<PAGE>
As filed with the Securities and Exchange Commission on April 26, 2000.
Registration Nos. 2-11522
811-173
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ______ [_]
Post-Effective Amendment No. 66 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 25
DODGE & COX FUNDS
(Exact Name of Registrant as Specified in Charter)
One Sansome Street, 35 Floor, San Francisco, CA 94104
(Address of Principal Executive Office)
Registrant's Telephone Number including Area Code: (415) 981-1710
Thomas M. Mistele, Esq., One Sansome Street, 35 Floor, San Francisco, CA 94104
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[_] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 2000 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on __________ pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on __________ pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date of a
previously filed post-effective amendment.
__________________
<PAGE>
DODGE & COX FUNDS
CROSS REFERENCE SHEET
PART A
(Prepared as part of Form N-1A)
<TABLE>
<CAPTION>
Item Number in Form N-1A
Registration Statement Caption in Prospectus
- ------------------------ ---------------------
<C> <S>
1 Cover Pages
2 Risk/Return Summary
3 Risk/Return Summary
4 Investment Objectives, Principal Investment
Strategies and Risks
5 Not Applicable
6 Fund Organization and Management
7 How to Purchase Shares
How to Redeem or Exchange Shares
Income Dividends and Capital Gain Distributions
Pricing of Shares
8 Not Applicable
9 Financial Highlights
</TABLE>
<PAGE>
DODGE & COX FUNDS
CROSS REFERENCE SHEET
PART B
(Prepared as part of Form N-1A)
<TABLE>
<CAPTION>
Item Number in Form N-1A
Registration Statement Caption in Statement of Additional Information
- ------------------------ ----------------------------------------------
<C> <S>
10 Cover Page; Table of Contents
11 Capital Stock
12 Classification, Investment Restrictions,
Investment Strategies and Risks; Appendix A
13 Management of the Fund
14 Management of the Fund
15 Management of the Fund
16 Brokerage Allocation and Other Practices
17 Capital Stock
18 Purchase, Redemption and Pricing of Shares
19 Taxation of the Fund
20 Principal Underwriter
21 Performance Information
22 Financial Statements
</TABLE>
<PAGE>
DODGE & COX
FUNDS
Stock Fund
Established 1965
Balanced Fund
Established 1931
Income Fund
Established 1989
Prospectus
May 1, 2000
The Securities and Exchange Commission
has not approved or disapproved these
securities or passed upon the accuracy or
adequacy of this prospectus.
Any representation to the contrary
is a criminal offense.
<PAGE>
Dodge & Cox Funds
- --------------------------------------------------------------------------------
Stock Fund Balanced Fund Income Fund
Established 1965 Established 1931 Established 1989
- --------------------------------------------------------------------------------
The Funds' investment manager, Dodge & Cox, was founded in 1930
and managed over $41 billion for individual and institutional
investors in mutual fund and private accounts as of December 31,
1999. Dodge & Cox is one of the largest privately owned investment
advisers in the United States.
Prospectus
May 1, 2000
<TABLE>
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Table of Contents
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk/Return Summary 2 Income Dividends and Capital Gain Distributions 24
Investment Objectives, Principal Investment Performance Information 25
Strategies and Risks 11 Fund Organization and Management 25
. Investment Restrictions 14 Portfolio Transactions 26
. Investment Risks 15 Expenses 26
. Additional Information on Investments 16 Federal Income Taxes 26
How to Purchase Shares 18 Custodian and Transfer Agent 27
How to Redeem or Exchange Shares 20 Investment Information and Shareholder Services 27
General Transaction Information 23 Financial Highlights 29
Pricing of Shares 24 Officers and Trustees 31
- --------------------------------------------------------------------------------------------------------
</TABLE>
Mutual fund shares are not deposits or obligations of, or
guaranteed by, any depository institution. Shares are not insured
by the FDIC, Federal Reserve, or any other government agency, and
are subject to investment risks, including possible loss of the
principal amount invested.
<PAGE>
DODGE & COX FUNDS
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- -------------------------------------------------------------------------------
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Risk/Return Summary
- -------------------------------------------------------------------------------
DODGE & COX FUNDS (Trust) is a family of three no-load
mutual funds: Dodge & Cox Stock Fund, Dodge & Cox
Balanced Fund and Dodge & Cox Income Fund (Funds). Each
Fund is a diversified series of the Trust. The Trust is
registered with the Securities and Exchange Commission
(SEC) as an open-end management investment company.
Dodge & Cox Stock Fund
- -------------------------------------------------------------------------------
Investment The Fund seeks long-term growth of principal and income.
Goals A secondary objective is to achieve a reasonable current
income.
Principal The Fund invests primarily in a broadly diversified and
Investment carefully selected portfolio of common stocks. In
Strategies 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.
For details about the Fund's investment program, please
see the Investment Objectives, Principal Investment
Strategies and Risks section.
Principal You could lose money on your investment in the Fund, or
Risks of the Fund could underperform other investments, if any of
Investing the following occurs:
. The stock market goes down.
. The market continues indefinitely to undervalue the
stocks in the Fund's portfolio.
. The stocks in the Fund's portfolio turn out not to be
undervalued after all due to intractable or fundamental
problems that are not yet apparent.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2
<PAGE>
DODGE & COX FUNDS
- -------------------------------------------------------------------------------
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- -------------------------------------------------------------------------------
Dodge & Cox Stock Fund (continued)
- -------------------------------------------------------------------------------
Performance The bar chart and table shown below indicate the risks of
Information investing in the Dodge & Cox Stock Fund. The bar chart
shows changes in the performance of the Fund's shares
from year to year over a ten-year period.
The table shows how the Fund's average annual total
returns for one, five and ten years compare to those of
the Standard & Poor's Composite Index(R) of 500 Stocks
(S&P 500). The S&P 500 is a widely recognized, unmanaged
index of common stock prices.
The Fund's past performance does not necessarily indicate
how the Fund will perform in the future.
<TABLE>
<CAPTION>
Dodge & Cox Stock Fund Annual Total Returns 1990-1999
[GRAPH APPEARS HERE]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-5.09% 21.48% 10.82% 18.32% 5.16% 33.38% 22.26% 28.41% 5.39% 20.20%
During the period shown in the bar chart, the highest quarterly return was 16.64%
(quarter ended June 30, 1999) and the lowest quarterly return was -16.04% (quarter
ended September 30, 1990).
-----------------------------------------------------------------------------
Average annual total returns for the periods ended December 31, 1999
-----------------------------------------------------------------------------
Past 1 Year Past 5 Years Past 10 Years
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Dodge & Cox Stock Fund 20.20% 21.55% 15.48%
S&P 500 21.06 28.55 18.21
-----------------------------------------------------------------------------
</TABLE>
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- -------------------------------------------------------------------------------
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3
<PAGE>
DODGE & COX FUNDS
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dodge & Cox Stock Fund (continued)
- -------------------------------------------------------------------------------
Fees and The table describes the fees and expenses that you may
Expenses pay if you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Shareholder Fees Annual Fund Operating Expenses
(fees paid directly from your investment) (expenses that are deducted from Fund assets)
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales load imposed on purchases None Management fees .50%
Deferred sales load None Distribution (12b-1) and/or
Sales load imposed on service fees None
reinvested distributions None Other expenses (transfer agent,
Redemption fee None custodial, accounting, legal, etc.) .05%
Exchange fee None ----
Maximum account fee None Total Fund Operating Expenses .55%
------------------------------------------------------------------------------------------
</TABLE>
Example: This example is intended to help you compare the
cost of investing in the Fund with the cost of investing
in other mutual funds.
The example assumes that:
. You invest $10,000 in the Fund for the time periods
indicated;
. Your investment has a 5% return each year; and
. The Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under
these assumptions your costs would be:
-------------------------------------------------------------------
Number of Years 1 3 5 10
-------------------------------------------------------------------
$56 $176 $307 $689
-------------------------------------------------------------------
This example should not be considered to represent actual
expenses or performance from the past or for the future.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4
<PAGE>
DODGE & COX FUNDS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dodge & Cox Balanced Fund
- -------------------------------------------------------------------------------
Investment The Fund seeks regular income, conservation of principal
Goals and an opportunity for long-term growth of principal and
income.
Principal The Fund invests in a diversified portfolio of common
Investment stocks, preferred stocks and bonds. In selecting equity
Strategies investments, the Fund invests in companies that, in Dodge
& Cox's opinion, appear to be temporarily undervalued by
the stock market and 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.
Fixed-income investments include investment-grade: U.S.
government obligations, mortgage and asset-backed securi-
ties, corporate bonds, collateralized mortgage obligations
(CMOs), and others. 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
fixed-income securities, Dodge & Cox will consider many
factors, including yield to maturity, quality, liquidity,
current yield and capital appreciation potential.
While the mix of equity and fixed-income securities will
vary depending on Dodge & Cox's outlook on the markets, no
more than approximately 75% of total assets will be
invested in common stocks and that portion of the value of
convertible securities attributable to the conversion
right.
For details about the Fund's investment program, please
see the Investment Objectives, Principal Investment
Strategies and Risks section.
Principal You could lose money on your investment in the Fund, or
Risks of the Fund could underperform other investments, if any of
Investing the following occurs:
Equity Securities
. The stock market goes down.
. The market continues indefinitely to undervalue the
stocks in the Fund's portfolio.
. The stocks in the Fund's portfolio turn out not to be
undervalued after all due to intractable or fundamental
problems that are not yet apparent.
Fixed-Income Securities
. Bond prices decline due to rising interest rates.
. A bond issuer's financial condition deteriorates, or it
fails to repay interest and principal in a timely
manner.
. Early repayment of principal of mortgage-related
securities (e.g., prepayment of principal due to sale of
the underlying property, refinancing or foreclosure)
exposes the Fund to a lower rate of return upon
reinvestment of principal. In addition, changes in the
rate of prepayment also affect the price and volatility
of a mortgage-related security.
The Fund's balance between stocks and fixed-income securi-
ties could limit its potential for capital appreciation
relative to an all-stock fund.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5
<PAGE>
DODGE & COX FUNDS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dodge & Cox Balanced Fund (continued)
- -------------------------------------------------------------------------------
Performance The bar chart and table shown below indicate the risks of
Information investing in the Dodge & Cox Balanced Fund. The bar chart
shows changes in the performance of the Fund's shares
from year to year over a ten-year period.
The table shows how the Fund's average annual total
returns for one, five and ten years compare to a Combined
Index consisting of 60% of the Standard & Poor's Composite
Index(R) of 500 Stocks (S&P 500) and 40% of the Lehman
Brothers Aggregate Bond Index (LBAG). The S&P 500 and LBAG
are widely recognized, unmanaged indices of common stock
prices and U.S. dollar-denominated, investment-grade
fixed-income securities, respectively.
The Fund's past performance does not necessarily indicate
how the Fund will perform in the future.
<TABLE>
<CAPTION>
Dodge & Cox Balanced Fund Annual Total Returns 1990-1999
[GRAPH APPEARS HERE]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.94% 20.72% 10.57% 15.95% 1.99% 28.02% 14.75% 21.21% 6.70% 12.06%
During the period shown in the bar chart, the highest quarterly return was 10.96%
(quarter ended June 30, 1997) and the lowest quarterly return was -9.26% (quarter
ended September 30, 1990).
-----------------------------------------------------------------------------
Average annual total returns for the periods ended December 31, 1999
-----------------------------------------------------------------------------
Past 1 Year Past 5 Years Past 10 Years
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Dodge & Cox Balanced Fund 12.06% 16.31% 12.99%
Combined Index (60% S&P 500 &
40% LBAG) 12.00 20.09 14.10
S&P 500 21.06 28.55 18.21
LBAG -0.83 7.73 7.70
-----------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
6
<PAGE>
DODGE & COX FUNDS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dodge & Cox Balanced Fund (continued)
- -------------------------------------------------------------------------------
Fees and The table describes the fees and expenses that you may
Expenses pay if you buy and hold shares of the Fund.
<TABLE>
----------------------------------------------------------------------------------------------
Shareholder Fees Annual Fund Operating Expenses
(fees paid directly from your investment) (expenses that are deducted from Fund assets)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales load imposed on purchases None Management fees .50%
Deferred sales load None Distribution (12b-1) and/or service fees None
Sales load imposed on Other expenses (transfer agent, custodial,
reinvested distributions None accounting, legal, etc.) .03%
Redemption fee None ----
Exchange fee None Total Fund Operating Expenses .53%
Maximum account fee None
----------------------------------------------------------------------------------------------
</TABLE>
Example: This example is intended to help you compare the
cost of investing in the Fund with the cost of investing
in other mutual funds.
The example assumes that:
. You invest $10,000 in the Fund for the time periods
indicated;
. Your investment has a 5% return each year; and
. The Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under
these assumptions your costs would be:
-------------------------------------------------------------------
Number of Years 1 3 5 10
-------------------------------------------------------------------
$54 $170 $296 $665
-------------------------------------------------------------------
This example should not be considered to represent actual
expenses or performance from the past or for the future.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7
<PAGE>
DODGE & COX FUNDS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dodge & Cox Income Fund
- -------------------------------------------------------------------------------
Investment The Fund seeks a high and stable rate of current income,
Goals consistent with long-term preservation of capital.
A secondary objective is to take advantage of
opportunities to realize capital appreciation.
Principal The Fund invests in a diversified portfolio consisting
Investment primarily of high-quality bonds and other fixed-income
Strategies 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.
For details about the Fund's investment program, please
see the Investment Objectives, Principal Investment
Strategies and Risks section.
Principal You could lose money on your investment in the Fund, or
Risks of the Fund could underperform other investments, if any of
Investing the following occurs:
. Bond prices decline due to rising interest rates.
. A bond issuer's financial condition deteriorates, or it
fails to repay interest and principal in a timely
manner.
. Early repayment of principal of mortgage-related
securities (e.g., prepayment of principal due to sale
of the underlying property, refinancing or foreclosure)
exposes the Fund to a lower rate of return upon
reinvestment of principal. In addition, changes in the
rate of prepayment also affect the price and volatility
of a mortgage-related security.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
8
<PAGE>
DODGE & COX FUNDS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dodge & Cox Income Fund (continued)
- -------------------------------------------------------------------------------
Performance The bar chart and table shown below indicate the risks of
Information investing in the Dodge & Cox Income Fund. The bar chart
shows changes in the performance of the Fund's shares
over a ten-year period.
The table shows how the Fund's average annual total
returns for one, five and ten years compare to those of
the Lehman Brothers Aggregate Bond Index (LBAG). The LBAG
is a widely recognized, unmanaged index of U.S. dollar-
denominated investment-grade fixed-income securities.
The Fund's past performance does not necessarily indicate
how the Fund will perform in the future.
<TABLE>
<CAPTION>
Dodge & Cox Income Fund Annual Total Returns 1990-1990
[GRAPH APPEARS HERE]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.42% 17.94% 7.80% 11.35% -2.89% 20.21% 3.62% 10.00% 8.08% -0.81%
During the period shown in the bar chart, the highest quarterly return was 7.01%
(quarter ended June 30, 1995) and the lowest quarterly return was -2.38%
(quarter ended March 31, 1994).
-----------------------------------------------------------------------------
Average annual total returns for the periods ended December 31, 1999
-----------------------------------------------------------------------------
Past 1 Year Past 5 Years Past 10 Years
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Dodge & Cox Income Fund -0.81% 7.99% 8.05%
LBAG -0.83 7.73 7.70
-----------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
9
<PAGE>
DODGE & COX FUNDS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dodge & Cox Income Fund (continued)
- -------------------------------------------------------------------------------
Fees and The table describes the fees and expenses that you may
Expenses pay if you buy and hold shares of the Fund.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Shareholder Fees Annual Fund Operating Expenses
(fees paid directly from your investment) (expenses that are deducted from Fund assets)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales load imposed on purchases None Management fees .41%
Deferred sales load None Distribution (12b-1) and/or service fees None
Sales load imposed on Other expenses (transfer agent, custodial,
reinvested distributions None accounting, legal, etc.) .05%
Redemption fee None ----
Exchange fee None Total Fund Operating Expenses .46%
Maximum account fee None
----------------------------------------------------------------------------------------------
</TABLE>
Example: This example is intended to help you compare the
cost of investing in the Fund with the cost of investing
in other mutual funds.
