As filed with the Securities and Exchange Commission on July 27, 2000
Securities Act File No. 33-57724
Investment Company Act File No. 811-7458
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
--
Pre-Effective Amendment No. __ __
Post-Effective Amendment No. 12 X
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 15 X
Tweedy, Browne Fund Inc.
(Exact name of Registrant as Specified in Charter)
350 Park Avenue, 9th Floor, New York, NY 10022
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 916-0600
Name and Address of Agent for Service: Copies to:
M. Gervase Rosenberger, Esq. Richard T. Prins, Esq.
Tweedy, Browne Company LLC Skadden, Arps, Slate, Meagher & Flom
350 Park Avenue, 9th Floor Four Times Square, 30th Floor
New York, NY 10022 New York, NY 10036
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b), or
X on July 31, 2000 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1), or on
_____________ pursuant to paragraph (a)(1) 75 days after
filing pursuant to paragraph (a)(2) on _____________ pursuant
to paragraph (a)(2) of Rule 485
<PAGE>
<PAGE>
--------------------------------------------------------------------------------
. . . . . . . . . . . PROSPECTUS . . . . . . . . . . .
--------------------------------------------------------------------------------
JULY 31, 2000
TWEEDY, BROWNE FUND INC.
[GRAPHIC OMITTED]
TWEEDY, BROWNE GLOBAL VALUE FUND
TWEEDY, BROWNE AMERICAN VALUE FUND
350 PARK AVENUE
NEW YORK, NY 10022
1-800-432-4789
WEB SITE: WWW.TWEEDY.COM
Both the Global Value Fund and American Value Fund seek long-term
capital growth by investing in equity securities.
Tweedy, Browne Company LLC manages both Funds using a value investing
style derived directly from the work of the late Benjamin Graham.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
--------------------------------------------------------------------------------
. . . . . . . . . . . . . . . . . . . . . . . . . . .
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
Risk/Return Summary .................................................. 1
Investment Objective ............................................. 1
Principal Investment Strategies .................................. 1
Principal Risks of Investment .................................... 2
Smaller Companies ................................................ 2
Foreign Securities ............................................... 2
Performance ...................................................... 3
Fees and Expenses ................................................ 5
The Funds' Investments ............................................... 5
Investment Goals and Strategies .................................. 5
Reducing Currency Risk Through Currency Hedging .................. 6
Pursuit of Long-Term Capital Growth .............................. 6
Management of the Funds .............................................. 7
Pricing of Fund Shares ............................................... 8
Transaction Information .............................................. 9
Purchases ........................................................ 9
Redemptions and Exchanges ........................................ 11
Transaction Policies ............................................. 12
Distributions and Taxes .............................................. 12
Financial Highlights ................................................. 13
For More Information ................................................. 15
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE. Each Fund seeks long-term capital growth.
PRINCIPAL INVESTMENT STRATEGIES. The Global Value Fund invests primarily
in foreign securities but may invest in U.S. securities to a limited extent.
The American Value Fund invests primarily in securities of U.S. companies and
may invest in foreign securities to a limited extent.
The Adviser seeks to construct a widely diversified portfolio of small,
medium and large capitalization stocks from a variety of industries and, in
the case of the Global Value Fund, a variety of countries.
Value investing seeks to uncover stocks whose current market prices are at
significant discounts to the Adviser's estimate of their true or intrinsic
value.
The Funds' investment style derives from the work of the late Benjamin
Graham. Most investments in the Funds' portfolios have one or more of the
following investment characteristics:
o low stock price in relation to book value
o low price-to-earnings ratio
o low price-to-cash-flow ratio
o above average dividend yield
o low price-to-sales ratio as compared to other companies in the same
industry
o low corporate leverage
o low share price
o purchases of a company's own stock by the company's officers and directors
o company share repurchases
o a stock price that has declined significantly from its previous high price
and/or small market capitalization.
Academic research and studies have indicated an historical statistical
correlation between each of these investment characteristics and above average
investment rates of return over long measurement periods. The Funds seek to
also hedge back to the U.S. dollar.
The Global Value Fund invests primarily in undervalued equity securities
of foreign stock markets, but also invests on a more limited basis in U.S.
equity securities when opportunities appear attractive. Investments in the
Fund are focused for the most part in developed countries with only minor
exposure to emerging markets. The Fund is diversified by issue, industry and
country, and maintains investments in a minimum of five countries. Where
practicable, the Global Value Fund seeks to reduce currency risk by hedging
its foreign currency exposure back into the U.S. dollar. The Global Value Fund
is designed for long-term value investors who wish to focus their investment
exposure on foreign stock markets of developed countries. This Fund is not
appropriate for investors seeking primarily income.
The American Value Fund invests at least 80% of its assets in undervalued
equity securities of the U.S. stock market, but also invests on a more limited
basis in foreign equity securities when opportunities appear attractive. The
Fund is diversified by issue and industry, and seeks to reduce currency risk
on its foreign investments by hedging its foreign currency exposure back into
the U.S. dollar. The American Value Fund is designed for long-term value
investors who wish to focus their investment exposure on the U.S. stock
market. The Fund is not appropriate for investors seeking primarily income.
PRINCIPAL RISKS OF INVESTMENT. The Funds invest primarily in common
stocks. Common stock represents a proportionate interest in the earnings and
value of the issuing company. Therefore, a Fund participates in the success or
failure of any company in which it owns stock. The market value of common
stocks fluctuates significantly, reflecting the past and anticipated business
performance of the issuing company, investor perception and general economic
or financial market movements.
You could lose money on your investment in a Fund or a Fund could
underperform other investments.
SMALLER COMPANIES. Both Funds invest to a significant extent in smaller
companies. Smaller companies may be less well established and may have a more
highly leveraged capital structure, less liquidity, a smaller investor base,
greater dependence on a few customers and similar factors that can make their
business and stock market performance susceptible to greater fluctuation. In
general, the Adviser's investment philosophy and selection process favor
companies that do not have capital structures that would be considered to be
"highly leveraged" for a company in the same field.
FOREIGN SECURITIES. While both Funds may invest in foreign securities,
the Global Value Fund will do so to a far greater extent. Investing in foreign
securities involves additional risks beyond those of investing in U.S.
markets. These risks include:
o changes in currency exchange rates, which can lower performance in U.S.
dollar terms
o exchange rate controls (which may include an inability to transfer
currency from a given country)
o costs incurred in conversions between currencies
o less publicly available information
o different accounting standards
o greater market volatility
o delayed settlements
o difficulty in enforcing obligations in foreign countries
o less securities regulation
o unrecoverable withholding and transfer taxes
o war
o seizure
o political and social instability.
The Funds' practice of hedging currency risk in foreign securities tends
to make a Fund underperform a similar unhedged portfolio when the dollar is
losing value against the local currencies in which the portfolio's investments
are denominated.
PERFORMANCE. The following graphs and tables illustrate how the Funds'
returns vary over time and how they compare to relevant market benchmarks. The
Adviser has chosen the Morgan Stanley Capital International ("MSCI") Europe,
Australasia and Far East ("EAFE") Index, on both a hedged and unhedged basis,
as well as the Morningstar World Stock Funds Average ("Morningstar World Stock
Funds") and the Morningstar Foreign Stock Funds Average ("Morningstar Foreign
Stock Funds"), as the relevant market benchmarks for the Global Value Fund. It
has chosen the Standard & Poor's 500 Stock Index ("S&P 500 Index"), as well as
the Russell Mid-Cap Value Index ("Russell Mid-Cap Value") and the Morningstar
Mid-Cap Value Funds Average ("Morningstar Mid-Cap Value") as the relevant
market benchmarks for the American Value Fund.
The MSCI EAFE Index is a widely recognized, unmanaged index of common
stocks traded in the leading foreign markets. The Morningstar World Stock
Funds consists of the average returns of all mutual funds in the Morningstar
Universe that invest throughout the world while maintaining a percentage of
assets (normally 25%-50%) in the U.S. The Morningstar Foreign Stock Funds
consists of the average returns of all mutual funds in the Morningstar
Universe that invest primarily in equity securities of issuers located outside
the U.S. The S&P 500 Index is an unmanaged capitalization-weighted index
composed of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market and includes the
reinvestment of dividends. The Russell Mid-Cap Value is an unmanaged
capitalization-weighted index, which assumes reinvestment of dividends and is
comprised of mid-cap companies with lower price-to-book value ratios and lower
forecasted growth values that are also members of the Russell 1000 Index. The
Morningstar Mid-Cap Value consists of the average returns of all mutual funds
in the Morningstar Universe classified as value funds with median market
capitalizations greater than or equal to $1 billion but less than or equal to
$5 billion. The past performance of a Fund does not necessarily indicate how
the Fund will perform in the future.
Yearly Total Returns*
1995 1996 1997 1998 1999
Global Value Fund 10.70% 20.23% 22.96% 10.99% 25.28%
American Value Fund 36.21% 22.45% 38.87% 9.59% 2.00%
*The 2000 year-to-date returns for the Global Value Fund and the American
Value Fund through June 30, 2000 were 5.79% and (1.74%), respectively.
