<PAGE>
DODGE & COX BALANCED FUND
DODGE & COX INCOME FUND
DODGE & COX STOCK FUND
One Sansome Street, 35th Floor
San Francisco, California 94104
December 8, 1997
Dear Shareholder:
I am writing to inform you of the upcoming special meeting of the
shareholders of your Fund. At this meeting, you are being asked to vote on
important proposals affecting your Dodge & Cox Fund. The Board of
Directors/Trustees of your Fund, including myself, unanimously believe that
these proposals are in the Fund's and your best interest. While the proposals
are important for administrative purposes, they are not expected to materially
affect the way your Fund is managed.
I am sure that you, like most people, lead a busy life and are tempted to
put this proxy aside for another day. Please don't. When shareholders do not
return their proxies, additional expenses are incurred to pay for follow-up
mailings and telephone calls. PLEASE REVIEW THIS PROXY STATEMENT AND SIGN AND
RETURN ALL PROXY CARDS TODAY. If you hold shares in more than one Fund, you
will receive a separate proxy card for each Fund you hold. Please be sure to
sign and return each proxy card regardless of how many you receive.
The Board of Directors/Trustees of your Fund has unanimously approved these
proposals and recommends a vote "FOR" each proposal. If you have any questions
regarding the issue to be voted on or need assistance in completing your proxy
card, please contact our proxy solicitor, Shareholder Communications
Corporation, at 1-800-733-8481, ext. 420.
Thank you for your time in considering these important proposals. Thank you
for investing with the Dodge & Cox Funds and for your continuing support.
Sincerely,
/s/ Harry R. Hagey
------------------
Harry R. Hagey
Chairman and Chief Executive Officer
Dodge & Cox
<PAGE>
PROXY STATEMENT SUMMARY
The following Q&A is a brief summary of the proposals to be considered at
the Meeting. The information below is qualified in its entirety by the more
detailed information contained elsewhere in this proxy statement. Accordingly,
please read all the enclosed proxy materials before voting.
If you own shares of more than one Dodge & Cox Fund, you may receive
additional proxy statements and voting cards in a separate mailing. It is
important that you vote ALL proxy cards that you receive. Please remember to
vote your shares as soon as possible.
WHEN WILL THE MEETING BE HELD? WHO IS ELIGIBLE TO VOTE? The Meeting will be
held on Tuesday, January 20, 1998, at 10:00 a.m. Pacific time at the Mandarin
Oriental Hotel, Embassy Room, 222 Sansome Street, San Francisco, California.
Please note that this will be a business meeting only. The record date for the
Meeting is the close of business on November 24, 1997. Only shareholders who
own shares at that time are entitled to vote at the meeting.
WHAT IS BEING VOTED ON AT THE MEETING? Your Board of Directors/Trustees is
recommending that shareholders consider the following proposals:
<TABLE>
<CAPTION>
PROPOSAL FUNDS AFFECTED
- -------- ---------------
<S> <C>
1. To approve a reorganization of your Fund as a separate
series of Dodge & Cox Funds, a newly formed Delaware
business trust; ALL
2. To approve the elimination or revision of certain
fundamental investment restrictions for each Fund; ALL
3. To ratify the selection of Price Waterhouse LLP as
independent certified public accountants; ALL
4. To approve an increase in authorized capital; and Income Fund and
Stock Fund only
5. To transact such other business that may come before the
meeting, although we are not aware of any other items to
be considered. ALL
</TABLE>
S-1
<PAGE>
HOW DO THE DIRECTORS/TRUSTEES RECOMMEND THAT I VOTE ON THESE PROPOSALS? The
Directors/Trustees unanimously recommend that you vote "FOR" each proposal.
WHY AM I BEING ASKED TO ADOPT A PLAN OF REORGANIZATION OF THE
FUNDS? Currently each of the Dodge & Cox Funds is organized as a separate
legal entity. The Dodge & Cox Balanced Fund is organized as a California
trust, and both the Dodge & Cox Income Fund and the Dodge & Cox Stock Fund are
organized as California corporations. Consequently, each Fund has a separate
Board of Directors/Trustees, and each is separately registered as an
investment company under the federal securities laws. Reorganization of the
Funds as separate series of a Delaware business trust is expected to result in
certain cost savings and administrative efficiencies for the Funds. For
example, the Reorganization would result in fewer state and federal regulatory
filings, and would allow shares of the Funds to be offered with a single
unified prospectus and application. In addition, the Boards believe that a
Delaware business trust as a form of organization offers certain structural
advantages for a mutual fund over either a California trust or a California
corporation. This proposal relates only to a change of the Funds' domicile,
which is not expected to change any Fund operations affecting you or your
interest in the Funds. A full discussion of the Plan of Reorganization and its
anticipated benefits to the Funds begins on page 3 of the full proxy
statement.
WHY AM I BEING ASKED TO APPROVE THE ELIMINATION OR REVISION OF CERTAIN
FUNDAMENTAL INVESTMENT RESTRICTIONS FOR EACH FUND? Certain of the fundamental
restrictions that the Funds have adopted in the past reflect regulatory,
business or industry conditions, practices or requirements which at one time
for a variety of reasons led to the imposition of limitations on the
management of the Funds' investments. With the passage of time, the
development of new practices, and changes in regulatory standards, several of
these restrictions are considered by management to be unnecessary or
unwarranted. Accordingly, the Boards have approved revisions to the Funds'
fundamental restrictions in order to simplify, modernize and make more uniform
those investment restrictions that are required to be fundamental and to
eliminate those fundamental restrictions that are no longer legally required,
and reclassify as non-fundamental those investment restrictions that are not
required to be fundamental. Current prohibitions on investments in futures
contracts, options and similar derivatives would not be affected by the
proposed changes.
It should be noted that the adoption of the proposed changes is not expected
to materially affect the way the Funds are managed.
S-2
<PAGE>
While certain of the changes will apply to your Fund(s), others may not
apply to your Fund(s). A full discussion of the specific changes, as well as a
further discussion of the benefits of the changes, begins on
page 19.
WHAT IS THE "RATIFICATION" OF THE INDEPENDENT AUDITORS? The Investment
Company Act requires the Boards of Directors/Trustees of the Funds to select
independent auditors for the Funds, and also requires them to submit their
selection to shareholders for approval (this is called a "ratification" of the
Board's approval) at certain shareholder meetings. The Boards of
Directors/Trustees have selected Price Waterhouse LLP as independent auditors
for the Funds for the fiscal year ending December 31, 1997. A full discussion
of the proposal to ratify the selection of Price Waterhouse begins on page 24.
WHY AM I BEING ASKED TO APPROVE AN INCREASE IN THE AUTHORIZED CAPITAL FOR
THE STOCK FUND AND THE INCOME FUND? The Stock Fund's and the Income Fund's
ability to issue new shares to investors is limited by the authorized capital
set forth in the Funds' charters. The purpose of the proposed amendments is to
make additional shares available for issuance by the Stock Fund and the Income
Fund, without further action by shareholders, until such time as the Funds are
reorganized in accordance with Proposal One.
WHEN WILL THE PROPOSALS TAKE EFFECT IF THEY ARE APPROVED? If approved, the
reorganization described in Proposal One is expected to be completed in April,
1998. The proposed changes to the fundamental investment restrictions
described in Proposal Two, if approved, will be effective upon the amendment
of each Fund's registration statement. The ratification of the auditors
described in Proposal Three will be effective immediately upon approval. The
increase of authorized capital for the Stock Fund and Income Fund described in
Proposal Four, if approved, will be effective upon the filing of an amendment
to the Stock Fund's and Income Fund's Articles of Incorporation.
WHO IS ASKING FOR MY VOTE? The Board of Directors/Trustees is asking you to
sign and return the enclosed proxy so your votes can be cast at the Meeting.
In the unlikely event the Meeting is adjourned, these proxies would also be
voted at the reconvened meeting.
HOW DO I VOTE MY SHARES? We've made it easy for you. You can vote by mail,
phone, fax or in person at the Meeting. To vote by mail, sign and send us the
enclosed proxy voting card in the postage paid envelope provided. Shareholder
Communications Corporation, our proxy solicitor, can accept your vote over the
phone--simply call 1-800-733-8481, ext. 420. You can fax your vote by signing
the proxy voting card and faxing it to 1-800-733-1885. Or, you can vote in
person at the Meeting on January 20, 1998.
S-3
<PAGE>
IF I SEND MY PROXY IN NOW AS REQUESTED, CAN I CHANGE MY VOTE LATER? A proxy
can be revoked at any time by writing to us, by sending us another proxy, or
by attending the Meeting and voting in person. Even if you plan to attend the
Meeting and vote in person, we ask that you return the enclosed proxy. Doing
so will help us ensure that an adequate number of shares are present at the
Meeting.
If you have any questions regarding the proxy statement or need assistance
in voting your shares, please call Shareholder Communications Corporation at
1-800-733-8481, ext. 420.
S-4
<PAGE>
DODGE & COX BALANCED FUND
DODGE & COX INCOME FUND
DODGE & COX STOCK FUND
One Sansome Street, 35th Floor
San Francisco, CA 94104
-----------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
January 20, 1998
-----------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of each of the Dodge & Cox Balanced Fund, a California common law
trust ("Balanced Fund"), the Dodge & Cox Income Fund, a California corporation
("Income Fund") and the Dodge & Cox Stock Fund, a California corporation
("Stock Fund") (each a "Fund" and collectively, the "Funds"), will be held at
10:00 a.m., Pacific Time, on January 20, 1998, at the Mandarin Oriental Hotel,
Embassy Room, 222 Sansome Street, San Francisco, California, for the following
purposes:
I. TO BE VOTED ON SEPARATELY BY SHAREHOLDERS OF EACH FUND: To vote upon the
approval of an Agreement and Plan of Reorganization, in the form set forth
in Appendix A to the attached Proxy Statement, for adoption by each of the
Balanced Fund, the Income Fund and the Stock Fund pursuant to which each
Fund would be reorganized as a separate series of Dodge & Cox Funds, a
newly formed Delaware business trust, as described in the attached Proxy
Statement.
II. TO BE VOTED ON SEPARATELY BY SHAREHOLDERS OF EACH RELEVANT FUND: To vote
upon the approval of the elimination or revision of certain fundamental
investment restrictions for each of the Balanced Fund, the Income Fund,
and the Stock Fund.
III. TO BE VOTED ON SEPARATELY BY THE SHAREHOLDERS OF EACH FUND: To ratify the
selection of Price Waterhouse LLP as independent certified public
accountants of the Fund for fiscal year ending December 31, 1997.
IV. TO BE VOTED ON SEPARATELY BY THE SHAREHOLDERS OF THE STOCK FUND AND THE
INCOME FUND: To vote upon the approval of an increase in authorized
capital of the Fund.
<PAGE>
V. To transact such other business as may come properly before the Meeting
and any adjournment thereof.
Shareholders of record at the close of business on November 24, 1997 are
entitled to notice of, and to vote at, the Meeting.
By Order of the Board of Trustees of the Balanced Fund and
the Boards of Directors of the Income Fund and the Stock
Fund,
/s/ W. Timothy Ryan
-------------------
W. Timothy Ryan
Secretary
San Francisco, California
December 8, 1997
PLEASE RESPOND --- YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING, PLEASE COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE
ENCLOSED ENVELOPE SO THAT YOU WILL BE REPRESENTED AT THE MEETING.
ii
<PAGE>
DODGE & COX BALANCED FUND
DODGE & COX INCOME FUND
DODGE & COX STOCK FUND
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
INTRODUCTION
The Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Boards of Directors or Trustees, as the case may be,
of the Dodge & Cox Balanced Fund, a California common law trust ("Balanced
Fund"), the Dodge and Cox Income Fund, a California corporation ("Income
Fund"), and the Dodge & Cox Stock Fund, a California corporation ("Stock
Fund") (each a "Fund" and collectively, the "Funds") to be held at the
Mandarin Oriental Hotel, Embassy Room, 222 Sansome Street, San Francisco,
California, on January 20, 1998, at 10:00 a.m., Pacific time and any
adjournment thereof (collectively, the "Meeting"). The cost of the
solicitation (including printing and mailing this Proxy Statement, Notice of
Meeting and Proxy, as well as any supplementary solicitation) will be borne by
the Funds in proportion to their respective net assets. The Notice of the
Meeting, Proxy Statement and Proxy are being mailed to shareholders on or
about December 8, 1997.
The presence in person or by proxy of the holders of record of a majority of
the shares of each Fund entitled to vote shall constitute a quorum at the
Meeting for that Fund. If, however, such quorum shall not be present or
represented at the Meeting or if fewer shares are present in person or by
proxy than the minimum required to take action with respect to any proposal
presented at the Meeting, the holders of a majority of the shares of the Fund
present in person or by proxy shall have the power to adjourn the Meeting with
respect to that Fund, from time to time, without notice other than
announcement at the Meeting, until the requisite number of shares shall be
present at the Meeting. At any such adjourned Meeting, if the relevant quorum
is subsequently constituted, any business may be transacted which might have
been transacted at the Meeting as originally called.
