<PAGE>
As filed with the Securities and Exchange Commission on April 21, 1998.
Registration Nos. 2-11522
811-173
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _______ [ ]
Post-Effective Amendment No. 63 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 22
DODGE & COX FUNDS
(which by this Amendment is adopting the Registration
Statements under the Securities Act of 1933 and
the Investment Company Act of 1940 of
Dodge & Cox Balanced Fund)
(Exact Name of Registrant as Specified in Charter)
One Sansome Street, 35 Floor, San Francisco, CA 94104
(Address of Principal Executive Office)
Registrant's Telephone Number including Area Code (415) 981-1710
Thomas M. Mistele, Esq., One Sansome Street, 35 Floor, San Francisco, CA 94104
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[x] on May 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on __________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on May 1, 1998 pursuant to paragraph (a)(2) of Rule 485
________________________
<PAGE>
DODGE & COX FUNDS
CROSS REFERENCE SHEET
PART A
(Prepared as part of Form N-1A)
<TABLE>
<CAPTION>
Item Number in Form N-1A Caption in Prospectus
Registration Statement
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<S> <C>
1 Cover Page
2 Expense Information
3 Financial Highlights
4 Fund Organization and Management
Investment Objectives and Policies
Investment Restrictions
Investment Risks
Additional Information on Investments
Performance Information
Portfolio Transactions
5 Fund Organization and Management
Custodian and Transfer Agent
Expenses
6 Fund Organization and Management
Shareholder Inquiries
Income Dividends and Capital Gain Distributions
Shareholder Services
Federal Income Taxes
7 How to Purchase Shares
Telephone Transactions
Pricing of Shares
Shareholder Services
8 How to Redeem Shares
Exchanging Shares
Telephone Transactions
Pricing of Shares
9 (None-Not Applicable)
</TABLE>
<PAGE>
DODGE & COX FUNDS
CROSS REFERENCE SHEET
PART B
(Prepared as part of Form N-1A)
<TABLE>
<CAPTION>
Item Number in Form N-1A Caption in Statement of Additional Information
Registration Statement
- ---------------------------- ------------------------------------------------
<S> <C>
10 (Cover Page)
11 Table of Contents
12 (None-Not Applicable)
13 Investment Objectives and Policies
Risk Factors
Investment Restrictions
14 Officers and Trustees
15 Officers and Trustees
16 Investment Manager,
Custodian (see the Prospectus)
Independent Accountants
17 Portfolio Transactions
18 (None-See Prospectus)
19 Purchase, Redemption and Pricing of Shares
20 Additional Tax Considerations
21 (None-Not Applicable)
22 Performance Information
23 Financial Statements (Annual Report incorporated
by reference. See Part C.)
</TABLE>
<PAGE>
DODGE & COX FUNDS
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PROSPECTUS
May 1, 1998
DODGE & COX FUNDS (the "Trust") is a family of three no-load
mutual funds: Dodge & Cox Stock Fund, Dodge & Cox Balanced
Fund and Dodge & Cox Income Fund (the "Funds"). Each Fund is
a series of the Trust. The Trust is registered with the
Securities and Exchange Commission (the "SEC") as an open-end
diversified management investment company.
DODGE & COX STOCK FUND seeks long-term growth of principal
and income. A secondary objective is to achieve a reasonable
current income. The Fund seeks to achieve these objectives by
investing primarily in a broadly diversified and carefully
selected portfolio of common stocks.
DODGE & COX BALANCED FUND seeks regular income,
conservation of principal and an opportunity for long-term
growth of principal and income. The Fund seeks to achieve
these objectives by investing in a diversified portfolio of
common stocks, preferred stocks and bonds.
DODGE & COX INCOME FUND seeks a high and stable rate of
current income, consistent with long-term preservation of
capital. A secondary objective is to take advantage of
opportunities to realize capital appreciation. The Fund seeks
to achieve these objectives by investing in a diversified
portfolio consisting primarily of high-quality bonds and
other fixed-income securities.
There can be no assurance that any of the Funds will achieve
its objectives.
Shares of the Funds are purchased and redeemed at net asset
value. There are no sales, redemption or Rule 12b-1 plan
distribution charges.
This prospectus sets forth concisely the information you
should know about the Funds before investing. It should be
retained for future reference. A Statement of Additional
Information about the Funds dated May 1, 1998, which is
incorporated by reference in this prospectus, has been filed
with the SEC. To obtain a free copy, call 1-800-621-3979.
------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
TABLE OF Introduction...................................... 1 Telephone Transactions............................ 12
CONTENTS Expense Information............................... 1 Transfer of Shares................................ 12
Financial Highlights.............................. 3 Pricing of Shares................................. 12
Investment Objectives and Policies................ 4 Shareholder Services.............................. 12
Investment Restrictions........................... 6 Performance Information........................... 12
Investment Risks.................................. 7 Fund Organization and Management.................. 12
Additional Information on Investments............. 8 Portfolio Transactions............................ 13
Income Dividends and Capital Expenses.......................................... 13
Gain Distributions.............................. 9 Federal Income Taxes.............................. 13
How to Purchase Shares............................ 10 Custodian and Transfer Agent...................... 13
How to Redeem Shares.............................. 11 Reports to Shareholders........................... 13
Exchanging Shares................................. 12 Shareholder Inquiries............................. 13
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE>
D o d g e & C o x F u n d s
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INTRODUCTION
-------------------------------------------------------------
Each Fund is an open-end diversified investment company which
continuously offers its shares to the public. A unique
feature of the Funds and other "no-load" funds is that shares
are sold without sales charge, while many other investment
companies sell their shares with a varying sales charge.
Shares may be redeemed at net asset value without any charge.
The Funds enable you to obtain the benefits of experienced and
continuous investment supervision. Shares of the Funds can provide you
with the kind of diversified portfolio ordinarily limited to large
investment accounts. The Funds are designed to fit the needs of
individuals, trustees, guardians, retirement plans, institutions and
others who have funds available for long-term investment in
securities.
By investing in the Funds, you avoid the time-consuming details
involved in buying and selling individual securities. The Funds also
reduce your record keeping for tax purposes and simplify the
collection of investment income and the safekeeping of individual
securities.
The Funds' investment manager, Dodge & Cox, was founded in
1930 and managed over $34 billion for individual and
institutional investors in mutual fund and private accounts
as of December 31, 1997.
EXPENSE INFORMATION
------------------------------------------------------------
The purpose of the expense information below is to assist you in
understanding the various costs and expenses that an investor
in the Funds will bear directly or indirectly. Expense figures
are based on amounts incurred during the year 1997 (See
"Expenses").
Dodge & Cox Stock Fund
----------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases............................... None
Sales Load Imposed on Reinvested Distributions................ None
Deferred Sales Load........................................... None
Redemption Fees............................................... None
Exchange Fees................................................. None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average
net assets)
Management Fees............................................... .50%
12b-1 Fees.................................................... None
Other Expenses (transfer agent, custodial, accounting,
legal, etc.)................................................. .07%
----
Total Fund Operating Expenses................................. .57%
EXAMPLE: A shareholder would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the
end of each time period:
Time Period 1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------
Expenses $ 6 $ 18 $ 32 $ 71
Dodge & Cox Balanced Fund
----------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases............................... None
Sales Load Imposed on Reinvested Distributions................ None
Deferred Sales Load........................................... None
Redemption Fees............................................... None
Exchange Fees................................................. None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average
net assets)
Management Fees............................................... .50%
12b-1 Fees.................................................... None
Other Expenses (transfer agent, custodial, accounting,
legal, etc.)................................................. .05%
----
Total Fund Operating Expenses................................. .55%
EXAMPLE: A shareholder would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the
end of each time period:
Time period 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------
Expenses $6 $18 $31 $69
<PAGE>
D o d g e & C o x F u n d s
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Dodge & Cox Income Fund
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases......................................... None
Sales Load Imposed on Reinvested Distributions.......................... None
Deferred Sales Load..................................................... None
Redemption Fees......................................................... None
Exchange Fees........................................................... None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees......................................................... .42%
12b-1 Fees.............................................................. None
Other Expenses (transfer agent, custodial, accounting, legal, etc.)..... .07%
----
Total Fund Operating Expenses........................................... .49%
EXAMPLE: A shareholder would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
Time Period 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses $ 5 $ 16 $ 27 $ 62
The examples for each Fund should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
2
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table provides information about each Fund's financial history.
It is based on a single share outstanding throughout each year. The tables are
part of the Funds' financial statements which are included in the Funds' Annual
Reports and incorporated by reference into the Statement of Additional
Information. These documents are available to shareholders upon request. The
financial statements in the Annual Reports have been audited by Price Waterhouse
LLP, independent accountants, whose unqualified report covers the most recent
five-year period.
<TABLE>
<CAPTION>
DODGE & COX STOCK FUND
Year Ended December 31
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR....................... $79.81 $67.83 $53.94 $53.23 $48.37 $44.85 $38.79 $42.57 $35.26 $32.94
Income from investment
operations:
Net investment income.......... 1.48 1.28 1.27 1.15 1.04 1.11 1.23 1.35 1.24 1.08
Net realized and unrealized
gain (loss)................... 20.86 13.67 16.54 1.60 7.70 3.68 6.94 (3.50) 8.12 3.42
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations.................... 22.34 14.95 17.81 2.75 8.74 4.79 8.17 (2.15) 9.36 4.50
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions to shareholders from:
Net investment income.......... (1.49) (1.29) (1.26) (1.15) (1.04) (1.11) (1.24) (1.35) (1.23) (1.07)
Net realized gain.............. (6.09) (1.68) (2.66) (.89) (2.84) (.16) (.87) (.28) (.82) (1.11)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions............ (7.58) (2.97) (3.92) (2.04) (3.88) (1.27) (2.11) (1.63) (2.05) (2.18)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR... $94.57 $79.81 $67.83 $53.94 $53.23 $48.37 $44.85 $38.79 $42.57 $35.26
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN................... 28.41% 22.26% 33.38% 5.16% 18.31% 10.82% 21.48% (5.08)% 26.94% 13.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions).................... $4,087 $2,252 $1,228 $543 $436 $336 $281 $173 $125 $82
Ratio of expenses to average
net assets.................... .57% .59% .60% .61% .62% .64% .64% .65% .65% .69%
Ratio of net investment income
to average net assets......... 1.67% 1.79% 2.07% 2.16% 1.95% 2.43% 2.87% 3.47% 3.12% 3.09%
Portfolio turnover rate........ 19% 10% 13% 7% 15%* 7%* 5%* 7%* 4%* 10%*
Average commission rate paid*.. $.0489 $.0506
</TABLE>
<TABLE>
<CAPTION>
DODGE & COX BALANCED FUND
Year Ended December 31
- -------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR....................... $59.82 $54.60 $45.21 $46.40 $42.44 $40.09 $35.03 $36.85 32.09 $30.72
Income from investment
operations:
Net investment income.......... 2.21 1.98 1.90 1.76 1.66 1.72 1.75 1.81 1.76 1.68
Net realized and unrealized
gain (loss)................... 10.24 5.92 10.58 (.83) 5.03 2.43 5.36 (1.49) 5.47 1.83
------ ------ ------ ------- ------ ------ ------ ------- ------ ------
Total from investment
operations..................... 12.45 7.90 12.48 .93 6.69 4.15 7.11 .32 7.23 3.51
------ ------ ------ ------- ------ ------ ------ ------- ------ ------
Distributions to shareholders from:
Net investment income.......... (2.22) (1.99) (1.90) (1.76) (1.66) (1.72) (1.76) (1.81) (1.76) (1.68)
Net realized gain.............. (3.27) (.69) (1.19) (.36) (1.07) (.08) (.29) (.33) (.71) (.46)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions............ (5.49) (2.68) (3.09) (2.12) (2.73) (1.80) (2.05) (2.14) (2.47) (2.14)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR... $66.78 $59.82 $54.60 $45.21 $46.40 $42.44 $40.09 $35.03 $36.85 $32.09
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN................... 21.21% 14.75% 28.02% 1.99% 15.95% 10.56% 20.72% .94% 23.02% 11.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions).................... $5,077 $3,630 $1,800 $725 $487 $269 $179 $83 $51 $39
Ratio of expenses to average
net assets.................... .55% .56% .57% .58% .60% .63% .65% .70% .72% .77%
Ratio of net investment income
to average net assets......... 3.39% 3.60% 3.85% 3.94% 3.67% 4.27% 4.78% 5.24% 4.98% 5.19%
Portfolio turnover rate........ 32% 17% 20% 20% 15% 6% 10% 10% 12% 9%
Average commission rate paid*.. $.0488 $.0500
</TABLE>
<TABLE>
<CAPTION>
DODGE & COX INCOME FUND
Year Ended December 31
- -------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR....................... $11.68 $12.02 $10.74 $11.89 $11.55 $11.59 $10.61 $10.68 $10.00
Income from investment
operations:
Net investment income.......... .73 .74 .78 .77 .78 .82 .81 .82 .69
Net realized and unrealized
gain (loss)................... .40 (.34) 1.34 (1.11) .51 .05 1.02 (.07) .69
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations.................... 1.13 .40 2.12 (.34) 1.29 .87 1.83 .75 1.38
------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions to shareholders from:
Net investment income.......... (.73) (.74) (.78) (.76) (.78) (.82) (.82) (.81) (.69)
Net realized gain.............. - - (.06) (.05) (.17) (.09) (.03) (.01) (.01)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions............ (.73) (.74) (.84) (.81) (.95) (.91) (.85) (.82) (.70)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR... $12.08 $11.68 $12.02 $10.74 $11.89 $11.55 $11.59 $10.61 $10.68
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN................... 10.00% 3.62% 20.21% (2.89)% 11.34% 7.80% 17.94% 7.41% 14.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions).................... $705 $533 $303 $195 $180 $136 $96 $52 $33
Ratio of expenses to average
net assets.................... .49% .50% .54% .54% .60% .62% .64% .69% .66%
Ratio of net investment income
to average net assets......... 6.32% 6.65% 6.85% 6.90% 6.50% 7.14% 7.63% 7.99% 7.85%
Portfolio turnover rate........ 28% 37% 53% 55% 26% 12 15% 13% 3%
</TABLE>
- ---------------
* Represents the average commission rate paid per share on securities
transactions for which commissions were charged. Disclosure is required by
the SEC beginning in 1996.
3
<PAGE>
INVESTMENT DODGE & COX STOCK FUND
OBJECTIVES AND ------------------------------------------------------------
POLICIES The Fund's primary objective is to provide shareholders
with an opportunity for long-term growth of principal and
income. A secondary objective is to achieve a reasonable
current income. These objectives may not be changed without
shareholder approval. Investors should recognize that the
market risks inherent in investment cannot be avoided, nor
is there any assurance that the investment objectives of the
Fund will be achieved.
The Fund seeks to achieve its objective by investing
primarily in a diversified portfolio of common stocks. Under
normal market conditions, the Fund will invest at least 65%
of its total assets in common stocks. The Fund may also
purchase other types of securities, for example, preferred
stocks and debt securities which are convertible into common
stock (or which in the opinion of Dodge & Cox have
predominantly common stock investment characteristics). The
Fund may also invest up to 20% of its total assets in U.S.
dollar-denominated securities of foreign issuers traded in
the U.S. (such as American Depositary Receipts or ADRs).
Further information about specific investments is provided
under "Additional Information on Investments".
Moderate reserves in cash or short-term fixed-income
securities may be held from time to time as Dodge & Cox may
deem advisable. Nevertheless, the long-term emphasis shall
be the maintaining of a fully-invested equity fund.
Common stocks selected for the Fund will be predominantly
those which in the view of the Dodge & Cox have a favorable
outlook for long-term growth of principal and income.
Prospective earning and dividends are major considerations
in these stock selections. Individual securities are
selected with an emphasis on financial strength and sound
economic background. The Fund's policies as described above
may be changed without shareholder approval; however, these
policies will not be changed without notice to shareholders.
In an attempt to minimize unforeseen risks in single
securities, the Fund seeks to provide adequate investment
diversification. Although there is no restriction on the
number of changes in security holdings, purchases are made
with a view to long-term holding and not for short-term
trading purposes. (The Fund's portfolio turnover rates for
the fiscal years ended December 31, 1997, 1996 and 1995 were
19%, 10%, and 13%, respectively.) However, during rapidly
changing economic, market and political conditions, there
may necessarily be more portfolio changes than in a more
stable period. It is the general practice of the Fund to
invest in securities with ready markets, mainly issues
listed on national securities exchanges.
INVESTMENT DODGE & COX BALANCED FUND
OBJECTIVES AND ------------------------------------------------------------
POLICIES
The Fund's objectives are to provide shareholders with
regular income, conservation of principal and an opportunity
for long-term growth of principal and income. These
objectives may not be changed without shareholder approval.
Investors should recognize that the market risks inherent in
investment cannot be avoided, nor is there any assurance
that the investment objectives of the Fund will be achieved.
Reasonable appreciation in favorable periods and
conservation of principal in adverse times are objectives
that require flexibility in managing
- --------------------------------------------------------------------------------
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D o d g e & C o x F u n d s
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the assets of the Fund under constantly changing investment
conditions. Therefore, the proportions held in common and
preferred stocks and bonds are revised by Dodge & Cox when
considered advisable in light of its appraisal of business
and investment prospects.
Under normal market conditions, it is the policy of the Fund
to maintain no more than approximately 75% of its total
assets in common stocks and that portion of the value of
convertible securities attributable to the conversion right.
Bonds are held for their relative stability of principal and
income as well as for a reserve which can be used to take
advantage of investment opportunities. The Fund may also
invest up to 20% of its total assets in U.S. dollar-
denominated securities of foreign issuers traded in the U.S.
(such as American Depositary Receipts (ADRs)). Moderate
reserves in cash or short-term fixed-income securities may
be held from time to time as Dodge & Cox may deem advisable.
Further information about specific investments is provided
under "Additional Information on Investments".
It is the Fund's policy to invest in investment-grade debt
securities rated in the top four rating categories by either
Moody's Investors Service ("Moody's")(Aaa, Aa, A, Baa) or
Standard & Poor's Ratings Group ("S&P")(AAA, AA, A, BBB).
Securities rated Baa or BBB may have speculative
characteristics. Securities that are downgraded below Baa or
BBB subsequent to purchase may continue to be held by the
Fund, if Dodge & Cox believes it advantageous to do so.
Unrated debt securities may be purchased if they are, in the
opinion of Dodge & Cox, of equivalent quality to debt
securities rated at least A by Moody's and S&P. An
explanation of Moody's and S&P's rating groups is included
in the Appendix to the Statement of Additional Information.
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. The
Fund's policies as described above may be changed without
shareholder approval; however, these policies will not be
changed without notice to shareholders.
In an attempt to minimize unforeseen risks in single
securities, the Fund seeks to provide adequate investment
diversification. Although there is no restriction on the
number of changes in security holdings, purchases are made
with a view to long-term holding and not for short-term
trading purposes. (The Fund's portfolio turnover rates for
the fiscal years ended December 31, 1997, 1996 and 1995 were
32%, 17% and 20%, respectively.) However, during rapidly
changing economic, market and political conditions, there
may necessarily be more portfolio changes than in a more
stable period. It is the general practice of the Fund to
invest in securities with ready markets, mainly issues
listed on national securities exchanges.
4
<PAGE>
INVESTMENT DODGE & COX INCOME FUND
OBJECTIVES AND ------------------------------------------------------------
POLICIES The Fund's primary objective is to provide shareholders with
a high and stable rate of current income consistent with
long-term preservation of capital. A secondary objective is
to take advantage of opportunities to realize capital
appreciation. These objectives may not be changed without
shareholder approval. Investors should recognize
that the market risks inherent in investments cannot be
avoided, nor is there any assurance that the investment
objectives of the Fund will be achieved.
The Fund seeks to achieve its objectives by investing in a
diversified portfolio of fixed income securities. It is the
policy of the Fund to invest at least 80% of the market
value of its total assets in the following: (1) debt
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; (2) investment-grade debt
securities, including U.S. dollar-denominated foreign issues
and supranational agencies, rated in the top four rating
groups by either Moody's (Aaa, Aa, A, Baa) or S&P (AAA, AA,
A, BBB); (3) unrated securities if deemed to be of
investment-grade quality by Dodge & Cox; and (4) bankers'
acceptances, bank certificates of deposit, repurchase
agreements and commercial paper. At least 65% of the market
value of the portfolio will be invested in category (1)
securities and in category (2) securities rated in the top
three rating groups. In addition, the Fund will invest no
more than 25% of its total assets in U.S. dollar denominated
securities of foreign issuers. Further information about
specific investments is provided under "Additional
Information on Investments".
No more than 20% of the Fund may be invested in other fixed-
income instruments including: debt obligations rated below
investment grade if, in the opinion of Dodge & Cox, they are
of suitable quality, provide attractive investment
opportunities and have a minimum rating of B by Moody's
and/or S&P at the time of investment; preferred stock;
corporate bonds convertible into common stocks or carrying
warrants to purchase common stock. The Fund will invest in
unrated securities only if deemed to be of investment-grade
quality by Dodge & Cox. It should be noted that securities
rated Baa or BBB and below have speculative characteristics.
Securities rated B may yield a higher level of current
income than higher quality securities but generally have
less liquidity, greater market risk and more price
fluctuation. An explanation of Moody's and S&P's rating
groups is included in the Appendix to the Statement of
Additional Information.
The proportions held in the various financial instruments
will be revised as appropriate in light of Dodge & Cox's
appraisal of the economy, the relative yields of securities
in the various market sectors, the investment prospects for
issuers and other factors. In making investment decisions,
Dodge & Cox will take many factors into consideration
including yield to maturity, quality, liquidity, current
yield and capital appreciation potential.
The Fund attempts to achieve its secondary objective of
capital appreciation through such techniques as fundamental
research (i.e., seeking a security or group of securities
which Dodge & Cox believes to be undervalued), purchasing
securities at a discount from their maturity or call value
and making gradual adjustments in the average maturity of
the Fund's portfolio.
The average maturity of the Fund's portfolio at any given
time depends, in part, on Dodge & Cox's assessment of
economic and market conditions, the future level of
inflation and interest rates, and on the relative yields of
securities in the marketplace. Dodge & Cox normally invests
in an array of the securities with short, intermediate and
long maturities in varying proportions, with greater
emphasis on long maturities.
Purchases and sales of securities are generally made for
long-term fundamental investment reasons rather than for
short-term trading purposes. Nevertheless, Dodge & Cox may
sell any of the securities in the Fund, regardless of the
length of time held, in seeking to achieve the objectives of
the Fund.
Dodge & Cox maintains a long-term investment orientation and
therefore anticipates a relatively low turnover rate. (The
Fund's portfolio turnover rates for the fiscal years ended
December 31, 1997, 1996, and 1995 were 28%, 37%, and 53%,
respectively.) However, during rapidly changing economic,
political and market environments, there may be more
portfolio changes than in a more stable period. A higher
turnover rate might result in increased transaction expenses
and the realization of capital gains and losses (see
"Federal Income Taxes").
In seeking to achieve the objectives of the Fund, Dodge &
Cox may purchase securities on a when-issued basis, purchase
or sell securities for delayed delivery and lend portfolio
securities.
The Fund's investment policies as set forth above may be
changed without shareholder approval; however, these
policies will not be changed without notice to shareholders.
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INVESTMENT The Funds have adopted certain restrictions designed to
RESTRICTIONS achieve diversification of investment and to reduce
investment risk. Each Fund may not: (a) invest more than 5%
of the value of its total assets in the securities of any
one issuer except the U.S. Government, nor acquire more than
10% of the voting securities of any one issuer; (b)
concentrate investments of more than 25% of the value of its
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D o d g e & C o x F u n d s
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total assets in any one industry, except that the restriction
does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (or related
repurchase agreements); (c) borrow money except as a
temporary measure for extraordinary or emergency purposes;
(d) make loans to other persons except this shall not exclude
the purchase of publicly issued debt securities of a type
purchased by institutional investors. The investment
restrictions described in this paragraph and in the Statement
of Additional Information may be changed only with the
approval of that Fund's shareholders.
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INVESTMENT RISKS You should understand that all investments involve risks, and
there can be no guarantee against loss resulting from an
investment in the Funds, nor can there be any assurance that
a Fund's investment objectives will be attained. There are
further risk factors described elsewhere in this prospectus
and in the Statement of Additional Information.
Investments in common stock in general are subject to market
risks that cause their prices to fluctuate over time, i.e.,
the possibility that stock prices will decline over short or
even extended periods. Prices of bonds are sensitive to
changes in the market level of interest rates. In general, as
interest rates rise, the prices of fixed-income securities
fall and conversely, as interest rates fall, the prices of
these securities rise. Yields on short, intermediate, and
long-term securities are dependent on a variety of factors,
including the general conditions of the money and bond
markets, the size of a particular offering, the maturity of
the obligation, and the credit quality and rating of the
issue. Debt securities with longer maturities tend to have
higher yields and are generally subject to potentially
greater capital appreciation and depreciation than
obligations with shorter maturities and lower yields.
Furthermore, because yield levels on securities vary with
changing interest rates, no specific yield on shares of a
Fund can be guaranteed. Since the Dodge & Cox Income Fund and
the bond portion of the Dodge & Cox Balanced Fund portfolio
will be invested primarily in higher quality debt securities,
the Funds may not yield as high a level of current income as
funds that invest primarily in lower quality debt securities
which generally have less liquidity, greater market risk and
greater price fluctuation. The value of stocks and bonds may
also be affected by changes in the financial condition of,
and other events affecting, specific issuers. Fluctuations in
the value of the securities in which a Fund invests will
cause the Fund's share price to fluctuate. An investment in
the Funds, therefore, may be more suitable for long-term
investors who can bear the risk of short and long-term
fluctuations in a Fund's share price.
Foreign securities involve some special risks such as
exposure to potentially adverse local political and economic
developments; nationalization and exchange controls;
potentially lower liquidity and higher volatility; possible
problems arising from accounting, disclosure, settlement, and
regulatory practices that differ from U.S. standards; foreign
taxes; and the risk that fluctuations in foreign exchange
rates will decrease the investment's value (although
favorable changes can increase its value).
The Dodge & Cox Balanced Fund, with its mixture of
investments in common stocks and bonds, may entail less
investment risk (and a potentially lower return) than a
mutual fund investing only in common stocks.
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ADDITIONAL COMMON STOCKS (DODGE & COX STOCK FUND and DODGE & COX
INFORMATION ON BALANCED FUND). Stocks represent shares of ownership in a
INVESTMENTS company. After other claims are satisfied, common
stockholders participate in company profits on a pro rata
basis; profits may be paid out in dividends or reinvested in
the company to help it grow. Increases and decreases in earn-
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ings are usually reflected in a company's stock price, so
common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities.
PREFERRED STOCKS. Each Fund may invest in preferred stocks.
Generally, preferred stock has a specified dividend and ranks
after bonds and before common stocks in its claim on income
for dividend payments and on assets should the company be
liquidated.
CONVERTIBLE SECURITIES. Each Fund may invest in debt or
preferred equity securities convertible into or exchangeable
for equity securities. Traditionally, convertible securities
have paid dividends or interest at rates higher than common
stocks but lower than nonconvertible securities. They
generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to
a lesser degree. In recent years, convertibles have been
developed which combine higher or lower current income with
other features.
FOREIGN SECURITIES. Each Fund may invest in U.S. dollar-
denominated securities of foreign issuers traded in the U.S.
(such as ADRs). Such investments increase a portfolio's
diversification and may enhance return, but they also involve
some special risks.
U.S. GOVERNMENT OBLIGATIONS. A portion of each Fund may be
invested in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Some of the
obligations purchased by a Fund are backed by the full faith
and credit of the U.S. Government and are guaranteed as to
both principal and interest by the U.S. Treasury. Examples of
these include direct obligations of the U.S. Treasury, such
as U.S. Treasury bills, notes and bonds, or indirect
obligations of the U.S. Treasury, such as obligations of the
Government National Mortgage Association, the Maritime
Administration, the Farmers Home Administration and the
Department of Veterans Affairs.