GLOBAL VALUE FUND AMERICAN VALUE FUND
--------------------------------------------------------------------------------
Best quarterly return .. 16.24% (4th quarter 1998) 15.66% (2nd quarter 1997)
Worst quarterly return . -17.85% (3rd quarter 1998) -14.61% (3rd quarter 1998)
AVERAGE ANNUAL TOTAL RETURN*
FOR PERIODS ENDED DECEMBER 31, 1999
SINCE
ONE YEAR FIVE YEAR INCEPTION
--------------------------------------------------------------------------------
Global Value Fund (inception 6/15/93) ..... 25.28% 17.87% 16.64%
MSCI EAFE Index (in U.S. Dollars) ......... 26.96% 12.83% 11.82%
MSCI EAFE Index (Hedged) .................. 36.47% 17.74% 14.81%
American Value Fund (inception 12/8/93) ... 2.00% 20.96% 16.75%
S&P 500 Index ............................. 21.04% 28.51% 23.41%
Morningstar Mid-Cap Value ................. 6.72% 16.09% 13.24%
Russell Mid-Cap Value ..................... (0.11)% 18.01% 14.79%
* For the six month period ended June 30, 1999 (not annualized):
Global Value Fund ............................................ 5.79%
MSCI EAFE Index (in U.S. Dollars) ........................... (4.06)%
MSCI EAFE Index (Hedged) ..................................... 1.80%
American Value Fund ......................................... (1.74)%
S&P 500 Index ............................................... (0.43)%
Morningstar Mid-Cap Value .................................... 1.30%
Russell Mid-Cap Value ....................................... (0.68)%
FEES AND EXPENSES. This table describes the fees and expenses that you
may pay if you buy and hold shares of the Funds.
GLOBAL VALUE AMERICAN VALUE
FUND FUND
--------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
-- Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price) .................................... None None
-- Maximum deferred sales charge (load) (as a
percentage of offering price) ............. None None
-- Redemption fee (as a percentage of amount
redeemed) None None
ANNUAL FUND OPERATING EXPENSES (FOR YEAR ENDED 3/31/00)
(EXPENSES DEDUCTED FROM FUND ASSETS)
Management fees ........................... 1.25% 1.25%
Distribution (12b-1) and/or service fees .. None None
Other expenses ............................ 0.13% 0.12%
Total annual fund operating expenses ...... 1.38% 1.37%
EXAMPLE. This example is intended to help you compare the cost of
investing in the Funds with the cost of investing in other mutual funds. The
example assumes that:
o You invest $10,000 in each Fund for the time periods indicated;
o Your investment earns a 5% return each year; and
o The Funds' operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
GLOBAL VALUE AMERICAN VALUE
FUND FUND
-------------------------------------------------------------------------------
One Year ..................................... $ 140 $ 139
Three Years .................................. $ 437 $ 434
Five Years ................................... $ 755 $ 750
Ten Years .................................... $1,657 $1,646
THE FUNDS' INVESTMENTS
INVESTMENT GOALS AND STRATEGIES. Each of the Funds pursues the investment
goal of long-term capital growth. This goal may be changed for either Fund
without shareholder approval. In selecting investments for the Funds, the
Adviser employs a value investing style. Value investing seeks to uncover
stocks whose current market prices are at significant discounts to the
Adviser's estimate of their true or intrinsic values. The Adviser purchases
stock at significant discounts to its estimate of this true or intrinsic
value. Like a credit analyst reviewing a loan application, the Adviser wants
collateral value in the form of assets and/or earning power that is
substantially greater than the cost of the investment.
REDUCING CURRENCY RISK THROUGH CURRENCY HEDGING. Both the Global Value
Fund's and the American Value Fund's share price will tend to reflect the
movements of the different securities markets in which they are invested and,
to the degree not hedged, the foreign currencies in which investments are
denominated. The Funds may also use a variety of currency hedging techniques,
including forward currency contracts, to manage exchange rate risk. The
Adviser believes the use of these instruments will benefit the Funds. Possible
losses from changes in currency exchange rates are primarily a risk of
investing unhedged in foreign stocks. While a stock may perform well on the
London Stock Exchange, if the pound declines against the dollar, gains can
disappear or become losses if the inherent investment in the pound, through
ownership of a British stock, is not hedged back to the U.S. dollar. Currency
fluctuations are often more extreme than stock market fluctuations. In the
more than thirty-two years in which Tweedy, Browne has been investing, the S&P
500 has declined on an annual basis more than 20% only once, in 1974. By
contrast, both the dollar/pound and the dollar/deutsche mark relationships
have moved more than 20% on numerous occasions. In the last twenty years,
there was a four to five year period, during 1979-1984, when the U.S. dollar
value of British, French, German and Dutch currencies declined by 45% to 58%.
Accordingly, the strength or weakness of the U.S. dollar against these foreign
currencies may account for part of the Funds' investment performance although
both the Global Value Fund and the American Value Fund intend to minimize
currency risk through hedging activities. Although hedging against currency
exchange rate changes reduces the risk of loss from exchange rate movements,
it also reduces the ability of the Funds to gain from favorable exchange rate
movements when the U.S. dollar declines against the currencies in which the
Funds' investments are denominated and in some interest rate environments may
impose out-of-pocket costs on the Funds.
PURSUIT OF LONG-TERM CAPITAL GROWTH. The Managing Directors of Tweedy,
Browne believe that there are substantial opportunities for long-term capital
growth from professionally managed portfolios of securities selected from
foreign and domestic equity markets. Investments in the Global Value Fund will
focus on those developed markets around the world where Tweedy, Browne
believes value is more abundant. Investments in the American Value Fund will
focus on those issues in the U.S. market that Tweedy, Browne believes will
provide greater value. With both Funds, Tweedy, Browne will consider all
market capitalization sizes for investment with the result that a significant
portion of the two portfolios may be invested in smaller (generally under $1
billion) and medium (up to $5 billion) capitalization companies. Tweedy,
Browne believes smaller and medium capitalization companies can provide
enhanced long-term investment results in part because the possibility of a
corporate acquisition at a premium may be greater than with large,
multinational companies.
Under normal circumstances, both Funds will stay fully invested in stocks,
including common stock, preferred stock, securities representing the right to
acquire stock (such as convertible debentures, options and warrants), and
depository receipts for securities. The Funds may also invest in debt
securities although for each Fund income is an incidental consideration.
Although the Global Value Fund will invest primarily in foreign securities,
for temporary defensive purposes, the Fund may invest solely in U.S.
securities. During such a period the Fund may not achieve its investment
objective.
MANAGEMENT OF THE FUNDS
The Funds' investment adviser is Tweedy, Browne Company LLC, a successor
to Tweedy & Co. founded in 1920. Tweedy, Browne has managed assets since 1968
and currently manages approximately $7.0 billion in client funds, including
approximately $3.95 billion in accounts that are considered foreign or global.
Tweedy, Browne is located at 350 Park Avenue, New York, NY 10022. Tweedy,
Browne has extensive experience in selecting undervalued stocks in U.S.
domestic equity markets, first as a market maker, then as an investor and
investment adviser. Tweedy, Browne began investing outside the United States
in 1983 utilizing the same principles of value investing it has applied to
U.S. securities for thirty-two years.
The Adviser seeks to reduce the risk of permanent capital loss, as
contrasted to temporary stock price fluctuation, through both diversification
and application of its stock selection process, which includes assessing and
weighing quantitative and qualitative information concerning specific
companies.
The current Managing Directors and retired principals and their families,
as well as employees of Tweedy, Browne, have more than $369.1 million in
portfolios combined with or similar to client portfolios, including
approximately $47.4 million in the Global Value Fund and $31.4 million in the
American Value Fund.
Tweedy, Browne manages the daily investment and business affairs for the
Funds, subject to oversight by the Board of Directors. For the fiscal year
ended March 31, 2000, Tweedy, Browne received investment advisory fees from
the Global Value Fund of 1.25%, and from the American Value Fund of 1.25%, of
average daily net assets.
Tweedy, Browne's Management Committee, which consists of Christopher
Browne, William Browne and John Spears, manages the day-to-day operations of
Tweedy, Browne and makes all investment management decisions. These
individuals have been working together at Tweedy, Browne for more than twenty
years.
The following is a brief biography of each of the Managing Directors of
Tweedy, Browne, including positions held by each for the past five years:
Christopher H. Browne has been with the Adviser since 1969 and is a member
of the firm's Management Committee. He is a Managing Director of Tweedy,
Browne Company LLC, and a general partner of TBK Partners, L.P. and Vanderbilt
Partners, L.P., both private investment partnerships. Mr. Browne is on the
Board of Directors of Tweedy, Browne Fund Inc. Mr. Browne is a Trustee of the
University of Pennsylvania and sits on the Executive Committee of its
Investment Board. He is also a Trustee and a member of The Council of The
Rockefeller University. He also serves as a Director of the American Atlantic
Corporation. Mr. Browne holds a B.A. degree from the University of
Pennsylvania.
