund will be suspended
and the stockholder's right to payment postponed for more than seven days for
any period during which the New York Stock Exchange is closed because of
financial conditions or any other extraordinary reason and may be suspended for
any period during which (a) trading on the New York Stock Exchange is restricted
pursuant to rules and regulations of the Securities and Exchange Commission, (b)
the Securities and Exchange Commission has by order permitted such suspension or
(c) such emergency, as defined by rules and regulations of the Securities and
Exchange Commission, exists as a result of which it is not reasonably
practicable for the Fund to dispose of its securities or to determine fairly the
value of its net assets.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Fund are made by the
Adviser subject to review by the Company's Board of Directors. In placing
purchase and sale orders for portfolio securities for the Fund, it is the policy
of the Adviser to seek the best execution of orders at the most favorable price
in light of the overall quality of brokerage and research services provided, as
described in this and the following paragraph. In selecting brokers to effect
portfolio transactions, the determination of what is expected to result in best
execution at the most favorable price involves a number of largely judgmental
considerations. Among these are the Adviser's evaluation of the broker's
efficiency in executing and clearing transactions, block trading capability
(including the broker's willingness to position securities) and the broker's
financial strength and stability. The most favorable price to the Fund means the
best net price without regard to the mix between purchase or sale price and
commission, if any. Over-the-counter securities are generally purchased and sold
directly with principal market makers who retain the difference in their cost in
the security and its selling price (i.e.
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"markups" when the market maker sells a security and "markdowns" when the market
maker buys a security). In some instances, the Adviser feels that better prices
are available from non-principal market makers who are paid commissions
directly. While some brokers with whom the Fund effects portfolio transactions
may recommend the purchase of the Fund's shares, the Adviser will not allocate
portfolio brokerage on the basis of recommendations to purchase shares of the
Fund.
In allocating brokerage business for the Fund, the Adviser also takes
into consideration the research, analytical, statistical and other information
and services provided by the broker, such as general economic reports and
information, reports or analyses of particular companies or industry groups,
market timing and technical information, and the availability of the brokerage
firm's analysts for consultation. While the Adviser believes these services have
substantial value, they are considered supplemental to the Adviser's own efforts
in the performance of its duties under the Advisory Agreement. Other clients of
the Adviser may indirectly benefit from the availability of these services to
the Adviser, and the Fund may indirectly benefit from services available to the
Adviser as a result of transactions for other clients. The Advisory Agreement
provides that the Adviser may cause a Fund to pay a broker which provides
brokerage and research services to the Adviser a commission for effecting a
securities transaction in excess of the amount another broker would have charged
for effecting the transaction, if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of brokerage and
research services provided by the executing broker viewed in terms of either the
particular transaction or the Adviser's overall responsibilities with respect to
the Fund and the other accounts as to which it exercises investment discretion.
The Fund has not paid any brokerage commissions as it will commence
operations on or after October 31, 2000.
CUSTODIAN
Firstar Bank, N.A., 615 East Michigan Street, Milwaukee, Wisconsin
53202, acts as custodian for the Fund. As such, Firstar Bank, N.A. holds all
securities and cash of the Fund, delivers and receives payment for securities
sold, receives and pays for securities purchased, collects income from
investments and performs other duties, all as directed by officers of the
Company. Firstar Bank, N.A. does not exercise any supervisory function over the
management of the Fund, the purchase and sale of securities or the payment of
distributions to stockholders. Firstar Mutual Fund Services, LLC, an affiliate
of Firstar Bank, N.A., acts as the Fund's transfer agent and dividend disbursing
agent.
TAXES
The Fund intends to qualify annually for and elect tax treatment
applicable to a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. If the Fund fails to qualify as a regulated
investment company under Subchapter M in any fiscal year, it will be treated as
a corporation for federal income tax purposes. As such, the Fund would be
required to pay income taxes on its net investment income and net realized
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capital gains, if any, at the rates generally applicable to corporations. In
such event stockholders of the Fund would not be liable for income tax on the
Fund's net investment income or net realized capital gains in their individual
capacities. Distributions to stockholders, whether from the Fund's net
investment income or net realized capital gains, would be treated as taxable
dividends to the extent of accumulated earnings and profits of the Fund.
The Fund intends to distribute substantially all of its net investment
income and net capital gains each fiscal year. Dividends from the Fund's net
investment income, including short-term capital gains, are taxable to
stockholders as ordinary income, while distributions from the Fund's net
realized long-term capital gains are taxable as long-term capital gains
regardless of the stockholder's holding period for the shares. Distributions
from the Fund are taxable to stockholders, whether received in cash or in
additional Fund shares. A portion of the income distributions of the Fund may be
eligible for the 70% dividends-received deduction for domestic corporate
stockholders.
Any dividend or capital gains distribution paid shortly after a
purchase of Fund shares will have the effect of reducing the per share net asset
value of such shares by the amount of the dividend or distribution. Furthermore,
if the net asset value of the Fund shares immediately after a dividend or
distribution is less than the cost of such shares to the stockholder, the
dividend or distribution will be taxable to the stockholder even though it
results in a return of capital to him.
Redemptions of shares will generally result in a capital gain or loss
for income tax purposes. Such capital gain or loss will be long term or short
term, depending upon the holding period. However, if a loss is realized on
shares held for six months or less, and the stockholder received a capital gain
distribution during that period, then such loss is treated as a long-term
capital loss to the extent of the capital gain distribution received.
The Fund may be required to withhold Federal income tax at a rate of
31% ("backup withholding") from dividend payments and redemption proceeds if a
stockholder fails to furnish the Fund with his social security or other tax
identification number and certify under penalty of perjury that such number is
correct and that he is not subject to backup withholding due to the
underreporting of income. The certification form is included as part of the
share purchase application and should be completed when the account is opened.
