<PAGE>
D O D G E & C O X
Balanced Fund
----------------------------------------------------
Dodge & Cox
Investment Managers
35th Floor
One Sansome Street
San Francisco
California 94104
(415) 981-1710
For Fund literature and
information, please call:
(800) 621-3979
----------------------------------------------------
D O D G E & C O X
----------------------------------------------------
Balanced Fund
Established 1931
--------------------------------------------------
------------------------------------------------
Semi-Annual Report
June 30, 1996
1996
------------------------------------------------
--------------------------------------------------
----------------------------------------------------
<PAGE>
D O D G E & C O X
- -------------------------------------------------------------------------------
Balanced Fund
Financial Highlights
------------------------------------------------------------------------
SELECTED DATA AND RATIOS (for a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
---------------- -------------------------------------------
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $54.60 $45.21 $46.40 $42.44 $40.09 $35.03
Income from investment operations:
Net investment income..................................... .96 1.90 1.76 1.66 1.72 1.75
Net realized and unrealized gain (loss)................... 1.92 10.58 (.83) 5.03 2.43 5.36
------ ------ ------ ------ ------ ------
Total income from investment operations .................. 2.88 12.48 .93 6.69 4.15 7.11
------ ------ ------ ------ ------ ------
Distributions:
Dividends from net investment income ..................... (.96) (1.90) (1.76) (1.66) (1.72) (1.76)
Distribution from net realized gain....................... (.10) (1.19) (.36) (1.07) (.08) (.29)
------ ------ ------ ------ ------ ------
Total distributions....................................... (1.06) (3.09) (2.12) (2.73) (1.80) (2.05)
------ ------ ------ ------ ------ ------
Net asset value, end of period ........................... $56.42 $54.60 $45.21 $46.40 $42.44 $40.09
====== ====== ====== ====== ====== ======
Total return.............................................. % 5.30 28.02 1.99 15.95 10.56 20.72
Ratios/supplemental data
Net assets, end of period (millions) ..................... $2,579 $1,800 $ 725 $ 487 $ 269 $ 179
Ratio of expenses to average net assets .................. % .57* .57 .58 .60 .63 .65
Ratio of net investment income to average net assets ..... % 3.59* 3.85 3.94 3.67 4.27 4.78
Portfolio turnover rate .................................. % 9 20 20 15 6 10
Average commission rate paid **........................... $.0522
</TABLE>
* Annualized
** Represents average commission rate paid per share on securities
transactions for which commissions were charged. Disclosure is required
by the S.E.C. beginning in 1996.
S.E.C. yield for the 30 day period ended June 30, 1996.........3.69%
<TABLE>
<CAPTION>
Average annual total return for periods ended June 30, 1996 1 Year 5 Years 10 Years 20 Years
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dodge & Cox Balanced Fund 15.71% 13.99% 12.47% 12.94%
S&P 500 Index 25.99 15.72 13.81 14.19
Lehman Bros. Aggregate Bond Index 5.01 8.26 8.55 9.73
</TABLE>
The Fund invests its assets in stocks and bonds; the S&P 500 is comprised
solely of common stocks. The Fund's investment in common stocks over the
past 20 years has ranged from 54% to 74% of the total portfolio.
The average annual total return figures include reinvestment of dividend
and capital gain distributions. Index returns, unlike Fund returns, do
not reflect any expenses. These results represent past performance; past
performance is no guarantee of future results. Investment return and
share price will vary, and shares may be worth more or less at redemption
than at original purchase.
- --------------------------------------------------------------------------------
1
<PAGE>
D O D G E & C O X
- --------------------------------------------------------------------------------
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1996
-----------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON CONSUMER: 13.6%
STOCKS: 490,000 Dayton-Hudson Corp........................ $ 50,531,250
56.8% 617,000 Dillard Department Stores, Inc. Class A... 22,520,500
303,000 Fleming Cos., Inc......................... 4,355,625
536,700 Fruit of the Loom, Inc.................... 13,685,850
783,000 General Motors Corp....................... 41,009,625
340,000 Genuine Parts Co.......................... 15,555,000
550,000 James River Corp. of Virginia............. 14,506,250
1,070,000 Kmart Corp................................ 13,241,250
950,000 Masco Corp................................ 28,737,500
648,000 Melville Corp............................. 26,244,000
534,900 Nordstrom, Inc............................ 23,736,188
253,000 Procter & Gamble Co....................... 22,928,125
249,000 Sony Corp. ADR............................ 16,465,125
112,000 Unilever NV............................... 16,254,000
315,200 VF Corp................................... 18,793,800
436,700 Whirlpool Corp............................ 21,671,238
-------------
350,235,326
FINANCE: 10.9%
