<PAGE>
As filed with the Securities and Exchange Commission on February 13, 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. 62 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 21
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)
[_] on __________ 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)
[X] 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)
Item Number in Form N-1A
Registration Statement Caption in Prospectus
-------------------------- ---------------------
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)
<PAGE>
DODGE & COX FUNDS
CROSS REFERENCE SHEET
PART B
(Prepared as part of Form N-1A)
Item Number in Form N-1A
Registration Statement Caption in Statement of Additional Information
-------------------------- ----------------------------------------------
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
<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.
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<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 (accounting, transfer agent, custodial,
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 (accounting, transfer agent, custodial,
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
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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 (accounting, transfer agent, custodial, 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
These examples 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
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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 income (loss) from
investment operations......... 22.34 14.95 17.81 2.75 8.74 4.79 8.17 (2.15) 9.36 4.50
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions:
Dividends from net investment
income........................ (1.49) (1.29) (1.26) (1.15) (1.04) (1.11) (1.24) (1.35) (1.23) (1.07)
Distributions from net realized
gain on investments........... (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
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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 income from investment
operations.................... 12.45 7.90 12.48 .93 6.69 4.15 7.11 .32 7.23 3.51
------ ------ ------ ------- ------ ------ ------ ------- ------ ------
Distributions:
Dividends from net investment
income........................ (2.22) (1.99) (1.90) (1.76) (1.66) (1.72) (1.76) (1.81) (1.76) (1.68)
Distributions from net realized
gain on investments........... (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
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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 income (loss) from
investment operations......... 1.13 .40 2.12 (.34) 1.29 .87 1.83 .75 1.38
------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions:
Dividends from net investment
income........................ (.73) (.74) (.78) (.76) (.78) (.82) (.82) (.81) (.69)
Distributions from net realized
gain on investments........... - - (.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 $11.86 $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>
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* 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.
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.
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
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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 or 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>
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. 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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6
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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. 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). 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 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 (except for properly
endorsed IRA Rollover checks.)
REGULAR MAIL MAILGRAM, 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 02101
ABA #0110 0002 8
Deposit DDA #9905-351-4
FFC Dodge & Cox Funds
Account # Stock Fund 145/ [shareholder account number],
Balanced Fund 146/ [name of account]
Income Fund 147/
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 MAILGRAM, 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,
purchase, redemption and exchange requests should be made 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 the Dodge & Cox Balanced Fund
established in 1931, the Dodge & Cox Income Fund established
in 1989 and the Dodge & Cox Stock Fund established in 1965.
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.
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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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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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D O D G E & C O X D O D G E & C O X
FUNDS FUNDS
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Officers and Trustees
W. Timothy Ryan, President STOCK FUND
and Trustee Established 1965
Senior Vice-President, Dodge & Cox
Thomas M. Mistele, Vice President, BALANCED FUND
Secretary, Treasurer and Trustee Established 1931
General Counsel, Dodge & Cox
INVESTMENT MANAGER INCOME FUND
Dodge & Cox Established 1989
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
<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
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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
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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
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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
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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.
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TYPES OF PORTFOLIO SECURITIES
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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. 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
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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
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<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
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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
Aggregate 1997 Compensation
Position(s) Principal Occupation Compensation from the Trust
Name and Address Age with Trust During Past 5 Years from Trust and Trust Complex**
- ---------------- --- ----------- -------------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
W. Timothy Ryan * 60 President and Senior Vice-President and $0 $0
Trustee Secretary-Treasurer of
Dodge & Cox
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Thomas M. Mistele * 44 Vice-President, General Counsel of Dodge & 0 0
Secretary, Cox; formerly Senior Vice
Treasurer and President of Templeton Global
Trustee Investors, Inc. and Secretary
of the Templeton Mutual Funds
</TABLE>
_______________________
* Each has been an employee of Dodge & Cox, 35th Floor, One Sansome
Street, San Francisco, California for over __ years in an executive
position and is an "interested person" of the Trust as defined in the
Investment Company Act.
** Total 1997 Compensation from "Trust and Trust Complex" consists of
compensation and fees paid to directors and Trustees by the Trust.
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 Fund 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 ________ shares (or ____% of the
outstanding shares of the Dodge & Cox Balanced Fund) and Donaldson Lufkin &
Jenrette-Pershing Division, P.O. Box 2052, Jersey City, NJ 07303 owned of record
________ shares (or ____% of the outstanding shares of the Dodge & Cox Stock
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>
1997 1996 1995
---- ---- ----
Dodge & Cox Stock Fund $________ $1,109,157 $790,822
Dodge & Cox Balanced Fund ________ 1,131,834 763,087
Securities transactions totaling $___________ in 1997, respectively, were
allocated to brokers based on arrangements to provide research services to Dodge
& Cox [Stock, Balanced and Income Fund]; $_______, [Stock, Balanced and Income
Fund] 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*
(b) Exhibits:
(1) Trust Instrument
(2) Bylaws
(5) Investment Management Agreement*
(8) Custody Agreement*
(9) Transfer Agency Agreement*
(10) Opinion and Consent of Counsel*
(11) Consent of Independent Accountants*
(17) Financial Data Schedules*
__________________________
* To be filed by amendment
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.
Dodge & Cox is a California corporation. As of February 13, 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
---- -------------------
W. Timothy Ryan 9.20%
II-1
<PAGE>
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.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
None.
Item 29. PRINCIPAL UNDERWRITERS
None.
II-2
<PAGE>
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.
II-3
<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 13th day of February, 1998.
DODGE & COX FUNDS
By:
/s/ W. Timothy Ryan
-------------------
W. Timothy Ryan
Principal Executive Officer
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/ W. Timothy Ryan President and Trustee February 13, 1998
- --------------------------------- (Principal Executive Officer)
W. Timothy Ryan
/s/ Thomas M. Mistele Treasurer and Trustee February 13, 1998
- --------------------------------- (Principal Financial and Accounting
Thomas M. Mistele Officer)
</TABLE>
II-4
<PAGE>
DODGE & COX FUNDS
INDEX TO EXHIBITS
ITEM 24(b)1 Trust Instrument.......................... EX-23.B1
ITEM 24(b)2 Bylaws.................................... EX-23.B2
<PAGE>
EXHIBIT 23.B1
DODGE & COX FUNDS
TRUST INSTRUMENT
Dated February 13,1998
<PAGE>
DODGE & COX FUNDS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I NAME AND DEFINITIONS.................................................................1
Section 1.01 Name....................................................................1
Section 1.02 Definitions.............................................................1
ARTICLE II BENEFICIAL INTEREST.................................................................2
Section 2.01 Shares of Beneficial Interest...........................................2
Section 2.02 Issuance of Shares......................................................2
Section 2.03 Register of Shares and Share Certificates...............................3
Section 2.04 Transfer of Shares......................................................3
Section 2.05 Treasury Shares.........................................................3
Section 2.06 Establishment of Series.................................................3
Section 2.07 Investment in the Trust.................................................4
Section 2.08 Assets and Liabilities of Series........................................4
Section 2.09 No Preemptive Rights....................................................5
Section 2.10 No Personal Liability of Shareholder....................................5
Section 2.11 Assent to Trust Instrument..............................................5
ARTICLE III THE TRUSTEES.......................................................................5
Section 3.01 Management of the Trust.................................................5
Section 3.02 Initial Trustees........................................................6
Section 3.03 Term of Office..........................................................6
Section 3.04 Vacancies and Appointments..............................................6
Section 3.05 Temporary Absence.......................................................7
Section 3.06 Number of Trustees......................................................7
Section 3.07 Effect of Ending of a Trustee's Service.................................7
Section 3.08 Ownership of Assets of the Trust........................................7
ARTICLE IV POWERS OF THE TRUSTEES..............................................................7
Section 4.01 Powers..................................................................7
Section 4.02 Issuance and Repurchase of Shares......................................10
Section 4.03 Trustees and Officers as Shareholders..................................10
Section 4.04 Action by the Trustees.................................................10
Section 4.05 Chairman of the Trustees...............................................11
Section 4.06 Principal Transactions.................................................11
ARTICLE V EXPENSES OF THE TRUST...............................................................11
ARTICLE VI INVESTMENT ADVISER, PRINCIPAL UNDERWRITER, ADMINISTRATOR AND TRANSFER AGENT........12
Section 6.01 Investment Adviser.....................................................12
Section 6.02 Principal Underwriter..................................................12
Section 6.03 Administration.........................................................12
Section 6.04 Transfer Agent.........................................................12
Section 6.05 Parties to Contract....................................................13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 6.06 Provisions and Amendments..............................................13
ARTICLE VII SHAREHOLDERS' VOTING POWERS AND MEETINGS..........................................13
Section 7.01 Voting Powers..........................................................13
Section 7.02 Meetings...............................................................14
Section 7.03 Quorum and Required Vote...............................................14
ARTICLE VIII CUSTODIAN........................................................................14
Section 8.01 Appointment and Duties.................................................14
Section 8.02 Central Certificate System.............................................15
ARTICLE IX DISTRIBUTIONS AND REDEMPTIONS......................................................15
Section 9.01 Distributions..........................................................15
Section 9.02 Redemptions............................................................15
Section 9.03 Determination of Net Asset Value and Valuation of Portfolio Assets.....16
Section 9.04 Suspension of the Right of Redemption..................................16
ARTICLE X LIMITATION OF LIABILITY AND INDEMNIFICATION.........................................17
Section 10.01 Limitation of Liability...............................................17
Section 10.02 Indemnification.......................................................17
Section 10.03 Shareholders..........................................................18
ARTICLE XI MISCELLANEOUS......................................................................18
Section 11.01 Trust Not A Partnership...............................................18
Section 11.02 Trustee's Good Faith Action, Expert Advice, No Bond or Surety.........19
Section 11.03 Establishment of Record Dates.........................................19
Section 11.04 Termination of Trust..................................................19
Section 11.05 Reorganization........................................................20
Section 11.06 Filing of Copies, References, Headings................................21
Section 11.07 Applicable Law........................................................21
Section 11.08 Amendments............................................................21
Section 11.09 Fiscal Year...........................................................22
Section 11.10 Name Reservation......................................................22
Section 11.11 Provisions in Conflict With Law........................................22
</TABLE>
<PAGE>
DODGE & COX TRUST
February 13, 1998
TRUST INSTRUMENT, made by Thomas M. Mistele and W. Timothy Ryan (the
"Trustees").
