<PAGE>
D O D G E & C O X
Balanced Fund
Dodge & Cox
Investment Managers
35th Floor
One Sansome Street
San Francisco
California 94104
(415) 981-1710
For Fund literature and
information, please call:
(800) 621-3979
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of
the Fund. The report is not authorized for distribution to prospective investors
in the Fund unless it is accompanied by an effective prospectus.
Printed on recycled paper.
D O D G E & C O X
Balanced Fund
Established 1931
Semi-Annual Report
June 30, 1997
1997
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
To Our Shareholders
- --------------------------------------------------------------------------------
During the second quarter, the Dodge & Cox Balanced Fund achieved a total
return of 11.0%. This result compares with total returns of 17.4% for the
Standard & Poor's 500 Index (S&P 500) of common stocks and 3.7% for the Lehman
Brothers Aggregate Bond Index (LBAG) for the same period. For the first half of
1997, the Fund returned 12.2%, compared to 20.6% for the S&P 500 and 3.1% for
the LBAG. Average annual returns for longer time periods are listed on page
three of this report.
- --------------------------------------------------------------------------------
Mutual Fund Management at Dodge & Cox
Dodge & Cox began managing its first mutual fund in 1931, decades before the
explosive growth of the fund business experienced during the last ten years.
Our Balanced Fund has one of the longest track records in the industry--over
sixty five years. We introduced the Stock Fund in 1965 and, more recently, the
Income Fund in 1989.
Our business approach in mutual funds remains quite simple. We maintain low
operating expenses and focus on what we do best--independent fundamental
research and prudent investment of equity and fixed income assets with a long-
term time horizon. We purposely do not offer a multitude of services or niche
funds. We believe that our consistent investment philosophy and proven results
will appeal to a variety of investors.
- --------------------------------------------------------------------------------
As of June 30, the Balanced Fund's total net assets were $4.7 billion. The
Fund's asset allocation did not change materially during the quarter and stood
at approximately 57% invested in common stocks, 39% in fixed income securities
and 4% in cash equivalents.
Performance Overview
The equity portion of the Fund provided a strong total return during the first
half of 1997, but narrowly lagged the total return of the S&P 500. Holdings
which performed well relative to the market in the quarter included the Fund's
investments in finance, electronics/computer, consumer products (nondurables)
and capital equipment stocks. Weak relative performers during the quarter
included a number of the Fund's holdings in the electric/gas utilities and
energy sectors.
The total return of the fixed income portion of the fund was essentially equal
to the total return of the LBAG in the first six months of 1997. The positive
benefits of the Fund's higher yield relative to the LBAG was offset by the
negative impact of a widening of yield premiums in the bank and finance areas of
the corporate sector, which is an area of emphasis in the portfolio.
Equity Strategy: High Valuations in the S&P 500
At year end we closed our letter with a word of caution that the high stock
returns of the recent past were unlikely to be repeated. With the ink barely
dry, the equity markets posted a strong advance during the first half of 1997.
Humility is important in the investment business. As we consider the potential
for investment returns going forward, however, our caution flag continues to
wave.
Attractive values in equities are harder to find. The S&P 500, a broad-based,
unmanaged measure of common stocks, currently sells at over 20 times the last 12
months' earnings, which is a historically high level. A subset of the companies
in the index, primarily those with the largest market capitalizations, are at
extremely high valuations, in our opinion. The market values of these companies
compared to their revenues are near historic highs. Consequently, their stock
prices incorporate expectations of continued rapid revenue growth and sustained
high profitability. Perhaps their strong performance will continue. However,
we believe that, given their current valuations, these companies will have to
experience extraordinary growth in order to produce even a modest return for
their investors. We have chosen not to invest in these high valuation
companies, such as Intel, Microsoft, Coca Cola, and many of the large
pharmaceutical companies whose prices reflect their past success. Consequently,
your equity portfolio has begun to diverge further from the
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D O D G E & C O X
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Balanced Fund
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S&P 500 over the past year and a half. So far in 1997, the returns of these
high valuation, large capitalization companies have been a major factor in the
strong S&P 500 returns, and our decision not to invest in these companies has
caused our investment performance to lag the S&P 500 over this short time
period. We have chosen to look elsewhere for value. An area we have increased
our holdings is the electric/gas utilities sector.
The electric/gas utilities sector's investment performance in the past year and
a half has trailed the S&P 500 by a wide margin. Today, dividend yields in
electric utilities are high compared to the general market. As these companies
adjust to the realities of competition in electric power generation, we believe
they represent an attractive area in which to look for investment value.
Slowing Economy and Lower Inflation Lead to a Drop in Interest Rates
Bond yields dropped this quarter on the heels of economic news that showed the
economy was slowing considerably from its rapid first quarter pace. Inflation
news has also been positive for bondholders. In June, the Producer Price Index,
a measure of price changes at the producer level, declined for the sixth
consecutive month. Similarly, the Consumer Price Index continues to show
restrained price increases at the consumer level. Finally, the Federal Reserve
Board left short-term interest rates unchanged at its May 20 meeting. This had
the effect of reinforcing the growing market consensus of a slowing, and
potentially less inflationary, economy.
This quarter's interest rate decline retraced most of the first quarter's rise
in rates. Both short and intermediate Treasury note rates fell between 35 and
40 basis points (one basis point equals 1/100 of one percent), while the 30-year
Treasury bond yield declined by approximately 30 basis points to 6.8% at June
30. Nevertheless, these rates remain above their corresponding levels at the
beginning of this year.
Asset Allocation
The performance of the equity and fixed income markets has been markedly
different over the recent past, as equities have significantly outperformed
fixed income securities. This performance difference has a meaningful impact on
asset allocation; higher returns in equities will cause the percentage of assets
in equities to rise, relative to bonds. We have maintained the allocation to
equities at approximately 57% of total assets this year, based on our assessment
of the long-term return outlook for the equity and fixed income markets. To
accomplish this, 70% of the Fund's net cash flow during the first half of 1997
has been invested in fixed income securities, compared to 30% in equities.