755,000 American Express Co....................... 33,691,875
160,500 American International Group, Inc......... 15,829,313
312,000 BankAmerica Corp.......................... 23,634,000
250,000 Barnett Banks, Inc........................ 15,250,000
438,000 Chubb Corp................................ 21,845,250
452,000 Citicorp.................................. 37,346,500
127,000 General Re Corp........................... 19,335,750
544,000 Golden West Financial Corp................ 30,464,000
62,600 Lehman Brothers Holdings, Inc............. 1,549,350
258,000 Morgan (J.P.) & Co........................ 21,833,250
468,000 Norwest Corp.............................. 16,321,500
350,500 Republic New York Corp.................... 21,818,625
435,000 The St. Paul Cos., Inc.................... 23,272,500
-------------
282,191,913
ELECTRONICS AND COMPUTERS: 6.0%
750,000 Digital Equipment Corp.................... 33,750,000
254,000 Hewlett-Packard Co........................ 25,304,750
346,000 International Business Machines Corp...... 34,254,000
285,800 Motorola, Inc............................. 17,969,675
945,000 National Semiconductor Corp............... 14,647,500
1,120,000 Tandem Computers, Inc..................... 13,860,000
300,000 Texas Instruments, Inc.................... 14,962,500
-------------
154,748,425
BASIC INDUSTRY: 5.7%
491,000 Aluminum Co. of America................... 28,171,125
454,700 Boise Cascade Corp........................ 16,653,388
218,000 Champion International Corp............... 9,101,500
35,500 Crown Vantage, Inc........................ 505,875
368,000 Dow Chemical Co........................... 27,968,000
568,000 International Paper Co.................... 20,945,000
</TABLE>
See accompanying Notes to Financial Statements
- --------------------------------------------------------------------------------
2
<PAGE>
D O D G E & C O X
- --------------------------------------------------------------------------------
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1996
-----------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON BASIC INDUSTRY (continued)
STOCKS 225,000 Lubrizol Corp............................. $ 6,834,375
(Continued) 455,700 Nalco Chemical Co......................... 14,354,550
514,000 Weyerhaeuser Co........................... 21,845,000
--------------
146,378,813
ENERGY: 5.6%
518,000 Amerada Hess Corp......................... 27,777,750
155,000 Amoco Corp................................ 11,218,125
246,000 Chevron Corp.............................. 14,514,000
20,000 Exxon Corp................................ 1,737,500
254,000 Halliburton Co............................ 14,097,000
20,000 Mobil Corp................................ 2,242,500
540,000 Phillips Petroleum Co..................... 22,612,500
136,000 Royal Dutch Petroleum Co.................. 20,910,000
144,000 Schlumberger Ltd.......................... 12,132,000
235,000 Union Pacific Resources Group, Inc........ 6,286,250
205,000 Western Atlas, Inc........................ 11,941,250
--------------
145,468,875
BUSINESS PRODUCTS AND SERVICES: 3.7%
858,000 Donnelley (R.R.) & Sons Co................ 29,922,750
372,850 Dow Jones & Co............................ 15,566,488
351,900 Federal Express Corp...................... 28,855,800
407,100 Xerox Corp................................ 21,779,850
--------------
96,124,888
PUBLIC UTILITIES: 3.0%
566,500 BCE, Inc.................................. 22,376,750
32,000 Duke Power Co............................. 1,640,000
400,000 Edison International...................... 7,050,000
277,800 FPL Group, Inc............................ 12,778,800
572,300 Pacific Enterprises....................... 16,954,388
396,000 Texas Utilities Co........................ 16,929,000
--------------
77,728,938
CAPITAL EQUIPMENT: 2.6%
320,000 Caterpillar, Inc.......................... 21,680,000
609,000 Deere & Co................................ 24,360,000
168,500 General Electric Co....................... 14,575,250
135,000 Parker-Hannifin Corp...................... 5,720,625
--------------
66,335,875
TRANSPORTATION: 2.0%
960,000 Canadian Pacific Ltd...................... 21,120,000
446,000 Union Pacific Corp........................ 31,164,250
--------------
52,284,250
DIVERSIFIED TECHNOLOGY: 2.0%
575,000 Corning, Inc.............................. 22,065,625
146,000 Minnesota Mining & Manufacturing Co....... 10,074,000
246,500 Raychem Corp.............................. 17,717,188
--------------
49,856,813
</TABLE>
See accompanying Notes to Financial Statements
- --------------------------------------------------------------------------------
3
<PAGE>
D O D G E & C O X
- --------------------------------------------------------------------------------
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1996
------------------------------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON PHARMACEUTICAL AND HEALTH: 1.6%
STOCKS 150,000 Pfizer, Inc. ..................................................... $ 10,706,250
(Conti- 410,350 Pharmacia & Upjohn, Inc........................................... 18,209,281
nued) 235,000 SmithKline Beecham plc ADR........................................ 12,778,125
