As filed with the Securities and Exchange Commission on July 30, 1999.
Securities Act File No. 33-57724
Investment Company Act File No. 811-7458
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. __ __
Post-Effective Amendment No. 11 X
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 14 X
Tweedy, Browne Fund Inc.
(Exact name of Registrant as Specified in Charter)
52 Vanderbilt Avenue, New York, NY 10017
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 916-0600
Name and Address of Agent for Service: Copies to:
M. Gervase Rosenberger, Esq. Richard T. Prins, Esq.
Tweedy, Browne Company L.P. Skadden, Arps, Slate, Meagher & Flom
52 Vanderbilt Avenue 919 Third Avenue
New York, NY 10017 New York, NY 10022
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b), or
X on July 30, 1999 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1), or on
_____________ pursuant to paragraph (a)(1) 75 days after
filing pursuant to paragraph (a)(2) on _____________ pursuant
to paragraph (a)(2) of Rule 485
<PAGE>
PROSPECTUS
July 30, 1999
TWEEDY, BROWNE FUND INC.
[Picture of Globe]
TWEEDY, BROWNE GLOBAL VALUE FUND
TWEEDY, BROWNE AMERICAN VALUE FUND
52 Vanderbilt Avenue
New York, NY 10017
1-800-432-4789
Web site: www.tweedy.com
Both the Global Value Fund and American Value Fund seek long-term
capital growth by investing in equity securities.
Tweedy, Browne Company LLC manages both Funds using a value investing
style derived directly from work of the late Benjamin Graham.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
Risk/Return Summary................................................... 1
Investment Objective......................................... 1
Principal Investment Strategies.............................. 1
Principal Risks of Investment................................ 2
Smaller Companies............................................ 2
Foreign Securities........................................... 2
Performance.................................................. 3
Fees and Expenses............................................ 4
The Funds' Investments................................................ 5
Investment Goals and Strategies.............................. 5
Reducing Currency Risk Through Currency Hedging.............. 5
Pursuit of Long-Term Capital Growth.......................... 6
Management of the Funds............................................... 6
Pricing of Fund Shares................................................ 8
Transaction Information............................................... 8
Purchases.................................................... 8
Redemptions and Exchanges.................................... 10
Transaction Policies......................................... 11
Distributions and Taxes............................................... 12
Financial Highlights.................................................. 13
For More Information.................................................. 15
<PAGE>
RISK/RETURN SUMMARY
Investment Objective. Each Fund seeks long-term capital growth.
Principal Investment Strategies. The Global Value Fund invests primarily in
foreign securities but may invest in U.S. securities to a limited extent. The
American Value Fund invests primarily in securities of U.S. companies and may
invest in foreign securities to a limited extent.
The Adviser seeks to construct a widely diversified portfolio of small,
medium and large capitalization stocks from a variety of industries and, in the
case of the Global Value Fund, a variety of countries.
Value investing seeks to uncover stocks whose current market prices are
at significant discounts to the Adviser's estimate of their true or intrinsic
value.
The Funds' investment style derives from the work of the late Benjamin
Graham. Most investments in the Funds' portfolios have one or more of the
following investment characteristics:
low stock price in relation to book value
low price-to-earnings ratio
low price-to-cash-flow ratio
above average dividend yield
low price-to-sales ratio as compared to other companies in the
same industry low corporate leverage low share price purchases
of a company's own stock by the company's officers and
directors company share repurchases
a stock price that has declined significantly from its previous
high price and/or small market capitalization.
Academic research and studies have indicated an historical statistical
correlation between each of these investment characteristics and above average
investment rates of return over long measurement periods. The Funds seek to also
hedge back to the U.S. dollar.
The Global Value Fund invests primarily in undervalued equity securities of
foreign stock markets, but also invests on a more limited basis in U.S. equity
securities when opportunities appear attractive. Investments in the Fund are
focused for the most part in developed countries with only minor exposure to
emerging markets. The Fund is diversified by issue, industry and country, and
maintains investments in a minimum of five countries. Where practicable, the
Global Value Fund seeks to reduce currency risk by hedging its foreign currency
exposure back into the U.S. dollar. The Global Value Fund is designed for
long-term value investors who wish to focus their investment exposure on foreign
stock markets of developed countries. This Fund is not appropriate for investors
seeking primarily income.
The American Value Fund invests at least 80% of its assets in undervalued
equity securities of the U.S. stock market, but also invests on a more limited
basis in foreign equity securities when opportunities appear attractive. The
Fund is diversified by issue and industry, and seeks to reduce currency risk on
its foreign investments by hedging its foreign currency exposure back into the
U.S. dollar. The American Value Fund is designed for long-term value investors
who wish to focus their investment exposure on the U.S. stock market. The Fund
is not appropriate for investors seeking primarily income.
Principal Risks of Investment. The Funds invest primarily in common
stocks. Common stock represents a proportionate interest in the earnings and
value of the issuing company. Therefore, a Fund participates in the success or
failure of any company in which it owns stock. The market value of common stocks
fluctuates significantly, reflecting the past and anticipated business
performance of the issuing company, investor perception and general economic or
financial market movements.
You could lose money on your investment in a Fund or a Fund could
underperform other investments.
Smaller Companies. Both Funds invest to a significant extent in smaller
companies. Smaller companies may be less well established and may have a more
highly leveraged capital structure, less liquidity, a smaller investor base,
greater dependence on a few customers and similar factors that can make their
business and stock market performance susceptible to greater fluctuation. In
general, the Adviser's investment philosophy and selection process favor
companies that do not have capital structures that would be considered to be
"highly leveraged" for a company in the same field.
Foreign Securities. While both Funds may invest in foreign securities, the
Global Value Fund will do so to a far greater extent. Investing in foreign
securities involves additional risks beyond those of investing in U.S. markets.
These risks include:
changes in currency exchange rates, which can lower performance
in U.S. dollar terms
exchange rate controls (which may include an
inability to transfer currency from a given country)
costs incurred in conversions between currencies
less publicly available information
different accounting standards
greater market volatility
delayed settlements
difficulty in enforcing obligations in foreign countries
less securities regulation
unrecoverable withholding and transfer taxes
war
seizure
political and social instability
The Funds' practice of hedging currency risk in foreign securities
tends to make a Fund underperform a similar unhedged portfolio when the dollar
is losing value against the local currencies in which the portfolio's
investments are denominated.
Performance. The following graphs and tables illustrate how the Funds' returns
vary over time and how they compare to relevant market benchmarks. The Adviser
has chosen the Morgan Stanley Capital International ("MSCI") Europe, Australasia
and Far East ("EAFE") Index, on both a hedged and unhedged basis, as the
relevant market benchmark for the Global Value Fund and the Standard & Poor's
500 Stock Index ("S&P 500"), as well as the Standard Poor's 400 Mid-Cap Index
("S&P 400") and the Russell 2000 Index (Russell 2000"), as the relevant market
benchmarks for the American Value Fund. The MSCI EAFE Index is a widely
recognized, unmanaged index of common stocks traded in the leading foreign
markets. The S&P 500 is a widely recognized, unmanaged index of common stocks
traded in the U.S. The S&P 400 is an unmanaged capitalization-weighted index,
which assumes reinvestment of dividends, generally considered representative of
the mid-range sector of the U.S. stock market. Russell 2000 is an unmanaged
capitalization-weighted index, which assumes reinvestment of dividends,
comprised of the smallest 2000 companies in the Russell 3000 Index, generally
considered representative of U.S. small capitalization stocks. The past
performance of a Fund does not necessarily indicate how the Fund will perform in
the future.
Yearly Total Return*
Global Value Fund
1994 1995 1996 1997 1998
4.36% 10.70% 20.23% 22.96% 10.99%
American Value Fund
1994 1995 1996 1997 1998
-0.56% 36.21% 22.45% 38.87% 9.59%
Global Value Fund American Value Fund
*The 1999 year-to-date returns for the Global Value Fund and the American Value
Fund through June 30, 1999 were 23.37% and 10.60%, respectively.
Global Value Fund American Value Fund
Best quarterly return 16.24% (4th quarter 1998) 15.66% (2nd quarter 1997)
Worst quarterly return -17.85% (3rd quarter 1998) -14.61% (3rd quarter 1998)
<PAGE>
Average Annual Total Return*
For periods ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
Since
One Year
Five Year Inception
Global Value Fund (inception 6/15/93) 10.99%
13.65% 15.16%
MSCI EAFE Index (in U.S. Dollars) 20.00%
9.19% 9.30%
MSCI EAFE Index (Hedged) 13.71%
10.26% 11.08%
Since
One Year
Five Year Inception
American Value Fund (inception 12/8/93) 9.59%
20.34% 19.92%
S&P 500 Index 28.60%
24.05% 22.38%
S&P 400 Mid-Cap Index 19.11%
18.84% 18.39%
Russell 2000 Index (2.55)%
11.87% 12.86%
</TABLE>
*For the six month period ended June 30, 1999 (not annualized):
Global Value Fund 23.37%
MSCI EAFE Index (in U.S. Dollars) 3.97%
MSCI EAFE Index (Hedged) 14.43%
American Value Fund 10.60%
S&P 500 Index 12.38%
S&P 400 Mid-Cap Index 6.88%
Russell 2000 Index 9.28%
Fees and Expenses. This table describes the fees and expenses that you may
pay if you buy and hold shares of the Funds.
<TABLE>
<CAPTION>
<S> <C>
<C>
Global Value
American Value Fund
Fund
------------------
- - ----------------------
Shareholder Fees
(fees paid directly from your investment)
Maximum sales charge (load) imposed on None
None
purchases (as a percentage of offering price)
Maximum deferred sales charge (load) (as a None
None
percentage of offering price)
Redemption fee (as a percentage of amount None
None
redeemed)
Annual Fund Operating Expenses (for year ended 3/31/99)
(expenses deducted from Fund assets)
Management fees 1.25%
1.25%*
Distribution (12b-1) and/or service fees None
None
Other expenses 0.16%
0.15%
Total annual fund operating expenses 1.41%
1.40%*
</TABLE>
* The Adviser waived part of its fees related to American Value Fund
during the most recent fiscal year. As a result, the actual management
fee incurred by the American Value Fund was 1.24% and actual total
annual fund operating expenses incurred were 1.39%.
Example. This example is intended to help you compare the cost of investing
in the Funds with the cost of investing in
other mutual funds. The example assumes that:
You invest $10,000 in each Fund for the time periods indicated;
Your investment earns a 5% return each year; and The Funds'
operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
Global Value American Value
Fund Fund
One Year $ 144 $ 142
Three Years $ 446 $ 440
Five Years $ 771 $ 761
Ten Years $1,691 $1,669
THE FUNDS' INVESTMENTS
Investment Goals and Strategies. Each of the Funds pursues the
investment goal of long-term capital growth. This goal may be changed for either
Fund without shareholder approval. In selecting investments for the Funds, the
Adviser employs a value investing style. Value investing seeks to uncover stocks
whose current market prices are at significant discounts to the Adviser's
estimate of their true or intrinsic value. The Adviser purchases stock at
significant discounts to its estimate of this true or intrinsic value. Like a
credit analyst reviewing a loan application, the Adviser wants collateral value
in the form of assets and/or earning power that is substantially greater than
the cost of the investment.
Reducing Currency Risk Through Currency Hedging. Both the Global Value
Fund's and the American Value Fund's share price will tend to reflect the
movements of the different securities markets in which they are invested and, to
the degree not hedged, the foreign currencies in which investments are
denominated. The Funds may also use a variety of currency hedging techniques,
including forward currency contracts, to manage exchange rate risk. The Adviser
believes the use of these instruments will benefit the Funds. Possible losses
from changes in currency exchange rates are primarily a risk of investing
unhedged in foreign stocks. While a stock may perform well on the London Stock
Exchange, if the pound declines against the dollar, gains can disappear or
become losses if the inherent investment in the pound, through ownership of a
British stock, is not hedged back to the U.S. dollar. Currency fluctuations are
often more extreme than stock market fluctuations. In the more than thirty-eight
years in which the Managing Directors of Tweedy, Browne have been investing, the
S&P 500 has declined on an annual basis more than 20% only once, in 1974. By
contrast, both the dollar/pound and the dollar/deutsche mark relationships have
moved more than 20% on numerous occasions. In the last twenty years, there was a
four to five year period, during 1979-1984, when the U.S. dollar value of
British, French, German and Dutch currencies declined by 45% to 58%.
Accordingly, the strength or weakness of the U.S. dollar against these foreign
currencies may account for part of the Funds' investment performance although
both the Global Value Fund and the American Value Fund intend to minimize
currency risk through hedging activities. Although hedging against currency
exchange rate changes reduces the risk of loss from exchange rate movements, it
also reduces the ability of the Funds to gain from favorable exchange rate
movements when the U.S. dollar declines against the currencies in which the
Funds' investments are denominated and in some interest rate environments may
impose out-of-pocket costs on the Funds.
Pursuit of Long-Term Capital Growth. The Managing Directors of Tweedy,
Browne believe that there are substantial opportunities for long-term capital
growth from professionally managed portfolios of securities selected from
foreign and domestic equity markets. Investments in the Global Value Fund will
focus on those developed markets around the world where Tweedy, Browne believes
value is more abundant. Investments in the American Value Fund will focus on
those issues in the U.S. market that Tweedy, Browne believes will provide
greater value. With both Funds, Tweedy, Browne will consider all market
capitalization sizes for investment with the result that a significant portion
of the two portfolios may be invested in smaller (generally under $1 billion)
and medium (up to $5 billion) capitalization companies. Tweedy, Browne believes
smaller and medium capitalization companies can provide enhanced long-term
investment results in part because the possibility of a corporate acquisition at
a premium may be greater than with large, multinational companies.
Under normal circumstances, both Funds will stay fully invested in
stocks, including common stock, preferred stock, securities representing the
right to acquire stock (such as convertible debentures, options and warrants),
and depository receipts for securities. The Funds may also invest in debt
securities although for each Fund income is an incidental consideration.
Although the Global Value Fund will invest primarily in foreign securities, for
temporary defensive purposes, the Fund may invest solely in U.S. securities.
During this period the Fund may not achieve its investment objective.
MANAGEMENT OF THE FUNDS
The Funds' investment adviser is Tweedy, Browne Company LLC, a
successor to Tweedy & Co. founded in 1920. Tweedy, Browne has managed assets
since 1968 and currently manages approximately $7.66 billion in client funds,
including approximately $3.75 billion in accounts that are considered foreign or
global. Tweedy, Browne is located at 52 Vanderbilt Avenue, New York, NY 10017.
Tweedy, Browne has extensive experience in selecting undervalued stocks in U.S.
domestic equity markets, first as a market maker, then as an investor and
investment adviser. Tweedy, Browne began investing outside the United States in
1983 utilizing the same principles of value investing it has applied to U.S.
securities for thirty-eight years.
The Adviser seeks to reduce the risk of permanent capital loss, as
contrasted to temporary stock price fluctuation, through both diversification
and application of its stock selection process, which includes assessing and
weighing quantitative and qualitative information concerning specific companies.
The current Managing Directors and retired principals and their
families, as well as employees of Tweedy, Browne, have more than $405.4 million
in portfolios combined with or similar to client portfolios, including
approximately $45.3 million in the Global Value Fund and $34.7 million in the
American Value Fund.
Tweedy, Browne manages the daily investment and business affairs for
the Funds, subject to oversight by the Board of Directors. For the fiscal year
ended March 31, 1999, Tweedy, Browne received investment advisory fees from the
Global Value Fund of 1.25%, and from the American Value Fund of 1.24%, of
average daily net assets.
Tweedy, Browne's Management Committee, which consists of Christopher
Browne, William Browne and John Spears, manages the day-to-day operations of
Tweedy, Browne and makes all investment management decisions. These individuals
have been working together at Tweedy, Browne for more than twenty years.
The following is a brief biography of each of the Managing Directors of
Tweedy, Browne including positions held by each for the past five years:
Christopher H. Browne has been with the Adviser since 1969 and is a member
of the firm's Management Committee. He is a Managing Director of Tweedy, Browne
Company LLC, and a general partner of TBK Partners, L.P. and Vanderbilt
Partners, L.P., both private investment partnerships. Mr. Browne is on the Board
of Directors of Tweedy, Browne Fund Inc. Mr. Browne is a Trustee of the
University of Pennsylvania and sits on the Executive Committee of its Investment
Board. He is also a Trustee and a member of The Council of The Rockefeller
University. He also serves as a Director of the American Atlantic Corporation.
Mr. Browne holds a B.A. degree from the University of Pennsylvania.
William H. Browne has been with the Adviser since 1978 and is a member of
the firm's Management Committee. He is a Managing Director of Tweedy, Browne
Company LLC, and of TBK Partners, L.P. and Vanderbilt Partners, L.P., both
private investment partnerships. Mr. Browne is an officer of Tweedy, Browne Fund
Inc. He also serves as a Director of Fairchild Aerospace Corp. and Dornier
Luftfahrt GmbH. Additionally, he is a Trustee of Colgate University. Mr. Browne
holds the degrees of B.A. from Colgate University and M.B.A. from Trinity
College in Dublin, Ireland.
John D. Spears joined the Adviser in 1974 and is a member of the firm's
Management Committee. He is a Managing Director of Tweedy, Browne Company LLC,
and a general partner of TBK Partners, L.P. and Vanderbilt Partners, L.P., both
private investment partnerships. Mr. Spears is an officer of Tweedy, Browne Fund
Inc. Previously, he had been in the investment business for five years with
Berger, Kent Associates; Davic Associates; and Hornblower & Weeks-Hemphill Noyes
& Co. Mr. Spears studied at the Babson Institute of Business Administration,
Drexel Institute of Technology and the University of Pennsylvania -- The Wharton
School.
Thomas H. Shrager has been associated with the Adviser since 1989 and is a
Managing Director of Tweedy, Browne Company LLC. Previously he had worked in
mergers and acquisitions at Bear, Stearns, and as a consultant for Arthur D.
Little. He received a B.A. and a Masters in International Affairs from Columbia
University.
Robert Q. Wyckoff, Jr. has been associated with the Adviser since 1991 and
is a Managing Director of Tweedy, Browne Company LLC. Prior to joining the
Investment Adviser, he held positions with Bessemer Trust, C.J. Lawrence, J&W
Seligman, and Stillrock Management. He received a B.A. from Washington & Lee
University, and a J.D. from the University of Florida School of Law.
PRICING OF FUND SHARES
Purchases and redemptions, including exchanges, are made at the net
asset value per share next calculated after the transfer agent is considered to
have received the transaction request. The Funds value their assets based on
market value except that assets that are not readily marketable are valued at
fair value under procedures adopted by the Board of Directors. Each Fund will
usually send redemption proceeds within one business day following the request,
but may take up to seven days. The Funds' Administrator determines net asset
value per share as of the close of regular trading on the New York Stock
Exchange ("NYSE") (normally 4:00 p.m. eastern time) on each day the NYSE is open
for trading. Since many of the securities owned by the Global Value Fund trade
on foreign exchanges that trade on weekends or other days when the Global Value
Fund does not price its shares, the net asset value of that Fund may change on
days when you are unable to purchase or redeem shares.
TRANSACTION INFORMATION
Dislike forms and instruction manuals? Call 1-800-432-4789 and press 2, we'll
make it easier to invest in the Funds.
Purchases
You can purchase shares of either Fund without 12b-1 fees or sales
charges of any kind. If you need assistance or have any questions, please call
shareholder services at 1-800-432-4789, Press 2 between 9:00 a.m. and 5:00 p.m.
eastern time, Monday through Friday.
Opening an Account Minimum Investment: $2,500; IRAs, $500
Make checks payable to the Fund you are purchasing. An account cannot be opened
without a completed and signed application.
By Mail. Send your completed, signed account application and check to:
Tweedy, Browne Fund Inc., P.O. Box 61290, King of Prussia, Pennsylvania
19406-0889.
<PAGE>
By Wire. First, call shareholder services at 1-800-432-4798, Press 2 to get
information you need to establish an account and to submit a completed, signed
application. Then contact your bank to arrange wire transfer to the Funds'
transfer agent. Your bank will need to know:
the name and account number from which you will wire money
the amount you wish to wire
the name(s) of the account holder(s) exactly as appearing on
your application
ABA wire instructions, as follows:
<PAGE>
------------------------------------- ------------------------------
Global Value Fund American Value Fund
Boston Safe Deposit & Trust Co. Boston Safe Deposit & Trust Co.
Boston, MA Boston, MA
Account of Tweedy, Browne Account of Tweedy, Browne
Global Value Fund American Value Fund
Account #138-517 Account #138-517
ABA #011001234 ABA #011001234
-------------------------------------- ------------------------------
--------------------------------------- ------------------------------
For further credit to [name(s) of For further credit to [name(s)
the account holder(s) and account of the account holder(s) and
number given to you by shareholder account number given to you by
services] by shareholderservices]
--------------------------------------------------- ----------------
Purchasing Additional Shares Minimum Investment: $250
Make checks payable to the Fund you are purchasing.
By Mail. Send a check with an investment slip or letter indicating your
account number and the Fund you are purchasing to: Tweedy, Browne Fund Inc.,
P.O. Box 61290, King of Prussia, Pennsylvania 19406-0889.
By Wire. Follow the wire procedures listed above under "Opening an
Account - By Wire."
By Telephone. Call shareholder services at 1-800-432-4789, Press 2
before the close of the NYSE to purchase at the share price on that day. Your
investment is limited to four times the value of your account at the time of the
order. Payment for your order (by check or wire) must include the order number
given to you when the order was placed. If payment is not received within three
business days, the order will be cancelled and you will be responsible for any
loss resulting from this cancellation.
By Automated Clearing House ("ACH"). Once you have established ACH for
your account, you may purchase additional shares via ACH by calling shareholder
services at 1-800-432-4789, Press 2. To establish ACH, please see "Transaction
Policies - ACH" below.
<PAGE>
Redemptions and Exchanges
You can redeem or exchange shares of either Fund without fees or sales
charges of any kind. You can exchange shares from one Fund to the other after
five days.
By Telephone. Call shareholder services at 1-800-432-4789, Press 2 to
request redemption or exchange of some or all of your Fund shares. The telephone
privilege must be authorized on your application, or see "Transaction Policies -
by Telephone" below. You can request that redemption proceeds be mailed to your
address of record or, if previously established, sent to your bank account via
wire or ACH. For information on establishing ACH or authorizing wire
redemptions, please see "Transaction Policies" below.
By Mail. Send your redemption or exchange instructions to: Tweedy, Browne
Fund Inc., P.O. Box 61290, King of Prussia, Pennsylvania 19406-0889. Your
instructions must be signed exactly as the account is registered and must
include:
your name
the Fund and account number from which you are redeeming or
exchanging
the number of shares or dollar value to be redeemed or exchanged
the Fund you are exchanging into
If you wish to redeem or exchange $25,000 or more or you request that
redemption proceeds be paid to or mailed to other than the account holder(s) of
record, you must have your signature guaranteed. You can obtain a signature
guarantee from most banks, credit unions or savings associations, or from
broker/dealers, government securities broker/dealers, national securities
exchanges, registered securities associations, or clearing agencies deemed
eligible by the Securities and Exchange Commission. A notary public cannot
provide a signature guarantee. If market conditions exist that make cash
payments undesirable, either Fund may honor any request to redeem more than
$250,000 within a three-month period by making payment entirely or partially in
securities. This is known as a redemption-in-kind. The securities given in
payment are selected by the Fund and are valued the same way as for calculating
the Funds' net asset value. If payment is made in securities, you would incur
trading costs in converting the securities to cash.
Transaction Policies
By Check. If you purchase shares of either Fund with a check that does
not clear, your purchase will be cancelled and you will be responsible for any
loss resulting from this cancellation. Purchases made by check are not available
for redemption or exchange until the purchase check has cleared, which may take
up to seven business days. Checks must be drawn on or payable through a U.S.
bank or savings institution and must be payable to the Fund.
<PAGE>
By ACH. You can designate a bank account to electronically transfer
money via ACH for investment in either Fund. Additionally, you can designate a
bank account to receive redemption proceeds from either Fund via ACH. Your bank
must be a member of ACH. To establish ACH for your account in either Fund, which
requires two weeks, complete the Systematic Purchase and Redemption Form and
send it to Tweedy, Browne Fund Inc., P.O. Box 61290, King of Prussia,
Pennsylvania 19406-0889. Money sent via ACH takes two business days to clear.
By Telephone. The Funds and transfer agent employ procedures to verify
that telephone transaction instructions are genuine. If they follow these
procedures, they will not be liable for any losses resulting from unauthorized
telephone instructions. You can establish telephone transaction privileges on
your account by so indicating on your account application. If you wish to add
telephone transaction privileges to your account after it has been opened, send
a letter, signed by each account holder, to Tweedy, Browne Fund Inc., P.O. Box
61290, King of Prussia, Pennsylvania 19406-0889.
DISTRIBUTIONS AND TAXES
Each Fund declares and pays dividends and distributions at least
annually. Dividends and distributions are paid in additional shares of the same
Fund unless you elect to receive them in cash. Dividends and distributions are
taxable whether you receive cash or additional shares. Redemptions and exchanges
of shares are taxable events on which you may recognize a gain or loss.
<TABLE>
<CAPTION>
<S> <C> <C>
Type of Distribution Frequency Federal Tax
Status
Dividends from net investment income annual taxable as
ordinary income
Distributions of short-term capital gain annual taxable as
ordinary income
Distributions of long-term capital gain annual taxable as
capital gain
</TABLE>
Generally, you should avoid investing in a Fund shortly before an
expected dividend or distribution. Otherwise, you may pay taxes on amounts that
basically consist of a partial return of your investment. Every January, each
Fund will send you information about its dividends and distributions made during
the previous calendar year. You should consult your tax adviser about particular
federal, state, local and other taxes that may apply to you.
<PAGE>
FINANCIAL HIGHLIGHTS
These Financial Highlights tables are to help you understand the Funds'
financial performance. The information has been audited by Ernst & Young LLP,
independent auditors, whose report thereon appears in the Funds' Annual Report.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C> <C>
- --------------------------------------------------------------------------------
- -------------------------------------------
TWEEDY, BROWNE GLOBAL VALUE FUND
(For a Fund share outstanding throughout each
year)
- --------------------------------------------------------------------------------
- -------------------------------------------
Year Year Year
Year Year
Ended Ended
Ended Ended Ended
3/31/99 3/31/98
3/31/97 3/31/96(a) 3/31/95
Net asset value, beginning of year $ 18.98 $ 15.46 $
14.28 $ 11.52 $ 12.26
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Income from investment operations:
Net investment income (b) 0.23 0.26
0.12 0.15 0.10
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Net realized and unrealized gain (loss) 0.24 4.62
2.18 2.81 (0.68)
on investments
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Total from investment operations 0.47 4.88
2.30 2.96 (0.58)
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Distributions:
Dividends from net investment income (0.38) (0.79)
(0.19) -- --
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Dividends in excess of net investment -- (0.08)
(0.36) -- --
income
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Distributions from net realized gains (0.99) (0.49)
(0.57) (0.05) (0.06)
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Distributions in excess of net realized -- --
- -- (0.15) (0.10)
gains
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Total distributions (1.37) (1.36)
(1.12) (0.20) (0.16)
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Net asset value, end of year $ 18.08 $ 18.98 $
15.46 $ 14.28 $ 11.52
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Total return(c) 3.03% 33.09%
16.66% 25.88% (4.74)%
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Ratios/Supplemental Data:
Net assets, end of year (in 000's) $ 2,589,574 $ 2,527,941 $
1,441,210 $ 950,911 $ 655,035
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Ratio of operating expenses to average 1.41% 1.42%
1.58% 1.60% 1.65%
net assets (d)
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Ratio of net investment income to 1.26% 1.05%
0.73% 1.15% 1.08%
average net assets
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
Portfolio turnover rate 23% 16%
20% 17% 16%
- ----------------------------------------- ------------- --------------- --------
- ------- ---------------- ------------------
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C> <C>
- --------------------------------------------------------------------------------
- ---------------------------------------
TWEEDY, BROWNE AMERICAN VALUE FUND
(For a Fund share outstanding throughout each
year)
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Year Year Year
Year Year
Ended Ended Ended
Ended Ended
3/31/99 3/31/98 3/31/97
3/31/96(a) 3/31/95(a)
Net asset value, beginning of year $ 23.04 $ 16.22 $ 14.29
$ 10.71 $ 9.71
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Income from investment operations:
Net investment income (b) 0.12 0.11 0.13
0.15 0.13
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Net realized and unrealized gain (0.37) 7.31 2.39
3.56 0.93
(loss) on investments
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Total from investment operations (0.25) 7.42 2.52
3.71 1.06
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Distributions:
Dividends from net investment (0.14) (0.17) (0.17)
(0.11) (0.06)
income
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Distributions from net realized (0.25) (0.43) (0.42)
(0.02) --
gains
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Total distributions (0.39) (0.60) (0.59)
(0.13) (0.06)
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Net asset value, end of year $ 22.40 $ 23.04 $ 16.22
$ 14.29 $ 10.71
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Total return (c) (1.09)% 46.14% 17.75%
34.70% 11.02%
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Ratios/Supplemental Data:
Net assets, end of year (in 000's) $1,078,214 $1,011,238 $ 342,467
$ 201,599 $ 58,856
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Ratio of operating expenses to 1.39% 1.39% 1.39%
1.39% 1.74%
average net assets (d)
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Ratio of net investment income to 0.55% 0.69% 0.92%
1.13% 1.25%
average net assets
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
Portfolio turnover rate 16% 6% 16%
9% 4%
- ----------------------------------- --------------- --------------- ------------
- --- ----------------- -----------------
</TABLE>
Investment Adviser:
Tweedy, Browne Company LLC
52 Vanderbilt Avenue
New York, NY 10017
The Funds:
Tweedy, Browne Fund Inc.
P.O. Box 61290
King of Prussia, Pennsylvania 19406-0889
FOR MORE INFORMATION
If you want more information about the Funds, the following documents are
available upon request:
o Annual/Semi-annual Reports - Additional information about the Funds'
investments is available in the annual and semi-annual reports to
shareholders. In the annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Funds' performance during the last fiscal year.
o Statement of Additional Information (SAI) - The SAI provides more detailed
information about the Funds and is incorporated into this prospectus by
reference.
You can request free copies of reports and SAI, request other information and
discuss your questions about the Funds by contacting your financial adviser or
the Funds at: Tweedy, Browne Fund Inc., c/o First Data Investor Services Group,
Inc., P.O. Box 61290, King of Prussia, Pennsylvania 19406-0889, 800-432-4789,
Press 2.
You can review the Funds' reports and SAI at the Public Reference Room of the
Securities and Exchange Commission and on the SEC's Web site
(http://www.sec.gov). You can obtain copies for a fee by writing or calling the
Public Reference Room, Washington, DC 20549-6009; 800-SEC-0330.
Investment Company
Act File No. 811 - 7458
TWEEDY, BROWNE GLOBAL VALUE FUND
TWEEDY, BROWNE AMERICAN VALUE FUND
each a series of
TWEEDY, BROWNE FUND INC.
STATEMENT OF ADDITIONAL INFORMATION
July 30, 1999
This Statement of Additional Information is not itself a Prospectus and should
be read in conjunction with the Prospectus of Tweedy, Browne Global Value Fund
and Tweedy, Browne American Value Fund also dated July 30, 1999, as amended from
time to time. Copies of the current Prospectus may be obtained without charge by
writing to Tweedy, Browne Global Value Fund and/or Tweedy, Browne American Value
Fund, c/o First Data Investor Services Group, Inc., P.O. Box 61290, King of
Prussia, Pennsylvania 19406-0889 or by calling 800-432-4789.
<PAGE>
TABLE OF CONTENTS
Page
Investment Objectives and Policies.................................. 3
Performance Information............................................. 20
Operation of the Funds.............................................. 23
Taxes............................................................... 32
Portfolio Transactions.............................................. 37
Net Asset Value..................................................... 38
Additional Information.............................................. 39
Appendix A.......................................................... A-1
<PAGE>
41
INVESTMENT OBJECTIVES AND POLICIES
.........Tweedy, Browne Fund Inc., a Maryland corporation of which Tweedy,
Browne Global Value Fund (the "Global Fund") and Tweedy, Browne American Value
Fund (the "American Fund") (collectively, the "Funds") are separate series, is
referred to herein as the "Corporation." The Corporation is a no-load, open-end,
management investment company which continuously offers and redeems its shares.
The Corporation is a company of the type commonly known as a mutual fund. The
Funds are diversified series of the Corporation. Tweedy, Browne Company LLC is
the investment adviser of the Global Fund and the American Fund and is referred
to herein as "Tweedy, Browne" or the "Adviser."