WHEREAS, the Trustees desire to establish a business trust for the
investment and reinvestment of funds contributed thereto;
NOW THEREFORE, the Trustees declare that all money and property
contributed to the Trust hereunder shall be held and managed in trust under this
Trust Instrument as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.01 NAME. The name of the Trust created hereby is the "Dodge &
Cox Funds."
SECTION 1.02 DEFINITIONS. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) "Bylaws" means the Bylaws of the Trust as adopted by the Trustees,
as amended from time to time.
(b) "Commission" has the meaning given it in the 1940 Act. "Affiliated
Person," "Assignment," "Interested Person" and "Principal Underwriter" shall
have the respective meanings given them in the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Commission or any rules or
regulations adopted by or interpretive releases of the Commission thereunder.
"Majority Shareholder Vote" shall have the same meaning as the term "vote of a
majority of the outstanding voting securities" is given in the 1940 Act, as
modified by or interpreted by any applicable order or orders of the Commission
or any rules or regulations adopted by or interpretive releases of the
Commission thereunder.
(c) "Delaware Act" refers to Chapter 38 of Title 12 of the Delaware
Code entitled "Treatment of Delaware Business Trusts," as amended from time to
time.
(d) "Net Asset Value" means the net asset value of each Series of the
Trust determined in the manner provided in Article IX, Section 9.03 hereof.
(e) "Outstanding Shares" means those Shares shown from time to time in
the books of the Trust or its transfer agent as then issued and outstanding, but
shall not include Shares which have been redeemed or repurchased by the Trust
and which are at the time held in the treasury of the Trust.
(f) "Principal Underwriter" means a party, other than the Trust, to a
contract described in Article VI, Section 6.02 hereof.
1
<PAGE>
(g) "Series" means a series of Shares of the Trust established in
accordance with the provisions of Article II, Section 2.06 hereof.
(h) "Shareholder" means a record owner of Outstanding Shares of the
Trust.
(i) "Shares" means the equal proportionate transferable units of
beneficial interest into which the beneficial interest of each Series of the
Trust or class thereof shall be divided and may include fractions of Shares as
well as whole Shares.
(j) The "Trust" means the Dodge & Cox Funds and reference to the Trust,
when applicable to one or more Series of the Trust, shall refer to any such
Series.
(k) The "Trustees" means the person or persons who has or have signed
this Trust Instrument, so long as he or they shall continue in office in
accordance with the terms hereof, and all other persons who may from time to
time be duly qualified and serving as Trustees in accordance with the provisions
of Article III hereof and reference herein to a Trustee or to the Trustees shall
refer to the individual Trustees in their capacity as Trustees hereunder.
(l) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of one or
more of the Trust or any Series, or the Trustees on behalf of the Trust or any
Series.
(m) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
ARTICLE II
BENEFICIAL INTEREST
SECTION 2.01 SHARES OF BENEFICIAL INTEREST. The beneficial interest in
the Trust shall be divided into such transferable Shares of one or more separate
and distinct Series or classes of a Series as the Trustees shall from time to
time create and establish. The number of Shares of each Series, and class
thereof, authorized hereunder is unlimited and each Share shall have a par value
of $0.01. All Shares issued hereunder, including without limitation, Shares
issued in connection with a dividend in Shares or a split or reverse split of
Shares, shall be fully paid and nonassessable.
SECTION 2.02 ISSUANCE OF SHARES. The Trustees in their discretion may,
from time to time, without vote of the Shareholders, issue Shares, in addition
to the then issued and Outstanding Shares and Shares held in the treasury, to
such party or parties and for such amount and type of consideration, subject to
applicable law, including cash or securities, at such time or times and on such
terms as the Trustees may deem appropriate, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with,
the assumption of liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares and Shares held in the
treasury. The Trustees may from time to time divide or combine the Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000th of a Share or
2
<PAGE>
integral multiples thereof. The Trustees, the Principal Underwriter or any other
person the Trustees may authorize for the purpose may, in their discretion,
reject any application for the issuance of Shares.
SECTION 2.03 REGISTER OF SHARES AND SHARE CERTIFICATES. A register
shall be kept at the principal office of the Trust or an office of the Trust's
transfer agent which shall contain the names and addresses of the Shareholders
of each Series, the number of Shares of that Series (or any class or classes
thereof) held by them respectively and a record of all transfers thereof. As to
Shares for which no certificate has been issued, such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or other distributions or otherwise to exercise or enjoy the
rights of Shareholders. No Shareholder shall be entitled to receive payment of
any dividend or other distribution, nor to have notice given to him as herein or
in the Bylaws provided, until he has given his address to the transfer agent or
such officer or other agent of the Trustees as shall keep the said register for
entry thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of Share certificates and promulgate appropriate rules and regulations as to
their use.
SECTION 2.04 TRANSFER OF SHARES. Except as otherwise provided by the
Trustees, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer and such evidence of the genuineness of such execution
and authorization and of such other matters as may be required. Upon such
delivery, the transfer shall be recorded on the register of the Trust, after
which the transferee of Shares will be regarded as a Shareholder. Until such
record is made, the Shareholder of record shall be deemed to be the holder of
such Shares for all purposes hereunder and neither the Trustees nor the Trust,
nor any transfer agent or registrar nor any officer, employee or agent of the
Trust shall be affected by any notice of the proposed transfer.
SECTION 2.05 TREASURY SHARES. Shares held in the treasury shall not,
until reissued pursuant to Section 2.02 hereof, confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
SECTION 2.06 ESTABLISHMENT OF SERIES. The Trust created hereby shall
consist of one or more Series and separate and distinct records shall be
maintained by the Trust for each Series and the assets associated with any such
Series shall be held and accounted for separately from the assets of the Trust
or any other Series. The Trustees shall have full power and authority, in their
sole discretion, and without obtaining any prior authorization or vote of the
Shareholders of any Series of the Trust, to establish and designate and to
change in any manner any such Series of Shares or any classes of initial or
additional Series and to fix such preferences, voting powers, rights and
privileges of such Series or classes thereof as the Trustees may from time to
time determine, to divide or combine the Shares or any Series or classes thereof
into a greater or lesser number, to classify or reclassify any issued Shares or
any Series or classes thereof into one or more Series or classes of Shares, and
to take such other action with respect to the Shares as the Trustees may deem
desirable. The establishment and designation of any Series shall be effective
upon the adoption of a resolution by a majority of the Trustees setting forth
such establishment and designation and the relative rights and preferences of
the Shares of such Series. A Series
3
<PAGE>
may issue any number of Shares and need not issue shares. At any time that there
are no Shares outstanding of any particular Series previously established and
designated, the Trustees may by a majority vote abolish that Series and the
establishment and designation thereof.
All references to Shares in this Trust Instrument shall be deemed to be
Shares of any or all Series, or classes thereof, as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust, and each class thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive his pro rata share of all distributions made with
respect to such Series. Upon redemption of his Shares, such Shareholder shall be
paid solely out of the funds and property of such Series of the Trust.
SECTION 2.07 INVESTMENT IN THE TRUST. The Trustees shall accept
investments in any Series of the Trust from such persons and on such terms as
they may from time to time authorize. At the Trustees' discretion, such
investments, subject to applicable law, may be in the form of cash or securities
in which the affected Series is authorized to invest, valued as provided in
Article IX, Section 9.03 hereof. Investments in a Series shall be credited to
each Shareholder's account in the form of full Shares at the Net Asset Value per
Share next determined after the investment is received or accepted as may be
determined by the Trustees; provided, however, that the Trustees may, in their
sole discretion, (a) fix the Net Asset Value per Share of the initial capital
contribution, (b) impose a sales charge upon investments in the Trust in such
manner and at such time determined by the Trustees or (c) issue fractional
Shares.
SECTION 2.08 ASSETS AND LIABILITIES OF SERIES. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall be held and accounted for separately from the other assets of
the Trust and of every other Series and may be referred to herein as "assets
belonging to" that Series. The assets belonging to a particular Series shall
belong to that Series for all purposes, and to no other Series, subject only to
the rights of creditors of that Series. In addition, any assets, income,
earnings, profits or funds, or payments and proceeds with respect thereto, which
are not readily identifiable as belonging to any particular Series shall be
allocated by the Trustees between and among one or more of the Series in such
manner as the Trustees, in their sole discretion, deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series for all purposes, and such assets, income, earnings, profits or funds, or
payments and proceeds with respect thereto, shall be assets belonging to that
Series. The assets belonging to a particular Series shall be so recorded upon
the books of the Trust, and shall be held by the Trustees in trust for the
benefit of the holders of Shares of that Series. The assets belonging to each
particular Series shall be charged with the liabilities of that Series and all
expenses, costs, charges and reserves attributable to that Series. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series shall be allocated
and charged by the Trustees between or among any one or more of the Series in
such manner as the Trustees in their sole discretion deem fair and equitable.