-------------
41,693,656
MISCELLANEOUS: 0.1%
50,000 Meditrust......................................................... 1,668,750
-------------
Total Common Stocks (cost $1,148,190,264)................... 1,464,716,522
-------------
PREFERRED CONSUMER: 0.2%
STOCKS: 61,500 Kmart Financing I, 7 3/4% Trust Convertible Preferred............. 3,336,375
0.2% 76,922 Times Mirror Co. Conversion Preferred Series B.................... 2,067,279
-------------
Total Preferred Stocks (cost $4,734,842).................... 5,403,654
-------------
PAR VALUE
BONDS: U.S. TREASURY: 9.0%
40.5% $17,000,000 U.S. Treasury Notes, 7 7/8%, 1996................................. 17,037,230
38,500,000 U.S. Treasury Notes, 6%, 1997..................................... 38,506,160
10,000,000 U.S. Treasury Notes, 6 3/4%, 1997................................. 10,070,300
17,750,000 U.S. Treasury Notes, 6 7/8%, 1997................................. 17,902,473
58,000,000 U.S. Treasury Notes, 5 1/8%, 1998................................. 56,595,240
28,500,000 U.S. Treasury Notes, 5 1/4%, 1998................................. 28,005,810
50,000,000 U.S. Treasury Notes, 7 7/8%, 1998................................. 51,343,500
3,000,000 U.S. Treasury Notes, 6 1/4%, 2000................................. 2,980,770
6,000,000 U.S. Treasury Bonds, 14%, 2011, Callable 2006..................... 9,151,860
-----------
231,593,343
FEDERAL AGENCY: 0.2%
5,000,000 Arkansas Dev. Fin. Auth. GNMA Guaranteed Bonds 9 3/4%, 2014....... 5,928,550
FEDERAL AGENCY MORTGAGE PASS-THROUGH, CMO* AND REMIC**: 16.2%
1,881,629 Federal Home Loan Mtge. Corp. Group 25-6637, 8%, 2002............. 1,914,859
1,648,153 Federal Home Loan Mtge. Corp. Group D26241, 6 1/2%, 2006.......... 1,621,601
390,639 Federal Home Loan Mtge. Corp. Group 18-0233, 7%, 2006............. 390,912
1,059,933 Federal Home Loan Mtge. Corp. Group 25-0921, 7 1/2%, 2006......... 1,074,783
347,458 Federal Home Loan Mtge. Corp. Group 18-5719, 7 1/4%, 2008......... 347,559
759,770 Federal Home Loan Mtge. Corp. Group 27-2784, 7 1/4%, 2008......... 759,983
393,380 Federal Home Loan Mtge. Corp. Group 25-3827, 7 1/2%, 2008......... 398,891
1,408,909 Federal Home Loan Mtge. Corp. Group 18-0468, 8%, 2008............. 1,444,118
1,348,672 Federal Home Loan Mtge. Corp. Group D10211, 7 1/2%, 2009.......... 1,365,975
10,196,264 Federal Home Loan Mtge. Corp. Group 55-5062, 8%, 2010............. 10,451,069
1,624,169 Federal Home Loan Mtge. Corp. Group 30-9878, 8 3/4%, 2010......... 1,687,966
483,473 Federal Home Loan Mtge. Corp. Group 27-3014, 8 1/4%, 2011......... 495,831
574,787 Federal Home Loan Mtge. Corp. Group 27-2785, 7 3/4%, 2012......... 580,259
1,791,174 Federal Home Loan Mtge. Corp. Group 55-5098, 8 1/4%, 2017......... 1,836,956
13,819,237 Federal Home Loan Mtge. Corp. Group D64097, 8 1/2%, 2023.......... 14,325,297
16,200,000 Federal Home Loan Mtge. Corp. Multi PC Series 1301-E, 7%, 2005.... 16,275,816
10,000,000 Federal Home Loan Mtge. Corp. Multi PC Series 1216-GA, 7%, 2006... 9,987,500
10,000,000 Federal Home Loan Mtge. Corp. Multi PC Series 1458-H, 7%, 2006.... 9,983,000
</TABLE>
* CMO: Collateralized Mortgage Obligation
** REMIC: Real Estate Mortgage Investment Conduit
See accompanying Notes to Financial Statements
- --------------------------------------------------------------------------------
4
<PAGE>
D O D G E & C O X
- --------------------------------------------------------------------------------
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1996
---------------------------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS FEDERAL AGENCY MORTGAGE PASS-THROUGH, CMO* AND REMIC** (continued)
(Continued) $ 5,934,000 Federal Home Loan Mtge. Corp. Multi PC Series 1203-H, 6%, 2007......... $ 5,611,309
11,500,000 Federal Home Loan Mtge. Corp. Multi PC Series 1450-H, 6 1/2%, 2007..... 11,136,945
16,000,000 Federal Home Loan Mtge. Corp. Multi PC Series 1693-H, 6%, 2008......... 14,794,880
12,850,000 Federal Home Loan Mtge. Corp. Multi PC Series 1512-I, 6 1/2%, 2008..... 12,343,967
10,000,000 Federal Home Loan Mtge. Corp. Multi PC Series 1539PL, 6 1/2%, 2008..... 9,621,800
17,000,000 Federal Home Loan Mtge. Corp. Multi PC Series 1564-H, 6 1/2%, 2008..... 16,293,310
16,507,000 Federal Home Loan Mtge. Corp. Multi PC Series 1628-PJ, 6 1/2%, 2022.... 15,274,092
1,003,050 Federal Natl. Mtge. Assn. MBS Pool 55690, 8 1/2%, 2002................. 1,037,174
1,262,967 Federal Natl. Mtge. Assn. MBS Pool 22354, 6 1/2%, 2004................. 1,240,663
5,150,977 Federal Natl. Mtge. Assn. MBS Pool 70992, 7 1/2%, 2006................. 5,188,631
13,647,117 Federal Natl. Mtge. Assn. MBS Pool 44047, 7%, 2007..................... 13,516,514
7,716,187 Federal Natl. Mtge. Assn. MBS Pool 70255, 7 1/2%, 2007................. 7,795,432
30,878,898 Federal Natl. Mtge. Assn. MBS Pool 351632-15 YR, 8%, 2008.............. 31,582,628
8,923,517 Federal Natl. Mtge. Assn. MBS Pool 107047, 8%, 2009.................... 9,157,224
2,249,873 Federal Natl. Mtge. Assn. MBS Pool 169231, 7 1/2%, 2010................ 2,263,350
5,296,443 Federal Natl. Mtge. Assn. MBS Pool 224484, 7 1/2%, 2011................ 5,335,743
