STATEMENT OF ADDITIONAL INFORMATION January 31, 2000
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BRANDYWINE FUNDS
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectus of the Brandywine Funds dated
January 31, 2000. Requests for copies of the prospectus should be made in
writing to the Brandywine Funds, P.O. Box 4166, Greenville, Delaware, 19807,
Email: [email protected] or Website: www.brandywinefunds.com, or by calling
(800) 656-3017.
The following financial statements are incorporated by reference
to the Annual Report, dated September 30, 1999, of Brandywine Fund, Inc. (File
No. 811-04447) and Brandywine Blue Fund, Inc. (File No. 811-6221), as filed with
the Securities and Exchange Commission on October 18, 1999:
Brandywine Fund, Inc.
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Brandywine Blue Fund, Inc.
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements (combined)
Report of Independent Accountants (combined)
Stockholders may obtain a copy of the Annual Report, without
charge, by calling (800) 656-3017.
BRANDYWINE FUND, INC.
BRANDYWINE BLUE FUND, INC.
3908 Kennett Pike
Greenville, Delaware 19807
<PAGE>
BRANDYWINE FUNDS
Table of Contents
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Page No.
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GENERAL INFORMATION AND HISTORY...............................................1
INVESTMENT RESTRICTIONS.......................................................1
INVESTMENT CONSIDERATIONS.....................................................3
DIRECTORS AND OFFICERS OF THE COMPANIES.......................................4
PRINCIPAL STOCKHOLDERS........................................................9
INVESTMENT ADVISER...........................................................10
SERVICE AGREEMENTS...........................................................12
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE.............................12
PURCHASE OF SHARES...........................................................15
REDEMPTION OF SHARES.........................................................16
SYSTEMATIC WITHDRAWAL PLAN...................................................16
ALLOCATION OF PORTFOLIO BROKERAGE............................................17
CUSTODIAN....................................................................18
TAXES........................................................................18
STOCKHOLDER MEETINGS.........................................................19
CAPITAL STRUCTURE............................................................20
INDEPENDENT ACCOUNTANTS......................................................21
DESCRIPTION OF SECURITIES RATINGS............................................21
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 January 31, 2000 and, if given or made,
such information or representations may not be relied upon as having been
authorized by the Brandywine Funds.
This Statement of Additional Information does not constitute an
offer to sell securities.
<PAGE>
GENERAL INFORMATION AND HISTORY
Brandywine Fund, Inc. and Brandywine Blue Fund, Inc.
(collectively the "Companies") are open-end, diversified management companies
registered under the Investment Company Act of 1940 (the "Act"). The Companies
are Maryland corporations. Brandywine Fund, Inc. was incorporated on October 9,
1985 and Brandywine Blue Fund, Inc. was incorporated on November 13, 1990.
(Brandywine Fund, Inc. and Brandywine Blue Fund, Inc. are sometimes hereinafter
individually referred to as a "Fund" and collectively as the "Funds").
INVESTMENT RESTRICTIONS
Each of the Funds 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 that 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 that Fund.
1. Neither Fund will purchase securities on margin, participate
in a joint-trading account, sell securities short, or write or invest in put or
call options.
2. Brandywine Blue Fund will not purchase warrants. Brandywine
Fund's investments in warrants, valued at the lower of cost or market, will not
exceed 5% of the value of the Fund's net assets and of such 5% not more than 2%
of the Fund's net assets at the time of purchase may be invested in warrants
that are not listed on the New York or American Stock Exchanges.
3. Neither Fund will borrow money or issue senior securities,
except for temporary bank borrowings for emergency or extraordinary purposes
(but not for the purpose of purchase of investments) and then only in an amount
not in excess of 5% of the value of its net assets, and neither Fund will pledge
any of its assets except to secure borrowings and then only to an extent not
greater than 10% of the value of such Fund's net assets. Neither Fund will
purchase securities while it has any outstanding borrowings.