While the obligations of many of the agencies and
instrumentalities of the U.S. Government are not direct
obligations of the U.S. Treasury, they are generally backed
indirectly by the U.S. Government. Some of the agencies are
indirectly backed by their right to borrow from the U.S.
Government, such as the Federal Financing Bank, the Federal
Home Loan Bank and the U.S. Postal Service. Others are
supported solely by the credit of the agency or
instrumentality itself, but are given additional support due
to the U.S. Treasury's authority to purchase their
outstanding debt obligations. These agencies include the
Federal Farm Credit Banks, the Federal Home Loan Mortgage
Corporation and the Federal National Mortgage Association. No
assurance can be given that the U.S. Government would provide
financial support to U.S. Government-established or sponsored
agencies. Furthermore, with respect to the U.S. Government
securities purchased by the Fund, guarantees as to the timely
payment of principal and interest do not extend to the value
or yield of these securities nor do they extend to the value
of a Fund's shares. A Fund may invest in these securities
if it believes they offer an expected return commensurate
with the risks assumed.
MORTGAGE PASS-THROUGH SECURITIES (DODGE & COX BALANCED FUND
and DODGE & COX INCOME FUND). Mortgage pass-through
securities are guaranteed by an agency of the U.S. Government
or are issued by a private entity. These securities represent
ownership in "pools" of mortgage loans and are called "pass-
throughs" because principal and interest payments are passed
through to security holders monthly. The security holder may
also receive unscheduled principal payments representing
prepayments of the underlying mortgage loans. When a Fund
reinvests the principal and interest payments, it may receive
a rate of interest which is either higher or lower than the
rate on the existing mortgage.
During periods of declining interest rates there is increased
likelihood that mortgage securities may be prepaid. Such
prepayment would most likely be reinvested at lower rates. On
the other hand, if the pass-through securities had been
purchased at a discount, then such prepayment of principal
may benefit the portfolio.
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D o d g e & C o x F u n d s
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COLLATERALIZED MORTGAGE OBLIGATIONS (DODGE & COX BALANCED FUND
And DODGE & COX INCOME FUND). Collateralized Mortgage Obligations
("CMOs") are private entity or U.S. Government agency-issued
multi-class bonds that are collateralized by U.S. agency-
guaranteed mortgage pass-through securities. The issuer typically
issues several classes, or "tranches", of bonds, the debt service
of which is provided by the principal and interest payments from
the mortgage pass-through securities in the trust. Each of these
tranches is valued and traded separately based on its distinct
cash flow characteristics. Dodge & Cox will purchase a tranche
with the weighted-average life and cash flow characteristics that
it believes will contribute to achieving the objectives of a
Fund.
All CMOs purchased by a Fund will have a AAA rating by either
S&P or Moody's, the major rating services. To qualify for this
rating, a CMO is structured so that even under the most
conservative prepayment and reinvestment assumptions, the
principal and interest payments from the collateral are expected
to meet or exceed the cash flow obligations of all the tranches
of the CMO. However, there are risks associated with CMOs which
relate to the risks of the underlying mortgage pass-through
securities (i.e., an increase or decrease in prepayment rates,
resulting from a decrease or increase in mortgage interest rates,
will affect the yield, average life and price of CMOs). In a
falling interest rate environment, the mortgage securities may be
prepaid faster than the assumed rate. In this scenario, the
prepayments of principal will generally be reinvested at a rate
which is lower than the rate that the security holder is
currently receiving. Conversely, in a rising interest rate
environment, the mortgage collateral may be prepaid at a rate
which is slower than the assumed rate. In this case, the cash
flow of the bond decreases. A reduced prepayment rate effectively
lengthens the time period the security will be outstanding and
may adversely affect the value and volatility of the security.
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INCOME Dividend and capital gain distributions are reinvested in
DIVIDENDS AND additional Fund shares in your account unless you select another
CAPITAL GAIN option on your Account Application Form. The advantage of
DISTRIBUTIONS reinvesting distributions arises from compounding; that is, you
receive income dividends and capital gain distributions on a
rising number of shares.
Distributions not reinvested are paid by check or transmitted to
your bank account via electronic transfer using the Automated
Clearing House (ACH) network. If the Post Office cannot deliver
your check, or if your check remains uncashed for six months, the
Trust reserves the right to reinvest your distribution check in
your account at your Fund's then current net asset value per
share (NAV) and to reinvest all subsequent distributions in
shares of the Fund.
INCOME DIVIDENDS
. Each Fund declares and pays dividends (if any) quarterly in
March, June, September and December.
CAPITAL GAIN DISTRIBUTIONS
. A capital gain or loss is the difference between the purchase
and sale price of a security.
. If a Fund has net capital gains for the year (after
subtracting any capital losses), they are usually declared and
paid in December to shareholders of record on a specified date
that month. If a second distribution is necessary, it is
usually declared and paid in March.
In January, you will be sent Form 1099-DIV indicating the tax
status of any dividend and capital gain distributions made to
you during the previous year. This information will also be
reported to the IRS.
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D o d g e & C o x F u n d s
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HOW TO PURCHASE MINIMUM INITIAL INVESTMENT: $2,500; $1,000 FOR IRA
SHARES ACCOUNTS
SUBSEQUENT MINIMUM INVESTMENT: $100
BY MAIL: Please make your check payable to Dodge & Cox Funds
(otherwise it will be returned) and send your check together
with the Account Application Form to the address below. The
Trust does not accept third party checks.
REGULAR MAIL EXPRESS, CERTIFIED OR
REGISTERED MAIL
Dodge & Cox Funds Dodge & Cox Funds
c/o BFDS c/o BFDS
P.O. Box 9051 66 Brooks Drive, Suite 1
Boston, MA 02205-9051 Braintree, MA 02184
BY WIRE: To purchase shares in a Fund by Federal wire
transfer, you should request that your bank transmit
funds to:
State Street Bank and Trust Company,
Boston, MA
ABA #0110 0002 8
Deposit DDA #9905-351-4
FFC Dodge & Cox [Fund name] Fund
Fund Number/ Account Number/ Account Registration
Prior to having the funds wired, you should call the Trust's
transfer agent, Boston Financial Data Services Inc. (BFDS),
at 1-800-621-3979 and advise BFDS that the funds are being
wired. Investors making initial investments by wire must
promptly complete an Account Application Form and mail it to
the Trust, c/o BFDS, at either of the addresses listed above.
No account services will be established until the completed
application has been received by the Trust. IRA accounts
cannot be opened by wire.
BY TELEPHONE: By using a Fund's telephone purchase option,
you may make subsequent investments directly from your bank
account. To establish the telephone purchase option for your
account, complete the appropriate section on the Account
Application Form. Only bank accounts held at domestic
financial institutions that are Automated Clearing House
(ACH) members may be used for telephone transactions. To make
subsequent investments by telephone, call 1-800-621-3979.
This option will become effective approximately 15 business
days after the Account Application Form is received by BFDS.
The price you pay for your shares of a Fund will be the next
price the Fund computes after the Fund receives your
investment instructions. Your order may be canceled if
payment is not received by the third business day after your
order is placed. You may not use telephone transactions for
initial purchases of a Fund's shares. (See "Telephone
Transactions.")
ADDITIONAL INFORMATION ABOUT PURCHASES: All subscriptions are
subject to acceptance by the Trust and the price of the
shares will be the NAV which is next computed after receipt
by BFDS, or other authorized agent or sub-agent, of the
subscription in proper form (see "Pricing of Shares"). All
purchases must be paid for in U.S. dollars; checks must be
drawn on U.S. banks. If your payment is not received or you
pay with a check or ACH transfer that does not clear, your
purchase will be canceled. You will be responsible for any
losses or expenses (including a $20 fee) incurred by a
Fund or BFDS, and a Fund can redeem shares you own in this
or another identically registered Dodge & Cox Fund account as
reimbursement. The Funds and their agents have the right to
reject or cancel any purchase, exchange, or redemption due to
nonpayment. All subscriptions will be invested in full and
fractional shares, and you will receive a confirmation of all
transactions.
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D o d g e & C o x F u n d s
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Purchases through the Automatic Investment Plan will be
confirmed at least quarterly. Certificates (for full shares
only) are not issued unless requested by you.
A Social Security or Taxpayer Identification Number must be
supplied and certified on the Account Application Form before
an account can be established. If you fail to furnish a Fund
with your correct Social Security or Taxpayer Identification
Number, the Fund may be required to withhold Federal income
tax at a rate of 31% ("backup withholding") from dividends,
capital gain distributions and redemptions.
The purchase or redemption of shares through broker-dealers
or other financial institutions may be subject to a service
fee by those entities. The Funds and their agents reserve the
right to accept initial purchases by telephone; to cancel or
rescind any purchase or exchange (for example, if an account
has been restricted due to excessive trading or fraud) upon
notice to the shareholder within five business days of the
trade; to freeze any account and temporarily suspend services
on the account when notice has been received of a dispute
between the registered or beneficial account owners or there
is reason to believe a fraudulent transaction may occur; to
otherwise modify the conditions of purchase and any services
at any time; or to act on instructions believed to be
genuine.
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HOW TO REDEEM BY MAIL: Your written instructions to redeem should be sent
SHARES to the appropriate address below:
REGULAR MAIL EXPRESS, CERTIFIED
Dodge & Cox Funds OR REGISTERED MAIL
c/o BFDS Dodge & Cox Funds
P.O. Box 9051 c/o BFDS
Boston, MA 02205-9051 66 Brooks Drive, Suite 1
Braintree, MA 02184
The request must specify your name, Fund name and account
number, and dollar amount or number of shares redeemed, and
be properly signed. The Funds require the signatures of all
owners exactly as registered, and possibly a signature
guarantee (see "Signature Guarantees" below).
BY TELEPHONE: Telephone redemption requests can be initiated
by calling BFDS at 1-800-621-3979. (See "Telephone
Transactions.") Telephone redemption requests for IRA
accounts will not be accepted.
REDEMPTION PAYMENTS MAY BE MADE BY CHECK, WIRE OR ACH:
BY CHECK: Checks will be made payable to you and will be sent
to your address of record. If the proceeds of the redemption
are requested to be sent to other than the address of record
or if the address of record has been changed within 30 days
of the redemption request, the request must be in writing
with your signature(s) guaranteed.
BY WIRE: The Fund will wire redemption proceeds only to the
bank account designated on the initial Account Application
Form or in written instructions - with signature guarantee -
received in advance of the redemption order.
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D o d g e & C o x F u n d s
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BY ACH: Redemption proceeds can be sent to your bank account
by ACH transfer. You can elect this option by completing the
appropriate section of the Account Application Form. There is
a $100 minimum per ACH transfer.
SIGNATURE GUARANTEES: You may need to have your signature
guaranteed in certain situations, such as:
. Written requests to wire redemption proceeds (if not
previously authorized on the Account Application Form).
. Sending redemption proceeds to any person, address, or
bank account not on record.
. Transferring redemption proceeds to a Dodge & Cox account
with a different registration (name/ownership) from yours.
. Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings
institutions, broker-dealers, and other guarantors acceptable
to the Funds. A Fund cannot accept guarantees from notaries
public or organizations that do not provide reimbursement in
the case of fraud.
REDEMPTIONS-IN-KIND: The Funds reserve the right, if
conditions exist which make cash payments undesirable, to
honor any request for redemption by making payment in whole
or in part in readily marketable securities chosen by a Fund
and valued as they are for purposes of computing a Fund's NAV
(a redemption-in-kind). If payment is made in securities, a
shareholder may incur transaction expenses in converting
these securities to cash. The Funds have elected, however, to
be governed by Rule 18f-1 under the Investment Company Act,
as a result of which a Fund is obligated to redeem shares,
with respect to any one shareholder during any 90-day period,
solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund at the beginning of the period.
IRA ACCOUNTS: Redemption requests for IRA accounts must be in
writing and must include instructions regarding Federal
income tax withholding. Unless you have elected otherwise,
your redemptions will be subject to income tax withholding.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS: Under certain
circumstances, BFDS may require additional documents,
including stock powers with signatures guaranteed, trust
instruments, death certificates, appointments as executor and
certificates of corporate authority. If certificates have
been issued for any of the shares to be redeemed, such
certificates must be endorsed with signatures guaranteed and
delivered to BFDS. For any questions regarding documentation
or signature requirements for trusts, estates, corporations,
etc., please call BFDS (1-800-621-3979).
The redemption price will be the NAV which is next computed
after receipt of a redemption request in good order (see
"Pricing of Shares") by BFDS or other authorized agent or
sub-agent. The redemption price may be more or less than your
cost, depending upon the market value of a Fund's investments
at the time of redemption. Redemption payments are made as
soon as practicable, generally within two business days, but
no later than the seventh day after the effective date for
redemption, or within such shorter period as may legally be
required. If shares are redeemed within two
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D o d g e & C o x F u n d s
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weeks of purchase, a Fund may delay payment of the redemption
proceeds until your purchase check has cleared, which may take up
to 15 days. There is no such delay when shares being redeemed
were purchased by wiring Federal Funds.
The Funds may suspend your redemption right or postpone payment
at times when the New York Stock Exchange is closed or under any
emergency circumstances as determined by the SEC. If the Post
Office cannot deliver your check, or if your check remains
uncashed for six months, the Funds reserve the right to reinvest
your redemption proceeds in your account at the then current NAV.
11
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EXCHANGING You may exchange your shares for shares of another Fund,
SHARES provided that the registration and Taxpayer Identification
Number of both accounts are identical. An exchange may be
initiated by contacting BFDS in writing or by telephone.
(see "Telephone Transactions".) An exchange is treated as a
redemption and a purchase; and, therefore, you may realize a
taxable gain or loss. You should read the current prospectus
of the Fund into which the exchange is being made.
There is a $1,000 minimum for all exchanges. If a new account
is being opened by exchange, the minimum investment
requirements must be met. After the exchange, the account
from which the exchange is made must have a remaining balance
of at least $2,500 ($1,000 for an IRA account) in order to
remain open. The Funds reserve the right to terminate or
materially modify the exchange privilege upon 60 days advance
notice to shareholders.
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TELEPHONE By using telephone purchase, redemption and/or exchange
TRANSACTIONS options, you agree to hold the Trust, Dodge & Cox, BFDS, and
each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses,
costs or liability (including attorney fees) which may be
incurred in connection with the exercise of these privileges.
Generally, all shareholders are automatically eligible to use
these options. However, you may elect to decline these
options in the Account Application Form or by writing BFDS.
(You may also reinstate them at any time by writing BFDS.) If
a Fund does not employ reasonable procedures to confirm that
the instructions received from any person with appropriate
account information are genuine, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. If you
are unable to reach a Fund by telephone because of technical
difficulties, market conditions, or a natural disaster, you
should make purchase, redemption and exchange requests by
regular or express mail. If an account has multiple owners,
a Fund may rely on the instructions of any one account
owner. You should note that purchase and sales orders will
not be canceled or modified once received in good order.
Purchases and sales should be made for long-term investment
purposes only. Because excessive trading may be
disadvantageous to a Fund, each Fund reserves the right to
limit purchase and sale transactions, including exchanges,
when a pattern of frequent trading appears evident.
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TRANSFER OF Changes in account registrations - such as changing the
SHARES name(s) on your account or transferring shares to another
person or legal entity - must be submitted in writing and
require a signature guarantee. Please call BFDS (1-800-621-
3979) for full instructions.
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D o d g e & C o x F u n d s
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PRICING OF The share price (also called "net asset value per share" or
SHARES "NAV") for a Fund is calculated at 4:00 p.m. ET each day the
New York Stock Exchange is open for business. To calculate the
NAV, a Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by
the number of shares outstanding.
If a Fund, or its authorized agent or sub-agent receives your
request in good order by 4 p.m. ET, your transactions will be
priced at that day's NAV. If your request is received after 4
p.m., it will be priced at the next business day's NAV.
A Fund cannot accept orders that request a particular day or
price for your transaction or any other special conditions.
The time at which transactions and shares are priced and the
time until which orders are accepted may be changed in case of
an emergency or if the New York Stock Exchange closes at a
time other then 4 p.m. ET.
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SHAREHOLDER The Funds offer you the following services: (Please call
SERVICES (1-800-621-3979) or write the Funds for applications and
additional information.)
AUTOMATIC INVESTMENT PLAN: You may make regular monthly or
quarterly investments of $100 or more through automatic
deductions from your bank account.
SYSTEMATIC WITHDRAWAL PLAN: If you own $10,000 or more of a
Fund's shares, you may receive regular monthly or quarterly
payments of $50 or more. Shares will be redeemed
automatically at NAV to make the withdrawal payments.
REINVESTMENT PLAN: You may direct that dividend and capital
gain distributions be reinvested in additional Fund shares.
INDIVIDUAL RETIREMENT ACCOUNT (IRA): If you have earned
income or are entitled to certain distributions from eligible
retirement plans, you may make or authorize contributions to
your own Individual Retirement Account. The Funds have
Regular IRA and Roth IRA Plans available for shareholders of
the Funds.
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PERFORMANCE A Fund may include figures indicating its total return and/or
INFORMATION yield in advertisements or reports to shareholders or
prospective investors. Quotations of a Fund's average
annual total rate of return will be expressed in terms of the
average annual compounded rate of return on a hypothetical
investment in the Fund over a specified period, will reflect
the deduction of a proportional share of Fund expenses (on an
annual basis) and will assume that all dividends and capital
gain distributions are reinvested when paid. Total return
indicates the positive or negative rate of return that an
investor would have earned from reinvested dividends and
distributions and changes in net asset value per share during
the period. Quotations of yield, as defined by the SEC, will
be based on net investment income per share earned during a
given thirty-day period and will be computed by dividing this
net investment income by the net asset value per share on the
last day of the period and annualizing the results. Yield
does not directly reflect changes in net asset value per
share which occurred during the period.
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D o d g e & C o x F u n d s
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As appropriate, performance information for a Fund may be
compared, in reports and promotional literature to: (i) the
Standard & Poor's 500 Stock Index, the Dow Jones Industrial
Average, the Lehman Brothers Aggregate Bond Index, or various
other unmanaged indices of the performance of various types
of investments, so that investors may compare a Fund's
results with those of indices widely regarded by investors as
representative of the security markets in general, and (ii)
the performance of other mutual funds. Unmanaged indices may
assume the reinvestment of income distributions, but
generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for a Fund reflects only the
performance of hypothetical investments in the Fund during
the particular time periods on which the calculations are
based. Such information should not be considered as
representative of the performance of a Fund in the future
because, unlike some bank deposits or other investments which
pay a fixed yield for a stated period of time for a fixed
principal amount, the performance of a Fund will vary based
not only on the current market value of the securities held
in its portfolio, but also on changes in a Fund's expenses
and in the asset size of the Fund. Performance information
should be considered in light of a Fund's investment
objectives and policies, the types and quality of a Fund's
portfolio investments, market conditions during the
particular time period, and operating expenses. For a
description of the methods used to determine a Fund's total
return and yield, see "Performance Information" in the
Statement of Additional Information. Further information
about Fund performance is contained in each Fund's Annual
Report which may be obtained without charge from the Fund.
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FUND FUND ORGANIZATION AND VOTING RIGHTS. The Trust, organized as
ORGANIZATION a Delaware business trust in 1998, is registered as an open-
AND end, diversified management investment company under the
MANAGEMENT Investment Company Act. The Trust's Board of Trustees
supervises Trust operations and performs duties required by
applicable state and Federal law. The Trust has three classes
of beneficial shares and each share evidences an equal
beneficial ownership in a Fund and there is no limit to the
number of shares that may be issued. The three series of
the Trust are successors to Dodge & Cox Stock Fund
established in 1965, Dodge & Cox Balanced Fund established
in 1931 and Dodge & Cox Income Fund established in 1989.
All shares have the same rights as to redemption,
dividends, and in liquidation. All shares issued are fully
paid and non-assessable, are transferable, and are
redeemable at net asset value upon demand of the
shareholder. Shares have no preemptive or conversion
rights. The Trust is not required to hold annual meetings
of shareholders.
INVESTMENT MANAGER. Dodge & Cox, a California corporation,
has served as investment manager to the Funds and their
predecessors since inception. Dodge & Cox is one of the
oldest professional investment management firms in the United
States, having acted continuously as investment managers
since 1930. The Funds' investments are managed by Dodge &
Cox's Investment Policy Committee (the Bond Strategy
Committee for fixed income securities), and no one person is
primarily responsible for making investment recommendations
to the Committees. 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. Dodge & Cox Balanced Fund and Dodge & Cox
Stock Fund each pay 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. Dodge & Cox Income 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 up to $100 million and 0.40% of the average daily
net asset value of the Fund in excess of $100 million.
The investment management agreements with Dodge
& Cox Income Fund and Dodge & Cox Stock Fund provide that
Dodge & Cox will waive its fee for any calendar year to the
extent that such fee plus all other ordinary operating
expenses paid by the Fund exceed 1% and 0.75%, respectively,
of the average daily net asset value of the Fund. No waiver
of management fee was required for 1997 under the agreements.
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D o d g e & C o x F u n d s
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Dodge & Cox has adopted a Code of Ethics that restricts
personal investing practices by its employees. Among other
provisions, the Code of Ethics requires that employees with
access to information about the purchase or sale of
securities in a Fund's portfolio obtain preclearance before
executing certain personal trades. The Code of Ethics is
designed to ensure that the interests of the Funds'
shareholders come before the interests of the people who
manage the Funds.
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PORTFOLIO Orders for a Fund's portfolio securities transactions are
TRANSACTIONS placed by Dodge & Cox, which seeks to obtain the best
available prices, taking into account the costs and quality
of executions. In the over-the-counter market, purchases and
sales are transacted directly with principal market-makers
except in those circumstances where it appears better prices
and executions are available elsewhere.
Subject to the above policy, when two or more brokers are in
a position to offer comparable prices and executions,
preference may be given to brokers that have provided
investment research, statistical, and other related
services for the benefit of a Fund and/or accounts over which
Dodge & Cox exercises investment and brokerage discretion.
-------------------------------------------------------------
EXPENSES In addition to Dodge & Cox's management fee, each Fund pays
other direct expenses, including custodian, transfer agent,
legal, accounting and audit fees; costs of preparing and
printing prospectuses and reports sent to shareholders;
registration fees and expenses; proxy and shareholder meeting
expenses (if any); and trustees fees and expenses. In 1997,
the ratios of total operating expenses to average net assets
of Dodge & Cox Stock Fund, Dodge & Cox Balanced Fund and
Dodge & Cox Income Fund were 0.57%, 0.55% and 0.49%,
respectively. Dodge & Cox furnishes personnel and other
facilities necessary for the operation of the Funds for which
it receives no additional compensation.
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FEDERAL INCOME Each Fund intends to qualify each year as a regulated
TAXES investment company under the Internal Revenue Code. A
regulated investment company that distributes for the year
all of its ordinary income and capital gains pays no tax on
its ordinary income or capital gains. A regulated investment
company that fails to distribute all of its ordinary income
and capital gains must pay tax on the undistributed amounts
at a maximum rate of 35%. If the company does not distribute
at least 98% of its ordinary income and capital gains, it
must pay an additional 4% excise tax on the amount by which
the 98% requirements exceed actual distributions.
Distributions designated as long-term capital gain
distributions are taxed to a shareholder as though they were
long-term capital gains realized by the shareholder whether
received in cash or shares of a Fund and regardless of the
period of time shares of a Fund have been held. All taxable
distributions, except for long-term capital gain
distributions, are taxed to a shareholder as ordinary income
dividends whether received in cash or shares of a Fund. Part
of the Dodge & Cox Stock and Balanced Funds' ordinary
dividends may be eligible for the 70% deduction for dividends
received by corporations. State taxation of distributions to
shareholders varies from state to state. You should consult
your own tax adviser about the Federal, state and local tax
consequences of an investment in a Fund.
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CUSTODIAN AND State Street Bank and Trust Company, P.O. Box 9051, Boston,
TRANSFER AGENT Massachusetts 02205-9051, (1-800-621-3979), acts as custodian
of all cash and securities of the Funds and receives and
disburses cash and securities for the account of the Funds.
BFDS acts as transfer and dividend disbursing agent for the
Funds.
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D o d g e & C o x F u n d s
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REPORTS TO In addition to account statements, you will receive periodic
SHAREHOLDERS shareholder reports highlighting relevant information, including
investment results and a review of portfolio characteristics. To
reduce Fund expenses, the Funds attempt to identify related
shareholders within a household and send only one copy of a
report. Call 1-800-621-3979 if you would like an additional free
copy of a Fund's financial report.
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SHAREHOLDER For Fund literature and information, or if you have questions
INQUIRIES concerning your account, please call BFDS (1-800-621-3979).
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13
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D O D G E & C O X D O D G E & C O X
<TABLE>
<CAPTION>
FUNDS FUNDS
- ------------------------------------------- -------------------
<S> <C>
Officers and Trustees
Harry R. Hagey, Chairman and Trustee
Chairman & CEO, Dodge & Cox
John A. Gunn, President and Trustee
President, Dodge & Cox
A. Horton Shapiro, Executive
Vice-President and Trustee
Senior Vice-President, Dodge & Cox
W. Timothy Ryan, Treasurer, STOCK FUND
Secretary and Trustee Established 1965
Senior Vice-President, Dodge & Cox
Katherine Herrick Drake,
Vice-President and Trustee
Vice-President, Dodge & Cox
Dana M. Emery, Vice-President
and Trustee
Senior Vice-President, Dodge & Cox
Kenneth E. Olivier, Vice-President and
Trustee
Senior Vice-President, Dodge & Cox BALANCED FUND
Established 1931
Max Gutierrez, Jr., Trustee
Partner, Brobeck, Phleger &
Harrison, Attorneys
Frank H. Roberts, Trustee
Retired Partner, Pillsbury,
Madison & Sutro, Attorneys
John B. Taylor, Trustee
Professor of Economics,
Stanford University
INCOME FUND
Will C. Wood, Trustee Established 1989
Principal, Kentwood Associates,
Financial Advisers
Thomas M. Mistele, Assistant
Secretary and Assistant Treasurer
Vice-President and General
Counsel, Dodge & Cox
INVESTMENT MANAGER
Dodge & Cox
One Sansome Street, 35th Floor
San Francisco, California 94104
Telephone (415) 981-1710
TRANSFER AGENT
Boston Financial Data Services Inc.
P.O. Box 9051
Boston, Massachusetts 02205-9051
Telephone (800) 621-3979
CUSTODIAN PROSPECTUS
State Street Bank and Trust Company MAY 1, 1998
P.O. Box 9051
Boston, Massachusetts 02205-9051
Telephone (800) 621-3979
DODGE & COX FUNDS
c/o BFDS
P.O. Box 9051
Boston, Massachusetts 02205-9051
Telephone (800) 621-3979 ------------------
------------------
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5/98 PR
</TABLE>
<PAGE>
DODGE & COX FUNDS
DODGE & COX STOCK FUND
DODGE & COX BALANCED FUND
DODGE & COX INCOME FUND
c/o BFDS
P.O. Box 9051
Boston, Massachusetts 02205-9051
(800) 621-3979
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1998
Dodge & Cox Funds (the "Trust") is a family of three no-load mutual funds,
Dodge & Cox Stock Fund, Dodge & Cox Balanced Fund and Dodge & Cox Income Fund
(the "Funds"). Each Fund is a series of the Trust. The Trust is registered
with the Securities and Exchange Commission (the "SEC") as an open-end
diversified management investment company.
This Statement of Additional Information is not the Funds' Prospectus, but
provides additional information which should be read in conjunction with the
Prospectus dated May 1, 1998. The Funds' Prospectus and most recent annual
financial statements may be obtained from the Funds at no charge by writing or
telephoning the Funds at the address or telephone number shown above.