William H. Browne has been with the Adviser since 1978 and is a member of
the firm's Management Committee. He is a Managing Director of Tweedy, Browne
Company LLC, and of TBK Partners, L.P. and Vanderbilt Partners, L.P., both
private investment partnerships. Mr. Browne is an officer of Tweedy, Browne
Fund Inc. He also serves as a Director of Fairchild Aerospace Corp. and
Dornier Luftfahrt GmbH. Additionally, he is a Trustee of Colgate University.
Mr. Browne holds the degrees of B.A. from Colgate University and M.B.A. from
Trinity College in Dublin, Ireland.
John D. Spears joined the Adviser in 1974 and is a member of the firm's
Management Committee. He is a Managing Director of Tweedy, Browne Company LLC,
and a general partner of TBK Partners, L.P. and Vanderbilt Partners, L.P.,
both private investment partnerships. Mr. Spears is an officer of Tweedy,
Browne Fund Inc. Previously, he had been in the investment business for five
years with Berger, Kent Associates; Davic Associates; and Hornblower & Weeks-
Hemphill Noyes & Co. Mr. Spears studied at the Babson Institute of Business
Administration, Drexel Institute of Technology and the University of
Pennsylvania -- The Wharton School.
Thomas H. Shrager has been associated with the Adviser since 1989 and is a
Managing Director of Tweedy, Browne Company LLC. Previously he had worked in
mergers and acquisitions at Bear, Stearns, and as a consultant for Arthur D.
Little. He received a B.A. and a Masters in International Affairs from
Columbia University.
Robert Q. Wyckoff, Jr. has been associated with the Adviser since 1991 and
is a Managing Director of Tweedy, Browne Company LLC. Prior to joining the
Investment Adviser, he held positions with Bessemer Trust, C.J. Lawrence, J&W
Seligman, and Stillrock Management. He received a B.A. from Washington & Lee
University, and a J.D. from the University of Florida School of Law.
PRICING OF FUND SHARES
Purchases and redemptions, including exchanges, are made at the net asset
value per share next calculated after the transfer agent is considered to have
received the transaction request. The Funds value their assets based on market
value except that assets that are not readily marketable are valued at fair
value under procedures adopted by the Board of Directors. Each Fund will
usually send redemption proceeds within one business day following the
request, but may take up to seven days. The Funds' Administrator determines
net asset value per share as of the close of regular trading on the New York
Stock Exchange ("NYSE") (normally 4:00 p.m. eastern time) on each day the NYSE
is open for trading. Since many of the securities owned by the Global Value
Fund trade on foreign exchanges that trade on weekends or other days when the
Global Value Fund does not price its shares, the net asset value of that Fund
may change on days when you are unable to purchase or redeem shares.
TRANSACTION INFORMATION
Dislike forms and instruction manuals? Call 1-800-432-4789 and press 2,
we'll make it easier to invest in the Funds.
PURCHASES
You can purchase shares of either Fund without 12b-1 fees or sales charges
of any kind. If you need assistance or have any questions, please call
shareholder services at 1-800-432-4789, Press 2 between 9:00 a.m. and 5:00
p.m. eastern time, Monday through Friday.
> OPENING AN ACCOUNT MINIMUM INVESTMENT: $2,500; IRAs, $500
Make checks payable to the Fund you are purchasing. An account cannot be
opened without a completed and signed account application.
BY MAIL. Send your completed, signed account application and check to:
Tweedy, Browne Fund Inc., P.O. Box 61290, King of Prussia, Pennsylvania
19406-0889.
BY WIRE. First, call shareholder services at 1-800-432-4789, Press 2 to
get information you need to establish an account and to submit a completed,
signed application. Then contact your bank to arrange wire transfer to the
Funds' transfer agent. Your bank will need to know:
> the name and account number from which you will wire money
> the amount you wish to wire
> the name(s) of the account holder(s) exactly as appearing on your
application
> ABA wire instructions, as follows:
--------------------------------------------------------------------------------
GLOBAL VALUE FUND AMERICAN VALUE FUND
Boston Safe Deposit & Trust Co. Boston Safe Deposit & Trust Co.
Boston, MA Boston, MA
Account of Tweedy, Browne Account of Tweedy, Browne
Global Value Fund American Value Fund
Account #138-517 Account #138-517
ABA #011001234 ABA #011001234
--------------------------------------------------------------------------------
For further credit to [name(s) of For further credit to [name(s) of
the account holder(s) and account the account holder(s) and account
number given to you by number given to you by
shareholder services] shareholder services]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Shareholder Services 800-432-478 9 and Press 2
Daily NAV Prices 800-432-478 9 and Press 2
For Special Assistance
in Opening a New Account 800-432-478 9 AND PRESS 2
FUND INFORMATION KIT 800-432-478 9 AND PRESS 1
WEB SITE: WWW.TWEEDY. COM
--------------------------------------------------------------------------------
> PURCHASING ADDITIONAL SHARES MINIMUM INVESTMENT: $250
Make checks payable to the Fund you are purchasing.
BY MAIL. Send a check with an investment slip or letter indicating your
account number and the Fund you are purchasing to: Tweedy, Browne Fund Inc.,
P.O. Box 61290, King of Prussia, Pennsylvania 19406-0889.
BY WIRE. Follow the wire procedures listed above under "Opening an
Account -- By Wire."
BY TELEPHONE. Call shareholder services at 1-800-432-4789, Press 2 before
the close of the NYSE to purchase at the share price on that day. Your
investment is limited to four times the value of your account at the time of
the order. Payment for your order (by check or wire) must include the order
number given to you when the order was placed. If payment is not received
within three business days, the order will be cancelled and you will be
responsible for any loss resulting from this cancellation.
BY AUTOMATED CLEARING HOUSE ("ACH"). Once you have established ACH for
your account, you may purchase additional shares via ACH by calling
shareholder services at 1-800-432-4789, Press 2. To establish ACH, please see
"Transaction Policies -- ACH" below.
REDEMPTIONS AND EXCHANGES
You can redeem or exchange shares of either Fund without fees or sales
charges of any kind. You can exchange shares from one Fund to the other after
five days.
BY TELEPHONE. Call shareholder services at 1-800-432-4789, Press 2 to
request redemption or exchange of some or all of your Fund shares. The
telephone privilege must be authorized on your account application, or see
"Transaction Policies -- by Telephone" below. You can request that redemption
proceeds be mailed to your address of record or, if previously established,
sent to your bank account via wire or ACH. For information on establishing ACH
or authorizing wire redemptions, please see "Transaction Policies" below.
BY MAIL. Send your redemption or exchange instructions to: Tweedy, Browne
Fund Inc., P.O. Box 61290, King of Prussia, Pennsylvania 19406-0889. Your
instructions must be signed exactly as the account is registered and must
include:
> your name
> the Fund and account number from which you are redeeming or exchanging
> the number of shares or dollar value to be redeemed or exchanged
> the Fund into which you are exchanging your shares.
If you wish to redeem or exchange $25,000 or more or you request that
redemption proceeds be paid to or mailed to persons other than the account
holder(s) of record, you must have a medallion signature guarantee from an
eligible guarantor (a notarized signature is not sufficient). You can obtain a
medallion signature guarantee from a domestic bank or trust company, broker,
dealer, clearing agency, savings association, or other financial institution
which is participating in a medallion program recognized by the Securities
Transfer Association. The three recognized medallion programs are Securities
Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion Progam
(SEMP) and New York Stock Exchange, Inc. Medallion Signature Program (NYSE
MSP). Signature guarantees from financial institutions which are not
participating in one of these programs will not be accepted. A notary public
cannot provide a signature guarantee. If market conditions exist that make
cash payments undesirable, either Fund may honor any request to redeem more
than $250,000 within a three-month period by making payment entirely or
partially in securities. This is known as a redemption-in-kind. The securities
given in payment are selected by the Fund and are valued the same way as for
calculating the Funds' net asset value. If payment is made in securities, you
would incur trading costs in converting the securities to cash.
TRANSACTION POLICIES
BY CHECK. If you purchase shares of either Fund with a check that does
not clear, your purchase will be cancelled and you will be responsible for any
loss resulting from this cancellation. Purchases made by check are not
available for redemption or exchange until the purchase check has cleared,
which may take up to seven business days. Checks must be drawn on or payable
through a U.S. bank or savings institution and must be payable to the Fund.
BY ACH. You can designate a bank account to electronically transfer money
via ACH for investment in either Fund. Additionally, you can designate a bank
account to receive redemption proceeds from either Fund via ACH. Your bank
must be a member of ACH. To establish ACH for your account in either Fund,
which requires two weeks, complete the Systematic Purchase and Redemption Form
and send it to Tweedy, Browne Fund Inc., c/o PFPC, Inc., P.O. Box 61290, King
of Prussia, Pennsylvania 19406-0889. Money sent via ACH takes two business
days to clear.
