<PAGE>
February 27, 1997
File No. 2-11522
File No. 811-173
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 61 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20 [X]
DODGE & COX BALANCED FUND
- --------------------------------------------------------------------------------
(exact name of registrant as specified in charter)
ONE SANSOME STREET, 35TH FLOOR, SAN FRANCISCO, CA 94104
------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(415) 981-1710
---------------------------------------------------
(Registrant's Telephone Number, including Area Code)
THOMAS M. MISTELE, ESQ.,
DODGE & COX
ONE SANSOME STREET, 35TH FLOOR
SAN FRANCISCO, CA 94104
--------------------------------------
(Name and Address of Agent for Service)
Approximate date of proposed public offering: April 29, 1997
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on _______________ pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on _______________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph(a)(2)
[ ] on _______________ pursuant to paragraph (a)(2) of Rule 485
CALCULATION OF REGISTRATION OF FEES UNDER THE SECURITIES ACT OF 1933
====================================================================
An indefinite number of shares are being registered by this registration
statement pursuant to Rule 24f-2 of the Investment Company Act of 1940.
A Rule 24f-2 Notice for the fiscal year ended December 31, 1996 was
filed on February 26, 1997.
<PAGE>
DODGE & COX BALANCED FUND
CROSS REFERENCE SHEET
PART A
(Prepared as part of Form N-1A)
Item Number in Form N-1A Prospectus
Registration Statement Caption in Prospectus Page
----------------------- --------------------- ----------
1 (Cover Page) Cover
2 Expense Information 1
3 Financial Highlights 2
4 Fund Organization and Management 12
Investment Objectives and Policies 2
Investment Restrictions 3
Investment Risks 4
Additional Information on Investments 4
Performance Information 11
Portfolio Transactions 13
5 Fund Organization and Management 12
Custodian and Transfer
Agent 14
Expenses 13
6 Fund Organization and Management 12
Shareholder Inquiries 14
Income Dividends and
Capital Gain Distributions 6
Shareholder Services /
Reinvestment Plan 11
Federal Income Taxes 13
7 How to Purchase Shares 7
Telephone Transactions 10
Pricing of Shares 11
Shareholder Services 11
8 How to Redeem Shares 8
Exchanging Shares 10
Telephone Transactions 10
Pricing of Shares 10
9 (None-Not Applicable)
<PAGE>
DODGE & COX BALANCED FUND
CROSS REFERENCE SHEET
PART B
(Prepared as part of Form N-1A)
Additional
Item Number in Form N-1A Caption in Statement of Information
Registration Statement Additional Information Page
- -------------------------- ---------------------------------- -----------
10 (Cover Page) Cover
11 Table of Contents Cover
12 (None-Not Applicable)
13 Investment Objectives and Policies 1
Risk Factors 4
Investment Restrictions 7
14 Officers and Trustees 9
15 Officers and Trustees 9
16 Investment Manager 11
Custodian (Page 14 of Prospectus)
Independent Accountants 14
17 Portfolio Transactions 11
18 (None-See Prospectus)
19 Purchase, Redemption and
Pricing of Shares 8
20 Additional Tax Considerations 13
21 (None-Not Applicable)
22 Performance Information 8
23 Financial Statements 14
(Incorporated by
reference. See Part C)
<PAGE>
DODGE & COX BALANCED FUND
PART A
Prospectus
<PAGE>
DODGE & COX
BALANCED FUND
Officers and Trustees
Harry R. Hagey, Chairman and Trustee
Chairman & CEO, Dodge & Cox
A. Horton Shapiro, Vice-Chairman and Trustee
Senior Vice-President, Dodge & Cox
Kenneth E. Olivier, Assistant Secretary and
Trustee
Senior Vice President, Dodge & Cox
Max Gutierrez, Jr., Trustee
Partner, Brobeck, Phleger & Harrison, Attorneys
Frank H. Roberts, Trustee
Retired Partner, Pillsbury, Madison & Sutro, Attorneys
John B. Taylor, Trustee
Professor of Economics, Stanford University
Will C. Wood, Trustee
Principal, Kentwood Associates, Financial Advisers
W. Timothy Ryan, Secretary
Senior Vice-President, Dodge & Cox
Thomas M. Mistele, Assistant Secretary
General Counsel, Dodge & Cox
E. Morris Cox, Honorary Trustee
INVESTMENT MANAGER
Dodge & Cox
One Sansome Street, 35th Floor
San Francisco, California 94104
Telephone (415) 981-1710
CUSTODIAN & TRANSFER AGENT
Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
Telephone (800) 621-3979
DODGE & COX BALANCED FUND
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
Telephone (800) 621-3979
DODGE & COX
BALANCED FUND
Established 1931
PROSPECTUS
April , 1997
<PAGE>
DODGE & COX
BALANCED FUND
PROSPECTUS
APRIL , 1997
DODGE & COX BALANCED FUND
The Dodge & Cox Balanced Fund (the "Fund") is a no-load mutual fund with the
objectives of providing shareholders with regular income, conservation of
principal and an opportunity for long-term growth of principal and income. The
Fund seeks to achieve these objectives by investing in a diversified portfolio
of common stocks, preferred stocks and bonds. There can be no assurance that
the Fund will achieve these objectives.
Shares of the Fund are purchased and redeemed at net asset value. There are
no sales, redemption or Rule 12b-1 plan distribution charges.
This prospectus sets forth concisely the information you should know about
the Fund before investing. It should be retained for future reference. A
Statement of Additional Information about the Fund, dated April , 1997, which
is incorporated by reference in this prospectus, has been filed with the
Securities and Exchange Commission (the "SEC".) To obtain a free copy, call
1-800-621-3979.
TABLE OF CONTENTS
Introduction............................................................. 1
Expense Information...................................................... 1
Financial Highlights..................................................... 2
Investment Objectives and Policies....................................... 2
Investment Restrictions.................................................. 3
Investment Risks......................................................... 4
Additional Information on Investments.................................... 4
Income Dividends and Capital
Gain Distributions.................................................... 6
How to Purchase Shares................................................... 7
How to Redeem Shares..................................................... 8
Exchanging Shares........................................................ 10
Telephone Transactions................................................... 10
Transfer of Shares....................................................... 10
Pricing of Shares........................................................ 11
Shareholder Services..................................................... 11
Performance Information.................................................. 11
Fund Organization and Management......................................... 12
Portfolio Transactions................................................... 13
Expenses................................................................. 13
Federal Income Taxes..................................................... 13
Custodian and Transfer Agent............................................. 14
Reports to Shareholders.................................................. 14
Shareholder Inquiries.................................................... 14
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
DODGE & COX
BALANCED FUND
INTRODUCTION
The Fund is an open-end diversified investment company which continuously
offers its shares to the public. A unique feature of the Fund and other
"no-load" funds is that shares are sold without sales charge, while many other
investment companies sell their shares with a varying sales charge. Shares may
be redeemed at net asset value without any charge.
The Fund enables you to obtain the benefits of experienced and continuous
investment supervision. Shares of the Fund can provide you with the kind of
balanced portfolio ordinarily limited to large investment accounts that is
widely regarded as a conservative strategy designed to cushion an investment
from the volatility associated with mutual funds composed exclusively of common
stocks.
By investing in the Fund, you avoid the time-consuming details involved in
buying and selling individual securities. The Fund also reduces your record
keeping for tax purposes and simplifies the collection of investment income and
the safekeeping of individual securities.
The Fund's investment manager, Dodge & Cox, was founded in 1930 and managed
over $25 billion for individual and institutional investors in mutual fund and
private accounts as of December 31, 1996.
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Distributions None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees .50%
12b-1 Fees None
Other Expenses (accounting, transfer agent, custodial, legal, etc.) .06%
----
Total Fund Operating Expenses .56%
EXAMPLE: A shareholder would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
Time period 1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------
Expenses $6 $18 $31 $70
This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the above expense information is to assist you in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. Expense figures are based on amounts incurred
during the year 1996 (See "Expenses"). Wire redemptions are subject to a $12
charge which is not reflected in the above example.
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DODGE & COX
BALANCED FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA AND RATIOS (for a share outstanding throughout each year)
The following table of financial highlights, insofar as it relates to each
of the five years in the period ended December 31, 1996, has been audited by
Price Waterhouse LLP, independent accountants, whose unqualified report thereon
appears in the Fund's Annual Report to Shareholders for the year ended
December 31, 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year............ $54.60 $45.21 $46.40 $42.44 $40.09 $35.03 $36.85 $32.09 $30.72 $32.62
Income from investment operations:
Net investment income......................... 1.98 1.90 1.76 1.66 1.72 1.75 1.81 1.76 1.68 1.67
Net realized and unrealized gain (loss)....... 5.92 10.58 (.83) 5.03 2.43 5.36 (1.49) 5.47 1.83 .80
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income from investment operations....... 7.90 12.48 .93 6.69 4.15 7.11 .32 7.23 3.51 2.47
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions:
Dividends from net investment income.......... (1.99) (1.90) (1.76) (1.66) (1.72) (1.76) (1.81) (1.76) (1.68) (1.70)
Distributions from net realized gain
on investments............................... (.69) (1.19) (.36) (1.07) (.08) (.29) (.33) (.71) (.46) (2.67)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions .......................... (2.68) (3.09) (2.12) (2.73) (1.80) (2.05) (2.14) (2.47) (2.14) (4.37)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year ................. $59.82 $54.60 $45.21 $46.40 $42.44 $40.09 $35.03 $36.85 $32.09 $30.72
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return ................................. 14.75% 28.02% 1.99% 15.95% 10.56% 20.72% .94% 23.02% 11.54% 7.18%
Ratios/Supplemental Data:
Net assets, end of year (millions)............ $3,630 $1,800 $725 $487 $269 $179 $83 $51 $39 $34
Ratio of expenses to average net assets ..... .56% .57% .58% .60% .63% .65% .70% .72% .77% .72%
Ratio of net investment income to
average net assets........................... 3.60% 3.85% 3.94% 3.67% 4.27% 4.78% 5.24% 4.98% 5.19% 4.69%
Portfolio turnover rate....................... 17% 20% 20% 15% 6% 10% 10% 12% 9% 15%
Average commission rate paid*................. $.0500
* Represents the average commission rate paid per share on securities transactions for which commissions were charged.
Disclosure is required by the SEC beginning in 1996.
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
The objectives of the Fund are to provide shareholders with regular income,
conservation of principal and an opportunity for long-term growth of principal
and income. However, investors should recognize that the market risks inherent
in investment cannot be avoided, nor is there any assurance that the investment
objectives of the Fund will be achieved. Reasonable appreciation in favorable
periods and conservation of principal in adverse times are objectives that
require flexibility in managing
2
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DODGE & COX
BALANCED FUND
the assets of the Fund under constantly changing investment conditions.
Therefor the proportions held in common and preferred stocks and bonds are
revised by Dodge & Cox when considered advisable in light of its appraisal of
business and investment prospects. Under normal market conditions, it is the
policy of the Fund to maintain no more than approximately 75% of its total
assets in common stocks and that portion of the value of convertible securities
attributable to the conversion right. Bonds are held for their relative
stability of principal and income as well as for a reserve which can be used to
take advantage of investment opportunities. The Fund may also invest up to 20%
of its total assets in U.S. dollar-denominated securities of foreign issuers
traded in the U.S. (such as American Depositary Receipts or ADRs). Moderate
reserves in cash or short-term fixed income securities may be held from time to
time as Dodge & Cox may deem advisable. Further information about specific
investments is provided under "Additional Information on Investments".
It is the Fund's policy to invest in investment grade bonds rated in the top
four rating categories by either Moody's Investors Service ("Moody's")
(Aaa,Aa,A, Baa) or Standard & Poor's Ratings Group ("S&P") (AAA, AA, A, BBB).
Securities rated Baa or BBB may have speculative characteristics. Securities
that are downgraded below Baa or BBB subsequent to purchase may continue to be
held by the Fund, if Dodge & Cox believes it advantageous to do so. Unrated
bonds may be purchased if such securities are, in the opinion of Dodge & Cox, of
equivalent quality to bonds rated at least A by Moody's and S&P.