The Boards of Directors of the Income Fund and the Stock Fund and the Board
of Trustees of the Balanced Fund (collectively the "Boards") have fixed the
close of business on November 24, 1997, as the record date for the
determination of shareholders entitled to notice of and to vote at the Meeting
and at any adjournments thereof. Each share is entitled to one vote. The
numbers of outstanding voting shares of each Fund as of November 24, 1997, are
indicated in the following table:
1
<PAGE>
<TABLE>
<CAPTION>
FUND SHARES
---- ----------
<S> <C>
Balanced Fund.................................................. 77,612,364
Income Fund.................................................... 57,212,467
Stock Fund..................................................... 40,065,746
</TABLE>
As of November 24, 1997, no shareholder owned more than a 5% beneficial
interest in voting shares of any Fund with the exception of Charles Schwab &
Co., Inc., 101 Montgomery Street, San Francisco, California 94104, owned of
record 7,735,276 shares (or 19.3%), 7,715,786 shares (or 9.9%), 3,921,854
shares (or 6.9%) of the outstanding shares of the Stock Fund, Balanced Fund
and Income Fund, respectively; and Donaldson Lufkin & Jenrette--Pershing
Division, P.O. Box 2052, Jersey City, New Jersey 07303, owned of record
4,370,692 shares (or 7.7%) of the outstanding shares of the Income Fund.
All properly executed proxies received prior to the Meeting will be voted at
the Meeting in accordance with the instructions marked thereon or as otherwise
provided therein. Accordingly, unless instructions to the contrary are marked,
proxies will be voted FOR the matters specified on the proxy card. Any
shareholder may revoke his or her proxy at any time prior to the exercise
thereof by giving written notice to Shareholder Communications Corporation, 17
State Street, New York, NY 10004, by signing another proxy of a later date or
by personally casting his or her vote at the Meeting.
The most recent annual and semi-annual reports of the Funds, including
financial statements, have been mailed previously to shareholders. IF YOU HAVE
NOT RECEIVED THESE REPORTS OR WOULD LIKE TO RECEIVE ADDITIONAL COPIES FREE OF
CHARGE, PLEASE CONTACT THE FUND C/O FIRSTAR TRUST COMPANY AT P.O. BOX 701
MILWAUKEE, WISCONSIN 53201-0701 OR BY CALLING 1-800-621-3979, AND THEY WILL BE
SENT PROMPTLY BY FIRST CLASS MAIL.
To obtain the necessary representation at the Meeting, supplementary
solicitations may be made by mail, telephone, telegraph, facsimile, or
personal contact by officers of each Fund, employees of Dodge & Cox, or its
affiliates, or proxy solicitation firms. Shareholder Communications
Corporation has been retained to assist with proxy solicitation activities at
a cost of approximately $30,000. Shareholders' votes may be taken by telephone
by representatives of Shareholder Communications Corporation, subject to
procedures designed to authenticate shareholders' identities and confirm
voting instructions.
VOTES REQUIRED
Reorganization of the Dodge & Cox Funds, as set forth in Proposal One, will
require the affirmative vote of a majority of the shares of the Income Fund
2
<PAGE>
and the Stock Fund and the affirmative vote of two-thirds of the shares of the
Balanced Fund outstanding and entitled to vote. Amendment of certain of the
Funds' investment restrictions as set forth in Proposal Two, will require the
affirmative vote of the lesser of (i) 67% of the shares of that Fund present
at a meeting if the holders of more than 50% of the outstanding shares of that
Fund are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of that Fund. Ratification of the Boards' selection of
independent certified accountants, as set forth in Proposal Three, will
require the affirmative vote of a majority of the shares of each Fund present
and voting at the Meeting. Increasing the authorized shares of the Stock Fund
and the Income Fund, as set forth in Proposal Four, will each require the
affirmative vote of a majority of the shares of the respective Fund
outstanding and entitled to vote.
For the purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions and broker "non-votes" (that is, proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote
shares on a particular matter with respect to which brokers or nominees do not
have discretionary power) will be treated as shares that are present but which
have not been voted. For this reason, abstentions and broker non-votes will
have the effect of a "no" vote for the purposes of obtaining the requisite
approval for Proposals One, Two and Four, and will have no effect on Proposal
Three.
PROPOSAL ONE
AGREEMENTS AND PLANS OF REORGANIZATION
Management has proposed, and the Directors/Trustees have approved, a
restructuring of the organization of the Funds. As currently structured, the
Balanced Fund is organized as a California trust, and the Income Fund and the
Stock Fund are organized as California corporations. Each Fund is separately
advised by Dodge & Cox, investment manager to the Funds. As each Fund is a
separate entity, each has its own Board of Directors/Trustees and maintains
separate corporate/trust records. In addition, as each Fund is individually
registered as an investment company under the federal securities laws, each
must make separate regulatory filings with the Securities and Exchange
Commission (the "Commission") and the states.
Under the proposed structure, Dodge & Cox would establish a new Delaware
business trust (the "Delaware Trust"), as an open-end management investment
company. Each of the Balanced Fund, the Income Fund, and the Stock Fund (the
"Reorganizing Funds") would be reorganized as a separate
3
<PAGE>
series of shares of the Delaware Trust (a "Successor Fund"). The result of the
restructuring would be a single investment company (mutual fund) complex (the
"Reorganization").
Each aspect of the Reorganization has received the requisite approval
(unanimously) from each Fund's Board. The Reorganization is proposed to be
accomplished pursuant to an Agreement and Plan of Reorganization providing for
the transfer of all of the assets of the relevant Reorganizing Fund to the
corresponding Successor Fund in exchange for shares of the Successor Fund as
described below, and for the assumption by the corresponding Successor Fund of
all of the liabilities of the Reorganizing Fund. The completion of these
transactions will result in the complete liquidation of each Reorganizing
Fund. As a result of the Reorganization, shareholders of each Fund would
become shareholders of their corresponding Successor Fund and have the same
proportionate interest in the same portfolio of assets as prior to the
Reorganization.
The Boards believe that a Delaware business trust as a form of organization
offers certain advantages for a mutual fund over either a California trust or
a California corporation. These advantages include granting the Trustees
greater flexibility in matters of governance and organization. In the case of
the Balanced Fund, a Delaware business trust also offers the advantage of a
clear statutory limitation upon the liability of shareholders and Trustees.
The Trustees also believe that the proposed trust instrument of the Delaware
Trust (the "Delaware Trust Instrument") is clearer and more comprehensive with
regard to matters affecting modern investment companies than the current
organizational documents. This is particularly true with respect to the
Balanced Fund, which adopted its charter in 1931. While some of these
improvements could potentially be achieved by amending the existing
organizational documents of the Funds, the Boards have concluded that, given
the other advantages of a Delaware business trust, it is preferable to enter
into the Plan of Reorganization.
As compared with a California trust, Delaware law permits a less complicated
structure and allows greater flexibility in a fund's business operations,
without sacrificing the federal or state tax advantage of a mutual fund
format. In addition, Delaware law contains provisions specifically designed
for mutual funds, which take into account their unique structure and
operations. For example, Delaware business trusts may establish multiple
series of shares, each of which may invest in a separate portfolio of
securities. As indicated above, Delaware business trusts also offer a greater
degree of legal certainty with respect to the potential liability of
investors, as well as trustees, with respect to the obligations of the trust.
For a summary comparison of the California trust charter and the proposed
Delaware Trust Instrument, see
4
<PAGE>
"Description of Certain Provisions of the Delaware Trust Instrument" and
"Certain Comparative Information about California Trusts and Delaware Business
Trusts" below. For a comparison of the corporations' Articles of Incorporation
and the proposed Delaware Trust Instrument, see "Description of Certain
Provisions of the Delaware Trust Instrument" and "Certain Comparative
Information about Delaware Business Trusts and California Corporations" below.
TERMS OF THE PLANS
Each Reorganization is subject to a number of conditions, including the
approval of the shareholders of the relevant Reorganizing Fund. Accordingly,
Shareholders of each Reorganizing Fund are being asked to vote upon the
approval of an Agreement and Plan of Reorganization (each a "Plan" and
collectively, the "Plans") pursuant to which the Reorganization would be
consummated. The following descriptions of the Plans and the features of the
proposed reorganizations are qualified in their entirety by reference to the
text of the Plans. A composite form Plan for Reorganization is set forth in
Appendix B to this Proxy Statement.
Each Plan provides, among other things, for the transfer of all of the
assets of the Reorganizing Fund to the corresponding Successor Fund in
exchange for (i) the assumption by the Successor Fund of all of the
liabilities of the Reorganizing Fund and (ii) the issuance to the Reorganizing
Fund of shares of beneficial interest (the "New Shares") in the Successor
Fund, the number of which shall be calculated based upon the value of the net
assets of the Reorganizing Fund then outstanding as of the Exchange Date
(expected to be in April, 1998). Specifically, on the Exchange Date the
Successor Fund will deliver to the Reorganizing Fund a number of full New
Shares having an aggregate net asset value equal to the value of the assets of
the Reorganizing Fund attributable to its shares of common stock or beneficial
interest, as the case may be (the "Old Shares"), transferred to the
corresponding Successor Fund on the Exchange Date, less the value of the
liabilities of the Reorganizing Fund attributable to the Old Shares, assumed
by the Successor Fund on that date. After receipt of the New Shares, each
Reorganizing Fund will cause the New Shares to be distributed to its
Shareholders, in complete liquidation of the Reorganizing Fund. Each
Shareholder will be entitled to receive that proportion of New Shares which
the number of Old Shares held by such shareholder bears to the total number of
Old Shares outstanding on such date. The distribution of New Shares will be
accomplished by the establishment of accounts on the share records of the
corresponding Successor Fund in the names of the Reorganizing
5
<PAGE>
Fund shareholders, each account representing the respective number of full and
fractional New Shares due to such shareholder. Certificates with respect to
New Shares will not be issued.
The consummation of each Reorganization is subject to the conditions set
forth in the relevant Plan, any of which may be waived by the party entitled
to its benefits. The Plans may be terminated and the Reorganization abandoned
at any time, before or after approval by the Shareholders of each Reorganizing
Fund, if any condition set forth in the Plan has not been fulfilled and has
not been waived by the party entitled to its benefits, by such party.
EFFECT OF SHAREHOLDER APPROVAL OF THE REORGANIZATION
An investment company registered under the Investment Company Act of 1940
(the "1940 Act") is required by the 1940 Act to obtain shareholder approval
with regard to (i) the election of trustees or directors, and (ii) the
investment advisory agreement with the company's investment adviser.
As part of the proposal to reorganize the Funds, approval by the requisite
vote of the Shareholders of the Reorganization will also constitute, for the
purposes of the 1940 Act: (i) election of the nominees identified below, who
currently serve as Directors/Trustees of the Funds, as Trustees of the
Delaware Trust after Reorganization, and (ii) approval of the proposed
Investment Management Agreement between the Delaware Trust on behalf of the
Successor Funds and Dodge & Cox. (See "Information Concerning the Nominees to
the Board of Trustees of the Trust" and "Information Concerning the Investment
Manager".)
Assuming Shareholder approval of the Reorganization, each Reorganizing Fund,
as the sole shareholder of the corresponding Successor Fund prior to the
Reorganization, will effect these actions by voting its respective shares in
each Successor Fund "FOR" the matters specified above on behalf of its
Shareholders prior to the Reorganization. The Delaware Trust will then
consider the requirements of the 1940 Act referred to above to have been
satisfied.
DESCRIPTION OF NEW SHARES
Shares will be issued to each Reorganizing Fund's Shareholders in accordance
with the relevant Plan as discussed above. The shares will be authorized for
issuance in series by the Board of Trustees of the Delaware Trust in
accordance with the Delaware Trust's Trust Instrument and Delaware business
trust law. The Successor Funds will have substantially identical purchase,
redemption and exchange procedures as are currently in effect for the
Reorganizing Funds, as described in each Fund's current prospectus and
statement of additional information.
6
<PAGE>
INVESTMENT POLICIES AND INVESTMENT RESTRICTIONS
If the new investment policies and restrictions for the Funds as set forth
in Proposal Two are approved by the Shareholders, the investment policies and
restrictions of the Funds following the Reorganization will be policies and
restrictions of the Reorganizing Funds as amended by the provisions set forth
in Proposal Two. For each Fund for which the investment policies and
restrictions set forth in Proposal Two are not approved, if any, the
investment policies and restrictions of that Fund after the Reorganization
will be the investment policies and restrictions of that Reorganizing Fund
immediately prior to the Reorganization.
FEE STRUCTURE AND EXPENSES
The fees and expenses to which each Successor Fund will be subject
subsequent to the Reorganization will be identical to those currently in
effect for each Reorganizing Fund.
EXPENSES OF THE REORGANIZATION
Each Reorganizing Fund will bear its own expenses associated with the
transactions contemplated by the Plans of Reorganization, including expenses
associated with the solicitation of proxies. In the event that the
Reorganization is completed, such expenses will be assumed by each Successor
Fund. The aggregate expenses of the Reorganization will be allocated ratably
among the Funds.
FEDERAL INCOME TAX CONSEQUENCES
As a condition to each Reorganizing Fund's obligation to consummate its
Reorganization, the Fund will receive an opinion from Dechert Price & Rhoads,
legal counsel to the Funds, to the effect that, on the basis of the existing
provisions of the Internal Revenue Code, as amended (the "Code") and current
administrative rules and court decisions, for federal income tax purposes: (i)
under section 361 of the Code, no gain or loss will be recognized by the
Reorganizing Funds as a result of the Reorganization; (ii) under section 354
of the Code, no gain or loss will be recognized by the shareholders of the
Reorganizing Funds on the distribution of New Shares to them in exchange for
their shares of the Reorganizing Funds; (iii) under Section 358 of the Code,
the tax basis of the New Shares that each Reorganizing Fund's shareholders
receive in place of their Reorganizing Fund's shares will be the same as the
basis of the Reorganizing Fund's shares; (iv) under Section 1223(1) of the
Code, a shareholder's holding period for the New Shares received pursuant to
the Plan will be determined by including the holding period for each
Reorganizing
7
<PAGE>
Fund's shares exchanged for the New Shares, provided that the shareholder held
the Reorganizing Fund shares as a capital asset; (v) under Section 1032 of the
Code, no gain or loss will be recognized by a Reorganizing Fund upon receipt
of the investments transferred to the corresponding Successor Fund pursuant to
the Plan in exchange for the New Shares; (vi) under Section 362 of the Code,
the basis to a Successor Fund of the investments will be the same as the basis
of the investments in the hands of the corresponding Reorganizing Fund
immediately prior to such exchange; and (vii) under section 1223(2) of the
Code, a Successor Fund's holding periods with respect to the investments in
its portfolio will include the respective periods for which the investments
were held by the corresponding Reorganizing Fund. The opinion will be based on
certain factual certifications made by officers of the Reorganizing Funds and
certain customary assumptions.