____________________________
TABLE OF CONTENTS
Page
----
Investment Objectives and Policies
Dodge & Cox Stock Fund.................................................. 1
Dodge & Cox Balanced Fund............................................... 1
Dodge & Cox Income Fund................................................. 2
Risk Factors............................................................... 8
Investment Restrictions.................................................... 10
Purchase, Redemption, and Pricing of Shares................................ 12
Performance Information.................................................... 13
Officers and Trustees...................................................... 14
Investment Manager......................................................... 15
Portfolio Transactions..................................................... 16
Additional Tax Considerations.............................................. 18
Independent Accountants.................................................... 19
Financial Statements....................................................... 19
Appendix Ratings........................................................... 19
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
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DODGE & COX STOCK FUND
----------------------
The Fund's primary objective is to provide shareholders with an
opportunity for long-term growth of principal and income. A secondary objective
is to achieve a reasonable current income. These objectives may not be changed
without shareholder approval. It should be recognized that the market risks
inherent in investment cannot be avoided, nor is there any assurance that the
Fund will achieve its investment objectives.
Under normal circumstances, the Fund will invest at least 65% of total
assets in common stocks. The Fund may also purchase other types of securities,
for example, preferred stocks and debt securities which are convertible into
common stock (or which in the opinion of the Fund's investment manager, Dodge &
Cox, have predominantly common stock investment characteristics). The Fund may
invest up to 20% of its total assets in U.S. dollar denominated securities of
foreign issuers (such as ADRs).
Moderate reserves in cash or fixed-income securities may be held from
time to time as Dodge & Cox may deem advisable. Nevertheless, the long-term
emphasis shall be the maintaining of a fully invested equity fund.
Common stocks selected for the Fund will be predominantly 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
Fund's policies as described above may be changed without shareholder approval;
however, these policies will not be changed without notice to shareholders.
In an attempt to reduce unforeseen risks in single securities, the Fund
seeks to provide adequate investment diversification. To that end, the Fund
will not concentrate its investments in any particular industry or group of
industries, but will diversify investments among different industries as well as
among individual companies. The amount invested in any particular industry will
vary from time to time in accordance with the judgment of Dodge & Cox.
Although there is no restriction on the number of changes in security
holdings, purchases are made with a view to long-term holding and not for short-
term trading purposes. During rapidly changing economic and political
conditions, there may necessarily be more portfolio changes than in a more
stable period.
It is the general practice of the Fund to invest in securities with ready
markets, mainly issues listed on national securities exchanges.
The Fund has no present intention of making investments in securities
which are restricted as to resale under Federal securities laws. The Fund does
not write put and call options and has no present intention of writing such
options.
DODGE & COX BALANCED FUND
-------------------------
The Fund's objectives are to provide shareholders with regular income,
conservation of principal and an opportunity for long-term growth of principal
and income. These objectives may not be changed without shareholder approval.
It should be recognized that the market risks inherent in investment cannot be
avoided, nor is there any assurance that the Fund will achieve its investment
objectives. Reasonable appreciation in favorable periods and conservation of
principal in adverse times are objectives that require flexibility in managing
the assets of the Fund under constantly changing investment conditions.
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Therefore, the proportions of the Fund's portfolio invested in common and
preferred stocks and bonds are revised by the Fund's manager, Dodge & Cox, when
considered advisable in light of Dodge & Cox's appraisal of business and
investment prospects. Under normal market conditions, the Fund seeks to
maintain no more than approximately 75% of its total assets in common stocks and
that portion of the value of convertible securities attributable to the
conversion right.
Bonds are held for their relative stability of principal and income as
well as for a reserve which can be used to take advantage of investment
opportunities. The Fund may invest up to 20% of its total assets in U.S.
dollar-denominated securities of foreign issuers traded in the U.S. (such as
ADRs). Moderate reserves in cash or short-term fixed income securities may be
held from time to time as Dodge & Cox may deem advisable.
It is the policy to invest in investment-grade bonds rated in the top
four rating categories by either Moody's Investors Service ("Moody's") (Aaa, Aa,
A, Baa) or Standard & Poor's Ratings Group ("S&P") (AAA, AA, A, BBB).
Securities rated Baa or BBB may have speculative characteristics. Securities
that are downgraded below Baa or BBB subsequent to purchase may continue to be
held by the Fund, if Dodge & Cox believes it advantageous to do so. Unrated
bonds may be purchased if such securities are, in the opinion of Dodge & Cox, of
equivalent quality to bonds rated at least A by Moody's and S&P. An explanation
of the Moody's and S&P ratings groups is included in the Appendix.
The Fund will maintain a substantial position 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 given weight 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. The
Fund's investment policies as set forth above may be changed without shareholder
approval; however, these policies will not be changed without notice to
shareholders.
In an attempt to reduce unforeseen risks in single securities, the Fund
seeks to achieve adequate investment diversification. The Fund does not
concentrate its investments in any particular industry or group of industries
but seeks instead to diversify investments among different industries as well as
among individual companies. The amount invested in any particular industry will
vary from time to time in accordance with the judgment of Dodge & Cox.
Although there is no restriction on the number of changes in security
holdings, purchases are made with a view to long-term holding and not for short-
term trading purposes. During rapidly changing economic and political
conditions, there may necessarily be more portfolio changes than in a more
stable period.
It is the general practice of the Fund to invest in securities with ready
markets, mainly issues listed on national securities exchanges. The Fund does
not write put and call options and has no present intention of writing such
options.
DODGE & COX INCOME FUND
-----------------------
The Fund's primary objective is to provide shareholders with a high and
stable rate of current income consistent with long-term preservation of capital.
A secondary objective is to take advantage of opportunities to realize capital
appreciation. These objectives may not be changed without shareholder approval.
It should be recognized that the market risks inherent in investment cannot be
avoided nor is there any assurance that the Fund will achieve its investment
objectives.
The Fund seeks to achieve these objectives by investing in a diversified
portfolio of fixed income securities. It is the policy of the Fund to invest at
least 80% of the market value of its total assets in the following: (1) debt
obligations issued or guaranteed by the U.S. government, its agencies or
2
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instrumentalities; (2) investment-grade debt securities, including U.S. dollar-
denominated foreign issues, rated in the top four rating groups by either
Moody's (Aaa, Aa, A, Baa) or S&P (AAA, AA, A, BBB); (3) unrated securities if
deemed to be of investment-grade quality by Dodge & Cox; and (4) cash
equivalents, bankers' acceptances, bank certificates of deposit, repurchase
agreements and commercial paper. At least 65% of the market value of the
portfolio will be invested in category (1) securities and in category (2)
securities rated in the top three rating groups. Further information about
specific investments is provided below.
No more than 20% of the Fund may be invested in other fixed income
instruments including: debt obligations rated below investment grade, if, in the
opinion of Dodge & Cox, they are of suitable quality, provide attractive
investment opportunities and have a minimum rating of B by Moody's and/or S&P at
the time of investment; preferred stock; and corporate bonds convertible into
common stocks or carrying warrants to purchase common stock. The Fund will
invest in unrated securities only if deemed to be of investment-grade quality by
Dodge & Cox. It should be noted that securities rated Baa or BBB and those
securities rated below investment grade have speculative characteristics.
Securities rated B by the major rating agencies may yield a higher level of
current income than higher quality securities but generally have less liquidity,
greater market risk and more price fluctuation. An explanation of the Moody's
and S&P rating groups is included in the Appendix.
Under normal market conditions, the Fund will invest no more than 25% of
its total assets in U.S. dollar-denominated securities of foreign issuers.
The proportions held in the various financial instruments will be revised
as appropriate in light of Dodge & Cox's appraisal of the economy, the relative
yields of securities in the various market sectors, the investment prospects for
issuers, and other factors. In making investment decisions, Dodge & Cox will
take many factors into consideration, including yield to maturity, quality,
liquidity, current yield, and capital appreciation potential.
The Fund attempts to achieve its secondary objective of capital
appreciation through such techniques as fundamental research (i.e., seeking a
security or group of securities which Dodge & Cox believes to be undervalued),
purchasing securities at a discount to their maturity or call value and making
gradual adjustments in the average maturity of the Fund's portfolio.
The average maturity of the Fund's portfolio at any given time depends,
in part, on Dodge & Cox's assessment of economic and market conditions, the
future level of inflation and interest rates, and on the relative yields of
securities in the marketplace. Dodge & Cox normally invests in an array of
securities with short, intermediate and long maturities in varying proportions,
with greater emphasis on longer maturities.
Purchases and sales of securities in the Fund are generally made for
long-term fundamental investment reasons rather than for short-term trading
purposes. Nevertheless, Dodge & Cox may sell any of the securities in the Fund,
regardless of the length of time held, in seeking to achieve the objectives of
the Fund.
Dodge & Cox maintains a long-term investment orientation and therefore
anticipates a relatively low turnover rate, which, under normal circumstances,
should not exceed 50% on an annual basis. However, during rapidly changing
economic, political, and market environments, there may be more portfolio
changes than in a more stable period. A higher turnover rate might result in
increased transaction expenses and the realization of capital gains and losses.
In seeking to achieve the objectives of the Fund, Dodge & Cox may
purchase securities on a when-issued basis, purchase or sell securities for
delayed delivery and lend portfolio securities.
The Fund's investment policies as set forth above may be changed without
shareholder approval; however, these policies will not be changed without notice
to shareholders.
3
<PAGE>
TYPES OF PORTFOLIO SECURITIES
- -----------------------------
In seeking to meet its investment objectives, each Fund will invest in
securities or instruments whose investment characteristics are consistent with
the Fund's investment program. The following further describes the principal
types of portfolio securities and investment management practices of the Funds.
COMMON STOCKS (DODGE & COX BALANCED FUND AND DODGE & COX STOCK FUND). Stocks
represent shares of ownership in a company. After other claims are satisfied,
common stockholders participate in company profits on a pro rata basis; profits
may be paid out in dividends or reinvested in the company to help it grow.
Increases and decreases in earnings are usually reflected in a company's stock
price, so common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities.
PREFERRED STOCKS. Each Fund may invest in preferred stocks. Generally,
preferred stock has a specified dividend and ranks after bonds and before common
stocks in its claim on income for dividend payments and on assets should the
company be liquidated.
CONVERTIBLE SECURITIES AND WARRANTS. The Funds may invest in debt or preferred
equity securities convertible into or exchangeable for equity securities.
Traditionally, convertible securities have paid dividends or interest at rates
higher than common stock dividend rates but lower than nonconvertible
securities. They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree.
In recent years, convertibles have been developed which combine higher or lower
current income with other features. Warrants are options to buy a stated number
of shares of common stock at a specified price anytime during the life of the
warrants (generally two or more years).
FOREIGN SECURITIES. The Funds may invest in U.S. dollar-denominated securities
of foreign issuers traded in the U.S. (such as ADRs).
U.S. GOVERNMENT OBLIGATIONS. A portion of each Fund may be invested in
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Some of the obligations purchased by a Fund are backed by
the full faith and credit of the U.S. government and are guaranteed as to both
principal and interest by the U.S. Treasury. Examples of these include direct
obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and bonds,
or indirect obligations of the U.S. Treasury, such as obligations of the
Government National Mortgage Association, the Maritime Administration, the
Farmers Home Administration, the Veterans Administration, the Federal Housing
Administration and the Export-Import Bank.
While the obligations of many of the agencies and instrumentalities of
the U.S. government are not direct obligations of the U.S. Treasury, they are
generally backed indirectly by the U.S. government. Some of the agencies are
indirectly backed by their right to borrow from the U.S. government, such as the
Federal Financing Bank, the Federal Home Loan Bank and the U.S. Postal Service.
Others are supported solely by the credit of the agency or instrumentality
itself, but are given additional support due to the U.S. Treasury's authority to
purchase their outstanding debt obligations. These agencies include the Federal
Farm Credit Banks, the Federal National Mortgage Association, the Federal Home
Loan Mortgage Corporation, and the Student Loan Marketing Association. No
assurance can be given that the U.S. government would provide financial support
to U.S. government established or sponsored agencies. Furthermore, with respect
to the U.S. government securities purchased by a Fund, guarantees as to the
timely payment of principal and interest do not extend to the value or yield of
these securities nor do they extend to the value of a Fund's
4
<PAGE>
shares. A Fund may invest in these securities if it believes they offer an
expected return commensurate with the risks assumed.
MORTGAGE PASS-THROUGH SECURITIES (DODGE & COX BALANCED FUND AND DODGE & COX
INCOME FUND). Each Fund may invest a portion of its assets in mortgage pass-
through securities which are guaranteed by an agency of the U.S. government or
are issued by a private entity. These securities represent ownership in "pools"
of mortgage loans and are called "pass-throughs" because principal and interest
payments are passed through to security holders monthly. The security holder
may also receive unscheduled principal payments representing prepayments of the
underlying mortgage loans. When a Fund reinvests the principal and interest
payments, it may receive a rate of interest which is either higher or lower than
the rate on the existing mortgage.
During periods of declining interest rates there is increased likelihood
that mortgage securities may be prepaid. Such prepayment would most likely be
reinvested at lower rates. On the other hand, if the pass-through securities had
been purchased at a discount, then such prepayments of principal would benefit
the portfolio.
COLLATERALIZED MORTGAGE OBLIGATIONS (DODGE & COX BALANCED FUND AND DODGE & COX
INCOME FUND). Collateralized Mortgage Obligations ("CMOs") are private entity
or U.S. government agency-issued multi-class bonds that are collateralized by
U.S. agency-guaranteed mortgage pass-through securities. A CMO is created when
the issuer purchases a collection of mortgage pass-through securities ("the
collateral") and places these securities in a trust, which is administered by an
independent trustee. Next, the issuer typically issues several classes, or
"tranches" of bonds, the debt service of which is provided by the principal and
interest payments from the mortgage pass-through securities in the trust. Each
of these tranches is valued and traded separately based on its distinct cash
flow characteristics.
Although the mortgage pass-through collateral typically has monthly
payments of principal and interest, CMO bonds will generally have semiannual or
quarterly payments of principal and interest. Payments received from the
collateral are reinvested in short-term debt securities by the trustee between
payment dates on the CMO. On the CMO payment dates, the principal and interest
payments received from the collateral plus reinvestment income, are applied
first to pay interest on the bonds and then to repay principal. Generally, the
bonds are retired sequentially; the first payments of principal are applied to
retire the first tranche, while all other tranches receive interest only. Only
after the first tranche is retired do principal payments commence on the second
tranche. The process continues in this sequence until all tranches are retired.
At issuance, each CMO tranche has a stated final maturity date. The
stated final maturity date is the date by which the bonds would be completely
retired assuming standard amortization of principal but no prepayments of
principal on the underlying collateral. However, since it is likely that the
collateral will have principal prepayments, the CMO bonds are actually valued on
the basis of an assumed prepayment rate. The assumed prepayment rate is used in
the calculation of the securities' weighted-average life, a measure of the
securities' cash flow characteristics. Dodge & Cox will purchase the tranche
with the weighted-average life and cash flow characteristics that it believes
will contribute to achieving the objectives of a Fund.
All CMOs purchased by a Fund will have a AAA rating by either S&P or
Moody's. To qualify for this rating, a CMO is structured so that even under the
most conservative prepayment and reinvestment assumptions, the principal and
interest payments from the collateral are expected to meet or exceed the cash
flow obligations of all the tranches of the CMO. However, there are risks
associated with CMOs, which relate to the risks of the underlying mortgage pass-
through securities. In a falling interest rate environment, the mortgage
securities may be prepaid faster than the assumed rate. In this scenario, the
prepayments of
5
<PAGE>
principal will generally be reinvested at a rate which is lower than the rate
that the security holder is currently receiving. Conversely, in a rising
interest rate environment, the mortgage collateral may be prepaid at a rate
which is slower than the assumed rate. In this case, the cash flow of the bond
decreases. A reduced prepayment rate effectively lengthens the time period the
security will be outstanding and may adversely affect the value of the security.
RESTRICTED SECURITIES (DODGE & COX BALANCED FUND AND DODGE & COX INCOME FUND).
The Fund may invest in restricted securities (privately-placed debt and
preferred equity securities) and other securities without readily available
market quotations, but will not acquire such securities or other illiquid
securities, including repurchase agreements maturing in more than seven days, if
as a result they would comprise more than 15% of the value of the Fund's total
assets (10% for Dodge & Cox Income Fund).
Restricted securities may be sold only in privately-negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933. Where registration is
required, a Fund may be obligated to pay all or a part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a Fund might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities will be priced at fair
value as determined in good faith by the Trust's Board of Trustees.
STRUCTURED INVESTMENTS (DODGE & COX BALANCED FUND AND DODGE & COX INCOME FUND).
Included among the issuers of debt securities in which a Fund may invest are
entities organized and operated solely for the purpose of restructuring the
investment characteristics of various securities. These entities are typically
organized by investment banking firms which receive fees in connection with
establishing each entity and arranging for the placement of its securities.
This type of restructuring involves the deposit with or purchases by an entity,
such as a corporation or trust, of specified instruments and the issuance by
that entity of one or more classes of securities (structured investments) backed
by, or representing interests in, the underlying instruments. The cash flow on
the underlying instruments may be apportioned among the newly issued structured
investments to create securities with different investment characteristics such
as varying maturities, payment priorities or interest rate provisions; the
extent of the payments made with respect to structured investments is dependent
on the extent of the cash flow on the underlying instruments.
Each Fund is permitted to invest in a class of structured investments
that is either subordinated or unsubordinated to the right of payment of
another class. Subordinated structured investments typically have higher
yields and present greater risks than unsubordinated structured investments.
Although a Fund's purchase of subordinated structured investments would have a
similar economic effect to that of borrowing against the underlying
securities, the purchase will not be deemed to be leverage for purposes of the
limitations placed on the extent of a Fund's assets that may be used for
borrowing activities.
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the Investment Company Act. As a result, a Fund's
investment in these structured investments may be limited by the restrictions
contained in the Investment Company Act of 1940, as amended (the "Investment
Company Act").
WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES (DODGE & COX BALANCED FUND AND DODGE
& COX INCOME FUND). Each Fund may purchase securities on a when-issued or a
delayed-delivery basis, that is, for payment and delivery on a date later than
normal settlement, but generally within 30 days.
The purchase price and yield on these securities are generally set at the
time of purchase. On the date that a security is purchased on a when-issued
basis, a Fund reserves liquid assets with a value at least as great as the
purchase price of the security, in a segregated account at the custodian bank,
as long as the obligation to purchase continues. The value of the delayed-
delivery security is reflected in a Fund's net
6
<PAGE>
asset value as of the purchase date, however, no income accrues to a Fund from
these securities prior to their delivery to the Fund. A Fund makes such
purchases for long-term investment reasons, but may actually sell the securities
prior to settlement date if Dodge & Cox deems it advisable in seeking to achieve
the objectives of the Fund. The purchase of these types of securities may
increase a Fund's overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date. Unsettled
securities purchased on a when-issued or delayed-delivery basis will not exceed
5% of a Fund's total assets at any one time.
CASH POSITION. Each Fund will hold a certain portion of its assets in U.S.
dollar-denominated money market securities, including repurchase agreements,
commercial paper, and bank obligations in the two highest rating categories
maturing in one year or less. For temporary, defensive purposes, a Fund may
invest without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new investments
and serves as a short-term defense during periods of unusual market volatility.
Bank Obligations. Certificates of deposit, bankers' acceptances, and
----------------
other short-term debt obligations. Certificates of deposit are short-term
obligations of commercial banks. A bankers' acceptance is a time draft drawn on
a commercial bank by a borrower, usually in connection with international
commercial transactions. Certificates of deposit may have fixed or variable
rates. A Fund may invest in U.S. banks, foreign branches of U.S. banks, U.S.
branches of foreign banks, and foreign branches of foreign banks.
Short-Term Corporate Debt Securities. Outstanding nonconvertible
------------------------------------
corporate debt securities (such as bonds and debentures) which have one year or
less remaining to maturity. Corporate notes may have fixed, variable, or
floating rates.
Commercial Paper. Short-term promissory notes issued by corporations
-----------------
primarily to finance short-term credit needs. Certain notes may have floating
or variable rates.
Repurchase Agreements. A Fund may enter into a repurchase agreement
---------------------
through which an investor (such as a Fund) purchases a security (known as the
"underlying security") from a well-established securities dealer or bank that is
a member of the Federal Reserve System. Any such dealer or bank will be on Dodge
& Cox's approved list and have a credit rating with respect to its short-term
debt of at least A1 by S&P, P1 by Moody's, or the equivalent rating by Dodge &
Cox. At that time, the bank or securities dealer agrees to repurchase the
underlying security at the same price, plus specified interest. Repurchase
agreements are generally for a short period of time, often less than a week.
Repurchase agreements which do not provide for payment within seven days will be
treated as illiquid securities. A Fund will only enter into repurchase
agreements where (i) the underlying securities are issued by the U.S.
government, its agencies and instrumentalities, (ii) the market value of the
underlying security, including interest accrued, will be at all times equal to
or exceed the value of the repurchase agreement, and (iii) payment for the
underlying security is made only upon physical delivery or evidence of book-
entry transfer to the account of the custodian or a bank acting as agent. In the
event of a bankruptcy or other default of a seller of a repurchase agreement, a
Fund could experience both delays in liquidating the underlying security and
losses, including: (a) possible decline in the value of the underlying security
during the period which the Fund seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income during this
period; and (c) expenses of enforcing its rights.
BORROWING MONEY. The Funds can borrow money from banks as a temporary measure
for emergency purposes or to facilitate redemption requests. Such borrowing may
be collateralized with Fund assets, subject to restrictions.
7
<PAGE>
LENDING OF PORTFOLIO SECURITIES (DODGE & COX INCOME FUND). The Fund has
reserved the right to lend its securities to qualified broker-dealers, banks or
other financial institutions. By lending its portfolio securities, the Fund
would attempt to increase its income by receiving a fixed fee or a percentage of
the collateral, in addition to continuing to receive the interest or dividends
on the securities loaned. The terms, structure and the aggregate amount of such
loans would be consistent with the Investment Company Act. The borrower would be
required to secure any such loan with collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the total market
value and accrued interest of the securities loaned by the Fund. The Fund does
not presently intend to lend portfolio securities.
INVESTMENT COMPANIES. The Funds can purchase the securities of other investment
companies as permitted by the Investment Company Act.
RISK FACTORS
- ------------
GENERAL
Because of its investment policy, each Fund may not be suitable or
appropriate for all investors. The Funds are not money market funds and are
not appropriate investments for those whose primary objective is principal
stability. A Fund's assets will be subject to all of the risks of investing in
the financial markets. There is risk in all investment. The value of the
portfolio securities of a Fund will fluctuate based upon market conditions.
Although a Fund seeks to reduce risk by investing in a diversified portfolio,
such diversification does not eliminate all risk. There can be no assurance
that a Fund will achieve its investment objectives.
DEBT OBLIGATIONS
A Fund will invest in debt securities which hold the prospect of
contributing to the achievement of a Fund's objectives. Yields on short,
intermediate, and long-term securities are dependent on a variety of factors,
including the general conditions of the money and bond markets, the size of a
particular offering, the maturity of the obligation, and the credit quality and
rating of the issue. Debt securities with longer maturities tend to have higher
yields and are generally subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities and lower yields. The
market prices of debt securities usually vary, depending upon available yields.
An increase in interest rates will generally reduce the value of portfolio
investments, and a decline in interest rates will generally increase the value
of portfolio investments. The ability of a Fund to achieve its investment
objectives is also dependent on the continuing ability of the issuers of the
debt securities in which a Fund invests to meet their obligations for the
payment of interest and principal when due. As discussed below, each Fund's
investment program permits it to hold investment grade securities that have been
downgraded. In addition, the Dodge & Cox Income Fund may invest in lower
quality securities. Since investors generally perceive that there are greater
risks associated with investment in lower quality securities, the yields from
such securities normally exceed those obtainable from higher quality securities.
However, the principal value of lower-rated securities generally will fluctuate
more widely than higher quality securities. Lower quality investments entail a
higher risk of default--that is, the nonpayment of interest and principal by the
issuer--than higher quality investments. Such securities are also subject to
special risks, discussed below. Although a Fund seeks to reduce risk by
portfolio diversification, credit analysis, and attention to trends in the
economy, industries and financial markets, these efforts will not eliminate all
risk.
After purchase by a Fund, a debt security may cease to be rated or its
rating may be reduced below the minimum required for purchase by a Fund.
Neither event will require a sale of such security by the Fund. However, Dodge
& Cox will consider such event in its determination of whether a Fund should
continue to hold the security. To the extent that the ratings given by Moody's
or S&P may
8
<PAGE>
change as a result of changes in such organizations or their rating systems, a
Fund will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in the Prospectus.
SPECIAL RISKS OF HIGH YIELD INVESTING
As described above, under limited circumstances, a Fund may hold low
quality bonds commonly referred to as "junk bonds". Junk bonds are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Because investment in low and lower-medium
quality bonds involves greater investment risk, to the extent a Fund holds such
bonds, achievement of its investment objective will be more dependent on Dodge &
Cox's credit analysis than would be the case if a Fund was investing in higher
quality bonds. High yield bonds may be more susceptible to real or perceived
adverse economic conditions than investment grade bonds. A projection of an
economic downturn, or higher interest rates, for example, could cause a decline
in high yield bond prices because the advent of such events could lessen the
ability of highly leveraged issuers to make principal and interest payments on
their debt securities. In addition, the secondary trading market for high yield
bonds may be less liquid than the market for higher grade bonds, which can
adversely affect the ability of a Fund to dispose of its portfolio securities.
Bonds for which there is only a "thin" market can be more difficult to value
inasmuch as objective pricing data may be less available and judgment may play a
greater role in the valuation process.
FOREIGN SECURITIES
While each Fund emphasizes investments in securities domiciled in the
United States, it may invest in U.S. dollar-denominated securities of foreign
issuers.
RISK FACTORS OF FOREIGN INVESTING
There are special risks in foreign investing. Many of the risks are more
pronounced for investments in developing or emerging countries, such as many of
the countries of Southeast Asia, Latin America, Eastern Europe, and the Middle
East. Each Fund has no present intention of investing in developing or emerging
countries.
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such matters as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments position. The
internal politics of certain foreign countries are not as stable as in the
United States. In addition, significant external political risks currently
affect some foreign countries.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
effect on market prices of securities and payment of dividends. The economies
of many foreign countries are heavily dependent upon international trade and are
accordingly affected by protective trade barriers and economic conditions of
their trading partners. The enactment by these trading partners of
protectionist trade legislation could have a significant adverse effect upon the
securities markets of such countries.
CURRENCY FLUCTUATIONS. Although a Fund will invest in U.S. dollar-
denominated foreign securities, the underlying securities will be denominated in
various currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of a Fund's assets. Such changes will also affect a Fund's income.
Generally, when a given currency appreciates against the dollar (the dollar
weakens), the value of securities denominated in that currency will rise. When a
given currency depreciates against the dollar (the dollar strengthens), the
value of securities denominated in that currency would be expected to decline.
9
<PAGE>
INVESTMENT AND REPATRIATION RESTRICTIONS. Foreign investment in the
securities markets of certain foreign countries is restricted or controlled in
varying degrees. These restrictions may limit at times and preclude investment
in certain of such countries and may increase the cost and expenses of a Fund.
Investments by foreign investors are subject to a variety of restrictions.
These restrictions may take the form of prior governmental approval, limits on
the amount or type of securities held by foreigners, and limits on the types of
companies in which foreigners may invest. Additional or different restrictions
may be imposed at any time by these or other countries in which a Fund invests.
In addition, the repatriation of both investment income and capital from some
foreign countries is restricted and controlled under certain regulations,
including in some cases the need to obtain certain government consents.
MARKET CHARACTERISTICS. Foreign markets are generally not as developed
or efficient as, and may be more volatile than, those in the United States.
While growing in volume, they usually have substantially less volume than U.S.
markets and a Fund's portfolio securities may be less liquid and subject to more
rapid and erratic price movements than securities of comparable U.S. companies.