7,006,306 Federal Natl. Mtge. Assn. MBS Pool 124668, 7 1/2%, 2019................ 7,088,280
11,309,713 Federal Natl. Mtge. Assn. PC 1993-234-PA, 5%, 2004..................... 11,104,668
12,275,000 Federal Natl. Mtge. Assn. PC 1992-4-H, 7 1/2%, 2007.................... 12,432,243
15,475,000 Federal Natl. Mtge. Assn. PC 1994-33-II, 6%, 2009...................... 14,285,282
11,881,546 Federal Natl. Mtge. Assn. PC G1993-39-A, 5.70%, 2016................... 11,279,983
13,730,000 Federal Natl. Mtge. Assn. PC G1994-13-J, 7%, 2022...................... 13,030,594
19,500,000 Federal Natl. Mtge. Assn. PC 1993-185-PE, 6 1/2%, 2023................. 18,006,885
11,927,188 Federal Natl. Mtge. Assn. SMBS L-1, 5%, 2006........................... 11,141,186
1,488,394 Federal Natl. Mtge. Assn. SMBS I-1, 6 1/2%, 2009....................... 1,453,074
26,646,791 Govt. Natl. Mtge. Assn. Pool 780258, 7 1/2%, 2007...................... 26,853,570
45,632 FSF Finance Corp. 1985-1-D, 9 1/4%, 2016............................... 46,316
13,352,000 Veterans Affairs Vendee Mtge. Trust 1994-2-3C, 6 1/2%, 2009............ 13,051,580
20,929,940 Veterans Affairs Vendee Mtge. Trust 1996-2-1C, 6 3/4%, 2014............ 20,328,204
8,188,903 Veterans Affairs Vendee Mtge. Trust 1995-1A-1 PT, 7.20698%, 2025....... 7,892,055
11,448,591 Veterans Affairs Vendee Mtge. Trust 1995-2C-3A PT, 8.7925%, 2025....... 11,813,458
-------------
416,943,415
INDUSTRIAL: 6.8%
9,000,000 Dayton-Hudson Corp. Debentures 9%, 2021................................ 9,922,050
6,450,000 Dayton-Hudson Corp. Debentures 9.70%, 2021............................. 7,552,821
1,300,000 Dayton-Hudson Corp. Debentures 8.80%, 2022............................. 1,403,142
13,600,000 Dayton-Hudson Corp. MTN 9.35%, 2020, Putable 1997...................... 15,394,520
7,500,000 Ford Holdings, Inc. Debentures 9 3/8%, 2020............................ 8,730,300
18,400,000 Ford Motor Co. Debentures 9.95%, 2032.................................. 23,006,072
14,250,000 General Motors Corp. Debentures 7.70%, 2016............................ 14,138,993
9,000,000 Lockheed Martin Corp. Debentures 7.65%, 2016........................... 8,965,890
23,575,000 Lockheed Martin Corp. Debentures 7 3/4%, 2026.......................... 23,500,503
5,750,000 May Department Stores Notes 7 5/8%, 2013............................... 5,748,045
8,200,000 May Department Stores Notes 7.60%, 2025................................ 8,032,884
6,375,000 Ralston Purina Debentures 7 3/4%, 2015................................. 6,301,114
28,000,000 Time Warner Entertainment Senior Debentures 8 3/8%, 2033............... 26,886,720
3,450,000 Union Camp Corp. Debentures 9 1/4%, 2011............................... 3,951,458
11,650,000 Walt Disney Co. Debentures 7.55%, 2093................................. 11,340,343
--------------
174,874,855
</TABLE>
See accompanying Notes to Financial Statements
- --------------------------------------------------------------------------------
5
<PAGE>
D O D G E & C O X
- --------------------------------------------------------------------------------
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1996
-----------------------------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS FINANCE: 3.8%
(Continued) $ 2,000,000 Barclays North American Capital Corp. Notes 9 3/4%, 2021, Callable 2001.. $ 2,254,980
1,800,000 CIGNA Corp. Debentures 7.65%, 2023....................................... 1,710,630
4,400,000 CIGNA Corp. Notes 8.30%, 2023............................................ 4,468,156
3,100,000 First Nationwide Bank Subordinated Debentures 10%, 2006.................. 3,493,948
5,000,000 General Electric Capital Debentures 8 3/4%, 2007......................... 5,569,150
12,250,000 General Electric Capital Debentures 8 1/2%, 2008......................... 13,497,295
18,600,000 GMAC Put Bonds 8 7/8%, 2010, Putable 2000/2005........................... 20,748,858
3,100,000 Golden West Financial Subordinated Notes 6.70%, 2002..................... 3,042,309
3,000,000 Golden West Financial Subordinated Notes 7 1/4%, 2002.................... 3,010,470
8,075,000 Golden West Financial Subordinated Notes 6%, 2003........................ 7,527,838
6,215,000 ITT Hartford Group Notes 8.30%, 2001..................................... 6,577,272
5,625,000 ITT Hartford Group Notes 6 3/8%, 2002.................................... 5,417,550
14,400,000 Norwest Corp. MTN 6.20%, 2005............................................ 13,363,632
3,055,000 Norwest Corp. MTN 6 1/2%, 2005........................................... 2,902,800
5,500,000 Norwest Corp. Subordinated Debentures 6.65%, 2023........................ 4,816,625
-------------
98,401,513
INTERNATIONAL AGENCY: 1.9%
7,200,000 European Investment Bank Bonds 10 1/8%, 2000............................. 8,056,368
21,800,000 European Investment Bank Bonds 9 1/8%, 2002.............................. 24,142,628
18,815,000 Inter-American Development Bank Debentures 7 1/8%, 2023,Callable 2003.... 17,581,865
-------------
49,780,861
CANADIAN: 1.4%
8,750,000 Canadian Pacific Ltd. Debentures 9.45%, 2021............................. 10,058,913