The example assumes that:
. You invest $10,000 in the Fund for the time periods
indicated;
. Your investment has a 5% return each year; and
. The Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under
these assumptions your costs would be:
-------------------------------------------------------------------
Number of Years 1 3 5 10
-------------------------------------------------------------------
$47 $148 $258 $579
-------------------------------------------------------------------
This example should not be considered to represent actual
expenses or performance from the past or for the future.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
10
<PAGE>
DODGE & COX FUNDS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Investment Objectives, Principal Investment Strategies and Risks
- -------------------------------------------------------------------------------
This section takes a closer look at the investment objec-
tives of each Fund, their principal investment strategies
and certain risks of investing in the Fund.
Dodge & Cox Stock Fund
- -------------------------------------------------------------------------------
Investment The Fund's primary objective is to provide shareholders
Objectives with an opportunity for long-term growth of principal and
and income. A secondary objective is to achieve a reasonable
Principal current income. These objectives may not be changed with-
Investment out shareholder approval. Investors should recognize that
Strategies the market risks inherent in investment cannot be avoided,
nor is there any assurance that the investment objectives
of the Fund will be achieved. The Fund seeks to achieve
its objective by investing primarily in a diversified
portfolio of common stocks. Under normal market condi-
tions, the Fund will invest at least 65% of its total
assets in common stocks. The Fund may also purchase other
types of securities, for example, preferred stocks and
debt securities which are convertible into common stock
(or which in the opinion of Dodge & Cox have predominantly
common stock investment characteristics). The Fund may
also invest up to 20% of its total assets in U.S. dollar-
denominated securities of foreign issuers traded in the
U.S. (such as American Depositary Receipts (ADRs)). Fur-
ther information about specific investments is provided
under Additional Information on Investments.
Moderate reserves in cash or short-term fixed-income secu-
rities may be held from time to time as Dodge & Cox may
deem advisable. Nevertheless, the long-term emphasis shall
be the maintaining of a fully invested equity fund.
Common stocks selected for the Fund will be predominantly
those which in the view of Dodge & Cox have positive pros-
pects for long-term growth of principal and income not
reflected in the current price. Prospective earnings, cash
flow and dividends are considered in making these stock
selections. Individual securities are selected with an
emphasis on financial strength and sound economic condi-
tion. The Fund's policies as described above may be
changed without shareholder approval; however, these poli-
cies will not be changed without notice to shareholders.
In an attempt to minimize unforeseen risks in single secu-
rities, the Fund seeks to provide adequate investment
diversification. Although there is no restriction on the
number of changes in security holdings, purchases are made
with a view to long-term holding and not for short-term
trading purposes. (The Fund's portfolio turnover rates for
the fiscal years ended December 31, 1999, 1998 and 1997
were 18%, 19%, and 19%, respectively.) However, during
rapidly changing economic, market and political condi-
tions, there may necessarily be more portfolio changes
than in a more stable period. A higher turnover rate might
result in increased transaction expenses and the realiza-
tion of capital gains and losses (see Federal Income Tax-
es). It is the general practice of the Fund to invest in
securities with ready markets, mainly issues listed on
national securities exchanges.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
11
<PAGE>
DODGE & COX FUNDS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dodge & Cox Balanced Fund
- -------------------------------------------------------------------------------
Investment The Fund's objectives are to provide shareholders with
Objectives regular income, conservation of principal and an opportu-
and nity for long-term growth of principal and income. These
Principal objectives may not be changed without shareholder approv-
Investment al. Investors should recognize that the market risks
Strategies inherent in investment cannot be avoided, nor is there any
assurance that the investment objectives of the Fund will
be achieved. Reasonable appreciation in favorable periods
and conservation of principal in adverse times are objec-
tives that require flexibility in managing the assets of
the Fund under constantly changing investment conditions.
Therefore, the proportions held in common and preferred
stocks and bonds are revised by Dodge & Cox when consid-
ered advisable in light of its appraisal of business and
investment prospects.
Under normal market conditions, it is the policy of the
Fund to maintain no more than approximately 75% of its
total assets in common stocks and that portion of the
value of convertible securities attributable to the con-
version right. Fixed-income securities are held for their
relative stability of principal and income as well as for
a reserve which can be used to take advantage of invest-
ment opportunities. The Fund may also invest up to 20% of
its total assets in U.S. dollar-denominated securities of
foreign issuers traded in the U.S. (such as ADRs and Yan-
kee bonds). Moderate reserves in cash or short-term fixed-
income securities may be held from time to time as Dodge &
Cox may deem advisable. Further information about specific
investments is provided under Additional Information on
Investments.
It is the Fund's policy to invest in investment-grade debt
securities rated Baa or higher by Moody's Investors Serv-
ice (Moody's) or BBB or higher by Standard & Poor's Rat-
ings Group (S&P). Securities rated Baa or BBB have
speculative characteristics. Securities that are down-
graded below Baa or BBB subsequent to purchase may con-
tinue to be held by the Fund, if Dodge & Cox believes it
advantageous to do so. Unrated debt securities may be pur-
chased if they are, in the opinion of Dodge & Cox, of
equivalent quality to debt securities rated at least A by
Moody's and S&P. An explanation of Moody's and S&P's rat-
ing groups is included in the Appendix to the Statement of
Additional Information (SAI).
A substantial position will be maintained in common stocks
which in the view of Dodge & Cox have positive prospects
for long-term growth of principal and income not reflected
in the current price. Prospective earnings, cash flow and
dividends are considered in making these stock selections.
The level of security prices and the trend of business
activity are considered in determining the total invest-
ment position of the Fund in equities at any time. Indi-
vidual securities are selected with an emphasis on
financial strength and a sound economic condition. The
Fund's policies as described above may be changed without
shareholder approval; however, these policies will not be
changed without notice to shareholders.
The proportions held in the various fixed-income securi-
ties will be revised as appropriate 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 making invest-
ment decisions, Dodge & Cox will take many factors into
consideration including yield to maturity, quality,
liquidity, current yield and capital appreciation poten-
tial.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
12
<PAGE>
DODGE & COX FUNDS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dodge & Cox Balanced Fund (continued)
-------------------------------------------------------------------
In an attempt to minimize unforeseen risks in single secu-
rities, the Fund seeks to provide adequate investment
diversification. Although there is no restriction on the
number of changes in security holdings, purchases are made
with a view to long-term holding and not for short-term
trading purposes. (The Fund's portfolio turnover rates for
the fiscal years ended December 31, 1999, 1998 and 1997
were 17%, 26% and 32%, respectively.) However, during rap-
idly changing economic, market and political conditions,
there may necessarily be more portfolio changes than in a
more stable period. A higher turnover rate might result in
increased transaction expenses and the realization of cap-
ital gains and losses (see Federal Income Taxes). It is
the general practice of the Fund to invest mainly in
equity securities listed on national securities exchanges
and securities with ready markets.
Dodge & Cox Income Fund
- -------------------------------------------------------------------------------
Investment The Fund's primary objective is to provide shareholders
Objectives with a high and stable rate of current income consistent
and with long-term preservation of capital. A secondary objec-
Principal tive is to take advantage of opportunities to realize cap-
Investment ital appreciation. These objectives may not be changed
Strategies without shareholder approval. Investors should recognize
that the market risks inherent in investment cannot be
avoided, nor is there any assurance that the investment
objectives of the Fund will be achieved.
The Fund seeks to achieve its objectives by investing in a
diversified portfolio of fixed-income securities. It is
the policy of the Fund to invest at least 80% of the mar-
ket value of its total assets in the following: (1) debt
obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities; (2) investment-grade
debt securities rated Baa or higher by Moody's or BBB or
higher by S&P, including U.S. dollar-denominated foreign
issues and supranational agencies; (3) unrated securities
if deemed to be of investment-grade quality by Dodge &
Cox; and (4) bankers' acceptances, bank certificates of
deposit, repurchase agreements and commercial paper. At
least 65% of the market value of the portfolio will be
invested in category (1) securities and in category (2)
securities rated in the top three rating categories. In
addition, the Fund will invest no more than 25% of its
total assets in U.S. dollar-denominated securities of for-
eign issuers. Further information about specific invest-
ments is provided under Additional Information on
Investments.
No more than 20% of the Fund may be invested in other
fixed-income instruments including: debt obligations rated
below investment grade if, in the opinion of Dodge & Cox,
they are of suitable quality, provide attractive invest-
ment opportunities and have a minimum rating of B by
Moody's and/or S&P at the time of investment; preferred
stock; corporate bonds convertible into common stocks or
carrying warrants to purchase common stock. The Fund will
invest in unrated securities only if deemed to be of
investment-grade quality by Dodge & Cox. It should be
noted that securities rated Baa or BBB or below have spec-
ulative characteristics. Securities rated B may yield a
higher level of current income than higher-quality securi-
ties but generally have less liquidity, greater market
risk and more price fluctuation. An explanation of Moody's
and S&P's rating categories is included in the Appendix to
the SAI.
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13
<PAGE>
DODGE & COX FUNDS
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Dodge & Cox Income Fund (continued)
-------------------------------------------------------------------
The proportions held in the various fixed-income securi-
ties will be revised as appropriate 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 making invest-
ment decisions, Dodge & Cox will take many factors into
consideration including yield to maturity, quality,
liquidity, current yield and capital appreciation poten-
tial.
The Fund attempts to achieve its secondary objective of
capital appreciation through such techniques as funda-
mental research (i.e., seeking a security or group of
securities which Dodge & Cox believes to be undervalued)
and making gradual adjustments in the average maturity of
the Fund's portfolio.
The average maturity of the Fund's portfolio at any given
time depends, in part, on Dodge & Cox's assessment of eco-
nomic and market conditions, the future level of inflation
and interest rates, and on the relative yields of securi-
ties in the marketplace. Dodge & Cox normally invests in
an array of securities with short, intermediate and long
maturities in varying proportions.
Purchases and sales of securities are generally made for
long-term fundamental investment reasons rather than for
short-term trading purposes. Nevertheless, Dodge & Cox may
sell any of the securities in the Fund, regardless of the
length of time held, in seeking to achieve the objectives
of the Fund.
In seeking to achieve the objectives of the Fund, Dodge &
Cox may purchase securities on a when-issued basis, pur-
chase or sell securities for delayed delivery and lend
portfolio securities. The Fund's investment policies as
set forth above may be changed without shareholder approv-
al; however, these policies will not be changed without
notice to shareholders.
Dodge & Cox maintains a long-term investment orientation
and therefore anticipates a relatively low turnover rate.
(The Fund's portfolio turnover rates for the fiscal years
ended December 31, 1999, 1998, and 1997 were 24%, 35%, and
28%, respectively.) However, during rapidly changing eco-
nomic, market and political conditions, there may neces-
sarily be more portfolio changes than in a more stable
period. A higher turnover rate might result in increased
transaction expenses and the realization of capital gains
and losses (see Federal Income Taxes).
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Investment The Funds have adopted certain restrictions designed to achieve
Restric- diversification of investment and to reduce investment risk. Each
tions Fund may not: (a) invest more than 5% of the value of its total
assets in the securities of any one issuer except the U.S. govern-
ment, nor acquire more than 10% of the voting securities of any
one issuer; (b) concentrate investments of more than 25% of the
value of its total assets in any one industry, except that the
restriction does not apply to securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities (or
related repurchase agreements); (c) borrow money except as a tem-
porary measure for extraordinary or emergency purposes; (d) make
loans to other persons, except this shall not exclude the purchase
of publicly issued debt securities of a type purchased by institu-
tional investors. The investment restrictions described in this
paragraph and in the SAI may be changed only with the approval of
that Fund's shareholders.
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14
<PAGE>
DODGE & COX FUNDS
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Investment You should understand that all investments involve risks, and
Risks there can be no guarantee against loss resulting from an invest-
ment in the Funds, nor can there be any assurance that a Fund's
investment objectives will be attained. There are further risk
factors described elsewhere in this prospectus and in the SAI.
Investments in common stock in general are subject to market risks
that cause their prices to fluctuate over time, i.e., the possi-
bility that stock prices will decline over short or even extended
periods. Prices of bonds are sensitive to changes in the market
level of interest rates. In general, as interest rates rise, the
prices of fixed-income securities fall, and conversely, as inter-
est rates fall, the prices of these securities rise. Yields on
short, intermediate and long-term securities are dependent on a
variety of factors, including the general conditions of the money
and bond markets, the size of a particular offering, the maturity
of the obligation, and the credit quality and rating of the issue.
Debt securities with longer maturities tend to have higher yields
and are generally subject to potentially greater capital apprecia-
tion and depreciation than obligations with shorter maturities and
lower yields. Furthermore, because yield levels on securities vary
with changing interest rates, no specific yield on shares of a
Fund can be guaranteed. Since the Dodge & Cox Income Fund and the
bond portion of the Dodge & Cox Balanced Fund portfolio will be
invested primarily in higher-quality debt securities, the Funds
may not yield as high a level of current income as funds that
invest primarily in lower-quality debt securities which generally
have less liquidity, greater market risk and greater price fluctu-
ation. The value of stocks and bonds may also be affected by
changes in the financial condition of, and other events affecting,
specific issuers. Fluctuations in the value of the securities in
which a Fund invests will cause the Fund's share price to fluctu-
ate. An investment in the Funds, therefore, may be more suitable
for long-term investors who can bear the risk of short and long-
term fluctuations in a Fund's share price.
Foreign securities involve some special risks such as exposure to
potentially adverse local political and economic developments;
nationalization and exchange controls; potentially lower liquidity
and higher volatility; possible problems arising from accounting,
disclosure, settlement and regulatory practices that differ from
U.S. standards; foreign taxes; and the risk that fluctuations in
foreign exchange rates will decrease the investment's value (al-
though favorable changes can increase its value).
The Dodge & Cox Balanced Fund, with its mixture of investments in
common stocks and bonds, may entail less investment risk (and a
potentially lower return) than a mutual fund investing only in
common stocks.
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15
<PAGE>
DODGE & COX FUNDS
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Additional COMMON STOCKS (DODGE & COX STOCK FUND and DODGE & COX BALANCED
Information FUND) Stocks represent shares of ownership in a company. After
on other claims are satisfied, common stockholders participate in
Investments company profits on a pro rata basis; profits may be paid out in
dividends or reinvested in the company to help it grow. Increases
and decreases in earnings are usually reflected in a company's
stock price, so common stocks generally have the greatest appreci-
ation and depreciation potential of all corporate securities.
PREFERRED STOCKS Each Fund may invest in preferred stocks.
Generally, preferred stock has a specified dividend and ranks
after bonds but before common stocks in its claim on income for
dividend payments and on assets should the company be liquidated.
CONVERTIBLE SECURITIES Each Fund may invest in debt or preferred
equity securities convertible into or exchangeable for equity
securities. Traditionally, convertible securities have paid
dividends or interest at rates higher than common stocks but lower
than nonconvertible securities. They generally participate in the
appreciation or depreciation of the underlying stock into which
they are convertible, but to a lesser degree. In recent years,
convertibles have been developed which combine higher or lower
current income with other features.
FOREIGN SECURITIES Each Fund may invest in U.S. dollar-denominated
securities of foreign issuers traded in the U.S. Such investments
increase a portfolio's diversification and may enhance return, but
they also involve some special risks.
U.S. GOVERNMENT OBLIGATIONS A portion of each Fund may be invested
in obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities. Some of the obligations purchased
by a Fund are backed by the full faith and credit of the U.S. gov-
ernment and are guaranteed as to both principal and interest by
the U.S. Treasury. Examples of these include direct obligations of
the U.S. Treasury, such as U.S. Treasury bills, notes and bonds,
or indirect obligations of the U.S. Treasury, such as obligations
of the Government National Mortgage Association, the Maritime
Administration, the Farmers Home Administration and the Department
of Veterans Affairs.
While the obligations of many of the agencies and
instrumentalities of the U.S. government are not direct
obligations of the U.S. Treasury, they are generally backed
indirectly by the U.S. government. Some of the agencies are
indirectly backed by their right to borrow from the U.S.
government, such as the Federal Financing Bank, the Federal Home
Loan Banks and the U.S. Postal Service. Others are supported
solely by the credit of the agency or instrumentality itself, but
are given additional support due to the U.S. Treasury's authority
to purchase their outstanding debt obligations. These agencies
include the Federal Farm Credit Banks, the Federal Home Loan
Mortgage Corporation and the Federal National Mortgage
Association. No assurance can be given that the U.S. government
would provide financial support to U.S. government-established or
sponsored agencies. Furthermore, with respect to the U.S.
government securities purchased by the Fund, guarantees as to the
timely payment of principal and interest do not extend to the
value or yield of these securities nor do they extend to the value
of a Fund's shares. A Fund may invest in these securities if it
believes they offer an expected return commensurate with the risks
assumed.
