<PAGE>
DODGE & COX
Balanced Fund DODGE & COX
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OFFICERS AND TRUSTEES Balanced Fund
Harry R. Hagey, Chairman and Trustee Established 1931
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
TRANSFER AGENT
Boston Financial Data Services Inc.
P.O. Box 9051
Boston, Massachusetts 02205-9051 Prospectus
Telephone (800) 621-3979 April 29, 1997
CUSTODIAN As Supplemented
State Street Bank and Trust Company January 30, 1998
P.O. Box 9051
Boston, Massachusetts 02205-9051 --------------------
Telephone (800) 621-3979
DODGE & COX BALANCED FUND
c/o BFDS
P.O. Box 9051
Boston, Massachusetts 02205-9051
Telephone (800) 621-3979
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<PAGE>
DODGE & COX
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Balanced Fund
Prospectus Dodge & Cox Balanced Fund
April 29, 1997 ------------------------------------------------------------
The Dodge & Cox Balanced Fund (the "Fund") is a no-load
As Supplemented mutual fund with the objectives of providing shareholders
January 30, 1998 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 29, 1997, as
supplemented January 30, 1998, 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>
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<S> <C> <C>
Table of Introduction............................................... 1
Contents 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............................... 13
Reports to Shareholders.................................... 14
Shareholder Inquiries...................................... 14
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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DODGE & COX
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Introduction
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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
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SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases................................... None
Sales Load Imposed on Reinvested Distributions.................... None
Deferred Sales Load............................................... None
Redemption Fees................................................... None
Exchange Fees..................................................... None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees................................................... .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
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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
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Financial Highlights
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The following table provides information about the Fund's financial history. It
is based on a single share outstanding throughout each year. The table is part
of the Fund's financial statements which are included in the Fund's Annual
Report and incorporated by reference into the Statement of Additional
Information. This document is available to shareholders upon request. The
financial statements in the Annual Report have been audited by Price Waterhouse
LLP, independent accountants, whose unqualified report covers the most recent
five-year period.
<TABLE>
<CAPTION>
Year Ended December 31,
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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
</TABLE>
* 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.
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Investment The objectives of the Fund are to provide shareholders with
Objectives and regular income, conservation of principal and an opportunity
Policies 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
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DODGE & COX
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the assets of the Fund under constantly changing investment
conditions. Therefore the proportions held in common and
preferred stocks and bonds are revised by Dodge & Cox when
considered advisable in light of its appraisal of business
and investment prospects. Under normal market conditions, it
is the policy of the Fund to maintain no more than
approximately 75% of its total assets in common stocks and
that portion of the value of convertible securities
attributable to the conversion right. Bonds are held for
their relative stability of principal and income as well as
for a reserve which can be used to take advantage of
investment opportunities. The Fund may also invest up to 20%
of its total assets in U.S. dollar-denominated securities of
foreign issuers traded in the U.S. (such as American
Depositary Receipts or ADRs). Moderate reserves in cash or
short-term fixed income securities may be held from time to
time as Dodge & Cox may deem advisable. Further information
about specific investments is provided under "Additional
Information on Investments".
It is the Fund's policy to invest in investment grade debt
securities rated in the top four rating categories by either
Moody's Investors Service ("Moody's") (Aaa, Aa, A, Baa) or
Standard & Poor's Ratings Group ("S&P") (AAA, AA, A, BBB).
Securities rated Baa or BBB may have speculative
characteristics. Securities that are downgraded below Baa or
BBB subsequent to purchase may continue to be held by the
Fund, if Dodge & Cox believes it advantageous to do so.
Unrated debt securities may be purchased if they are, in the
opinion of Dodge & Cox, of equivalent quality to debt
securities rated at least A by Moody's and S&P.
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 The Fund has adopted certain restrictions designed to achieve
Restrictions diversification of investment and to reduce investment risk.