.........The Funds' objectives and policies, except as otherwise stated,
are not fundamental and may be changed without shareholder votes. The Global
Fund seeks long-term growth of capital by investing throughout the world in a
diversified portfolio of marketable equity securities. The American Fund seeks
long-term growth of capital by investing primarily in a diversified portfolio of
domestic equity securities. Both Funds are permitted to invest in debt
securities. There can be no assurance that the Funds will achieve their
respective objectives.
Risks of the Funds
Global Fund. The Global Fund is intended to provide individual and institutional
investors with an opportunity to invest a portion of their assets in a globally
oriented portfolio, according to the Fund's objective and policies, and is
designed for long-term investors who can accept international investment risk.
Investment in shares of the Global Fund is not intended to provide a complete
investment program for an investor. The Global Fund expects to invest primarily
in foreign securities although investments in U.S. securities are permitted and
will be made when opportunities in U.S. markets appear attractive. The Global
Fund may also invest in debt instruments, although income is an incidental risk.
Tweedy, Browne believes that allocation of assets on a global basis decreases
the degree to which events in any one country, including the United States, will
affect an investor's entire investment holdings. As with any long-term
investment, the value of the Global Fund's shares when sold may be higher or
lower than when purchased.
.........Investors should recognize that investing in foreign securities
involves certain special risks, including those set forth below, which are not
typically associated with investing in U.S. securities and which may favorably
or unfavorably affect the Global Fund's performance. As foreign companies are
not generally subject to uniform standards, practices and requirements with
respect to accounting, auditing and financial reporting to the same degree as
are domestic companies, there may be less or less helpful publicly available
information about a foreign company than about a domestic company. Many foreign
securities markets, while growing in volume of trading activity, have
substantially less volume than the U.S. market, and securities of most foreign
issuers are less liquid and more volatile than securities of comparably sized
domestic issuers. Similarly, volume and liquidity in most foreign bond markets
is less than in the United States and volatility of price is often greater than
in the United States. Further, foreign markets have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Global Fund are
uninvested and no return is earned thereon. The inability of the Global Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to the Global Fund
due to subsequent declines in value of the portfolio security. Fixed commissions
on some foreign securities exchanges and bid to asked spreads in some foreign
bond markets are higher than negotiated commissions on U.S. exchanges and bid to
asked spreads in the U.S. bond market. Further, the Global Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts.
.........In foreign countries, there is generally less government supervision
and regulation of business and industry practices, securities exchanges,
securities traders, brokers and listed companies than in the United States. It
may be more difficult for the Global Fund's agents to keep currently informed
about corporate actions such as stock dividends or other matters which may
affect the prices of portfolio securities. Communications between the United
States and foreign countries are often less reliable than within the United
States, thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. In addition, with
respect to certain foreign countries, there is the possibility of expropriation
or confiscatory taxation, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, at any particular time, individual foreign economies may differ
favorably or unfavorably from the United States economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. The Adviser seeks to
mitigate the risks associated with the foregoing risks through continuous
professional management.
.........These risks generally are more of a concern in developing
countries, inasmuch as their economic systems are generally smaller and less
diverse and mature and their political systems less stable than those in
developed countries. The Funds seek to mitigate the risks associated with these
risks through diversification and active professional management. Depository
receipts are utilized to make investing in a particular foreign security more
convenient for U.S. investors. Depository receipts that are not sponsored by the
issuer may be less liquid and there may be less readily available public
information about the issuer.
.........Investments in foreign securities usually will involve currencies
of foreign countries. Because of the risks discussed above, the value of the
assets of the Global Fund as measured in U.S. dollars may be affected favorably
or unfavorably by changes in foreign currency exchange rates and exchange
control regulations, and the Fund may incur costs in connection with conversions
between various currencies. Although the Global Fund values its assets daily in
terms of U.S. dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. The Global Fund will engage in
currency conversions when it shifts holdings from one country to another.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Global Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer. The Global Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into forward or futures contracts
(or options thereon) to purchase or sell foreign currencies. The Global Fund
may, for hedging purposes, purchase foreign currencies in the form of bank
deposits.
.........Because the Global Fund may be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in the U.S. markets. The Global Fund's share price will tend to
reflect the movements of both the different stock and bond markets in which it
is invested and, to the extent it is unhedged, of the currencies in which the
investments are denominated; the strength or weakness of the U.S. dollar against
foreign currencies may account for part of the Fund's investment performance.
Foreign securities such as those purchased by the Global Fund may be subject to
foreign government taxes which could reduce the yield on such securities,
although a shareholder of the Fund may, subject to certain limitations, be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Fund (see
"Taxes"). U.S. and foreign securities markets do not always move in step with
each other, and the total returns from different markets may vary significantly.
The Global Fund invests in many securities markets around the world in an
attempt to take advantage of opportunities wherever they may arise.
American Fund. The American Fund is intended to provide individual and
institutional investors with an opportunity to invest a portion of their assets
in a domestic equity portfolio, according to the Fund's objective and policies
and is designed for long-term investors who can accept domestic investment risk.
The American Fund will be invested largely in U.S. equity securities although it
may allocate up to 20% of its portfolio assets to foreign equity securities when
Tweedy, Browne believes that economic conditions warrant foreign investment. The
Fund may also invest in debt instruments, although income is an incidental risk.
Tweedy, Browne believes that a value oriented investment strategy offers
investors profitable investment in undervalued domestic equity securities whose
prices may be below intrinsic worth, private market value or previously high
stock prices. As with any long-term investment, the value of the American Fund's
shares when sold may be higher or lower than when purchased.
.........Investments in a fund which purchases value-oriented stocks as its
guiding principle involve special risks. The equity capitalization of the United
States is the largest in the world comprising more than one-third of the Morgan
Stanley Capital International (MSCI) World Index. The American Fund offers
investors the opportunity to invest in a diversified portfolio of primarily
domestic undervalued securities whose market price may be well below the stock's
intrinsic value.
.........The American Fund cannot guarantee a gain or eliminate the risk of
loss. The net asset value of the American Fund's shares will tend to increase or
decrease with changes in the value of U.S. equity markets. To the extent the
American Fund invests in foreign securities, comparable risk factors discussed
above with regard to the Global Fund will apply. There is no assurance that the
American Fund's objectives will be achieved. Investment in shares of the
American Fund is not intended to provide a complete investment program for an
investor.
Investments and Investment Techniques
Euro-Denominated Securities. On January 1, 1999, the European Monetary Union
("EMU") implemented a new currency unit, the Euro, which is expected to reshape
financial markets, banking systems and monetary policies in Europe and other
parts of the world. The countries that have converted to the Euro include
Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal and Spain.
.........Since January 1, 1999, financial transactions and market
information including share quotations and company accounts, in participating
countries have been denominated in Euros. As of January 1, 1999, approximately
46% of the stock exchange capitalization of the total European market was
reflected in Euros, and participating governments will issue their bonds in
Euros. Monetary policy for participating countries is being managed by a new
central bank, the European Central Bank (ECB).
.........Although it is not possible to predict the long-term impact of the
Euro on the Funds, the short-term impact has been negligible. It is possible
that the transition will change the economic environment and behavior of
investors, particularly in European markets. In addition, investors may begin to
view those countries participating in the EMU as a single entity. In the opinion
of the Investment Adviser, there will be no fundamental change in the investment
philosophy of the Funds with the advent of the Euro, nor will the Funds alter
their policies to hedge exposure to foreign currency back to the U.S. dollar. It
is expected that a foreign forward currency market will be established in the
Euro once it enters general circulation. The process of implementing the Euro
also may adversely affect financial markets world-wide and may result in changes
in the relative strength and value of the U.S. dollar or other major currencies.
Repurchase Agreements. Both the Global Fund and the American Fund may enter into
repurchase agreements with member banks of the Federal Reserve System, any
foreign bank or with any domestic or foreign broker/dealer which is recognized
as a reporting government securities dealer, if the creditworthiness of the bank
or broker/dealer has been determined by the Adviser to be at least as high as
that of other obligations the Funds may purchase.
.........A repurchase agreement provides a means for each Fund to earn
income on funds for periods as short as overnight. It is an arrangement under
which the purchaser (i.e., one of the Funds) acquires a debt security
("Obligation") and the seller agrees, at the time of sale, to repurchase the
Obligation at a specified time and price. Securities subject to a repurchase
agreement are held in a segregated account and the value of such securities is
kept at least equal to the repurchase price (plus any interest accrued if
interest will be paid in cash) on a daily basis. The repurchase price may be
higher than the purchase price, the difference being income to the Fund, or the
purchase and repurchase prices may be the same, with interest at a stated rate
due to the Fund together with the repurchase price upon repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the Obligation
itself. Obligations will be physically held by the Fund's custodian or in the
Federal Reserve Book Entry system.
.........For purposes of the Investment Company Act of 1940, as amended
(the "1940 Act"), a repurchase agreement is deemed to be a loan from the Fund to
the seller of the Obligation subject to the repurchase agreement. It is not
clear whether a court would consider the Obligation purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, a Fund may encounter delay and incur costs before being able to sell
the security. Delays may involve loss of interest or decline in price of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the security. It is
possible that the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities.
Illiquid Securities. Each Fund may invest a portion of its assets in illiquid
securities. Disposition of illiquid securities often takes more time than for
more liquid securities, may result in higher selling expenses and may not be
able to be made at desirable prices or at the prices at which such securities
have been valued by the Fund. No more than 15% of Fund's assets will be invested
in illiquids.
Fixed Income Obligations. Each Fund may also invest without limitation in fixed
income obligations including cash equivalents (such as bankers' acceptances,
certificates of deposit, commercial paper, short-term government and corporate
obligations and repurchase agreements) for temporary defensive purposes when the
Investment Adviser believes market conditions so warrant and for liquidity.
Debt Securities. Both the Global Fund and the American Fund may also invest in
non-convertible debt instruments of governments, government agencies,
supranational agencies and companies when the Investment Adviser believes the
potential for appreciation will equal or exceed the total return available from
investments in equity securities. These debt instruments will be predominantly
investment-grade securities, that is, those rated Aaa, Aa, A or Baa by Moody's
Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's
Ratings Services, a division of McGraw-Hill Companies, Inc. ("S&P") or those of
equivalent quality as determined by the Investment Adviser. Each Fund may not
invest more than 15% of its total assets in debt securities rated below Baa by
Moody's, or below BBB by S&P or deemed by the Investment Adviser to be of
comparable quality. Each Fund may invest in securities which are rated as low as
C by Moody's or D by S&P at the time of purchase. Securities rated D may be in
default with respect to payment of principal or interest. Securities rated below
BBB or Baa are typically referred to as "junk bonds" and have speculative
characteristics.
High Yield, High Risk Securities. Both Funds may also invest up to 15% of net
assets in securities rated lower than the foregoing and in non-rated securities
of equivalent credit quality in the Adviser's judgment. The Funds may invest in
debt securities which are rated as low as C by Moody's or D by S&P. Securities
rated D may be in default with respect to payment of principal or interest.
Below investment-grade securities (those rated Ba and lower by Moody's and BB
and lower by S&P) or non-rated securities of equivalent credit quality carry a
high degree of risk (including a greater possibility of default or bankruptcy of
the issuers of such securities), generally involve greater volatility of price,
and may be less liquid, than securities in the higher rating categories and are
considered speculative. The lower the ratings of such debt securities, the
greater their risks render them like equity securities. See the Appendix to this
Statement of Additional Information for a more complete description of the
ratings assigned by ratings organizations and their respective characteristics.
.........As occurred during the 1990-1992 period, an economic downturn can
disrupt the high yield market and impair the ability of issuers to repay
principal and interest. Also, an increase in interest rates is likely to have a
greater adverse impact on the value of such obligations than on higher quality
debt securities. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect a Fund's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.
.........The trading market for high yield securities may be thin to the
extent that there is no established retail secondary market or because of a
decline in the value of such securities. A thin trading market may limit the
ability of the Funds to value accurately high yield securities in the Funds'
portfolios and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs.
.........It is the policy of the Adviser not to rely exclusively on ratings
issued by established credit rating agencies, but to supplement such ratings
with its own independent and on-going review of credit quality. If the rating of
a portfolio security is downgraded by one or more credit rating agencies, the
Adviser will determine whether it is in the best interest of a Fund to retain or
dispose of such security.
Zero Coupon and Structured Securities. The Funds may invest in zero coupon
securities which pay no cash income and are sold at substantial discounts from
their value at maturity although they currently have no intention to invest in
such securities. When held from issuance to maturity, their entire income, which
consists of accretion of discount, comes from the difference between the issue
price and their value at maturity. Zero coupon securities are subject to greater
market value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current cash distributions of interest.
Structured securities, particularly mortgage-backed securities, are usually
subject to some degree of prepayment risk which can vary significantly with
various economic and market factors. Depending on the nature of the structured
security purchased, a change in the rate of prepayments can have the effect of
enhancing or reducing the yields to a Fund from such investment and expose the
Fund to the risk that any reinvestment will be at a lower yield.
Convertible Securities. The Funds may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into or exchangeable for another security, usually common stock.
Investments in convertible securities can provide an opportunity for capital
appreciation and/or income through interest and dividend payments by virtue of
their conversion or exchange features.
.........The convertible securities in which the Funds may invest are either
fixed income or zero coupon debt securities which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so usually do not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the value
of the underlying common stock, although usually not as much as the underlying
common stock.
.........As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
.........Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Other Rights to Acquire Securities
.........The Funds may also invest in other rights to acquire securities,
such as options and warrants. These securities represent the right to acquire a
fixed or variable amount of a particular issue of securities at a fixed or
formula price either during specified periods or only immediately prior to
termination. These securities are generally exercisable at premiums above the
value of the underlying security at the time the right is issued. These rights
are more volatile than the underlying stock and will result in a total loss of
the Funds' investment if they expire without being exercised because the value
of the underlying security does not exceed the exercise price of the right.
Derivatives, Currency and Related Transactions.
.........The Funds may, but are not required to, utilize various other
investment strategies as described below to hedge various market risks (such as
interest rates, currency exchange rates, and broad or specific equity or
fixed-income market movements), to manage the effective maturity or duration of
fixed-income securities, or to enhance potential gain. Such strategies are
generally accepted by modern portfolio managers and are regularly utilized by
many mutual funds and other institutional investors. Techniques and instruments
may change over time as new instruments and strategies are developed or
regulatory changes occur.
.........In the course of pursuing these investment strategies, the Funds may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions"). Strategic
Transactions may be used to attempt to protect against possible changes in the
market value of securities held in or to be purchased for a Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations, to
protect a Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of a Fund's portfolio, or to establish a position
in the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of a Fund's assets will be committed to
initial margin on instruments regulated by the Commodity Futures Trading
Commission ("CFTC") in Strategic Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. A Fund's ability to benefit from these
Strategic Transactions will depend on the Adviser's ability to predict pertinent
market movements, which cannot be assured. Each Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. Strategic Transactions involving financial futures and options
thereon will be purchased, sold or entered into only for bona fide hedging, risk
management or portfolio management purposes and not for speculative purposes.
.........Strategic Transactions have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to the
extent the Adviser's view as to certain market movements is incorrect, the risk
that the use of such Strategic Transactions could result in losses greater than
if they had not been used. Purchase of put and call options may result in losses
to a Fund or limit the amount of appreciation a Fund can realize on its
investments. The use of currency transactions can result in a Fund incurring
losses as a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive a
specified currency. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of a Fund creates the possibility that losses on the hedging instrument
may be greater than gains in the value of a Fund's position. In addition,
futures and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of a hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of a Fund's assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
.........A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the issuer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a Fund's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
a Fund the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the issuer the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect the
Fund against an increase in the price of the underlying instrument that it
intends to purchase in the future by fixing the price at which it may purchase
such instrument. An American style put or call option may be exercised at any
time during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Funds
are authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below regarding exchange listed options uses the OCC as a paradigm,
but is also applicable to other financial intermediaries.
.........Each Fund's ability to close out its position as a purchaser or
seller of an OCC or exchange listed put or call option is dependent, in part,
upon the liquidity of the option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (i) insufficient trading
interest in certain options; (ii) restrictions on transactions imposed by an
exchange; (iii) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities
including reaching daily price limits; (iv) interruption of the normal
operations of the OCC or an exchange; (v) inadequacy of the facilities of an
exchange or OCC to handle current trading volume; or (vi) a decision by one or
more exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the relevant market for that option on that
exchange would cease to exist, although outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms.
.........The hours of trading for listed options may not coincide with the
hours during which the underlying financial instruments are traded. To the
extent that the option markets close before the markets for the underlying
financial instruments, significant price and rate movements can take place in
the underlying markets that cannot be reflected in the option markets.
.........OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties.
.........Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund may lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Funds will engage in OTC option transactions only with United
States government securities dealers recognized by the Federal Reserve Bank of
New York as "primary dealers," or broker dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any other nationally recognized
statistical rating organization ("NRSRO").
.........If a Fund sells (i.e., issues) a call option, the premium that it
receives may serve as a partial hedge, to the extent of the option premium,
against a decrease in the value of the underlying securities or instruments in
its portfolio, or will increase the Fund's income. The sale of put options can
also provide income.
<PAGE>
.........All calls sold by the Funds must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the calls) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by one of the Funds exposes that Fund during the term of the
option to possible loss of opportunity to realize appreciation in the market
price of the underlying security or instrument and may require the Fund to hold
a security or instrument which it might otherwise have sold.
General Characteristics of Futures. The Funds may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by a Fund, as seller, to deliver to the buyer
the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
.........The Funds' use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the CFTC and will be entered into only for bona
fide hedging, risk management (including duration management) or other portfolio
management purposes. Typically, maintaining a futures contract or selling an
option thereon requires a Fund to deposit with a financial intermediary as
security for its obligations an amount of cash or other specified assets
(initial margin) which initially is typically 1% to 10% of the face amount of
the contract (but may be higher in some circumstances). Additional cash or
assets (variation margin) may be required to be deposited thereafter on a daily
basis as the mark to market value of the contract fluctuates. The purchase of an
option on financial futures involves payment of a premium for the option without
any further obligation on the part of the purchaser. If one of the Funds
exercises an option on a futures contract, it will be obligated to post initial
margin (and potential subsequent variation margin) for the resulting futures
position just as it would for any position. Futures contracts and options
thereon are generally settled by entering into an offsetting transaction but
there can be no assurance that the position can be offset prior to settlement at
an advantageous price, nor that delivery will occur.
.........Neither Fund will enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of that Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Funds also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives they would
achieve through the sale or purchase of options on individual securities or
other instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Funds may engage in currency transactions with
counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Funds may enter into currency transactions with
counterparties which have received (or the guarantors of the obligations of
which have received) a credit rating of A-1 or P-1 by S&P or Moody's,
respectively, or that have an equivalent rating from an NRSRO or (except for OTC
currency options) are determined to be of equivalent credit quality by the
Adviser.
.........The Funds' dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of a Fund, which will generally arise
in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
.........The Funds generally will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging as described below.
.........The Funds may also cross-hedge currencies by entering into
transactions to purchase or sell one or more currencies that are expected to
decline in value relative to other currencies to which the Funds have or in
which the Funds expect to have portfolio exposure.
.........To reduce the effect of currency fluctuations on the value of
existing or anticipated holdings of portfolio securities, the Funds may also
engage in proxy hedging. Proxy hedging is often used when the currency to which
a Fund's portfolio is exposed is difficult to hedge or to hedge against the U.S.
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which some or all of a Fund's portfolio securities are
or are expected to be denominated, and to buy U.S. dollars. The amount of the
contract would not exceed the value of the Fund's securities denominated linked
currencies. For example, if the Adviser considers that the Hong Kong dollar is
linked to the German deutsche mark (the "D-mark"), and a Fund holds securities
denominated in Hong Kong dollars and the Adviser believes that the value of such
dollars will decline against the U.S. dollar, the Adviser may cause the Fund to
enter into a contract to sell D-mark and buy U.S. dollars.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time when a Fund is engaging in proxy hedging. If a Fund enters into
a currency hedging transaction, the Fund will comply with the asset segregation
requirements described below.
Short Sales. Each Fund may make short sales of securities traded on domestic or
foreign exchanges. A short sale is a transaction in which a Fund sells a
security it does not own in anticipation that the market price of that security
will decline. The Fund may make short sales to hedge positions, for duration and
risk management, in order to maintain portfolio flexibility or to enhance income
or gain.
.........When a Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
as collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
.........A Fund's obligation to replace the borrowed security will be
secured by collateral deposited with the broker-dealer, usually cash, U.S.
government securities or other high grade liquid securities. The Fund will also
be required to segregate similar collateral with its custodian to the extent, if
any, necessary so that the aggregate collateral value is at all times at least
equal to the current market value of the security sold short. Depending on
arrangements made with the broker-dealer from which it borrowed the security
regarding payment over any payments received by the Fund on such security, the
Fund may not receive any payments (including interest) on its collateral
deposited with such broker-dealer.
.........If the price of the security sold short increases between the time
of the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
gain. Any gain will be decreased, and any loss increased, by the transaction
costs described above. Although the Fund's gain is limited to the price at which
it sold the security short, its potential loss is theoretically unlimited.
Combined Transactions. Each Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of that Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Funds may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Funds expect to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities the Funds anticipate purchasing at a later date. Each Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
.........The Funds will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Funds believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. Neither Fund will enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from an NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Funds may make investments in instruments that are
U.S. dollar-denominated futures contracts or options thereon which are linked to
the London Interbank Offered Rate ("LIBOR"). Eurodollar futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to obtain
a fixed rate for borrowings. The Funds might use Eurodollar futures contracts
and options thereon to hedge against changes in LIBOR, to which many interest
rate swaps and fixed income instruments are often linked.
Risks of Strategic Transactions Outside the United States. When conducted
outside the United States, Strategic Transactions may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors; (ii) delays in
a Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States; (iii) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (iv) lower trading volume and liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Funds segregate liquid assets
with its custodian to the extent the Funds' obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. Liquid assets include equity and debt securities so long as they are
readily marketable. The Adviser, subject to oversight by the Board of Directors,
is responsible for determining and monitoring the liquidity of securities in
segregated accounts on a daily basis. In general, either the full amount of any
obligation by a Fund to pay or deliver securities or assets must be covered at
all times by the securities, instruments or currency required to be delivered,
or, subject to any regulatory restrictions, an amount of cash or liquid
securities at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated account may consist of notations
on the books of the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option written by a Fund
will require the Fund to hold the securities subject to the call (or securities
convertible into the needed securities without additional consideration) or to
segregate liquid securities sufficient to purchase and deliver the securities if
the call is exercised. A call option sold by a Fund on an index will require the
Fund to own portfolio securities which correlate with the index or to segregate
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by a Fund requires the Fund to segregate
liquid assets equal to the exercise price.
.........A forward currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
securities denominated in that currency equal to the Fund's obligations or to
segregate liquid assets equal to the amount of the Fund's obligations unless the
contract is entered into to facilitate the purchase or sale of a security
denominated in a particular currency or for hedging currency risks of one or
more of a Fund's portfolio investments.
.........OTC options entered into by the Funds, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
options, will generally provide for cash settlement. As a result, when one of
the Funds sells these instruments, the Fund will only segregate an amount of
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by a Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when a Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Funds other than
those above generally settle with physical delivery, and the seller will
segregate an amount of assets equal to the full value of the option. OTC options
settling with physical delivery, or with an election of either physical delivery
or cash settlement will be treated the same as other options settling with
physical delivery.
.........In the case of a futures contract or an option thereon, a Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
.........With respect to swaps, the Funds will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid securities
having a value equal to the accrued excess. Caps, floors, and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
.........Strategic Transactions may be covered by other means when
consistent with applicable regulatory policies. In the case of portfolio
securities which are loaned, collateral values of the loaned securities will be
continuously maintained at not less than 100% by "marking to market" daily. A
Fund may also enter into offsetting transactions so that its combined position,
coupled with any segregated assets, equals its net outstanding obligation in
related options and Strategic Transactions. For example, a Fund could purchase a
put option if the strike price of that option is the same or higher than the
strike price of a put option sold by the Fund. Moreover, instead of segregating
assets if the Fund held a futures or forward contract, it could purchase a put
option on the same futures or forward contract with a strike price as high or
higher than the price of the contract held. Other Strategic Transactions may
also be offset in combinations. If the offsetting transaction terminates at the
time of or after the primary transaction no segregation is required, but if it
terminates prior to such time, assets equal to any remaining obligation would
need to be segregated.
.........The Funds' activities involving Strategic Transactions may be
limited by the requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), for qualification as a regulated investment
company (see "TAXES").
Borrowing
The Global Fund and the American Fund each may borrow up to one-third of
its total assets from banks for use in connection with Strategic Transactions,
as a temporary measure for extraordinary or emergency purposes, in connection
with clearance of transactions or to pay for redemptions. Except when borrowing
in connection with Strategic Transactions, a Fund will not purchase any security
when any borrowings are outstanding. The Funds' borrowings in connection with
Strategic Transactions will be limited to the purchase of liquid high grade
securities to post as collateral or satisfy segregation requirements with
respect to such transactions. The Funds do not enter into any of such borrowings
for the purpose of earning incremental returns in excess of borrowing costs from
investments made with such funds.
Investment Restrictions
.........The policies set forth below are fundamental policies of the Global
Fund and the American Fund and may not be changed with respect to a Fund without
approval of a majority of the outstanding voting securities of that Fund. As
used in this Statement of Additional Information a "majority of the outstanding
voting securities of a Fund" means the lesser of (1) 67% or more of the voting
securities present at such meeting, if the holders of more than 50% of the
outstanding voting securities of the Funds are present or represented by proxy;
or (2) more than 50% of the outstanding voting securities of the Funds.
.........As a matter of fundamental policy, neither Fund may:
1. borrow money, except to obtain liquid securities for use in
connection with Strategic Transactions conducted by the Funds
in connection with its portfolio activities or as a temporary
measure for extraordinary or emergency purposes, in connection
with the clearance of transactions or to pay for redemptions,
in each case subject to applicable U.S. government
limitations;
2. purchase or sell real estate (other than securities
representing interests in real estate or fixed income
obligations directly or indirectly secured by real estate and
other than real estate acquired upon exercise of rights under
such securities) or purchase or sell physical commodities or
contracts relating to physical commodities (other than
currencies and specie to the extent they may be considered
physical commodities) or oil, gas or mineral leases or
exploration programs;
3. act as underwriter of securities issued by others, except to
the extent that it may be deemed an underwriter in connection
with the disposition of portfolio securities of the Fund;
4. make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent the entry into repurchase
agreements and the purchase of debt obligations may be deemed
to be loans;
5. issue senior securities, except as appropriate to evidence
borrowings of money, and except that Strategic Transactions
conducted by the Fund in connection with its portfolio
activities are not considered to involve the issuance of
senior securities for purposes of this restriction;
6. purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase
to be invested in the same industry; or
7. with respect to 75% of its total assets taken at market value,
purchase more than 10% of the voting securities of any one
issuer or invest more than 5% of the value of its total assets
in the securities of any one issuer, except in each case
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and securities of other
investment companies.
In addition, the Board of Directors has adopted the following policy
(among others) which may be changed without a shareholder vote: neither Fund may
invest more than 15% of its net assets in securities which are not readily
marketable. These include securities subject to contractual or legal resale
restrictions in their primary trading market (such as OTC options, including
floors, caps, collars and swaps, securities of private companies and longer-term
repurchase agreements).
If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" above is adhered to at the time an
investment is made, a later change in percentage resulting from changes in the
value or the total cost of the Funds' assets will not be considered a violation
of the restriction.
Share Certificates
Due to the desire of the Funds to keep purchase and redemption of
shares simple, generally, certificates will not be issued to indicate ownership
in either of the Funds.
PERFORMANCE INFORMATION
From time to time, each Fund may calculate its performances for
inclusion in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures are calculated by the Funds in
the manner described in the section below.
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of return for
the periods of one year, five years and the life of a Fund, each ended on the
last day of a recent calendar quarter. Average annual total return quotations
reflect changes in the price of a Fund's shares and assume that all dividends
and capital gains distributions during the respective periods were reinvested in
the Fund's shares. Average annual total return is calculated by computing the
average annual compound rates of return of a hypothetical investment over such
periods, according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)1/n - 1
Where:
P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 investment made at the beginning of the
applicable period.
Period Ended
12/31/98
Global Fund
1 year...................................... 10.99%
5 years..................................... 13.65%
Since inception............................. 15.16%
American Fund
1 year....................................... 9.59%
5 year...................................... 20.34%
Since inception............................. 19.92%
<PAGE>
Cumulative Total Return
Cumulative Total Return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
the Fund's shares. Cumulative total return is calculated by computing the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P) - 1
Where:
C =.......cumulative total return
P =.......a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 investment made at the beginning of the
applicable period.
Total Return
Total Return is the rate of return on an investment for a specified period of
time calculated in the same manner as cumulative total return.
Capital Change
Capital Change measures the return from invested capital including reinvested
capital gains distributions. Capital change does not include the reinvestment of
income dividends.
Quotations of a Fund's performance are historical, show the performance
of a hypothetical investment, and are not intended to indicate future
performance. An investor's shares when redeemed may be worth more or less than
their original cost. Performance of each Fund will vary based on changes in
market conditions and the level of the Fund's expenses.
Comparison of Portfolio Performance
Comparison of the quoted non-standardized performance of various
investments is valid only if performance is calculated in the same manner or the
differences are understood. Investors should consider the methods used to
calculate performance when comparing the performance of either Fund with the
performance of other investment companies or other types of investments.
<PAGE>
In connection with communicating its performance to current or
prospective shareholders, either Fund also may compare these figures to
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for operational, administrative and
management costs.
Because normally most of the Global Fund's investments are denominated
in foreign currencies, the strength or weakness of the U.S. dollar against these
currencies will account for part of the Global Fund's investment performance
except to the extent hedged to the U.S. dollar. Historical information on the
value of the dollar versus foreign currencies may be used from time to time in
advertisements concerning the Global Fund.
Such historical information is not indicative of future performance.
From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations. When
these organizations' tracking results are used, a Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk.
Since the assets in funds are always changing, either Fund may be
ranked within one asset-size class at one time and in another asset-size class
at some other time. In addition, the independent organization chosen to rank a
Fund in fund literature may change from time to time depending upon the basis of
the independent organization's categorizations of mutual funds, changes in the
Fund's investment policies and investments, the Fund's asset size and other
factors deemed relevant. Footnotes in advertisements and other marketing
literature will include the organization issuing the ranking, time period and
asset-size class, as applicable, for the ranking in question.
Evaluations of a Fund's performance made by independent sources may
also be used in advertisements concerning that Fund, including reprints of, or
selections from, editorials or articles about the Fund.
OPERATION OF THE FUNDS
Structure of the Funds
Both the Global Fund and the American Fund are diversified series of
Tweedy, Browne Fund Inc., a Maryland corporation organized on January 28, 1993.
Tweedy, Browne Fund Inc. is an open-end management investment company.
Costs incurred by each Fund in connection with the organization and
initial registration of the Corporation and each Fund will be amortized over a
five year period beginning at the commencement of the operation of the
applicable Fund.
The authorized capital stock of the Corporation consists of one billion
shares with $0.0001 par value, 600 million shares of which are allocated to the
Global Fund and 400 million shares of which are allocated to the American Fund.
Each share has equal voting rights as to each other share of that series as to
voting for Directors, redemption, dividends and liquidation. Shareholders have
one vote for each share held on matters on which they are entitled to vote. The
Corporation is not required to and has no current intention of holding annual
shareholder meetings, although special meetings may be called for purposes such
as electing or removing Directors, or changing fundamental investment policies.
Shareholders will be assisted in communicating with other shareholders in
connection with any effort to remove a Director.
The Directors have the authority to issue additional series of shares
and to designate the relative rights and preferences as between the different
series. All shares issued and outstanding are fully paid and non-assessable,
transferable, and redeemable at net asset value at the option of the
shareholder. Shares have no preemptive or conversion rights.
The shares have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors can
elect 100% of the Directors if they choose to do so, and, in such event, the
holders of the remaining less than 50% of the shares voting for the election of
Directors will not be able to elect any person or persons to the Board of
Directors.
Maryland corporate law provides that a Director of the Corporation
shall not be liable for actions taken in good faith, in a manner he or she
reasonably believes to be in the best interests of the Corporation and with the
care that an ordinarily prudent person in a like position would use under
similar circumstances. In so acting, a Director shall be fully protected in
relying in good faith upon the records of the Corporation and upon reports made
to the Corporation by persons selected in good faith by the Directors as
qualified to make such reports. The By-Laws provide that the Corporation will
indemnify Directors and officers of the Corporation against liabilities and
expenses reasonably incurred in connection with litigation in which they may be
involved because of their positions with the Corporation, to the fullest extent
permitted by Maryland corporate law, as amended from time to time. However,
nothing in the Articles of Incorporation or the By-Laws protects or indemnifies
a Director or officer against any liability to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Investment Adviser
Tweedy, Browne acts as investment adviser to both the Global Fund and
the American Fund. The Adviser is registered with the Securities and Exchange
Commission (the "SEC") as an investment adviser and as a broker/dealer and is a
member of the National Association of Securities Dealers.