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16
<PAGE>
DODGE & COX FUNDS
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MORTGAGE PASS-THROUGH SECURITIES (DODGE & COX BALANCED FUND and
DODGE & COX INCOME FUND) Mortgage pass-through securities are
guaranteed by an agency of the U.S. government or are issued by a
private entity. These securities represent ownership in "pools" of
mortgage loans and are called "pass-throughs" because principal
and interest payments are passed through to security holders
monthly. The security holder may also receive unscheduled princi-
pal payments representing prepayments of the underlying mortgage
loans. When a Fund reinvests the principal and interest payments,
it may receive a rate of interest which is either higher or lower
than the rate on the existing mortgage.
During periods of declining interest rates there is increased
likelihood that mortgage securities may be prepaid more quickly
than expected. Such prepayment would most likely be reinvested at
lower rates. On the other hand, if the pass-through securities had
been purchased at a discount, then such prepayment of principal
may benefit the portfolio. Conversely, in a rising interest rate
environment, mortgage securities may be prepaid at a rate slower
than expected. In this case, the current cash flow of the bond
generally decreases. A slower prepayment rate effectively length-
ens the time period the security will be outstanding and may
adversely affect the price and the price volatility of the securi-
ty.
COLLATERALIZED MORTGAGE OBLIGATIONS (DODGE & COX BALANCED FUND and
DODGE & COX INCOME FUND) Collateralized Mortgage Obligations
(CMOs) are private entity or U.S. government agency-issued multi-
class bonds that are collateralized by U.S. agency-guaranteed
mortgage pass-through securities. The issuer typically issues sev-
eral classes, or "tranches", of bonds, the debt service of which
is provided by the principal and interest payments from the mort-
gage pass-through securities in the trust. Each of these tranches
is valued and traded separately based on its distinct cash flow
characteristics. Dodge & Cox will purchase a tranche with the
weighted-average life and cash flow characteristics that it
believes will contribute to achieving the objectives of a Fund.
All CMOs purchased by a Fund will be issued or guaranteed by an
agency of the U.S. government or have a AA rating by either S&P or
Moody's. To qualify for this rating, a CMO is structured so that
even under conservative prepayment and reinvestment assumptions,
the principal and interest payments from the collateral are
expected to meet or exceed the cash flow obligations of all the
tranches of the CMO. However, there are risks associated with CMOs
which relate to the risks of the underlying mortgage pass-through
securities (i.e., an increase or decrease in prepayment rates,
resulting from a decrease or increase in mortgage interest rates,
will affect the yield, average life and price of CMOs). In a fall-
ing interest rate environment, the mortgage securities may be pre-
paid faster than the assumed rate. In this scenario, the
prepayments of principal will generally be reinvested at a rate
which is lower than the rate that the security holder is currently
receiving. Conversely, in a rising interest rate environment, the
mortgage collateral may be prepaid at a rate which is slower than
the assumed rate. In this case, the current cash flow of the bond
generally decreases. A reduced prepayment rate effectively length-
ens the time period the security will be outstanding and may ad-
versely affect the price and the price volatility of the security.
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17
<PAGE>
DODGE & COX FUNDS
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How to If the Fund's transfer agent, Boston Financial Data Services
Purchase Inc. (Boston Financial Data Services), receives your request
Shares in good order before the close of trading on the New York
Stock Exchange (NYSE) (generally 4 p.m. Eastern time (ET)),
your transactions will be priced at that day's net asset
value (NAV). If your request is received after 4 p.m., it
will be priced at the next business day's NAV. The Funds are
offered on a no-load basis. You do not pay sales commissions
or 12b-1 marketing fees.
<TABLE>
<CAPTION>
-------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
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MINIMUM INVESTMENT $2,500 (regular account); $100
$1,000 (IRAs)
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<S> <C> <C>
BY MAIL Complete and sign the Mail your check with
Regular Mail: Account Application an Invest-By-Mail form
Dodge & Cox Funds (Adoption Agreement detached from your
c/o Boston Financial for an IRA). confirmation statement.
Data Services
P.O. Box 9051 Call 1-800-621-3979
Boston, MA 02205-9051 or visit the Funds'
web site at
Express, Certified or www.dodgeandcox.com
Registered Mail: to receive the
Dodge & Cox Funds appropriate forms.
c/o Boston Financial
Data Services Make your check payable to Dodge & Cox Funds.
66 Brooks Drive, Suite 1 All purchases must be made in U.S. dollars,
Braintree, MA 02184-3839 and checks must be drawn on U.S. banks.
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IMPORTANT NOTE: To prevent check fraud, the Funds will not accept third party checks.
- ---------------------------------------------------------------------------------------------
BY TELEPHONE You may not use telephone Complete "Investment/
1-800-621-3979 transactions for initial Redemption Options" in
Client Services purchases of a Fund's the Account Application
shares. to establish the ability
Business Hours: to transfer assets from
Monday-Friday Call Client Services your bank account.
9 a.m.-8 p.m. ET during business hours
to exchange from another Call Client Services
Dodge & Cox Fund account during business hours to
with the same registration make subsequent investments
(name, address, taxpayer directly from your bank
I.D. and account type). account or exchange from
another Dodge & Cox Fund
account with the same
registration (name, address,
taxpayer I.D. and account type).
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IMPORTANT NOTE: Only bank accounts held at domestic financial institutions that are Automated
Clearing House (ACH) members may be used for telephone transactions. This option will become
effective approximately 15 business days after the Account Application is received by Boston
Financial Data Services. The price paid for shares of a Fund will be the next determined NAV
after Boston Financial Data Services receives your investment instructions. Your order may be
canceled if payment is not received by the third business day after your order is placed.
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</TABLE>
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18
<PAGE>
DODGE & COX FUNDS
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<TABLE>
<CAPTION>
How to ------------------------------------------------------------------------
Purchase Shares TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
(continued) -------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY WIRE Call Client Services Call Client Services
Wire to: (1-800-621-3979) to (1-800-621-3979) to
State Street Bank notify the Fund of notify the Fund of
and Trust Company your wire transaction. your wire transaction.
Boston, MA
ABA 0110 0002 8 After making initial Wire transactions are not
Deposit DDA 9905-351-4 investments by wire, you available for IRA accounts,
FFC Dodge & Cox must promptly complete an except for asset transfers
(Fund Name) Fund Account Application and mail and direct rollovers.
Fund #/ Account # it to the Fund, c/o Boston
Account Registration Financial Data Services, at
either of the addresses listed
above. No account services will
be established until the completed
Account Application has been
received by the Fund.
Wire transactions are not available
for IRA accounts, except for asset
transfers and direct rollovers.
-------------------------------------------------------------------------------------------------------
AUTOMATICALLY The Funds offer ways to invest automatically. Call Client Services
or visit the Funds' website at www.dodgeandcox.com and request or down-
load the Account Options Form (IRA Account Options Form for IRA Accounts)
to establish this service. See Automatic Investment Plan.
-------------------------------------------------------------------------------------------------------
IMPORTANT NOTES:
* If Client Services receives your call before 4 p.m. ET and the custodian receives the wired funds
the same day, the Fund will credit the purchase to your account that day. If Client Services
receives your call after 4 p.m. or the custodian receives the wire after 6 p.m. ET, the purchase
will be credited to your account the following business day.
* If you buy Fund shares through a registered broker/dealer, financial institution or investment
adviser, the broker/dealer, financial institution or adviser may charge you a service fee.
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</TABLE>
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19
<PAGE>
DODGE & COX FUNDS
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ADDITIONAL INFORMATION ABOUT PURCHASES All subscriptions are sub-
ject to acceptance by a Fund, and the price of the shares will be
the NAV which is next computed after receipt by Boston Financial
Data Services, or other authorized agent or sub-agent, of the sub-
scription in proper form (see Pricing of Shares). If your payment
is not received or you pay with a check or ACH transfer that does
not clear, your purchase will be canceled. You will be responsible
for any losses or expenses (including a $20 fee) incurred by a
Fund or Boston Financial Data Services, and a Fund can redeem
shares you own in this or another identically registered
Dodge & Cox Fund account as reimbursement. The Funds and their
agents have the right to reject or cancel any purchase, exchange
or redemption due to nonpayment. All subscriptions will be
invested in full and fractional shares, and you will receive a
confirmation statement.
Certificates (for full shares only) are not issued unless
requested by you.
A Social Security or Taxpayer Identification Number must be
supplied and certified on the Account Application before an
account can be established. If you fail to furnish a Fund with
your correct Social Security or Taxpayer Identification Number,
the Fund may be required to withhold Federal income tax at a rate
of 31% (backup withholding) from dividends, capital gain
distributions and redemptions.
The Funds and their agents reserve the right to accept initial
purchases by telephone; to cancel or rescind any purchase or
exchange (for example, if an account has been restricted due to
excessive trading or fraud) upon notice to the shareholder within
five business days of the trade; to freeze any account and
temporarily suspend services on the account when notice has been
received of a dispute between the registered or beneficial account
owners or there is reason to believe a fraudulent transaction may
occur; to otherwise modify the conditions of purchase and any
services at any time; or to act on instructions believed to be
genuine.
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How to You may withdraw any part of your account by selling shares. The
Redeem or sale price of your shares will be the Fund's next-determined NAV
Exchange after Boston Financial Data Services receives all required docu-
Shares ments in good order.
Good order means that the request includes:
* Fund name and account number.
* Amount of the transaction (in dollars or shares).
* Signatures of all owners exactly as registered on the account.
* Signature guarantees (if required).
* Any certificates you are holding for the account.
* Corporate/Institutional accounts only: A certified corporate
resolution dated within the last six months (or a certified
corporate resolution and letter of indemnity) must be on file
with Boston Financial Data Services.
* Any supporting legal documentation that may be required.
Sale or exchange requests received after the close of trading on
the NYSE (generally 4 p.m. ET) are processed at the next business
day's NAV. No interest will accrue on amounts represented by
uncashed redemption checks.
The Funds reserve the right to close any non-IRA account in which
the balance falls below the minimum initial investment.
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20
<PAGE>
DODGE & COX FUNDS
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<TABLE>
<CAPTION>
How to
Redeem or
Exchange ------------------------------------------------------------
Shares ACCOUNT TYPE
(continued) ----------------------------------------------------------------------------------------
<S> <C>
BY TELEPHONE ALL TYPES EXCEPT IRA ACCOUNTS
1-800-621-3979 Call Client Services during business hours to
Client Services sell or exchange shares. You can exchange shares
from a Fund to open an account in another Fund or
Business Hours: to add to an existing account with an identical
Monday-Friday registration.
9 a.m.-8 p.m. ET
IRA ACCOUNTS
You can sell and exchange shares by calling
Client Services. You must complete the
"Telephone Redemption Option" on the Adoption
Agreement to authorize the telephone
redemption service.
----------------------------------------------------------------------------------------
BY MAIL ALL TYPES EXCEPT IRA ACCOUNTS
Regular Mail: Send a letter of instruction signed by all registered
Dodge & Cox Funds account holders. Include the Fund name and account
c/o Boston Financial number and (if you are selling) a dollar amount or
Data Services number of shares OR (if you are exchanging) the name
P.O. Box 9051 of the Fund you want to exchange into and a dollar
Boston, MA 02205-9051 amount or number of shares. To exchange into an account
with a different registration (including a different name,
Express, Certified or address, or taxpayer identification number), you must
Registered Mail: provide Boston Financial Data Services with written
Dodge & Cox Funds instructions that include the guaranteed signatures of
c/o Boston Financial all current account owners. See Signature Guarantees and
Data Services Change in Account Registration and Transfer of Shares.
66 Brooks Drive, Suite 1
Braintree, MA 02184-3839 IRA ACCOUNTS
To make a distribution from your IRA, call Client Services
or visit the Funds' website at www.dodgeandcox.com and
request or download an IRA Distribution Form.
----------------------------------------------------------------------------------------
AUTOMATICALLY The Funds offer ways to sell shares automatically. Call
Client Services or visit the Funds' website at
www.dodgeandcox.com and request or download the Account
Options Form (or IRA Distribution Form for IRA accounts) to
establish this service. See Systematic Withdrawal Plan.
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</TABLE>
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21
<PAGE>
DODGE & COX FUNDS
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REDEMPTION PAYMENTS MAY BE MADE BY CHECK, WIRE OR ACH
BY CHECK Checks will be made payable to you and will be sent to
your address of record. If the proceeds of the redemption are
requested to be sent to other than the address of record or if the
address of record has been changed within 30 days of the redemp-
tion request, the request must be in writing with your signa-
ture(s) guaranteed.
BY WIRE The Fund will wire redemption proceeds only to the bank
account designated on the Account Application or in written
instructions--with signature guarantee--received with the redemp-
tion order.
BY ACH Redemption proceeds can be sent to your bank account by ACH
transfer. You can elect this option by completing the appropriate
section of the Account Application. There is a $100 minimum per
ACH transfer. ACH transfers for IRA accounts are only available
for Systematic Withdrawal Plans.
SIGNATURE GUARANTEES You may need to have your signature guaran-
teed in certain situations, such as:
* Written requests to wire redemption proceeds (if not previously
authorized on the Account Application).
* Sending redemption proceeds to any person, address or bank
account not on record.
* Transferring redemption proceeds to a Dodge & Cox Fund account
with a different registration (name/ownership) from yours.
* Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings
institutions, broker-dealers and other guarantors acceptable to
the Funds. A Fund cannot accept guarantees from notaries public or
organizations that do not provide reimbursement in the case of
fraud.
REDEMPTIONS-IN-KIND The Funds reserve the right, if conditions
exist which make cash payments undesirable, to honor any request
for redemption by making payment in whole or in part in readily
marketable securities chosen by a Fund and valued as they are for
purposes of computing a Fund's NAV (redemption-in-kind). If pay-
ment is made in securities, a shareholder may incur transaction
expenses in converting these securities to cash. The Funds have
elected, however, to be governed by Rule 18f-1 under the Invest-
ment Company Act, as a result of which a Fund is obligated to
redeem shares, with respect to any one shareholder during any 90-
day period, solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund at the beginning of the period.
IRA ACCOUNTS Redemption requests for IRA accounts must include
instructions regarding Federal income tax withholding. Unless you
have elected otherwise, your redemptions will be subject to income
tax withholding. State withholding may also apply.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS Under certain circum-
stances, Boston Financial Data Services may require additional
documents, including stock powers with signatures guaranteed,
trust instruments, death certificates, appointments as executor
and certificates of corporate authority. If certificates have been
issued for any of the shares to be redeemed, such certificates
must be endorsed with signatures guaranteed and delivered to Bos-
ton Financial Data Services. For any questions regarding documen-
tation or signature requirements for trusts, estates,
corporations, etc., please call Client Services (1-800-621-3979).
The redemption price will be the NAV which is next computed after
receipt of a redemption request in good order (see Pricing of
Shares) by Boston Financial Data Services or other authorized
agent or sub-agent. The redemption price may be more or less than
your cost, depending upon the market value of a Fund's investments
at the time of redemption. Redemption payments are made as soon as
practicable, generally within two business days, but no later than
the seventh day after the effective date for redemption, or
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22
<PAGE>
DODGE & COX FUNDS
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within such shorter period as may legally be required. If shares
are redeemed within two weeks of purchase, a Fund may delay pay-
ment of the redemption proceeds until your purchase check or ACH
purchase has cleared, which may take up to 15 days. There is no
such delay when shares being redeemed were purchased by wiring
Federal funds. The Funds may suspend your redemption right or
postpone payment at times when the NYSE is closed or under any
emergency circumstances as determined by the SEC. If the Post
Office cannot deliver your check, or if your check remains
uncashed for six months, the Funds reserve the right to reinvest
your redemption proceeds in your account at the then current NAV.
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General EXCHANGING SHARES An exchange is treated as a redemption and a
Transaction purchase; and, therefore, you may realize a taxable gain or loss.
Information You should read the current prospectus of the Fund into which the
exchange is being made.
There is a $1,000 minimum for all exchanges. If a new account is
being opened by exchange, the minimum investment requirements must
be met. After the exchange, the account from which the exchange is
made must have a remaining balance of at least $2,500 ($1,000 for
an IRA account) in order to remain open. The Funds reserve the
right to terminate or materially modify the exchange privilege
upon 60 days advance notice to shareholders.