BASIS FOR THE BOARDS' RECOMMENDATIONS
The Boards of the Reorganizing Funds, including a majority of those
Directors/Trustees who are not "interested persons" of the Reorganizing Funds,
as defined in the 1940 Act (the "Independent Directors/Trustees"), unanimously
approved the Reorganizations at a meeting held on November 3, 1997.
In approving the Reorganizations, the Directors/Trustees of the Funds
determined that each proposed Reorganization would be in the best interests of
the relevant Reorganizing Fund, and that the interests of the Shareholders
would not be diluted as a result of effecting the Reorganization. The Boards
considered various factors in recommending that Shareholders approve the
Reorganizations, including those set forth below.
The Directors/Trustees considered that the Reorganization would likely
result in administrative cost savings to each Reorganizing Fund. As currently
structured, each Reorganizing Fund maintains a separate corporate identity,
which requires each Reorganizing Fund to make separate regulatory filings and
maintain separate corporate/trust records. Each Reorganizing Fund has a
separate Board of Directors/Trustees, and each is registered as a separate
entity with the Securities and Exchange Commission (the "Commission") and the
states. After the proposed Reorganization, each Reorganizing Fund would be a
separate series of a Delaware business trust. The new structure would be
registered with the Commission as a single trust entity with three separate
series. The Directors/Trustees also considered the fact that the Delaware
business trust format provides greater efficiency as well as flexibility with
regard to various matters of corporate governance than either of the forms of
organization of the Reorganizing Funds. It was also noted that, while business
trusts generally have the administrative efficiency of unlimited authorized
capital, those organized in
8
<PAGE>
Delaware also have the benefit of a statutory limitation on shareholder and
trustee liability with regard to the trust's obligations. The
Directors/Trustees determined that the interests of the Reorganizing Funds and
their shareholders were best served by adopting the more efficient and
flexible structure of the Delaware business trust.
The Boards also considered that the investment objective, policies and
restrictions of each Reorganizing Fund are substantially identical to those of
the corresponding Successor Fund and that each Successor Fund would be managed
by the same personnel and in accordance with the same investment strategies
and techniques utilized in the management of the corresponding Reorganizing
Fund immediately prior to the Reorganization (subject to any change that may
be approved at the Meeting under Proposal Two). For these reasons, the Boards
believe that an investment in shares of the Successor Fund will provide
Shareholders with an investment opportunity substantially identical to that
afforded by the corresponding Reorganizing Fund immediately prior to the
Reorganization.
CONTINUATION OF SHAREHOLDER ACCOUNTS AND PLANS
The Delaware Trust's transfer agent will establish accounts for all current
Fund Shareholders containing the appropriate number of Successor Fund shares
to be received by that Shareholder in accordance with the terms and provisions
of the Plan of Reorganization. These accounts, including account numbers, will
be identical in all material respects to the accounts currently maintained by
each Reorganizing Fund on behalf of its Shareholders.
DESCRIPTION OF CERTAIN PROVISIONS OF THE DELAWARE TRUST INSTRUMENT
The following is a summary of certain provisions of the proposed Delaware
Trust Instrument for the Delaware Trust.
Series and Classes
The Delaware Trust Instrument permits the Delaware Trust to issue series of
its shares which represent interests in separate portfolios of investments,
including the Successor Funds. The Delaware Trust is also authorized to issue
multiple classes of shares with respect to each such series. No series is
entitled to share in the assets of any other series or is liable for the
expenses or liabilities of any other series. The Trustees are authorized to
divide each series of shares into separate classes, which represent a pro rata
interest in the same series and are entitled to the same rights, except as
provided by the Trustees. The Successor Funds would initially have the same
classes of shares, which would be entitled to the same rights, as the
respective classes of the Reorganizing Funds. The Trustees of the Delaware
Trust are able to authorize the issuance of
9
<PAGE>
additional series or classes of shares without prior Shareholder approval. The
California Declaration of Trust and the Corporations' Articles of
Incorporation, however, do not specifically provide for the issuance of
separate series or classes of shares.
Shareholder Meetings and Voting Rights
The Delaware Trust is not required to hold annual meetings of shareholders
and it is not expected to hold such meetings. In the event that a meeting of
shareholders is held, each share of the Delaware Trust will be entitled to one
vote for each share. However, to the extent required by the 1940 Act or
otherwise as determined by the Trustees, series and classes of the Delaware
Trust will vote separately. Shareholders of the Delaware Trust do not have
cumulative voting rights in the election of Trustees. Meetings of Shareholders
of the Delaware Trust, or any series or class thereof, may be called, from
time to time, by the Trustees. The Shareholders of the Delaware Trust will
have voting rights only with respect to the limited number of matters
specified in the Delaware Trust Instrument and such other matters as the
Trustees may determine or as may be required by law.
The voting provisions of the Delaware Trust Instrument differ from the
charter documents of the existing Funds in several important respects. The
Delaware Trust Instrument does not provide for cumulative voting for the
election of Trustees. The Articles of Incorporation of both the Income Fund
and the Stock Fund currently provide for the election of Directors by
cumulative voting. Also, a greater number of matters require approval by the
shareholders of the Reorganizing Funds. In the case of the Income and Stock
Funds, whether a matter requires shareholder approval is an issue of
California corporate law, and those Funds' Articles of Incorporation cannot be
amended without Shareholder approval.
Indemnification
The Delaware Trust Instrument provides for indemnification of Trustees,
officers and agents of the Delaware Trust unless the recipient is adjudicated
(i) to be liable by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of such person's
office or (ii) not to have acted in good faith in the reasonable belief that
such person's actions were in the best interest of the Delaware Trust.
The Delaware Trust Instrument provides that, if any shareholder or former
shareholder of any series is held personally liable solely by reason of being
or having been a shareholder and not because of the shareholder's act or
omission or for some other reason, the shareholder or former shareholder (or
heirs, executors, administrators, legal representatives or general successors)
will be
10
<PAGE>
entitled, out of the assets belonging to the applicable series, to be held
harmless from and indemnified against all loss and expense arising from such
liability. The Delaware Trust, acting on behalf of any affected series, must,
upon request by such shareholder, assume the defense of any claim made against
such shareholder for any act or obligation of the series and satisfy any
judgment thereon from the assets of the series.
Termination
The Delaware Trust Instrument permits the termination of the Delaware Trust
or of any series or class of the Delaware Trust: (i) by a majority of the
affected shareholders at a meeting of shareholders of the Delaware Trust,
series or class; or (ii) by a majority of the Trustees without shareholder
approval if the Trustees determine that such action is in the best interest of
the Delaware Trust or its shareholders. The factors and events that the
Trustees may take into account in making such determination include: (i) the
inability of the Delaware Trust or any series or class to maintain its assets
at an appropriate size; (ii) changes in laws or regulations governing the
Trust, series or class or affecting assets of the type in which it invests; or
(iii) economic developments or trends having a significant adverse impact on
their business or operations. The winding up of the Income Fund or the Stock
Fund would be governed by California corporate law but generally would require
shareholder approval. The California Declaration of Trust of the Balanced Fund
permits the Trustees to terminate that Trust (a) upon a majority vote of the
Trustees to terminate the Trust; or (b) the written request to terminate the
Trust by the holders of two-thirds of the beneficial shares outstanding as of
the date of the request.
Merger, Consolidation, Sale of Assets, etc.
The Delaware Trust Instrument authorizes the Trustees, without shareholder
approval, to cause the Delaware Trust, or any series thereof, to merge or
consolidate with any corporation, association, trust or other organization or
sell or exchange all or substantially all of the property belonging to the
Delaware Trust or any series thereof. Such reorganization of any of the Funds,
as currently structured, would require shareholder approval.
Amendments
The Delaware Trust Instrument permits the Trustees to amend the Delaware
Trust Instrument without a shareholder vote. However, shareholders of the
Delaware Trust have the right to vote on any amendment that: (i) would affect
the voting rights of shareholders, (ii) is required by law to be approved by
shareholders; (iii) would amend the voting provisions of the Delaware Trust
Instrument; or (iv) the Trustees determine to submit to shareholders.
11
<PAGE>
Amendments to the Articles of Incorporation for both the Income Fund and the
Stock Fund currently require shareholder approval. Shareholders of the
Balanced Fund are required to approve amendments to the California Declaration
of Trust, except certain amendments, including any amendment that the Trustees
determine to be necessary or desirable which does not adversely affect the
rights of shareholders.
CERTAIN COMPARATIVE INFORMATION ABOUT CALIFORNIA BUSINESS TRUSTS AND DELAWARE
BUSINESS TRUSTS
SHAREHOLDER LIABILITY
Generally, Delaware business trust shareholders are not personally liable
for obligations of the Delaware business trust under Delaware law. The
Delaware Act entitles a shareholder of a Delaware business trust to the same
limitation of liability as is available to shareholders of private for-profit
corporations. However, no similar statutory or other authority limiting
business trust shareholder liability exists in many other states. As a result,
to the extent that a Delaware business trust or a shareholder is subject to
the jurisdiction of courts in such other states, those courts may not apply
Delaware law and may subject the Delaware trust shareholders to liability. To
offset this risk, the Delaware Trust Instrument: (i) contains an express
disclaimer of shareholder liability for acts or obligations of the Delaware
Trust and requires that notice of such disclaimer be given in each agreement,
obligation and instrument entered into or executed by the Delaware Trust or
its Trustees; and (ii) provides indemnification out of the property of the
Delaware Trust of any shareholder held personally liable for the obligations
of the Delaware Trust. Thus, the risk of a Delaware business trust shareholder
incurring financial loss beyond his or her investment because of shareholder
liability is limited to circumstances in which all of the following factors
are present: (1) a court refuses to apply Delaware law; (2) the liability
arises under tort law or, if not, no contractual limitation of liability is in
effect; and (3) the Delaware Trust itself is unable to meet its obligations.
In the light of Delaware law, the nature of the Delaware Trust's business and
the nature of its assets, the risk of personal liability to a Delaware Trust
shareholder should be considered remote.
Unlike Delaware, in California there is no statute relating to business
trusts that entitles a shareholder of a California business trust to the same
limitation of liability as is extended to a shareholder of a California
corporation. Shareholders of a California trust may, therefore, under certain
circumstances, be held personally liable under California law for the
obligations of the California trust. The California Declaration of Trust, like
the Delaware Trust Instrument, contains an express disclaimer of shareholder
liability and requires that notice
12
<PAGE>
of such disclaimer be given in each agreement entered into or executed by the
California trust or its Trustees. The California Declaration of Trust also
provides for indemnification of shareholders and so the extent of potential
liability should be considered to be limited to claims in excess of the
trust's assets.
LIABILITY OF TRUSTEES
The Delaware Trust Instrument provides that the Trustees will not be liable
to any person other than the Delaware Trust or a shareholder and that a
Trustee will not be liable for any act as a Trustee. However, nothing in the
Delaware Trust Instrument protects a Trustee 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. The Declaration of Trust for the Balanced Fund provides
that its Trustees will not be liable for errors of judgment or mistakes of
fact or law, subject to substantially the same provisions concerning bad
faith, gross negligence and reckless disregard as those described above.
CERTAIN COMPARATIVE INFORMATION ABOUT CALIFORNIA CORPORATIONS AND DELAWARE
BUSINESS TRUSTS
SHAREHOLDER LIABILITY
For a discussion of the potential for shareholders of a Delaware business
trust to be liable for the obligations of the Trust, see the discussion above
under "Certain Comparative Information About California Business Trusts and
Delaware Business Trusts--Shareholder Liability." Shareholders of a California
corporation currently have no personal liability for the corporation's acts or
obligations, except that a shareholder may be liable to the extent that he or
she knowingly receives a distribution in excess of the amount which properly
could have been paid under California law.
LIABILITY OF TRUSTEES OR DIRECTORS
For a discussion of the potential liability of trustees of a Delaware
business trust, see the discussion above under "Certain Comparative
Information About California Trusts and Delaware Business Trusts-Liability of
Trustees." California corporate law provides that, in addition to any other
liability imposed by law, the directors may be liable to a California
corporation: (1) for voting or assenting to the declaration of any dividend or
other distribution of assets to shareholders which is contrary to California
law; (2) for voting or assenting to certain distributions of assets to
shareholders during liquidation of the corporation; and (3) for voting or
assenting to a repurchase of the shares of a
13
<PAGE>
California corporation in violation of California law. In the event of any
litigation against the directors or officers, the corporation may indemnify
the directors or officers, subject to certain limitations.
VOTING RIGHTS OF CALIFORNIA CORPORATION AND DELAWARE TRUST SHAREHOLDERS
Neither California corporations which are registered as investment companies
nor Delaware business trusts are required to hold annual meetings.