The Fund may not: (a) Invest more than 5% of the value of its
total assets in the securities of any one issuer except the
U.S. Government, nor acquire more than 10% of the voting
securities of any one issuer; (b) Concentrate investments of
more than 25% of the value of its total
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DODGE & COX
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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.
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Investment Risks You should understand that all investments involve risks, and
there can be no guarantee against loss resulting from an
investment in the 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 Common and Preferred Stocks. Stocks represent shares of
Information on ownership in a company. Generally, preferred stock has a
Investments 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-
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ings are usually reflected in a company's stock price, so
common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities.
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 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 prepayment of principal
may benefit the portfolio.
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DODGE & COX
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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 Dividend and capital gain distributions are reinvested in
Dividends and additional Fund shares in your account unless you select
Capital Gain another option on your Account Application Form. The
Distributions 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.
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.
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How to Purchase Minimum Initial Investment: $2,500; $1,000 for IRA accounts
Shares 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).
<TABLE>
<S> <C>
Regular Mail Mailgram, Express, Certified or Registered Mail
Dodge & Cox Balanced Fund Dodge & Cox Balanced Fund
c/o BFDS c/o BFDS
P.O. Box 9051 66 Brooks Drive, Suite 1
Boston, MA 02205-9051 Braintree, MA 02184
</TABLE>
By Wire: To purchase shares in the Fund by Federal wire
transfer, you should request that your bank transmit funds
to:
State Street Bank and Trust Company, Boston, MA 02101
ABA #0110 0002 8
Deposit DDA #9905-351-4
FFC Dodge & Cox Balanced Fund
Account # 146/[shareholder account number], [name of
account]
Prior to having the funds wired, you should call Boston
Financial Data Services Inc. (BFDS) at 1-800-621-3979 and
advise BFDS that the funds are being wired. Investors making
initial investments by wire must promptly complete an Account
Application Form and mail it to the Fund, c/o BFDS, at either
of the addresses listed above. No account services will be
established until the completed application has been received
by the 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. 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.
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Purchases through the Automatic Investment Plan will be
confirmed at least quarterly. Certificates (for full shares
only) are not issued unless requested by you.
A Social Security or Taxpayer Identification Number must be
supplied and certified on the Account Application Form before
an account can be established. If you fail to furnish 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.
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How To Redeem By Mail: Your written instructions to redeem should be sent
Shares to the appropriate address below:
<TABLE>
<S> <C>
Regular Mail Mailgram, Express, Certified or Registered Mail
Dodge & Cox Balanced Fund Dodge & Cox Balanced Fund
c/o BFDS c/o BFDS
P.O. Box 9051 66 Brooks Drive, Suite 1
Boston, MA 02205-9051 Braintree, MA 02184
</TABLE>
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 BFDS at 1-800-621-3979. (See "Telephone
Transactions.") Telephone redemption requests for IRA
accounts will not be accepted.
Redemption payments may be made by check, wire or ACH:
By Check: Checks will be made payable to you and will be sent
to your address of record. If the proceeds of the redemption
are requested to be sent to other than the address of record
or if the address of record has been changed within 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.
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By ACH: Redemption proceeds can be sent to your bank account
by ACH transfer. You can elect this option by completing the
appropriate section of the Account Application Form. 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 net asset value of the Fund at the beginning of the
period.
IRA Accounts: Redemption requests for IRA accounts must be in
writing and must include instructions regarding Federal
income tax withholding. Unless you have elected otherwise,
your redemptions will be subject to income tax withholding.
Additional Information about Redemptions: Under certain
circumstances, 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 BFDS (1-800-621-3979).
The redemption price will be the NAV which is next computed
after receipt of a redemption request in good order (see
"Pricing of Shares") by BFDS or other authorized agent or
sub-agent. The redemption price may be more or less than your
cost, depending upon the market value of 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 within two
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weeks of purchase, the Fund may delay payment of the
redemption proceeds until your purchase check has cleared,
which may take up to 15 days. There is no such delay when
shares being redeemed were purchased by wiring Federal Funds.