TELEPHONE TRANSACTIONS By using telephone purchase, redemption
and/or exchange options, you agree to hold the Trust, Dodge & Cox,
Boston Financial Data Services and each of their respective direc-
tors, trustees, officers, employees and agents harmless from any
losses, expenses, costs or liability (including attorney fees)
which may be incurred in connection with the exercise of these
privileges. Generally, all shareholders are automatically eligible
to use these options. However, you may elect to decline these
options in the Account Application or by writing Boston Financial
Data Services. (You may also reinstate them at any time by writing
Boston Financial Data Services.) If a Fund does not employ reason-
able procedures to confirm that the instructions received from any
person with appropriate account information are genuine, the Fund
may be liable for losses due to unauthorized or fraudulent
instructions. If you are unable to reach a Fund by telephone
because of technical difficulties, market conditions, or a natural
disaster, you should make purchase, redemption and exchange
requests by regular or express mail. If an account has multiple
owners, a Fund may rely on the instructions of any one account
owner. You should note that purchase and sales orders will not be
canceled or modified once received in good order.
Purchases and sales should be made for long-term investment pur-
poses only. Because excessive trading may be disadvantageous to a
Fund, each Fund reserves the right to limit purchase and sale
transactions, including exchanges, when a pattern of frequent
trading appears evident.
TRANSACTIONS THROUGH PROCESSING ORGANIZATIONS You may purchase or
sell Fund shares through a broker-dealer, bank or other financial
institution, or an organization that provides recordkeeping and
consulting services to 401(k) plans or other employee benefit
plans (Processing Organization). Processing Organizations may
charge you a fee for this service and may require different mini-
mum initial and subsequent investments than the Funds. Processing
Organizations may also impose other charges or restrictions dif-
ferent from those applicable to shareholders who invest in the
Funds directly. A Processing Organization, rather than its custom-
ers, may be the shareholder of record of your shares. The Funds
are not responsible for the
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23
<PAGE>
DODGE & COX FUNDS
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failure of any Processing Organization to carry out its
obligations to its customers. Certain Processing Organizations may
receive compensation from Dodge & Cox for shareholder
recordkeeping and similar services.
CHANGE IN ACCOUNT REGISTRATION AND TRANSFER OF SHARES Changes in
account registrations, such as changing the name(s) on your
account, or transferring shares to another person or legal entity
must be submitted in writing and require a signature guarantee.
Please call Client Services (1-800-621-3979) or visit the Funds'
web site at www.dodgeandcox.com and request or download the Change
of Registration Form or the Gift or Transfer of Assets Form to
affect this change.
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Pricing of The share price (net asset value per share or NAV) for a Fund is
Shares calculated at 4 p.m. ET each day the NYSE is open for business. To
calculate the NAV, a Fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares outstanding.
If a Fund, or its authorized agent or sub-agent receives your
request in good order by 4 p.m. ET, your transactions will be
priced at that day's NAV. If your request is received after 4
p.m., it will be priced at the next business day's NAV.
A Fund cannot accept orders that request a particular day or price
for your transaction or any other special conditions. The time at
which transactions and shares are priced and the time until which
orders are accepted may be changed in case of an emergency or if
the NYSE closes at a time other than 4 p.m. ET.
- -------------------------------------------------------------------------------
Income Dividend and capital gain distributions are reinvested in
Dividends additional Fund shares in your account unless you select another
and option on your Account Application. The advantage of reinvesting
Capital distributions arises from compounding; that is, you receive income
Gain Dis- dividends and capital gain distributions on an increasing number
tributions of shares.
-------------------------------------------------------------------
IMPORTANT TAX NOTE: The Funds' distributions, whether received in
cash or reinvested in additional shares of the Fund, may be sub-
ject to Federal and state income tax.
-------------------------------------------------------------------
Distributions not reinvested are paid by check or transmitted to
your bank account via electronic transfer using the ACH network.
If the Post Office cannot deliver your check, or if your check
remains uncashed for six months, the Funds reserve the right to
reinvest your distribution check in your account at your Fund's
then current NAV and to reinvest all subsequent distributions in
shares of the Fund.
INCOME DIVIDENDS Each Fund declares and pays dividends (if any)
quarterly in March, June, September and December.
CAPITAL GAIN DISTRIBUTIONS A capital gain or loss is the
difference between the purchase and sale price of a security. If a
Fund has net capital gains for the year (after subtracting any
capital losses), they are usually declared and paid in December to
shareholders of record on a specified date that month. If a second
distribution is necessary, it is usually declared and paid in
March.
-------------------------------------------------------------------
BUYING A DISTRIBUTION: Unless you are investing through a tax-
deferred retirement account (such as an IRA or 401(k) plan), it
may not be to your advantage to buy shares of a Fund shortly
before the Fund makes a distribution. This is known as "buying a
distribution." Buying a distribution can cost you money in taxes
as you will receive, in the form of a taxable distribution, a
portion of the money you just invested. To avoid buying a distri-
bution, check the Fund's distribution schedule before you invest.
-------------------------------------------------------------------
In January, you will be sent Form 1099-DIV indicating the tax
status of any dividend and capital gain distributions made to you
during the previous year. This information will also be reported
to the IRS.
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24
<PAGE>
DODGE & COX FUNDS
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Performance A Fund may include figures indicating its total return and/or
Information yield in advertisements or reports to shareholders or prospective
investors and, as appropriate, performance information for a Fund
may be compared, in reports and promotional literature to: (i)
the Standard & Poor's 500(R) Stock Index, the Dow Jones
Industrial Average, the Lehman Brothers Aggregate Bond Index, or
various other unmanaged indices of the performance of various
types of investments, so that investors may compare a Fund's
results with those of indices widely regarded by investors as
representative of the security markets in general, and (ii) the
performance of other mutual funds. Unmanaged indices may assume
the reinvestment of income distributions, but generally do not
reflect deductions for administrative and management costs and
expenses.
Performance information for a Fund reflects only the performance
of hypothetical investments in the Fund during the particular
time periods on which the calculations are based. Such
information should not be considered as representative of the
performance of a Fund in the future because, unlike some bank
deposits or other investments which pay a fixed yield for a
stated period of time for a fixed principal amount, the
performance of a Fund will vary based not only on the current
market value of the securities held in its portfolio, but also on
changes in a Fund's expenses and in the asset size of the Fund.
Performance information should be considered in light of a
Fund's investment objectives and policies, the types and quality
of a Fund's portfolio investments, market conditions during the
particular time period and operating expenses. For a description
of the methods used to determine a Fund's total return and yield,
see Performance Information in the SAI. Further information about
Fund performance is contained in each Fund's Annual Report which
may be obtained without charge from the Fund.
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Fund FUND ORGANIZATION AND VOTING RIGHTS The Trust, organized as a
Organiza- Delaware business trust in 1998, has three classes of beneficial
tion and shares and each share evidences an equal beneficial ownership in
Management a Fund. The three series of the Trust are successors to Dodge &
Cox Stock Fund established in 1965, Dodge & Cox Balanced Fund
established in 1931 and Dodge & Cox Income Fund established in
1989.
INVESTMENT MANAGER Dodge & Cox, a California corporation, has
served as investment manager to the Funds and their predecessors
since inception. Dodge & Cox is one of the oldest professional
investment management firms in the United States, having acted
continuously as investment managers since 1930. The Funds'
investments are managed by Dodge & Cox's Investment Policy
Committee (the Fixed-Income Strategy Committee for fixed-income
securities), and no one person is primarily responsible for
making investment recommendations to the Committees. Dodge & Cox
is located at One Sansome Street, 35th Floor, San Francisco,
California 94104-4443.
Dodge & Cox's activities are devoted to investment research and
the supervision of investment accounts for individuals and insti-
tutions. Dodge & Cox Balanced Fund and Dodge & Cox Stock Fund
each pay Dodge & Cox a management fee which is payable monthly at
the annual rate of 0.50% of the average daily net asset value of
the Fund. Dodge & Cox Income Fund pays Dodge & Cox a management
fee which is payable monthly at the annual rate of 0.50% of the
average daily net asset value of the Fund up to $100 million and
0.40% of the average daily net asset value of the Fund in excess
of $100 million.
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25
<PAGE>
DODGE & COX FUNDS
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The investment management agreements with Dodge & Cox Income Fund
and Dodge & Cox Stock Fund provide that Dodge & Cox will waive its
fee for any calendar year to the extent that such fee plus all
other ordinary operating expenses paid by the Fund exceed 1% and
0.75%, respectively, of the average daily net asset value of the
Fund. No waiver of management fee was required for 1999 under the
agreements.
CODE OF ETHICS Dodge & Cox has adopted a Code of Ethics that
restricts personal investing practices by its employees.
Employees with access to information (access persons) about the
purchase or sale of securities in a Fund's portfolio may engage in
personal securities transactions. However, the Code of Ethics
requires, among other provisions, that access persons obtain
approval before executing certain personal trades. The Code of
Ethics is designed to ensure that the interests of the Funds'
shareholders come before the interests of the people who manage
the Funds. The Code of Ethics is on file with the SEC.
- -------------------------------------------------------------------------------
Portfolio Orders for a Fund's portfolio securities transactions are placed
Trans- by Dodge & Cox, which seeks to obtain the best available prices,
actions taking into account the costs and quality of executions. In the
over-the-counter market, purchases and sales are transacted
directly with principal market-makers except in those
circumstances where it appears better prices and executions are
available elsewhere.
Subject to the above policy, when two or more brokers are in a
position to offer comparable prices and executions, preference may
be given to brokers that have provided investment research,
statistical and other related services for the benefit of a Fund
and/or accounts over which Dodge & Cox exercises investment and
brokerage discretion.
- -------------------------------------------------------------------------------
Expenses In addition to Dodge & Cox's management fee, each Fund pays other
direct expenses, including custodian, transfer agent, legal,
accounting and audit fees; costs of preparing and printing
prospectuses and reports sent to shareholders; registration fees
and expenses; proxy and shareholder meeting expenses (if any); and
trustees fees and expenses. In 1999, the ratios of total operating
expenses to average net assets of Dodge & Cox Stock Fund, Dodge &
Cox Balanced Fund and Dodge & Cox Income Fund were 0.55%, 0.53%
and 0.46%, respectively. Dodge & Cox furnishes personnel and other
facilities necessary for the operation of the Funds for which it
receives no additional compensation.
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Federal Each Fund intends to qualify each year as a regulated investment
Income company under the Internal Revenue Code. A regulated investment
Taxes company that distributes for the year all of its ordinary income
and capital gains pays no tax on its ordinary income or capital
gains. A regulated investment company that fails to distribute all
of its ordinary income and capital gains must pay tax on the
undistributed amounts at a maximum rate of 35%. If the company
does not distribute at least 98% of its ordinary income and
capital gains, it must pay an additional 4% excise tax on the
amount by which the 98% requirements exceed actual distributions.
Distributions designated as long-term capital gain distributions
are taxed to a shareholder as though they were long-term capital
gains realized by the shareholder whether received in cash or
shares of a Fund and regardless of the period of time shares of a
Fund have been held. All taxable distributions, except for long-
term capital gain distributions, are taxed to a shareholder as
ordinary income dividends whether received in cash or shares of a
Fund. Part of Dodge & Cox Stock and Balanced Funds' ordinary
dividends may be eligible for the 70% deduction for dividends
received by corporations. State taxation of distributions to
shareholders varies from state to state. You should consult your
own tax adviser about the Federal, state and local tax
consequences of an investment in a Fund.
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26
<PAGE>
DODGE & COX FUNDS
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Custodian State Street Bank and Trust Company, P.O. Box 9051, Boston, MA
and 02205-9051 (1-800-621-3979), acts as custodian of all cash and
Transfer securities of the Funds and receives and disburses cash and
Agent securities for the account of the Funds. Boston Financial Data
Services, P.O. Box 9051, Boston, MA 02205-9051 (1-800-621-
3979), acts as transfer and dividend disbursing agent for the
Funds.
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<TABLE>
<CAPTION>
Investment --------------------------------------------------------------
Information and STATEMENTS AND REPORTS As a shareholder of the Fund you will
Shareholder receive the following statements and reports:
Services --------------------------------------------------------------
<S> <C> <C>
CONFIRMATION STATEMENT Sent each time you buy, sell or
exchange shares; confirms the
trade date and the amount of
your transaction. Purchases
through the Automatic
Investment Plan will be
confirmed at least quarterly,
unless otherwise requested.
--------------------------------------------------------------
ACCOUNT STATEMENT Mailed quarterly; shows the
market value of your account at
the close of the statement
period, as well as
distributions, purchases,
sales, and exchanges for the
current calendar year.
--------------------------------------------------------------
FUND FINANCIAL REPORTS Mailed in February, May, August
and November.
--------------------------------------------------------------
TAX STATEMENTS Mailed in January; reports
previous year's dividend
distributions, proceeds from
the sale of shares, and
distributions from IRAs.
--------------------------------------------------------------
AVERAGE COST STATEMENT Mailed annually in January for
most taxable accounts for which
shares were redeemed in the
previous year; shows the
average cost of shares that you
redeemed during the calendar
year, using the average cost
single category method.
--------------------------------------------------------------
</TABLE>
HOUSEHOLD MAILINGS To reduce Fund expenses, the Funds attempt
to identify related shareholders within a household and send
only one copy of a shareholder report or prospectus. Call 1-
800-621-3979 or visit the Funds' web site at
www.dodgeandcox.com if you would like an additional free copy
of a Fund's report or prospectus.
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27
<PAGE>
DODGE & COX FUNDS
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The Funds offer you the following services: (Please call Client
Services at 1-800-621-3979, write or visit the Funds' web site at
www.dodgeandcox.com for forms and additional information.)
AUTOMATED TELEPHONE SERVICES 24-hour service, seven days a week,
via toll-free access to Fund and account information. The system
provides total returns, share prices and price changes for the
Funds and gives you account balances and history (e.g., last
transaction, latest dividend distribution).
COMPUTER ACCESS Information on the Funds is available via personal
computer on the Funds' web site at www.dodgeandcox.com.
On the site you can:
. View your account balances and recent transactions
. Learn more about Dodge & Cox's approach to investing
. Review the objectives, strategies, characteristics and risks of
the Funds
. Review the Funds' daily prices and performance
. Download or order the Funds' prospectus and Account Application,
shareholder reports, IRA plans and other forms.
AUTOMATIC INVESTMENT PLAN You may make regular monthly or
quarterly investments of $100 or more through automatic deductions
from your bank account.
SYSTEMATIC WITHDRAWAL PLAN If you own $10,000 or more of a Fund's
shares, you may receive regular monthly or quarterly payments of
$50 or more. Shares will be redeemed automatically at NAV to make
the withdrawal payments.
REINVESTMENT PLAN You may direct that dividend and capital gain
distributions be reinvested in additional Fund shares.
INDIVIDUAL RETIREMENT ACCOUNT (IRA) If you have earned income or
are entitled to certain distributions from eligible retirement
plans, you may make or authorize contributions to your own
Individual Retirement Account. The Funds have Traditional IRA and
Roth IRA Plans available for shareholders of the Funds.
IMPORTANT NOTE: The services described may not be available
through some retirement plans or accounts held by investment
dealers. If you are investing in such a manner, you should con-
tact your plan administrator/trustee, financial institution or
dealer about what services are available and with questions about
your account.