The Fund's policies as described above may be changed without shareholder
approval; however these policies will not be changed without notice to
shareholders. The following policies may not be changed without shareholder
approval:
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.
In an attempt to minimize unforeseen risks in single securities, the Fund seeks
to provide adequate investment diversification. Investments made in any one
stock or bond issue, with the exception of U.S. government securities, are
seldom in excess of 2% of the total assets of the Fund. Although there is no
restriction on the number of changes in security holdings, purchases are made
with a view to long-term holding and not for short-term trading purposes. (The
Fund's portfolio turnover rates for the fiscal years ended December 31, 1996,
1995 and 1994 were 17%, 20% and 20%, respectively.) However, during rapidly
changing economic, market and political conditions, there may necessarily be
more portfolio changes than in a more stable period. It is the general practice
of the Fund to invest in securities with ready markets, mainly issues listed on
national securities exchanges.
INVESTMENT RESTRICTIONS
The Fund has adopted certain restrictions designed to achieve diversification of
investment and to reduce investment risk. The Fund may not: (a) Invest more
that 5% of the value of its total assets in the securities of any one issuer
except the U.S. Government, nor acquire more than 10% of the voting securities
of any one issuer, (b) Concentrate investments of more than 25% of the value of
its total
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DODGE & COX
BALANCED FUND
assets in any one industry; (c) Borrow money except as a temporary measure
for extraordinary or emergency purposes; (d) Make loans to other persons except
this shall not exclude the purchase of publicly issued debt securities of a
type purchased by institutional investors. The investment restrictions
described in this paragraph and in the Statement of Additional Information may
be changed only with the approval of the Fund's shareholders.
INVESTMENT RISKS
You should understand that all investments involve risks, and there can be
no guarantee against loss resulting from an investment in the Fund, nor can
there be any assurance that the Fund's investment objectives will be attained.
There are further risk factors described elsewhere in this prospectus and in
the Statement of Additional Information.
Investments in common stock in general are subject to market risks that
cause their prices to fluctuate over time, i.e., the possibility that stock
prices will decline over short or even extended periods. Prices of bonds in the
Fund are sensitive to changes in the market level of interest rates. In
general, as interest rates rise, the prices of fixed-income securities fall and
conversely, as interest rates fall, the prices of these securities rise.
Yields on short, intermediate, and long-term securities are dependent on a
variety of factors, including the general conditions of the money and bond
markets, the size of a particular offering, the maturity of the obligation, and
the credit quality and rating of the issue. Debt securities with longer
maturities tend to have higher yields and are generally subject to potentially
greater capital appreciation and depreciation than obligations with shorter
maturities and lower yields. Furthermore, because yield levels on securities
vary with changing interest rates, no specific yield on shares of the Fund can
be guaranteed. Since the bond portion of the Fund's portfolio will be invested
primarily in higher quality debt securities, the Fund may not yield as high a
level of current income as funds that invest primarily in lower quality debt
securities which generally have less liquidity, greater market risk and greater
price fluctuation. The value of stocks and bonds may also be affected by
changes in the financial condition of, and other events affecting, specific
issuers. Fluctuations in the value of the securities in which the Fund invests
will cause the Fund's share price to fluctuate. An investment in the Fund
therefore may be more suitable for long-term investors who can bear the risk of
short and long-term fluctuations in the Fund's share price.
Foreign securities involve some special risks such as exposure to
potentially adverse local political and economic developments; nationalization
and exchange controls, potentially lower liquidity and higher volatility,
possible problems arising from accounting, disclosure, settlement, and
regulatory practices that differ from U.S. standards; foreign taxes; and the
risk that fluctuations in foreign exchange rates will decrease the investment's
value (although favorable changes can increase its value).
The Fund, with its mixture of investments in common stocks and bonds, may
entail less investment risk (and a potentially lower return) than a mutual fund
investing only in common stocks.
ADDITIONAL INFORMATION ON INVESTMENTS
COMMON AND PREFERRED STOCKS. Stocks represent shares of ownership in a
company. Generally, preferred stock has a specified dividend and ranks after
bonds and before common stocks in its claim on income for dividend payments and
on assets should the company be liquidated. After other claims are satisfied,
common stockholders participate in company profits on a pro rata basis; profits
may be paid out in dividends or reinvested in the company to help it grow.
Increases and decreases in earn-
4
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DODGE & COX
BALANCED FUND
ings are usually reflected in a company's stock price, so common stocks
generally have the greatest appreciation and depreciation potential of all
corporate securities.
CONVERTIBLE SECURITIES. The Fund may invest in debt or preferred equity
securities convertible into or exchangeable for equity securities.
Traditionally, convertible securities have paid dividends or interest at rates
higher than common stocks but lower than nonconvertible securities. They
generally participate in the appreciation or depreciation of the underlying
stock into which they are convertible, but to a lesser degree. In recent years,
convertibles have been developed which combine higher or lower current income
with other features.
FOREIGN SECURITIES. The Fund may invest in U.S. dollar-denominated
securities of foreign issuers traded in the U.S. (such as ADRs). Such
investments increase a portfolio's diversification and may enhance return, but
they also involve some special risks.
U.S. GOVERNMENT OBLIGATIONS. A portion of the Fund may be invested in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Some of the obligations purchased by the Fund are backed by
the full faith and credit of the U.S. Government and are guaranteed as to both
principal and interest by the U.S. Treasury. Examples of these include direct
obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and bonds,
or indirect obligations of the U.S. Treasury, such as obligations of the
Government National Mortgage Association, the Maritime Administration, the
Farmers Home Administration and the Department of Veterans Affairs.
While the obligations of many of the agencies and instrumentalities of the
U.S. Government are not direct obligations of the U.S. Treasury, they are
generally backed indirectly by the U.S. Government. Some of the agencies are
indirectly backed by their right to borrow from the U.S. Government, such as
the Federal Financing Bank, the Federal Home Loan Bank and the U.S. Postal
Service. Others are supported solely by the credit of the agency or
instrumentality itself, but are given additional support due to the U.S.
Treasury's authority to purchase their outstanding debt obligations. These
agencies include the Federal Farm Credit Banks, the Federal Home Loan Mortgage
Corporation and the Federal National Mortgage Association. No assurance can be
given that the U.S. Government would provide financial support to U.S.
Government established or sponsored agencies. Furthermore, with respect to the
U.S. Government securities purchased by the Fund, guarantees as to the timely
payment of principal and interest do not extend to the value or yield of these
securities nor do they extend to the value of the Fund's shares. The Fund may
invest in these securities if it believes they offer an expected return
commensurate with the risks assumed.
MORTGAGE PASS-THROUGH SECURITIES. The Fund may invest a portion of its
assets in mortgage pass-through securities which are guaranteed by an
the U.S. Government or are issued by a private entity. These securities
represent ownership in "pools" of mortgage loans and are called "pass-throughs"
because principal and interest payments are passed through to security holders
monthly. The security holder may also receive unscheduled principal payments
representing prepayments of the underlying mortgage loans. When the Fund
reinvests the principal and interest payments, it may receive a rate of
interest which is either higher or lower than the rate on the existing mortgage.
During periods of declining interest rates there is increased likelihood
that mortgage securities may be prepaid. Such prepayment would most likely be
reinvested at lower rates. On the other hand, if the pass-through securities
had been purchased at a discount, then such prepayment of principal may benefit
the portfolio.
5
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DODGE & COX
BALANCED FUND
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized Mortgage Obligations
("CMOs") are private entity or U.S. Government agency-issued multi-class bonds
that are collateralized by U.S. agency-guaranteed mortgage pass-through
securities. The issuer typically issues several classes, or "tranches" of
bonds, the debt service of which is provided by the principal and interest
payments from the mortgage pass-through securities in the trust. Each of these
tranches is valued and traded separately based on its distinct cash flow
characteristics. Dodge & Cox will purchase a tranche with the weighted-average
life and cash flow characteristics that it believes will contribute to
achieving the objectives of the Fund.
All CMOs purchased by the Fund will have a AAA rating by either S&P or
Moody's, the major rating services. To qualify for this rating, a CMO is
structured so that even under the most conservative prepayment and reinvestment
assumptions, the principal and interest payments from the collateral are
expected to meet or exceed the cash flow obligations of all the tranches of the
CMO. However, there are risks associated with CMOs which relate to the risks of
the underlying mortgage pass-through securities (i.e., an increase or decrease
in prepayment rates, resulting from a decrease or increase in mortgage interest
rates, will affect the yield, average life and price of CMOs). In a falling
interest rate environment, the mortgage securities may be prepaid faster than
the assumed rate. In this scenario, the prepayments of principal will generally
be reinvested at a rate which is lower than the rate that the security holder
is currently receiving. Conversely, in a rising interest rate environment, the
mortgage collateral may be prepaid at a rate which is slower than the assumed
rate. In this case, the cash flow of the bond decreases. A reduced prepayment
rate effectively lengthens the time period the security will be outstanding and
may adversely affect the value of the security.
INCOME DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Dividend and capital gain distributions are reinvested in additional Fund
shares in your account unless you select another option on your Account
Application Form. The advantage of reinvesting distributions arises from
compounding; that is, you receive income dividends and capital gain
distributions on a rising number of shares.
Distributions not reinvested are paid by check or transmitted to your bank
account via electronic transfer using the Automated Clearing House (ACH)
network. If the Post Office cannot deliver your check, or if your check remains
uncashed for six months, the Fund reserves the right to reinvest your
distribution check in your account at the Fund's then current net asset value
per share (NAV) and to reinvest all subsequent distributions in shares of the
Fund.
INCOME DIVIDENDS
* The Fund declares and pays dividends (if any) quarterly in March, June,
September and December.
* Part of the Fund's dividends will be eligible for the 70% deduction for
dividends received by corporations.
CAPITAL GAIN DISTRIBUTIONS
* A capital gain or loss is the difference between the purchase and sale
price of a security.
* If the Fund has net capital gains for the year (after subtracting any capital
losses), they are usually declared and paid in December to shareholders of
record on a specified date that month. If a second distribution is necessary,
it is usually declared and paid in March.
In January, you will be sent Form 1099-DIV indicating the tax status of any
dividend and capital gain distributions made to you during the previous year.
This information will also be reported to the IRS.
6
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DODGE & COX
BALANCED FUND
HOW TO PURCHASE SHARES
MINIMUM INITIAL INVESTMENT: $2,500; $1,000 FOR IRA ACCOUNTS
SUBSEQUENT MINIMUM INVESTMENT: $100
BY MAIL: Please make your check payable to Dodge & Cox Balanced Fund
(otherwise it will be returned) and send your check together with the Account
Application Form to the address below. The Fund does not accept third party
checks (except for properly endorsed IRA Rollover checks).
REGULAR MAIL MAILGRAM, EXPRESS, CERTIFIED OR REGISTERED MAIL
Dodge & Cox Balanced Fund Dodge & Cox Balanced Fund
c/o Firstar Trust Company c/o Firstar Trust Company
P.O. Box 701 615 East Michigan Street, Third Floor
Milwaukee, WI 53201-0701 Milwaukee, WI 53202-5207
BY WIRE: To purchase shares in the Fund by Federal wire transfer, you
should request that your bank transmit funds to:
Firstar Bank, ABA# 0750-00022
For Credit to: Mutual Fund Services, Account #112-952-137
For Further Credit: Dodge & Cox Balanced Fund,
[shareholder account number], [name of account]
Prior to having the funds wired, you should call Firstar Trust Company at
1-800-621-3979 and advise the bank that the funds are being wired. Investors
making initial investments by wire must promptly complete an Account
Application Form and mail it to the Fund, c/o Firstar Trust Company, at either
of the addresses listed above. No account services will be established until
the completed application has been received by the Fund. IRA accounts cannot
be opened by wire.
