<PAGE>
D O D G E & C O X
Stock Fund
Investment Managers
Dodge & Cox
One Sansome Street
35th Floor
San Francisco, California
94104-4443
(415) 981-1710
For Fund literature and
information, please visit the
Funds' web site at:
www.dodgeandcox.com
or write or call:
Dodge & Cox Funds
c/o Boston Financial Data Services
P.O. Box 9051
Boston, Massachusetts
02205-9051
(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 a current prospectus.
Printed on recycled paper 6/99 SF SAR
D O D G E & C O X
Stock Fund
Established 1965
Semi-Annual Report
June 30, 1999
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
To Our Shareholders
- --------------------------------------------------------------------------------
The Dodge & Cox Stock Fund achieved a total return of 16.6% in the second
quarter of 1999 versus 7.1% for the Standard & Poor's 500 Index (S&P 500). For
the first half of 1999, the Fund's total return was 21.9%, compared to 12.4% for
the S&P 500. Longer-term results are listed on page three of this report. The
Fund ended the second quarter with total net assets of $4.7 billion, with 96.0%
of these assets invested in stocks and 4.0% invested in cash equivalents.
Discussion of Performance
Patience and persistence are often necessary in investing. We are pleased that
our long-term, price-disciplined approach has yielded better results so far in
1999 than it did in 1998. Interestingly, nearly the same portfolio that
produced the Fund's disappointing relative performance in 1998 also produced its
strong results in 1999. As of June 30, 1999, the Fund held 59 companies that
were also owned at the end of 1997. This group represented approximately 85% of
the Fund's equities at the end of both periods. We make this point to show that
while our long-term portfolio is substantially the same, other investors' views
about these stocks have improved dramatically. These changing views have led to
significant price appreciation in many of the Fund's holdings over the past six
months.
Growing optimism about global economic recovery fueled a strong rally in
economically sensitive stocks during the quarter. Strong contributors to the
Fund's return included industrial commodities, energy, technology and finance
holdings. The Fund's relatively small positions in pharmaceutical and consumer
products companies were also a positive factor, as many of these stocks in the
S&P 500 performed poorly. The Fund's top individual equity returns for the
quarter were from National Semiconductor, Nalco Chemical, Alcoa, Fluor and
Hewlett-Packard. Three of the companies held in the Fund agreed to be acquired
during the period--Nalco, Republic New York and Raychem.
Areas of the Fund's portfolio that did not contribute to its strong return in
the quarter were automotive and electric/gas utility stocks.
Thoughts on Equity Strategy
As we have discussed in previous letters, the Fund holds a number of strong
companies that produce the basic inputs needed to run modern industrial
economies. Some in the investment arena pejoratively characterize these
companies as cyclical companies in yesterday's industries. We disagree. Over a
long-term time horizon, modernizing economies still have a fundamental need for
machinery, oil, paper, chemicals, etc. Many producers of these goods are active
users of technology to increase their productivity and the quality of their
products. We believe that the world economy will expand its growth rate in the
years ahead, recovering from the 1997-1998 recession outside the U.S. As this
occurs, many of the Fund's holdings would be operating in a much-improved global
business environment. Although the Fund's economically sensitive stocks, such
as Dow Chemical, Alcoa and Caterpillar, have performed well this year, we
believe that such companies are in the early stages of an upward earnings ramp
that may last for years. Given this thesis and these companies' low valuations,
our individual company analysis suggests that holdings in this area of the Fund
are still attractive investments.
Revisiting Finance
Holdings in the finance sector are approximately 15% of the portfolio, and
continue to represent a significant portion of the Fund's assets. We are
enthusiastic about certain companies in banking and insurance with strong
business franchises and reasonable valuations. One example is Golden West
Financial. We highlight this holding in the Fund in order to illustrate our
strong price discipline and "bottom-up approach" to security selection, not
because we believe it is more attractive than the Fund's other 71 holdings.
Golden West Financial, the parent company of World Savings and Loan, is the
nation's third largest thrift. We believe that Golden West is an attractive
investment for several reasons:
. valuation is low at 12 times 1999 estimated earnings and 1.7 times
book value;
. management is capable and experienced, led by an unusual husband and
wife team, Herb and Marion Sandler, who have proven successful at
keeping costs low and credit quality high; and
. the company's strategy is focused on adjustable rate mortgage
origination in growth markets such as California.
================================================================================
1
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
- --------------------------------------------------------------------------------
Golden West also exemplifies another attractive investment quality: management
owns a significant equity position. We often try to invest in companies with
durable business franchises and management whose interests are aligned with
those of other shareholders. The Sandlers and other insiders own about 20% of
Golden West's stock. We like the fact that these managers "eat their own
cooking" in seeking to build shareholder value.
Caution Lights Ahead (Again)
Our final message is one you have heard from us before. Over the past few
years, we have continued to caution that we believed future investment returns
would be significantly lower than recent experience. Meanwhile, the market has
continued to gallop forward. In the past four and one half years, the price-to-
earnings (P/E) multiple on the S&P 500 has more than doubled from 15 to
approximately 35. The annualized total return of the S&P 500 over this period
has been an unprecedented 30%. Eventually, the good news runs out. At the risk
of cautioning once again: with the S&P 500's P/E at new historic highs, we
believe this multiple will have trouble rising further and in fact, is at risk
of decline.
The Dodge & Cox Stock Fund is not invested in what we believe is the most
vulnerable part of the equity market: the largest capitalization, high-priced
growth stocks ("New Nifty Fifty"). However, in the event of a broad market
decline, the Fund's portfolio would still likely be negatively impacted.
Consequently, we want to remind our shareholders that the funds you entrust us
to manage should have a long time horizon, such as retirement assets or other
savings. While we believe that the equity market has the potential to
outperform cash returns over the next four to five years, we do not believe that
the returns will be near those of the past four years.
Dodge & Cox Philosophy: Stick to the Basics
Dodge & Cox continues to have strong conviction in the enduring elements of our
investment philosophy: high quality, thorough independent research; price
discipline; diversification; and a long-term time horizon. As always, even a
clearly defined investment philosophy is dependent for its implementation on the
team of investment professionals. At Dodge & Cox, we have a stable team of very
experienced portfolio managers and research analysts. We continue to remain an
independent firm, owned only by active employees. Our independence is vital to
maintaining the focused, disciplined approach that we believe is the key to our
long-term investment success.
Please write or call us if you have questions or comments about the Stock Fund.
We have also devoted an area on our web site (www.dodgeandcox.com) to answering
your most frequently asked questions. Thank you for your continued confidence
in Dodge & Cox.
For the Board of Trustees,
/s/ Harry R. Hagey /s/ John A. Gunn
- ------------------------ ------------------------
Harry R. Hagey, Chairman John A. Gunn, President
July 30, 1999
================================================================================
2
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
Objective The Fund seeks long-term growth of principal and income. A
secondary objective is to achieve a reasonable current income.
Strategy The Fund invests primarily in a broadly diversified and carefully
selected portfolio of common stocks. In selecting investments, the
Fund invests in companies that, in Dodge & Cox's opinion, appear to
be temporarily undervalued by the stock market but have a favorable
outlook for long-term growth. The Fund focuses on the underlying
financial condition and prospects of individual companies. Future
earnings and dividends are major considerations in selecting
companies. Companies are also selected with an emphasis on financial
strength and sound economic background.
Ten Years of Investment Performance through June 30, 1999
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DODGE & COX S & P
STOCK 500
FUND INDEX
----------- -----
<S> <C> <C>
7/1/1989 $10,000 $10,000
6/30/1990 11,556 11,649
6/30/1991 12,072 12,510
6/30/1992 13,331 14,187
6/30/1993 16,252 16,120
6/30/1994 17,010 16,347
6/30/1995 21,295 20,606
6/30/1996 26,189 25,963
6/30/1997 34,511 34,963
6/30/1998 40,685 45,516
6/30/1999 48,137 55,867
</TABLE>
<TABLE>
<CAPTION>
Average annual total return for periods ended June 30, 1999 1 Year 5 Years 10 Years 20 Years
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dodge & Cox Stock Fund 18.35% 23.12% 17.02% 17.61%
S&P 500 22.74 27.86 18.77 17.86
</TABLE>
The chart covers the period from July 1, 1989 to June 30, 1999. It compares a
$10,000 investment made in the Dodge & Cox Stock Fund to a $10,000 investment
made in the S&P 500. The S&P 500 is a widely recognized, unmanaged index of
common stock prices. The Fund's total returns include the reinvestment of
dividend and capital gain distributions. Index returns include dividends and,
unlike Fund returns, do not reflect fees and 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 a loss when shares are sold.
================================================================================
3
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
Fund Information June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Information
- --------------------------------------------------------------------------------
<S> <C>
Net Asset Value Per Share $108.34
Total Net Assets (millions) $ 4,705
1998 Expense Ratio 0.57%
1998 Portfolio Turnover 19%
30 Day SEC Yield/1/ 1.24%
Fund Inception Date 1965
Investment Manager: Dodge & Cox, San Francisco. Managed by the Investment Policy
Committee, whose eight members' average tenure at Dodge & Cox is 21 years.
</TABLE>
<TABLE>
<CAPTION>
Asset Allocation
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<S> <C>
Stocks: 96.0%
Short-Term Investments: 4.0%
</TABLE>
<TABLE>
<CAPTION>
Stock Characteristics
- --------------------------------------------------------------------------------
<S> <C>
Number of Stocks 72
Median Market Capitalization 8.2 billion
Price to Earnings Ratio/2/ 25.3x
Price to Book Value 2.6x
Foreign Stocks/3/ (as percentage of Fund) 12%
</TABLE>
<TABLE>
<CAPTION>
Ten Largest Sectors % of Fund
- --------------------------------------------------------------------------------
<S> <C>
Electronics & Computer 12.6
Energy 12.4
Insurance & Financial Services 7.3
Banking 7.1
Transportation 6.7
Retail & Distribution 5.8
Consumer Durables 5.7
General Industrial 5.6
Chemicals 5.3
Metals & Mining 5.0
</TABLE>
<TABLE>
<CAPTION>
Ten Largest Stock Holdings % of Fund
- --------------------------------------------------------------------------------
<S> <C>
Motorola 2.9
Alcoa 2.9
FDX Corp. 2.7
Union Pacific 2.6
Dow Chemical 2.6
Kmart 2.4
Republic New York 2.2
Hewlett-Packard 2.2
News Corp. Ltd., ADR 2.1
Pharmacia & Upjohn 2.1
</TABLE>
/1/ An annualization of the Fund's total net investment income per share for
the 30-day period ended on the last day of the month.
/2/ Price to earnings ratio is calculated using trailing 12-month earnings and
excludes extraordinary items.
/3/ All U.S. Dollar-denominated.