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28
<PAGE>
DODGE & COX FUNDS
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Financial Highlights
- -------------------------------------------------------------------------------
The financial highlights table is intended to help you
understand the Fund's financial performance for the past
five years. Certain information reflects financial
results for a single Fund share. The total returns in the
table represent the rate that an investor would have
earned on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers
LLP, whose report, along with the Fund's financial
statements, are included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Dodge & Cox Stock Fund
---------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 90.70 $94.57 $79.81 $67.83 $53.94
Income from investment
operations:
Net investment income 1.49 1.57 1.48 1.28 1.27
Net realized and unrealized
gain 16.51 3.54 20.86 13.67 16.54
---------------------------------------
Total from investment
operations 18.00 5.11 22.34 14.95 17.81
---------------------------------------
Distributions to
shareholders from:
Net investment income (1.48) (1.56) (1.49) (1.29) (1.26)
Net realized gain (6.70) (7.42) (6.09) (1.68) (2.66)
---------------------------------------
Total distributions (8.18) (8.98) (7.58) (2.97) (3.92)
---------------------------------------
Net asset value, end of year $100.52 $90.70 $94.57 $79.81 $67.83
=======================================
Total return 20.20% 5.39% 28.41% 22.26% 33.38%
Ratios/supplemental data:
Net assets, end of year
(millions) $4,625 $4,355 $4,087 $2,252 $1,228
Ratio of expenses to
average net assets .55% .57% .57% .59% .60%
Ratio of net investment
income to
average net assets 1.46% 1.63% 1.67% 1.79% 2.07%
Portfolio turnover rate 18% 19% 19% 10% 13%
</TABLE>
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29
<PAGE>
DODGE & COX FUNDS
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<TABLE>
<CAPTION>
Dodge & Cox Balanced Fund
--------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $65.22 $66.78 $59.82 $54.60 $45.21
Income from investment
operations:
Net investment income 2.24 2.24 2.21 1.98 1.90
Net realized and
unrealized gain 5.45 2.17 10.24 5.92 10.58
----------------------------------------
Total from investment
operations 7.69 4.41 12.45 7.90 12.48
----------------------------------------
Distributions to
shareholders from:
Net investment income (2.22) (2.23) (2.22) (1.99) (1.90)
Net realized gain (4.98) (3.74) (3.27) (.69) (1.19)
----------------------------------------
Total distributions (7.20) (5.97) (5.49) (2.68) (3.09)
----------------------------------------
Net asset value, end of
year $65.71 $65.22 $66.78 $59.82 $54.60
========================================
Total return 12.06% 6.70% 21.21% 14.75% 28.02%
Ratios/supplemental data:
Net assets, end of year
(millions) $5,138 $5,693 $5,077 $3,630 $1,800
Ratio of expenses to
average net assets .53% .54% .55% .56% .57%
Ratio of net investment
income to
average net assets 3.18% 3.29% 3.39% 3.60% 3.85%
Portfolio turnover rate 17% 26% 32% 17% 20%
</TABLE>
<TABLE>
<CAPTION>
Dodge & Cox Income Fund
--------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $12.25 $12.08 $11.68 $12.02 $10.74
Income from investment
operations:
Net investment income .72 .72 .73 .74 .78
Net realized and
unrealized gain (loss) (.82) .23 .40 (.34) 1.34
----------------------------------------
Total from investment
operations (.10) .95 1.13 .40 2.12
----------------------------------------
Distributions to
shareholders from:
Net investment income (.71) (.72) (.73) (.74) (.78)
Net realized gain (.04) (.06) - - (.06)
----------------------------------------
Total distributions (.75) (.78) (.73) (.74) (.84)
----------------------------------------
Net asset value, end of
year $11.40 $12.25 $12.08 $11.68 $12.02
========================================
Total return (0.81)% 8.08% 10.00% 3.62% 20.21%
Ratios/supplemental data:
Net assets, end of year
(millions) $974 $952 $705 $533 $303
Ratio of expenses to
average net assets .46% .47% .49% .50% .54%
Ratio of net investment
income to
average net assets 6.10% 6.00% 6.32% 6.65% 6.85%
Portfolio turnover rate 24% 35% 28% 37% 53%
</TABLE>
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30
<PAGE>
DODGE & COX FUNDS
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Officers Harry R. Hagey, Chairman & Trustee
and Chairman & CEO, Dodge & Cox
Trustees
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
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31
<PAGE>
DODGE & COX FUNDS
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For More Information: For investors who want more information about the Funds,
the following documents are available free upon request:
Annual/Semi-Annual Reports: Additional infor-mation about the Funds' investments
is available in the Funds' annual and semi-annual reports to shareholders. In
each Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
Statement of Additional Information (SAI): The SAI provides more detailed
information about the Funds and is incorporated by reference into (and thus is
legally a part of) this prospectus.
- --------------------------------------------------------------------------------
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Funds by contacting the Funds at:
Dodge & Cox Funds
c/o Boston Financial Data Services
P.O. Box 9051
Boston, MA 02205-9051
Telephone: 1-800-621-3979
Internet: www.dodgeandcox.com
- --------------------------------------------------------------------------------
The Funds' reports and SAI are available at the Securities and Exchange
Commission's (SEC) Public Reference Room in Washington, D.C. (1-202-942-8090) or
on the EDGAR database on the SEC's internet site at www.sec.gov. You may also
obtain copies of this information, after paying a duplicating fee, by sending
an e-mail request to [email protected] or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-0102.
Funds' Investment Company Act file no. 811-173
5/00 PR
[LOGO OF RECYCLED PAPER]
Printed on recycled paper
<PAGE>
DODGE & COX FUNDS
Dodge & Cox Stock Fund
Dodge & Cox Balanced Fund
Dodge & Cox Income Fund
c/o Boston Financial Data Services Inc.
P.O. Box 9051
Boston, Massachusetts 02205-9051
(800) 621-3979
www.dodgeandcox.com
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 2000
This Statement of Additional Information (SAI) pertains to the Dodge & Cox
Funds (Trust), a family of three no-load mutual funds, Dodge & Cox Stock Fund,
Dodge & Cox Balanced Fund and Dodge & Cox Income Fund (Funds). Each Fund is a
series of the Trust.
This Statement of Additional Information is not the Funds' Prospectus, but
provides additional information which should be read in conjunction with the
Prospectus dated May 1, 2000, which is incorporated by reference into this SAI.
The Funds' Prospectus and most recent annual financial statements may be
obtained from the Funds at no charge by writing, visiting our web site, or
contacting the Funds at the address, web site, or telephone number shown above.
This SAI contains additional and more detailed information about the Funds'
operations and activities than the Prospectus.
----------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CLASSIFICATION, INVESTMENT RESTRICTIONS,
INVESTMENT STRATEGIES AND RISKS...................................... 1
Classification..................................................... 1
Investment Restrictions............................................ 1
Investment Strategies.............................................. 2
Characteristics and Risks of Securities and Investment Techniques.. 6
MANAGEMENT OF THE FUND............................................... 13
Officers and Trustees.............................................. 13
Investment Manager................................................. 15
Other Service Providers............................................ 16
BROKERAGE ALLOCATION AND OTHER PRACTICES............................. 17
CAPITAL STOCK........................................................ 19
PURCHASE, REDEMPTION AND PRICING OF SHARES........................... 19
TAXATION OF THE FUND................................................. 20
PRINCIPAL UNDERWRITER................................................ 21
PERFORMANCE INFORMATION.............................................. 21
FINANCIAL STATEMENTS................................................. 23
APPENDIX: RATINGS................................................... 24
</TABLE>
----------------------------
<PAGE>
CLASSIFICATION, INVESTMENT RESTRICTIONS, INVESTMENT STRATEGIES
- --------------------------------------------------------------
AND RISKS
- ---------
Classification
The Funds are open-end management investment companies. The Investment
Company Act of 1940, as amended (1940 Act) classifies investment companies as
either diversified or nondiversified, and each of the Funds is deemed to be a
diversified fund.
Investment Restrictions
Each Fund has adopted the following restrictions. These restrictions, as
well as a Fund's investment objectives, cannot be changed without the approval
of the holders of a majority of a Fund's outstanding shares. The 1940 Act
defines a majority as the lesser of (1) 67% or more of the voting shares present
at a meeting if the holders of more than 50% of the outstanding voting shares
are present or represented by proxy, or (2) more than 50% of the outstanding
voting shares of a Fund. As applicable, each Fund may not:
Dodge & Cox Balanced Fund, Dodge & Cox Income Fund and Dodge & Cox Stock
------------------------------------------------------------------------
Fund
----
1. Invest more than 5% of the value of its total assets in the securities
of any one issuer, except the obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities, or issues backed
or collateralized by such obligations, nor acquire more than 10% of
the voting securities of any one issuer.
2. Invest in any company for the purpose of exercising control or
management.
3. Underwrite securities of other issuers, except insofar as a Fund may
be deemed an underwriter under the Securities Act of 1933, as amended,
in selling portfolio securities.
4. Purchase securities on margin or sell short.
5. Invest in a security if, as a result of such investment, more than 25%
of its total assets would be invested in the securities of issuers in
any particular industry, except that the restriction does not apply to
securities issued or guaranteed by the U.S. government or its agencies
or instrumentalities (or repurchase agreements with respect thereto).
6. Purchase any security if as a result a Fund would then have more than
15%, (10%, Dodge & Cox Income Fund) of its total assets invested in
securities which are illiquid, including repurchase agreements not
maturing in seven days or less and securities restricted as to
disposition under Federal securities laws.
7. Purchase interests in oil, gas and mineral leases or other mineral
exploration or development programs, although a Fund may invest in
stocks or debt instruments of companies which invest in or sponsor
such programs.
8. Purchase or sell commodities, commodity contracts or real estate
(although a Fund may invest in marketable securities secured by real
estate or interests therein or issued by companies or investment
trusts which invest in real estate or interests therein).
Dodge & Cox Balanced Fund and Dodge & Cox Stock Fund
----------------------------------------------------
9. Issue senior securities.
1
<PAGE>
10. Borrow money except as a temporary measure for extraordinary or
emergency purposes and not for the purchase of investment securities
and then only from banks. The amount borrowed shall not exceed 10% of
the Fund's total assets at cost or 5% of the value of total assets,
whichever is less, provided that such borrowings shall have an asset
coverage of 300%.
11. Make loans to other persons except this shall not exclude the purchase
of publicly issued debt securities of a type purchased by
institutional investors.
Dodge & Cox Income Fund
-----------------------
12. Issue senior securities, as defined in the 1940 Act, or mortgage,
pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by the Fund except as may
be necessary in connection with borrowing, and then such mortgaging,
pledging or hypothecating may not exceed 10% of the Fund's total
assets, taken at the lesser of cost or market value.
13. Borrow money, except the Fund may borrow money from banks as a
temporary measure for extraordinary or emergency purposes. Such
temporary borrowing may not exceed 5% of the value of the Fund's total
assets at the time the loan is made. The Fund may pledge up to 10% of
the lesser of the cost or market value of its total assets to secure
temporary borrowings. The Fund will not borrow for investment
purposes. Immediately after any borrowing, the Fund will maintain an
asset coverage of not less than 300% with respect to all borrowings.
14. Make loans of money, except by the purchase of debt securities or by
entering into repurchase agreements, as permitted by the Fund's other
investment policies and restrictions. Although there is no present
intention of doing so in the foreseeable future, the Fund reserves the
authority to make loans of its portfolio securities in an aggregate
amount not exceeding 20% of its total assets. Such loans will only be
made upon approval of, and subject to any conditions imposed by, the
Fund's Board of Trustees.
15. Write put or call options.
Whenever any investment policy or investment restriction states a maximum
percentage of a Fund's assets which may be invested in any security or other
instrument, it is intended that such maximum percentage limitation be determined
immediately after and as a result of the Fund's acquisition of such security or
instrument. Industries are determined by reference to the classifications of
industries set forth in a Fund's semi-annual and annual report.
Investment Strategies
Dodge & Cox Stock Fund
----------------------
The Fund's primary objective is to provide shareholders with an opportunity
for long-term growth of principal and income. A secondary objective is to
achieve a reasonable current income. These objectives may not be changed
without shareholder approval. It should be recognized that the market risks
inherent in investment cannot be avoided, nor is there any assurance that the
Fund will achieve its investment objectives.
Under normal circumstances, the Fund will invest at least 65% of total
assets in common stocks. The Fund may also purchase other types of securities,
for example, preferred stocks and debt securities which are convertible into
common stock (or which in the opinion of the Fund's investment manager,
2
<PAGE>
Dodge & Cox, have predominantly common stock investment characteristics). The
Fund may invest up to 20% of its total assets in U.S. dollar-denominated
securities of foreign issuers (such as ADRs).
Moderate reserves in cash or fixed-income securities may be held from time
to time as Dodge & Cox may deem advisable. Nevertheless, the long-term emphasis
shall be the maintaining of a fully invested equity fund.
Common stocks selected for the Fund will be predominantly those which, in
the view of Dodge & Cox, have positive prospects for long-term growth of
principal and income not reflected in the current price. Prospective earnings,
cashflow and dividends are considered in making these stock selections.
Individual securities are selected with an emphasis on financial strength and a
sound economic condition. The Fund's policies as described above may be changed
without shareholder approval; however, these policies will not be changed
without notice to shareholders.
In an attempt to reduce unforeseen risks in single securities, the Fund
seeks to provide adequate investment diversification. To that end, the Fund will
not concentrate its investments in any particular industry or group of
industries, but will diversify investments among different industries as well as
among individual companies. The amount invested in any particular industry will
vary from time to time in accordance with the judgment of Dodge & Cox.
Although there is no restriction on the number of changes in security
holdings, purchases are made with a view to long-term holding and not for short-
term trading purposes. During rapidly changing economic and political
conditions, there may necessarily be more portfolio changes than in a more
stable period. A higher turnover rate might result in increased transaction
expenses and the realization of capital gains and losses.
It is the general practice of the Fund to invest in securities with ready
markets, mainly issues listed on national securities exchanges.
The Fund has no present intention of making investments in securities which
are restricted as to resale under Federal securities laws. The Fund does not
write put and call options and has no present intention of writing such options.
Dodge & Cox Balanced Fund
-------------------------
The Fund's objectives are to provide shareholders with regular income,
conservation of principal and an opportunity for long-term growth of principal
and income. These objectives may not be changed without shareholder approval.
It should be recognized that the market risks inherent in investment cannot be
avoided, nor is there any assurance that the Fund will achieve its investment
objectives. Reasonable appreciation in favorable periods and conservation of
principal in adverse times are objectives that require flexibility in managing
the assets of the Fund under constantly changing investment conditions.
Therefore, the proportions of the Fund's portfolio invested in common and
preferred stocks and bonds are revised by the Fund's manager, Dodge & Cox, when
considered advisable in light of Dodge & Cox's appraisal of business and
investment prospects. Under normal market conditions, the Fund seeks to
maintain no more than approximately 75% of its total assets in common stocks and
that portion of the value of convertible securities attributable to the
conversion right.
Fixed-income securities are held for their relative stability of principal
and income as well as for a reserve which can be used to take advantage of
investment opportunities. The Fund may invest up to 20% of its total assets in
U.S. dollar-denominated securities of foreign issuers traded in the U.S. (such
as
3
<PAGE>
ADRs and Yankee bonds). Moderate reserves in cash or short-term fixed-income
securities may be held from time to time as Dodge & Cox may deem advisable.
It is the policy to invest in investment-grade bonds rated Baa or higher by
Moody's Investors Service (Moody's) or BBB or higher by Standard & Poor's
Ratings Group (S&P). Securities rated Baa or BBB have speculative
characteristics. Securities that are downgraded below Baa or BBB subsequent to
purchase may continue to be held by the Fund, if Dodge & Cox believes it
advantageous to do so. Unrated bonds may be purchased if such securities are,
in the opinion of Dodge & Cox, of equivalent quality to bonds rated at least A
by Moody's and S&P. An explanation of the Moody's and S&P ratings groups is
included in the Appendix.
The Fund will maintain a substantial position in common stocks which, in
the view of Dodge & Cox, have positive prospects for long-term growth of
principal and income not reflected in the current price. Prospective earnings,
cashflow and dividends are considered in making these stock selections. The
level of security prices and the trend of business activity are given weight in
determining the total investment position of the Fund in equities at any time.
Individual securities are selected with an emphasis on financial strength and a
sound economic condition. The Fund's investment policies as set forth above may
be changed without shareholder approval; however, these policies will not be
changed without notice to shareholders.
The proportions held in the various fixed-income securities will be revised
as appropriate 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 making investment decisions, Dodge & Cox will
take many factors into consideration including yield to maturity, quality,
liquidity, current yield and capital appreciation potential.
In an attempt to reduce unforeseen risks in single securities, the Fund
seeks to achieve adequate investment diversification. The Fund does not
concentrate its investments in any particular industry or group of industries
but seeks instead to diversify investments among different industries as well as
among individual companies. The amount invested in any particular industry will
vary from time to time in accordance with the judgment of Dodge & Cox.
Although there is no restriction on the number of changes in security
holdings, purchases are made with a view to long-term holding and not for short-
term trading purposes. During rapidly changing economic and political
conditions, there may necessarily be more portfolio changes than in a more
stable period. A higher turnover rate might result in increased transaction
expenses and the realization of capital gains and losses.
It is the general practice of the Fund to invest in equity securities
mainly listed on national securities exchanges and securities with ready
markets. The Fund does not write put and call options and has no present
intention of writing such options.
Dodge & Cox Income Fund
-----------------------
The Fund's primary objective is to provide shareholders with 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. These objectives may not be changed without shareholder approval.
It should be recognized that the market risks inherent in investment cannot be
avoided nor is there any assurance that the Fund will achieve its investment
objectives.