BY TELEPHONE: By using the Fund's telephone purchase option, you may make
subsequent investments directly from your bank account. To establish the
telephone purchase option for your account, complete the appropriate section on
the Account Application Form. Only bank accounts held at domestic financial
institutions that are Automated Clearing House (ACH) members may be used for
telephone transactions. To make subsequent investments by telephone, call
1-800-621-3979. This option will become effective approximately 15 business
days after the Account Application Form is received. The price you pay for your
shares will be the next price the Fund computes after the Fund receives your
investment from your bank, which is usually three business days after you
authorize the transfer. If you want to make an investment the same day, you
must invest by wire. You may not use telephone transactions for initial
purchases of the Fund's shares. (See "Telephone Transactions.")
ADDITIONAL INFORMATION ABOUT PURCHASES: All subscriptions are subject to
acceptance by the Fund, and the price of the shares will be the NAV which is
next computed after receipt by the Fund's transfer agent, or other authorized
agent or sub-agent, of the subscription in proper form (see "Pricing of
Shares"). All purchases must be paid for in U.S. dollars; checks must be drawn
on U.S. banks. If your payment is not received or you pay with a check or ACH
transfer that does not clear, your purchase will be canceled. You will be
responsible for any losses or expenses (including a $20 fee) incurred by the
Fund or transfer agent, and the Fund can redeem shares you own in this or
another identically registered Dodge & Cox Fund account as reimbursement.
7
<PAGE>
DODGE & COX
BALANCED FUND
The Fund and its agents have the right to reject or cancel any purchase,
exchange, or redemption due to nonpayment. All subscriptions will be invested
in full and fractional shares and you will receive a confirmation of all
transactions. Purchases through the Automatic Investment Plan will be
confirmed at least quarterly. Certificates (for full shares only) are not
issued unless requested by you. A Social Security or Taxpayer Identification
Number must be supplied and certified on the Account Application Form before an
account can be established. If you fail to furnish the Fund with your correct
Social Security or Taxpayer Identification Number, the Fund may be required to
withhold Federal income tax at a rate of 31% ("backup withholding") from
dividends, capital gain distributions and redemptions.
The purchase or redemption of shares through broker-dealers or other
financial institutions may be subject to a service fee by those entities. The
Fund and its agents reserve the right to accept initial purchases by telephone;
to cancel or rescind any purchase or exchange (for example, if an account has
been restricted due to excessive trading or fraud) upon notice to the
shareholder within five business days of the trade; to freeze any account and
temporarily suspend services on the account when notice has been received of a
dispute between the registered or beneficial account owners or there is reason
to believe a fraudulent transaction may occur; to otherwise modify the
conditions of purchase and any services at any time; or to act on instructions
believed to be genuine.
HOW TO REDEEM SHARES
BY MAIL: Your written instructions to redeem should be sent to the
appropriate address below:
REGULAR MAIL MAILGRAM, EXPRESS, CERTIFIED OR REGISTERED MAIL
Dodge & Cox Balanced Fund Dodge & Cox Balanced Fund
c/o Firstar Trust Company c/o Firstar Trust Company
P.O. Box 701 615 East Michigan Street, Third Floor
Milwaukee, WI 53201-0701 Milwaukee, WI 53202-5207
The request must specify your name, account number, and dollar amount or
number of shares redeemed, and be properly signed. The Fund requires the
signatures of all owners exactly as registered, and possibly a signature
guarantee (see "Signature Guarantees'' below).
BY TELEPHONE: Telephone redemption requests can be initiated by calling
Firstar Trust Company at 1-800-621-3979. (See "Telephone Transactions.")
Telephone redemption requests for IRA accounts will not be accepted.
REDEMPTION PAYMENTS MAY BE MADE BY CHECK, WIRE OR ACH:
BY CHECK: Checks will be made payable to you and will be sent to your
address of record. If the proceeds of the redemption are requested to be sent
to other than the address of record or if the address of record has been
changed within 15 days of the redemption request, the request must be in
writing with your signature(s) guaranteed.
BY WIRE: The Fund will wire redemption proceeds only to the bank account
designated on the initial Account Application Form or in written instructions
- -- with signature guarantee -- received in advance of the redemption order.
Wire redemption requests are subject to a $12 charge, which is subject to
change without notice.
8
<PAGE>
DODGE & COX
BALANCED FUND
BY ACH: Redemption proceeds can be sent to your bank account by ACH transfer.
You can elect this option by completing the appropriate section of the Account
Application Form. If money is moved by ACH transfer, you will not be charged by
the Fund for these services. There is a $100 minimum per ACH transfer.
SIGNATURE GUARANTEES: You may need to have your signature guaranteed in
certain situations, such as:
* Written requests to wire redemption proceeds (if not previously authorized
on the Account Application Form).
* Sending redemption proceeds to any person, address, or bank account not on
record.
* Transferring redemption proceeds to a Dodge & Cox account with a different
registration (name/ownership) from yours.
* Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings institutions,
broker-dealers, and other guarantors acceptable to the Fund. The Fund cannot
accept guarantees from notaries public or organizations that do not provide
reimbursement in the case of fraud.
REDEMPTIONS-IN-KIND: The Fund reserves the right, if conditions exist which
make cash payments undesirable, to honor any request for redemption by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's NAV (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities to cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the Investment Company
Act, as a result of which the Fund is obligated to redeem shares, with respect
to any one shareholder during any 90-day period, solely in cash up to the
lesser of $250,000 or 1% of the NAV of the Fund at the beginning of the period.
IRA ACCOUNTS: Redemption requests for IRA accounts must be in writing and
must include instructions regarding Federal income tax withholding. Unless you
have elected otherwise, your redemptions will be subject to income tax
withholding.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS: Under certain circumstances, the
Fund's transfer agent may require additional documents, including stock powers
with signatures guaranteed, trust instruments, death certificates, appointments
as executor and certificates of corporate authority. If certificates have been
issued for any of the shares to be redeemed, such certificates must be endorsed
with signatures guaranteed and delivered to the Fund's transfer agent. For any
questions regarding documentation or signature requirements for trusts,
estates, corporations, etc., please call Firstar Trust Company (1-800-621-3979).
The redemption price will be the NAV which is next computed after receipt of
a redemption request in good order (see "Pricing of Shares") by Firstar Trust
Company or other authorized agent or sub-agent. The redemption price may be
more or less than your cost, depending upon the market value of the Fund's
investments at the time of redemption. Redemption payments are made as soon as
practicable, generally within two business days, but no later than the seventh
day after the effective date for redemption, or within such shorter period as
may legally be required. If shares are redeemed
9
<PAGE>
DODGE & COX
BALANCED FUND
within two weeks of purchase, the Fund may delay payment of the redemption
proceeds until your purchase check has cleared, which may take up to 12 days or
more. There is no such delay when shares being redeemed were purchased by wiring
Federal Funds.
The Fund may suspend your redemption right or postpone payment at times when
the New York Stock Exchange is closed or under any emergency circumstances as
determined by the SEC. If the Post Office cannot deliver your check, or if
your check remains uncashed for six months, the Fund reserves the right to
reinvest your redemption proceeds in your account at the then current NAV.
EXCHANGING SHARES
You may exchange your shares for shares of another Dodge & Cox Fund,
provided that the registration and Taxpayer Identification Number of both
accounts are identical. An exchange may be initiated by contacting the Fund's
transfer agent in writing or by telephone. (See "Telephone Transactions".) An
exchange is treated as a redemption and a purchase; and, therefore, you may
realize a taxable gain or loss. You should obtain and read a current
prospectus of the fund into which the exchange is being made.
There is a $1,000 minimum for all exchanges. If a new account is being
opened by exchange, the minimum investment requirements must be met. After the
exchange, the account from which the exchange is made must have a remaining
balance of at least $2,500 ($1,000 for an IRA account) in order to remain open.
The Fund reserves the right to terminate or materially modify the exchange
privilege upon 60 days advance notice to shareholders.
TELEPHONE TRANSACTIONS
By using telephone purchase, redemption and/or exchange options, you agree
to hold the Fund, Dodge & Cox (any of its affiliated mutual funds), Firstar
Trust Company, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liability
(including attorney fees) which may be incurred in connection with the exercise
of these privileges. Generally, all shareholders are automatically eligible to
use these options. However, you may elect to decline these options in the
Account Application Form or by writing Firstar Trust Company. (You may also
reinstate them at any time by writing Firstar Trust Company.) If the Fund does
not employ reasonable procedures to confirm that the instructions received from
any person with appropriate account information are genuine, the Fund may be
liable for losses due to unauthorized or fraudulent instructions. If you are
unable to reach the Fund by telephone because of technical difficulties, market
conditions, or a natural disaster, purchase, redemption and exchange requests
should be made by regular or express mail. If an account has multiple owners,
the Fund may rely on the instructions of any one account owner. You should
note that purchase and sales orders will not be canceled or modified once
received in good order.
Purchases and sales should be made for long-term investment purposes only.
Because excessive trading may be disadvantageous to the right to limit
purchase and sale transactions, including exchanges, when a pattern of
frequent trading appears evident.
TRANSFER OF SHARES
Changes in account registrations -- such as changing the name(s) on your
account, or transferring shares to another person or legal entity -- must be
submitted in writing and require a signature guarantee. Please call Firstar
Trust Company (1-800-621-3979) for full instructions.
10
<PAGE>
DODGE & COX
BALANCED FUND
PRICING OF SHARES
The share price (also called "net asset value per share" or "NAV") for the Fund
is calculated at 4:00 p.m. ET each day the New York Stock Exchange is open for
business. To calculate the NAV, the Fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding.
If the Fund, or its authorized agent or subagent receives your request in
good order by 4 p.m. ET, your transaction will be priced at that day's NAV. If
your request is received after 4 p.m., it will be priced at the next business
day's NAV.
The Fund cannot accept orders that request a particular day or price for
your transaction or any other special conditions.
The time at which transactions and shares are priced and the time until
which orders are accepted may be changed in case of an emergency or if the New
York Stock Exchange closes at a time other than 4 p.m. ET.
In determining total net asset value of the Fund, stocks are valued at
market, using as a price the last sale of the day at the close of the New York
Stock Exchange or, if no sale, then a representative price within the limits of
the bid and ask prices for the day. Bonds are priced at fair value based on
dealer-supplied valuations and a pricing service. Securities for which market
quotations are not readily available and all other assets are valued at fair
value as determined by or at the direction of the Board of Trustees.
SHAREHOLDER SERVICES
The Fund offers you the following services: (Please call or write the Fund
(1-800-621-3979) for applications and additional information.)
AUTOMATIC INVESTMENT PLAN: You may make regular monthly or quarterly
investments of $100 or more through automatic deductions from your bank
account.
SYSTEMATIC WITHDRAWAL PLAN: If you own $10,000 or more of the Fund's shares,
you may receive regular monthly or quarterly payments of $50 or more. Shares
will automatically be redeemed at NAV to make the withdrawal payments.
REINVESTMENT PLAN: You may direct that dividend and capital gains
distributions be reinvested in additional Fund shares.
INDIVIDUAL RETIREMENT ACCOUNT (IRA): If you have earned income or are
entitled to certain distributions from eligible retirement plans, you may make
or authorize contributions to your own Individual Retirement Accounts. The Fund
has an IRA Plan available for shareholders of the Fund.
PERFORMANCE INFORMATION
The Fund may include figures indicating its total return or yield in
advertisements or reports to shareholders or prospective investors. Quotations
of the Fund's average annual total rate of return will be expressed in terms of
the average annual compounded rate of return on a hypothetical investment in
the Fund over a specified period, will reflect the deduction of a proportional
share of Fund expenses (on an annual basis) and will assume that all dividends
and capital gains distributions are reinvested when paid. Total return
indicates the positive or negative rate of return that an investor would have
earned from reinvested dividends and distributions and changes in net asset
value per share during the period. Quotations of yield, as defined by the SEC
will be based on net investment income per share earned during a given
thirty-day period and will be computed by dividing this net investment income
by the net asset value per
11
<PAGE>
DODGE & COX
BALANCED FUND
share on the last day of the period and annualizing the results. Yield does not
directly reflect changes in net asset value per share which occurred during the
period.