BY TELEPHONE. The Funds and transfer agent employ procedures to verify
that telephone transaction instructions are genuine. If they follow these
procedures, they will not be liable for any losses resulting from unauthorized
telephone instructions. You can establish telephone transaction privileges on
your account by so indicating on your account application. If you wish to add
telephone transaction privileges to your account after it has been opened,
send a letter, signed by each account holder, to Tweedy, Browne Fund Inc., c/o
PFPC, Inc., P.O. Box 61290, King of Prussia, Pennsylvania 19406-0889.
DISTRIBUTIONS AND TAXES
Each Fund declares and pays dividends and distributions at least annually.
Dividends and distributions are paid in additional shares of the same Fund
unless you elect to receive them in cash. Dividends and distributions are
taxable whether you receive cash or additional shares. Redemptions and
exchanges of shares are taxable events on which you may recognize a gain or
loss.
TYPE OF DISTRIBUTION FREQUENCY FEDERAL TAX STATUS
--------------------------------------------------------------------------------
Dividends from net investment income annual taxable as ordinary income
Distributions of short-term capital gain annual taxable as ordinary income
Distributions of long-term capital gain annual taxable as capital gain
Generally, you should avoid investing in a Fund shortly before an expected
dividend or distribution. Otherwise, you may pay taxes on amounts that
basically consist of a partial return of your investment. Every January, each
Fund will send you information about its dividends and distributions made
during the previous calendar year. You should consult your tax adviser about
particular federal, state, local and other taxes that may apply to you.
FINANCIAL HIGHLIGHTS
These Financial Highlights tables are to help you understand the Funds'
financial performance. The information has been audited by Ernst & Young LLP,
independent auditors, whose report thereon appears in the Funds' Annual
Report.
<TABLE>
TWEEDY, BROWNE GLOBAL VALUE FUND
(For a Fund share outstanding throughout each year)
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
3/31/00 3/31/99 3/31/98 3/31/97 3/31/96(a)
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year ......................... $ 18.08 $ 18.98 $ 15.46 $ 14.28 $ 11.52
---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income (b) ...... 0.23 0.23 0.26 0.12 0.15
Net realized and unrealized gain
(loss) on investments ........ 3.64 0.24 4.62 2.18 2.81
---------- ---------- ---------- ---------- --------
Total from investment
operations ............... 3.87 0.47 4.88 2.30 2.96
---------- ---------- ---------- ---------- --------
DISTRIBUTIONS:
Dividends from net investment
income ..................... (0.26) (0.38) (0.79) (0.19) --
Dividends in excess of net
investment income ......... -- -- (0.08) (0.36) --
Distributions from net
realized gains ............. (0.59) (0.99) (0.49) (0.57) (0.05)
Distributions in excess of net
realized gains ............. -- -- -- -- (0.15)
---------- ---------- ---------- ---------- --------
Total distributions ........ (0.85) (1.37) (1.36) (1.12) (0.20)
---------- ---------- ---------- ---------- --------
Net asset value, end of year ... $ 21.10 $ 18.08 $ 18.98 $ 15.46 $ 14.28
========== ========== ========== ========== ========
Total return(c) ................ 21.68% 3.03% 33.09% 16.66% 25.88%
========== ========== ========== ========== ========
Ratios/Supplemental Data:
Net assets, end of year in
(000's) ...................... $3,236,504 $2,589,574 $2,527,941 $1,441,210 $950,911
---------- ---------- ---------- ---------- --------
Ratio of operating expenses to
average net assets(d) ........ 1.38% 1.41% 1.42% 1.58% 1.60%
Ratio of net investment income
to average net assets ........ 1.10% 1.26% 1.05% 0.73% 1.15%
Portfolio turnover rate ........ 16% 23% 16% 20% 17%
------------
(a) Per share amounts have been calculated using the monthly average share method, which more appropriately presents the
per share data for the period since the use of the undistributed income method does not accord with results of
operations.
(b) Net investment income for a Fund share outstanding, before the waiver of fees by the administrator for the years
ended March 31, 1998 and 1997 were $0.26 and $0.11 per share, respectively.
(c) Total return represents aggregate total return for the periods indicated.
(d) Annualized expense ratios before the waiver of fees by the administrator for the years ended March 31, 1998 and 1997
were 1.43% and 1.58%, respectively.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
TWEEDY, BROWNE AMERICAN VALUE FUND
(For a Fund share outstanding throughout each year)
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
3/31/00 3/31/99 3/31/98 3/31/97 3/31/96(a)
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .... $ 22.40 $ 23.04 $ 16.22 $ 14.29 $ 10.71
-------- ---------- ---------- -------- --------
Income from investment operations:
Net investment income (b) ............. 0.27 0.12 0.11 0.13 0.15
Net realized and unrealized gain (loss)
on investments ...................... 0.01 (0.37) 7.31 2.39 3.56
-------- ---------- ---------- -------- --------
Total from investment operations .. 0.28 (0.25) 7.42 2.52 3.71
-------- ---------- ---------- -------- --------
DISTRIBUTIONS:
Dividends from net investment income (0.28) (0.14) (0.17) (0.17) (0.11)
Distributions from net realized gains (0.53) (0.25) (0.43) (0.42) (0.02)
-------- ---------- ---------- -------- --------
Total distributions ............... (0.81) (0.39) (0.60) (0.59) (0.13)
-------- ---------- ---------- -------- --------
Net asset value, end of year .......... $ 21.87 $ 22.40 $ 23.04 $ 16.22 $ 14.29
======== ========== ========== ======== ========
Total return(c) ....................... 1.24% (1.09)% 46.14% 17.75% 34.70%
======== ========== ========== ======== ========
Ratios/Supplemental Data:
Net assets, end of year in 000's) ..... $905,938 $1,078,214 $1,011,238 $342,467 $201,599
Ratio of operating expenses to average
net assets(d) ....................... 1.37% 1.39% 1.39% 1.39% 1.39%
Ratio of net investment income to
average net assets .................. 1.13% 0.55% 0.69% 0.92% 1.13%
Portfolio turnover rate ............... 19% 16% 6% 16% 9%
------------
(a) Per share amounts have been calculated using the monthly average share method, which more appropriately presents the
per share data for the period since the use of the undistributed income method does not accord with results of
operations.
(b) Net investment income for a Fund share outstanding, before the waiver of fees by the investment adviser and/or
administrator and/or custodian for the years ended March 31, 1999, 1998, 1997 and 1996 were $0.12, $0.11, $0.11 and
$0.12, respectively.
(c) Total return represents aggregate total return for the periods indicated.
(d) Annualized expense ratios before the waiver of fees by the investment adviser and/or administrator and/or custodian
for the years ended March 31, 1999, 1998, 1997 and 1996 were 1.40%, 1.41%, 1.52% and 1.61%, respectively.
</TABLE>
<PAGE>
INVESTMENT ADVISER:
Tweedy, Browne Company LLC
350 Park Avenue
New York, NY 10022
THE FUNDS:
Tweedy, Browne Fund Inc.
P.O. Box 61290
King of Prussia, Pennsylvania 19406-0889
www.tweedy.com
FOR MORE INFORMATION
If you want more information about the Funds, the following documents are
available upon request:
o Annual/Semi-annual Reports -- Additional information about the Funds'
investments is available in the annual and semi-annual reports to
shareholders. In the annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected
the Funds' performance during the last fiscal year.
o Statement of Additional Information (SAI) -- The SAI provides more
detailed information about the Funds and is incorporated into this
prospectus by reference.
You can request free copies of reports and SAI, request other information
and discuss your questions about the Funds by contacting your financial adviser
or the Funds at: Tweedy, Browne Fund Inc., c/o PFPC, Inc., P.O. Box 61290, King
of Prussia, Pennsylvania 19406-0889, 800-432-4789, Press 2.
You can review the Funds' reports and SAI at the Public Reference Room of
the Securities and Exchange Commission and on the SEC's Web site
(http://www.sec.gov). You can obtain copies for a fee by writing or calling
the Public Reference Room, Washington, DC 20549-6009; 800-SEC-0330.
Investment Company
Act File No. 811 -- 7458
<PAGE>
TWEEDY, BROWNE FUND INC.
350 Park Avenue, NY, NY 10022
800-432-4789
TWEEDY, BROWNE GLOBAL VALUE FUND
TWEEDY, BROWNE AMERICAN VALUE FUND
each a series of
TWEEDY, BROWNE FUND INC.
STATEMENT OF ADDITIONAL INFORMATION
July 31, 2000
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 31, 2000, 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 PFPC Inc., P.O. Box 61290, King of Prussia,
Pennsylvania 19406-0889 or by calling 800-432-4789.
TABLE OF CONTENTS
Page
Investment Objectives and Policies.................................. 3
Performance Information............................................. 20
Operation of the Funds.............................................. 22
Taxes............................................................... 30
Portfolio Transactions.............................................. 35
Net Asset Value..................................................... 36
Additional Information.............................................. 37
Appendix A.......................................................... A-1
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
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 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 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 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 Adviser to be of comparable quality. Each Fund may invest in
securities which are rated as low as C by Moody's or D by S&P at the time of
purchase. Securities rated D may be in default with respect to payment of
principal or interest. Securities rated below BBB or Baa are typically referred
to as "junk bonds" and have speculative characteristics.
