<PAGE>
D O D G E & C O X D O D G E & C O X
----------------- -----------------
Stock Fund
Stock Fund
Established 1965
Investment Manager
Dodge & Cox
One Sansome Street
35th Floor
San Francisco, California
94104-4443
(415) 981-1710
For Fund literature and account
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
-----------------
Semi-Annual Report
This report is submitted for the general June 30, 2000
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. -----------------
-----------------
6/00 SF SAR Printed on recycled paper
<PAGE>
D O D G E & C O X
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Stock Fund
To Our Shareholders
--------------------------------------------------------------------------------
The Dodge & Cox Stock Fund had a total return of -2.2% in the second quarter of
2000, versus -2.7% for the Standard & Poor's 500 Index (S&P 500). For the first
half of 2000, the Fund had a total return of -2.0% compared to -0.4% for the
S&P 500. Longer-term results appear on page three of this report. As of June
30, 2000, the Fund's $4.6 billion in assets were invested 92% in stocks and 8%
in cash equivalents.
First Half 2000 Performance Review
The U.S. equity markets remained volatile during the first half of 2000, with
an investment "tug of war" going on between the so-called "Old Economy"
companies (established producers of goods and services) and "New Economy"
companies (largely technology and internet firms). As the valuation gap between
these two segments of the market remains historically wide, we continue to
believe the most attractive investment prospects are in the "Old Economy," low-
valuation segment.
Returns of the S&P 500 are now largely determined by the performance of stocks
in the technology sector, since these stocks represent about 30% of the market
value of all companies in the Index. The Dodge & Cox Stock Fund is positioned
quite differently, holding 8% of its portfolio in technology companies.
Consequently, this differential is important in explaining the variance between
the Fund's returns and the Index's returns in a given period. The Fund's lower
weighting in technology was a drag on relative performance in the first quarter
of 2000, when the technology sector was strong, and was beneficial to relative
results in the second quarter, as many technology stocks were weak. The Fund's
lack of exposure to another weak performing sector, telecom services, was a
positive during the first half. On other fronts, energy holdings were a major
positive contributor to the Fund's first half results, while returns for
industrial commodities, retail and consumer durables stocks in the Fund were
mostly negative.
Investment Approach & Strategy
As shareholders and readers of our past letters know, Dodge & Cox relies on
fundamental research, coupled with a price discipline, to select investments
for the Fund. Our long-term investment horizon is also key, as we look for
companies with durable business franchises and growing earnings over time. We
like to invest when we believe a company has a good potential of reporting
profits higher than the consensus expectations over a three to four-year time
frame.
In terms of the current popular label, our investments primarily reside in the
"Old Economy." Of course, there is actually only one economy. Furthermore, we
believe other investors may be overlooking the fact that many "Old Economy"
companies are actively implementing new technology tools to benefit their basic
businesses. For example, the five leading companies supplying internet banking
services (measured by online customer accounts) are not new entrants, but
traditional banks. One of the Fund's investments, Wells Fargo, has long been
recognized as a technological leader in the banking industry, dating back to
its early use of ATMs. Wells Fargo's efforts in online banking should improve
customer service and future profitability. We also believe that the company's
capable management team will continue to successfully guide Wells Fargo in a
rapidly evolving market environment. We use Wells Fargo (and later, Dow
Chemical) to illustrate our investment approach, not because we believe they
are more attractive than the Fund's other holdings.
As valuations have declined in the finance sector this year, we have added
several new stocks to the Fund's portfolio, including Wachovia, a regional
bank, and MBIA, a specialty insurer of fixed-income securities. Both of these
companies trade at less than twelve times their estimated 2000 earnings.
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D O D G E & C O X
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Stock Fund
Finding Unconventional Growth
Because we have steered away from the high-valuation, "growth" areas of the
market such as technology, telecom and pharmaceutical/biotech sectors, does
that mean there is little growth to be had from the low-valuation companies? We
don't think so. We are confident that the 83 companies held in the Fund have
strong prospects, offering the opportunity for long-term earnings growth. One
example would be Dow Chemical. As the result of cost cutting and asset
restructuring--through divestitures as well as acquisitions, such as the one
pending for Union Carbide--we believe that Dow is creating a less cyclical
chemicals business. Dow's management believes that sales can almost double over
the next decade, while profits have the potential to grow faster. Macroeconomic
factors should also help Dow. Earnings for energy and other industrial
commodities producers have been improving, following the Asian economic turmoil
in 1997-98. Significant industry consolidation in the past few years and an
improving outlook for global demand contributes to our positive view. In a
still difficult commodity price environment, we believe Dow's stock is
attractively valued at about 12 times estimated year 2000 earnings.
Reinforcing our view of investment value in the industrial commodities and
energy sectors, one of our paper industry holdings, Champion International, was
acquired by International Paper at a favorable price during the second quarter.
Another holding in the Fund, Union Pacific Resources, agreed to be acquired at
a substantial premium by Anadarko Petroleum. During the first half of the year,
we established new positions in two new industrial companies: Air Products &
Chemicals and Engelhard.
Low Valuations in the Fund
Ironically, although we remain cautious about the general outlook for the broad
equity market, we believe we are uncovering many attractive investment
opportunities. In our opinion, the market has priced the "New Economy"
companies at overly optimistic valuations, while at the same time overlooked
many profitable and growing companies simply because they reside in the so-
called "Old Economy." We believe that the substantial divergence in valuations
between these two areas of the market will ultimately prove to be an excellent
opportunity for value-oriented investors like Dodge & Cox. For instance, the
average price-to-earnings (P/E) ratio of the Fund's holdings is now about 12
times estimated year 2000 earnings (close to the lowest it has been in a
decade), compared to 24 times for the S&P 500.
As always, we welcome your thoughts and questions, and appreciate your
confidence in our firm as a shareholder of the Dodge & Cox Stock Fund.
For the Board of Trustees,
/s/ Harry R. Hagey /s/ John A. Gunn
----------------------------- ----------------------------
Harry R. Hagey, Chairman John A. Gunn, President
July 31, 2000
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D O D G E & C O X
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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, including
future earnings, cash flow and dividends. Companies are also
selected with an emphasis on financial strength and sound economic
condition.
Ten Years of Investment Performance through June 30, 2000
--------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DODGE & COX
S & P 500 STOCK FUND
--------- -----------
<S> <C> <C>
7/1/1990 $10,000 $10,000
6/30/1991 $10,739 $10,446
6/30/1992 $12,179 $11,535
6/30/1993 $13,839 $14,061
6/30/1994 $14,035 $14,716
6/30/1995 $17,691 $18,423
6/30/1996 $22,288 $22,658
6/30/1997 $30,013 $29,858
6/30/1998 $38,202 $36,100
6/30/1999 $47,951 $41,647
6/30/2000 $51,440 $40,253
</TABLE>
<TABLE>
<CAPTION>
Average annual total return for periods ended June 30, 2000 1 Year 5 Years 10 Years 20 Years
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dodge & Cox Stock Fund -3.35% 16.92% 14.94% 16.59%
S&P 500 7.28 23.80 17.80 17.34
</TABLE>
The chart covers the period from July 1, 1990 to June 30, 2000. 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.
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D O D G E & C O X
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Stock Fund
Fund Information June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Information
--------------------------------------------------------------------------------
<S> <C>
Net Asset Value Per Share $ 92.85
Total Net Assets (millions) $ 4,628
1999 Expense Ratio 0.55%
1999 Portfolio Turnover 18%
30-Day SEC Yield/1/ 2.25%
Fund Inception Date 1965
</TABLE>
Investment Manager: Dodge & Cox, San Francisco.
Managed by the Investment Policy Committee, whose eight members' average tenure
at Dodge & Cox is 22 years.
<TABLE>
<CAPTION>
Asset Allocation
--------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<S> <C>
Short-Term Investments: 7.9%
Stocks: 92.1%
</TABLE>
<TABLE>
<CAPTION>
Stock Characteristics
--------------------------------------------------------------------------------
<S> <C>
Number of Stocks 83
Median Market Capitalization $8.1 billion
Price-to-Earnings Ratio/2/ 13.7x
Price-to-Book Value 1.9x
Foreign Stocks/3/ (as percentage of Fund) 9.1%
</TABLE>
<TABLE>
<CAPTION>
Ten Largest Sectors % of Fund
--------------------------------------------------------------------------------
<S> <C>
Energy 12.2
Banking 8.7
Healthcare & Pharmaceutical 8.1
Electronics & Computer 7.4
Transportation 6.0
Retail & Distribution 5.8
General Industrial 5.7
Insurance & Financial Services 5.6
Chemicals 5.6
Consumer Durables 5.4
</TABLE>
<TABLE>
<CAPTION>
Ten Largest Stock Holdings % of Fund
--------------------------------------------------------------------------------
<S> <C>
News Corp. Ltd. ADR 2.7
Golden West Financial 2.6
Pharmacia 2.4
Bank One 2.3
Union Pacific 2.2
FedEx 2.2
Alcoa 2.0
Bausch & Lomb 1.9
Dow Chemical 1.9
Phillips Petroleum 1.8
</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.
