TWEEDY, BROWNE GLOBAL VALUE FUND
TWEEDY, BROWNE AMERICAN VALUE FUND
Supplement to Prospectus, dated July 30, 1999
Effective September 20, 1999, the principal executive offices for
Tweedy, Browne Fund Inc. and Tweedy, Browne Company LLC, the investment adviser
for Tweedy, Browne Global Value Fund and Tweedy, Browne American Value Fund,
have moved to 350 Park Avenue, 9th Floor, New York, NY 10022. You should
continue to use the same telephone number, 1-800-432-4789, and send investments,
redemptions, and other correspondence to:
Tweedy, Browne Fund Inc.
P.O. Box 61290
King of Prussia, PA 19406-0889
September 20, 1999
TWEEDY, BROWNE GLOBAL VALUE FUND
TWEEDY, BROWNE AMERICAN VALUE FUND
each a series of
TWEEDY, BROWNE FUND INC.
STATEMENT OF ADDITIONAL INFORMATION
dated July 30, 1999,
as revised September 20, 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.
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TABLE OF CONTENTS
Page
Investment Objectives and Policies.................................... 3
Performance Information............................................... 20
Operation of the Funds................................................ 23
Taxes................................................................. 32
Portfolio Transactions................................................ 36
Net Asset Value....................................................... 38
Additional Information................................................ 39
Appendix A............................................................ A-1
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29
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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.
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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.
.........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.
<PAGE>
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.
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 Heilbronn
Age 51 Christy & Viener
Salans Hertzfeld Heilbronn 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.
<PAGE>
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.
<PAGE>
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.
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.
<PAGE>
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
Purchase and Redemption of Shares
The Corporation has authorized certain brokers and intermediaries to
accept on its behalf purchase and redemption orders under certain terms and
conditions. These brokers and intermediaries are authorized to designate other
parties to accept purchase and redemption orders on a Fund's behalf subject to
those terms and conditions. Under this arrangement, a Fund will be deemed to
have received a purchase or redemption order when an authorized broker or
intermediary or, if applicable, authorized designee, accepts the order in
accordance with a Fund's instructions. Customer orders that are properly
transmitted to a Fund will be priced at the next net asset value per share
computed after the order is accepted by the authorized broker, intermediary or
designee.
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.
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>
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.