Each such
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allocation shall be conclusive and binding upon the Shareholders of all Series
for all purposes. Without limitation of the foregoing provisions of this Section
2.08, but subject to the right of the Trustees in their discretion to allocate
general liabilities, expenses, costs, charges or reserves as herein provided,
the debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular Series shall be enforceable
against the assets of such Series only, and not against the assets of the Trust
generally. Notice of this contractual limitation on inter-Series liabilities
may, in the Trustees' sole discretion, be set forth in the certificate of trust
of the Trust (whether originally or by amendment) as filed or to be filed in the
Office of the Secretary of State of the State of Delaware pursuant to the
Delaware Act, and upon the giving of such notice in the certificate of trust,
the statutory provisions of Section 3804 of the Delaware Act relating to
limitations on inter-Series liabilities (and the statutory effect under Section
3804 of setting forth such notice in the certificate of trust) shall become
applicable to the Trust and each Series. Any person extending credit to,
contracting with or having any claim against any Series may look only to the
assets of that Series to satisfy or enforce any debt, liability, obligation or
expense incurred, contracted for or otherwise existing with respect to that
Series. No Shareholder or former Shareholder of any Series shall have a claim on
or any right to any assets allocated or belonging to any other Series.
SECTION 2.09 NO PREEMPTIVE RIGHTS. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust or the Trustees, whether of the same or other
Series.
SECTION 2.10 NO PERSONAL LIABILITY OF SHAREHOLDER. Each Shareholder of
the Trust and of each Series shall not be personally liable for the debts,
liabilities, obligations and expenses incurred by, contracted for, or otherwise
existing with respect to, the Trust or by or on behalf of any Series. The
Trustees shall have no power to bind any Shareholder personally or to call upon
any Shareholder for the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time personally agree to pay by
way of subscription for any Shares or otherwise. Every note, bond, contract or
other undertaking issued by or on behalf of the Trust or the Trustees relating
to the Trust or to a Series shall include a recitation limiting the obligation
represented thereby to the Trust or to one or more Series and its or their
assets (but the omission of such a recitation shall not operate to bind any
Shareholder or Trustee of the Trust).
SECTION 2.11 ASSENT TO TRUST INSTRUMENT. Every Shareholder, by virtue
of having purchased a Share shall become a Shareholder and shall be held to have
expressly assented and agreed to be bound by the terms hereof.
ARTICLE III
THE TRUSTEES
SECTION 3.01 MANAGEMENT OF THE TRUST. The Trustees shall have exclusive
and absolute control over the Trust Property and over the business of the Trust
to the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Trust Instrument. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the State of Delaware, in any and
all states of the United States of America, in the District of Columbia, in any
and all
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commonwealths, territories, dependencies, colonies, or possessions of the United
States of America, and in any foreign jurisdiction and to do all such other
things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Trust Instrument, the presumption shall be
in favor of a grant of power to the Trustees.
The enumeration of any specific power in this Trust Instrument shall
not be construed as limiting the aforesaid power. The powers of the Trustees may
be exercised without order of or resort to any court.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 3.04 of this Article III, the Trustees shall be elected by
the Shareholders owning of record a plurality of the Shares voting at a meeting
of Shareholders. Such a meeting shall be held on a date fixed by the Trustees.
In the event that less than a majority of the Trustees holding office have been
elected by Shareholders, the Trustees then in office will call a Shareholders'
meeting for the election of Trustees.
SECTION 3.02 INITIAL TRUSTEES. The initial Trustees shall be the
persons named herein. On a date fixed by the Trustees, the Shareholders shall
elect at least one (1) but not more than fifteen (15) Trustees, as specified by
the Trustees pursuant to Section 3.06 of this Article III.
SECTION 3.03 TERM OF OFFICE. The Trustees shall hold office during the
lifetime of this Trust, and until its termination as herein provided; except (a)
that any Trustee may resign his trust by written instrument signed by him and
delivered to the other Trustees, which shall take effect upon such delivery or
upon such later date as is specified therein; (b) that any Trustee may be
removed at any time by written instrument, signed by at least two-thirds of the
number of Trustees prior to such removal, specifying the date when such removal
shall become effective; (c) that any Trustee who requests in writing to be
retired or who has died, become physically or mentally incapacitated by reason
of disease or otherwise, or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other Trustees, specifying the
date of his retirement; and (d) that a Trustee may be removed at any meeting of
the Shareholders of the Trust by a vote of Shareholders owning at least
two-thirds of the Outstanding Shares.
SECTION 3.04 VACANCIES AND APPOINTMENTS. In case of the declination to
serve, death, resignation, retirement, removal, physical or mental incapacity by
reason of disease or otherwise, or other inability of a Trustee to serve, or an
increase in the number of Trustees, a vacancy shall occur. Whenever a vacancy in
the Board of Trustees shall occur, until such vacancy is filled, the other
Trustees shall have all the powers hereunder and the certificate of the other
Trustees of such vacancy shall be conclusive. In the case of an existing
vacancy, the remaining Trustees shall fill such vacancy by appointing such other
person as they in their discretion shall see fit consistent with the limitations
under the 1940 Act. Such appointment shall be evidenced by a written instrument
signed by a majority of the Trustees in office or by resolution of the Trustees,
duly adopted, which shall be recorded in the minutes of a meeting of the
Trustees, whereupon the appointment shall take effect.
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An appointment of a Trustee may be made by the Trustees then in office
in anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. As soon as any
Trustee appointed pursuant to this Section 3.04 shall have accepted this Trust,
the Trust estate shall vest in the new Trustee or Trustees, together with the
continuing Trustees, without any further act or conveyance, and he shall be
deemed a Trustee hereunder. The power to appoint a Trustee pursuant to this
section 3.04 is subject to the provisions of Section 16(a) of the 1940 Act.
SECTION 3.05 TEMPORARY ABSENCE. Any Trustee may, by power of attorney,
delegate his power for a period not exceeding six months at any time to any
other Trustee or Trustees, provided that in no case shall less than two Trustees
personally exercise the other powers hereunder except as herein otherwise
expressly provided.
SECTION 3.06 NUMBER OF TRUSTEES. The number of Trustees shall be at
least one (1), and thereafter shall be such number as shall be fixed from time
to time by a majority of the Trustees, provided, however, that the number of
Trustees shall in no event be more than fifteen (15).
SECTION 3.07 EFFECT OF ENDING OF A TRUSTEE'S SERVICE. The declination
to serve, death, resignation, retirement, removal, incapacity, or inability of
the Trustees, or any one of them, shall not operate to terminate the Trust or to
revoke any existing agency created pursuant to the terms of this Trust
Instrument.
SECTION 3.08 OWNERSHIP OF ASSETS OF THE TRUST. The assets of the Trust
and of each Series shall be held separate and apart for any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. Legal title in all of the assets of the Trust and the
right to conduct any business shall at all times be considered as vested in the
Trustees on behalf of the Trust, except that the Trustees may cause legal title
to any Trust Property to be held by or in the name of the Trust, or in the name
of any person as nominee. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or of any Series or any right of
partition or possession thereof, but each Shareholder shall have, except as
otherwise provided for herein, a proportionate undivided beneficial interest in
the Trust or Series. The Shares shall be personal property giving only the
rights specifically set forth in this Trust Instrument.