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<TABLE>
<CAPTION>
Portfolio of Investments June 30, 2000
----------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON CONSUMER: 24.9%
STOCKS: HEALTHCARE AND PHARMACEUTICAL: 8.1%
89.4% 2,106,300 Pharmacia Corp. .......................... $ 108,869,381
1,153,000 Bausch & Lomb, Inc. ...................... 89,213,375
1,565,000 Becton, Dickinson & Co. .................. 44,895,938
523,900 WellPoint Health Networks, Inc.+.......... 37,950,006
1,030,000 HCA-The Healthcare Company................ 31,286,250
405,000 Cardinal Health, Inc. .................... 29,970,000
910,000 First Health Group Corp.+................. 29,859,375
-------------
372,044,325
RETAIL AND DISTRIBUTION: 5.8%
3,812,750 Genuine Parts Co. ........................ 76,255,000
9,068,000 Kmart Corp.+.............................. 61,775,750
2,403,000 Nordstrom, Inc. .......................... 57,972,375
2,155,000 May Department Stores Co. ................ 51,720,000
1,480,000 Dillard's, Inc. Class A................... 18,130,000
-------------
265,853,125
CONSUMER DURABLES: 5.4%
1,461,300 Whirlpool Corp. .......................... 68,133,113
773,765 General Motors Corp. ..................... 44,926,730
1,030,000 Ford Motor Co. ........................... 44,290,000
1,830,000 Dana Corp. ............................... 38,773,125
2,530,500 Delphi Automotive Systems Corp. .......... 36,850,406
900,000 Masco Corp. .............................. 16,256,250
134,861 Visteon Corp.+............................ 1,635,190
-------------
250,864,814
CONSUMER PRODUCTS: 4.4%
2,507,800 Fort James Corp. ......................... 57,992,875
1,630,000 VF Corp. ................................. 38,814,375
2,879,000 Mattel, Inc. ............................. 37,966,812
669,000 Unilever N.V. ............................ 28,767,000
416,250 Eastman Kodak Co. ........................ 24,766,875
1,213,300 Dole Food Co., Inc. ...................... 16,986,200
-------------
205,294,137
MEDIA AND LEISURE: 1.2%
2,520,100 R.R. Donnelley & Sons Co. ................ 56,859,756
-------------
1,150,916,157
FINANCE: 16.2%
BANKING: 8.7%
2,995,200 Golden West Financial Corp. .............. 122,241,600
4,082,900 Bank One Corp. ........................... 108,452,031
1,678,121 Bank of America Corp. .................... 72,159,203
1,480,400 Wells Fargo & Co. ........................ 57,365,500
810,000 Wachovia Corp. ........................... 43,942,500
-------------
404,160,834
</TABLE>
See accompanying Notes to Financial Statements
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<TABLE>
<CAPTION>
Portfolio of Investments June 30, 2000
---------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON FINANCE (continued)
STOCKS INSURANCE AND FINANCIAL SERVICES: 5.6%
(Continued) 1,271,100 Loews Corp. .............................. $ 76,266,000
2,022,850 St. Paul Companies, Inc. ................. 69,029,756
826,200 Citigroup, Inc. .......................... 49,778,550
660,000 Chubb Corp. .............................. 40,590,000
345,700 MBIA, Inc. ............................... 16,658,419
403,000 UNUMProvident Corp. ...................... 8,085,188
------------
260,407,913
REAL ESTATE INVESTMENT TRUST: 1.9%
1,738,100 Equity Office Properties Trust............ 47,906,381
855,000 Equity Residential Properties Trust....... 39,330,000
------------
87,236,381
------------
751,805,128
ENERGY: 12.2%
1,621,000 Phillips Petroleum Co. ................... 82,164,437
2,439,700 Unocal Corp. ............................. 80,815,062
3,610,600 Occidental Petroleum Corp. ............... 76,048,263
1,177,700 Amerada Hess Corp. ....................... 72,722,975
770,000 Chevron Corp. ............................ 65,305,625
1,622,900 Baker Hughes, Inc. ....................... 51,932,800
774,000 Royal Dutch Petroleum Co. ................ 47,649,375
610,000 Schlumberger Ltd. ........................ 45,521,250
1,986,624 Union Pacific Resources Group, Inc. ...... 43,705,728
------------
565,865,515
INDUSTRIAL COMMODITIES: 12.0%
CHEMICALS: 5.6%
2,874,900 Dow Chemical Co. ......................... 86,786,044
1,176,700 Eastman Chemical Co. ..................... 56,187,425
1,198,000 Air Products & Chemicals, Inc. ........... 36,913,375
1,762,500 Engelhard Corp. .......................... 30,072,656
580,000 Union Carbide Corp. ...................... 28,710,000
490,520 NOVA Chemicals Corp. ..................... 10,546,180
370,000 Lubrizol Corp. ........................... 7,770,000
------------
256,985,680
METALS AND MINING: 3.5%
3,232,200 Alcoa, Inc. .............................. 93,733,800
1,074,866 Rio Tinto PLC ADR......................... 70,135,006
------------
163,868,806
PAPER AND FOREST PRODUCTS: 1.8%
1,372,900 Weyerhaeuser Co. ......................... 59,034,700
868,600 Boise Cascade Corp. ...................... 22,475,025
------------
81,509,725
GENERAL MANUFACTURING: 1.1%
5,141,000 Archer Daniels Midland Co. ............... 50,446,063
------------
552,810,274
</TABLE>
See accompanying Notes to Financial Statements
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<TABLE>
<CAPTION>
Portfolio of Investments June 30, 2000
-----------------------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON TECHNOLOGY: 7.9%
STOCKS ELECTRONICS & COMPUTER: 7.4%
(Continued) 3,435,000 Xerox Corp. ......................................... $ 71,276,250
1,690,500 NCR Corp.+........................................... 65,823,844
2,935,000 Thermo Electron Corp.+............................... 61,818,437
378,300 Hewlett-Packard Co. ................................. 47,240,213
1,122,700 Electronic Data Systems.............................. 46,311,375
892,500 Motorola, Inc. ...................................... 25,938,281
2,200,000 Storage Technology Corp.+............................ 24,062,500
-------------
342,470,900
CONSUMER ELECTRONICS: 0.5%
255,400 Sony Corp. ADR....................................... 24,087,413
-------------
366,558,313
TRANSPORTATION: 6.0%
2,778,100 Union Pacific Corp. ................................. 103,310,594
2,686,800 FedEx Corp.+......................................... 102,098,400
2,733,000 Canadian Pacific Ltd. ............................... 71,570,437
-------------
276,979,431
GENERAL INDUSTRIAL: 5.7%
2,970,600 Lockheed Martin Corp. ............................... 73,708,013
1,793,600 Deere & Co. ......................................... 66,363,200
1,550,000 Fluor Corp. ......................................... 49,018,750
1,073,000 Caterpillar, Inc. ................................... 36,347,875
815,000 Pitney Bowes, Inc. .................................. 32,600,000
775,300 Unova, Inc.+......................................... 5,669,381
-------------
263,707,219
ELECTRIC AND GAS UTILITIES: 4.5%
1,123,000 FPL Group, Inc. ..................................... 55,588,500
1,482,600 American Electric Power Company, Inc................. 43,922,025
1,285,000 Ameren Corp. ........................................ 43,368,750
1,230,000 TXU Corp. ........................................... 36,285,000
1,494,600 Wisconsin Energy Corp. .............................. 29,611,763
-------------
208,776,038
-------------
Total Common Stocks (cost $3,792,439,599)............ 4,137,418,075
-------------
PREFERRED CONSUMER: 2.7%
STOCKS: 2.7% 2,678,619 News Corp. Ltd., Limited Voting Ordinary Shares ADR.. 127,234,402
-------------
Total Preferred Stocks (cost $47,375,364)............ 127,234,402
-------------
PAR VALUE
SHORT-TERM $ 23,563,207 SSgA Prime Money Market Fund......................... 23,563,208
INVESTMENTS: 156,866,000 State Street Repurchase Agreement, 6.35%, 7/3/2000... 156,866,000
8.2% 50,000,000 U.S. Treasury Bills, 8/30/2000....................... 49,628,866
100,000,000 U.S. Treasury Bills, 9/7/2000........................ 98,903,500
50,000,000 U.S. Treasury Bills, 12/7/2000....................... 48,679,417
-------------
Total Short-Term Investments (cost $377,640,991)..... 377,640,991
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (cost $4,217,455,954)....................... 100.3% 4,642,293,468
OTHER ASSETS LESS LIABILITIES................................. (0.3) (13,881,114)
------ --------------
TOTAL NET ASSETS.............................................. 100.0% $4,628,412,354
====== ==============
+Non-income producing
</TABLE>
See accompanying Notes to Financial Statements
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<TABLE>
<CAPTION>
Statement of Assets and Liabilities June 30, 2000
-----------------------------------------------------------------------------------
<C> <S> <C>
ASSETS:
Investments, at market value (identified cost $4,217,455,954)... $4,642,293,468
Receivable for investments sold................................. 5,252,872
Receivable for Fund shares sold................................. 3,020,762
Dividends and interest receivable............................... 12,336,790
Prepaid expenses................................................ 28,792
--------------
4,662,932,684
--------------
LIABILITIES:
Payable for investments purchased............................... 18,066,095
Payable for Fund shares redeemed................................ 13,870,188
Management fees payable......................................... 1,990,000
Accounts payable................................................ 594,047
--------------
34,520,330
Net asset --------------
value NET ASSETS.................................................... $4,628,412,354
per share $92.85 ==============
NET ASSETS CONSIST OF:
Beneficial Paid in capital................................................. $3,733,877,770
shares outstanding Accumulated undistributed net investment income................. 2,513,409
49,845,792 Accumulated undistributed net realized gain on investments...... 467,183,661
(par value $0.01 each, Net unrealized appreciation on investments...................... 424,837,514
unlimited shares --------------
authorized) $4,628,412,354
==============
</TABLE>
See accompanying Notes to Financial Statements
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<TABLE>
<CAPTION>
Statement of Operations Six Months Ended June 30, 2000
-----------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes of $477,473)................. $ 53,090,864
Interest..................................................... 10,100,102
-------------
63,190,966
-------------
EXPENSES:
Management fees (Note 2)..................................... 11,511,935
Custodian and fund accounting fees........................... 116,700
Transfer agent fees.......................................... 714,623
Professional fees............................................ 25,326
Shareholder reports.......................................... 135,841
Registration fees............................................ 30,003
Trustees' fees (Note 2)...................................... 12,000
Miscellaneous................................................ 34,535
-------------
12,580,963
-------------
NET INVESTMENT INCOME........................................ 50,610,003
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments............................ 467,298,574
Net unrealized depreciation on investments.................. (608,115,827)
-------------
Net realized and unrealized loss on investments............ (140,817,253)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS......... $ (90,207,250)
=============
</TABLE>
See accompanying Notes to Financial Statements
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<TABLE>
<CAPTION>
Statement of Changes in Net Assets
-----------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
<S> <C> <C>
OPERATIONS:
Net investment income............................... $ 50,610,003 $ 65,208,317
Net realized gain................................... 467,298,574 457,870,396
Net unrealized appreciation (depreciation).......... (608,115,827) 275,141,142
-------------- ---------------
Net increase (decrease) in net assets from
operations......................................... (90,207,250) 798,219,855
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................... (49,680,896) (64,603,851)
Net realized gain................................... (220,424,933) (294,628,812)
-------------- ---------------
Total distributions................................. (270,105,829) (359,232,663)
-------------- ---------------
BENEFICIAL SHARE TRANSACTIONS:
Amounts received from sale of shares................ 761,517,127 924,118,464
Net asset value of shares issued in reinvestment
of distributions................................... 255,743,052 338,281,245
Amounts paid for shares redeemed.................... (653,072,842) (1,432,143,224)
-------------- ---------------
Net increase (decrease) from beneficial share
transactions....................................... 364,187,337 (169,743,515)
-------------- ---------------
Total increase in net assets........................ 3,874,258 269,243,677
NET ASSETS:
Beginning of period................................. 4,624,538,096 4,355,294,419
-------------- ---------------
End of period (including undistributed net
investment income of $2,513,409 and
$1,584,302, respectively).......................... $4,628,412,354 $ 4,624,538,096
============== ===============
Shares sold......................................... 7,915,731 9,114,742
Shares issued in reinvestment of distributions...... 2,726,811 3,434,611
Shares redeemed..................................... (6,801,810) (14,561,028)
-------------- ---------------
Net increase (decrease) in shares outstanding....... 3,840,732 (2,011,675)
============== ===============
</TABLE>
See accompanying Notes to Financial Statements
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Notes to Financial Statements
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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 pro-
vides 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 six
of the trustees of the Trust are officers and employees of Dodge &
Cox. Those trustees who are not affiliated with Dodge & Cox re-
ceive from the Trust an annual fee plus an attendance fee for each
Board or Committee meeting attended. Payments to trustees are di-
vided 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, 2000, purchases and sales of
securities, other than short-term securities, aggregated
$841,740,495 and $794,616,638, respectively. At June 30, 2000, the
cost of investments for Federal income tax purposes was equal to
the cost for financial reporting purposes. Net unrealized
appreciation aggregated $424,837,514, of which $868,249,976
represented appreciated securities and $443,412,462 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 ex-
press 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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Stock Fund
Financial Highlights
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SELECTED DATA AND RATIOS (for a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
---------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996 1995
Net asset value,
beginning of period $100.52 $ 90.70 $94.57 $79.81 $67.83 $53.94
Income from investment
operations:
Net investment income 1.04 1.49 1.57 1.48 1.28 1.27
Net realized and
unrealized gain (loss) (2.98) 16.51 3.54 20.86 13.67 16.54
-----------------------------------------------------
Total from investment
operations (1.94) 18.00 5.11 22.34 14.95 17.81
-----------------------------------------------------
Distributions to
shareholders from:
Net investment income (1.01) (1.48) (1.56) (1.49) (1.29) (1.26)
Net realized gain (4.72) (6.70) (7.42) (6.09) (1.68) (2.66)
-----------------------------------------------------
Total distributions (5.73) (8.18) (8.98) (7.58) (2.97) (3.92)
-----------------------------------------------------
Net asset value, end of
period $ 92.85 $100.52 $90.70 $94.57 $79.81 $67.83
=====================================================
Total return (1.96)% 20.20% 5.39% 28.41% 22.26% 33.38%
Ratios/supplemental data:
Net assets, end of
period (millions) $ 4,628 $ 4,625 $4,355 $4,087 $2,252 $1,228
Ratio of expenses to
average net assets .54%* .55% .57% .57% .59% .60%
Ratio of net investment
income to
average net assets 2.19%* 1.46% 1.63% 1.67% 1.79% 2.07%
Portfolio turnover rate 19% 18% 19% 19% 10% 13%
</TABLE>
*Annualized
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D O D G E & C O X
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Stock 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
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
L. Dale Crandall, Trustee
President, Kaiser Foundation Health Plan and Hospitals
Max Gutierrez, Jr., Trustee
Partner, Brobeck, Phleger & Harrison, Attorneys
John B. Taylor, Trustee
Professor of Economics, Stanford University
Will C. Wood, Trustee
Principal, Kentwood Associates, Financial Advisers
John M. Loll, Treasurer & Asst. Secretary
Vice President & Treasurer, Dodge & Cox
Thomas M. Mistele, Secretary & Asst. Treasurer
Vice President, Secretary & General Counsel, Dodge & Cox
Standard & Poor's 500 and S&P 500(R) are trademarks of The McGraw-Hill
Companies, Inc.