================================================================================
4
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1999
--------------------------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON CONSUMER: 18.8%
STOCKS: RETAIL AND DISTRIBUTION: 5.8%
93.9% 6,950,000 Kmart Corp.+....................................................... $114,240,625
1,833,150 Genuine Parts Co................................................... 64,160,250
1,402,100 Nordstrom, Inc..................................................... 46,970,350
1,330,000 Dillard's, Inc. Class A............................................ 46,716,250
------------
272,087,475
CONSUMER DURABLES: 5.7%
1,502,900 General Motors Corp................................................ 99,191,400
1,111,300 Whirlpool Corp..................................................... 82,236,200
1,030,000 Ford Motor Co...................................................... 58,130,625
1,510,421 Delphi Automotive Systems Corp..................................... 28,037,190
------------
267,595,415
HEALTHCARE AND PHARMACEUTICAL: 3.7%
1,770,000 Pharmacia & Upjohn, Inc............................................ 100,558,125
698,800 Bausch & Lomb, Inc................................................. 53,458,200
910,000 First Health Group Corp.+.......................................... 19,621,875
------------
173,638,200
CONSUMER PRODUCTS: 2.1%
1,645,700 Fort James Corp.................................................... 62,330,887
1,213,300 Dole Food Co., Inc................................................. 35,640,688
------------
97,971,575
MEDIA AND LEISURE: 1.5%
1,645,100 R.R. Donnelley & Sons Co........................................... 60,971,519
209,700 Dow Jones & Co..................................................... 11,127,206
------------
72,098,725
------------
883,391,390
TECHNOLOGY: 16.5%
ELECTRONICS AND COMPUTER: 12.6%
1,430,500 Motorola, Inc...................................................... 135,539,875
1,048,000 Hewlett-Packard Co................................................. 105,324,000
1,365,000 Electronic Data Systems............................................ 77,207,812
1,434,300 NCR Corp.+......................................................... 70,011,769
2,370,000 National Semiconductor Corp.+...................................... 59,990,625
760,000 Xerox Corp......................................................... 44,887,500
450,000 Adobe Systems, Inc.+............................................... 36,970,313
1,542,400 Storage Technology Corp.+.......................................... 35,089,600
772,500 Thermo Electron Corp.+............................................. 15,498,281
1,008,400 Sybase, Inc.+...................................................... 11,092,400
------------
591,612,175
CONSUMER ELECTRONICS: 3.9%
904,400 Sony Corp. ADR..................................................... 99,823,150
430,000 Matsushita Electric Industrial Co., Ltd. ADR....................... 85,274,375
------------
185,097,525
------------
776,709,700
</TABLE>
See accompanying Notes to Financial Statements
================================================================================
5
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1999
-----------------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON INDUSTRIAL COMMODITIES: 15.8%
STOCKS CHEMICALS: 5.3%
(Continued) 962,300 Dow Chemical Co........................................... $122,091,813
798,100 Eastman Chemical Co....................................... 41,301,675
744,000 Nalco Chemical Co......................................... 38,595,000
580,000 Union Carbide Corp........................................ 28,275,000
370,000 Lubrizol Corp............................................. 10,082,500
378,020 NOVA Chemicals Corp....................................... 8,812,591
------------
249,158,579
METALS AND MINING: 5.0%
2,188,400 Alcoa, Inc................................................ 135,407,250
1,458,600 Rio Tinto PLC............................................. 98,090,850
------------
233,498,100
PAPER AND FOREST PRODUCTS: 4.4%
1,192,900 Weyerhaeuser Co........................................... 82,011,875
1,266,400 Champion International Corp............................... 60,628,900
640,200 International Paper Co.................................... 32,330,100
718,600 Boise Cascade Corp........................................ 30,809,975
------------
205,780,850
GENERAL MANUFACTURING: 1.1%
3,420,000 Archer Daniels Midland Co................................. 52,796,250
------------
741,233,779
FINANCE: 14.9%
INSURANCE AND FINANCIAL SERVICES: 7.3%
2,006,700 Citigroup, Inc............................................ 95,318,250
577,100 American Express Co....................................... 75,095,137
2,022,850 The St. Paul Cos., Inc.................................... 64,351,916
811,100 Loews Corp................................................ 64,178,288
620,000 Chubb Corp................................................ 43,090,000
------------
342,033,591
BANKING: 7.1%
1,546,200 Republic New York Corp.................................... 105,431,512
953,000 Golden West Financial Corp................................ 93,394,000
998,121 Bank of America Corp...................................... 73,174,746
1,480,400 Wells Fargo & Co.......................................... 63,287,100
------------
335,287,358
REAL ESTATE INVESTMENT TRUST: 0.5%
498,000 Equity Residential Properties Trust....................... 22,441,125
------------
699,762,074
ENERGY: 12.4%
1,403,500 Amerada Hess Corp......................................... 83,508,250
2,451,700 Baker Hughes, Inc......................................... 82,131,950
3,245,200 Occidental Petroleum Corp................................. 68,554,850
1,361,000 Phillips Petroleum Co..................................... 68,475,312
715,000 Chevron Corp.............................................. 68,059,062
</TABLE>
See accompanying Notes to Financial Statements
================================================================================
6
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1999
---------------------------------------------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
ENERGY (continued)
1,689,700 Unocal Corp........................................................................ $66,954,363
3,804,624 Union Pacific Resources Group, Inc................................................. 62,062,929
774,000 Royal Dutch Petroleum Co........................................................... 46,633,500
610,000 Schlumberger Ltd................................................................... 38,849,375
--------------
585,229,591
COMMON TRANSPORTATION: 6.7%
STOCKS 2,356,800 FDX Corp.+......................................................................... 127,856,400
(Continued) 2,116,100 Union Pacific Corp................................................................. 123,395,081
2,733,000 Canadian Pacific Ltd............................................................... 65,079,563
--------------
316,331,044
GENERAL INDUSTRIAL: 5.6%
1,793,600 Deere & Co......................................................................... 71,071,400
1,750,600 Lockheed Martin Corp............................................................... 65,209,850
970,000 Caterpillar, Inc................................................................... 58,200,000
1,350,000 Fluor Corp......................................................................... 54,675,000
775,300 Unova, Inc.+....................................................................... 12,307,887
--------------
261,464,137
ELECTRIC AND GAS UTILITIES: 3.2%
2,051,000 Central & South West Corp.......................................................... 47,942,125
900,000 Texas Utilities Co................................................................. 37,125,000
643,000 FPL Group, Inc..................................................................... 35,123,875
1,264,600 Wisconsin Energy Corp.............................................................. 31,694,038
--------------
151,885,038
--------------
Total Common Stocks (Cost $3,042,733,218)..................................... 4,416,006,753
--------------
PREFERRED CONSUMER: 2.1%
STOCKS: 3,190,000 News Corp. Ltd., Limited Voting Ordinary Shares ADR................................ 100,684,375
2.1% --------------
Total Preferred Stocks (Cost $56,955,711)..................................... 100,684,375
--------------
PAR VALUE
SHORT-TERM $40,000,000 American Express Credit Corp., Comm. Paper, 5.00%, 7/1/1999........................ 40,000,000
INVESTMENTS: 58,176,510 SSgA Prime Money Market Fund....................................................... 58,176,510
3.6% 22,636,047 SSgA United States Treasury Money Market Fund...................................... 22,636,047
50,000,000 U.S. Treasury Bills, 8/19/1999..................................................... 49,696,132
--------------
Total Short-Term Investments (Cost $170,508,689).............................. 170,508,689
TOTAL INVESTMENTS (cost $3,270,197,618).................................... 99.6% 4,687,199,817
OTHER ASSETS LESS LIABILITIES.............................................. 0.4% 17,679,854
------ --------------
TOTAL NET ASSETS........................................................... 100.0% $4,704,879,671
====== ==============
+ Non-income producing
</TABLE>
See accompanying Notes to Financial Statements
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7
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities June 30, 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at market value (identified cost $3,270,197,618).......... $4,687,199,817
Receivable for Fund shares sold........................................ 3,917,831
Dividends and interest receivable...................................... 7,921,697
Receivable for investments sold........................................ 19,424,305
Prepaid expenses....................................................... 94,248
--------------
4,718,557,898
--------------
LIABILITIES:
Payable for investments purchased...................................... 6,298,221
Payable for Fund shares redeemed....................................... 4,497,878
Management fees payable................................................ 1,896,895
Accounts payable....................................................... 985,233
--------------
13,678,227
Net asset value --------------
per share $108.34 NET ASSETS........................................................ $4,704,879,671
==============
Beneficial NET ASSETS CONSIST OF:
shares outstanding Paid in capital........................................................ $3,111,375,871
43,428,742 Accumulated undistributed net investment income........................ 1,302,207
(par value $0.01 each, Accumulated undistributed net realized gain on investments............. 175,199,394
unlimited shares Net unrealized appreciation on investments............................. 1,417,002,199
authorized) --------------
$4,704,879,671
==============
</TABLE>
See accompanying Notes to Financial Statements
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8
<PAGE>
D O D G E & C O X
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Stock Fund
<TABLE>
<CAPTION>
Statement of Operations Six Months Ended June 30, 1999
----------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends.................................................................. $ 40,673,034
Interest................................................................... 2,984,605
------------
43,657,639
------------
EXPENSES:
Management fees (Note 2)................................................... 10,864,318
Custodian and fund accounting fees......................................... 91,862
Transfer agent fees........................................................ 949,822
Audit fees................................................................. 20,229
Legal fees................................................................. 2,746
Shareholder reports........................................................ 214,903
Registration fees.......................................................... 131,489
Trustees' fees (Note 2).................................................... 6,500
Miscellaneous.............................................................. 33,922
------------
12,315,791
------------
NET INVESTMENT INCOME...................................................... 31,341,848
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments........................................ 175,199,394
Net unrealized appreciation on investments.............................. 659,190,000
------------
Net realized and unrealized gain on investments....................... 834,389,394
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................... $865,731,242
============
</TABLE>
See accompanying Notes to Financial Statements
================================================================================
9
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
<S> <C> <C>
OPERATIONS:
Net investment income.................................................. $ 31,341,848 $ 72,453,125
Net realized gain...................................................... 175,199,394 324,308,314
Net unrealized appreciation (depreciation)............................. 659,190,000 (188,133,334)
-------------- ---------------
Net increase in net assets from operations............................. 865,731,242 208,628,105
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................................. (31,019,477) (71,742,283)
Net realized gain...................................................... (57,068,436) (337,213,581)
-------------- ---------------
Total distributions.................................................... (88,087,913) (408,955,864)
-------------- ---------------
BENEFICIAL SHARE TRANSACTIONS:
Amounts received from sale of shares................................... 397,359,126 1,255,961,170
Net asset value of shares issued in reinvestment of distributions...... 80,553,840 373,646,356
Amounts paid for shares redeemed....................................... (905,971,043) (1,160,943,436)
-------------- ---------------
Net increase (decrease) from beneficial share transactions............. (428,058,077) 468,664,090
-------------- ---------------
Total increase in net assets........................................... 349,585,252 268,336,331
NET ASSETS:
Beginning of period.................................................... 4,355,294,419 4,086,958,088
-------------- ---------------
End of period (including undistributed net investment income
of $1,302,207 and $979,836 respectively)............................... $4,704,879,671 $ 4,355,294,419
============== ===============
Shares sold............................................................ 4,021,115 13,018,690
Shares issued in reinvestment of distributions......................... 833,811 4,028,923
Shares redeemed........................................................ (9,442,919) (12,248,020)
-------------- ---------------
Net increase (decrease) in shares outstanding.......................... (4,587,993) 4,799,593
============== ===============
</TABLE>
See accompanying Notes to Financial Statements
================================================================================
10
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
Notes to Financial Statements
------------------------------------------------------------------------
1 Dodge & Cox Stock Fund (the "Fund") is a separate series of Dodge & Cox
Funds (the "Trust"). The Trust is organized as a Delaware business trust
and is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. The Fund
consistently follows accounting policies which are in conformity with
generally accepted accounting principles. 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; 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 which approximates 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 and interest income are 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. The agreement further provides that
Dodge & Cox shall waive its fee to the extent that such fee plus all
other expenses of the Fund exceed 3/4 of 1% of the average daily net
asset value for the year. All officers and seven of the trustees of the
Trust are officers and employees of Dodge & Cox. Those trustees who are
not affiliated with Dodge & Cox receive from the Trust an annual fee
plus an attendance fee for each Board or Committee meeting attended.
Payments to trustees are divided equally among each series of the Trust.
The Trust does not pay any other remuneration to its officers or
trustees.
3 For the six months ended June 30, 1999, purchases and sales of
securities, other than short-term securities, aggregated $184,976,337
and $729,942,800 respectively. At June 30, 1999, the cost of investments
for Federal income tax purposes was equal to the cost for financial
reporting purposes. Net unrealized appreciation aggregated
$1,417,002,199, of which $1,527,904,936 represented appreciated
securities and $110,902,737 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.
================================================================================
11
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
<TABLE>
<CAPTION>
Financial Highlights
----------------------------------------------------------------------------------------------------------------------
SELECTED DATA AND RATIOS (for a share outstanding throughout each period)
Six Months Ended
June 30, Year Ended December 31,
---------------- ------------------------------------------------
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 90.70 $94.57 $79.81 $67.83 $53.94 $53.23
Income from investment operations:
Net investment income .73 1.57 1.48 1.28 1.27 1.15
Net realized and unrealized gain 18.91 3.54 20.86 13.67 16.54 1.60
------- ------ ------ ------ ------ ------
Total from investment operations 19.64 5.11 22.34 14.95 17.81 2.75
------- ------ ------ ------ ------ ------
Distributions to shareholders from:
Net investment income (.71) (1.56) (1.49) (1.29) (1.26) (1.15)
Net realized gain (1.29) (7.42) (6.09) (1.68) (2.66) (.89)
------- ------ ------ ------ ------ ------
Total distributions (2.00) (8.98) (7.58) (2.97) (3.92) (2.04)
------- ------ ------ ------ ------ ------
Net asset value, end of period $108.34 $90.70 $94.57 $79.81 $67.83 $53.94
======= ====== ====== ====== ====== ======
Total return 21.93% 5.39% 28.41% 22.26% 33.38% 5.16%
Ratios/supplemental data:
Net assets, end of period (millions) $ 4,705 $4,355 $4,087 $2,252 $1,228 $ 543
Ratio of expenses to average net assets .56%* .57% .57% .59% .60% .61%
Ratio of net investment income to average net assets 1.43%* 1.63% 1.67% 1.79% 2.07% 2.16%
Portfolio turnover rate 4% 19% 19% 10% 13% 7%
* Annualized
</TABLE>
================================================================================
12
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
THIS PAGE INTENTIONALLY LEFT BLANK
================================================================================
13
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
THIS PAGE INTENTIONALLY LEFT BLANK
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14
<PAGE>
D O D G E & C O X
================================================================================
Stock Fund
Officers and Trustees
- --------------------------------------------------------------------------------
Harry R. Hagey, Chairman & Trustee
Chairman & CEO, Dodge & Cox
John A. Gunn, President & Trustee
President, Dodge & Cox
A. Horton Shapiro, Executive Vice President & Trustee
Senior Vice President, Dodge & Cox
W. Timothy Ryan, Treasurer, Secretary & Trustee
Senior Vice President,Dodge & Cox
Katherine Herrick Drake, Vice President & Trustee
Vice President, Dodge & Cox
Dana M. Emery, Vice President & Trustee
Senior Vice President, Dodge & Cox
Kenneth E. Olivier, Vice President & 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
Thomas M. Mistele, Asst. Secretary & Asst. Treasurer
Vice President & General Counsel, Dodge & Cox
PREPARING FOR THE YEAR 2000
The Fund's key service providers--Dodge & Cox, the investment manager; Boston
Financial Data Services Inc., the transfer agent; and State Street Bank and
Trust Company, the custodian and fund accountant--are taking steps that each
believes are reasonably designed to address the Year 2000 issue with respect to
the systems that they use. The Fund's service providers are on target to
complete their Year 2000 readiness by September 30, 1999. For the remainder of
1999 they will participate in appropriate industry Year 2000 testing and
finalize their Year 2000 contingency plans. The Funds believe these steps will
be sufficient to avoid any material adverse impact on the Funds, although there
can be no assurances to that effect. Additional information on Year 2000
preparations can be found on the Fund's web site at www.dodgeandcox.com.