4. Neither Fund will lend money (except by purchasing publicly
distributed debt securities or entering into repurchase agreements provided that
repurchase agreements maturing in more than seven days plus all other illiquid
securities do not exceed 10% of such Fund's total assets) and neither Fund will
lend its portfolio securities.
5. Neither Fund will purchase securities of other investment
companies except (a) as part of a plan of merger, consolidation or
reorganization approved by the stockholders of such 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 such 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 such Fund's assets, taken at
current value, would be invested in securities of registered closed-end
investment companies.
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6. Neither Fund will make investments for the purpose of
exercising control or management of any company.
7. Each 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 such Fund and to not
more than 10% of the outstanding voting securities of such issuer.)
8. Neither Fund will 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.
9. Neither Fund will acquire or retain any security issued by a
company, an officer or director of which is an officer or director of the
Companies or an officer, director or other affiliated person of the Funds'
investment adviser.
10. Neither Fund will acquire or retain any security issued by a
company if any of the directors or officers of the Companies, or directors,
officers or other affiliated persons of the Funds' investment adviser
beneficially own more than 1/2% of such company's securities and all of the
above persons owning more than 1/2% own together more than 5% of its securities.
11. Neither Fund will act as an underwriter or distributor of
securities other than of its shares and neither Fund will purchase any
securities which are restricted from sale to the public without registration
under the Securities Act of 1933, as amended.
12. Neither Fund will purchase any interest in any oil, gas or
any other mineral exploration or development program.
13. Neither Fund will 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.)
14. Neither Fund will purchase or sell commodities or commodities
contracts, including futures contracts.
The following investment limitation is not fundamental and may be
changed without stockholder approval.
1. Neither Fund will invest in securities of unseasoned issuers,
including their predecessors, which have been in operation for less than 3
years, or equity securities of
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issuers which are not readily marketable, if by reason thereof the value of its
aggregate investment in such securities would exceed 5% of its total assets.
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
Each of the Funds invests mainly in common stocks of U.S.
companies. However when the Funds' investment adviser believes that securities
other than common stocks offer opportunity for long-term capital appreciation,
each Fund may invest up to 30% of its net assets in publicly distributed debt
securities, preferred stocks, particularly those which are convertible into or
carry rights to acquire common stocks, and warrants (Brandywine Fund only).
(Neither Fund currently intends to invest 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.
Each 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, a 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 Funds 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 a 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 a Fund's income
without providing a tax credit for the Fund's stockholders. Although the Funds
intend to invest in securities of foreign issuers domiciled in nations which the
Funds' 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 Funds invest include
conservative fixed-income securities, such as United States Treasury Bills,
certificates of deposit of U.S.
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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 Funds' investment adviser will monitor the creditworthiness of the issuers
of the commercial paper master notes while any borrowings are outstanding.
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 Funds will not enter into repurchase agreements with entities
other than banks or invest over 5% 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 COMPANIES
As Maryland corporations, the business and affairs of each
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 Fund, Inc. and Brandywine Blue Fund, Inc. The name, address,
principal occupations during the past five years and other information with
respect to each of the directors and officers of the Companies 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 EACH COMPANY)
Mr. Friess, age 59, has served as President, Treasurer and a
director of both 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
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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.
STIG RAMEL
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Resedavagen 8
171732 Solna
Sweden
(DIRECTOR)
Mr. Ramel, age 72, 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
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5th and McColley Street
Milford, Delaware
(DIRECTOR)
Mr. Burris, age 79, 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
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9th and Market Streets
Wilmington, Delaware
(DIRECTOR)
Mr. Schoenhals, age 52, 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
<PAGE>
LYNDA J. CAMPBELL
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3908 Kennett Pike
Greenville, Delaware
(VICE PRESIDENT AND SECRETARY)
Ms. Campbell, age 54, has served as Vice President of the
Companies 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
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3908 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 Companies since
April, 1990.