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<PAGE>
D O D G E & C O X D O D G E & C O X
----------------- -----------------
Balanced Fund
Balanced Fund
Established 1931
Investment Manager
Dodge & Cox
One Sansome Street
35th Floor
San Francisco, California
94104-4443
(415) 981-1710
For Fund literature and account
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
-----------------
Semi-Annual Report
This report is submitted for the general June 30, 2000
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. -----------------
-----------------
6/00 BF SAR Printed on recycled paper
<PAGE>
D O D G E & C O X
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Balanced Fund
To Our Shareholders
--------------------------------------------------------------------------------
The Dodge & Cox Balanced Fund had a total return of -1.1% during the second
quarter of 2000 and +0.1% for the first six months of the year. These results
compare to -0.9% and +1.5% for the Combined Index/1/ 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 $4.7 billion in assets were invested
61.5% in stocks, 36.8% in fixed-income securities and 1.7% in cash equivalents.
Equity Portfolio Performance Review
The U.S. equity markets remained volatile during the first half of 2000, with
an investment "tug of war" going on between the so-called "Old Economy"
companies (established producers of goods and services) and "New Economy"
companies (largely technology and internet firms). As the valuation gap between
these two segments of the market remains historically wide, we continue to
believe the most attractive investment prospects are in the "Old Economy," low-
valuation segment.
Returns of the S&P 500 are now largely determined by the performance of stocks
in the technology sector, since these stocks represent about 30% of the market
value of all companies in the Index. The Balanced Fund is positioned quite
differently, holding 8% of its equity portfolio in technology companies.
Consequently, this differential is important in explaining the variance between
the equity portfolio's returns and the Index's returns in a given period. The
portfolio's lower weighting in technology was a drag on relative performance in
the first quarter of 2000, when the technology sector was strong, and was
beneficial to relative results in the second quarter, as many technology stocks
were weak. The portfolio's lack of exposure to another weak performing sector,
telecom services, was a positive during the first half. On other fronts, energy
holdings were a major positive contributor to the equity portfolio's first half
results, while returns for industrial commodities, retail and consumer durables
stocks in the portfolio were mostly negative.
Equity Investment Approach & Strategy
As shareholders and readers of our past letters know, Dodge & Cox relies on
fundamental research, coupled with a price discipline, to select investments
for the Fund. Our long-term investment horizon is also key, as we look for
companies with durable business franchises and growing earnings over time. We
like to invest when we believe a company has a good potential of reporting
profits higher than the consensus expectations over a three to four-year time
frame.
In terms of the current popular label, our investments primarily reside in the
"Old Economy." Of course, there is actually only one economy. Furthermore, we
believe other investors may be overlooking the fact that many "Old Economy"
companies are actively implementing new technology tools to benefit their basic
businesses. For example, the five leading companies supplying internet banking
services (measured by online customer accounts) are not new entrants, but
traditional banks. One of the Fund's investments, Wells Fargo, has long been
recognized as a technological leader in the banking industry, dating back to
the early use of ATMs. Wells Fargo's efforts in online banking should improve
customer service and future profitability. We also believe that the company's
capable management team will continue to successfully guide Wells Fargo in a
rapidly evolving market environment. We use Wells Fargo (and later, Dow
Chemical) to illustrate our investment approach, not because we believe they
are more attractive than the Fund's other holdings.
Finding Unconventional Growth
Because we have steered away from the high-valuation, "growth" areas of the
market such as technology, telecom and pharmaceutical/biotech sectors, does
that mean there is little growth to be had from the low-valuation companies? We
don't think so. We are confident that the 83 companies held in the equity
portfolio have strong prospects, offering the opportunity for long-term
earnings growth. One example would be Dow Chemical. As the result of cost
cutting and asset restructuring--through divestitures as well as acquisitions,
such as the one pending for Union Carbide--we believe that Dow is creating a
less cyclical chemicals business. Dow's management believes that sales can
almost double over the next decade, while profits have the potential to grow
faster. Macroeconomic factors should also help Dow. Earnings for energy and
other industrial commodities producers have been improving, following the Asian
economic turmoil in 1997-98. Significant industry consolidation in the past few
years and an improving outlook for global demand contributes to our positive
view. In a still difficult commodity price environment, we believe Dow's stock
is attractively valued at about 12 times estimated year 2000 earnings.
/1/ The Combined Index reflects an unmanaged portfolio of 60% Standard & Poor's
500 Index (S&P 500) and 40% Lehman Brothers Aggregate Bond Index (LBAG).
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D O D G E & C O X
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Balanced Fund
Low Valuations in the Fund
Ironically, although we remain cautious about the general outlook for the broad
equity market, we believe we are uncovering many attractive investment
opportunities. In our opinion, the market has priced the "New Economy"
companies at overly optimistic valuations, while at the same time overlooked
many profitable and growing companies simply because they reside in the so-
called "Old Economy." We believe that the substantial divergence in valuations
between these two areas of the market will ultimately prove to be an excellent
opportunity for value-oriented investors like Dodge & Cox. For instance, the
average price-to-earnings (P/E) ratio of the Fund's holdings is now about 12
times estimated year 2000 earnings (close to the lowest it has been in a
decade), compared to 24 times for the S&P 500.
Fixed-Income Portfolio
Despite intra-period volatility, U.S. Treasury yield changes were fairly small
over the course of the second quarter. Most U.S. Treasury rates fell slightly,
with the exception of the very longest Treasury rates, which rose slightly.
Higher long rates led to price declines on the fixed-income portfolio's longer-
duration securities. (Duration is a measure of a bond's price sensitivity to
changes in interest rates.) This meant that the fixed-income portfolio's earned
income was partially offset by the negative price performance of these
securities.
The first half of the quarter was marked by rising Treasury yields; strong
economic news and an active Federal Reserve held sway over the market. As
expected, the Federal Open Market Committee raised the targeted Fed Funds rate
to 6.50% on May 16; the Fed has now raised its target rate for Federal Funds by
175 basis points (one basis point equals 1/100th of one percent) since the
second quarter of 1999. Sentiment shifted quickly in the second half of the
quarter as economic reports, including the May employment report, hinted at a
slower-growing domestic economy. Treasury yields fell as the market began to
anticipate a more manageable, less inflationary economic growth rate.
The fixed-income portfolio's performance relative to the LBAG was positively
affected by its higher-than-market yield and lower-than-market duration. We
continue to maintain the portfolio's duration slightly shorter than that of the
benchmark because of our ongoing concerns about future inflation. The
portfolio's overweight position in the corporate sector detracted from relative
performance due to wider yield premiums. In many cases, corporate yield
premiums are at the highest levels seen in 20 years. The portfolio's emphasis
on longer-duration corporate securities exacerbated this relative
underperformance.
We remain convinced that a relatively high-yielding portfolio featuring
investment-grade corporate and mortgage-related securities is essential to our
goal of seeking above-average relative performance over the long term. We
believe that our focus on research and security selection is particularly
appropriate in the current environment. We therefore continue our strategy of
emphasizing those issuers and sectors whose long-term total return potential,
in our view, is underestimated by the market. Over longer-time periods, the
higher yield from the fixed-income portfolio's non-U.S. Treasury securities
offers the opportunity for higher total returns, through a combination of
higher income and better relative price performance.
In Closing,
Given the wide valuation gaps present today within the equity market and the
high yield premiums available in the corporate sector of the fixed-income
market, we believe that there are significant opportunities for value-oriented
investors. Furthermore, with continued volatility in equity prices, we believe
the use of fixed-income securities to provide relative stability makes a long-
term, balanced investment program compelling. As always, we welcome your
thoughts and questions, and appreciate your confidence in our firm as a
shareholder of the Dodge & Cox Balanced Fund.
For the Board of Trustees,
/s/ Harry R. Hagey
----------------------------
Harry R. Hagey, Chairman July 31, 2000
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2
<PAGE>
D O D G E & C O X
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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 fixed-income securities.
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.
Fixed-Income Securities: Dodge & Cox constructs a diversified
portfolio of high-quality fixed-income securities, 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, 2000
--------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
COMBINED DODGE & COX
S & P 500 LBAG INDEX BALANCED FUND
------------------------------------------------
<S> <C> <C> <C> <C>
7/1/1990 $10,000 $10,000 $10,000 $10,000
6/30/1991 $10,739 $11,070 $10,898 $10,823
6/30/1992 $12,179 $12,627 $12,407 $12,274
6/30/1993 $13,839 $14,118 $14,012 $14,509
6/30/1994 $14,035 $13,932 $14,062 $14,946
6/30/1995 $17,691 $15,680 $16,947 $18,008
6/30/1996 $22,288 $16,466 $19,864 $20,835
6/30/1997 $30,013 $17,809 $24,552 $25,473
6/30/1998 $38,202 $19,337 $29,391 $29,671
6/30/1999 $47,951 $20,303 $34,571 $33,182
6/30/2000 $51,440 $21,231 $36,806 $32,935
</TABLE>
<TABLE>
<CAPTION>
Average annual total return for periods ended June 30, 2000 1 Year 5 Years 10 Years 20 Years
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dodge & Cox Balanced Fund -0.75% 12.83% 12.66% 13.81%
Combined Index 6.46 16.78 13.92 14.56
S&P 500 7.28 23.80 17.80 17.34
Lehman Brothers Aggregate Bond Index (LBAG) 4.56 6.25 7.82 9.81
</TABLE>
The chart covers the period from July 1, 1990 to June 30, 2000. 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-denominat-
ed, 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 distribu-
tions. Index returns include dividends and/or interest income, and unlike Fund
returns, do not reflect fees or expenses. Past performance does not guarantee
future results. Investment return and share price will fluctuate with market
conditions, and investors may have a gain or loss when shares are sold.
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3
<PAGE>
D O D G E & C O X
--------------------------------------------------------------------------------
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Balanced Fund
Fund Information June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Information
--------------------------------------------------------------------------------
<S> <C>
Net Asset Value Per Share $62.43
Total Net Assets (millions) $4,677
30-Day SEC Yield/1/ 3.87%
1999 Expense Ratio 0.53%
1999 Portfolio Turnover 17%
Fund Inception Date 1931
</TABLE>
Investment Manager: Dodge & Cox, San Francisco.
Managed by the Investment Policy Committee, whose eight members' average
tenure at Dodge & Cox is 22 years, and by the Fixed-Income Strategy
Committee, whose ten members' average tenure is 12 years.
<TABLE>
<CAPTION>
Asset Allocation
--------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<S> <C>
Stocks: 61.5%
Fixed-Income Securities: 36.8%
Short-Term Investments: 1.7%
</TABLE>
<TABLE>
<CAPTION>
Stock Portfolio (61.5% of Fund)
--------------------------------------------------------------------------------
<S> <C>
Number of Stocks 83
Median Market Capitalization $8.1 billion
Price-to-Earnings Ratio/2/ 13.7x
Price-to-Book Value 1.8x
Foreign Stocks/3/ (as percentage of Fund) 6.0%
</TABLE>
<TABLE>
<CAPTION>
Ten Largest Stock Holdings % of Fund
--------------------------------------------------------------------------------
<S> <C>
Golden West Financial 1.8
News Corp. Ltd., ADR 1.8
Bank One 1.6
FedEx 1.5
Union Pacific 1.5
Pharmacia 1.3
Bausch & Lomb 1.3
Alcoa 1.3
Phillips Petroleum 1.2
Unocal 1.2
</TABLE>
<TABLE>
<CAPTION>
Five Largest Sectors % of Fund
--------------------------------------------------------------------------------
<S> <C>
Energy 8.2
Banking 5.7
Healthcare & Pharmaceutical 5.4
Electronics & Computer 4.9
Transportation 4.0
</TABLE>
<TABLE>
<CAPTION>
Fixed-Income Portfolio (36.8% of Fund)
--------------------------------------------------------------------------------
<S> <C>
Number of Fixed-Income Securities 127
Average Quality AA
Average Maturity 10.8 years
Effective Duration 4.45 years
</TABLE>
<TABLE>
<CAPTION>
Sector Breakdown % of Fund
--------------------------------------------------------------------------------
<S> <C>
U.S. Treasury and Government Agency 6.3
Federal Agency CMO and REMIC+ 9.3
Federal Agency Mortgage Pass-Through 6.0
Asset-Backed 1.5
Corporate 12.2
Foreign (U.S. dollar-denominated) 1.5
</TABLE>
<TABLE>
<CAPTION>
Moody's/Standard & Poor's Quality Ratings % of Fund
--------------------------------------------------------------------------------
<S> <C>
U.S. Government & Government Agencies 21.6
Aaa/AAA 1.8
Aa/AA 0.0
A/A 6.2
Baa/BBB 7.2
</TABLE>
+ Collateralized Mortgage Obligation andReal 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.