The Fund seeks to achieve these objectives by investing in a diversified
portfolio of fixed-income securities. It is the policy of the Fund to invest at
least 80% of the market value of its total assets in the following: (1) debt
obligations issued or guaranteed by the U.S. government, its agencies or
4
<PAGE>
instrumentalities; (2) investment-grade debt securities rated Baa or higher by
Moody's or BBB or higher by S&P, including U.S. dollar-denominated foreign
issues; (3) unrated securities if deemed to be of investment-grade quality by
Dodge & Cox; and (4) cash equivalents, bankers' acceptances, bank certificates
of deposit, repurchase agreements and commercial paper. At least 65% of the
market value of the portfolio will be invested in category (1) securities and in
category (2) securities rated in the top three rating categories. Further
information about specific investments is provided below.
No more than 20% of the Fund may be invested in other fixed-income
instruments including: debt obligations rated below investment grade, if, in the
opinion of Dodge & Cox, they are of suitable quality, provide attractive
investment opportunities and have a minimum rating of B by Moody's and/or S&P at
the time of investment; preferred stock; and corporate bonds convertible into
common stocks or carrying warrants to purchase common stock. The Fund will
invest in unrated securities only if deemed to be of investment-grade quality by
Dodge & Cox. It should be noted that securities rated Baa or BBB and those
securities rated below investment grade have speculative characteristics.
Securities rated B by the major rating agencies may yield a higher level of
current income than higher quality securities but generally have less liquidity,
greater market risk and more price fluctuation. An explanation of the Moody's
and S&P rating categories is included in the Appendix.
Under normal market conditions, the Fund will invest no more than 25% of
its total assets in U.S. dollar-denominated securities of foreign issuers.
The proportions held in the various financial instruments will be revised
as appropriate 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 making investment decisions, Dodge & Cox will
take many factors into consideration, including yield to maturity, quality,
liquidity, current yield, and capital appreciation potential.
The Fund attempts to achieve its secondary objective of capital
appreciation through such techniques as fundamental research (i.e., seeking a
security or group of securities which Dodge & Cox believes to be undervalued)
and making gradual adjustments in the average maturity of the Fund's portfolio.
The average maturity of the Fund's portfolio at any given time depends, in
part, on Dodge & Cox's assessment of economic and market conditions, the future
level of inflation and interest rates, and on the relative yields of securities
in the marketplace. Dodge & Cox normally invests in an array of securities with
short, intermediate and long maturities in varying proportions.
Purchases and sales of securities in the Fund are generally made for long-
term fundamental investment reasons rather than for short-term trading purposes.
Nevertheless, Dodge & Cox may sell any of the securities in the Fund, regardless
of the length of time held, in seeking to achieve the objectives of the Fund.
In seeking to achieve the objectives of the Fund, Dodge & Cox may purchase
securities on a when-issued basis, purchase or sell securities for delayed
delivery and lend portfolio securities. The Fund's investment policies as set
forth above may be changed without shareholder approval; however, these policies
will not be changed without notice to shareholders.
Dodge & Cox maintains a long-term investment orientation and therefore
anticipates a relatively low turnover rate, which, under normal circumstances,
should not exceed 50% on an annual basis. However, during rapidly changing
economic, political, and market environments, there may be more portfolio
changes than in a more stable period. A higher turnover rate might result in
increased transaction expenses and the realization of capital gains and losses.
5
<PAGE>
Characteristics and Risks of Securities and Investment Techniques
In seeking to meet its investment objectives, each Fund will invest in
securities or instruments whose investment characteristics are consistent with
the Fund's investment program. The following further describes the principal
types of portfolio securities and investment management practices of the Funds.
Common Stocks (Dodge & Cox Balanced Fund and Dodge & Cox Stock Fund).
---------------------------------------------------------------------
Stocks represent shares of ownership in a company. After other claims are
satisfied, common stockholders participate in company profits on a pro rata
basis; profits may be paid out in dividends or reinvested in the company to help
it grow. Increases and decreases in earnings are usually reflected in a
company's stock price, so common stocks generally have the greatest appreciation
and depreciation potential of all corporate securities.
Preferred Stocks. Each Fund may invest in preferred stocks. Generally,
-----------------
preferred stock has a specified dividend and ranks after bonds but before common
stocks in its claim on income for dividend payments and on assets should the
company be liquidated.
Convertible Securities and Warrants. The Funds may invest in debt or
------------------------------------
preferred equity securities convertible into or exchangeable for equity
securities. Traditionally, convertible securities have paid dividends or
interest at rates higher than common stock dividend rates but lower than
nonconvertible securities. They generally participate in the appreciation or
depreciation of the underlying stock into which they are convertible, but to a
lesser degree. In recent years, convertibles have been developed which combine
higher or lower current income with other features. Warrants are options to buy
a stated number of shares of common stock at a specified price anytime during
the life of the warrants (generally two or more years).
Foreign Securities. The Funds may invest in U.S. dollar-denominated
-------------------
securities of foreign issuers traded in the U.S. There are special risks in
foreign investing. Many of the risks are more pronounced for investments in
developing or emerging countries, such as many of the countries of Southeast
Asia, Latin America, Eastern Europe, and the Middle East. Each Fund has no
present intention of investing in developing or emerging countries.
Political and economic factors. Individual foreign economies of
certain countries may differ favorably or unfavorably from the United States'
economy in such matters as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency, and balance of payments
position. The internal politics of certain foreign countries are not as stable
as in the United States. In addition, significant external political risks
currently affect some foreign countries.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
effect on market prices of securities and payment of dividends. The economies
of many foreign countries are heavily dependent upon international trade and are
accordingly affected by protective trade barriers and economic conditions of
their trading partners. The enactment by these trading partners of
protectionist trade legislation could have a significant adverse effect upon the
securities markets of such countries.
Currency fluctuations. Although a Fund will invest in U.S. dollar-
denominated foreign securities, the underlying securities will be denominated in
various currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of a Fund's assets. Such changes will also affect a Fund's income.
Generally, when a given currency appreciates against the dollar (the dollar
weakens), the value of securities
6
<PAGE>
denominated in that currency will rise. When a given currency depreciates
against the dollar (the dollar strengthens), the value of securities denominated
in that currency would be expected to decline.
Investment and repatriation restrictions. Foreign investment in the
securities markets of certain foreign countries is restricted or controlled in
varying degrees. These restrictions may limit at times and preclude investment
in certain of such countries and may increase the cost and expenses of a Fund.
Investments by foreign investors are subject to a variety of restrictions.
These restrictions may take the form of prior governmental approval, limits on
the amount or type of securities held by foreigners, and limits on the types of
companies in which foreigners may invest. Additional or different restrictions
may be imposed at any time by these or other countries in which a Fund invests.
In addition, the repatriation of both investment income and capital from some
foreign countries is restricted and controlled under certain regulations,
including in some cases the need to obtain certain government consents.
Market characteristics. Foreign markets are generally not as
developed or efficient as, and may be more volatile than, those in the United
States. While growing in volume, they usually have substantially less volume
than U.S. markets and a Fund's portfolio securities may be less liquid and
subject to more rapid and erratic price movements than securities of comparable
U.S. companies. Equity securities may trade at price/earnings multiples higher
than comparable United States securities and such levels may not be sustainable.
Fixed commissions on foreign exchanges are generally higher than negotiated
commissions on United States exchanges. There is generally less government
supervision and regulation of foreign exchanges, brokers and listed companies
than in the United States. Moreover, settlement practices for transactions in
foreign markets may differ from those in United States markets. Such
differences may include delays beyond periods customary in the United States and
practices, such as delivery of securities prior to receipt of payment, which
increase the likelihood of a "failed settlement." Failed settlements can result
in losses to a Fund.
Information and supervision. There is generally less publicly
available information about foreign companies comparable to reports and ratings
that are published about companies in the United States. Foreign companies are
also generally not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to United States companies. It also may be more difficult to keep currently
informed of corporate actions which affect the prices of portfolio securities.
Taxes. The dividends and interest payable on certain of a Fund's
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to a Fund's
shareholders.
Other. With respect to certain foreign countries, there is the
possibility of adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of a Fund, political or social instability, or diplomatic
developments which could affect investments by U.S. persons in those countries.
U.S. Government Obligations. A portion of each Fund may be invested in
----------------------------
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Some of the obligations purchased by a Fund are backed by
the full faith and credit of the U.S. government and are guaranteed as to both
principal and interest by the U.S. Treasury. Examples of these include direct
obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and bonds,
or indirect obligations of the U.S. Treasury, such as obligations of the
Government National Mortgage Association, the Maritime Administration, the
Farmers Home Administration, the Veterans Administration, the Federal Housing
Administration and the Export-Import Bank.
7
<PAGE>
While the obligations of many of the agencies and instrumentalities of the
U.S. government are not direct obligations of the U.S. Treasury, they are
generally backed indirectly by the U.S. government. Some of the agencies are
indirectly backed by their right to borrow from the U.S. government, such as the
Federal Financing Bank, the Federal Home Loan Banks and the U.S. Postal Service.
Others are supported solely by the credit of the agency or instrumentality
itself, but are given additional support due to the U.S. Treasury's authority to
purchase their outstanding debt obligations. These agencies include the Federal
Farm Credit Banks, the Federal National Mortgage Association, the Federal Home
Loan Mortgage Corporation, and the Student Loan Marketing Association. No
assurance can be given that the U.S. government would provide financial support
to U.S. government established or sponsored agencies. Furthermore, with respect
to the U.S. government securities purchased by a Fund, guarantees as to the
timely payment of principal and interest do not extend to the value or yield of
these securities nor do they extend to the value of a Fund's shares. A Fund may
invest in these securities if it believes they offer an expected return
commensurate with the risks assumed.
Mortgage Pass-Through Securities (Dodge & Cox Balanced Fund and Dodge & Cox
---------------------------------------------------------------------------
Income Fund). Each Fund may invest a portion of its assets in mortgage pass-
- -------------
through securities which are guaranteed by an agency of the U.S. government or
are issued by a private entity. These securities represent ownership in "pools"
of mortgage loans and are called "pass-throughs" because principal and interest
payments are passed through to security holders monthly. The security holder
may also receive unscheduled principal payments representing prepayments of the
underlying mortgage loans. When a Fund reinvests the principal and interest
payments, it may receive a rate of interest which is either higher or lower than
the rate on the existing mortgage.
During periods of declining interest rates there is increased likelihood
that mortgage securities may be prepaid more quickly than expected. Such
prepayment would most likely be reinvested at lower rates. On the other hand, if
the pass-through securities had been purchased at a discount, then such
prepayments of principal would benefit the portfolio.
Conversely, in a rising interest rate environment, mortgage securities may
be prepaid at a rate slower than expected. In this case, the current cash flow
of the bond generally decreases. A slower prepayment rate effectively lengthens
the time period the security will be outstanding and may adversely affect the
price and volatility of the security.
Collateralized Mortgage Obligations (Dodge & Cox Balanced Fund and Dodge &
--------------------------------------------------------------------------
Cox Income Fund). Collateralized Mortgage Obligations (CMOs) are private
- -----------------
entity or U.S. government agency-issued multi-class bonds that are
collateralized by U.S. agency-guaranteed mortgage pass-through securities. A CMO
is created when the issuer purchases a collection of mortgage pass-through
securities (collateral) and places these securities in a trust, which is
administered by an independent trustee. Next, the issuer typically issues
several classes, or "tranches" of bonds, the debt service of which is provided
by the principal and interest payments from the mortgage pass-through securities
in the trust. Each of these tranches is valued and traded separately based on
its distinct cash flow characteristics. A Real Estate Mortgage Investment
Conduit (REMIC) is a CMO that qualifies for special tax treatment under the
Internal Revenue Code and invests in certain mortgages principally secured by
interests in real property and other permitted investments.
Although the mortgage pass-through collateral typically has monthly
payments of principal and interest, CMO bonds may have monthly, quarterly or
semiannual payments of principal and interest, depending on the issuer. Payments
received from the collateral are reinvested in short-term debt securities by the
trustee between payment dates on the CMO. On the CMO payment dates, the
principal and interest payments received from the collateral plus reinvestment
income, are applied first to pay interest on the bonds and then to repay
principal. In the simplest form, the bonds are retired sequentially; the first
payments of principal are applied to retire the first tranche, while all other
tranches receive interest only.
8
<PAGE>
Only after the first tranche is retired do principal payments commence on the
second tranche. The process continues in this sequence until all tranches are
retired.
At issuance, each CMO tranche has a stated final maturity date. The stated
final maturity date is the date by which the bonds would be completely retired
assuming standard amortization of principal but no prepayments of principal on
the underlying collateral. However, since it is likely that the collateral will
have principal prepayments, the CMO bonds are actually valued on the basis of an
assumed prepayment rate. The assumed prepayment rate is used in the calculation
of the securities' weighted-average life, a measure of the securities' cash flow
characteristics. Dodge & Cox will purchase the tranche with the weighted-
average life and cash flow characteristics that it believes will contribute to
achieving the objectives of a Fund.
All CMOs purchased by a Fund will be issued or guaranteed by an agency of
the U.S. government or have a AA rating by either S&P or Moody's. To qualify for
this rating, a CMO is structured so that even under conservative prepayment and
reinvestment assumptions, the principal and interest payments from the
collateral are expected to meet or exceed the cash flow obligations of all the
tranches of the CMO. However, there are risks associated with CMOs, which relate
to the risks of the underlying mortgage pass-through securities. In a falling
interest rate environment, the mortgage securities may be prepaid faster than
the assumed rate. In this scenario, the prepayments of principal will generally
be reinvested at a rate which is lower than the rate that the security holder is
currently receiving. Conversely, in a rising interest rate environment, the
mortgage collateral may be prepaid at a rate which is slower than the assumed
rate. In this case, the current cash flow of the bond generally decreases. A
reduced prepayment rate effectively lengthens the time period the security will
be outstanding and may adversely affect the price and volatility of the
security.
Restricted Securities (Dodge & Cox Balanced Fund and Dodge & Cox Income
-----------------------------------------------------------------------
Fund). The Fund may invest in restricted securities (privately placed debt and
- ------
preferred equity securities) and other securities without readily available
market quotations, but will not acquire such securities or other illiquid
securities, including repurchase agreements maturing in more than seven days, if
as a result they would comprise more than 15% (10%, Dodge & Cox Income Fund) of
the value of the Fund's total assets.
Restricted securities may be sold only in privately negotiated transactions
or in a public offering with respect to which a registration statement is in
effect under the Securities Act of 1933. Where registration is required, a Fund
may be obligated to pay all or a part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell. Restricted securities will be priced at fair value as
determined in good faith by the Trust's Board of Trustees.
Structured Investments (Dodge & Cox Balanced Fund and Dodge & Cox Income
------------------------------------------------------------------------
Fund). Included among the issuers of debt securities in which a Fund may invest
- ------
are entities organized and operated solely for the purpose of restructuring the
investment characteristics of various securities. These entities are typically
organized by investment banking firms which receive fees in connection with
establishing each entity and arranging for the placement of its securities.
This type of restructuring involves the deposit with or purchases by an entity,
such as a corporation or trust, of specified instruments and the issuance by
that entity of one or more classes of securities (structured investments) backed
by, or representing interests in, the underlying instruments. The cash flow on
the underlying instruments may be apportioned among the newly issued structured
investments to create securities with different investment characteristics such
as varying maturities, payment priorities or interest rate provisions; the
extent of the payments made with respect to structured investments is dependent
on the extent of the cash flow on the underlying instruments.
9
<PAGE>
Each Fund is permitted to invest in a class of structured investments that
is either subordinated or unsubordinated to the right of payment of another
class. Subordinated structured investments typically have higher yields and
present greater risks than unsubordinated structured investments. Although a
Fund's purchase of subordinated structured investments would have a similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leverage for purposes of the limitations
placed on the extent of a Fund's assets that may be used for borrowing
activities.
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, a Fund's investment in
these structured investments may be limited by the restrictions contained in the
1940 Act.
Inflation-Indexed Bonds (Dodge & Cox Balanced Fund and Dodge & Cox Income
-------------------------------------------------------------------------
Fund). Inflation-indexed bonds are fixed-income securities whose principal
- ------
value is periodically adjusted according to the rate of inflation. The real
(inflation-adjusted) interest rate on these bonds is fixed at issuance at a rate
generally lower than typical bonds. Over the life of an inflation-indexed bond,
however, interest will be paid based on a principal value which is adjusted for
inflation as measured by changes in the Consumer Price Index (CPI). The
securities will pay interest on a semi-annual basis, equal to a fixed percentage
of the inflation-adjusted principal amount.