ARTICLE IV
POWERS OF THE TRUSTEES
SECTION 4.01 POWERS. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust, and to
vary the investments of any Series in accordance with the prospectus applicable
to such Series. The Trustees shall not in any way be bound or limited by present
or future laws or customs in regard to Trust investments, but shall have full
authority and power to make any and all investments which they, in their sole
discretion, shall deem proper to accomplish the purpose
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of this Trust without recourse to any court or other authority. Subject to any
applicable limitation in this Trust Instrument or the Bylaws of the Trust, the
Trustees shall have the power and authority:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, without in any event being bound or limited by any
present or future law or custom in regard to investments by trustees, and to
sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease
any or all of the assets of the Trust;
(b) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations;
(c) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of an obligation or engagement of any other person and
to lend Trust Property;
(d) To provide for the distribution of interests of the Trust either
through a Principal Underwriter in the manner hereinafter provided for or by the
Trust itself, or both, or otherwise pursuant to a plan of distribution of any
kind;
(e) To adopt Bylaws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the Shareholders; such
Bylaws shall be deemed incorporated and included in this Trust Instrument;
(f) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
(g) To employ one or more banks, trust companies or companies that are
members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Trust Instrument or in the Bylaws;
(h) To retain one or more transfer agents, shareholder servicing
agents, and/or fund accountants;
(i) To set record dates in the manner provided herein or in the Bylaws;
(j) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment adviser, manager, custodian,
underwriter or other agent or independent contractor;
(k) To sell or exchange any or all of the assets of the Trust, subject
to the provisions of Article XI, Subsection 11.04(b) hereof;
(l) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property, and to execute and deliver
powers of attorney to such person or
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persons as the Trustees shall deem proper, granting to such person or persons
such power and discretion with relation to securities or property as the
Trustees shall deem proper;
(m) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(n) To hold any security or property in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form; or
either in the name of the Trust or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the usual
practice of Delaware business trusts or investment companies;
(o) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article II hereof and to establish classes of
such Series having relative rights, powers and duties as they may provide
consistent with applicable law;
(p) Subject to the provisions of Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series or
to apportion the same between or among two or more Series, provided that any
liabilities or expenses incurred by a particular Series shall be payable solely
out of the assets belonging to that Series as provided for in Article II hereof;
(q) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern; and to pay calls or
subscriptions with respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(s) To make distributions of income and of capital gains to
Shareholders in the manner provided herein;
(t) To establish, from time to time, a minimum investment for
Shareholders in the Trust or in one or more Series or class, and to require the
redemption of the Shares of any Shareholders whose investment is less than such
minimum, or who does not satisfy any other criteria the Trustees may set from
time to time, upon giving notice to such Shareholder;
(u) To establish one or more committees, to delegate any of the powers
of the Trustees to said committees and to adopt a committee charter providing
for such responsibilities, membership (including Trustees, officers or other
agents of the Trust therein) and any other characteristics of said committees as
the Trustees may deem proper. Notwithstanding the provisions of this Article IV,
and in addition to such provisions or any other provision of this Trust
Instrument or of the Bylaws, the Trustees may by resolution appoint a committee
consisting of less than the whole number of Trustees then in office, which
committee may be empowered to act for and bind the Trustees and the Trust, as if
the acts of such committee were the acts of all the Trustees then in office,
with respect to the institution, prosecution, dismissal,
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settlement, review or investigation of any action, suit or proceeding which
shall be pending or threatened to be brought before any court, administrative
agency or other adjudicatory body;
(v) To interpret the investment policies, practices or limitations of
any Series;
(w) To establish a registered office and have a registered agent in the
state of Delaware; and
(x) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed as objects and powers, and the
foregoing enumeration of specific powers shall not be held to limit or restrict
in any manner the general powers of the Trustees. Any action by one or more of
the Trustees in their capacity as such hereunder shall be deemed an action on
behalf of the Trust or the applicable Series, and not an action in an individual
capacity.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
SECTION 4.02 ISSUANCE AND REPURCHASE OF SHARES. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, and otherwise deal in Shares and, subject to the
provisions set forth in Article II and Article IX, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares any
funds or property of the Trust, or the particular Series of the Trust, with
respect to which such Shares are issued.
SECTION 4.03 TRUSTEES AND OFFICERS AS SHAREHOLDERS. Any Trustee,
officer or other agent of the Trust may acquire, own and dispose of Shares to
the same extent as if he were not a Trustee, officer or agent; and the Trustees
may issue and sell or cause to be issued and sold Shares to and buy such Shares
from any such person or any firm or company in which he is interested, subject
only to the general limitations herein contained as to the sale and purchase of
such Shares; and all subject to any restrictions which may be contained in the
Bylaws.
SECTION 4.04 ACTION BY THE TRUSTEES. Except as otherwise provided
herein or in the Bylaws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of the entire
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number of Trustees then in office. The Trustees may adopt Bylaws not
inconsistent with this Trust Instrument to provide for the conduct of the
business of the Trust and may amend or repeal such Bylaws to the extent such
power is not reserved to the Shareholders.
SECTION 4.05 CHAIRMAN OF THE TRUSTEES. The Trustees shall appoint one
of their number to be Chairman of the Board of Trustees. The Chairman shall
preside at all meetings of the Trustees, shall be responsible for the execution
of policies established by the Trustees and the administration of the Trust, and
may be (but is not required to be) the chief executive, financial and/or
accounting officer of the Trust.
SECTION 4.06 PRINCIPAL TRANSACTIONS. Except to the extent prohibited by
applicable law, the Trustees may, on behalf of the Trust, buy any securities
from or sell any securities to, or lend any assets of the Trust to, any Trustee
or officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with any investment
adviser, administrator, distributor or transfer agent for the Trust or with any
Interested Person of such person; and the Trust may employ any such person, or
firm or company in which such person is an Interested Person, as broker, legal
counsel, registrar, investment adviser, administrator, distributor, transfer
agent, dividend disbursing agent, custodian or in any other capacity upon
customary terms.
ARTICLE V
EXPENSES OF THE TRUST
Subject to the provisions of Article II, Section 2.08 hereof, the
Trustees shall be reimbursed from the Trust estate or the assets belonging to
the appropriate Series for their expenses and disbursements, including, without
limitation, interest charges, taxes, brokerage fees and commissions; expenses of
issue, repurchase and redemption of shares; certain insurance premiums;
applicable fees, interest charges and expenses of third parties, including the
Trust's investment advisers, managers, administrators, distributors, custodian,
transfer agent and fund accountant; fees of pricing, interest, dividend, credit
and other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Trust and maintaining corporate
existence; costs of preparing and printing the Trust's prospectuses, statements
of additional information and shareholder reports and delivering them to
existing shareholders; expenses of meetings of shareholders and proxy
solicitations therefore; costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; fees and expenses of the Trustees;
compensation of the Trust's officers and employees and costs of other personnel
performing services for the Trust; costs of Trustee meetings; Securities and
Exchange Commission registration fees and related expenses; state or foreign
securities laws registration fees and related expenses; and for such
non-recurring items as may arise, including litigation to which the Trust (or a
Trustee acting as such) is a party, and for all losses and liabilities by them
incurred in administering the Trust, and for the payment of such expenses,
disbursements, losses and liabilities the Trustees shall have a lien on the
assets belonging to the appropriate Series, or in the case of an expense
allocable to more than one Series, on the assets of each such Series, prior to
any rights or interests of the Shareholders thereto. This section shall not
preclude the Trust from directly paying any of the aforementioned fees and
expenses.
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ARTICLE VI
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR AND TRANSFER AGENT
SECTION 6.01 INVESTMENT ADVISER. The Trustees may in their discretion,
from time to time, enter into an investment advisory contract or contracts with
respect to the Trust or any Series whereby the other party or parties to such
contract or contracts shall undertake to furnish the Trustees with such
investment advisory, statistical and research facilities and services and such
other facilities and services, if any, all upon such terms and conditions as may
be prescribed in the Bylaws or as the Trustees may in their discretion determine
(such terms and conditions not to be inconsistent with the provisions of this
Trust Instrument or of the Bylaws). Notwithstanding any other provision of this
Trust Instrument, the Trustees may authorize any investment adviser (subject to
such general or specific instructions as the Trustees may from time to time
adopt) to effect purchases, sales or exchanges of portfolio securities, other
investment instruments of the Trust, or other Trust Property on behalf of the
Trustees, or may authorize any officer, agent, or Trustee to effect such
purchases, sales or exchanges pursuant to recommendations of the investment
adviser (and all without further action by the Trustees). Any such purchases,
sales and exchanges shall be deemed to have been authorized by all of the
Trustees.
The Trustees may, subject to the requirements of the 1940 Act,
authorize the investment adviser to employ, from time to time, one or more
sub-advisers to perform such of the acts and services of the investment adviser,
and upon such terms and conditions, as may be agreed upon between the investment
adviser and sub-adviser (such terms and conditions not to be inconsistent with
the provisions of this Trust Instrument or of the Bylaws). Any reference in this
Trust Instrument to the investment adviser shall be deemed to include such
sub-advisers, unless the context otherwise requires.
SECTION 6.02 PRINCIPAL UNDERWRITER. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
underwriting contract or contracts providing for the sale of Shares, whereby the
Trust may either agree to sell Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as may be prescribed in the
Bylaws and as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws); and such contract may also provide for the repurchase or sale
of Shares by such other party as principal or as agent of the Trust.
SECTION 6.03 ADMINISTRATION. The Trustees may in their discretion from
time to time enter into one or more management or administrative contracts
whereby the other party or parties shall undertake to furnish the Trustees with
management or administrative services. The contract or contracts shall be on
such terms and conditions as may be prescribed in the Bylaws and as the Trustees
may in their discretion determine (such terms and conditions not to be
inconsistent with the provisions of this Trust Instrument or of the Bylaws).
SECTION 6.04 TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into one or more transfer agency and shareholder service
contracts whereby the other party or parties shall undertake to furnish the
Trustees with transfer agency and shareholder services.
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The contract or contracts shall be on such terms and conditions as may be
prescribed in the Bylaws and as the Trustees may in their discretion determine
(such terms and conditions not to be inconsistent with the provisions of this
Trust Instrument or of the Bylaws).
SECTION 6.05 PARTIES TO CONTRACT. Any contract of the character
described in Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or any
contract of the character described in Article VIII hereof may be entered into
with any corporation, firm, partnership, trust or association, although one or
more of the Trustees or officers of the Trust may be an officer, director,
trustee, shareholder, or member of such other party to the contract, and no such
contract shall be invalidated or rendered void or voidable by reason of the
existence of any relationship, nor shall any person holding such relationship be
disqualified from voting on or executing the same in his capacity as Shareholder
and/or Trustee, nor shall any person holding such relationship be liable merely
by reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article VI or Article VIII hereof or of
the Bylaws. The same person (including a firm, corporation, partnership, trust,
or association) may be the other party to contracts entered into pursuant to
Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or pursuant to Article
VIII hereof, and any individual may be financially interested or otherwise
affiliated with persons who are parties to any or all of the contracts mentioned
in this Section 6.05.