--------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
Portfolio of Investments June 30, 2000
---------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON CONSUMER: 16.6%
STOCKS: HEALTHCARE AND PHARMACEUTICAL: 5.4%
59.7% 1,184,050 Pharmacia Corp.............................. $ 61,200,584
775,900 Bausch & Lomb, Inc.......................... 60,035,262
1,313,000 Becton, Dickinson & Co...................... 37,666,687
369,400 WellPoint Health Networks, Inc.+............ 26,758,413
810,000 HCA-The Healthcare Company.................. 24,603,750
725,000 First Health Group Corp.+................... 23,789,063
240,000 Cardinal Health, Inc........................ 17,760,000
------------
251,813,759
RETAIL AND DISTRIBUTION: 3.9%
2,530,000 Genuine Parts Co............................ 50,600,000
6,412,000 Kmart Corp.+................................ 43,681,750
1,677,600 Nordstrom, Inc.............................. 40,472,100
1,375,000 May Department Stores Co.................... 33,000,000
1,165,000 Dillard's, Inc. Class A..................... 14,271,250
------------
182,025,100
CONSUMER DURABLES: 3.5%
964,500 Whirlpool Corp.............................. 44,969,812
515,417 General Motors Corp......................... 29,926,400
1,871,400 Delphi Automotive Systems Corp.............. 27,252,262
1,250,000 Dana Corp................................... 26,484,375
600,000 Ford Motor Co............................... 25,800,000
550,000 Masco Corp.................................. 9,934,375
78,560 Visteon Corp.+.............................. 952,538
------------
165,319,762
CONSUMER PRODUCTS: 2.9%
1,621,200 Fort James Corp............................. 37,490,250
2,027,000 Mattel, Inc................................. 26,731,063
1,120,000 VF Corp..................................... 26,670,000
416,000 Unilever N.V................................ 17,888,000
265,000 Eastman Kodak Co............................ 15,767,500
889,100 Dole Food Co., Inc.......................... 12,447,400
------------
136,994,213
MEDIA AND LEISURE: 0.9%
1,858,300 R.R. Donnelley & Sons Co.................... 41,927,894
------------
778,080,728
FINANCE: 10.8%
BANKING: 5.7%
2,100,000 Golden West Financial Corp.................. 85,706,250
2,731,000 Bank One Corp............................... 72,542,188
1,003,434 Bank of America Corp........................ 43,147,662
975,000 Wells Fargo & Co............................ 37,781,250
485,000 Wachovia Corp............................... 26,311,250
------------
265,488,600
INSURANCE AND FINANCIAL SERVICES: 3.8%
860,100 Loews Corp.................................. 51,606,000
1,465,100 St. Paul Companies, Inc..................... 49,996,537
560,950 Citigroup, Inc.............................. 33,797,237
476,000 Chubb Corp.................................. 29,274,000
217,000 MBIA, Inc................................... 10,456,688
239,500 UNUMProvident Corp.......................... 4,804,969
------------
179,935,431
</TABLE>
See accompanying Notes to Financial Statements
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<TABLE>
Portfolio of Investments June 30, 2000
--------------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON REAL ESTATE INVESTMENT TRUST: 1.3%
STOCKS: 1,139,300 Equity Office Properties Trust................... $ 31,401,956
(Continued) 594,900 Equity Residential Properties Trust.............. 27,365,400
------------
58,767,356
------------
504,191,387
ENERGY: 8.2%
1,141,200 Phillips Petroleum Co............................ 57,844,575
1,712,700 Unocal Corp...................................... 56,733,187
2,478,700 Occidental Petroleum Corp........................ 52,207,619
792,600 Amerada Hess Corp................................ 48,943,050
543,000 Chevron Corp..................................... 46,053,187
1,112,350 Baker Hughes, Inc................................ 35,595,200
1,350,485 Union Pacific Resources Group, Inc............... 29,710,670
457,000 Royal Dutch Petroleum Co......................... 28,134,063
368,000 Schlumberger Ltd................................. 27,462,000
------------
382,683,551
INDUSTRIAL COMMODITIES: 7.9%
CHEMICALS: 3.7%
1,806,900 Dow Chemical Co.................................. 54,545,794
795,800 Eastman Chemical Co.............................. 37,999,450
771,050 Air Products & Chemicals, Inc.................... 23,757,978
469,000 Union Carbide Corp............................... 23,215,500
1,203,000 Engelhard Corp................................... 20,526,187
349,620 NOVA Chemicals Corp.............................. 7,516,830
271,000 Lubrizol Corp.................................... 5,691,000
------------
173,252,739
METALS AND MINING: 2.3%
2,060,000 Alcoa, Inc....................................... 59,740,000
733,450 Rio Tinto PLC ADR................................ 47,857,613
------------
107,597,613
PAPER AND FOREST PRODUCTS: 1.2%
894,100 Weyerhaeuser Co.................................. 38,446,300
629,000 Boise Cascade Corp............................... 16,275,375
------------
54,721,675
GENERAL MANUFACTURING: 0.7%
3,380,725 Archer Daniels Midland Co........................ 33,173,364
------------
368,745,391
TECHNOLOGY: 5.3%
ELECTRONICS & COMPUTER: 4.9%
2,270,000 Xerox Corp....................................... 47,102,500
1,155,500 NCR Corp.+....................................... 44,992,281
2,107,500 Thermo Electron Corp.+........................... 44,389,219
263,100 Hewlett-Packard Co............................... 32,854,612
705,200 Electronic Data Systems.......................... 29,089,500
587,400 Motorola, Inc.................................... 17,071,313
1,507,300 Storage Technology Corp.+........................ 16,486,094
------------
231,985,519
CONSUMER ELECTRONICS: 0.4%
178,800 Sony Corp. ADR................................... 16,863,075
------------
248,848,594
</TABLE>
See accompanying Notes to Financial Statements
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<TABLE>
<CAPTION>
Portfolio of Investments June 30, 2000
--------------------------------------------------------------------------
SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON TRANSPORTATION: 4.0%
STOCKS 1,898,600 FedEx Corp.+........................... $ 72,146,800
(Continued) 1,838,600 Union Pacific Corp..................... 68,372,937
1,740,000 Canadian Pacific Ltd................... 45,566,250
-------------
186,085,987
GENERAL INDUSTRIAL: 3.8%
2,071,200 Lockheed Martin Corp................... 51,391,650
1,191,200 Deere & Co............................. 44,074,400
988,500 Fluor Corp............................. 31,261,313
770,000 Caterpillar, Inc....................... 26,083,750
475,000 Pitney Bowes, Inc...................... 19,000,000
624,100 Unova, Inc.+........................... 4,563,731
-------------
176,374,844
ELECTRIC AND GAS UTILITIES: 3.1%
698,800 FPL Group, Inc......................... 34,590,600
944,000 Ameren Corp............................ 31,860,000
1,059,360 American Electric Power Company, Inc... 31,383,540
897,000 TXU Corp............................... 26,461,500
1,071,000 Wisconsin Energy Corp.................. 21,219,187
-------------
145,514,827
-------------
Total Common Stocks (cost
$2,574,296,926)..................... 2,790,525,309
-------------
PREFERRED CONSUMER: 1.8%
STOCKS: 1,762,900 News Corp. Ltd., Limited Voting
1.8% Ordinary Shares ADR.................... 83,737,750
-------------
Total Preferred Stocks (cost
$31,163,743)........................ 83,737,750
-------------
PAR VALUE
BONDS: U.S. TREASURY AND GOVERNMENT AGENCY: 6.3%
36.8% U.S. TREASURY: 4.8%
$ 43,873,582 U.S. Treasury Inflation-Indexed Bond,
3.625%, 4/15/2028...................... 41,816,788
18,274,136 U.S. Treasury Inflation-Indexed Bond,
3.875%, 4/15/2029...................... 18,199,943
113,145,109 U.S. Treasury Inflation-Indexed Note,
3.875%, 1/15/2009...................... 111,412,858
26,500,000 U.S. Treasury Notes, 7.25%, 8/15/2004.. 27,398,615
25,438,500 U.S. Treasury Notes, 4.25%, 1/15/2010.. 25,804,051
-------------
224,632,255
GOVERNMENT AG ENCY: 1.5%
4,935,000 Arkansas Dev. Fin. Auth. GNMA
Guaranteed Bonds, 9.75%, 11/15/2014.... 5,568,160
8,042,877 Govt. Small Business Admin. 504 Series
96-20L, 6.70%, 12/1/2016............... 7,638,300
14,043,520 Govt. Small Business Admin. 504 Series
97-20F, 7.20%, 6/1/2017................ 13,680,072
16,478,917 Govt. Small Business Admin. 504 Series
97-20I, 6.90%, 9/1/2017................ 15,817,753
18,878,011 Govt. Small Business Admin. 504 Series
98-20D, 6.15%, 4/1/2018................ 17,339,148
8,930,450 Govt. Small Business Admin. 504 Series
98-20I, 6.00%, 9/1/2018................ 8,115,809
-------------
68,159,242
-------------
292,791,497
</TABLE>
See accompanying Notes to Financial Statements
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7
<PAGE>
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-------------------------------------------------------------------------------
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-------------------------------------------------------------------------------
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 2000
-------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS FEDERAL AGENCY CMO* AND REMIC**: 9.3%
(Continued) $11,538,367 Federal Home Loan Mtge. Corp., 7.00%,
1/15/2006............................... $ 11,527,521
9,654,915 Federal Home Loan Mtge. Corp., 7.00%,
10/15/2006.............................. 9,639,757
13,382,977 Federal Home Loan Mtge. Corp., 6.75%,
11/15/2006.............................. 13,228,136
3,838,925 Federal Home Loan Mtge. Corp., 6.00%,
1/15/2007............................... 3,757,348
17,884,428 Federal Home Loan Mtge. Corp., 7.25%,
4/15/2007............................... 17,867,617
41,500,000 Federal Home Loan Mtge. Corp., 6.50%,
10/15/2007.............................. 40,630,990
12,609,000 Federal Home Loan Mtge. Corp., 7.00%,
1/15/2008............................... 12,526,159
14,750,000 Federal Home Loan Mtge. Corp., 6.50%,
5/15/2008............................... 14,394,967
15,000,000 Federal Home Loan Mtge. Corp., 6.50%,
5/15/2008............................... 14,653,050
16,474,350 Federal Home Loan Mtge. Corp., 6.50%,
8/15/2008............................... 16,083,084
19,380,000 Federal Home Loan Mtge. Corp., 6.50%,
10/15/2008.............................. 18,804,608
30,165,000 Federal Home Loan Mtge. Corp., 6.00%,
12/15/2008.............................. 28,958,400
10,301,862 Federal Home Loan Mtge. Corp., 7.00%,
5/17/2020............................... 10,263,230
15,371,456 Federal Home Loan Mtge. Corp., 6.50%,
5/15/2021............................... 14,838,220
23,885,000 Federal Home Loan Mtge. Corp., 6.75%,
8/15/2021............................... 23,250,376
27,780,000 Federal Home Loan Mtge. Corp., 6.25%,
9/15/2022............................... 26,798,810
28,000,000 Federal Home Loan Mtge. Corp., 7.00%,
8/25/2023............................... 26,652,360
4,272,291 Federal Natl. Mtge. Assn., 5.00%,
1/1/2006................................ 4,098,708
16,041,748 Federal Natl. Mtge. Assn., 7.50%,
2/25/2007............................... 16,086,825
10,000,000 Federal Natl. Mtge. Assn., 6.50%,
6/25/2008............................... 9,650,000
15,475,000 Federal Natl. Mtge. Assn., 6.00%,
3/25/2009............................... 14,778,625
574,336 Federal Natl. Mtge. Assn., 6.50%,
4/1/2009................................ 562,131
3,088,110 Federal Natl. Mtge. Assn., 5.70%,
8/25/2016............................... 3,049,509
12,715,000 Federal Natl. Mtge. Assn., 7.00%,
6/17/2022............................... 12,401,067
12,359,786 Veterans Affairs Vendee Mtge. Trust,
6.75%, 8/15/2014........................ 12,309,481
26,000,000 Veterans Affairs Vendee Mtge. Trust,
6.75%, 9/15/2014........................ 25,902,500
8,000,000 Veterans Affairs Vendee Mtge. Trust,
6.75%, 5/15/2019........................ 7,842,480
23,000,000 Veterans Affairs Vendee Mtge. Trust,
7.00%, 6/15/2019........................ 22,820,140
------------
433,376,099
FEDERAL AGENCY MORTGAGE PASS-THROUGH: 6.0%
227,841 Federal Home Loan Mtge. Corp., 6.50%,
2/1/2006................................ 226,668
271,628 Federal Home Loan Mtge. Corp., 7.50%,
7/1/2006................................ 271,938
196,989 Federal Home Loan Mtge. Corp., 7.25%,
1/1/2008................................ 196,221
106,729 Federal Home Loan Mtge. Corp., 7.50%,
2/1/2008................................ 106,850
702,329 Federal Home Loan Mtge. Corp., 8.00%,
2/1/2008................................ 705,546
15,034,278 Federal Home Loan Mtge. Corp., 7.00%,
5/1/2008................................ 14,868,900
22,474,343 Federal Home Loan Mtge. Corp., 7.00%,
12/1/2008............................... 22,227,126
6,394,723 Federal Home Loan Mtge. Corp., 6.50%,
2/1/2009................................ 6,233,320
18,651,046 Federal Home Loan Mtge. Corp., 7.00%,
8/1/2009................................ 18,445,884
14,362,133 Federal Home Loan Mtge. Corp., 6.00%,
9/1/2009................................ 13,870,804
647,359 Federal Home Loan Mtge. Corp., 8.75%,
5/1/2010................................ 657,988
8,568,484 Federal Home Loan Mtge. Corp., 7.50%,
8/1/2010................................ 8,590,505
3,456,177 Federal Home Loan Mtge. Corp., 8.00%,
11/1/2010............................... 3,472,006
596,412 Federal Home Loan Mtge. Corp., 8.25%,
2/1/2017................................ 602,746
8,207,097 Federal Home Loan Mtge. Corp., 7.75%,
7/1/2021................................ 8,255,765
5,240,864 Federal Home Loan Mtge. Corp., 8.50%,
1/1/2023................................ 5,375,922
10,817,375 Federal Natl. Mtge. Assn., 5.57%,
1/1/2006................................ 10,008,079
1,650,144 Federal Natl. Mtge. Assn., 7.50%,
12/1/2006............................... 1,652,306
3,180,874 Federal Natl. Mtge. Assn., 7.50%,