Shareholders of a California corporation have the right to vote on certain
matters, including: (i) the election or removal of directors; (ii) the
approval or termination of investment advisory agreements or distribution
plans; (iii) the termination, reorganization or merger of the corporation or
any series; and (iv) amendments to the Articles of Incorporation. These
matters generally do not require shareholder votes under Delaware law,
although the 1940 Act does provide for shareholder voting with regard to the
election of Directors/Trustees and the approval of investment advisory
agreements and distribution plans.
RIGHT OF INSPECTION
California law provides that persons who hold at least five percent of the
shares of a California corporation, or who hold at least 1% of the outstanding
shares of a California corporation and have filed Schedule 14A with the
Securities and Exchange Commission, may inspect the books of account and stock
ledger of the California corporation. Delaware trust shareholders have the
same rights to inspect the records, accounts and books of the Delaware trust
as are accorded to shareholders of a Delaware business corporation. Currently,
each shareholder of a Delaware business corporation is permitted to inspect
records, accounts and books of a business corporation for any legitimate
business purpose.
CERTAIN INFORMATION CONCERNING THE NOMINEES TO THE BOARD OF TRUSTEES OF THE
DELAWARE TRUST
If you vote "yes" to approve the Reorganization, your vote will also have
the effect of electing nominees identified below, who currently serve as
Directors/Trustees of the Funds indicated below, as Trustees of the Delaware
Trust. If the Reorganization is approved, each Reorganizing Fund will vote the
share of beneficial interest it holds in the Trust for the election of the
nominees set forth below as Trustees. Each Trustee shall serve as such until
the next election or until his or her term is terminated as provided in the
Trust Instrument.
14
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
YEAR FIRST SHARES BENEFICIALLY
NAME, POSITIONS WITH THE FUNDS, AGE, PRINCIPAL BECAME A OWNED DIRECTLY OR
OCCUPATIONS DURING THE PAST FIVE YEARS AND DIRECTOR/ INDIRECTLY AS OF
OTHER DIRECTORSHIPS/TRUSTEESHIPS TRUSTEE NOVEMBER 24, 1997
- ---------------------------------------------- ---------- ---------------------
<S> <C> <C>
Katherine Herrick Drake*, Vice-President, 1993 Stock Fund 1,065 +
Dodge & Cox; Assistant Secretary-Treasurer and
Director, Dodge & Cox Stock Fund. Age: 43.
Dana M. Emery*, Manager-Fixed Income 1993 Income Fund
Department and Vice-President, Dodge & Cox;
Assistant Secretary-Treasurer and Director,
Dodge & Cox Income Fund. Age: 36.
Harry R. Hagey*, Chairman and Chief Executive 1985 Balanced Fund 4,208 +
Officer, Dodge & Cox; Chairman and Trustee, 1975 Stock Fund 1,004 +
Dodge & Cox Balanced Fund; Vice-President,
Dodge & Cox Income Fund; Vice-President and
Director, Dodge & Cox Stock Fund. Age 56.
John A. Gunn*, President, Dodge & Cox; Vice- 1988 Income Fund
President and Director, Dodge & Cox Income 1985 Stock Fund
Fund; President and Director, Dodge & Cox
Stock Fund. Age 54.
Max Guiterrez, Jr., Partner, Brobeck, Phleger 1985 Balanced Fund
& Harrison, Attorneys; Trustee, Dodge & Cox 1988 Income Fund
Balanced Fund; Director, Dodge and Cox Income 1985 Stock Fund
Fund; Director, Dodge & Cox Stock Fund. Age
67.
Kenneth E. Olivier*, Senior Vice-President, 1992 Balanced Fund
Dodge & Cox; Trustee, Dodge & Cox Balanced
Fund. Age 45.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE NUMBER
OF
YEAR FIRST SHARES BENEFICIALLY
NAME, POSITIONS WITH THE FUNDS, AGE, PRINCIPAL BECAME A OWNED DIRECTLY OR
OCCUPATIONS DURING THE PAST FIVE YEARS AND DIRECTOR/ INDIRECTLY AS OF
OTHER DIRECTORSHIPS/TRUSTEESHIPS TRUSTEE NOVEMBER 24, 1997
- ---------------------------------------------- ---------- -------------------
<S> <C> <C>
Frank H. Roberts, Self-Employed Attorney; prior 1990 Balanced Fund
to 1990, Partner in Pillsbury, Madison, & 1990 Income Fund
Sutro, Attorneys; Trustee, Dodge & Cox Balanced 1990 Stock Fund 3,476 +
Fund; Director, Dodge & Cox Income Fund;
Director, Dodge & Cox Stock Fund. Age 78.
W. Timothy Ryan*, Senior Vice-President and 1988 Income Fund 3,950 +
Secretary-Treasurer, Dodge & Cox; Secretary, 1973 Stock Fund 16,816 +
Dodge & Cox Balanced Fund; Secretary-Treasurer
and Director, Dodge & Cox Income Fund;
Secretary-Treasurer and Director, Dodge & Cox
Stock Fund. Age 60.
A. Horton Shapiro*, Senior Vice-President, 1985 Balanced Fund
Dodge & Cox; Vice-Chairman and Trustee, Dodge & 1988 Income Fund 1,884 +
Cox Balanced Fund; President & Director, Dodge
& Cox Income Fund; Vice-President, Dodge & Cox
Stock Fund. Age 58.
John B. Taylor, Professor of Economics and 1995 Balanced Fund
Director, Center for Economic Policy Research, 1995 Income Fund
Stanford University; Trustee, Dodge & Cox 1995 Stock Fund
Balanced Fund; Director, Dodge & Cox Income
Fund; Director, Dodge & Cox Stock Fund. Age 51.
Will C. Wood, Principal, Kentwood Associates, 1992 Balanced Fund 50 +
Financial Consultant; prior to 1994, Managing 1992 Income Fund 234 +
Director, IDI Associates, Financial Advisers; 1992 Stock Fund 871 +
Trustee, Dodge & Cox Balanced Fund; Director,
Dodge & Cox Income Fund; Director, Dodge & Cox
Stock Fund. Age 58.
</TABLE>
- -----------
* "Interested person," as defined in the 1940 Act. The Directors/Trustees and
officers of the Funds affiliated with Dodge & Cox have a beneficial interest
in the shares of the Funds owned by the Dodge & Cox Pension and Profit
Sharing Trusts.
+ Less than 1%.
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<PAGE>
Directors/Trustees and officers of the Funds affiliated with Dodge & Cox
hold a controlling interest in Dodge & Cox. On November 24, 1997, the officers
and Directors/Trustees of Funds as a group owned 24,738 shares of the Stock
Fund, 9,425 shares of the Income Fund and 4,987 shares of the Balanced Fund,
which represented less than 1% of the outstanding shares of each of the Funds.
There were five meetings of the Board of Directors/Trustees of each Fund in
1997. Each Fund has an Audit Committee comprised of John B. Taylor and Will C.
Wood. The Audit Committee met twice during 1997. With the exception of
Katherine Herrick Drake, no Director/Trustee attended fewer than 75% of the
total number of Board meetings or meetings of the Audit Committee on which
such Director/Trustees served. The Boards do not have a Nominating Committee
or any other committees.
COMPENSATION OF DIRECTORS
Those Directors/Trustees who are not affiliated with Dodge & Cox receive
from the each respective Fund an annual fee of $1,000 and an attendance fee of
$500 for each Board or Committee meeting attended. The Funds do not pay any
other remuneration to its officers or Directors/Trustees, and have no bonus,
profit-sharing, pension or retirement plan.
It is expected that, for the fiscal year ending December 31, 1997, the
Independent Directors/Trustees will have received the following compensation
from the Funds:
AGGREGATE COMPENSATION FROM
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
BALANCED INCOME STOCK FROM FUND
FUND FUND FUND COMPLEX
NAME OF DIRECTOR/TRUSTEE -------- ------ ------ ------------
<S> <C> <C> <C> <C>
Max Guiterrez.............................. $4,000 $4,000 $4,000 $12,000
Frank H. Roberts........................... 4,000 4,000 4,000 12,000
John B. Taylor............................. 5,000 5,000 5,000 15,000
Will C. Wood .............................. 5,000 5,000 5,000 15,000
</TABLE>
INFORMATION CONCERNING THE INVESTMENT MANAGER
A vote to approve the Reorganization would also have the effect of approval
of the proposed Investment Management Agreement between the Delaware Trust on
behalf of each Successor Fund and Dodge & Cox. The Investment Management
Agreement proposed for each Successor Fund is substantially similar to the
Investment Management Agreement in place currently between Dodge & Cox and
each respective Reorganizing Fund. The fees contained in the proposed
Investment Management Agreement are the same as those currently in place
between Dodge & Cox and each of the Funds. The
17
<PAGE>
proposed Investment Management Agreement differs from the current agreements
in that it (i) contains an enumeration of the administrative services
currently performed by the Investment Manager; (ii) clarifies that the
Investment Manager is subject to a statutory standard of care in performing
its duties under the agreement; (iii) contains a license for the use of the
Dodge & Cox name by the Funds; and (iv) contains a clarification of the
parties that will pay various expenses incurred by the Funds. A form of
Investment Management Agreement is set forth as Appendix B to this Proxy
statement. Information regarding the investment manager and the investment
management agreements in place currently is set forth below.
Dodge & Cox, a California corporation, has served as investment manager to
the Dodge & Cox Balanced Fund since 1931, the Dodge & Cox Income Fund since
1989, and the Dodge & Cox Stock Fund since 1965. Dodge & Cox is one of the
oldest investment management firms in the United States, having acted
continuously as investment managers since 1930. The Reorganizing Funds'
investments are managed by Dodge & Cox's Investment Policy Committee, and Bond
Strategy Committee, and no one person is primarily responsible for making
investment decisions for any of the Funds. Dodge & Cox is located at One
Sansome Street, 35th Floor, San Francisco, California 94104. Dodge & Cox's
activities are devoted to investment research and the supervision of
investment accounts for individuals and institutions.
In exchange for the services provided under the existing Investment
Management Agreements, each Reorganizing Fund pays Dodge & Cox a management
fee which is payable monthly at the annual rate of 0.50% of the average daily
net asset value of the Fund. With respect to the Income Fund, the fee is
reduced to 0.40% where the Fund's average daily net asset value exceeds $100
million. Furthermore, the investment management agreement between Dodge & Cox
and the Income Fund provides that Dodge & Cox will waive its fee for any
calendar year to the extent that such fees plus all other ordinary operating
expenses paid by the Income Fund exceeds 1% of the average daily net asset
value of that Fund. The investment management agreement between Dodge & Cox
and the Stock Fund limits expenses to .75% of the Fund's average daily net
assets. Under the provisions of the Investment Management Agreements in place
currently for both the Income Fund and the Stock Fund, no waiver of management
fees was necessary in 1996.
The current Investment Management Agreements were last approved by the Board
of the Income Fund on September 17, 1997, and by the Boards of the Balanced
Fund and the Stock Fund on December 2, 1996.
The directors and executive officers of Dodge & Cox are as follows: Harry R.
Hagey, Chairman of the Board and Chief Executive Officer; John A. Gunn,
Director and President; A. Horton Shapiro, Director and Senior Vice President;
18
<PAGE>
W. Timothy Ryan, Director, Senior Vice President and Secretary-Treasurer;
Kenneth E. Olivier, Director and Senior Vice President; and Thomas M. Mistele,
General Counsel and Chief Compliance Officer.
THE BOARD OF DIRECTORS OF BOTH THE INCOME FUND AND THE STOCK FUND, AND THE
BOARD OF TRUSTEES OF THE BALANCED FUND, INCLUDING THE INDEPENDENT DIRECTORS OR
TRUSTEES OF EACH FUND, UNANIMOUSLY RECOMMEND APPROVAL OF PROPOSAL ONE.
PROPOSAL TWO
ELIMINATION OR REVISION OF CERTAIN FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE
FUNDS
INTRODUCTION
Pursuant to the 1940 Act each Fund has adopted certain fundamental
investment restrictions and policies ("fundamental restrictions") that are set
forth in the Fund's prospectus and statement of additional information, which
may be changed only with shareholder approval. Restrictions and policies that
a Fund has not specifically designated as being fundamental are considered to
be "non-fundamental" and may be changed by the Fund's Board without
shareholder approval.
Certain of the fundamental restrictions that the Funds have adopted in the
past reflect regulatory, business or industry conditions, practices or
requirements which at one time for a variety of reasons led to the imposition
of limitations on the management of the Funds' investments. With the passage
of time, the development of new practices, and changes in regulatory
standards, several of these restrictions are considered by management to be
unnecessary or unwarranted. Several restrictions were imposed by certain
states in which the Funds have qualified their shares for sale but are no
longer required since federal legislation has preempted the States from
imposing such restrictions with the enactment of the National Securities
Markets Improvement Act of 1996 (hereinafter "NSMIA"). Other fundamental
restrictions reflect federal regulatory requirements which remain in effect,
but which are not required to be stated as fundamental restrictions. Also, as
the Funds have been created over a period of years, substantially similar
fundamental restrictions have been phrased in different ways, sometimes
resulting in minor differences in effect or potentially giving rise to
unintended differences in interpretation.
Accordingly, the Boards have approved revisions to the Funds' fundamental
restrictions in order to simplify, modernize and make more uniform those
investment restrictions that are required to be fundamental and to
19
<PAGE>
eliminate those fundamental restrictions that are not legally required.
Certain existing fundamental restrictions that are not required to be
fundamental would be re-classified as non-fundamental restrictions.