Tweedy, Browne was founded in 1920 and began managing money for the account
of persons other than its principals and their families in 1968. Tweedy, Browne
began investing in foreign securities in 1983. Tweedy, Browne is owned by its
Managing Directors, Christopher H. Browne, William H. Browne, John D. Spears,
Thomas H. Shrager and Robert Q. Wyckoff, Jr., and a wholly-owned subsidiary of
Affiliated Managers Group, Inc. ("AMG"), which owns a majority interest in
Tweedy, Browne. Messrs. Browne are brothers. AMG is a publicly traded company
that acquires ownership interests in investment management firms. The Management
Committee, which consists of Messrs. Christopher and William Browne and John D.
Spears, manages the day-to-day operations of Tweedy, Browne and the Funds and
makes all investment management decisions. Neither AMG nor its subsidiary
manages the day-to-day operations of, nor participates in the investment process
at, Tweedy, Browne.
Certain investments may be appropriate for one or both of the Funds and
also for other clients advised by the Adviser. Investment decisions for each
Fund and other clients are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment and the size of their investments
generally. Frequently, a particular security may be bought or sold for only one
client or in different amounts and at different times for more than one but less
than all clients. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In addition,
purchases or sales of the same security may be made for two or more clients on
the same day. In such event, such transactions will be allocated among the
clients in a manner believed by the Adviser to be equitable to each. In some
cases, this procedure could have an adverse effect on the price or amount of the
securities purchased or sold by a Fund. Purchase and sale orders for the Funds
may be combined with those of other clients of the Adviser in the interest of
most favorable net results to a particular Fund.
The Adviser renders services to the Global Fund and the American Fund
pursuant to separate Investment Advisory Agreements each dated as of July 30,
1998 (the "Agreements"). Each Agreement will remain in effect for an initial two
year term and thereafter, from year to year upon the annual approval by the vote
of a majority of those Directors who are not parties to such Agreement or
interested persons of the Adviser or the Corporation, cast in person at a
meeting called for the purpose of voting on such approval, and either by vote of
the Corporation's Directors or of the outstanding voting securities of the Fund.
Each Agreement may be terminated at any time without payment of penalty by
either party on sixty days written notice, and automatically terminates in the
event of its assignment.
Under both Agreements, the Adviser regularly provides the Funds with
continuing investment management for the Funds' portfolios consistent with the
Funds' investment objectives, policies and restrictions and determines what
securities shall be purchased for the portfolios of the Funds, what portfolio
securities shall be held or sold by the Funds, and what portion of the Funds'
assets shall be held uninvested, subject always to the provisions of the
Corporation's Articles of Incorporation and By-Laws, the 1940 Act and the Code
and to the Funds' investment objectives, policies and restrictions, and subject,
further, to such policies and instructions as the Directors of the Corporation
may from time to time establish.
Under both Agreements, the Adviser also renders significant
administrative services (not otherwise provided by third parties) necessary for
the Funds' operations as open-end investment companies including, but not
limited to: preparing reports and notices to the Directors and shareholders,
supervising, negotiating contractual arrangements with, and monitoring various
third-party service providers to the Funds (such as the Funds' transfer agent,
pricing agents, custodians, accountants and others); preparing and making
filings with the SEC and other regulatory agencies; assisting in the preparation
and filing of the Funds' federal, state and local tax returns; assisting in
preparing and filing the Funds' federal excise tax returns; assisting with
investor and public relations matters; monitoring the valuation of securities
and the calculation of net asset value; monitoring the registration of shares of
the Funds under applicable federal and state securities laws; maintaining the
Funds' books and records; assisting in establishing accounting policies of the
Funds; assisting in the resolution of accounting and legal issues; establishing
and monitoring the Funds' operating budgets; processing the payment of the
Funds' bills; assisting the Funds in, and otherwise arranging for, the payment
of distributions and dividends and otherwise assisting each Fund in the conduct
of its business, subject to the direction and control of the Directors.
Subject to the ability of the Adviser upon approval of the Board to
obtain reimbursement for the administrative time spent on the Funds' operations
(other than investment advisory matters) by employees of the Adviser, the
Adviser pays the compensation and expenses of all Directors, officers and
executive employees of the Corporation affiliated with the Adviser and makes
available, without expense to the Funds, the services of such Directors,
officers and employees as may duly be elected officers, subject to their
individual consent to serve and to any limitations imposed by law, and provides
the Funds' office spaces and facilities.
For the Adviser's investment advisory services to the Global Fund and
the American Fund, the Adviser is entitled to receive an annual fee equal to
1.25% of each Fund's average daily net assets. The fee is payable monthly in
arrears, provided that each Fund will make such interim payments as may be
requested by the Adviser not to exceed 75% of the amount of the fee then accrued
on the books of such Fund and unpaid.
Under the Agreements, each Fund is responsible for all of its other
expenses including organization expenses; fees and expenses incurred in
connection with membership in investment company organizations; broker's
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; net asset valuation; the fees and expenses of the transfer agent; the cost
of preparing share certificates or any other expenses, including clerical
expenses of issue, redemption or repurchase of shares of capital stock; the
expenses of and the fees for registering or qualifying securities for sale; the
fees and expenses of the Directors, officers and employees who are not
affiliated with the Adviser and, to the extent described above, employees of the
Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians. The Corporation may
arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of the Funds. Each Fund is also
responsible for its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify the Adviser and its
Directors and officers with respect thereto.
Each Agreement also provides that the applicable Fund and the
Corporation may use any name utilizing or derived from the name "Tweedy, Browne"
only as long as the Agreement or any extension, renewal or amendment thereof
remains in effect.
Each Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement and indemnifies the
Adviser and its employees, officers and partners against any cost or expense in
any circumstance in which the Adviser is not liable to the Fund.
Prior to July 30, 1998, the Adviser served pursuant to investment
advisory agreements dated October 9, 1997, and was entitled to an annual fee
equal to 1.25% of each Fund's average daily net assets. Prior to October 9, 1997
Tweedy, Browne Company L.P. was the Funds' investment adviser pursuant to
investment advisory agreements dated June 2, 1993 and December 8, 1993 for the
Global Fund and American Fund, respectively. Tweedy, Browne Company L.P., as
investment adviser was entitled to receive an annual fee equal to 1.25% of each
Fund's average daily net assets.
For the fiscal years ended March 31, 1999, March 31, 1998 and March 31,
1997, the Global Fund incurred $31,308,970, $23,717,001 and $14,318,034,
respectively, in investment advisory fees.
For the fiscal years ended March 31, 1999, March 31, 1998 and March 31,
1997, the American Fund incurred $13,473,779, $7,546,393 and $2,892,275,
respectively, in investment advisory fees after voluntary waivers of $121,000,
$105,730 and $284,262, respectively.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Funds' custodian banks. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
None of the Directors or officers may have dealings with the Funds as
principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Funds.
Administrator and Transfer Agent
First Data Investor Services Group, Inc. (the "Administrator" or
"Investor Services Group") provides administrative services for the Global Fund
for a fee equal to .09% of the Global Fund's average daily net assets on an
annual basis, subject to specified minimum fee levels and subject to reductions
as low as .03% on average assets in excess of $1 billion. For the fiscal year
ended March 31, 1999, the Global Fund incurred $1,042,815 in administration
fees. For the fiscal years ended March 31, 1998 and March 31, 1997, the Global
Fund incurred $734,106 and $1,313,340, respectively, in administration fees
after voluntary waivers of $86,035 and $84,934, respectively.
Prior to February 15, 1997, the Company paid Investor Services Group an
administrative fee equal to .12% of the Global Fund's average daily net assets
on an annual basis, subject to specified minimum fee levels and subject to
reductions as low as .08% on average assets in excess of $500 million.
The Administrator also provides administrative services for the
American Fund for a fee equal to .09% of the American Fund's average daily net
assets on an annual basis, subject to specified minimum fee levels and subject
to reductions as low as .03% on average assets in excess of $1 billion. For the
fiscal year ended March 31, 1999, the American Fund incurred $437,177 in
administration fees. For the fiscal year ended March 31, 1998, the American Fund
incurred $254,085 in administration fees, after a voluntary waiver of $22,539.
For the fiscal year ended March 31, 1997, the American Fund incurred $296,867 in
administration fees, after voluntary waivers of $32,914 for the period April 1,
1996 through February 14, 1997 and $21,979 for the period February 15, 1997
through March 31, 1997.
Prior to February 15, 1997, the Company paid Investor Services Group an
administrative fee equal to .10% of the American Fund's average daily net assets
on an annual basis, subject to specified minimum fee levels and subject to
reductions as low as .06% on average assets in excess of $500 million.
Under the Administration Agreement for each Fund, the Administrator is
required to provide office facilities, clerical, legal and administrative
services, accounting and record keeping, internal auditing, valuing a Fund's
assets, preparing SEC and shareholder reports, preparing, signing and filing tax
returns, monitoring 1940 Act compliance and providing other mutually agreeable
services. Subject to certain conditions, the Administration Agreement has a term
of three years until February 15, 2000 and thereafter shall automatically renew
for successive terms of one year unless terminated and is terminable on 60 days
notice by either party.
Investor Services Group, 4400 Computer Drive, Westborough,
Massachusetts 01581, is the Funds' transfer, shareholder servicing and dividend
paying agent.
Directors and Executive Officers
The Corporation's activities are supervised by its Board of Directors.
The Directors and executive officers of the Corporation, together with
information as to their principal business occupations during the past five
years are shown below. Each Director who is an "interested person" of the
Corporation, as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address; Age Position with Corporation
Principal Occupation**
Bruce A. Beal, Age 62 Director
Partner and Officer of various real estate
The Beal Companies
development and investment companies. Real
177 Milk Street estate
consultant.
Boston, MA 02109
Christopher H. Browne*+, President, Director
Managing Director of Investment Adviser and
Age 52
Distributor
Arthur Lazar, Age 86 Director
President of Lazar Brokerage (insurance
Lazar Brokerage
brokerage)
355 Lexington Avenue
New York, NY 10017
Richard Salomon, Director
Partner in Salans, Hertzfeld,
Age 51
Heilbrown,Christy & Viener
Salans, Hertzfeld, Heilbrown, Christy (law
firm)
& Viener
620 5th Avenue
New York, NY 10020
Anthony H. Meyer, Director
Retired
Age 68
Box 1980
Edgartown, MA 02539
<PAGE>
William H. Browne+, Treasurer
Managing Director of Investment Adviser and
Age 54
Distributor
M. Gervase Rosenberger, Vice President
General Counsel for Investment Adviser and
Age 48 and Secretary
Distributor
John D. Spears, Age 50 Vice President
Managing Director of Investment Adviser and
Distributor
<FN>
- ---------------------------------------
* Mr. Christopher Browne is considered by the Corporation to be a
Director who is an "interested person"
of the Adviser or of the Corporation (within the meaning of the 1940
Act).
** Unless otherwise stated, all the Directors and officers have been
associated with their respective companies for more than five years.
+ Christopher Browne and William Browne are brothers.
</FN>
</TABLE>
Except as stated, the address of each such person is the same as the
Adviser's. Each of the Directors who is not affiliated with the Adviser will be
paid by the Corporation on behalf of the Funds. Effective October 1, 1997, each
Fund pays each of these unaffiliated Directors an annual Director's fee of
$8,000 and fees of $500 for attending each Directors meeting. Prior to October
1, 1997 each unaffiliated Director received an annual Director's fee of $2,000
and fees of $500 for each Directors Meeting attended. The officers are paid by
the Adviser or the Administrator.
The following table sets forth certain information regarding the
compensation of the Corporation's Directors for the fiscal year ended March 31,
1999. No executive officer or person affiliated with the Funds received
compensation from the Funds. No Director receives pension or retirement benefits
from the Funds.
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL COMPENSATION FROM THE CORPORATION
AGGREGATE COMPENSATION FROM THE
AND COMPLEX PAID
NAME OF PERSON CORPORATION
TO DIRECTORS
AND POSITION
Christopher H. Browne $0
$0
Chairman of the Board and
President
Bruce A. Beal $20,000
$20,000
Director
Arthur Lazar $16,000
$16,000
Director
Richard Salomon $19,000
$19,000
Director
Anthony Meyer $20,000
$20,000
Director
</TABLE>
Control Persons and Principal Holders of Securities
As of July 26, 1999, the following persons owned 5% or more of the
outstanding shares of the Global Fund and the American Fund:
<TABLE>
<CAPTION>
<S> <C>
<C>
Percent of Total
Shares
Fund Name Name and Address
Outstanding
Tweedy, Browne Global Value Fund Charles Schwab & Co., Inc.
26.60%
101 Montgomery Street
San Francisco, CA 94104
Tweedy, Browne American Value Fund Charles Schwab & Co., Inc.
26.97%
101 Montgomery Street
San Francisco, CA 94104
Tweedy, Browne American Value Fund National Financial Services
Corp. 15.29%
P.O. Box 3908
Church Street Station
New York, NY 10008
</TABLE>
The Corporation believes that such ownership is of record only and is
not aware that any person owns beneficially 5% or more of the shares of the
Global Fund or American Fund.
As of July 26, 1999, the Directors and officers of the Corporation as a
group owned less than 1% of the outstanding shares of each Fund.
Distributor
The Corporation has distribution agreements with the Adviser to act as
distributor (the "Distributor") for the Global Fund and American Fund each dated
as of July 30, 1998 (the "Distribution Agreements"). Each Distribution Agreement
will remain in effect from year to year upon the annual approval by a majority
of the Directors who are not parties to such agreements or interested persons of
any such party and either by vote of a majority of the Board of Directors or a
majority of the outstanding voting securities of the Corporation.
Under the Distribution Agreements, the Corporation is responsible for:
the payment of all fees and expenses in connection with the preparation and
filing with the SEC of the Corporation's registration statement and a Fund's
prospectus (including this Statement of Additional Information) and any
amendments and supplements thereto, the registration and qualification of shares
for sale in the various states, including registering the Corporation as a
broker/dealer in various states; the fees and expenses of preparing, printing
and mailing prospectuses annually to existing shareholders, notices, proxy
statements, reports or other communications to shareholders of the Funds; the
cost of printing and mailing confirmations of purchases of shares and any
prospectuses accompanying such confirmations; any issue taxes or any initial
transfer taxes; shareholder toll-free telephone charges and expenses of
shareholder service representatives, the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
that portion of any equipment, service or activity which is primarily intended
to result in the sale of shares issued by the Corporation.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of a Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, as well as the sales related portion of any equipment, service or activity
which is primarily intended to result in the sale of shares issued by the
Corporation.
As agent, the Distributor currently offers each Fund's shares on a
continuous basis to investors. The Distribution Agreements provide that the
Distributor accepts orders for shares at net asset value as no sales commission
or load is charged to the investor.
TAXES
Each Fund intends to qualify each year and elect to be treated as a
regulated investment company under Subchapter M of the Code. To qualify as a
regulated investment company, a Fund must comply with certain requirements of
the Code relating to, among other things, the sources of income and
diversification of assets. If the Fund fails to qualify for treatment as a
regulated investment company for any taxable year, the Fund would be taxed as an
ordinary corporation on taxable income for that year (even if that income was
distributed to its shareholders), and all distributions out of earnings and
profits would be taxable to shareholders as dividends (that is, ordinary
income).
A regulated investment company qualifying under the Code is required to
distribute each year to its shareholders at least 90% of its investment company
taxable income (generally including dividends, interest and net short-term
capital gain but not net capital gain, which is the excess of net long-term
capital gains over net short-term capital losses) and generally is not subject
to federal income tax to the extent that it distributes annually its investment
company taxable income and net capital gains in the manner required under the
Code. Each Fund intends to distribute at least annually all of its investment
company taxable income and net capital gains and therefore generally does not
expect to pay federal income taxes.
Each Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of a Fund's ordinary income for the calendar year, at
least 98% of its capital gain net income realized during the one-year period
ending October 31 during such year, and all ordinary income and capital gain net
income for prior years that were not previously distributed. For purposes of the
excise tax, any ordinary income or capital gain net income retained by, and
subject to federal income tax in the hands of, the Funds will be treated as
having been distributed.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income. Dividends from domestic corporations are
expected to comprise some portion of each Fund's gross income. To the extent
that such dividends constitute a portion of a Fund's investment company taxable
income, a portion of the income distributions of that Fund may be eligible for
the deduction for dividends received by corporations. Shareholders will be
informed of the portion of dividends which may so qualify. Distributions of net
capital gains are taxable to shareholders as long-term capital gain, regardless
of the length of time the shares of the distributing Fund have been held by such
shareholders. Such distributions are not eligible for the dividends-received
deduction discussed above. Any loss realized upon the redemption of shares held
at the time of redemption for six months or less from the date of their purchase
will be treated as a long-term capital loss to the extent of any amounts treated
as distributions of long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders receiving distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the distribution date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares may result in tax consequences (discussed below) to the
shareholder and are also subject to these reporting requirements.
Distributions by a Fund results in a reduction in the net asset value
of the Fund's shares. Should distributions reduce the net asset value below a
shareholder's cost basis, such distributions would nevertheless be taxable to
the shareholder as ordinary income or capital gain as described above, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
includes the amount of the forthcoming distribution. Those purchasing just prior
to a distribution will then receive a partial return of capital upon the
distribution which will nevertheless be taxable to them.
Each Fund intends to qualify for and may make the election permitted
under Section 853 of the Code so that shareholders may (subject to limitations)
be able to claim a credit or deduction on their federal income tax returns for,
and may be required to treat as part of the amounts distributed to them, their
pro rata portion of qualified taxes paid by that Fund to foreign countries
(which taxes relate primarily to investment income). A shareholder who does not
itemize deductions may not claim a deduction for such taxes. Each Fund may make
an election under Section 853 of the Code, provided that more than 50% of the
value of the total assets of the Fund at the close of the taxable year consists
of stocks or securities in foreign corporations. The foreign tax credit
available to shareholders is subject to certain limitations imposed by the Code.
Each Fund will notify each shareholder within 60 days after the close of the
Fund's taxable year as to whether the taxes paid by the Fund to foreign
countries will qualify for the treatment discussed above for that year, and if
they do, such notification will designate (i) each shareholders' pro rata
portion of the qualified taxes paid and (ii) the portion of the distributions
that represents income derived from foreign sources.
Generally, a foreign tax credit is subject to the limitation that it
may not exceed the shareholder's U.S. tax (before the credit) attributable to
the shareholder's total taxable income from foreign sources. For this purpose,
the shareholder's proportionate share of dividends paid by the Fund that
represents income derived from foreign sources will be treated as foreign source
income. The Fund's gains and losses from the sale of securities, and certain
currency gains and losses, generally will be treated as being derived from U.S.
sources. The limitation on the foreign tax credit applies separately to specific
categories of foreign source income, including "passive income," a category that
includes the portion of dividends received from each Fund that qualifies as
foreign source income. The foregoing limitation may prevent a shareholder from
claiming a credit for the full amount of his proportionate share of the foreign
income taxes paid by each Fund.
Equity options (including options on stocks and options on narrow-based
stock indices) and over-the-counter options on debt securities written or
purchased by a Fund are subject to Section 1234 of the Code. In general, no loss
is recognized by a Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e., long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on a Fund's holding period for the option and, in the case
of an exercise of the option, on the Fund's holding period for the underlying
stock. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying stock or substantially identical stock in the Fund's portfolio. If
the Fund sells a put or call option, no gain is recognized upon its receipt of a
premium. If the option lapses or is closed out, any gain or loss is treated as a
short-term capital gain or loss. If a call option sold by the Fund is exercised,
any resulting gain or loss is a short-term or long-term capital gain or loss
depending on the holding period of the underlying stock. The exercise of a put
option sold by the Fund is not a taxable transaction for the Fund.
Many of the futures contracts (including foreign currency futures
contracts) entered into by a Fund, certain forward foreign currency contracts,
and all listed non-equity options written or purchased by the Fund (including
options on debt securities, options on futures contracts, options on securities
indices and certain options on broad-based stock indices) will be governed by
Section 1256 of the Code. Absent a tax election to the contrary, gain or loss
attributable to the lapse, exercise or closing out of any such position
generally will be treated as 60% long-term and 40% short-term capital gain or
loss. In addition, on the last trading day of the Fund's fiscal year, all
outstanding Section 1256 positions will be marked to market (i.e., treated as if
such positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term capital
gain or loss. Under certain circumstances, entry into a futures contract to sell
a security may constitute a short sale for federal income tax purposes, causing
an adjustment in the holding period of the underlying security or a
substantially identical security in the Fund's portfolio. Under Section 988 of
the Code, discussed below, certain foreign currency gain or loss from foreign
currency related forward contracts, certain futures and similar financial
instruments entered into or acquired by the Fund will be treated as ordinary
income or loss.
Positions of each Fund which consist of at least one stock and at least
one stock option with respect to such stock or substantially identical stock or
securities or other position with respect to substantially similar or related
property which substantially diminishes a Fund's risk of loss with respect to
such stock could be treated as a "straddle" which is governed by Section 1092 of
the Code, the operation of which may cause deferral of losses, adjustments in
the holding periods of stock or securities and conversion of short-term capital
losses into long-term capital losses. In addition, the Fund will not be allowed
to currently deduct interest and carry costs properly attributable to the
straddle position. The Fund may make certain elections to mitigate the operation
of the rules discussed above. An exception to these straddle rules exists for
any "qualified covered call options" on stock written by the Fund.
Straddle positions of a Fund which consist of at least one position not
governed by Section 1256 and at least one futures contract or forward contract
or non-equity option governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, certain tax elections exist for them which reduce or
mitigate the operation of these rules. Each Fund will monitor its transactions
in options and futures and may make certain tax elections in connection with
these investments.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues interest or other
receivables, or accrues expenses or other liabilities, denominated in a foreign
currency and the time the Fund actually collects such interest or receivables,
or pays such expenses or liabilities, generally is treated as ordinary income or
ordinary loss. Similarly, gains or losses from dispositions of foreign
currencies, debt securities denominated in a foreign currency and certain
futures and forward contracts, attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the currency or security or
contract and the date of disposition are also treated as ordinary gain or loss.
These gains or losses may increase or decrease the amount of the Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
If a Fund owns shares in a foreign corporation that constitutes a
"passive foreign investment company" for U.S. federal income tax purposes and
the Fund does not elect to treat the foreign corporation as a "qualified
electing fund" within the meaning of the Code, the Fund may be subject to U.S.
federal income tax on a portion of any "excess distribution" it receives from
the foreign corporation or any gain it derives from the disposition of such
shares, even if such income is distributed as a taxable dividend by the Fund to
its U.S. shareholders. Each Fund may also be subject to additional tax in the
nature of an interest charge with respect to deferred taxes arising from such
distributions or gains. Any tax paid by a Fund as a result of its ownership of
shares in a "passive foreign investment company" will not give rise to any
deduction or credit to the Fund or any shareholder. If the Fund owns shares in a
"passive foreign investment company" and the Fund elects to treat the foreign
corporation as a "qualified electing fund" under the Code, the Fund may be
required to include in its income each year a portion of the ordinary income and
net capital gains of the foreign corporation, even if this income is not
distributed to the Fund. Any such income would be subject to the distribution
requirements described above, even if the Fund does not receive any funds to
distribute.
A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount imputed
income will comprise a part of the investment company taxable income of the Fund
which must be distributed to shareholders in order to maintain the qualification
of the Fund as a regulated investment company and to avoid federal income tax at
the level of the Fund.
Each Fund will be required to report to the Internal Revenue Service
(the "IRS") all distributions of investment company taxable income and capital
gains as well as gross proceeds from the redemption or exchange of the Fund's
shares, except in the case of certain exempt shareholders. Under the backup
withholding provisions of Section 3406 of the Code, distributions of investment
company taxable income and capital gains and proceeds from the redemption or
exchange of the shares of a regulated investment company may be subject to
withholding of federal income tax at the rate of 31% in the case of non-exempt
shareholders who fail to furnish either Fund with their taxpayer identification
numbers and with required certifications regarding their status under the
federal income tax law. Withholding may also be required if either Fund is
notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder is incorrect
or that the shareholder has previously failed to report interest or dividend
income. If the withholding provisions are applicable, any such distributions and
proceeds, whether taken in cash or reinvested in additional shares, will be
reduced by the amounts required to be withheld.
Redeeming shareholders will recognize gain or loss in an amount equal
to the difference between the basis in their redeemed shares and the amount
received. If such shares are held as a capital asset, the gain or loss will be a
capital gain or loss and will be long-term if such shares have been held for
more than one year. Any loss realized upon a taxable disposition of shares held
for six months or less will be treated as a long-term capital loss to the extent
of any capital gain dividends received with respect to such shares.
Shareholders of each Fund may be subject to state and local taxes on
distributions received from either Fund and on redemptions of each Fund's
shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Corporation issues to
each shareholder a statement of the federal income tax status of all
distributions.
The foregoing general discussion of U.S. federal income tax law relates
solely to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Funds, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 31% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
The Adviser conducts all of the trading operations for both the Global
Fund and the American Fund. The Adviser places portfolio transactions with or
through issuers, underwriters and other brokers and dealers. In its capacity as
a broker-dealer, the Adviser reserves the right to receive a ticket charge from
each Fund for such service although it currently does not engage in this
practice.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for each Fund's portfolio is to obtain the most favorable
net results, taking into account such factors as price, commission, where
applicable, (which is negotiable in the case of U.S. national securities
exchange transactions but which is generally fixed in the case of foreign
exchange transactions), size of order, difficulty of execution and skill
required of the executing broker/dealer. The Adviser reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
brokers and dealers who supply market quotations to the custodian of the Funds
for appraisal purposes, or who supply research, market and statistical
information to either Fund or the Adviser. The term "research, market and
statistical information" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities, and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is not authorized when placing portfolio transactions for either
Fund to pay a brokerage commission in excess of that which another broker might
have charged for executing the same transaction solely on account of the receipt
of research, market or statistical information. The Adviser does not place
orders with brokers or dealers on the basis that the broker or dealer has or has
not sold a Fund's shares. Except for implementing the policy stated above, there
is no intention to place portfolio transactions with particular brokers or
dealers or groups thereof. In effecting transactions in over-the-counter
securities, orders are placed with the principal market makers for the security
being traded unless it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Funds and to the Adviser, it is the
opinion of the Adviser, that such information is only supplementary to its own
research effort since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Funds, and not all such
information is useful to the Adviser in providing services to the Funds. For the
fiscal years ended March 31, 1999, March 31, 1998 and March 31, 1997, the Global
Fund incurred brokerage commissions of $3,474,835, $2,670,257 and $2,167,248,
respectively. For the fiscal years ended March 31, 1999, March 31, 1998 and
March 31, 1997, the American Fund incurred brokerage commissions of $563,102,
$636,393 and $223,652, respectively. The increase in commission payments is
attributable to the increased size of the Funds.
Average annual portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less. For
the fiscal years ended March 31, 1999 and March 31, 1998, the Global Fund's
portfolio turnover rates were 23% and 16%, respectively. For the fiscal years
ended March 31, 1999 and March 31, 1998, the American Fund's portfolio turnover
rates were 16% and 6%, respectively.
NET ASSET VALUE
The net asset value of shares for both the Global Fund and the American
Fund will be computed as of the close of regular trading on the New York Stock
Exchange, Inc. (the "Exchange") on each day during which the Exchange is open
for trading. The Exchange is normally closed on the following national holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. Net
asset value per share for the Funds is determined by dividing the value of the
total assets, less all liabilities, by the total number of shares outstanding.
In valuing a Fund's assets, a security listed on an exchange or through
any system providing for same day publication of actual prices (and not subject
to restrictions against sale by the Fund on such exchange or system) will be
valued at its last quoted sale price prior to the close of regular trading.
Portfolio securities and other assets listed on a foreign exchange or through
any system providing for same day publication of actual prices are valued at the
last quoted sale price available before the time when assets are valued.
Portfolio securities and other assets for which there are no reported sales on
the valuation date are valued at the mean between the last asked price and the
last bid price prior to the close of regular trading. When the Adviser
determines that the last sale price prior to valuation does not reflect current
market value, the Adviser will determine the market value of those securities or
assets in accordance with industry practice and other factors considered
relevant by the Adviser. All other securities and assets for which current
market quotations are not readily available and those securities which are not
readily marketable due to significant legal or contractual restrictions will be
valued by the Adviser or at fair value as determined by or under the direction
of the Board of Directors. Debt securities with a remaining maturity of 60 days
or less are valued at amortized cost, which approximates market value, or by
reference to other factors (i.e., pricing services or dealer quotations) by the
Adviser.
<PAGE>
The value of a security which is not readily marketable and which
accordingly is valued by or under the direction of the Directors is valued
periodically on the basis of all relevant factors which may include the cost of
such security to the Fund, the market price of unrestricted securities of the
same class at the time of purchase and subsequent changes in such market price,
potential expiration or release of the restrictions affecting such security, the
existence of any registration rights, the fact that the Fund may have to bear
part or all of the expense of registering such security, any potential sale of
such security by or to another investor as well as traditional methods of
private security analysis.
Following the calculation of security values in terms of the currency
in which the market quotation used is expressed ("local currency"), the valuing
agent will calculate these values in terms of U.S. dollars on the basis of the
conversion of the local currencies (if other than U.S.) into U.S. dollars at the
2:00 p.m. New York time spot rate. Foreign currency exchange contracts are
valued using the relevant 2:00 p.m. New York time spot rate and future rate on
foreign currency contracts.
Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business on each business day in New York (i.e., a day on which the Exchange is
open). In addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which a Fund's net asset value is not calculated. Each Fund generally
calculates net asset value per share, and therefore effects sales, redemptions
and repurchases of its shares, as of the regular close of the Exchange on each
day on which the Exchange is open. Such calculation does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. If events materially affecting
the value of such securities occur between the time when their price is
determined and the time when that Fund's net asset value is calculated, such
securities will be valued at fair value as determined in good faith by the Board
of Directors.
ADDITIONAL INFORMATION
Redemptions-in-Kind
The Corporation on behalf of both Funds reserves the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption in excess of $250,000 during any three-month period by making payment
in whole or in part in readily marketable securities chosen by the Funds and
valued as they are for purposes of computing the Funds' net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities to cash.
<PAGE>
Experts
Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116, serves as
independent auditors for the Funds. The financial statements and schedules of
investments of Tweedy, Browne Global Value Fund and Tweedy, Browne American
Value Fund at March 31, 1998 and for each of the periods indicated therein
appearing in this Statement of Additional Information have been audited by Ernst
& Young LLP as set forth in their reports thereon appearing elsewhere herein,
and are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
Other Information
The Corporation employs Boston Safe Deposit and Trust Company, One
Boston Place, Boston, MA 02108, as custodian for both the Global Fund and the
American Fund.
The Prospectus and the Statement of Additional Information omit certain
information contained in the Registration Statement which the Corporation has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement for further information with respect to the Funds
and the securities offered hereby. The Registration Statement is available for
inspection by the public at the SEC in Washington, D.C. In addition, the SEC
maintains a web site (http://www.sec.gov) that contains the Statement of
Additional Information, information incorporated by reference to this Statement
of Additional Information and the Prospectus and other information regarding
registrants that file electronically with the SEC.
Financial Statements
The Funds' Annual Report for the fiscal year ended March 31, 1999 is
included herein.
<PAGE>
A-2
l:\shared\boslegal\clients\tweedy\peas\sai-991r.doc
APPENDIX A
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds.
Ratings of Municipal and Corporate Bonds
S&P:
Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. Debt rated AA
has a very strong capacity to pay interest and repay principal and differs from
the highest rated issues only in small degree. 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 higher rated categories. 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.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned and actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's:
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." 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. Bonds which are rated 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. 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.
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. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class. Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or maintenance of other terms of the contract over any long period of
time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
to a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
TWEEDY, BROWNE
GLOBAL VALUE FUND
ANNUAL
MARCH 31, 1999
TWEEDY, BROWNE
AMERICAN VALUE FUND
<PAGE>
Tweedy, Browne Fund Inc.