Closing Note
The prospects for U.S. and worldwide economic growth and low inflation remain
bright. Although stock prices in many areas are quite high, we are always
looking for attractive investments. Our primary focus as managers will continue
to be the utilization of two Dodge & Cox hallmarks: fundamental research and
individual security selection. Thank you for your continued confidence in the
Dodge & Cox Balanced Fund. As always, we welcome your comments and questions.
For the Board of Trustees,
/s/ Harry R. Hagey
July 31, 1997 Harry R. Hagey, Chairman
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2
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D O D G E & C O X
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Balanced Fund
Objective The Fund's objectives are to provide shareholders with regular
income, conservation of principal and an opportunity for long-term
growth of principal and income.
Strategy The Fund seeks to achieve these objectives by remaining fully
invested in a diversified portfolio of stocks and bonds.
Stocks: The Fund invests in well-established companies which, in the
view of Dodge & Cox, have positive earnings prospects not reflected
in the current price. Dodge & Cox makes a conscious effort to
maintain representation in major economic sectors and areas with
strong long-term profit potential. The Fund will hold no more than
75% of its total assets in stocks.
Bonds: Dodge & Cox constructs a diversified portfolio of high-
quality bonds, while striving to maintain the fixed income yield
higher than that of the broad bond market. Fixed income securities in
the Fund will generally include U.S. Treasury, mortgage-related and
corporate issues.
<TABLE>
<CAPTION>
20 Years of Investment Performance through June 30, 1997
- --------------------------------------------------------------------------------
Comparison of change in value of a $10,000 investment in the Dodge &
Cox Balanced Fund, the S&P 500 Index, the LBAG Index, and a Combined
Index (a blend of the S&P 500 (60%) and the LBAG (40%) Indices)
[LINE GRAPH APPEARS HERE]
DODGE
& COX
S&P 500 LBAG COMBINED BALANCED
INDEX INDEX INDEX FUND
-------- -------- -------- --------
<S> <C> <C> <C> <C>
7/1/77 $ 10,000 $ 10,000 $ 10,000 $ 10,000
6/30/78 9,999 10,093 10,056 9,980
6/30/79 11,374 10,884 11,217 11,423
6/30/80 13,319 11,297 12,566 12,738
6/30/81 16,041 10,716 13,805 14,255
6/30/82 14,166 12,145 13,492 13,924
6/30/83 22,839 15,818 20,020 20,122
6/30/84 21,777 16,066 19,586 19,374
6/30/85 28,528 20,881 25,633 25,021
6/30/86 38,760 25,059 33,196 33,043
6/30/87 48,514 26,440 38,953 39,884
6/30/88 45,170 28,572 38,951 39,794
6/30/89 54,438 32,063 45,659 45,498
6/30/90 63,412 34,579 51,674 51,387
6/30/91 68,098 38,277 56,313 55,622
6/30/92 77,236 43,657 64,117 63,084
6/30/93 87,755 48,802 72,409 74,571
6/30/94 88,991 48,161 72,665 76,813
6/30/95 112,178 54,203 87,575 92,544
6/30/96 141,338 56,918 102,646 107,074
6/30/97 190,334 61,563 126,876 130,903
</TABLE>
<TABLE>
<CAPTION>
Average annual total return for periods ended June 30, 1997 1 Year 5 Years 10 Years 20 Years
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dodge & Cox Balanced Fund 22.27% 15.71% 12.62% 13.72%
Combined Index 23.61 14.64 12.54 13.55
S&P 500 Index 34.67 19.77 14.65 15.87
Lehman Brothers Aggregate Bond Index 8.16 7.12 8.82 9.51
</TABLE>
The chart covers the period from July 1, 1977 to June 30, 1997. It compares a
$10,000 investment made in the Dodge & Cox Balanced Fund to $10,000 investments
made in the Standard & Poor's 500 Stock (S&P 500) Index, the Lehman Brothers
Aggregate Bond (LBAG) Index and a Combined Index. The Fund's total returns
include the reinvestment of dividend and capital gain distributions. The S&P 500
Index is a broad-based, unmanaged measure of common stocks. The LBAG Index is a
broad-based, unmanaged measure of investment-grade corporate and U.S. Government
fixed income securities. The Combined Index reflects an unmanaged portfolio of
60% of the S&P 500 Index and 40% of the LBAG Index. The Fund may, however,
invest up to 75% of its total assets in stocks. Index returns include dividends
and/or interest income, and unlike Fund returns, do not reflect fees or
expenses. Past performance does not guarantee future results. Investment return
and share price will fluctuate with market conditions, and investors may have a
gain or loss when shares are sold.
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3
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D O D G E & C O X
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Balanced Fund
Fund Information June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Information
- --------------------------------------------------------------------------------
<S> <C>
Net Asset Value Per Share $65.78
Total Net Assets (millions) $4,710
1996 Expense Ratio 0.56%
1996 Portfolio Turnover 17%
Quarterly Distribution to Shareholders of Record
6/25/97 (per share): $0.53 Dividend
Fund Inception Date 1931
</TABLE>
Investment Manager: Dodge & Cox, San Francisco. Managed by a ten member
committee, with members' average tenure at Dodge & Cox of 18 years.