JOHN D. FRASER
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3908 Kennett Pike
Greenville, Delaware
(VICE PRESIDENT)
Mr. Fraser, age 40, has been an analyst for Friess Associates,
Inc. since 1996. From 1985 to 1996, he also served as a Vice President of Credit
Suisse First Boston. Since May, 1998, he has served as a Vice President of the
Companies.
CARL S. GATES
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3908 Kennett Pike
Greenville, Delaware
(VICE PRESIDENT)
Mr. Gates, age 67, has been an analyst for Friess Associates,
Inc. since 1988. He has served as a Vice President of the Companies since April,
1994.
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ANDREW T. GRAVES
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3908 Kennett Pike
Greenville, Delaware
(VICE PRESIDENT)
Mr. Graves, age 33, has been an analyst for Friess Associates,
Inc. since 1991. He has served as a Vice President of the Companies since May,
1998.
DAVID T. HARRINGTON
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3908 Kennett Pike
Greenville, Delaware
(VICE PRESIDENT)
Mr. Harrington, age 37, has been an analyst for Friess
Associates, Inc. since 1991. He has served as a Vice President of the Companies
since May, 1998.
JOHN P. RAGARD
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3908 Kennett Pike
Greenville, Delaware
(VICE PRESIDENT)
Mr. Ragard, age 45, has been an analyst for Friess Associates,
Inc. since 1993. He has served as a Vice President of the Companies since May,
1998.
PAUL R. ROBINSON
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3908 Kennett Pike
Greenville, Delaware
(VICE PRESIDENT AND ASSISTANT SECRETARY)
Mr. Robinson, age 76, has been a consultant for Friess
Associates, Inc. since June, 1985. He has served as a Vice President of the
Funds since 1990.
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* Mr. Friess is the only director who is an "interested person" of the
Companies as that term is defined in the Act.
7
<PAGE>
During the fiscal year ended September 30, 1999, the Brandywine
Fund paid $43,132 in director's fees to the Companies' disinterested directors
and Brandywine Blue Fund paid $8,813 in director's fees to the Companies'
disinterested directors. For the fiscal year ending September 30, 2000,
Brandywine Fund's standard method of compensating directors is to pay each
disinterested director an annual fee of $20,000. For the fiscal year ending
September 30, 2000, Brandywine Blue Fund's standard method of compensating
directors is to pay each disinterested director an annual fee of $5,000.
Directors may elect to defer the receipt of some or all of the compensation they
earn as directors. The Companies also may reimburse directors for travel
expenses incurred in order to attend meetings of the Board of Directors.
The table below sets forth the compensation paid by the
Brandywine Fund and Brandywine Blue Fund to each of the directors of the
Companies during the fiscal year ended September 30, 1999:
<TABLE>
COMPENSATION TABLE
Brandywine Fund
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits Estimated from Fund and
Compensation Accrued Annual Fund Complex(2)
Name of Person From Fund(1) As Part of Fund Benefits Upon Paid to Directors
-------------- ------------ Expenses Retirement -----------------
-------- ----------
<S> <C> <C> <C> <C>
Foster S. Friess $0 $0 $0 $0
Stig Ramel(3) $15,000 $0 $0 $18,000
John E. Burris(3) $15,000 $0 $0 $18,000
Marvin N. Schoenhals(3)(4) $13,132 $0 $0 $15,945
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(1) Includes amounts deferred at the election of the director.
(2) Brandywine Fund and Brandywine Blue Fund are the only funds in the Fund Complex.
(3) At September 30, 1999 the total amount of deferred compensation payable to each of Mr. Burris, Mr. Ramel
and Mr. Schoenhals was $10,000.
(4) Mr. Schoenhals became a director on December 8, 1998.
