(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
CHECK THE APPROPRIATE BOX:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
/ / Confidential, for use of the Commission only (Rule 14a-6(e)(2))
DODGE & COX STOCK FUND
(Name of Registrant as Specified In Its Charter)
DODGE & COX STOCK FUND
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filling
fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number of the
Form or Schedule and the date of its filing.
1) Amount Previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
DODGE & COX STOCK FUND
DODGE & COX BALANCED FUND
DODGE & COX INCOME FUND
One Sansome Street, 35th Floor
San Francisco, California 94104
(415) 981-1710
November ___, 1997
Dear Shareholder:
I am writing to inform you of the upcoming special meeting of the
shareholders of your fund. At this meeting, you are being asked to vote on
important proposals effecting your fund. The Board of Directors/Trustees of you
fund, including myself, unanimously believes that these proposals are in the
fund's and your best interest.
I am sure that you, like most people, lead a busy life and are tempted
to put this proxy aside for another day. Please don't. When shareholders do not
return their proxies, additional expenses are incurred to pay for follow-up
mailings and telephone calls. Please take a few minutes to review this proxy
statement and sign and return all proxy cards today. If you hold shares in more
than one fund, you will receive a separate proxy card for each fund you hold.
Please be sure to sign and return each proxy card regardless of how many you
receive.
The Board of Directors/Trustees of your fund has unanimously approved
these proposals and recommends a vote "FOR" each proposal. If you have any
questions regarding the issue to be voted on or need assistance in completing
your proxy card, please contact our proxy solicitation representatives at
1-800-733-8481, ext. 420.
Thank you for your time in considering these important proposals. Thank
you for investing with Dodge & Cox Funds and for your continuing support.
Sincerely,
Harry R. Hagey
Chairman and Chief Executive Officer
Dodge & Cox
<PAGE>
PROXY STATEMENT SUMMARY
The following Q&A is a brief summary of the proposals to be considered
at the Meeting. The information below is qualified in its entirely by the more
detailed information contained elsewhere in this proxy statement. Accordingly,
please read all the enclosed proxy materials before voting.
If you own shares of more than one Dodge & Cox Fund, you may receive
additional proxy statements and voting cards in a separate mailing. It is
important that you vote ALL proxy cards that you receive. Please remember to
vote your shares as soon as possible.
When will the Meeting be held? Who is eligible to vote? The meeting
will be held on Wednesday, January 20, 1998, at 10:00 a.m. Pacific time at the
Mandarin Oriental Hotel, Embassy Room, 222 Sansome Street, San Francisco,
California. Please note that this will be a business meeting only. There will be
no presentations about the Funds. The record date for the meeting is the close
of business on November 24, 1997. Only shareholders who own shares at that time
are entitled to vote at the meeting.
What is being voted on at the Meeting? Your Board of Directors/Trustees
is recommending that shareholders consider the following proposals:
Proposal Funds Affected
1. To approve a reorganization of your Fund as a ALL
separate series of Dodge & Cox Funds, a newly formed
Delaware business trust;
2. To approve the elimination or revision of certain ALL
fundamental investment restrictions for each Fund;
3. To approve an increase in authorized capital of the Stock Fund only
Dodge & Cox Stock Fund;
4. To approve an increase in authorized capital of the Income Fund only
Dodge & Cox Income Fund;
5. To ratify the selection of Price Waterhouse LLP as ALL
independent certified public accountants; and
6. To transact such other business that may come before ALL
the meeting, although we are not aware of any other items
to be considered.
How do the Directors/Trustees recommend that I vote on these proposals?
The Directors/Trustees unanimously recommend that you vote "FOR" each proposal.
Why am I being asked to adopt a Plan of Reorganization of the Funds?
Currently each of the Dodge & Cox Funds is organized as a separate legal entity.
The Dodge & Cox Balanced Fund is organized as a California trust, and both the
Dodge & Cox Income Fund and the Dodge & Cox Stock Fund are organized as
California corporations. Consequently, each Fund has a separate Board of
Directors/Trustees, and each is separately registered as an investment company
under the federal securities laws. Reorganization of the Funds as separate
series of a Delaware business trust is expected to result in certain cost
savings and administrative efficiencies for the Funds. For example, the
Reorganization would result in fewer state and federal regulatory filings, and
would allow shares of the Funds to be offered with a single unified prospectus
and application. In addition, the Boards believe that a Delaware business trust
as a form of organization offers certain structural advantages for a mutual fund
over either a California trust or a California corporation. This proposal
relates only to a change of the Funds' domicile, which is not expected to change
any Fund operations affecting shareholders. A full discussion of the Plan of
Reorganization and its anticipated benefits to the Funds begins on page __ of
the full proxy statement.
Why am I being asked approve the elimination or revision of certain
fundamental investment restrictions for each Fund? Certain of the fundamental
restrictions that the Funds have adopted in the past reflect regulatory,
business or industry conditions, practices or requirements which at one time for
a variety of reasons led to the imposition of limitations on the management of
the Funds' investments. With the passage of time, the development of new
practices, and changes in regulatory standards, several of these restrictions
are considered by management to be unnecessary or unwarranted. Accordingly, the
Boards have approved revisions to the Funds' fundamental restrictions in order
to simplify, modernize and make more uniform those investment restrictions that
are required to be fundamental and to eliminate those fundamental restrictions
that are no longer legally required, and reclassify as non-fundamental those
investment restrictions that are not required to be fundamental.
It should be noted that the adoption of the proposed changes is not
expected to materially affect the way the Funds are managed.
While certain of the changes will apply to your Fund(s), others may not
apply to your Fund(s). A full discussion of the specific changes, as well as a
further discussion of the benefits of the changes, begins on page __.
Why am I being asked to approve an increase in the authorized capital
for the Stock Fund? The Stock Fund's ability to issue new shares to investors is
limited by the authorized capital set forth in the Fund's charter. The purpose
of the proposed amendment is to make additional shares available for issuance by
the Stock Fund, without further action by shareholders, until such time as the
as the Fund is reorganized in accordance with Proposal One.
What is the "ratification" of the independent auditors? The Investment
Company Act requires the Boards of Directors/Trustees of the Funds to select
independent auditors for the Funds, and also requires them to submit their
selection to shareholders for approval (this is called a "ratification" of the
Board's approval) at certain shareholder meetings. the Boards of
Directors/Trustees have selected Price Waterhouse LLP as independent auditors
for the Funds for the fiscal year ending December 31, 1997. A full discussion of
the proposal to ratify the selection of Price Waterhouse begins on page ___.
When will the proposals take effect if they are approved? If approved,
the reorganization described in Proposal One is expected to be completed in
April, 1998. The proposed changes to the fundamental investment restrictions
described in Proposal Two and the ratification of the auditors described in
Proposal Four will be effective immediately upon approval. The increase of
authorized capital for the Stock Fund described in Proposal Three, if approved,
will be effective upon the filing of an amendment to the Stock Fund's Articles
of Incorporation, which will be as soon as practicable after the Meeting.
Who is asking for my vote? The Board of Directors/Trustees is asking
you to sign and return the enclosed proxy so your votes can be cast at the
Meeting. In the unlikely event the Meeting is adjourned, these proxies would
also be voted at the reconvened meeting.
How do I vote my shares? We've made it easy for you. You can vote by
mail, phone, fax or in person at the annual meeting. To vote by mail, sign and
send us the enclosed proxy voting card in the envelope provided. You can fax
your vote by signing the proxy voting card and faxing both sides of the card to
1-800-733-1885. Shareholder Communications Corporation, our proxy solicitor, can
accept your vote over the phone - simply call 1-800-733-8481, ext. 420. Or, you
can vote in person at the annual meeting on January 20, 1998.
If I send my proxy in now as requested, can I change my vote later? A
proxy can be revoked at any time by writing to us, by sending us another proxy,
or by attending the meeting and voting in person. Even if you plan to attend the
meeting and vote in person, we ask that you return the enclosed proxy. Doing so
will help us ensure that an adequate number of shares are present at the
meeting.
If you have any questions regarding the proxy statement or need
assistance in voting your shares, please call Shareholder Communications
Corporation at 1-800-733-8481, ext. 420.
<PAGE>
DODGE & COX FUNDS
Balanced Fund
Income Fund
Stock Fund
One Sansome Street, 35th Floor
San Francisco, CA 94104
--------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
January 20, 1998
---------------------
To the Shareholders of the above-referenced Funds:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of each of the Dodge & Cox Balanced Fund, a California common law
trust ("Balanced Fund"), the Dodge & Cox Income Fund, a California corporation
("Income Fund") and the Dodge & Cox Stock Fund, a California corporation ("Stock
Fund") (each a "Fund" and collectively, the "Funds"), will be held at 10:00
a.m., Pacific Time, on January 20, 1998, at the Mandarin Oriental Hotel, Embassy
Room, 222 Sansome Street, San Francisco, California, for the following purposes:
I. To be voted on separately by shareholders of each Fund: To vote upon the
approval of an Agreement and Plan of Reorganization, in the form set forth
in Appendix A to the attached Proxy Statement, for adoption by each of the
Balanced Fund, the Income Fund and the Stock Fund pursuant to which each
Fund would be reorganized as a separate series of Dodge & Cox Funds, a
newly formed Delaware business trust, as described in the attached Proxy
Statement.
II. To be voted on separately by shareholders of each relevant Fund: To vote
upon the approval of the elimination or revision of certain fundamental
investment restrictions for each of the Balanced Fund, the Income Fund, and
the Stock Fund.
III. To be voted on only by the shareholders of the Stock Fund: To vote upon the
approval of an increase in authorized capital of the Dodge & Cox Stock
Fund.
IV. To be voted on only by the shareholders of the Income Fund: To vote upon
the approval of an increase in authorized capital of the Dodge & Cox Income
Fund.
V. To be voted on by the shareholders of each Fund: To ratify the selection of
Price Waterhouse LLP as independent certified public accountants of the
Fund for its fiscal year ending November 24, 1997.
VI. To transact such other business as may come properly before the Meeting and
any adjournment thereof.
Shareholders of record at the close of business on November 24, 1997
are entitled to notice of, and to vote at, the Meeting.
By Order of the Board of Trustees of
the Balanced Fund and the Boards of
Directors of the Income Fund and the
Stock Fund,
------------------------------
W. Timothy Ryan
Secretary
San Francisco, California
December __ , 1997
PLEASE RESPOND --- YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING, PLEASE COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE
ENCLOSED ENVELOPE SO THAT YOU WILL BE REPRESENTED AT THE MEETING.
<PAGE>
DODGE & COX FUNDS
Balanced Fund
Income Fund
Stock Fund
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
INTRODUCTION
The Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Boards of Directors or Trustees, as the case may be, of
the Dodge & Cox Balanced Fund, a California trust ("Balanced Fund"), the Dodge
and Cox Income Fund, a California corporation ("Income Fund"), and the Dodge &
Cox Stock Fund, a California corporation ("Stock Fund") (each a "Fund" and
collectively, the "Funds") to be held at the Mandarin Oriental Hotel, Embassy
Room, 222 Sansome Street, San Francisco, California, on January 20, 1998, at
10:00 a.m., Pacific time and any adjournment thereof (collectively, the
"Meeting"). The cost of the solicitation (including printing and mailing this
Proxy Statement, Notice of Meeting and Proxy, as well as any supplementary
solicitation) will be borne by the Funds in proportion to their respective net
assets. The Notice of the Meeting, Proxy Statement and Proxy are being mailed to
shareholders on or about December __, 1997.
The presence in person or by proxy of the holders of record of a
majority of the shares of each Fund entitled to vote shall constitute a quorum
at the Meeting for that Fund. If, however, such quorum shall not be present or
represented at the Meeting or if fewer shares are present in person or by proxy
than the minimum required to take action with respect to any proposal presented
at the Meeting, the holders of a majority of the shares of the Fund present in
person or by proxy shall have the power to adjourn the Meeting with respect to
that Fund, from time to time, without notice other than announcement at the
Meeting, until the requisite number of shares shall be present at the Meeting.
At any such adjourned Meeting, if the relevant quorum is subsequently
constituted, any business may be transacted which might have been transacted at
the Meeting as originally called.
The Boards of Directors of the Income Fund and the Stock Fund and the
Board of Trustees of the Balanced Fund (collectively the "Boards") have fixed
the close of business on November 24, 1997, as the record date for the
determination of shareholders entitled to notice of and to vote at the Meeting
and at any adjournments thereof. Each share is entitled to one vote. The numbers
of outstanding voting shares of each Fund as of November 24, 1997, are indicated
in the following table:
<PAGE>
Fund Shares
Balanced Fund
Income Fund
Stock Fund
As of November 24, 1997, no shareholder owned more than a 5% beneficial
interest in voting shares of any Fund with the exception of Charles Schwab &
Co., Inc., 101 Montgomery Street, San Francisco, California 94104, owned of
record _____ shares (or ___%), _____ shares (or ___%), _____ shares (or ___%) of
the outstanding shares of the Stock Fund, Balanced Fund and Income Fund,
respectively; Monsanto Company Savings Plan, 800 North Lindbergh Boulevard, St.
Louis, Missouri 63167, owned beneficially and of record _____ shares (or ___%)
of the outstanding shares of the Balanced Fund; and Donaldson Lufkin & Jenrette
- - Pershing Division, P.O. Box 2052, Jersey City, New Jersey 07303, owned of
record _____ shares (or ___%) of the outstanding shares of the Income Fund.