================================================================================
<PAGE>
D O D G E & C O X
Balanced Fund
Investment Managers
Dodge & Cox
One Sansome Street
35th Floor
San Francisco, California
94104-4443
(415) 981-1710
For Fund literature and
information, please visit the
Funds' web site at:
www.dodgeandcox.com
or write or call:
Dodge & Cox Funds
c/o Boston Financial Data Services
P.O. Box 9051
Boston, Massachusetts
02205-9051
(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 a current prospectus.
Printed on recycled paper 6/99 BF SAR
D O D G E & C O X
Balanced Fund
Established 1931
Semi-Annual Report
June 30, 1999
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
To Our Shareholders
- --------------------------------------------------------------------------------
The Dodge & Cox Balanced Fund generated a total return of 9.9% during the second
quarter of 1999 and 13.0% for the first six months of the year. These results
compare to 3.9% and 6.7% returns for the Combined Index* for the same time
periods. Longer-term results for the Fund appear on page three of this report.
At the end of the second quarter, the Fund's $5.7 billion in assets were
invested 62.6% in stocks, 34.6% in fixed-income securities and 2.8% in cash
equivalents.
Recent Equity Results
During the quarter, the equity portion of the Fund performed significantly
better than (i.e., more than two times) the 7.1% return of the S&P 500 Index. In
fact, the equity portfolio accounted for all of the Fund's year-to-date return,
as the bond portion of the Fund had a slightly negative total return. Growing
optimism about recovery of the global economy fueled a strong rally in
"economically sensitive" stocks. Strong contributors to the Fund's equity return
included industrial commodities, energy, technology and finance holdings. The
Fund's relatively small position in pharmaceutical and consumer products
companies was also a positive factor, as many of these stocks in the S&P 500
performed poorly in the second quarter.
Has the portfolio strategy changed?
Interestingly, nearly the same equity portfolio produced the Fund's
disappointing relative performance in 1998 and its strong results in 1999. Due
to our long-term investment horizon and low portfolio turnover, there were 59
companies held from the end of 1997 to June of 1999. This group represented
approximately 85% of the Fund's equities at the end of both periods. While our
portfolio strategy remained substantially the same, other investors' views about
these stocks improved dramatically. These changing views have led to significant
price appreciation in many of the Fund's holdings over the past six months. We
are pleased that our long-term, price-disciplined approach has yielded better
results so far in 1999 than it did in 1998. We are more convinced than ever that
patience and persistence are critical in investing.
Where are the best equity values now?
Given the strong recent performance, are the "economically sensitive" stocks
fully valued? Are there more attractive values elsewhere? The U.S. economy
remains strong and has been a stabilizing factor on the global economic scene.
It appears likely that the world economy will expand its growth rate in the
years ahead, recovering from the 1997-1998 recession outside the U.S. As this
occurs, many of the companies held in the Fund would be operating in a much-
improved global business environment. While some of this optimism has been
reflected in higher stock prices for the "economically sensitive" stocks, we
believe that many of these companies may still be in the early stages of an
upward earnings ramp that could last for years. Our individual company analysis
suggests that valuations in this area remain attractive, especially if the
global economy continues to rebound.
In addition to the economically sensitive area, we are investing in sectors and
companies that are less closely correlated with the economic cycle, to insure
that there are different investment themes at work in the portfolio.
. Financial services represents approximately 15% of the equity portfolio,
comprised of companies selected for distinctive business niches and
well-capitalized balance sheets.
. The technology sector continues to have above average growth prospects.
About 17% of the Fund's equity portfolio is invested in attractively
valued companies participating directly in the technology industry. We
also look for companies that actively use technology to improve their
own businesses.
. Some investment themes are not industry-specific, but are driven by our
in-depth research of individual companies. For example, we are attracted
when new management serves to re-energize or re-focus an established
company. Examples of such changes are found across all industries, and
in our portfolio would include Kmart, Electronic Data Systems, NCR and
Sony.
Our goal is to structure the portfolio with diversified investment themes,
combining many different opportunities to produce competitive long-term
investment returns.
* The Combined Index reflects an unmanaged portfolio of 60% of the S&P 500 and
40% of the LBAG.
================================================================================
1
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
- --------------------------------------------------------------------------------
Recent Returns for Fixed-Income Investments
Interest rates have continued to rise through June, fueled by reports that the
U.S. economy continues to grow rapidly and by indications of a concurrent rise
in inflation. With rising interest rates, bond prices declined. As a result,
returns for the bond portion of the Fund were slightly negative in the second
quarter and year-to-date.
Strong economic news during the first half of the year included U.S. gross
domestic product (GDP) growing at a 4.3% rate in the first quarter, with the
expectation of solid growth in the second quarter, as well. Though slower than
the rapid 6.0% pace of growth in the fourth quarter of last year, GDP growth
remains well above presumed, long-term non-inflationary levels. Our view is that
rising inflation is a definite possibility, so we have defensively positioned
the bond portion of the Fund with a duration (a measure of price sensitivity to
interest rate changes) slightly shorter than that of the broad bond market
(measured by the Lehman Brothers Aggregate Bond Index).
A negative return for bonds?
For any given period of time, total return for a bond portfolio is the sum of
two parts: the stream of interest payments received (income) and the price
changes of the bonds themselves (capital appreciation/depreciation), which
result from changes in the level of interest rates. The (moderately) negative
investment return year-to-date illustrates a point that we have often made in
the past: over short time periods, price changes can dominate the total return
of a fixed-income investment. Over longer time horizons, however, the income
component of total return will be the more important contributor to total
return. With this knowledge, we continue to focus on building a relatively high
and stable yield into the Fund's fixed-income portfolio and to invest with a
long-term time horizon.
One of the strategies in the fixed-income portion of the Fund is investment in
carefully selected mortgage-backed securities. In this sector, we purchase
highly rated securities that offer attractive levels of incremental yield. By
using Federal Agency mortgage securities, we maintain a high average quality in
the Fund. In addition to quality considerations, we use our research to seek out
stability of cash flow in our mortgage-backed investments. We believe that, over
a three to five year investment horizon, the securities we have selected have a
higher probability of earning a total return above that of the comparable-
maturity alternatives.
Dodge & Cox Philosophy: Stick to the Basics
The above examples are meant to illustrate recurring Dodge & Cox themes -
incremental yield in the bond portfolio, with price discipline as its corollary
in the equity portfolio; and the enduring elements of our investment philosophy
of high quality, thorough research, diversification and a long-term investment
horizon. As always, even a clearly defined investment philosophy is dependent
for its implementation on the team of investment professionals at the
organization. At Dodge & Cox, we have a stable team of experienced portfolio
managers and analysts. We continue to remain an independent firm, owned only by
active employees. Our independence is vital to maintaining the focused,
disciplined approach that we believe is the key to long-term investment success.
Please write or call if you have questions or comments about the Balanced Fund.
We have devoted an area on our web site (www.dodgeandcox.com) to answering your
most frequently asked questions. Thank you for your continued confidence in
Dodge & Cox.
For the Board of Trustees,
/s/ Harry R. Hagey
------------------------
Harry R. Hagey, Chairman
July 30, 1999
================================================================================
2
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
Objective The Fund seeks regular income, conservation of principal and an
opportunity for long-term growth of principal and income.
Strategy The Fund invests in a diversified portfolio of common stocks,
preferred stocks and bonds.
Stocks: The Fund invests in well-established companies that, in
Dodge & Cox's opinion, appear to be temporarily undervalued by the
stock market but have a favorable outlook for long-term growth. The
Fund focuses on the underlying financial condition and prospects of
individual companies. 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 investments
include investment-grade: U.S. government obligations, mortgage and
asset-backed securities, corporate bonds, collateralized mortgage
obligations (CMOs) and others.
Ten Years of Investment Performance through June 30, 1999
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DODGE & COX S & P
BALANCED COMBINED LBAG 500
FUND INDEX INDEX INDEX
----------- -------- ----- -----
<S> <C> <C> <C> <C>
7/1/1989 $10,000 $10,000 $10,000 $10,000
6/30/1990 11,294 11,318 10,783 11,649
6/30/1991 12,225 12,335 11,939 12,510
6/30/1992 13,866 14,043 13,615 14,187
6/30/1993 16,391 15,861 15,220 16,120
6/30/1994 16,885 15,918 15,021 16,347
6/30/1995 20,342 19,186 16,906 20,606
6/30/1996 23,535 22,487 17,754 25,963
6/30/1997 28,773 27,795 19,203 34,963
6/30/1998 33,200 33,974 21,226 45,516
6/30/1999 37,482 39,136 21,892 55,867
</TABLE>
<TABLE>
<CAPTION>
Average annual total return for periods ended June 30, 1999 1 Year 5 Years 10 Years 20 Years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dodge & Cox Balanced Fund 12.90% 17.29% 14.12% 14.47%
Combined Index 15.20 19.72 14.62 14.85
S&P 500 22.74 27.86 18.77 17.86
Lehman Brothers Aggregate Bond Index (LBAG) 3.13 7.82 8.15 9.77
</TABLE>
The chart covers the period from July 1, 1989 to June 30, 1999. It compares a
$10,000 investment made in the Dodge & Cox Balanced Fund to $10,000 investments
made in the S&P 500, the LBAG and the Combined Index. The S&P 500 and LBAG are
widely recognized, unmanaged indices of common stock and U.S. dollar-
denominated, investment-grade fixed-income securities, respectively. The
Combined Index reflects an unmanaged portfolio of 60% of the S&P 500 and 40% of
the LBAG. The Fund may, however, invest up to 75% of its total assets in stocks.
The Fund's total returns include the reinvestment of dividend and capital gain
distributions. 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.
================================================================================
3
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
Fund Information June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Information
- --------------------------------------------------------------------------------
<S> <C>
Net Asset Value Per Share $71.80
Total Net Assets (millions) $5,740
30 Day SEC Yield/1/ 3.08%
1998 Expense Ratio 0.54%
1998 Portfolio Turnover 26%
Fund Inception Date 1931
Investment Manager: Dodge & Cox, San Francisco.
Managed by the Investment Policy Committee, whose eight members' average tenure
at Dodge & Cox is 21 years, and by the Fixed-Income Strategy Committee, whose
ten members' average tenure is 11 years.
</TABLE>
<TABLE>
<CAPTION>
Asset Allocation
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<S> <C>
Bonds: 34.6%
Stocks: 62.6%
Short-Term Investments: 2.8%
</TABLE>
<TABLE>
<CAPTION>
Stock Portfolio (62.6% of Fund)
- --------------------------------------------------------------------------------
<S> <C>
Number of Stocks 72
Median Market Capitalization $8.3 billion
Price to Earnings Ratio/2/ 25.3x
Price to Book Value 2.6x
Foreign Stocks/3/ (as percentage of Fund) 8%
</TABLE>
<TABLE>
<CAPTION>
Five Largest Sectors % of Fund
- --------------------------------------------------------------------------------
<S> <C>
Electronics & Computer 8.3
Energy 8.0
Insurance & Financial Services 4.8
Banking 4.6
Transportation 4.4
</TABLE>
<TABLE>
<CAPTION>
Ten Largest Stock Holdings % of Fund
- --------------------------------------------------------------------------------
<S> <C>
Alcoa 1.9
Motorola 1.9
FDX Corp. 1.8
Dow Chemical 1.7
Union Pacific 1.7
Kmart 1.5
Republic New York 1.5
News Corp. Ltd., ADR 1.5
Sony, ADR 1.4
Pharmacia & Upjohn 1.4
</TABLE>
<TABLE>
<CAPTION>
Bond Portfolio (34.6% of Fund)
- --------------------------------------------------------------------------------
<S> <C>
Number of Bonds 129
Average Quality AA
Average Maturity 10.3 years
Effective Duration 4.44 years
</TABLE>
<TABLE>
<CAPTION>
Moody's/Standard & Poor's Quality Ratings % of Fund
- --------------------------------------------------------------------------------
<S> <C>
U.S. Government & Government Agencies 20.6
Aaa/AAA 1.4
Aa/AA 0.0
A/A 7.2
Baa/BBB 5.4
</TABLE>
<TABLE>
<CAPTION>
Sector Breakdown % of Fund
- --------------------------------------------------------------------------------
<S> <C>
U.S. Treasury and Government Agency 7.2
Federal Agency CMO and REMIC+ 8.6
Federal Agency Mortgage Pass-Through 4.8
Asset-Backed 1.0
Corporate 10.9
Foreign (U.S. Dollar-denominated) 2.1
</TABLE>
+ Collateralized Mortgage Obligation and Real Estate Mortgage Investment
Conduit
/1/ An annualization of the Fund's total net investment income per share for the
30-day period ended on the last day of the month.
/2/ Price to earnings ratio is calculated using trailing 12-month earnings and
excludes extraordinary items.
/3/ All U.S. Dollar-denominated.