The 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 You may exchange your shares for shares of another Dodge &
Shares 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 By using telephone purchase, redemption and/or exchange
Transactions options, you agree to hold the Fund, Dodge & Cox (any of its
affiliated mutual funds), BFDS, and each of their respective
directors, trustees, officers, employees and agents harmless
from any losses, expenses, costs or liability (including
attorney fees) which may be incurred in connection with the
exercise of these privileges. Generally, all shareholders are
automatically eligible to use these options. However, you may
elect to decline these options in the Account Application
Form or by writing BFDS. (You may also reinstate them at any
time by writing BFDS.) If 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 Fund, the Fund reserves the right to
limit purchase and sale transactions, including exchanges,
when a pattern of frequent trading appears evident.
-------------------------------------------------------------
Transfer of Changes in account registrations - such as changing the
Shares name(s) on your account, or transferring shares to another
person or legal entity - must be submitted in writing and
require a signature guarantee. Please call BFDS (1-800-621-
3979) for full instructions.
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-------------------------------------------------------------
Pricing of The share price (also called "net asset value per share" or
Shares "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.
------------------------------------------------------------
Shareholder The Fund offers you the following services: (Please call or
Services 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 Account. The Fund has an IRA
Plan available for shareholders of the Fund.
-------------------------------------------------------------
Performance The Fund may include figures indicating its total return or
Information 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 share on the
last day of the period and annualizing the results. Yield
does not directly reflect changes in net asset value per
share which occurred during the period.
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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 Fund Organization and Voting Rights. The Fund, organized as
Organization a California common law trust in 1931, is registered as an
and open-end, diversified management investment company under the
Management 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, 35th Floor, San
Francisco, California 94104.
Dodge & Cox's activities are devoted to investment research
and the supervision of investment accounts for individuals
and institutions. In 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.
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Dodge & Cox has adopted a Code of Ethics that restricts
personal investing practices by its employees. Among other
provisions, the Code of Ethics requires that employees with
access to information about the purchase or sale of
securities in 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 Orders for the Fund's portfolio securities transactions are
Transactions placed by Dodge & Cox, which seeks to obtain the best
available prices, taking into account the costs and quality
of executions. In the over-the-counter market, purchases and
sales are transacted directly with principal market-makers
except in those circumstances where it appears better prices
and executions are available elsewhere.
Subject to the above policy, when two or more brokers are in
a position to offer comparable prices and executions,
preference may be given to brokers that have provided
investment research, statistical, and other related services
for the benefit of 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 The Fund intends to qualify each year as a regulated
Taxes investment company under the Internal Revenue Code. A
regulated investment company that distributes for the year
all of its ordinary income and capital gains pays no tax on
its ordinary income or capital gains. A regulated investment
company that fails to distribute all of its ordinary income
and capital gains must pay tax on the undistributed amounts
at a maximum rate of 35%. If the company does not distribute
at least 98% of its ordinary income and capital gains, it
must pay an additional 4% excise tax on the amount by which
the 98% requirements exceed actual distributions.
Distributions designated as long-term capital 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.
Part of the Fund's ordinary dividends will be eligible for
the 70% deduction for dividends received by corporations.
State taxation of distributions to shareholders varies from
state to state. You should consult your own tax adviser about
the federal, state and local tax consequences of an
investment in the Fund.
-------------------------------------------------------------
Custodian and State Street Bank and Trust Company, P.O. Box 9051, Boston,
Transfer Agent Massachusetts 02205-9051, (1-800-621-3979), acts as custodian
of all cash and securities of the Fund and receives and
disburses cash and securities for the account of the Fund.
BFDS acts as transfer and dividend disbursing agent for the
Fund.
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Reports to In addition to account statements, you receive periodic
Shareholders 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 For Fund literature and information, or if you have questions
Inquiries concerning your account, please call BFDS (1-800-621-3979).
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