All properly executed proxies received prior to the Meeting will be
voted at the Meeting in accordance with the instructions marked thereon or as
otherwise provided therein. Accordingly, unless instructions to the contrary are
marked, proxies will be voted FOR the matters specified on the proxy card. Any
shareholder may revoke his or her proxy at any time prior to the exercise
thereof by giving written notice to the transfer agent, Firstar Trust Company,
P.O. Box 701, Milwaukee, Wisconsin, 53201-0701, or by signing another proxy of a
later date or by personally casting his or her vote at the Meeting.
The most recent annual and semi-annual reports of the Funds, including
financial statements, have been mailed previously to shareholders. If you have
not received these reports or would like to receive additional copies free of
charge, please contact the Fund c/o Firstar Trust company at P.O. Box 701
Milwaukee, Wisconsin 53201-0701, and they will be sent promptly by first class
mail.
To obtain the necessary representation at the Meeting, supplementary
solicitations may be made by mail, telephone, telegraph, facsimile, or personal
contact by officers of each Fund, employees of Dodge & Cox, or its affiliates,
or proxy solicitation firms. Shareholder Communications Corporation has been
retained to assist with proxy solicitation activities at a cost of approximately
$30,000. Shareholders' votes may be taken by telephone by representatives of
Shareholder Communications Corporation, subject to procedures designed to
authenticate shareholders' identities and confirm voting instructions.
Votes Required
Reorganization of the Dodge & Cox Funds, as set forth in Proposal One,
will require the affirmative vote of a majority of the outstanding voting
securities of the Dodge & Cox Income Fund and the Dodge & Cox Stock Fund and the
affirmative vote of two-thirds of the outstanding voting securities of the Dodge
& Cox Balanced Fund. Amendment of certain of the Funds' investment restrictions
as set forth in Proposal Two, will require the affirmative vote of the lesser of
(i) 67% of the shares of that Fund present at a meeting if the holders of more
than 50% of the outstanding shares of that Fund are present in person or by
proxy, or (ii) more than 50% of the outstanding shares of that Fund. Increasing
the authorized shares of the Stock Fund and Income Fund, as set forth in
Proposals Three and Four, respectively, will each require the affirmative vote
of a majority of the shares of the respective Fund outstanding and entitled to
vote. Ratification of the Boards' selection of independent certified
accountants, as set forth in Proposal Five, will require the affirmative vote of
a majority of the shares of each Fund present and voting at the Meeting.
For the purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions and broker "non-votes" (that is, proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
on a particular matter with respect to which brokers or nominees do not have
discretionary power) will be treated as shares that are present but which have
not been voted. For this reason, abstentions and broker non-votes will have the
effect of a "no" vote for the purposes of obtaining the requisite approval for
Proposals One, Two and Three, and will have no effect on Proposal Four.
PROPOSAL ONE
AGREEMENTS AND PLANS OF REORGANIZATION
Management has proposed, and the Directors/Trustees have approved, a
restructuring of the organization of the Funds. As currently structured, the
Balanced Fund is organized as a California trust, and the Income Fund and the
Stock Fund are organized as California corporations. Each Fund is separately
advised by Dodge & Cox, investment manager to the Funds. As each Fund is a
separate corporate entity, each has its own Board of Directors/Trustees and
maintains separate corporate records. In addition, as each Fund is individually
registered as an investment company under the federal securities laws, each must
make separate regulatory filings with the Securities and Exchange Commission
(the "Commission").
Under the proposed structure, Dodge & Cox would establish a new
Delaware business trust (the "Delaware Trust"), as an open-end management
investment company. Each of the Balanced Fund, the Income Fund, and the Stock
Fund (the "Reorganizing Funds") would be reorganized as a separate series of
shares of the Delaware Trust (a "Successor Fund"). The result of the
restructuring would be a single investment company (mutual fund) complex (the
"Reorganization").
Each aspect of the Reorganization has received the requisite approval
(unanimously) from each Fund's Board. The Reorganization is proposed to be
accomplished pursuant to an Agreement and Plan of Reorganization providing for
the transfer of all of the assets of the relevant Reorganizing Fund to the
corresponding Successor Fund in exchange for shares of the Successor Fund as
described below, and for the assumption by the corresponding Successor Fund of
all of the liabilities of the Reorganizing Fund. The completion of these
transactions will result in the complete liquidation of each Reorganizing Fund.
As a result of the Reorganization, shareholders of each Fund would become
shareholders of their corresponding Successor Fund and have the same
proportionate interest in the same portfolio of assets as prior to the
Reorganization.
The Boards believe that a Delaware business trust as a form of
organization offers certain advantages for a mutual fund over either a
California trust or a California corporation. These advantages include granting
the Trustees greater flexibility in matters of corporate governance and
organization. In the case of the Balanced Fund, a Delaware business trust also
offers the advantage of a clear statutory limitation upon the liability of
shareholders and Trustees. The Trustees also believe that the proposed trust
instrument of the Delaware Trust (the "Delaware Trust Instrument") is clearer
and more comprehensive with regard to matters affecting modern investment
companies than the current organizational documents. This is particularly true
with respect to the Balanced Fund, which adopted its charter in 1931. While some
of these improvements could potentially be achieved by amending the existing
organizational documents of the Funds, the Boards have concluded that, given the
other advantages of a Delaware business trust, it is preferable to enter into
the Plan of Reorganization.
As compared with a California trust, Delaware law permits a less
complicated structure and allows greater flexibility in a fund's business
operations, without sacrificing the federal or state tax advantage of a mutual
fund format. In addition, Delaware law contains provisions specifically designed
for mutual funds, which take into account their unique structure and operations.
For example, Delaware business trusts may establish multiple series of shares,
each of which may invest in a separate portfolio of securities. As indicated
above, Delaware business trusts also offer a greater degree of legal certainty
with respect to the potential liability of investors, as well as trustees, with
respect to the obligations of the trust. For a summary comparison of the
California trust charter and the proposed Delaware Trust Instrument, see
"Description of Certain Provisions of the Delaware Trust Instrument" and
"Certain Comparative Information about California Trusts and Delaware Business
Trusts" below. For a comparison of the corporations' Articles of Incorporation
and the proposed Delaware Trust Instrument, see "Description of Certain
Provisions of the Delaware Trust Instrument" and "Certain Comparative
Information about Delaware Business Trusts and California Corporations" below.
Terms of the Plans
Each Reorganization is subject to a number of conditions, including the
approval of the shareholders of the relevant Reorganizing Fund. Accordingly,
Shareholders of each Reorganizing Fund are being asked to vote upon the approval
of an Agreement and Plan of Reorganization (each a "Plan" and collectively, the
"Plans") pursuant to which the Reorganization would be consummated. The
following descriptions of the Plans and the features of the proposed
reorganizations are qualified in their entirety by reference to the text of the
Plans. A composite form Plan for Reorganization is set forth in Appendix B to
this Proxy Statement.
Each Plan provides, among other things, for the transfer of all of the
assets of the Reorganizing Fund to the corresponding Successor Fund in exchange
for (i) the assumption by the Successor Fund of all of the liabilities of the
Reorganizing Fund and (ii) the issuance to the Reorganizing Fund of shares of
beneficial interest (the "New Shares") in the Successor Fund, the number of
which shall be calculated based upon the value of the net assets of the
Reorganizing Fund then outstanding as of the Exchange Date (defined in each Plan
to be April __, 1998, or such other date as may be agreed upon by each Successor
Fund and each Reorganizing Fund). Specifically, on the Exchange Date the
Successor Fund will deliver to the Reorganizing Fund a number of full New Shares
having an aggregate net asset value equal to the value of the assets of the
Reorganizing Fund attributable to its shares of common stock or beneficial
interest, as the case may be (the "Old Shares"), transferred to the
corresponding Successor Fund on the Exchange Date, less the value of the
liabilities of the Reorganizing Fund attributable to the Old Shares, assumed by
the Successor Fund on that date. After receipt of the New Shares, each
Reorganizing Fund will cause the New Shares to be distributed to its
Shareholders, in complete liquidation of the Reorganizing Fund. Each Shareholder
will be entitled to receive that proportion of New Shares which the number of
Old shares held by such shareholder bears to the total number of Old Shares
outstanding on such date. The distribution of New Shares will be accomplished by
the establishment of accounts on the share records of the corresponding
Successor Fund in the names of the Reorganizing Fund shareholders, each account
representing the respective number of full and fractional New Shares due to such
shareholder.
Certificates with respect to New Shares will not be issued.
The consummation of each Reorganization is subject to the conditions
set forth in the relevant Plan, any of which may be waived by the party entitled
to its benefits. The Plans may be terminated and the Reorganization abandoned at
any time, before or after approval by the Shareholders of each Reorganizing
Fund, if any condition set forth in the Plan has not been fulfilled and has not
been waived by the party entitled to its benefits, by such party.
Effect of Shareholder Approval of the Reorganization
An investment company registered under the Investment Company Act of
1940 (the "1940 Act") is required by the 1940 Act to obtain shareholder approval
with regard to (i) the election of trustees or directors, and (ii) the
investment advisory agreement with the company's investment adviser.
As part of the proposal to reorganize the Funds, approval by the
requisite vote of the Shareholders of the Reorganization will also constitute,
for the purposes of the 1940 Act: (i) election of the nominees identified below,
who currently serve as Directors/Trustees of the Funds, as Trustees of the
Delaware Trust after Reorganization, and (ii) approval of the proposed
Investment Advisory Agreement between the Delaware Trust on behalf of the
Successor Funds and Dodge & Cox. (See "Information Concerning the Nominees to
the Board of Trustees of the Trust" and "Information Concerning the Investment
Advisor After the Reorganization".)
Assuming Shareholder approval of the Reorganization, each Reorganizing
Fund, as the sole shareholders of the corresponding Successor Fund prior to the
Reorganization, will effect these actions by voting its respective shares in
each Successor Fund "FOR" the matters specified above on behalf of its
Shareholders prior to the Reorganization. The Delaware Trust will then consider
the requirements of the 1940 Act referred to above to have been satisfied.
Description of New Shares
Shares will be issued to each Reorganizing Fund's Shareholders in
accordance with the relevant Plan as discussed above. The shares will be
authorized for issuance in series by the Board of Trustees of the Trust in
accordance with the Trust's Trust Instrument and Delaware business trust law.
The Successor Funds will have substantially identical purchase, redemption and
exchange procedures as are currently in effect for the Reorganizing Funds, as
described in each Fund's current prospectus and statement of additional
information.
Investment Policies and Investment Restrictions
If the new investment policies and restrictions for the Funds as set
forth in Proposal Two are approved by the Shareholders, the investment policies
and restrictions of the Funds following the Reorganization will be policies and
restrictions of the Reorganizing Funds as amended by the provisions set forth in
Proposal Two. For each Fund for which the investment policies and restrictions
set forth in Proposal Two are not approved, if any, the investment policies and
restrictions of that Fund after the Reorganization will be the investment
policies and restrictions of that Reorganizing Fund immediately prior to the
Reorganization.
Fee Structure and Expenses
The fees and expenses to which each Successor Fund will be subject
subsequent to the Reorganization will be identical to those currently in effect
for each Reorganizing Fund.
Expenses of the Reorganization
Each Reorganizing Fund will bear its own expenses associated with the
transactions contemplated by the Plans of Reorganization, including expenses
associated with the solicitation of proxies. In the event that the
Reorganization is completed, such expenses will be assumed by each Successor
Fund. It is currently estimated that the aggregate expenses of the
Reorganization will be approximately $ ______________ , which amount will be
allocated ratably among the Funds.
Federal Income Tax Consequences
As a condition to each Reorganizing Fund's obligation to consummate its
Reorganization, the Fund will receive an opinion from Dechert Price and Rhoads,
counsel to the Funds, to the effect that, on the basis of the existing
provisions of the Internal Revenue Code of 1986, as amended, (the "Code"),
current administrative rules and court decisions, for federal income tax
purposes: (i) under section 361 of the Code, no gain or loss will be recognized
by the Reorganizing Funds as a result of the Reorganization; (ii) under section
354 of the Code, no gain or loss will be recognized by the shareholders of the
Reorganizing Funds on the distribution of New Shares to them in exchange for
their shares of the Reorganizing Funds; (iii) under Section 358 of the Code, the
tax basis of the New Shares that each Reorganizing Fund's shareholders receive
in place of their Reorganizing Fund's shares will be the same as the basis of
the Reorganizing Fund's shares; (iv) under Section 1223(1) of the Code, a
shareholder's holding period for the New Shares received pursuant to the Plan
will be determined by including the holding period for each Reorganizing Fund's
shares exchanged for the New Shares, provided that the shareholder held the
Reorganizing Fund shares as a capital asset; (v) under Section 1032 of the Code,
no gain or loss will be recognized by a Reorganizing Fund upon receipt of the
investments transferred to the corresponding Successor Fund pursuant to the Plan
in exchange for the New Shares, (vi) under Section 362 of the Code, the basis to
a Successor Fund of the investments will be the same as the basis of the
investments in the hands of the corresponding Reorganizing Fund immediately
prior to such exchange; and (vii) under section 1223(2) of the Code, a Successor
Fund's holding periods with respect to the investments in its portfolio will
include the respective periods for which the investments were held by the
corresponding Reorganizing Fund. The opinion will be based on certain factual
certifications made by officers of the Reorganizing Funds and certain customary
assumptions.