</TABLE>
8
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<TABLE>
COMPENSATION TABLE
Brandywine Blue Fund
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits Estimated from Fund and
Compensation Accrued Annual Fund Complex(2)
Name of Person From Fund(1) As Part of Fund Benefits Upon Paid to Directors
-------------- ------------ Expenses Retirement -----------------
-------- ----------
<S> <C> <C> <C> <C>
Foster S. Friess $0 $0 $0 $0
Stig Ramel(3) $3,000 $0 $0 $18,000
John E. Burris(3) $3,000 $0 $0 $18,000
Marvin N. Schoenhals(3)(4) $2,813 $0 $0 $15,945
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(1) Includes amounts deferred at the election of the director.
(2) Brandywine Fund and Brandywine Blue Fund are the only funds in the Fund Complex.
(3) At September 30, 1999 the total amount of deferred compensation payable to each of Mr. Burris, Mr. Ramel
and Mr. Schoenhals was $2,500.
(4) Mr. Schoenhals became a director on December 8, 1998.
</TABLE>
The Funds 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 a Fund. The code of ethics
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 October 31, 1999, all officers and directors of the Companies
as a group (12 persons) beneficially owned 2,115,233 shares of common stock of
Brandywine Fund, or 1.71% of the then outstanding shares. At such date, Charles
Schwab & Co., Inc., 101 Montgomery Street, San Francisco, California 94111,
owned of record 12,003,141 shares of Brandywine Fund's common stock, or 9.70% of
the then outstanding shares. All of the shares owned by Charles Schwab & Co.,
Inc. were owned of record only.
At October 31, 1999, all officers and directors of the Companies
as a group (12 persons) beneficially owned 1,176,600 shares of common stock of
Brandywine Blue Fund, or 10.77% of the then outstanding shares. At such date,
Foster S. Friess, P.O. Box 4166, Greenville, Delaware 19807, owned 1,106,322
shares of the Brandywine Blue Fund's common stock, or 10.12% of the then
outstanding shares, of which 1,090,508 shares were held as trustee; Norwest Bank
MN Tr., FBO Worldspan Employees Pension Plan, P.O. Box 1533, Minneapolis, MN
55480 owned 745,214 shares of Brandywine Blue Fund's common stock, or 6.82% of
the then outstanding shares; and Charles Schwab & Co., Inc., 101
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Montgomery Street, San Francisco, California 94111, owned of record 629,616
shares of the Brandywine Blue Fund's common stock, or 5.76% 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 Funds were not aware of any person
who, as of October 31, 1999, owned of record or beneficially 5% or more of the
shares of either Fund.
INVESTMENT ADVISER
The investment adviser to each 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 investment advisory
agreements between each Fund and the Adviser (the "Advisory Agreements") the
Adviser furnishes continuous investment advisory services and management to the
Funds.
During each of the last three fiscal years, the Funds paid the
Adviser investment advisory fees as set forth below:
Fund Fiscal Year Ended September 30 Investment Advisory Fees
---- ------------------------------ ------------------------
Brandywine Fund 1999 $44,381,056
1998 $74,538,363
1997 $73,988,269
Brandywine Blue Fund 1999 $ 3,346,646
1998 $ 5,424,730
1997 $ 4,414,637
The Funds pay all of their expenses not assumed by the Adviser
including, but not limited to, the costs of preparing and printing their
registration statements required under the Securities Act of 1933 and the Act
and any amendments thereto, the expense of registering their 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. During the fiscal years ended September 30, 1999, 1998
and 1997, such expenses included administrative services performed by the
Adviser for which the Adviser was reimbursed by the Funds as set forth below:
10
<PAGE>
Fund Fiscal Year Administrative
---- Ended September 30 Reimbursements
------------------ --------------
Brandywine Fund 1999 $6,790
1998 $11,820
1997 $ 5,675
Brandywine Blue Fund 1999 $ 3,045
1998 $ 2,620
1997 $ 1,775
The Funds also pay the fees of directors who are not interested persons of the
Companies, 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 Funds, expenses of
calculating the Funds' net asset values 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 each 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 such 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 Funds' shares are qualified for sale. As of the
date hereof, no such state law provision was applicable to either Fund. Each
Fund monitors its expense ratio at least on a monthly basis. If the accrued
amount of the expenses of a 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 such Fund's fiscal year if accrued expenses thereafter
fall below this limit. Notwithstanding the most restrictive applicable expense
limitation of state securities commissions described above, the Adviser has
voluntarily agreed to reimburse each Fund for any such expenses incurred in
excess of 2% of average net assets. No reimbursement was required during the
fiscal years ended September 30, 1999, 1998 and 1997.