Equity securities may trade at price/earnings multiples higher than comparable
United States securities and such levels may not be sustainable. Fixed
commissions on foreign exchanges are generally higher than negotiated
commissions on United States exchanges. There is generally less government
supervision and regulation of foreign exchanges, brokers and listed companies
than in the United States. Moreover, settlement practices for transactions in
foreign markets may differ from those in United States markets. Such differences
may include delays beyond periods customary in the United States and practices,
such as delivery of securities prior to receipt of payment, which increase the
likelihood of a "failed settlement." Failed settlements can result in losses to
a Fund.
INFORMATION AND SUPERVISION. There is generally less publicly available
information about foreign companies comparable to reports and ratings that are
published about companies in the United States. Foreign companies are also
generally not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to United
States companies. It also may be more difficult to keep currently informed of
corporate actions which affect the prices of portfolio securities.
TAXES. The dividends and interest payable on certain of a Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to a Fund's shareholders.
OTHER. With respect to certain foreign countries, there is the
possibility of adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of a Fund, political or social instability, or diplomatic
developments which could affect investments by U.S. persons in those countries.
INVESTMENT RESTRICTIONS
- -----------------------
Each Fund has adopted the following restrictions. These restrictions,
as well as a Fund's investment objectives, cannot be changed without the
approval of the holders of a majority of a Fund's outstanding shares. The
Investment Company Act defines a majority as the lesser of (1) 67% or more of
the voting shares present at a meeting if the holders of more than 50% of the
outstanding voting shares are present or represented by proxy, or (2) more than
50% of the outstanding voting shares of a Fund. As applicable, each Fund may
not:
10
<PAGE>
DODGE & COX BALANCED FUND, DODGE & COX INCOME FUND AND DODGE & COX STOCK FUND
1. Invest more than 5% of the value of its total assets in the securities
of any one issuer, except the obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities, or issues backed
or collateralized by such obligations, nor acquire more than 10% of
the voting securities of any one issuer.
2. Invest in any company for the purpose of exercising control or
management.
3. Underwrite securities of other issuers, except insofar as a Fund may
be deemed an underwriter under the Securities Act of 1933, as amended,
in selling portfolio securities.
4. Purchase securities on margin or sell short.
5. 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).
6. Purchase any security if as a result a Fund would then have more
than 15%, (10%, DODGE & COX INCOME FUND) of its total assets invested
in securities which are illiquid, including repurchase agreements not
maturing in seven days or less and securities restricted as to
disposition under Federal securities laws.
7. Purchase interests in oil, gas and mineral leases or other mineral
exploration or development programs, although a Fund may invest in
stocks or debt instruments of companies which invest in or sponsor
such programs.
8. Purchase or sell commodities, commodity contracts or real estate
(although a Fund may invest in marketable securities secured by real
estate or interests therein or issued by companies or investment
trusts which invest in real estate or interests therein).
DODGE & COX BALANCED FUND AND DODGE & COX STOCK FUND
9. Issue senior securities.
10. Borrow money except as a temporary measure for extraordinary or
emergency purposes and not for the purchase of investment securities
and then only from banks. The amount borrowed shall not exceed 10% of
the Fund's total assets at cost or 5% of the value of total assets,
whichever is less, provided that such borrowings shall have an asset
coverage of 300%.
11. Make loans to other persons except this shall not exclude the purchase
of publicly issued debt securities of a type purchased by
institutional investors.
DODGE & COX INCOME FUND
12. Issue senior securities, as defined in the Investment Company Act, or
mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund except as
may be necessary in connection with borrowing, and then such
mortgaging, pledging or hypothecating may not exceed 10% of the Fund's
total assets, taken at the lesser of cost or market value.
13. Borrow money, except the Fund may borrow money from banks as a
temporary measure for extraordinary or emergency purposes. Such
temporary borrowing may not exceed 5%
11
<PAGE>
of the value of the Fund's total assets at the time the loan is made.
The Fund may pledge up to 10% of the lesser of the cost or market
value of its total assets to secure temporary borrowings. The Fund
will not borrow for investment purposes. Immediately after any
borrowing, the Fund will maintain an asset coverage of not less than
300% with respect to all borrowings.
14. Make loans of money, except by the purchase of debt securities or by
entering into repurchase agreements, as permitted by the Fund's other
investment policies and restrictions. Although there is no present
intention of doing so in the foreseeable future, the Fund reserves the
authority to make loans of its portfolio securities in an aggregate
amount not exceeding 20% of its total assets. Such loans will only be
made upon approval of, and subject to any conditions imposed by, the
Fund's Board of Trustees.
15. Write put or call options.
Whenever any investment policy or investment restriction states a maximum
percentage of a Fund's assets which may be invested in any security or other
instrument, it is intended that such maximum percentage limitation be determined
immediately after and as a result of the Fund's acquisition of such security or
instrument. Industries are determined by reference to the classifications of
industries set forth in a Fund's semi-annual and annual report.
PURCHASE, REDEMPTION, AND PRICING OF SHARES
- -------------------------------------------
The procedures for purchasing and redeeming shares of a Fund are
described in the Funds' Prospectus, which is incorporated herein by reference.
NET ASSET VALUE PER SHARE. The purchase and redemption price of a Fund's
shares is equal to a Fund's net asset value per share or share price. A Fund
determines its net asset value per share by subtracting a Fund's total
liabilities (including accrued expenses and dividends payable) from its total
assets (the market value of the securities a Fund holds plus cash and other
assets, including income accrued but not yet received) and dividing the result
by the total number of shares outstanding. The net asset value per share of a
Fund is normally calculated as of the close of trading on the New York Stock
Exchange ("NYSE") every day the NYSE is open for trading. The NYSE is closed on
the following days: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
Determination of net asset value (and the offering, sale redemption and
repurchase of shares) for a Fund may be suspended when (a) the NYSE is closed,
other than customary weekend and holiday closings, (b) trading on the NYSE is
restricted, (c) an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for a Fund to fairly determine the value of its net assets, or (d) a
governmental body having jurisdiction over a Fund may by order permit such a
suspension for the protection of a Fund's shareholders; provided that applicable
rules and regulations of the Securities and Exchange Commission (or any
succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b), (c), or (d) exist.
In determining total net asset value of a Fund, stocks are valued at
market, using as a price the last sale of the day at the close of the New York
Stock Exchange or, if no sale, it will be valued at the mean between the bid and
ask prices for the day. Debt securities, including listed issues, are priced on
the basis of valuations furnished by a pricing service which utilizes both
dealer-supplied valuations and electronic data processing techniques. These
values take into account appropriate factors such as institutional-size trading
markets in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data and do not rely
exclusively upon exchange or over-the-counter listed prices. Use of the pricing
service has been approved by the Board of Trustees. A
12
<PAGE>
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such security.
Securities for which market quotations are not readily available and all other
assets are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees.
PERFORMANCE INFORMATION
- -----------------------
Each Fund may include figures indicating its total return or yield in
advertisements or reports to shareholders or prospective investors. Quotations
of a Fund's average annual total rate of return will be expressed in terms of
the average annual compounded rate of return on a hypothetical investment in the
Fund over periods of one, five and ten years (or since inception), will reflect
the deduction of a proportional share of Fund expenses (on an annual basis),
will assume that all dividends and capital gains distributions are reinvested
when paid, and will be calculated pursuant to the following formula:
P (1 + T)/n/ = ERV
where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years,
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
The average annual total returns of the Funds for the one, five and
ten-year (since inception) periods ended December 31, 1997 were as follows:
1 Year 5 Years 10 Years (or inception)
------- ------- -----------------------
Dodge & Cox Stock Fund 28.41% 21.11% 17.00%
Dodge & Cox Balanced Fund 21.21 16.06 14.56
Dodge & Cox Income Fund 10.00 8.18 9.74 (9 years)
Total return indicates the positive or negative rate of return that an investor
would have earned from reinvested dividends and distributions and changes in net
asset value per share during the period.
Quotations of yield, as defined by the Securities and Exchange
Commission, will be based on net investment income per share earned during a
given thirty-day period and will be computed by dividing this net investment
income by the net asset value per share on the last day of the period and
annualizing the results according to the following formula:
YIELD = 2[(a-b+1)/6/ -1]
-----
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements or
waivers),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
13
<PAGE>
The Funds' current yields for the thirty days ended December 31, 1997
were as follows:
Dodge & Cox Stock Fund 1.81%
Dodge & Cox Balanced Fund 3.48%
Dodge & Cox Income Fund 6.21%
Yield does not directly reflect changes in net asset value per share which
occurred during the period.
As appropriate, performance information for a Fund may be compared in reports
and promotional literature to: (i) the Standard & Poor's 500 Stock Index, the
Dow Jones Industrial Average, the Lehman Brothers Aggregate Bond Index, or
various other unmanaged indices of the performance of various types of
investments, so that investors may compare a Fund's results with those of
indices widely regarded by investors as representative of the security markets
in general, and (ii) the performance of other mutual funds. Unmanaged indices
may assume the reinvestment of income distributions, but generally do not
reflect deductions for administrative and management costs and expenses.
Performance information for a Fund reflects only the performance of
hypothetical investments in the Fund during the particular time periods on which
the calculations are based. Such information should not be considered as
representative of the performance of the Fund in the future because, unlike some
bank deposits or other investments which pay a fixed yield for a stated period
of time for a fixed principal amount, the performance of the Fund will vary
based not only on the current market value of the securities held in its
portfolio, but also on changes in a Fund's expenses and in the asset size of the
Fund. Performance information should be considered in light of a Fund's
investment objectives and policies, the types and quality of a Fund's portfolio
investments, market conditions during the particular time period and operating
expenses. Further information about the performance of a Fund is contained in
each Fund's Annual Report which may be obtained without charge from the Fund.
From time to time, a Fund and Dodge & Cox may also refer to the following
information:
1. Portfolio information, including median market capitalization,
price to earnings ratio, price to book value, average bond quality,
average bond maturity, and effective bond duration.
2. The asset allocation and sector weightings of a Fund's portfolio
and a Fund's top ten holdings.
3. A description of the Dodge & Cox investment management philosophy
and approach.
<TABLE>
<CAPTION>
OFFICERS AND TRUSTEES
- ---------------------
Total 1997
Position(s) Principal Occupation Compensation
Name and Address Age with Trust During Past 5 Years from the Trust**
- ---------------- --- ----------- -------------------- -------------------
<S> <C> <C> <C> <C>
Harry R. Hagey* 56 Chairman and Chairman and Chief Executive $ 0
Trustee Officer of Dodge & Cox
John A. Gunn* 54 President and President of Dodge & Cox 0
Trustee
A. Horton Shapiro* 58 Executive Vice- Senior Vice-President of Dodge 0
President and & Cox
Trustee
W. Timothy Ryan* 60 Secretary, Senior Vice-President of Dodge 0
Treasurer and & Cox
Trustee
Katherine Herrick 44 Vice-President Vice-President of Dodge & Cox 0
Drake* and Trustee
Dana M. Emery* 36 Vice-President Manager-Fixed Income and 0
and Trustee Senior Vice-President of Dodge
& Cox
Kenneth E. Olivier* 45 Vice-President Senior Vice-President of Dodge 0
and Trustee & Cox
Max Gutierrez, Jr. 67 Trustee Partner in Brobeck, Phleger & 12,000
One Market Plaza Harrison, Attorneys
San Francisco, CA
Frank H. Roberts 78 Trustee Retired Partner in Pillsbury, 12,000
225 Bush Street Madison & Sutro, Attorneys
San Francisco, CA
John B. Taylor 51 Trustee Professor of Economics and 15,000
Department of Director of the Center for
Economics Economic Policy Research,
Stanford University Stanford University
Stanford, CA
Will C. Wood 58 Trustee Principal, Kentwood Associates, 15,000
1550 El Camino Real Financial Advisers; prior to
Menlo Park, Ca 1994, Managing Director, IDI
Associates, Financial Advisers
Thomas M. Mistele 44 Assistant Vice-President and General 0
Secretary and Counsel of Dodge & Cox;
Assistant formerly Senior Vice President
Treasurer of Templeton Global Investors,
Inc. and Secretary of the
Templeton Mutual Funds
</TABLE>
14
<PAGE>
_______________________
* Each has been an employee of Dodge & Cox, 35th Floor, One Sansome
Street, San Francisco, California for over 11 years in an executive
position and is an "interested person" of the Trust as defined in the
Investment Company Act.
** "Total 1997 Compensation from the Trust" consists of compensation and
fees paid to Trustees by the Trust and their predecessors.
Each of the officers and Trustees above served in similar capacities
with one or more of the Trust's predecessors, Dodge & Cox Stock Fund, Dodge &
Cox Income Fund and Dodge & Cox Balanced Fund.
Trustees and officers of the Trust affiliated with Dodge & Cox hold a
controlling interest in Dodge & Cox. Those Trustees who are not affiliated with
Dodge & Cox receive from the Trust an annual fee of $3,000 and an attendance fee
of $1,500 (or $500 per Fund) for each Board or Committee meeting attended. The
Trust does not pay any other remuneration to its officers or trustees, and has
no bonus, profit-sharing, pension or retirement plan. On March 31, 1998 the
officers and trustees of the Trust and members of their families and relatives
owned less than 1.0% of the outstanding shares of each Fund.
On March 31, 1998, Charles Schwab & Co., 101 Montgomery Street, San
Francisco, California 94104 owned of record 9,129,312 shares (19.6%),
8,984,090 shares (10.6%) and 4,590,872 shares (7.1%) of the outstanding shares
of Dodge & Cox Stock Fund, Dodge & Cox Balanced Fund and Dodge & Cox Income
Fund, respectively; and Donaldson Lufkin & Jenrette-Pershing Division, P.O.
Box 2052, Jersey City, NJ 07303 owned of record 5,663,569 shares (or 8.7% of
the outstanding shares of Dodge & Cox Income Fund). The Trust knows of no
other person who owns beneficially or of record more than 5% of the
outstanding shares of each Fund.
INVESTMENT MANAGER
- ------------------
Dodge & Cox, One Sansome Street, San Francisco, California 94104, a
corporation, is employed by the Trust as manager and investment adviser of the
Funds, subject to the direction of the Board of Trustees. Dodge & Cox is one
of the oldest professional investment management firms in the United States,
having acted continuously as investment managers since 1930 and has served as
manager and investment adviser for the Funds since each Fund's inception. Each
Fund's investments are managed by Dodge & Cox's Investment Policy Committee
(the Bond Strategy Committee for fixed income securities), and no one person
is primarily responsible for making investment recommendations to the
Committee. The research work of the firm is organized for comprehensive and
continuous appraisal of the economy and of various industries and companies.
Supplemental research facilities are used to obtain additional coverage of
business and financial developments affecting comparative security values.
Dodge & Cox is not engaged in the brokerage business nor in the business
of dealing in or selling securities. Its activities are devoted to investment
research and the supervision of investment accounts for individuals, trustees,
corporations, pension and profit-sharing funds, and charitable institutions.
Dodge & Cox Stock Fund and Dodge & Cox Balanced Fund each pay Dodge & Cox a
management fee which is payable monthly at the annual rate of 0.50% of the
average daily net asset value of each Fund. Dodge & Cox Income 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 up to $100 million and 0.40% of the
average daily net asset value of the Fund in excess of $100 million.
15
<PAGE>
However, the investment management agreements with Dodge & Cox Income
Fund and Dodge & Cox Stock Fund provide that Dodge & Cox will waive its fee for
any calendar year to the extent that such fee plus all other ordinary operating
expenses paid by the Fund exceed 1% and 0.75%, respectively, of the average
daily net asset value of the Fund. No waiver of management fee was required for
1997 under the agreements. Investment management fees received by Dodge & Cox
from the Funds for the last three years were as follows:
1997 1996 1995
----------- ----------- ----------
Dodge & Cox Stock Fund $16,194,151 $ 8,541,819 $4,332,369
Dodge & Cox Balanced Fund 23,306,993 13,196,680 6,321,900
Dodge & Cox Income Fund 2,574,712 1,650,053 1,045,074
The contracts may be terminated at any time without penalty upon 60 days
written notice by action of the Trustees, shareholders or by Dodge & Cox. The
contracts will terminate automatically should there be an assignment thereof.
In addition to Dodge & Cox's fee, each Fund pays other direct expenses,
including transfer agent, custodial, accounting, legal, and audit fees; costs
of preparing and printing prospectuses and reports sent to shareholders;
registration fees and expenses; proxy and shareholder meeting expenses; and
Trustee fees and expenses. In 1997, the ratio of total operating expenses to
average net assets of Dodge & Cox Stock Fund, Dodge & Cox Balanced Fund and
Dodge & Cox Income Fund were 0.57%, 0.55% and 0.49%, respectively. Dodge & Cox
furnishes personnel and other facilities necessary for the operation of the
Funds for which it receives no additional compensation. Dodge & Cox supervises
the operations of the Funds and directs the investment and reinvestment of its
assets and furnishes all executive personnel and office space required.
PORTFOLIO TRANSACTIONS
- ----------------------
The Investment Management Agreements provide that Dodge & Cox is
responsible for selecting members of securities exchanges, brokers and dealers
(such members, brokers and dealers being hereinafter referred to as "brokers")
for the execution of a Fund's portfolio transactions and, when applicable, the
negotiation of commissions. All decisions and placements are made in accordance
with the following principles:
1. Purchase and sale orders will usually be placed with brokers who are
selected by Dodge & Cox as able to achieve "best execution" of such orders.
"Best execution" means prompt and reliable execution at the most favorable
securities price, taking into account the other provisions hereinafter set
forth. The determination of what may constitute best execution and price in
the execution of a securities transaction by a broker involves a number of
considerations, including without limitation, the overall direct net
economic result to a Fund (involving both price paid or received and any
commissions and other costs paid), the efficiency with which the
transaction is effected, the ability to effect the transaction at all where
a large block is involved, availability of the broker to stand ready to
execute possibly difficult transactions in the future, and the financial
strength and stability of the broker. Such considerations are judgmental
and are weighed by Dodge & Cox in determining the overall reasonableness of
brokerage commissions.
2. In selecting brokers for portfolio transactions, Dodge & Cox takes into
account its past experience as to brokers qualified to achieve best
execution, including brokers who specialize in any foreign securities held
by a Fund.
16
<PAGE>
3. Dodge & Cox is authorized to allocate brokerage business to brokers who
have provided brokerage and research services, as such services are defined
in Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act"),
for a Fund and/or other accounts, if any, for which Dodge & Cox exercises
investment discretion (as defined in Section 3(a)(35) of the 1934 Act) and,
as to transactions as to which fixed minimum commission rates are not
applicable. Such allocation may cause a Fund to pay a commission for
effecting a securities transaction in excess of the amount another broker
would have charged for effecting that transaction, if Dodge & Cox
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by
such broker, viewed in terms of either that particular transaction or with
Dodge & Cox's overall responsibilities with respect to a Fund and the other
accounts, if any, as to which it exercises investment discretion. In
reaching such determination, Dodge & Cox is not required to place or
attempt to place a specific dollar value on the research or execution
services of a broker or on the portion of any commission reflecting
brokerage or research services. In demonstrating that such determinations
were made in good faith, Dodge & Cox will be prepared to show that all
commissions were allocated and paid for purposes contemplated by a Fund's
brokerage policy; that commissions were paid only for products or services
which provide lawful and appropriate assistance to Dodge & Cox in the
performance of its investment decision-making responsibilities; and that
the commissions paid were within a reasonable range. The determination that
commissions were within a reasonable range will be based on any available
information as to the level of commissions known to be charged by other
brokers on comparable transactions, but there will also be taken into
account a Fund's policies that (i) obtaining a low commission is deemed
secondary to obtaining a favorable securities price, since it is recognized
that usually it is more beneficial to a Fund to obtain a favorable price
than to pay the lowest commission; and (ii) the quality, comprehensiveness
and frequency of research studies which are provided for Dodge & Cox are
useful to Dodge & Cox in performing its advisory services under its
Investment Management Agreement with a Fund. Research services provided by
brokers to Dodge & Cox are considered to be in addition to, and not in lieu
of, services required to be performed by Dodge & Cox under its Investment
Management Agreement. Research furnished by brokers through whom a Fund
effects securities transactions may be used by Dodge & Cox for any of its
accounts, and not all such research may be used by Dodge & Cox for the
Funds.
4. Purchases and sales of portfolio securities within the United States other
than on a securities exchange will be executed with primary market makers
acting as principal except where, in the judgment of Dodge & Cox, better
prices and execution may be obtained on a commission basis or from other
sources.
Insofar as known to management, no Trustee or officer of the Trust, nor
Dodge & Cox or any person affiliated with any of them, has any material direct
or indirect interest in any broker employed by or on behalf of a Fund. There is
no fixed method used in determining which broker-dealers receive which order or
how many orders.
Periodically Dodge & Cox reviews the current commission rates and
discusses the execution capabilities and the services provided by the various
broker-dealers Dodge & Cox is utilizing in the execution of orders. Research
services furnished by the brokers through whom Dodge & Cox effects security
transactions for a Fund may be used in servicing some or all of Dodge & Cox's
accounts, however, all such services may not be used by Dodge & Cox in
connection with a Fund. Aggregate brokerage commissions paid by Dodge & Cox
Stock Fund and Dodge & Cox Balanced Fund during the last three years were as
follows:
17
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Dodge & Cox Stock Fund $2,419,305 $1,109,157 $790,822
Dodge & Cox Balanced Fund 1,835,589 1,131,834 763,087
</TABLE>
Securities transactions totaling $311,344,686 and $133,826,493 in 1997 were
allocated to brokers based on arrangements to provide research services to
Dodge & Cox Stock Fund and Dodge & Cox Balanced Fund, respectively and
$323,575 and $226,570, respectively, in brokerage commissions were paid on
such transactions. Except as indicated above, Dodge & Cox does not intend to
place portfolio transactions with any particular broker-dealers.
Investment decisions for a Fund are made independently from those of the
other Funds and other accounts managed by Dodge & Cox. It may frequently
develop that the same investment decision is made for more than one account.
Simultaneous transactions may often occur when the same security is suitable
for the investment objective of more than one account. When two or more
accounts are simultaneously engaged in the purchase or sale of the same
security, the transactions are averaged as to price and allocated as to amount
in accordance with a formula equitable to each account. It is recognized that
in some cases this system could have a detrimental effect on the price or
availability of the security as far as a Fund is concerned. In other cases,
however, it is believed that the ability of a Fund to participate in volume
transactions will produce better executions for the Fund.
ADDITIONAL TAX CONSIDERATIONS
- -----------------------------
You need to be aware of the possible tax consequences when:
. You sell Fund shares, including an exchange from one Fund to another.
. A Fund makes a distribution to your account.
TAXES ON FUND REDEMPTIONS. When you sell shares in a Fund, you may
realize a gain or loss. An exchange from one Fund to another is a sale for tax
purposes.
In January, you will be sent Form 1099-B, indicating the amount of sales
made in a Fund during the prior year. This information will also be reported
to the IRS. For certain accounts opened after September 30, 1987, the Funds
will provide you with the average cost of the shares sold during the year,
based on the "average cost" method. This information is not reported to the
IRS, and you do not have to use it. You may calculate the cost basis using
other methods acceptable to the IRS, such as "specific identification".
To help you maintain accurate records, you will be sent a confirmation
immediately following each transaction (except for systematic purchases) and
quarterly and year-end statements detailing all transactions in your account
during the year.
TAXES ON FUND DISTRIBUTIONS. The following summary does not apply to
retirement accounts, such as IRAs, which are tax-deferred until shareholders
withdraw money from them.
In January, you will be sent Form 1099-DIV indicating the tax status of
any distributions paid to you during the prior year. This information will also
be reported to the IRS. All distributions made by a Fund are taxable to you
for the year in which they were paid.
Short-term capital gain distributions are taxable as ordinary income and
long-term capital gain distributions are taxable at the applicable long-term
capital gain rate. If you realize a capital loss on the
18
<PAGE>
sale or exchange of Fund shares held six months or less, your short-term capital
loss is reclassified to long-term to the extent of any long-term capital gain
distribution received with respect to such Fund shares.
TAX EFFECT OF BUYING SHARES BEFORE A CAPITAL GAIN OR INCOME DISTRIBUTION.
If you buy shares shortly before or on the "record date" for a Fund
distribution--the date that establishes you as the person to receive the
upcoming distribution --you will receive, in the form of a taxable distribution,
a portion of the money you just invested. Therefore, you may wish to find out
a Fund's record date before investing. Of course, a Fund's share price may,
at any time, reflect undistributed capital gains or income and unrealized
appreciation. When these amounts are eventually distributed, they are taxable.
The discussion above and in the Funds' Prospectus regarding the Federal
income tax consequences of investing in a Fund have been prepared by Dodge &
Cox and do not purport to be complete descriptions of all tax implications of an
investment in a Fund. You are advised to consult with your own tax adviser
concerning the application of Federal, state and local taxes to an investment in
a Fund. The Trust's legal counsel has expressed no opinion in respect
thereof.
INDEPENDENT ACCOUNTANTS
- -----------------------
Price Waterhouse LLP, 555 California Street, San Francisco, California
94104, are independent accountants to the Funds, subject to annual appointment
by the Board of Trustees. Price Waterhouse conducts an annual audit of the
accounts and records of each Fund, reports on the Fund's annual financial
statements and performs tax and accounting advisory services.
FINANCIAL STATEMENTS
- --------------------
Please refer to each Fund's Financial Statements consisting of the
financial statements of the Fund and the notes thereto, and the report of
independent accountants contained in the Fund's 1997 Annual Report to
Shareholders. The Financial Statements and the report of independent
accountants (but no other material from the Annual Report) are incorporated
herein by reference. Additional copies of the Annual Report may be obtained
from a Fund at no charge by writing or telephoning the Fund.
APPENDIX RATINGS
- ----------------
A debt obligation rating by Moody's or S&P reflects their current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The purpose of the rating systems is to provide investors with a
simple system of gradation by which the relative investment qualities of bonds
may be noted. A rating is not a recommendation as to investment value, inasmuch
as it does not comment as to market price or suitability for a particular
investor.
The ratings are based on current information furnished by the issuer or
from other sources that the rating agencies deem reliable. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The following is a description of the characteristics of ratings as
published by Moody's and S&P.
RATINGS BY MOODY'S (MOODY'S INVESTORS SERVICE)
AAA Bonds which are rated AAA are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to
19
<PAGE>
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in AAA
securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
BAA Bonds which are rated BAA are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA Bonds which are rated BA are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classification from AA through B in its corporate bond rating system.
The modification 1 indicates that the security ranks in the higher end of its
generic rating group; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
group.
RATINGS BY S&P (STANDARD & POOR'S RATINGS GROUP)
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated groups.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this group than in higher rated groups.
BB, B Debt rated BB and B is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
20
<PAGE>
PLUS (+) OR MINUS (-): The ratings from AA to B may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
groups.
21
<PAGE>
DODGE & COX FUNDS
PART C OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Part A: Financial Highlights *
Part B: Statements of Assets and Liabilities *
Statements of Changes in Net Assets *
Statements of Operations *
Portfolios of Investments *
* Incorporated by reference to similarly named financial statements
in Registrant's 1997 Annual Reports to Shareholders, including Notes
to Financial Statements and Report of Independent Accountants.
Registrant's 1997 Annual Reports dated December 31, 1997 were filed
with the Commission on March 4, 1998 (File Nos. 811-173, 811-1294 and
811-5580).
(b) Exhibits:
(1) Trust Instrument *
(2) Bylaws *
(5) Investment Management Agreements
(8) Form of Custody Agreement
(9) Form of Transfer Agency Agreement
(10) Opinion and Consent of Counsel
(11A) Consent of Independent Accountants
(11B) Signatures/Power of Attorney
(16) Schedule of Computation of Performance Quotations
* Exhibits were filed with Post-Effective Amendment No. 62 as EX-23.B1
and EX-23.B2, respectively, and are herein incorporated by reference.
Item 25. PERSONS CONTROLLED BY UNDER COMMON CONTROL WITH REGISTRANT
It may be deemed that Dodge & Cox, the investment adviser of
Registrant, is under common control with Registrant in that certain of
the trustees and officers of Registrant are controlling stockholders
of Dodge & Cox.