================================================================================
4
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1998
----------------------------------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON CONSUMER: 12.1%
STOCKS: RETAIL AND DISTRIBUTION: 3.8%
61.1% 5,408,000 Kmart Corp.+........................................................... $ 88,894,000
1,417,700 Genuine Parts Co....................................................... 49,619,500
1,180,000 Dillard's, Inc. Class A................................................ 41,447,500
1,177,600 Nordstrom, Inc......................................................... 39,449,600
------------
219,410,600
CONSUMER DURABLES: 3.7%
1,226,600 General Motors Corp..................................................... 80,955,600
798,500 Whirlpool Corp.......................................................... 59,089,000
813,000 Ford Motor Co........................................................... 45,883,687
1,242,307 Delphi Automotive Systems Corp.......................................... 23,060,324
------------
208,988,611
HEALTHCARE AND PHARMACEUTICAL: 2.4%
1,439,000 Pharmacia & Upjohn, Inc................................................. 81,753,188
541,700 Bausch & Lomb, Inc...................................................... 41,440,050
754,000 First Health Group Corp.+............................................... 16,258,125
------------
139,451,363
CONSUMER PRODUCTS: 1.3%
1,269,300 Fort James Corp......................................................... 48,074,737
900,100 Dole Food Co., Inc...................................................... 26,440,438
------------
74,515,175
MEDIA AND LEISURE: 0.9%
1,295,300 R.R. Donnelley & Sons Co................................................ 48,007,056
103,150 Dow Jones & Co.......................................................... 5,473,397
------------
53,480,453
------------
695,846,202
TECHNOLOGY: 11.0%
ELECTRONICS AND COMPUTER: 8.3%
1,140,300 Motorola, Inc........................................................... 108,043,425
802,000 Hewlett-Packard Co...................................................... 80,601,000
1,080,400 Electronic Data Systems................................................. 61,110,125
1,150,500 NCR Corp.+.............................................................. 56,158,781
2,210,000 National Semiconductor Corp.+........................................... 55,940,625
600,000 Xerox Corp.............................................................. 35,437,500
360,000 Adobe Systems, Inc...................................................... 29,576,250
1,206,300 Storage Technology Corp.+............................................... 27,443,325
625,200 Thermo Electron Corp.+.................................................. 12,543,075
901,800 Sybase, Inc.+........................................................... 9,919,800
------------
476,773,906
CONSUMER ELECTRONICS: 2.7%
762,000 Sony Corp. ADR.......................................................... 84,105,750
343,800 Matsushita Electric Industrial Co., Ltd. ADR............................ 68,179,838
------------
152,285,588
------------
629,059,494
</TABLE>
See Accompanying Notes to Financial Statements
================================================================================
5
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1998
----------------------------------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON INDUSTRIAL COMMODITIES: 10.3%
STOCKS CHEMICALS: 3.5%
(Continued) 775,200 Dow Chemical Co......................................................... $ 98,353,500
667,700 Nalco Chemical Co....................................................... 34,636,938
596,700 Eastman Chemical Co..................................................... 30,879,225
475,000 Union Carbide Corp...................................................... 23,156,250
274,000 Lubrizol Corp........................................................... 7,466,500
277,620 NOVA Chemicals Corp..................................................... 6,472,016
------------
200,964,429
METALS AND MINING: 3.2%
1,777,700 Alcoa, Inc.............................................................. 109,995,187
1,140,900 Rio Tinto PLC........................................................... 76,725,525
------------
186,720,712
PAPER AND FOREST PRODUCTS: 2.8%
935,100 Weyerhaeuser Co......................................................... 64,288,125
976,300 Champion International Corp............................................. 46,740,362
511,400 International Paper Co.................................................. 25,825,700
566,000 Boise Cascade Corp...................................................... 24,267,250
------------
161,121,437
GENERAL MANUFACTURING: 0.8%
2,884,500 Archer Daniels Midland Co............................................... 44,529,469
------------
593,336,047
FINANCE: 9.7%
INSURANCE AND FINANCIAL SERVICES: 4.8%
1,577,250 Citigroup, Inc.......................................................... 74,919,375
440,500 American Express Co..................................................... 57,320,062
1,706,100 The St. Paul Cos., Inc.................................................. 54,275,306
643,100 Loews Corp.............................................................. 50,885,288
509,000 Chubb Corp.............................................................. 35,375,500
------------
272,775,531
BANKING: 4.6%
1,268,400 Republic New York Corp.................................................. 86,489,025
717,600 Golden West Financial Corp.............................................. 70,324,800
747,434 Bank of America Corp.................................................... 54,796,255
1,251,600 Wells Fargo & Co........................................................ 53,505,900
------------
265,115,980
REAL ESTATE INVESTMENT TRUST: 0.3%
401,000 Equity Residential Properties Trust..................................... 18,070,063
------------
555,961,574
ENERGY: 8.0%
1,150,200 Amerada Hess Corp....................................................... 68,436,900
2,016,650 Baker Hughes, Inc....................................................... 67,557,775
1,130,200 Phillips Petroleum Co................................................... 56,863,187
557,000 Chevron Corp............................................................ 53,019,437
2,500,000 Occidental Petroleum Corp............................................... 52,812,500
1,219,700 Unocal Corp............................................................. 48,330,613
2,842,185 Union Pacific Resources Group, Inc...................................... 46,363,143
578,000 Royal Dutch Petroleum Co................................................ 34,824,500
470,000 Schlumberger Ltd........................................................ 29,933,125
------------
458,141,180
</TABLE>
See Accompanying Notes to Financial Statements
================================================================================
6
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1999
----------------------------------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON TRANSPORTATION: 4.4%
STOCKS 1,871,600 FDX Corp.+............................................................ $ 101,534,300
(Continued) 1,670,000 Union Pacific Corp.................................................... 97,381,875
2,195,000 Canadian Pacific Ltd.................................................. 52,268,437
--------------
251,184,612
GENERAL INDUSTRIAL: 3.5%
1,421,200 Deere & Co............................................................ 56,315,050
1,348,200 Lockheed Martin Corp.................................................. 50,220,450
789,000 Caterpillar, Inc...................................................... 47,340,000
1,005,500 Fluor Corp............................................................ 40,722,750
632,100 Unova, Inc.+.......................................................... 10,034,588
--------------
204,632,838
ELECTRIC AND GAS UTILITIES: 2.1%
1,635,600 Central & South West Corp............................................. 38,232,150
807,000 Texas Utilities Co.................................................... 33,288,750
502,800 FPL Group, Inc........................................................ 27,465,450
933,000 Wisconsin Energy Corp................................................. 23,383,313
--------------
122,369,663
--------------
Total Common Stocks (cost $2,422,824,233). ....................... 3,510,531,610
PREFERRED CONSUMER: 1.5%
STOCKS: 2,678,000 News Corp. Ltd., Limited Voting Ordinary Shares ADR................... 84,524,375
1.5% --------------
Total Preferred Stocks (cost $47,895,363) ........................ 84,524,375
PAR VALUE
BONDS: U.S. TREASURY AND GOVERNMENT AGENCY: 7.2%
34.6% U.S. TREASURY: 6.0%
$43,122,177 U.S. Treasury Bonds, 3.625%, 4/15/2028 ............................... 40,689,655
17,961,028 U.S. Treasury Bonds, 3.875%, 4/15/2029 ............................... 17,714,063
55,250,000 U.S. Treasury Notes, 5.875%, 11/15/1999............................... 55,414,092
87,200,000 U.S. Treasury Notes, 5.375%, 1/31/2000 ............................... 87,363,064
70,850,000 U.S. Treasury Notes, 7.125%, 2/29/2000 ............................... 71,746,961
20,000,000 U.S. Treasury Notes, 6.75%, 4/30/2000 ................................ 20,234,400
8,000,000 U.S. Treasury Notes, 5.625%, 11/30/2000 .............................. 8,021,280
3,200,000 U.S. Treasury Notes, 6.25%, 2/15/2003 ................................ 3,257,504
42,978,671 U.S. Treasury Notes, 3.875%, 1/15/2009 ............................... 42,468,085
--------------
346,909,104
GOVERNMENT AGENCY: 1.2%
5,000,000 Arkansas Dev. Fin. Auth. GNMA Guaranteed Bonds, 9.75%, 11/15/2014 .... 6,054,650
15,360,209 Govt. Small Business Admin. 504 Series 97-20F, 7.20%, 6/1/2017 ....... 15,513,055
17,758,454 Govt. Small Business Admin. 504 Series 97-20I, 6.90%, 9/1/2017 ....... 17,715,012
19,852,373 Govt. Small Business Admin. 504 Series 98-20D, 6.15%, 4/1/2018 ....... 18,988,614
9,830,319 Govt. Small Business Admin. 504 Series 98-20I, 6.00%, 9/1/2018 ....... 9,306,322
--------------
67,577,653
--------------
414,486,757
</TABLE>
See Accompanying Notes to Financial Statements
================================================================================
7
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1999
------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS FEDERAL AGENCY CMO* AND REMIC**: 8.6%
(Continued) $ 6,244,666 Federal Home Loan Mtge. Corp., 7.00%, 3/15/2005........... $ 6,250,473
15,000,000 Federal Home Loan Mtge. Corp., 7.00%, 1/15/2006........... 15,145,200
14,819,645 Federal Home Loan Mtge. Corp., 7.00%, 10/15/2006.......... 14,958,505
18,135,952 Federal Home Loan Mtge. Corp., 6.75%, 11/15/2006.......... 18,164,244
5,391,921 Federal Home Loan Mtge. Corp., 6.00%, 1/15/2007........... 5,348,085
25,001,931 Federal Home Loan Mtge. Corp., 7.25%, 4/15/2007........... 25,298,704
21,500,000 Federal Home Loan Mtge. Corp., 6.50%, 10/15/2007.......... 21,500,000
12,609,000 Federal Home Loan Mtge. Corp., 7.00%, 1/15/2008........... 12,742,908
10,000,000 Federal Home Loan Mtge. Corp., 6.50%, 5/15/2008........... 9,962,500
14,750,000 Federal Home Loan Mtge. Corp., 6.50%, 5/15/2008........... 14,689,968
16,474,350 Federal Home Loan Mtge. Corp., 6.50%, 8/15/2008........... 16,463,971
19,380,000 Federal Home Loan Mtge. Corp., 6.50%, 10/15/2008.......... 19,373,798
31,000,000 Federal Home Loan Mtge. Corp., 6.00%, 12/15/2008.......... 30,408,830
11,143,777 Federal Home Loan Mtge. Corp., 7.00%, 5/17/2020........... 11,223,789
21,032,484 Federal Home Loan Mtge. Corp., 6.50%, 5/15/2021........... 20,848,449
25,000,000 Federal Home Loan Mtge. Corp., 6.75%, 8/15/2021........... 24,914,000
27,780,000 Federal Home Loan Mtge. Corp., 6.25%, 9/15/2022........... 27,441,362
28,000,000 Federal Home Loan Mtge. Corp., 7.00%, 8/25/2023........... 27,545,000
1,284,621 Federal Natl. Mtge. Assn., 5.00%, 12/25/2004.............. 1,278,597
2,644,103 Federal Natl. Mtge. Assn., 6.00%, 9/18/2005............... 2,637,493
5,744,547 Federal Natl. Mtge. Assn., 5.00%, 1/1/2006................ 5,552,449
20,962,856 Federal Natl. Mtge. Assn., 7.50%, 2/25/2007............... 21,290,296
10,000,000 Federal Natl. Mtge. Assn., 6.50%, 6/25/2008............... 9,937,500
21,674,800 Federal Natl. Mtge. Assn., 6.50%, 8/25/2008............... 21,451,116
15,475,000 Federal Natl. Mtge. Assn., 6.00%, 3/25/2009............... 15,078,376
739,422 Federal Natl. Mtge. Assn., 6.50%, 4/1/2009................ 723,938
6,044,462 Federal Natl. Mtge. Assn., 5.70%, 8/25/2016............... 6,002,876
13,730,000 Federal Natl. Mtge. Assn., 7.00%, 6/17/2022............... 13,717,094
1,677,622 Veterans Affairs Vendee Mtge. Trust, 6.50%, 11/15/2009.... 1,674,988
15,929,940 Veterans Affairs Vendee Mtge. Trust, 6.75%, 8/15/2014..... 16,034,440
27,000,000 Veterans Affairs Vendee Mtge. Trust, 6.75%, 9/15/2014..... 27,185,490
8,000,000 Veterans Affairs Vendee Mtge. Trust, 6.75%, 5/15/2019..... 8,000,000
23,000,000 Veterans Affairs Vendee Mtge. Trust, 7.00%, 6/15/2019..... 23,237,130
------------
496,081,569
FEDERAL AGENCY MORTGAGE PASS-THROUGH: 4.8%
417,659 Federal Home Loan Mtge. Corp., 6.50%, 2/1/2006............ 411,411
428,157 Federal Home Loan Mtge. Corp., 7.50%, 7/1/2006............ 431,804
121,365 Federal Home Loan Mtge. Corp., 7.00%, 9/1/2006............ 121,132
296,854 Federal Home Loan Mtge. Corp., 7.25%, 1/1/2008............ 297,673
160,294 Federal Home Loan Mtge. Corp., 7.50%, 2/1/2008............ 161,660
830,895 Federal Home Loan Mtge. Corp., 8.00%, 2/1/2008............ 852,391
136,957 Federal Home Loan Mtge. Corp., 7.25%, 4/1/2008............ 137,549
19,143,800 Federal Home Loan Mtge. Corp., 7.00%, 5/1/2008............ 19,255,217
29,326,477 Federal Home Loan Mtge. Corp., 7.00%, 12/1/2008........... 29,497,157
7,799,709 Federal Home Loan Mtge. Corp., 6.50%, 2/1/2009............ 7,725,924
17,658,594 Federal Home Loan Mtge. Corp., 6.00%, 9/1/2009............ 17,263,042
798,546 Federal Home Loan Mtge. Corp., 8.75%, 5/1/2010............ 828,787
11,041,491 Federal Home Loan Mtge. Corp., 7.50%, 8/1/2010............ 11,259,008
4,477,779 Federal Home Loan Mtge. Corp., 8.00%, 11/1/2010........... 4,593,619
245,555 Federal Home Loan Mtge. Corp., 7.75%, 1/1/2012............ 249,199
795,652 Federal Home Loan Mtge. Corp., 8.25%, 2/1/2017............ 820,197
6,702,521 Federal Home Loan Mtge. Corp., 8.50%, 1/1/2023............ 7,010,837
380,566 Federal Natl. Mtge. Assn., 6.50%, 1/1/2004................ 378,176
2,134,024 Federal Natl. Mtge. Assn., 7.50%, 12/1/2006............... 2,173,888
</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, 1999
-------------------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS FEDERAL AGENCY MORTGAGE PASS-THROUGH (continued)