<TABLE>
<CAPTION>
Asset Allocation
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<S> <C>
Bonds 38.5%
Stocks 57.5%
Short-Term Investments 4.0%
</TABLE>
<TABLE>
<CAPTION>
Stock Portfolio (57.5% of Fund)
- --------------------------------------------------------------------------------
<S> <C>
Number of Stocks 76
Median Market Capitalization $10.0 billion
Price to Earnings Ratio (trailing twelve mos.) 20.2x
Price to Book Value (trailing twelve mos.) 3.0x
Foreign Stocks* (as percentage of Fund) 6%
</TABLE>
<TABLE>
<CAPTION>
Five Largest Sector Weightings % of Fund
- --------------------------------------------------------------------------------
<S> <C>
Banking 5.9
Electronics & Computer 5.8
Energy 5.7
Retail & Distribution 4.6
Insurance & Financial Services 4.5
</TABLE>
<TABLE>
<CAPTION>
Ten Largest Stock Holdings % of Fund
- --------------------------------------------------------------------------------
<S> <C>
General Motors 1.6
International Business Machines 1.5
American Express 1.5
Citicorp 1.5
Digital Equipment 1.3
Union Pacific 1.3
R.R. Donnelley & Sons 1.3
Dayton Hudson 1.2
Dow Chemical 1.2
Motorola 1.2
</TABLE>
<TABLE>
<CAPTION>
Bond Portfolio (38.5% of Fund)
- --------------------------------------------------------------------------------
<S> <C>
Number of Bonds 121
Average Quality AA+
Average Maturity 11.7 years
Effective Duration 5.30 years
</TABLE>
<TABLE>
<CAPTION>
Moody's/Standard & Poor's Quality Ratings % of Fund
- --------------------------------------------------------------------------------
<S> <C>
U.S. Government & Government Agencies 24.7
Aaa/AAA 1.6
Aa/AA 1.5
A/A 6.8
Baa/BBB 3.8
Ba/BB 0.1
</TABLE>
<TABLE>
<CAPTION>
Sector Breakdown % of Fund
- --------------------------------------------------------------------------------
<S> <C>
U.S. Treasury and Government Agency 7.7
Federal Agency CMO and REMIC+ 9.2
Federal Agency Mortgage Pass-Through 7.8
Corporate 12.2
Foreign (U.S. Dollar Denominated) 1.6
</TABLE>
+Collateralized Mortgage Obligation and
Real Estate Mortgage Investment Conduit
* All U.S. Dollar Denominated.
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4
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D O D G E & C O X
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Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1997
----------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON CONSUMER: 15.7%
STOCKS: RETAIL AND DISTRIBUTION: 4.6%
57.4%
1,092,300 Dayton Hudson Corp. ....................$ 58,096,706
4,007,000 Kmart Corp.+ ........................... 49,085,750
945,000 Nordstrom, Inc. ........................ 46,364,062
1,080,000 Dillard's, Inc. Class A ................ 37,395,000
585,000 Genuine Parts Co. ...................... 19,816,875
303,000 Fleming Cos., Inc. ..................... 5,454,000
------------
216,212,393
CONSUMER DURABLES: 4.4%
1,390,000 General Motors Corp. ................... 77,405,625
1,200,000 Ford Motor Co. ......................... 45,300,000
1,048,700 Masco Corp. ............................ 43,783,225
786,700 Whirlpool Corp. ........................ 42,924,319
------------
209,413,169
CONSUMER PRODUCTS: 4.4%
514,000 Sony Corp. ADR ......................... 45,232,000
166,000 Unilever NV ............................ 36,188,000
400,200 VF Corp. ............................... 33,916,950
659,700 Bausch & Lomb, Inc. .................... 31,088,363
144,800 Matsushita Electric, Inc. ADR .......... 29,611,600
620,000 James River Corp. of Virginia .......... 22,940,000
174,400 Dole Food Co., Inc. .................... 7,455,600
------------
206,432,513
MEDIA, PRINTING AND ENTERTAINMENT: 2.3%
1,680,000 R.R. Donnelley & Sons Co. .............. 61,530,000
635,650 Dow Jones & Co. ........................ 25,545,184
418,000 Time Warner, Inc. ...................... 20,168,500
------------
107,243,684
------------
739,301,759
FINANCE: 10.4%
BANKING: 5.9%
580,000 Citicorp ............................... 69,926,250
699,000 Golden West Financial Corp. ............ 48,930,000
714,000 BankAmerica Corp. ...................... 46,097,625
410,500 Republic New York Corp. ............... 44,128,750
709,500 Barnett Banks, Inc. .................... 37,248,750
618,000 Norwest Corp. .......................... 34,762,500
------------
281,093,875
INSURANCE AND FINANCIAL SERVICES: 4.5%
941,000 American Express Co. ................... 70,104,500
577,500 The St. Paul Cos., Inc. ................ 44,034,375
613,000 Chubb Corp. ............................ 40,994,375
155,000 General Re Corp. ....................... 28,210,000
276,600 Loews Corp. ............................ 27,694,575
------------
211,037,825
------------
492,131,700
</TABLE>
See accompanying Notes to Financial Statements
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5
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D O D G E & C O X
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Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1997
-------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON BASIC INDUSTRY: 6.2%
STOCKS PAPER AND FOREST PRODUCTS: 3.3%
(Continued) 944,000 Weyerhaeuser Co. ................. $ 49,088,000
813,000 Champion International Corp. ..... 44,918,250
823,000 International Paper Co. .......... 39,966,938
600,000 Boise Cascade Corp. .............. 21,187,500
--------------
155,160,688
CHEMICALS: 1.8%
633,000 Dow Chemical Co. ................. 55,150,125
505,700 Nalco Chemical Co. ............... 19,532,662
290,000 Lubrizol Corp. ................... 12,161,875
--------------
86,844,662
METALS AND MINING: 1.1%
705,000 Aluminum Co. of America .......... 53,139,375
--------------
295,144,725
ELECTRONICS AND COMPUTER: 5.8%
778,000 International Business
Machines Corp. ........ 70,165,875
1,777,000 Digital Equipment Corp.+ ......... 62,972,438
715,800 Motorola, Inc. ................... 54,400,800
743,000 Hewlett-Packard Co. .............. 41,608,000
346,000 Texas Instruments, Inc. .......... 29,085,625