<PAGE>
Dodge & Cox is a California corporation. As of March 31, 1998, the
persons who are trustees and officers of Registrant and also
controlling stockholders of Dodge & Cox are as follows:
% of Stock Owned in
Name Dodge & Cox
---- -------------------
Harry R. Hagey 16.63%
John A. Gunn 16.63%
A. Horton Shapiro 9.31%
W. Timothy Ryan 9.20%
Kenneth E. Olivier 8.20%
Item 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record
Title of Class Holders as of 02/10/98
-------------- ----------------------
Stock Fund 49,009
Balanced Fund 32,119
Income Fund 2,005
Item 27. INDEMNIFICATION
Section 10.02 of the Trust Instrument, filed as Exhibit 1 to this
Registration Statement, provides for indemnification of Trustees of
the Registrant.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provision, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustees, officers or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Registrant and Dodge & Cox maintain officers' and directors' liability
insurance in the amount of $20,000,000 with no deductible for the
Trust's officers and trustees and $150,000 deductible for the joint
insured entities.
<PAGE>
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
None.
Item 29. PRINCIPAL UNDERWRITERS
None.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Dodge & Cox
One Sansome Street, 35th Floor
San Francisco, CA 94104
Boston Financial Data Services Inc.
P.O. Box 9051
Boston, Massachusetts 02205
State Street Bank and Trust Company
P.O. Box 9051
Boston, Massachusetts 02205
Item 31. MANAGEMENT SERVICES
None.
Item 32. UNDERTAKINGS
Registrant hereby undertakes to furnish to each person, to whom
Registrant's Prospectus is delivered, a copy of the most recent Annual
Report to Shareholders of the relevant portfolio upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Francisco and State of California
on the 21st day of April, 1998.
DODGE & COX FUNDS
*By: /s/ Harry R. Hagey
------------------
Harry R. Hagey
Chairman
(Principal Executive Officer)
*By: /s/ Thomas M. Mistele
---------------------
Thomas M. Mistele
as attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------- ------------------------------------ ---------------------
<S> <C> <C>
/s/ Harry R. Hagey Chairman and Trustee April 21, 1998
- --------------------------------- (Principal Executive Officer)
Harry R. Hagey*
/s/ W. Timothy Ryan Treasurer and Trustee April 21, 1998
- --------------------------------- (Principal Financial and Accounting
W. Timothy Ryan* Officer)
/s/ John A. Gunn President and Trustee April 21, 1998
- ---------------------------------
John A. Gunn*
/s/ A. Horton Shapiro Executive Vice President and Trustee April 21, 1998
- ---------------------------------
A. Horton Shapiro*
/s/ Katherine Herrick Drake Vice President and Trustee April 21, 1998
- ---------------------------------
Katherine Herrick Drake*
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------- ------------------------------------ ---------------------
<S> <C> <C>
/s/ Dana M. Emery Vice President and Trustee April 21, 1998
- ---------------------------------
Dana M. Emery*
/s/ Kenneth E. Olivier Vice President and Trustee April 21, 1998
- ---------------------------------
Kenneth E. Olivier*
/s/ Max Gutierrez, Jr. Trustee April 21, 1998
- ---------------------------------
Max Gutierrez, Jr.*
/s/ Frank H. Roberts Trustee April 21, 1998
- ---------------------------------
Frank H. Roberts*
/s/ John B. Taylor Trustee April 21, 1998
- ---------------------------------
John B.Taylor*
/s/ Will C. Wood Trustee April 21, 1998
- ---------------------------------
Will C. Wood*
</TABLE>
* By: /s/ Thomas M. Mistele
---------------------
Thomas M. Mistele
as attorney-in-fact**
** Powers of Attorney are filed herewith
2
<PAGE>
DODGE & COX FUNDS
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM 24(b)1 Trust Instrument *.............................................. EX-99.B1
ITEM 24(b)2 Bylaws *........................................................ EX-99.B2
ITEM 24(b)5 Investment Management Agreements................................. EX-99.B5
ITEM 24(b)8 Form of Custody Agreement........................................ EX-99.B8
ITEM 24(b)9 Form of Transfer Agency Agreement................................ EX-99.B9
ITEM 24(b)10 Opinion and Consent of Counsel................................... EX-99.B10
ITEM 24(b)11A Consent of Independent Accountants............................... EX-99.B11A
ITEM 24(b)11B Signatures/Power of Attorney..................................... EX-99.B11B
ITEM 24(b)16 Schedule of Computation of Performance Quotations................ EX-99.B16
</TABLE>
* Exhibits were filed with Post-Effective Amendment No. 62 as EX-23.B1 and EX-
23.B2, respectively, and are herein incorporated by reference.
<PAGE>
EX-99.B5
Dodge & Cox Stock Fund
One Sansome Street, 35th Floor
San Francisco, California 94104
May 1, 1998
Dodge & Cox
One Sansome Street, 35th Floor
San Francisco, California 94104
INVESTMENT MANAGEMENT AGREEMENT
DODGE & COX STOCK 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 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 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 February 13, 1998, 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.
<PAGE>
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.
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
2
<PAGE>
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. 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; 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.
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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 0.50%
of the average daily net assets as defined below of the Fund for such month.
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 0.75% 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 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 you 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
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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 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 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
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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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<PAGE>
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 FUND
By:
President
The foregoing Agreement is hereby accepted as of the date hereof.
DODGE & COX
Incorporated
By:
Chairman & Chief Executive Officer
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EX-99.B5
Dodge & Cox Balanced Fund
One Sansome Street, 35th Floor
San Francisco, California 94104
May 1, 1998
Dodge & Cox
One Sansome Street, 35th Floor
San Francisco, California 94104
INVESTMENT MANAGEMENT AGREEMENT
DODGE & COX BALANCED 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 Balanced 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 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 February 13, 1998, 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.
<PAGE>
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.
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,
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<PAGE>
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. 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
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<PAGE>
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; 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 0.50%
of the average daily net assets as defined below of the Fund for such month.
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 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
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<PAGE>
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 you
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 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
5
<PAGE>
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 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.
6
<PAGE>
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.
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 BALANCED FUND
By:
President
The foregoing Agreement is hereby accepted as of the date hereof.
DODGE & COX
Incorporated
By:
Chairman & Chief Executive Officer
7
<PAGE>
EX-99.B5
Dodge & Cox Income Fund
One Sansome Street, 35th Floor
San Francisco, California 94104
May 1, 1998
Dodge & Cox
One Sansome Street, 35th Floor
San Francisco, California 94104
INVESTMENT MANAGEMENT AGREEMENT
DODGE & COX 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 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 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 February 13, 1998, 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.
<PAGE>
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.
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,
2
<PAGE>
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. 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
3
<PAGE>
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; 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 0.50%
of the average daily net assets as defined below of the Fund up to $100
million and 0.40% of the average daily net assets of the Fund in excess of
$100 million for such month. 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 1.00% 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 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
4
<PAGE>
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 you 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 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.
5
<PAGE>
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 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
6
<PAGE>
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.
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 INCOME FUND
By:
President
The foregoing Agreement is hereby accepted as of the date hereof.
DODGE & COX
Incorporated
By:
Chairman & Chief Executive Officer
7
<PAGE>
EX-99.B8
Custodian Agreement
-------------------
This Agreement between Dodge & Cox Balanced Fund, a common law trust
established under the laws of the State of California with its principal place
of business at One Sansome Street, 35th Floor, San Francisco, California 94104
(the "FUND"), and State Street Bank and Trust Company, a Massachusetts trust
company with its principal place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "CUSTODIAN"), in consideration of the mutual covenants
and agreements hereinafter contained, the parties hereto agree as follows:
Section 1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of the assets of the of
the Fund, including securities which the Fund desires to be held in places
within the United States ("DOMESTIC SECURITIES") and securities it desires to be
held outside the United States ("FOREIGN SECURITIES") pursuant to the provisions
of the Fund's Declaration of Trust. The Fund agrees to deliver to the Custodian
all of the Fund's securities and cash, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Fund from time to time, and the cash consideration received by it
for such new shares of beneficial interest of the Fund ("SHARES") as may be
issued or sold from time to time. The Custodian shall not be responsible for any
property of the Fund held or received by the Fund and not delivered to the
Custodian.
Upon receipt of "PROPER INSTRUCTIONS" (as such term is defined in Section 6
hereof), the Custodian shall on behalf of the Fund from time to time employ one
or more sub-custodians, located in the United States but only in accordance with
an applicable vote by the Board of Trustees of the Fund (the "BOARD OF
TRUSTEES"), and provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any actions or omissions
of any sub-custodian so employed than any such sub-custodian has to the
Custodian. The Custodian may employ as sub-custodian for the Fund's foreign
securities the foreign banking institutions and foreign securities depositories
designated in Schedules A and B hereto but only in accordance with the
applicable provisions of Sections 3 and 4.
Section 2. Duties of the Custodian with Respect to Property of the Fund Held
-----------------------------------------------------------------
By the Custodian in the United States
-------------------------------------
Section 2.1 Holding Securities. The Custodian shall hold and
------------------
physically segregate for the account of the Fund all non-cash property, to be
held by it in the United States including all domestic securities owned by the
Fund, other than (a) securities which are maintained pursuant to Section 2.8 in
a clearing agency which acts as a securities depository or in a book-entry
system authorized by the U.S. Department of the Treasury (each, a "U.S.
SECURITIES SYSTEM") and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and
<PAGE>
paying agent ("DIRECT PAPER") which is deposited and/or maintained in the Direct
Paper System of the Custodian (the "DIRECT PAPER SYSTEM") pursuant to Section
2.9.
Section 2.2 Delivery of Securities. The Custodian shall release and
----------------------
deliver domestic securities owned by the Fund held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct Paper
book-entry system account ("DIRECT PAPER SYSTEM ACCOUNT") only upon receipt of
Proper Instructions from the Fund, which may be continuing instructions when
deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.8 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in
any such case, the cash or other consideration is to be delivered
to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.7 or into the name or nominee name of any
sub-custodian appointed pursuant to Section 1; or for exchange for
a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
--------
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except as
may arise from the Custodian's own negligence or willful
misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
2
<PAGE>
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Fund, but only against receipt of adequate collateral as
--- ----
agreed upon from time to time by the Custodian and the Fund, which
may be in the form of cash or obligations issued by the United
States government, its agencies or instrumentalities, except that
in connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the Custodian
will not be held liable or responsible for the delivery of
securities owned by the Fund prior to the receipt of such
collateral;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
--- ----
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar organization
or organizations, regarding account deposits in connection with
transactions by the Fund;
14) Upon receipt of instructions from the transfer agent for the Fund
(the "TRANSFER AGENT") for delivery to such Transfer Agent or to
the holders of Shares in connection with distributions in kind, as
may be described from time to time in the currently effective
prospectus and statement of additional information of the Fund
(the "PROSPECTUS"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper trust purpose, but only upon receipt of, in
--- ----
addition to Proper Instructions from the Fund, a copy of a
resolution of the Board of Trustees or of the Executive Committee
thereof signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary thereof (a "CERTIFIED
RESOLUTION"), specifying the securities of the Fund to be
delivered, setting forth the purpose for which such
3
<PAGE>
delivery is to be made, declaring such purpose to be a proper
trust purpose, and naming the person or persons to whom delivery
of such securities shall be made.
Section 2.3 Registration of Securities. Domestic securities held by
--------------------------
the Custodian (other than bearer securities) shall be registered in the name of
the Fund or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund, unless the
------
Fund has authorized in writing the appointment of a nominee to be used in
common with other registered investment companies having the same investment
adviser as the Fund, or in the name or nominee name of any agent appointed
pursuant to Section 2.7 or in the name or nominee name of any sub-custodian
appointed pursuant to Section 1. All securities accepted by the Custodian on
behalf of the Fund under the terms of this Agreement shall be in "street name"
or other good delivery form. If, however, the Fund directs the Custodian to
maintain securities in "street name", the Custodian shall utilize its best
efforts only to timely collect income due the Fund on such securities and to
notify the Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or exchange
offers.
Section 2.4 Bank Accounts. The Custodian shall open and maintain a
-------------
separate bank account or accounts in the United States in the name of Fund,
subject only to draft or order by the Custodian acting pursuant to the terms of
this Agreement, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of the Fund,
other than cash maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held
by the Custodian for the Fund may be deposited by it to its credit as Custodian
in the Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable; provided,
--------
however, that every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such bank or
trust company and the funds to be deposited with each such bank or trust company
shall on behalf of the Fund be approved by vote of a majority of the Board of
Trustees. Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that capacity.
Section 2.5 Collection of Income. Subject to the provisions of
--------------------
Section 2.3, the Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder to which
each Fund shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and other
payments with respect to bearer domestic securities if, on the date of payment
by the issuer, such securities are held by the Custodian or its agent thereof
and shall credit such income, as collected, to the Fund's custodian account.
Without limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on securities held
hereunder. Income due the Fund on securities loaned pursuant to the provisions
of Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will
have no duty or responsibility in connection therewith, other than to provide
the Fund with such information or data as may be necessary to
4
<PAGE>
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Fund is properly entitled.
Section 2.6 Payment of Fund Monies. Upon receipt of Proper
----------------------
Instructions from the Fund, which may be continuing instructions when deemed
appropriate by the parties, the Custodian shall pay out monies of the Fund in
the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the
Fund but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options on
futures contracts to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad which
is qualified under the Investment Company Act of 1940, as amended,
to act as a custodian and has been designated by the Custodian as
its agent for this purpose) registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in Section
2.3 hereof or in proper form for transfer; (b) in the case of a
purchase effected through a U.S. Securities System, in accordance
with the conditions set forth in Section 2.8 hereof; (c) in the
case of a purchase involving the Direct Paper System, in accordance
with the conditions set forth in Section 2.9; (d) in the case of
repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a member of
NASD, (i) against delivery of the securities either in certificate
form or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against delivery
of the receipt evidencing purchase by the Fund of securities owned
by the Custodian along with written evidence of the agreement by
the Custodian to repurchase such securities from the Fund or (e)
for transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected prior to
receipt of a confirmation from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund as defined herein;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued as set forth in
Section 5 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account
of the Fund: interest, taxes, management, accounting, transfer
agent and legal fees, and operating expenses of the Fund whether or
not such expenses are to be in whole or part capitalized or treated
as deferred expenses;
5) For the payment of any dividends on Shares declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
5
<PAGE>
7) For any other proper trust purpose, but only upon receipt of, in
--- ----
addition to Proper Instructions from the Fund, a copy of a
Certified Resolution specifying the amount of such payment, setting
forth the purpose for which such payment is to be made, declaring
such purpose to be a proper trust purpose, and naming the person or
persons to whom such payment is to be made.
Section 2.7 Appointment of Agents. The Custodian may at any time or
---------------------
times in its discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Section 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not relieve the
- --------
Custodian of its responsibilities or liabilities hereunder.
Section 2.8 Deposit of Fund Assets in U.S. Securities Systems. The
-------------------------------------------------
Custodian may deposit and/or maintain securities owned by the Fund in a clearing
agency registered with the Securities and Exchange Commission under Section 17A
of the Exchange Act, which acts as a securities depository, or in the book-entry
system authorized by the U.S. Department of the Treasury and certain federal
agencies, collectively referred to herein as "U.S. SECURITIES SYSTEMS" in
accordance with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Fund in a U.S. Securities
System provided that such securities are represented in an account
of the Custodian in the U.S. Securities System account (the "U.S.
SECURITIES SYSTEM ACCOUNT") which account shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the Fund
which are maintained in a U.S. Securities System shall identify by
book-entry those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account of
the Fund upon (i) receipt of advice from the U.S. Securities System
that such securities have been transferred to the U.S. Securities
System Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the account
of the Fund. The Custodian shall transfer securities sold for the
account of the Fund upon (i) receipt of advice from the U.S.
Securities System that payment for such securities has been
transferred to the U.S. Securities System Account, and (ii) the
making of an entry on the records of the Custodian to reflect such
transfer and payment for the account of the Fund. Copies of all
advices from the U.S. Securities System of transfers of securities
for the account of the Fund shall identify the Fund, be maintained
for the Fund by the Custodian and be provided to the Fund at its
request. Upon request, the Custodian shall furnish the Fund
confirmation of each transfer to or from the account of the Fund in
the form of a written advice or notice
6
<PAGE>
and shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities System for
the account of the Fund;
4) The Custodian shall provide the Fund with any report obtained by
the Custodian on the U.S. Securities System's accounting system,
internal accounting control and procedures for safeguarding securities
deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund the initial or
annual certificate, as the case may be, required by Section 15 hereof;
6) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it
may have against the U.S. Securities System; at the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the U.S. Securities System
or any other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the Fund has not
been made whole for any such loss or damage.
Section 2.9 Fund Assets Held in the Custodian's Direct Paper System.
-------------------------------------------------------
The Custodian may deposit and/or maintain securities owned by the Fund in the
Direct Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the Fund;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in the Direct Paper
System Account, which account shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect to securities of the Fund
which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account of
the Fund upon the making of an entry on the records of the Custodian
to reflect such payment and transfer of securities to the account of
the Fund. The Custodian shall transfer securities sold for the
account of the Fund upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for the
account of the Fund;
7
<PAGE>
5) The Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund, in the form of a written advice or
notice, of Direct Paper on the next business day following such
transfer and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transaction in the Direct Paper System
for the account of the Fund;
6) The Custodian shall provide the Fund with any report on its system
of internal accounting control as the Fund may reasonably request from
time to time.
Section 2.10 Segregated Account. The Custodian shall upon receipt of
------------------
Proper Instructions from the Fund establish and maintain a segregated account or
accounts for and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in an
account by the Custodian pursuant to Section 2.8 hereof, (i) in accordance with
the provisions of any agreement among the Fund, the Custodian and a broker-
dealer registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by the Fund,
(iii) for the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for other proper
trust purposes, but only, in the case of clause (iv), upon receipt of, in
--- ----
addition to Proper Instructions from the Fund, a copy of a Certified Resolution
setting forth the purpose or purposes of such segregated account and declaring
such purpose(s) to be a proper trust purpose.
Section 2.11 Ownership Certificates for Tax Purposes. The Custodian
---------------------------------------
shall execute ownership and other certificates and affidavits for all federal
and state tax purposes in connection with receipt of income or other payments
with respect to domestic securities of the Fund held by it and in connection
with transfers of securities.
Section 2.12 Proxies. The Custodian shall, with respect to the
-------
domestic securities held hereunder, cause to be promptly executed by the
registered holder of such securities, if the securities are registered otherwise
than in the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Fund such proxies, all proxy soliciting materials and
all notices relating to such securities.
Section 2.13 Communications Relating to Portfolio Securities. Subject
-----------------------------------------------
to the provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund all written information (including, without limitation, pendency of calls
and maturities of domestic securities and expirations of rights in connection
therewith and notices of exercise of call and put options written
8
<PAGE>
by the Fund and the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the securities being held for the
Fund. With respect to tender or exchange offers, the Custodian shall transmit
promptly to the Fund all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Fund desires to
take action with respect to any tender offer, exchange offer or any other
similar transaction, the Fund shall notify the Custodian at least three business
days prior to the date on which the Custodian is to take such action.
Section 2.14 Availability of Federal Funds. Upon mutual agreement
-----------------------------
between the Fund and the Custodian, the Custodian shall, upon the receipt of
Proper Instructions from the Fund, make federal funds available to the Fund as
of specified times agreed upon from time to time by the Fund and the Custodian
in the amount of checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
Section 3. The Custodian as Foreign Custody Manager of the Fund
----------------------------------------------------
Section 3.1. Definitions. The following capitalized terms, as used in
-----------
this Agreement, shall have the indicated meanings:
"COUNTRY RISK" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including financial institutions such as any Mandatory Securities Depositories
operating in the country); prevailing or developing custody and settlement
practices; and laws and regulations applicable to the safekeeping and recovery
of Foreign Assets held in custody in that country.
"ELIGIBLE FOREIGN CUSTODIAN" has the meaning set forth in section (a)(1) of Rule
17f-5 promulgated under Section 17(f) of the Investment Company Act of 1940, as
amended ("RULE 17F-5"), except that the term does not include Mandatory
Securities Depositories.
"FOREIGN ASSETS" means any of the Fund's investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Fund's
transactions in such investments.
"FOREIGN CUSTODY MANAGER" has the meaning set forth in section (a)(2) of Rule
17f-5.
"MANDATORY SECURITIES DEPOSITORY" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with prevailing or
developing custodial or market practices.
9
<PAGE>
Section 3.2. Delegation to the Custodian as Foreign Custody Manager.
------------------------------------------------------
The Fund, by resolution adopted by the Board of Trustees, hereby delegates to
the Custodian subject to Section (b) of Rule 17f-5, the responsibilities as
Foreign Custody Manager set forth in this Section 3 with respect to Foreign
Assets held outside the United States, and the Custodian hereby accepts such
delegation as the Fund's Foreign Custody Manager.
Section 3.3. Countries Covered. The Foreign Custody Manager shall be
-----------------
responsible for performing the delegated responsibilities defined below only
with respect to the countries and custody arrangements for each such country
listed on Schedule A of this Contract, which may be amended from time to time by
the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule
A the Eligible Foreign Custodians selected by the Foreign Custody Manager to
maintain the assets of the Fund. Mandatory Securities Depositories are listed
on Schedule B to this Contract, which Schedule B may be amended from time to
time by the Foreign Custody Manager. The Foreign Custody Manager will provide
amended versions of Schedules A and B in accordance with Section 3.7 hereof.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by the Fund of the account opening requirements
for the country (if any), the Foreign Custody Manager shall be deemed to have
been appointed by the Board of Trustees as Foreign Custody Manager with respect
to that country and to have accepted the delegation. Following the receipt of
Proper Instructions directing the Foreign Custody Manager to close the account
of the Fund with the Eligible Foreign Custodian selected by the Foreign Custody
Manager in a designated country, the delegation by the Board of Trustees to the
Custodian as Foreign Custody Manager for that country shall be deemed to have
been withdrawn and the Custodian shall immediately cease to be the Foreign
Custody Manager with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect to
the country as to which the Custodian's acceptance of delegation is withdrawn.
Section 3.4. Scope of Delegated Responsibilities.
-----------------------------------
3.4.1. Selection of Eligible Foreign Custodians. Subject to the provisions
----------------------------------------
of this Section 3, the Fund's Foreign Custody Manager may place and maintain the
Foreign Assets in the care of the Eligible Foreign Custodians selected by the
Foreign Custody Manager in each country listed on Schedule A, as amended from
time to time.
In performing its delegated responsibilities as Foreign Custody Manager to
place or maintain the Foreign Assets with an Eligible Foreign Custodian, the
Foreign Custody Manager shall determine that the Foreign Assets will be subject
to reasonable care, based on the standards applicable to custodians in the
country in which the Foreign Assets will be held by that Eligible
10
<PAGE>
Foreign Custodian, after considering all factors relevant to the safekeeping of
such assets, including, without limitation:
(i) the Eligible Foreign Custodian's practices, procedures, and internal
controls, including, but not limited to, the physical protections
available for certificated securities (if applicable), its methods of
keeping custodial records, and its security and data protection
practices;
(ii) whether the Eligible Foreign Custodian has the financial strength to
provide reasonable care for Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation and standing
and, in the case of a foreign securities depository or clearing agency
which is not a Mandatory Securities Depository, the foreign securities
depository's or clearing agency's operating history and the number of
participants in the foreign securities depository or clearing agency;
and
(iv) whether the Fund will have jurisdiction over and be able to enforce
judgments against the Eligible Foreign Custodian, such as by virtue of
the existence of any offices of the Eligible Foreign Custodian in the
United States or the Eligible Foreign Custodian's consent to service
of process in the United States.
3.4.2. Contracts With Eligible Foreign Custodians. The Foreign Custody
------------------------------------------
Manager shall determine that the contract (or the rules or established practices
or procedures in the case of an Eligible Foreign Custodian that is a foreign
securities depository or clearing agency) governing the foreign custody
arrangements with each Eligible Foreign Custodian selected by the Foreign
Custody Manager will provide reasonable care for the Foreign Assets held by that
Eligible Foreign Custodian based on the standards applicable to custodians in
the particular country. Each such contract shall include provisions that
provide:
(i) for indemnification or insurance arrangements (or any combination of
the foregoing) such that the Fund will be adequately protected against
the risk of loss of the Foreign Assets held in accordance with such
contract;
(ii) that the Foreign Assets will not be subject to any right, security
interest, or lien or claim of any kind in favor of the Eligible
Foreign Custodian or its creditors except a claim of payment for their
safe custody or administration or, in the case of cash deposits, liens
or rights in favor of creditors of the Eligible Foreign Custodian
arising under bankruptcy, insolvency, or similar laws;
(iii) that beneficial ownership of the Foreign Assets will be freely
transferable without the payment of money or value other than for safe
custody or administration;
(iv) that adequate records will be maintained identifying the Foreign
Assets as belonging to the Fund or as being held by a third party for
the benefit of the Fund;
11
<PAGE>
(v) that the independent public accountants for the Fund will be given
access to those records or confirmation of the contents of those
records; and
(vi) that the Fund will receive periodic reports with respect to the
safekeeping of the Foreign Assets, including, but not limited to,
notification of any transfer of the Foreign Assets to or from the
Fund's account or a third party account containing the Foreign Assets
held for the benefit of the Fund,
or, in lieu of any or all of the provisions set forth in (i) through (vi) above,
such other provisions that the Foreign Custody Manager determines will provide,
in their entirety, the same or greater level of care and protection for the
Foreign Assets as the provisions set forth in (i) through (vi) above, in their
entirety.
3.4.3. Monitoring. In each case in which the Foreign Custody Manager
----------
maintains Foreign Assets with an Eligible Foreign Custodian selected by the
Foreign Custody Manager, the Foreign Custody Manager shall establish a system to
monitor (i) the appropriateness of maintaining the Foreign Assets with such
Eligible Foreign Custodian, and (ii) the contract governing the custody
arrangements established by the Foreign Custody Manager with the Eligible
Foreign Custodian. In the event the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian that it has selected are
no longer appropriate, the Foreign Custody Manager shall notify the Board of
Trustees in accordance with Section 3.7 hereunder.
Section 3.5. Guidelines for the Exercise of Delegated Authority. For
--------------------------------------------------
purposes of this Section 3, the Board of Trustees shall be deemed to have
considered and determined to accept such Country Risk as is incurred by placing
and maintaining the Foreign Assets in each country for which the Custodian is
serving as Foreign Custody Manager of the Fund. The Fund and the Custodian each
expressly acknowledge that the Foreign Custody Manager shall not be delegated
any responsibilities under this Section 3 with respect to Mandatory Securities
Depositories.
Section 3.6. Standard of Care as Foreign Custody Manager of the Fund.
-------------------------------------------------------
In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the Investment Company Act of 1940, as amended, would
exercise.
Section 3.7. Reporting Requirements. The Foreign Custody Manager shall
----------------------
report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian
and the placement of such Foreign Assets with another Eligible Foreign Custodian
by providing to the Board of Trustees amended Schedules A or B at the end of the
calendar quarter in which an amendment to either Schedule has occurred. The
Foreign Custody Manager will make written reports notifying the Board of
Trustees of any other material change in the foreign custody arrangements of the
12
<PAGE>
Fund set forth in this Section 3 within a reasonable period of time after the
occurrence of such material change.
Section 3.8. Representations with respect to Rule 17f-5. The Foreign
------------------------------------------
Custody Manager represents to the Fund that it is a U.S. Bank as defined in
section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that the
Board of Trustees has determined that it is reasonable for the Board of Trustees
to rely on the Custodian to perform the responsibilities delegated pursuant to
this Agreement to the Custodian as the Foreign Custody Manager of the Fund.