High Yield, High Risk Securities. Both Funds may also invest up to 15% of
net assets in securities rated lower than the foregoing and in non-rated
securities of equivalent credit quality in the Adviser's judgment. The Funds may
invest in debt securities which are rated as low as C by Moody's or D by S&P.
Securities rated D may be in default with respect to payment of principal or
interest. Below investment-grade securities (those rated Ba and lower by Moody's
and BB and lower by S&P) or non-rated securities of equivalent credit quality
carry a high degree of risk (including a greater possibility of default or
bankruptcy of the issuers of such securities), generally involve greater
volatility of price, and may be less liquid, than securities in the higher
rating categories and are considered speculative. The lower the ratings of such
debt securities, the greater their risks render them like equity securities. See
the Appendix to this Statement of Additional Information for a more complete
description of the ratings assigned by ratings organizations and their
respective characteristics.
As occurred during the 1990-1992 period, an economic downturn can disrupt
the high yield market and impair the ability of issuers to repay principal and
interest. Also, an increase in interest rates is likely to have a greater
adverse impact on the value of such obligations than on higher quality debt
securities. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect a Fund's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.
The trading market for high yield securities may be thin to the extent that
there is no established retail secondary market or because of a decline in the
value of such securities. A thin trading market may limit the ability of the
Funds to value accurately high yield securities in the Funds' portfolios and to
dispose of those securities. Adverse publicity and investor perceptions may
decrease the values and liquidity of high yield securities. These securities may
also involve special registration responsibilities, liabilities and costs.
It is the policy of the Adviser not to rely exclusively on ratings issued
by established credit rating agencies, but to supplement such ratings with its
own independent and on-going review of credit quality. If the rating of a
portfolio security is downgraded by one or more credit rating agencies, the
Adviser will determine whether it is in the best interest of a Fund to retain or
dispose of such security.
Zero Coupon and Structured Securities. The Funds may invest in zero coupon
securities which pay no cash income and are sold at substantial discounts from
their value at maturity although they currently have no intention to invest in
such securities. When held from issuance to maturity, their entire income, which
consists of accretion of discount, comes from the difference between the issue
price and their value at maturity. Zero coupon securities are subject to greater
market value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current cash distributions of interest.
Structured securities, particularly mortgage-backed securities, are usually
subject to some degree of prepayment risk which can vary significantly with
various economic and market factors. Depending on the nature of the structured
security purchased, a change in the rate of prepayments can have the effect of
enhancing or reducing the yields to a Fund from such investment and expose the
Fund to the risk that any reinvestment will be at a lower yield.
Convertible Securities. The Funds may invest in convertible securities,
that is, bonds, notes, debentures, preferred stocks and other securities which
are convertible into or exchangeable for another security, usually common stock.
Investments in convertible securities can provide an opportunity for capital
appreciation and/or income through interest and dividend payments by virtue of
their conversion or exchange features.
The convertible securities in which the Funds may invest are either fixed
income or zero coupon debt securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so usually do not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the value
of the underlying common stock, although usually not as much as the underlying
common stock.
As debt securities, convertible securities are investments which provide
for a stream of income (or in the case of zero coupon securities, accretion of
income) with generally higher yields than common stocks. Of course, like all
debt securities, there can be no assurance of income or principal payments
because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Other Rights to Acquire Securities
The Funds may also invest in other rights to acquire securities, such as
options and warrants. These securities represent the right to acquire a fixed or
variable amount of a particular issue of securities at a fixed or formula price
either during specified periods or only immediately prior to termination. These
securities are generally exercisable at premiums above the value of the
underlying security at the time the right is issued. These rights are more
volatile than the underlying stock and will result in a total loss of the Funds'
investment if they expire without being exercised because the value of the
underlying security does not exceed the exercise price of the right.
Derivatives, Currency and Related Transactions.
The Funds may, but are not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities, or to enhance potential gain. Such strategies are generally accepted
by modern portfolio managers and are regularly utilized by many mutual funds and
other institutional investors. Techniques and instruments may change over time
as new instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Funds may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions"). Strategic
Transactions may be used to attempt to protect against possible changes in the
market value of securities held in or to be purchased for a Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations, to
protect a Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of a Fund's portfolio, or to establish a position
in the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of a Fund's assets will be committed to
initial margin on instruments regulated by the Commodity Futures Trading
Commission ("CFTC") in Strategic Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. A Fund's ability to benefit from these
Strategic Transactions will depend on the Adviser's ability to predict pertinent
market movements, which cannot be assured. Each Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. Strategic Transactions involving financial futures and options
thereon will be purchased, sold or entered into only for bona fide hedging, risk
management or portfolio management purposes and not for speculative purposes.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Purchase of put and call options may result in losses to
a Fund or limit the amount of appreciation a Fund can realize on its
investments. The use of currency transactions can result in a Fund incurring
losses as a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive a
specified currency. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of a Fund creates the possibility that losses on the hedging instrument
may be greater than gains in the value of a Fund's position. In addition,
futures and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of a hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.
General Characteristics of Options. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of a Fund's assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the issuer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a Fund's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
a Fund the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the issuer the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect the
Fund against an increase in the price of the underlying instrument that it
intends to purchase in the future by fixing the price at which it may purchase
such instrument. An American style put or call option may be exercised at any
time during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Funds
are authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below regarding exchange listed options uses the OCC as a paradigm,
but is also applicable to other financial intermediaries.
Each Fund's ability to close out its position as a purchaser or seller of
an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund may lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Funds will engage in OTC option transactions only with United
States government securities dealers recognized by the Federal Reserve Bank of
New York as "primary dealers," or broker dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any other nationally recognized
statistical rating organization ("NRSRO").
If a Fund sells (i.e., issues) a call option, the premium that it receives
may serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio, or will increase the Fund's income. The sale of put options can also
provide income.
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.
Loans of Portfolio Securities and Related Risks
The Global Fund and the American Fund each may lend portfolio securities to
broker-dealers and financial institutions provided: (1) the loan is secured
continuously by collateral marked-to-market daily and maintained in an amount at
least equal to the current market value of the securities loaned; (2) a Fund may
call the loan at any time and receive the securities loaned; (3) a Fund will
receive any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of securities loaned by a Fund will not at any time
exceed 25% of the total assets of such Fund.
Collateral will consist of U.S. Government securities, cash equivalents, or
irrevocable letters of credit. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to maintain the proper
amount of collateral. Therefore, a Fund will only enter into portfolio loans
after a review by the Adviser, under the supervision of the Board of Directors,
including a review of the creditworthiness of the borrower. Such reviews will be
monitored on an ongoing basis.
Investment Restrictions
The policies set forth below are fundamental policies of the Global Fund
and the American Fund and may not be changed with respect to a Fund without
approval of a majority of the outstanding voting securities of that Fund. As
used in this Statement of Additional Information a "majority of the outstanding
voting securities of a Fund" means the lesser of (1) 67% or more of the voting
securities present at such meeting, if the holders of more than 50% of the
outstanding voting securities of the Funds are present or represented by proxy;
or (2) more than 50% of the outstanding voting securities of the Funds.
As a matter of fundamental policy, neither Fund may:
1. borrow money, except to obtain liquid securities for use in connection
with Strategic Transactions conducted by the Funds in connection with
its portfolio activities or as a temporary measure for extraordinary or
emergency purposes, in connection with the clearance of transactions or
to pay for redemptions, in each case subject to applicable U.S.
government limitations;
2. purchase or sell real estate (other than securities representing
interests in real estate or fixed income obligations directly or
indirectly secured by real estate and other than real estate acquired
upon exercise of rights under such securities) or purchase or sell
physical commodities or contracts relating to physical commodities
(other than currencies and specie to the extent they may be considered
physical commodities) or oil, gas or mineral leases or exploration
programs;
3. act as underwriter of securities issued by others, except to the extent
that it may be deemed an underwriter in connection with the disposition
of portfolio securities of the Fund;
4. make loans to other persons, except (a)loans of portfolio securities,
and (b) to the extent the entry into repurchase agreements and the
purchase of debt obligations may be deemed to be loans;
5. issue senior securities, except as appropriate to evidence borrowings of
money, and except that Strategic Transactions conducted by the Fund in
connection with its portfolio activities are not considered to involve
the issuance of senior securities for purposes of this restriction;
6. purchase any securities which would cause more than 25% of the market
value of its total assets at the time of such purchase to be invested in
the same industry; or
7. with respect to 75% of its total assets taken at market value, purchase
more than 10% of the voting securities of any one issuer or invest more
than 5% of the value of its total assets in the securities of any one
issuer, except in each case securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and securities of other
investment companies.
In addition, the Board of Directors has adopted the following policy (among
others) which may be changed without a shareholder vote: neither Fund may invest
more than 15% of its net assets in securities which are not readily marketable.
These include securities subject to contractual or legal resale restrictions in
their primary trading market (such as OTC options, including floors, caps,
collars and swaps, securities of private companies and longer-term repurchase
agreements).