Investment Manager's Report............................................ 1
Tweedy, Browne Global Value Fund:
Portfolio Highlights................................................. 20
Perspective On Assessing Investment Results.......................... 21
Portfolio of Investments............................................. 23
Schedule of Forward Exchange Contracts............................... 32
Statement of Assets and Liabilities.................................. 37
Statement of Operations.............................................. 38
Statements of Changes in Net Assets.................................. 39
Financial Highlights................................................. 40
Notes to Financial Statements........................................ 41
Report of Ernst & Young LLP, Independent Auditors.................... 49
Tax Information (unaudited).......................................... 50
Tweedy, Browne American Value Fund:
Portfolio Highlights................................................. 51
Perspective On Assessing Investment Results.......................... 52
Portfolio of Investments............................................. 54
Schedule of Forward Exchange Contracts............................... 62
Statement of Assets and Liabilities.................................. 64
Statement of Operations.............................................. 65
Statements of Changes in Net Assets.................................. 66
Financial Highlights................................................. 67
Notes to Financial Statements........................................ 68
Report of Ernst & Young LLP, Independent Auditors.................... 75
Tax Information (unaudited).......................................... 76
This report is for the information of the shareholders of Tweedy, Browne
Fund Inc. Its use in connection with any offering of the Company's shares is
authorized only in a case of a concurrent or prior delivery of the Company's
current prospectus. Investors should refer to the accompanying prospectus for
description of risk factors associated with investments in securities held by
both Funds. Additionally, investing in foreign securities involves economic and
political considerations not typically found in U.S. markets, including currency
fluctuations, political uncertainty and differences in financial standards.
Tweedy, Browne Company LLC is a member of the NASD and is the Distributor of the
Company.
<PAGE>
TWEEDY, BROWNE FUND INC.
Investment Manager's Report
[PHOTO APPEARS HERE]
Chris Browne, John Spears and Will Browne (seated L to R)
Bob Wyckoff and Tom Shrager (back row L to R)
To Our Shareholders:
We are pleased to present the annual report for Tweedy, Browne Global Value
Fund and Tweedy, Browne American Value Fund for the year ended March 31, 1999.
However, while we are pleased with the long-term investment returns of both
Funds since their inceptions in 1993, there is not much to be pleased about this
year concerning the building of our and our shareholders' wealth. We think it is
realistic to expect that good long-term returns will be formed by a somewhat
random pattern of good and not-so-good annual investment returns. The current
Managing Directors and retired principals and their families, as well as
employees of Tweedy, Browne, have more than $388.3 million in portfolios
combined with or similar to client portfolios, including approximately $40.7
million in the Global Value Fund and $31.3 million in the American Value Fund.
With our own money and with clients' money, we plan to stick with the value
investment approach that, on average (but not every year), has worked so
1
<PAGE>
well for us over the past 24 years. The underlying intrinsic value of most of
the companies that the Funds own increased more than their share prices, laying
the ground work, we believe (and hope), for good returns in the future. The net
asset value of shares of Tweedy, Browne Global Value Fund increased 3.03%*,
after adding back the calendar year-end dividend. The net asset value of shares
of Tweedy, Browne American Value Fund declined 1.09%*, after adding back the
calendar year-end dividend. It was a very strange year in that the stocks that
did well were few in number. And those that did well, by and large, did very
well. Internet stocks and technology stocks, which we do not own, did extremely
well, appearing to defy all forms of fundamental financial gravity, while large
value stocks and most mid-cap and small cap stocks did poorly. Our performance*
for various periods ended March 31, 1999, and that of the various indices to
which we compare ourselves, is set forth in the following chart:
- --------------------------------------------------------------------------
Morningstar Morningstar
World Foreign
Tweedy, Browne MSCI EAFE(1) Stock Funds Stock Funds
Global Value US $ Hedged Average(2) Average(3)
- --------------------------------------------------------------------------
1 Year 3.03% 6.06% 4.78% 0.15% (0.25)%
- --------------------------------------------------------------------------
3 Years 16.95 8.47 14.90 11.62 8.70
- --------------------------------------------------------------------------
5 Years 13.91 8.75 12.30 11.53 7.69
- --------------------------------------------------------------------------
Since Inception(9) 15.91 9.14 11.98 12.36 9.63
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- ------------
Morningstar
Morningstar
Mid-Cap
Domestic
Tweedy, Browne S&P Mid-Cap Russell Value Funds
Stock Funds
American Value 500(4) 400(5) 2000(6) Average(7)
Average(8)
- --------------------------------------------------------------------------------
- ------------
<S> <C> <C> <C> <C> <C>
<C>
1 Year (1.09)% 18.49% 0.46% (16.25)% (9.79)%
3.65%
- --------------------------------------------------------------------------------
- ------------
3 Years 19.39 28.05 18.30 7.73 12.71
17.18
- --------------------------------------------------------------------------------
- ------------
5 Years 20.54 26.21 18.21 11.23 14.38
17.92
- --------------------------------------------------------------------------------
- ------------
Since Inception(9) 18.57 23.78 17.10 10.60 13.31
16.60
- --------------------------------------------------------------------------------
- ------------
</TABLE>
See page 19 for footnotes 1 through 9, which describe the indices and inception
dates of the Funds.
- ---------------
* Past performance is not a guarantee of future results, and total return and
principal value of investments will fluctuate with market changes. Shares, when
redeemed, may be worth more or less than their original cost.
2
<PAGE>
The difference between the performance of the Standard & Poor's 500 Stock
Index ("S&P 500"), and the Russell 2000 Index ("Russell 2000") at 3,474 basis
points (34.74%) is perhaps greater than we can ever recall. The S&P 500 is an
index of large cap stocks and the Russell 2000 is an index of mid and smaller
cap stocks. (The 1,000 largest stocks are excluded from the Russell 2000). In
calendar year 1998, 15 stocks, a mere 3% of the issues in the Index, accounted
for 52% of the performance of the S&P 500. Of these 15 stocks, nine were either
technology or communications companies. If you owned those stocks, you had a
great 1998. Most value investors did not own those stocks. The trailing twelve-
month price/earnings ratio at the end of 1998 for those stocks was 47.7 times.
The projected price/earnings ratio for the group for 1999 is 44.8 times. These
are not value statistics. In the first quarter of 1999, the stock market has
gotten even narrower. Just five stocks accounted for more than 52% of the S&P
500's gain of 5%, and the entire gain was accounted for by only eighteen
stocks. The other 482 stocks in the S&P 500 produced no net return.
In a year such as the one just past, the performance of a particular index
may not be indicative of the performance of stocks in general. In calendar year
1998, the performance of the average stock in the S&P 500 was less than one-half
the performance of the Index. The same phenomenon occurred in stock markets
outside the U.S. The Morgan Stanley Capital International (MSCI) Europe,
Australasia and Far East Index (EAFE) gained 6.06% for the year ended March 31,
1999. For the same period, EAFE Small Cap was down 8.40%. Technology stocks are
less of a factor in Europe and Asia than they are in the U.S. In Europe,
telecommunication stocks were the big movers. Anyone who has tried to order a
phone system in Europe or has paid a phone bill there will understand why there
is so much potential for growth in European telecommunication stocks.
Stock market commentators refer to this as narrowness. When market
performance is "narrow", a small number of stocks account for the performance of
an index and may not be representative of how stocks in general have performed.
Most of the time a rising tide lifts all boats. This was not the case in 1998.
Last year was the narrowest year since the 1989-1990 period when a small number
of large cap consumer product companies like food and pharmaceuticals masked
what was otherwise a pretty bad year for stocks. Much of the effect stems from
the fact that the popular stock market indexes are capitalization weighted. The
larger the market capitalization of a company, the greater is its contribution
to the calculation of the performance of an index. In the S&P 500, about 50
stocks, 10% of the issues in the Index, generally account for approximately one-
half of the Index's weighting. The NASDAQ Composite Index ("NASDAQ Index") is
even more skewed towards a handful of large companies. Out of more than 4,700
issues
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in the NASDAQ Index, just five account for 50% of the performance calculation.
While indexes in general are a reasonable barometer of stock market performance,
capitalization weighting can distort the picture. Although the size of different
stock positions within a portfolio or mutual fund can vary, generally they do
not vary as much as they do in an index. For example, the market capitalization
of the largest stock in the S&P 500 is 1,239 times greater than the smallest. It
is rare that a money manager would build a stock portfolio with such disparities
in the size of its positions.
The skewing of the indexes to large companies is further compounded by a
concentration in large technology companies. The S&P 500 was historically an
index of industrial America. Today, it is increasingly concentrated in
technology stocks, which for the time being are measured by a different
valuation model. Potential future earnings are much more important than current
earnings. The NASDAQ Index is even more skewed. The five largest stocks are all
technology issues. Again, stock portfolios are generally built around
diversification, not concentration. A typical portfolio will have stocks in many
industries; it will generally not have one-half of the assets invested in one
industry. This is done for the purpose of lowering risk. While a concentrated
portfolio could outperform, it could also seriously underperform if the area of
concentration goes out of favor.
Last year, funds that were heavily invested in large capitalization growth
stocks did best. Smaller stocks and "value" stocks in particular did poorly. In
1998, large value stocks underperformed technology stocks, but still had
positive returns. Small and mid cap value stocks posted primarily negative
returns. These negative returns were not a result of the companies themselves
doing badly. These stocks were just ignored or sold as money flowed to where the
gains were being made in technology and Internet stocks.
Internet stock valuations are particularly difficult for us to comprehend.
In our opinion, these issues are truly the cork on the champagne bottle. As a
group they have little or no earnings and no near term prospects for earnings
that could justify their sky high stock prices. We feel as though we are sitting
on the sidelines watching a wild party going on and wondering if we are missing
out on all the fun. However, we remember that, at best, these parties end with a
hangover or are brought to an abrupt end when the police show up and cart
everyone off to jail. These parties have occurred in the past. We remember the
great personal computer party of the early 1980s. The industry leaders in those
days were Atari, Commodore and Tandy, names that are barely remembered today.
The same happened with biotechnology companies in 1991. True financial history
buffs can recall the tulip mania of the 17th Century, the railroad mania of the
late 19th Century, and the birth of the automobile industry in the first part of
this century.
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Railroads, autos and personal computers all grew to be large, important
industries. However, the stocks one could buy to pa rticipate in these great
growth industries for the most part were bad investments. A friend of ours who
also manages money told us of a report he read which showed that if you had
invested an equal amount of money in every personal computer manufacturer in
1980, your annually compounded rate of return over the next 18 years would have
been a disappointing 4%.
Great growth industries often have the common characteristic of ease of
entry with low capital requirements. Despite the fact that the auto industry
today is a highly capital-intensive business, the opposite was the case in the
early part of this century. The same may be said for the Internet. Add to this
the fact that the pace of technological change today is so rapid, what is
cutting edge technology one day can be passe the next. Ease of entry and low
capital requirements draw competition and while competition is good for
consumers, it is bad for profits. Most Internet companies do not have any
profits other than the profits reaped by selling stock to the public. Brand
recognition is also important for companies selling products to the consumer. To
some extent, Amazon.com has brand recognition. However, when it only takes a
point and a click to compare prices at Borders or Barnes & Noble, the only
reason to buy from one versus the others is price. The book is the same; price
is the only difference and the price will be set by the company that is willing
to accept the lowest profit margin. Companies will therefore compete on price
for more customers hoping that a significant market share will ultimately lead
to profits. Unless one of the competitors has a sustainable cost advantage over
the others, this is not the formula for a good business.
Although we are enthusiastic users of technology and information technology
in particular, we are not very good guides to what is happening in Internet
technology. When we look at a company like America Online, we cannot understand
the investment model which places a value of $120 billion on a company with $2.6
billion in revenues and $92 million in profits in its latest fiscal year. It may
ultimately grow enough to justify its current valuation, but what about a higher
value from this point forward? There is nothing particularly unique about what
AOL does. There are other Internet access providers, some of which have less of
the obnoxious advertising that keeps popping up on our computer screens. It has
no patent protection and while it does have brand recognition, that alone does
not guarantee its future survival. A Packard was once one of the best cars you
could buy. AOL's current price/earnings ratio exceeds 600 times. Were it to sell
at a more normal, yet rich, growth stock multiple of 35 times, its earnings must
increase 17 fold. Again, it may happen, but history is full of examples of
companies that never reached such great expectations. A portfolio of stocks with
these characteristics has never been a formula for good investment performance.
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There is a lot of talk lately about a new "paradigm" for stock valuations.
One needs a new paradigm to rationally justify the valuations of stocks that
soar merely by virtue of the fact that someone has added ".com" to the end of
their name. A lot of money has been made in most of these issues and a lot of
people are sorry they have missed out on all the fun. We even hear the
occasional complaint asking why we have not invested in these new technologies.
Some people may even be thinking that our time has passed, and that we are not
open to new ideas and avenues of profit in the stock market. It is true we do
not go mountain biking on the weekends to train for the rigors of stock
investing on Monday mornings. Of course we have not heard that Warren Buffett
has enrolled in karate classes either, and he seems to do okay. New ideas come
and go, and it has been our experience that when they go, a lot of money is
usually lost. We do not enjoy risk and we do not enjoy losing money. If history
tells us that investing in new paradigms at sky high prices eventually leads to
big losses, we pass. We are perfectly happy with our performance over the past
three years, five years and thirty years. And after thirty years in this
business doing the same thing, we are still players in the game. We see little
reason to apologize and no reason to change our stripes.
We recently participated in The Program on Investment Decisions and
Behavioral Finance at the Kennedy School of Government at Harvard University, as
we have twice a year for the past several years. The speakers are some of the
most prominent behavioral economists in the country along with a few investment
practitioners like ourselves. We feel honored to be included. The economists are
the theorists who perform all the empirical studies on people's investment
behavior. We are the lab rats who put the theories into practice. We either come
away with some new insights each time or feel as if we have been to a refresher
course in rational behavior as it relates to investing. One insight we picked up
this year was that in the investment world, ideas are dangerous. This may sound
strange at first, but it is actually true. Most investment ideas are based on
intuition or hunches and usually lack any empirical substantiation. Most
investment ideas are derived from whatever has worked well in the recent past.
What else could explain the euphoria surrounding Internet and technology
stocks? However, what has worked best most recently may not always work well for
long. As Ben Graham said, "In the short run, the stock market is a voting
machine. In the long run, it is a weighing machine."
Meanwhile, Internet stocks continue to soar with periodic plunges. Overall,
the game is still continuing. These stocks have Internet chat rooms where all
sorts of information and misinformation is exchanged by day traders. Traders
brag about how much money they made trading
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Whatever.com, and others are suckered into the game. Stocks are bought merely
because they have gone up and the approach becomes self-fulfilling. Little or no
consideration is given to whether there is any investment value underlying the
price that is being paid. Value does not count for anything in the new paradigm.
What is forgotten is that not everyone can get out if and when the game ends.
There will be just as many shares outstanding and someone will own them when the
day of reckoning comes.
Perhaps as money managers, we should be smart enough to know when to jump
on board these fads and when to leave. Perhaps we should be able to determine at
the beginning of each year which stocks or group of stocks will be the ones that
will outperform the market over the next six months or year. Would we have said
let's start with the group of stocks that have no earnings and maybe no assets?
Has it ever been proven that investing in stocks with no earnings and no assets
has been a long-term winning investment strategy? Perhaps this explains why so
many money managers today are portrayed as top athletes, building stamina on the
weekends for when the stock market opens. This may also explain why the opening
bell on The New York Stock Exchange is covered on television as if it were the
opening kick off at the Super Bowl. You need a lot of stamina to attempt to do
something that is not humanly possible long term. Many analysts and money
managers bought Internet stocks and made a lot of money. However, we think they
may be confusing luck with skill. That is often the case with investment fads
that work for a period of time.
We view this type of investing as another form of market timing. Many
people in our business market time, and the vast majority do not beat the
market. The behavioral psychologists and economists call this the over-
confidence factor. We suppose that if money managers did not think they could
beat the market, they would not try. Therefore, they believe they can beat the
market. The behavioralists have another term, "calibrated confidence", which
means knowing what you can do and what you cannot do. It requires being
comfortable with the knowledge of how limited your abilities really are. In a
paper written by Brad Barber and Terrance Odean of the Graduate School of
Management at the University of California, Davis, the authors found that over-
confident investors trade more and make less. The greater the trading volume,
the poorer the returns. In another study of 100,000 individual stock trades,
they found that the stocks investors sold "on average" outperformed the stocks
they bought by 3.4% after one year. It seems logical that a money manager who
turns over his portfolio at a high rate must have confidence that all the
individual investment decisions he or she is making must be right. A lack of
confidence in one's abilities usually results in a lack of activity and low
activity levels have been proven to produce better returns. Odean and Barber
also found that investors who trade at a high
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rate buy riskier stocks. Perhaps all those investors who are trading Internet
stocks realize they are riskier than most stocks but are confident they can get
out before the game is over. We wish them luck.
In the February 1, 1999 issue of Peter L. Bernstein's newsletter, Economics
and Portfolio Strategy, Jason Zweig, mutual fund columnist of Money Magazine,
wrote an excellent piece entitled The Velocity of Learning and the Future of
Active Management. In this article, Mr. Zweig comments on the current speed of
information and its influence on money management. He reports that in 1959, the
turnover rate for the average mutual fund was 16.4% which equates to a six-year
holding period. By 1979, the turnover rate had increased to 63.3%. Today, it
exceeds 83%. And this is the average. Many funds have significantly higher
turnover rates, indicating that a day trading mentality is not solely an
individual investor phenomenon. While this may be great news for stockbrokers
and the Internal Revenue Service, it is probably not good news for investors.
Mr. Zweig points out that as the flow of data "makes the future seem closer and
more knowable", investment managers make ever shorter-term bets. Pressure is
exerted on money managers to abandon long-term investment principles in favor of
short-term strategies, which have less risk of producing performance that
deviates from whatever benchmark is used to measure performance. This behavior
is understandable. Money flows into funds that have had the best recent
performance, and in general future performance suffers under the weight of these
ballooning assets. This is not a problem we and most of our value brethren have
at this time, but it is something we think about. When "value" returns to favor,
we prefer a manageable inflow of money to a flood.
Performance is now measured and graded over shorter and shorter periods of
time. An entire industry based on performance measurement has grown to the point
where it influences the allocation of trillions of dollars. The yardsticks used
in this industry are all based on relative performance, not absolute
performance. The main yardstick is "tracking error"; e.g., how much did the
manager's performance deviate from the chosen benchmark. As Mr. Zweig points
out, the performance measurement industry can now track performance on a daily
basis. We are sure that some participant in this industry will soon offer hourly
tracking and provide this information to subscribers over the Internet. But is
it of any value? Years ago, psychologists performed an experiment on
kindergarten children where each child was given a marshmallow. They were told
the teacher would leave the room for ten minutes. When the teacher returned, any
child who had not eaten his or her marshmallow would be given a second one. The
majority of children could not resist the temptation to eat their marshmallow
before the teacher returned to the classroom. The psychologists then followed
the lives of these children into adulthood. They observed that the children who
were able to
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wait until the teacher returned to the classroom before eating their
marshmallow, in general were more successful in life. These children were able
to make better long-term choices as adults.
Our investment principles have remained constant over a long period of time
and we are very pleased with the result. We think in terms of long-term absolute
and relative performance, not short-term relative performance. If that means
that money flows away from us and into growth stock funds in a period of
relative underperformance, we have to accept that. We know that our method of
investing has outperformed the indices over the last 24 years, with our stocks
underperforming one-third of the years and outperforming two-thirds of the
years. (Please see "Is Underperforming an Index 30% to 40% of the Time a Normal
Part of Long-Term Investment Success?" in our booklet 10 Ways to Beat an Index.)
We are one-at-a-time-stock-pickers, not market forecasters. We could not have
assembled at the beginning of last year and successfully predicted that
technology stocks and Internet stocks would be stellar performers over the next
12 months.
While some money managers may think they can time the stock markets or
segments of the stock markets, we have a much lower opinion of our
prognosticating abilities. In fact, we readily accept the fact we cannot
forecast stock markets. Sorry, but if that is what you are looking for, you have
invested in the wrong Funds. We know one manager whose employer measures his
performance against the relevant benchmark weekly. Consequently, this individual
is primarily concerned with whether his stocks are up at every point in time,
and he trades in and out of stocks depending on very short-term price movements.
We wonder if there is any time left for basic stock research. For our part, we
do not even take credit for coming up with the investment principles that have
produced rather good results over time. That credit goes foremost to Ben Graham,
who in the 1930s was the first to articulate the principles of value investing,
and who such great investors as Warren Buffett and Walter Schloss credit with
much of their success.
While our investment principles have remained constant over time, our
methods have evolved principally through the addition of new, and we believe
valid, measurements of value criteria. In the 1960s and early 1970s, we invested
mostly in stocks selling at a discount to book value, or a discount to net
current assets (current assets less all liabilities). There were plenty of those
kinds of stocks in those days. At a time when manufacturing dominated the
economy, book value or current assets were a significant measure of value. They
still are. However, there is also value in consumer franchises and businesses
that have some degree of control over their markets or the pricing of their
products.
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The most obvious example was in television stations in the late 1970s. When
Jim Clark joined us in 1976, he came from an investment firm that owned
television stations. Before his arrival, we never invested in companies that
owned television stations because they had no tangible book value. Jim taught us
that they had franchise value instead. TV stations are a semi-monopoly such as
the CBS affiliate in Miami or Chicago. Moreover, stations change hands rather
frequently and at fairly consistent multiples of cash flow. It is actually
easier to determine the value of a TV station than it is a manufacturing company
selling at one-half of book value that is not earning a reasonable return on its
capital.
One of the companies we bought at that time was Storer Broadcasting, which
was selling at about one-half of 10 times cash flow, the industry standard for
acquisitions. In addition, Storer had one of the lowest profit margins in the
industry, which meant that a good operator, as opposed to its underperforming
operators, might be able to improve the bottom line. The values might even be
greater. (Legend has it that when Warren Buffett bought into The Washington Post
Company, he explained to Katherine Graham that she owned monopolies and could
therefore raise prices for advertisements and improve earnings.) After we bought
shares of Storer, we explained the acquisition pricing of TV stations to a
takeover group, and the hidden value in Storer. We did not hear back from this
group, but they accumulated a position in Storer and "put it in play". To our
delight, the company was ultimately acquired at a significant premium to our
cost. We learned the principle of appraising business values. We went on to make
other successful investments in ABC and then Capital Cities Broadcasting. In the
mid-1980s, we discovered the acquisition pricing model for food companies and
consumer product companies, which lead to profitable investments in stocks such
as General Foods, Rothmans Tobacco and Distillers Corporation, among others. We
had expanded our universe of cheap stocks.
We continued to buy stocks with low price/earnings ("P/E") ratios and low
price-to-book value ratios, but had added stocks with low price-to-enterprise
value ratios. Many of our value brethren only buy a slice of the value menu.
Some only buy low P/E stocks, which leads to a portfolio of aluminum companies,
auto companies and other typically cyclical businesses. Over time this strategy
has performed well. In some cases because of the amount of assets under
management, it has been their only alternative. Other value managers have
migrated to buying only "better businesses" at reasonable prices. Our menu is
more diverse. In 1998, the "better business" managers performed better. Some
years, "the not-so-good businesses but cheap-on-book or earnings" guys do
better, but not in 1998. We are a combination of several value biases. Why else
would we own
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Johnson & Johnson, Glaxo-Wellcome, American Express and Freddie Mac? But we also
own some pretty doggie companies, or at least they were when we bought them:
ASARCO, ACX Technologies, British Mohair, EZCORP, etc. There is more than one
standard for cheap. Why should we limit ourselves to just one category?
The other area where some money managers constrain themselves is market
cap. We do not. Some managers only buy large cap stocks, which may be more a
function of their assets under management. The more money one manages, the less
impact a small or medium cap stock can have on your results because you can
never own enough to make a difference. We are still of such a size in terms of
assets under management that small and medium cap stocks can have an impact on
performance. In 1998 that impact was negative. Usually, in our experience, the
impact is positive. Money managers who restrict themselves to small and mid-cap
stocks probably had a bad experience in 1998. Our large cap stocks, generally,
carried the day last year. However, stocks that did not perform well in a given
time measurement period are not necessarily bad investments. In markets when
only a few segments get all the attention, perfectly good stocks may do nothing
or even decline. Our experience has been that if the value is there, ultimately
it is recognized.
Jason Zweig speaks to this issue in the same article we mentioned above.
Along with forcing money managers to focus on the short term, the performance
measurement industry also forces money managers into "style boxes". Are we
value, growth, large cap or small cap? Whatever you are, just be sure you only
buy stocks that fit your style. The "style police" are more active in the
institutional money management business where changes in a portfolio can be seen
daily. More often than not, institutional money managers are selected because
they fit into some asset allocation model the client has adopted. This could be
1/3 large cap value, 1/3 large cap growth, 1/6 small cap value and 1/6 small cap
growth. Add mid cap, international, market neutral strategies, arbitrage, etc.,
and the permutations can be mind boggling. If you find a perfectly good stock
that you think is dirt cheap, you cannot buy it if it does not also fall into
your style box. We prefer to think out of the box while maintaining a consistent
set of values. As we have said, cheap is a different number depending on the
business. To judge Alcoa and Johnson & Johnson on the same P/E and price/book
value criteria just does not make any sense. It is more important that someone
have sound values, honesty and integrity, than it is the particular religion
which taught them those values. The same can be said for money managers.
We believe that the downside of our approach to investment management is
underperformance, not the risk of permanent capital loss. We do not
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own "air ball" stocks that can dissolve overnight such as what is available in
the Internet arena. We also do not invest such a great percentage of our assets
in any one issue so that if we are wrong and the company goes belly-up we have
significantly impaired our net worth. Many managers who have underperformed
their benchmark have still delivered rates of return that have exceeded
inflation and increased the wealth of their clients. In the long run, one of the
greatest risks to your net worth is not owning stocks. Bonds do not grow. They
can only return their face value at maturity. Although inflation is currently at
historically low levels, it still exists. Inflation is a silent, insidious tax
which erodes your net worth. Within our lifetimes, having a million dollars was
considered a fortune. Also in our lifetimes, college cost $2,500 a year, an
expensive car cost $8,000 and $100,000 bought a luxurious house. Our
grandparents can remember going to the movies for a nickel. One of the problems
with living a long time is that your point of reference for the cost of
something is cheaper. Fortunately, there is an easy way to keep pace with and
even beat inflation and that is equities. Historically, over time an index fund
always beats inflation.
There is a great deal of talk about index funds these days, especially in a
year when, according to Morgan Stanley, 86% of U.S. equity mutual funds
underperformed the S&P 500. It is an alternative, and the S&P 500 is as good a
barometer of equities as anything out there. However, today you have to ask what
you are buying in an S&P 500 Index fund. On December 31, 1998, the 12-month
trailing price/earnings ratio of the S&P 500 stood at 30.3 times. The dividend
yield was barely above 1% and the price-to-book value ratio was at an historical
high. These are not the fundamental financial characteristics of a portfolio of
stocks that we are comfortable owning. If we go back to 1982 or even 1990, these
basic ratios were quite cheap. Today, they are not. Fortunately, not every stock
carries the same price-to-book value ratio. The median P/E is 20.8 which means
one-half of the stocks in the S&P 500 have lower P/Es. Furthermore, the S&P 500
is a small percentage of all the stocks from which we have to choose. In terms
of market cap, the 10 largest companies in the S&P 500 have an average P/E of
40.6 times. Microsoft now has the largest market cap in the S&P 500 and its
trailing P/E was a lofty 61.6 times. Five years ago, Microsoft was not even
among the top ten. Recently, Venator Group (the old F.W. Woolworth) was dropped
from the S&P 500 and replaced with America Online which sells at more than 600
times earnings. The days when the S&P 500 was dominated by the large industrial
cyclical companies are gone. There has been a migration to companies that at
least for the time being have higher growth rates and returns on capital, which
in some measure accounts for the higher P/E ratios. Nevertheless, P/E ratios of
this magnitude do not leave much room for disappointment. Furthermore,
historically, stocks that sell at these levels eventually return to earth with
unpleasant consequences.
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The overall financial ratios of the S&P 500 have not gone unnoticed in
institutional investor circles. The response of many has been to seek
"alternative investment strategies". These alternatives run the gamut from
venture capital, to risk arbitrage and hedge funds, to leverage buyout funds.
The overall returns from these investment vehicles have not provided value added
over an S&P 500 Index fund. The average performance of the managers in the top
quartile has outperformed each of these types of investments. So has the top
quartile of plain vanilla equity money managers. The problem with the best
alternative investment pools is getting into them. So much money has been
chasing after venture capital lately that the firms with top records will not
take your money. They don't need it. Many will not even take all the money their
existing clients are willing to give them when they open a new fund. They ration
investments in their funds. This has also enabled several to raise their fees
from a 1% flat fee plus 20% of the gain to a 2% flat fee plus 30% of the gain.
Generally, when too much money chases too few deals, the rates of return
decline. Much the same could be said for leverage buyout funds.
Hedge funds are a bit different. At least here you can get your money back
sooner than 8 or 10 years. In general, investors in hedge funds can exit once a
year. In between, they may have little idea of what the hedge fund manager is
doing with their money. This became painfully apparent in the collapse of Long
Term Capital Management last September. No one, including the bankers who had
lent these self-styled geniuses more than $100 billion, knew they were leveraged
more than 25 to 1. Their strategy was bulletproof and they had the data and two
Nobel Prize Laureates to prove it. Yet, somehow, in a matter of a few short
weeks the whole thing dissolved in a cloud of smoke. Again, before the collapse,
many investors were begging them to take their money. Long Term Capital
Management had a black box strategy, a purely quantitative way of investing that
was much more dependent on computers than humans. Most hedge funds depend on the
manager and his or her ability to time markets. They go both long and short in
their portfolios so that theoretically they will prosper irrespective of the
direction of the conventional equity markets. They have also moved beyond doing
this with just stocks to all sorts of financial instruments, some of which were
probably created by brokers just for them. They can trade in currencies,
interest rate futures, commodities and foreign debt, like Russian bonds. They go
in and out of things we cannot even begin to comprehend.
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We see several problems with hedge funds. First, the manager is basically
making market timing bets in a whole range of financial instruments.
Conventional wisdom holds that with plain old stocks you cannot successfully
time the markets. How then can a hedge fund manager time a whole range of
markets? To our way of thinking there is a disconnect in the logic. Second,
hedge funds use leverage, and in many cases the investor does not know how much
They now have a word for this: transparency. Most hedge funds are blind pools of
capital; you cannot see what they own or how much leverage they are employing.
We are even told some will de-lever (i.e., reduce their borrowings), as their
fiscal year end approaches to give their investors some comfort. We do not
believe in deceiving our clients no matter how much more we think we know than
they do. The hedge fund managers claim they need this secrecy so that no one can
see where they have placed their bets and mess up their strategies. However, you
also cannot tell how leveraged they are, as was the case with Long Term Capital
Management. So long as a portfolio has some reasonable degree of
diversification, be it even just ten stocks, it is unlikely to blow up unless it
is leveraged. In our experience, when we have read about funds that crashed into
a wall, they were always riding on leverage. Third, and this only affects those
of us who must pay taxes, the gains are nearly always short term, which means
they are taxed at the highest rates, sometimes up to 50%, depending upon where
you live. Every dollar of gain from long-term capital gains, which is taxed at
20% at the Federal level, requires $1.31 of ordinary gain taxed at the top
Federal rate of 39% to yield the same after tax profit of 80 cents. For any
gains in a given year that are unrealized, the amount you would have had to pay
in taxes can continue to compound for your benefit in subsequent years. The
deferral of gains and continuing investment of capital that would otherwise be
paid currently to the Internal Revenue Service can have a very significant
impact on your net worth.
Funds that invest in risk arbitrage, mergers and acquisitions, have the
same tax hurdles to overcome and the problem of too much money chasing too few
deals, which narrows the spread or profit margin. If Company A is going to
acquire Company B and the transaction is expected to close in three months, you
could earn an annualized rate of return of 20% if Company B's stock sells for 5%
less than what you will be paid at closing. However, if another investor is
willing to accept a 15% annualized rate of return, that is all you will get. The
guy who is willing to accept the lowest rate of return sets the price. The more
money that flows into this type of investment, the lower the rate of return.
Many managers who practice risk merger arbitrage were complaining last year that
Long Term Capital Management was driving spreads down to very narrow levels. Why
would they do this? Leverage. If they could leverage these investments ten-to-
one and borrowed money costs
14
<PAGE>
5%, they could make 20% on their equity with an annualized rate of return of
only 7%. On an unleveraged basis, such returns are not appealing. This is
exactly what Long Term Capital Management was doing, or as one observer stated,
"They were picking up dimes in from of a steam roller." What they were doing was
ruining the game for everyone else. Now that they are gone, the risk arbs (as
they are called) claim that spreads are wider and offer acceptable rates of
return. This will be true only until the next guy comes along who is willing to
settle for less profit, or leverage more to make that profit. Sooner or later,
those guys always come along.
Investing is not difficult when you take the time to think about a few
basic principles of success and stick with them. Sticking with them is sometimes
difficult because even the best ones do not work every year. Maintaining a long-
term perspective is key. It is also easier if you invest for the long term.