(Continued) $ 4,059,742 Federal Natl. Mtge. Assn., 7.50%, 9/1/2007...........................$ 4,148,528
6,921,760 Federal Natl. Mtge. Assn., 7.00%, 12/1/2007.......................... 6,938,373
13,198,694 Federal Natl. Mtge. Assn., 7.00%, 12/1/2007.......................... 13,270,099
7,586,012 Federal Natl. Mtge. Assn., 6.50%, 5/1/2008........................... 7,519,104
10,940,014 Federal Natl. Mtge. Assn., 8.00%, 6/1/2008........................... 11,274,341
19,703,388 Federal Natl. Mtge. Assn., 6.50%, 11/1/2008.......................... 19,529,604
8,589,742 Federal Natl. Mtge. Assn., 6.00%, 1/1/2009........................... 8,353,524
3,419,844 Federal Natl. Mtge. Assn., 8.00%, 1/1/2009........................... 3,517,104
1,080,743 Federal Natl. Mtge. Assn., 7.50%, 8/1/2010........................... 1,102,022
3,489,469 Federal Natl. Mtge. Assn., 7.50%, 7/1/2019........................... 3,552,419
13,261,255 Govt. Natl. Mtge. Assn., 7.50%, 7/15/2007............................ 13,504,599
16,408,278 Govt. Natl. Mtge. Assn., 7.50%, 1/15/2008............................ 16,744,812
7,450,563 Govt. Natl. Mtge. Assn., 8.00%, 12/15/2008........................... 7,681,008
29,653,882 Govt. Natl. Mtge. Assn., 6.50%, 7/15/2009............................ 29,499,089
8,965,240 Veterans Affairs Vendee Mtge. Trust, 5.634%, 2/15/2024............... 8,320,818
6,482,035 Veterans Affairs Vendee Mtge. Trust, 7.209%, 2/15/2025............... 6,548,865
7,009,497 Veterans Affairs Vendee Mtge. Trust, 8.793%, 6/15/2025............... 7,416,889
------------
272,389,869
ASSET-BACKED SECURITIES: 1.0%
37,625,000 CA Infrastructure and Econ. Dev. Bank SP Trust PGE-1 Rate Reduction
Ctf. 1997- A-5, 6.25%, 6/25/2004..................................... 37,582,860
18,000,000 CA Infrastructure and Econ. Dev. Bank SP Trust SCE-1 Rate Reduction
Cft. 1997- A-6, 6.38%, 9/25/2008..................................... 17,796,600
------------
55,379,460
CORPORATE: 10.9%
INDUSTRIAL: 6.2%
12,500,000 Dayton Hudson Corp., 9.35%, 6/16/2020................................ 14,942,750
7,500,000 Dayton Hudson Corp., 9.875%, 7/1/2020................................ 9,427,725
8,450,000 Dayton Hudson Corp., 9.70%, 6/15/2021................................ 10,644,381
45,000,000 J.E. Seagram & Sons, Inc., 6.80%, 12/15/2008......................... 42,907,050
27,500,000 Lockheed Martin Corp., 7.65%, 5/1/2016............................... 27,552,525
30,000,000 Lockheed Martin Corp., 7.75%, 5/1/2026............................... 29,713,800
5,975,000 May Department Stores, 7.625%, 8/15/2013............................. 6,317,487
14,000,000 May Department Stores, 8.125%, 8/15/2035, Callable 2015.............. 14,797,300
10,700,000 May Department Stores, 7.875%, 8/15/2036, Callable 2016.............. 11,038,441
35,000,000 Raychem Corp., 7.20%, 10/15/2008..................................... 34,642,300
28,325,000 Raytheon Co., 6.75%, 8/15/2007....................................... 28,036,651
20,000,000 Raytheon Co., 6.75%, 3/15/2018....................................... 18,834,600
17,500,000 Raytheon Co., 7.20%, 8/15/2027....................................... 16,981,300
32,000,000 Time Warner Entertainment, 8.375%, 7/15/2033......................... 34,794,240
3,450,000 Union Camp Corp., 9.25%, 2/1/2011.................................... 4,027,841
35,000,000 Union Carbide Corp., 6.70%, 4/1/2009................................. 33,308,100
20,000,000 Walt Disney Co., 7.55%, 7/15/2093, Callable 2023..................... 20,175,200
------------
358,141,691
FINANCE: 3.5%
19,775,000 BankAmerica Capital II, 8.00%, 12/15/2026, Callable 2006 ++.......... 19,904,328
2,000,000 Barclays No. American Capital, 9.75%, 5/15/2021, Callable 2001....... 2,169,780
1,800,000 CIGNA Corp., 7.65%, 3/1/2023......................................... 1,775,718
4,400,000 CIGNA Corp., 8.30%, 1/15/2033........................................ 4,599,804
18,680,000 Citicorp Capital Trust I, 7.933%, 2/15/2027, Callable 2007 ++........ 18,777,136
5,000,000 First Nationwide Bank, 10.00%, 10/1/2006............................. 5,555,400
30,000,000 GMAC Put Notes, 8.875%, 6/1/2010, Putable 2000/2005.................. 33,970,200
22,500,000 GMAC Senior Notes, 5.75%, 11/10/2003................................. 21,769,650
5,000,000 Golden West Financial, 7.875%, 1/15/2002............................. 5,167,650
</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, 1999
--------------------------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
FINANCE (continued)
<C> <C> <S> <C>
BONDS $ 10,000,000 Golden West Financial, 6.70%, 7/1/2002..................................... $ 10,053,300
(Continued) 24,100,000 Golden West Financial, 6.00%, 10/1/2003.................................... 23,568,354
6,000,000 Hartford Financial Services Group, 8.30%, 12/1/2001........................ 6,231,360
10,000,000 Hartford Financial Services Group, 6.375%, 11/1/2002....................... 9,906,800
25,160,000 J.P. Morgan Capital Trust I, 7.54%, 1/15/2027, Callable 2007 ++............ 24,045,915
14,175,000 Safeco Corp., 6.875%, 7/15/2007............................................ 13,857,622
--------------
201,353,017
TRANSPORTATION: 1.2%
7,435,347 Consolidated Rail Corp., 6.76%, 5/25/2015.................................. 7,337,126
12,550,000 Consolidated Rail Corp., 9.75%, 6/15/2020.................................. 15,223,526
49,426,000 Union Pacific Corp., 6.33%, 1/2/2020....................................... 45,564,347
--------------
68,124,999
UTILITIES: 0.0%
750,000 Idaho Power Co. 1st Mtge., 9.50%, 1/1/2021, Callable 2001.................. 809,535
--------------
628,429,242
FOREIGN (U.S. DOLLAR-DENOMINATED): 2.1%
CANADIAN: 1.2%
10,000,000 Canadian National Railway Co., 6.80%, 7/15/2018............................ 9,406,600
8,750,000 Canadian Pacific Ltd., 9.45%, 8/1/2021..................................... 10,170,213
12,000,000 Hydro-Quebec, 7.50%, 4/1/2016.............................................. 12,308,640
15,000,000 Hydro-Quebec, 8.40%, 1/15/2022............................................. 16,764,150
15,000,000 Hydro-Quebec, 8.05%, 7/7/2024, Putable 2006................................ 16,255,950
--------------
64,905,553
CORPORATE: 0.5%
30,000,000 HSBC Holdings PLC, 7.50%, 7/15/2009........................................ 30,314,100
--------------
INTERNATIONAL AGENCY: 0.4%
7,200,000 European Investment Bank, 10.125%, 10/1/2000............................... 7,581,600
17,765,000 Inter-American Development Bank, 7.125%, 3/15/2023, Callable 2003.......... 17,136,652
--------------
24,718,252
--------------
119,937,905
--------------
Total Bonds (cost $1,993,465,915).......................................... 1,986,704,802
--------------
SHORT-TERM 30,000,000 American Express Credit Corp., Comm. Paper, 5.00%, 7/1/1999................ 30,000,000
INVESTMENTS: 58,302,190 SSgA Prime Money Market Fund............................................... 58,302,190
2.9% 24,791,701 SSgA United States Treasury Money Market Fund.............................. 24,791,701
50,000,000 U.S. Treasury Bills, 8/19/1999............................................. 49,696,132
--------------
Total Short-Term Investments (cost $162,790,023)........................... 162,790,023
--------------
TOTAL INVESTMENTS (cost $4,626,975,534).......................... 100.1% 5,744,550,810
OTHER ASSETS LESS LIABILITIES.................................... (0.1) (4,834,791)
----- --------------
TOTAL NET ASSETS................................................. 100.0% $5,739,716,019
===== ==============
+ Non-income producing
++ Cumulative Preferred Securities
* CMO: Collateralized Mortgage Obligation
** REMIC: Real Estate Mortgage Investment Conduit
</TABLE>
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, 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at market value (identified cost $4,626,975,534)................. $5,744,550,810
Receivable for Fund shares sold............................................... 5,078,996
Dividends and interest receivable............................................. 32,826,828
Receivable for investments sold............................................... 28,982,182
Prepaid expenses.............................................................. 142,406
--------------
5,811,581,222
--------------
LIABILITIES:
Payable for investments purchased............................................. 32,627,848
Payable for Fund shares redeemed.............................................. 36,205,399
Management fees payable....................................................... 2,346,675
Accounts payable.............................................................. 685,281
--------------
71,865,203
Net asset value --------------
per share $71.80 NET ASSETS................................................. $5,739,716,019
==============
Beneficial NET ASSETS CONSIST OF:
shares outstanding Paid in capital............................................................... $4,439,751,144
79,945,748 Accumulated undistributed net investment income............................... 2,463,988
(par value $0.01 each, Accumulated undistributed net realized gain on investments.................... 179,925,611
unlimited shares Net unrealized appreciation on investments.................................... 1,117,575,276
authorized) --------------
$5,739,716,019
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations Six Months Ended June 30, 1999
----------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends..................................................................... $ 32,679,240
Interest...................................................................... 70,899,141
--------------
103,578,381
--------------
EXPENSES:
Management fees (Note 2)...................................................... 14,076,376
Custodian and fund accounting fees............................................ 130,025
Transfer agent fees........................................................... 691,306
Audit fees.................................................................... 20,307
Legal fees.................................................................... 2,815
Shareholder reports........................................................... 165,135
Registration fees............................................................. 161,570
Trustees' fees (Note 2)....................................................... 6,500
Miscellaneous................................................................. 44,172
--------------
15,298,206
--------------
NET INVESTMENT INCOME......................................................... 88,280,175
--------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments.............................................. 179,925,611
Net unrealized appreciation on investments.................................... 421,882,076
--------------
Net realized and unrealized gain on investments............................... 601,807,687
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......................... $ 690,087,862
==============
</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 Year Ended
June 30, 1999 December 31, 1998
---------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................................... $ 88,280,175 $ 187,529,474
Net realized gain................................................................... 179,925,611 304,796,545
Net unrealized appreciation (depreciation).......................................... 421,882,076 (134,003,289)
--------------- ---------------
Net increase in net assets from operations.......................................... 690,087,862 358,322,730
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................... (87,608,893) (186,617,482)
Net realized gain................................................................... (60,046,890) (313,107,429)
--------------- ---------------
Total distributions................................................................. (147,655,783) (499,724,911)
--------------- ---------------
BENEFICIAL SHARE TRANSACTIONS:
Amounts received from sale of shares................................................ 587,472,622 1,852,918,636
Net asset value of shares issued in reinvestment of distributions................... 142,987,036 483,582,782
Amounts paid for shares redeemed.................................................... (1,226,155,189) (1,578,717,026)
--------------- ---------------
Net increase (decrease) from beneficial share transactions.......................... (495,695,531) 757,784,392
--------------- ---------------
Total increase in net assets........................................................ 46,736,548 616,382,211
NET ASSETS:
Beginning of period................................................................. 5,692,979,471 5,076,597,260
--------------- ---------------
End of period (including undistributed net investment income
of $2,463,988 and $1,792,706, respectively)......................................... $ 5,739,716,019 $ 5,692,979,471
=============== ===============
Shares sold......................................................................... 8,664,075 27,407,254
Shares issued in reinvestment of distributions...................................... 2,110,601 7,297,276
Shares redeemed..................................................................... (18,115,520) (23,440,423)
--------------- ---------------
Net increase (decrease) in shares outstanding....................................... (7,340,844) 11,264,107
=============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
================================================================================
12
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
Notes to Financial Statements
------------------------------------------------------------------------
1 Dodge & Cox Balanced Fund (the "Fund") is a separate series of Dodge &
Cox Funds (the "Trust"). The Trust is organized as a Delaware business
trust and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
Fund consistently follows accounting policies which are in conformity
with generally accepted accounting principles. 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; 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; 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; 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 which
approximates 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 and interest income are recorded on the accrual basis. Premiums
and discounts on debt securities purchased are amortized and accreted,
respectively, to interest income over the lives of the respective
securities. (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 seven of the trustees
of the Trust are officers and employees of Dodge & Cox. Those trustees
who are not affiliated with Dodge & Cox receive from the Trust an annual
fee plus an attendance fee for each Board or Committee meeting attended.