Performance information for the Fund may be compared, in reports and
promotional literature to: (i) the Standard & Poor's 500 Stock Index, the Dow
Jones Industrial Average, the Lehman Brothers Aggregate Bond Index, or various
other unmanaged indices of the performance of various types of investments, so
that investors may compare the Fund's results with those of indices widely
regarded by investors as representative of the security markets in general, and
(ii) the performance of other mutual funds. Unmanaged indices may assume the
reinvestment of income distributions, but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for the Fund reflects only the performance of
hypothetical investments in the Fund during the particular time periods on
which the calculations are based. Such information should not be considered as
representative of the performance of the Fund in the future because, unlike
some bank deposits or other investments which pay a fixed yield for a stated
period of time for a fixed principal amount, the performance of the Fund will
vary based not only on the current market value of the securities held in its
portfolio, but also on changes in the Fund's expenses and in the asset size of
the Fund. Performance information should be considered in light of the Fund's
investment objectives and policies, the types and quality of the Fund's
portfolio investments, market conditions during the particular time period and
operating expenses. For a description of the methods used to determine the
Fund's total return and yield, see "Performance Information" in the Statement
of Additional Information. Further information about the performance of the
Fund is contained in the Fund's Annual Report which may be obtained without
charge from the Fund.
FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS. The Fund, organized as a California
common law trust in 1931, is registered as an open-end, diversified management
investment company under the Investment Company Act. The Fund's Board of
Trustees supervises Fund operations and performs duties required by applicable
state and Federal law. The Fund has one class of beneficial shares and each
share evidences an equal beneficial ownership in the Fund and there is no limit
to the number that may be issued. All shares have the same rights as to
redemption, dividends, and in liquidation. All shares issued are fully paid and
non-assessable, are transferable, and are redeemable at net asset value upon
demand of the shareholder. Shares have no preemptive or conversion rights. The
Fund is not required to hold annual meetings of shareholders.
INVESTMENT MANAGER. Dodge & Cox, a California corporation, has served as
investment manager to the Fund since inception. Dodge & Cox is one of the
oldest professional investment management firms in the United States, having
acted continuously as investment managers since 1930. The Fund's investments
are managed by Dodge & Cox's Investment Policy Committee, and no one person is
primarily responsible for making investment recommendations to the Committee.
Dodge & Cox is located at One Sansome Street, San Francisco, California
94104.
12
<PAGE>
DODGE & COX
BALANCED FUND
Dodge & Cox's activities are devoted to investment research and the
supervision of investment accounts for individuals and institutions. In
addition, Dodge & Cox is investment manager to other registered mutual funds,
the Dodge & Cox Stock Fund since 1965 and the Dodge & Cox Income Fund since
1989. The 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.
Dodge & Cox has adopted a Code of Ethics that restricts personal investing
practices by its employees. Among other provisions, the Code of Ethics requires
that employees with access to information about the purchase or sale of
securities in the Fund's portfolio obtain preclearance before executing certain
personal trades. The Code of Ethics is designed to ensure that the interests of
the Fund's shareholders come before the interests of the people who manage the
Fund.
PORTFOLIO TRANSACTION
Orders for the Fund's portfolio securities transactions are placed by Dodge
& Cox, which seeks to obtain the best available prices, taking into account the
costs and quality of executions. In the over-the-counter market, purchases and
sales are transacted directly with principal market-makers except in those
circumstances where it appears better prices and executions are available
elsewhere.
Subject to the above policy, when two or more brokers are in a position to
offer comparable prices and executions, preference may be given to brokers that
have provided investment research, statistical, and other related services for
the benefit of the Fund and/or of other funds and accounts over which Dodge &
Cox exercises investment and brokerage discretion.
EXPENSES
In addition to Dodge & Cox's fee, the Fund pays other direct expenses,
including custodian, transfer agent, legal, accounting and audit fees; costs of
preparing and printing prospectuses and reports sent to shareholders;
registration fees and expenses; proxy and annual meeting expenses (if any); and
trustees fees and expenses. In 1996 the ratio of total operating expenses to
average net assets of the Fund was 0.56%. Dodge & Cox furnishes personnel and
other facilities necessary for the operation of the Fund for which it receives
no additional compensation.
FEDERAL INCOME TAXES
The Fund intends to qualify each year as a regulated investment company
under the Internal Revenue Code. A regulated investment company that
distributes for the year all of its ordinary income and capital gains pays no
tax on its ordinary income or capital gains. A regulated investment company
that fails to distribute all of its ordinary income and capital gains must pay
tax on the undistributed amounts at a maximum rate of 35%. If the company does
not distribute at least 98% of its ordinary income and capital gains, it must
pay an additional 4% excise tax on the amount by which the 98% requirements
exceed actual distributions.
Distributions designated as long-term capital gains distributions are taxed
to a shareholder as though they were long-term capital gains realized by the
shareholder whether received in cash or shares of the Fund and regardless of
the period of time shares of the Fund have been held. All taxable
distributions, except for long-term capital gains distributions, are taxed to a
shareholder as ordinary income dividends whether received in cash or shares of
the Fund. State taxation of distributions to shareholders varies from state to
state. You should consult your own tax adviser about the federal, state and
local tax consequences of an investment in the Fund.
13
<PAGE>
DODGE & COX
BALANCED FUND
CUSTODIAN AND TRANSFER AGENT
Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201-0701,
(1-800-621-3979), acts as custodian of all cash and securities of the Fund and
receives and disburses cash and securities for the account of the Fund.
Firstar Trust Company also acts as transfer and dividend disbursing agent for
the Fund.
REPORTS TO SHAREHOLDERS
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio characteristics. To reduce Fund expenses, the Fund attempts to
identify related shareholders within a household and send only one copy of a
report. Call 1-800-621-3979 if you would like an additional free copy of the
Fund's financial report.
SHAREHOLDER INQUIRIES
For Fund literature and information, or if you have questions concerning your
account, please call Firstar Trust Company (1-800-621-3979).
14
<PAGE>
DODGE & COX BALANCED FUND
PART B
Statement of Additional Information
<PAGE>
DODGE & COX BALANCED FUND
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
(800) 621-3979
STATEMENT OF ADDITIONAL INFORMATION
Dated April ___, 1997
This Statement of Additional Information is not the Fund's Prospectus,
but provides additional information which should be read in conjunction with the
Fund's Prospectus dated April ___, 1997. The Fund's Prospectus and most recent
annual financial statements may be obtained from the Fund at no charge by
writing or telephoning the Fund at the address or telephone number shown above.
____________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives and Policies........... 1
Risk Factors................................. 4
Investment Restrictions...................... 7
Purchase, Redemption, and Pricing of Shares.. 8
Performance Information...................... 8
Officers and Trustees........................ 9
Investment Manager........................... 11
Portfolio Transactions....................... 11
Additional Tax Considerations................ 13
Independent Accountants...................... 14
Financial Statements......................... 14
____________________________
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The objectives of the Fund are to provide shareholders with regular income,
conservation of principal and an opportunity for long-term growth of principal
and income. However, it should be recognized that the market risks inherent in
investment cannot be avoided nor is there any assurance that the investment
objectives of the Fund will be achieved. Reasonable appreciation in favorable
periods and conservation of principal in adverse times are objectives that
require flexibility in managing the assets of the Fund under constantly changing
investment conditions. There can be no assurance that the Fund will achieve its
investment objectives.
Therefore, the proportions of the Fund's portfolio invested in common and
preferred stocks and bonds are revised by the Fund's manager, Dodge & Cox, when
considered advisable in light of Dodge & Cox's appraisal of business and
investment prospects. Under normal market conditions, the Fund seeks to
maintain no more than approximately 75% of its total assets in common stocks and
that portion of the value of convertible securities attributable to the
conversion right.
Bonds are held for their relative stability of principal and income as well
as for a reserve which can be used to take advantage of investment
opportunities. The Fund may invest up to 20% of its total assets in U.S.
dollar-denominated securities of foreign issuers traded in the U.S. (such as
ADRs). Moderate reserves in cash or short-term fixed income securities may be
held from time to time as Dodge & Cox may deem advisable.
In an attempt to reduce unforeseen risks in single securities, the Fund
seeks to achieve adequate investment diversification. The Fund does not
concentrate its investments in any particular industry or group of industries
but seeks instead to diversify investments among different industries as well as
among individual companies. The amount invested in any particular industry will
vary from time to time in accordance with the judgment of Dodge & Cox.
Although there is no restriction on the number of changes in security
holdings, purchases are made with a view to long-term holding and not for short-
term trading purposes. During rapidly changing economic and political
conditions, there may necessarily be more portfolio changes than in a more
stable period.
It is the policy to invest in investment-grade bonds rated in the top four
rating categories by either Moody's Investors Service ("Moody's") (Aaa, Aa, A,
Baa) or Standard & Poor's Ratings Group ("S&P") (AAA, AA, A, BBB). Securities
rated Baa or BBB may have speculative characteristics. Securities that are
downgraded below Baa or BBB subsequent to purchase may continue to be held by
the Fund, if Dodge & Cox believes it advantageous to do so. Unrated bonds may
be purchased if such securities are, in the opinion of Dodge & Cox, of
equivalent quality to bonds rated at least A by Moody's and S&P.
The Fund's policies as set forth above may be changed without shareholder
approval; however, these policies will not be changed without notice to
shareholders. The following policies may not be changed without shareholder
approval (as defined below):
The Fund will maintain a substantial position in common stocks which in the
view of Dodge & Cox have a favorable outlook for long-term growth of
principal and income. Prospective earnings and dividends are major
considerations in these stock selections. The level of security prices and
the trend of business activity are given weight in determining the total
investment position of the Fund in equities at any time. Individual
securities are selected with an emphasis on financial strength and a sound
economic background.
Investments made in any one stock or bond issue, with the exception of U.S.
government securities, are seldom in excess of 2% of the total assets of the
Fund.
It is the general practice of the Fund to invest in securities with ready
markets, mainly issues listed on national securities exchanges. The Fund has no
present intention of making investments in securities which are restricted as to
resale under Federal securities laws. The Fund does not write put and call
options and has no present intention of writing such options.
<PAGE>
TYPES OF PORTFOLIO SECURITIES
In seeking to meet its investment objectives, the Fund will invest in
securities or instruments whose investment characteristics are consistent with
the Fund's investment program. The following further describes the principal
types of portfolio securities and investment management practices of the Fund.
COMMON AND PREFERRED STOCKS. Stocks represent shares of ownership in a company.
Generally, preferred stock has a specified dividend and ranks after bonds and
before common stocks in its claim on income for dividend payments and on assets
should the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits may be
paid out in dividends or reinvested in the company to help it grow. Increases
and decreases in earnings are usually reflected in a company's stock price, so
common stocks generally have the greatest appreciation and depreciation
potential of all corporate securities.
CONVERTIBLE SECURITIES AND WARRANTS. The Fund may invest in debt or preferred
equity securities convertible into or exchangeable for equity securities.
Traditionally, convertible securities have paid dividends or interest at rates
higher than common stock dividend rates but lower than nonconvertible
securities. They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree.
In recent years, convertibles have been developed which combine higher or lower
current income with options and other features. Warrants are options to buy a
stated number of shares of common stock at a specified price anytime during the
life of the warrants (generally two or more years).
FOREIGN SECURITIES. The Fund may invest in U.S. dollar denominated securities
of foreign issuers traded in the U.S. (such as ADRs).
U.S. GOVERNMENT OBLIGATIONS. A portion of the Fund may be invested in
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Some of the obligations purchased by the Fund are backed by
the full faith and credit of the U.S. government and are guaranteed as to both
principal and interest by the U.S. Treasury. Examples of these include direct
obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and bonds,
or indirect obligations of the U.S. Treasury, such as obligations of the
Government National Mortgage Association, the Maritime Administration, the
Farmers Home Administration, the Veterans Administration, the Federal Housing
Administration and the Export-Import Bank.