7,550,000 Hydro-Quebec Debentures 7 1/2%, 2016..................................... 7,354,984
18,000,000 Hydro-Quebec Debentures 8.40%, 2022...................................... 18,960,840
-------------
36,374,737
TRANSPORTATION: 1.2%
4,925,000 AMR Corp. Debentures 9 3/4%, 2021........................................ 5,715,413
9,225,000 AMR Corp. Debentures 10%, 2021........................................... 10,918,802
8,413,018 Consolidated Rail Corp. 95-A Pass Through Trust 6.76%, 2015.............. 8,040,153
5,000,000 Consolidated Rail Corp. Debentures 9 3/4%, 2020.......................... 6,091,500
-------------
30,765,868
PUBLIC UTILITIES: 0.0%
750,000 Idaho Power Co. 1st Mortgage Bonds 9 1/2%, 2021, Callable 2001........... 825,938
-------------
Total Bonds (cost $1,050,591,600).................................. 1,045,489,080
-------------
SHORT-TERM 3,000,000 American Express Co., Commercial Paper 5.37%, 1996....................... 3,000,000
INVESTMENTS: 33,000,000 Associates Corp., Commercial Paper 5.30%, 1996........................... 33,000,000
2.7% 11,545,725 General Mills, Inc., Variable Demand Note 5.14%, 1996.................... 11,545,725
12,633,190 Pitney Bowes Credit Corp., Variable Demand Note 5.14%, 1996.............. 12,633,190
2,009,415 Southwestern Bell Telephone Co., Variable Demand Note 5.12%, 1996........ 2,009,415
6,942,315 Wisconsin Electric Power Corp., Variable Demand Note 5.19%, 1996......... 6,942,315
--------------
Total Short-Term Investments (cost $69,130,645)..................... 69,130,645
--------------
TOTAL INVESTMENTS (cost $2,272,647,351).................. 100.2% 2,584,739,901
OTHER ASSETS LESS LIABILITIES............................ (0.2) (5,589,523)
------ --------------
TOTAL NET ASSETS......................................... 100.0% $2,579,150,378
====== ==============
</TABLE>
See accompanying Notes to Financial Statements
- --------------------------------------------------------------------------------
6
<PAGE>
D O D G E & C O X
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Balanced Fund
Statement of Assets and Liabilities June 30, 1996
---------------------------------------------------------------------------------------------
<C> <S> <C>
ASSETS:
Investments (identified cost $2,272,647,351) at market quotations........... $2,584,739,901
Cash........................................................................ 9,311,758
Dividends receivable and interest accrued................................... 17,218,813
Receivable for investments sold............................................. 12,102,954
Deferred charges............................................................ 106,511
--------------
2,623,479,937
--------------
LIABILITIES:
Payable for Fund shares redeemed............................................ 3,637,797
Payable for investments purchased........................................... 40,493,428
Accounts payable............................................................ 198,334
--------------
44,329,559
Net asset value --------------
per share $56.42 NET ASSETS............................................................... $2,579,150,378
==============
Beneficial NET ASSETS CONSIST OF:
shares outstan-
ding 45,717,435 Paid in capital............................................................. $2,253,956,600
(par value $1.00 Accumulated undistributed net investment income............................. 836,990
each, unlimited Accumulated undistributed net realized gain on investments.................. 12,264,238
shares authorized) Net unrealized appreciation on investments.................................. 312,092,550
--------------
$2,579,150,378
==============
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
<CAPTION>
THE FUND'S TEN LARGEST COMMON STOCK HOLDINGS
-----------------------------------------------------------------------------------------------------------
% of Fund
-----------
<S> <C>
Dayton-Hudson Corp ............................. 2.0
General Motors Corp ............................ 1.6
Citicorp ....................................... 1.4
International Business Machines Corp ........... 1.3
Digital Equipment Corp ......................... 1.3
American Express Co ............................ 1.3
Union Pacific Corp ............................. 1.2
Golden West Financial Corp ..................... 1.2
Donnelley (R.R.) & Sons Co ..................... 1.2
Federal Express Corp ........................... 1.1
-----
13.6%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
D O D G E & C O X
- -------------------------------------------------------------------------------
Balanced Fund
<TABLE>
<CAPTION>
Statement of Operations Six Months Ended June 30, 1996
------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends.................................................................. $ 13,923,210
Interest................................................................... 33,707,353
------------
47,630,563
------------
EXPENSES:
Management fees (Note 2)................................................... 5,721,350
Custodian fees............................................................. 125,906
Transfer agent fees........................................................ 273,593