Payments to trustees are divided equally among each series of the Trust.
The Trust does not pay any other remuneration to its officers or
trustees.
3 For the six months ended June 30, 1999, purchases and sales of
securities, other than short-term securities, aggregated $374,061,963
and $888,694,199, respectively, of which U.S. government obligations
aggregated $163,120,715 and $177,808,361, respectively. At June 30,
1999, the cost of investments for Federal income tax purposes was equal
to the cost for financial reporting purposes. Net unrealized
appreciation aggregated $1,117,575,276, of which $1,227,004,055
represented appreciated securities and $109,428,779 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
<TABLE>
<CAPTION>
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED DATA AND RATIOS (for a share outstanding throughout each period)
Six Months Ended
June 30, Year Ended December 31,
---------------- --------------------------------------------------
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 65.22 $66.78 $59.82 $54.60 $45.21 $46.40
Income from investment operations:
Net investment income 1.09 2.24 2.21 1.98 1.90 1.76
Net realized and unrealized gain (loss) 7.28 2.17 10.24 5.92 10.58 (.83)
------- ------ ------ ------ ------ ------
Total from investment operations 8.37 4.41 12.45 7.90 12.48 .93
------- ------ ------ ------ ------ ------
Distributions to shareholders from:
Net investment income (1.07) (2.23) (2.22) (1.99) (1.90) (1.76)
Net realized gain (.72) (3.74) (3.27) (.69) (1.19) (.36)
------- ------ ------ ------ ------ ------
Total distributions (1.79) (5.97) (5.49) (2.68) (3.09) (2.12)
------- ------ ------ ------ ------ ------
Net asset value, end of period $ 71.80 $65.22 $66.78 $59.82 $54.60 $45.21
======= ====== ====== ====== ====== ======
Total return 13.01% 6.70% 21.21% 14.75% 28.02% 1.99%
Ratios/supplemental data
Net assets, end of period (millions) $ 5,740 $5,693 $5,077 $3,630 $1,800 $ 725
Ratio of expenses to average net assets .54%* .54% .55% .56% .57% .58%
Ratio of net investment income to average net assets 3.11%* 3.29% 3.39% 3.60% 3.85% 3.94%
Portfolio turnover rate 7% 26% 32% 17% 20% 20%
* Annualized
</TABLE>
================================================================================
14
<PAGE>
D O D G E & C O X
================================================================================
Balanced Fund
Officers & Trustees
- --------------------------------------------------------------------------------
Harry R. Hagey, Chairman & Trustee
Chairman & CEO, Dodge & Cox
John A. Gunn, President & Trustee
President, Dodge & Cox
A. Horton Shapiro, Executive Vice President & Trustee
Senior Vice President, Dodge & Cox
W. Timothy Ryan, Treasurer, Secretary & Trustee
Senior Vice President,Dodge & Cox
Katherine Herrick Drake, Vice President & Trustee
Vice President, Dodge & Cox
Dana M. Emery, Vice President & Trustee
Senior Vice President, Dodge & Cox
Kenneth E. Olivier, Vice President & 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
Thomas M. Mistele, Asst. Secretary & Asst. Treasurer
Vice President & General Counsel, Dodge & Cox
PREPARING FOR THE YEAR 2000
The Fund's key service providers--Dodge & Cox, the investment manager; Boston
Financial Data Services Inc., the transfer agent; and State Street Bank and
Trust Company, the custodian and fund accountant--are taking steps that each
believes are reasonably designed to address the Year 2000 issue with respect to
the systems that they use. The Fund's service providers are on target to
complete their Year 2000 readiness by September 30, 1999. For the remainder of
1999 they will participate in appropriate industry Year 2000 testing and
finalize their Year 2000 contingency plans. The Funds believe these steps will
be sufficient to avoid any material adverse impact on the Funds, although there
can be no assurances to that effect. Additional information on Year 2000
preparations can be found on the Fund's web site at www.dodgeandcox.com.
================================================================================
<PAGE>
D O D G E & C O X
Income Fund
Investment Managers
Dodge & Cox
One Sansome Street
35th Floor
San Francisco, California
94104-4443
(415) 981-1710
For Fund literature and
information, please visit the
Funds' web site at:
www.dodgeandcox.com
or write or call:
Dodge & Cox Funds
c/o Boston Financial Data Services
P.O. Box 9051
Boston, Massachusetts
02205-9051
(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 a current prospectus.
Printed on recycled paper 6/99 IF SAR
D O D G E & C O X
Income Fund
Established 1989
Semi-Annual Report
June 30, 1999
<PAGE>
D O D G E & C O X
================================================================================
Income Fund
To Our Shareholders
- --------------------------------------------------------------------------------
The Dodge & Cox Income Fund had a total return of -1.0% for the quarter ended
June 30, 1999 and -1.3% for the first half of 1999. These were essentially even
with the total returns of -0.9% and -1.4%, respectively, for the Lehman Brothers
Aggregate Bond Index (LBAG), a broad-based unmanaged measure of U.S. dollar-
denominated investment grade-rated securities, which serves as a proxy for the
overall market. Average annual total returns for longer periods are listed on
page three of this report.
Strong Economic News leads to Higher Interest Rates and a "Restrictive" Federal
Reserve
U.S. Treasury yields continued to rise during the second quarter, fueled by
signs that the economy is continuing to grow at a rapid rate, indications that
inflation is rising, and expectations that the Federal Reserve would raise
short-term interest rates. For example, after rising by 53 basis points (one
basis point equals 1/100th of one percent) to yield 5.62% in the first quarter,
the benchmark 30-year Treasury yield rose to a high of 6.17% during the second
quarter, then rebounded back to 5.97% at quarter end. Higher rates led to price
declines on most of the Fund's securities. These price declines outweighed the
Fund's earned income, resulting in the negative total return for the period.
Strong economic news reported during the first half of the year included real
U.S. gross domestic product (GDP), which grew at a rate of 4.3% in the first
quarter and is expected to be solid in the second quarter. Though slower than
the rapid 6.0% pace of growth in the fourth quarter of 1998, GDP growth remains
well above presumed, long-term non-inflationary levels. Inflation, as measured
by the Consumer Price Index, rose at a seasonally adjusted annual rate of 2.9%
in the second quarter, after having advanced at a 1.5% annual rate for the first
three months of 1999. This brings the year-to-date annual rate to 2.2%, compared
to a 1.6% increase for all of 1998. Finally, the Fed announced on June 30th that
it had raised the target for the Federal Funds rate by 25 basis points to 5.0%
but simultaneously removed its "tightening" (raising interest rates) bias.
The Fund's performance relative to that of the LBAG Index was positively
affected by its higher-than-market yield and lower-than-market duration (a
measure of a bond's price sensitivity to changes in interest rates). We continue
to maintain the Fund's duration slightly shorter than that of the benchmark
because of our ongoing concerns about future inflation. Wider yield premiums in
the corporate and mortgage sectors detracted from the Fund's relative
performance, since the Fund is overweight in these sectors.
This quarter's results illustrate a point we have often made in the past: over
short time periods, price moves can dominate the total return of a fixed income
investment. It is important to remember, however, that total return is comprised
of both price change and income. Over longer time horizons, the income component
of total return (and the reinvestment rate) will tend to be the more important
contributor to total return than short-term price movements. Thus, we will
continue to focus on building a relatively high and stable yield for the Fund
and to invest with a long time horizon.
The Importance of Stability: Mortgage-backed Securities Investing
An important component of the Fund's portfolio is its investment in mortgage-
backed securities (MBS), a sector which Dodge & Cox consistently overweights.
Our strategy in MBS is to invest primarily in Federal Agency MBS that offer
attractive levels of incremental yield in the one to five year maturity sector.
By actively seeking out cash flow stability in our MBS investments, we believe
that the securities we select have a higher probability of earning a total
return above that of many comparable maturity alternatives over a three to five
year investment horizon.
Extensive quantitative and qualitative analysis, combined with a long history of
MBS investing, has shown us that cash flow stability may result from several
sources:
. very "seasoned" mortgage loans exhibit less cash flow variability due to
prepayments because principal comprises a larger portion of each
scheduled payment (e.g., a pool of 15-year mortgages originated in 1992
or 1993);
. certain borrower characteristics, such as the lack of financial
flexibility, may result in mortgage loans which exhibit less
responsiveness to rate-induced refinancing opportunities (e.g., Veterans
Affairs Vendee loans); and/or
. the protection provided by the overall structure of a CMO (collateralized
mortgage obligation) issue may allow a particular tranche to absorb large
changes in the prepayment rates of the underlying mortgages and still
maintain its cash flow integrity (e.g., certain Planned Amortization
Classes).
================================================================================
1
<PAGE>
D O D G E & C O X
================================================================================
Income Fund
- --------------------------------------------------------------------------------
There are, of course, potential risks from investing in MBS. Periods of
declining interest rates, as we experienced in 1998, can dampen the returns
earned by MBS for the following reasons:
. Higher-than-expected levels of prepayments may require the Fund to
reinvest principal at lower yields than originally offered.
. MBS prices generally rise less than those of non-callable alternatives.
This occurs because market participants raise their expectations of
future levels of prepayments, which in turn shortens the expected life of
MBS, thereby reducing the positive price effect of falling interest
rates.
. Prepayments are received at par (100c on the $). If a security is priced
above par, every dollar that is returned to the investor earlier than
expected reduces the total return of the investment.
Lower than expected prepayments can also detract from MBS returns. If a rise in
interest rates creates a dramatic slowing of prepayment expectations, as
happened in the second quarter of 1999, price performance of many MBS can suffer
relative to non-mortgage alternatives for several reasons:
. Lower prepayment expectations lengthen the expected life of MBS,
exacerbating the price decline from the rise in interest rates.
. When rates are rising, the investor would prefer to receive principal
back early--not later--to benefit from reinvesting the proceeds at the
new, higher rates.
In summary, through a diligent process of fundamental research, we seek to
mitigate these risks and add incremental yield to the Fund by identifying highly
rated MBS with stable cash flow characteristics. We currently have a total of
39% of the Fund invested in mortgage-related securities (as compared to 33% of
the LBAG Index), with 17% in seasoned 15-year and 30-year Federal Agency pass-
through securities and 22% in FNMA, FHLMC, and Department of Veterans Affairs
CMOs.
Looking Ahead: Consistent Investment Approach
Despite the recent volatile interest rate environment, the Fund's fundamental
investment strategy remains unchanged. Our objective in managing the Fund's
assets is to provide a high and stable rate of current income, consistent with
long-term preservation of capital, while concurrently taking advantage of
opportunities to realize capital appreciation. In pursuit of this goal, we
continue to apply our thorough, independent research efforts to the selection of
primarily high-quality individual securities that our analysis shows may enhance
the Fund's total return performance over an extended investment horizon.
Thank you for your continued confidence in the Dodge & Cox Income Fund. As
always, we welcome your comments and questions.
For the Board of Trustees,
/s/ Harry R. Hagey /s/ A. Horton Shapiro
- -------------------------- --------------------------------------------
Harry R. Hagey, Chairman A. Horton Shapiro, Executive Vice President
July 30, 1999
================================================================================
2
<PAGE>
D O D G E & C O X
================================================================================
Income Fund
Objective The Fund seeks a high and stable rate of current income, consistent
with long-term preservation of capital. A secondary objective is to
take advantage of opportunities to realize capital appreciation.
Strategy The Fund invests in a diversified portfolio consisting primarily of
high-quality bonds and other fixed-income securities, including U.S.
government obligations, mortgage and asset-backed securities,
corporate bonds, collateralized mortgage obligations (CMOs) and
others rated A or better by either S&P or Moody's.
The proportions held in the various fixed-income securities will be
revised in light of Dodge & Cox's appraisal of the economy, the
relative yields of securities in the various market sectors, the
investment prospects for issuers and other factors. In selecting
securities, Dodge & Cox will consider many factors, including yield
to maturity, quality, liquidity, current yield and capital
appreciation potential.