9/1/2007................................ 3,185,645
5,296,369 Federal Natl. Mtge. Assn., 7.00%,
12/1/2007............................... 5,260,565
10,540,479 Federal Natl. Mtge. Assn., 7.00%,
12/1/2007............................... 10,455,628
6,120,441 Federal Natl. Mtge. Assn., 6.50%,
5/1/2008................................ 5,983,159
8,179,375 Federal Natl. Mtge. Assn., 8.00%,
6/1/2008................................ 8,285,053
22,177,536 Federal Natl. Mtge. Assn., 6.163%,
10/1/2008............................... 20,470,378
3,889,962 Federal Natl. Mtge. Assn., 5.605%,
11/1/2008............................... 3,526,133
</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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-------------------------------------------------------------------------------
Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 2000
-------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS FEDERAL AGENCY MORTGAGE PASS-THROUGH (continued)
(Continued) $15,648,676 Federal Natl. Mtge. Assn., 6.50%,
11/1/2008............................... $ 15,297,676
7,087,174 Federal Natl. Mtge. Assn., 6.00%,
1/1/2009................................ 6,815,098
2,468,137 Federal Natl. Mtge. Assn., 8.00%,
1/1/2009................................ 2,503,456
905,683 Federal Natl. Mtge. Assn., 7.50%,
8/1/2010................................ 911,334
2,633,556 Federal Natl. Mtge. Assn., 7.50%,
7/1/2019................................ 2,635,084
9,929,546 Govt. Natl. Mtge. Assn., 7.50%,
7/15/2007............................... 10,022,784
12,601,236 Govt. Natl. Mtge. Assn., 7.50%,
1/15/2008............................... 12,747,915
5,640,111 Govt. Natl. Mtge. Assn., 8.00%,
12/15/2008.............................. 5,714,109
23,718,169 Govt. Natl. Mtge. Assn., 6.50%,
7/15/2009............................... 23,243,568
2,104,854 Govt. Natl. Mtge. Assn., 7.97%,
4/15/2020............................... 2,135,500
1,741,734 Govt. Natl. Mtge. Assn., 7.97%,
5/15/2020............................... 1,767,094
1,375,919 Govt. Natl. Mtge. Assn., 7.97%,
8/15/2020............................... 1,395,953
1,750,470 Govt. Natl. Mtge. Assn., 7.97%,
8/15/2020............................... 1,775,957
2,268,757 Govt. Natl. Mtge. Assn., 7.97%,
10/15/2020.............................. 2,301,790
1,902,452 Govt. Natl. Mtge. Assn., 7.97%,
1/15/2021............................... 1,928,383
8,146,274 Veterans Affairs Vendee Mtge. Trust,
5.634%, 2/15/2024....................... 7,390,137
5,619,078 Veterans Affairs Vendee Mtge. Trust,
7.207%, 2/15/2025....................... 5,504,898
5,954,252 Veterans Affairs Vendee Mtge. Trust,
8.792%, 6/15/2025....................... 6,142,168
------------
283,168,039
ASSET-BACKED SECURITIES: 1.5%
37,155,000 CA Infrastructure and Econ. Dev. Bank
Special Purpose Trust PGE-1 Rate
Reduction Ctf. 1997-1 A-5, 6.25%,
6/25/2004............................... 36,614,395
17,775,000 CA Infrastructure and Econ. Dev. Bank
Special Purpose Trust SCE-1 Rate
Reduction Ctf. 1997-1 A-6, 6.38%,
9/25/2008............................... 17,202,823
15,800,000 PP&L Transition Bond Series 1999-1 A-2,
6.41%, 12/26/2003....................... 15,624,778
------------
69,441,996
CORPORATE: 12.2%
INDUSTRIAL: 6.3%
49,370,000 J.E. Seagram & Sons, Inc., 6.80%,
12/15/2008.............................. 46,427,548
29,625,000 Lockheed Martin Corp., 7.65%, 5/1/2016.. 28,124,198
29,625,000 Lockheed Martin Corp., 7.75%, 5/1/2026.. 27,742,331
5,900,000 May Department Stores, 7.625%,
8/15/2013............................... 5,799,169
14,000,000 May Department Stores, 8.125%,
8/15/2035, Callable 2015................ 13,446,650
10,390,000 May Department Stores, 7.875%,
8/15/2036, Callable 2016................ 9,241,489
34,560,000 Raychem Corp., 7.20%, 10/15/2008........ 32,654,707
27,970,000 Raytheon Co., 6.75%, 8/15/2007.......... 26,278,654
19,750,000 Raytheon Co., 6.75%, 3/15/2018.......... 17,077,430
17,280,000 Raytheon Co., 7.20%, 8/15/2027.......... 15,320,275
31,600,000 Time Warner Entertainment, 8.375%,
7/15/2033............................... 31,857,540
3,405,000 Union Camp Corp., 9.25%, 2/1/2011....... 3,654,076
20,000,000 Union Carbide Corp., 6.70%, 4/1/2009.... 18,954,200
19,750,000 Walt Disney Co., 7.55%, 7/15/2093,
Callable 2023........................... 17,853,803
------------
294,432,070
FINANCE: 4.6%
14,525,000 BankAmerica Capital II, 8.00%,
12/15/2026, Callable 2006++............. 13,131,472
1,975,000 Barclays No. American Capital, 9.75%,
5/15/2021, Callable 2001................ 2,081,828
1,720,000 CIGNA Corp., 7.65%, 3/1/2023............ 1,584,275
4,400,000 CIGNA Corp., 8.30%, 1/15/2033, Step
Coupon.................................. 4,253,568
18,445,000 Citicorp Capital Trust I, 7.933%,
2/15/2027, Callable 2007++.............. 16,805,239
35,000,000 EOP Operating Limited Partnership,
8.375%, 3/15/2006....................... 35,487,900
4,935,000 First Nationwide Bank, 10.00%,
10/1/2006............................... 5,281,338
10,000,000 GMAC, 5.75%, 11/10/2003................. 9,468,500
29,625,000 GMAC, 8.875%, 6/1/2010, Putable 2005.... 31,949,377
5,000,000 Golden West Financial, 7.875%,
1/15/2002............................... 5,010,000
</TABLE>
See accompanying Notes to Financial Statements
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<PAGE>
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Balanced Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 2000
--------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS FINANCE (continued)
(Continued) $ 10,000,000 Golden West Financial, 6.70%,
7/1/2002............................... $ 9,815,900
13,600,000 Golden West Financial, 6.00%,
10/1/2003.............................. 12,868,184
5,805,000 Hartford Financial Services Group,
8.30%, 12/1/2001....................... 5,870,538
10,000,000 Hartford Financial Services Group,
6.375%, 11/1/2002...................... 9,772,500
8,000,000 J.P. Morgan Capital Trust I, 7.54%,
1/15/2027, Callable 2007++............. 6,861,520
16,290,000 Republic New York Corp., 7.20%,
7/15/2097.............................. 13,478,346
13,995,000 Safeco Corp., 6.875%, 7/15/2007........ 12,792,690
17,500,000 St. Paul Companies, Inc., 8.125%,
4/15/2010.............................. 17,380,650
-------------
213,893,825
TRANSPORTATION: 1.3%
6,923,876 Consolidated Rail Corp., 6.76%,
5/25/2015.............................. 6,545,556
12,390,000 Consolidated Rail Corp., 9.75%,
6/15/2020.............................. 13,545,491
47,768,970 Union Pacific Corp., 6.33%, 1/2/2020... 41,753,424
-------------
61,844,471
UTILITIES: 0.0%
750,000 Idaho Power Co. 1st Mtge., 9.50%,
1/1/2021, Callable 2001................ 788,783
-------------
570,959,149
FOREIGN (U.S. DOLLAR-DENOMINATED): 1.5%
CANADIAN: 0.7%
9,875,000 Canadian National Railway Co., 6.80%,
7/15/2018.............................. 8,583,054
8,640,000 Canadian Pacific Ltd., 9.45%,
8/1/2021............................... 9,214,646
11,850,000 Hydro-Quebec, 7.50%, 4/1/2016.......... 11,795,016
-------------
29,592,716
CORPORATE: 0.5%
15,800,000 Bank of Tokyo-Mitsubishi Ltd., 8.40%,
4/15/2010.............................. 15,954,840
10,000,000 HSBC Holdings PLC, 7.50%, 7/15/2009.... 9,813,000
-------------
25,767,840
INTERNATIONAL AGENCY: 0.3%
17,545,000 Inter-American Development Bank,
7.125%, 3/15/2023, Callable 2003....... 16,038,937
-------------
71,399,493
-------------
Total Bonds (cost $1,776,375,425)...... 1,721,136,273
-------------
SHORT-TERM 23,829,479 SSgA Prime Money Market Fund........... 23,829,479
INVESTMENTS: 67,770,000 State Street Repurchase Agreement,
1.9% 6.35%, 7/3/2000........................ 67,770,000
-------------
Total Short-Term Investments (cost
$91,599,479)........................... 91,599,479
-------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (cost $4,473,435,573)...... 100.2% 4,686,998,811
OTHER ASSETS LESS LIABILITIES................ (0.2) (9,689,800)
------ --------------
TOTAL NET ASSETS............................. 100.0% $4,677,309,011
====== ==============
</TABLE>
+ Non-income producing
++ Cumulative Preferred Securities
* CMO: Collateralized Mortgage Obligation
** REMIC: Real Estate Mortgage Investment Conduit
See accompanying Notes to Financial Statements
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<PAGE>
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Balanced Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities June 30, 2000
----------------------------------------------------------------
<C> <S> <C>
ASSETS:
Investments, at market value (identified cost
$4,473,435,573)................................ $4,686,998,811
Receivable for paydowns on mortgage-backed
securities..................................... 135,148
Receivable for Fund shares sold................. 3,533,066
Dividends and interest receivable............... 31,947,991
Prepaid expenses................................ 39,375
--------------
4,722,654,391
--------------
LIABILITIES:
Payable for investments purchased............... 9,195,418
Payable for Fund shares redeemed................ 33,699,499
Management fees payable......................... 1,995,896
Accounts payable................................ 454,567
--------------
Net asset 45,345,380
value --------------
per share $62.43 NET ASSETS.................................... $4,677,309,011
==============
Beneficial NET ASSETS CONSIST OF:
shares outstanding Paid in capital................................. $4,109,616,324
74,919,344 Accumulated undistributed net investment
(par value $0.01 each, income......................................... 3,184,008
unlimited Accumulated undistributed net realized gain on
shares investments.................................... 350,945,441
authorized) Net unrealized appreciation on investments...... 213,563,238
--------------
$4,677,309,011
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations Six Months Ended June 30, 2000
------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes of $316,473).... $ 36,388,252
Interest........................................ 68,614,145
--------------
105,002,397
--------------
EXPENSES:
Management fees (Note 2)........................ 12,135,217
Custodian and fund accounting fees.............. 114,071
Transfer agent fees............................. 541,273
Professional fees............................... 21,843
Shareholder reports............................. 84,947
Registration fees............................... 31,644
Trustees' fees (Note 2)......................... 12,000
Miscellaneous................................... 38,833
--------------
12,979,828
--------------
NET INVESTMENT INCOME........................... 92,022,569
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments............... 351,074,372
Net unrealized depreciation on investments..... (445,187,413)
--------------
Net realized and unrealized loss on
investments.................................. (94,113,041)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................... $ (2,090,472)
==============
</TABLE>
See accompanying Notes to Financial Statements
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Balanced Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
-----------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
<S> <C> <C>
OPERATIONS:
Net investment income............. $ 92,022,569 $ 175,309,072
Net realized gain................. 351,074,372 484,607,708
Net unrealized depreciation....... (445,187,413) (36,942,549)
-------------- ---------------
Net increase (decrease) in net
assets from operations........... (2,090,472) 622,974,231
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income............. (91,639,562) (174,300,777)
Net realized gain................. (156,044,440) (372,974,271)
-------------- ---------------
Total distributions............... (247,684,002) (547,275,048)
-------------- ---------------
BENEFICIAL SHARE TRANSACTIONS:
Amounts received from sale of
shares........................... 512,588,248 1,034,002,523
Net asset value of shares issued
in reinvestment of
distributions.................... 239,638,103 534,611,195
Amounts paid for shares redeemed.. (963,105,475) (2,199,329,763)
-------------- ---------------
Net decrease from beneficial share
transactions..................... (210,879,124) (630,716,045)
-------------- ---------------
Total decrease in net assets...... (460,653,598) (555,016,862)
NET ASSETS:
Beginning of period............... 5,137,962,609 5,692,979,471
-------------- ---------------
End of period (including
undistributed net investment
income of $3,184,008 and
$2,801,001, respectively)........ $4,677,309,011 $ 5,137,962,609
============== ===============
Shares sold....................... 7,987,962 15,078,796
Shares issued in reinvestment of
distributions.................... 3,808,883 8,106,876
Shares redeemed................... (15,066,680) (32,283,085)
-------------- ---------------
Net decrease in shares
outstanding...................... (3,269,835) (9,097,413)
============== ===============
</TABLE>
See accompanying Notes to Financial Statements
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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 Dela-
ware business trust and is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management in-
vestment company. The Fund consistently follows accounting poli-
cies 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 pur-
chased are amortized and accreted, respectively, to interest in-
come over the lives of the respective securities. (e) Distribu-
tions 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 dis-
tribute 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 six 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, 2000, purchases and sales of
securities, other than short-term securities, aggregated
$727,884,455 and $1,039,503,324, respectively, of which U.S.