Basis for the Boards' Recommendations
The Boards of the Reorganizing Funds, including a majority of those
Directors/Trustees who are not "interested persons" of the Reorganizing Funds,
as defined in the 1940 Act (the "Independent Directors/Trustees"), unanimously
approved the Reorganizations at a meeting held on November 3, 1997.
In approving the Reorganizations, the Directors/Trustees of the Funds
determined that each proposed Reorganization would be in the best interests of
the relevant Reorganizing Fund, and that the interests of the Shareholders would
not be diluted as a result of effecting the Reorganization. The Boards
considered various factors in recommending that Shareholders approve the
Reorganizations, including those set forth below.
The Directors/Trustees considered that the Reorganization would likely
result in administrative cost savings to each Reorganizing Fund. As currently
structured, each Reorganizing Fund maintains a separate corporate identity,
which requires each Reorganizing Fund to make separate regulatory filings and
maintain separate corporate/trust records. In addition, each Reorganizing Fund
has a separate Board of Directors/Trustees, and each is registered as a separate
entity with the Securities and Exchange Commission (the "Commission"). After the
proposed Reorganization, each Reorganizing Fund would be a separate series of a
Delaware business trust. The new structure would be registered with the
Commission as a single trust entity with three separate series. The
Directors/Trustees also considered the fact that the Delaware business trust
format provides greater efficiency as well as flexibility with regard to various
matters of corporate governance than either of the forms of organization of the
Reorganizing Funds. It was also noted that, while business trusts generally have
the administrative efficiency of unlimited authorized capital, those organized
in Delaware also have the benefit of a statutory limitation on shareholder and
trustee liability with regard to the trust's obligations. The Directors/Trustees
determined that the interests of the Reorganizing Funds and their shareholders
were best served by adopting the more efficient and flexible structure of the
Delaware business trust.
The Boards also considered that the investment objective, policies and
restrictions of each Reorganizing Fund are substantially identical to those of
the corresponding Successor Fund and that each Successor Fund would be managed
by the same personnel and in accordance with the same investment strategies and
techniques utilized in the management of the corresponding Reorganizing Fund
immediately prior to the Reorganization (subject to any change that may be
approved at the Meeting under Proposal Two). For these reasons, the Boards
believe that an investment in shares of the Successor Fund will provide
Shareholders with an investment opportunity substantially identical to that
afforded by the corresponding Reorganizing Fund immediately prior to the
Reorganization.
Continuation of Shareholder Accounts and Plans
The Delaware Trust's transfer agent will establish accounts for all
current Fund Shareholders containing the appropriate number of Successor Fund
shares to be received by that Shareholder in accordance with the terms and
provisions of the Plan of Reorganization. These accounts will be identical in
all material respects to the accounts currently maintained by each Reorganizing
Fund on behalf of its Shareholders.
Description of Certain Provisions of the Delaware Trust Instrument
The following is a summary of certain provisions of the proposed
Delaware Trust Instrument for the Delaware Trust.
Series and Classes
The Delaware Trust Instrument permits the Delaware Trust to issue
series of its shares which represent interests in separate portfolios of
investments, including the Successor Funds. The Delaware Trust is also
authorized to issue multiple classes of shares with respect to each such series.
No series is entitled to share in the assets of any other series or is liable
for the expenses or liabilities of any other series. The Trustees are authorized
to divide each series of shares into separate classes, which represent a pro
rata interest in the same series and are entitled to the same rights, except as
provided by the Trustees. The Successor Funds would initially have the same
classes of shares, which would be entitled to the same rights, as the respective
classes of the Reorganizing Funds. The Trustees of the Delaware Trust are able
to authorize the issuance of additional series or classes of shares without
prior Shareholder approval. The California Declaration of Trust and the
Corporations' Articles of Incorporation, however, do not specifically provide
for the issuance of separate series or classes of shares.
<PAGE>
Shareholder Meetings and Voting Rights
The Delaware Trust is not required to hold annual meetings of
shareholders and it is not expected to hold such meetings. In the event that a
meeting of shareholders is held, each share of the Delaware Trust will be
entitled to one vote for each share. However, to the extent required by the 1940
Act or otherwise as determined by the Trustees, series and classes of the
Delaware Trust will vote separately. Shareholders of the Delaware Trust do not
have cumulative voting rights in the election of Trustees. Meetings of
Shareholders of the Delaware Trust, or any series or class thereof, may be
called, from time to time, by the Trustees. The Shareholders of the Delaware
Trust will have voting rights only with respect to the limited number of matters
specified in the Delaware Trust Instrument and such other matters as the
Trustees may determine or as may be required by law.
The voting provisions of the Delaware Trust Instrument differ from the
charter documents of the Funds in several important respects. The Delaware Trust
Instrument does not provide for cumulative voting for the election of Trustees.
The Articles of Incorporation of both the Income Fund and the Stock Fund
currently provide for the election of Directors by cumulative voting. Also, a
greater number of matters require approval by the shareholders of the
Reorganizing Funds. In the case of the Income and Stock Funds, whether a matter
requires shareholder approval is an issue of California corporate law, and those
Funds' Articles of Incorporation cannot be amended without Shareholder approval.
Indemnification
The Delaware Trust Instrument provides for indemnification of Trustees,
officers and agents of the Delaware Trust unless the recipient is adjudicated
(i) to be liable by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of such person's
office or (ii) not to have acted in good faith in the reasonable belief that
such person's actions were in the best interest of the Delaware Trust.
The Delaware Trust Instrument provides that, if any shareholder or
former shareholder of any series is held personally liable solely by reason of
being or having been a shareholder and not because of the shareholder's act or
omission or for some other reason, the shareholder or former shareholder (or
heirs, executors, administrators, legal representatives or general successors)
will be entitled, out of the assets belonging to the applicable series, to be
held harmless from and indemnified against all loss and expense arising from
such liability. The Delaware Trust, acting on behalf of any affected series,
must, upon request by such shareholder, assume the defense of any claim made
against such shareholder for any act or obligation of the series and satisfy any
judgment thereon from the assets of the series.
Termination
The Delaware Trust Instrument permits the termination of the Delaware
Trust or of any series or class of the Delaware Trust: (i) by a majority of the
affected shareholders at a meeting of shareholders of the Delaware Trust, series
or class; or (ii) by a majority of the Trustees without shareholder approval if
the Trustees determine that such action is in the best interest of the Delaware
Trust or its shareholders. The factors and events that the Trustees may take
into account in making such determination include: (i) the inability of the
Delaware Trust or any series or class to maintain its assets at an appropriate
size; (ii) changes in laws or regulations governing the Trust, series or class
or affecting assets of the type in which it invests; or (iii) economic
developments or trends having a significant adverse impact on their business or
operations. The winding up of the Income Fund or the Stock Fund would be
governed by California corporate law but generally would require shareholder
approval. The California Declaration of Trust of the Balanced Fund permits the
Trustees to terminate that Trust (a) upon a majority vote of the Trustees to
terminate the Trust; or (b) the written request to terminate the Trust by the
holders of two-thirds of the beneficial shares outstanding as of the date of the
request.
Merger, Consolidation, Sale of Assets, etc.
The Delaware Trust Instrument authorizes the Trustees, without
shareholder approval, to cause the Delaware Trust, or any series thereof, to
merge or consolidate with any corporation, association, trust or other
organization or sell or exchange all or substantially all of the property
belonging to the Delaware Trust or any series thereof. Such reorganization of
any of the Funds, as currently structured, would require shareholder approval.
Amendments
The Delaware Trust Instrument permits the Trustees to amend the
Delaware Trust Instrument without a shareholder vote. However, shareholders of
the Delaware Trust have the right to vote on any amendment that: (i) would
affect the voting rights of shareholders, (ii) is required by law to be approved
by shareholders; (iii) would amend the voting provisions of the Delaware Trust
Instrument; or (iv) the Trustees determine to submit to shareholders. Amendments
to the Articles of Incorporation for both the Income Fund and the Stock Fund
currently require shareholder approval. Shareholders of the Balanced Fund are
required to approve amendments to the California Declaration of Trust, except
certain amendments, including any amendment that the Trustees determine to be
necessary or desirable which does not adversely affect the rights of
shareholders.
CERTAIN COMPARATIVE INFORMATION ABOUT CALIFORNIA BUSINESS
TRUSTS AND DELAWARE BUSINESS TRUSTS
Shareholder Liability
Generally, Delaware business trust shareholders are not personally
liable for obligations of the Delaware business trust under Delaware law. The
Delaware Act entitles a shareholder of a Delaware business trust to the same
limitation of liability as is available to shareholders of private for-profit
corporations. However, no similar statutory or other authority limiting business
trust shareholder liability exists in many other states. As a result, to the
extent that a Delaware business trust or a shareholder is subject to the
jurisdiction of courts in such other states, those courts may not apply Delaware
law and may subject the Delaware trust shareholders to liability. To offset this
risk, the Delaware Trust Instrument: (i) contains an express disclaimer of
shareholder liability for acts or obligations of the Delaware Trust and requires
that notice of such disclaimer be given in each agreement, obligation and
instrument entered into or executed by the Delaware Trust or its Trustees; and
(ii) provides indemnification out of the property of the Delaware Trust of any
shareholder held personally liable for the obligations of the Delaware Trust.
Thus, the risk of a Delaware business trust shareholder incurring financial loss
beyond his or her investment because of shareholder liability is limited to
circumstances in which all of the following factors are present: (1) a court
refuses to apply Delaware law; (2) the liability arises under tort law or, if
not, no contractual limitation of liability is in effect; and (3) the Delaware
Trust itself is unable to meet its obligations. In the light of Delaware law,
the nature of the Delaware Trust's business and the nature of its assets, the
risk of personal liability to a Delaware Trust shareholder should be considered
remote.
Unlike Delaware, in California there is no statute relating to business
trusts that entitles a shareholder of a California business trust to the same
limitation of liability as is extended to a shareholder of a California
corporation. Shareholders of a California trust may, therefore, under certain
circumstances, be held personally liable under California law for the
obligations of the California trust. The California Declaration of Trust, like
the Delaware Trust Instrument, contains an express disclaimer of shareholder
liability and requires that notice of such disclaimer be given in each agreement
entered into or executed by the California trust or its Trustees. The California
Declaration of Trust also provides for indemnification of shareholders and so
the extent of potential liability should be considered to be limited to claims
in excess of the trust's assets.
Liability Of Trustees
The Delaware Trust Instrument provides that the Trustees will not be
liable to any person other than the Delaware Trust or a shareholder and that a
Trustee will not be liable for any act as a Trustee. However, nothing in the
Delaware Trust Instrument protects a Trustee against any liability to which he
or she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office. The Declaration of Trust for the Balanced Fund provides that
its Trustees will not be liable for errors of judgment or mistakes of fact or
law, subject to substantially the same provisions concerning bad faith, gross
negligence and reckless disregard as those described above.
CERTAIN COMPARATIVE INFORMATION ABOUT CALIFORNIA
CORPORATIONS AND DELAWARE BUSINESS TRUSTS
Shareholder Liability
For a discussion of the potential for shareholders of a Delaware
business trust to be liable for the obligations of the Trust, see the discussion
above under "Certain Comparative Information About California Business Trusts
and Delaware Business Trusts - Shareholder Liability." Shareholders of a
California corporation currently have no personal liability for the
corporation's acts or obligations, except that a shareholder may be liable to
the extent that he or she knowingly receives a distribution in excess of the
amount which properly could have been paid under California law.
Liability Of Trustees Or Directors
For a discussion of the potential liability of trustees of a Delaware
business trust, see the discussion above under "Certain Comparative Information
About California Trusts and Delaware Business Trusts-Liability of Trustees."
California corporate law provides that, in addition to any other liability
imposed by law, the directors may be liable to a California corporation: (1) for
voting or assenting to the declaration of any dividend or other distribution of
assets to shareholders which is contrary to California law; (2) for voting or
assenting to certain distributions of assets to shareholders during liquidation
of the corporation; and (3) for voting or assenting to a repurchase of the
shares of a California corporation in violation of California law. In the event
of any litigation against the directors or officers, the corporation may
indemnify the directors or officers, subject to certain limitations.
Voting Rights Of California Corporation And Delaware Trust Shareholders
Neither California corporations which are registered as investment
companies nor Delaware business trusts are required to hold annual meetings.
Shareholders of a California corporation have the right to vote on certain
matters, including: (i) the election or removal of directors; (ii) the approval
or termination of investment advisory agreements or distribution plans; (iii)
the termination, reorganization or merger of the corporation or any series; and
(iv) amendments to the Articles of Incorporation. These matters generally do not
require shareholder votes under Delaware law, although the 1940 Act does provide
for shareholder voting with regard to the election of Directors/Trustees and the
approval of investment advisory agreements and distribution plans.
Right Of Inspection
California law provides that persons who hold at least five percent of
the shares of a California corporation, or who hold at least 1% of the
outstanding shares of a California corporation and have filed Schedule 14A with
the Securities and Exchange Commission, may inspect the books of account and
stock ledger of the California corporation. Delaware trust shareholders have the
same rights to inspect the records, accounts and books of the Delaware trust as
are accorded to shareholders of a Delaware business corporation. Currently, each
shareholder of a Delaware business corporation is permitted to inspect records,
accounts and books of a business corporation for any legitimate business
purpose.