954,800 Sybase, Inc.+ .................... 14,142,975
--------------
272,375,713
ENERGY: 5.7%
969,200 Amerada Hess Corp. ............... 53,851,175
1,750,085 Union Pacific Resources
Group, Inc. ...................... 43,533,364
964,200 Phillips Petroleum Co. ........... 42,183,750
464,500 Western Atlas, Inc.+ ............. 34,024,625
612,000 Royal Dutch Petroleum Co. ........ 33,277,500
426,000 Chevron Corp. .................... 31,497,375
155,000 Amoco Corp. ...................... 13,475,312
454,100 Occidental Petroleum Corp. ....... 11,380,881
40,000 Mobil Corp. ...................... 2,795,000
40,000 Exxon Corp. ...................... 2,460,000
--------------
268,478,982
UTILITIES: 4.2%
ELECTRIC AND GAS UTILITIES: 3.5%
1,482,500 Central & South West Corp. ....... 31,503,125
876,000 Texas Utilities Co. .............. 30,167,250
1,280,100 TransCanada PipeLines Ltd. ....... 25,762,012
1,010,000 Edison International. ............ 25,123,750
532,800 FPL Group, Inc. .................. 24,542,100
702,400 Pacific Enterprises. ............. 23,618,200
116,400 Wisconsin Energy Corp. ........... 2,895,450
--------------
163,611,887
TELEPHONE: 0.7%
1,223,000 BCE, INC. ........................ 34,244,000
--------------
197,855,887
</TABLE>
See accompanying Notes to Financial Statements
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D O D G E & C O X
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Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1997
-------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON TRANSPORTATION: 3.2%
STOCKS 878,100 Union Pacific Corp. .................. $ 61,906,050
(Continued) 920,800 Federal Express Corp.+ ............... 53,176,200
1,250,000 Canadian Pacific Ltd. ................ 35,546,875
--------------
150,629,125
CAPITAL EQUIPMENT: 1.9%
904,000 Deere & Co. .......................... 49,607,000
374,500 Caterpillar, Inc. .................... 40,211,937
--------------
89,818,937
HEALTHCARE AND PHARMACEUTICAL: 1.9%
1,430,200 Pharmacia & Upjohn, Inc. ............. 49,699,450
235,000 SmithKline Beecham plc ADR. .......... 21,531,875
325,000 HealthCare COMPARE Corp.+ ............ 17,042,188
--------------
88,273,513
DIVERSIFIED TECHNOLOGY: 1.7%
575,000 Corning, Inc. ........................ 31,984,375
376,000 Xerox Corp. .......................... 29,657,000
246,500 Raychem Corp. ........................ 18,333,438
--------------
79,974,813
MISCELLANEOUS: 0.7%
REAL ESTATE INVESTMENT TRUST: 0.7%
769,600 Meditrust............................. 30,687,800
--------------
Total Common Stocks
(cost $1,921,541,945)........... 2,704,672,954
PREFERRED CONSUMER: 0.1%
STOCKS: 61,500 Kmart Financing I, 7 3/4% Trust
0.1% Convertible Preferred................. 3,374,813
--------------
Total Preferred Stocks (cost
$3,075,000)..................... 3,374,813
PAR VALUE
BONDS: U.S. TREASURY AND GOVERNMENT AGENCY: 7.7%
38.5% U.S. TREASURY: 7.2%
$ 28,500,000 U.S. Treasury Notes, 5 1/4%, 7/31/1998 28,321,875
77,000,000 U.S. Treasury Notes, 7 1/8%, 10/15/1998 78,131,130
73,100,000 U.S. Treasury Notes, 5 1/8%, 11/30/1998 72,277,625
20,000,000 U.S. Treasury Notes, 7 1/8%, 2/29/2000 20,437,400
13,800,000 U.S. Treasury Notes, 5 5/8%, 11/30/2000 13,517,514
28,000,000 U.S. Treasury Notes, 6 1/4%, 2/15/2003 27,781,320
53,000,000 U.S. Treasury Notes, 7 7/8%, 11/15/2004 57,198,660
20,750,000 U.S. Treasury Bonds, 14%, 11/15/2011,
Callable 2006......................... 31,270,872
8,500,000 U.S. Treasury Bonds, 7 1/2%, 11/15/2016 9,083,015
--------------
338,019,411
GOVERNMENT AGENCY: 0.5%
5,000,000 Arkansas Dev. Fin. Auth. GNMA
Guaranteed Bonds 9 3/4%, 11/15/2014... 5,980,550
17,701,000 Govt. Small Business Admin. 504
Series 97-20F, 7.20%, 6/1/2017........ 17,899,428
--------------
23,879,978
--------------
361,899,389
</TABLE>
See accompanying Notes to Financial Statements
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D O D G E & C O X
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Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1997
-------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS FEDERAL AGENCY CMO* AND REMIC**: 9.2%
(Continued) $ 16,200,000 Federal Home Loan Mtge. Corp., 7%,
3/15/2005............................. $ 16,301,250
10,000,000 Federal Home Loan Mtge. Corp., 7%,
1/15/2006............................. 10,037,500
15,000,000 Federal Home Loan Mtge. Corp., 7%,
10/15/2006............................ 15,135,900
36,500,000 Federal Home Loan Mtge. Corp., 6 3/4%,
11/15/2006............................ 36,407,290
5,934,000 Federal Home Loan Mtge. Corp., 6%,
1/15/2007............................. 5,724,411
21,500,000 Federal Home Loan Mtge. Corp., 6 1/2%,
10/15/2007............................ 21,143,745
18,309,000 Federal Home Loan Mtge. Corp., 7%,
1/15/2008............................. 18,326,027
12,850,000 Federal Home Loan Mtge. Corp., 6 1/2%,
5/15/2008............................. 12,536,717
10,000,000 Federal Home Loan Mtge. Corp., 6 1/2%,
5/15/2008............................. 9,790,600
17,774,350 Federal Home Loan Mtge. Corp., 6 1/2%,
8/15/2008............................. 17,374,427
26,000,000 Federal Home Loan Mtge. Corp., 6%,
12/15/2008............................ 24,732,500
23,548,818 Federal Home Loan Mtge. Corp., 7%,
5/17/2020............................. 23,556,118
16,507,000 Federal Home Loan Mtge. Corp., 6 1/2%,
11/15/2022............................ 15,862,072
8,079,851 Federal Natl. Mtge. Assn., 5%,
12/25/2004............................ 7,971,258
48,557,947 Federal Natl. Mtge. Assn., 6%,
9/18/2005............................. 48,275,340
9,754,149 Federal Natl. Mtge. Assn., 5%,
1/1/2006.............................. 9,235,619
21,840,000 Federal Natl. Mtge. Assn., 7 1/2%,
2/25/2007............................. 22,194,900
26,674,800 Federal Natl. Mtge. Assn., 6 1/2%,
8/25/2008............................. 25,799,333
15,475,000 Federal Natl. Mtge. Assn., 6%,
3/25/2009............................. 14,657,611