government obligations aggregated $166,904,349 and $252,246,176,
respectively. At June 30, 2000, the cost of investments for
Federal income tax purposes was equal to the cost for financial
reporting purposes. Net unrealized appreciation aggregated
$213,563,238, of which $601,978,123 represented appreciated
securities and $388,414,885 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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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,
---------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996 1995
Net asset value,
beginning of period $65.71 $65.22 $66.78 $59.82 $54.60 $45.21
Income from investment
operations:
Net investment income 1.25 2.24 2.24 2.21 1.98 1.90
Net realized and
unrealized gain (loss) (1.19) 5.45 2.17 10.24 5.92 10.58
--------------------------------------------------------
Total from investment
operations 0.06 7.69 4.41 12.45 7.90 12.48
--------------------------------------------------------
Distributions to
shareholders from:
Net investment income (1.23) (2.22) (2.23) (2.22) (1.99) (1.90)
Net realized gain (2.11) (4.98) (3.74) (3.27) (.69) (1.19)
--------------------------------------------------------
Total distributions (3.34) (7.20) (5.97) (5.49) (2.68) (3.09)
--------------------------------------------------------
Net asset value, end of
period $62.43 $65.71 $65.22 $66.78 $59.82 $54.60
========================================================
Total return .09% 12.06% 6.70% 21.21% 14.75% 28.02%
Ratios/supplemental data:
Net assets, end of
period (millions) $4,677 $5,138 $5,693 $5,077 $3,630 $1,800
Ratio of expenses to
average net assets .53%* .53% .54% .55% .56% .57%
Ratio of net investment
income to average net
assets 3.77%* 3.18% 3.29% 3.39% 3.60% 3.85%
Portfolio turnover rate 15% 17% 26% 32% 17% 20%
</TABLE>
*Annualized
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14
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D O D G E & C O X
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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
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
L. Dale Crandall, Trustee
President, Kaiser Foundation Health Plan and Hospitals
Max Gutierrez, Jr., Trustee
Partner, Brobeck, Phleger & Harrison, Attorneys
John B. Taylor, Trustee
Professor of Economics, Stanford University
Will C. Wood, Trustee
Principal, Kentwood Associates, Financial Advisers
John M. Loll, Treasurer & Asst. Secretary
Vice President & Treasurer, Dodge & Cox
Thomas M. Mistele, Secretary & Asst. Treasurer
Vice President, Secretary & General Counsel, Dodge & Cox
Lehman Brothers(R) is a trademark of Lehman Brothers, Inc.; Moody's(R) is a
trademark of Moody's Investors Services, Inc.; and Standard & Poor's, Standard
& Poor's 500, and S&P 500(R) are trademarks of The McGraw-Hill Companies, Inc.
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<PAGE>
D O D G E & C O X D O D G E & C O X
----------------- -----------------
Income Fund
Income Fund
Investment Manager Established 1989
Dodge & Cox
One Sansome Street
35th Floor
San Francisco, California
94104-4443
(415) 981-1710
For Fund literature and account
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. Semi-Annual Report
The report is not authorized for distribution June 30, 2000
to prospective investors in the Fund unless
it is accompanied by a current prospectus. -----------------
-----------------
----------------- -----------------
6/00 IF SAR Printed on recycled paper
<PAGE>
D O D G E & C O X
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Income Fund
To Our Shareholders
--------------------------------------------------------------------------------
The Dodge & Cox Income Fund had a total return of 1.3% for the quarter ended
June 30, 2000 and 3.5% for the first half of 2000. These compared with total
returns of 1.7% and 4.0%, respectively, for the Lehman Brothers Aggregate Bond
Index (LBAG). Average annual total returns for longer periods are listed on
page three of this report. At the end of the second quarter the Fund's $924
million in assets were invested 98% in fixed-income securities and 2% in cash
equivalents.
Treasury Yields Stable Despite Strong Economic News and a "Restrictive" Federal
Reserve
Despite intra-period volatility, U.S. Treasury yield changes were fairly small
over the course of the second quarter. Most U.S. Treasury rates fell slightly,
with the exception of the very longest Treasury rates, which rose slightly.
Higher long rates led to price declines on the Fund's longer-duration
securities. (Duration is a measure of a bond's price sensitivity to changes in
interest rates.) This meant that the Fund's earned income was partially offset
by the negative price performance of these securities.
The first half of the quarter was marked by rising Treasury yields; strong
economic news and an active Federal Reserve held sway over the market. As
expected, the Federal Open Market Committee raised the targeted Fed Funds rate
to 6.50% on May 16; the Fed has now raised its target rate for Federal Funds by
175 basis points (one basis point equals 1/100th of one percent) since the
second quarter of 1999. Sentiment shifted quickly in the second half of the
quarter as economic reports, including the May employment report, hinted at a
slower-growing domestic economy. Treasury yields fell as the market began to
anticipate a more manageable, less inflationary economic growth rate.
The Fund's performance relative to that of the LBAG was positively affected by
its higher-than-market yield and lower-than-market duration. We continue to
maintain the Fund's duration slightly shorter than that of the benchmark
because of our ongoing concerns about future inflation. The Fund's overweight
position in the corporate sector detracted from relative performance due to
wider yield premiums. In many cases, corporate yield premiums, especially those
in the finance and Yankee (U.S. dollar-denominated securities from foreign
issuers) sectors, are at the highest levels seen in 20 years. The Fund's
emphasis on longer-duration corporate securities exacerbated this relative
underperformance.
Corporate Yield Premiums Revisit Historical Wide Levels
Despite ongoing strength in the domestic economy, corporate yield premiums have
reached the wide levels of the 1990-91 recession and the fall of 1998 "flight
to quality." The current yield premiums of corporate bonds are significantly
wider than "required" as compensation for historical default and recovery rates
for the period of 1970-1999*. While the level of yield premiums can be
partially attributed to market volatility and a current preference for more
liquid securities, we believe they are larger than warranted given the
underlying credit fundamentals. This creates an opportunity for investors like
Dodge & Cox who have a long-term investment horizon and the capability to
conduct thorough fundamental, individual security research. In response to this
opportunity, we targeted a higher corporate allocation and purchased the
following issues during the quarter:
. A 1.0% position of ten-year St. Paul Companies notes at a yield premium of
225 basis points; this is equivalent to a yield to maturity of 8.9%. This
A1/A+ rated insurer is the country's fourth largest commercial property-
liability underwriter.
. Source: Moody's Investors Service Historical Default Rates of Corporate Bond
Issuers, 1920-1999.
--------------------------------------------------------------------------------
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1
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D O D G E & C O X
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Income Fund
. A 1.0% position of Phillips Petroleum 10-year notes, rated Baa2/BBB with a
yield to maturity of 8.8%. Founded in Bartlesville, Oklahoma in 1917, this
integrated petroleum company had $15 billion in assets at year-end 1999 and
$14 billion of revenues for the year.
. A 1.0% position of twenty-year debentures issued by Dillard's Inc., at yield
premiums of 514 (11.1% yield to maturity) and 458 basis points (10.6% yield
to maturity), respectively, to comparable U.S. Treasuries. As the country's
third largest department store chain with 1999 revenues of $8.7 billion,
Dillard's carries a senior rating of Baa1/BBB.
. Finally, we added to the portfolio's current holdings in asset-backed
securities, specifically Rate Reduction bonds issued through a special
purpose trust created by PG&E.
In total, we increased the Fund's corporate allocation, including Yankees and
asset-backed securities, from 41% at the beginning of the quarter to 44% by
quarter-end.
Looking Ahead: Selective Additions and Inflation Concerns
As we indicated above, the Fund's overweight position in the corporate sector
contributed to the Fund's underperformance this year. Nevertheless, we remain
convinced that a relatively high-yielding portfolio featuring investment-grade
corporate and mortgage-related securities is essential to our goal of seeking
above-average relative performance over the long term. We believe that our
focus on research and security selection is particularly appropriate in the
current environment. We therefore continue our strategy of emphasizing those
issuers and sectors whose long-term total return potential, in our view, is
underestimated by the market. Over longer time periods, the higher yield from
the Fund's non-U.S. Treasury securities offers the opportunity for higher total
returns, through a combination of higher income and better relative price
performance.
In response to our concern that inflation will continue to rise in 2000 due to
the tight U.S. labor markets, the pace of global economic growth, higher import
prices, the strong housing market and the level of oil prices, we continue to
position the portfolio "defensively" by maintaining the portfolio's effective
duration slightly shorter than that of the LBAG. In addition, the Fund holds a
6.8% position in Treasury Inflation Protected Securities (TIPS). These
securities offer an attractive real (inflation-adjusted) yield of 3.9 to 4.0%
and offer inflation protection through an adjustment to the principal value
based on changes in the consumer price index (CPI). This feature has proven
beneficial as year-over-year CPI rose by 3.7% as of June 30.
As always, we welcome your thoughts and questions, and appreciate your
confidence in our firm as a shareholder of the Dodge & Cox Income Fund.