Ten Years of Investment Performance through June 30, 1999
- -------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DODGE & COX
INCOME LBAG
FUND INDEX
----------- -----
<S> <C> <C>
7/1/1989 $10,000 $10,000
6/30/1990 10,599 10,783
6/30/1991 11,721 11,939
6/30/1992 13,549 13,615
6/30/1993 15,349 15,220
6/30/1994 15,197 15,021
6/30/1995 17,329 16,906
6/30/1996 18,154 17,754
6/30/1997 19,674 19,203
6/30/1998 21,852 21,226
6/30/1999 22,440 21,892
</TABLE>
<TABLE>
<CAPTION>
Average annual total return for periods ended June 30, 1999 1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dodge & Cox Income Fund 2.69% 8.10% 8.42%
Lehman Brothers Aggregate Bond Index (LBAG) 3.13 7.82 8.15
</TABLE>
The chart covers the period from July 1, 1989 to June 30, 1999. It compares a
$10,000 investment made in the Dodge & Cox Income Fund to a $10,000 investment
made in the LBAG. The LBAG is a widely recognized, unmanaged index of U.S.
dollar-denominated investment grade fixed-income securities. The Fund's total
returns include the reinvestment of dividend and capital gain distributions.
Index returns include 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.
================================================================================
3
<PAGE>
D O D G E & C O X
================================================================================
Income Fund
Fund Information June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Information
- --------------------------------------------------------------------------------
<S> <C>
Net Asset Value Per Share $11.71
Total Net Assets (millions) $1,014
30 Day SEC Yield* 6.51%
1998 Expense Ratio 0.47%
1998 Portfolio Turnover 35%
Fund Inception Date 1989
Investment Manager: Dodge & Cox, San Francisco. Managed by the Fixed-Income
Strategy Committee, whose ten members' average tenure at Dodge & Cox is 11
years, and by the Investment Policy Committee, whose eight members' average
tenure at Dodge & Cox is 21 years.
</TABLE>
<TABLE>
<CAPTION>
Asset Allocation
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<S> <C>
Bonds: 95.8%
Short-Term Investments: 4.2%
</TABLE>
<TABLE>
<CAPTION>
Bond Characteristics
- --------------------------------------------------------------------------------
<S> <C>
Number of Bonds 102
Average Quality AA+
Average Maturity 10.6 years
Effective Duration 4.32 years
</TABLE>
<TABLE>
<CAPTION>
Sector Breakdown % of Fund
- --------------------------------------------------------------------------------
<S> <C>
U.S. Treasury and Government Agency 20.1
Federal Agency CMO and REMIC+ 21.7
Federal Agency Mortgage Pass-Through 16.8
Asset-Backed 2.8
Corporate 29.2
Foreign (U.S. Dollar-denominated) 5.2
Short-Term Investments 4.2
+ Collateralized Mortgage Obligation and Real Estate Mortgage Investment Conduit
</TABLE>
<TABLE>
<CAPTION>
Moody's/Standard & Poor's
Quality Ratings % of Fund
- --------------------------------------------------------------------------------
<S> <C>
U.S. Government & Government Agencies 58.6
Aaa/AAA 4.0
Aa/AA 0.2
A/A 18.2
Baa/BBB 14.8
Short-Term Investments 4.2
</TABLE>
<TABLE>
<CAPTION>
Maturity Breakdown % of Fund
- --------------------------------------------------------------------------------
<S> <C>
0-1 Years to Maturity 14.3
1-5 33.4
5-10 22.8
10-15 5.3
15-20 6.6
20-25 5.6
25 and Over 12.0
</TABLE>
* An annualization of the Fund's total net investment income per share for the
30-day period ended on the last day of the month.
================================================================================
4
<PAGE>
D O D G E & C O X
================================================================================
Income Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1999
-------------------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS: U.S. TREASURY AND GOVERNMENT AGENCY: 20.1%
95.8% U.S. TREASURY: 17.2%
$20,032,935 U.S. Treasury Bonds, 3.625%, 4/15/2028................................ $ 18,902,877
10,794,810 U.S. Treasury Bonds, 3.875%, 4/15/2029................................ 10,646,381
21,500,000 U.S. Treasury Notes, 5.875%, 11/15/1999............................... 21,563,855
35,000,000 U.S. Treasury Notes, 6.375%, 1/15/2000................................ 35,229,600
40,000,000 U.S. Treasury Notes, 6.75%, 4/30/2000................................. 40,468,800
28,000,000 U.S. Treasury Notes, 6.25%, 1/31/2002................................. 28,424,480
18,996,938 U.S. Treasury Notes, 3.875%, 1/15/2009................................ 18,771,254
------------
174,007,247
GOVERNMENT AGENCY: 2.9%
5,799,404 Govt. Small Business Admin. 504 Series 97-20E, 7.30%, 5/1/2017........ 5,880,278
6,374,397 Govt. Small Business Admin. 504 Series 97-20J, 6.55%, 10/1/2017....... 6,251,084
6,054,456 Govt. Small Business Admin. 504 Series 98-20C, 6.35%, 3/1/2018........ 5,862,844
6,896,135 Govt. Small Business Admin. 504 Series 98-20H, 6.15%, 8/1/2018........ 6,592,225
5,429,000 Govt. Small Business Admin. 504 Series 99-20C, 6.30%, 3/1/2019........ 5,224,625
------------
29,811,056
------------
203,818,303
FEDERAL AGENCY CMO* AND REMIC**: 21.7%
151,467 FBC Mtge. Sec. Trust IV-A2, 8.30%, 8/1/2009........................... 151,467
21,000,000 Federal Home Loan Mtge. Corp., 7.10%, 11/15/2006...................... 21,177,030
8,137,322 Federal Home Loan Mtge. Corp., 8.00%, 4/15/2007....................... 8,333,106
13,000,000 Federal Home Loan Mtge. Corp., 7.00%, 9/15/2007....................... 13,142,090
13,284,798 Federal Home Loan Mtge. Corp., 6.00%, 8/15/2008....................... 12,977,520
20,100,000 Federal Home Loan Mtge. Corp., 6.00%, 10/15/2008...................... 19,314,693
40,000,000 Federal Home Loan Mtge. Corp., 6.00%, 11/15/2008...................... 39,550,000
20,000,000 Federal Home Loan Mtge. Corp., 6.50%, 4/15/2022....................... 19,793,600
10,000,000 Federal Home Loan Mtge. Corp., 6.00%, 6/17/2022....................... 9,378,100
3,000,000 Federal Natl. Mtge. Assn., 7.00%, 2/25/2007........................... 3,018,750
10,000,000 Federal Natl. Mtge. Assn., 7.00%, 7/17/2015........................... 10,096,800
17,000,000 Federal Natl. Mtge. Assn., 6.25%, 3/25/2023........................... 16,739,560
9,000,000 Federal Natl. Mtge. Assn., 6.00%, 6/25/2023........................... 8,440,290
12,616,000 Veterans Affairs Vendee Mtge. Trust, 7.00%, 6/15/2010................. 12,619,911
15,277,000 Veterans Affairs Vendee Mtge. Trust, 7.25%, 7/15/2016................. 15,463,074
10,000,000 Veterans Affairs Vendee Mtge. Trust, 8.00%, 7/15/2018................. 10,178,100
------------
220,374,091
FEDERAL AGENCY MORTGAGE PASS-THROUGH: 16.8%
14,632 Federal Home Loan Mtge. Corp., 7.00%, 1/1/2003........................ 14,630
2,687 Federal Home Loan Mtge. Corp., 6.00%, 10/1/2003....................... 2,650
1,265,106 Federal Home Loan Mtge. Corp., 8.00%, 12/1/2003....................... 1,286,891
23,935 Federal Home Loan Mtge. Corp., 7.00%, 3/1/2006........................ 23,919
128,747 Federal Home Loan Mtge. Corp., 7.00%, 9/1/2006........................ 128,499
330,587 Federal Home Loan Mtge. Corp., 7.25%, 1/1/2008........................ 331,500
201,278 Federal Home Loan Mtge. Corp., 8.00%, 1/1/2008........................ 204,744
264,396 Federal Home Loan Mtge. Corp., 8.00%, 1/1/2008........................ 270,530
131,950 Federal Home Loan Mtge. Corp., 7.50%, 10/1/2008....................... 133,875
</TABLE>
See accompanying Notes to Financial Statements
================================================================================
5
<PAGE>
D O D G E & C O X
================================================================================
Income Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1999
---------------------------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS FEDERAL AGENCY MORTGAGE PASS-THROUGH (continued)
(Continued) $ 4,313,110 Federal Home Loan Mtge. Corp., 7.00%, 11/1/2008............................... $ 4,338,213
243,806 Federal Home Loan Mtge. Corp., 8.00%, 5/1/2009................................ 250,113
85,960 Federal Home Loan Mtge. Corp., 8.25%, 5/1/2009................................ 88,033
448,285 Federal Home Loan Mtge. Corp., 8.00%, 8/1/2009................................ 458,685
47,448 Federal Home Loan Mtge. Corp., 6.50%, 6/1/2012................................ 47,013
22,499,799 Federal Home Loan Mtge. Corp., 7.90%, 6/1/2014................................ 23,202,918
9,825,174 Federal Natl. Mtge. Assn., 6.825%, 5/1/2006................................... 9,940,318
4,513,189 Federal Natl. Mtge. Assn., 7.50%, 9/1/2007.................................... 4,611,892
1,611,935 Federal Natl. Mtge. Assn., 6.25%, 12/1/2007................................... 1,593,994
11,350,808 Federal Natl. Mtge. Assn., 7.00%, 7/1/2008.................................... 11,410,399
11,327,093 Federal Natl. Mtge. Assn., 6.50%, 12/1/2008................................... 11,227,188
17,901,240 Federal Natl. Mtge. Assn., 5.50%, 6/1/2009.................................... 17,151,715
9,006,607 Federal Natl. Mtge. Assn., 6.50%, 7/1/2009.................................... 8,925,818
4,293,463 Federal Natl. Mtge. Assn., 8.00%, 8/1/2010.................................... 4,413,938
482,136 Federal Natl. Mtge. Assn., 7.50%, 2/1/2011.................................... 488,900
1,360,955 Federal Natl. Mtge. Assn., 8.00%, 1/1/2012.................................... 1,403,090
244,858 Federal Natl. Mtge. Assn., 6.50%, 1/1/2013.................................... 243,320
1,610,649 Federal Natl. Mtge. Assn., 8.00%, 8/1/2022.................................... 1,663,752
4,163,732 Govt. Natl. Mtge. Assn., 7.25%, 2/15/2006..................................... 4,201,164
5,304,502 Govt. Natl. Mtge. Assn., 7.50%, 7/15/2007..................................... 5,401,839
15,721,692 Govt. Natl. Mtge. Assn., 7.00%, 4/15/2009..................................... 15,860,829
15,103,438 Govt. Natl. Mtge. Assn., 6.50%, 7/15/2009..................................... 15,024,598
7,481,194 Govt. Natl. Mtge. Assn., 7.50%, 9/15/2017..................................... 7,588,399
4,951,317 Veterans Affairs Vendee Mtge. Trust, 9.293%, 5/15/2025........................ 5,246,812
12,593,967 Veterans Affairs Vendee Mtge. Trust, 8.092%, 10/15/2027....................... 12,991,432
------------
170,171,610
ASSET-BACKED SECURITIES: 2.8%
10,000,000 CA Infrastructure and Econ. Dev. Bank SP Trust PGE-1 Rate
Reduction Cft. 1997-1 A-7, 6.42%, 9/25/2008................................... 9,944,900
4,806,118 CA Infrastructure and Econ. Dev. Bank SP Trust SCE-1 Rate
Reduction Cft. 1997-1 A-2, 6.14%, 3/25/2002................................... 4,828,226
13,300,000 ComEd Transitional Funding Trust Notes Series 1998 Class A-2,
5.29%, 6/25/2003.............................................................. 13,185,487
------------
27,958,613
CORPORATE: 29.2%
INDUSTRIAL: 16.7%
9,000,000 Dayton Hudson Corp., 9.00%, 10/1/2021......................................... 10,657,800
20,000,000 Eastman Chemical Co., 7.25%, 1/15/2024........................................ 18,847,800
20,000,000 J.E. Seagram & Sons, Inc., 7.50%, 12/15/2018.................................. 19,349,200
17,500,000 Lockheed Martin Corp., 7.65%, 5/1/2016........................................ 17,533,425
12,500,000 Lockheed Martin Corp., 7.75%, 5/1/2026........................................ 12,380,750
5,000,000 May Department Stores, 7.625%, 8/15/2013...................................... 5,286,600
7,500,000 May Department Stores, 7.875%, 8/15/2036, Callable 2016....................... 7,737,225
20,000,000 Raychem Corp., 7.20%, 10/15/2008.............................................. 19,795,600
10,000,000 Raytheon Co., 6.75%, 8/15/2007................................................ 9,898,200
</TABLE>
See accompanying Notes to Financial Statements
================================================================================
6
<PAGE>
D O D G E & C O X
================================================================================
Income Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1999
----------------------------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS INDUSTRIAL (continued)
(Continued) $12,500,000 Raytheon Co., 6.75%, 3/15/2018................................................. $ 11,771,625
16,600,000 Time Warner Entertainment, 8.375%, 7/15/2033................................... 18,049,512
2,500,000 Union Camp Corp., 9.25%, 2/1/2011.............................................. 2,918,725
15,034,000 Walt Disney Co., 7.55%, 7/15/2093, Callable 2023............................... 15,165,698
------------
169,392,160
FINANCE: 9.1%
6,000,000 BankAmerica Capital II, 8.00%, 12/15/2026, Callable 2006++..................... 6,039,240
1,450,000 Barclays No. American Capital, 9.75%, 5/15/2021, Callable 2001................. 1,573,090
1,000,000 CIGNA Corp., 7.65%, 3/1/2023................................................... 986,510
5,430,000 Citicorp Capital Trust I, 7.933%, 2/15/2027, Callable 2007++................... 5,458,236
3,065,000 Citicorp Capital Trust II, 8.015%, 2/15/2027, Callable 2007++.................. 3,074,655
4,000,000 First Nationwide Bank, 10.00%, 10/1/2006....................................... 4,444,320
20,000,000 Ford Motor Credit Co., 7.20%, 6/15/2007........................................ 20,272,400
13,500,000 GMAC Put Notes, 8.875%, 6/1/2010, Putable 2000/2005............................ 15,286,590
10,000,000 GMAC Senior Notes, 5.75%, 11/10/2003........................................... 9,675,400
4,500,000 Hartford Financial Services Group, 8.30%, 12/1/2001............................ 4,673,520
10,000,000 Hartford Financial Services Group, 6.375%, 11/1/2002........................... 9,906,800
6,800,000 J.P. Morgan Capital Trust I, 7.54%, 1/15/2027, Callable 2007++................. 6,498,896
5,000,000 Norwest Corp., 5.75%, 2/1/2003................................................. 4,880,600
------------
92,770,257
TRANSPORTATION: 3.2%
5,630,000 Consolidated Rail Corp., 9.75%, 6/15/2020...................................... 6,829,359
400,000 Norfolk & Western Railroad Equip. Tr., 10.125%, 7/1/2000....................... 415,716
6,412,007 Union Pacific Corp., 6.85%, 1/2/2019........................................... 6,119,298
19,675,690 Union Pacific Corp., 6.70%, 2/23/2019.......................................... 18,763,328
------------
32,127,701