<PAGE>
CERTAIN INFORMATION CONCERNING THE NOMINEES
TO THE BOARD OFTRUSTEES OF THE DELAWARE TRUST
If you vote "yes" to approve the Reorganization, your vote will also
have the effect of electing nominees identified below, who currently serve as
Directors/Trustees of the Funds indicated below, as Trustees of the Delaware
Trust. If the Reorganization is approved, each Reorganizing Fund will vote the
share of beneficial interest it holds in the Trust for the election of the
nominees set forth below as Trustees. Each Trustee shall serve as such until the
next election or until his or her term is terminated as provided in the Trust
Instrument.
<TABLE>
<CAPTION>
Name, Positions with the Funds, Age, Year First
Principal Occupations During the Past Five Became a Approximate Number of Shares
Years and Other Directorships/Trusteeships Director/ Beneficially Owned Directly or
Trustee Indirectly as of November 24, 1997
<S> <C> <C>
Katherine Herrick Drake*, Vice-President, 1993 Stock Fund __________
Dodge & Cox; Assistant Secretary-Treasurer
and Director, Dodge & Cox Stock Fund. Age:
43.
Dana M. Emery*, Manager-Fixed Income and 1993 Income Fund __________
Vice-President, Dodge & Cox; Assistant
Secretary-Treasurer and Director, Dodge &
Cox Income Fund. Age: 36.
Harry R. Hagey*, Chairman and Chief 1985 Balanced Fund __________
Executive Officer, Dodge & Cox; 1975
Vice-President and Director, Dodge & Cox Stock Fund __________
Stock Fund; Vice-President, Dodge & Cox
Income Fund; Chairman and Trustee, Dodge &
Cox Balanced Fund. Age 56.
John A. Gunn*, President, Dodge & Cox; 1985 Balanced Fund __________
President and Director, Dodge & Cox Stock 1988
Fund; Vice-President and Director, Dodge & Income Fund __________
Cox Income Fund. Age 54.
Max Guiterrez, Jr., Partner, Brobeck, 1985 Balanced Fund __________
Phleger & Harrison, Attorneys; Director, 1988
Dodge and Cox Income Fund; Director, Dodge & 1985 Income Fund __________
Cox Stock Fund; Trustee, Dodge & Cox
Balanced Fund. Age 67. Stock Fund __________
Kenneth E. Olivier*, Senior Vice-President, 1992 Balanced Fund __________
Dodge & Cox; Trustee, Dodge & Cox Balanced
Fund. Age 45.
Frank H. Roberts, Self-Employed Attorney; 1990 Balanced Fund __________
prior to 1990, Partner in Pillsbury, 1990
Madison, & Sutro, Attorneys; Director, Dodge 1990 Income Fund __________
& Cox Income Fund; Director, Dodge & Cox
Stock Fund; Trustee, Dodge & Cox Balanced Stock Fund __________
Fund. Age 78.
W. Timothy Ryan*, Senior Vice-President and 1988 Income Fund __________
Secretary-Treasurer, Dodge & Cox; 1973
Secretary-Treasurer and Director, Dodge & Stock Fund __________
Cox Stock Fund; Secretary-Treasurer, Dodge &
Cox Income Fund; Secretary, Dodge & Cox
Balanced Fund. Age 60.
A. Horton Shapiro*, Senior Vice-President, 1985 Balanced Fund __________
Dodge & Cox; President & Director, Dodge & 1988
Cox Income Fund; Vice-President, Dodge & Cox Income Fund __________
Stock Fund; Vice-Chairman and Trustee, Dodge
& Cox Balanced Fund. Age 58.
John B. Taylor, Professor of Economics and 1995 Balanced Fund __________
Director, Center for Economic policy 1995
Research, Stanford University; Director, 1995 Income Fund __________
Dodge & Cox Income Fund; Director, Dodge &
Cox Stock Fund; Trustee, Dodge & Cox Stock Fund __________
Balanced Fund. Age 51.
Will C. Wood, Principal, Kentwood 1992 Balanced Fund __________
Associates, Financial Consultant; prior to 1992
1994, Managing Director, IDI Associates, 1992 Income Fund __________
Financial Advisers; Director, Dodge & Cox
Income Fund; Director, Dodge & Cox Stock Stock Fund __________
Fund; Trustee, Dodge & Cox Balanced Fund.
Age 58.
- ------------------
<FN>
* "Interested person," as defined in the 1940 Act.
</FN>
</TABLE>
Trustees and officers of the Funds affiliated with Dodge & Cox hold a
controlling interest in Dodge & Cox. On November 24, 1997, the officers and
Directors/Trustees of Funds as a group owned less than 1% of the outstanding
shares of each of the Funds.
There were five meetings of the Board of Directors/Trustees of each
Fund in 1997. Each Fund has an Audit Committee comprised of John B. Taylor and
Will C. Wood. The Audit Committee met twice during 1997. With the exception of
Katherine Herrick Drake, no Director/Trustee attended fewer than 75% of the
total number of Board meetings or meetings of the Audit Committee on which such
Director/Trustees served. The Boards do not have a Nominating Committee or any
other committees.
Compensation of Directors
Those Directors/Trustees who are not affiliated with Dodge & Cox
receive from the each respective Fund an annual fee of $1,000 and an attendance
fee of $500 for each Board or Committee meeting attended. The Funds do not pay
any other remuneration to its officers or trustees, and have no bonus,
profit-sharing, pension or retirement plan.
It is expected that, for the fiscal year ending December 31, 1997, the
Independent Directors/Trustees will have received the following compensation
from the Funds:
Aggregate Compensation from
Total
Compensation
Balanced Income Stock from Fund
Name of Director/Trustee Fund Fund Fund Complex
Max Guiterrez $4,000 $4,000 $4,000 $12,000
Frank H. Roberts 4,000 4,000 4,000 12,000
John B. Taylor 5,000 5,000 5,000 15,000
William C. Wood 5,000 5,000 5,000 15,000
- ---------------
INFORMATION CONCERNING THE INVESTMENT MANAGER
A vote to approve the proposed reorganization would also have the
effect of approval of the proposed Investment Management Agreement between the
Delaware Trust on behalf of each Successor Fund and Dodge & Cox. The Investment
Management Agreement proposed for each Successor Fund is substantially similar
to the Investment Management Agreement in place currently between Dodge & Cox
and each respective Reorganizing Fund. The fees contained in the proposed
Investment Management Agreement are the same as those currently in place between
Dodge & Cox and each of the Funds. The proposed Investment Management Agreement
differs from the current agreements in that it (i) contains an enumeration of
the administrative services proposed to be performed by the Investment Manager;
(ii) clarifies that the Investment Manager is subject to a statutory standard of
care in performing its duties under the agreement; (iii) contains a license for
the use of the Dodge & Cox name by the Funds; and (iv) contains a clarification
of the parties that will pay various expenses incurred by the Funds. A form of
Investment Management Agreement is set forth as Exhibit B to this Proxy
statement. Information regarding the investment manager and the investment
management agreements in place currently is set forth below.
Dodge & Cox, a California corporation, has served as investment manager
to the Dodge & Cox Balanced Fund since 1931, the Dodge & Cox Income Fund since
1989, and the Dodge & Cox Stock Fund since 1965. Dodge & Cox is one of the
oldest investment management firms in the United States, having acted
continuously as investment managers since 1930. The Reorganizing Funds'
investments are managed by Dodge & Cox's Investment Policy Committee, and Bond
Strategy Committee, and no one person is primarily responsible for making
investment decisions for any of the Funds. Dodge & Cox is located at One Sansome
Street, 35th Floor, San Francisco, California 94104. Dodge & Cox's activities
are devoted to investment research and the supervision of investment accounts
for individuals and institutions.
In exchange for the services provided under the existing Investment
Management Agreements, each Reorganizing Fund pays Dodge & Cox a management fee
which is payable monthly at the annual rate of 0.50% of the average daily net
asset value of the Fund. With respect to the Income Fund, the fee is reduced to
0.40% where the Fund's average daily net asset value exceeds $100 million.
Furthermore, the investment management agreement between Dodge & Cox and the
Income Fund provides that Dodge & Cox will waive its fee for any calendar year
to the extent that such fees plus all other ordinary operating expenses paid by
the Income Fund exceeds 1% of the average daily net asset value of that Fund.
The investment management agreement between Dodge & Cox and the Stock Fund
limits expenses to .75% of the Fund's average daily net assets. Under the
provisions of the Investment Management Agreements in place currently for both
the Income Fund and the Stock Fund, no waiver of management fees was necessary
in 1996.
The current Investment Management Agreements were last approved by the
Board of the Income Fund on September 17, 1997, and by the Boards of the
Balanced Fund and the Stock Fund on December 2, 1996.
The directors and executive officers of Dodge & Cox are as follows:
Harry R. Hagey, Chairman of the Board and Chief Executive Officer; John A. Gunn,
Director and President; Allen H. Shapiro, Director and Senior Vice President; W.
Timothy Ryan, Director, Senior Vice President and Secretary-Treasurer; Kenneth
E. Olivier, Director and Senior Vice President; and Thomas M. Mistele, General
Counsel and Chief Compliance Officer.
THE BOARD OF DIRECTORS OF BOTH THE INCOME FUND AND THE STOCK FUND, AND THE
BOARD OF TRUSTEES OF THE BALANCED FUND,
INCLUDING THE INDEPENDENT DIRECTORS OR TRUSTEES OF EACH FUND,
UNANIMOUSLY RECOMMEND APPROVAL
OF PROPOSAL ONE.
<PAGE>
PROPOSAL TWO
ELIMINATION OR REVISION OF CERTAIN FUNDAMENTAL
INVESTMENT RESTRICTIONS OF THE FUNDS
Introduction
Pursuant to the 1940 Act each Fund has adopted certain fundamental
investment restrictions and policies ("fundamental restrictions") that are set
forth in the Fund's prospectus and statement of additional information, which
may be changed only with shareholder approval. Restrictions and policies that a
Fund has not specifically designated as being fundamental are considered to be
"non-fundamental" and may be changed by the Fund's Board without shareholder
approval.
Certain of the fundamental restrictions that the Funds have adopted in
the past reflect regulatory, business or industry conditions, practices or
requirements which at one time for a variety of reasons led to the imposition of
limitations on the management of the Funds' investments. With the passage of
time, the development of new practices, and changes in regulatory standards,
several of these restrictions are considered by management to be unnecessary or
unwarranted. Several restrictions were imposed by certain states in which the
Funds have qualified their shares for sale but are no longer required since
federal legislation has preempted the States from imposing such restrictions
with the enactment of the National Securities Markets Improvement Act of 1996
(hereinafter "NSMIA"). Other fundamental restrictions reflect federal regulatory
requirements which remain in effect, but which are not required to be stated as
fundamental restrictions. Also, as the Funds have been created over a period of
years, substantially similar fundamental restrictions have been phrased in
different ways, sometimes resulting in minor differences in effect or
potentially giving rise to unintended differences in interpretation.
Accordingly, the Boards have approved revisions to the Funds'
fundamental restrictions in order to simplify, modernize and make more uniform
those investment restrictions that are required to be fundamental and to
eliminate those fundamental restrictions that are not legally required. Certain
existing fundamental restrictions that are not required to be fundamental would
be re-classified as non-fundamental restrictions.
The Boards believe that eliminating the disparities among the Funds'
fundamental restrictions will enhance management's ability to manage efficiently
and effectively the Funds' assets, particularly in changing regulatory and
investment environments. In addition, by minimizing the number of policies that
can be changed only by shareholder vote, the Boards and the Funds will have
greater flexibility to modify Fund policies, as appropriate, in response to
changing markets and in light of new investment opportunities and instruments.
The Funds will then be able to avoid the costs and delays associated with a
shareholder meeting when making changes to the non-fundamental investment
policies that, at a future time, the Boards consider desirable. Although the
proposed changes in investment restrictions will allow the Funds greater
investment flexibility to respond to future investment opportunities, the Boards
do not anticipate that the changes, individually or in the aggregate, will
result at this time in a material change in the level of investment risk
associated with an investment in any Fund.
In addition, the Stock Fund and the Balanced Fund have designated as a
fundamental policy the growth oriented investment approach used in the selection
of equity investments for the Funds. While management does not anticipate a
significant shift from this policy, it nevertheless believes that the interests
of the Funds would be better served if Dodge & Cox had the flexibility to use
other investment criteria in the selection of equity securities when deemed
appropriate in response to market changes. The Boards of Directors/Trustees
agree, and have also recommended that these policies be redesignated as
non-fundamental.
The text of each proposed change to the Funds' fundamental restrictions
is set forth below. The text below also describes those non-fundamental
restrictions that would be adopted by the Boards in conjunction with the
elimination of the fundamental restrictions under this Proposal. Any
non-fundamental restriction may be modified or eliminated by a Board at any
future date without any further approval of shareholders.
If the proposed changes are approved by shareholders of each of the
respective Funds at the Meeting, each Fund's prospectus and statement of
additional information will be revised, as appropriate, to reflect those
changes.