The Boards believe that eliminating the disparities among the Funds'
fundamental restrictions will enhance management's ability to manage
efficiently and effectively the Funds' assets, particularly in changing
regulatory and investment environments. In addition, by minimizing the number
of policies that can be changed only by shareholder vote, the Boards and the
Funds will have greater flexibility to modify Fund policies, as appropriate,
in response to changing markets and in light of new investment opportunities
and instruments. The Funds will then be able to avoid the costs and delays
associated with a shareholder meeting when making changes to the non-
fundamental investment policies that, at a future time, the Boards consider
desirable. Although the proposed changes in investment restrictions will allow
the Funds greater investment flexibility to respond to future investment
opportunities, the Boards do not anticipate that the changes, individually or
in the aggregate, will result at this time in a material change in the level
of investment risk associated with an investment in any Fund.
In addition, the Stock Fund and the Balanced Fund have designated as a
fundamental policy the growth-oriented investment approach used in the
selection of equity investments for the Funds. While management does not
anticipate a significant shift from this policy, it nevertheless believes that
the interests of the Funds would be better served if Dodge & Cox had the
flexibility to use other investment criteria in the selection of equity
securities when deemed appropriate in response to market changes. The Boards
of Directors/Trustees agree, and have also recommended that these policies be
redesignated as non-fundamental.
The text of each proposed change to the Funds' fundamental restrictions is
set forth below. The text below also describes those non-fundamental
restrictions that would be adopted by the Boards in conjunction with the
elimination of the fundamental restrictions under this Proposal. Any non-
fundamental restriction may be modified or eliminated by a Board at any future
date without any further approval of shareholders.
If the proposed changes are approved by shareholders of each of the
respective Funds at the Meeting, each Fund's prospectus and statement of
additional information will be revised, as appropriate, to reflect those
changes.
20
<PAGE>
A. FUNDAMENTAL RESTRICTIONS PROPOSED TO BE REVISED OR ELIMINATED IN ORDER TO
INCREASE FLEXIBILITY AND CONSISTENCY AMONG THE FUNDS
RESTRICTIONS PROPOSED TO BE REVISED BUT REMAIN FUNDAMENTAL
Change #1. Fund to which this change applies: All Funds.
The 1940 Act requires a Fund to have a policy with respect to the
concentration of its assets in particular industries, with a Fund being
generally prohibited from reserving freedom of action with respect to its
ability to so concentrate its investments. "Concentration" is deemed by the
Commission and its Staff to mean investment of 25% or more of a Fund's assets
in the securities of issuers in a particular industry. This policy has an
important interpretive exception for securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and repurchase agreements
with respect thereto. The Funds' current restriction with respect to industry
concentration does not make reference to this regulatory exclusion.
Accordingly, it is proposed that this fundamental restriction be amended to
specify that securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities (and repurchase agreements with respect thereto)
are not intended to be covered by the restriction.
Current Text
[The Fund may not . . . ] concentrate investments of more than 25% of the
value of its total assets in any one industry.
Proposed Text
[The Fund may not . . . ] invest in a security if, as a result of such
investment, more than 25% of its total assets would be invested in the
securities of issuers in any particular industry, except that the
restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (or repurchase agreements
with respect thereto).
Change #2. Funds to which this change applies: All Funds.
The 1940 Act requires the Funds to have a fundamental policy regarding the
underwriting of securities. The Boards propose to amend the current
restrictions to make clear that the restriction is not violated if a Fund is
deemed, as a technical matter, to be an underwriter by virtue of selling
portfolio securities, which could arise in certain cases, such as if a Fund
should sell a security it had initially purchased in a private placement.
Current Text
[The Fund may not . . . ] underwrite securities of other issuers.
21
<PAGE>
Proposed Text
[The Fund may not . . .] underwrite securities of other issuers, except
insofar as the Fund may be deemed an underwriter under the Securities Act
of 1933, as amended, in selling portfolio securities.
RESTRICTIONS PROPOSED TO BE ELIMINATED
Change #3. Funds to which these changes apply:
Restriction a: Balanced and Income Funds only
Restriction b: All Funds
Restriction c: All Funds
Restriction d: Income Fund only
The following investment restrictions are not required by the 1940 Act. They
were originally adopted in response to state "blue sky" restrictions or
interpretations which no longer apply to the Funds. Therefore, in order to
increase the ability of Fund management to effectively and efficiently manage
the Funds' assets in response to market and regulatory change, it is proposed
that the these investment restrictions, which are currently listed as
fundamental, be eliminated.
a. [The Fund may not . . ] invest in other investment companies, except in
the open market at customary brokers' commissions.
b. [The Fund may not . . . ] purchase warrants, if as a result the Fund would
then have more than 5% of its net assets invested in warrants (valued at
the lower of cost or market), or more than 2% of its net assets invested
in warrants which are not listed on the New York or American Stock
Exchanges.
c. [The Fund may not . . . ] purchase securities of any issuer if, to the
knowledge of the Fund, any officer or trustee or director of the Fund or
Dodge & Cox, owns more than of 1% of the outstanding securities of such
issuer, or if such officers, trustees or directors in the aggregate own
more than 5% of the outstanding securities of such issuer.
d. [The Fund may not . . . ] purchase any security if as a result the Fund
would then have more than 10% of its total assets invested in preferred
stock or debt securities principally traded in foreign markets. The Fund
may purchase Eurodollar certificates of deposit without regard to such 10%
limit.
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B. FUNDAMENTAL RESTRICTIONS WHICH ARE NOT REQUIRED TO BE FUNDAMENTAL
Change #4. Funds to which this change applies: All Funds.
One of the Funds' fundamental restrictions is not required to be
fundamental, i.e., it is not required to be designated as a restriction that
can be changed only with shareholder approval. It is proposed that this
fundamental restriction, which is listed below, be changed from fundamental to
non-fundamental and restated. This change will provide the Boards the
flexibility to revise the restriction in the future should industry or
regulatory conditions warrant and will enable the Funds to avoid the
additional expense of a shareholder solicitation in connection with future
revisions.
Current Text
[The Fund may not . . . ] purchase securities of another investment
company ("acquired company") except in connection with a merger,
consolidation, acquisition or reorganization and except as otherwise
permitted by Section 12(d) of the Investment Company Act, if after such
purchase more than 5% of the value of the Fund's total assets would be
invested in securities issued by the acquired company, or the Fund would
own more than 3% of the total outstanding voting stock of the acquired
company, or more than 10% of the value of the Fund's total assets would be
invested in securities of investment companies.
Proposed Text (designated non-fundamental)
[The Fund may not . . . ] purchase the securities of other investment
companies, except as permitted by the 1940 Act.
C. INVESTMENT POLICIES PROPOSED TO BE MADE NON-FUNDAMENTAL
Each of the Balanced Fund and Stock Fund contains an investment policy
which, although not required to be made fundamental by the 1940 Act, was
designated as a fundamental policy at the Fund's inception. It is proposed,
therefore, that the policies listed below be designated non-fundamental.
Although management has no present intention to deviate from the stated
policy, the Boards believe that they should have the flexibility to amend the
policy without a shareholder vote, if appropriate in light of changing market
conditions.
Change #5. Fund to which this change applies: Balanced Fund.
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A substantial position will be maintained in common stocks which in the view
of Dodge & Cox have a favorable outlook for long-term growth of principal and
income. Prospective earnings and dividends are major considerations in these
stock selections. The level of security prices and the trend of business
activity are considered in determining the total investment position of the
Fund in equities at any time. Individual securities are selected with an
emphasis on financial strength and a sound economic background.
Change #6. Fund to which this change applies: Stock Fund.
Common stocks selected for the Fund will be predominately those which, in
the view of Dodge & Cox, have a favorable outlook for long-term growth of
principal and income. Prospective earnings and dividends are major
considerations in these stock selections. Individual securities are selected
with an emphasis on financial strength and a sound economic background.
THE BOARD OF DIRECTORS OF BOTH THE INCOME FUND AND THE STOCK FUND, AND THE
BOARD OF TRUSTEES OF THE BALANCED FUND, INCLUDING THE INDEPENDENT DIRECTORS
AND TRUSTEES OF EACH FUND, UNANIMOUSLY RECOMMEND APPROVAL OF PROPOSAL TWO.
PROPOSAL THREE
RATIFICATION OF SELECTION OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors/Trustees of each Fund recommends that the
shareholders of each Fund ratify the selection of Price Waterhouse LLP,
independent certified public accountants, to audit the accounts of the Funds
for the fiscal year ending December 31, 1997. Their selection was approved by
the unanimous vote, cast in person, of the Directors/Trustees of each Fund,
including the Directors/Trustees who are not "interested persons" of the
respective Funds within the meaning of the 1940 Act, at a meeting held on
March 5, 1997. Price Waterhouse LLP has audited the accounts of each Fund for
its previous fiscal year and has informed the Funds that Price Waterhouse does
not have any direct financial interest or any material indirect financial
interest in any of the Funds. Representatives of Price Waterhouse LLP are not
expected to be present at the Meeting but have been given the opportunity to
make a statement if they so desire, and will be available should any matters
arise requiring their presence.
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THE BOARD OF DIRECTORS OF BOTH THE INCOME FUND AND THE STOCK FUND, AND THE
BOARD OF TRUSTEES OF THE BALANCED FUND, INCLUDING THE INDEPENDENT DIRECTORS OR
TRUSTEES OF EACH FUND, UNANIMOUSLY RECOMMEND APPROVAL OF PROPOSAL THREE.
PROPOSAL FOUR--STOCK FUND
APPROVAL OF INCREASE IN AUTHORIZED CAPITAL
Fund to which this proposal applies: Stock Fund.
On November 3, 1997, the Board of Directors unanimously adopted a resolution
setting forth a proposed amendment to the Stock Fund's Certificate of
Incorporation. The proposed amendment would increase the number of authorized
capital shares of the Stock Fund from 50 million to 200 million shares. As of
November 24, 1997, 40,065,746 shares of the Fund were issued and outstanding.
The purpose of the proposed amendment is to make 150 million additional
shares of common stock available for issuance by the Fund, without further
action by its shareholders until such time as the Fund is reorganized as set
forth in Proposal One, if such proposal is approved by its shareholders. The
adoption of this amendment will not, by itself, cause any change in the
existing capital accounts of the Fund.
THE BOARD OF DIRECTORS OF THE STOCK FUND, INCLUDING THE INDEPENDENT DIRECTORS,
UNANIMOUSLY RECOMMENDS APPROVAL OF PROPOSAL FOUR.
PROPOSAL FOUR--INCOME FUND
APPROVAL OF INCREASE IN AUTHORIZED CAPITAL
Fund to which this proposal applies: Income Fund.
On November 3, 1997, the Board of Directors unanimously adopted a resolution
setting forth a proposed amendment to the Income Fund's Certificate of
Incorporation. The proposed amendment would increase the number of authorized
capital shares of the Income Fund from 100 million to 200 million shares. As
of November 24, 1997, 57,212,467 shares of the Fund were issued and
outstanding.
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The purpose of the proposed amendment is to make 100 million additional
shares of common stock available for issuance by the Fund, without further
action by its shareholders until such time as the Fund is reorganized as set
forth in Proposal One, if such proposal is approved by its shareholders. The
adoption of this amendment will not, by itself, cause any change in the
existing capital accounts of the Fund.
THE BOARD OF DIRECTORS OF THE INCOME FUND, INCLUDING THE INDEPENDENT
DIRECTORS, UNANIMOUSLY RECOMMENDS APPROVAL OF PROPOSAL FOUR.
OTHER MATTERS
The Boards do not currently know of any matters to be presented at the
Meeting other than those mentioned in this Proxy statement. If any of the
persons listed above is unavailable for election as a Trustee, an event not
now anticipated, or if any other matters come properly before the Meeting, the
shares represented by proxies will be voted with respect thereto in accordance
with the best judgment of the person or persons voting the proxies.
The Funds do not hold annual or regular meetings of their shareholders.
Proposals of shareholders which are intended to be presented at a future
shareholders' meeting must be received by the Funds by a reasonable time prior
to the Funds' solicitation of proxies relating to such future meeting.
Shareholder proposals must meet certain requirements and there is no guarantee
that any proposal will be presented at a shareholders' meeting.
If the accompanying form of proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the Proxy. If no instructions are specified, however, shares
will be voted for the Reorganization and for the other proposals.
By the Order of the Board of Trustees of the
Balanced Fund, and the Boards of Directors of
the Income Fund and the Stock Fund
/s/ W. Timothy Ryan
-------------------
W. Timothy Ryan
Secretary
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APPENDIX A
AGREEMENT AND PLAN OF
REORGANIZATION, CONVERSION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION, CONVERSION AND TERMINATION is
made as of the day of , 1998, by and between [Dodge & Cox Balanced Fund,
a California common law trust]; [Dodge & Cox Income Fund, a California
corporation]; [Dodge & Cox Stock Fund, a California corporation] (the
"Reorganizing Fund") and Dodge & Cox Funds (the "Trust"), a Delaware business
trust.