SECTION 6.06 PROVISIONS AND AMENDMENTS. Any contract entered into
pursuant to Sections 6.01 or 6.02 of this Article VI shall be consistent with
and subject to the requirements of Section 15 of the 1940 Act, if applicable, or
other applicable Act of Congress hereafter enacted with respect to its
continuance in effect, its termination, and the method of authorization and
approval of such contract or renewal thereof, and no amendment to any contract
entered into pursuant to Section 6.01 of this Article VI shall be effective
unless assented to in a manner consistent with the requirements of said Section
15, as modified by any applicable rule, regulation or order of the Commission.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.01 VOTING POWERS. The Shareholders shall have power to vote
only (a) for the election of Trustees as provided in Article III, Sections 3.01
and 3.02 hereof, (b) for the removal of Trustees as provided in Article III,
Subsection 3.03(d) hereof, (c) with respect to any investment advisory contract
as provided in Article VI, Section 6.06 hereof, and (d) with respect to such
additional matters relating to the Trust as may be required by law, by this
Trust Instrument, or the Bylaws or any registration of the Trust with the
Commission or any state, or as the Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares shall
be voted separately by individual Series, except (i) when required by the 1940
Act, Shares shall be voted in the aggregate and not by individual Series; and
(ii) when the Trustees have determined that the matter affects the interests of
more than one Series, then the Shareholders of all such Series shall be entitled
to vote thereon. The Trustees may also determine that a matter affects only the
interests of one or more classes of a Series, in which case any such matter
shall be voted on by
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such class or classes. Each whole Share shall be entitled to one vote as to any
matter on which it is entitled to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no cumulative voting
in the election of Trustees. Shares may be voted in person or by proxy or in any
manner provided for in the Bylaws. A proxy may be given in writing. The Bylaws
may provide that proxies may also, or may instead, be given by any electronic or
telecommunications device or in any other manner. Notwithstanding anything else
herein or in the Bylaws, in the event a proposal by anyone other than the
officers or Trustees of the Trust is submitted to a vote of the Shareholders of
one or more Series or of the Trust, or in the event of any proxy contest or
proxy solicitation or proposal in opposition to any proposal by the officers or
Trustees of the Trust, Shares may be voted only in person or by written proxy.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted by law, this Trust Instrument or
any of the Bylaws of the Trust to be taken by Shareholders.
SECTION 7.02 MEETINGS. A meeting of the Shareholders shall be held at
such times, on such day and at such hour as the Trustees may from time to time
determine, either at the principal office of the Trust, or at such other place,
within or without the State of Delaware, as may be designated by the Trustees,
for such purposes as may be specified by the Trustees.
SECTION 7.03 QUORUM AND REQUIRED VOTE. One-third of Shares entitled to
vote in person or by proxy shall be a quorum for the transaction of business at
a Shareholders' meeting, except that where any provision of law or of this Trust
Instrument permits or requires that holders of any Series shall vote as a Series
(or that holders of a class shall vote as a class), then one-third of the
aggregate number of Shares of that Series (or that class) entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
Series (or that class). Any lesser number shall be sufficient for adjournments.
Any adjourned session or sessions may be held, within a reasonable time after
the date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by law or by any provision of this Trust
Instrument or the Bylaws, a majority of the Shares voted in person or by proxy
shall decide any questions and a plurality shall elect a Trustee, provided that
where any provision of law or of this Trust Instrument permits or requires that
the holders of any Series shall vote as a Series (or that the holders of any
class shall vote as a class), then a majority of the Shares present in person or
by proxy of that Series (or class) or, if required by law, a majority of the
Shares of that Series (or class), voted on the matter in person or by proxy
shall decide that matter insofar as that Series (or class) is concerned.
Shareholders may act by unanimous written consent. Actions taken by Series (or
class) may be consented to unanimously in writing by Shareholders of that Series
(or class).
ARTICLE VIII
CUSTODIAN
SECTION 8.01 APPOINTMENT AND DUTIES. The Trustees shall at all times
employ a bank, a company that is a member of a national securities exchange, or
a trust company, that has capital, surplus and undivided profits of at least two
million dollars ($2,000,000) and is a member of the Depository Trust Company, as
custodian with authority as its agent, but subject to such restrictions,
limitations and other requirements, if any, as may be contained in the Bylaws of
the Trust. Said custodian shall be authorized: (a) to hold the securities owned
by the Trust and
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deliver the same upon written order or oral order confirmed in writing; (b) to
receive and receipt for any moneys due to the Trust and deposit the same in its
own banking department or elsewhere as the Trustees may direct; and (c) to
disburse such funds upon orders or vouchers.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, subject to such
restrictions, limitations and other requirements, if any, as may be contained in
the Bylaws of the Trust.
SECTION 8.02 CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, as amended, or such other
person as may be permitted by the Commission, or otherwise in accordance with
the 1940 Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and may
be transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or its custodians, sub-custodians or other agents.
ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
SECTION 9.01 DISTRIBUTIONS.
(a) The Trustees may from time to time declare and pay dividends or
other distributions with respect to any Series. The amount of such dividends or
distributions and the payment of them and whether they are in cash or any other
Trust Property shall be within the sole discretion of the Trustees.
(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times
as the Trustees shall determine, which dividends or distributions, at the
election of the Trustees, may be paid pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary notwithstanding,
the Trustees may at any time declare and distribute a stock dividend pro rata
among the Shareholders of a particular Series, or class thereof, as of the
record date of that Series fixed as provided in Subsection 9.01(b) hereof.
SECTION 9.02 REDEMPTIONS. In case any holder of record of Shares of a
particular Series desires to dispose of his Shares or any portion thereof, he
may deposit at the office of the transfer agent or other authorized agent of
that Series a written request or such other form of request as
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the Trustees may from time to time authorize, requesting that the Series
purchase the Shares in accordance with this Section 9.02; and the Shareholder so
requesting shall be entitled to require the Series to purchase, and the Series
or the Principal Underwriter of the Series shall purchase his said Shares, but
only at the Net Asset Value thereof (as described in Section 9.03 of this
Article IX). The Series shall make payment for any such Shares to be redeemed,
as aforesaid, in cash or property from the assets of that Series and payment for
such Shares shall be made by the Series or the Principal Underwriter of the
Series to the Shareholder of record within seven (7) days after the date upon
which the request is effective. Upon redemption, Shares shall become Treasury
shares and may be re-issued from time to time.
SECTION 9.03 DETERMINATION OF NET ASSET VALUE AND VALUATION OF
PORTFOLIO ASSETS. The term "Net Asset Value" of any Series shall mean that
amount by which the assets of that Series exceed its liabilities, all as
determined by or under the direction of the Trustees. Such value shall be
determined separately for each Series and shall be determined on such days and
at such times as the Trustees may determine. Such determination shall be made
with respect to securities for which market quotations are readily available, at
the market value of such securities; and with respect to other securities and
assets, at the fair value as determined in good faith by the Trustees; provided,
however, that the Trustees, without Shareholder approval, may alter the method
of valuing portfolio securities insofar as permitted under the 1940 Act and the
rules, regulations and interpretations thereof promulgated or issued by the
Commission or insofar as permitted by any Order of the Commission applicable to
the Series. The Trustees may delegate any of their powers and duties under this
Section 9.03 with respect to valuation of assets and liabilities. The resulting
amount, which shall represent the total Net Asset Value of the particular
Series, shall be divided by the total number of Shares of that Series
outstanding at the time and the quotient so obtained shall be the Net Asset
Value per Share of that Series. At any time the Trustees may cause the Net Asset
Value per Share last determined to be determined again in similar manner and may
fix the time when such redetermined value shall become effective. If, for any
reason, the net income of any Series, determined at any time, is a negative
amount, the Trustees shall have the power with respect to that Series (a) to
offset each Shareholder's pro rata share of such negative amount from the
accrued dividend account of such Shareholder, (b) to reduce the number of
Outstanding Shares of such Series by reducing the number of Shares in the
account of each Shareholder by a pro rata portion of that number of full and
fractional Shares which represents the amount of such excess negative net
income, (c) to cause to be recorded on the books of such Series an asset account
in the amount of such negative net income (provided that the same shall
thereupon become the property of such Series with respect to such Series and
shall not be paid to any Shareholder), which account may be reduced by the
amount, of dividends declared thereafter upon the Outstanding Shares of such
Series on the day such negative net income is experienced, until such asset
account is reduced to zero; (d) to combine the methods described in clauses (a)
and (b) and (c) of this sentence; or (e) to take any other action they deem
appropriate, in order to cause (or in order to assist in causing) the Net Asset
Value per Share of such Series to remain at a constant amount per Outstanding
Share immediately after each such determination and declaration. The Trustees
shall also have the power not to declare a dividend out of net income for the
purpose of causing the Net Asset Value per Share to be increased. The Trustees
shall not be required to adopt, but may at any time adopt, discontinue or amend
the practice of maintaining the Net Asset Value per Share of the Series at a
constant amount.