Audit fees................................................................. 14,500
Legal fees................................................................. 1,325
Shareholder reports........................................................ 106,953
S.E.C. and state registration fees......................................... 221,000
Trustees' fees............................................................. 5,000
Miscellaneous.............................................................. 52,713
------------
6,522,340
------------
NET INVESTMENT INCOME...................................................... 41,108,223
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gains on investments (excluding short-term investments)..... 12,264,238
Change in unrealized appreciation of investments......................... 60,483,633
------------
Net realized and unrealized gain on investments...................... 72,747,871
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS............................................... $113,856,094
============
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
<CAPTION>
Condensed Financial Information
------------------------------------------------------------------------------------------
Net Asset Value Per Share Distributions Per Share
------------------------- -----------------------
Year Ended Capital
December 31 Net Assets Actual Adjusted* Income Gains
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1986 $ 27,516,246 $32.62 $36.18 $ 1.62 $ 3.55
1987 34,376,651 30.72 37.02 1.70 2.67
1988 39,031,819 32.09 39.21 1.68 .46
1989 50,950,919 36.85 45.92 1.76 .71
1990 82,596,374 35.03 44.07 1.81 .33
1991 179,392,902 40.09 50.79 1.76 .29
1992 268,768,015 42.44 53.86 1.72 .08
1993 486,830,358 46.40 60.23 1.66 1.07
1994 725,271,607 45.21 59.13 1.76 .36
1995 1,800,300,864 54.60 73.00 1.90 1.19
1996 (6/30) 2,579,150,378 56.42 75.55 .96** .10
------ ------
$18.33 $10.81
====== ======
</TABLE>
* Adjusted for assumed reinvestment of capital gains
distributions.
** A distribution of $.50 per share from net investment
income was paid to shareholders of record June 13, 1996.
- -------------------------------------------------------------------------------
8
<PAGE>
D O D G E & C O X
- --------------------------------------------------------------------------------
Balanced Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets Six Months Ended June 30,
-----------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income ............................................. $ 41,108,223 $ 19,641,123
Net realized gain ................................................. 12,264,238 15,760,293
Net change in unrealized appreciation ............................. 60,483,633 111,353,442
-------------- --------------
Net increase in net assets from operations ........................ 113,856,094 146,754,858
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................................. (40,899,268) (19,686,066)
Net realized gain ................................................. (4,000,715) (1,098,591)
-------------- --------------
Total distributions ............................................... (44,899,983) (20,784,657)
-------------- --------------
BENEFICIAL SHARE TRANSACTIONS:
Amounts received from sale of shares .............................. 835,067,939 402,781,227
Net asset value of shares issued in reinvestment of distributions . 42,964,808 19,720,098
-------------- --------------
878,032,747 422,501,325
Amounts paid for shares redeemed .................................. (168,139,344) (63,263,929)
-------------- --------------
Net increase from beneficial share transactions ................... 709,893,403 359,237,396
-------------- --------------
Total increase in net assets ...................................... 778,849,514 485,207,597
NET ASSETS:
Beginning of period ............................................... 1,800,300,864 725,271,607
-------------- --------------
End of period (including undistributed net investment income
of $836,990 and $277,664, respectively) ........................... $2,579,150,378 $1,210,479,204
============== ==============
Shares sold ....................................................... 14,975,249 8,292,927
Shares issued in reinvestment of distributions .................... 767,928 397,888
Shares redeemed ................................................... (2,998,989) (1,287,673)
-------------- --------------
Net increase in shares outstanding ................................ 12,744,188 7,403,142
============== ==============
</TABLE>
See accompanying Notes to Financial Statements
- --------------------------------------------------------------------------------
9
<PAGE>
D O D G E & C O X
- --------------------------------------------------------------------------------
Balanced Fund
Notes to Financial Statements
------------------------------------------------------------------------
1 The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified open-end management company. The Fund
consistently follows accounting policies which are in conformity with
generally accepted accounting principles for investment companies.