While the obligations of many of the agencies and instrumentalities of the U.S.
government are not direct obligations of the U.S. Treasury, they are generally
backed indirectly by the U.S. government. Some of the agencies are indirectly
backed by their right to borrow from the U.S. government, such as the Federal
Financing Bank, the Federal Home Loan Bank and the U.S. Postal Service. Others
are supported solely by the credit of the agency or instrumentality itself, but
are given additional support due to the U.S. Treasury's authority to purchase
their outstanding debt obligations. These agencies include the Federal Farm
Credit Banks, the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, and the Student Loan Marketing Association. No assurance
can be given that the U.S. government would provide financial support to U.S.
government established or sponsored agencies. Furthermore, with respect to the
U.S. government securities purchased by the Fund, guarantees as to the timely
payment of principal and interest do not extend to the value or yield of these
securities nor do they extend to the value of the Fund's shares. Dodge & Cox
will invest the Fund's assets in these securities if it believes they offer an
expected return commensurate with the risks assumed.
MORTGAGE PASS-THROUGH SECURITIES. In addition, the Fund may invest a portion of
its assets in mortgage pass-through securities which are guaranteed by an agency
of the U.S. government or are issued by a private entity. These securities
represent ownership in "pools" of mortgage loans and are called "pass-throughs"
because principal and interest payments are passed through to security holders
monthly. The security holder may also receive unscheduled principal payments
representing prepayments of the underlying mortgage loans. When the Fund
reinvests the principal and interest payments, it may receive a rate of interest
which is either higher or lower than the rate on the existing mortgage.
During periods of declining interest rates there is increased likelihood that
mortgage securities may be prepaid. Such prepayment would most likely be
reinvested at lower rates. On the other hand, if the pass-through securities
had been purchased at a discount, then such prepayments of principal would
benefit the Fund's portfolio.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized Mortgage Obligations
("CMOs") are private entity or U.S. government agency-issued multi-class bonds
that are collateralized by U.S. agency-guaranteed mortgage pass-through
securities. A CMO is created when the issuer purchases a collection of mortgage
pass-through securities
2
<PAGE>
("the collateral") and places these securities in a trust, which is administered
by an independent trustee. Next, the issuer typically issues several classes,
or "tranches" of bonds, the debt service of which is provided by the principal
and interest payments from the mortgage pass-through securities in the trust.
Each of these tranches is valued and traded separately based on its distinct
cash flow characteristics.
Although the mortgage pass-through collateral typically has monthly payments of
principal and interest, CMO bonds will generally have semiannual or quarterly
payments of principal and interest. Payments received from the collateral are
reinvested in short-term debt securities by the trustee between payment dates on
the CMO. On the CMO payment dates, the principal and interest payments received
from the collateral plus reinvestment income, are applied first to pay interest
on the bonds and then to repay principal. Generally, the bonds are retired
sequentially; the first payments of principal are applied to retire the first
tranche, while all other tranches receive interest only. Only after the first
tranche is retired do principal payments commence on the second tranche. The
process continues in this sequence until all tranches are retired.
At issuance, each CMO tranche has a stated final maturity date. The stated
final maturity date is the date by which the bonds would be completely retired
assuming standard amortization of principal but no prepayments of principal on
the underlying collateral. However, since it is likely that the collateral will
have principal prepayments, the CMO bonds are actually valued on the basis of an
assumed prepayment rate. The assumed prepayment rate is used in the calculation
of the securities' weighted-average life, a measure of the securities' cash flow
characteristics. Dodge & Cox will purchase the tranche with the weighted-
average life and cash flow characteristics that it believes will contribute to
achieving the objectives of the Fund.
All CMOs purchased by the Fund will have a AAA rating by either S&P or
Moody's. To qualify for this rating, a CMO is structured so that even under the
most conservative prepayment and reinvestment assumptions, the principal and
interest payments from the collateral are expected to meet or exceed the cash
flow obligations of all the tranches of the CMO. However, there are risks
associated with CMOs, which relate to the risks of the underlying mortgage pass-
through securities. In a falling interest rate environment, the mortgage
securities may be prepaid faster than the assumed rate. In this scenario, the
prepayments of principal will generally be reinvested at a rate which is lower
than the rate that the security holder is currently receiving. Conversely, in a
rising interest rate environment, the mortgage collateral may be prepaid at a
rate which is slower than the assumed rate. In this case, the cash flow of the
bond decreases. A reduced prepayment rate effectively lengthens the time period
the security will be outstanding and may adversely affect the value of the
security.
STRUCTURED INVESTMENTS. Included among the issuers of debt securities in which
the Fund may invest are entities organized and operated solely for the purpose
of restructuring the investment characteristics of various securities. These
entities are typically organized by investment banking firms which receive fees
in connection with establishing each entity and arranging for the placement of
its securities. This type of restructuring involves the deposit with or
purchases by an entity, such as a corporation or trust, of specified instruments
and the issuance by that entity of one or more classes of securities (structured
investments) backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured investments to create securities with
different investment characteristics such as varying maturities, payment
priorities or interest rate provisions; the extent of the payments made with
respect to structured investments is dependent on the extent of the cash flow on
the underlying instruments.
The Fund is permitted to invest in a class of structured investments that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured investments typically have higher yields and present
greater risks than unsubordinated structured investments. Although the Fund's
purchase of subordinated structured investments would have a similar economic
effect to that of borrowing against the underlying securities, the purchase will
not be deemed to be leverage for purposes of the limitations placed on the
extent of the Fund's assets that may be used for borrowing activities.
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the Investment Company Act. As a result, the Fund's
investment in these structured investments may be limited by the restrictions
contained in the Investment Company Act.
WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. The Fund may purchase securities on
a when-issued or a delayed-delivery basis, that is, for payment and delivery on
a date later than normal settlement, but generally within 30 days.
The purchase price and yield on these securities are generally set at the time
of purchase. On the date that a security is purchased on a when-issued basis,
the Fund reserves liquid assets with a value at least as great as the purchase
price of the security, in a segregated account at the custodian bank, as long as
the obligation to purchase continues. The value of the delayed-delivery
security is reflected in the Fund's net asset value as of the purchase
3
<PAGE>
date, however, no income accrues to the Fund from these securities prior to
their delivery to the Fund. The Fund makes such purchases for long-term
investment reasons, but may actually sell the securities prior to settlement
date if Dodge & Cox deems it advisable in seeking to achieve the objectives of
the Fund. The purchase of these types of securities may increase the Fund's
overall investment exposure and involves a risk of loss if the value of the
securities declines prior to the settlement date. Unsettled securities
purchased on a when-issued or delayed-delivery basis will not exceed 5% of the
Fund's total assets at any one time.
CASH POSITION. The Fund will hold a certain portion of its assets in U.S.
dollar denominated money market securities, including repurchase agreements,
commercial paper, and bank obligations in the two highest rating categories
maturing in one year or less. For temporary, defensive purposes, the fund may
invest without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new investments
and serves as a short-term defense during periods of unusual market volatility.
Bank Obligations. Certificates of deposit, bankers' acceptances, and other
short-term debt obligations. Certificates of deposit are short-term obligations
of commercial banks. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower, usually in connection with international
commercial transactions. Certificates of deposit may have fixed or variable
rates. The Fund may invest in U.S. banks, foreign branches of U.S. banks, U.S.
branches of foreign banks, and foreign branches of foreign banks.
Short-Term Corporate Debt Securities. Outstanding nonconvertible corporate
debt securities (such as bonds and debentures) which have one year or less
remaining to maturity. Corporate notes may have fixed, variable, or floating
rates.
Commercial Paper. Short-term promissory notes issued by corporations primarily
to finance short-term credit needs. Certain notes may have floating or variable
rates.
Repurchase Agreements. The Fund may enter into a repurchase agreement through
which an investor (such as the Fund) purchases a security (known as the
"underlying security") from a well-established securities dealer or bank that is
a member of the Federal Reserve System. Any such dealer or bank will be on
Dodge & Cox's approved list and have a credit rating with respect to its short-
term debt of at least A1 by S&P, P1 by Moody's, or the equivalent rating by
Dodge & Cox. At that time, the bank or securities dealer agrees to repurchase
the underlying security at the same price, plus specified interest. Repurchase
agreements are generally for a short period of time, often less than a week.
Repurchase agreements which do not provide for payment within seven days will be
treated as illiquid securities. The Fund will only enter into repurchase
agreements where (i) the underlying securities are issued by the U.S.
government, its agencies and instrumentalities, (ii) the market value of the
underlying security, including interest accrued, will be at all times equal to
or exceed the value of the repurchase agreement, and (iii) payment for the
underlying security is made only upon physical delivery or evidence of book-
entry transfer to the account of the custodian or a bank acting as agent. In
the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
security and losses, including: (a) possible decline in the value of the
underlying security during the period which the Fund seeks to enforce its rights
thereto; (b) possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.
BORROWING MONEY. The Fund can borrow money from banks as a temporary measure
for emergency purposes or to facilitate redemption requests. Such borrowing may
be collateralized with fund assets, subject to restrictions.
RISK FACTORS
GENERAL
Because of its investment policy, the Fund may not be suitable or appropriate
for all investors. The Fund is not a money market fund and is not an
appropriate investment for those whose primary objective is principal stability.
The Fund will normally have a substantial portion of its assets in equity
securities (e.g., common stocks). This portion of the Fund's assets will be
subject to all of the risks of investing in the stock market. There is risk in
all investment. The value of the portfolio securities of the Fund will
fluctuate based upon market conditions. Although the Fund seeks to reduce risk
by investing in a diversified portfolio, such diversification does not eliminate
all risk. There can be no assurance that the Fund will achieve its investment
objectives.
4
<PAGE>
DEBT OBLIGATIONS
Although a substantial portion of the Fund's assets are invested in common
stocks, the Fund may invest in debt securities which hold the prospect of
contributing to the achievement of the Fund's objectives. Yields on short,
intermediate, and long-term securities are dependent on a variety of factors,
including the general conditions of the money and bond markets, the size of a
particular offering, the maturity of the obligation, and the credit quality and
rating of the issue. Debt securities with longer maturities tend to have higher
yields and are generally subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities and lower yields. The
market prices of debt securities usually vary, depending upon available yields.
An increase in interest rates will generally reduce the value of portfolio
investments, and a decline in interest rates will generally increase the value
of portfolio investments. The ability of the Fund to achieve its investment
objectives is also dependent on the continuing ability of the issuers of the
debt securities in which the Fund invests to meet their obligations for the
payment of interest and principal when due. As discussed below, the Fund's
investment program permits it to hold investment grade securities that have been
downgraded. Since investors generally perceive that there are greater risks
associated with investment in lower quality securities, the yields from such
securities normally exceed those obtainable from higher quality securities.
However, the principal value of lower-rated securities generally will fluctuate
more widely than higher quality securities. Lower quality investments entail a
higher risk of default--that is, the nonpayment of interest and principal by the
issuer--than higher quality investments. Such securities are also subject to
special risks, discussed below. Although the Fund seeks to reduce risk by
portfolio diversification, credit analysis, and attention to trends in the
economy, industries and financial markets, such efforts will not eliminate all
risk.
After purchase by the Fund, a debt security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require a sale of such security by the Fund. However, Dodge
& Cox will consider such event in its determination of whether the Fund should
continue to hold the security. To the extent that the ratings given by Moody's
or S&P may change as a result of changes in such organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in the
Prospectus.
SPECIAL RISKS OF HIGH YIELD INVESTING
As described above, under limited circumstances the Fund may hold low
quality bonds commonly referred to as "junk bonds". Junk bonds are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Because investment in low and lower-medium
quality bonds involves greater investment risk, to the extent the Fund holds
such bonds, achievement of its investment objective will be more dependent on
Dodge & Cox's credit analysis than would be the case if the Fund was investing
in higher quality bonds. High yield bonds may be more susceptible to real or
perceived adverse economic conditions than investment grade bonds. A projection
of an economic downturn, or higher interest rates, for example, could cause a
decline in high yield bond prices because the advent of such events could lessen
the ability of highly leveraged issuers to make principal and interest payments
on their debt securities. In addition, the secondary trading market for high
yield bonds may be less liquid than the market for higher grade bonds, which can
adversely affect the ability of the Fund to dispose of its portfolio securities.
Bonds for which there is only a "thin" market can be more difficult to value
inasmuch as objective pricing data may be less available and judgment may play a
greater role in the valuation process.