This Agreement is intended to be and is adopted as a plan of reorganization
within the meaning of Section 368(a)(1) of the U.S. Internal Revenue Code, as
amended (the "Code"), and is intended to effect the reorganization (a
"Reorganization") of the Reorganizing Fund as a new series of the Trust (the
"Successor Fund"). The Reorganization will include the transfer of all of the
assets of the Reorganizing Fund to the corresponding Successor Fund of the
Trust solely in exchange for (1) the assumption by the Successor Fund of all
liabilities of the Reorganizing Fund and (2) the issuance by the Trust to the
Reorganizing Fund of shares of beneficial interest of the Successor Fund. The
aggregate number of shares of the Successor Fund (the "Successor Fund Shares")
issued to the Reorganizing Fund will be equal to the number of shares of
[common stock] [beneficial interest] ("Shares") of the corresponding
Reorganizing Fund outstanding immediately before the Reorganization. These
transactions will be immediately followed by a pro rata distribution by the
Reorganizing Fund of the Successor Fund Shares it receives in the exchange
described above to the holders of corresponding Reorganizing Fund Shares in
exchange for those Successor Fund Shares, in liquidation of the Reorganizing
Fund, all upon the terms and conditions hereinafter set forth in this
Agreement.
In consideration of the promises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE FUNDS IN EXCHANGE FOR ASSUMPTION OF LIABILITIES
AND ISSUANCE OF SUCCESSOR FUND SHARES
1.1 Subject to the terms and conditions set forth herein and on the basis of
the representations and warranties contained herein, the Reorganizing Fund
agrees to transfer all of its assets (as described in paragraph 1.2) and to
assign and transfer all of its liabilities to the corresponding Successor
Fund, which is organized solely for the purpose of acquiring all of the assets
and assuming all
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of the liabilities of the Reorganizing Fund. The Trust, on behalf of the
Successor Fund, agrees that in exchange for all of the assets of the
Reorganizing Fund (1) the Successor Fund shall assume all of the liabilities
of the Reorganizing Fund, whether contingent or otherwise, then existing and
(2) the Trust shall issue Successor Fund Shares to the Reorganizing Fund. The
number of Successor Fund Shares to be issued by the Trust on behalf of the
Successor Fund will be identical to the number of Shares of the Reorganizing
Fund outstanding on the Closing Date provided for in paragraph 3.1. Such
transactions shall take place at the Closing provided for in paragraph 3.1.
1.2 The assets of the Reorganizing Fund to be acquired by the corresponding
Successor Fund shall include, without limitation, all cash, cash equivalents,
securities, receivables (including interest and dividends receivable), any
claims or rights of action or rights to register shares under applicable
securities laws, any books or records of the Reorganizing Fund and other
property owned by the Reorganizing Fund and any deferred or prepaid expenses
shown as assets on the books of the Reorganizing Fund on the Closing Date
provided for in paragraph 3.1.
1.3 Immediately after delivery to the Reorganizing Fund of corresponding
Successor Fund Shares, a duly authorized officer of the Reorganizing Fund
shall cause the Reorganizing Fund, as the sole shareholder of the
corresponding Successor Fund, to (i) elect the Trustees of the Trust; (ii)
approve an investment advisory agreement for the Successor Fund in
substantially the form as the investment advisory agreement in effect for the
Reorganizing Fund immediately prior to the Closing of the Reorganization (with
such changes as may have been approved by the shareholders of the Reorganizing
Fund); and (iii) adopt investment objectives, investment policies and
investment restrictions which are substantially identical to those of the
Reorganizing Fund immediately prior to the Closing of the Reorganization,
including any changes thereto approved by the shareholders of the Reorganizing
Fund at the meeting of shareholders to be held on January 20, 1998. On or
prior to the Closing Date, the Trust shall, on its own behalf or on behalf of
the Successor Fund, either enter into transfer agency, subtransfer agency,
custodian and subcustodian agreements, agreements with Service Organizations
and any other agreement pursuant to which services are rendered to the
Reorganizing Fund with substantially the same terms as the agreements to which
the Reorganizing Fund is a party as of the Closing Date or assume the
Reorganizing Fund's obligations under such agreements. The Trust shall also
adopt, on its own behalf or on behalf of the Successor Fund, on or prior to
the Closing Date, all policies and procedures, in effect with respect to the
Reorganizing Fund as of the Closing Date.
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1.4 As provided in paragraph 3.4, on the Closing Date the Reorganizing Fund
will distribute in liquidation the Successor Fund Shares to each shareholder
of record, determined as of the close of business on the Closing Date, of the
Reorganizing Fund pro rata in proportion to such shareholder's beneficial
interest in that class and in exchange for that shareholder's Shares. Such
distribution will be accomplished by the transfer of the Successor Fund Shares
then credited to the account of each Reorganizing Fund on its share records to
open accounts on those records in the names of Reorganizing Fund Shareholders
and representing the respective pro rata number of each class of the Successor
Fund Shares received from the Successor Fund which is due to such Reorganizing
Fund Shareholders. Fractional Successor Fund Shares shall be rounded to the
third place after the decimal point.
1.5 Ownership of the Successor Fund Shares by each Successor Fund
Shareholder shall be recorded separately on the books of the Trust's transfer
agent.
1.6 Any transfer taxes payable upon the issuance of Successor Fund Shares in
a name other than the registered holder of the Reorganizing Fund Shares on the
books of the Reorganizing Fund shall be paid by the person to whom such
Successor Fund Shares are to be distributed as a condition of such transfer.
1.7 Reorganizing Fund Shareholders holding certificates representing their
ownership of any class of Shares of the Reorganizing Fund shall surrender such
certificates or deliver an affidavit with respect to lost certificates, in
such form and accompanied by such surety bonds as the Reorganizing Fund may
require (collectively, an "Affidavit"), to the Reorganizing Fund prior to the
Closing Date. Any Reorganizing Fund Share certificate which remains
outstanding on the Closing Date shall be deemed to be canceled, shall no
longer evidence ownership of any Shares of the Reorganizing Fund and shall
instead evidence ownership of corresponding Successor Fund Shares. Unless and
until any such certificate shall be so surrendered or an Affidavit relating
thereto shall be delivered, dividends and other distributions payable by the
Successor Fund subsequent to the Closing Date with respect to Successor Fund
Shares shall be paid to the holder of such certificates, but such shareholders
may not redeem or transfer Successor Fund Shares received in the
Reorganization. The Trust will not issue share certificates in the
Reorganization.
1.8 The legal existence of the Reorganizing Fund shall be terminated as
promptly as reasonably practicable after the Closing Date.
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2. VALUATION
2.1 The value of the Reorganizing Fund's net assets to be acquired by the
Trust on behalf of the Successor Fund hereunder shall be the net asset value
computed as of the valuation time provided in the Reorganizing Fund's
prospectus on the Closing Date using the valuation procedures set forth in the
Reorganizing Fund's current prospectus and statement of additional
information.
2.2 The number of the Successor Fund Shares shall equal the number of full
and fractional Reorganizing Fund Shares outstanding on the Closing Date.
2.3 All computations of value shall be made by the custodian for the
Reorganizing Funds and the Trust, or the Reorganizing Fund's investment
manager, in each case as required by the valuation procedures adopted by the
Reorganizing Funds.
3. CLOSING AND CLOSING DATE
3.1 The transfer of the Reorganizing Fund's assets in exchange for the
assumption by the Successor Fund of the Reorganizing Fund's liabilities and
the issuance of Successor Fund Shares to the Reorganizing Fund, as described
above, together with related acts necessary to consummate such acts (the
"Closing"), shall occur at the offices of Dodge & Cox, One Sansome Street,
35th Floor, San Francisco, CA 94104 on April , 1998 ("Closing Date"). All
acts taking place at the Closing shall be deemed to take place simultaneously
as of the last daily determination of the net asset value of the Reorganizing
Fund or at such other time and or place as the parties may agree.
3.2 The Reorganizing Fund shall deliver at the Closing a certificate or
separate certificates of an authorized officer stating that it has notified
the custodian for the Reorganizing Fund and the Trust, of the Reorganizing
Fund's reorganization as a series of the Trust.
3.3 The transfer agent for the Reorganizing Fund, shall deliver at the
Closing a certificate evidencing the conversion on its books and records of
each Reorganizing Fund Shareholder account to a corresponding Successor Fund
Shareholder account. The Trust shall issue and deliver to the Reorganizing
Fund a confirmation evidencing the crediting of Successor Fund Shares to the
appropriate shareholder accounts on the Closing Date or provide other evidence
satisfactory to the Reorganizing Fund that such Successor Fund Shares have
been credited to the Reorganizing Fund's account on the books of the Trust. At
the Closing, each party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts or other documents as such other
party or its counsel may reasonably request.
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3.4 Portfolio securities that are not held in book-entry form in the name of
the custodian as record holder for the Reorganizing Fund shall be presented by
the Reorganizing Fund to the custodian for examination no later than five
business days preceding the Closing Date. Portfolio securities which are not
held in book-entry form shall be delivered by the Reorganizing Fund to the
custodian for the account of the Successor Fund on the Closing Date, duly
endorsed in proper form for transfer, in such condition as to constitute good
delivery thereof in accordance with the custom of brokers, and shall be
accompanied by all necessary federal and state stock transfer stamps or a
check for the appropriate purchase price thereof. Portfolio securities held of
record by the custodian in book-entry form on behalf of the Reorganizing Fund
shall be delivered to the Successor Fund by the custodian by recording the
transfer of beneficial ownership thereof on its records. The cash delivered
shall be in the form of currency or by the custodian crediting the Successor
Fund's account maintained with the custodian with immediately available funds.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Reorganizing Fund represents and warrants as follows:
4.1.A. The Reorganizing Fund is a [business trust/corporation] duly
organized, validly existing and in good standing under the laws of the State
of California, and has the power to own all of its properties and assets and,
subject to approval by the shareholders of that Reorganizing Fund, to perform
its obligations under this Agreement. The Reorganizing Fund is not required to
qualify to do business in any jurisdiction in which it is not so qualified or
where failure to qualify would not subject it to any material liability or
disability. The Reorganizing Fund has all necessary federal, state and local
authorizations to own all of its properties and assets and to carry its
business as now being conducted;
4.1.B. The Reorganizing Fund is a registered investment company classified
as a management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), is in
full force and effect;
4.1.C. The Reorganizing Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any provision
of its [Declaration of Trust] [Articles of Incorporation] or Bylaws, or any
agreement, indenture, instrument, contract, lease or other undertaking to
which the Reorganizing Fund is a party or by which it is bound;
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4.1.D. At the date hereof and at the Closing Date all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Reorganizing Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished and all federal,
state and other taxes, interest and penalties shall have been paid so far as
due or provision shall have been made for the payment thereof and no such
return is currently under audit and no assessment has been asserted with
respect to any of such returns or reports;
4.1.E. The Reorganizing Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code, has qualified as such for
each taxable year since its inception, and will qualify as such as of the
Closing Date;
4.1.F. All issued and outstanding shares of the Reorganizing Fund are, and
at the Closing Date will be, duly and validly issued and outstanding, fully
paid and nonassessable by the Reorganizing Fund. The Reorganizing Fund does
not have outstanding any options, warrants or other rights to subscribe for or
purchase any shares of [common stock] [beneficial interest], nor is there
outstanding any security convertible into any of such shares;
4.1.G. The information to be furnished by the Reorganizing Fund for use in
applications for orders, registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply in all
material respects with federal securities and other laws and regulations
thereunder applicable thereto;
4.1.H. At the Closing Date, the Reorganizing Fund will have good and
marketable title to the assets to be transferred to the Trust, on behalf of
the Successor Funds, pursuant to paragraph 1.1, and will have full right,
power and authority to sell, assign, transfer and deliver such assets
hereunder. Upon delivery and in payment for such assets, the Trust on behalf
of the Successor Funds will acquire good and marketable title thereto subject
to no restrictions on the full transfer thereof, including such restrictions
as might arise under the Securities Act of 1933, as amended (the "1933 Act");
4.1.I. The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of the Reorganizing Fund. This Agreement constitutes a valid and binding
obligation of the Reorganizing Fund enforceable in accordance with its terms,
subject to the approval of each the Reorganizing Fund's shareholders;
4.1.J. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Reorganizing
Fund of the transactions contemplated herein, except such as shall have been
obtained prior to the Closing Date.
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4.2 The Trust represents and warrants, on behalf of itself and each
Successor Fund, as follows:
4.2.A. The Trust is a business trust duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the power to own
all of its properties and assets and to perform its obligations under this
Agreement. The Trust is not required to qualify to do business in any
jurisdiction in which it is not so qualified or where failure to qualify would
not subject it or the Successor Fund to any material liability or disability.
The Trust has all necessary federal, state and local authorizations to own all
of its properties and assets and to carry on the business of the Trust and the
Successor Fund as now being conducted. The Successor Fund is a duly
established and designated series of the Trust;
4.2.B. The Trust is not, and the execution, delivery and performance of this
Agreement will not result, in violation of any provision of the Trust
Instrument or Bylaws of the Trust or any agreement, indenture, instrument,
contract, lease or other undertaking to which the Trust is a party or by which
the Trust is bound;
4.2.C. The Trust will cause the Successor Fund to qualify as a regulated
investment company under Subsection M of the Code for the taxable year in
which the Closing occurs and to continue to qualify as such for each taxable
year;
4.2.D. Prior to the Closing Date, there shall be no issued and outstanding
Successor Fund Shares or any other securities of the Successor Fund. Successor
Fund Shares issued in connection with the transactions contemplated herein
will be duly and validly issued and outstanding and fully paid and non-
assessable by the Trust;
4.2.E. The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of the Trust, and this
Agreement constitutes a valid and binding obligation of the Trust and the
Successor Fund enforceable against the Trust and the Successor Fund in
accordance with its terms;
4.2.F. The information to be furnished by the Trust with respect to the
Successor Fund for use in applications for orders, registration statements,
proxy materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete and shall
comply in all material respects with federal securities and other laws and
regulations applicable thereto;
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4.2.G. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Trust or the
Successor Fund of the transactions contemplated herein, except such as shall
have been obtained prior to the Closing Date.