If a percentage restriction on investment or utilization of assets as set
forth under "Investment Restrictions" above is adhered to at the time an
investment is made, a later change in percentage resulting from changes in the
value or the total cost of the Funds' assets will not be considered a violation
of the restriction.
Share Certificates
Due to the desire of the Funds to keep purchase and redemption of shares
simple, generally, certificates will not be issued to indicate ownership in
either of the Funds.
PERFORMANCE INFORMATION
From time to time, each Fund may calculate its performances for inclusion
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures are calculated by the Funds in the manner
described in the section below.
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of return
for the periods of one year, five years and the life of a Fund, each ended on
the last day of a recent calendar quarter. Average annual total return
quotations reflect changes in the price of a Fund's shares and assume that all
dividends and capital gains distributions during the respective periods were
reinvested in the Fund's shares. Average annual total return is calculated by
computing the average annual compound rates of return of a hypothetical
investment over such periods, according to the following formula (average annual
total return is then expressed as a percentage):
T = (ERV/P)1/n - 1
Where:
P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of
the applicable period, of a hypothetical $1,000 investment
made at the beginning of the applicable period.
Period Ended
March 31, 2000
Global Fund
1 year................................. 21.68%
5 years................................ 19.63%
Since inception........................ 16.74%
American Fund
1 year................................ 1.24%
5 year................................. 18.34%
Since inception........................ 15.64%
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.
<PAGE>
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.
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.
<PAGE>
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.
The Adviser renders services to the Global Fund and the American Fund
pursuant to separate Investment Advisory Agreements each dated as of May 29,
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.
<PAGE>
Prior to May 29, 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, 2000, March 31, 1999 and March 31,
1998, the Global Fund incurred $38,723,126, $31,308,970 and $23,717,001,
respectively, in investment advisory fees.
For the fiscal years ended March 31, 2000, March 31, 1999 and March 31,
1998, the American Fund incurred $13,501,143, $13,473,779 and $7,546,393,
respectively. The Adviser voluntary waived fees of $105,730 and $121,000 for the
fiscal years ended March 31, 1998 and March 31, 1999, respectively.
Certain investments may be appropriate for one or both of the Funds and
also for other clients, including employees and their families, advised by
Tweedy, Browne. Investment decisions for each Fund and such other clients are
made with a view to achieving a well diversified portfolio of stocks that
satisfy Tweedy, Browne's value criteria in accordance with their respective
investment objectives and after consideration of such factors as their current
account holdings, availability of cash for investment, tax consequences and the
size of their account. Subject to adjustments made by the Managing Directors
prior to or early in the trading day or with the approval of a compliance
officer, trades are allocated among Tweedy, Browne's clients, including
employees and their families, in accordance with available cash and the
diversification target for the particular security or country involved. In
addition, because each of the Funds is substantially larger than any of Tweedy,
Browne's other clients and often have substantial inflows of cash, limits are
imposed on the amount of a particular security that can be allocated to either
of the Funds in order to assure that the other clients also receive reasonable
allocations while the Adviser's clients are acquiring or disposing of that
security. Advisory accounts of employees and their family members are treated in
the same manner as other client accounts. The Adviser's allocation procedures
are designed to give each client a fair allocation of buying and selling
opportunities and may result in different clients buying or selling different
amounts of particular securities in proportion to their account size on a
day-to-day basis and at different prices from day-to-day in order to achieve the
overall objectives of the allocation process for all clients. In general, all
trades during a particular day are price averaged so that each client receiving
an allocation that day receives the same average price per share as all other
clients. Purchase and sale orders for the Funds are combined with those of other
clients of the Adviser in the interest of most favorable net results to each
Fund.
The Board of Directors of the Company and the Adviser have adopted a
Code of Ethics. The Code of Ethics prohibits fraudulent activities by persons
associated with the Funds, restrict the personal investing activities of such
persons and require various reports and certifications to help ensure
compliance.
<PAGE>
Except for investment advisory accounts managed by the Adviser in
accordance with the allocation procedures described in the Code, the Adviser
shall not purchase or sell any particular security for the account of any
covered persons until seven days after the later of the most recent purchase or
sale by either Fund of that particular security. Covered personnel are required
to preclear any personal securities investments (with limited exceptions, such
as government securities, high grade debt, certain large capitalization equity
securities, municipal securities and shares of open-end mutual funds) and must
comply with ongoing requirements concerning recordkeeping and disclosure of
personal securities investments. The preclearance requirement and associated
procedures are designed to identify any prohibition or limitation applicable to
a proposed investment.
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
PFPC, Inc. (f/k/a First Data Investor Services Group, Inc.) (the
"Administrator" or "PFPC") 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, 2000, the Global Fund incurred $1,168,597 in administration
fees. For the fiscal years ended March 31, 1999 and March 31, 1998, the Global
Fund incurred $1,042,875 and $734,106, respectively. The Administrator voluntary
waived fees for the fiscal year ended March 31, 1998 of $86,035.
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, 2000, the American Fund incurred $420,432 in
administration fees. For the fiscal year ended March 31, 1999 and March 31,
1998, the American Fund incurred $437,177 and $254,085 in administration fees.
The Administrator voluntary waived fees for the fiscal year ended March 31, 1998
of $22,539.
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
automatically renews each February 15 for successive terms of one year unless
terminated and is terminable on 60 days notice by either party.
PFPC, 4400 Computer Drive, Westborough, Massachusetts 01581, is the
Funds' transfer, shareholder servicing and dividend paying agent.
<PAGE>
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> <C>
Name and Address; Age Position with Corporation Principal Occupation**
Bruce A. Beal, Age 64 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, Chairman, Director Managing Director of Investment Adviser and
Age 53 Distributor
Richard Salomon, Director Partner in Salans, Hertzfeld, Heilbronn,
Age 52 Christy & Viener
Salans, Hertzfeld, Heilbronn, Christy (law firm)
& Viener
620 5th Avenue
New York, NY 10020
Anthony H. Meyer, Director Retired
Age 69
Box 1980
Edgartown, MA 02539
William H. Browne+, Treasurer Managing Director of Investment Adviser and
Age 55 Distributor
M. Gervase Rosenberger, Vice President General Counsel for Investment Adviser and
Age 49 and Secretary Distributor
John D. Spears, Age 51 Vice President Managing Director of Investment Adviser and
Distributor
</TABLE>
---------------------------------------
* 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.
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. The officers are
paid by the Adviser or the Administrator.
<PAGE>
The following table sets forth certain information regarding the
compensation of the Corporation's Directors for the fiscal year ended March 31,
2000. No executive officer or person affiliated with the Funds received
compensation from the Funds. No Director receives pension or retirement benefits
from the Funds.
<TABLE>
<CAPTION>
COMPENSATION TABLE
<S><C> <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* $12,000 $12,000
Director
Richard Salomon $20,000 $20,000
Director
Anthony Meyer $20,000 $20,000
Director
</TABLE>
----------------------------------
* Arthur Lazar no longer serves as a Director.
Control Persons and Principal Holders of Securities
As of July 6, 2000, 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. 26.04%
101 Montgomery Street
San Francisco, CA 94104-4122
Tweedy, Browne Global Value Fund National Financial Services Corp. 9.42%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Tweedy, Browne American Value Fund Charles Schwab & Co., Inc. 22.75%
101 Montgomery Street
San Francisco, CA 94104-4122
Tweedy, Browne American Value Fund National Financial Services Corp. 11.70%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Tweedy, Browne American Value Fund Northern Trust 7.13%
Lockhead Martin Energy
Systems Inc.
P.O. Box 92996
Chicago, IL 60675-2996
</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 6, 2000, 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 October 9, 1997 (the "Distribution Agreements"). Each Distribution
Agreement will remain in effect from year to year upon the annual approval by a
majority of the Directors who are not parties to such agreements or interested
persons of any such party and either by vote of a majority of the Board of
Directors or a majority of the outstanding voting securities of the Corporation.
Under the Distribution Agreements, the Corporation is responsible for:
the payment of all fees and expenses in connection with the preparation and
filing with the SEC of the Corporation's registration statement and a Fund's
prospectus (including this Statement of Additional Information) and any
amendments and supplements thereto, the registration and qualification of shares
for sale in the various states, including registering the Corporation as a
broker/dealer in various states; the fees and expenses of preparing, printing
and mailing prospectuses annually to existing shareholders, notices, proxy
statements, reports or other communications to shareholders of the Funds; the
cost of printing and mailing confirmations of purchases of shares and any
prospectuses accompanying such confirmations; any issue taxes or any initial
transfer taxes; shareholder toll-free telephone charges and expenses of
shareholder service representatives, the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
that portion of any equipment, service or activity which is primarily intended
to result in the sale of shares issued by the Corporation.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of a Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, as well as the sales related portion of any equipment, service or activity
which is primarily intended to result in the sale of shares issued by the
Corporation.
As agent, the Distributor currently offers each Fund's shares on a
continuous basis to investors. The Distribution Agreements provide that the
Distributor accepts orders for shares at net asset value as no sales commission
or load is charged to the investor.