1,204,509 Federal Natl. Mtge. Assn., 6 1/2%,
4/1/2009.............................. 1,186,550
11,072,203 Federal Natl. Mtge. Assn., 5.70%,
8/25/2016............................. 10,705,381
13,730,000 Federal Natl. Mtge. Assn., 7%,
6/17/2022............................. 13,553,981
19,500,000 Federal Natl. Mtge. Assn., 6 1/2%,
9/25/2023............................. 18,671,250
13,352,000 Veterans Affairs Vendee Mtge. Trust,
6 1/2%, 11/15/2009.................... 13,272,689
20,929,940 Veterans Affairs Vendee Mtge. Trust,
6 3/4%, 8/15/2014..................... 20,733,617
--------------
433,186,086
FEDERAL AGENCY MORTGAGE PASS-THROUGH: 7.8%
1,488,645 Federal Home Loan Mtge. Corp., 8%,
12/1/2002............................. 1,514,920
1,166,458 Federal Home Loan Mtge. Corp., 6 1/2%,
2/1/2006.............................. 1,166,458
852,491 Federal Home Loan Mtge. Corp., 7 1/2%,
7/1/2006.............................. 864,102
280,138 Federal Home Loan Mtge. Corp., 7%,
9/1/2006.............................. 280,598
581,210 Federal Home Loan Mtge. Corp., 7 1/4%,
1/1/2008.............................. 581,728
307,408 Federal Home Loan Mtge. Corp., 7 1/2%,
2/1/2008.............................. 311,595
1,262,354 Federal Home Loan Mtge. Corp., 8%,
2/1/2008.............................. 1,297,094
282,415 Federal Home Loan Mtge. Corp., 7 1/4%,
4/1/2008.............................. 282,624
34,357,375 Federal Home Loan Mtge. Corp., 7%,
5/1/2008.............................. 34,496,866
54,151,544 Federal Home Loan Mtge. Corp., 7%,
12/1/2008............................. 54,371,399
1,053,386 Federal Home Loan Mtge. Corp., 7 1/2%,
2/1/2009.............................. 1,075,887
25,289,726 Federal Home Loan Mtge. Corp., 6%,
9/1/2009.............................. 24,639,780
1,290,272 Federal Home Loan Mtge. Corp., 8 3/4%,
5/1/2010.............................. 1,337,573
21,431,190 Federal Home Loan Mtge. Corp., 7 1/2%,
8/1/2010.............................. 21,807,522
8,394,402 Federal Home Loan Mtge. Corp., 8%,
11/1/2010............................. 8,625,416
390,337 Federal Home Loan Mtge. Corp., 8 1/4%,
4/1/2011.............................. 400,736
453,944 Federal Home Loan Mtge. Corp., 7 3/4%,
1/1/2012.............................. 462,165
1,483,296 Federal Home Loan Mtge. Corp., 8 1/4%,
2/1/2017.............................. 1,525,970
11,540,373 Federal Home Loan Mtge. Corp., 8 1/2%,
1/1/2023.............................. 12,108,275
771,822 Federal Natl. Mtge. Assn., 8 1/2%,
12/1/2002............................. 789,905
912,764 Federal Natl. Mtge. Assn., 6 1/2%,
1/1/2004.............................. 904,732
4,300,806 Federal Natl. Mtge. Assn., 7 1/2%,
12/1/2006............................. 4,374,134
6,477,098 Federal Natl. Mtge. Assn., 7 1/2%,
9/1/2007.............................. 6,563,632
</TABLE>
See accompanying Notes to Financial Statements
================================================================================
8
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1997
---------------------------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS FEDERAL AGENCY MORTGAGE PASS-THROUGH (Continued)
(Continued) $ 11,456,341 Federal Natl. Mtge. Assn., 7%, 12/1/2007 ................................ $ 11,476,046
27,932,368 Federal Natl. Mtge. Assn., 7%, 12/1/2007 ................................ 28,017,841
12,169,044 Federal Natl. Mtge. Assn., 6 1/2%, 5/1/2008 ............................. 12,011,820
24,729,445 Federal Natl. Mtge. Assn., 8%, 6/1/2008 ................................. 25,433,492
34,585,550 Federal Natl. Mtge. Assn., 6 1/2%, 11/1/2008 ............................ 34,102,736
18,097,217 Federal Natl. Mtge. Assn., 6%, 1/1/2009 ................................. 17,605,154
7,074,285 Federal Natl. Mtge. Assn., 8%, 1/1/2009 ................................. 7,236,427
1,822,928 Federal Natl. Mtge. Assn., 7 1/2%, 8/1/2010 ............................. 1,846,006
4,321,925 Federal Natl. Mtge. Assn., 7 1/2%, 6/1/2011 ............................. 4,378,153
5,828,505 Federal Natl. Mtge. Assn., 7 1/2%, 7/1/2019 ............................. 5,910,453
21,983,325 Govt. Natl. Mtge. Assn., 7 1/2%, 7/15/2007 .............................. 22,254,379
7,651,770 Veterans Affairs Vendee Mtge. Trust, 7.20806%, 2/15/2025 ................ 7,536,993
10,577,508 Veterans Affairs Vendee Mtge. Trust, 8.7925%, 6/15/2025 ................. 11,314,549
--------------
368,907,160
CORPORATE: 12.2%
INDUSTRIAL: 6.2%
7,500,000 Dayton Hudson Corp. Debentures 9 7/8%, 7/1/2020 ......................... 9,173,550
8,450,000 Dayton Hudson Corp. Debentures 9.70%, 6/15/2021 ......................... 10,192,474
12,750,000 Dayton Hudson Corp. Debentures 9%, 10/1/2021 ............................ 14,529,645
9,000,000 Dayton Hudson Corp. Debentures 8.80%, 5/15/2022 ......................... 10,048,320
16,800,000 Dayton Hudson Corp. MTN 9.35%, 6/16/2020 ................................ 19,547,472
15,000,000 Ford Holdings, Inc. Debentures 9 3/8%, 3/1/2020 ......................... 17,828,400
13,500,000 Ford Motor Co. Debentures 8 7/8%, 1/15/2022 ............................. 15,344,640
15,000,000 Ford Motor Co. Debentures 9.95%, 2/15/2032 .............................. 19,298,550
25,000,000 General Motors Corp. Debentures 7.70%, 4/15/2016 ........................ 25,724,250
15,000,000 Lockheed Martin Corp. Debentures 7.65%, 5/1/2016 ........................ 15,329,100
35,500,000 Lockheed Martin Corp. Debentures 7 3/4%, 5/1/2026 ....................... 36,365,135
5,750,000 May Department Stores Debentures 7 5/8%, 8/15/2013 ...................... 5,825,153
14,000,000 May Department Stores 8 1/8%, 8/15/2035, Callable 2015 .................. 14,319,900
12,500,000 May Department Stores 7 7/8%, 8/15/2036, Callable 2016 .................. 12,615,250
6,375,000 Ralston Purina Debentures 7 3/4%, 10/1/2015 ............................. 6,462,975
28,000,000 Time Warner Entertainment Senior Debentures 8 3/8%, 7/15/2033 ........... 28,591,080