Each 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 applicable Company, or by the vote of a majority (as defined in
the Act) of the outstanding shares of the applicable Fund, and (ii) by the vote
of a majority of the directors of the applicable 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. Each Advisory
Agreement provides that it may be terminated at any time without the payment of
any penalty, by the Board of Directors of the applicable 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
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<PAGE>
same notice to the applicable Fund and that it shall be automatically terminated
if it is assigned.
Each Advisory Agreement provides that the Adviser shall not be
liable to the applicable Fund or its stockholders for anything other than
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties. Each 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 AGREEMENTS
Each Fund has entered into a Service Agreement with Fiduciary
Management, Inc., 225 East Mason Street, Milwaukee, Wisconsin 53202. Pursuant to
the Service Agreements, Fiduciary Management, Inc. serves as the Funds'
administrator and in this capacity is responsible for (a) calculating daily each
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 each Fund pays Fiduciary Management,
Inc. a negotiated annual fee and varying fees for blue sky filing services.
During each of the last three fiscal years, the Funds paid Fiduciary Management,
Inc. fees pursuant to the Service Agreements as set forth below:
Fiscal Year
Fund Ended September 30 Service Fees
---- ------------------ ------------
Brandywine Fund 1999 $439,800
1998 $439,800
1997 $383,800
Brandywine Blue Fund 1999 $108,800
1998 $108,800
1997 $ 91,800
Each Service Agreement may be terminated at any time by either the Fund or
Fiduciary Management, Inc. upon 90 days written notice. Each 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 each 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,
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<PAGE>
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 each Fund is
determined by dividing the total value of that Fund's investments and other
assets less any liabilities, by the number of its outstanding shares. In
calculating each 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 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 Funds 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. A Fund's average
annual compounded rate of return is the rate of return which, if applied to an
initial investment in a 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 Funds ignores individual income tax consequences to stockholders.
Any total rate of return quotation for a 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 a 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 a 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:
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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 average annual compounded rate of return for each Fund for
various periods ended September 30, 1999 is set forth below:
Fund One Year Five Years Ten Years Since Inception
- ---- -------- ---------- --------- ---------------
Brandywine Fund 36.84% 17.14% 16.12% 17.03%*
Brandywine Blue Fund 35.22% 16.94% N/A 18.86%**
- ------------------
* December 30, 1985
** January 10, 1991
The results below show the value of an assumed initial investment
in Brandywine Fund of $25,000 made on December 30, 1985 through December 31,
1999, assuming reinvestment of all dividends and distributions:
December 31 Value of $25,000 Cumulative
----------- Investment % Change
---------- --------
1986 $ 29,098 + 16.4%
1987 29,866 + 19.5
1988 35,142 + 40.6
1989 46,724 + 86.9
1990 46,985 + 87.9
1991 70,091 + 180.4
1992 81,081 + 224.3
1993 99,389 + 297.6
1994 99,406 + 297.6
1995 134,940 + 439.8
1996 168,571 + 574.3
1997 188,837 + 655.3
1998 187,607 + 650.4
1999 287,977 +1051.9
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<PAGE>
The results below show the value of an assumed initial investment
in Brandywine Blue Fund of $100,000 made on January 10, 1991 through December
31, 1999, assuming reinvestment of all dividends and distributions:
December 31 Value of $100,000 Cumulative
----------- Investment % Change
---------- --------
1991 $140,009 +40.0%
1992 158,390 + 58.4
1993 201,473 +101.5
1994 206,135 +106.1
1995 272,775 +172.8
1996 336,144 +236.1
1997 400,854 +300.9
1998 396,919 +296.9
1999 592,858 +492.9
The above performance results are historical and should not be
considered indicative of the future performance of either Fund. An investment in
either Fund will fluctuate in value, and at redemption its value may be more or
less than the initial investment.