TAXES
Each Fund intends to qualify each year and elect to be treated as a
regulated investment company under Subchapter M of the Code. To qualify as a
regulated investment company, a Fund must comply with certain requirements of
the Code relating to, among other things, the sources of income and
diversification of assets. If the Fund fails to qualify for treatment as a
regulated investment company for any taxable year, the Fund would be taxed as an
ordinary corporation on taxable income for that year (even if that income was
distributed to its shareholders), and all distributions out of earnings and
profits would be taxable to shareholders as dividends (that is, ordinary
income).
A regulated investment company qualifying under the Code is required to
distribute each year to its shareholders at least 90% of its investment company
taxable income (generally including dividends, interest and net short-term
capital gain but not net capital gain, which is the excess of net long-term
capital gains over net short-term capital losses) and generally is not subject
to federal income tax to the extent that it distributes annually its investment
company taxable income and net capital gains in the manner required under the
Code. Each Fund intends to distribute at least annually all of its investment
company taxable income and net capital gains and therefore generally does not
expect to pay federal income taxes.
Each Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of a Fund's ordinary income for the calendar year, at
least 98% of its capital gain net income realized during the one-year period
ending October 31 during such year, and all ordinary income and capital gain net
income for prior years that were not previously distributed. For purposes of the
excise tax, any ordinary income or capital gain net income retained by, and
subject to federal income tax in the hands of, the Funds will be treated as
having been distributed.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income. Dividends from domestic corporations are
expected to comprise some portion of each Fund's gross income. To the extent
that such dividends constitute a portion of a Fund's investment company taxable
income, a portion of the income distributions of that Fund may be eligible for
the deduction for dividends received by corporations. Shareholders will be
informed of the portion of dividends which may so qualify. Distributions of net
capital gains are taxable to shareholders as long-term capital gain, regardless
of the length of time the shares of the distributing Fund have been held by such
shareholders. Such distributions are not eligible for the dividends-received
deduction discussed above. Any loss realized upon the redemption of shares held
at the time of redemption for six months or less from the date of their purchase
will be treated as a long-term capital loss to the extent of any amounts treated
as distributions of long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders receiving distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the distribution date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares may result in tax consequences (discussed below) to the
shareholder and are also subject to these reporting requirements.
Distributions by a Fund results in a reduction in the net asset value
of the Fund's shares. Should distributions reduce the net asset value below a
shareholder's cost basis, such distributions would nevertheless be taxable to
the shareholder as ordinary income or capital gain as described above, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
includes the amount of the forthcoming distribution. Those purchasing just prior
to a distribution will then receive a partial return of capital upon the
distribution which will nevertheless be taxable to them.
Each Fund intends to qualify for and may make the election permitted
under Section 853 of the Code so that shareholders may (subject to limitations)
be able to claim a credit or deduction on their federal income tax returns for,
and may be required to treat as part of the amounts distributed to them, their
pro rata portion of qualified taxes paid by that Fund to foreign countries
(which taxes relate primarily to investment income). A shareholder who does not
itemize deductions may not claim a deduction for such taxes. Each Fund may make
an election under Section 853 of the Code, provided that more than 50% of the
value of the total assets of the Fund at the close of the taxable year consists
of stocks or securities in foreign corporations. The foreign tax credit
available to shareholders is subject to certain limitations imposed by the Code.
Each Fund will notify each shareholder within 60 days after the close of the
Fund's taxable year as to whether the taxes paid by the Fund to foreign
countries will qualify for the treatment discussed above for that year, and if
they do, such notification will designate (i) each shareholders' pro rata
portion of the qualified taxes paid and (ii) the portion of the distributions
that represents income derived from foreign sources.
Generally, a foreign tax credit is subject to the limitation that it
may not exceed the shareholder's U.S. tax (before the credit) attributable to
the shareholder's total taxable income from foreign sources. For this purpose,
the shareholder's proportionate share of dividends paid by the Fund that
represents income derived from foreign sources will be treated as foreign source
income. The Fund's gains and losses from the sale of securities, and certain
currency gains and losses, generally will be treated as being derived from U.S.
sources. The limitation on the foreign tax credit applies separately to specific
categories of foreign source income, including "passive income," a category that
includes the portion of dividends received from each Fund that qualifies as
foreign source income. The foregoing limitation may prevent a shareholder from
claiming a credit for the full amount of his proportionate share of the foreign
income taxes paid by each Fund.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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 30% (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 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 often fixed in the case
of foreign securities 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. The Adviser acts as the
broker of record for substantially all transactions on behalf of all of its
clients and aggregates all trades on each security on a given day for allocation
among its clients in accordance with its allocation procedures. The Adviser is
reimbursed by the Funds for the costs of settling transactions for the Funds
through its clearing broker but does not charge the Funds any separate brokerage
commissions.
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 and March 31, 1998, the Global Fund incurred
brokerage commissions of $3,474,835 and $2,670,257, respectively. For the fiscal
years ended March 31, 1999 and March 31, 1998, the American Fund incurred
brokerage commissions of $563,102 and $636,393, respectively. For the fiscal
year ended March 31, 2000 the Global Fund and the American Fund incurred
brokerage commissions of $2,212,404 and $823,870, respectively. For the fiscal
year ended March 31, 2000, the Global Fund and the American Fund paid to
Jefferies and Company, an affiliated broker, brokerage commissions of $1,000
(0.04%) and $3,900 (4.73%), 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, 2000 and March 31, 1999, the Global Fund's
portfolio turnover rates were 16% and 23%, respectively. For the fiscal years
ended March 31, 2000 and March 31, 1999, the American Fund's portfolio turnover
rates were 19% and 16%, respectively.
NET ASSET VALUE
The net asset value of shares for both the Global Fund and the American
Fund will be computed as of the close of regular trading on the New York Stock
Exchange, Inc. (the "Exchange") on each day during which the Exchange is open
for trading. The Exchange is normally closed on the following national holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. Net
asset value per share for the Funds is determined by dividing the value of the
total assets, less all liabilities, by the total number of shares outstanding.
In valuing a Fund's assets, a security listed on an exchange or through
any system providing for same day publication of actual prices will be valued at
its last quoted sale price prior to the close of regular trading on the
Exchange. 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 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.
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. In the case of the Global Fund, such
calculation does not take place contemporaneously with the determination of the
prices of the majority of the portfolio securities used in such calculation. If
events materially affecting the value of such securities occur between the time
when their price is determined and the time when that Fund's net asset value is
calculated, such securities will be valued at fair value as determined in good
faith by the Board of Directors.
ADDITIONAL INFORMATION
Redemptions-in-Kind
The Corporation on behalf of both Funds reserves the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption in excess of $250,000 during any three-month period by making payment
in whole or in part in readily marketable securities chosen by the Funds and
valued as they are for purposes of computing the Funds' net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities to cash.
<PAGE>
Experts
Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116, serves as
independent auditors for the Funds. The financial statements and schedules of
investments of Tweedy, Browne Global Value Fund and Tweedy, Browne American
Value Fund at March 31, 2000 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 financial statements for the Corporation including the notes
thereto, dated March 31, 2000 have been audited by Ernst & Young LLP and are
incorporated by reference in their entirety into this Statement of Additional
Information from the Annual Report of the Corporation dated March 31, 2000.
<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.
PART C: OTHER INFORMATION
Item 23. Exhibits.
(a) (1) Articles of Incorporation is incorporated by reference to
Exhibit 1 to Pre-Effective Amendment No. 2 to the Registration
Statement ("Pre-Effective Amendment No. 2").
(a) (2) Articles Supplementary is incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 1 to the
Registration Statement ("Post-Effective Amendment No. 1").
(b) (1) By-Laws is incorporated by reference to Exhibit 2 to Pre-
Effective Amendment No. 2.
(b) (2) Amendment to the By-Laws is filed herewith.
(c) Not Applicable.
(d) (1) Specimen Certificate for the Tweedy, Browne Global Value Fund
is incorporated by reference to Exhibit 4 to Pre-Effective
Amendment No. 2.
(d) (2) Specimen Certificate for the Tweedy, Browne American Value
Fund is incorporated by reference to Exhibit 4 to Post-
Effective Amendment No. 3 to the Registration Statement
("Post-Effective Amendment No. 3").
(d) (3) Advisory Agreement between Registrant and Tweedy, Browne
Company LLC dated May 29, 1998 relating to the Tweedy, Browne
Global Value Fund is filed herewith.
(d) (4) Advisory Agreement between Registrant and Tweedy, Browne
Company LLC dated May 29, 1998 relating to the Tweedy, Browne
American Value Fund is filed herewith.
(e) (1) Distribution Agreement between Registrant and Tweedy, Browne
Company LLC dated October 9, 1997 relating to the Tweedy,
Browne Global Value Fund is incorporated by reference to
Exhibit 6(c) to the Registration Statement ("Post-Effective
Amendment No. 8").