5. COVENANTS OF THE REORGANIZING FUND AND THE TRUST
5.1 The Reorganizing Fund covenants that the Successor Fund Shares are not
being acquired for the purpose of making any distribution thereof, other than
in accordance with the terms of this Agreement.
5.2 The Reorganizing Fund covenants that it will assist the Trust in
obtaining such information as the Trust reasonably requests concerning the
beneficial ownership of Reorganizing Fund Shares.
5.3 The Reorganizing Fund will, from time to time as and when requested by
the Trust on behalf of the Successor Fund, execute and deliver, or cause to be
executed and delivered, all such assignments and other instruments, and will
take or cause to be taken such further action, as the Trust may deem necessary
or desirable in order to vest in, and confirm to, the Trust on behalf of the
Successor Fund, title to, and possession of, all the assets of the
Reorganizing Fund to be sold, assigned, transferred and delivered to the
Successor Fund hereunder and otherwise to carry out the intent and purpose of
this Agreement.
5.4 The Trust will, on behalf of the Successor Fund, from time to time as
and when requested by the Reorganizing Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action, as the Reorganizing Fund may
deem necessary or desirable in order to vest in, and confirm to, the
Reorganizing Fund, title to, and possession of, the Successor Fund Shares
issued, sold, assigned, transferred and delivered hereunder and otherwise to
carry out the intent and purpose of this Agreement.
5.5 The Trust, on behalf of the Successor Fund, shall use all reasonable
efforts to obtain the approvals and authorizations required by the 1933 Act,
the 1940 Act and such state securities laws as it may deem appropriate in
order to operate after the Closing Date.
5.6 Subject to the provisions of this Agreement, the Trust and the
Reorganizing Fund each will take, or cause to be taken, all action and will do
or cause to be done all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
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5.7 As promptly as practicable, but in any event within 60 days after the
Closing Date, the Reorganizing Fund shall furnish to the Trust, in such form
as is reasonably satisfactory to the Trust, a statement of the earnings and
profits of the Reorganizing Fund for federal income tax purposes, and of any
capital loss carryovers and other items that will be carried over to the
Successor Fund as a result of Section 381 of the Code. Such statement shall be
certified by the President [Chairman] or Treasurer [Secretary] of the
Reorganizing Fund.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE REORGANIZING FUNDS
The obligations of the Reorganizing Fund to consummate the transactions
provided for herein shall be subject to the performance by the Trust, on
behalf of the Successor Fund, of all the obligations to be performed by the
Trust and the Successor Fund hereunder on or before the Closing Date and, in
addition thereto, to the following further conditions:
6.1 All representations and warranties of the Trust and the Successor Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date, with the same force
and effect as if made on and as of the Closing Date; and
6.2 The Trust shall have delivered on the Closing Date to the Reorganizing
Fund a certificate executed in the Trust's name by its President or Vice
President, in form and substance satisfactory to the Reorganizing Fund, dated
as of the Closing Date, to the effect that the representations and warranties
of the Trust and the Successor Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as
the Reorganizing Fund shall reasonably request.
Each of the foregoing conditions precedent may be waived by the Reorganizing
Fund.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE SUCCESSOR FUNDS
The obligations of the Trust and the Successor Fund to consummate the
transactions provided for herein shall be subject to the performance by the
Reorganizing Fund, of all the obligations to be performed by the Reorganizing
Fund hereunder on or before the closing Date and, in addition thereto, to the
following further conditions:
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7.1 All representations and warranties of the Reorganizing Fund contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date, with the same force
and effect as if made on and as of the Closing Date;
7.2 The Reorganizing Fund shall have delivered to the Trust on the Closing
Date a statement of the assets and liabilities, prepared in accordance with
generally accepted accounting principles consistently applied, together with a
certificate of the Treasurer [Secretary] or Assistant Treasurer [Assistant
Secretary] of the Reorganizing Fund as to its securities and federal income
tax basis and holding period as of the Closing Date; and
7.3 The Reorganizing Fund shall have delivered to the Trust on the Closing
Date a certificate executed in the Reorganizing Fund's name by its President
[Chairman] or Vice President [Vice Chairman], in form and substance
satisfactory to the Trust, dated as of the Closing Date, to the effect that
the representations and warranties of the Reorganizing Fund made in this
Agreement are true and correct at and as of the Closing Date, except as they
may be affected by the transactions contemplated by this Agreement, and as to
such other matters as the Trust shall reasonably request.
Each of the foregoing conditions precedent may be waived by the Trust.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE REORGANIZING FUND, THE
TRUST AND THE SUCCESSOR FUND
The obligations of the Reorganizing Fund, the Trust and the Successor Fund
are each subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the Reorganizing Fund's Shareholders in
accordance with applicable law;
8.2 On the closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit or to obtain damages or other relief in connection with
the transactions contemplated hereby;
8.3 All consents of other parties and all other consents, orders and permits
of federal, state and local regulatory authorities (including those of the
Commission and of state securities authorities) deemed necessary by the Trust
or the Reorganizing Fund permit consummation, in all material respects, of the
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transactions contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk
of a material adverse effect on the assets or properties of the Trust, the
Reorganizing Fund or the Successor Fund, provided that either party hereto may
waive any of such conditions for itself;
8.4 The Reorganizing Fund and the Trust shall have received on or before the
Closing Date an opinion of Dechert Price & Rhoads satisfactory to the
Reorganizing Fund and the Trust, substantially to the effect that for federal
income tax purposes:
8.4.A. The acquisition of all of the assets of the Reorganizing Fund by the
Successor Fund solely in exchange for the issuance of Successor Fund Shares to
the Reorganizing Fund and the assumption by the Successor Fund of all of the
liabilities of the Reorganizing Fund, followed by the distribution in
liquidation by the Reorganizing Fund of such Successor Fund Shares to the
Reorganizing Fund Shareholders in exchange for their Reorganizing Fund Shares
and the termination of the Reorganizing Fund, will constitute a reorganization
within the meaning of Section 368(a)(1) of the Code, and the Reorganizing Fund
and the Successor Fund will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code;
8.4.B. No gain or loss will be recognized by the Reorganizing Fund upon (i)
the transfer of all of its assets to the Successor Fund solely in exchange for
the issuance of Successor Fund Shares to the Reorganizing Fund and the
assumption by the Successor Fund of the Reorganizing Fund's liabilities and
(ii) the distribution by the Reorganizing Fund of such Successor Fund Shares
to the Reorganizing Fund Shareholders;
8.4.C. No gain or loss will be recognized by the Successor Fund upon its
receipt of all of the Reorganizing Fund's assets solely in exchange for the
issuance of the Successor Fund Shares to the Reorganizing Fund and the
assumption by the Successor Fund of all of the liabilities of the Reorganizing
Fund;
8.4.D. The tax basis of the assets acquired by the Successor Fund from its
corresponding Reorganizing Fund will be, in each instance, the same as the tax
basis of those assets in the Reorganizing Fund's hands immediately prior to
the transfer;
8.4.E. The tax holding period of the assets of the Reorganizing Fund in the
hands of the Successor Fund will, in each instance, include the Reorganizing
Fund's tax holding period for those assets;
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8.4.F. The Reorganizing Fund's Shareholders will not recognize gain or loss
upon the exchange of all of its Shares of the Reorganizing Fund solely for
Successor Fund Shares as part of the transaction;
8.4.G. The tax basis of the Successor Fund Shares received by Reorganizing
Fund Shareholders in the transaction will be, for each shareholder, the same
as the tax basis of the Reorganizing Fund Shares surrendered in exchange
therefor; and
8.4.H. The tax holding period of the Successor Fund Shares received by
Reorganizing Fund Shareholders will include, for each shareholder, the tax
holding period for the Reorganizing Fund Shares surrendered in exchange
therefor, provided that such Reorganizing Fund Shares were held as capital
assets on the date of the exchange.
The Reorganizing Fund and the Trust each agree to make and provide
representations with respect to the Reorganizing Fund and the Successor Fund,
respectively, which are reasonably necessary to enable Dechert Price & Rhoads
to deliver an opinion substantially as set forth in this paragraph 8.4, which
opinion may address such other federal income tax consequences, if any, that
Dechert Price & Rhoads believes to be material to the Reorganization.
Each of the foregoing conditions precedent to the obligations of a party,
except for the receipt of the opinion of Dechert Price & Rhoads set forth in
paragraph 8.4, may be waived by that party.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust, on behalf of the Successor Fund, and the Reorganizing Fund,
each represents and warrants to the other that there are no broker's or
finder's fees payable in connection with the transactions contemplated hereby.
9.2 The Reorganizing Fund and the Successor Fund shall be liable for any
expenses incurred by them in connection with entering into and carrying out
the provisions of this Agreement whether or not the transactions contemplated
hereby are consummated.
10. ENTIRE AGREEMENT
The Trust, on behalf of the Successor Fund, and the Reorganizing Fund agree
that neither party has made any representation, warranty or covenant not set
forth herein and that this Agreement constitutes the entire agreement between
the parties. The representations, warranties and covenants contained herein or
in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated hereunder.
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11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust
and the Reorganizing Fund. In addition, either the Trust or the Reorganizing
Fund may at its option terminate this Agreement at or prior to the Closing
Date because:
11.1A. There exists a material breach by the other party of any
representations, warranties or agreements contained herein to be performed at
or prior to the Closing Date;
11.l.B. A condition expressed precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will not
or cannot be met; or
11.1.C. A majority of the members of the Board of [Trustees] [Directors] of
the Reorganizing Fund determine that it is not in the best interest of the
Reorganizing Fund or its shareholders to proceed with the transactions
contemplated by this Agreement.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Trust or the Reorganizing Fund, or their respective
Trustees [, Directors] or officers, to the other party or its Trustees
[,Directors] or officers.
12. AMENDMENT
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties; provided, however, that
following the approval of this Agreement by the Reorganizing Fund's
Shareholders, no such amendment may have the effect of changing the provisions
for determining the number of Successor Fund Shares to be paid to the
Reorganizing Fund's Shareholders under this Agreement to the detriment of such
Reorganizing Fund Shareholders without their further approval.
13. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
13.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
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13.3 This Agreement shall be governed by and construed in accordance with
the laws of Delaware.
13.4 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation other than the parties hereto and their
respective successors and assigns any rights or remedies under or by reason of
this Agreement.
13.5 All persons dealing with the Trust, the Reorganizing Fund or the
Successor Fund must look solely to the property of the Trust, the Reorganizing
Fund or the Successor Fund, respectively, for the enforcement of any claims
against the Trust, the Reorganizing Fund or the Successor Fund, as neither the
Trustees, [Directors,] officers, agents nor shareholders of the Trust or the
Reorganizing Fund assume any personal liability for obligations entered into
on behalf of the Trust or Reorganizing Fund, respectively.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to the Reorganizing Fund or
the Trust, each at One Sansome Street, 35th Floor, San Francisco, California
94104, Attention: Secretary.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized officer.
DODGE & COX [Stock, Balanced or Income] FUND:
By:
Its:
DODGE & COX FUNDS
By:
Its:
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APPENDIX B
Form of Proposed Investment Management Agreement
Dodge & Cox [Stock, Balanced or Income] Fund
One Sansome Street, 35th Floor
San Francisco, California 94104
, 199
Dodge & Cox
One Sansome Street, 35th Floor
San Francisco, California 94104
INVESTMENT MANAGEMENT AGREEMENT
DODGE & COX [STOCK, BALANCED OR INCOME] FUND
Ladies and Gentlemen:
Dodge & Cox Funds (the "Trust") has been established as a Delaware business
trust to engage in the business of an investment company. Pursuant to the
Trust's Trust Instrument, as amended from time-to-time (the "Trust
Instrument"), the Board of Trustees has divided the Trust's shares of
beneficial interest, par value $.01 per share, (the "Shares") into separate
series, or funds, including Dodge & Cox [Stock, Balanced or Income] Fund (the
"Fund"). The Fund may be abolished and dissolved, and additional series
established, from time to time by action of the Trustees. The Trust, on behalf
of the Fund, has selected you to act as the sole investment manager of the
Fund and to provide certain other services, as more fully set forth below, and
you have indicated that you are willing to act as such investment manager and
to perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust on behalf of the Fund agrees with you as follows:
1. DELIVERY OF DOCUMENTS. The Trust engages in the business of investing
and reinvesting the assets of the Fund in the manner and in accordance
with the investment objectives, policies and restrictions specified in the
currently effective Prospectus (the "Prospectus") and Statement of
Additional Information (the "SAI") relating to the Fund included in the
Trust's Registration Statement on Form N-1A, as amended from time to time,
(the "Registration Statement") filed by the Trust under the Investment
Company Act of 1940, as amended, (the "1940 Act") and the Securities Act
of 1933, as amended. Copies of the documents referred to in the preceding
sentence have been furnished to you by the Trust. The
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Trust has also furnished you with copies properly certified or
authenticated of each of the following additional documents related to the
Trust and the Fund:
(a) The Trust Instrument dated , 199 , as amended to date;
(a) By-Laws of the Trust as in effect on the date hereof (the "By-
Laws"); and
(a) Resolutions of the Trustees of the Trust and the shareholders of the
Fund selecting you as investment manager and approving the form of this
Agreement.