If the value of the CPI falls, the principal value of inflation-indexed
bonds will be adjusted downward, and consequently the interest payable on these
securities (calculated with respect to a smaller principal amount) will be
reduced. Repayment of the originally issued principal amount upon maturity is
guaranteed by the U.S. Treasury. However, the current market value of the bonds
is not guaranteed, and will fluctuate. The Fund may also invest in other
inflation-related bonds which may or may not provide a similar guarantee. If
such a guarantee of principal is not provided, the adjusted principal value of
the bond repaid at maturity may be less than the original principal.
The U.S. Treasury began issuing inflation-indexed bonds (commonly referred
to as "TIPS" or Treasury Inflation Protected Securities) in 1997. As such, there
is a short trading history of these securities, and there can be no assurance
that a liquid market in these instruments will continue. Lack of a liquid market
may impose the risk of higher transaction costs and the possibility that a Fund
may be forced to liquidate positions when it would not be advantageous to do so.
There also can be no assurance that the U.S. Treasury will issue any particular
amount of inflation-indexed bonds.
The CPI is calculated monthly by the U.S. Bureau of Labor Statistics. The
CPI is a measurement of changes in the cost of living, made up of components
such as housing, food, transportation and energy. There can be no assurance that
the CPI will accurately measure the real rate of inflation in the prices of
goods and services.
Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity.
When-Issued or Delayed-Delivery Securities (Dodge & Cox Balanced Fund and
-------------------------------------------------------------------------
Dodge & Cox Income Fund). Each Fund may purchase securities on a when-issued or
- -------------------------
a delayed-delivery basis, that is, for payment and delivery on a date later than
normal settlement, but generally within 30 days.
The purchase price and yield on these securities are generally set at the
time of purchase. On the date that a security is purchased on a when-issued
basis, a Fund reserves liquid assets with a value at least as great as the
purchase price of the security, in a segregated account at the custodian bank,
as long as the obligation to purchase continues. The value of the delayed-
delivery security is reflected in a Fund's net asset value as of the purchase
date, however, no income accrues to a Fund from these securities prior to their
delivery to the Fund. A Fund makes such purchases for long-term investment
reasons, but may actually sell the securities prior to settlement date if Dodge
& Cox deems it advisable in seeking to achieve the objectives of the Fund. The
purchase of these types of securities may increase a Fund's overall
10
<PAGE>
investment exposure and involves a risk of loss if the value of the securities
declines prior to the settlement date. Unsettled securities purchased on a when-
issued or delayed-delivery basis will not exceed 5% of a Fund's total assets at
any one time.
Cash Position. Each Fund will hold a certain portion of its assets in U.S.
--------------
dollar-denominated money market securities, including repurchase agreements,
commercial paper, and bank obligations in the two highest rating categories
maturing in one year or less. For temporary, defensive purposes, a Fund may
invest without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new investments
and serves as a short-term defense during periods of unusual market volatility.
Bank Obligations. Certificates of deposit, bankers' acceptances, and
other short-term debt obligations. Certificates of deposit are short-term
obligations of commercial banks. A bankers' acceptance is a time draft drawn on
a commercial bank by a borrower, usually in connection with international
commercial transactions. Certificates of deposit may have fixed or variable
rates. A Fund may invest in U.S. banks, foreign branches of U.S. banks, U.S.
branches of foreign banks, and foreign branches of foreign banks.
Short-Term Corporate Debt Securities. Outstanding nonconvertible
corporate debt securities (such as bonds and debentures) which have one year or
less remaining to maturity. Corporate notes may have fixed, variable, or
floating rates.
Commercial Paper. Short-term promissory notes issued by corporations
primarily to finance short-term credit needs. Certain notes may have floating
or variable rates.
Repurchase Agreements. A Fund may enter into a repurchase agreement
through which an investor (such as a Fund) purchases a security (underlying
security) from a well-established securities dealer or bank that is a member of
the Federal Reserve System. Any such dealer or bank will be on Dodge & Cox's
approved list and have a credit rating with respect to its short-term debt of at
least A1 by S&P, P1 by Moody's, or the equivalent rating by Dodge & Cox. At that
time, the bank or securities dealer agrees to repurchase the underlying security
at the same price, plus specified interest. Repurchase agreements are generally
for a short period of time, often less than a week. Repurchase agreements which
do not provide for payment within seven days will be treated as illiquid
securities. A Fund will only enter into repurchase agreements where (i) the
underlying securities are issued by the U.S. government, its agencies and
instrumentalities, (ii) the market value of the underlying security, including
interest accrued, will be at all times equal to or exceed the value of the
repurchase agreement, and (iii) payment for the underlying security is made only
upon physical delivery or evidence of book-entry transfer to the account of the
custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, a Fund could experience both
delays in liquidating the underlying security and losses, including: (a)
possible decline in the value of the underlying security during the period which
the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of
income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
Borrowing Money. The Funds can borrow money from banks as a temporary
----------------
measure for emergency purposes or to facilitate redemption requests. Such
borrowing may be collateralized with Fund assets, subject to restrictions.
Lending of Portfolio Securities (Dodge & Cox Income Fund). The Fund has
----------------------------------------------------------
reserved the right to lend its securities to qualified broker-dealers, banks or
other financial institutions. By lending its portfolio securities, the Fund
would attempt to increase its income by receiving a fixed fee or a percentage of
the collateral, in addition to continuing to receive the interest or dividends
on the securities loaned. The terms, structure and the aggregate amount of such
loans would be consistent with the 1940 Act. The
11
<PAGE>
borrower would be required to secure any such loan with collateral in cash or
cash equivalents maintained on a current basis in an amount at least equal to
the total market value and accrued interest of the securities loaned by the
Fund. The Fund has no present intention of lending portfolio securities.
Investment Companies. The Funds can purchase the securities of other
---------------------
investment companies as permitted by the 1940 Act.
Additional Risks
----------------
General. Because of its investment policy, each Fund may not be
suitable or appropriate for all investors. The Funds are not money market funds
and are not appropriate investments for those whose primary objective is
principal stability. A Fund's assets will be subject to all of the risks of
investing in the financial markets. All investment entails risk. The value of
the portfolio securities of a Fund will fluctuate based upon market conditions.
Although a Fund seeks to reduce risk by investing in a diversified portfolio,
such diversification does not eliminate all risk. There can be no assurance
that a Fund will achieve its investment objectives.
Debt Obligations. A Fund will invest in debt securities which hold
the prospect of contributing to the achievement of a Fund's objectives. Yields
on short, intermediate, and long-term securities are dependent on a variety of
factors, including the general conditions of the money and bond markets, the
size of a particular offering, the maturity of the obligation, and the credit
quality and rating of the issue. Debt securities with longer maturities tend to
have higher yields and are generally subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities and lower
yields. The market prices of debt securities usually vary, depending upon
available yields. An increase in interest rates will generally reduce the value
of portfolio investments, and a decline in interest rates will generally
increase the value of portfolio investments. The ability of a Fund to achieve
its investment objectives is also dependent on the continuing ability of the
issuers of the debt securities in which a Fund invests to meet their obligations
for the payment of interest and principal when due. As discussed below, each
Fund's investment program permits it to hold investment-grade securities that
have been downgraded. In addition, the Dodge & Cox Income Fund may invest in
lower-quality securities. Since investors generally perceive that there are
greater risks associated with investment in lower-quality securities, the yields
from such securities normally exceed those obtainable from higher-quality
securities. However, the principal value of lower-rated securities generally
will fluctuate more widely than higher quality securities. Lower-quality
investments entail a higher risk of default--that is, the nonpayment of interest
and principal by the issuer--than higher-quality investments. Such securities
are also subject to special risks, discussed below. Although a Fund seeks to
reduce risk by portfolio diversification, credit analysis, and attention to
trends in the economy, industries and financial markets, these efforts will not
eliminate all risk.
After purchase by a Fund, a debt security may cease to be rated or its
rating may be reduced below the minimum required for purchase by a Fund.
Neither event will require a sale of such security by the Fund. However, Dodge
& Cox will consider such event in its determination of whether a Fund should
continue to hold the security. To the extent that the ratings given by Moody's
or S&P may change as a result of changes in such organizations or their rating
systems, a Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in the
Prospectus.
Special Risks of High-Yield Investing. As described above, under
limited circumstances, a Fund may hold low-quality bonds commonly referred to as
"junk bonds". Junk bonds are regarded as predominantly speculative with respect
to the issuer's continuing ability to meet principal and interest payments.
Because investment in low and lower-medium quality bonds involves greater
investment risk, to the extent a Fund holds such bonds, achievement of its
investment objective
12
<PAGE>
will be more dependent on Dodge & Cox's credit analysis than would be the case
if a Fund was investing in higher-quality bonds. High-yield bonds may be more
susceptible to real or perceived adverse economic conditions than investment-
grade bonds. A projection of an economic downturn, or higher interest rates, for
example, could cause a decline in high-yield bond prices because the advent of
such events could lessen the ability of highly leveraged issuers to make
principal and interest payments on their debt securities. In addition, the
secondary trading market for high-yield bonds may be less liquid than the market
for higher-grade bonds, which can adversely affect the ability of a Fund to
dispose of its portfolio securities. Bonds for which there is only a "thin"
market can be more difficult to value inasmuch as objective pricing data may be
less available and judgment may play a greater role in the valuation process.
MANAGEMENT OF THE FUND
- ----------------------
Officers and Trustees
The Trust is organized as a Delaware business trust. The Trust's Board of
Trustees supervises the Trust operations and performs duties required by
applicable state and Federal law.
<TABLE>
<CAPTION>
Total 1999
Position(s) Principal Occupation Compensation
Name and Address Age with Trust During Past 5 Years from the Trust**
- ------------------- ----- --------------- ---------------------------------- -----------------
<S> <C> <C> <C> <C>
Harry R. Hagey * 59 Chairman and Chairman and Chief Executive $0
Trustee Officer of Dodge & Cox
John A. Gunn * 56 President and President of Dodge & Cox 0
Trustee
A. Horton Shapiro * 60 Executive Vice Senior Vice President of Dodge & 0
President and Cox
Trustee
Katherine Herrick 46 Vice President Vice President of Dodge & Cox 0
Drake * and Trustee
Dana M. Emery * 38 Vice President Manager-Fixed Income and Senior 0
and Trustee Vice President of Dodge & Cox
Kenneth E. Olivier * 48 Vice President Senior Vice President of Dodge & 0
and Trustee Cox
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Total 1999
Position(s) Principal Occupation Compensation
Name and Address Age with Trust During Past 5 Years from the Trust**
- ------------------- ----- --------------- ---------------------------------- -----------------
<S> <C> <C> <C> <C>
L. Dale Crandall 58 Trustee President, Kaiser Foundation $ 3,375
One Kaiser Plaza Health Plan, Inc. and Kaiser
Oakland, CA Foundation Hospitals
(2000-Present); Executive Vice
President - Finance and
Administration & CFO, Kaiser
Foundation Health Plan, Inc. and
Kaiser Foundation Hospitals
(1998-2000); Executive Vice
President & CFO, APL Limited
(shipping) (1995-1998); Managing
Partner, Price Waterhouse LLP
(Southern California) (1990-1995)
Max Gutierrez, Jr. 69 Trustee Partner in Brobeck, Phleger & 13,500
One Market Plaza Harrison, Attorneys
San Francisco, CA
John B. Taylor 53 Trustee Professor of Economics and 15,000
Department of Director of the Center for
Economics Economic Policy Research,
Stanford University Stanford University
Stanford, CA
Will C. Wood 60 Trustee Principal, Kentwood Associates, 17,250
1550 El Camino Real Financial Advisers
Menlo Park, CA (1994-Present); Director, Banco
Latinoamericano de Exportaciones
S.A. (April 1999-Present) (Latin
American Foreign Trade Bank);
Director, Dover Investment Corp.
(1992-Present) (Real Estate
Development)
John M. Loll 33 Treasurer and Vice-President and Treasurer of 0
Assistant Dodge & Cox; prior to 2000, Fund
Secretary Administration and Accounting
Manager, Dodge & Cox
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Total 1999
Position(s) Principal Occupation Compensation
Name and Address Age with Trust During Past 5 Years from the Trust**
- ------------------- ----- --------------- ---------------------------------- -----------------
<S> <C> <C> <C> <C>
Thomas M. Mistele 46 Secretary and Vice-President, Secretary and 0
Assistant General Counsel of Dodge & Cox;
Treasurer prior to 1996, Senior Vice
President of Templeton Global
Investors, Inc. and
Secretary/General Counsel of the
Templeton Mutual Funds
</TABLE>
- -----------------------
* Each has been an employee of Dodge & Cox, 35th Floor, One Sansome
Street, San Francisco, California for over 12 years in an executive
position and is an "interested person" of the Trust as defined in the
1940 Act.
** "Total 1999 Compensation from the Trust" consists of compensation and fees
paid to Trustees by the Trust.
Trustees and officers of the Trust affiliated with Dodge & Cox hold a
controlling interest in Dodge & Cox. Those Trustees who are not affiliated with
Dodge & Cox receive from the Trust an annual fee of $4,500 and an attendance fee
of $2,250 (or $750 per Fund) for each Board or Committee meeting attended. The
Trust does not pay any other remuneration to its officers or Trustees, and has
no bonus, profit-sharing, pension or retirement plan. On March 31, 2000 the
officers and Trustees of the Trust and members of their families and relatives
owned less than 1.0% of the outstanding shares of each Fund.
On March 31, 2000, Charles Schwab & Co., 101 Montgomery Street, San
Francisco, CA 94104-4122 owned of record 9,082,711 shares (18.4%), 7,996,750
shares (10.4%) and 6,881,973 shares (7.9%) of the outstanding shares of Dodge &
Cox Stock Fund, Dodge & Cox Balanced Fund and Dodge & Cox Income Fund,
respectively; the State of Michigan 457 and 401(k) Plans, 200 Newport Ave.,
Quincy, MA 02170-1742 owned of record 2,570,564 shares (5.2%) of the
outstanding shares of Dodge & Cox Stock Fund; and National Financial Services
Inc., Church Street Station, P.O. Box 3908, New York, NY 10008-3908 and
Donaldson Lufkin & Jenrette-Pershing Division, P.O. Box 2052, Jersey City, NJ
07303-2052 owned of record 11,142,574 shares (12.7%) and 4,980,571 shares (5.7%)
of the outstanding shares of Dodge & Cox Income Fund, respectively. The Trust
knows of no other person who owns beneficially or of record more than 5% of the
outstanding shares of each Fund.
Investment Manager
Dodge & Cox, One Sansome Street, San Francisco, California 94104, a
corporation, is employed by the Trust as manager and investment adviser of the
Funds, subject to the direction of the Board of Trustees. Dodge & Cox is one of
the oldest professional investment management firms in the United States, having
acted continuously as investment managers since 1930 and has served as manager
and investment adviser for the Funds since each Fund's inception. Each Fund's
investments are managed by Dodge & Cox's Investment Policy Committee (the Fixed-
Income Strategy Committee for fixed-income securities), and no one person is
primarily responsible for making investment recommendations to the Committee.
The research work of the firm is organized for comprehensive and continuous
appraisal of
15
<PAGE>
the economy and of various industries and companies. Supplemental research
facilities are used to obtain additional coverage of business and financial
developments affecting comparative security values.
Dodge & Cox is not engaged in the brokerage business nor in the business of
dealing in or selling securities. Its activities are devoted to investment
research and the supervision of investment accounts for individuals, trustees,
corporations, pension and profit-sharing funds, public entities, and charitable
institutions. Dodge & Cox Stock Fund and Dodge & Cox Balanced Fund each pay
Dodge & Cox a management fee which is payable monthly at the annual rate of
0.50% of the average daily net asset value of each Fund. Dodge & Cox Income
Fund pays Dodge & Cox a management fee which is payable monthly at the annual
rate of 0.50% of the average daily net asset value of the Fund up to $100
million and 0.40% of the average daily net asset value of the Fund in excess of
$100 million.
The investment management agreements with Dodge & Cox Income Fund and Dodge
& Cox Stock Fund provide that Dodge & Cox will waive its fee for any calendar
year to the extent that such fee plus all other ordinary operating expenses paid
by the Fund exceed 1% and 0.75%, respectively, of the average daily net asset
value of the Fund. No waiver of management fee was required for 1999 under the
agreements. Investment management fees received by Dodge & Cox from the Funds
for the last three years were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Dodge & Cox Stock Fund $22,300,846 $22,197,066 $16,194,151
Dodge & Cox Balanced Fund 27,574,694 28,533,113 23,306,993
Dodge & Cox Income Fund 4,057,018 3,467,781 2,574,712
</TABLE>
The contracts may be terminated at any time without penalty upon 60 days written
notice by action of the Trustees, shareholders or by Dodge & Cox. The contracts
will terminate automatically should there be an assignment thereof. In addition
to Dodge & Cox's fee, each Fund pays other direct expenses, including transfer
agent, custodial, accounting, legal, and audit fees; costs of preparing and
printing prospectuses and reports sent to shareholders; registration fees and
expenses; proxy and shareholder meeting expenses; and Trustee fees and expenses.