Significant policies are: (a) Investments are stated at market value
based on latest quoted prices; (b) Security transactions are accounted
for on the trade date in the financial statements. Gains and losses on
securities sold are determined on the basis of identified cost. Dividend
income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis; (c) Distributions to shareholders of
income and capital gains are reflected in the net asset value per share
computation on the date following the date of record; (d) No provision
for Federal income taxes has been included in the accompanying financial
statements since the Fund intends to distribute all of its taxable
income and otherwise continue to comply with requirements for regulated
investment companies.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements. Actual results
could differ from those estimates.
2 Under a written agreement, the Fund pays an annual management fee of 1/2
of 1% of the Fund's average weekly net asset value to Dodge & Cox, a
corporation and manager of the Fund. All officers and three of the
trustees of the Fund are officers or employees of Dodge & Cox. Those
trustees who are not affiliated with Dodge & Cox receive from the Fund
an annual fee of $1,000 and an attendance fee of $500 for each meeting
of the Board of Trustees attended. The Fund does not pay any other
remuneration to its officers or trustees.
3 For the six months ended June 30, 1996, purchases and sales of
securities, other than short-term securities, aggregated $935,355,134
and $197,768,376, respectively, of which U.S. government obligations
aggregated $362,205,869 and $134,439,782, respectively. At June 30,
1996, the cost of investments for Federal income tax purposes was equal
to the cost for financial reporting purposes. Net unrealized
appreciation aggregated $312,092,550 of which $333,900,527 represented
appreciated securities and $21,807,977 represented depreciated
securities.
The financial information has been taken from the records of the Fund
and has not been audited by our independent accountants who do not
express an opinion thereon. The financial statements of the Fund will be
subject to audit by our independent accountants as of the close of the
calendar year.
------------------------------------------------------------------------
This report is submitted for the general information of the shareholders
of the Fund. The report is not authorized for distribution to
prospective investors in the Fund unless it is accompanied by an
effective prospectus.
- --------------------------------------------------------------------------------
10
<PAGE>
D O D G E & C O X
- --------------------------------------------------------------------------------
Balanced Fund
General Information
Dodge & Cox The Fund enables investors to obtain the benefits of
Balanced Fund experienced and continuous investment supervision.
Shares of the Fund represent a well-balanced,
diversified investment designed to provide a complete
long-term investment program in one convenient holding.
The portfolio of the Fund is balanced between common
stocks, which provide an opportunity for long-term
growth of principal and income, and fixed-income
securities, which provide a higher level of income and
stability of principal.
Investment Since 1930, Dodge & Cox has been providing professional
Counsel investment management for individuals, trustees,
Management corporations, pension and profit-sharing funds, and
charitable institutions. In addition, Dodge & Cox
manages the Dodge & Cox Stock Fund and the Dodge & Cox
Income Fund. Dodge & Cox is not engaged in the brokerage
business nor in the business of dealing in or selling
securities.
No Sales Charge There are no commissions on the purchase or redemption
of shares of the Fund.
Gifts Dodge & Cox Balanced Fund shares provide a convenient
method for making gifts to children and to other family
members. Fund shares may be held by an adult custodian
for the benefit of a minor under a Uniform
Gifts/Transfers to Minors Act. Trustees and guardians
may also hold shares for a minor's benefit.
Reinvestment Shareholders may direct that dividend and capital gains
Plan distributions be reinvested in additional Fund shares.
Automatic Shareholders may make regular monthly or quarterly
Investment Plan investments of $100 or more through automatic deductions
from their bank accounts.
Withdrawal Plan Shareholders owning $10,000 or more of the Fund's shares
may elect to receive periodic monthly or quarterly
payments of at least $50. Under the plan, all dividend
distributions are automatically reinvested at net asset
value with the periodic payments made from the proceeds
of the redemption of sufficient shares.
The above plans are completely voluntary and involve no
service charge of any kind.
IRA Plan The Fund has available an Individual Retirement plan
(IRA) for shareholders of the Fund.
Fund literature and details on all of these plans are
available from the Fund upon request.
Dodge & Cox Balanced Fund
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
Telephone (800) 621-3979
- --------------------------------------------------------------------------------
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
Dear Shareholder July 1996
The Dodge & Cox Balanced Fund had a total return of 2.2% for the quarter ended
June 30, 1996. This result compares with total returns for the Standard & Poor's
500 Index of 4.5 % and the Lehman Brothers Aggregate Bond Index (LBAG) of 0.6%
for the same period. For the first six months of 1996, the Balanced Fund
returned 5.3% compared to 10.1% for the S&P 500 and -1.2% for the LBAG.Returns
for longer time periods are presented in the table below.