Section 3.9. Effective Date and Termination of the Custodian as Foreign
----------------------------------------------------------
Custody Manager. The Board of Trustees' delegation to the Custodian as Foreign
- ---------------
Custody Manager of the Fund shall be effective as of the date of execution of
this Agreement and shall remain in effect until terminated at any time, without
penalty, by written notice from the terminating party to the non-terminating
party. Termination will become effective thirty (30) days after receipt by the
non-terminating party of such notice. The provisions of Section 3.3 hereof
shall govern the delegation to and termination of the Custodian as Foreign
Custody Manager of the Fund with respect to designated countries.
Section 4. Duties of the Custodian with Respect to Property of the Fund Held
-----------------------------------------------------------------
Outside of the United States
----------------------------
Section 4.1 Definitions. The following capitalized terms, as used
-----------
throughout this Section 4, shall have the following meanings:
"FOREIGN SECURITIES SYSTEM" means either a clearing agency or a securities
depository which is listed on Schedule A hereto or a Mandatory Securities
Depository.
"FOREIGN SUB-CUSTODIAN" means a foreign banking institution serving as an
Eligible Foreign Custodian or a Permissible Foreign Custodian.
"PERMISSIBLE FOREIGN CUSTODIAN" means any person with whom property of the Fund
may be placed and maintained outside of the United States under (i) section
17(f) or 26(a) of the Investment Company Act of 1940, as amended, without regard
to Rule 17f-5 or (ii) an order of the Securities and Exchange Commission.
Section 4.2. Holding Securities. The Custodian shall identify on its
------------------
books as belonging to the Fund the foreign securities held by each Foreign Sub-
Custodian or Foreign Securities System. The Custodian may hold foreign
securities for all of its customers, including the Fund, with any Foreign Sub-
Custodian in an account that is identified as belonging to the Custodian for the
benefit of its customers, provided however, that (i) the records of the
----------------
Custodian with respect to foreign securities of the Fund which are maintained in
such account shall identify those securities as belonging to the Fund and (ii)
the Custodian shall require that securities so
13
<PAGE>
held by the Foreign Sub-Custodian be held separately from any assets of such
Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian.
Section 4.3. Foreign Securities Systems. Foreign securities shall be
--------------------------
maintained in a Foreign Securities System in a designated country only through
arrangements implemented by the Foreign Sub-Custodian in such country pursuant
to the terms of this Agreement.
Section 4.4. Holding of Foreign Assets With Permissible Foreign
--------------------------------------------------
Custodians. Subject to the requirements of Sections 17(f) and 26(a) of the
Investment Company Act of 1940, as amended (and any other applicable law or
order), the Custodian may place and maintain Foreign Assets in the care of any
Permissible Foreign Custodian. Section 3 hereof shall not apply to placement of
Foreign Assets by the Custodian with a Permissible Custodian.
Section 4.5. Transactions in Foreign Custody Account.
---------------------------------------
4.5.1. Delivery of Foreign Securities. The Custodian or a Foreign Sub-
------------------------------
Custodian shall release and deliver foreign securities of the Fund held by such
Foreign Sub-Custodian, or in a Foreign Securities System account, only upon
receipt of Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(i) upon sale of such foreign securities for the Fund in accordance with
reasonable market practice in the country where such foreign
securities are held or traded, including, without limitation: (A)
delivery against expectation of receiving later payment; or (B) in the
case of a sale effected through a Foreign Securities System in
accordance with the rules governing the operation of the Foreign
Securities System;
(ii) in connection with any repurchase agreement related to foreign
securities;
(iii) to the depository agent in connection with tender or other similar
offers for foreign securities of the Fund;
(iv) to the issuer thereof or its agent when such foreign securities are
called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name of the
Custodian (or the name of the respective Foreign Sub-Custodian or of
any nominee of the Custodian (or such Foreign Sub-Custodian) or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units;
(vi) to brokers, clearing banks or other clearing agents for examination or
trade execution in accordance with market custom; provided that in any
--------
such case the Foreign Sub-Custodian shall have no responsibility or
liability for any loss arising from the delivery of such securities
prior to receiving payment for such securities
14
<PAGE>
except as may arise from the Foreign Sub-Custodian's own negligence or
willful misconduct;
(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities, the
surrender thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities;
(ix) for delivery as security in connection with any borrowings by the Fund
requiring a pledge of assets by the Fund;
(x) in connection with trading in options and futures contracts, including
delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper trust purpose, but only upon receipt of, in
--- ----
addition to Proper Instructions, a copy of a Certified Resolution
specifying the foreign securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such purpose
to be a proper trust purpose, and naming the person or persons to whom
delivery of such securities shall be made.
4.5.2. Payment of Fund Monies. Upon receipt of Proper Instructions, which
----------------------
may be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the
respective Foreign Securities System to pay out, moneys of the Fund in the
following cases only:
(i) upon the purchase of foreign securities for the Fund, unless otherwise
directed by Proper Instructions, by (A) delivering money to the seller
thereof or to a dealer therefor (or an agent for such seller or
dealer) against expectation of receiving later delivery of such
foreign securities; or (B) in the case of a purchase effected through
a Foreign Securities System, in accordance with the rules governing
the operation of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of foreign
securities of the Fund;
(iii) for the payment of any expense or liability of the Fund, including
but not limited to the following payments: interest, taxes,
investment advisory fees, transfer agency fees, fees under this
Agreement, legal fees, accounting fees, and other operating expenses;
15
<PAGE>
(iv) for the purchase or sale of foreign exchange or foreign exchange
contracts for the Fund, including transactions executed with or
through the Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and futures contracts, including
delivery as original margin and variation margin;
(vii) in connection with the borrowing of foreign securities; and
(viii) for any other proper trust purpose, but only upon receipt of, in
--- ----
addition to Proper Instructions, a copy of a Certified Resolution
specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a
proper trust purpose, and naming the person or persons to whom such
payment is to be made.
4.5.3. Market Conditions. Notwithstanding any provision of this Agreement
-----------------
to the contrary, settlement and payment for Foreign Assets received for the
account of the Fund and delivery of Foreign Assets maintained for the account of
the Fund may be effected in accordance with the customary established securities
trading or processing practices and procedures in the country or market in which
the transaction occurs, including, without limitation, delivering Foreign Assets
to the purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later payment for
such Foreign Assets from such purchaser or dealer.
Section 4.6. Registration of Foreign Securities. The foreign securities
----------------------------------
maintained in the custody of a Foreign Custodian (other than bearer securities)
shall be registered in the name of the Fund or in the name of the Custodian or
in the name of any Foreign Sub-Custodian or in the name of any nominee of the
foregoing, and the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such foreign securities. The Custodian or a
Foreign Sub-Custodian shall not be obligated to accept securities on behalf of
the Fund under the terms of this Agreement unless the form of such securities
and the manner in which they are delivered are in accordance with reasonable
market practice.
Section 4.7. Bank Accounts. A bank account or bank accounts opened and
-------------
maintained outside the United States in a Foreign Sub-Custodian shall be subject
only to draft or order by the Custodian or such Foreign Sub-Custodian, acting
pursuant to the terms of this Agreement to hold cash received by or from or for
the account of the Fund.
Section 4.8. Collection of Income. The Custodian shall use reasonable
--------------------
endeavors to collect all income and other payments in due course with respect to
the Foreign Assets held hereunder to which the Fund shall be entitled and shall
credit such income, as collected, to the Fund. In the event that extraordinary
measures are required to collect such income, the Fund and the Custodian shall
consult as to such measures and as to the compensation and expenses of the
Custodian attendant thereto.
16
<PAGE>
Section 4.9. Proxies. The Custodian will generally with respect to the
-------
foreign securities held under this Section 4 use its reasonable endeavors to
facilitate the exercise of voting and other shareholder proxy rights, subject
always to the laws, regulations and practical constraints that may obtain in the
country where such securities are issued. The Fund acknowledges that local
conditions, including lack of regulation, onerous procedural obligations, lack
of notice and other factors may have the effect of severely limiting the ability
of the Fund to exercise shareholder rights.
Section 4.10. Communications Relating to Foreign Securities. The
---------------------------------------------
Custodian shall transmit promptly to the Fund written information (including,
without limitation, pendency of calls and maturities of foreign securities and
expirations of rights in connection therewith) received by the Custodian via the
Foreign Sub-Custodians from issuers of the foreign securities being held for the
account of the Fund. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the Fund written information so received by the
Custodian from issuers of the foreign securities whose tender or exchange is
sought or from the party (or its agents) making the tender or exchange offer.
The Custodian shall not be liable for any untimely exercise of any tender,
exchange or other right or power in connection with foreign securities or other
property of the Fund at any time held by it unless (i) the Custodian or the
respective Foreign Sub-Custodian is in actual possession of such foreign
securities or property and (ii) the Custodian receives Proper Instructions with
regard to the exercise of any such right or power, and both (i) and (ii) occur
at least three (3) New York business days prior to the date on which such right
or power is to be exercised.
Section 4.11. Liability of Foreign Sub-Custodians and Foreign Securities
----------------------------------------------------------
Systems. Each agreement pursuant to which the Custodian employs as a Foreign
- -------
Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian
to exercise reasonable care in the performance of its duties and, to the extent
possible, to indemnify, and hold harmless, the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the institution's performance of such obligations. At the election of the
Fund, the Fund shall be entitled to be subrogated to the rights of the Custodian
with respect to any claims against a Foreign Sub-Custodian as a consequence of
any such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost, expense,
liability or claim.
Section 4.12. Tax Law. Except to the extent that imposition of any tax
-------
liability arises from the Custodian's failure to perform in accordance with the
terms of this Section 4.12, the Custodian shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund or the
Custodian as custodian of the Fund by the tax law of the United States or of any
state or political subdivision thereof. It shall be the responsibility of the
Custodian to use reasonable efforts and due care to perform such ministerial
steps as are required to collect any tax refund, to ascertain the appropriate
rate of tax withholding and to provide such documents as may be required to
enable the Fund to receive appropriate tax treatment under applicable tax laws
and any applicable treaty provisions. Unless otherwise informed by the Fund,
the Custodian, in performance of its duties under this Section, shall be
entitled to apply categorical treatment to the
17
<PAGE>
Fund according to the nationality of the Fund, the particulars of its
organization and other relevant details that shall be supplied to the Custodian
by the Fund. The Custodian shall be entitled to rely on any information
supplied by the Fund. The Custodian may engage reasonable professional advisors
disclosed to the Fund by the Custodian, which may include attorneys, accountants
or financial institutions in the regular business of investment administration
and may rely upon advice received therefrom. It shall be the duty of the Fund
to inform the Custodian of any change in the organization, domicile or other
relevant fact concerning tax treatment of the Fund and further to inform the
Custodian if the Fund is or becomes the beneficiary of any special ruling or
treatment not applicable to the general nationality and category of entity of
which the Fund is a part under general laws and treaty provisions.
Section 4.13. Conflict. If the Custodian is delegated the
--------
responsibilities of Foreign Custody Manager pursuant to the terms of Section 3
hereof, in the event of any conflict between the provisions of Sections 3 and 4
hereof, the provisions of Section 3 shall prevail.
Section 5. Payments for Sales or Repurchases or Redemptions of Shares
----------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent and deposit into the account of the Fund such payments as are
received for Shares thereof issued or sold from time to time by the Fund. The
Custodian will provide timely notification to the Fund and the Transfer Agent of
any receipt by it of payments for Shares.
From such funds as may be available for the purpose but subject to the
limitations of the Fund's Declaration of Trust and any applicable votes of the
Board of Trustees pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares, the Custodian is authorized upon receipt of instructions
from the Transfer Agent to wire funds to or through a commercial bank designated
by the redeeming shareholders. In connection with the redemption or repurchase
of Shares, the Custodian shall honor checks drawn on the Custodian by a holder
of Shares, which checks have been furnished by the Fund to the holder of Shares,
when presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
Section 6. Proper Instructions
-------------------
Proper Instructions as used throughout this Agreement means a writing signed
or initialed by two or more persons as the Board of Trustees shall have from
time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific statement of
the purpose for which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Proper Instructions may include
18
<PAGE>
communications effected directly between electro-mechanical or electronic
devices. For purposes of this Section, Proper Instructions shall include
instructions received by the Custodian pursuant to any three-party agreement
which requires a segregated asset account in accordance with Section 2.10.
Section 7. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to
--------
the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Fund except as
otherwise directed by the Board of Trustees.
Section 8. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board of Trustees pursuant to the Fund's Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
Section 8A. Representations and Warranties
------------------------------
Section 8A.1. Representations and Warranties of Custodian
-------------------------------------------
The Custodian represents and warrants to the Fund that:
1) it is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts;
2) it is duly qualified to carry on its business in The Commonwealth of
Massachusetts;
19
<PAGE>
3) it is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement;
4) all requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement;
5) it has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement; and
6) it is a qualified custodian under the Investment Company Act of 1940, as
amended.
Section 8A.2. Representation and Warranties of the Fund
-----------------------------------------
The Fund represents and warrants to the Custodian that:
1) it is a common law trust duly organized and existing and in good standing
under the laws of the State of California;
2) it is empowered under applicable laws and by its Declaration of Trust to
enter into and perform this Agreement;
3) all proceedings required by said Declaration of Trust have been taken to
authorize it to enter into and perform this Agreement;
4) it is an open-end, diversified management investment company registered
under the Investment Company Act of 1940, as amended; and
5) a registration statement under the Securities Act of 1933, as amended is,
currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made,
with respect to all Shares of the Fund being offered for sale and all
Shares sold.
Section 9. Duties of Custodian with Respect to the Books of Account and
------------------------------------------------------------
Calculation of Net Asset Value and Net Income
---------------------------------------------
The Custodian agrees to provide the following mutual fund accounting services
to the Funds.
Section 9A. Portfolio Accounting Services
-----------------------------
20
<PAGE>
1) maintain portfolio records on a trade date +1 basis using security
trade information communicated from the investment adviser of the
Fund on a timely basis;
2) for each valuation date of the Fund as stated in the Prospectus
("VALUATION DATE"), obtain prices from a pricing source selected
by the Fund or the investment adviser to the Fund except in the
case of those categories of securities or individual securities
which the Fund or the investment adviser to the Fund chooses to
price itself, as indicated on the Price Source Authorization Form
attached hereto as Exhibit 1 (the "PRICE SOURCE AUTHORIZATION") or
pursuant to the valuation policies adopted by the Board of
Trustees from time to time, and approved by the Board of Trustees
and apply those prices to the portfolio positions. For those
securities for which market quotations are not readily available,
the Board of Trustees shall approve, in good faith, the method for
determining the fair value for such securities;
3) identify interest and dividend accrual balances as of each
Valuation Date and calculate gross earnings on investments for the
accounting period;
4) account for and post to the Fund's accounting records all relevant
bond maturities, calls and paydowns, stock dividends, splits and
other corporate action activity;
5) supply, upon request, the investment adviser of the Fund or other
tax accounting agent of the Fund with any available book
accounting information which may help such tax accounting agent
(i) determine gain/loss on security sales and identify them as
short, medium or long-term status; (ii) account for periodic
distributions of gains or losses to shareholders; and (iii)
maintain undistributed gain or loss balances as of each Valuation
Date;
6) maintain all accounting books and records in accordance with GAAP
as applied in the mutual fund industry; and
7) prepare 30 day SEC yields for the Fund.
Section 9A.1. Expense Accrual and Payment Services
------------------------------------
1) for each Valuation Date, calculate the expense accrual amounts as
directed by the Fund, pursuant to a methodology which is agreeable
to both the Fund and the Custodian;
2) record payments for Fund expenses upon receipt of written
authorization from the Fund;
21
<PAGE>
3) account for fund expenditures and maintain expense accrual
balances as instructed by the Fund pursuant to a methodology which
is agreeable to both the Custodian and the Fund; and
4) provide expense accrual reports and reports of recorded payments.
Section 9A.2. Fund Valuation and Financial Reporting Services
-----------------------------------------------
1) account for Fund share purchases, sales, exchanges, transfers,
dividend reinvestments, and other Fund share activity as reported
by the Transfer Agent on a timely basis;
2) determine net investment income (earnings ) for the Fund as of
each Valuation Date. Provide book accounting for use by the Fund
in determining periodic distributions of earnings to shareholders
and maintaining undistributed net investment income balances as of
each Valuation Date;
3) maintain a general ledger for the Fund which will include (i)
daily cash reconciliations to custodian records with documentation
of exception items; (ii) monthly (or more frequently as
appropriate) reconciliations of security positions held to custody
records; and (iii) tie-out the Fund's net cash in- or outflows and
net share in-flows or out-flows generated by shareholder
transactions to the records of the Transfer Agent, so long as
State Street Bank and Trust Company or an affiliate is the
transfer agent of the Fund; (iv) assist the Transfer Agent in
resolving any unusual shareholder transaction data; and (v) report
results of any of the above reconciliations or tie-outs to the
Fund;
4) for each Valuation Date, determine the net asset value according
to the accounting policies and procedures set forth in the Price
Source Authorization and fair valuation procedures established by
the Board of Trustees, in each case as instructed by the Fund.
Further, the Custodian will review changes in the value of
individual securities and the Fund's net asset value per share
pursuant to the tolerance testing as described on the Price Source
Authorization;
5) calculate the per share net asset value of the Fund;
6) communicate, at an agreed upon time, the per share price and
periodic book accounting distribution data for each Valuation Date
to parties as agreed upon from time to time; and
22
<PAGE>
7) prepare monthly reports which document the adequacy of accounting
detail to support month-end ledger balances.
Section 9A.3. Support to Tax Accounting Agent
-------------------------------
1) maintain book accounting records for the Fund to support the tax
reporting required by the Internal Revenue Service for regulated
investment companies;
2) maintain book accounting security lot detail for the Fund; and
3) provide the necessary book accounting financial information to
support the tax accounting agent's determination of the taxable
components of income and capital gain distributions reportable to
shareholders.
Section 9A.4. Regulatory Reporting Assistance
-------------------------------
1) support reporting to regulatory bodies and support financial
statement preparation and other Fund administration tasks by
making the Fund book accounting records maintained by the
Custodian available to the Fund, the Securities and Exchange
Commission, and the Fund's independent public auditors; and
2) maintain book accounting records of the Fund according to the
Investment Company Act of 1940, as amended, and regulations
provided thereunder.
Section 9.A.5. Fund Override of Price Source Authorization.
--------------------------------------------
If the Fund desires to provide a valuation for any security which varies from
the valuation determined by the authorized pricing source pursuant to the Price
Source Authorization, the Fund shall promptly notify and supply the Custodian
with the valuation of any such security on each Valuation Date. All such
pricing overrides made by the Fund will be in writing and must specifically
identify the securities for which the valuations are to be adjusted by CUSIP,
name of security, new price or rate to be applied, and, if applicable, the time
period for which the new price(s) is/are effective.
Section 9.2. Changes in Accounting Procedures. Any resolution passed by the
---------------------------------
Board of Trustees that affects accounting practices and procedures under this
agreement shall be effective upon written receipt and acceptance by the
Custodian.
Section 9.3. Confidentiality. The Custodian shall handle in confidence all
----------------
information relating to the Fund's business which is received by the Custodian
during the course of rendering any service hereunder. The Custodian shall not
release any Fund information to any other party (other than the Fund's
independent auditors and NASDAQ) without the express written permission of the
Fund, except that which is required by state or federal law.
23
<PAGE>
Section 9.4. Data Necessary to Perform Services. The Fund or its agents
-----------------------------------
shall furnish to the Custodian the data necessary to perform the services
described herein at times and in such form as mutually agreed upon.
Section 9.5. Notification of Error. The Fund will notify the Custodian of
----------------------
any balancing or control error caused by the Custodian within thirty (30)
business days after receipt of any reports rendered by the Custodian to the
Fund, or within thirty (30) business days after discovery of any error or
omission not covered in the balancing or control procedure, or within thirty
(30) business days of receiving notice from any shareholder.
Section 10. Records
-------
The Custodian shall create and maintain all records required by law relating
to its activities and obligations under this Agreement including in such manner
as will meet the obligations of the Fund under the Investment Company Act of
1940, as amended, with particular attention to Section 31 thereof and Rules 31a-
1 and 31a-2 thereunder. All such records shall be the property of the Fund and
shall at all times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by the Fund and held by the Custodian and shall, when requested to do so
by the Fund and for such compensation as shall be agreed upon between the Fund
and the Custodian, include certificate numbers in such tabulations.
Section 11. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund may from time to
time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's registration statement on Form N-1A, the
Fund's annual report on Form N-SAR or other material required to be filed with
the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
Section 12. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, at such times as the Fund may reasonably
require, with reports by independent public accountants on the accounting
system, internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including securities
deposited and/or maintained in a U.S. Securities System or a Foreign Securities
System (collectively referred to herein as the "SECURITIES SYSTEMS"), relating
to the services provided by the Custodian under this Agreement; such reports
shall be of sufficient scope and in sufficient detail, as may reasonably be
required by the Fund to provide reasonable assurance
24
<PAGE>
that any material inadequacies would be disclosed by such examination, and, if
there are no such inadequacies, the reports shall so state.
Section 13. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
Section 14. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled
to rely on and may act upon advice of counsel (who may be counsel for the Fund)
on all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice. The Custodian shall be without liability to
the Fund for any loss, liability, claim or expense resulting from or caused by
anything which is part of Country Risk, including without limitation
nationalization, expropriation, currency restrictions, or acts of war,
revolution, riots or terrorism.
If in any case the Fund is asked to indemnify and hold the Custodian harmless,
the Custodian shall use all reasonable care to identify and promptly inform the
indemnifying party of the facts, in the Custodian's actual knowledge, from which
the claim arises. The Fund shall be entitled, at its own expense, to
participate in the investigation and to be consulted as to the defense of any
such claim, and in such event, the Custodian shall keep the Fund fully and
currently informed of all developments relating to such investigation or
defense. At any time, the Fund shall be entitled at its own expense to conduct
the defenses of any such claim, provided that the Fund: (i) reasonably
demonstrates to the other party its ability to pay the full amount of potential
liability in connection with such claim and (ii) first admits in writing to the
other party that such claims are in respect of which the Fund is obligated to
indemnify the Custodian. Upon satisfaction of the foregoing conditions, the
Fund shall take over complete defense of the claim, and the Custodian shall
initiate no further legal or other expenses for which it shall seek
indemnification unless the possible liabilities or penalties to the Custodian
involve other than money damages. The Custodian shall in no case confess any
claim or make any compromise in any case in which the Fund may be asked to
indemnify the Custodian, except with the Fund's prior written consent.
25
<PAGE>
Except as may arise from the Custodian's own negligence or willful misconduct
or the negligence or willful misconduct of a sub-custodian or agent, the
Custodian shall be without liability to the Fund for any loss, liability, claim
or expense resulting from or caused by; (i) events or circumstances beyond the
reasonable control of the Custodian or any sub-custodian or Securities System or
any agent or nominee of any of the foregoing, including, without limitation, the
interruption, suspension or restriction of trading on or the closure of any
securities market, power or other mechanical or technological failures or
interruptions, computer viruses or communications disruptions, work stoppages,
natural disasters, or other similar events or acts; (ii) errors by the Fund or
the investment adviser of the Fund in its instructions to the Custodian provided
such instructions have been in accordance with this Agreement; (iii) the
insolvency of or acts or omissions by a Securities System; (iv) any delay or
failure of any broker, agent or intermediary, central bank or other commercially
prevalent payment or clearing system to deliver to the Custodian's sub-custodian
or agent securities purchased or in the remittance or payment made in connection
with securities sold; (v) any delay or failure of any company, corporation, or
other body in charge of registering or transferring securities in the name of
the Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or
any consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) compliance with any change in any provision of any
present law or regulation or order of the United States of America, or any state
thereof, or any other country, or political subdivision thereof or of any court
of competent jurisdiction.
The Custodian has a reasonable disaster recovery and safekeeping plan given
its services hereunder. The Custodian shall maintain commercially reasonable
amounts of (a) comprehensive general liability insurance coverage and (b) errors
and omissions insurance coverage and notify the Fund in the event that such
insurance is canceled
In the event of equipment failures beyond the Custodian's control, the
Custodian shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. The Custodian shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provision for (i) periodic back-up of the computer files and data
with respect to the Fund and (ii) emergency use of electronic data processing
equipment to provide services under this Agreement and the Data Access Services
Addendum between State Street Bank and Trust Company and the Fund.
The Custodian shall be liable for the acts or omissions of a Foreign Sub-
Custodian to the same extent as set forth with respect to sub-custodians
generally in this Agreement.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
26
<PAGE>
If the Fund requires the Custodian, its affiliates, subsidiaries or agents, to
advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund's assets
to the extent necessary to obtain reimbursement.
In no event shall the Custodian or the Fund be liable for indirect, special or
consequential damages.
Section 15. Effective Period, Termination and Amendment
-------------------------------------------
This Agreement shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than ninety (90)
days after the date of such delivery or mailing; provided, however that the
--------
Custodian shall not act under Section 2.8 hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary of the Fund that
the Board of Trustees has approved the initial use of a particular Securities
System by the Fund, as required by Rule 17f-4 under the Investment Company Act
of 1940, as amended, and that the Custodian shall not act under Section 2.9
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary of the Fund that the Board of Trustees has approved the
initial use of the Direct Paper System by the Fund; provided further, however,
-------- -------
that the Fund shall not amend or terminate this Agreement in contravention of
any applicable federal or state regulations, or any provision of the Fund's
Declaration of Trust, and further provided, that the Fund may at any time by
action of its Board of Trustees (i) substitute another bank or trust company for
the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Agreement, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its actual costs, expenses and disbursements
incurred.
Section 16. Successor Custodian
-------------------
27
<PAGE>
If a successor custodian for the Fund shall be appointed by the Board of
Trustees, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities of the Fund then held by the Custodian hereunder and
shall transfer to an account of the successor custodian all of the securities of
the Fund held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a copy of a Certified Resolution of the Board of
Trustees, deliver at the office of the Custodian and transfer such securities,
funds and other properties in accordance with such resolution.
In the event that no written order designating a successor custodian or copy
of a Certified Resolution of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940, as
amended, doing business in Boston, Massachusetts, of its own selection, having
an aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of the Fund and all instruments held
by the Custodian relative thereto and all other property held by it under this
Agreement and to transfer to an account of such successor custodian all of the
securities of the Fund held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Agreement.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the copy of the Certified Resolution referred to
or of the Board of Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Agreement relating to the duties and obligations of
the Custodian shall remain in full force and effect.
Section 17. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Agreement, the Custodian and the Fund
may from time to time agree on such provisions interpretive of or in addition to
the provisions of this Agreement as may in their joint opinion be consistent
with the general tenor of this Agreement. Any such interpretive or additional
provisions shall be in a writing signed by both parties and shall be annexed
hereto, provided that no such interpretive or additional provisions shall
--------
contravene any applicable federal or state regulations or any provision of the
Fund's Declaration of Trust. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
Section 19. Massachusetts Law to Apply
--------------------------
28
<PAGE>
This Agreement shall be construed and the provisions thereof interpreted under
and in accordance with laws of The Commonwealth of Massachusetts.
Section 20. Prior Agreements
----------------
This Agreement supersedes and terminates, as of the date hereof, all prior
Agreements between the Fund and the Custodian relating to the custody of the
Fund's assets.
Section 21. Notices.
-------
Any notice, instruction or other instrument required to be given hereunder may
be delivered in person to the offices of the parties as set forth herein during
normal business hours or delivered prepaid registered mail or by telex, cable or
telecopy to the parties at the following addresses or such other addresses as
may be notified by any party from time to time.