A. FUNDAMENTAL RESTRICTIONS PROPOSED TO BE REVISED OR ELIMINATED IN ORDER TO
INCREASE FLEXIBILITY AND CONSISTENCY AMONG THE FUNDS
Restrictions Proposed To Be Revised But Remain Fundamental
Change #1. Fund to which this change applies: All Funds.
The 1940 Act requires a Fund to have a policy with respect to the
concentration of its assets in particular industries, with a Fund being
generally prohibited from reserving freedom of action with respect to its
ability to so concentrate its investments. "Concentration" is deemed by the
Commission and its Staff to mean investment of 25% or more of a Fund's assets in
the securities of issues in a particular industry. This policy has an important
interpretive exception for securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase agreements with
respect thereto. The Funds' current restriction with respect to industry
concentration does not make reference to this regulatory exclusion. Accordingly,
it is proposed that this fundamental restriction be amended to specify that
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (and repurchase agreements with respect thereto) are not
intended to be covered by the restriction.
<PAGE>
Current Text
[The Fund may not . . . ] concentrate investments of more than 25% of
the value of its total assets in any one industry.
Proposed Text
[The Fund may not . . . ] invest in a security if, as a result of such
investment, more than 25% of its total assets would be invested in the
securities of issuers in any particular industry, except that the
restriction does not apply to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities (or repurchase
agreements with respect thereto).
Change #2. Funds to which this change applies: All Funds.
The 1940 Act requires the Funds to have a fundamental policy regarding
the underwriting of securities. The Boards propose to amend the current
restrictions to make clear that the restriction is not violated if a Fund is
deemed, as a technical matter, to be an underwriter by virtue of selling
portfolio securities, which could arise in certain cases, such as if a Fund
should sell a security it had initially purchased in a private placement.
Current Text
[The Fund may not . . . ] underwrite securities of other issuers.
Proposed Text
[The Fund may not . . .] underwrite securities of other issuers,
except insofar as the Fund may be deemed an underwriter under the
Securities Act of 1933, as amended, in selling portfolio securities.
Restrictions Proposed to Be Eliminated
Change #3. Funds to which these changes apply:
Restriction a: Balanced and Income Funds only
Restriction b: All Funds
Restriction c: All Funds
Restriction d: Income Fund only
The following investment restrictions are not required by the 1940 Act.
They were originally adopted in response to state "blue sky" restrictions or
interpretations which no longer apply to the Funds. Therefore, in order to
increase the ability of fund management to effectively and efficiently manage
the Funds' assets in response to market and regulatory change, it is proposed
that the these investment restrictions, which are currently listed as
fundamental, be eliminated.
a. [The Fund may not . . ] invest in other investment companies, except in the
open market at customary brokers' commissions.
b. [The Fund may not . . . ] purchase warrants, if as a result the Fund would
then have more than 5% of its net assets invested in warrants (valued at
the lower of cost or market), or more than 2% of its net assets invested in
warrants which are not listed on the New York or American Stock Exchanges.
c. [The Fund may not . . . ] purchase securities of any issuer if, to the
knowledge of the Fund, any officer or trustee or director of the Fund or
Dodge & Cox, owns more than 1/2 of 1% of the outstanding securities of such
issuer, or if such officers, trustees or directors in the aggregate own
more than 5% of the outstanding securities of such issuer.
d. [The Fund may not . . . ] purchase any security if as a result the Fund
would then have more than 10% of its total assets invested in preferred
stock or debt securities principally traded in foreign markets. The Fund
may purchase Eurodollar certificates of deposit without regard to such 10%
limit.
B. FUNDAMENTAL RESTRICTIONS WHICH ARE NOT REQUIRED TO BE FUNDAMENTAL
Change #4. Funds to which these changes apply: All Funds.
One of the Funds' fundamental restrictions is not required to be
fundamental, i.e., it is not required to be designated as a restriction that can
be changed only with shareholder approval. It is proposed that this fundamental
restriction, which is listed below, be changed from fundamental to
non-fundamental and restated. This change will provide the Boards the
flexibility to revise the restriction in the future should industry or
regulatory conditions warrant and will enable the Funds to avoid the additional
expense of a shareholder solicitation in connection with future revisions.
Current Text
[The Fund may not . . . ] purchase securities of another investment
company ("acquired company") except in connection with a merger,
consolidation, acquisition or reorganization and except as otherwise
permitted by Section 12(d) of the Investment Company Act, if after
such purchase more than 5% of the value of the Fund's total assets
would be invested in securities issued by the acquired company, or the
Fund would own more than 3% of the total outstanding voting stock of
the acquired company, or more than 10% of the value of the Fund's
total assets would be invested in securities of investment companies.
Proposed Text (designated non-fundamental)
[The Fund may not . . . ] purchase the securities of other investment
companies, except as permitted by the 1940 Act.
C. INVESTMENT POLICIES PROPOSED TO BE MADE NON-FUNDAMENTAL
Each of the Balanced Fund and Stock Fund contains an investment policy
which, although not required to be made fundamental by the 1940 Act, was
designated as a fundamental policy at the Fund's inception. It is proposed,
therefore, that the policies listed below be designated non-fundamental.
Although management has no present intention to deviate from the stated policy,
the Boards believe that they should have the flexibility to amend the policy
without a shareholder vote, if appropriate in light of changing market
conditions.
Change #5. Fund to which this change applies: Balanced Fund.
A substantial position will be maintained in common stocks which in the
view of Dodge & Cox have a favorable outlook for long-term growth of principal
and income. Prospective earnings and dividends are major considerations in these
stock selections. The level of security prices and the trend of business
activity are considered in determining the total investment position of the Fund
in equities at any time. Individual securities are selected with an emphasis on
financial strength and a sound economic background.
Change #6. Fund to which this change applies: Stock Fund.
Common stocks selected for the Fund will be predominately those which,
in the view of Dodge & Cox, have a favorable outlook for long-term growth of
principal and income. Prospective earnings and dividends are major
considerations in these stock selections. Individual securities are selected
with an emphasis on financial strength and a sound economic background.
THE BOARD OF DIRECTORS OF BOTH THE INCOME FUND AND THE STOCK FUND,
AND THE BOARD OF TRUSTEES OF THE BALANCED FUND,
INCLUDING THE INDEPENDENT DIRECTORS AND TRUSTEES,
RESPECTIVELY, UNANIMOUSLY RECOMMEND APPROVAL OF
PROPOSAL TWO.
PROPOSAL THREE
APPROVAL OF INCREASE IN AUTHORIZED CAPITAL
Fund to which this proposal applies: Stock Fund.
On November 3, 1997, the Board of Directors unanimously adopted a
resolution setting forth a proposed amendment to the Stock Fund's Certificate of
Incorporation. The proposed amendment would increase the number of authorized
capital shares of the Stock Fund from 50 million to 200 million shares. As of
November 24, 1997, ___________ shares of the Fund were issued and outstanding.
The purpose of the proposed amendment is to make 150 million additional
shares of common stock available for issuance by the Fund, without further
action by its shareholders until such time as the Fund is reorganized as set
forth in Proposal One, if such proposal is approved by its shareholders. The
adoption of this amendment will not, by itself, cause any change in the existing
capital accounts of the Fund.
THE BOARD OF DIRECTORS OF THE STOCK FUND, INCLUDING
THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS APPROVAL OF PROPOSAL THREE.
PROPOSAL FOUR
APPROVAL OF INCREASE IN AUTHORIZED CAPITAL
Fund to which this proposal applies: Income Fund.
On November 3, 1997, the Board of Directors unanimously adopted a
resolution setting forth a proposed amendment to the Income Fund's Certificate
of Incorporation. The proposed amendment would increase the number of authorized
capital shares of the Income Fund from 100 million to 200 million shares. As of
November 24, 1997, ___________ shares of the Fund were issued and outstanding.
The purpose of the proposed amendment is to make 100 million additional
shares of common stock available for issuance by the Fund, without further
action by its shareholders until such time as the Fund is reorganized as set
forth in Proposal One, if such proposal is approved by its shareholders. The
adoption of this amendment will not, by itself, cause any change in the existing
capital accounts of the Fund.
THE BOARD OF DIRECTORS OF THE INCOME FUND, INCLUDING
THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS APPROVAL OF PROPOSAL FOUR.
PROPOSAL FIVE
RATIFICATION OF SELECTION OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors/Trustees of each Fund recommends that the
shareholders of each Fund ratify the selection of Price Waterhouse LLP,
independent certified public accountants, to audit the accounts of the Funds for
the fiscal year ending December 31, 1997. Their selection was approved by the
unanimous vote, cast in person, of the Directors/Trustees of each Fund,
including the Directors/Trustees who are not "interested persons" of the
respective Funds within the meaning of the 1940 Act, at a meeting held on March
5, 1997. Price Waterhouse LLP has audited the accounts of each Fund for its
previous fiscal year and has informed the Funds that Price Waterhouse does not
have any direct financial interest or any material indirect financial interest
in any of the Funds. Representatives of Price Waterhouse LLP are not expected to
be present at the Meeting but have been given the opportunity to make a
statement if they so desire, and will be available should any matters arise
requiring their presence.
THE BOARD OF DIRECTORS OF BOTH THE INCOME FUND AND THE STOCK FUND,
AND THE BOARD OF TRUSTEES OF THE BALANCED FUND,
INCLUDING THE INDEPENDENT DIRECTORS OR TRUSTEES OF EACH FUND,
UNANIMOUSLY RECOMMEND APPROVAL
OF PROPOSAL FIVE.
Other Matters
The Boards do not currently know of any matters to be presented at the
Meeting other than those mentioned in this Proxy statement. If any of the
persons listed above is unavailable for election as a Trustee, an event not now
anticipated, or if any other matters come properly before the Meeting, the
shares represented by proxies will be voted with respect thereto in accordance
with the best judgment of the person or persons voting the proxies.
The Funds do not hold annual or regular meetings of their shareholders.
Proposals of shareholders which are intended to be presented at a future
shareholders' meeting must be received by the Funds by a reasonable time prior
to the Funds' solicitation of proxies relating to such future meeting.
Shareholder proposals must meet certain requirements and there is no guarantee
that any proposal will be presented at a shareholders' meeting.
If the accompanying form of proxy is executed properly and returned,
shares represented by it will be voted at the Meeting in accordance with the
instructions on the Proxy. If no instructions are specified, however, shares
will be voted for the election of Trustees and for the other proposals.
By the Order of the Board
of Trustees of the
Balanced Fund, and the
Boards of Directors of the
Income Fund and the Stock
Fund
------------------------------
W. Timothy Ryan
Secretary
<PAGE>
PROXY CARD (FRONT)
DODGE & COX STOCK FUND
PROXY Special Meeting of Shareholders - January 20, 1998 PROXY
This proxy is solicited on behalf of the Board of Directors of the Fund
indicated above and relates to proposals that apply to that Fund. By signing
below, I appoint as proxies John A. Gunn, A. Horton Shapiro and W. Timothy Ryan
and each of them (with power of substitution) to vote for the undersigned all
shares of common stock I own in the Fund. The authority I am granting applies to
the above-referenced meeting and any adjournments of that meeting, with all the
power I would have if personally present. The shares represented by this proxy
will be voted as instructed. Unless indicated to the contrary, this proxy shall
be deemed to grant authority to vote "FOR" all proposals relating to the Fund.
Receipt of the Notice of and Proxy Statement for the meeting is acknowledged.
YOUR VOTE IS IMPORTANT. Please date and sign this proxy below and return it in
the enclosed envelope to: [________________]. This proxy will not be voted
unless it is dated and signed exactly as instructed on this card.
If shares are held by an
individual, sign your name
exactly as it appears on
this card. If shares are
held jointly, either party
may sign, but the name of
the party signing should
conform exactly to the name
shown on this proxy cared.
If shares are held by a
corporation, partnership or
similar account, the name
and the capacity of the
individual signing the
proxy card should be
indicated -- for example:
"ABC Corp., John Doe,
Treasurer."
Sign exactly as name appears on this card.
-----------------------------------------
-----------------------------------------
Dated _______________________, 199___
<PAGE>
PROXY CARD (BACK)
Please indicate your vote by placing and "X" in the appropriate box below. This
Board of Directors recommends a vote "FOR" each proposal.
<TABLE>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Approval of the Reorganization of the Fund as a separate series of _____ _____ _____
the Dodge & Cox Funds, a Delaware business trust.
2. Approval of the proposed changes to the Fund's investment _____ _____ _____
restrictions.
____ To vote against the proposed changes to one or more of the
specific fundamental investment restrictions, but to approve
the others, place an "X" in the box at the left AND indicate
the number(s) (as set forth in the proxy statement) of the
investment restrictions you do not want to change on this
line: ____________________
3. Approval of an increase in authorized capital. _____ _____ _____
4. Ratification of Price Waterhouse LLP as independent certified public _____ _____ _____
accountants of the Fund.
</TABLE>
PLEASE SIGN AND DATE THE FRONT OF THIS CARD
EXHIBIT A
AGREEMENT AND PLAN OF
REORGANIZATION, CONVERSION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION, CONVERSION AND TERMINATION
is made as of the 20th day of January, 1998, by and between [Dodge & Cox
Balanced Fund, a California common law trust]; [Dodge & Cox Income Fund, a
California corporation]; [Dodge & Cox Stock Fund, a California corporation] (the
"Reorganizing Fund") and Dodge & Cox Funds (the "Trust"), a Delaware business
trust.