- --------------------------------------------------------------------------------
Average Annual Total Return
For periods ended June 30, 1996 1 Year 5 Years 10 Years 20 Years
- -------------------------------------------------------------------------------
[S] [C] [C] [C] [C]
Dodge & Cox Balanced Fund 15.71% 13.99% 12.47% 12.94%
S&P 500 Index 25.99 15.72 13.81 14.19
LBAG Index 5.01 8.26 8.55 9.73
The total return figures include reinvestment of dividend and capital gains
distributions. These results represent past performance; past performance is no
guarantee of future results. Investment return and share price will vary,and
shares may be worth more or less at redemption than at original purchase.
- --------------------------------------------------------------------------------
Mixed Performance in 1996
For the first half of this year, the Fund's common stock portfolio provided a
strong positive return and was narrowly above the total return of the S&P 500.
Holdings in the retail, energy, capital equipment and transportation industries
performed well relative to the overall equity market, while stocks in the
industrial commodities, technology, consumer durables and insurance areas were
weak relative performers.
The Fund's fixed income portfolio's slight decline in the first half of 1996 was
in line with the overall bond market, reflecting the rise in interest rates. The
30-year U.S Treasury bond yield climbed from 5.9% at year end 1995 to 6.9% at
June 30, 1996. Holdings in the mortgage sector have been good relative
performers, while long-duration corporate issues lagged the LBAG due to their
greater price sensitivity to the rise in interest rates.
Divergence of Equities and Bonds
The recent divergence in the returns of equities and bonds is somewhat unusual,
but not unprecedented. In the 1960's, for example, the stock market climbed
during a period of very low bond returns. In the more recent past, however,
equity and fixed income markets have followed similar paths; both languished in
1994 when interest rates increased, and then surged in 1995 as rates
subsequently declined. Higher interest rates generally lead to lower
price-to-earnings multiples for stocks. Occasionally, the positive effect of
actual or anticipated improvement in corporate profits can be enough to offset
the negative impact of rising interest rates on stocks. This appears to have
been the case in the first half of 1996.
We believe that bond investors could be overreacting to recent government data
that indicates a stronger economy. Notwithstanding higher food and energy
prices, the evidence of a serious inflation problem seem inconclusive to us at
this time, and, in keeping with our long-term investment orientation, we have
not made any major changes in the Fund's asset allocation.
================================================================================
Dodge & Cox One Sansome Street San Francisco, California 94104
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
Focus on A Lagging Stock
One of our objectives in our quarterly letters to shareholders is to give you an
understanding of how we invest your money. We thought it would be instructive
to look at a stock in the Fund that has not performed up to our expectations
over the last 18 months: Whirlpool Corporation. Please note that this company
is discussed as an example of our research and investment process, not because
we believe it is necessarily more attractive than the Fund's other investments.
We first invested in Whirlpool in the Fund in 1989 at a price of $28. The
company had a significant advance in earnings from 1990 to 1994, but a
combination of factors--new plant start-up problems, the recession in Mexico,
investments in Asia and increased domestic competition--depressed Whirlpool's
earnings in 1995 and so far in 1996. In the last 18 months, the S&P 500 had a
cumulative total return just over 51%; during this same time period, Whirlpool
has returned only 2.8%.
Why have we maintained the Fund's ownership in the company during this difficult
period? Because we believe that Whirlpool is well on its way to becoming a
global leader in consumer appliances. The company has already established a
strong competitive position in Europe and is taking the necessary steps to do
the same in Asia. With an estimated $9 billion of 1996 revenues, or $120 per
share (40% of which are from outside the U.S.), we are optimistic that Whirlpool
has good long-term profit opportunities as its global strategy matures. At a
recent price of $50 per share, we believe the stock's valuation is attractive
relative to its potential earnings power.
Underperformance by a stock is not sufficient reason by itself to abandon it as
an investment. With our accumulated knowledge of companies' fundamentals, we
continually ask ourselves how we would invest today for the next three to five
years. Although we will not always be right in our selection of stocks and
bonds, we believe that persistence and patience are key ingredients for long-
term investment success.
- --------------------------------------------------------------------------------
Thoughts on Our Team Approach
The Dodge & Cox Funds utilize a team approach to investment management, unlike
many mutual funds that designate individual managers to make investment
decisions. The investment process begins with intensive fundamental research
performed by our thirteen in-house equity and fixed income analysts. Our
portfolio managers, all of whom began their careers as analysts, are often
involved in the research process. When purchase or sale of a security is
advocated, a group discussion of the investment's merits and risks takes place.
Our Investment Policy Committee--consisting of Dodge & Cox's most senior
investment professionals--reviews each investment recommendation and makes the
final decision. The eight member Policy Committee has an average of 18 years of
experience at Dodge & Cox.
A collegial atmosphere is crucial to the success of this kind of team-oriented
investing, and at Dodge & Cox we have a group of professionals that work
extremely well together. Most of our professionals began their investment
careers at Dodge & Cox, and our firm has been fortunate to have unusually low
turnover of our analysts and portfolio managers. This combination of individual
security analysis and group decision making is a distinguishing feature of Dodge
& Cox and is central to our investment approach.
- --------------------------------------------------------------------------------
In Closing
Thank you for your continued confidence in the Dodge & Cox Balanced Fund. As
always, we welcome your comments and questions.
Dodge & Cox
================================================================================