3,450,000 Union Camp Corp. Debentures 9 1/4%, 2/1/2011 ............................ 4,020,250
25,950,000 Walt Disney Co. Debentures 7.55%, 7/15/2093, Callable 2023 .............. 25,845,681
--------------
291,061,825
FINANCE: 5.4%
18,000,000 BankAmerica Capital II, 8%, 12/15/2026, Callable 2006++ ................. 18,244,440
2,000,000 Barclays No. American Capital Notes 9 3/4%, 5/15/2021, Callable 2001 .... 2,231,460
4,400,000 CIGNA Corp. Notes 8.30%, 1/15/2023 ...................................... 4,642,440
1,800,000 CIGNA Corp. Notes 7.65%, 3/1/2023 ...................................... 1,772,136
18,000,000 Citicorp Capital Trust I, 7.93%, 2/15/2027, Callable 2007++ ............. 18,023,760
5,000,000 First Nationwide Bank Subordinated Debentures 10%, 10/1/2006 ............ 5,713,900
23,000,000 General Electric Capital Debentures 8.85%, 3/1/2007 ..................... 25,994,600
7,000,000 General Electric Capital Debentures 8 3/4%, 5/21/2007 ................... 7,882,280
12,250,000 General Electric Capital Debentures 8 1/2%, 7/24/2008 ................... 13,704,810
22,290,000 GMAC Put Notes 8 7/8%, 6/1/2010, Putable 2000/2005 ...................... 25,406,811
5,000,000 Golden West Financial Subordinated Notes 7 7/8%, 1/15/2002 .............. 5,179,400
10,000,000 Golden West Financial Subordinated Notes 6.70%, 7/1/2002 ................ 9,904,200
3,000,000 Golden West Financial Subordinated Notes 7 1/4%, 8/15/2002 .............. 3,049,920
24,100,000 Golden West Financial Subordinated Notes 6%, 10/1/2003 .................. 22,910,424
</TABLE>
See accompanying Notes to Financial Statements
================================================================================
9
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1997
----------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
BONDS PAR VALUE MARKET VALUE
(Continued) FINANCE (Continued)
$ 6,215,000 Hartford Financial Services Group Notes 8.30%, 12/1/2001 ....... $ 6,532,214
11,000,000 Hartford Financial Services Group Notes 6 3/8%, 11/1/2002 ...... 10,765,590
20,900,000 J.P. Morgan Capital Trust I, 7.54%, 1/15/2027, Callable 2007++ . 19,996,493
14,400,000 Norwest Corp. MTN 6.20%, 12/1/2005 ............................. 13,670,208
10,000,000 Norwest Corp. MTN 6 7/8%, 8/8/2006 ............................. 9,898,500
19,000,000 Norwest Corp. MTN 6 3/4%, 10/1/2006 ............................ 18,609,360
4,000,000 Norwest Corp. MTN 6.55%, 12/1/2006 ............................ 3,864,720
5,500,000 Norwest Corp. Subordinated Debentures 6.65%, 10/15/2023 ........ 4,891,370
--------------
252,889,036
TRANSPORTATION: 0.6%
8,146,738 Consolidated Rail Corp. 95-A Pass Through Trust 6.76%, 5/25/2015 7,977,041
5,000,000 Consolidated Rail Corp. Debentures 9 3/4%, 6/15/2020 ........... 6,122,950
14,250,000 Norfolk Southern Bonds 7.70%, 5/15/2017 ........................ 14,571,765
--------------
28,671,756
UTILITIES: 0.0%
750,000 Idaho Power Co. 1st Mtge. Bonds 9 1/2%, 1/1/2021, Callable 2001. 823,163
--------------
573,445,780
FOREIGN (U.S. DOLLAR DENOMINATED): 1.6%
CANADIAN CORPORATE: 1.1%
8,750,000 Canadian Pacific Ltd. Debentures 9.45%, 8/1/2021 ............... 10,311,700
7,550,000 Hydro-Quebec Debentures 7 1/2%, 4/1/2016 ....................... 7,481,220
30,000,000 Hydro-Quebec Debentures 8.40%, 1/15/2022 ....................... 32,459,400
--------------
50,252,320
INTERNATIONAL AGENCY: 0.5%
7,200,000 European Investment Bank Notes 10 1/8%, 10/1/2000 .............. 7,941,096
18,815,000 Inter-American Dev. Bank 7 1/8%, 3/15/2023, Callable 2003 ...... 17,933,329
--------------
25,874,425
--------------
76,126,745
--------------
Total Bonds (cost $1,798,690,125) 1,813,565,160
--------------
SHORT-TERM 1,400,000 American Express Credit Corp., Commercial Paper 5.50%, 7/1/1997 ... 1,400,000
INVESTMENTS: 77,000,000 American Express Credit Corp., Commercial Paper 6.25%, 7/1/1997 ... 77,000,000
3.4% 2,036,718 Eli Lilly & Co., Variable Demand Note 5.09% ....................... 2,036,718
33,892,593 General Mills, Inc., Variable Demand Note 5.24% ................... 33,892,593
35,679,850 Pitney Bowes Credit Corp., Variable Demand Note 5.25% ............. 35,679,850
1,891,038 Portico Institutional Money Market Fund ........................... 1,891,038
1,600,000 Sara Lee Corp., Variable Demand Note 5.23% ........................ 1,600,000
6,046,665 Warner Lambert Co., Variable Demand Note 5.22% .................... 6,046,665
1,803,022 Wisconsin Electric Power Corp., Variable Demand Note 5.29% ........ 1,803,022
--------------
Total Short-Term Investments (cost $161,349,886) .......... 161,349,886
--------------
TOTAL INVESTMENTS (cost $3,884,656,956) ................... 99.4% 4,682,962,813
OTHER ASSETS LESS LIABILITIES ............................. 0.6% 27,008,191
----- --------------
TOTAL NET ASSETS .......................................... 100.0% $4,709,971,004
====== ==============
</TABLE>
+ Non-income producing
++ Cumulative Preferred Securities
* CMO: Collateralized Mortgage Obligation
** REMIC: Real Estate Mortgage Investment Conduit
See accompanying Notes to Financial Statements
===============================================================================
10
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities June 30, 1997
- --------------------------------------------------------------------------------------------------------------------
ASSETS:
<C> <S> <C>
Investments, at market value (identified cost $3,884,656,956)............ $4,682,962,813
Cash..................................................................... 16,225,750
Dividends and interest receivable........................................ 27,880,010
Receivable for investments sold.......................................... 2,445,369
Prepaid expenses......................................................... 269,447
--------------
4,729,783,389
--------------
LIABILITIES:
Payable for investments purchased........................................ 12,387,398