Money managers who turn their portfolios over two and three times a year must
have a harder time adhering to investment principles because they are attempting
to beat the market in every time period they are measured, be it quarterly or
annually. Trying to determine which group of stocks will perform best in every
quarter or even every year is well beyond our capabilities. In a study by Morgan
Stanley, they found that in 1998 the breadth of the stock market's performance
was narrower than in any of the past ten years, with the exception of 1990. This
means that rather than stocks in general rising, only a very small number of
stocks performed well. We remember 1990 very well. Most value managers were down
in the mid to high teens, including us, despite the fact that the S&P 500 was
only down 3.2%. That year, a small number of large consumer product companies,
pharmaceuticals, etc. did well, which in a weighted index was enough to make it
appear that the stock market did not have such a bad year. Financial stocks in
particular were a disaster in 1990, and most value managers were heavily
invested in financial stocks. Morgan Stanley further found that last year, the
100 largest stocks in the S&P 500 produced 85% of the return. The other 80% of
the stocks in the S&P 500 only produced 15% of the return. We still believe a
long-term perspective works best. Look at Warren Buffett. It seems every stock
he buys, he plans to hold for the rest of his life. He does okay without
worrying about short-term performance. Last year the stocks that performed best
for us were our larger cap holdings. Our small and mid-cap stocks, in which we
have a significant portion of your and our assets invested, did not do much for
our net worth. We also made some mistakes. We are not perfect, but we know it.
Our results with international stocks in the Tweedy, Browne Global Value Fund
were not dissimilar from our experience with U.S. stocks. Japan was particularly
disappointing. In local currency terms, Japanese stocks were down 8.9% in 1998.
Much of what we have invested in Japan is in small and
15
<PAGE>
medium cap stocks. Overall, the values are compelling, and a number of our
stocks were bought at discounts to net cash. We got the business for free.
However, that did not prevent these stocks from getting even cheaper in 1998.
Lately, smaller Japanese stocks have shown some signs of life. This often
happens when we least expect it. Fortunately, we do not invest in emerging
markets except to a tiny extent. In 1998, the Morgan Stanley Capital
International Emerging Markets Free Index was down 27.5%. Generally, we do not
invest in emerging markets because the financial disclosure is often poor, the
stocks are growth stocks trading at high multiples, and we cannot hedge the
currency back into the dollar at any reasonable rate. The collapse of the
Russian stock market last summer was especially dramatic and acute. In the two
or three years prior, the Russian stock market had increased five-fold. In a
much shorter period of time, it dropped 80%. During its rise, there was talk of
a "new paradigm," and many investors were lured in as they observed the profits
being made. It was a great party. However, the end came so quickly, almost like
an earthquake and with similar results, that probably few were able to avoid the
crash. We never profited from the rise of the Russian market, but we also never
had to give it all back as so many investors did.
Many investors invest internationally because they believe world markets
are not correlated. This means if U.S. stocks go down, maybe European or
Japanese stocks will go up. This is no longer completely true. In the past
several years, U.S. and European stocks have shown a high degree of correlation.
Japan and the emerging markets have not. As world markets, both stock and trade,
continue on the path of globalization, correlation will increase. It has become
impossible to remain isolated. That is good. It creates a discipline that makes
politicians pursue economic policies that must compete. If something can be made
cheaper in another country, it will. Trade barriers which brought on the Great
Depression will no longer work. We began investing internationally for a
different reason. We did it because we more than doubled the number of companies
we could screen for investment opportunities. Unlike many international
investors, currency devaluations are good for us. When a country devalues its
currency, its stock market usually goes up because its native companies have a
new price advantage selling into world markets. By hedging the currency, we
avoid the pain of the devaluation and enjoy the rise in the stock market. And,
to the list of other things we know we cannot predict, we must add currency
fluctuations. We invest internationally simply because it just about doubles the
number of stocks from which we can choose in our search for value. One exercise
we perform periodically is to look at the rankings of U.S. European and Japanese
stocks on the price-to-book value basis and a P/E basis. Using data from
Bloomberg, we rank all stocks in these three geographic areas with market
capitalizations greater than $100 million into deciles. The bottom
16
<PAGE>
decile of price-to-book in the U.S. begins at 1.07 times; Europe starts at .93
times; and Japan begins at .60 times. On a P/E basis, the bottom 10% in the U.S.
starts at 10.2 times; Europe is 8 times; and Japan is at 14.3 times. On an
earnings basis, the data for Japan may be misleading for two reasons. Because
Japan is in recession, corporate earnings are lower than they would be in more
normal economic times. In addition, many Japanese companies hold large stock and
bond portfolios. If these cash items were deducted from the share price, the
resulting P/E ratio would be much lower.
The portfolio characteristics of the Tweedy, Browne Funds as of March 31,
1999 are as follows:
- --------------------------------------------------------------------------------
TWEEDY, BROWNE GLOBAL VALUE FUND
- --------------------------------------------------------------------------------
Price/Book Value 0.87 Based on 24.92% Cheaper than 94% of the 8,427 stocks
of portfolio in the Bloomberg database with a
assets market capitalization above $100
million in those countries where the
Global Value Fund has investments
- -------------------------------------------------------------------------------
Price/Earnings 11.82x Based on 44.7% Cheaper than 86% of the 8,427 stocks
of portfolio in the Bloomberg database with a
assets market capitalization above $100
million in those countries where the
Global Value Fund has investments
- -------------------------------------------------------------------------------
TWEEDY, BROWNE AMERICAN VALUE FUND
- -------------------------------------------------------------------------------
Price/Book Value 0.76 Based on 18.14% Cheaper than 97% of the 3,814 stocks
of portfolio in the Bloomberg database with a
assets market capitalization above $100
million that are based in the United
States
- -------------------------------------------------------------------------------
Price/Earnings 11.51x Based on 49.22% Cheaper than 84% of the 3,814 stocks
of portfolio in the Bloomberg database with a
assets market capitalization above $100
million that are based in the United
States
- -------------------------------------------------------------------------------
In both Funds, the balance of the assets is either cash awaiting investment
or is invested in companies that are mostly better businesses that should and
often do trade at higher P/E ratios, or are stocks that have risen in price and
thus P/E ratio, but are still short of our sell price targets. Overall we are
comfortable with the basic fundamental financial characteristics of both
portfolios. We believe both portfolios have less risk than stocks in general and
Internet and technology stocks in particular. We also believe our stocks have
significant potential for future gains. If only we could control the realization
of those gains, we would not have to worry about being compared to the latest
hot stock group. Unfortunately, stocks do not always do what they are told to do
when they are told to do it. A stock doesn't know you own it--it doesn't care.
However, it has been our experience that over time they do respond and provide
more than acceptable rates of return.
17
<PAGE>
Little has changed at Tweedy, Browne this past year. We added one analyst
to our staff who was formerly an investigative reporter for The Wall Street
Journal. We have long believed that investment research is much like
investigative reporting. It requires a nose for truth and a healthy dose of
scepticism. Our goal is to stay small. We enjoy managing money, yours and ours.
We do not like managing people. We give people a job and leave them alone to do
it. We also enjoy promoting from within, which is happening at an increasing
rate. Already, people in the firm are complaining about other departments
"poaching" their best people. Our Managing Directors all started at the bottom.
We believe others should have the same opportunity to advance if they have the
talent.
The Year 2000. In closing, we'd like to update you on our Year 2000
progress. As we mentioned in our last letter to shareholders, we engaged an
outside vendor to assist us in our applications conversion, hardware and
software evaluation and testing, and survey and certification of all third party
vendors and service providers. To date we are on target with our project plan.
Testing of all hardware and software has been completed. Noncompliant hardware
and software has been replaced.
We are regularly contacting all vendors and business associates to assess
their Y2K readiness. Our critical vendors, such as the Funds' custodian,
transfer agent, and fund administration and accounting providers, are all on
schedule for Y2K compliance and will be participating in industry wide testing
through the second quarter of 1999. Although we do not believe that we or our
mission critical vendors will have any operational difficulties on January 1,
2000 or thereafter, we cannot provide any guarantees that all systems effecting
the funds will be free of operational difficulties. Accordingly, we are
developing a contingency plan that should minimize any adverse consequences to
our or our critical vendors' respective business processes in the event of a
temporary disruption.
Our website, which has been under construction for some time longer than we
anticipated, should be available in the latter part of June. Please visit us at
www.tweedy.com. In closing, let us say there has been no diminution in our
efforts on our common behalf. We are here, we are working and we hope it pays
off.
Sincerely,
TWEEDY, BROWNE COMPANY LLC
Christopher H. Browne
William H. Browne
John D. Spears
Thomas H. Shrager
Robert Q. Wyckoff, Jr.
Managing Directors
18
<PAGE>
Footnotes to Table on page 2
(1) MSCI EAFE US $ is an unmanaged capitalization-weighted index of companies
representing the stock markets of Europe, Australasia and the Far East. MSCI
EAFE Hedged consists of the results of the MSCI EAFE Index hedged 100% back
into U.S. dollars and accounts for interest rate differentials in forward
currency exchange rates. Results for both indexes are inclusive of dividends
and net of foreign withholding taxes.
(2) Morningstar World Stock Funds Average consists of the average returns of all
mutual funds in the Morningstar Universe that invest throughout the world
while maintaining a percentage of assets (normally 25% - 50%) in the U.S.
(3) Morningstar Foreign Stock Funds Average consists of the average returns of
all mutual funds in the Morningstar Universe that invest primarily in equity
securities of issuers located outside the U.S.
(4) S&P 500 is an unmanaged capitalization-weighted index composed of 500 widely
held common stocks listed on the New York Stock Exchange, American Stock
Exchange and over-the-counter market and includes the reinvestment of
dividends.
(5) S&P Mid-Cap 400 is an unmanaged capitalization-weighted index, which assumes
reinvestment of dividends and is generally considered representative of the
mid-range sector of the U.S. stock market.
(6) Russell 2000 is an unmanaged capitalization-weighted index, which assumes
reinvestment of dividends for most periods, that is comprised of the
smallest 2000 companies in the Russell 3000 Index and is generally
considered representative of U.S. small capitalization stocks.
(7) Morningstar Mid-Cap Value Funds Average consists of the average returns of
all mutual funds in the Morningstar Universe classified as value funds with
median market capitalizations greater than or equal to $1 billion but less
than or equal to $5 billion.
(8) Morningstar Domestic Stock Funds Average consists of the average returns of
all domestic equity mutual funds in the Morningstar Universe.
(9) Inception dates for the Global Value Fund and the American Value Fund were
June 15, 1993 and December 8, 1993, respectively. Index information is
available at month end only; therefore the closest month end to inception
date of the Funds, May 31, 1993 and November 30, 1993, respectively, were
used except for the Morningstar Domestic Stock Funds Average where the
closest date with data available was December 31, 1993.
19
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Portfolio Highlights
March 31, 1999
Hypothetical Illustration of $10,000 Invested in
Tweedy, Browne Global Value Fund vs. Morgan Stanley
Capital International ("MSCI") Europe, Australasia and
Far East ("EAFE") Index (in U.S. Dollars & Hedged) and
Morningstar World Stock Funds ("MWSF") Average
6/15/93 through 3/31/99
[graph here??]
MSCI EAFE Index represents the change in market capitalizations of Europe,
Australasia and the Far East (EAFE), including dividends reinvested monthly, net
after foreign withholding taxes.
MWSF Average consists of the average returns of all mutual funds in the
Morningstar Universe that invest throughout the world while maintaining a
percentage of assets (normally 25% - 50%) in the U.S.
Index and Average information is available at month end only; therefore, the
closest month end to inception date of the Fund, May 31, 1993, has been used.
AVERAGE ANNUAL TOTAL RETURN* AGGREGATE TOTAL RETURN*
______________________________ _____________________________________
Year Inception
Without Ended (6/15/93)-
The Fund Actual Waivers** 3/31/99 3/31/99
_________ ______ _________ _______ _______
Inception (6/15/93)
through 3/31/99 15.91% 15.88% The Fund 33.08% 135.14%
Year Ended 3/31/99 3.03% 3.03% MSCI EAFE in
(U.S. Dollar) 6.06% 66.64%
MSCI EAFE (Hedged) 4.79% 93.65%
MWSF 0.15% 97.37%
Note: The performance shown represents past performance and is not a guarantee
of future results. The Fund's share price and investment return will
vary with market conditions, and the principal value of shares, when
redeemed, may be more or less than original cost.
* Assumes the reinvestment of all dividends and distributions and is
net of foreign withholding tax.
** See Note 2 to Financial Statements.
20
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Perspective On Assessing Investment Results
March 31, 1999
In accordance with rules and guidelines set out by the Securities and
Exchange Commission, we have provided a comparison of the historical investment
results of Tweedy, Browne Global Value Fund to the historical investment results
of the most appropriate broad-based securities indexes, including the Morgan
Stanley Capital International (MSCI) Europe, Australasia and the Far East Index
(EAFE) in U.S. dollars and hedged into U.S. dollars. However, the historical
results of the MSCI Indices in large measure represents the investment results
of stocks that we do not own. Any portfolio which does not own exactly the same
stocks in exactly the same proportions as the index to which the particular
portfolio is being compared is not likely to have the same results as the index.
The investment behavior of a diversified portfolio of undervalued stocks tends
to be correlated to the investment behavior of a broad index; i.e., when the
index is up, probably more than one-half of the stocks in the entire universe of
public companies in all the countries that are included in the same index will
be up, albeit, in greater or lesser percentages than the index. Similarly, when
the index declines, probably most of the stocks in the entire universe of public
companies in all countries that are included in the index will be down in
greater or lesser percentages than the index. But it is almost a mathematical
truth that "different stocks equal different results."
Favorable or unfavorable historical investment results in comparison to an
index are not necessarily predictive of future comparative investment results.
In Are Short-Term Performance and Value Investing Mutually Exclusive?, Eugene
Shahan analyzed the investment performance of seven money managers, about whom
Warren Buffett wrote in his article, The Super Investors of Graham and
Doddsville. Over long periods of time, the seven managers significantly
outperformed the market as measured by the Dow Jones Industrial Average (the
"DJIA") or the Standard & Poor's 500 Stock Index (the "S&P 500") by between 7.7%
to 16.5% annually. (The goal of most institutional money managers is to
outperform the market by 2% to 3%.) However, for periods ranging from 13 years
to 28 years, this group of managers underperformed the market between 7.7% to
42% of the years. Six of the seven investment managers underperformed the market
between 28% to 42% of the years. In today's environment, they would have lost
many of their clients during their periods of underperformance. Longer term, it
21
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Perspective On Assessing Investment Results
would have been the wrong decision to fire any of these money managers. In
examining the seven long-term investment records, unfavorable investment results
as compared to either index did not predict the future favorable comparative
investment results which occurred, and favorable investment results in
comparison to the DJIA or the S&P 500 were not always followed by future
favorable comparative results. Stretches of consecutive annual underperformance
ranged from one to six years. Mr. Shahan concluded "Unfortunately, there is no
way to distinguish between a poor three-year stretch for a manager who will do
well over 15 years, from a poor three-year stretch for a manager who will
continue to do poorly. Nor is there any reason to believe that a manager who
does well from the outset cannot continue to do well, and consistently."
22
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS-95.5%
Australia-0.0%++
96,353 Carillon Development Ltd................... $ 106,012
-----------
Belgium-0.1%
2,726 Spadel SA.................................. 3,217,898
3,252 Uco Textiles SA............................ 344,703
-----------
3,562,601
-----------
Canada-1.0%
72,400 Canadian Western Bank...................... 971,249
260,700 Melcor Developments Ltd.................... 2,979,182
1,391,000 National Bank of Canada, Toronto........... 20,319,013
258,600 Shirmax Fashions Ltd.+..................... 509,662
785,883 Westfield Minerals Ltd.+................... 728,875
-----------
25,507,981
-----------
Denmark-0.3%
11,390 Nordvestbank............................... 1,043,374
114,800 Unidanmark A/S, Series A................... 7,845,407
-----------
8,888,781
-----------
Finland-2.5%
568,027 Huhtamaki Group, Class I................... 20,253,865
6,200 Huhtamaki Group, Class K................... 221,070
1,036,900 Kesko Oyj.................................. 15,405,101
257,555 Kone Corporation, Class B.................. 27,550,543
-----------
63,430,579
-----------
France-2.7%
28,459 Bongrain SA................................ 10,682,538
5,229 Christian Dior SA.......................... 671,778
128,228 Compagnie Financiere de Paribas............ 14,326,114
35,044 Compagnie Fives-Lille...................... 2,480,161
57,700 Compagnie Lebon SA......................... 2,581,078
188,692 Dollfus-Mieg & Cie SA+..................... 1,235,524
35,155 Financiere Marc de Lacharriere SA.......... 3,608,575
57,292 Fonciere, Financiere et de Participation... 3,305,676
5,229 LVMH Moet Hennessey........................ 1,296,661
21,145 Mecelec SA................................. 240,581
36,372 NSC Groupe................................. 3,085,047
18,699 Precia+.................................... 168,706
69,000 PSA Peugeot Citroen........................ 9,930,664
994,617 Rhodia SA+................................. 14,938,110
9,340 Signaux Girod.............................. 200,828
-----------
68,752,041
-----------
Germany-1.1%
61,660 Kaufring AG................................ 1,998,710
61,140 Lindner Holding............................ 1,109,838
332,075 Moebel Walther AG.......................... 5,740,915
37,085 Sinn Leffers AG............................ 5,609,851
15,018 Springer (Axel) Verlag AG, Class A......... 14,441,992
-----------
28,901,306
-----------
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS
Hong Kong-3.8%
15,811,309 Asean Resources Holdings Ltd.+............. $ 1,203,777
26,823,000 CDL Hotels International Ltd............... 8,307,013
1,236,000 Dickson Concepts International Ltd.+....... 1,004,813
1,674,000 Fountain Set Holdings...................... 226,815
1,004,000 Grand Hotel Holdings Ltd................... 129,557
4,602,000 Harbour Ring International Holdings........ 172,214
5,404,000 Jardine International Motor Holdings Ltd... 2,074,573
13,622,500 Jardine Strategic Holdings Ltd............. 23,022,025
38,873,000 South China Morning Post (Holdings) Ltd.... 21,569,637
24,204,500 Swire Pacific Ltd., Class B................ 16,553,823
9,034,500 Wing Hang Bank Ltd......................... 24,015,833
-----------
98,280,080
-----------
Ireland-1.5%
2,733,087 Crean (James) PLC.......................... 3,248,412
7,252,955 Independent Newspapers PLC................. 32,914,649
1,105,000 Unidare PLC................................ 2,984,883
-----------
39,147,944
-----------
Italy-3.0%
741,850 Banco di Sardegna Risp..................... 13,105,658
472,500 Bassetti SPA............................... 2,859,004
1,530,230 Burgo (Cartiere) SPA....................... 10,747,193
323,000 Cementerie di Barletta..................... 1,165,666
1,156,450 Cristalleria Artistica..................... 3,548,707
276,925 IMI SPA.................................... 4,503,225
469,862 Industrie Zignago.......................... 4,721,481
1,150,500 Maffei SPA................................. 1,529,033
237,000 Marangoni SPA.............................. 806,648
1,782,500 Mondadori (Arnoldo) Editore SPA............ 26,674,992
8,072,735 Montefibre SPA............................. 4,753,814
493,000 Vincenzo Zucchi SPA........................ 3,648,904
-----------
78,064,325
-----------
Japan-19.2%
220,000 Agro-Kanesho Company Ltd................... 1,672,085
634,000 Aichi Electric Company Ltd................. 1,017,270
582,480 Aiful Corporation.......................... 39,696,099
477,000 Amatsuji Steel Ball Manufacturing Company.. 4,028,206
323,000 Belluna Company Ltd........................ 4,337,035
47,000 CCI Corporation............................ 301,651
101,000 Charle Company............................. 938,226
555,500 Chiyoda Company............................ 4,597,305
774,040 Chofu Seisakusho Company................... 9,857,301
206,200 Cosel Company Ltd.......................... 2,298,560
270,000 Credia Company Ltd......................... 4,742,642
349,000 Daido Metal Company........................ 1,022,700
1,356,000 Danto Corporation.......................... 6,469,957
526,000 Denkyosha.................................. 2,332,053
SEE NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS
Japan-(Continued)
189,000 Denyo Company Ltd......................................$ 1,236,963
1,765,000 Dowa Fire & Marine Insurance Company................... 6,036,609
127,100 Fidelity Japan OTC & Regional Market Fund Ltd.+........ 1,060,014
650,000 Fidelity Japanese Values Trust+........................ 512,747
1,095,000 Fuji Coca-Cola Bottling Company........................ 13,685,766
618,000 Fuji Photo Film Ltd.................................... 23,380,822
1,664,000 Fujisawa Pharmaceutical Company........................ 26,207,491
2,208,000 Fujitec Company Ltd.................................... 17,937,727
624,000 Fukuda Denshi.......................................... 10,117,637
544,000 Gakken Company Ltd.+................................... 643,162
2,431,000 Hitachi Koki Company Ltd............................... 7,164,793
585,000 Hitachi Medical Corporation............................ 6,575,476
48,000 Idec Izumi Corporation................................. 241,591
126,000 Inaba Denkisangyo Company Ltd.......................... 1,298,146
39,900 Kahma Company Ltd...................................... 240,583
1,418,000 Kansai Paint Company Ltd............................... 3,760,098
185,000 Kansui Kosiado Company Ltd............................. 1,204,535
150,000 Kato Sangyo Company Ltd................................ 899,379
318,000 Katsuragawa Electric Company........................... 1,799,265
193,000 Kawagishi Bridge Works................................. 503,626
3,000 Kinki Coca-Cola Bottling Company....................... 40,713
155,100 Kita Kyushu Coca-Cola Bottling......................... 6,562,099
1,591,000 Koito Manufacturing.................................... 7,604,662
312,000 Kokura Enterprise Company.............................. 1,659,925
180,000 Koyosha Inc............................................ 585,230
764,000 Mandom Corporation..................................... 8,903,602
111,000 Matsumoto Yushi-Seiyaku Company........................ 2,230,967
1,941,000 Matsushita Electric Industrial Company................. 37,864,375
371,000 Meito Sangyo Company................................... 3,571,676
278,000 Mitsubishi Pencil Company Ltd.......................... 1,922,746
495,000 Morito................................................. 2,215,513
385,000 Nankai Plywood Company Ltd............................. 1,648,398
342,000 Nippon Broadcasting System Inc......................... 13,891,990
1,155,000 Nippon Cable System.................................... 8,924,756
1,060,000 Nippon Konpo Unyu Soko................................. 7,474,560
90,000 Nissei Plastic Industrial Company Ltd.................. 554,068
242,500 Nissin Company Ltd..................................... 7,126,631
409,000 Nittetsu Mining........................................ 1,122,535
551,000 Nitto FC Company....................................... 1,907,782
342,000 Oak.................................................... 456,327
319,600 Osaka Steel Company Ltd................................ 1,171,358
287,103 Prospect Japan Fund Ltd................................ 1,955,171
867,000 Riken Vitamin.......................................... 9,152,134
16,000 Rock Paint............................................. 92,555
452,000 Sangetsu Company Ltd................................... 7,252,460
232,000 Sanko Sangyo Company................................... 1,763,290
SEE NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ -----------
COMMON STOCKS
Japan-(Continued)
32,000 Sanyo Coca-Cola Bottling Company Ltd...........$ 702,614
689,960 Sanyo Shinpan Finance Company Ltd.............. 29,366,199
213,000 Sasakura Engineering Company Ltd............... 717,705
173,000 Shaddy Company Ltd............................. 1,709,327
760,600 Shikoku Coca-Cola Bottling..................... 11,561,711
455,000 Shingakukai.................................... 1,387,113
461,800 Shinki Company Ltd............................. 7,760,689
3,431,000 Shionogi & Company Ltd......................... 30,133,345
452,000 SK Kaken Company Ltd........................... 6,756,239
712,000 Sonton Food Industry........................... 6,493,772
405,000 Sotoh Company Ltd.............................. 2,052,105
252,200 Sysmex Corporation............................. 3,918,828
337,000 Tachi-S........................................ 1,565,258
183,000 Taisei Fire & Marine Insurance Company......... 384,808
8,100 Takano Company Ltd............................. 62,931
263,200 Takefuji Corporation........................... 20,226,492
377,000 Takigami Steel Construction Company Ltd........ 974,218
261,000 Teikoku Hormone Manufacturing Company.......... 2,160,030
269,000 TENMA Corporation.............................. 3,589,241
59,000 Tomita Electric Company Ltd.................... 201,790
387,000 Torii Company Ltd.............................. 1,209,222
997,000 Torishima Pump Manufacturing................... 3,898,248
145,000 Toso Company Ltd............................... 428,577
524,000 Toyo Technical Company Ltd..................... 3,097,581
890,500 Tsubaki Nakashima Company Ltd.................. 5,978,529
232,100 Tsuchiya Home Company.......................... 931,026
793,000 U-Shin......................................... 2,517,992
356,000 Zojirushi...................................... 2,284,846
-----------
497,543,479
------------
Malaysia-0.2%
610,000 Sapura Telecommunications Berhad............... 117,956
5,928,000 Star Publications (Malaysia)................... 5,567,735
1,833,000 Tractor Malaysia Holdings Berhad............... 438,840
-----------
6,124,531
-----------
Mexico-0.0%++
43,000 Grupo Continental SA........................... 121,999
-----------
Netherlands-6.3%
815,100 Akzo NV Ord.................................... 30,208,558
132,815 Arnhemsche Maatschaappij....................... 1,478,119
7,250 Crown Van Gelder Gemeenschappelijk Bezit NV.... 113,588
747,858 European Vinyls Corporation International NV... 5,414,008
873,324 Holdingmaatschappij de Telegraaf NV............ 22,033,692
1,053,614 Koninklijke Bols Wessanen NV................... 14,230,381
42,425 Koninklijke Grolsch NV......................... 960,353
69,637 Koninklijke Pakhoed NV+........................ 1,689,201
SEE NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS
Netherlands-(Continued)
386,002 Twentsche Kabel Holding....................... $ 11,678,110
828,400 Unilever NV CVA............................... 57,598,825
1,139,976 Wegener Arcade NV............................. 17,306,013
------------
162,710,848
------------
New Zealand-1.9%
17,078,509 Air New Zealand Ltd........................... 29,686,933
5,742,400 Carter Holt Harvey Ltd........................ 5,405,527
3,388,000 Independent Newspaper Ltd..................... 14,134,161
164,600 Radio Pacific Ltd............................. 466,592
------------
49,693,213
------------
Norway-0.6%
1,269,100 Schibsted ASA................................. 15,118,115
------------
Singapore-6.6%
6,334,500 Cycle & Carriage Ltd.......................... 26,783,580
8,271,000 Fraser & Neave Ltd............................ 29,462,294
9,801,000 Overseas Union Bank Ltd....................... 34,628,497
3,509,000 Robinson and Company Ord...................... 9,349,204
4,033,800 Singapore Press Holdings Ltd.*................ 44,625,346
767,000 Times Publishing Ltd.......................... 1,155,054
3,765,000 United Overseas Bank Ltd...................... 23,551,694
------------
169,555,669
------------
South Africa-0.6%
3,906,770 Sappi Ltd..................................... 16,548,334
------------
Spain-0.3%
31,598 Indo Internacional SA......................... 1,529,546
80,898 Prim SA....................................... 869,733
376,152 Unipapel SA................................... 4,877,189
------------
7,276,468
------------
Sweden-5.2%
149,885 BRIO AB, Class B+............................. 894,237
204,000 Lundbergforetagen AB, Class B................. 2,670,157
2,049,100 Pharmacia & Upjohn Inc., Depository Shares.... 128,988,762
138,400 VLT AB, Class B............................... 1,238,573
------------
133,791,729
------------
Switzerland-12.4%
33 Bank of International Settlements America..... 185,939
35,528 Banque Cantonale Vaudoise..................... 10,460,020
4,283 Bobst SA, Bearer.............................. 5,072,927
250 Bobst SA, Registered.......................... 150,592
300 Bucher Holding AG, Bearer..................... 247,716
44,480 Compagnie Financiere Richemont AG............. 74,058,071
3,765 Daetwyler Holding AG, Bearer.................. 6,396,041
85,175 Edipresse SA, Bearer.......................... 19,600,338
SEE NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS
Switzerland-(Continued)
15,460 Forbo Holding AG.................................... $ 6,435,127
2,200 Golay Buchel Holding SA, Bearer..................... 1,459,222
10,780 Helvetia Patria Holding, Registered................. 8,397,821
29,327 Loeb Holding AG..................................... 5,756,230
57,089 Nestle SA, Registered............................... 103,900,048
6,698 Novartis AG, Bearer................................. 10,925,333
10,329 Novartis AG, Registered............................. 16,785,062
50,900 Safra Republic Holdings SA.......................... 2,144,518
45,175 SAirGroup, Registered............................... 9,738,232
9,811 Sarna Kunsstoff Holding AG, Registered.............. 12,417,306
21,161 SIG Schweizerishe................................... 12,173,841
384 Societe Europeenne de Communication SA, Class A, ADR+ 4,728
3,451 Societe Europeenne de Communication SA, Class B, ADR+ 43,568
3,355 Vetropack Holding AG, Bearer........................ 408,731
19,135 Zehnder Holding, Bearer............................. 8,029,577
9,854 Zschokke Holding AG, Registered+.................... 2,274,257
6,950 ZZ Holding AG....................................... 5,056,684
--------------
322,121,929
--------------
Thailand-0.0%++
132,300 S & J Enterprises Public Company Ltd................ 81,025
--------------
United Kingdom-13.1%
1,866,739 Alumasc Group PLC................................... 2,756,817
5,787,000 Arjo Wiggins Appleton PLC........................... 12,982,896
2,147,400 Bernard Matthews PLC................................ 4,471,013
455,000 British Mohair Holdings PLC......................... 598,511
7,412,341 British Steel Ord................................... 15,283,387
4,069,445 BTR PLC............................................. 17,947,281
458,000 Burtonwood Brewery PLC.............................. 1,142,082
11,431,603 Caradon PLC......................................... 25,185,066
3,979,658 Carclo Engineering Group PLC........................ 7,482,987
1,470,000 Courtaulds Textiles PLC............................. 3,641,908
181,905 Diageo PLC.......................................... 2,043,418
7,369,666 Dowding & Mills PLC................................. 5,352,586
1,408,668 Dyson (J&J) PLC, Class A, Non-voting................ 1,762,031
4,544,753 Elementis PLC....................................... 6,821,762
173,269 Ellis & Everard PLC................................. 514,567
1,933,000 European Motor Holdings PLC......................... 2,027,909
803,000 Folkes Group PLC.................................... 693,382
427,800 Glaxo Wellcome PLC, Units, Sponsored ADR............ 28,635,863
3,079,000 Glynwed International PLC........................... 9,591,142
1,098,479 Hardys & Hansons PLC................................ 4,441,225
976,239 HSBC Holdings....................................... 31,087,554
101,733 HSBC Holdings PLC................................... 3,280,656
515,000 Intercare Group PLC................................. 610,939
350,000 Johnston Group PLC.................................. 1,821,802
SEE NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS
United Kingdom-(Continued)
4,545,154 McAlpine (Alfred) PLC................... $ 12,470,987
6,900,000 Mirror Group PLC........................ 23,498,214
1,777,545 Molins PLC.............................. 3,944,814
3,027,120 Nycomed Amersham PLC.................... 26,383,154
584,000 Partridge Fine Art Ord.................. 692,793
19,107,025 Pilkington PLC.......................... 25,441,946
1,947,500 Regal Hotel Group PLC................... 895,830
4,562,511 Rexam PLC............................... 15,132,792
3,493,490 Sherwood Group PLC...................... 1,409,623
277,100 SmithKline Beecham PLC, Units, ADR...... 19,812,650
779,500 Swan Hill Group PLC..................... 754,867
153,509 Thistle Hotels PLC...................... 415,004
3,001,672 Time Products PLC....................... 4,190,662
1,200,000 Union PLC............................... 406,728
1,537,500 Wolverhampton & Dudley Breweries PLC.... 12,134,651
37,500 Young & Company's Brewery PLC, Class A.. 459,990
--------------
338,221,489
--------------
United States-13.1%
221,000 American Express Company................ 25,967,500
75,700 American National Insurance Company..... 5,048,245
333,097 Bank One Corporation.................... 18,341,154
514,800 Chase Manhattan Corporation............. 41,859,675
81,500 Coca-Cola Bottling Company.............. 4,513,063
348,300 Comerica, Inc........................... 21,746,981
230,400 Federal Home Loan Mortgage Corporation.. 13,161,600
70,000 GATX Corporation........................ 2,305,625
200,000 Harland (John H.) Company............... 2,587,500
197,100 Household International Inc............. 8,992,688
454,000 MBIA Inc................................ 26,332,000
73,125 Mercantile Bancorp Inc.................. 3,473,438
79,700 NAC Re Corporation...................... 4,278,894
2,679,334 Panamerican Beverages Inc., Class A..... 47,055,803
319,600 Philip Morris Companies Inc............. 11,245,925
460,000 PNC Bank Corporation.................... 25,558,750
596,000 Popular Inc............................. 18,420,125
118,400 Standard Motor Products Inc............. 2,449,400
74,100 Syms Corporation+....................... 551,119
294,600 Transatlantic Holdings Inc.............. 22,095,000
20,000 Tremont Corporation..................... 352,500
551,000 UST Inc................................. 14,394,875
525,000 Wells Fargo & Company................... 18,407,813
--------------
339,139,673
--------------
TOTAL COMMON STOCKS
(Cost $2,058,323,719)................... 2,472,690,151
--------------
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Portfolio of Investments
March 31, 1999
<TABLE>
<CAPTION>
Market
Value
Shares (Note
1)
------ PREFERRED STOCKS-0.8% ------
- --
<S> <C> <C>
23,044 KSB AG...................................................$
2,987,887
136,187 Moebel Walther AG........................................