This Agreement is intended to be and is adopted as a plan of
reorganization within the meaning of Section 368(a)(1) of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), and is intended to effect the
reorganization (a "Reorganization") of the Reorganizing Fund as a new series of
the Trust (the "Successor Fund"). The Reorganization will include the transfer
of all of the assets of the Reorganizing Fund to the corresponding Successor
Fund of the Trust solely in exchange for (1) the assumption by the Successor
Fund of all liabilities of the Reorganizing Fund and (2) the issuance by the
Trust to the Reorganizing Fund of shares of beneficial interest of the Successor
Fund. The aggregate number of shares of the Successor Fund (the "Successor Fund
Shares") issued to the Reorganizing Fund will be equal to the number of shares
of [common stock] [beneficial interest] ("Shares") of the corresponding
Reorganizing Fund outstanding immediately before the Reorganization. These
transactions will be immediately followed by a pro rata distribution by the
Reorganizing Fund of the Successor Fund Shares it receives in the exchange
described above to the holders of corresponding Reorganizing Fund Shares in
exchange for those Successor Fund Shares, in liquidation of the Reorganizing
Fund, all upon the terms and conditions hereinafter set forth in this Agreement.
In consideration of the promises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE FUNDS IN EXCHANGE FOR ASSUMPTION OF LIABILITIES
AND ISSUANCE OF SUCCESSOR FUND SHARES
1.1 Subject to the terms and conditions set forth herein and on the
basis of the representations and warranties contained herein, the Reorganizing
Fund agrees to transfer all of its assets (as described in paragraph 1.2) and to
assign and transfer all of its liabilities to the corresponding Successor Fund,
which is organized solely for the purpose of acquiring all of the assets and
assuming all of the liabilities of the Reorganizing Fund. The Trust, on behalf
of the Successor Fund, agrees that in exchange for all of the assets of the
Reorganizing Fund (1) the Successor Fund shall assume all of the liabilities of
the Reorganizing Fund, whether contingent or otherwise, then existing and (2)
the Trust shall issue Successor Fund Shares to the Reorganizing Fund. The number
of Successor Fund Shares to be issued by the Trust on behalf of the Successor
Fund will be identical to the number of Shares of the Reorganizing Fund
outstanding on the Closing Date provided for in paragraph 3.1. Such transactions
shall take place at the Closing provided for in paragraph 3.1.
1.2 The assets of the Reorganizing Fund to be acquired by the
corresponding Successor Fund shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), any claims or rights of action or rights to register shares under
applicable securities laws, any books or records of the Reorganizing Fund and
other property owned by the Reorganizing Fund and any deferred or prepaid
expenses shown as assets on the books of the Reorganizing Fund on the Closing
Date provided for in paragraph 3.1.
1.3 Immediately after delivery to the Reorganizing Fund of
corresponding Successor Fund Shares, a duly authorized officer of the
Reorganizing Fund shall cause the Reorganizing Fund, as the sole shareholder of
the corresponding Successor Fund, to (i) elect the Trustees of the Trust; (ii)
approve an investment advisory agreement for the Successor Fund in substantially
the form as the investment advisory agreement in effect to the Reorganizing Fund
immediately prior to the Closing of the Reorganization (with such changes as may
have been approved by the shareholders of the Reorganizing Fund); and (iii)
adopt investment objectives, investment policies and investment restrictions
which are substantially identical to those of the Reorganizing Fund immediately
prior to the Closing of the Reorganization, including any changes thereto
approved by the shareholders of the Reorganizing Fund at the meeting of
shareholders to be held on January 20, 1998. On or prior to the Closing Date,
the Trust shall, on its own behalf or on behalf of the Successor Fund, either
enter into transfer agency, subtransfer agency, custodian and subcustodian
agreements, agreement with Service Organizations and any other agreement
pursuant to which services are rendered to the Reorganizing Fund with
substantially the same terms as the agreements to which the Reorganizing Fund is
a party as of the Closing Date or assume the Reorganizing Fund's obligations
under such agreements. The Trust shall also adopt, on its own behalf or on
behalf of the Successor Fund, on or prior to the Closing Date, all policies and
procedures, in effect with respect to the Reorganizing Fund as of the Closing
Date.
1.4 As provided in paragraph 3.4, on the Closing Date the Reorganizing
Fund will distribute in liquidation the Successor Fund Shares to each
shareholder of record, determined as of the close of business on the Closing
Date, of the Reorganizing Fund pro rata in proportion to such shareholder's
beneficial interest in that class and in exchange for that shareholder's Shares.
Such distribution will be accomplished by the transfer of the Successor Fund
Shares then credited to the account of each Reorganizing Fund on its share
records to open accounts on those records in the names of Reorganizing Fund
Shareholders and representing the respective pro rata number of each class of
the Successor Fund Shares received from the Successor Fund which is due to such
Reorganizing Fund Shareholders. Fractional Successor Fund Shares shall be
rounded to the third place after the decimal point.
1.5 Ownership of the Successor Fund Shares by each Successor Fund
Shareholder shall be recorded separately on the books of the Trust's transfer
agent.
1.6 Any transfer taxes payable upon the issuance of Successor Fund
Shares in a name other than the registered holder of the Reorganizing Fund
Shares on the books of the Reorganizing Fund shall be paid by the person to whom
such Successor Fund Shares are to be distributed as a condition of such
transfer.
1.7 Reorganizing Fund Shareholders holding certificates representing
their ownership of any class of Shares of the Reorganizing Fund shall surrender
such certificates or deliver an affidavit with respect to lost certificates, in
such form and accompanied by such surety bonds as the Reorganizing Fund may
require (collectively, an "Affidavit"), to the Reorganizing Fund prior to the
Closing Date. Any Reorganizing Fund Share certificate which remains outstanding
on the Closing Date shall be deemed to be canceled, shall no longer evidence
ownership of any Shares of the Reorganizing Fund and shall instead evidence
ownership of corresponding Successor Fund Shares. Unless and until any such
certificate shall be so surrendered or an Affidavit relating thereto shall be
delivered, dividends and other distributions payable by the Successor Fund
subsequent to the Closing Date with respect to Successor Fund Shares shall be
paid to the holder of such certificates, but such shareholders may not redeem or
transfer Successor Fund Shares received in the Reorganization. The Trust will
not issue share certificates in the Reorganization.
1.8 The legal existence of the Reorganizing Fund shall be terminated as
promptly as reasonably practicable after the Closing Date.
2. VALUATION
2.1 The value of the Reorganizing Fund's net assets to be acquired by
the Trust on behalf of the Successor Fund hereunder shall be the net asset value
computed as of the valuation time provided in the Reorganizing Fund's prospectus
on the Closing Date using the valuation procedures set forth in the Reorganizing
Fund's current prospectus and statement of additional information.
2.2 The number of the Successor Fund Shares shall equal the number of
full and fractional Reorganizing Fund Shares outstanding on the Closing Date.
2.3 All computations of value shall be made by the custodian for the
Reorganizing Funds and the Trust, or the Reorganizing Fund's investment advisor,
in each case as required by the valuation procedures adopted by the Reorganizing
Funds.
3. CLOSING AND CLOSING DATE
3.1 The transfer of the Reorganizing Fund's assets in exchange for the
assumption by the Successor Fund of the Reorganizing Fund's liabilities and the
issuance of Successor Fund Shares to the Reorganizing Fund, as described above,
together with related acts necessary to consummate such acts (the "Closing"),
shall occur at the offices of Dodge & Cox, One Sansome Street, 35th Floor, San
Francisco, CA 94104 on April __, 1998 ("Closing Date"). All acts taking place at
the Closing shall be deemed to take place simultaneously as of the last daily
determination of the net asset value of the Reorganizing Fund or at such other
time and or place as the parties may agree.
3.2 The Reorganizing Fund shall deliver at the Closing a certificate or
separate certificates of an authorized officer stating that it has notified the
custodian for the Reorganizing Fund and the Trust, of the Reorganizing Fund's
reorganization as a series of the Trust.
3.3 The transfer agent for the Reorganizing Fund, shall deliver at the
Closing a certificate evidencing the conversion on its books and records of each
Reorganizing Fund Shareholder account to a corresponding Successor Fund
Shareholder account. The Trust shall issue and deliver to the Reorganizing Fund
a confirmation evidencing the crediting of Successor Fund Shares to the
appropriate shareholder accounts on the Closing Date or provide other evidence
satisfactory to the Reorganizing Fund that such Successor Fund Shares have been
credited to the Reorganizing Fund's account on the books of the Trust. At the
Closing, each party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts or other documents as such other party
or its counsel may reasonably request.
3.4 Portfolio securities that are not held in book-entry form in the
name of the custodian as record holder for the Reorganizing Fund shall be
presented by the Reorganizing Fund to the custodian for examination no later
than five business days preceding the Closing Date. Portfolio securities which
are not held in book-entry form shall be delivered by the Reorganizing Fund to
the custodian for the account of the Successor Fund on the Closing Date, duly
endorsed in proper form for transfer, in such condition as to constitute good
delivery thereof in accordance with the custom of brokers, and shall be
accompanied by all necessary federal and state stock transfer stamps or a check
for the appropriate purchase price thereof. Portfolio securities held of record
by the custodian in book-entry form on behalf of the Reorganizing Fund shall be
delivered to the Successor Fund by the custodian by recording the transfer of
beneficial ownership thereof on its records. The cash delivered shall be in the
form of currency or by the custodian crediting the Successor Fund's account
maintained with the custodian with immediately available funds.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Reorganizing Fund represents and warrants as follows:
4.1.A. The Reorganizing Fund is a [business trust/corporation]
duly organized, validly existing and in good standing under the laws of the
State of California, and has the power to own all of its properties and assets
and, subject to approval by the shareholders of that Reorganizing Fund, to
perform its obligations under this Agreement. The Reorganizing Fund is not
required to qualify to do business in any jurisdiction in which it is not so
qualified or where failure to qualify would not subject it to any material
liability or disability. The Reorganizing Fund has all necessary federal, state
and local authorizations to own all of its properties and assets and to carry
its business as now being conducted;
4.1.B. The Reorganizing Fund is a registered investment
company classified as a management company of the open-end type, and its
registration with the Securities and Exchange Commission (the "Commission") as
an investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), is in full force and effect;
4.1.C. The Reorganizing Fund is not, and the execution,
delivery and performance of this Agreement will not result, in violation of any
provision of its [Declaration of Trust] [Articles of Incorporation] or Bylaws,
or any agreement, indenture, instrument, contract, lease or other undertaking to
which the Reorganizing Fund is a party or by which it is bound;
4.1.D. At the date hereof and at the Closing Date all federal,
state and other tax returns and reports, including information returns and payee
statements, of the Reorganizing Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished and all federal,
state and other taxes, interest and penalties shall have been paid so far as due
or provision shall have been made for the payment thereof and no such return is
currently under audit and no assessment has been asserted with respect to any of
such returns or reports;
4.1.E. The Reorganizing Fund has elected to be treated as a
regulated investment company under Subchapter M of the Code, has qualified as
such for each taxable year since its inception, and will qualify as such as of
the Closing Date;
4.1.F. All issued and outstanding shares of the Reorganizing
Fund are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Reorganizing Fund. The
Reorganizing Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any shares of [common stock] [beneficial
interest], nor is there outstanding any security convertible into any of such
shares;
4.1.G. The information to be furnished by the Reorganizing
Fund for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and shall comply
in all material respects with federal securities and other laws and regulations
thereunder applicable thereto;
4.1.H. At the Closing Date, the Reorganizing Fund will have
good and marketable title to the assets to be transferred to the Trust, on
behalf of the Successor Funds, pursuant to paragraph 1.1, and will have full
right, power and authority to sell, assign, transfer and deliver such assets
hereunder. Upon delivery and in payment for such assets, the Trust on behalf of
the Successor Funds will acquire good and marketable title thereto subject to no
restrictions on the full transfer thereof, including such restrictions as might
arise under the Securities Act of 1933, as amended (the "1933 Act");
4.1.I. The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by all
necessary action on the part of the Reorganizing Fund. This Agreement
constitutes a valid and binding obligation of the Reorganizing Fund enforceable
in accordance with its terms, subject to the approval of each the Reorganizing
Fund's shareholders;
4.1.J. No consent, approval, authorization or order of any
court or governmental authority is required for the consummation by the
Reorganizing Fund of the transactions contemplated herein, except such as shall
have been obtained prior to the Closing Date.
4.2 The Trust represents and warrants, on behalf of itself and each
Successor Fund, as follows:
4.2.A. The Trust is a business trust duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the power to own all of its properties and assets and to perform its obligations
under this Agreement. The Trust is not required to qualify to do business in any
jurisdiction in which it is not so qualified or where failure to qualify would
not subject it or the Successor Fund to any material liability or disability.
The Trust has all necessary federal, state and local authorizations to own all
of its properties and assets and to carry on the business of the Trust and the
Successor Fund as now being conducted. The Successor Fund is a duly established
and designated series of the Trust;
4.2.B. The Trust is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any provision of
the Trust Instrument or Bylaws of the Trust or any agreement, indenture,
instrument, contract, lease or other undertaking to which the Trust is a party
or by which the Trust is bound;
4.2.C. The Trust will cause the Successor Fund to qualify as a
regulated investment company under Subsection M of the Code for the taxable year
in which the Closing occurs and to continue to qualify as such for each taxable
year;
4.2.D. Prior to the Closing Date, there shall be no issued and
outstanding Successor Fund Shares or any other securities of the Successor Fund.