Payable for Fund shares redeemed......................................... 5,269,795
Management fees payable.................................................. 1,885,168
Accounts payable......................................................... 270,024
--------------
Net asset value 19,812,385
per share $65.78 --------------
NET ASSETS.......................................................... $4,709,971,004
Beneficial ==============
shares outstanding NET ASSETS CONSIST OF:
71,601,926 Paid in capital.......................................................... $3,800,796,914
(par value $1.00 each, Accumulated undistributed net investment income.......................... 1,766,263
unlimited shares Accumulated undistributed net realized gain on investments............... 109,101,970
authorized) Net unrealized appreciation on investments............................... 798,305,857
--------------
$4,709,971,004
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations Six Months Ended June 30, 1997
----------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends................................................................ $ 22,257,224
Interest................................................................. 60,551,787
--------------
82,809,011
--------------
EXPENSES:
Management fees (Note 2) ................................................ 10,264,929
Custodian fees .......................................................... 186,871
Transfer agent fees ..................................................... 407,288
Accounting and audit fees................................................ 87,610
Legal fees .............................................................. 1,462
Shareholder reports ..................................................... 122,550
S.E.C. and state registration fees ...................................... 301,553
Trustees' fees........................................................... 7,000
Miscellaneous............................................................ 46,792
--------------
11,426,055
--------------
NET INVESTMENT INCOME.................................................... 71,382,956
--------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ...................................... 109,101,970
Change in unrealized appreciation of investments ...................... 308,368,285
--------------
Net realized and unrealized gain on investments .................... 417,470,255
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $ 488,853,211
==============
</TABLE>
See accompanying Notes to Financial Statements
================================================================================
11
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets Six Months Ended June 30,
-------------------------------------------------------------------
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income........ $ 71,382,956 $ 41,108,223
Net realized gain............ 109,101,970 12,264,238
Net change in unrealized
appreciation................ 308,368,285 60,483,633
-------------- --------------
Net increase in net assets
from operations............. 488,853,211 113,856,094
-------------- --------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income........ (70,206,661) (40,899,268)
Net realized gain............ (14,501,695) (4,000,715)
-------------- --------------
Total distributions.......... (84,708,356) (44,899,983)
-------------- --------------
BENEFICIAL SHARE TRANSACTIONS:
Amounts received from sale
of shares................... 951,280,707 835,067,939
Net asset value of shares
issued in reinvestment of
distributions............... 81,739,496 42,964,808
Amounts paid for shares
redeemed.................... (357,020,943) (168,139,344)
-------------- --------------
Net increase from beneficial
share transactions.......... 675,999,260 709,893,403
-------------- --------------
Total increase in net assets. 1,080,144,115 778,849,514
NET ASSETS:
Beginning of period.......... 3,629,826,889 1,800,300,864
-------------- --------------
End of period (including
undistributed net investment
income of $1,766,263 and
$836,990, respectively)...... $4,709,971,004 $2,579,150,378
============== ==============
Shares sold.................. 15,379,771 14,975,249
Shares issued in reinvestment
of distributions............ 1,307,411 767,928
Shares redeemed.............. (5,766,787) (2,998,989)
-------------- --------------
Net increase in shares
outstanding................. 10,920,395 12,744,188
============== ==============
</TABLE>
See accompanying Notes to Financial Statements
================================================================================
12
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
Notes to Financial Statements
-----------------------------------------------------------------------------
1 The Fund is registered under the Investment Company Act of 1940, as amended,
as a diversified open-end investment company. The Fund consistently follows
accounting policies which are in conformity with generally accepted
accounting principles for investment companies. Significant accounting
policies are as follows: (a) Security valuation: stocks are valued at the
latest quoted sales prices as of 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; long-term debt securities are priced on the basis of
valuations furnished by pricing services which utilize both dealer-supplied
valuations and electronic data processing techniques; 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; securities
for which market quotations are not readily available are valued at fair
value as determined in good faith by or at the direction of the Board of
Trustees; short-term securities are valued at amortized cost or original cost
plus accrued interest, both of which approximate current value; all
securities held by the Fund are denominated in U.S. Dollars. (b) Security
transactions are accounted for on the trade date in the financial statements.