The Funds may compare their 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 Funds may compare their 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 Funds, and such other
funds or market indicators may be comprised of securities that differ from those
the Funds hold or may purchase.
PURCHASE OF SHARES
The Funds have adopted procedures pursuant to Rule 17a-7 under
the Act pursuant to which a Fund may effect a purchase and sale transaction with
an affiliated person of that 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 that 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 either Fund has a beneficial interest.
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<PAGE>
REDEMPTION OF SHARES
A stockholder's right to redeem shares of either 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 applicable Fund to dispose of such Fund's
securities or to determine fairly the value of its net assets.
SYSTEMATIC WITHDRAWAL PLAN
A stockholder who owns Brandywine Fund shares worth at least
$25,000 or Brandywine Blue Fund shares worth at least $100,000 at the current
net asset value may, by completing an application which may be obtained from
Firstar Mutual Fund Services, LLC, create a Systematic Withdrawal Plan from
which a fixed sum will be paid to the stockholder at regular intervals. To
establish the Systematic Withdrawal Plan, the stockholder deposits Fund shares
with the applicable Fund and appoints it as agent to effect redemptions of Fund
shares held in the account for the purpose of making withdrawal payments (not
more than monthly) of a fixed amount to the stockholder out of the account. Fund
shares deposited by the stockholder in the account need not be endorsed or
accompanied by a stock power if registered in the same name as the account;
otherwise, a properly executed endorsement or stock power, obtained from any
bank, broker-dealer or the Fund is required. The stockholder's signature should
be guaranteed by a bank, a member firm of a national stock exchange, or other
eligible guarantor institution.
There is no minimum withdrawal payment. These payments will be
made from the proceeds of periodic redemption of shares in the account at net
asset value. Redemptions will be made on or about the day selected by the
stockholder of each month in which a withdrawal payment is to be made.
Establishment of a Systematic Withdrawal Plan constitutes an election by the
stockholder to reinvest in additional Fund shares, at net asset value, all
income dividends and capital gains distributions payable by the Fund on shares
held in such account, and shares so acquired will be added to such account. The
stockholder may deposit additional Fund shares in his account at any time.
Withdrawal payments cannot be considered as yield or income on
the stockholder's investment, since portions of each payment will normally
consist of a return of capital. Depending on the size or the frequency of the
disbursements requested, and the fluctuation in the value of a Fund's portfolio,
redemptions for the purpose of making such disbursements may reduce or even
exhaust the stockholder's account.
The stockholder may vary the amount or frequency of withdrawal
payments, temporarily discontinue them, or change the designated payee or
payee's address, by notifying
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<PAGE>
Firstar Mutual Fund Services, LLC in writing. The stockholder also may vary the
amount or frequency of withdrawal payments or temporarily discontinue them by
notifying Firstar Mutual Fund Services, LLC by telephone at (800) 656-3017 or
(414) 765-4124.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for each Fund are made by
the Adviser subject to review by the Companies' Board of Directors. In placing
purchase and sale orders for portfolio securities for the Funds, 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 a 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. "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 a Fund effects portfolio transactions may recommend
the purchase of either Fund's shares, the Adviser will not allocate portfolio
brokerage on the basis of recommendations to purchase shares of the Funds.