To the Fund: Dodge & Cox Balanced Fund
One Sansome Street, 35th Floor
San Francisco, California 94104
Attention: W. Timothy Ryan
Telephone: (415) 981-1710
Telecopy: (415) 986-1369
To the Custodian: State Street Bank and Trust Company
1776 Heritage Drive, JPB 4N
North Quincy, Massachusetts 02171
Attention: James M. Curren
Telephone: (617) 985-6547
Telecopy: (617) 985-3746
Such notice, instruction or other instrument shall be deemed to have been
served in the case of a registered letter at the expiration of five business
days after posting, in the case of cable twenty-four hours after dispatch and,
in the case of telex, immediately on dispatch and if delivered outside normal
business hours it shall be deemed to have been received at the next time after
delivery when normal business hours commence and in the case of cable, telex or
telecopy on the business day after the receipt thereof. Evidence that the
notice was properly addressed, stamped and put into the post shall be conclusive
evidence of posting.
Section 22. Reproduction of Documents
-------------------------
29
<PAGE>
This Agreement and all schedules, exhibits, attachments and amendments hereto
may be reproduced by any photographic, photostatic, microfilm, micro-card,
miniature photographic or other similar process. The parties hereto all/each
agree that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding, whether or not the original
is in existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
30
<PAGE>
Section 23. Shareholder Communications Election
-----------------------------------
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [X] The Custodian is not authorized to release the Fund's name,
address, and share positions.
Section 24. Reorganization.
---------------
The reorganization of the Fund as a Delaware business trust shall not
constitute a termination of this Agreement, and the successor Delaware business
trust and the Custodian shall enter into a new contract with substantially the
same terms and conditions.
Section 25. Limitations of Liability of the Trustees and Shareholders.
----------------------------------------------------------
Notice is hereby given that this instrument is executed on behalf of the
Trustees of the Fund as Trustees and not individually and that the obligations
of this instrument and are not binding upon any of the Trustees or shareholders
of the Fund individually but are binding only upon the assets and property of
the Fund.
31
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of November , 1997.
Attest Dodge & Cox Balanced Fund
By:
- --------------------------------- -------------------------------------
Name: Name:
- --------------------------------- -------------------------------------
Title: Title:
- --------------------------------- -------------------------------------
Attest State Street Bank and Trust Company
By:
- --------------------------------- -------------------------------------
Name: Ronald E. Logue
- --------------------------------- Executive Vice President
Title:
- ---------------------------------
32
<PAGE>
EX-99.B9
TRANSFER AGENCY AND SERVICE AGREEMENT
between
DODGE & COX BALANCED FUND
and
BOSTON FINANCIAL DATA SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Terms of Appointment; Duties of Boston Financial......... 1
2. Agreements with Third Party Administrators for
Defined Contribution Plans................................ 4
3. Individual Retirement Accounts and 403(b) Plans........... 4
4. Fees and Expenses......................................... 4
5. Representations and Warranties of Boston Financial...... 5
6. Representations and Warranties of the Fund................ 6
7. Wire Transfer Operating Guidelines....................... 6
8. Data Access and Proprietary Information.................. 8
9. Indemnification.......................................... 10
10. Standard of Care......................................... 12
11. Covenants of the Fund and Boston Financial............... 12
12. Term and Termination of Agreement........................ 13
13. Assignment............................................... 13
14. Amendment................................................ 14
15. Massachusetts Law to Apply............................... 14
16. Disaster Recovery and Insurance Coverage................. 14
17. Force Majeure............................................ 14
18. Consequential Damages.................................... 15
19. Merger of Agreement...................................... 15
20. Limitations of Liability of the Trustees
or Shareholders.......................................... 15
21. Counterparts............................................. 15
22. Reproduction of Documents................................ 15
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the day of , 1997, by and
between DODGE & COX BALANCED FUND, a California common law trust, having its
principal office and place of business at One Sansome Street, 35th Floor, San
Francisco California (the "Fund"), and BOSTON FINANCIAL DATA SERVICES, INC. a
Massachusetts corporation having its principal office and place of business at 2
Heritage Drive, Quincy, Massachusetts 02171 ("Boston Financial").
WHEREAS, the Fund desires to appoint Boston Financial as its transfer agent,
dividend disbursing agent, custodian of certain retirement plans and agent in
connection with certain other activities, and Boston Financial desires to accept
such appointment;
WHEREAS, the Fund desires to appoint State Street Bank and Trust Company, a
Massachusetts trust company and an affiliate of Boston Financial ("State
Street"), a custodian of certain retirement plans;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment; Duties of Boston Financial
------------------------------------------------
1.1 Subject to the terms and conditions set forth in this Agreement, the Fund
hereby employs and appoints Boston Financial to act as, and Boston
Financial agrees to act as its transfer agent for the Fund's authorized
and issued shares of its beneficial interest, $ 1.00 par value,
("Shares"), dividend disbursing agent and agent in connection with any
accumulation, open-account or similar plans provided to the shareholders
of the Fund ("Shareholders") and set out in the currently effective
prospectus and statement of additional information ("Prospectus") of the
Fund, including without limitation any periodic investment plan or
periodic withdrawal program and appoints State Street as custodian of
certain retirement plans.
1.2 Transfer Agent Services. Boston Financial agrees that it will perform the
------------------------
following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and Boston Financial, Boston Financial
shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof
to the Custodian of the Fund authorized pursuant to the
Declaration of Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to
the Custodian;
<PAGE>
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, Boston Financial shall execute transactions directly with
broker-dealers authorized by the Fund;
(v) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by Boston
Financial of indemnification satisfactory to Boston Financial
and protecting Boston Financial and the Fund, and Boston
Financial at its option, may issue replacement certificates in
place of mutilated stock certificates upon presentation thereof
and without such indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing and
(x) Record the issuance of shares of the Fund and maintain pursuant
to Rule 17Ad-10(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") a record of the total number of
shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. Boston
Financial shall also provide the Fund on a regular basis with
the total number of Shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of shares, to monitor the issuance of such Shares or
to take cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole responsibility of
the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), Boston Financial
shall: (i) perform the customary
<PAGE>
services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open-account or
similar plans (including without limitation any periodic investment
plan or periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing Shareholder proxies, Shareholder reports and
prospectuses to current Shareholders, withholding taxes on U.S.
resident and non-resident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required
with respect to dividends and distributions by federal authorities
for all Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information and (ii)
provide a system which will enable the Fund to monitor the total
number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to Boston Financial in
writing those transactions and assets to be treated as exempt from
blue sky reporting for each State and (ii) verify the establishment
of transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of Boston Financial for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the
timely reporting of such transactions to the Fund as provided above.
(d) Boston Financial shall report abandoned property to the states as may
be agreed upon in writing between the Fund and Boston Financial.
(e) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement between
the Fund and Boston Financial per the attached service responsibility
schedule. Boston Financial may at times perform only a portion of
these services and the Fund or its agent may perform these services
on the Fund's behalf.
2. Agreements with Third Party Administrators for Defined Contribution Plans
-------------------------------------------------------------------------
2.1 Boston Financial and the Fund agree that at the Fund's request Boston
Financial will enter into agreements with third party administrators for
defined contribution plans designated by the Fund, to serve as limited
agents of the Fund in the purchase and redemption of Shares of the Fund by
the employee benefit, profit-sharing and retirement
<PAGE>
plans and arrangements described in Section 3(34) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or similar
plans and arrangements, whether or not subject to ERISA or qualified for
exemption from taxation under the Internal Revenue Code of 1986, as
amended, (the "Internal Revenue Code") the ("Plans"). The third party
administrators will perform administrative and record keeping services
for the Plans, which invest in the Fund. Except as expressly provided in
Section 9.2 of hereof, Boston Financial's duties and performance under
such agreements shall be determined by the terms thereof and not pursuant
to the terms of this Agreement.
2.2 Such agreements will be based either on a form of agreement provided by
the Fund or by Boston Financial and acceptable to the other party hereto.
Boston Financial reserves the right not to enter into or to terminate any
such agreement if such agreement or performance thereunder by the third
party administrator fails to meet industry standards or comply with
applicable law.
3. Individual Retirement Accounts and 403(b) Plans.
------------------------------------------------
Boston Financial shall provide certain materials and agreements that allow
Shareholders to establish custodial accounts under Sections 408 and
403(b) of the Internal Revenue Code that name State Street as custodian
("IRA and 403(b) Prototypes"). Boston Financial shall provide and
maintain IRA and 403(b) Prototypes in full compliance with the Internal
Revenue Code. The Fund shall not revise or modify the IRA and 403(b)
Prototypes without the written consent of Boston Financial.
4. Fees and Expenses
-----------------
4.1 For the performance by Boston Financial pursuant to this Agreement, the
Fund agrees to pay Boston Financial an annual maintenance fee for each
Shareholder account as set out in the initial fee schedule agreed upon by
the parties. Such fees and out-of-pocket expenses and advances identified
under Section 4.2 below may be changed from time to time subject to mutual
written agreement between the Fund and Boston Financial.
4.2 In addition to the fee paid under Section 4.1 above, the Fund agrees to
reimburse Boston Financial for out-of-pocket expenses, including but not
limited to confirmation production, postage, forms, telephone, microfilm,
microfiche, mailing and tabulating proxies, records storage, or advances
incurred by Boston Financial for the items set out in the fee schedule
attached hereto. In addition, any other expenses incurred by Boston
Financial at the request or with the consent of the Fund, will be
reimbursed by the Fund.
<PAGE>
4.3 The Fund agrees to pay all fees and reimbursable expenses within ten days
following the receipt of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to Boston Financial by the Fund at
least seven (7) days prior to the mailing date of such materials.
5. Representations and Warranties of Boston Financial
--------------------------------------------------
Boston Financial represents and warrants to the Fund that:
5.1 It is a corporation duly organized and existing and in good standing under
the laws of The Commonwealth of Massachusetts.
5.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
5.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
5.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
5.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
5.6 It is duly registered as a transfer agent pursuant to Section 17A(c)(2) of
the Exchange Act.
5.7 It will comply with, and maintain such books and records as are required
of it by, the Internal Revenue Code, as amended, the Investment Company
Act of 1940, as amended (the "Investment Company Act"), and the Exchange
Act.
6. Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to Boston Financial that:
6.1 It is a business trust duly organized and existing and in good standing
under the laws of the State of California.
6.2 It is empowered under applicable laws and by its Declaration of Trust and
By-Laws to enter into and perform this Agreement.
<PAGE>
6.3 All corporate proceedings required by said Declaration of Trust and By-
Laws have been taken to authorize it to enter into and perform this
Agreement.
6.4 It is an open-end and diversified management investment company registered
under the Investment Company Act of 1940, as amended.
6.5 A registration statement under the Securities Act of 1933, as amended is
currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
7. Wire Transfer Operating Guidelines/Articles 4A of the Uniform Commercial
------------------------------------------------------------------------
Code
----
7.1 Boston Financial is authorized to promptly debit the appropriate Fund
account(s) upon the receipt of a payment order in compliance with the
selected security procedure (the "Security Procedure") chosen for funds
transfer and in the amount of money that Boston Financial has been
instructed to transfer. Boston Financial shall execute payment orders in
compliance with the Security Procedure and with the Fund instructions on
the execution date provided that such payment order is received by the
customary deadline for processing such a request, unless the payment order
specifies a later time. All payment orders and communications received
after this the customary deadline will be deemed to have been received the
next business day.
7.2 The Fund acknowledges that the Security Procedure it has designated on the
Fund Selection Form was selected by the Fund from security procedures
offered by Boston Financial. The Fund shall restrict access to
confidential information relating to the Security Procedure to authorized
persons as communicated to Boston Financial in writing. The Fund must
notify Boston Financial immediately if it has reason to believe
unauthorized persons may have obtained access to such information or of
any change in the Fund's authorized personnel. Boston Financial shall
verify the authenticity of all Fund instructions according to the Security
Procedure.
7.3 Boston Financial shall process all payment orders on the basis of the
account number contained in the payment order. In the event of a
discrepancy between any name indicated on the payment order and the
account number, the account number shall take precedence and govern.
7.4 Boston Financial reserves the right to decline to process or delay the
processing of a
<PAGE>
payment order which (a) is in excess of the collected balance in the
account to be charged at the time of Boston Financial's receipt of such
payment order; (b) if initiating such payment order would cause Boston
Financial, in Boston Financial's sole judgement, to exceed any volume,
aggregate dollar, network, time, credit or similar limits which are
applicable to Boston Financial; or (c) if Boston Financial, in good
faith, is unable to satisfy itself that the transaction has been properly
authorized.
7.5 Boston Financial shall use reasonable efforts to act on all authorized
requests to cancel or amend payment orders received in compliance with the
Security Procedure provided that such requests are received in a timely
manner affording Boston Financial reasonable opportunity to act.
However, Boston Financial assumes no liability if the request for
amendment or cancellation cannot be satisfied.
7.6 Boston Financial shall assume no responsibility for failure to detect any
erroneous payment order provided that Boston Financial complies with the
payment order instructions as received and Boston Financial complies with
the Security Procedure. The Security Procedure is established for the
purpose of authenticating payment orders only and not for the detection
of errors in payment orders.
7.7 Boston Financial shall assume no responsibility for lost interest with
respect to the refundable amount of any unauthorized payment order,
unless Boston Financial is notified of the unauthorized payment order
within sixty (60) days of notification by Boston Financial of the
acceptance of such payment order. In no event (including failure to
execute a payment order) shall Boston Financial be liable for special,
indirect or consequential damages, even if advised of the possibility of
such damages.
7.8 When the Fund initiates or receives Automated Clearing House credit and
debit entries pursuant to these guidelines and the rules of the National
Automated Clearing House Association and the New England Clearing House
Association, State Street will act as an Originating Depository Financial
Institution and/or Receiving Depository Financial Institution, as the case
may be, with respect to such entries. Credits given by State Street with
respect to an ACH credit entry are provisional until State Street receives
final settlement for such entry from the Federal Reserve Bank. If State
Street does not receive such final settlement, the Fund agrees that State
Street shall receive a refund of the amount credited to the Fund in
connection with such entry, and the party making payment to the Fund via
such entry shall not be deemed to have paid the amount of the entry.
7.9 Confirmation of Boston Financial's execution of payment orders shall
ordinarily be
<PAGE>
provided within twenty four (24) hours notice of which may be delivered
through Boston Financial's proprietary information systems, or by
facsimile or call-back. The Fund must report any objections to the
execution of an order within thirty (30) days.
8. Data Access and Proprietary Information
---------------------------------------
8.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by Boston Financial as part of the Fund's
ability to access certain Fund-related data ("Customer Data") maintained
by Boston Financial on data bases under the control and ownership of
Boston Financial or other third party ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information (collectively,
"Proprietary Information") of substantial value to Boston Financial or
other third party. In no event shall Proprietary Information be deemed
Customer Data. The Fund agrees to treat all Proprietary Information as
proprietary to Boston Financial and further agrees that it shall not
divulge any Proprietary Information to any person or organization except
as may be provided hereunder. Without limiting the foregoing, the Fund
agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be designated in
writing by Boston Financial and solely in accordance with Boston
Financial's applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose of
such information in accordance with Boston Financial's instructions;
(d) to refrain from causing or allowing the data acquired hereunder from
being retransmitted to any other computer facility or other location,
except with the prior written consent of Boston Financial, provided
however the Fund may store the information transmitted from Boston
Financial's databases on its computer systems and make available such
information to the Fund and its affiliates as necessary;
(e) that the Fund shall have access only to those authorized transactions
agreed upon by the parties and
<PAGE>
(f) to honor all reasonable written requests made by Boston Financial to
protect at Boston Financial's expense the rights of Boston
Financial in Proprietary Information at common law, under federal
copyright law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 8. The obligations of this Section shall
survive any earlier termination of this Agreement.
8.2 If the Fund notifies Boston Financial that any of the Data Access Services
do not operate in material compliance with the most recently issued user
documentation for such services, Boston Financial shall endeavor in a
timely manner to correct such failure. Organizations from which Boston
Financial may obtain certain data included in the Data Access Services are
solely responsible for the contents of such data and the Fund agrees to
make no claim against Boston Financial arising out of the contents of
such third-party data, including, but not limited to, the accuracy
thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS
AVAILABLE BASIS. BOSTON FINANCIAL EXPRESSLY DISCLAIMS ALL WARRANTIES
EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
8.3 If the transactions available to the Fund include the ability to originate
electronic instructions to Boston Financial in order to (a) effect the transfer
or movement of cash or Shares or (b) transmit Shareholder information or other
information, then in such event Boston Financial shall be entitled to rely on
the validity and authenticity of such instruction without undertaking any
further inquiry as long as such instruction is undertaken in conformity with
security procedures established by Boston Financial from time to time.
9. Indemnification
---------------
9.1 Boston Financial shall not be responsible for, and the Fund shall
indemnify and hold Boston Financial harmless from and against, any and
all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to:
(a) All actions of Boston Financial, State Street or its agent or
subcontractors required to be taken pursuant to this Agreement,
provided that such actions are
<PAGE>
taken in good faith and without negligence or willful misconduct;
(b) The Fund's lack of good faith, negligence or willful misconduct which
arise out of the breach of any representation or warranty of the Fund
hereunder;
(c) The reliance on or use by Boston Financial or its agents or
subcontractors of information, records, documents or services which
(i) are received by Boston Financial or its agents or subcontractors,
and (ii) have been prepared, maintained or performed by the Fund or
any other person or firm on behalf of the Fund including but not
limited to any previous transfer agent or registrar;
(d) The reliance on, or the carrying out by Boston Financial or its
agents or subcontractors of any authorized instructions or requests
of the Fund;
(e) The offer or sale of Shares in violation of federal or state
securities laws or regulations requiring that such Shares be
registered or in violation of any stop order or other determination
or ruling by any federal or any state agency with respect to the
offer or sale of such Shares provided however, that with respect to
state securities laws liability, Boston Financial complies with the
Fund's instructions under this Agreement as to the jurisdiction in
which the Shares may be sold; and
(f) The negotiations and processing of checks made payable to prospective
or existing Shareholders tendered to Boston Financial for the
purchase of Shares, such checks are commonly known as "third party
checks".
9.2 Except as expressly provided below, Boston Financial shall not be held to
the standard of care under Section 10 of this Agreement and shall not be
responsible for, and the Fund shall indemnify and hold Boston Financial
harmless from and against, any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability arising out of,
attributable to or resulting from entering into agreements with third
party administrators for Plans as described in Section 2 of this Agreement
and from Boston Financial's actions or omissions thereunder, provided
--------
however, that the processing by Boston Financial of purchase and
-------
redemption transactions pursuant to the terms of such agreements shall
constitute services under Section 1.2 hereof, and the respective rights
and obligations of Boston Financial and the Fund to each other with
respect to such purchase and redemption transactions shall be governed by
the other terms of this Agreement, including Sections 9.1, 9.3, 9.4, 9.5
and 10, and not by this Section 9.2.
<PAGE>
9.3 At any time Boston Financial may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by Boston
Financial under this Agreement, and Boston Financial and its agents or
subcontractors shall not be liable and shall be indemnified by the Fund
for any action taken or omitted by it in reliance upon such instructions
or upon the opinion of such counsel. Boston Financial, its agents and
subcontractors shall be protected and indemnified in acting upon any paper
or document , reasonably believed to be genuine and to have been signed by
the proper person or persons, or upon any instruction, information, data,
records or documents provided Boston Financial or its agents or
subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. Boston Financial, its agents and subcontractors
shall also be protected and indemnified in recognizing stock certificates
which are reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Fund, and the proper countersignature of
any former transfer agent or former registrar, or of a co-transfer agent
or co-registrar.
9.4 The Fund shall not be responsible for, and Boston Financial shall
indemnify and hold the Fund harmless from and against, any and all
losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action, or failure or
omission to act by Boston Financial as a result of Boston Financial's
lack of good faith, negligence or willful misconduct.
9.5 In order that the indemnification provisions contained in this Section 9
shall apply, upon the assertion of a claim for which the indemnifying
party (the "Indemnitor") may be required to indemnify the indemnified
party (the "Indemnitee"), the Indemnitee shall promptly notify the
Indemnitor of such assertion, and shall keep the Indemnitor advised with
respect to all developments concerning such claim. The Indemnitor shall
have the option to participate with the Indemnitee in the defense of such
claim or to defend against said claim in its own name or in the name of
the Indemnitee. The Indemnitee shall in no case confess any claim or make
any compromise in any case in which the Indemnitor may be required to
indemnify the Indemnitee except with the Indemnitor's prior written
consent.
10. Standard of Care
----------------
Boston Financial shall at all times act in good faith and agrees to use
its best efforts within reasonable limits to insure the accuracy of all
services performed under this
<PAGE>
Agreement, but assumes no responsibility and shall not be liable for loss
or damage due to errors unless said errors are caused by its negligence,
bad faith, or willful misconduct or that of its employees or agents.
11. Covenants of the Fund and Boston Financial
------------------------------------------
11.1 The Fund shall promptly furnish to Boston Financial the following:
(a) (a) A certified copy of the resolution of the Board of Trustees of
the Fund authorizing the appointment of the Bank and the execution
and delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
11.2 Boston Financial hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
11.3 Boston Financial shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To
the extent required by Section 31 of the Investment Company Act, and the
Rules thereunder, Boston Financial agrees that all such records prepared
or maintained by Boston Financial relating to the services to be performed
by Boston Financial hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such Section
and Rules, and will be surrendered promptly to the Fund on and in
accordance with its request.
11.4 Boston Financial and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged
or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
11.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, Boston Financial will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. Boston Financial reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
<PAGE>
12. Term and Termination of Agreement
---------------------------------
12.1 The initial term of this agreement shall begin as of the day and year
first written above and continue thereafter for three years (the "Initial
Term"). Following the Initial Term this Agreement shall continue until
terminated by either party as provided below.
12.2 After the expiration of the Initial Term this Agreement may be terminated
by either party upon ninety (90) days written notice to the other.
12.3 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund. Additionally, (a) Boston Financial reserves the right
to charge for any other reasonable expenses associated with such
termination and (b) should the Fund terminate during the Initial Term for
any reason other than a material breach or material determination of
service of the Agreement by Boston Financial, the Fund shall pay a charge
as follows:
(i) For termination during year one of the Initial Term the average of
the last three months base fees and the conversion fee paid by the Fund;
(ii) For termination during year two of the Initial Term the average of
the last two months base fees and 66.66% of the conversion fee paid by the Fund;
and
(iii) For termination during year three of the Initial Term the average
of the last month base fees and 33.33% of the conversion paid by the Fund.
12.4 Reorganization of the Fund as a Delaware business trust shall not be
deemed a termination of the Agreement and upon such reorganization the parties
will enter into a new agreement under the same terms with the Fund as a Delaware
business trust.
13. Assignment
----------
13.1 Except as provided in Section 13.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
13.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
<PAGE>
13.3 Boston Financial may, without further consent on the part of the Fund,
subcontract for the performance hereof with a Boston Financial subsidiary
or affiliate duly registered as a transfer agent pursuant to Section
17A(c)(2) of the Exchange Act; provided, however, that Boston Financial
shall be as fully responsible to the Fund for the acts and omissions of
any subcontractor as it is for its own acts and omissions.
14. Amendment
---------
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board of
Trustees of the Fund.
15. Massachusetts Law to Apply
--------------------------
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of
Massachusetts.
16. Disaster Recovery and Insurance Coverage
----------------------------------------
16.1 In the event of equipment failures beyond Boston Financial's control,
Boston Financial shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions. Boston Financial
shall enter into and maintain in effect with appropriate parties one or
more agreements making reasonable provisions for (a) periodic back-up of
the computer files and data with respect to the Fund and (b) emergency use
of electronic data processing equipment to provide services under this
Agreement.
16.2 Boston Financial shall maintain commercially reasonable amounts of (a)
comprehensive general liability insurance coverage and (b) errors and
omissions insurance coverage and notify the Fund in the event that such
insurance is canceled.
16.3 Boston Financial has a reasonable disaster recovery plan given the
services it provides hereunder.
17. Force Majeure
-------------
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
<PAGE>
18. Consequential Damages
---------------------
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
19. Merger of Agreement
-------------------
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
20. Limitations of Liability of the Trustees and Shareholders
---------------------------------------------------------
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument
are not binding upon any of the Trustees or Shareholders individually but
are binding only upon the assets and property of the Fund.
21. Counterparts
------------
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
22. Reproduction of Documents
-------------------------
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not
such reproduction was made by a party in the regular course of business,
and that any enlargement, facsimile or further reproduction shall likewise
be admissible in evidence.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
<PAGE>
DODGE & COX BALANCED FUND
BY:
---------------------------------------
BOSTON FINANCIAL DATA SERVICES, INC.
BY:
---------------------------------------
<PAGE>
BOSTON FINANCIAL & FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
- ----------------- --------------
Boston Financial Fund
---------------------
1. Receives orders for the purchase X
of Shares.
2. Issue Shares and hold Shares in X
Shareholders accounts.
3. Receive redemption requests. X
4. Effect transactions 1-3 above X
directly with broker-dealers.
5. Pay over monies to redeeming X
Shareholders.
6. Effect transfers of Shares. X
7. Prepare and transmit dividends X
and distributions.
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and X
accurate control book for each
issue of securities.
12. Mail proxies. X
13. Mail Shareholder reports and/ X
or provide address labels.
14. Mail prospectuses to current X
Shareholders.
<PAGE>
Service Performed Responsibility
- ----------------- --------------
Boston Financial Fund
---------------------
15. Withhold taxes on U.S. resident X
and non-resident alien accounts.
16. Prepare and file U.S. Treasury X
Department forms and transmit
such forms to Shareholders.
17. Prepare and mail account and X
confirmation statements and
average cost statements for
Shareholders.
18. Provide Shareholder account X
information and services by
mail and telephone.
19. Blue sky reporting. X
* Such services are more fully described in Section 1.2 (a), (b),(c) and (d)
of the Agreement.
DODGE & COX BALANCED FUND
BY:
----------------------------------------
BOSTON FINANCIAL DATA SERVICES, INC.
BY:
----------------------------------------
<PAGE>
EX-99.B10
DECHERT PRICE & RHOADS
1775 Eye Street, N.W.
Washington, D.C. 20006
April 20, 1998
Dodge & Cox Funds
One Sansome Street
San Francisco, CA 94104
Ladies and Gentlemen:
As counsel for Dodge & Cox Funds (the "Trust"), comprising Dodge & Cox
Stock Fund, Dodge & Cox Income Fund and Dodge & Cox Balanced Fund (the "Funds"),
we are familiar with the Trust's registration under the Investment Company Act
of 1940 (File No. 811-173) and with the registration statement relating to the
shares of beneficial interest in the Funds (the "Shares") under the Securities
Act of 1933 (File No. 2-11522) (the "Registration Statement"). We also have
examined the Trust Certificate, Trust Instrument and Bylaws of the Trust, and
such other records, agreements, documents and instruments as we deemed
appropriate.
This opinion is being issued with regard to the adoption of, and succession
to, the Registration Statement, which previously related only to Dodge & Cox
Balanced Fund, by the Trust and each of the Funds in connection with a
reorganization of the Funds as series of the Trust.
Based upon the foregoing, it is our opinion that the Shares registered
pursuant to the Trust's Registration Statement will, when sold and delivered by
the Trust against receipt of the net asset value of the Shares in accordance
with the terms of the Registration Statement and the requirements of applicable
law, have been duly and validly authorized, legally and validly issued, and
fully paid and non-assessable by the Trust.
We consent to the filing of this opinion in connection with Post-Effective
Amendment No. 63 to the Registration Statement to be filed with the Securities
and Exchange Commission.
Very truly yours,
/s/Dechert Price & Rhoads
<PAGE>
EX-99.B11A
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 63 to the registration statement on Form N-1A (the "Registration
Statement") of Dodge & Cox Funds (a Delaware Business Trust) of our reports
dated January 28, 1998, relating to the financial statements and financial
highlights appearing in the December 31, 1997 Annual Reports to Shareholders of
Dodge & Cox Balanced Fund, Dodge & Cox Stock Fund, and Dodge & Cox Income Fund,
which are also incorporated by reference into the Registration Statement. We
also consent to the reference to us under the heading "Financial Highlights" in
the Prospectus and under the heading "Independent Accountants" in the Statement
of Additional Information.