2,339,687
160,556 Villeroy & Boch AG.......................................
15,786,757
-------
- ----
TOTAL PREFERRED STOCKS
(Cost $26,907,456).......................................
21,114,331
------
- ----
Face
Value
-----
CONVERTIBLE CORPORATE BOND-0.0%++
(Cost $104,039)
JPY 9,000,000 Shikoku Coca-Cola Bottling, 2.400% due 3/29/02...........
103,365
------
- ----
COMMERCIAL PAPER-1.6%
(Cost $40,000,000)
$ 40,000,000 General Electric Capital Corporation, 5.060% due 4/1/99..
40,000,000
------
- ----
U.S. TREASURY BILLS-0.5%
3,000,000 5.330%** due 7/22/99.....................................
2,959,110
10,000,000 4.501%** due 1/6/00......................................
9,656,200
------
- ----
TOTAL U.S. TREASURY BILLS
(Cost $12,618,764).......................................
12,615,310
------
- ----
REPURCHASE AGREEMENT-1.8%
(Cost $47,659,000)
47,659,000 Agreement with UBS Securities Inc., 4.880% dated 3/31/99, to
be repurchased at $47,665,460 on 4/1/99, collateralized by
$36,933,000 U.S. Treasury Notes, 11.750% due 2/15/10
(market value $48,347,605)...............................
47,659,000
------
- ----
TOTAL INVESTMENTS (Cost $2,185,612,978*)................ 100.2%
2,594,182,157
OTHER ASSETS AND LIABILITIES (Net)...................... (0.2)
(4,608,186)
----- ----------
- ----
NET ASSETS.............................................. 100.0%
$2,589,573,971
=====
==============
- ----------------
* Aggregate cost for Federal tax purposes was $2,215,192,866.
** Rate represents annualized yield at date of purchase (unaudited).
+ Non-income producing security.
++ Amount represents less than 0.1% of net assets.
Abbreviations:
ADR American Depository Receipt
JPY Japanese Yen
Ord Ordinary Share
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
30
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Portfolio of Investments
March 31, 1999
Percentage of Market Value
Sector Diversification Net Assets (Note 1)
- ---------------------- ------------- ------------
COMMON STOCKS:
Food and Beverages..................... 12.5% $ 324,605,165
Banking................................ 12.1 313,026,481
Pharmaceuticals........................ 11.2 290,031,690
Printing and Publishing................ 10.3 266,505,575
Financial Services..................... 8.3 214,308,368
Manufacturing.......................... 3.9 101,653,882
Tobacco................................ 3.4 88,452,946
Machinery.............................. 3.0 77,237,753
Chemicals.............................. 3.0 76,907,093
Consumer Non-Durables.................. 2.6 66,502,427
Retail................................. 2.5 64,878,388
Consumer Durables...................... 2.4 63,167,943
Autos.................................. 2.4 61,662,453
Holdings............................... 2.0 52,424,851
Forest Products........................ 2.0 50,674,728
Engineering and Construction........... 1.8 46,924,113
Transportation......................... 1.8 46,899,725
Insurance.............................. 1.6 41,962,482
Building Materials..................... 1.5 39,665,285
Glass Products......................... 1.1 29,399,384
Mining and Metal Fabrication........... 0.9 22,184,606
Electronics............................ 0.9 21,823,636
Construction Materials................. 0.7 18,852,433
Wholesale.............................. 0.7 17,700,015
Textiles............................... 0.6 16,526,759
Radio.................................. 0.6 14,358,582
Leisure................................ 0.4 10,813,856
Health Care............................ 0.3 8,105,022
Real Estate............................ 0.3 6,342,721
Medical Research and Supplies.......... 0.2 5,399,500
Other.................................. 0.5 13,692,289
----- --------------
Total Common Stocks.................... 95.5 2,472,690,151
Preferred Stocks....................... 0.8 21,114,331
Convertible Corporate Bond............. 0.0++ 103,365
Commercial Paper....................... 1.6 40,000,000
U.S. Treasury Bills.................... 0.5 12,615,310
Repurchase Agreement................... 1.8 47,659,000
Other Assets and Liabilities (Net)..... (0.2) (4,608,186)
----- --------------
Net Assets.............................100.0% $2,589,573,971
===== ==============
- ---------------
++ Amount represents less than 0.1% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Schedule of Forward Exchange Contracts
March 31, 1999
Contract Market
Value Value
Contracts Date (Note 1)
--------- -------- --------
FORWARD EXCHANGE CONTRACTS TO BUY
2,574,000 Canadian Dollar................... 5/6/99 $ 1,705,395
956,410 Canadian Dollar................... 7/23/99 633,923
12,300,000 Danish Krona...................... 7/2/99 1,796,293
5,069,250 Danish Krona...................... 7/23/99 741,121
4,782,375 European Economic Union Euro...... 4/6/99 5,168,619
20,526,608 European Economic Union Euro...... 4/12/99 22,192,531
2,039,920 European Economic Union Euro...... 5/6/99 2,208,657
18,790,845 European Economic Union Euro...... 6/8/99 20,383,730
89,724 Great Britain Pound Sterling...... 4/9/99 144,803
23,991,000 Hong Kong Dollar.................. 4/12/99 3,095,064
19,833,750 Hong Kong Dollar.................. 4/23/99 2,558,059
53,127,650 Hong Kong Dollar.................. 5/6/99 6,850,078
38,947,625 Hong Kong Dollar.................. 6/1/99 5,018,886
3,354,454 New Zealand Dollar................ 5/6/99 1,794,904
15,500,000 Norwegian Krone................... 8/27/99 1,997,582
22,700,000 South African Rand................ 6/8/99 3,618,687
12,864,000 Singapore Dollar.................. 5/6/99 7,473,504
10,378,800 Singapore Dollar.................. 5/25/99 6,039,329
22,454,900 Singapore Dollar.................. 6/8/99 13,081,660
1,262,800 Singapore Dollar.................. 6/17/99 736,231
2,620,200 Singapore Dollar.................. 7/2/99 1,529,495
13,987,800 Swiss Franc....................... 4/12/99 9,477,825
32,754,990 Swiss Franc....................... 5/17/99 22,278,850
15,577,650 Swiss Franc....................... 6/8/99 10,620,039
38,899,350 Swiss Franc....................... 7/23/99 26,646,638
--------------
TOTAL FORWARD EXCHANGE CONTRACTS TO BUY
(Contract Amount $187,770,563).................. $ 177,791,903
==============
FORWARD EXCHANGE CONTRACTS TO SELL
153,971 Australian Dollar.................12/23/99 $ (97,827)
2,574,000 Canadian Dollar................... 5/6/99 (1,705,395)
15,104,775 Canadian Dollar................... 5/17/99 (10,008,066)
7,920,550 Canadian Dollar................... 6/1/99 (5,248,290)
1,754,400 Canadian Dollar................... 7/2/99 (1,162,655)
956,410 Canadian Dollar................... 7/23/99 (633,923)
8,267,860 Canadian Dollar...................12/23/99 (5,488,130)
2,250,750 Canadian Dollar................... 3/27/00 (1,495,595)
4,517,400 Canadian Dollar................... 3/29/00 (3,001,816)
67,890,000 Danish Krona...................... 7/2/99 (9,914,664)
5,069,250 Danish Krona...................... 7/23/99 (741,121)
9,366,000 Danish Krona......................12/23/99 (1,381,003)
9,496 European Economic Union Euro...... 4/1/99 (10,261)
55,781 European Economic Union Euro...... 4/8/99 (60,293)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
32
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Schedule of Forward Exchange Contracts
March 31, 1999
Contract Market
Value Value
Contracts Date (Note 1)
--------- -------- --------
FORWARD EXCHANGE CONTRACTS TO SELL
22,687 European Economic Union Euro.... 4/9/99 $ (24,523)
24,672,350 European Economic Union Euro.... 4/12/99 (26,674,738)
10,044,334 European Economic Union Euro.... 4/23/99 (10,866,801)
10,250,555 European Economic Union Euro.... 5/6/99 (11,098,459)
19,205,407 European Economic Union Euro.... 5/17/99 (20,807,169)
5,360,415 European Economic Union Euro.... 5/25/99 (5,810,148)
18,377,028 European Economic Union Euro.... 6/1/99 (19,926,838)
20,133,741 European Economic Union Euro.... 6/8/99 (21,840,463)
22,158,655 European Economic Union Euro.... 6/17/99 (24,049,424)
11,490,619 European Economic Union Euro.... 7/2/99 (12,482,007)
15,806,432 European Economic Union Euro.... 7/15/99 (17,184,108)
8,271,479 European Economic Union Euro.... 8/2/99 (9,002,507)
1,700,382 European Economic Union Euro.... 8/13/99 (1,851,929)
6,861,561 European Economic Union Euro.... 8/27/99 (7,479,608)
14,005,616 European Economic Union Euro....10/27/99 (15,327,457)
23,462,883 European Economic Union Euro.... 11/5/99 (25,692,808)
10,029,764 European Economic Union Euro....11/12/99 (10,988,156)
4,003,750 European Economic Union Euro....11/15/99 (4,387,210)
17,009,988 European Economic Union Euro....11/22/99 (18,647,872)
17,767,622 European Economic Union Euro....12/10/99 (19,501,955)
19,649,003 European Economic Union Euro....12/23/99 (21,585,749)
8,868,601 European Economic Union Euro....12/31/99 (9,747,967)
2,531,815 European Economic Union Euro.... 1/4/00 (2,783,601)
9,630,684 European Economic Union Euro.... 1/18/00 (10,598,350)
21,620,687 European Economic Union Euro.... 2/11/00 (23,831,200)
39,268,184 European Economic Union Euro.... 2/25/00 (43,323,379)
19,715,028 European Economic Union Euro.... 3/27/00 (21,795,903)
16,197,246 European Economic Union Euro.... 3/29/00 (17,909,222)
910,747 Great Britain Pound Sterling.... 5/6/99 (1,469,458)
8,098,679 Great Britain Pound Sterling.... 5/25/99 (13,065,911)
13,083,297 Great Britain Pound Sterling.... 6/8/99 (21,106,571)
11,990,408 Great Britain Pound Sterling.... 7/2/99 (19,341,799)
24,843,949 Great Britain Pound Sterling.... 7/23/99 (40,075,910)
9,319,664 Great Britain Pound Sterling.... 8/27/99 (15,033,592)
17,925,430 Great Britain Pound Sterling....10/20/99 (28,923,471)
4,866,180 Great Britain Pound Sterling.....11/5/99 (7,853,287)
4,276,637 Great Britain Pound Sterling....11/15/99 (6,902,672)
3,644,094 Great Britain Pound Sterling....11/22/99 (5,882,209)
5,442,671 Great Britain Pound Sterling....12/31/99 (8,789,494)
19,680,197 Great Britain Pound Sterling.... 2/11/00 (31,797,833)
12,503,126 Great Britain Pound Sterling.... 2/25/00 (20,204,995)
12,309,965 Great Britain Pound Sterling.... 3/13/00 (19,896,856)
12,174,337 Great Britain Pound Sterling.... 3/27/00 (19,680,905)
14,729,348 Great Britain Pound Sterling.... 3/29/00 (23,811,878)
23,991,000 Hong Kong Dollar................ 4/12/99 (3,095,064)
19,833,750 Hong Kong Dollar................ 4/23/99 (2,558,059)
53,127,650 Hong Kong Dollar................ 5/6/99 (6,850,077)
77,895,250 Hong Kong Dollar................ 6/1/99 (10,037,772)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
33
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Schedule of Forward Exchange Contracts
March 31, 1999
Contract Market
Value Value
Contracts Date (Note 1)
--------- ---- --------
FORWARD EXCHANGE CONTRACTS TO SELL
30,765,500 Hong Kong Dollar.......... 7/2/99 $ (3,961,548)
32,712,400 Hong Kong Dollar.......... 7/23/99 (4,208,334)
93,345,500 Hong Kong Dollar.......... 8/2/99 (12,003,255)
35,110,757 Hong Kong Dollar.......... 9/14/99 (4,506,286)
158,880,000 Hong Kong Dollar..........10/20/99 (20,346,784)
56,100,100 Hong Kong Dollar.......... 11/5/99 (7,176,314)
127,448,000 Hong Kong Dollar..........11/12/99 (16,295,091)
55,548,500 Hong Kong Dollar.......... 1/18/00 (7,068,746)
31,663,200 Hong Kong Dollar.......... 3/6/00 (4,015,573)
94,668,000 Hong Kong Dollar.......... 3/27/00 (11,988,146)
3,972,040 Japanese Yen.............. 4/1/99 (33,543)
3,633,718 Japanese Yen.............. 4/2/99 (30,686)
45,628,893 Japanese Yen.............. 4/5/99 (385,514)
3,416,175,000 Japanese Yen.............. 4/12/99 (28,895,014)
3,714,900,000 Japanese Yen.............. 4/23/99 (31,476,551)
4,131,270,000 Japanese Yen.............. 5/6/99 (35,069,969)
3,815,400,000 Japanese Yen.............. 5/25/99 (32,466,625)
5,156,000,000 Japanese Yen.............. 6/1/99 (43,913,134)
2,475,605,000 Japanese Yen.............. 6/8/99 (21,103,136)
379,288,000 Japanese Yen.............. 7/2/99 (3,243,157)
4,761,792,500 Japanese Yen.............. 7/15/99 (40,790,653)
2,407,984,000 Japanese Yen.............. 8/2/99 (20,679,363)
2,302,420,000 Japanese Yen.............. 8/13/99 (19,803,179)
2,235,400,000 Japanese Yen..............11/12/99 (19,475,158)
466,720,000 Japanese Yen..............11/15/99 (4,067,878)
2,919,000,000 Japanese Yen..............12/10/99 (25,532,327)
559,500,000 Japanese Yen..............12/24/99 (4,903,646)
329,130,000 Japanese Yen.............. 1/4/00 (2,889,104)
544,050,000 Japanese Yen.............. 2/16/00 (4,804,735)
1,275,010,000 Japanese Yen.............. 2/25/00 (11,274,406)
7,505,550,000 Japanese Yen.............. 3/6/00 (66,461,833)
2,684,405,000 Japanese Yen.............. 3/13/00 (23,793,818)
2,810,250,000 Japanese Yen.............. 3/29/00 (24,965,714)
3,354,454 New Zealand Dollar........ 5/6/99 (1,794,903)
12,514,440 New Zealand Dollar........ 6/8/99 (6,698,677)
1,829,268 New Zealand Dollar........ 7/2/99 (979,417)
9,914,733 New Zealand Dollar........ 8/2/99 (5,309,959)
2,067,825 New Zealand Dollar........ 8/27/99 (1,107,696)
1,359,487 New Zealand Dollar........ 9/14/99 (728,370)
7,517,384 New Zealand Dollar........10/27/99 (4,029,066)
6,753,497 New Zealand Dollar........ 11/5/99 (3,619,926)
9,293,680 New Zealand Dollar........11/12/99 (4,981,779)
28,790,787 New Zealand Dollar........12/23/99 (15,438,376)
3,723,008 New Zealand Dollar........ 3/13/00 (1,997,749)
12,025,902 New Zealand Dollar........ 3/27/00 (6,454,592)
96,660,880 Norwegian Krone........... 8/27/99 (12,457,294)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
34
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Schedule of Forward Exchange Contracts
March 31, 1999
Contract Market
Value Value
Contracts Date (Note 1)
--------- -------- --------
FORWARD EXCHANGE CONTRACTS TO SELL
11,738,250 Norwegian Krone......12/23/99 $ (1,512,077)
26,956,300 Norwegian Krone...... 2/11/00 (3,472,408)
347,625 Singapore Dollar..... 4/5/99 (201,401)
219,154 Singapore Dollar..... 4/7/99 (126,993)
12,864,000 Singapore Dollar..... 5/6/99 (7,473,503)
10,378,800 Singapore Dollar..... 5/25/99 (6,039,329)
22,454,900 Singapore Dollar..... 6/8/99 (13,081,660)
1,262,800 Singapore Dollar..... 6/17/99 (736,231)
2,620,200 Singapore Dollar..... 7/2/99 (1,529,495)
56,464,000 Singapore Dollar..... 7/15/99 (32,992,019)
32,740,200 Singapore Dollar..... 8/2/99 (19,155,980)
48,300,000 Singapore Dollar.....10/20/99 (28,419,315)
12,796,000 Singapore Dollar..... 11/5/99 (7,536,604)
16,337,000 Singapore Dollar.....11/15/99 (9,628,206)
14,447,700 Singapore Dollar.....11/22/99 (8,518,475)
32,456,000 Singapore Dollar.....12/10/99 (19,157,834)
5,667,200 Singapore Dollar.....12/23/99 (3,347,898)
29,745,000 Singapore Dollar..... 1/18/00 (17,600,358)
33,900,000 Singapore Dollar..... 2/25/00 (20,106,375)
28,210,000 South African Rand... 6/8/99 (4,497,056)
35,490,000 South African Rand... 6/17/99 (5,644,608)
19,600,000 South African Rand... 8/2/99 (3,084,874)
5,865,840 South African Rand... 8/27/99 (918,193)
21,966,000 South African Rand...11/12/99 (3,383,966)
20,160,000 South African Rand... 3/29/00 (3,022,829)
31,834,000 Swedish Krona........ 4/12/99 (3,878,245)
78,088,000 Swedish Krona........ 4/23/99 (9,519,158)
22,860,000 Swedish Krona........ 5/25/99 (2,791,771)
34,749,450 Swedish Krona........ 6/1/99 (4,245,454)
26,928,000 Swedish Krona........ 6/17/99 (3,292,872)
23,613,000 Swedish Krona........ 7/2/99 (2,889,980)
37,240,450 Swedish Krona........ 7/23/99 (4,563,511)
41,257,000 Swedish Krona........ 8/27/99 (5,066,189)
84,808,900 Swedish Krona........11/12/99 (10,463,605)
24,066,900 Swedish Krona........11/22/99 (2,971,212)
11,893,050 Swedish Krona........12/23/99 (1,471,140)
38,448,500 Swedish Krona........ 1/18/00 (4,763,755)
32,340,000 Swedish Krona........ 3/29/00 (4,024,762)
154,507 Swiss Franc.......... 4/6/99 (104,620)
13,987,800 Swiss Franc.......... 4/12/99 (9,477,825)
1,454,300 Swiss Franc.......... 4/23/99 (986,616)
32,754,990 Swiss Franc.......... 5/17/99 (22,278,850)
31,281,800 Swiss Franc.......... 6/1/99 (21,310,575)
15,577,650 Swiss Franc.......... 6/8/99 (10,620,039)
5,892,000 Swiss Franc.......... 7/2/99 (4,027,053)
38,899,350 Swiss Franc.......... 7/23/99 (26,646,638)
64,250,000 Swiss Franc..........10/27/99 (44,464,362)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
35
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Schedule of Forward Exchange Contracts
March 31, 1999
Contract Market
Value Value
Contracts Date (Note 1)
--------- -------- --------
FORWARD EXCHANGE CONTRACTS TO SELL
22,207,100 Swiss Franc......... 11/5/99 $ (15,383,177)
19,731,000 Swiss Franc.........11/12/99 (13,678,107)
18,706,800 Swiss Franc.........12/10/99 (13,006,633)
18,785,200 Swiss Franc.........12/31/99 (13,090,163)
10,496,000 Swiss Franc......... 1/18/00 (7,327,866)
18,305,300 Swiss Franc......... 3/6/00 (12,844,625)
18,292,300 Swiss Franc......... 3/13/00 (12,844,923)
42,141,000 Swiss Franc......... 3/27/00 (29,634,744)
35,362,500 Swiss Franc......... 3/29/00 (24,872,922)
----------------
TOTAL FORWARD EXCHANGE CONTRACTS TO SELL
(Contract Amount $1,977,528,730)... $(1,969,502,506)
================
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Statement of Assets and Liabilities
March 31, 1999
ASSETS
Investments, at value (Cost $2,185,612,978) (Note 1)
See accompanying schedule..................... $2,594,182,157
Cash and foreign currency (Cost $3,336,516)..... 4,155,388
Dividends and interest receivable............... 8,984,646
Receivable for investment securities sold....... 4,762,849
Receivable for Fund shares sold................. 4,371,980
Prepaid expenses................................ 18,321
--------------
Total Assets........................... 2,616,475,341
--------------
LIABILITIES
Payable for Fund shares redeemed................ $14,247,746
Payable for investment securities purchased..... 8,148,969
Net unrealized depreciation of forward
exchange contracts (Note 1)................... 1,952,436
Investment advisory fee payable (Note 2)........ 1,786,317
Transfer agent fees payable (Note 2)............ 137,206
Custodian fees payable (Note 2)................. 96,500
Accrued expenses and other payables............. 532,196
-----------
Total Liabilities...................... 26,901,370
--------------
NET ASSETS........................................ $2,589,573,971
==============
NET ASSETS consist of
Undistributed net investment income............. $ 7,038,576
Accumulated net realized gain on securities,
forward exchange contracts
and foreign currencies........................ 111,916,063
Net unrealized appreciation of securities,
forward exchange contracts, foreign
currencies and net other assets............... 406,590,505
Par value....................................... 14,324
Paid-in capital in excess of par value.......... 2,064,014,503
--------------
Total Net Assets....................... $2,589,573,971
==============
NET ASSET VALUE, offering and redemption price per
share ($2,589,573,971 / 143,236,350 shares of common
stock outstanding).............................. $18.08
======
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Statement of Operations
For the Year Ended March 31, 1999
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $7,003,850).. $ 57,247,952
Interest (net of foreign withholding taxes of $176)......... 9,513,420
--------------
Total Investment Income............................ 66,761,372
--------------
EXPENSES
Investment advisory fee (Note 2)............... $31,308,970
Custodian fees (Note 2)........................ 1,237,622
Administration fee (Note 2).................... 1,042,815
Transfer agent fees (Note 2)................... 767,007
Legal and audit fees........................... 103,500
Directors' fees and expenses (Note 2).......... 49,783
Amortization of organization costs (Note 5).... 3,785
Other.......................................... 721,493
-----------
Total Expenses........................ 35,234,975
--------------
NET INVESTMENT INCOME............................ 31,526,397
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(Notes 1 and 3):
Net realized gain on:
Securities................................................ 140,754,141
Forward exchange contracts................................ 52,729,457
Foreign currencies and net other assets................... 3,682,421
--------------
Net realized gain on investments during the year............ 197,166,019
--------------
Net change in unrealized appreciation (depreciation) of:
Securities................................................ (96,602,157)
Forward exchange contracts................................ (80,115,865)
Foreign currencies and net other assets................... 113,168
--------------
Net unrealized depreciation of investments during the year.. (176,604,854)
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............... 20,561,165
--------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................. $ 52,087,562
==============
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Year
Ended Ended
3/31/99 3/31/98
--------
- ------ --------------
<S> <C>
<C>
Net investment income............................................... $
31,526,397 $ 19,920,077
Net realized gain on securities, forward exchange contracts
and currency transactions during the year.........................
197,166,019 182,967,157
Net unrealized appreciation (depreciation) of securities,
forward exchange contracts, foreign currencies and
net other assets during the year..................................
(176,604,854) 356,433,551
--------
- ------ --------------
Net increase in net assets resulting from operations................
52,087,562 559,320,785
Distributions:
Dividends to shareholders from net investment income..............
(51,902,775) (87,707,202)
Dividends in excess of net investment income......................
- -- (8,964,368)
Distributions to shareholders from net realized gain on
investments.....................................................
(135,825,791) (54,368,991)
Net increase in net assets from Fund share transactions (Note 4)....
197,274,233 678,450,026
--------
- ------ --------------
Net increase in net assets..........................................
61,633,229 1,086,730,250
NET ASSETS
Beginning of year...................................................
2,527,940,742 1,441,210,492
--------
- ------ --------------
End of year (including undistributed net investment income
of $7,038,576 and $16,475,676, respectively)......................
$2,589,573,971 $2,527,940,742
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Financial Highlights
For a Fund share outstanding throughout each year.
<TABLE>
<CAPTION>
Year Year
Year Year Year
Ended Ended
Ended Ended Ended
3/31/99 3/31/98
3/31/97 3/31/96(a) 3/31/95
---------- ---------- -
- --------- ---------- --------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of year........... $ 18.98 $ 15.46 $
14.28 $ 11.52 $ 12.26
---------- ---------- -
- --------- -------- --------
Income from investment operations:
Net investment income (b).................... 0.23 0.26
0.12 0.15 0.10
Net realized and unrealized gain
(loss) on investments...................... 0.24 4.62
2.18 2.81 (0.68)
---------- ---------- -
- --------- -------- --------
Total from investment operations.... 0.47 4.88
2.30 2.96 (0.58)
---------- ---------- -
- --------- -------- --------
Distributions:
Dividends from net investment income........ (0.38) (0.79)
(0.19) -- --
Dividends in excess of net
investment income......................... -- (0.08)
(0.36) -- --
Distributions from net realized gains....... (0.99) (0.49)
(0.57) (0.05) (0.06)
Distributions in excess of net
realized gains.............................. -- --
- -- (0.15) (0.10)
---------- ---------- -
- --------- -------- --------
Total distributions.................. (1.37) (1.36)
(1.12) (0.20) (0.16)
---------- ---------- -
- --------- -------- --------
Net asset value, end of year.................. $ 18.08 $ 18.98 $
15.46 $ 14.28 $ 11.52
========== ==========
========== ======== ========
Total return (c).............................. 3.03% 33.09%
16.66% 25.88% (4.74)%
========== ==========
========== ======== ========
Ratios/Supplemental Data:
Net assets, end of year (in 000's)............ $2,589,574 $2,527,941
$1,441,210 $950,911 $655,035
Ratio of operating expenses to
average net assets (d)...................... 1.41% 1.42%
1.58% 1.60% 1.65%
Ratio of net investment income
to average net assets....................... 1.26% 1.05%
0.73% 1.15% 1.08%
Portfolio turnover rate....................... 23% 16%
20% 17% 16%
- ------------
</TABLE>
(a) Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method does not accord with
results of operations.
(b) Net investment income for a Fund share outstanding, before the waiver of
fees by the administrator for the years ended March 31, 1998 and 1997 were
$0.26 and $0.11, respectively.
(c) Total return represents aggregate total return for the periods indicated.
(d) Annualized expense ratio before the waiver of fees by the administrator for
the years ended March 31, 1998 and 1997 were 1.43% and 1.58%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Notes to Financial Statements
1. Significant Accounting Policies
Tweedy, Browne Global Value Fund (the "Fund") is a diversified series of
Tweedy, Browne Fund Inc. (the "Company"). The Company is an open-end management
investment company registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended. The Company was organized as a
Maryland corporation on January 28, 1993. The Fund commenced operations on June
15, 1993. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.
Portfolio Valuation. Generally, the Fund's investments are valued at
market value or, in the absence of market value, by the Investment Adviser or,
at fair value as determined by or under the direction of the Company's Board of
Directors. Portfolio securities and other assets, listed on a U.S. national
securities exchange or through any system providing for same day publication of
actual prices (and not subject to restrictions against sale by the Fund on such
exchange or system) are valued at the last quoted sale price prior to the close
of regular trading. Portfolio securities and other assets listed on a foreign
exchange or through any system providing for same day publication of actual
prices are valued at the last quoted sale price available before the time when
assets are valued. Portfolio securities and other assets for which there are no
reported sales on the valuation date are valued at the mean between the last
asked price and the last bid price prior to the close of regular trading. When
the I nvestment Adviser determines that the last sale price prior to valuation
does not reflect current market value, the Investment Adviser will determine the
market value of those securities or assets in accordance with industry practice
and other factors considered relevant by the Investment Adviser. All other
securities and assets for which current market quotations are not readily
available and those securities which are not readily marketable due to
significant legal or contractual restrictions will be valued by the Investment
Adviser or at fair
41
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Notes to Financial Statements
value as determined by or under the direction of the Board of Directors. Debt
securities with a remaining maturity of 60 days or less are valued at amortized
cost, which approximates market value, or by reference to other factors (i.e.,
pricing services or dealer quotations) by the Investment Adviser.
Repurchase Agreements. The Fund engages in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding period.
This arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the right
to use the collateral to offset losses incurred. There is potential loss to the
Fund in the event the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities, including the risk of a possible decline
in the value of the underlying securities during the period while the Fund see
ks to assert its rights. The Fund's Investment Adviser, acting under the
supervision of the Company's Board of Directors, reviews the value of the
collateral and the creditworthiness of those banks and dealers with which the
Fund enters into repurchase agreements to evaluate potential risks.
Foreign Currency. The books and records of the Fund are maintained in U.S.
dollars. Foreign currencies, investments and other assets and liabilities are
translated into U.S. dollars at the exchange rates prevailing at the end of the
period, and purchases and sales of investment securities, income and expenses
are translated on the respective dates of such transactions. Unrealized gains
and losses which result from changes in foreign currency exchange rates have
been included in the unrealized appreciation (depreciation) of currencies and
net other assets. Net realized foreign currency gains and losses resulting from
changes in exchange rates include foreign currency gains and losses between
trade date and settlement date on investments, securities transactions, foreign
currency transactions
42
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Notes to Financial Statements
and the difference between the amounts of interest and dividends recorded on the
books of the Fund and the amount actually received. The portion of foreign
currency gains and losses related to fluctuation in the exc hange rates between
the initial purchase trade date and subsequent sale trade date is included in
realized gains and losses on investment securities sold.
Forward Exchange Contracts. The Fund has entered into forward exchange
contracts for non-trading purposes in order to reduce its exposure to
fluctuations in foreign currency exchange on its portfolio holdings. Forward
exchange contracts are valued at the forward rate and are marked-to-market
daily. The change in market value is recorded by the Fund as an unrealized gain
or loss. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time that it
was opened and the value of the contract at the time that it was closed.
The use of forward exchange contracts does not eliminate fluctuations in
the underlying prices of the Fund's investment securities, but it does establish
a rate of exchange that can be achieved in the future. Although forward exchange
contracts limit the risk of loss due to a decline in the value of the hedged
currency, they also limit any potential gain that might result should the value
of the currency increase. In addition, the Fund could be exposed to risks if the
counterparties to the contracts are unable to meet the terms of their contracts.
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. Dividend income and interest income may
be subject to foreign withholding taxes. The Fund's custodian applies for
refunds where available. If the Fund meets the requirements of Section 853 of
the Internal Revenue Code of 1986, as amended, the Fund may elect to pass
through to its shareholders credits for foreign taxes paid.
43
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Notes to Financial Statements
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, and distributions from realized capital gains after utilization
of capital loss carryforwards, if any, will be declared and paid annually.
Additional distributions of net investment income and capital gains from the
Fund may be made at the discretion of the Board of Directors in order to avoid
the application of a 4% non-deductible Federal excise tax on certain
undistributed amounts of ordinary income and capital gains. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
Federal Income Taxes. The Fund intends to qualify as a regulated
investment company, if such qualification is in the best interest of its
shareholders, by complying with the requirements of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
Expenses. Expenses directly attributable to each Fund as a diversified
series of the Company are charged to that Fund. Other expenses of the Company
are allocated to each Fund based on the average net assets of each Fund.
2. Investment Advisory Fee, Other Related Party Transactions and
Administration Fee
The Company, on behalf of the Fund, has entered into an investment advisory
agreement (the "Advisory Agreement") with Tweedy, Browne Company LLC ("Tweedy,
Browne"). Under the Advisory Agreement, the Company pays Tweedy, Browne a fee at
the annual rate of 1.25% of the value of its average daily net assets. The fee
is payable monthly, provided the Fund will make such interim payments as may be
requested by the Investment Adviser not to exceed 75% of the amount of the fee
then accrued on the books of the Fund and unpaid.
44
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Notes to Financial Statements
The current and retired general partners and their families, as well as
employees of Tweedy, Browne, the Investment Adviser to the Fund, have
approximately $40.7 million of their own money invested in the Fund.