For the Board of Trustees,
/s/ Harry R. Hagey /s/ A. Horton Shapiro
----------------------------- -----------------------------
Harry R. Hagey, Chairman A. Horton Shapiro, Executive Vice President
July 31, 2000
--------------------------------------------------------------------------------
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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, 2000
--------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
10 YEARS 10 YEARS
LBAG INCOME FUND
-------- -----------
<S> <C> <C>
7/1/1990 $10,000 $10,000
6/30/1991 $11,070 $11,060
6/30/1992 $12,627 $12,784
6/30/1993 $14,118 $14,483
6/30/1994 $13,932 $14,340
6/30/1995 $15,680 $16,352
6/30/1996 $16,466 $17,134
6/30/1997 $17,809 $18,568
6/30/1998 $19,337 $20,253
6/30/1999 $20,303 $22,179
6/30/2000 $21,231 $22,027
</TABLE>
<TABLE>
<CAPTION>
Average annual total return for periods ended June 30, 2000 1 Year 5 Years 10 Years
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dodge & Cox Income Fund 3.99% 6.13% 8.21%
Lehman Brothers Aggregate Bond Index (LBAG) 4.56 6.25 7.82
</TABLE>
The chart covers the period from July 1, 1990 to June 30, 2000. 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. dol-
lar-denominated investment grade fixed-income securities. The Fund's total re-
turns include the reinvestment of dividend and capital gain distributions. In-
dex returns include interest income and, unlike Fund returns, do not reflect
fees or expenses. Past performance does not guarantee future results. Invest-
ment return and share price will fluctuate with market conditions, and invest-
ors may have a gain or loss when shares are sold.
--------------------------------------------------------------------------------
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3
<PAGE>
D O D G E & C O X
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Income Fund
Fund Information June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Information
--------------------------------------------------------------------------------
<S> <C>
Net Asset Value Per Share $ 11.41
Total Net Assets (millions) $ 924
30-Day SEC Yield* 7.12%
1999 Expense Ratio 0.46%
1999 Portfolio Turnover 24%
Fund Inception Date 1989
</TABLE>
Investment Manager: Dodge & Cox, San Francisco.
Managed by the Fixed-Income Strategy Committee, whose ten members' average
tenure at Dodge & Cox is 12 years, and by the Investment Policy Committee,
whose eight members' average tenure at Dodge & Cox is 22 years.
<TABLE>
<CAPTION>
Asset Allocation
--------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<S> <C>
Short-Term Investments: 2%
Fixed-Income Securities: 98%
</TABLE>
<TABLE>
<CAPTION>
Fixed-Income Securities
Characteristics
--------------------------------------------------------------------------------
<S> <C>
Number of Fixed-Income Securities 111
Average Quality AA
Average Maturity 11.5 years
Effective Duration 4.75 years
</TABLE>
<TABLE>
<CAPTION>
Sector Breakdown % of Fund
--------------------------------------------------------------------------------
<S> <C>
U.S. Treasury and Government Agency 16.0
Federal Agency CMO and REMIC+ 20.7
Federal Agency Mortgage Pass-Through 17.5
Asset-Backed 3.3
Corporate 35.5
Foreign (U.S. dollar-denominated) 5.0
Short-Term Investments 2.0
</TABLE>
+ Collateralized Mortgage Obligation and Real Estate Mortgage Investment Conduit
<TABLE>
<CAPTION>
Moody's/Standard & Poor's
--------------------------------------------------------------------------------
Quality Ratings % of Fund
--------------------------------------------------------------------------------
<S> <C>
U.S. Government & Government Agencies 54.1
Aaa/AAA 3.3
Aa/AA 0.2
A/A 17.6
Baa/BBB 22.8
Short-Term Investments 2.0
</TABLE>
<TABLE>
<CAPTION>
Maturity Breakdown % of Fund
--------------------------------------------------------------------------------
<S> <C>
0-1 Years to Maturity 6.5
1-5 30.0
5-10 36.7
10-15 3.0
15-20 7.0
20-25 4.2
25 and Over 12.6
</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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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4
<PAGE>
D O D G E & C O X
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Income Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 2000
--------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS: U.S. TREASURY AND GOVERNMENT AGENCY: 16.0%
98.0% U.S. TREASURY: 12.6%
$20,640,165 U.S. Treasury Inflation-Indexed Bond, 3.625%,
4/15/2028......................................... $ 19,672,554
12,319,525 U.S. Treasury Inflation-Indexed Bond, 3.875%,
4/15/2029......................................... 12,269,508
31,629,564 U.S. Treasury Inflation-Indexed Note, 3.875%,
1/15/2009......................................... 31,145,316
40,000,000 U.S. Treasury Notes, 6.625%, 6/30/2001............ 40,050,000
10,800,000 U.S. Treasury Notes, 6.25%, 1/31/2002............. 10,762,848
2,000,000 U.S. Treasury Notes, 6.25%, 2/15/2003............. 1,992,820
--------------
115,893,046
GOVERNMENT AGENCY: 3.4%
5,257,885 Govt. Small Business Admin. 504 Series 97-20E,
7.30%, 5/1/2017................................... 5,149,025
5,852,076 Govt. Small Business Admin. 504 Series 97-20J,
6.55%, 10/1/2017.................................. 5,508,259
5,696,019 Govt. Small Business Admin. 504 Series 98-20C,
6.35%, 3/1/2018................................... 5,298,332
6,537,913 Govt. Small Business Admin. 504 Series 98-20H,
6.15%, 8/1/2018................................... 6,002,340
5,254,181 Govt. Small Business Admin. 504 Series 99-20C,
6.30%, 3/1/2019................................... 4,850,815
4,796,256 Govt. Small Business Admin. 504 Series 99-20I,
7.30%, 9/1/2019................................... 4,684,675
--------------
31,493,446
--------------
147,386,492
FEDERAL AGENCY CMO* AND REMIC**: 20.7%
11,674,837 Federal Home Loan Mtge. Corp., 7.10%, 11/15/2006.. 11,671,100
5,977,500 Federal Home Loan Mtge. Corp., 8.00%, 4/15/2007... 6,057,778
13,284,798 Federal Home Loan Mtge. Corp., 6.00%, 8/15/2008... 12,711,825
20,100,000 Federal Home Loan Mtge. Corp., 6.00%, 10/15/2008.. 18,881,337
40,000,000 Federal Home Loan Mtge. Corp., 6.00%, 11/15/2008.. 38,850,000
20,000,000 Federal Home Loan Mtge. Corp., 6.50%, 4/15/2022... 19,131,200
10,000,000 Federal Home Loan Mtge. Corp., 6.00%, 6/17/2022... 9,137,500
3,000,000 Federal Natl. Mtge. Assn., 7.00%, 2/25/2007....... 2,982,180
12,761,347 Federal Natl. Mtge. Assn., 7.00%, 7/17/2015....... 12,749,352
17,000,000 Federal Natl. Mtge. Assn., 6.25%, 3/25/2023....... 16,298,750
9,000,000 Federal Natl. Mtge. Assn., 6.00%, 6/25/2023....... 8,184,330
12,616,000 Veterans Affairs Vendee Mtge. Trust, 7.00%,
6/15/2010......................................... 12,237,520
15,277,000 Veterans Affairs Vendee Mtge. Trust, 7.25%,
7/15/2016......................................... 15,267,376
6,991,122 Veterans Affairs Vendee Mtge. Trust, 8.00%,
7/15/2018......................................... 7,028,244
--------------
191,188,492
FEDERAL AGENCY MORTGAGE PASS-THROUGH: 17.5%
5,389 Federal Home Loan Mtge. Corp., 7.00%, 1/1/2003.... 5,355
1,563 Federal Home Loan Mtge. Corp., 6.00%, 10/1/2003... 1,532
885,521 Federal Home Loan Mtge. Corp., 8.00%, 12/1/2003... 889,967
17,140 Federal Home Loan Mtge. Corp., 7.00%, 3/1/2006.... 17,020
75,001 Federal Home Loan Mtge. Corp., 7.00%, 9/1/2006.... 74,331
219,374 Federal Home Loan Mtge. Corp., 7.25%, 1/1/2008.... 218,518
137,153 Federal Home Loan Mtge. Corp., 8.00%, 1/1/2008.... 137,841
176,518 Federal Home Loan Mtge. Corp., 8.00%, 1/1/2008.... 177,327
104,141 Federal Home Loan Mtge. Corp., 7.50%, 10/1/2008... 103,576
3,394,555 Federal Home Loan Mtge. Corp., 7.00%, 11/1/2008... 3,357,215
193,637 Federal Home Loan Mtge. Corp., 8.00%, 5/1/2009.... 194,524
56,511 Federal Home Loan Mtge. Corp., 8.25%, 5/1/2009.... 56,997
355,959 Federal Home Loan Mtge. Corp., 8.00%, 8/1/2009.... 358,184
24,315 Federal Home Loan Mtge. Corp., 6.50%, 6/1/2012.... 23,826
</TABLE>
See accompanying Notes to Financial Statements
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D O D G E & C O X
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Income Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 2000
-------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS FEDERAL AGENCY MORTGAGE PASS-THROUGH (continued)
(Continued) $19,490,246 Federal Home Loan Mtge. Corp., 7.90%, 2/17/2021... $ 19,679,691
9,645,515 Federal Natl. Mtge. Assn., 6.825%, 5/1/2006....... 9,408,763
3,536,157 Federal Natl. Mtge. Assn., 7.50%, 9/1/2007........ 3,541,462
1,006,537 Federal Natl. Mtge. Assn., 6.25%, 12/1/2007....... 989,275
8,917,274 Federal Natl. Mtge. Assn., 7.00%, 7/1/2008........ 8,836,662
9,830,201 Federal Natl. Mtge. Assn., 5.90%, 12/1/2008....... 9,026,727
9,222,562 Federal Natl. Mtge. Assn., 6.50%, 12/1/2008....... 9,015,700
15,036,906 Federal Natl. Mtge. Assn., 5.50%, 6/1/2009........ 14,221,304
7,381,214 Federal Natl. Mtge. Assn., 6.50%, 7/1/2009........ 7,199,119
3,164,858 Federal Natl. Mtge. Assn., 8.00%, 8/1/2010........ 3,197,836
365,172 Federal Natl. Mtge. Assn., 7.50%, 2/1/2011........ 365,092
1,052,713 Federal Natl. Mtge. Assn., 8.00%, 1/1/2012........ 1,066,409
156,691 Federal Natl. Mtge. Assn., 6.50%, 1/1/2013........ 154,778
1,252,319 Federal Natl. Mtge. Assn., 8.00%, 8/1/2022........ 1,270,540
3,028,200 Govt. Natl. Mtge. Assn., 7.25%, 2/15/2006......... 3,038,041
3,971,818 Govt. Natl. Mtge. Assn., 7.50%, 7/15/2007......... 4,009,114
12,346,934 Govt. Natl. Mtge. Assn., 7.00%, 4/15/2009......... 12,250,011
12,236,038 Govt. Natl. Mtge. Assn., 6.50%, 7/15/2009......... 11,991,195
6,346,817 Govt. Natl. Mtge. Assn., 7.50%, 9/15/2017......... 6,359,384
1,384,303 Govt. Natl. Mtge. Assn., 7.80%, 6/15/2020......... 1,396,069
1,050,855 Govt. Natl. Mtge. Assn., 7.80%, 7/15/2020......... 1,059,787
1,109,263 Govt. Natl. Mtge. Assn., 7.80%, 7/15/2020......... 1,118,692
3,268,976 Govt. Natl. Mtge. Assn., 7.80%, 8/15/2020......... 3,296,762
1,699,218 Govt. Natl. Mtge. Assn., 7.80%, 9/15/2020......... 1,713,662
844,122 Govt. Natl. Mtge. Assn., 7.80%, 10/15/2020........ 851,298
996,300 Govt. Natl. Mtge. Assn., 7.80%, 11/15/2020........ 1,004,769
1,422,115 Govt. Natl. Mtge. Assn., 7.80%, 1/15/2021......... 1,433,036
3,733,414 Govt. Natl. Mtge. Assn., 7.80%, 1/15/2021......... 3,762,086
4,030,690 Veterans Affairs Vendee Mtge. Trust, 9.292%,
5/15/2025......................................... 4,247,339
10,606,334 Veterans Affairs Vendee Mtge. Trust, 8.089%,
10/15/2027........................................ 10,795,233
--------------
161,916,049
ASSET-BACKED SECURITIES: 3.3%
14,395,000 CA Infrastructure and Econ. Dev. Bank Special
Purpose Trust PGE-1 Rate Reduction Ctf. 1997-1 A-
7, 6.42%, 9/25/2008............................... 13,983,447
10,639,182 ComEd Transitional Funding Trust Notes Series
1998-1 Class A-2, 5.29%, 6/25/2003................ 10,519,491
5,774,237 PP&L Transition Bond Series 1999-1 A-1, 6.08%,
3/25/2003......................................... 5,745,365
--------------
30,248,303
CORPORATE: 35.5%
INDUSTRIAL: 20.2%
20,000,000 Dana Corp., 7.00%, 3/1/2029....................... 16,425,800
13,250,000 Dillard's, Inc., 7.13%, 8/1/2018.................. 9,729,342
20,000,000 Eastman Chemical Co., 7.25%, 1/15/2024............ 17,501,400
20,000,000 J.E. Seagram & Sons, Inc., 7.50%, 12/15/2018...... 19,131,600
20,000,000 Lockheed Martin Corp., 7.65%, 5/1/2016............ 18,986,800
12,500,000 Lockheed Martin Corp., 7.75%, 5/1/2026............ 11,705,625
5,000,000 May Department Stores, 7.625%, 8/15/2013.......... 4,914,550
7,500,000 May Department Stores, 7.875%, 8/15/2036, Callable
2016.............................................. 6,670,950
9,000,000 Phillips Petroleum Co., 8.75%, 5/25/2010.......... 9,480,780
</TABLE>
See accompanying Notes to Financial Statements
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Income Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 2000
-----------------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
BONDS INDUSTRIAL (continued)
(Continued) $ 20,000,000 Raychem Corp., 7.20%, 10/15/2008.................. $ 18,897,400
10,000,000 Raytheon Co., 6.75%, 8/15/2007.................... 9,395,300
12,500,000 Raytheon Co., 6.75%, 3/15/2018.................... 10,808,500