(c) Gains and losses on securities sold are determined on the basis of
identified cost. (d) Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis. (e) Distributions to
shareholders of income and capital gains are reflected in the net asset value
per share computation on the ex-dividend date. (f) No provision for Federal
income taxes has been included in the accompanying financial statements since
the Fund intends to distribute all of its taxable income and otherwise
continue to comply with requirements for regulated investment companies.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements. Actual results could differ from those
estimates.
2 Under a written agreement, the Fund pays an annual management fee of 1/2 of
1% of the Fund's average daily net asset value to Dodge & Cox, investment
manager of the Fund. All officers and three of the trustees of the Fund are
officers and employees of Dodge & Cox. Those trustees who are not affiliated
with Dodge & Cox receive from the Fund an annual fee of $1,000 and an
attendance fee of $500 for each Board or Committee meeting attended. The Fund
does not pay any other remuneration to its officers or trustees.
3 For the six months ended June 30, 1997, purchases and sales of securities,
other than short-term securities, aggregated $1,341,429,343 and $529,309,309,
respectively, of which U.S. government obligations aggregated $576,237,557
and $278,761,385, respectively. At June 30, 1997, the cost of investments for
Federal income tax purposes was equal to the cost for financial reporting
purposes. Net unrealized appreciation aggregated $798,305,857, of which
$814,168,271 represented appreciated securities and $15,862,414 represented
depreciated securities.
The financial information has been taken from the records of the Fund and has
not been audited by our independent accountants who do not express an opinion
thereon. The financial statements of the Fund will be subject to audit by our
independent accountants as of the close of the calendar year.
================================================================================
13
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
Financial Highlights
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED DATA AND RATIOS (for a share outstanding throughout each period)
Six Months Ended
June 30, Year Ended December 31,
---------------- -------------------------------------------
1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 59.82 $54.60 $45.21 $46.40 $42.44 $40.09
Income from investment operations:
Net investment income....................................... 1.05 1.98 1.90 1.76 1.66 1.72
Net realized and unrealized gain (loss)..................... 6.17 5.92 10.58 (.83) 5.03 2.43
------- ------ ------ ------ ------ ------
Total from investment operations............................ 7.22 7.90 12.48 .93 6.69 4.15
------- ------ ------ ------ ------ ------
Distributions to shareholders from:
Net investment income....................................... (1.04) (1.99) (1.90) (1.76) (1.66) (1.72)
Net realized gain........................................... (.22) (.69) (1.19) (.36) (1.07) (.08)
------- ------ ------ ------ ------ ------
Total distributions......................................... (1.26) (2.68) (3.09) (2.12) (2.73) (1.80)
------- ------ ------ ------ ------ ------
Net asset value, end of period.............................. $ 65.78 $59.82 $54.60 $45.21 $46.40 $42.44
======= ====== ====== ====== ====== ======
Total return................................................ 12.20% 14.75% 28.02% 1.99% 15.95% 10.56%
Ratios/supplemental data
Net assets, end of period (millions)........................ $ 4,710 $3,630 $1,800 $ 725 $ 487 $ 269
Ratio of expenses to average net assets..................... .56%* .56% .57% .58% 60% .63%
Ratio of net investment income to average net assets........ 3.47%* 3.60% 3.85% 3.94% 3.67% 4.27%
Portfolio turnover rate..................................... 14% 17% 20% 20% 15% 6%
Average commission rate paid **............................. $ .0494 $.0500
</TABLE>
* Annualized
** Represents average commission rate paid per share on securities
transactions for which commissions were charged. Disclosure is
required by the S.E.C. beginning in 1996.
================================================================================
14
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
General Information
--------------------------------------------------------------
Investment Since 1930, Dodge & Cox has been providing professional
Manager investment management for individuals, trustees, corporations,
pension and profit-sharing funds, and charitable institutions.
Dodge & Cox manages the Dodge & Cox Balanced Fund, the Dodge &
Cox Stock Fund and the Dodge & Cox Income Fund.
No-Load Fund Shares of the Fund are purchased and redeemed at net asset
value. There are no sales, redemption or Rule 12b-1 plan
distribution charges.
Gifts Fund shares provide a convenient method for making gifts to
children and to other family members. Shares may be held by an
adult custodian for the benefit of a minor under a Uniform
Gifts/Transfers to Minors Act. Trustees and guardians may also
hold shares for a minor's benefit.
Automatic Shareholders may make regular monthly or quarterly
Investment Plan investments of $100 or more through automatic deductions from
their bank accounts.
Withdrawal Plan Shareholders owning $10,000 or more of the Fund's shares may
elect to receive periodic monthly or quarterly payments of at
least $50. Under the plan, all dividend distributions are
automatically reinvested at net asset value with the periodic
payments made from the proceeds of the redemption of
sufficient shares.
Reinvestment Shareholders may direct that dividend and capital gains
Plan distributions be reinvested in additional Fund shares.
The above plans are completely voluntary and involve no
service charge of any kind.
IRA Plan The Fund has an Individual Retirement Plan (IRA) available for
shareholders of the Fund.
Shareholder Fund literature and details on all of these Plans are
Inquiries available from the Fund upon request.
Dodge & Cox Balanced Fund
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
(800) 621-3979
================================================================================