UTILITIES: 0.2%
1,500,000 Idaho Power Co. 1st Mtge., 9.50%, 1/1/2021, Callable 2001...................... 1,619,070
------------
295,909,188
FOREIGN (U.S. DOLLAR-DENOMINATED): 5.2%
CANADIAN: 2.4%
7,062,000 Canadian Pacific Ltd., 9.45%, 8/1/2021......................................... 8,208,233
9,000,000 Hydro-Quebec, 8.05%, 7/7/2024, Putable 2006.................................... 9,753,570
6,000,000 Hydro-Quebec, 9.50%, 11/15/2030................................................ 7,494,000
------------
25,455,803
CORPORATE: 1.5%
15,000,000 HSBC Holdings PLC, 7.50%, 7/15/2009............................................ 15,157,050
------------
</TABLE>
See accompanying Notes to Financial Statements
================================================================================
7
<PAGE>
D O D G E & C O X
================================================================================
Income Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 1999
-----------------------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS INTERNATIONAL AGENCY: 1.3%
(Continued) $ 4,150,000 European Investment Bank, 10.125%, 10/1/2000............................. $ 4,369,950
8,750,000 Inter-American Development Bank, 7.125%, 3/15/2023, Callable 2003........ 8,440,513
--------------
12,810,463
--------------
53,423,316
--------------
Total Bonds (cost $976,175,806)..................................... 971,655,121
--------------
SHORT-TERM 10,000,000 American Express Credit Corp., Comm. Paper, 5.00%, 7/1/1999.............. 10,000,000
INVESTMENTS: 24,182,294 SSgA Prime Money Market Fund............................................. 24,182,294
3.9% 5,987,241 SSgA United States Treasury Money Market Fund............................ 5,987,242
--------------
Total Short-Term Investments (cost $40,169,536)..................... 40,169,536
TOTAL INVESTMENTS (cost $1,016,345,342)................ 99.7% 1,011,824,657
OTHER ASSETS LESS LIABILITIES.......................... 0.3 2,655,617
----- --------------
TOTAL NET ASSETS....................................... 100.0% $1,014,480,274
===== ==============
* CMO: Collateralized Mortgage Obligation
** REMIC: Real Estate Mortgage Investment Conduit
++ Cumulative Preferred Securities
</TABLE>
See accompanying Notes to Financial Statements
================================================================================
8
<PAGE>
D O D G E & C O X
================================================================================
Income Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities June 30, 1999
----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at market value (identified cost $1,016,345,342)............ $1,011,824,657
Receivable for Fund shares sold.......................................... 29,211,085
Dividends and interest receivable........................................ 12,532,285
Receivable for paydowns on mortgage-backed securities.................... 88,783
Prepaid expenses......................................................... 188,635
--------------
1,053,845,445
--------------
LIABILITIES:
Payable for investments purchased........................................ 38,208,358
Payable for Fund shares redeemed......................................... 713,452
Management fees payable.................................................. 329,262
Accounts payable......................................................... 114,099
--------------
39,365,171
Net asset value --------------
per share $11.71 NET ASSETS.......................................................... $1,014,480,274
==============
Beneficial
shares outstanding NET ASSETS CONSIST OF:
86,620,993 Paid in capital.......................................................... $1,017,216,994
(par value $0.01 each, Accumulated undistributed net investment income.......................... 812,250
unlimited shares Accumulated undistributed net realized gain on investments............... 971,715
authorized) Net unrealized depreciation on investments............................... (4,520,685)
--------------
$1,014,480,274
==============
</TABLE>
See accompanying Notes to Financial Statements
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9
<PAGE>
D O D G E & C O X
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Income Fund
<TABLE>
<CAPTION>
Statement of Operations Six Months Ended June 30, 1999
--------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest....................................................................... $ 30,506,095
------------
EXPENSES:
Management fees (Note 2)....................................................... 1,950,851
Custodian fees................................................................. 32,021
Transfer agent fees............................................................ 91,550
Audit fees..................................................................... 19,840
Legal fees..................................................................... 2,778
Shareholder reports............................................................ 46,926
Registration fees.............................................................. 77,107
Trustees' fees (Note 2)........................................................ 6,500
Miscellaneous.................................................................. 6,756
------------
2,234,329
------------
NET INVESTMENT INCOME.......................................................... 28,271,766
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments............................................. 1,003,922
Net unrealized depreciation on investments................................... (41,829,255)
------------
Net realized and unrealized gain (loss) on investments.................... (40,825,333)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........................... $(12,553,567)
============
</TABLE>
See accompanying Notes to Financial Statements
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10
<PAGE>
D O D G E & C O X
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Income Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
---------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
<S> <C> <C>
OPERATIONS:
Net investment income................................................ $ 28,271,766 $ 50,543,225
Net realized gain.................................................... 1,003,922 4,766,489
Net unrealized appreciation (depreciation)........................... (41,829,255) 10,871,148
-------------- -------------
Net increase (decrease) in net assets from operations................ (12,553,567) 66,180,862
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................ (27,809,690) (50,793,711)
Net realized gain.................................................... (3,016,202) (4,501,063)
-------------- -------------
Total distributions.................................................. (30,825,892) (55,294,774)
-------------- -------------
BENEFICIAL SHARE TRANSACTIONS:
Amounts received from sale of shares................................. 227,160,991 454,714,046
Net asset value of shares issued in reinvestment of distributions.... 21,469,326 35,771,573
Amounts paid for shares redeemed..................................... (142,730,223) (254,862,156)
-------------- -------------
Net increase from beneficial share transactions...................... 105,900,094 235,623,463
-------------- -------------
Total increase in net assets......................................... 62,520,635 246,509,551
NET ASSETS:
Beginning of period.................................................. 951,959,639 705,450,088
-------------- -------------
End of period (including undistributed net investment income
of $812,250 and $333,313, respectively).............................. $1,014,480,274 $ 951,959,639
============== =============
Shares sold.......................................................... 18,883,086 37,288,086
Shares issued in reinvestment of distributions....................... 1,813,679 2,942,520
Shares redeemed...................................................... (11,795,803) (20,919,560)
-------------- -------------
Net increase in shares outstanding................................... 8,900,962 19,311,046
============== =============
</TABLE>
See accompanying Notes to Financial Statements
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11
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D O D G E & C O X
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Income Fund
Notes to Financial Statements
------------------------------------------------------------------------
1 Dodge & Cox Income Fund (the "Fund") is a separate series of Dodge & Cox
Funds (the "Trust"). The Trust is organized as a Delaware business trust
and is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. The Fund
consistently follows accounting policies which are in conformity with
generally accepted accounting principles. Significant accounting
policies are as follows: (a) Security valuation: 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; 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 which approximates 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) Interest income is
recorded on the accrual basis. Premiums and discounts on debt securities
purchased are amortized and accreted, respectively, to interest income
over the lives of the respective securities. (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
5/10 of 1% of the Fund's average daily net asset value up to $100
million and 4/10 of 1% of the Fund's average daily net asset value in
excess of $100 million to Dodge & Cox, investment manager of the Fund.
The agreement further provides that Dodge & Cox shall waive its fee to
the extent that such fee plus all other ordinary operating expenses of
the Fund exceed 1% of the average daily net asset value for the year.
All officers and seven of the trustees of the Trust are officers and
employees of Dodge & Cox. Those trustees who are not affiliated with
Dodge & Cox receive from the Trust an annual fee plus an attendance fee
for each Board or Committee meeting attended. Payments to trustees are
divided equally among each series of the Trust. The Trust does not pay
any other remuneration to its officers or trustees.
3 For the six months ended June 30, 1999, purchases and sales of
securities, other than short-term securities, aggregated $193,811,559
and $107,733,603, respectively, of which U.S. government obligations
aggregated $137,862,601 and $79,445,969 respectively. At June 30, 1999,
the cost of investments for Federal income tax purposes was equal to the
cost for financial reporting purposes. Net unrealized depreciation
aggregated $4,520,685, of which $8,232,876 represented appreciated
securities and $12,753,561 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.
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12
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D O D G E & C O X
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Income Fund
<TABLE>
<CAPTION>
Financial Highlights
--------------------------------------------------------------------------------------------------------------------
SELECTED DATA AND RATIOS (for a share outstanding throughout each period)
Six Months Ended
June 30, Year Ended December 31,
---------------- -------------------------------------------
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.25 $12.08 $11.68 $12.02 $10.74 $11.89
Income from investment operations:
Net investment income .34 .72 .73 .74 .78 .77
Net realized and unrealized gain (loss) (.50) .23 .40 (.34) 1.34 (1.11)
------- ------ ------ ------ ------ ------
Total from investment operations (.16) .95 1.13 .40 2.12 (.34)
------- ------ ------ ------ ------ ------
Distributions to shareholders from:
Net investment income (.34) (.72) (.73) (.74) (.78) (.76)
Net realized gain (.04) (.06) - - (.06) (.05)
------- ------ ------ ------ ------ ------
Total distributions (.38) (.78) (.73) (.74) (.84) (.81)
------- ------ ------ ------ ------ ------
Net asset value, end of period $ 11.71 $12.25 $12.08 $11.68 $12.02 $10.74
======= ====== ====== ====== ====== ======
Total return (1.31)% 8.08% 10.00% 3.62% 20.21% (2.89)%
Ratios/supplemental data:
Net assets, end of period (millions) $ 1,014 $ 952 $ 705 $ 533 $ 303 $ 195
Ratio of expenses to average net assets .47%* .47% .49% .50% .54% .54%
Ratio of net investment income to average net assets 5.90%* 6.00% 6.32% 6.65% 6.85% 6.90%
Portfolio turnover rate 12% 35% 28% 37% 53% 55%
* Annualized
</TABLE>
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D O D G E & C O X
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14
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D O D G E & C O X
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Income Fund
Officers and Trustees
- --------------------------------------------------------------------------------
Harry R. Hagey, Chairman & Trustee
Chairman & CEO, Dodge & Cox
John A. Gunn, President & Trustee
President, Dodge & Cox
A. Horton Shapiro, Executive Vice President & Trustee
Senior Vice President, Dodge & Cox
W. Timothy Ryan, Treasurer, Secretary & Trustee
Senior Vice President,Dodge & Cox
Katherine Herrick Drake, Vice President & Trustee
Vice President, Dodge & Cox
Dana M. Emery, Vice President & Trustee
Senior Vice President, Dodge & Cox
Kenneth E. Olivier, Vice President & 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
Thomas M. Mistele, Asst. Secretary & Asst. Treasurer
Vice President & General Counsel, Dodge & Cox
PREPARING FOR THE YEAR 2000
The Fund's key service providers--Dodge & Cox, the investment manager; Boston
Financial Data Services Inc., the transfer agent; and State Street Bank and
Trust Company, the custodian and fund accountant--are taking steps that each
believes are reasonably designed to address the Year 2000 issue with respect to
the systems that they use. The Fund's service providers are on target to
complete their Year 2000 readiness by September 30, 1999. For the remainder of
1999 they will participate in appropriate industry Year 2000 testing and
finalize their Year 2000 contingency plans. The Funds believe these steps will
be sufficient to avoid any material adverse impact on the Funds, although there
can be no assurances to that effect. Additional information on Year 2000
preparations can be found on the Fund's web site at www.dodgeandcox.com.
================================================================================