Successor Fund Shares issued in connection with the transactions contemplated
herein will be duly and validly issued and outstanding and fully paid and
non-assessable by the Trust;
4.2.E. The execution, delivery and performance of this
Agreement has been duly authorized by all necessary action on the part of the
Trust, and this Agreement constitutes a valid and binding obligation of the
Trust and the Successor Fund enforceable against the Trust and the Successor
Fund in accordance with its terms;
4.2.F. The information to be furnished by the Trust with
respect to the Successor Fund for use in applications for orders, registration
statements, proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete and shall comply in all material respects with federal securities and
other laws and regulations applicable thereto;
4.2.G. No consent, approval, authorization or order of any
court or governmental authority is required for the consummation by the Trust or
the Successor Fund of the transactions contemplated herein, except such as shall
have been obtained prior to the Closing Date.
5. COVENANTS OF THE REORGANIZING FUND AND THE TRUST
5.1 The Reorganizing Fund covenants that the Successor Fund Shares are
not being acquired for the purpose of making any distribution thereof, other
than in accordance with the terms of this Agreement.
5.2 The Reorganizing Fund covenants that it will assist the Trust in
obtaining such information as the Trust reasonably requests concerning the
beneficial ownership of Reorganizing Fund Shares.
5.3 The Reorganizing Fund will, from time to time as and when requested
by the Trust on behalf of the Successor Fund, execute and deliver, or cause to
be executed and delivered, all such assignments and other instruments, and will
take or cause to be taken such further action, as the Trust may deem necessary
or desirable in order to vest in, and confirm to, the Trust on behalf of the
Successor Fund, title to, and possession of, all the assets of the Reorganizing
Fund to be sold, assigned, transferred and delivered to the Successor Fund
hereunder and otherwise to carry out the intent and purpose of this Agreement.
5.4 The Trust will, on behalf of the Successor Fund, from time to time
as and when requested by the Reorganizing Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action, as the Reorganizing Fund may deem
necessary or desirable in order to vest in, and confirm to, the Reorganizing
Fund, title to, and possession of, the Successor Fund Shares issued, sold,
assigned, transferred and delivered hereunder and otherwise to carry out the
intent and purpose of this Agreement.
5.5 The Trust, on behalf of the Successor Fund, shall use all
reasonable efforts to obtain the approvals and authorizations required by the
1933 Act, the 1940 Act and such state securities laws as it may deem appropriate
in order to operate after the Closing Date;
5.6 Subject to the provisions of this Agreement, the Trust and the
Reorganizing Fund each will take, or cause to be taken, all action and will do
or cause to be done all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.7 As promptly as practicable, but in any event within 60 days after
the Closing Date, the Reorganizing Fund shall furnish to the Trust, in such form
as is reasonably satisfactory to the Trust, a statement of the earnings and
profits of the Reorganizing Fund for federal income tax purposes, and of any
capital loss carryovers and other items that will be carried over to the
Successor Fund as a result of Section 381 of the Code. Such statement shall be
certified by the President or Treasurer of the Reorganizing Fund.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE REORGANIZING FUNDS
The obligations of the Reorganizing Fund to consummate the transactions
provided for herein shall be subject to the performance by the Trust, on behalf
of the Successor Fund, of all the obligations to be performed by the Trust and
the Successor Fund hereunder on or before the Closing Date and, in addition
thereto, to the following further conditions:
6.1 All representations and warranties of the Trust and the Successor
Fund contained in this Agreement shall be true and correct in all material
respects as of the date hereof and except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date; and
6.2 The Trust shall have delivered on the Closing Date to the
Reorganizing Fund a certificate executed in the Trust's name by its President or
Vice President, in form and substance satisfactory to the Reorganizing Fund,
dated as of the Closing Date, to the effect that the representations and
warranties of the Trust and the Successor Fund made in this Agreement are true
and correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as the
Reorganizing Fund shall reasonably request.
Each of the foregoing conditions precedent may be waived by the Reorganizing
Fund.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE SUCCESSOR FUNDS
The obligations of the Trust and the Successor Fund to consummate the
transactions provided for herein shall be subject to the performance by the
Reorganizing Fund, of all the obligations to be performed by the Reorganizing
Fund hereunder on or before the closing Date and, in addition thereto, to the
following further conditions:
7.1 All representations and warranties of the Reorganizing Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date, with the same force and
effect as if made on and as of the Closing Date;
7.2 The Reorganizing Fund shall have delivered to the Trust on the
Closing Date a statement of the assets and liabilities, prepared in accordance
with generally accepted accounting principles consistently applied, together
with a certificate of the Treasurer or Assistant Treasurer of the Reorganizing
Fund as to its securities and federal income tax basis and holding period as of
the Closing Date; and
7.3 The Reorganizing Fund shall have delivered to the Trust on the
Closing Date a certificate executed in the Reorganizing Fund's name by its
President or Vice President, in form and substance satisfactory to the Trust,
dated as of the Closing Date, to the effect that the representations and
warranties of the Reorganizing Fund made in this Agreement are true and correct
at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as the
Trust shall reasonably request.
Each of the foregoing conditions precedent may be waived by the Trust.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE REORGANIZING FUND, THE
TRUST AND THE SUCCESSOR FUND
The obligations of the Reorganizing Fund, the Trust and the Successor
Fund are each subject to the further conditions that on or before the Closing
Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the Reorganizing Fund's Shareholders in
accordance with applicable law;
8.2 On the closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit or to obtain damages or other relief in connection with the
transactions contemplated hereby;
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state securities authorities) deemed necessary by the
Trust or the Reorganizing Fund permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk of
a material adverse effect on the assets or properties of the Trust, the
Reorganizing Fund or the Successor Fund, provided that either party hereto may
waive any of such conditions for itself;
8.4 The Reorganizing Fund and the Trust shall have received on or
before the Closing Date an opinion of Dechert Price & Rhoads satisfactory to the
Reorganizing Fund and the Trust, substantially to the effect that for federal
income tax purposes:
8.4.A. The acquisition of all of the assets of the
Reorganizing Fund by the Successor Fund solely in exchange for the issuance of
Successor Fund Shares to the Reorganizing Fund and the assumption by the
Successor Fund of all of the liabilities of the Reorganizing Fund, followed by
the distribution in liquidation by the Reorganizing Fund of such Successor Fund
Shares to the Reorganizing Fund Shareholders in exchange for their Reorganizing
Fund Shares and the termination of the Reorganizing Fund, will constitute a
reorganization within the meaning of Section 368(a)(1) of the Code, and the
Reorganizing Fund and the Successor Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
8.4.B. No gain or loss will be recognized by the Reorganizing
Fund upon (i) the transfer of all of its assets to the Successor Fund solely in
exchange for the issuance of Successor Fund Shares to the Reorganizing Fund and
the assumption by the Successor Fund of the Reorganizing Fund's liabilities and
(ii) the distribution by the Reorganizing Fund of such Successor Fund Shares to
the Reorganizing Fund Shareholders;
8.4.C. No gain or loss will be recognized by the Successor
Fund upon its receipt of all of the Reorganizing Fund's assets solely in
exchange for the issuance of the Successor Fund Shares to the Reorganizing Fund
and the assumption by the Successor Fund of all of the liabilities of the
Reorganizing Fund;
8.4.D. The tax basis of the assets acquired by the Successor
Fund from its corresponding Reorganizing Fund will be, in each instance, the
same as the tax basis of those assets in the Reorganizing Fund's hands
immediately prior to the transfer;
8.4.E. The tax holding period of the assets of the
Reorganizing Fund in the hands of the Successor Fund will, in each instance,
include the Reorganizing Fund's tax holding period for those assets;
8.4.F. The Reorganizing Fund's Shareholders will not recognize
gain or loss upon the exchange of all of its Shares of the Reorganizing Fund
solely for Successor Fund Shares as part of the transaction;
8.4.G. The tax basis of the Successor Fund Shares received by
Reorganizing Fund Shareholders in the transaction will be, for each shareholder,
the same as the tax basis of the Reorganizing Fund Shares surrendered in
exchange therefor; and
8.4.H. The tax holding period of the Successor Fund Shares
received by Reorganizing Fund Shareholders will include, for each shareholder,
the tax holding period for the Reorganizing Fund Shares surrendered in exchange
therefor, provided that such Reorganizing Fund Shares were held as capital
assets on the date of the exchange.
The Reorganizing Fund and the Trust each agree to make and provide
representations with respect to the Reorganizing Fund and the Successor Fund,
respectively, which are reasonably necessary to enable Dechert Price & Rhoads to
deliver an opinion substantially as set forth in this paragraph 8.4, which
opinion may address such other federal income tax consequences, if any, that
Dechert Price & Rhoads believes to be material to the Reorganization.
Each of the foregoing conditions precedent to the obligations of a
party, except for the receipt of the opinion of Dechert Price & Rhoads set forth
in paragraph 8.4, may be waived by that party.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust, on behalf of the Successor Fund, and the Reorganizing
Fund, each represents and warrants to the other that there are no broker's or
finder's fees payable in connection with the transactions contemplated hereby.
9.2 The Reorganizing Fund and the Successor Fund shall be liable for
any expenses incurred by them in connection with entering into and carrying out
the provisions of this Agreement whether or not the transactions contemplated
hereby are consummated.
10. ENTIRE AGREEMENT
The Trust, on behalf of the Successor Fund, and the Reorganizing Fund
agree that neither party has made any representation, warranty or covenant not
set forth herein and that this Agreement constitutes the entire agreement
between the parties. The representations, warranties and covenants contained
herein or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Trust and the Reorganizing Fund. In addition, either the Trust or the
Reorganizing Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
11.1A. There exists a material breach by the other party of
any representations, warranties or agreements contained herein to be performed
at or prior to the Closing Date; or
11.l.B. A condition expressed precedent to the obligations of
the terminating party has not been met and it reasonably appears that it will
not or cannot be met.
11.1.C. A majority of the members of the Board of [Trustees]
[Directors] of the Reorganizing Fund determine that it is not in the best
interest of the Reorganizing Fund or its shareholders to proceed with the
transactions contemplated by this Agreement.
11.2 In the event of any such termination, there shall be no liability
for damages on the part of the Trust or the Reorganizing Fund, or their
respective Trustees [, Directors] or officers, to the other party or its
Trustees [,Directors] or officers.
12. AMENDMENT
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the parties; provided, however,
that following the approval of this Agreement by the Reorganizing Fund's
Shareholders, no such amendment may have the effect of changing the provisions
for determining the number of Successor Fund Shares to be paid to the
Reorganizing Fund's Shareholders under this Agreement to the detriment of such
Reorganizing Fund Shareholders without their further approval.
13. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of Delaware.
13.4 This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations hereunder shall be
made by any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation other than the parties hereto and their
respective successors and assigns any rights or remedies under or by reason of
this Agreement.
13.5 All persons dealing with the Trust, the Reorganizing Fund or the
Successor Fund must look solely to the property of the Trust, the Reorganizing
Fund or the Successor Fund, respectively, for the enforcement of any claims
against the Trust, the Reorganizing Fund or the Successor Fund, as neither the
Trustees, [Directors,] officers, agents nor shareholders of the Trust or the
Reorganizing Fund assume any personal liability for obligations entered into on
behalf of the Trust or Reorganizing Fund, respectively.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to the Reorganizing Fund or the
Trust, each at One Sansome Street, 35th Floor, San Francisco, California 94104,
Attention: Secretary.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officer.
THE [_________________________] FUND:
By:________________________________________________
Its:________________________________________________
DODGE & COX FUNDS
By:________________________________________________
Its:________________________________________________
EXHIBIT B
Form of Proposed Investment Management Agreement
Dodge & Cox [Stock, Balanced or Income] Fund
One Sansome Street
35TH Floor
San Francisco, California 94104
____________, 199__
Dodge & Cox Incorporated
One Sansome Street
35th Floor
San Francisco, California 94104
INVESTMENT MANAGEMENT AGREEMENT
DODGE & COX [STOCK, BALANCED OR INCOME] FUND
Ladies and Gentlemen:
The Dodge & Cox Funds (the "Trust") has been established as a Delaware
business Trust to engage in the business of an investment company. Pursuant to
the Trust's Trust Instrument, as amended from time-to-time (the "Trust
Instrument"), the Board of Trustees has divided the Trust's shares of beneficial
interest, par value $.01 per share, (the "Shares") into separate series, or
funds, including Dodge & Cox [Stock, Balanced or Income] Fund (the "Fund").