The Trust will furnish you from time to time with copies, properly certified
or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. PORTFOLIO MANAGEMENT SERVICES. As manager of the assets of the Fund,
you shall provide continuing investment management of the assets of the
Fund in accordance with the investment objectives, policies and
restrictions set forth in the Prospectus and SAI; the applicable
provisions of the 1940 Act and the Internal Revenue Code, as amended (the
"Code") relating to regulated investment companies and all rules and
regulations thereunder; and all other applicable federal and state laws
and regulations of which you have knowledge; subject always to policies
and instructions adopted by the Trust's Board of Trustees. In connection
therewith, you shall use reasonable efforts to manage the Fund so that it
will qualify as a regulated investment company under Subchapter M of the
Code and regulations issued thereunder. The Fund shall have the benefit of
the investment analysis and research, the review of current economic
conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In
managing the Fund in accordance with the requirements set forth in this
section 2, you shall be entitled to receive and act upon advice of counsel
to the Trust or counsel to you. You shall also make available to the Trust
promptly upon request all of the Fund's investment records and ledgers as
are necessary to assist the Trust in complying with the requirements of
the 1940 Act and other applicable laws. To the extent required by law, you
shall furnish to regulatory authorities having the requisite authority any
information or reports in connection with the services provided pursuant
to this Agreement which may be requested in order to ascertain whether the
operations of the Trust are being conducted in a manner consistent with
applicable laws and regulations.
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You shall determine the securities, instruments, investments, currencies,
repurchase agreements and other contracts relating to investments to be
purchased, sold or entered into by the Fund and place orders with broker-
dealers, foreign currency dealers or others pursuant to your determinations
and all in accordance with Fund policies as expressed in the Registration
Statement. You shall determine what portion of the Fund's portfolio shall be
invested in securities and other assets and what portion, if any, should be
held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. ADMINISTRATIVE SERVICES. In addition to the portfolio management
services specified above in section 2, you shall furnish at your expense
for the use of the Fund such office space and facilities in the United
States as the Fund may require for its reasonable needs, and you (or one
or more of your affiliates designated by you) shall render to the Trust
administrative services on behalf of the Fund necessary for operating as
an open-end investment company and not provided by persons not parties to
this Agreement including, but not limited to: preparing reports to and
meeting materials for the Trust's Board of Trustees and overseeing reports
and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the
performance of, accounting agents, custodians, depositories, transfer
agents and pricing agents, accountants, attorneys, printers, underwriters,
brokers and dealers, insurers and other persons in any capacity deemed to
be necessary or desirable to Fund operations; preparing and making filings
with the Securities and Exchange Commission (the "SEC") and other
regulatory and self-regulatory organizations, including, but not limited
to, preliminary and definitive proxy materials, post-effective amendments
to the Registration Statement, semi-annual reports on Form N-SAR and
notices pursuant to Rule 24f-2 under the 1940 Act; filing of the Fund's
federal, state and local tax returns; providing assistance with investor
and public relations matters; monitoring the valuation of portfolio
securities and the calculation of net asset value; monitoring the
registration of Shares of the Fund under applicable federal and state
securities laws; maintaining or causing to be maintained for the Fund all
books, records and reports and any other information required under the
1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of
the Fund; and otherwise assisting the Trust as it may reasonably request
in the conduct of the Fund's business, subject to the direction and
control of the Trust's Board of Trustees.
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Nothing in this Agreement shall be deemed to shift to you or to diminish
the obligations of any agent of the Fund or any other person not a party
to this Agreement which is employed to provide services to the Fund.
4. ALLOCATION OF CHARGES AND EXPENSES. Except as otherwise specifically
provided in this section 4, you shall pay the compensation and expenses of
all Trustees and officers who are affiliated persons of you, and you shall
make available, without expense to the Fund, the services of such of your
directors, officers and employees as may duly be elected officers of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law. You shall provide at your expense the portfolio management
services described in section 2 hereof and the administrative services
described in section 3 hereof. You shall not be required to pay any
expenses of the Fund other than those specifically allocated to you in
this section 4. In particular, but without limiting the generality of the
foregoing, you shall not be responsible, except to the extent of the
reasonable compensation of such of the Fund's Trustees and officers as are
directors, officers or employees of you whose services may be involved,
for the following expenses of the Fund: organization expenses of the Fund
(including out-of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance
of books and records which are required to be maintained by the Fund's
custodian or other agents of the Trust; telephone, telex, facsimile,
postage and other communications expenses; taxes and governmental fees;
fees, dues and expenses incurred by the Fund in connection with membership
in investment company trade organizations; fees and expenses of the Fund's
accounting agent, custodians, subcustodians, transfer agents, dividend
disbursing agents and registrars; payment for portfolio pricing or
valuation services to pricing agents, accountants, bankers and other
specialists, if any; expenses of preparing share certificates and, except
as provided below in this section 4, other expenses in connection with the
issuance, offering, distribution, sale, redemption or repurchase of
securities issued by the Fund; expenses relating to investor and public
relations; expenses and fees of registering or qualifying Shares of the
Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the
shipment of the Fund's portfolio securities; the compensation and all
expenses (specifically including travel expenses relating to Trust
business) of Trustees, officers and employees of the Trust who are not
affiliated persons of you; brokerage commissions or other costs of
acquiring or disposing of any portfolio securities of the Fund; expenses
of printing and distributing reports, notices and dividends to
shareholders;
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expenses of printing and mailing Prospectuses and SAIs of the Fund and
supplements thereto; costs of stationery; any litigation expenses;
indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings. You shall be required to pay expenses of
any activity which is primarily intended to result in sales of Shares of
the Fund if and to the extent that such expenses are generally required to
be borne by a principal underwriter which acts as the distributor of the
Fund's Shares pursuant to an underwriting agreement.
5. MANAGEMENT FEE. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 2, 3 and 4 hereof,
the Trust on behalf of the Fund shall pay you in United States Dollars on
the last day of each month the unpaid balance of a fee equal to an annual
rate of % of the average daily net assets as defined below of the Fund
for such month. [FOR A SCHEDULE OF THE MANAGEMENT FEES PAYABLE BY EACH
FUND, PLEASE REFER TO PAGE 18 OF THIS PROXY STATEMENT.] You agree to waive
your rights to compensation under this Agreement, for any calendar year,
to the extent that the compensation plus all other expenses of the Fund
exceeds % of the Fund's average daily net assets. The "average daily
net assets" of the Fund shall mean the average of the values placed on the
Fund's net assets on each day on which the net asset value of the Fund is
determined consistent with the provisions of Rule 22c-1 under the 1940 Act
or, if the Fund lawfully determines the value of its net assets as of some
other time on each business day, as of such time. The value of the net
assets of the Fund shall always be determined pursuant to the applicable
provisions of the Trust Instrument and the Registration Statement. If the
determination of net asset value does not take place for any particular
day, then for the purposes of this section 5, the value of the net assets
of the Fund as last determined shall be deemed to be the value of its net
assets as of such time as the value of the net assets of the Fund's
portfolio may be lawfully determined on that day. You may waive all or a
portion of your fees provided for hereunder and such waiver shall be
treated as a reduction in purchase price of your services. You shall be
contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such
waiver or limitation were fully set forth herein.
6. AVOIDANCE OF INCONSISTENT POSITION; SERVICES NOT EXCLUSIVE. In
connection with purchases or sales of portfolio securities and other
investments for the account of the Fund, neither you nor any of your
directors, officers or employees shall act as a principal or agent or
receive any commission. You or your agent shall arrange for the placing of
all orders for the purchase and sale of portfolio securities and other
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investments for the Fund's account with brokers or dealers selected by you
in accordance with Fund policies as expressed in the Registration
Statement. If any occasion should arise in which you give any advice to
clients of yours concerning the Shares of the Fund, you shall act solely
as investment counsel for such clients and not in any way on behalf of the
Fund. Your services to the Fund pursuant to this Agreement are not to be
deemed to be exclusive and it is understood that you may render investment
advice, management and services to others. In acting under this Agreement,
you shall be an independent contractor and not an agent of the Trust.
Whenever the Fund and one or more other accounts or investment companies
advised by the Manager have available funds for investment, investments
suitable and appropriate for each shall be allocated in accordance with
procedures believed by you to be equitable to each entity. Similarly,
opportunities to sell securities shall be allocated in a manner believed
by you to be equitable. The Fund recognizes that in some cases this
procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7. SUBLICENSE TO USE THE DODGE & COX TRADEMARK. As exclusive licensee of
the rights to use and sublicense the use of the "Dodge & Cox" trademark
("Dodge & Cox Mark"), you hereby grant the Trust a nonexclusive right and
sublicense to use (i) the "Dodge & Cox" name and mark as part of the
Trust's name (the "Fund Name"), and (ii) the Dodge & Cox Mark in
connection with the Trust's investment products and services, in each case
only for so long as this Agreement, any other investment management
agreement between you and the Trust, or any extension, renewal or
amendment hereof or thereof remains in effect, and only for so long as you
are a licensee of the Dodge & Cox Mark, provided however, that you agree
to use your best efforts to maintain your license to use and sublicense
the Dodge & Cox Mark. The Trust agrees that it shall have no right to
sublicense or assign rights to use the Dodge & Cox Mark, shall acquire no
interest in the Dodge & Cox Mark other than the rights granted herein,
that all of the Trust's uses of the Dodge & Cox Mark shall inure to the
benefit of Dodge & Cox as owner and licensor of the Dodge & Cox Mark (the
"Trademark Owner"), and that the Trust shall not challenge the validity of
the Dodge & Cox Mark or the Trademark Owner's ownership thereof. The Trust
further agrees that all services and products it offers in connection with
the Dodge & Cox Mark shall meet commercially reasonable standards of
quality, as may be determined by you or the Trademark Owner from time to
time, provided that you acknowledge that the services and products the
Trust rendered during the one-year period preceding the date of this
Agreement are acceptable. At your reasonable request, the Trust shall
cooperate with you and the Trademark Owner and
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shall execute and deliver any and all documents necessary to maintain and
protect (including but not limited to in connection with any trademark
infringement action) the Dodge & Cox Mark and/or enter the Trust as a
registered user thereof. At such time as this Agreement or any other
investment management agreement shall no longer be in effect between you
(or your successor) and the Trust, or you no longer are a licensee of the
Dodge & Cox Mark, the Trust shall (to the extent that, and as soon as, it
lawfully can) cease to use the Fund Name or any other name indicating that
it is advised by, managed by or otherwise connected with you (or any
organization which shall have succeeded to your business as investment
manager) or the Trademark Owner. In no event shall the Trust use the Dodge
& Cox Mark or any other name or mark confusingly similar thereto
(including, but not limited to, any name or mark that includes the name
"Dodge & Cox") if this Agreement or any other investment advisory
agreement between you (or your successor) and the Fund is terminated.
8. LIMITATION OF LIABILITY OF MANAGER. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust
agrees that you shall not be liable under this Agreement for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect
you against any liability to the Trust, the Fund or its shareholders to
which you would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of your duties, or by reason
of your reckless disregard of your obligations and duties hereunder. Any
person, even though also employed by you, who may be or become an employee
of and paid by the Fund shall be deemed, when acting within the scope of
his or her employment by the Fund, to be acting in such employment solely
for the Fund and not as your employee or agent.
9. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall
remain in force until December 31, 1998, and continue in force from year
to year thereafter, but only so long as such continuance is specifically
approved at least annually (a) by the vote of a majority of the Trustees
who are not parties to this Agreement or interested persons of any party
to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Trustees of the Trust, or by the
vote of a majority of the outstanding voting securities of the Fund. The
aforesaid requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with
the 1940 Act and the rules and regulations thereunder and any applicable
SEC exemptive order therefrom. This Agreement may be terminated with
respect to the Fund at any time, without the payment of any penalty, by
the
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vote of a majority of the outstanding voting securities of the Fund or by
the Trust's Board of Trustees on 60 days' written notice to you, or by you
on 60 days' written notice to the Trust. This Agreement shall terminate
automatically in the event of its assignment.
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought, and no amendment of
this Agreement shall be effective until approved in a manner consistent
with the 1940 Act and rules and regulations thereunder and any applicable
SEC exemptive order therefrom.
11. LIMITATION OF LIABILITY FOR CLAIMS. The Trust Instrument, a copy of
which, together with all amendments thereto, is on file in the Office of
the Secretary of the State of Delaware, provides that the name "Dodge &
Cox Funds" refers to the Trustees under the Trust Instrument collectively
as Trustees and not as individuals or personally, and that no shareholder
of the Fund, or Trustee, officer, employee or agent of the Trust, shall be
subject to claims against or obligations of the Trust or of the Fund to
any extent whatsoever, but that the Trust estate only shall be liable. You
are hereby expressly put on notice of the limitation of liability as set
forth in the Trust Instrument and you agree that the obligations assumed
by the Trust on behalf of the Fund pursuant to this Agreement shall be
limited in all cases to the Fund and its assets, and you shall not seek
satisfaction of any such obligation from the shareholders or any
shareholder of the Fund or any other series of the Trust, or from any
Trustee, officer, employee or agent of the Trust. You understand that the
rights and obligations of each Fund, or series, under the Trust Instrument
are separate and distinct from those of any and all other series.
12. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
In interpreting the provisions of this Agreement, the definitions contained
in Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
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This Agreement shall be construed in accordance with the laws of the State
of Delaware, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, or in a manner which would cause the Fund to
fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding
contract effective as of the date of this Agreement.
Yours very truly,
DODGE & COX FUNDS,
on behalf of DODGE & COX
[STOCK, BALANCED OR INCOME] FUND
By:
President
The foregoing Agreement is hereby accepted as of the date hereof.
DODGE & COX
By:
Chairman & Chief Executive Officer
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