FOREIGN SECURITIES
While the Fund emphasizes investments in companies domiciled in the United
States, it may invest in U.S. dollar-denominated securities of foreign issuers.
RISK FACTORS OF FOREIGN INVESTING
There are special risks in foreign investing. Many of the risks are more
pronounced for investments in developing or emerging countries, such as many of
the countries of Southeast Asia, Latin America, Eastern Europe, and the Middle
East. The Fund has no present intention of investing in developing or emerging
countries.
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respect as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments position. The
internal politics of certain foreign countries are not as stable as in the
United States. In addition, significant external political risks currently
affect some foreign countries.
5
<PAGE>
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
effect on market prices of securities and payment of dividends. The economies
of many foreign countries are heavily dependent upon international trade and are
accordingly affected by protective trade barriers and economic conditions of
their trading partners. The enactment by these trading partners of
protectionist trade legislation could have a significant adverse effect upon the
securities markets of such countries.
CURRENCY FLUCTUATIONS. Although the Fund will invest in U.S. dollar-
denominated foreign securities, the underlying securities will be denominated in
various currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Fund's assets. Such changes will also affect the Fund's income.
Generally, when a given currency appreciates against the dollar (the dollar
weakens), the value of securities denominated in that currency will rise. When
a given currency depreciates against the dollar (the dollar strengthens), the
value of securities denominated in that currency would be expected to decline.
INVESTMENT AND REPATRIATION RESTRICTIONS. Foreign investment in the
securities markets of certain foreign countries is restricted or controlled in
varying degrees. These restrictions may limit at times and preclude investment
in certain of such countries and may increase the cost and expenses of the Fund.
Investments by foreign investors are subject to a variety of restrictions.
These restrictions may take the form of prior governmental approval, limits on
the amount or type of securities held by foreigners, and limits on the types of
companies in which foreigners may invest. Additional or different restrictions
may be imposed at any time by these or other countries in which the Fund
invests. In addition, the repatriation of both investment income and capital
from some foreign countries is restricted and controlled under certain
regulations, including in some cases the need to obtain certain government
consents.
MARKET CHARACTERISTICS. Foreign stock markets are generally not as developed
or efficient as, and may be more volatile than, those in the United States.
While growing in volume, they usually have substantially less volume than U.S.
markets and the Fund's portfolio securities may be less liquid and subject to
more rapid and erratic price movements than securities of comparable U.S.
companies. Equity securities may trade at price/earnings multiples higher than
comparable United States securities and such levels may not be sustainable.
Fixed commissions on foreign stock exchanges are generally higher than
negotiated commissions on United States exchanges. There is generally less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the United States. Moreover, settlement practices for
transactions in foreign markets may differ from those in United States markets.
Such differences may include delays beyond periods customary in the United
States and practices, such as delivery of securities prior to receipt of
payment, which increase the likelihood of a "failed settlement." Failed
settlements can result in losses to the Fund.
INFORMATION AND SUPERVISION. There is generally less publicly available
information about foreign companies comparable to reports and ratings that are
published about companies in the United States. Foreign companies are also
generally not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to United
States companies. It also may be more difficult to keep currently informed of
corporate actions which affect the prices of portfolio securities.
TAXES. The dividends and interest payable on certain of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Fund's shareholders.
OTHER. With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or diplomatic developments which
could affect investments by U.S. persons in those countries.
6
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions. These restrictions, as well
as the Fund's investment objectives, cannot be changed without the approval of
the holders of a majority of the Fund's outstanding shares. The Investment
Company Act defines a majority as the lesser of (1) 67% or more of the voting
shares present at a meeting if the holders of more than 50% of the outstanding
voting shares are present or represented by proxy, or (2) more than 50% of the
outstanding voting shares of the Fund. The Fund may not:
1. Invest more than 5% of the value of its total assets in the securities of
any one issuer except the United States government, nor acquire more than
10% of the voting securities of any one issuer.
2. Invest in other investment companies except in the open market at customary
brokers' commissions.
3. Invest in any company for the purpose of exercising control or management.
4. Issue senior securities.
5. Borrow money except as a temporary measure for extraordinary or emergency
purposes and not for the purchase of investment securities and then only
from banks. The amount borrowed shall not exceed 10% of the Fund's total
assets at cost or 5% of the value of total assets, whichever is less,
provided that such borrowings shall have an asset coverage of 300%.
6. Underwrite securities of other issuers.
7. Purchase or sell commodities, commodity contracts or real estate (although
the Fund may invest in marketable securities secured by real estate or
interests therein or issued by companies or investment trusts which invest
in real estate or interests therein).
8. Make loans to other persons except this shall not exclude the purchase of
publicly issued debt securities of a type purchased by institutional
investors.
9. Purchase securities on margin or sell short.
10. Concentrate investments of more than 25% of the value of its total assets
in any one industry.
11. Purchase any security if as a result the Fund would then have more than 15%
of its total assets invested in securities which are illiquid, including
repurchase agreements not maturing in seven days or less and securities
restricted as to disposition under federal securities laws.
12. 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.
13. Purchase interests in oil, gas and mineral leases or other mineral
exploration or development programs, although the Fund may invest in stocks
or debt instruments of companies which invest in or sponsor such programs.
14. 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.
15. Purchase securities of any issuer if, to the knowledge of the Fund, any
officer or trustee or director of the Fund or Dodge & Cox directors in the
aggregate own more than 5% of the outstanding securities of such issuer.
Whenever any investment policy or investment restriction states a maximum
percentage of the Fund's assets which may be invested in any security or other
instrument, it is intended that such maximum percentage limitation be determined
immediately after and as a result of the Fund's acquisition of such security or
instrument. Industries are determined by reference to the classifications of
industries set forth in the Fund's semi-annual and annual reports.
7
<PAGE>
PURCHASE, REDEMPTION, AND PRICING OF SHARES
The procedures for purchasing and redeeming shares of the Fund are described
in the Fund's Prospectus, which is incorporated herein by reference.
NET ASSET VALUE PER SHARE. The purchase and redemption price of the Fund's
shares is equal to the Fund's net asset value per share or share price. The
Fund determines its net asset value per share by subtracting the Fund's total
liabilities (including accrued expenses and dividends payable) from its total
assets (the market value of the securities the Fund holds plus cash and other
assets, including income accrued but not yet received) and dividing the result
by the total number of shares outstanding. The net asset value per share of the
Fund is normally calculated as of the close of trading on the New York Stock
Exchange ("NYSE") every day the NYSE is open for trading. The NYSE is closed on
the following days: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Determination of net asset value (and the offering, sale redemption and
repurchase of shares) for the Fund may be suspended at times (a) during which
the NYSE is closed, other than customary weekend and holiday closings, (b)
during which trading on the NYSE is restricted, (c) during which an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (d) during which a
governmental body having jurisdiction over the Fund may by order permit such a
suspension for the protection of the Fund's shareholders; provided that
applicable rules and regulations of the Securities and Exchange Commission (or
any succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b), (c), or (d) exist.
In determining total net asset value of the Fund, stocks are valued at market,
using as a price the last sale of the day at the close of the New York Stock
Exchange or, if no sale, then a representative price within the limits of the
bid and ask prices for the day. A security which is listed or traded on more
than one exchange is valued at the quotation on the exchange determined to be
the primary market for such security. Fixed income securities are priced at
fair value based on dealer-supplied valuations and a pricing service.
Securities for which market quotations are not readily available and all other
assets are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees.
PERFORMANCE INFORMATION
The Fund may include figures indicating its total return or yield in
advertisements or reports to shareholders or prospective investors. Quotations
of the Fund's average annual total rate of return will be expressed in terms of
the average annual compounded rate of return on a hypothetical investment in the
Fund over periods of one, five and ten years, will reflect the deduction of a
proportional share of Fund expenses (on an annual basis), will assume that all
dividends and capital gains distributions are reinvested when paid, and will be
calculated pursuant to the following formula:
P (1 + T)n = ERV
where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years,
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
The average annual total return of the Fund for the one, five and ten-year
periods ended December 31, 1996 was 14.75%, 13.95%, and 13.16%, respectively.
Total return indicates the positive or negative rate of return that an investor
would have earned from reinvested dividends and distributions and changes in net
asset value per share during the period. Quotations of yield, as defined by the
Securities and Exchange Commission, will be based on net investment income per
share earned during a given thirty-day period and will be computed by dividing
this net investment income by the net asset value per share on the last day of
the period and annualizing the results according to the following formula:
8
<PAGE>
YIELD = 2[(a-b+1)6 -1]
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements or
waivers),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
The Fund's current yield for the thirty days ended December 31, 1996 was
3.56%. Yield does not directly reflect changes in net asset value per share
which occurred during the period.
Performance information for the Fund may be compared in reports and
promotional literature to: (i) the Standard & Poor's 500 Stock Index, the Dow
Jones Industrial Average, the Lehman Brothers Aggregate Bond Index, or various
other unmanaged indices of the performance of various types of investments, so
that investors may compare the Fund's results with those of indices widely
regarded by investors as representative of the security markets in general, and
(ii) the performance of other mutual funds. Unmanaged indices may assume the
reinvestment of income distributions, but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for the Fund reflects only the performance of
hypothetical investments in the Fund during the particular time periods on which
the calculations are based. Such information should not be considered as
representative of the performance of the Fund in the future because, unlike some
bank deposits or other investments which pay a fixed yield for a stated period
of time for a fixed principal amount, the performance of the Fund will vary
based not only on the current market value of the securities held in its
portfolio, but also on changes in the Fund's expenses and in the asset size of
the Fund. Performance information should be considered in light of the Fund's
investment objectives and policies, the types and quality of the Fund's
portfolio investments, market conditions during the particular time period and
operating expenses. Further information about the performance of the Fund is
contained in the Fund's Annual Report which may be obtained without charge from
the Fund. From time to time, the Fund and Dodge & Cox may also refer to the
following information:
1. Portfolio information, including median market capitalization, price to
earnings ratio, price to book value, average bond quality, average bond
maturity, and effective bond duration.
2. The asset allocation and sector weightings of the Fund's portfolio and the
Fund's top ten holdings.
3. A description of the Dodge & Cox investment management philosophy and
approach.
OFFICERS AND TRUSTEES
<TABLE>
<CAPTION>
Total 1996
Aggregate 1996 Compensation
Age Position(s) Principal Occupation Compensation from Fund and
Name and Address Age with Fund During Past 5 Years from Fund Fund Complex **
- ---------------- --- --------- -------------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Harry R. Hagey* 55 Chairman and Chairman and Chief Executive $0 $0
Trustee Officer of Dodge & Cox;
Assistant
Secretary-Treasurer and
Director, Dodge & Cox Stock
Fund
A. Horton Shapiro* 57 Vice-Chairman and Senior Vice-President of 0 0
Trustee Dodge & Cox; President and
Director, Dodge & Cox Income
Fund
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Total 1996
Aggregate 1996 Compensation
Age Position(s) Principal Occupation Compensation from Fund and
Name and Address Age with Fund During Past 5 Years from Fund Fund Complex **
- ---------------- --- --------- -------------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Kenneth E. Olivier* 44 Assistant Senior Vice-President of Dodge $ 0 $ 0
Secretary and & Cox
Trustee
Max Gutierrez, Jr. 66 Trustee Partner in Brobeck, Phleger & 1,500 4,500
One Market Plaza Harrison, Attorneys; Director,
San Francisco, Dodge & Cox Income Fund; Director,
California Dodge & Cox Stock Fund
Frank H. Roberts 77 Trustee Retired Partner in Pillsbury, 3,000 9,000
114 Sansome Street Madison & Sutro, Attorneys;
San Francisco, Director, Dodge & Cox Income Fund;
California Director, Dodge & Cox Stock Fund
John B. Taylor 50 Trustee Professor of Economics and 2,500 7,500
Department of Director of the Center for
Economics Economic Policy Research, Stanford
Stanford University University; Director, Dodge & Cox
Stanford, California Income Fund; Director, Dodge & Cox
Stock Fund
Will C. Wood 57 Trustee Principal, Kentwood Associates, 3,000 9,000
1550 El Camino Real Financial Advisers; prior to 1994,
Menlo Park, California Managing Director, IDI Associates,
Financial Advisers; Director,
Dodge & Cox Income Fund; Director,
Dodge & Cox Stock Fund
W. Timothy Ryan* 59 Secretary Senior Vice-President and 0 0
Secretary-Treasurer of Dodge &
Cox; Secretary-Treasurer and
Director, Dodge & Cox Income Fund;
Secretary-Treasurer and Director,
Dodge & Cox Stock Fund
Thomas M. Mistele 43 Assistant General Counsel of Dodge & Cox; 0 0
Secretary formerly Senior Vice President of
Templeton Global Investors, Inc.
and Secretary of the Templeton
Mutual Funds
E. Morris Cox* 94 Honorary Honorary Chairman of the Board of 0 0
Trustee Dodge & Cox
</TABLE>
10
<PAGE>
* Each has been an employee of Dodge & Cox, 35th Floor, One Sansome Street,
San Francisco, California for over ten years in an executive position and is
an "interested person" of the Fund as defined in the Investment Company Act.