16,600,000 Time Warner Entertainment, 8.375%, 7/15/2033...... 16,735,290
2,500,000 Union Camp Corp., 9.25%, 2/1/2011................. 2,682,875
15,034,000 Walt Disney Co., 7.55%, 7/15/2093, Callable 2023.. 13,590,586
--------------
186,656,798
FINANCE: 10.4%
6,000,000 BankAmerica Capital II, 8.00%, 12/15/2026,
Callable 2006++................................... 5,424,360
1,450,000 Barclays No. American Capital, 9.75%, 5/15/2021,
Callable 2001..................................... 1,528,430
1,000,000 CIGNA Corp., 7.65%, 3/1/2023...................... 921,090
5,430,000 Citicorp Capital Trust I, 7.933%, 2/15/2027,
Callable 2007++................................... 4,947,273
3,065,000 Citicorp Capital Trust II, 8.015%, 2/15/2027,
Callable 2007++................................... 2,832,857
21,000,000 EOP Operating Limited Partnership, 8.375%,
3/15/2006......................................... 21,292,740
4,000,000 First Nationwide Bank, 10.00%, 10/1/2006.......... 4,280,720
13,500,000 GMAC, 8.875%, 6/1/2010, Putable 2005.............. 14,559,210
4,500,000 Hartford Financial Services Group, 8.30%,
12/1/2001......................................... 4,550,805
10,000,000 Hartford Financial Services Group, 6.375%,
11/1/2002......................................... 9,772,500
7,500,000 Republic New York Corp., 7.20%, 7/15/2097......... 6,205,500
10,000,000 Safeco Corp., 7.875%, 3/15/2003................... 9,995,300
10,000,000 St. Paul Companies, Inc., 8.125%, 4/15/2010....... 9,931,800
--------------
96,242,585
TRANSPORTATION: 4.7%
15,000,000 Burlington Northern Santa Fe Railway, 7.57%,
1/2/2021.......................................... 14,384,700
5,630,000 Consolidated Rail Corp., 9.75%, 6/15/2020......... 6,155,054
400,000 Norfolk & Western Railroad, 10.125%, 7/1/2000..... 400,000
6,267,996 Union Pacific Corp., 6.85%, 1/2/2019.............. 5,649,847
18,802,078 Union Pacific Corp., 6.70%, 2/23/2019............. 17,273,281
--------------
43,862,882
UTILITIES: 0.2%
1,500,000 Idaho Power Co. 1st Mtge., 9.50%, 1/1/2021,
Callable 2001..................................... 1,577,565
--------------
328,339,830
FOREIGN (U.S. DOLLAR-DENOMINATED): 5.0%
CORPORATE: 3.2%
9,450,000 Bank of Tokyo-Mitsubishi Ltd., 8.40%, 4/15/2010... 9,542,610
20,000,000 HSBC Holdings PLC, 7.50%, 7/15/2009............... 19,626,000
--------------
29,168,610
CANADIAN: 1.8%
7,062,000 Canadian Pacific Ltd., 9.45%, 8/1/2021............ 7,531,694
9,000,000 Hydro-Quebec, 8.05%, 7/7/2024, Putable 2006....... 9,545,130
--------------
17,076,824
--------------
46,245,434
--------------
Total Bonds (cost $934,759,834)................... 905,324,600
--------------
</TABLE>
See accompanying Notes to Financial Statements
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Income Fund
<TABLE>
<CAPTION>
Portfolio of Investments June 30, 2000
---------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
<C> <C> <S> <C>
SHORT-TERM $4,516,202 SSgA Prime Money Market Fund...................... $ 4,516,202
INVESTMENTS: ------------
0.5% Total Short-Term Investments (cost $4,516,202).... 4,516,202
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (cost $939,276,036)................... 98.5% 909,840,802
OTHER ASSETS LESS LIABILITIES........................... 1.5 14,327,199
------ ------------
TOTAL NET ASSETS........................................ 100.0% $924,168,001
====== ============
</TABLE>
* CMO: Collateralized Mortgage Obligation
** REMIC: Real Estate Mortgage Investment Conduit
++ Cumulative Preferred Securities
See accompanying Notes to Financial Statements
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Income Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities June 30, 2000
-----------------------------------------------------------------------------
<C> <S> <C>
ASSETS:
Investments, at market value (identified cost $939,276,036).... $909,840,802
Receivable for paydowns on mortgage-backed securities.......... 66,006
Receivable for Fund shares sold................................ 1,836,387
Interest receivable............................................ 13,486,693
Prepaid expenses............................................... 30,567
------------
925,260,455
------------
LIABILITIES:
Payable for Fund shares redeemed............................... 659,645
Management fees payable........................................ 314,985
Accounts payable............................................... 117,824
------------
Net asset 1,092,454
value ------------
per share $11.41
NET ASSETS................................................... $924,168,001
Beneficial ============
shares outstanding NET ASSETS CONSIST OF:
81,015,801 Paid in capital................................................ $952,705,260
(par value $0.01 each, Accumulated undistributed net investment income................ 1,618,446
unlimited shares Accumulated undistributed net realized loss on investments..... (720,471)
authorized) Net unrealized depreciation on investments..................... (29,435,234)
------------
$924,168,001
============
</TABLE>
See accompanying Notes to Financial Statements
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DODGE&COX
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Income Fund
Statement of Operations
Six Months Ended June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $34,483,551
-----------
EXPENSES:
Management fees (Note 2)........................................... 1,975,691
Custodian fees..................................................... 32,259
Transfer agent fees................................................ 71,762
Professional fees.................................................. 23,112
Shareholder reports................................................ 32,260
Registration fees.................................................. 53,538
Trustees' fees (Note 2)............................................ 10,500
Miscellaneous...................................................... 5,778
-----------
2,204,900
-----------
NET INVESTMENT INCOME.............................................. 32,278,651
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments.................................. (372,007)
Net unrealized appreciation on investments........................ 902,524
-----------
Net realized and unrealized gain on investments.................. 530,517
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $32,809,168
===========
</TABLE>
See accompanying Notes to Financial Statements
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Income Fund
Statement of Changes in Net Assets
---------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
<S> <C> <C>
OPERATIONS:
Net investment income............................. $ 32,278,651 $ 60,383,826
Net realized loss................................. (372,007) (239,332)
Net unrealized appreciation (depreciation)........ 902,524 (67,646,328)
------------- -------------
Net increase (decrease) in net assets from
operations....................................... 32,809,168 (7,501,834)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. (31,809,678) (59,584,527)
Net realized gain................................. (76,925) (3,016,202)
------------- -------------
Total distributions............................... (31,886,603) (62,600,729)
------------- -------------
BENEFICIAL SHARE TRANSACTIONS:
Amounts received from sale of shares.............. 172,794,981 398,340,184
Net asset value of shares issued in reinvestment
of distributions................................. 24,171,975 44,688,775
Amounts paid for shares redeemed.................. (247,683,890) (350,923,665)
------------- -------------
Net increase (decrease) from beneficial share
transactions..................................... (50,716,934) 92,105,294
------------- -------------
Total increase (decrease) in net assets........... (49,794,369) 22,002,731
NET ASSETS:
Beginning of period............................... 973,962,370 951,959,639
------------- -------------
End of period (including undistributed net
investment income of $1,618,446 and $1,149,473,
respectively).................................... $ 924,168,001 $ 973,962,370
============= =============
Shares sold....................................... 15,086,731 33,584,943
Shares issued in reinvestment of distributions.... 2,125,143 3,836,354
Shares redeemed................................... (21,654,621) (29,682,780)
------------- -------------
Net increase (decrease) in shares outstanding..... (4,442,747) 7,738,517
============= =============
</TABLE>
See accompanying Notes to Financial Statements
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Income Fund
Notes to Financial Statements
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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 ofits taxable income and otherwise
continue to comply with requirements for regulatedinvestment
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 state-
ments. 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 man-
ager 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 six of the
trustees of the Trust are officers and employees ofDodge & 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 di-
vided 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, 2000, purchases and sales of
securities, other than short-term securities, aggregated
$182,788,581 and $222,580,169, respectively, of which U.S. gov-
ernment obligations aggregated $96,573,927 and $153,008,876 re-
spectively. At June 30, 2000, the cost of investments for Federal
income tax purposes was equal to the cost for financial reporting
purposes. Net unrealized depreciation aggregated $29,435,234, of
which $3,515,480 represented appreciated securities and
$32,950,714 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 ex-
press 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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Income Fund
Financial Highlights
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SELECTED DATA AND RATIOS (for a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
---------------------------------------------------------
2000 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.40 $12.25 $12.08 $11.68 $12.02 $10.74
Income from investment
operations:
Net investment income 0.40 .72 .72 .73 .74 .78
Net realized and
unrealized gain (loss) (0.01) (.82) .23 .40 (.34) 1.34
------------------------------------------------------
Total from investment
operations 0.39 (.10) .95 1.13 .40 2.12
------------------------------------------------------
Distributions to
shareholders from:
Net investment income (.38) (.71) (.72) (.73) (.74) (.78)
Net realized gain - (.04) (.06) - - (.06)
------------------------------------------------------
Total distributions (.38) (.75) (.78) (.73) (.74) (.84)
------------------------------------------------------
Net asset value, end of
period $11.41 $11.40 $12.25 $12.08 $11.68 $12.02
======================================================
Total return 3.46% (0.81)% 8.08% 10.00% 3.62% 20.21%
Ratios/supplemental data:
Net assets, end of
period (millions) $ 924 $ 974 $ 952 $ 705 $ 533 $ 303
Ratio of expenses to
average net assets 0.46%* 0.46% .47% .49% .50% .54%
Ratio of net investment
income to average net
assets 6.67%* 6.10% 6.00% 6.32% 6.65% 6.85%
Portfolio turnover rate 20% 24% 35% 28% 37% 53%
</TABLE>
*Annualized
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Income Fund
Officers & Trustees
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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
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
L. Dale Crandall, Trustee
President, Kaiser Foundation Health Plan and Hospitals
Max Gutierrez, Jr., Trustee
Partner, Brobeck, Phleger & Harrison, Attorneys
John B. Taylor, Trustee
Professor of Economics, Stanford University
Will C. Wood, Trustee
Principal, Kentwood Associates, Financial Advisers
John M. Loll, Treasurer & Asst. Secretary
Vice President & Treasurer, Dodge & Cox
Thomas M. Mistele, Secretary & Asst. Treasurer
Vice President, Secretary & General Counsel, Dodge & Cox
Lehman Brothers(R) is a trademark of Lehman Brothers, Inc.; Moody's(R) is a
trademark of Moody's Investors Services, Inc.; and Standard & Poor's and S&P(R)
are trademarks of The McGraw-Hill Companies, Inc.
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