In allocating brokerage business for the Funds, 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
Agreements. Other clients of the Adviser may indirectly benefit from the
availability of these services to the Adviser, and the Funds may indirectly
benefit from services available to the Adviser as a result of transactions for
other clients. The Advisory Agreements provide 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.
During each of the last three fiscal years, the Funds paid
brokerage commissions as follows:
17
<PAGE>
<TABLE>
<CAPTION>
Transactions for which
Fiscal Year Ended Brokerage Commission Brokerage Commissions
Fund September 30 Paid Were Paid
---- ------------ ---- ---------
<S> <C> <C> <C>
Brandywine Fund 1999 $21,991,988 $14,605,199,565
1998 $34,771,229 $22,441,949,770
1997 $26,473,262 $16,308,681,312
Brandywine Blue Fund 1999 $ 1,863,923 $ 1,298,526,102
1998 $ 2,949,957 $ 1,992,497,872
1997 $ 1,907,197 $ 1,180,501,076
</TABLE>
Of the brokerage commissions paid by Brandywine Fund in the fiscal year ended
September 30, 1999 all but $1,124,490 on transactions of $603,072,667 were paid
to brokers who provided research services to the Adviser. Of the brokerage
commissions paid by Brandywine Blue Fund in the fiscal year ended September 30,
1999 all but $140,910 on transactions of $82,099,626 were paid to brokers who
provided research services to the Adviser.
CUSTODIAN
Firstar Bank, N.A., 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as custodian for the Funds. As such, Firstar Bank, N.A.
holds all securities and cash of each 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
Companies. Firstar Bank, N.A. does not exercise any supervisory function over
the management of the Funds, 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 each Fund's transfer agent and dividend
disbursing agent.
TAXES
Each of the Funds 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. Each Fund has so qualified in each of
its fiscal years. If a 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 capital gains, if any, at
the rates generally applicable to corporations. Stockholders of a Fund that did
not qualify as a regulated investment company under Subchapter M 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.
Each Fund intends to distribute substantially all of its net
investment income and net capital gains each fiscal year. Dividends from each
Fund's net investment income, including short-term capital gains, are taxable to
stockholders as ordinary income, while
18
<PAGE>
distributions from each 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 Funds are taxable to stockholders, whether
received in cash or in additional Fund shares. A portion of the income
distributions of the Funds 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 Funds 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 Funds 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 Companies, to operate without an annual
meeting of stockholders under specified circumstances if an annual meeting is
not required by the Act. Each Company has adopted the appropriate provisions in
its Bylaws and may, at its discretion, not hold an annual meeting in any year in
which the election of directors is not required to be acted on by stockholders
under the Act.
Each 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.
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<PAGE>
With respect to each Company, 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 a 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 of such material to all stockholders with
reasonable promptness after the entry of such order and the renewal of such
tender.
CAPITAL STRUCTURE
Brandywine Fund, Inc. has authorized capital of 500,000,000
shares of common stock and Brandywine Blue Fund, Inc. has authorized capital of
100,000,000 shares of common stock. Each share has one vote. All shares of
Brandywine Fund participate equally in dividends and other distributions by such
Fund and in the residual assets of such Fund in the event of liquidation. All
shares of Brandywine Blue Fund participate equally in
20
<PAGE>
dividends and other distributions by such Fund and in the individual assets of
such Fund in the event of liquidation. Shares of each Fund have no preemptive,
conversion, subscription or cumulative voting rights. Consequently, with respect
to each Fund, the holders of more than 50% of the 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.
Pursuant to the Articles of Incorporation of Brandywine Blue
Fund, Inc., the Board of Directors has the power to designate one or more
classes ("series") of shares of common stock and to classify or reclassify any
unissued shares with respect to such series, but, as of the date hereof, has not
done so.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Suite
1500, Milwaukee, Wisconsin 53202, currently serves as the independent
accountants for each Fund.
DESCRIPTION OF SECURITIES RATINGS
The Funds 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;
21
<PAGE>
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.
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.
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.
22