This section is not intended to be a complete discussion of present or
proposed federal income tax laws and the effects of such laws on an investor.
Investors are urged to consult their own tax advisers for a complete review of
the tax ramifications of an investment in the Fund.
STOCKHOLDER MEETINGS
The Maryland General Corporation Law permits registered investment
companies, such as the Company, to operate without an annual meeting of
stockholders under specified circumstances if an annual meeting is not required
by the Act. The Company has adopted the appropriate provisions in its Bylaws and
may, at its discretion, not hold an annual
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meeting in any year in which the election of directors is not required to be
acted on by stockholders under the Act.
The Company's Bylaws also contain procedures for the removal of
directors by its stockholders. At any meeting of stockholders, duly called and
at which a quorum is present, the stockholders may, by the affirmative vote of
the holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors to
fill any resulting vacancies for the unexpired terms of removed directors.
Upon the written request of the holders of shares entitled to not less
than ten percent (10%) of all the votes entitled to be cast at such meeting, the
Secretary of the Company shall promptly call a special meeting of stockholders
for the purpose of voting upon the question of removal of any director. Whenever
ten or more stockholders of record who have been such for at least six months
preceding the date of application, and who hold in the aggregate either shares
having a net asset value of at least $25,000 or at least one percent (1%) of the
total outstanding shares, whichever is less, shall apply to the Company's
Secretary in writing, stating that they wish to communicate with other
stockholders with a view to obtaining signatures to a request for a meeting as
described above and accompanied by a form of communication and request which
they wish to transmit, the Secretary shall within five business days after such
application either: (1) afford to such applicants access to a list of the names
and addresses of all stockholders as recorded on the books of such Company; or
(2) inform such applicants as to the approximate number of stockholders of
record and the approximate cost of mailing to them the proposed communication
and form of request.
If the Secretary elects to follow the course specified in clause (2)
of the last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be mailed
and of the reasonable expenses of mailing, shall, with reasonable promptness,
mail such material to all stockholders of record at their addresses as recorded
on the books unless within five business days after such tender the Secretary
shall mail to such applicants and file with the Securities and Exchange
Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Board of Directors to the effect
that in their opinion either such material contains untrue statements of fact or
omits to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the Securities and Exchange Commission may, and if
demanded by the Board of Directors or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the Securities and Exchange Commission shall enter an order refusing to
sustain any of such objections, or if, after the entry of an order sustaining
one or more of such objections, the Securities and Exchange Commission shall
find, after notice and opportunity for hearing, that all objections so sustained
have been met, and shall enter an order so declaring, the Secretary shall mail
copies
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of such material to all stockholders with reasonable promptness after the entry
of such order and the renewal of such tender.
CAPITAL STRUCTURE
Brandywine Blue Fund, Inc. has authorized capital of 200,000,000
shares of common stock, of which 100,000,000 shares have been allocated to
Brandywine Blue Fund and 100,000,000 shares have been allocated to Brandywine
Advisors Fund. Each outstanding share entitles the holder to one vote. Generally
shares are voted in the aggregate and not by each Fund, except where class
voting by each Fund is required by Maryland law or the Act (e.g. change in
investment policy or approval of an investment advisory agreement).
The shares of each of Brandywine Advisors Fund and Brandywine Blue
Fund have the same preferences, limitations and rights, except that all
consideration received from the sale of shares of each Fund, together with all
income, earnings, profits and proceeds thereof, belong to that Fund and are
charged with the liabilities in respect to that Fund and of that Fund's share of
the general liabilities of the Company in the proportion that the total net
assets of the Fund bears to the total net assets of both Funds. The net asset
value per share of each Fund is based on the assets belonging to that Fund less
the liabilities charged to that Fund, and dividends are paid on each Fund only
out of lawfully available assets belonging to that Fund. In the event of
liquidation or dissolution of the Company, the stockholders of each Fund will be
entitled, out of the assets of the Company available for distribution, to the
assets belonging to such Fund.
There are no conversion or sinking fund provisions applicable to the
shares of either Fund. Shares of each Fund have no preemptive, conversion,
subscription or cumulative voting rights. Consequently, the holders of more than
50% of the Company's shares voting for the election of directors can elect the
entire Board of Directors, and in such event, the holders of the remaining
shares voting will not be able to elect any person to the Board of Directors.
The shares of each Fund are redeemable and transferable. All shares
issued and sold by the Funds will be fully paid and nonassessable. Fractional
shares have the same rights proportionately as full shares.
The Company will not issue certificates evidencing shares of
Brandywine Advisors Fund. Each stockholder's account will be credited with the
number of shares purchased, relieving such stockholders of responsibility for
safekeeping of certificates and the need to deliver them upon redemption.
Written confirmations are issued for all purchases of shares of Brandywine
Advisors Fund.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202, currently serves as the independent accountants for
the Fund.
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DESCRIPTION OF SECURITIES RATINGS
The Fund may invest in publicly distributed debt securities assigned
one of the three highest ratings of either Standard & Poor's Corporation
("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's"). A brief
description of the ratings symbols and their meanings follows.
Standard & Poor's Debt Ratings. A Standard & Poor's corporate debt
rating is a current assessment of the creditworthiness of an obligor with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform any audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of the obligation
in the event of bankruptcy, reorganization or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights;
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in the higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
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Moody's Bond Ratings.
--------------------
Aaa - Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large, or by an
exceptionally stable, margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations; (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers 1, 2 and 3 in each of the
foregoing generic rating classifications. The modifier 1 indicates that the
company ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the company
ranks in the lower end of its generic rating category.
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