/s/ Price Waterhouse LLP
San Francisco, California
March 2, 1998
<PAGE>
DODGE & COX FUNDS
(a Delaware Business Trust) EX-99.B11B
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned constitutes
and appoints Harry R. Hagey, Kenneth E. Olivier, W. Timothy Ryan and Thomas M.
Mistele, and each of them, his/her true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution for him/her in his/her name,
place and stead, in any and all capacities, to sign the registration statement
of Dodge & Cox Funds and any and all amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as
he/she might or could do in person, hereby ratifying and conforming all that
said attorneys-in-fact and agents, or any of them, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Date Signature Date
- --------- ---- --------- ----
<S> <C> <C> <C>
/s/ Katherine Herrick Drake 2/24/98 /s/ Max Gutierrez, Jr. 2/24/98
- ------------------------------ ------------- ---------------------------- ---------
Katherine Herrick Drake Max Gutierrez, Jr.
/s/ Dana M. Emery 2/25/98 /s/ Frank H. Roberts 2/24/98
- ------------------------------ ------------- ----------------------------- --------
Dana M. Emery Frank H. Roberts
/s/ John A. Gunn 2/24/98 /s/ John B. Taylor 2/24/98
- ------------------------------ ------------- ----------------------------- -------
John A. Gunn John B. Taylor
/s/ Harry R. Hagey 2/24/98 /s/ Will C. Wood 2/24/98
- ------------------------------ ---------------- ---------------------------- -------
Harry R. Hagey Will C. Wood
/s/ Kenneth E. Olivier 2/24/98
- ------------------------------ ---------------
Kenneth E. Olivier
/s/ W. Timothy Ryan 2/24/98
- ------------------------------ ---------------
W. Timothy Ryan
/s/ A. Horton Shapiro 2/24/98
- ------------------------------ ---------------
A. Horton Shapiro
</TABLE>
<PAGE>
EX-99.B16
Schedule for Computation of Performance Quotations
Calculation of Total Return:
============================
The average total returns of the Funds for the one, five, and ten-year (since
inception) periods ended December 31, 1997 were calculated pursuant to the
following formula:
n
P (1 + T) = ERV
where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years,
ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period.
Actual calculations are shown below:
DODGE & COX STOCK FUND - 1 YEAR RETURN:
1 YEAR AVERAGE ANNUAL RETURN = 28.41%
<TABLE>
<CAPTION>
CAPITAL REINVEST PRICE END # SHARES TOTAL TOTAL VALUE
DATE DIVIDEND GAIN PRICE OF PERIOD ADDED SHARES OF SHARES
- ------- | -------- ------- ------- --------- | ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec-96 | $79.81 | 12.530 $1,000.00
Mar-97 | $0.30 $0.49 $82.13 $80.99 | 0.121 12.651 $1,024.57
Jun-97 | $0.34 $0.00 $92.92 $93.14 | 0.046 12.697 $1,182.58
Sep-97 | $0.40 $0.00 $101.72 $102.27 | 0.050 12.747 $1,303.61
Dec-97 | $0.45 $5.60 $92.80 $94.57 | 0.831 13.578 $1,284.05
<CAPTION>
DODGE & COX STOCK FUND - 5 YEAR RETURN:
5 YEAR AVERAGE ANNUAL RETURN = 21.11%
CAPITAL REINVEST PRICE END # SHARES TOTAL TOTAL VALUE
DATE DIVIDEND GAIN PRICE OF PERIOD ADDED SHARES OF SHARES
- ------- | -------- ------- ------- --------- | ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec-92 | $48.37 | 20.674 $1,000.00
Mar-93 | $0.26 $0.54 $51.31 $51.35 | 0.322 20.996 $1,078.16
Jun-93 | $0.26 $0.00 $52.47 $53.57 | 0.104 21.100 $1,130.35
Sep-93 | $0.25 $0.00 $54.45 $55.14 | 0.097 21.197 $1,168.82
Dec-93 | $0.27 $2.30 $52.91 $53.23 | 1.030 22.227 $1,183.14
Mar-94 | $0.26 $0.35 $55.11 $52.30 | 0.246 22.473 $1,175.33
Jun-94 | $0.28 $0.00 $54.69 $52.38 | 0.115 22.588 $1,183.16
Sep-94 | $0.28 $0.00 $56.10 $54.95 | 0.113 22.701 $1,247.40
Dec-94 | $0.33 $0.54 $53.86 $53.94 | 0.367 23.067 $1,244.25
Mar-95 | $0.34 $0.12 $57.13 $58.69 | 0.186 23.253 $1,364.73
Jun-95 | $0.32 $0.00 $63.03 $63.38 | 0.118 23.371 $1,481.26
Sep-95 | $0.32 $0.00 $68.55 $68.12 | 0.109 23.480 $1,599.48
Dec-95 | $0.48 $2.34 $67.16 $67.83 | 0.986 24.466 $1,659.54
Mar-96 | $0.30 $0.15 $71.89 $71.65 | 0.153 24.619 $1,763.98
Jun-96 | $0.32 $0.00 $73.99 $73.67 | 0.106 24.726 $1,821.55
Sep-96 | $0.32 $0.00 $75.04 $75.06 | 0.105 24.831 $1,863.83
Dec-96 | $0.35 $1.53 $78.80 $79.81 | 0.592 25.424 $2,029.06
Mar-97 | $0.30 $0.49 $82.13 $80.99 | 0.245 25.668 $2,078.87
Jun-97 | $0.34 $0.00 $92.92 $93.14 | 0.094 25.762 $2,399.49
Sep-97 | $0.40 $0.00 $101.72 $102.27 | 0.101 25.863 $2,645.05
Dec-97 | $0.45 $5.60 $92.80 $94.57 | 1.686 27.550 $2,605.36
<CAPTION>
DODGE & COX STOCK FUND - 10 YEAR RETURN:
10 YEAR AVERAGE ANNUAL RETURN = 17.00%
CAPITAL REINVEST PRICE END # SHARES TOTAL TOTAL VALUE
DATE DIVIDEND GAIN PRICE OF PERIOD ADDED SHARES OF SHARES
- ------- | -------- ------- ------- --------- | ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec-87 | $32.94 | 30.358 $1,000.00
Mar-88 | $0.25 $0.00 $35.96 $34.38 | 0.211 30.569 $1,050.96
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Jun-88 | $0.27 $0.00 $36.16 $36.76 | 0.228 30.797 $1,132.11
Sep-88 | $0.27 $0.00 $35.56 $35.65 | 0.234 31.031 $1,106.26
Dec-88 | $0.28 $1.11 $35.05 $35.26 | 1.231 32.262 $1,137.55
Mar-89 | $0.28 $0.00 $36.65 $36.98 | 0.246 32.508 $1,202.15
Jun-89 | $0.30 $0.00 $39.49 $39.17 | 0.247 32.755 $1,283.02
Sep-89 | $0.31 $0.00 $42.61 $42.67 | 0.238 32.994 $1,407.83
Dec-89 | $0.34 $0.82 $41.27 $42.57 | 0.927 33.921 $1,444.01
Mar-90 | $0.31 $0.00 $41.97 $41.55 | 0.251 34.171 $1,419.82
Jun-90 | $0.33 $0.00 $43.33 $43.07 | 0.260 34.432 $1,482.97
Sep-90 | $0.34 $0.00 $36.77 $35.83 | 0.318 34.750 $1,245.09
Dec-90 | $0.37 $0.28 $38.75 $38.79 | 0.583 35.333 $1,370.57
Mar-91 | $0.31 $0.00 $42.91 $43.56 | 0.255 35.588 $1,550.22
Jun-91 | $0.32 $0.00 $44.06 $43.22 | 0.258 35.847 $1,549.29
Sep-91 | $0.31 $0.00 $44.60 $44.64 | 0.249 36.096 $1,611.32
Dec-91 | $0.30 $0.87 $41.19 $44.85 | 1.025 37.121 $1,664.88
Mar-92 | $0.27 $0.00 $46.09 $45.09 | 0.217 37.339 $1,683.60
Jun-92 | $0.29 $0.00 $45.14 $45.53 | 0.240 37.578 $1,710.95
Sep-92 | $0.28 $0.00 $46.25 $46.00 | 0.228 37.806 $1,739.08
Dec-92 | $0.27 $0.16 $48.25 $48.37 | 0.337 38.143 $1,844.97
Mar-93 | $0.26 $0.54 $51.31 $51.35 | 0.595 38.738 $1,989.18
Jun-93 | $0.26 $0.00 $52.47 $53.57 | 0.192 38.930 $2,085.46
Sep-93 | $0.25 $0.00 $54.45 $55.14 | 0.179 39.108 $2,156.43
Dec-93 | $0.27 $2.30 $52.91 $53.23 | 1.900 41.008 $2,182.85
Mar-94 | $0.26 $0.35 $55.11 $52.30 | 0.454 41.462 $2,168.45
Jun-94 | $0.28 $0.00 $54.69 $52.38 | 0.212 41.674 $2,182.89
Sep-94 | $0.28 $0.00 $56.10 $54.95 | 0.208 41.882 $2,301.42
Dec-94 | $0.33 $0.54 $53.86 $53.94 | 0.677 42.559 $2,295.61
Mar-95 | $0.34 $0.12 $57.13 $58.69 | 0.343 42.901 $2,517.88
Jun-95 | $0.32 $0.00 $63.03 $63.38 | 0.218 43.119 $2,732.89
Sep-95 | $0.32 $0.00 $68.55 $68.12 | 0.201 43.320 $2,950.98
Dec-95 | $0.48 $2.34 $67.16 $67.83 | 1.819 45.139 $3,061.80
Mar-96 | $0.30 $0.15 $71.89 $71.65 | 0.283 45.422 $3,254.48
Jun-96 | $0.32 $0.00 $73.99 $73.67 | 0.196 45.618 $3,360.71
Sep-96 | $0.32 $0.00 $75.04 $75.06 | 0.195 45.813 $3,438.72
Dec-96 | $0.35 $1.53 $78.80 $79.81 | 1.093 46.906 $3,743.56
Mar-97 | $0.30 $0.49 $82.13 $80.99 | 0.451 47.357 $3,835.45
Jun-97 | $0.34 $0.00 $92.92 $93.14 | 0.173 47.530 $4,426.98
Sep-97 | $0.40 $0.00 $101.72 $102.27 | 0.187 47.717 $4,880.05
Dec-97 | $0.45 $5.60 $92.80 $94.57 | 3.111 50.828 $4,806.82
==================================================================================================
<CAPTION>
DODGE & COX BALANCED FUND - 1 YEAR RETURN:
1 YEAR AVERAGE ANNUAL RETURN = 21.21%
CAPITAL REINVEST PRICE END # SHARES TOTAL TOTAL VALUE
DATE DIVIDEND GAIN PRICE OF PERIOD ADDED SHARES OF SHARES
- ------- | -------- ------- ------- --------- | ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec-96 | $59.82 | 16.717 $1,000.00
Mar-97 | $0.51 $0.22 $60.27 $59.76 | 0.202 16.919 $1,011.08
Jun-97 | $0.53 $0.00 $65.68 $65.78 | 0.137 17.056 $1,121.94
Sep-97 | $0.57 $0.00 $70.17 $70.38 | 0.139 17.195 $1,210.18
Dec-97 | $0.61 $3.05 $65.99 $66.78 | 0.954 18.149 $1,211.99
<CAPTION>
DODGE & COX BALANCED FUND - 5 YEAR RETURN:
5 YEAR AVERAGE ANNUAL RETURN = 16.06%
CAPITAL REINVEST PRICE END # SHARES TOTAL TOTAL VALUE
DATE DIVIDEND GAIN PRICE OF PERIOD ADDED SHARES OF SHARES
- ------- | -------- ------- ------- --------- | ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec-92 | $42.44 | 23.563 $1,000.00
Mar-93 | $0.43 $0.01 $44.87 $44.80 | 0.231 23.794 $1,065.97
Jun-93 | $0.43 $0.00 $45.42 $46.23 | 0.225 24.019 $1,110.41
Sep-93 | $0.40 $0.00 $46.88 $47.27 | 0.205 24.224 $1,145.08
Dec-93 | $0.40 $1.06 $46.21 $46.40 | 0.765 24.990 $1,159.52
Mar-94 | $0.40 $0.12 $46.99 $45.31 | 0.277 25.266 $1,144.81
Jun-94 | $0.43 $0.00 $46.24 $44.85 | 0.235 25.501 $1,143.73
Sep-94 | $0.44 $0.00 $46.61 $45.95 | 0.241 25.742 $1,182.84
Dec-94 | $0.49 $0.24 $45.19 $45.21 | 0.416 26.158 $1,182.59
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Mar-95 | $0.45 $0.06 $47.50 $48.24 | 0.281 26.439 $1,275.40
Jun-95 | $0.48 $0.00 $51.52 $51.63 | 0.246 26.685 $1,377.74
Sep-95 | $0.48 $0.00 $54.21 $53.98 | 0.236 26.921 $1,453.20
Dec-95 | $0.77 $0.85 $54.06 $54.60 | 0.807 27.728 $1,513.94
Mar-96 | $0.46 $0.10 $55.67 $55.71 | 0.279 28.007 $1,560.26
Jun-96 | $0.50 $0.00 $56.23 $56.42 | 0.249 28.256 $1,594.19
Sep-96 | $0.50 $0.00 $56.92 $57.15 | 0.248 28.504 $1,629.01
Dec-96 | $0.53 $0.59 $59.26 $59.82 | 0.539 29.043 $1,737.34
Mar-97 | $0.51 $0.22 $60.27 $59.76 | 0.352 29.395 $1,756.62
Jun-97 | $0.53 $0.00 $65.68 $65.78 | 0.237 29.632 $1,949.18
Sep-97 | $0.57 $0.00 $70.17 $70.38 | 0.241 29.872 $2,102.42
Dec-97 | $0.61 $3.05 $65.99 $66.78 | 1.657 31.529 $2,105.52
<CAPTION>
DODGE & COX BALANCED FUND - 10 YEAR RETURN:
10 YEAR AVERAGE ANNUAL RETURN = 14.56%
CAPITAL REINVEST PRICE END # SHARES TOTAL TOTAL VALUE
DATE DIVIDEND GAIN PRICE OF PERIOD ADDED SHARES OF SHARES
- ------- | -------- ------- ------- --------- | ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec-87 | $30.72 | 32.552 $1,000.00
Mar-88 | $0.41 $0.00 $32.83 $31.84 | 0.407 32.959 $1,049.40
Jun-88 | $0.42 $0.00 $32.45 $32.82 | 0.427 33.385 $1,095.70
Sep-88 | $0.42 $0.00 $32.26 $32.38 | 0.435 33.820 $1,095.08
Dec-88 | $0.43 $0.46 $32.06 $32.09 | 0.939 34.759 $1,115.40
Mar-89 | $0.42 $0.00 $32.67 $33.11 | 0.447 35.205 $1,165.65
Jun-89 | $0.44 $0.00 $35.19 $35.14 | 0.440 35.646 $1,252.59
Sep-89 | $0.44 $0.00 $37.07 $36.94 | 0.423 36.069 $1,332.38
Dec-89 | $0.46 $0.71 $36.12 $36.85 | 1.168 37.237 $1,372.19
Mar-90 | $0.43 $0.00 $36.17 $35.95 | 0.443 37.680 $1,354.59
Jun-90 | $0.45 $0.00 $37.23 $37.10 | 0.455 38.135 $1,414.82
Sep-90 | $0.47 $0.00 $33.68 $33.20 | 0.532 38.667 $1,283.76
Dec-90 | $0.46 $0.33 $35.01 $35.03 | 0.873 39.540 $1,385.08
Mar-91 | $0.43 $0.00 $37.40 $37.98 | 0.455 39.995 $1,518.99
Jun-91 | $0.45 $0.00 $38.26 $37.85 | 0.470 40.465 $1,531.60
Sep-91 | $0.44 $0.00 $38.98 $39.13 | 0.457 40.922 $1,601.27
Dec-91 | $0.44 $0.29 $37.96 $40.09 | 0.787 41.709 $1,672.10
Mar-92 | $0.41 $0.01 $40.32 $39.93 | 0.434 42.143 $1,682.77
Jun-92 | $0.44 $0.00 $40.44 $40.77 | 0.459 42.602 $1,736.87
Sep-92 | $0.44 $0.00 $41.57 $41.42 | 0.451 43.053 $1,783.24
Dec-92 | $0.43 $0.07 $42.29 $42.44 | 0.509 43.562 $1,848.75
Mar-93 | $0.43 $0.01 $44.87 $44.80 | 0.427 43.989 $1,970.70
Jun-93 | $0.43 $0.00 $45.42 $46.23 | 0.416 44.405 $2,052.85
Sep-93 | $0.40 $0.00 $46.88 $47.27 | 0.379 44.784 $2,116.94
Dec-93 | $0.40 $1.06 $46.21 $46.40 | 1.415 46.199 $2,143.63
Mar-94 | $0.40 $0.12 $46.99 $45.31 | 0.511 46.710 $2,116.44
Jun-94 | $0.43 $0.00 $46.24 $44.85 | 0.434 47.145 $2,114.44
Sep-94 | $0.44 $0.00 $46.61 $45.95 | 0.445 47.590 $2,186.75
Dec-94 | $0.49 $0.24 $45.19 $45.21 | 0.769 48.358 $2,186.29
Mar-95 | $0.45 $0.06 $47.50 $48.24 | 0.519 48.878 $2,357.86
Jun-95 | $0.48 $0.00 $51.52 $51.63 | 0.455 49.333 $2,547.06
Sep-95 | $0.48 $0.00 $54.21 $53.98 | 0.437 49.770 $2,686.58
Dec-95 | $0.77 $0.85 $54.06 $54.60 | 1.491 51.261 $2,798.87
Mar-96 | $0.46 $0.10 $55.67 $55.71 | 0.516 51.777 $2,884.49
Jun-96 | $0.50 $0.00 $56.23 $56.42 | 0.460 52.237 $2,947.23
Sep-96 | $0.50 $0.00 $56.92 $57.15 | 0.459 52.696 $3,011.59
Dec-96 | $0.53 $0.59 $59.26 $59.82 | 0.996 53.692 $3,211.87
Mar-97 | $0.51 $0.22 $60.27 $59.76 | 0.650 54.342 $3,247.51
Jun-97 | $0.53 $0.00 $65.68 $65.78 | 0.439 54.781 $3,603.49
Sep-97 | $0.57 $0.00 $70.17 $70.38 | 0.445 55.226 $3,886.81
Dec-97 | $0.61 $3.05 $65.99 $66.78 | 3.063 58.289 $3,892.54
==================================================================================================
<CAPTION>
DODGE & COX INCOME FUND - 1 YEAR RETURN:
1 YEAR AVERAGE ANNUAL RETURN = 10.00%
CAPITAL REINVEST PRICE END # SHARES TOTAL TOTAL VALUE
DATE DIVIDEND GAIN PRICE OF PERIOD ADDED SHARES OF SHARES
- ------- | -------- ------- ------- --------- | ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Dec-96 | $11.68 | 85.616 $1,000.00
Mar-97 | $0.18 $0.00 $11.41 $11.41 | 1.351 86.967 $992.29
Jun-97 | $0.19 $0.00 $11.64 $11.64 | 1.420 88.387 $1,028.82
Sep-97 | $0.19 $0.00 $11.90 $11.88 | 1.411 89.798 $1,066.80
Dec-97 | $0.17 $0.00 $12.07 $12.08 | 1.265 91.063 $1,100.04
<CAPTION>
DODGE & COX INCOME FUND - 5 YEAR RETURN:
5 YEAR AVERAGE ANNUAL RETURN = 8.18%
CAPITAL REINVEST PRICE END # SHARES TOTAL TOTAL VALUE
DATE DIVIDEND GAIN PRICE OF PERIOD ADDED SHARES OF SHARES
- ------- | -------- ------- ------- --------- | ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec-92 | $11.55 | 86.580 $1,000.00
Mar-93 | $0.20 $0.00 $11.94 $11.90 | 1.450 88.030 $1,047.56
Jun-93 | $0.20 $0.00 $11.96 $12.08 | 1.472 89.502 $1,081.19
Sep-93 | $0.19 $0.00 $12.25 $12.27 | 1.388 90.891 $1,115.23
Dec-93 | $0.19 $0.17 $11.88 $11.89 | 2.754 93.645 $1,113.44
Mar-94 | $0.19 $0.05 $11.52 $11.37 | 1.951 95.596 $1,086.92
Jun-94 | $0.19 $0.00 $11.14 $11.01 | 1.630 97.226 $1,070.46
Sep-94 | $0.19 $0.00 $10.90 $10.87 | 1.695 98.921 $1,075.27
Dec-94 | $0.19 $0.00 $10.72 $10.74 | 1.753 100.674 $1,081.24
Mar-95 | $0.20 $0.00 $11.16 $11.13 | 1.804 102.478 $1,140.58
Jun-95 | $0.19 $0.00 $11.73 $11.72 | 1.660 104.138 $1,220.50
Sep-95 | $0.19 $0.00 $11.76 $11.77 | 1.683 105.821 $1,245.51
Dec-95 | $0.23 $0.03 $11.90 $12.02 | 2.312 108.133 $1,299.76
Mar-96 | $0.19 $0.00 $11.48 $11.58 | 1.790 109.923 $1,272.90
Jun-96 | $0.19 $0.00 $11.28 $11.44 | 1.852 111.774 $1,278.70
Sep-96 | $0.19 $0.00 $11.37 $11.48 | 1.868 113.642 $1,304.61
Dec-96 | $0.17 $0.00 $11.63 $11.68 | 1.661 115.303 $1,346.74
Mar-97 | $0.18 $0.00 $11.41 $11.41 | 1.819 117.122 $1,336.36
Jun-97 | $0.19 $0.00 $11.64 $11.64 | 1.912 119.034 $1,385.55
Sep-97 | $0.19 $0.00 $11.90 $11.88 | 1.901 120.934 $1,436.70
Dec-97 | $0.17 $0.00 $12.07 $12.08 | 1.703 122.638 $1,481.46
<CAPTION>
DODGE & COX INCOME FUND - 9 YEAR RETURN (SINCE INCEPTION):
9 YEAR AVERAGE ANNUAL RETURN = 9.74%
CAPITAL REINVEST PRICE END # SHARES TOTAL TOTAL VALUE
DATE DIVIDEND GAIN PRICE OF PERIOD ADDED SHARES OF SHARES
- ------- | -------- ------- ------- --------- | ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec-88 | $10.00 | 100.000 $1,000.00
Mar-89 | $0.11 $0.00 $9.92 $10.06 | 1.109 101.109 $1,017.16
Jun-89 | $0.18 $0.00 $10.52 $10.67 | 1.730 102.839 $1,097.29
Sep-89 | $0.19 $0.00 $10.59 $10.55 | 1.845 104.684 $1,104.42
Dec-89 | $0.21 $0.01 $10.75 $10.68 | 2.142 106.826 $1,140.91
Mar-90 | $0.20 $0.00 $10.36 $10.32 | 2.062 108.889 $1,123.73
Jun-90 | $0.20 $0.00 $10.39 $10.48 | 2.096 110.985 $1,163.12
Sep-90 | $0.21 $0.00 $10.24 $10.29 | 2.276 113.261 $1,165.45
Dec-90 | $0.20 $0.01 $10.60 $10.61 | 2.244 115.505 $1,225.50
Mar-91 | $0.20 $0.00 $10.64 $10.76 | 2.171 117.676 $1,266.19
Jun-91 | $0.20 $0.00 $10.68 $10.73 | 2.204 119.879 $1,286.31
Sep-91 | $0.20 $0.00 $11.11 $11.20 | 2.158 122.037 $1,366.82
Dec-91 | $0.22 $0.03 $11.43 $11.59 | 2.669 124.707 $1,445.35
Mar-92 | $0.20 $0.00 $11.10 $11.20 | 2.247 126.954 $1,421.88
Jun-92 | $0.20 $0.00 $11.42 $11.51 | 2.223 129.177 $1,486.83
Sep-92 | $0.21 $0.00 $11.87 $11.85 | 2.285 131.462 $1,557.83
Dec-92 | $0.21 $0.09 $11.48 $11.55 | 3.435 134.898 $1,558.07
Mar-93 | $0.20 $0.00 $11.94 $11.90 | 2.260 137.157 $1,632.17
Jun-93 | $0.20 $0.00 $11.96 $12.08 | 2.294 139.451 $1,684.57
Sep-93 | $0.19 $0.00 $12.25 $12.27 | 2.163 141.614 $1,737.60
Dec-93 | $0.19 $0.17 $11.88 $11.89 | 4.291 145.905 $1,734.81
Mar-94 | $0.19 $0.05 $11.52 $11.37 | 3.040 148.945 $1,693.50
Jun-94 | $0.19 $0.00 $11.14 $11.01 | 2.540 151.485 $1,667.85
Sep-94 | $0.19 $0.00 $10.90 $10.87 | 2.641 154.126 $1,675.35
Dec-94 | $0.19 $0.00 $10.72 $10.74 | 2.732 156.857 $1,684.65
Mar-95 | $0.20 $0.00 $11.16 $11.13 | 2.811 159.669 $1,777.11
Jun-95 | $0.19 $0.00 $11.73 $11.72 | 2.586 162.255 $1,901.63
Sep-95 | $0.19 $0.00 $11.76 $11.77 | 2.621 164.876 $1,940.59
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Dec-95 | $0.23 $0.03 $11.90 $12.02 | 3.602 168.479 $2,025.11
Mar-96 | $0.19 $0.00 $11.48 $11.58 | 2.788 171.267 $1,983.27
Jun-96 | $0.19 $0.00 $11.28 $11.44 | 2.885 174.152 $1,992.30
Sep-96 | $0.19 $0.00 $11.37 $11.48 | 2.910 177.062 $2,032.67
Dec-96 | $0.17 $0.00 $11.63 $11.68 | 2.588 179.650 $2,098.31
Mar-97 | $0.18 $0.00 $11.41 $11.41 | 2.834 182.484 $2,082.15
Jun-97 | $0.19 $0.00 $11.64 $11.64 | 2.979 185.463 $2,158.79
Sep-97 | $0.19 $0.00 $11.90 $11.88 | 2.961 188.424 $2,238.48
Dec-97 | $0.17 $0.00 $12.07 $12.08 | 2.654 191.078 $2,308.22
==================================================================================================
</TABLE>
Calculation of 30-day Yield:
============================
The current yields of the Funds for the thirty days ended December 31, 1997 were
calculated pursuant to the following formula:
6
YIELD = 2[((a-b)/cd+1) -1]
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements or
waivers),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
Actual calculations are shown below:
DODGE & COX STOCK FUND - Yield for 30 Days Ended Decmember 31, 1997:
$ 7,556,860 = a -- dividends and interest earned during the period,
$ 1,790,229 = b -- expenses accrued for the period (net of
reimbursements or waivers),
40,685,319 = c -- the average daily number of shares outstanding
during the period that were entitled to receive
dividends, and
$94.57 = d -- the maximum offering price per share on the last
day of the period.
30-DAY SEC YIELD = 1.81%
DODGE & COX BALANCED FUND - Yield for 30 Days Ended Decmember 31, 1997:
$16,236,933 = a -- dividends and interest earned during the period,
$ 2,246,511 = b -- expenses accrued for the period (net of
reimbursements or waivers),
72,683,082 = c -- the average daily number of shares outstanding
during the period that were entitled to receive
dividends, and
$66.78 = d -- the maximum offering price per share on the last
day of the period.
30-DAY SEC YIELD = 3.48%
DODGE & COX INCOME FUND - Yield for 30 Days Ended Decmember 31, 1997:
$ 3,818,543 = a -- dividends and interest earned during the period,
$ 265,440 = b -- expenses accrued for the period (net of
reimbursements or waivers),
57,610,614 = c -- the average daily number of shares outstanding
during the period that were entitled to receive
dividends, and
$12.08 = d -- the maximum offering price per share on the last
day of the period.
30-DAY SEC YIELD = 6.21%