Series may be abolished and dissolved, and additional series established, from
time to time by action of the Trustees. The Trust, on behalf of the Fund, has
selected you to act as the sole investment manager of the Fund and to provide
certain other services, as more fully set forth below, and you have indicated
that you are willing to act as such investment manager and to perform such
services under the terms and conditions hereinafter set forth. Accordingly, the
Trust on behalf of the Fund agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of
investing and reinvesting the assets of the Fund in the manner and in
accordance with the investment objectives, policies and restrictions
specified in the currently effective Prospectus (the "Prospectus") and
Statement of Additional Information (the "SAI") relating to the Fund
included in the Trust's Registration Statement on Form N-1A, as
amended from time to time, (the "Registration Statement") filed by the
Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the
documents referred to in the preceding sentence have been furnished to
you by the Trust. The Trust has also furnished you with copies
properly certified or authenticated of each of the following
additional documents related to the Trust and the Fund:
(a) The Trust Instrument dated __________, 199__ , as amended to date;
(b) By-Laws of the Trust as in effect on the date hereof (the
"By-Laws"); and
(c) Resolutions of the Trustees of the Trust and the shareholders of
the Fund selecting you as investment manager and approving the form of
this Agreement.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the
Fund, you shall provide continuing investment management of the assets
of the Fund in accordance with the investment objectives, policies and
restrictions set forth in the Prospectus and SAI; the applicable
provisions of the 1940 Act and the Internal Revenue Code of 1986, as
amended, (the "Code") relating to regulated investment companies and
all rules and regulations thereunder; and all other applicable federal
and state laws and regulations of which you have knowledge; subject
always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to
manage the Fund so that it will qualify as a regulated investment
company under Subchapter M of the Code and regulations issued
thereunder. The Fund shall have the benefit of the investment analysis
and research, the review of current economic conditions and trends and
the consideration of long-range investment policy generally available
to your investment advisory clients. In managing the Fund in
accordance with the requirements set forth in this section 2, you
shall be entitled to receive and act upon advice of counsel to the
Trust or counsel to you. You shall also make available to the Trust
promptly upon request all of the Fund's investment records and ledgers
as are necessary to assist the Trust in complying with the
requirements of the 1940 Act and other applicable laws. To the extent
required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with
the services provided pursuant to this Agreement which may be
requested in order to ascertain whether the operations of the Trust
are being conducted in a manner consistent with applicable laws and
regulations.
You shall determine the securities, instruments, investments,
currencies, repurchase agreements and other contracts relating to investments to
be purchased, sold or entered into by the Fund and place orders with
broker-dealers, foreign currency dealers or others pursuant to your
determinations and all in accordance with Fund policies as expressed in the
Registration Statement. You shall determine what portion of the Fund's portfolio
shall be invested in securities and other assets and what portion, if any,
should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on
the investment performance of the Fund and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Trust's officers or Board of Trustees shall
reasonably request.
3. Administrative Services. In addition to the portfolio management
services specified above in section 2, you shall furnish at your
expense for the use of the Fund such office space and facilities in
the United States as the Fund may require for its reasonable needs,
and you (or one or more of your affiliates designated by you) shall
render to the Trust administrative services on behalf of the Fund
necessary for operating as an open-end investment company and not
provided by persons not parties to this Agreement including, but not
limited to: preparing reports to and meeting materials for the Trust's
Board of Trustees and overseeing reports and notices to Fund
shareholders; supervising, negotiating contractual arrangements with,
to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and
pricing agents, accountants, attorneys, printers, underwriters,
brokers and dealers, insurers and other persons in any capacity deemed
to be necessary or desirable to Fund operations; preparing and making
filings with the Securities and Exchange Commission (the "SEC") and
other regulatory and self-regulatory organizations, including, but not
limited to, preliminary and definitive proxy materials, post-effective
amendments to the Registration Statement, semi-annual reports on Form
N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; filing of
the Fund's federal, state and local tax returns; providing assistance
with investor and public relations matters; monitoring the valuation
of portfolio securities and the calculation of net asset value;
monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be
maintained for the Fund all books, records and reports and any other
information required under the 1940 Act, to the extent that such
books, records and reports and other information are not maintained by
the Fund's custodian or other agents of the Fund; and otherwise
assisting the Trust as it may reasonably request in the conduct of the
Fund's business, subject to the direction and control of the Trust's
Board of Trustees. Nothing in this Agreement shall be deemed to shift
to you or to diminish the obligations of any agent of the Fund or any
other person not a party to this Agreement which is employed to
provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise
specifically provided in this section 4, you shall pay the
compensation and expenses of all Trustees and officers who are
affiliated persons of you, and you shall make available, without
expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by
law. You shall provide at your expense the portfolio management
services described in section 2 hereof and the administrative services
described in section 3 hereof. You shall not be required to pay any
expenses of the Fund other than those specifically allocated to you in
this section 4. In particular, but without limiting the generality of
the foregoing, you shall not be responsible, except to the extent of
the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services
may be involved, for the following expenses of the Fund: organization
expenses of the Fund (including out-of-pocket expenses, but not
including your overhead or employee costs); fees payable to you and to
any other Fund advisors or consultants; legal expenses; auditing and
accounting expenses; maintenance of books and records which are
required to be maintained by the Fund's custodian or other agents of
the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and
expenses incurred by the Fund in connection with membership in
investment company trade organizations; fees and expenses of the
Fund's accounting agent, custodians, subcustodians, transfer agents,
dividend disbursing agents and registrars; payment for portfolio
pricing or valuation services to pricing agents, accountants, bankers
and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 4, other
expenses in connection with the issuance, offering, distribution,
sale, redemption or repurchase of securities issued by the Fund;
expenses relating to investor and public relations; expenses and fees
of registering or qualifying Shares of the Fund for sale; interest
charges, bond premiums and other insurance expense; freight, insurance
and other charges in connection with the shipment of the Fund's
portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees,
officers and employees of the Trust who are not affiliated persons of
you; brokerage commissions or other costs of acquiring or disposing of
any portfolio securities of the Fund; expenses of printing and
distributing reports, notices and dividends to shareholders; expenses
of printing and mailing Prospectuses and SAIs of the Fund and
supplements thereto; costs of stationery; any litigation expenses;
indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings. You shall be required to pay
expenses of any activity which is primarily intended to result in
sales of Shares of the Fund if and to the extent that such expenses
are generally required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an
underwriting agreement.
5. Management Fee. For all services to be rendered, payments to be
made and costs to be assumed by you as provided in sections 2, 3 and 4
hereof, the Trust on behalf of the Fund shall pay you in United States
Dollars on the last day of each month the unpaid balance of a fee
equal to an annual rate of ____% of the average daily net assets as
defined below of the Fund for such month. You agree to waive your
rights to compensation under this Agreement, for any calendar year, to
the extent that the compensation plus all other expenses of the Fund
exceeds ____% of the Fund's average daily net assets. The "average
daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets on each day on which the net asset
value of the Fund is determined consistent with the provisions of Rule
22c-1 under the 1940 Act or, if the Fund lawfully determines the value
of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be
determined pursuant to the applicable provisions of the Trust
Instrument and the Registration Statement. If the determination of net
asset value does not take place for any particular day, then for the
purposes of this section 5, the value of the net assets of the Fund as
last determined shall be deemed to be the value of its net assets as
of such time as the value of the net assets of the Fund's portfolio
may be lawfully determined on that day. You may waive all or a portion
of your fees provided for hereunder and such waiver shall be treated
as a reduction in purchase price of your services. You shall be
contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if
such waiver or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other
investments for the account of the Fund, neither you nor any of your
directors, officers or employees shall act as a principal or agent or
receive any commission. You or your agent shall arrange for the
placing of all orders for the purchase and sale of portfolio
securities and other investments for the Fund's account with brokers
or dealers selected by you in accordance with Fund policies as
expressed in the Registration Statement. If any occasion should arise
in which you give any advice to clients of yours concerning the Shares
of the Fund, you shall act solely as investment counsel for such
clients and not in any way on behalf of the Fund. Your services to the
Fund pursuant to this Agreement are not to be deemed to be exclusive
and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be
an independent contractor and not an agent of the Trust. Whenever the
Fund and one or more other accounts or investment companies advised by
the Manager have available funds for investment, investments suitable
and appropriate for each shall be allocated in accordance with
procedures believed by you to be equitable to each entity. Similarly,
opportunities to sell securities shall be allocated in a manner
believed by you to be equitable. The Fund recognizes that in some
cases this procedure may adversely affect the size of the position
that may be acquired or disposed of for the Fund.
7. Sublicense to Use the Dodge & Cox Trademark. As exclusive licensee
of the rights to use and sublicense the use of the "Dodge & Cox"
trademark ("Dodge & Cox Mark"), you hereby grant the Trust a
nonexclusive right and sublicense to use (i) the "Dodge & Cox" name
and mark as part of the Trust's name (the "Fund Name"), and (ii) the
Dodge & Cox Mark in connection with the Trust's investment products
and services, in each case only for so long as this Agreement, any
other investment management agreement between you and the Trust, or
any extension, renewal or amendment hereof or thereof remains in
effect, and only for so long as you are a licensee of the Dodge & Cox
Mark, provided however, that you agree to use your best efforts to
maintain your license to use and sublicense the Dodge & Cox Mark. The
Trust agrees that it shall have no right to sublicense or assign
rights to use the Dodge & Cox Mark, shall acquire no interest in the
Dodge & Cox Mark other than the rights granted herein, that all of the
Trust's uses of the Dodge & Cox Mark shall inure to the benefit of
Dodge & Cox as owner and licensor of the Dodge & Cox Mark (the
"Trademark Owner"), and that the Trust shall not challenge the
validity of the Dodge & Cox Mark or the Trademark Owner's ownership
thereof. The Trust further agrees that all services and products it
offers in connection with the Dodge & Cox Mark shall meet commercially
reasonable standards of quality, as may be determined by you or the
Trademark Owner from time to time, provided that you acknowledge that
the services and products the Trust rendered during the one-year
period preceding the date of this Agreement are acceptable. At your
reasonable request, the Trust shall cooperate with you and the
Trademark Owner and shall execute and deliver any and all documents
necessary to maintain and protect (including but not limited to in
connection with any trademark infringement action) the Dodge & Cox
Mark and/or enter the Trust as a registered user thereof. At such time
as this Agreement or any other investment management agreement shall
no longer be in effect between you (or your successor) and the Trust,
or you no longer are a licensee of the Dodge & Cox Mark, the Trust
shall (to the extent that, and as soon as, it lawfully can) cease to
use the Fund Name or any other name indicating that it is advised by,
managed by or otherwise connected with you (or any organization which
shall have succeeded to your business as investment manager) or the
Trademark Owner. In no event shall the Trust use the Dodge & Cox Mark
or any other name or mark confusingly similar thereto (including, but
not limited to, any name or mark that includes the name "Dodge & Cox")
if this Agreement or any other investment advisory agreement between
you (or your successor) and the Fund is terminated.
8. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust
agrees that you shall not be liable under this Agreement for any error
of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided
that nothing in this Agreement shall be deemed to protect or purport
to protect you against any liability to the Trust, the Fund or its
shareholders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance
of your duties, or by reason of your reckless disregard of your
obligations and duties hereunder. Any person, even though also
employed by you, who may be or become an employee of and paid by the
Fund shall be deemed, when acting within the scope of his or her
employment by the Fund, to be acting in such employment solely for the
Fund and not as your employee or agent.
9. Duration and Termination of This Agreement. This Agreement shall
remain in force until December 31, 1998, and continue in force from
year to year thereafter, but only so long as such continuance is
specifically approved at least annually (a) by the vote of a majority
of the Trustees who are not parties to this Agreement or interested
persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the
Trustees of the Trust, or by the vote of a majority of the outstanding
voting securities of the Fund. The aforesaid requirement that
continuance of this Agreement be "specifically approved at least
annually" shall be construed in a manner consistent with the 1940 Act
and the rules and regulations thereunder and any applicable SEC
exemptive order therefrom. This Agreement may be terminated with
respect to the Fund at any time, without the payment of any penalty,
by the vote of a majority of the outstanding voting securities of the
Fund or by the Trust's Board of Trustees on 60 days' written notice to
you, or by you on 60 days' written notice to the Trust. This Agreement
shall terminate automatically in the event of its assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought, and no
amendment of this Agreement shall be effective until approved in a
manner consistent with the 1940 Act and rules and regulations
thereunder and any applicable SEC exemptive order therefrom.
11. Limitation of Liability for Claims. The Trust Instrument, a copy
of which, together with all amendments thereto, is on file in the
Office of the Secretary of the State of Delaware, provides that the
name "Dodge & Cox" refers to the Trustees under the Trust Instrument
collectively as Trustees and not as individuals or personally, and
that no shareholder of the Fund, or Trustee, officer, employee or
agent of the Trust, shall be subject to claims against or obligations
of the Trust or of the Fund to any extent whatsoever, but that the
Trust estate only shall be liable. You are hereby expressly put on
notice of the limitation of liability as set forth in the Trust
Instrument and you agree that the obligations assumed by the Trust on
behalf of the Fund pursuant to this Agreement shall be limited in all
cases to the Fund and its assets, and you shall not seek satisfaction
of any such obligation from the shareholders or any shareholder of the
Fund or any other series of the Trust, or from any Trustee, officer,
employee or agent of the Trust. You understand that the rights and
obligations of each Fund, or series, under the Trust Instrument are
separate and distinct from those of any and all other series.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"affiliated person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
This Agreement shall be construed in accordance with the laws of the
State of Delaware, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, or in a manner which would cause the Fund to
fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or
management agreements entered into between you and the Trust on behalf of the
Fund.
<PAGE>
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
DODGE & COX FUNDS,
on behalf of DODGE & COX
[STOCK, BALANCED OR INCOME] FUND
By: _________________________________
President
The foregoing Agreement is hereby accepted as of the date hereof.
DODGE & COX
INCORPORATED
By: _________________________________
Chairman & Chief Executive Officer