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SECTION 9.04 SUSPENSION OF THE RIGHT OF REDEMPTION. The Trustees may
declare a suspension of the right of redemption or postpone the date of payment
as permitted under the 1940 Act. Such suspension shall take effect at such time
as the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value per Share next determined after the termination of
the suspension. In the event that any Series is divided into classes, the
provisions of this Section 9.03, to the extent applicable as determined in the
discretion of the Trustees and consistent with applicable law, may be equally
applied to each such class.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 10.01 LIMITATION OF LIABILITY. A Trustee, when acting in such
capacity, shall not be personally liable to any person other than the Trust or a
beneficial owner for any act, omission or obligation of the Trust or any
Trustee. A Trustee shall not be liable for any act or omission or any conduct
whatsoever in his capacity as Trustee, provided that nothing contained herein or
in the Delaware Act shall protect any Trustee against any liability to the Trust
or to Shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee hereunder.
SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):
(i) every person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in
office or thereafter, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts
paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
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involved in the conduct of his office or (B) not to have acted in good
faith in the reasonable belief that his action was in the best interest
of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or other
body approving the settlement; (B) by at least a majority of those
Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written opinion of
independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry); provided, however,
that any Shareholder may, by appropriate legal proceedings, challenge
any such determination by the Trustees or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
Subsection 10.02(a) of this Section 10.02 may be paid by the Trust or Series
from time to time prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such Covered Person that such amount will be paid
over by him to the Trust or Series if it is ultimately determined that he is not
entitled to indemnification under this Section 10.02; provided, however, that
either (i) such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments, or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under Section 10.02.
SECTION 10.03 SHAREHOLDERS. In case any Shareholder of any Series shall
be held to be personally liable solely by reason of his being or having been a
Shareholder of such Series and not because of his acts or omissions or for some
other reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives, or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled out
of the assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability. The Trust,
on behalf of the affected Series, shall, upon request by the Shareholder, assume
the defense of any claim made against the Shareholder for any act or obligation
of the Series and satisfy any judgment thereon from the assets of the Series.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.01 TRUST NOT A PARTNERSHIP. It is hereby expressly declared
that a trust and not a partnership is created hereby; provided, however, that it
is acknowledged that, for federal tax purposes, the trust created hereby may be
characterized as a corporation. No Trustee hereunder shall have any power to
bind personally either the Trust officers or any Shareholder. All persons
extending credit to, contracting with or having any claim against the Trust or
the Trustees shall look only to the assets of the appropriate Series or (if the
Trustees shall have yet to have established Series) of the Trust for payment
under such credit, contract or claim; and neither the Shareholders nor the
Trustees, nor any of their agents, whether past, present or future, shall be
personally liable therefor.
SECTION 11.02 TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR
SURETY. The exercise by the Trustees of their powers and discretion hereunder in
good faith and with reasonable care under the circumstances then prevailing
shall be binding upon everyone interested. Subject to the provisions of Article
X hereof and to Section 11.01 of this Article XI, the Trustees shall not be
liable for errors of judgment or mistakes of fact or law. The Trustees may take
advice of counsel or other experts with respect to the meaning and operation of
this Trust Instrument, and subject to the provisions of Article X hereof and
Section 11.01 of this Article XI, shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor any surety if a
bond is obtained.
SECTION 11.03 ESTABLISHMENT OF RECORD DATES. The Trustees may close the
Share transfer books of the Trust for a period not exceeding sixty (60) days
preceding the date of any meeting of Shareholders, or the date for the payment
of any dividends or other distributions, or the date for the allotment of
rights, or the date when any change or conversion or exchange of Shares shall go
into effect. In lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding sixty (60) days preceding the
date of any meeting of Shareholders, or the date for payment of any dividend or
other distribution, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive payment of any such dividend
or other distribution, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of Shares, and in
such case such Shareholders and only such Shareholders as shall be Shareholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting, or to receive payment of such dividend or other distribution,
or to receive such allotment or rights, or to exercise such rights, as the case
may be, notwithstanding any transfer of any Shares on the books of the Trust
after any such record date fixed as aforesaid.
SECTION 11.04 TERMINATION OF TRUST.
(a) This Trust shall continue without limitation of time but subject to
the provisions of Subsection 11.04(b).
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(b) The Trustees may, subject to a Majority Shareholder Vote of each
Series affected by the matter or, if applicable, to a Majority Shareholder Vote
of the Trust, and subject to a vote of a majority of the Trustees,
(i) sell and convey all or substantially all of the assets of
the Trust or any affected Series to another trust, partnership,
association or corporation, or to a separate series of shares thereof,
organized under the laws of any state which trust, partnership,
association or corporation is an open-end management investment company
as defined in the 1940 Act, or is a series thereof, for adequate
consideration which may include the assumption of all outstanding
obligations, taxes and other liabilities, accrued or contingent, of the
Trust or any affected Series, and which may include shares of
beneficial interest, stock or other ownership interests of such trust,
partnership, association or corporation or of a series thereof; or
(ii) at any time sell and convert into money all of the assets
of the Trust or any affected Series.
Upon making reasonable provision, in the determination of the Trustees, for the
payment of all such liabilities in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) of each Series (or class) ratably among the holders of Shares
of that Series then outstanding.
(c) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in Subsection 11.05(b), the Trust or any
affected Series shall terminate and the Trustees and the Trust shall be
discharged of any and all further liabilities and duties hereunder and the
right, title and interest of all parties with respect to the Trust or Series
shall be canceled and discharged.
Upon termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's certificate of trust to be filed in accordance with the Delaware Act,
which certificate of cancellation may be signed by any one Trustee.
Without limiting the generality of the foregoing, existence of the
Trust shall not be affected by sales or purchases of Shares or status of any
Shareholders.
SECTION 11.05 REORGANIZATION. Notwithstanding anything else herein, the
Trustees, in order to change the form of organization of the Trust, may, without
prior Shareholder approval, (a) cause the Trust to merge or consolidate with or
into one or more trusts, partnerships, associations or corporations so long as
the surviving or resulting entity is an open-end management investment company
under the 1940 Act, or is a series thereof, that will succeed to or assume the
Trust's registration under that Act and which is formed, organized or existing
under the laws of a state, commonwealth, possession or colony of the United
States or (b) cause the Trust to incorporate under the laws of Delaware. Any
agreement of merger or consolidation or certificate of merger may be signed by a
majority of Trustees and facsimile signatures conveyed by electronic or
telecommunication means shall be valid.
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Pursuant to and in accordance with the provisions of Section 3815(f) of
the Delaware Act, and notwithstanding anything to the contrary contained in this
Trust Instrument, an agreement of merger or consolidation approved by the
Trustees in accordance with this Section 11.05 may effect any amendment to the
Trust Instrument or effect the adoption of a new trust instrument of the Trust
if it is the surviving or resulting trust in the merger or consolidation.
SECTION 11.06 FILING OF COPIES, REFERENCES, HEADINGS. The original or a
copy of this Trust Instrument and of each amendment hereof or Trust Instrument
supplemental hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer or Trustee of the Trust as to whether or not any such
amendments or supplements have been made and as to any matters in connection
with the Trust hereunder, and with the same effect as if it were the original,
may rely on a copy certified by an officer or Trustee of the Trust to be a copy
of this Trust Instrument or of any such amendment or supplemental Trust
Instrument. In this Trust Instrument or in any such amendment or supplemental
Trust Instrument, references to this Trust Instrument, and all expressions like
"herein," "hereof" and "hereunder," shall be deemed to refer to this Trust
Instrument as amended or affected by any such supplemental Trust Instrument. All
expressions like "his", "he" and "him", shall be deemed to include the feminine
and neuter, as well as masculine, genders. Headings are placed herein for
convenience of reference only and in case of any conflict, the text of this
Trust Instrument, rather than the headings, shall control. This Trust Instrument
may be executed in any number of counterparts each of which shall be deemed an
original.
SECTION 11.07 APPLICABLE LAW. The Trust set forth in this instrument is
made in the State of Delaware, and the Trust and this Trust Instrument, and the
rights and obligations of the Trustees and Shareholders hereunder, are to be
governed by and construed and administered according to the Delaware Act and the
laws of said State; provided, however, that there shall not be applicable to the
Trust, the Trustees or this Trust Instrument (a) the provisions of Section 3540
of Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or
common) of the State of Delaware (other than the Delaware Act) pertaining to
trusts which relate to or regulate (i) the filing with any court or governmental
body or agency of trustee accounts or schedules of trustee fees and charges,
(ii) affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (iv) fees or other sums payable to trustees, officers,
agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards of responsibilities or limitations
on the acts or powers of trustees, which are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or referenced
in this Trust Instrument. The Trust shall be of the type commonly called a
"business trust", and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
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any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
SECTION 11.08 AMENDMENTS. Except as specifically provided herein, the
Trustees may, without Shareholder vote, amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument supplemental hereto or an
amended and restated Trust Instrument. Shareholders shall have the right to vote
(a) on any amendment which would affect their right to vote granted in Section
7.01 of Article VII hereof, (b) on any amendment to this Section 11.08, (c) on
any amendment as may be required by law or by the Trust's registration statement
filed with the Commission, and (d) on any amendment submitted to them by the
Trustees. Any amendment required or permitted to be submitted to Shareholders
which, as the Trustees determine, shall affect the Shareholders of one or more
Series shall be authorized by vote of the Shareholders of each Series affected
and no vote of Shareholders of a Series not affected shall be required.
Notwithstanding anything else herein, any amendment to Article X hereof shall
not limit the rights to indemnification or insurance provided therein with
respect to action or omission of Covered Persons prior to such amendment.
SECTION 11.09 FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the Bylaws, provided, however, that the Trustees
may, without Shareholder approval, change the fiscal year of the Trust.