The Company, on behalf of the Fund, has entered into an administration
agreement (the "Administration Agreement") with First Data Investor Services
Group, Inc. (the "Administrator"), a wholly owned subsidiary of First Data
Corporation. Under the Administration Agreement, the Company pays the
Administrator an administrative fee and a fund accounting fee computed daily and
payable monthly at the following annual rates of the value of the average daily
net assets of the Fund:
Fees on Assets
-----------------------------------------------
Between
Up to $500 Million and Exceeding
$500 Million $1 Billion $1 Billion
---------------------------------------------------------------------------
Administration Fees 0.06% 0.04% 0.02%
---------------------------------------------------------------------------
Up to Exceeding
$100 Million $100 Million
---------------------------------------------------------------------------
Accounting Fees 0.03% 0.01%
---------------------------------------------------------------------------
Under the terms of the Administration Agreement, the Company will pay for
fund administration services a minimum fee of $40,000 per annum, not to be
aggregated with fees for fund accounting services. The Company will pay a
minimum monthly fee of $4,000 for fund accounting services for the Fund, not to
be aggregated with fees for fund administration services. From time to time, the
Administrator may voluntarily waive a portion of its fee otherwise payable to
it. For the year ended March 31, 1999, the Administrator did not waive any
administrative fees.
No officer, director or employee of Tweedy, Browne, the Administrator or
any parent or subsidiary of those corporations receives any compensation from
the Company for serving as a director or officer of the Company. The Fund pays
each director who is not an officer, director or employee of Tweedy, Browne, the
Administrator or any of their affiliates $8,000 per annum plus $500 per Regular
or Special Board Meeting attended in person or by telephone, plus out-of-pocket
expenses.
45
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Notes to Financial Statements
Boston Safe Deposit and Trust Company ("Boston Safe"), an indirect wholly
owned subsidiary of Mellon Trust, serves as the Fund's custodian pursuant to a
custody agreement (the "Custody Agreement"). First Data Investor Services Group,
Inc. serves as the Fund's transfer agent. Tweedy, Browne also serves as the
distributor to the Fund and pays all distribution fees. No distribution fees are
paid by the Fund.
3. Securities Transactions
Cost of purchases and proceeds from sales of investment securities,
excluding short-term investments, for the year ended March 31, 1999, aggregated
$818,186,260 and $545,726,790, respectively.
At March 31, 1999, the aggregate gross unrealized appreciation for all
securities, in which there was an excess of value over tax cost, was
$590,050,617 and the aggregate gross unrealized depreciation for all securities,
in which there was an excess of tax cost over value, was $211,061,326.
4. Capital Stock
The Company is authorized to issue one billion shares of $0.0001 par value
capital stock, of which 600,000,000 of the unissued shares have been designated
as shares of the Fund. Changes in shares outstanding for the Fund were as
follows:
--------------------------------------------------------------
Year Ended 3/31/99 Year Ended 3/31/98
--------------------------------------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
Sold 68,156,263 $ 1,217,805,048 58,530,975 $1,007,774,368
Reinvested 10,128,684 170,060,040 8,222,804 133,167,149
Redeemed (68,246,032) (1,190,590,855) (26,794,022) (462,491,491)
- -------------------------------------------------------------------------------
Net increase 10,038,915 $ 197,274,233 39,959,757 $ 678,450,026
- -------------------------------------------------------------------------------
5. Organization Costs
The Fund bears all costs in connection with its organization including the
fees and expenses of registering and qualifying its shares for distribution
under Federal and state securities regulations. All such costs have been
deferred and are being amortized over a five-year period using the straight-
46
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Notes to Financial Statements
line method from the commencement of operations of the Fund. In the event that
any of the initial shares of the Fund are redeemed during such amortization
period, the Fund will be reimbursed for any unamortized organization costs in
the same proportion as the number of shares redeemed bears to the number of
initial shares held at the time of redemption. At March 31, 1999, all such costs
have been fully amortized.
6. Foreign Securities
Investing in securities of foreign companies and foreign governments
involves economic and political risks and considerations not typically
associated with investing in U.S. companies and the U.S. Government. These
considerations include changes in exchange rates and exchange rate controls
(which may include suspension of the ability to transfer currency from a given
country), costs incurred in conversions between currencies, non-negotiable
brokerage commissions, less publicly available information, different accounting
standards, lower trading volume, delayed settlements and greater market
volatility, the difficulty of enforcing obligations in other countries, less
securities regulation, different tax provisions (including withholding on
dividends paid to the Fund), war, expropriation, political and social
instability and diplomatic developments.
7. Line of Credit
Effective October 1, 1996, the Company and Mellon Trust, N.A. have entered
into a Line of Credit Agreement (the "Agreement") which provides the Fund and
the Tweedy, Browne American Value Fund with a $50 million line of credit,
primarily for temporary or emergency purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition of
securities. The Fund may borrow up to one-third of its net assets; however, the
total credit available to the Fund and the Tweedy, Browne American Value Fund is
$50 million. Interest is payable at the bank's money market rate plus 0.75% on
an annualized basis. Under the Agreement, the Fund and the Tweedy, Browne
American Value Fund pay a facility fee equal to 0.10% annually of the unutilized
credit. The Agreement requires, among other provisions, the Fund to maintain a
47
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Notes to Financial Statements
ratio of net assets (not including funds borrowed pursuant to the Agreement) to
aggregated amount of indebtedness pursuant to the Agreement of no less than
three to one. For the year ended March 31, 1999, the Fund did not borrow under
this Agreement.
48
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Board of Directors of
Tweedy, Browne Fund Inc.:
We have audited the accompanying statement of assets and liablities,
including the portfolio of investments and the schedule of forward exchange
contracts, of Tweedy, Browne Global Value Fund (the "Fund") (a series of Tweedy,
Browne Fund Inc.) as of March 31, 1999, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended and financial highlights for each of the five
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of March 31, 1999 by correspondence with the custodian and
brokers, or by other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Tweedy, Browne Global Value Fund, a series of Tweedy, Browne Fund Inc., at March
31, 1999, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 7, 1999
49
<PAGE>
TWEEDY, BROWNE GLOBAL VALUE FUND
Tax Information (unaudited)
Year Ended March 31, 1999
For the fiscal year ended March 31, 1999, the amount of long-term capital
gain designated by the Fund was $106,373,560, which is taxable as a 20% rate
gain for Federal income tax purposes.
Of the ordinary income (including short-term capital gain) distributions
made by the Fund during the fiscal year ended March 31, 1999, 6.06% qualify for
the dividend received deduction available to corporate shareholders.
50
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Portfolio Highlights
March 31, 1999
Hypothetical Illustration of $10,000 Invested in
Tweedy, Browne American Value Fund vs.
Standard & Poor's 500 Stock Index ("S&P 500") and
Morningstar Mid-Cap Value Funds ("MMCV") Average
12/8/93 through 3/31/99
[GRAPH GOES HERE]
The S&P 500 is an index composed of 500 widely held common stocks listed on
the New York Stock Exchange, American Stock Exchange and over-the-counter market
and includes the reinvestment of dividends.
MMCV Average consists of the average returns of all mutual funds in the
Morningstar Universe classified as value funds with median market
capitalizations greater than or equal to $1 billion but less than or equal to $5
billion.
Index and Average information is available at month end only; therefore,
the closest month end to inception date of the Fund, November 30, 1993, has been
used.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- -------------------
AVERAGE ANNUAL TOTAL RETURN* AGGREGATE
TOTAL RETURN*
---------------------------- -------------
- ---------
Year
Inception
Without Ended
(12/8/93)-
The Fund Actual Waivers** 3/31/99
3/31/99
- -------- ------ --------- ------- -
- ---------
<S> <C> <C> <C> <C>
<C>
Inception (12/8/93)
through 3/31/99 18.57% 18.37% The Fund (1.09)%
147.15%
Year Ended 3/31/99 (1.09)% (1.11)% S&P 500 18.49%
212.14%
MMCV (9.79)%
94.70%
- --------------------------------------------------------------------------------
- -------------------
Note: The performance shown represents past performance and is not a guarantee
of future results.
The Fund's share price and investment return will vary with market
conditions, and the
principal value of shares, when redeemed, may be more or less than
original cost.
* Assumes the reinvestment of all dividends and distributions.
** See Note 2 to Financial Statements.
</TABLE>
51
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Perspective On Assessing Investment Results
March 31, 1999
In accordance with rules and guidelines set out by the Securities and
Exchange Commission, we have provided a comparison of the historical investment
results of Tweedy, Browne American Value Fund to the historical investment
results of the most appropriate broad-based securities market indexes, including
the Standard & Poor's 500 Stock Index (the "S&P 500"). However, the historical
results of the S&P 500 in large measure represent the investment results of
stocks that we do not own. Any portfolio which does not own exactly the same
stocks in exactly the same proportions as the index to which the particular
portfolio is being compared is not likely to have the same results as the index.
The investment behavior of a diversified portfolio of undervalued stocks tends
to be correlated to the investment behavior of a broad index; i.e., when the
index is up, probably more than one-half of the stocks in the entire universe of
public companies that are included in the same index will be up, albeit, in
greater or lesser percentages than the index. Similarly, when the index
declines, probably most of the stocks in the entire universe of public companies
that are included in the index will be down in greater or lesser percentages
than the index. But it is almost a mathematical truth that "different stocks
equal different results."
Favorable or unfavorable historical investment results in comparison to an
index are not necessarily predictive of future comparative investment results.
In Are Short-Term Performance and Value Investing Mutually Exclusive?, Eugene
Shahan analyzed the investment performance of seven money managers, about whom
Warren Buffett wrote in his article, The Super Investors of Graham and
Doddsville. Over long periods of time, the seven managers significantly
outperformed the market as measured by the Dow Jones Industrial Average (the
"DJIA") or the S&P 500 by between 7.7% to 16.5% annually. (The goal of most
institutional money managers is to outperform the market by 2% to 3%.) However,
for periods ranging from 13
52
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Perspective On Assessing Investment Results
years to 28 years, this group of managers underperformed the market between 7.7%
to 42% of the years. Six of the seven investment managers underperformed the
market between 28% to 42% of the years. In today's environment, they would have
lost many of their clients during their periods of underperformance. Longer
term, it would have been the wrong decision to fire any of these money managers.
In examining the seven long-term investment records, unfavorable investment
results as compared to either index did not predict the future favorable
comparative investment results which occurred, and favorable investment results
in comparison to the DJIA or the S&P 500 were not always followed by future
favorable comparative results. Stretches of consecutive annual underperformance
ranged from one to six years. Mr. Shahan concluded "Unfortunately, there is no
way to distinguish between a poor three-year stretch for a manager who will do
well over 15 years, from a poor three-year stretch for a manager who will
continue to do poorly. Nor is there any reason to believe that a manager who
does well from the outset cannot continue to do well, and consistently."
53
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS-DOMESTIC-74.6%
Advertising-0.2%
6,680 Grey Advertising Inc.............................. $ 2,317,543
------------
Apparel/Textiles-0.0%++
45,900 Chic by H.I.S. Inc.+.............................. 109,013
------------
Automotive Parts-1.7%
739,000 Dollar Thrifty Automotive Group Inc.+............. 12,747,750
170,400 Standard Motor Products Inc....................... 3,525,150
95,300 Standard Products Company......................... 1,548,625
5,200 Woodward Governor Company......................... 129,838
------------
17,951,363
------------
Banking-11.8%
45,300 BancFirst Corporation............................. 1,585,500
252,898 Bank One Corporation.............................. 13,925,196
20,400 Cape Cod Bank & Trust Company..................... 331,500
541,814 Chase Manhattan Corporation....................... 44,056,251
112,650 Comerica Inc...................................... 7,033,584
4,500 Community Financial Group-Bank of Nashville....... 57,656
20,400 First Mortgage Corporation+....................... 89,250
50,850 Mercantile Bancorp Inc............................ 2,415,375
43,342 Mid-America Bancorp............................... 1,064,588
18,000 Peoples Bank Corporation of Indianapolis.......... 654,750
246,700 PNC Bank Corporation.............................. 13,707,269
802,520 Popular Inc....................................... 24,802,884
118,000 Republic New York Corporation..................... 5,442,750
360,000 Wells Fargo & Company............................. 12,622,500
------------
127,789,053
------------
Basic Industries-4.5%
298,600 ACX Technologies Inc.+............................ 3,919,125
219,200 Alamo Group Inc................................... 1,726,200
141,700 Gorman-Rupp Company............................... 2,214,063
724,000 Rayonier Inc...................................... 29,005,250
70,200 Sequa Corporation, Class A+....................... 3,527,550
66,000 Tecumseh Products Company, Class A................ 3,339,188
66,100 Tecumseh Products Company, Class B................ 3,061,256
78,000 Tremont Corporation............................... 1,374,750
------------
48,167,382
------------
Business and Commercial Services-1.3%
716,000 Harland (John H.) Company......................... 9,263,250
24,400 HUB Group Inc., Class A+.......................... 579,500
5,200 IIC Industries Inc.+.............................. 55,250
12,500 Paris Corporation................................. 27,734
198,000 Wallace Computer Services Inc..................... 3,922,875
------------
13,848,609
------------
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS-DOMESTIC
Chemicals-1.4%
680,700 Lilly Industries Inc., Class A.................... $ 10,508,306
232,900 Oil-Dri Corporation of America.................... 3,391,606
77,500 Stepan Chemical Company........................... 1,724,375
------------
15,624,287
------------
Consumer Non-Durables-6.1%
142,400 Bairnco Corporation............................... 676,400
130,400 Coca-Cola Bottling Company........................ 7,220,900
209,200 EKCO Group Inc.+.................................. 706,050
347,500 M & F Worldwide Corporation+...................... 2,432,500
869,470 Philip Morris Companies Inc....................... 30,594,476
910,900 UST Inc........................................... 23,797,263
57,200 Village Super Market Inc., Class A+............... 818,675
------------
66,246,264
------------
Consumer Services-1.9%
512,900 Jones Intercable Inc., Class A+................... 20,227,494
------------
Electronic Equipment-0.2%
100,000 Regal Beloit...................................... 1,806,250
------------
Engineering and Construction-1.9%
42,700 Devcon International Corporation+................. 70,055
107,300 Harding Lawson Associates Group Inc.+............. 764,513
150,500 Hovnanian Enterprises Inc., Class A+.............. 1,128,750
22,900 Liberty Homes Inc., Class A....................... 226,138
10,000 Liberty Homes Inc., Class B....................... 113,750
51,300 M/I Schottenstein Homes Inc....................... 910,575
162,800 Oakwood Homes Corporation......................... 2,289,375
13,700 Oriole Homes Corporation, Class A+................ 27,400
64,437 Oriole Homes Corporation, Class B+................ 118,806
269,000 RDO Equipment Company, Class A+................... 2,421,000
309,621 Ryland Group Inc.................................. 7,837,282
271,300 Standard-Pacific Corporation...................... 3,492,988
158,000 Washington Homes Inc.+............................ 809,750
------------
20,210,382
------------
Financial Services-17.5%
382,230 American Express Company.......................... 44,912,025
885,300 Credit Acceptance Corporation+.................... 5,062,809
789,380 Federal Home Loan Mortgage Corporation............ 45,093,333
543,500 Household International Inc....................... 24,797,188
41,600 Kent Financial Services Inc.+..................... 156,000
30,000 Letchworth Independent Bancshares Corporation..... 406,875
632,700 MBIA Inc.......................................... 36,696,600
142,000 Morgan, (J.P.) & Company Inc...................... 17,519,250
756,000 Phoenix Duff & Phelps Corporation................. 6,520,500
109,030 ReliaStar Financial Corporation................... 4,647,404
29,800 Value Line Inc.................................... 1,029,031
39,004 Whitney Holding Corporation....................... 1,439,491
------------
188,280,506
------------
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS-DOMESTIC
Food and Beverages-1.5%
950,050 Panamerican Beverages Inc., Class A............... $ 16,685,253
------------
Furniture-1.1%
29,900 Flexsteel Industries Inc.......................... 396,175
75,000 HON Industries Inc................................ 1,645,313
152,350 O' Sullivan Corporation........................... 1,256,888
598,400 O' Sullivan Industries Holdings Inc.+............. 8,265,400
------------
11,563,776
------------
Health Care-0.7%
158,500 Angelica Corporation.............................. 2,219,000
33,412 Johnson & Johnson................................. 3,130,287
45,300 Sola International Inc............................ 546,431
106,600 Spacelabs Medical Inc.+........................... 1,775,556
10,666 Wyant Corporation+................................ 25,998
------------
7,697,272
------------
Insurance-8.7%
15,200 Allstate Financial Corporation+................... 65,550
463,500 American Annuity Group Inc........................ 10,081,125
77,400 American Indemnity Financial Corporation.......... 967,500
155,125 American National Insurance Company............... 10,344,898
8,260 Kansas City Life Insurance Company................ 677,320
488,000 Leucadia National Corporation..................... 14,762,000
21,600 Merchants Group Inc............................... 456,300
389,500 MMI Companies Inc................................. 5,988,563
100,500 NAC Re Corporation................................ 5,395,593
102,500 National Western Life Insurance Company, Class A+. 10,807,344
31,500 Navigators Group Inc.+............................ 442,969
16,500 RLI Corporation................................... 482,624
201,000 SCPIE Holdings Inc................................ 5,464,688
379,700 Transatlantic Holdings Inc........................ 28,477,500
------------
94,413,974
------------
Investment Companies-0.1%
190,500 Ampal-American Israel Corporation, Class A+....... 773,906
10,000 PEC Israel Economic Corporation+.................. 301,250
5,000 Pilgrim America Capital Corporation+.............. 95,000
------------
1,170,156
------------
Metals and Metal Products-1.3%
724,100 ASARCO Inc........................................ 9,956,375
88,700 Lawson Products Inc............................... 1,818,350
11,900 Mestek Inc.+...................................... 226,100
165,000 Schnitzer Steel Industies Inc..................... 1,974,844
------------
13,975,669
------------
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS-DOMESTIC
Oil and Gas-0.3%
5,600 Lufkin Industries Inc............................ $ 92,400
41,460 Matrix Service Company+.......................... 136,041
175,200 Penn Virginia Corporation........................ 3,060,525
------------
3,288,966
------------
Real Estate-1.6%
716,500 American Real Estate Partners L.P.+.............. 5,866,344
26,100 Arizona Land Income Corporation, Class A......... 159,863
596,700 Castle & Cooke Inc.+............................. 7,980,863
85,800 Echelon International Corporation Inc.+.......... 1,683,825
102,000 Koger Equity Inc................................. 1,370,625
13,200 Mays (J.W.) Inc.+................................ 99,000
36,025 Ramco-Gershenson Properties Trust................ 574,147
------------
17,734,667
------------
Restaurant Chains-4.7%
1,106,800 McDonald's Corporation........................... 50,151,875
------------
Retail-1.9%
217,000 Discount Auto Parts Inc.+........................ 4,665,500
117,900 EZCORP Inc., Class A............................. 810,562
90,100 Government Technology Services Inc.+............. 318,166
654,000 Jan Bell Marketing Inc.+......................... 2,779,500
39,600 Penney (J.C.) Company Inc........................ 1,603,800
130,100 Swiss Army Brands Inc.+.......................... 1,268,475
182,700 Syms Corporation+................................ 1,358,831
765,600 Value City Department Stores Inc.+............... 7,464,600
------------
20,269,434
------------
Technology-0.0%++
44,600 Astrosystems Inc.+............................... 132,406
------------
Telecommunications-1.2%
93,600 Commonwealth Telephone Enterprises Inc.+......... 3,460,275
280,800 RCN Corporation+................................. 9,433,125
15,300 TCI International Inc.+.......................... 43,748
------------
12,937,148
------------
Transportation/Transportation Services-3.0%
636,400 GATX Corporation................................. 20,961,425
53,100 KLLM Transport Services Inc.+.................... 331,874
53,600 Maritrans Inc.................................... 308,200
800,000 Wisconsin Central Transportation Corporation+.... 10,625,000
------------
32,226,499
------------
TOTAL COMMON STOCKS-DOMESTIC
(Cost $648,732,414).............................. 804,825,241
------------
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS-FOREIGN-19.8%
Finland-0.2%
18,300 Huhtamaki Group, Class I.......................... $ 652,514
15,500 Kone Corporation, Class B......................... 1,658,028
------------
2,310,542
------------
France-0.0%++
900 Bongrain SA....................................... 337,829
------------
Hong Kong-0.3%
1,210,000 CDL Hotels International Ltd...................... 374,734
478,000 Jardine Strategic Holdings Ltd.................... 807,820
1,506,000 South China Morning Post (Holdings) Ltd........... 835,641
525,000 Swire Pacific Ltd., Class B....................... 359,055
182,000 Wing Hang Bank Ltd................................ 483,799
------------
2,861,049
------------
Ireland-0.0%++
202,592 Crean (James) PLC................................. 240,791
------------
Japan-7.4%
56,000 Agro-Kanesho Company Ltd.......................... 425,622
63,000 Aichi Electric Company Ltd........................ 101,084
93,600 Aiful Corporation................................. 6,378,854
67,000 Amatsuji Steel Ball Manufacturing Company......... 565,807
104,000 Belluna Company Ltd............................... 1,396,445
33,000 CCI Corporation................................... 211,797
1,000 Charle Company.................................... 9,289
89,000 Chiyoda Company................................... 736,562
247,700 Chofu Seisakusho Company.......................... 3,154,428
70,500 Credia Company Ltd................................ 1,238,357
131,000 Daido Metal Company............................... 383,879
140,000 Danto Corporation................................. 667,990
179,000 Denkyosha......................................... 793,607
61,000 Denyo Company Ltd................................. 399,232
93,000 Fuji Coca-Cola Bottling Company................... 1,162,353
76,800 Fuji Photo Film Company Ltd., ADR................. 2,889,600
17,000 Fuji Photo Film Ltd............................... 643,162
326,000 Fujitec Company Ltd............................... 2,648,414
293,000 Fukuda Denshi..................................... 4,750,749
275,000 Gakken Company Ltd+............................... 325,127
206,000 Hitachi Koki Company Ltd.......................... 607,136
78,000 Hitachi Medical Corporation....................... 876,730
109,000 Inaba Denkisangyo Company Ltd..................... 1,123,000
16,000 Kansai Paint Company Ltd.......................... 42,427
112,000 Katsuragawa Electric Company...................... 633,704
262,000 Kawagishi Bridge Works............................ 683,680
130,000 Koito Manufacturing............................... 621,374
53,000 Koyosha Inc....................................... 172,318
389,000 Mandom Corporation................................ 4,533,378
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS-FOREIGN
Japan-(Continued)
95,000 Matsumoto Yushi-Seiyaku Company................... $ 1,909,386
19,000 Matsushita Electric Industrial Company............ 370,646
44,000 Meito Sangyo Company.............................. 423,595
91,000 Mitsubishi Pencil Company Ltd..................... 629,388
200,000 Morito............................................ 895,157
58,000 Nankai Plywood Company Ltd........................ 248,330
107,000 Nippon Cable System............................... 826,796
118,000 Nippon Konpo Unyu Soko............................ 832,074
19,000 Nissie Plastic Industrial Company Ltd............. 116,970
48,300 Nissin Company Ltd................................ 1,419,449
52,000 Nitto FC Company.................................. 180,045
72,000 Oak............................................... 96,069
116,000 Osaka Steel Company Ltd........................... 425,149
185,000 Prospect Japan Fund Ltd........................... 1,259,850
119,000 Riken Vitamin..................................... 1,256,175
19,000 Sangetsu Company Ltd.............................. 304,860
31,000 Sanko Sangyo Company.............................. 235,612
130,600 Sanyo Shinpan Finance Company Ltd................. 5,558,620
63,800 Shikoku Coca-Cola Bottling........................ 969,810
82,000 Shinki Company Ltd................................ 1,378,034
192,000 Shionogi & Company Ltd............................ 1,686,273
73,000 SK Kaken Company Ltd.............................. 1,091,162
220,000 Sonton Food Industry.............................. 2,006,503
196,000 Sotoh Company Ltd................................. 993,117
125,900 Sysmex Corporation................................ 1,956,306
186,000 Tachi-S........................................... 863,911
103,700 Takefuji Corporation.............................. 7,969,176
1,000 Takigami Steel Construction Company Ltd........... 2,584
141,000 Teikoku Hormone Manufacturing Company............. 1,166,913
111,000 Tomita Electric Company Ltd....................... 379,639
10,000 Torii Company Ltd................................. 31,246
162,000 Torishima Pump Manufacturing...................... 633,417
64,000 Toso Company Ltd.................................. 189,165
78,000 Toyo Technical Company Ltd........................ 461,090
188,000 Tsubaki Nakashima Company Ltd..................... 1,262,171
220,800 Tsuchiya Home Company............................. 885,699
214,000 U-Shin............................................ 679,509
45,000 Zojirushi......................................... 288,815
------------
80,058,816
------------
Malaysia-0.1%
485,000 Star Publications (Malaysia)...................... 455,525
------------
Netherlands-1.6%
218,600 Akzo Nobel NV, Sponsored ADR...................... 8,115,525
21,000 European Vinyls Corporation International NV...... 152,026
36,500 Holdingmaatschappij de Telegraaf NV............... 920,885
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Value
Shares (Note 1)
------ --------
COMMON STOCKS-FOREIGN
Netherlands-(Continued)
120,800 Unilever NV, ADR.................................. $ 8,025,650
------------
17,214,086
------------
Singapore-0.4%
518,000 Cycle & Carriage Ltd.............................. 2,190,211
264,000 Fraser & Neave Ltd................................ 940,400
266,000 Overseas Union Bank Ltd........................... 939,820
94,800 Robinson and Company Ord.......................... 252,580
------------
4,323,011
------------
Spain-0.0%++
32,000 Unipapel SA....................................... 414,912
------------
Sweden-4.7%
804,300 Pharmacia & Upjohn Inc., Depository Shares........ 50,629,867
------------
Switzerland-3.0%
3,650 Compagnie Financiere Richemont AG................. 6,077,157
2,000 Edipresse SA, Bearer.............................. 460,237
269,000 Nestle SA, Registered, ADR........................ 24,478,542
10,666 Novartis AG, ADR.................................. 866,635
------------
31,882,571
------------
United Kingdom-2.1%
875,000 British Steel Ord................................. 1,804,148
315,000 Caradon PLC....................................... 693,979
274,000 Carclo Engineering Group PLC...................... 515,205
445,000 Dowding & Mills PLC............................... 323,203
61,145 Elementis PLC..................................... 91,780
163,670 Glaxo Wellcome PLC, Units, Sponsored ADR.......... 10,955,661
142,000 Hardys & Hansons PLC.............................. 574,116
41,711 HSBC Holdings..................................... 1,328,254
189,385 McAlpine (Alfred) PLC............................. 519,634
50,000 Molins PLC........................................ 110,962
508,505 Pilkington PLC.................................... 677,099
93,333 Rexam PLC......................................... 309,564
63,800 SmithKline Beecham PLC, Units, ADR................ 4,561,700
131,579 Thistle Hotels PLC................................ 355,717
------------
22,821,022
------------
TOTAL COMMON STOCKS-FOREIGN
(Cost $156,723,872)............................... 213,550,021
------------
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Portfolio of Investments
March 31, 1999
Market
Face Value
Value (Note 1)
----- --------
COMMERCIAL PAPER-1.9%
(Cost $20,000,000)
$20,000,000 General Electric Capital Corporation,
5.060% due 4/1/99.............................. $ 20,000,000
---------------
U.S. TREASURY BILL-0.1%
(Cost $966,594)
1,000,000 4.501%** due 1/6/00............................ 965,620
---------------
REPURCHASE AGREEMENT-1.6%
(Cost $17,230,000)
17,230,000 Agreement with UBS Securities Inc., 4.880%
dated 3/31/99, to be repurchased at
$17,232,336 on 4/1/99, collateralized by
$17,209,000 U.S. Treasury Notes,
6.000% due 2/15/26 (market value
$17,483,268)................................... 17,230,000
---------------
TOTAL INVESTMENTS (Cost $843,652,880*)............. 98.0% 1,056,570,882
OTHER ASSETS AND LIABILITIES (Net)................. 2.0 21,643,609
----- ---------------
NET ASSETS......................................... 100.0% $ 1,078,214,491
===== ===============
- -----------
* Aggregate cost for Federal tax purposes was $849,570,415.
** Rate represents annualized yield at date of purchase (unaudited).
+ Non-income producing security.
++ Amount represents less than 0.1% of net assets.