E. Morris Cox retired from Dodge & Cox as of January 1, 1984. He serves as
an honorary trustee of the Fund but is not responsible for and does not
participate in the management or administration of the Fund.
** Total 1996 Compensation from "Fund and Fund Complex" consists of
compensation and fees paid to directors and trustees by all Dodge & Cox
Funds: Dodge & Cox Balanced Fund, Dodge & Cox Stock Fund and Dodge & Cox
Income Fund.
Trustees and officers of the Fund affiliated with Dodge & Cox hold a
controlling interest in 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, and has no bonus,
profit-sharing, pension or retirement plan. On March ___, 1997 the officers and
trustees of the Fund and members of their families and relatives owned less than
0.1% of the outstanding shares of the Fund.
On March ___, 1997, Charles Schwab & Co., 101 Montgomery Street, San
Francisco, California 94101 owned of record _______ shares (or ___% of the
outstanding shares of the Fund); and Monsanto Co. Savings Plan, 800 North
Lindbergh Blvd., St. Louis, Missouri 63167 owned beneficially and of record
_______ shares (or ___% of the outstanding shares of the Fund). The Fund knows
of no other person who owns beneficially or of record more than 5% of the
outstanding shares of the Fund.
INVESTMENT MANAGER
Since 1931, Dodge & Cox, One Sansome Street, San Francisco, California 94104,
a corporation, has been employed by the Fund as manager and investment adviser,
subject to the direction of the Board of Trustees. Dodge & Cox is one of the
oldest professional investment management firms in the United States, having
acted continuously as investment managers since 1930. The Fund's investments
are managed by Dodge & Cox's Investment Policy Committee, and no one person is
primarily responsible for making investment recommendations to the Committee.
The research work of the firm is organized for comprehensive and continuous
appraisal of the economy and of various industries and companies. Supplemental
research facilities are used to obtain additional coverage of business and
financial developments affecting comparative security values.
Dodge & Cox is not engaged in the brokerage business nor in the business of
dealing in or selling securities. Its activities are devoted to investment
research and the supervision of investment accounts for individuals, trustees,
corporations, pension and profit-sharing funds, and charitable institutions. In
addition, Dodge & Cox has managed Dodge & Cox Stock Fund since 1965 and Dodge &
Cox Income Fund since 1989. The investment advisory contract between the Fund
and Dodge & Cox was approved by a majority of the shares of the Fund and
provides for a management fee which is accrued daily and payable monthly to
Dodge & Cox at an annual rate of 0.50% of average daily net assets. The Manager
was paid a fee of $13,196,680 for the year 1996, $6,321,900 for the year 1995,
and $3,188,284 for the year 1994. The contract may be terminated at any time
without penalty upon 60 days written notice by action of the trustees,
shareholders or by Dodge & Cox. The contract will terminate automatically
should there be an assignment thereof. In addition to Dodge & Cox's fee, the
Fund pays other direct expenses, including transfer agent, custodial,
accounting, legal, and audit fees; costs of preparing and printing prospectuses
and reports sent to shareholders; registration fees and expenses; proxy and
annual meeting expenses (if any); and Trustee fees and expenses. In 1996, the
ratio of total operating expenses to average net assets of the Fund was 0.56%.
Dodge & Cox furnishes personnel and other facilities necessary for the operation
of the Fund for which it receives no additional compensation. Dodge & Cox
supervises the operations of the Fund and directs the investment and
reinvestment of its assets and furnishes all executive personnel and office
space required.
PORTFOLIO TRANSACTIONS
The Investment Management Agreement provides that Dodge & Cox is responsible
for selecting members of securities exchanges, brokers and dealers (such
members, brokers and dealers being hereinafter
11
<PAGE>
referred to as "brokers") for the execution of the Fund's portfolio transactions
and, when applicable, the negotiation of commissions. All decisions and
placements are made in accordance with the following principles:
1. Purchase and sale orders will usually be placed with brokers who are selected
by Dodge & Cox as able to achieve "best execution" of such orders. "Best
execution" means prompt and reliable execution at the most favorable
securities price, taking into account the other provisions hereinafter set
forth. The determination of what may constitute best execution and price in
the execution of a securities transaction by a broker involves a number of
considerations, including without limitation, the overall direct net economic
result to the Fund (involving both price paid or received and any commissions
and other costs paid), the efficiency with which the transaction is effected,
the ability to effect the transaction at all where a large block is involved,
availability of the broker to stand ready to execute possibly difficult
transactions in the future, and the financial strength and stability of the
broker. Such considerations are judgmental and are weighed by Dodge & Cox in
determining the overall reasonableness of brokerage commissions.
2. In selecting brokers for portfolio transactions, Dodge & Cox takes into
account its past experience as to brokers qualified to achieve best
execution, including brokers who specialize in any foreign securities held by
the Fund.
3. Dodge & Cox is authorized to allocate brokerage business to brokers who have
provided brokerage and research services, as such services are defined in
Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act"), for
the Fund and/or other accounts, if any, for which Dodge & Cox exercises
investment discretion (as defined in Section 3(a)(35) of the 1934 Act) and,
as to transactions as to which fixed minimum commission rates are not
applicable. Such allocation may cause the Fund to pay a commission for
effecting a securities transaction in excess of the amount another broker
would have charged for effecting that transaction, if Dodge & Cox determines
in good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker, viewed
in terms of either that particular transaction or with Dodge & Cox's overall
responsibilities with respect to the Fund and the other accounts, if any, as
to which it exercises investment discretion. In reaching such determination,
Dodge & Cox is not required to place or attempt to place a specific dollar
value on the research or execution services of a broker or on the portion of
any commission reflecting brokerage or research services. In demonstrating
that such determinations were made in good faith, Dodge & Cox will be
prepared to show that all commissions were allocated and paid for purposes
contemplated by the Fund's brokerage policy; that commissions were paid only
for products or services which provide lawful and appropriate assistance to
Dodge & Cox in the performance of its investment decision-making
responsibilities; and that the commissions paid were within a reasonable
range. The determination that commissions were within a reasonable range will
be based on any available information as to the level of commissions known to
be charged by other brokers on comparable transactions, but there will also
be taken into account the Fund's policies that (i) obtaining a low commission
is deemed secondary to obtaining a favorable securities price, since it is
recognized that usually it is more beneficial to the Fund to obtain a
favorable price than to pay the lowest commission; and (ii) the quality,
comprehensiveness and frequency of research studies which are provided for
Dodge & Cox are useful to Dodge & Cox in performing its advisory services
under its Investment Management Agreement with the Fund. Research services
provided by brokers to Dodge & Cox are considered to be in addition to, and
not in lieu of, services required to be performed by Dodge & Cox under its
Investment Management Agreement. Research furnished by brokers through whom
the Fund effects securities transactions may be used by Dodge & Cox for any
of its accounts, and not all such research may be used by Dodge & Cox for the
Fund.
4. Purchases and sales of portfolio securities within the United States other
than on a securities exchange will be executed with primary market makers
acting as principal except where, in the judgment of Dodge & Cox, better
prices and execution may be obtained on a commission basis or from other
sources.
Insofar as known to management, no Trustee or officer of the Fund, nor Dodge &
Cox or any person affiliated with any of them, has any material direct or
indirect interest in any broker employed by or on behalf of the Fund. There is
no fixed method used in determining which broker-dealers receive which order or
how many orders.
Periodically Dodge & Cox reviews the current commission rates and discusses
the execution capabilities and the services provided by the various broker-
dealers Dodge & Cox is utilizing in the execution of orders.
12
<PAGE>
Research services furnished by the brokers through whom Dodge & Cox effects
security transactions for the Fund may be used in servicing some or all of Dodge
& Cox's accounts, however, all such services may not be used by Dodge & Cox in
connection with the Fund. Aggregate brokerage commissions paid by the Fund
during the last three years were as follows: $1,131,834 in 1996, $763,087 in
1995, and $251,196 in 1994. $_________ was paid to broker-dealers in 1996 who
supplied research and quotation services to Dodge & Cox. Except as indicated
above, Dodge & Cox does not intend to place portfolio transactions with any
particular broker-dealers.
Investment decisions for the Fund are made independently from those of Dodge &
Cox Stock Fund, Dodge & Cox Income Fund, and other accounts managed by Dodge &
Cox. It may frequently develop that the same investment decision is made for
more than one account. Simultaneous transactions may often occur when the same
security is suitable for the investment objective of more than one account.
When two or more accounts are simultaneously engaged in the purchase or sale of
the same security, the transactions are averaged as to price and allocated as to
amount in accordance with a formula equitable to each account. It is recognized
that in some cases this system could have a detrimental effect on the price or
availability of the security as far as the Fund is concerned. In other cases,
however, it is believed that the ability of the Fund to participate in volume
transactions will produce better executions for the Fund.
ADDITIONAL TAX CONSIDERATIONS
You need to be aware of the possible tax consequences when:
* You sell Fund shares, including an exchange from one Fund to another.
* The Fund makes a distribution to your account.
TAXES ON FUND REDEMPTIONS. When you sell shares in the Fund, you may realize a
gain or loss. An exchange from one Fund to another is a sale for tax purposes.
In January, you will be sent Form 1099-B, indicating the date and amount of
each sale made in the Fund during the prior year. This information will also be
reported to the IRS. For accounts opened after September 30, 1987, the Fund
will provide you with the average cost of the shares sold during the year, based
on the "average cost" method. This information is not reported to the IRS, and
you do not have to use it. You may calculate the cost basis using other methods
acceptable to the IRS, such as "specific identification".
To help you maintain accurate records, the Fund sends a confirmation
immediately following each transaction (except for systematic purchases) and a
year-end statement detailing all transactions in your account during the year.
TAXES ON FUND DISTRIBUTIONS. The following summary does not apply to
retirement accounts, such as IRAs, which are tax-deferred until shareholders
withdraw money from them.
In January, you will be sent Form 1099-DIV indicating the tax status of any
dividend and capital gain distribution made to you. This information will also
be reported to the IRS. All distributions made by the Fund are taxable to you
for the year in which they were paid.
Short-term capital gain distributions are taxable as ordinary income and long-
term capital gain distributions are taxable at the applicable long-term capital
gain rate. A capital gain distribution is long or short-term depending on how
long the Fund held the securities, not how long you held shares in the Fund. If
you realize a loss on the sale or exchange of Fund shares held six months or
less, your short-term loss recognized is reclassified to long-term to the extent
of any long-term capital gain distribution received.
TAX EFFECT OF BUYING SHARES BEFORE A CAPITAL GAIN OR DIVIDEND DISTRIBUTION.
If you buy shares shortly before or on the "record date" for a Fund distribution
- - the date that establishes you as the person to receive the upcoming
distribution- you will receive, in the form of a taxable distribution, a portion
of the money you just invested. Therefore, you may also wish to find out the
Fund's record date before investing. Of course, the Fund's share price may, at
any time, reflect undistributed capital gains or income and unrealized
appreciation. When these amounts are eventually distributed, they are taxable.