SECTION 11.10 NAME RESERVATION. The Trustees on behalf of the Trust
acknowledge that Dodge & Cox has licensed to the Trust the non-exclusive right
to use the name "Dodge & Cox" as part of the name of the Trust, and has reserved
the right to grant the non-exclusive use of the name "Dodge & Cox" or any
derivative thereof to any other party. In addition, Dodge & Cox reserves the
right to grant the non-exclusive use of the name Dodge & Cox to, and to withdraw
such right from, any other business or other enterprise. Dodge & Cox reserves
the right to withdraw from the Trust the right to use said name and will
withdraw such right if the Trust ceases to employ, for any reason, Dodge & Cox,
an affiliate or any successor as adviser of the Trust.
SECTION 11.11 PROVISIONS IN CONFLICT WITH LAW. The provisions of this
Trust Instrument are severable, and if the Trustees shall determine, with the
advice of counsel, that any of such provisions is in conflict with the 1940 Act,
the regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision of this Trust Instrument shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any matter affect such provisions in any other jurisdiction or any
other provision of this Trust Instrument in any jurisdiction.
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IN WITNESS WHEREOF, the undersigned, being all of the initial Trustees
of the Trust, have executed this instrument as of date first written above.
/s/ Thomas M. Mistele
-----------------------------
Thomas M. Mistele, as Trustee
and not individually
/s/ W. Timothy Ryan
---------------------------
W. Timothy Ryan, as Trustee
and not individually
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EXHIBIT 23.B2
BYLAWS
OF
DODGE & COX FUNDS
(a Delaware Business Trust)
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS..................................................... 1
ARTICLE II OFFICES........................................................ 1
Section 1. Resident Agent............................................ 1
Section 2. Offices................................................... 1
ARTICLE III SHAREHOLDERS................................................... 2
Section 1. Meetings.................................................. 2
Section 2. Notice of Meetings........................................ 2
Section 3. Record Date for Meetings and Other Purposes............... 2
Section 4. Proxies................................................... 3
Section 5. Action Without Meeting.................................... 4
ARTICLE IV TRUSTEES........................................................ 4
Section 1. Meetings of the Trustees.................................. 4
Section 2. Quorum and Manner of Acting............................... 5
ARTICLE V COMMITTEES....................................................... 5
Section 1. Executive and Other Committees............................ 5
Section 2. Meetings, Quorum and Manner of Acting..................... 6
ARTICLE VI OFFICERS........................................................ 7
Section 1. General Provisions........................................ 7
Section 2. Term of Office and Qualifications......................... 7
Section 3. Removal................................................... 8
Section 4. Powers and Duties of the President........................ 8
Section 5. Powers and Duties of Vice Presidents...................... 8
Section 6. Powers and Duties of the Treasurer........................ 9
Section 7. Powers and Duties of the Secretary........................ 9
Section 8. Powers and Duties of Assistant Treasurers................. 9
Section 9. Powers and Duties of Assistant Secretaries................ 10
Section 10. Compensation of Officers and Trustees and
Members of the Advisory Board............................. 10
ARTICLE VII FISCAL YEAR.................................................... 10
ARTICLE VIII SEAL.......................................................... 10
ARTICLE IX WAIVERS OF NOTICE............................................... 11
-i-
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ARTICLE X CUSTODY OF SECURITIES............................................ 11
Section 1. Employment of a Custodian................................. 11
Section 2. Action Upon Termination of Custodian Agreement............ 11
Section 3. Provisions of Custodian Agreement......................... 12
Section 4. Central Certificate System................................ 13
Section 5. Acceptance of Receipts in Lieu of Certificates............ 13
ARTICLE XI AMENDMENTS...................................................... 14
ARTICLE XII INSPECTION OF BOOKS............................................ 14
ARTICLE XIII MISCELLANEOUS................................................. 14
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BYLAWS
OF
DODGE & COX FUNDS
ARTICLE I
DEFINITIONS
Any terms defined in the Trust Instrument of Dodge & Cox Funds dated April
_____ , 1998, as amended from time to time, shall have the same meaning when
used herein.
ARTICLE II
OFFICES
Section 1. Resident Agent. The Trust shall maintain a resident agent in
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the State of Delaware, which agent shall initially be The Corporation Trust
Company, 30 The Green, Dover, Delaware 19901. The Trustees may designate a
successor resident agent, provided, however, that such appointment shall not
become effective until written notice thereof is delivered to the office of the
Secretary of State.
Section 2. Offices. The Trust may have its principal office and other
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offices in such places within as well as without the State of Delaware as the
Trustees may from time to time determine.
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ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders shall be held as
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provided in the Trust Instrument at such place within or without the State of
Delaware as the Trustees shall designate.
Section 2. Notice of Meetings. Notice of all meetings of the
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Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his address as recorded on
the register of the Trust mailed at least ten (10) days and not more than sixty
(60) days before the meeting. Only the business stated in the notice of the
meeting shall be considered at such meeting. Any adjourned meeting may be held
as adjourned without further notice. No notice need be given to any Shareholder
who shall have failed to inform the Trust of his current address or if a written
waiver of notice, executed before or after the meeting by the Shareholder or his
attorney thereunto authorized, is filed with the records of the meeting.
Section 3. Record Date for Meetings and Other Purposes. For the purpose
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of determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding sixty (60) days, as the Trustees may determine; or without
closing the transfer books the Trustees may fix a date not more than sixty (60)
days prior to the date of any meeting of Shareholders or distribution or other
action as
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a record date for the determinations of the persons to be treated as
Shareholders of record for such purposes, subject to the provisions of the Trust
Instrument.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
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entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Shareholders of record as of the record date
shall be entitled to vote. Each whole share shall be entitled to one vote as to
any matter on which it is entitled by the Trust Instrument to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. When any
Share is held jointly by two or more persons, any one of them may vote at any
meeting in person or by proxy in respect of such Share, but if more than one of
them shall be present at such meeting in person or by proxy, and such joint
owners or their proxies so present disagree as to any vote to be cast, such vote
shall not be received in respect of such Share. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise, and the burden of proving invalidity
shall rest on the challenger. If the holder of any such Share is a minor or
legally incompetent, and subject to guardianship or the legal control of any
other person as regards the charge or management of such Share, the person may
vote by his or her guardian or such other person appointed or having such
control, and such vote may be given in person or by proxy. For purposes of this
Section, a proxy granted by
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telephone, telegram, telex, telecopy, internet, computer interface or other
electronic method of document transfer shall be deemed "executed by or on behalf
of a Shareholder."
Section 5. Action Without Meeting. Any action which may be taken by
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Shareholders may be taken without a meeting if all Shareholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of Shareholders. Such consents shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion
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provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the President, or by any one
of the Trustees, at the time being in office. Notice of the time and place of
each meeting other than regular or stated meetings shall be given by the
Secretary or an Assistant Secretary or by the officer or Trustee calling the
meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be sent by facsimile, telegraphed, cabled, or wirelessed to
each Trustee at his business address, or personally delivered to him at least
one day before the meeting. Such notice may, however, be waived by any Trustee.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him before or after the meeting, is filed with the records
of the meeting, or to any
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Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify the purpose of any meeting. The Trustees may meet by means of a
telephone conference circuit or similar communications equipment by means of
which all persons participating in the meeting can hear one another.
Participation in a telephone conference meeting shall constitute presence in
person at such meeting. Any action required or permitted to be taken at any
meeting of the Trustees may be taken by the Trustees without a meeting if all
the Trustees consent to the action in writing and the written consents are filed
with the records of the Trustees' meetings. Such consents shall be treated as a
vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees shall
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be present in person at any regular or special meeting of the Trustees in order
to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Trust Instrument or these Bylaws) the
act of a majority of the Trustees present at any such meeting, at which a quorum
is present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
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majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less
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than three (3) to hold office at the pleasure of the Trustees, which shall have
the power to conduct the current and ordinary business of the Trust while the
Trustees are not in session, including the purchase and sale of securities and
the designation of securities to be delivered upon redemption of Shares of the
Trust, and such other powers of the Trustees as the Trustees may, from time to
time, delegate to them except those powers which by law, the Trust Instrument or
these Bylaws they are prohibited from delegating. The Trustees may also elect
from their own number other Committees from time to time, the number composing
such Committees, the powers conferred upon the same (subject to the same
limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees may
designate a chairman of any such Committee. In the absence of such designation,
the Committee may elect its own Chairman.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
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provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
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The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be kept with the
records of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
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President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Executive Vice Presidents, one
or more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The Trustees may delegate to any officer or Committee the
power to appoint any subordinate officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise provided
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by law, the Trust Instrument or these Bylaws, the President, the Treasurer and
the Secretary shall each hold office until his successor shall have been duly
elected and qualified, and all other officers shall hold office at the pleasure
of the Trustees. The Secretary and Treasurer may be the same person. A Vice
President and the Treasurer or Assistant Treasurer or a Vice President and the
Secretary or Assistant Secretary may be the same person, but the offices of Vice
President and Secretary and Treasurer shall not be held by the same person. The
President shall hold no other office. Except as above provided, any two offices
may be held by the same person. Any officer may be, but none need be, a Trustee
or Shareholder.
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Section 3. Removal. The Trustees, at any regular or special meeting of
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the Trustees, may remove any officer with or without cause, by a vote of a
majority of the Trustees then in office. Any officer or agent appointed by an
officer or Committee may be removed with or without cause by such appointing
officer or Committee.