Abbreviations:
ADR American Depository Receipt
Ord Ordinary Shares
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Schedule of Forward Exchange Contracts
March 31, 1999
Contract Market
Value Value
Contracts Date (Note 1)
--------- -------- -------------
FORWARD EXCHANGE CONTRACTS TO BUY
1,234,088 European Economic Union Euro.... 4/23/99 $ 1,335,140
894,964 European Economic Union Euro.... 6/8/99 970,829
442,945 European Economic Union Euro.... 6/17/99 480,741
339,067 European Economic Union Euro.... 8/27/99 435,013
1,299,206 European Economic Union Euro.... 11/5/99 1,422,683
5,075,350 European Economic Union Euro.... 12/10/99 5,570,765
558,989 Great Britain Pound Sterling.... 7/23/99 901,708
172,000,000 Japanese Yen.................... 5/6/99 1,460,092
1,925,298 New Zealand Dollar.............. 6/8/99 1,030,567
928,333 New Zealand Dollar.............. 1/18/00 497,906
TOTAL FORWARD EXCHANGE CONTRACTS TO BUY ------------
(Contract Amount $14,502,408)................. $ 14,105,444
============
FORWARD EXCHANGE CONTRACTS TO SELL
1,234,088 European Economic Union Euro.... 4/23/99 $ (1,335,140)
894,964 European Economic Union Euro.... 6/8/99 (970,829)
442,945 European Economic Union Euro.... 6/17/99 (480,741)
339,067 European Economic Union Euro.... 8/27/99 (435,013)
1,299,206 European Economic Union Euro.... 11/5/99 (1,422,683)
5,075,350 European Economic Union Euro.... 12/10/99 (5,570,765)
840,401 European Economic Union Euro.... 12/23/99 (923,237)
1,792,275 European Economic Union Euro.... 3/27/00 (1,981,446)
373,808 Great Britain Pound Sterling.... 6/8/99 (603,045)
614,893 Great Britain Pound Sterling.... 7/2/99 (991,887)
558,989 Great Britain Pound Sterling.... 7/23/99 (901,708)
4,788,699 Great Britain Pound Sterling.... 12/23/99 (7,732,646)
968,230 Great Britain Pound Sterling.... 1/18/00 (1,563,951)
1,537,515 Great Britain Pound Sterling.... 2/11/99 (2,484,206)
1,240,156 Great Britain Pound Sterling.... 3/6/00 (2,004,324)
306,861 Great Britain Pound Sterling.... 3/29/00 (496,081)
5,553,450 Hong Kong Dollar................ 4/23/99 (716,257)
7,935,500 Hong Kong Dollar................ 1/18/00 (1,009,821)
5,160,675 Hong Kong Dollar................ 2/11/00 (655,599)
3,946,500 Hong Kong Dollar................ 3/29/00 (499,693)
4,070,240 Japanese Yen.................... 4/1/99 (34,373)
681,065,000 Japanese Yen.................... 4/23/99 (5,770,701)
1,877,850,000 Japanese Yen.................... 5/6/99 (15,940,895)
912,065,000 Japanese Yen.................... 6/8/99 (7,774,840)
361,530,000 Japanese Yen.................... 7/23/99 (3,100,422)
168,735,000 Japanese Yen.................... 11/5/99 (1,468,579)
817,320,000 Japanese Yen.................... 12/10/99 (7,149,051)
559,500,000 Japanese Yen.................... 12/23/99 (4,902,951)
685,503,000 Japanese Yen.................... 2/11/99 (6,049,707)
692,820,000 Japanese Yen.................... 3/6/99 (6,134,938)
1,679,400,000 Japanese Yen.................... 3/27/99 (14,915,116)
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Schedule of Forward Exchange Contracts
March 31, 1999
Contract Market
Value Value
Contracts Date (Note 1)
--------- -------- --------------
FORWARD EXCHANGE CONTRACTS TO SELL
337,230,000 Japanese Yen............ 3/29/00 $ (2,995,886)
1,925,298 New Zealand Dollar...... 6/8/99 (1,030,566)
928,333 New Zealand Dollar...... 1/18/00 (497,906)
1,381,840 Singapore Dollar........ 6/8/99 (805,025)
1,599,500 Singapore Dollar........ 11/5/99 (942,075)
1,622,800 Singapore Dollar........ 12/10/99 (957,892)
1,322,000 Singapore Dollar........ 1/18/00 (782,238)
842,150 Singapore Dollar........ 3/27/00 (500,386)
2,376,000 Swedish Krona........... 6/17/99 (290,547)
43,579,250 Swedish Krona........... 7/23/99 (5,340,279)
14,027,380 Swedish Krona........... 8/27/99 (1,722,504)
32,084,000 Swedish Krona........... 12/10/99 (3,965,466)
13,875,225 Swedish Krona........... 12/23/99 (1,716,330)
24,133,500 Swedish Krona........... 1/4/00 (2,987,505)
15,379,400 Swedish Krona........... 1/18/00 (1,905,502)
27,097,350 Swedish Krona........... 2/11/00 (3,362,409)
20,212,500 Swedish Krona........... 3/29/00 (2,515,476)
1,745,160 Swiss Franc............. 4/23/99 (1,183,939)
5,381,370 Swiss Franc............. 6/8/99 (3,668,742)
2,201,850 Swiss Franc............. 7/23/99 (1,508,300)
2,672,400 Swiss Franc............. 12/10/99 (1,858,090)
8,050,800 Swiss Franc............. 12/31/99 (5,610,070)
10,496,000 Swiss Franc............. 1/18/00 (7,327,867)
8,150,400 Swiss Franc............. 2/11/00 (5,704,656)
3,511,750 Swiss Franc............. 3/27/00 (2,469,562)
2,121,750 Swiss Franc............. 3/29/00 (1,492,375)
-------------
TOTAL FORWARD EXCHANGE CONTRACTS TO SELL
(Contract Amount $170,158,834)............ $(169,162,238)
=============
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Statement of Assets and Liabilities
March 31, 1999
ASSETS
Investments, at value (Cost $843,652,880) (Note 1)
See accompanying schedule........................... $ 1,056,570,882
Cash and foreign currency (Cost $14,541,433).......... 14,542,119
Receivable for investment securities sold............. 7,696,792
Dividends and interest receivable..................... 2,035,095
Receivable for Fund shares sold....................... 1,269,537
Net unrealized appreciation of forward exchange
contracts (Note 1)................................... 599,632
Prepaid expenses........................................ 7,396
---------------
Total Assets................................... 1,082,721,453
---------------
LIABILITIES
Payable for Fund shares redeemed...............$ 2,545,220
Payable for investment securities purchased.... 971,250
Investment advisory fee payable (Note 2)....... 641,953
Transfer agent fees payable (Note 2)........... 77,091
Custodian fees payable (Note 2)................ 13,000
Accrued expenses and other payables............ 258,448
-----------
Total Liabilities.............................. 4,506,962
---------------
NET ASSETS.............................................. $ 1,078,214,491
===============
NET ASSETS consist of
Undistributed net investment income................... $ 29,374
Accumulated net realized gain on securities, forward
exchange contracts and foreign currencies........... 22,346,297
Net unrealized appreciation of securities, forward
exchange contracts, foreign currencies and net other
assets.............................................. 213,523,309
Par value............................................. 4,814
Paid-in capital in excess of par value................ 842,310,697
Total Net Assets............................... $ 1,078,214,491
===============
NET ASSET VALUE, offering and redemption price per
share ($1,078,214,491 / 48,136,058 shares of common
stock outstanding).................................... $ 22.40
===============
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Statement of Operations
For the Year Ended March 31, 1999
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $349,281).... $ 16,835,642
Interest.................................................... 4,243,339
---------------
Total Investment Income............................ 21,078,981
---------------
EXPENSES
Investment advisory fee (Note 2)............... $ 13,594,779
Administration fee (Note 2).................... 437,177
Transfer agent fees (Note 2)................... 466,894
Custodian fees (Note 2)........................ 204,656
Legal and audit fees........................... 70,087
Directors' fees and expenses (Note 2).......... 27,815
Amortization of organization costs (Note 5).... 12,980
Other.......................................... 444,616
Waiver of fees by investment adviser (Note 2).. (121,000)
------------
Total Expenses..................................... 15,138,004
---------------
NET INVESTMENT INCOME.......................................... 5,940,977
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(Notes 1 and 3)
Net realized gain:
Securities.............................................. 29,526,022
Forward exchange contracts.............................. 1,132,217
Foreign currencies and net other assets................. 66,414
--------------
Net realized gain on investments during the year............ 30,724,653
--------------
Net change in unrealized appreciation (depreciation) of:
Securities.............................................. (50,963,605)
Forward exchange contracts.............................. (3,506,282)
Foreign currencies and net other assets................. 4,708
--------------
Net unrealized depreciation of investments during the year.. (54,465,179)
--------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS................ (23,740,526)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ (17,799,549)
==============
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Year
Ended Ended
3/31/99 3/31/98
--
- ----- -------
<S> <C>
<C>
Net investment income................................................ $
5,940,977 $ 4,232,973
Net realized gain on securities, forward exchange contracts
and currency transactions during the year...................
30,724,653 15,187,523
Net unrealized appreciation (depreciation) of securities,
forward exchange contracts, foreign currencies and
net other assets during the year............................
(54,465,179) 203,651,397
---------
- ------ --------------
Net increase (decrease) in net assets resulting from operations......
(17,799,549) 223,071,893
Distributions:
Dividends to shareholders from net investment income........
(7,030,923) (5,448,502)
Distributions to shareholders from net realized gain on
investments........................................
(12,518,672) (13,982,759)
Net increase in net assets from Fund share transactions (Note 4).....
104,325,915 465,129,709
---------
- ------ --------------
Net increase in net assets...........................................
66,976,771 668,770,341
NET ASSETS
Beginning of year....................................................
1,011,237,720 342,467,379
---------
- ------ --------------
End of year (including undistributed net investment income
of $29,374 and $1,863,348, respectively)........................ $
1,078,214,491 $ 1,011,237,720
=============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Financial Highlights
For a Fund share outstanding throughout each year.
<TABLE>
<CAPTION>
Year Year Year
Year Year
Ended Ended Ended
Ended Ended
3/31/99 3/31/98 3/31/97
3/31/96(a) 3/31/95(a)
------- -------- ------- -----
- ----- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of year.........$ 23.04 $ 16.22 $ 14.29 $
10.71 $ 9.71
------- ---------- --------- ----
- ---- ---------
Income from investment operations:
Net investment income (b).................. 0.12 0.11 0.13
0.15 0.13
Net realized and unrealized gain (loss)
on investments........................ (0.37) 7.31 2.39
3.56 0.93
------- ---------- --------- ----
- ---- ---------
Total from investment operations.. (0.25) 7.42 2.52
3.71 1.06
------- ---------- --------- ----
- ---- ---------
Distributions:
Dividends from net investment income.. (0.14) (0.17) (0.17)
(0.11) (0.06)
Distributions from net realized gains. (0.25) (0.43) (0.42)
(0.02)
------- ---------- --------- ----
- ---- ---------
Total distributions............... (0.39) (0.60) (0.59)
(0.13) (0.06)
------- ---------- --------- ----
- ---- ---------
Net asset value, end of year...............$ 22.40 $ 23.04 $ 16.22 $
14.29 $ 10.71
======= ========== =========
======== =========
Total return (c)........................... (1.09)% 46.14% 17.75%
34.70% 11.02
======== ========== =========
======== =========
Ratios/Supplemental Data:
Net assets, end of year (in 000's)....... $1,078,214 $1,011,238 $342,467
$201,599 $58,856
Ratio of operating expenses to average
net assets (d)...................... 1.39% 1.39% 1.39%
1.39% 1.74%
Ratio of net investment income to average
net assets.......................... 0.55% 0.69% 0.92%
1.13% 1.25%
Portfolio turnover rate.................. 16% 6% 16%
9% 4%
</TABLE>
- ---------------------
(a) Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method does not accord with
results of operations.
(b) Net investment income for a Fund share outstanding, before the waiver of
fees by the investment adviser and/or administrator and/or custodian for the
years ended March 31, 1999, 1998, 1997, 1996 and 1995 were $0.12, $0.11,
$0.11, $0.12 and $0.11, respectively.
(c) Total return represents aggregate total return for the periods indicated.
(d) Annualized expense ratios before the waiver of fees by the investment
adviser and/or administrator and/or custodian for the years ended March 31,
1999, 1998, 1997, 1996 and 1995 were 1.40%, 1.41%, 1.52%, 1.61% and 1.94%,
respectively.
67
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Notes to Financial Statements
1. Significant Accounting Policies
Tweedy, Browne American Value Fund (the "Fund") is a diversified series of
Tweedy, Browne Fund Inc. (the "Company"). The Company is an open-end management
investment company registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended. The Company was organized as a
Maryland corporation on January 28, 1993. The Fund commenced operations on
December 8, 1993. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
Portfolio Valuation. Generally, the Fund's investments are valued at market
value or, in the absence of market value, by the Investment Adviser or, at fair
value as determined by or under the direction of the Company's Board of
Directors. Portfolio securities and other assets, listed on a U.S. national
securities exchange or through any system providing for same day publication of
actual prices (and not subject to restrictions against sale by the Fund on such
exchange or system) are valued at the last quoted sale price prior to the close
of regular trading. Portfolio securities and other assets listed on a foreign
exchange or through any system providing for same day publication of actual
prices are valued at the last quoted sale price available before the time when
assets are valued. Portfolio securities and other assets for which there are no
reported sales on the valuation date are valued at the mean between the last
asked price and the last bid price prior to the close of regular trading. When
the Investment Adviser determines that the last sale price prior to valuation
does not reflect current market value, the Investment Adviser will determine the
market value of those securities or assets in accordance with industry practice
and other factors considered relevant by the Investment Adviser. All other
securities and assets for which current market quotations are not readily
available and those securities which are not readily marketable due to
significant legal or contractual restrictions will be valued by the Investment
Adviser or at fair
68
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Notes to Financial Statements
value as determined by or under the direction of the Board of Directors. Debt
securities with a remaining maturity of 60 days or less are valued at amortized
cost, which approximates market value, or by reference to other factors (i.e.,
pricing services or dealer quotations) by the Investment Adviser.
Repurchase Agreements. The Fund engages in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding period.
This arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the right
to use the collateral to offset losses incurred. There is potential loss to the
Fund in the event the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities, including the risk of a possible decline
in the value of the underlying securities during the period while the Fund see
ks to assert its rights. The Fund's Investment Adviser, acting under the
supervision of the Company's Board of Directors, reviews the value of the
collateral and the creditworthiness of those banks and dealers with which the
Fund enters into repurchase agreements to evaluate potential risks.
Foreign Currency. The books and records of the Fund are maintained in U.S.
dollars. Foreign currencies, investments and other assets and liabilities are
translated into U.S. dollars at the exchange rates prevailing at the end of the
period, and purchases and sales of investment securities, income and expenses
are translated on the respective dates of such transactions. Unrealized gains
and losses which result from changes in foreign currency exchange rates have
been included in the unrealized appreciation (depreciation) of currencies and
net other assets. Net realized foreign currency gains and losses resulting from
changes in exchange rates include foreign currency gains and losses between
trade date and settlement date on investments, securities transactions, foreign
currency transactions
69
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Notes to Financial Statements
and the difference between the amounts of interest and dividends recorded on the
books of the Fund and the amount actually received. The portion of foreign
currency gains and losses related to fluctuation in the exchange rates between
the initial purchase trade date and subsequent sale trade date is included in
realized gains and losses on investment securities sold.
Forward Exchange Contracts. The Fund has entered into forward exchange
contracts for non-trading purposes in order to reduce its exposure to
fluctuations in foreign currency exchange on its portfolio holdings. Forward
exchange contracts are valued at the forward rate and are marked-to-market
daily. The change in market value is recorded by the Fund as an unrealized gain
or loss. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time that it
was opened and the value of the contract at the time that it was closed.
The use of forward exchange contracts does not eliminate fluctuations in
the underlying prices of the Fund's investment securities, but it does establish
a rate of exchange that can be achieved in the future. Although forward exchange
contracts limit the risk of loss due to a decline in the value of the hedged
currency, they also limit any potential gain that might result should the value
of the currency increase. In addition, the Fund could be exposed to risks if the
counterparties to the contracts are unable to meet the terms of their contracts.
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. Dividend income and interest income may
be subject to foreign withholding taxes. The Fund's custodian applies for
refunds where available. If the Fund meets the requirements of Section 853 of
the Internal Revenue Code of 1986, as amended, the Fund may elect to pass
through to its shareholders credits for foreign taxes paid.
70
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Notes to Financial Statements
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, and distributions from realized capital gains after utilization
of capital loss carryforwards, if any, will be declared and paid annually.
Additional distributions of net investment income and capital gains from the
Fund may be made at the discretion of the Board of Directors in order to avoid
the application of a 4% non-deductible Federal excise tax on certain
undistributed amounts of ordinary income and capital gains. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
Federal Income Taxes. The Fund intends to qualify as a regulated investment
company, if such qualification is in the best interest of its shareholders, by
complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by distributing
substantially all of its taxable income to its shareholders. Therefore, no
Federal income tax provision is required.
Expenses. Expenses directly attributable to each Fund as a diversified
series of the Company are charged to that Fund. Other expenses of the Company
are allocated to each Fund based on the average net assets of each Fund.
2. Investment Advisory Fee, Other Related Party Transactions and
Administration Fee
The Company, on behalf of the Fund, has entered into an investment advisory
agreement (the "Advisory Agreement") with Tweedy, Browne Company LLC ("Tweedy,
Browne"). Under the Advisory Agreement, the Company pays Tweedy, Browne a fee at
the annual rate of 1.25% of the value of its average daily net assets. The fee
is payable monthly, provided the Fund will make such interim payments as may be
requested by the Investment Adviser not to exceed 75% of the amount of the fee
then accrued on the books of the Fund and unpaid. From time to
71
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Notes to Financial Statements
time, Tweedy Browne may voluntarily waive a portion of its fee otherwise payable
to it. For the year ended March 31, 1999, Tweedy, Browne voluntarily waived fees
of $121,000.
The current and retired general partners and their families, as well as
employees of Tweedy, Browne, the Investment Adviser to the Fund, have
approximately $31.3 million of their own money invested in the Fund.
The Company, on behalf of the Fund, has entered into an administration
agreement (the "Administration Agreement") with First Data Investor Services
Group, Inc. (the "Administrator"), a wholly owned subsidiary of First Data
Corporation. Under the Administration Agreement, the Company pays the
Administrator an administrative fee and a fund accounting fee computed daily and
payable monthly at the following annual rates of the value of the average daily
net assets of the Fund:
Fees on Assets
Between
-----------------------------------------------------
Up to $500 Million and Exceeding
$500 Million $1 Billion $1 Billion
- --------------------------------------------------------------------------------
Administration Fees 0.06% 0.04% 0.02%
- --------------------------------------------------------------------------------
Up to Exceeding
$100 Million $100 Million
- --------------------------------------------------------------------------------
Accounting Fees 0.03% 0.01%
- --------------------------------------------------------------------------------
Under the terms of the Administration Agreement, the Company will pay for
fund administration services a minimum fee of $40,000 per annum, not to be
aggregated with fees for fund accounting services. The Company will pay a
minimum monthly fee of $3,000 for fund accounting services for the Fund, not to
be aggregated with fees for fund administration services.
No officer, director or employee of Tweedy, Browne, the Administrator or
any parent or subsidiary of those corporations receives any compensation from
the Company for serving as a director or officer of the Company. The Fund pays
each director who is not an officer, director
72
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Notes to Financial Statements
or employee of Tweedy, Browne, the Administrator or any of their affiliates
$8,000 per annum plus $500 per Regular or Special Board Meeting attended in
person or by telephone, plus out-of-pocket expenses.
Boston Safe Deposit and Trust Company ("Boston Safe"), an indirect wholly
owned subsidiary of Mellon Trust, serves as the Fund's custodian pursuant to a
custody agreement (the "Custody Agreement"). From time to time, Boston Safe may
voluntarily waive a portion of its fee otherwise payable to it. For the year
ended March 31, 1999, Boston Safe did not waive any custody fees. First Data
Investor Services Group, Inc. serves as the Fund's transfer agent. Tweedy,
Browne also serves as the distributor to the Fund and pays all distribution
fees. No distribution fees are paid by the Fund.
3. Securities Transactions
Cost of purchases and proceeds from sales of investment securities,
excluding short-term investments, for the year ended March 31, 1999, aggregated
$299,601,595 and $161,292,069, respectively.
At March 31, 1999, the aggregate gross unrealized appreciation for all
securities, in which there was an excess of value over tax cost, was
$263,849,104 and the aggregate gross unrealized depreciation for all securities,
in which there was an excess of tax cost over value, was $56,848,637.
4. Capital Stock
The Company is authorized to issue one billion shares of $0.0001 par value
capital stock, of which 400,000,000 of the unissued shares have been designated
as shares of the Fund. Changes in shares outstanding for the Fund were as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------
- --------
Year Ended 3/31/99 Year Ended 3/31/98
-------------------------------------------------------
- --------
<S> <C> <C> <C> <C>
Shares Amount Shares
Amount
- --------------------------------------------------------------------------------
- --------
Sold 24,992,421 $ 560,483,799 29,306,959 $
598,418,949
Reinvested 771,582 17,467,680 854,761
17,761,820
Redeemed (21,518,449) (473,625,564) (7,390,306)
(151,051,060)
- --------------------------------------------------------------------------------
- --------
Net Increase 4,245,554 $ 104,325,915 22,771,414 $
465,129,709
- --------------------------------------------------------------------------------
- --------
</TABLE>
73
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Notes to Financial Statements
5. Organization Costs
The Fund bears all costs in connection with its organization including the
fees and expenses of registering and qualifying its shares for distribution
under Federal and state securities regulations. All such costs have been
deferred and are being amortized over a five-year period using the straight-line
method from the commencement of operations of the Fund. In the event that any of
the initial shares of the Fund are redeemed during such amortization period, the
Fund will be reimbursed for any unamortized organization costs in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption. At March 31, 1999, all such costs have
been fully amortized.
6. Line of Credit
Effective October 1, 1996, the Company and Mellon Trust, N.A. have entered
into a Line of Credit Agreement (the "Agreement") which provides the Fund and
the Tweedy, Browne Global Value Fund with a $50 million line of credit,
primarily for temporary or emergency purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition of
securities. The Fund may borrow up to one-third of its net assets; however, the
total credit available to the Fund and the Tweedy, Browne Global Value Fund is
$50 million. Interest is payable at the bank's Money Market Rate plus 0.75% on
an annualized basis. Under the Agreement, the Fund and the Tweedy, Browne Global
Value Fund pay a facility fee equal to 0.10% annually of the unutilized credit.
The Agreement requires, among other provisions, the Fund to maintain a ratio of
net assets (not including funds borrowed pursuant to the Agreement) to
aggregated amount of indebtedness pursuant to the Agreement of no less than
three to one. For the year ended March 31, 1999, the Fund did not borrow under
this Agreement.
74
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Board of Directors of
Tweedy, Browne Fund Inc.:
We have audited the accompanying statement of assets and liablities,
including the portfolio of investments and the schedule of forward exchange
contracts, of Tweedy, Browne American Value Fund (the "Fund") (a series of
Tweedy, Browne Fund Inc.) as of March 31, 1999, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended and financial highlights for each
of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of March 31, 1999, by correspondence with the custodian and
brokers, or by other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Tweedy, Browne American Value Fund, a series of Tweedy, Browne Fund Inc., at
March 31, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
/s/ Earnst & Young LLP
Boston, Massachusetts
May 7, 1999
75
<PAGE>
TWEEDY, BROWNE AMERICAN VALUE FUND
Tax Information (unaudited)
Year Ended March 31, 1999
For the fiscal year ended March 31, 1999, the amount of long-term capital
gain designated by the Fund was $10,442,851, which is taxable as a 20% rate gain
for Federal income tax purposes.
Of the ordinary income (including short-term capital gain) distributions
made by the Fund during the fiscal year ended March 31, 1999, 76.68% qualify for
the dividend received deduction available to corporate shareholders.
76
<PAGE>
TWEEDY, BROWNE FUND INC.
52 Vanderbilt Avenue, NY, NY 10017
800-432-4789
<PAGE>
PART C: OTHER INFORMATION
Item 23. Exhibits.
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(a) (1) Articles of Incorporation is incorporated by reference to
Exhibit 1 to Pre-Effective Amendment
No. 2 to the Registration Statement ("Pre-Effective Amendment
No. 2").
(a) (2) Articles Supplementary is incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 1 to the
Registration Statement ("Post-Effective Amendment No. 1").
(b) By-Laws is incorporated by reference to Exhibit 2 to Pre-
Effective Amendment No. 2.
(c) Not Applicable.
(d) (1) Specimen Certificate for the Tweedy, Browne Global Value
Fund is incorporated by reference to
Exhibit 4 to Pre-Effective Amendment No. 2.
(d) (2) Specimen Certificate for the Tweedy, Browne American Value
Fund is incorporated by reference to
Exhibit 4 to Post-Effective Amendment No. 3 to the
Registration Statement ("Post-Effective
Amendment No. 3").
(d) (3) Advisory Agreement between Registrant and Tweedy, Browne
Company L.P. dated June 2, 1993
relating to the Tweedy, Browne Global Value Fund is
incorporated by reference to Exhibit 5 to
Pre-Effective Amendment No. 2.
(d) (4) Advisory Agreement between Registrant and Tweedy, Browne
Company L.P. dated December 8, 1993
relating to the Tweedy, Browne American Value Fund is
incorporated by reference to Exhibit 5(b)
to the Registration Statement ("Post-Effective Amendment No.
5").
(d) (5) Advisory Agreement between Registrant and Tweedy, Browne
Company LLC dated October 9, 1997
relating to the Tweedy, Browne Global Value Fund is
incorporated by reference to Exhibit 5(c)
to the Registration Statement ("Post-Effective Amendment No.
8").
(d) (6) Advisory Agreement between Registrant and Tweedy, Browne
Company LLC dated October 9, 1997
relating to the Tweedy, Browne American Value Fund is
incorporated by reference to Exhibit 5(d)
to the Registration Statement ("Post-Effective Amendment No.
8").
(d) (7) Form of Advisory Agreement between Registrant and Tweedy,
Browne Company LLC relating to the
Tweedy, Browne Global Value Fund and Tweedy, Browne
American Value Fund is incorporated by
reference to Exhibit 5(e) to the Registration Statement
("Post-Effective Amendment No. 8").
(e) (1) Distribution Agreement between Registrant and Tweedy,
Browne Company L.P. dated June 3, 1993
relating to the Tweedy, Browne Global Value Fund is
incorporated by reference to Exhibit 6 to
Pre-Effective Amendment No. 2.
(e) (2) Distribution Agreement between Registrant and Tweedy,
Browne Company L.P. dated December 8,
1993 relating to the Tweedy, Browne American Value Fund is
incorporated by reference to Exhibit
6(b) to Post-Effective Amendment No. 5.
(e) (3) Distribution Agreement between Registrant and Tweedy,
Browne Company LLC dated October 9, 1997
relating to the Tweedy, Browne Global Value Fund is
incorporated by reference to Exhibit 6(c)
to the Registration Statement ("Post-Effective Amendment No.
8").
(e) (4) Distribution Agreement between Registrant and Tweedy, Browne
Company LLC dated October 9, 1997
relating to the Tweedy, Browne American Value Fund is
incorporated by reference to Exhibit 6(d)
to the Registration Statement ("Post-Effective Amendment No.
8").
(f) Not Applicable.
(g) (1) Custody Agreement between Registrant and Boston Safe
Deposit and Trust Company dated June 2,
1993 relating to the Tweedy, Browne Global Value Fund is
incorporated by reference to Exhibit 8
to Pre-Effective Amendment No. 2.
(g) (2) Amended and Restated Custody Agreement between Registrant
and Boston Safe Deposit and Trust
Company relating to the Tweedy, Browne Global Value Fund and
the Tweedy, Browne American Value
Fund dated December 8, 1993 is incorporated by reference
to Exhibit 8(b) to Post-Effective
Amendment No. 3.
(g) (3) First Amendment to the Amended and Restated Custody
Agreement between Registrant and Boston
Safe Deposit & Trust Company relating to the Tweedy, Browne
Global Value Fund and the Tweedy,
Browne American Value Fund dated December 31, 1996 is
incorporated by reference to Exhibit 8(c)
to Post-Effective Amendment No. 7.
(h) (1) Transfer Agent Agreement between Registrant and Unified
Advisers, Inc. dated June 2, 1993
relating to the Tweedy, Browne Global Value Fund is
incorporated by reference to Exhibit 9 to
Pre-Effective Amendment No. 2.
(h) (2) Transfer Agent Agreement between Registrant and Unified
Advisers, Inc. relating to the Tweedy,
Browne Value Fund is incorporated by reference to Exhibit
9(b) to Post-Effective Amendment No.
3.
(h) (3) Transfer Agent Agreement between Registrant and First Data
Investor Services Group, Inc. dated
May 9, 1997, relating to the Tweedy, Browne Global Value
Fund and the Tweedy, Browne American
Value Fund is incorporated by reference to Exhibit 9(c) to
Post-Effective Amendment No. 7.
(h) (4) Administration Agreement between Registrant and The Boston
Company Advisors, Inc. dated June 2,
1993 relating to the Tweedy, Browne Global Value Fund is
incorporated by reference to Exhibit 9
to Pre-Effective Amendment No. 2.
(h) (5) Amended and Restated Administration Agreement between
Registrant and The Boston Company
Advisors, Inc. relating to the Tweedy, Browne Global Value
Fund and the Tweedy, Browne American
Value Fund dated December 8, 1993 is incorporated
by reference to Exhibit 9(d) to
Post-Effective Amendment No. 3.
(h) (6) Amendment No. 1 to the Amended and Restated Administration
Agreement between Registrant and
First Data Investor Services Group, Inc. relating to the
Tweedy, Browne Global Value Fund and
the Tweedy, Browne American Value Fund dated February 15,
1997 is incorporated by reference to
Exhibit 9(f) to Post-Effective Amendment No. 7.
(i) Opinion and Consent of Miles & Stockbridge is
incorporated by reference to Exhibit 10 to
Post-Effective Amendment No. 1.
(j) Consent of Ernst & Young LLP, independent auditors is filed
herewith.
(k) Not Applicable.
(l) (1) Purchase Agreement dated June 2, 1993 relating to the
initial capital for the Tweedy, Browne Global Value Fund is
incorporated by reference to Exhibit 13 to Post-Effective
Amendment No. 3.
(l) (2) Purchase Agreement relating to the initial capital for the
Tweedy, Browne American Value Fund
is incorporated by reference to Exhibit 13 to Post-
Effective Amendment No. 4 to the
Registration Statement.
(m) None.
(n) Not Applicable.
(o) None.
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Item 24. Persons Controlled by or Under Common Control with Registrant.
No person is controlled by the Registrant.
<PAGE>
Item 25. Indemnification.
Under Registrant's Articles of Incorporation and By-Laws, as
amended, the Directors and officers of Registrant will be indemnified to the
fullest extent allowed and in the manner provided by Maryland law and applicable
provisions of the Investment Company Act of 1940, as amended, including
advancing of expenses incurred in connection therewith. Indemnification shall
not be provided, however, to any officer or director against any liability to
the Registrant or its security holders to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Article 2, Section 405.2 of the Maryland General Corporation
Law provides that the Articles of Incorporation of a Maryland corporation may
limit the extent to which directors or officers may be personally liable to the
Corporation or its stockholders for money damages in certain instances. The
Registrant's Articles of Incorporation, as amended, provide that, to the fullest
extent permitted by Maryland law, as it may be amended or interpreted from time
to time, no Director or officer of the Registrant shall be personally liable to
the Registrant or its stockholders. The Registrant's Articles of Incorporation,
as amended, also provide that no amendment of the Registrant's Articles of
Incorporation, as amended, or repeal of any of its provisions shall limit or
eliminate any of the benefits provided to Directors and officers in respect of
any act or omission that occurred prior to such amendment or repeal.
The Investment Advisory Agreements and Distribution Agreements
contain provisions requiring indemnification of the Registrant's investment
advisor and principal underwriter by the Registrant.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended may be permitted to Directors, officers and
controlling persons of the Registrant and the investment advisor and distributor
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Director, officer, or controlling person of the Registrant and the
Distributor in connection with the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such Director, officer or
controlling person or the Distributor in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser.
See "Management of the Funds" in the Prospectus regarding the
business of Tweedy, Browne Company LLC (the "Investment Adviser"). The
Investment Adviser also acts as the adviser for the following investment
company: Tweedy, Browne Global Value Fund, Inc. The address of the Investment
Adviser is 52 Vanderbilt Avenue, New York, New York 10017. Set forth below is a
list of each Managing Director of the Investment Adviser.
NAME EMPLOYMENT
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Christopher H. Browne Associated with the Investment
Adviser since 1969. He is a managing
director of the Investment Adviser, and
a general partner of TBK Partners,
L.P. and Vanderbilt Partners, L.P. Mr.
Browne serves as a Trustee of the
University of Pennsylvania and sits on
its Investment Committee; he is a
member of The Board of Trustees of The
Rockefeller University. He also
serves on the Faculty Advisory
Committee of The Kennedy School at Harvard
University's program in behavioral
finance, and is a Director of Tweedy,
Browne Fund Inc. He is a frequent
speaker on behavioral psychology and
financial decision making as it
relates to international investing.
Mr. Browne holds a B.A. degree from the
University of Pennsylvania.
William H. Browne Associated with the Investment
Adviser since 1978. He is a managing
director of the Investment Adviser, and
a general partner of TBK Partners,
L.P. and Vanderbilt Partners, L.P.,
both private investment partnerships.
He also serves as a Director of
Fairfield Aerospace Corp. and Dornier
Lufthart GmbH. Additionally, he is a
Trustee of Colgate University. Mr.
Browne holds the degrees of B.A. from
Colgate University and M.B.A. from
Trinity College in Dublin, Ireland.
John D. Spears Associated with the Investment
Adviser since 1974. He is a managing
director of the Investment Adviser, and
a general partner of TBK Partners,
L.P. and Vanderbilt Partners, L.P.
Previously, he had been in the
investment business for five years with
Berger, Kent Associates; Davic
Associates; and Hornblower & Weeks-
Hemphill, Noyes & Co. Mr. Spears
studied at the Babson Institute of
Business Administration, Drexel
Institute of Technology and the
University of Pennsylvania - The Wharton
School.
Thomas H. Shrager Associated with the Investment
Adviser since 1989. He is a managing
director of the Investment Adviser.
Previously, he worked in mergers and
acquisitions at Bear Stearns, and as a
consultant for Arthur D. Little.
Mr. Shrager holds the degrees of B.A. and
M.I.A. from Columbia University.
Robert Q. Wyckoff, Jr. Associated with the Investment
Adviser since 1991. He is a managing
director of the Investment Adviser.
Prior to joining the Investment
Adviser, he held positions with
Bessemer Trust, C.J. Lawrence, J&W
Seligman, and Stillrock Management.
Mr. Wyckoff received a B.A. from
Washington & Lee University and a J.D.
from the University of Florida
School of Law.
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Item 27. Principal Underwriters.
(a) Tweedy, Browne Value Fund (SICAV) offshore fund
series not offered to U.S. persons.
(b) Not Applicable.
(c) Not Applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be
maintained by Registrant by Section 31(a) of the Investment Company Act of 1940,
as amended, and the rules thereunder will be maintained at the offices of the
Administrator at 101 Federal Street, Boston, Massachusetts 02110 or at the
offices of the Adviser at 52 Vanderbilt Avenue, New York, New York 10017.
Item 29. Management Services.
Not Applicable.
Item 30. Undertakings.
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that this Post-Effective Amendment No. 11 to the Registration Statement meets
the requirements for effectiveness pursuant to Rule 485(b) of the Securities Act
of 1933, as amended, and the Registrant has duly caused this Post-Effective
Amendment No. 11 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State of
New York on the 30th day of July, 1999.
TWEEDY, BROWNE FUND INC.
By:CHRISTOPHER H. BROWNE
Christopher H. Browne
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 11 to the Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated.
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Signature Title
Date
CHRISTOPHER H. BROWNE Chairman of the Board,
July 30, 1999
Christopher H. Browne President and Director
WILLIAM H. BROWNE Treasurer
July 30, 1999
William H. Browne
BRUCE A. BEAL Director
July 30, 1999
Bruce A. Beal
Director
Arthur Lazar
RICHARD B. SOLOMON Director
July 30, 1999
Richard B. Salomon
ANTHONY H. MEYER Director
July 30, 1999
Anthony H. Meyer
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<PAGE>
EXHIBIT INDEX
Exhibit # Description
11 Consent of Ernst & Young LLP, independent auditors
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Experts" in the Statement of Additional
Information and to the incorporation by reference of our reports dated May 7,
1999 on the financial statements and financial highlights of Tweedy, Browne
Global Value Fund and Tweedy, Browne American Value Fund, the portfolios of
Tweedy, Browne Fund Inc., in Post-Effective Amendment No. 11 to the Registration
Statement (Form N-1A, No. 33-57724).
ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
July 26, 1999