The discussion above and in the Fund's Prospectus regarding the Federal income
tax consequences of investing in the Fund have been prepared by Dodge & Cox and
do not purport to be complete descriptions of all tax implications of an
investment in the Fund. You are advised to consult with your own tax adviser
concerning the application of Federal, state and local taxes to an investment in
the Fund. The Fund's legal counsel has expressed no opinion in respect thereof.
13
<PAGE>
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 555 California Street, San Francisco, California 94104,
are independent accountants to the Fund, subject to annual appointment by the
Board of Trustees. Price Waterhouse conducts an annual audit of the accounts
and records of the Fund, reports on the Fund's annual financial statements and
performs tax and accounting advisory services.
FINANCIAL STATEMENTS
Please refer to the Fund's Financial Statements consisting of the financial
statements of the Fund and the notes thereto, and the report of independent
accountants contained in the Fund's 1996 Annual Report to Shareholders. The
Financial Statements and the report (but no other material from that Annual
Report) are incorporated herein by reference. Additional copies of the Annual
Report may be obtained from the Fund at no charge by writing or telephoning the
Fund.
14
<PAGE>
DODGE & COX BALANCED FUND
PART C - OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Statement of Assets and Liabilities*
Statement of Changes in Net Assets*
Statement of Operations*
Portfolio of Investments*
* Incorporated by reference to similarly named financial statement in
Registrant's 1996 Annual Report to Shareholders, including Notes to
Financial Statements and Report of Independent Accountants. Registrant's
1996 Annual Report dated December 31, 1996, was filed with the Commission
on February 19, 1997 (File No. 811-173).
(b) Exhibits:
B5 - Amended and Restated Investment Advisory Agreement,
dated December 2, 1996
B11 - Consent of Independent Accountants.
B12 - 1996 Annual Report -- reference is made to (a) above.
B17 - Financial Data Schedule.
All other exhibits required under this section were filed with the
original registration statement or post-effective amendments and are
herein incorporated by reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
It may be deemed that Dodge & Cox, the investment adviser of Registrant,
is under common control with Registrant in that three of the seven
trustees and all officers of Registrant are controlling stockholders of
Dodge & Cox.
Dodge & Cox is a California corporation. As of December 31, 1996, the
persons who are trustees and officers of Registrant and also controlling
stockholders of Dodge & Cox are as follows:
% of Stock Owned in
Name Dodge & Cox
----- -------------------
Harry R. Hagey 17.24%
A. Horton Shapiro 9.66
Kenneth E. Olivier 8.39
W. Timothy Ryan 9.20
Item 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record Holders
Title of Class as of 12/31/96
-------------- --------------
Beneficial Shares (only class) 24,008
<PAGE>
Item 27. INDEMNIFICATION
Registrant and Dodge & Cox maintain officers' and directors'
liability insurance in the amount of $10,000,000 with a $5,000
deductible provision. Dodge & Cox has agreed to indemnify officers
and trustees of Registrant in the amount of the deductible portion
of such insurance.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Dodge & Cox is also investment adviser to Dodge & Cox Stock Fund,
Dodge & Cox Income Fund and to numerous individuals and
institutions.
Item 29. PRINCIPAL UNDERWRITERS
None.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Dodge & Cox
One Sansome Street, 35th Floor
San Francisco, CA 94104
Firstar Trust Company
615 East Michigan Street
Milwaukee, Wisconsin 53202
Item 31. MANAGEMENT SERVICES
None.
Item 32. UNDERTAKINGS
(1) Registrant hereby undertakes to furnish to each person, to whom
Registrant's Prospectus is delivered, with a copy of Registrant's
most recent Annual Report to Shareholders upon request and without
charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Francisco and State of California
on the 27th day of February, 1997.
DODGE & COX BALANCED FUND
By:
Harry R. Hagey
--------------------------
Harry R. Hagey, Chairman*
Principal Executive Officer
*By: /s/ Thomas M. Mistele
---------------------
Thomas M. Mistele
as attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Signature Title Date
========= ===== ====
/s/ Harry R. Hagey Chairman and Trustee February 27, 1997
- ------------------ (Principal Executive
Harry R. Hagey* Officer)
/s/ W. Timothy Ryan Secretary February 27, 1997
- ------------------- (Principal Financial
W. Timothy Ryan* and Accounting Officer)
/s/ A. Horton Shapiro Trustee February 27, 1997
- -----------------------
A. Horton Shapiro*
/s/ Kenneth E. Olivier Trustee February 27, 1997
- -----------------------
Kenneth E. Olivier*
<PAGE>
Signature Title Date
========= ===== ====
/s/ Max Gutierrez, Jr. Trustee February 27, 1997
- ----------------------
Max Gutierrez, Jr.*
/s/ Frank H. Roberts Trustee February 27, 1997
- --------------------
Frank H. Roberts*
/s/ John B. Taylor Trustee February 27, 1997
- ------------------
John B. Taylor*
/s/ Will C. Wood Trustee February 27, 1997
- ------------------
Will C. Wood*
* By: /s/ Thomas M. Mistele
---------------------
Thomas M. Mistele
as attorney-in-fact**
** Powers of Attorney are filed herewith
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned constitutes and
appoints Harry R. Hagey, W. Timothy Ryan and Thomas M. Mistele, and each of
them, his/her true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him/her in his/her name, place and stead, in
any and all capacities, to sign the registration statement of the Dodge & Cox
Balanced Fund and any and all amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as
he/she might or could do in person, hereby ratifying and conforming all that
said attorneys-in-fact and agents, or any of them, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Date
========= ====
/s/ Harry R. Hagey February 11, 1997
- -------------------
Harry R. Hagey
/s/ W. Timothy Ryan February 19, 1997
- -------------------
W. Timothy Ryan
/s/ A. Horton Shapiro February 11, 1997
- -------------------
A. Horton Shapiro
/s/ Kenneth E. Olivier February 19, 1997
- -------------------
Kenneth E. Olivier
/s/ Max Gutierrez, Jr. February 10, 1997
- -------------------
Max Gutierrez, Jr.
/s/ Frank H. Roberts February 10, 1997
- -------------------
Frank H. Roberts
/s/ John B. Taylor February 20, 1997
- -------------------
John B. Taylor
/s/ Will C. Wood February 7, 1997
- -------------------
Will C. Wood
<PAGE>
DODGE & COX BALANCED FUND
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
ITEM 24(b)5 Investment Management Agreement... EX-23.B5
ITEM 24(b)11 Consent of Independent Accountants EX-23.B11
ITEM 24(b)17 Financial Data Schedule........... EX-27.B17
</TABLE>
<PAGE>
EX-23.B5
INVESTMENT MANAGEMENT AGREEMENT
<PAGE>
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT, made this 2nd day of December, 1996,
between DODGE & COX BALANCED FUND, a common-law trust, herein referred to as the
"Trust", and DODGE & COX, a corporation, herein referred to as "Manager";
WHEREAS, under date of April 29, 1931, by a written Declaration of Trust there
was established an investment fund to be held in trust for the equal benefit of
the holders of certificates of beneficial shares; and
WHEREAS, the Trustees of said Trust entered into a written agreement dated
March 16, 1959, as amended February 22, 1972, with Dodge & Cox, a corporation,
employing Dodge & Cox as Trust Manager and Investment Adviser of said Trust (the
"Agreement"); and
WHEREAS, the parties desire to amend and restate the Agreement to read
effective April 1, 1997 as follows:
NOW, THEREFORE, in mutual consideration of the covenants herein contained, it
is hereby agreed by and between the parties hereto as follows:
1. Said Dodge & Cox, a corporation (the "Manager"), is hereby employed as
Trust Manager and Investment Adviser of said Dodge & Cox Balanced Fund for a
period commencing with the date hereof and continuing until terminated as herein
provided.
2. The Manager agrees to accept employment as Trust Manager and Investment
Adviser and in such capacity to direct the investment and reinvestment of the
assets of the Trust Fund and to perform such other duties as may be set forth in
the Declaration of Trust of April 29, 1931, as amended.
3. The Manager shall bear and pay all expenses of the Trust as the Manager
may be required to bear and pay pursuant to the provisions of the Investment
Company Act of 1940 and all other applicable statutes.
4. The Manager shall receive as and for its entire compensation as such Trust
Manager and Investment Adviser a monthly fee at the annual rate of 0.50% of the
Trust Fund's average daily net assets, payable at the end of each calendar
month.
5. This agreement, pursuant to the provisions of the Investment Company Act
of 1940, must be approved at least annually (i) by a majority of the Trustees of
said Trust or by a vote of a majority of the outstanding beneficial shares of
said Trust, and (ii) by vote of a majority of the Trustees who are not parties
to such Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and under provisions
of said Act may be terminated at any time by the Trust without payment of any
penalty or damages by a vote of a majority of the Trustees or by a vote of a
majority of beneficial
<PAGE>
shares of said Trust, but in either of such latter events the Trust must give
the Manager 60 days written notice of the termination of this Agreement.
6. Should there be an assignment of this Agreement, this Agreement shall
automatically terminate. The term "assignment" shall have the meaning
prescribed to said term by (S)2(a)(4) of the Investment Company Act of 1940.
7. This Agreement shall not become effective until it has been approved by a
vote of those persons owning a majority of the issued and outstanding beneficial
shares of said trust.
8. This agreement supersedes all other Investment Management and Adviser
agreements between Dodge & Cox Balanced Fund and any other person or persons
whomsoever.
IN WITNESS WHEREOF, the parties hereto have executed these presents this 2nd
day of December, 1996, effective as of the day and year first above written.
DODGE & COX BALANCED FUND
By: /s/ Harry R. Hagey
------------------------------------------
Harry R. Hagey, Chairman
DODGE & COX
By: /s/ W. Timothy Ryan
------------------------------------------
W. Timothy Ryan, Senior Vice President
<PAGE>
EX-23.B11
CONSENT OF INDEPENDENT ACCOUNTANTS
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 61 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
January 24, 1997, relating to the financial statements and financial highlights
of the Dodge & Cox Balanced Fund, which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Independent Accountants" in
such Statement of Additional Information and to the reference to us under the
heading "Financial Highlights" in such Prospectus.
/S/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
San Francisco, California
February 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Dodge &
Cox Balanced Fund Annual Report dated December 31, 1996, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,904,575,016
<INVESTMENTS-AT-VALUE> 3,394,512,588
<RECEIVABLES> 22,779,676
<ASSETS-OTHER> 37,322
<OTHER-ITEMS-ASSETS> 288,914,568
<TOTAL-ASSETS> 3,706,244,154
<PAYABLE-FOR-SECURITIES> 66,102,739
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,314,526
<TOTAL-LIABILITIES> 76,417,265
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,124,797,654
<SHARES-COMMON-STOCK> 60,681,531
<SHARES-COMMON-PRIOR> 32,973,247
<ACCUMULATED-NII-CURRENT> 589,968
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,501,695
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 489,937,572
<NET-ASSETS> 3,629,826,889
<DIVIDEND-INCOME> 32,414,073
<INTEREST-INCOME> 77,254,885
<OTHER-INCOME> 0
<EXPENSES-NET> 14,777,854
<NET-INVESTMENT-INCOME> 94,891,104
<REALIZED-GAINS-CURRENT> 46,644,856
<APPREC-INCREASE-CURRENT> 238,328,655
<NET-CHANGE-FROM-OPS> 379,864,615
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 94,929,171
<DISTRIBUTIONS-OF-GAINS> 36,143,876
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 33,113,538
<NUMBER-OF-SHARES-REDEEMED> 7,595,736
<SHARES-REINVESTED> 2,190,482
<NET-CHANGE-IN-ASSETS> 1,829,526,025
<ACCUMULATED-NII-PRIOR> 628,035
<ACCUMULATED-GAINS-PRIOR> 4,000,715
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,196,680
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,777,854
<AVERAGE-NET-ASSETS> 2,639,335,964
<PER-SHARE-NAV-BEGIN> 64.60
<PER-SHARE-NII> 1.98
<PER-SHARE-GAIN-APPREC> 5.92
<PER-SHARE-DIVIDEND> 1.99
<PER-SHARE-DISTRIBUTIONS> .59
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 59.82
<EXPENSE-RATIO> 0.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