Section 4. Powers and Duties of the President. The President may call
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meetings of the Trustees and of any Committee thereof when he or she deems it
necessary and shall preside at all meetings of the Shareholders. Subject to the
control of the Trustees and to the control of any Committees of the Trustees,
within their respective spheres, as provided by the Trustees, he or she shall at
all times exercise a general supervision and direction over the affairs of the
Trust. He or she shall have the power to employ attorneys and counsel for the
Trust and to employ such subordinate officers, agents, clerks and employees as
he may find necessary to transact the business of the Trust. He or she shall
also have the power to grant, issue, execute or sign such powers of attorney,
proxies or other documents as may be deemed advisable or necessary in
furtherance of the interests of the Trust. The President shall have such other
powers and duties as from time to time may be conferred upon or assigned to him
or her by the Trustees.
Section 5. Powers and Duties of Vice Presidents. In the absence or
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disability of the President, any Vice President designated by the Trustees shall
perform all the duties and may exercise any of the powers of the President,
subject to the control of the Trustees. Each Vice President shall perform such
other duties as may be assigned to him or her from time to time by the Trustees
and the President.
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Section 6. Powers and Duties of the Treasurer. The Treasurer shall be the
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principal financial and accounting officer of the Trust. He or she shall
deliver all funds of the Trust which may come into his or her hands to such
Custodian as the Trustees may employ pursuant to Article X of these Bylaws. He
or she shall in general perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the Trustees.
Section 7. Powers and Duties of the Secretary. The Secretary shall keep
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the minutes of all meetings of the Trustees and of the Shareholders among the
Trust records; he or she shall have custody of the seal of the Trust; he or she
shall have charge of the Share transfer books, lists and records unless the same
are in the charge of the Transfer Agent. He or she shall attend to the giving
and serving of all notices by the Trust in accordance with the provisions of
these Bylaws and as required by law; and subject to these Bylaws, he or she
shall in general perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him or her by the Trustees.
Section 8. Powers and Duties of Assistant Treasurers. In the absence or
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disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from
time to time may be assigned to him or her by the Trustees.
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Section 9. Powers and Duties of Assistant Secretaries. In the absence or
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disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him or her by the Trustees.
Section 10. Compensation of Officers and Trustees and Members of the
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Advisory Board. Subject to any applicable provisions of the Trust Instrument,
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the compensation of the officers and Trustees and members of any Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he or she is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of January in
each year and shall end on the 31st day of December in each year, provided,
however, that the Trustees may from time to time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
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ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Trust Instrument or
these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been
telegraphed, cabled or wirelessed for the purposes of these Bylaws when it has
been delivered to a representative of any telegraph, cable or wireless company
with instructions that it be telegraphed, cabled or wirelessed.
ARTICLE X
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall place and at all
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times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian, which may be a foreign bank which meets applicable requirements
of law) all funds, securities and other assets included in the Trust Property.
The Custodian (and any sub-custodian) shall be a bank having not less than
$2,000,000 aggregate capital, surplus and undivided profits and shall be
appointed from time to time by the Trustees,who shall fix its remuneration.
Section 2. Action Upon Termination of Custodian Agreement. Upon
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termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found
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who has the required qualifications and is willing to serve, the Trustees shall
call as promptly as possible a special meeting of the Shareholders to determine
whether the Trust shall function without a custodian or shall be liquidated. If
so directed by vote of the holders of a majority of the outstanding voting
securities, the Custodian shall deliver and pay over all Trust Property held by
it as specified in such vote.
Section 3. Provisions of Custodian Agreement. The following provisions
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shall apply to the employment of a Custodian and to any contract entered into
with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all securities
included in the Trust Property or to which the Trust may become entitled,
and shall order the same to be delivered by the Custodian only in
completion of a sale, exchange, transfer, pledge, loan of portfolio
securities to another person, or other disposition thereof, all as the
Trustees may generally or from time to time require or approve or to a
successor Custodian; and the Trustees shall cause all funds included in the
Trust Property or to which it may become entitled to be paid to the
Custodian, and shall order the same disbursed only for investment against
delivery of the securities acquired, or the return of cash held as
collateral for loans of portfolio securities, or in payment of expenses,
including management compensation, and liabilities of the Trust, including
distributions to shareholders, or to a successor Custodian. In connection
with the Trust's purchase or sale of futures contracts, the Custodian shall
transmit, prior to receipt on behalf of the Trust of
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any securities or other property, funds from the Trust's custodian account
in order to furnish to and maintain funds with brokers as margin to
guarantee the performance of the Trust's futures obligations in accordance
with the applicable requirements of commodities exchanges and brokers.
Section 4. Central Certificate System. Subject to such rules, regulations
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and orders as the Commission may adopt, the Trustees may direct the Custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust or its duly authorized agent.
Section 5. Acceptance of Receipts in Lieu of Certificates. Subject to
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such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
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ARTICLE XI
AMENDMENTS
These Bylaws, or any of them, may be altered, amended or repealed, or new
Bylaws may be adopted by (a) a vote of a majority of the Shares outstanding and
entitled to vote or (b) the Trustees, provided, however, that no Bylaw may be
amended, adopted or repealed by the Trustees if such amendment, adoption or
repeal requires, pursuant to law, the Trust Instrument or these Bylaws, a vote
of the Shareholders.
ARTICLE XII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what extent,
and at what times and places, and under what conditions and regulations the
accounts and books of the Trust, or any of them, shall be open to the inspection
of the shareholders; and no shareholder shall have any right of inspecting any
account or book or document of the Trust except as conferred by law or
authorized by the Trustees or by resolution of the Shareholders.
ARTICLE XIII
MISCELLANEOUS
(A) Except as hereinafter provided, no officer or Trustee of the Trust and
no partner, officer, director or shareholder of the Investment Adviser of the
Trust or of the Distributor of the
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Trust, if any, and no Investment Adviser or Distributor of the Trust, if any,
shall take long or short positions in the securities issued by the Trust.
(1) The foregoing provisions shall not prevent the Distributor, if
any, from purchasing Shares from the Trust if such purchases are limited
(except for reasonable allowances for clerical errors, delays and errors of
transmission and cancellation of orders) to purchases for the purpose of
filling orders for such Shares received by the Distributor, and provided
that orders to purchase from the Trust are entered with the Trust or the
Custodian promptly upon receipt by the Distributor of purchase orders for
such Shares, unless the Distributor, if any, is otherwise instructed by its
customer.
(2) The foregoing provision shall not prevent the Distributor, if any,
from purchasing Shares of the Trust as agent for the account of the Trust.
(3) The foregoing provision shall not prevent the purchase from the
Trust or from the Distributor of Shares, if any, issued by the Trust, by
any officer, or Trustee of the Trust or by any partner, officer, director
or shareholder of the Investment Adviser of the Trust or of the Distributor
of the Trust at the price available to the public generally at the moment
of such purchase, or as described in the then currently effective
Prospectus for the Series of such Shares.
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(4) The foregoing shall not prevent the Distributor, if any, or any
affiliate thereof, of the Trust from purchasing Shares of any Series prior
to the effectiveness of the first registration statement relating to such
Shares under the Securities Act of 1933.
(B) The Trust shall not lend assets of the Trust to any officer or Trustee
of the Trust, or to any partner, officer, director or shareholder of, or person
financially interested in, the Investment Adviser of the Trust, or the
Distributor of the Trust, if any, or to the Investment Adviser of the Trust or
to the Distributor of the Trust, if any.
(C) The Trust shall not impose any restrictions upon the transfer of the
Shares of the Trust except as provided in the Trust Instrument, but this
requirement shall not prevent the charging of customary transfer agent fees.
(D) The Trust shall not permit any officer or Trustee of the Trust, or any
partner, officer or director of the Investment Adviser or Distributor of the
Trust, if any, to deal for or on behalf of the Trust with himself as principal
or agent, or with any partnership, association or corporation in which he has a
financial interest; provided that the foregoing provisions shall not prevent (a)
officers and Trustees of the Trust or partners, officers or directors of the
Investment Adviser or Distributor of the Trust, if any, from buying, holding or
selling shares in the Trust, or from being partners, officers or directors or
otherwise financially interested in the Investment Adviser or Distributor of the
Trust, if any; (b) purchases or sales of securities or other property by the
Trust from or to an affiliated person or to the Investment Adviser or
Distributor of the Trust, if any, if such transaction is permitted under
applicable provisions of the 1940 Act; (c) purchases of investments for the
portfolio of any Series of the Trust or sales of investments owned by any Series
of the Trust through a security dealer who is, or one or more of whose partners,
shareholders, officers or directors is, an officer or Trustee of the Trust, or a
partner, officer or director of the Investment Adviser or Distributor of the
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Trust, if any, if such transactions are handled in the capacity of broker only
and commissions charged do not exceed customary brokerage charges for such
services; (d) employment of legal counsel, registrar, Transfer Agent, dividend
disbursing agent or Custodian who is, or has a partner, shareholder, officer, or
director who is, an officer or Trustee of the Trust, or a partner, officer or
director of the Investment Adviser or Distributor of the Trust, if any, if only
customary fees are charged for services to the Trust; or (e) sharing statistical
research, legal and management expenses and office hiring and other expenses
with any other investment company in which an officer or Trustee of the Trust,
or a partner, officer or director of the Investment Adviser or Distributor of
the Trust, if any, is an officer or director or otherwise financially
interested.
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