(e) (2) Distribution Agreement between Registrant and Tweedy, Browne
Company LLC dated October 9, 1997 relating to the Tweedy,
Browne American Value Fund is incorporated by reference to
Exhibit 6(d) to the Registration Statement ("Post-Effective
Amendment No. 8").
(f) Not Applicable.
(g) (1) Amended and Restated Custody Agreement between Registrant and
Boston Safe Deposit and Trust Company relating to the Tweedy,
Browne Global Value Fund and the Tweedy, Browne American Value
Fund dated December 8, 1993 is incorporated by reference to
Exhibit 8(b) to Post-Effective Amendment No. 3.
(g) (2) First Amendment to the Amended and Restated Custody Agreement
between Registrant and Boston Safe Deposit & Trust Company
relating to the Tweedy, Browne Global Value Fund and the
Tweedy, Browne American Value Fund dated December 31, 1996 is
incorporated by reference to Exhibit 8(c) to Post-Effective
Amendment No. 7.
(h) (1) Transfer Agent Agreement between Registrant and First Data
Investor Services Group, Inc. dated May 9, 1997, relating to
the Tweedy, Browne Global Value Fund and the Tweedy, Browne
American Value Fund is incorporated by reference to Exhibit
9(c) to Post-Effective Amendment No. 7.
(h) (2) Amended and Restated Administration Agreement between
Registrant and The Boston Company Advisors, Inc. relating to
the Tweedy, Browne Global Value Fund and the Tweedy, Browne
American Value Fund dated December 8, 1993 is incorporated by
reference to Exhibit 9(d) to Post-Effective Amendment No. 3.
(h) (3) Amendment No. 1 to the Amended and Restated Administration
Agreement between Registrant and First Data Investor Services
Group, Inc. relating to the Tweedy, Browne Global Value Fund
and the Tweedy, Browne American Value Fund dated February 15,
1997 is incorporated by reference to Exhibit 9(f) to Post-
Effective Amendment No. 7.
(h) (4) Code of Ethics is filed herewith.
(i) Opinion and Consent of Miles & Stockbridge is incorporated by
reference to Exhibit 10 to Post-Effective Amendment No. 1.
(j) Consent of Ernst & Young LLP, independent auditors is filed
herewith.
(k) Not Applicable.
(l) (1) Purchase Agreement dated June 2, 1993 relating to the initial
capital for the Tweedy, Browne Global Value Fund is
incorporated by reference to Exhibit 13 to Post-Effective
Amendment No. 3.
(l) (2) Purchase Agreement relating to the initial capital for the
Tweedy, Browne American Value Fund is incorporated by
reference to Exhibit 13 to Post-Effective Amendment No. 4 to
the Registration Statement.
(m) None.
(n) Not Applicable.
(o) None.
Item 24. Persons Controlled by or Under Common Control with Registrant.
No person is controlled by the Registrant.
Item 25. Indemnification.
Under Registrant's Articles of Incorporation and By-Laws, as
amended, the Directors and officers of Registrant will be indemnified to the
fullest extent allowed and in the manner provided by Maryland law and applicable
provisions of the Investment Company Act of 1940, as amended, including
advancing of expenses incurred in connection therewith. Indemnification shall
not be provided, however, to any officer or director against any liability to
the Registrant or its security holders to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Article 2, Section 405.2 of the Maryland General Corporation
Law provides that the Articles of Incorporation of a Maryland corporation may
limit the extent to which directors or officers may be personally liable to the
Corporation or its stockholders for money damages in certain instances. The
Registrant's Articles of Incorporation, as amended, provide that, to the fullest
extent permitted by Maryland law, as it may be amended or interpreted from time
to time, no Director or officer of the Registrant shall be personally liable to
the Registrant or its stockholders. The Registrant's Articles of Incorporation,
as amended, also provide that no amendment of the Registrant's Articles of
Incorporation, as amended, or repeal of any of its provisions shall limit or
eliminate any of the benefits provided to Directors and officers in respect of
any act or omission that occurred prior to such amendment or repeal.
The Investment Advisory Agreements and Distribution Agreements
contain provisions requiring indemnification of the Registrant's investment
advisor and principal underwriter by the Registrant.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended may be permitted to Directors, officers and
controlling persons of the Registrant and the investment advisor and distributor
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Director, officer, or controlling person of the Registrant and the
Distributor in connection with the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such Director, officer or
controlling person or the Distributor in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser.
See "Management of the Funds" in the Prospectus regarding the
business of Tweedy, Browne Company LLC (the "Investment Adviser"). The
Investment Adviser also acts as the adviser for the following investment
company: Tweedy, Browne Global Value Fund, Inc. The address of the Investment
Adviser is 350 Park Avenue, 9th Floor, New York, New York 10022. Set forth below
is a list of each Managing Director of the Investment Adviser.
<TABLE>
<CAPTION>
NAME EMPLOYMENT
<S> <C> <C>
Christopher H. Browne Associated with the Investment Adviser since 1969. He is a managing
director of the Investment Adviser, and a general partner of TBK Partners,
L.P. and Vanderbilt Partners, L.P. Mr. Browne serves as a Trustee of the
University of Pennsylvania and sits on its Investment Committee; he is a
member of The Board of Trustees of The Rockefeller University. He also
serves on the Faculty Advisory Committee of The Kennedy School at Harvard
University's program in behavioral finance, and is a Director of Tweedy,
Browne Fund Inc. He is a frequent speaker on behavioral psychology and
financial decision making as it relates to international investing.
Mr. Browne holds a B.A. degree from the University of Pennsylvania.
William H. Browne Associated with the Investment Adviser since 1978. He is a managing
director of the Investment Adviser, and a general partner of TBK Partners,
L.P. and Vanderbilt Partners, L.P., both private investment partnerships.
He also serves as a Director of Fairfield Aerospace Corp. and Dornier
Lufthart GmbH. Additionally, he is a Trustee of Colgate University. Mr.
Browne holds the degrees of B.A. from Colgate University and M.B.A. from
Trinity College in Dublin, Ireland.
John D. Spears Associated with the Investment Adviser since 1974. He is a managing
director of the Investment Adviser, and a general partner of TBK Partners,
L.P. and Vanderbilt Partners, L.P. Previously, he had been in the
investment business for five years with Berger, Kent Associates; Davic
Associates; and Hornblower & Weeks-Hemphill, Noyes & Co. Mr. Spears
studied at the Babson Institute of Business Administration, Drexel
Institute of Technology and the University of Pennsylvania - The Wharton
School.
Thomas H. Shrager Associated with the Investment Adviser since 1989. He is a managing
director of the Investment Adviser. Previously, he worked in mergers and
acquisitions at Bear Stearns, and as a consultant for Arthur D. Little.
Mr. Shrager holds the degrees of B.A. and M.I.A. from Columbia University.
Robert Q. Wyckoff, Jr. Associated with the Investment Adviser since 1991. He is a managing
director of the Investment Adviser. Prior to joining the Investment
Adviser, he held positions with Bessemer Trust, C.J. Lawrence, J&W
Seligman, and Stillrock Management. Mr. Wyckoff received a B.A. from
Washington & Lee University and a J.D. from the University of Florida
School of Law.
</TABLE>
Item 27. Principal Underwriters.
(a) Tweedy, Browne Value Fund (SICAV) offshore fund
series not offered to U.S. persons.
(b) Not Applicable.
(c) Not Applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be
maintained by Registrant by Section 31(a) of the Investment Company Act of 1940,
as amended, and the rules thereunder will be maintained at the offices of the
Administrator at 101 Federal Street, Boston, Massachusetts 02110 or 3200 Horizon
Drive, King of Prussia, Pennsylvania 19406 or at the offices of the Adviser at
350 Park Avenue, 9th Floor, New York, New York 10022.
Item 29. Management Services.
Not Applicable.
Item 30. Undertakings.
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that this Post-Effective Amendment No. 12 to the Registration Statement meets
the requirements for effectiveness pursuant to Rule 485(b) of the Securities Act
of 1933, as amended, and the Registrant has duly caused this Post-Effective
Amendment No. 12 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State of
New York on the 25th day of July, 2000.
TWEEDY, BROWNE FUND INC.
By:CHRISTOPHER H. BROWNE
Christopher H. Browne
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 12 to the Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
<S><C> <C> <C>
Signature Title Date
CHRISTOPHER H. BROWNE Chairman of the Board, July 25, 2000
---------------------
Christopher H. Browne President and Director
WILLIAM H. BROWNE Treasurer July 25, 2000
William H. Browne
BRUCE A. BEAL Director July 25, 2000
Bruce A. Beal
RICHARD B. SOLOMON Director July 25, 2000
Richard B. Salomon
ANTHONY H. MEYER Director July 25, 2000
Anthony H. Meyer
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
(b) (2) Amendment to the By-Laws
(d) (3) Advisory Agreement with Tweedy, Browne Company LLC -
Global Value Fund
(d) (4) Advisory Agreement with Tweedy, Browne Company LLC -
American Value Fund
(h) (4) Code of Ethics
(j) Consent of Ernst & Young LLP, independent auditors