In 1999, the ratio of total operating expenses to average net assets of Dodge &
Cox Stock Fund, Dodge & Cox Balanced Fund and Dodge & Cox Income Fund were
0.55%, 0.53% and 0.46%, respectively. Dodge & Cox furnishes personnel and other
facilities necessary for the operation of the Funds for which it receives no
additional compensation. Dodge & Cox supervises the operations of the Funds and
directs the investment and reinvestment of its assets and furnishes all
executive personnel and office space required.
Other Service Providers
Custodian and Transfer Agent
----------------------------
State Street Bank and Trust Company, P.O. Box 9051, Boston, Massachusetts
02205-9051 (1-800-621-3979), acts as custodian of all cash and securities of the
Funds and serves as fund accountant for the Funds. Boston Financial Data
Services, P.O. Box 9051, Boston, Massachusetts 02205-9051 (1-800-621-3979) acts
as transfer and dividend disbursing agent for the Funds.
Independent Accountant
----------------------
PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, California
94105, are independent accountants to the Funds, subject to annual appointment
by the Board of Trustees.
16
<PAGE>
PricewaterhouseCoopers LLP conducts an annual audit of the accounts and records
of each Fund, reports on the Fund's annual financial statements and performs tax
and accounting advisory services.
BROKERAGE ALLOCATION AND OTHER PRACTICES
- ----------------------------------------
The Investment Management Agreements provide that Dodge & Cox is
responsible for selecting members of securities exchanges, brokers and dealers
(brokers) for the execution of a Fund's portfolio transactions and, when
applicable, the negotiation of commissions. All decisions and placements are
made in accordance with the following principles:
1. Purchase and sale orders will usually be placed with brokers who are
selected by Dodge & Cox as able to achieve "best execution" of such orders.
Best execution means prompt and reliable execution at the most favorable
securities price, taking into account the other provisions hereinafter set
forth. The determination of what may constitute best execution and price in
the execution of a securities transaction by a broker involves a number of
considerations, including without limitation, the overall direct net
economic result to a Fund (involving both price paid or received and any
commissions and other costs paid), the efficiency with which the
transaction is effected, the ability to effect the transaction at all where
a large block is involved, availability of the broker to stand ready to
execute possibly difficult transactions in the future, and the financial
strength and stability of the broker. Such considerations are judgmental
and are weighed by Dodge & Cox in determining the overall reasonableness of
brokerage commissions.
2. In selecting brokers for portfolio transactions, Dodge & Cox takes into
account its past experience as to brokers qualified to achieve best
execution, including brokers who specialize in any foreign securities held
by a Fund.
3. Dodge & Cox is authorized to allocate brokerage business to brokers who
have provided brokerage and research services, as such services are defined
in Section 28(e) of the Securities Exchange Act of 1934 (1934 Act), for a
Fund and/or other accounts, if any, for which Dodge & Cox exercises
investment discretion (as defined in Section 3(a)(35) of the 1934 Act) and,
as to transactions as to which fixed minimum commission rates are not
applicable. Such allocation may cause a Fund to pay a commission for
effecting a securities transaction in excess of the amount another broker
would have charged for effecting that transaction, if Dodge & Cox
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by
such broker, viewed in terms of either that particular transaction or with
Dodge & Cox's overall responsibilities with respect to a Fund and the other
accounts, if any, as to which it exercises investment discretion. In
reaching such determination, Dodge & Cox is not required to place or
attempt to place a specific dollar value on the research or execution
services of a broker or on the portion of any commission reflecting
brokerage or research services. In demonstrating that such determinations
were made in good faith, Dodge & Cox will be prepared to show that all
commissions were allocated and paid for purposes contemplated by a Fund's
brokerage policy; that commissions were paid only for products or services
which provide lawful and appropriate assistance to Dodge & Cox in the
performance of its investment decision-making responsibilities; and that
the commissions paid were within a reasonable range. The determination that
commissions were within a reasonable range will be based on any available
information as to the level of commissions known to be charged by other
brokers on comparable transactions, but there will also be taken into
account a Fund's policies that (i) obtaining a low commission is deemed
secondary to obtaining a favorable securities price, since it is recognized
that usually it is more beneficial to a Fund to
17
<PAGE>
obtain a favorable price than to pay the lowest commission; and (ii) the
quality, comprehensiveness and frequency of research studies which are
provided for Dodge & Cox are useful to Dodge & Cox in performing its
advisory services under its Investment Management Agreement with a Fund.
Research services provided by brokers to Dodge & Cox are considered to be
in addition to, and not in lieu of, services required to be performed by
Dodge & Cox under its Investment Management Agreement. Research furnished
by brokers through whom a Fund effects securities transactions may be used
by Dodge & Cox for any of its accounts, and not all such research may be
used by Dodge & Cox for the Funds.
The receipt of investment research and information and related services
permits Dodge & Cox to supplement its own research and analysis and makes
available to Dodge & Cox the views and information of individuals and
research staffs of other firms. The views and information include such
matters as communications with persons having special expertise on certain
companies, industries, areas of economy or market factors and written
materials on these and other areas which might affect the economy or
securities prices.
Research services may also include information on the economy, industries,
groups of securities and individual companies; statistical information and
databases; accounting and tax law interpretations; political developments;
legal developments affecting portfolio securities; pricing and appraisal
services; issuer disclosure services; credit, risk measurement and
performance analysis; and analysis of corporate responsibility issues.
Research services are subject to internal analysis before being
incorporated into Dodge & Cox's investment process.
4. Purchases and sales of portfolio securities within the United States other
than on a securities exchange will be executed with primary market makers
acting as principal except where, in the judgment of Dodge & Cox, better
prices and execution may be obtained on a commission basis or from other
sources.
Insofar as known to management, no Trustee or officer of the Trust, nor
Dodge & Cox or any person affiliated with any of them, has any material direct
or indirect interest in any broker employed by or on behalf of a Fund. There is
no fixed method used in determining which brokers receive which order or how
many orders.
Periodically Dodge & Cox reviews the current commission rates and discusses
the execution capabilities and the services provided by the various brokers
Dodge & Cox is utilizing in the execution of orders. Research services
furnished by the brokers through whom Dodge & Cox effects security transactions
for a Fund may be used in servicing some or all of Dodge & Cox's accounts,
however, all such services may not be used by Dodge & Cox in connection with a
Fund. Aggregate brokerage commissions paid by Dodge & Cox Stock Fund and Dodge
& Cox Balanced Fund during the last three years were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Dodge & Cox Stock Fund $2,267,031 $2,033,477 $2,419,305
Dodge & Cox Balanced Fund 1,902,765 1,781,992 1,835,589
</TABLE>
In 1999 securities transactions allocated to brokers based on arrangements to
provide research services to Dodge & Cox Stock Fund and Dodge & Cox Balanced
Fund totaled $145,744,572 and $162,967,106, respectively, and brokerage
commissions paid on such transactions amounted to $227,456 and $227,681,
18
<PAGE>
respectively. Except as indicated above, Dodge & Cox does not intend to place
portfolio transactions with any particular brokers.
Investment decisions for a Fund are made independently from those of the
other Funds and other accounts managed by Dodge & Cox. It may frequently
develop that the same investment decision is made for more than one account.
Simultaneous transactions may often occur when the same security is suitable for
the investment objective of more than one account. When two or more accounts
are simultaneously engaged in the purchase or sale of the same security, the
transactions are averaged as to price and allocated as to amount in accordance
with a formula equitable to each account. It is recognized that in some cases
this system could have a detrimental effect on the price or availability of the
security as far as a Fund is concerned. In other cases, however, it is believed
that the ability of a Fund to participate in volume transactions will produce
better executions for the Fund.
CAPITAL STOCK
- -------------
The Trust has three classes of beneficial shares, each share evidences an
equal beneficial ownership in a Fund, and there is no limit to the number of
shares that may be issued. The three series of the Trust are successors to
Dodge & Cox Stock Fund established in 1965, Dodge & Cox Balanced Fund
established in 1931 and Dodge & Cox Income Fund established in 1989. All shares
have the same rights as to redemption, dividends, and in liquidation. All
shares issued are fully paid and non-assessable, are transferable, and are
redeemable at net asset value upon demand of the shareholder. Shares have no
preemptive or conversion rights. The Trust is not required to hold annual
meetings of shareholders.
PURCHASE, REDEMPTION, AND PRICING OF SHARES
- -------------------------------------------
The procedures for purchasing and redeeming shares of a Fund are described
in the Funds' Prospectus, which is incorporated herein by reference.
Net Asset Value per Share. The purchase and redemption price of a Fund's
shares is equal to a Fund's net asset value per share or share price. A Fund
determines its net asset value per share by subtracting a Fund's total
liabilities (including accrued expenses and dividends payable) from its total
assets (the market value of the securities a Fund holds plus cash and other
assets, including income accrued but not yet received) and dividing the result
by the total number of shares outstanding. The net asset value per share of a
Fund is normally calculated as of the close of trading on the New York Stock
Exchange (NYSE) every day the NYSE is open for trading. The NYSE is closed on
the following days: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
Determination of net asset value (and the offering, sale redemption and
repurchase of shares) for a Fund may be suspended when (a) the NYSE is closed,
other than customary weekend and holiday closings, (b) trading on the NYSE is
restricted, (c) an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for a Fund to fairly determine the value of its net assets, or (d) a
governmental body having jurisdiction over a Fund may by order permit such a
suspension for the protection of a Fund's shareholders; provided that applicable
rules and regulations of the Securities and Exchange Commission (SEC) (or any
succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b), (c), or (d) exist.
In determining total net asset value of a Fund, stocks are valued at
market, using as a price the last sale of the day at the close of the NYSE or,
if no sale, it will be valued at the mean between the bid and ask prices for the
day. Fixed-income securities, including listed issues, are priced on the basis
of
19
<PAGE>
valuations furnished by pricing services which utilize both dealer-supplied
valuations and electronic data processing techniques. These values take into
account appropriate factors such as institutional-size trading markets in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data and do not rely exclusively
upon exchange or over-the-counter listed prices. Use of the pricing service has
been approved by the Board of Trustees. 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 and all other assets are valued at fair value as
determined in good faith by or at the direction of the Board of Trustees.
Redemptions in Kind. The Funds reserve the right, if conditions exist which
make cash payments undesirable, to honor any request for redemption by making
payment in whole or in part in readily marketable securities chosen by a Fund
and valued as they are for purposes of computing a Fund's NAV (a redemption-in-
kind). If payment is made in securities, a shareholder may incur transaction
expenses in converting these securities to cash. The Funds have elected,
however, to be governed by Rule 18f-1 under the 1940 Act, as a result of which a
Fund is obligated to redeem shares, with respect to any one shareholder during
any 90-day period, solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund at the beginning of the period.
Foreign Investors. The Funds do not offer their shares for sale outside of
the United States.
TAXATION OF THE FUND
- --------------------
Each Fund intends to qualify each year as a regulated investment company
under the Internal Revenue Code. A regulated investment company that
distributes for the year all of its ordinary income and capital gains pays no
tax on its ordinary income or capital gains. A regulated investment company
that fails to distribute all of its ordinary income and capital gains must pay
tax on the undistributed amounts at a maximum rate of 35%.
You need to be aware of the possible tax consequences when:
. You sell Fund shares, including an exchange from one Fund to another.
. A Fund makes a distribution to your account.
Taxes on Fund redemptions. When you sell shares in a Fund, you may realize
a gain or loss. An exchange from one Fund to another is a sale for tax
purposes.
In January, you will be sent Form 1099-B, indicating the amount of sales
made in a Fund during the prior year. This information will also be reported to
the IRS. For certain accounts opened after September 30, 1987, the Funds will
provide you with the average cost of the shares sold during the year, based on
the "average cost single category" method. This information is not reported to
the IRS, and you do not have to use it. You may calculate the cost basis using
other methods acceptable to the IRS, such as the "specific identification"
method.
To help you maintain accurate records, you will be sent a confirmation
immediately following each transaction (except for systematic purchases) and
quarterly and year-end statements detailing all transactions in your account
during the year.
Taxes on Fund distributions. The following summary does not apply to
retirement accounts, such as IRAs, which are tax-deferred until shareholders
withdraw money from them.
20
<PAGE>
In January, you will be sent Form 1099-DIV indicating the tax status of any
distributions paid to you during the prior year. This information will also be
reported to the IRS. All distributions made by a Fund are taxable to you for
the year in which they were paid.
Short-term capital gain distributions are taxable as ordinary income and
long-term capital gain distributions are taxable at the applicable long-term
capital gain rate. If you realize a capital loss on the sale or exchange of
Fund shares held six months or less, your short-term capital loss is
reclassified to long-term to the extent of any long-term capital gain
distribution received with respect to such Fund shares.
Tax effect of buying shares before a capital gain or income distribution.
If you buy shares shortly before or on the "record date" for a Fund distribution
- -- the date that establishes you as the person to receive the upcoming
distribution -- you will receive, in the form of a taxable distribution, a
portion of the money you just invested. Therefore, you may wish to find out a
Fund's record date before investing. Of course, a Fund's share price may, at
any time, reflect undistributed capital gains or income and unrealized
appreciation. When these amounts are eventually distributed, they are taxable.
The discussion above and in the Funds' Prospectus regarding the Federal
income tax consequences of investing in a Fund have been prepared by Dodge & Cox
and do not purport to be complete descriptions of all tax implications of an
investment in a Fund. You are advised to consult with your own tax adviser
concerning the application of Federal, state and local taxes to an investment in
a Fund. The Trust's legal counsel has expressed no opinion in respect thereof.
PRINCIPAL UNDERWRITER
- ---------------------
The Trust is the sole and principal underwriter of the shares of the Funds.
PERFORMANCE INFORMATION
- -----------------------
Each Fund may include figures indicating its total return or yield in
advertisements or reports to shareholders or prospective investors. Quotations
of a Fund's average annual total rate of return will be expressed in terms of
the average annual compounded rate of return on a hypothetical investment in the
Fund over periods of one, five and ten years, will reflect the deduction of a
proportional share of Fund expenses (on an annual basis), will assume that all
dividends and capital gains distributions are reinvested when paid, and will be
calculated pursuant to the following formula:
P (1 + T)/n/ = ERV
where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years,
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
21
<PAGE>
The average annual total returns of the Funds for the one, five and ten-
year periods ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------- -------- ---------
<S> <C> <C> <C>
Dodge & Cox Stock Fund 20.20% 21.55% 15.48%
Dodge & Cox Balanced Fund 12.06 16.31 12.99
Dodge & Cox Income Fund -0.81 7.99 8.05
</TABLE>
Total return indicates the positive or negative rate of return that an investor
would have earned from reinvested dividends and distributions and changes in net
asset value per share during the period.
Quotations of yield, as defined by the SEC, will be based on net investment
income per share earned during a given thirty-day period and will be computed by
dividing this net investment income by the net asset value per share on the last
day of the period and annualizing the results according to the following
formula:
YIELD = 2[(a-b+1)/6/ -1]
---
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements or
waivers),
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
The Funds' current yields for the thirty days ended December 31, 1999 were
as follows:
Dodge & Cox Stock Fund 1.65%
Dodge & Cox Balanced Fund 3.59%
Dodge & Cox Income Fund 6.84%
Yield does not directly reflect changes in net asset value per share which
occurred during the period.
As appropriate, performance information for a Fund may be compared in reports
and promotional literature to: (i) the Standard & Poor's 500(R) Stock Index, the
Dow Jones Industrial Average, the Lehman Brothers Aggregate Bond Index, or
various other unmanaged indices of the performance of various types of
investments, so that investors may compare a Fund's results with those of
indices widely regarded by investors as representative of the security markets
in general, and (ii) the performance of other mutual funds. Unmanaged indices
may assume the reinvestment of income distributions, but generally do not
reflect deductions for administrative and management costs and expenses.
Performance information for a Fund reflects only the performance of
hypothetical investments in the Fund during the particular time periods on which
the calculations are based. Such information should not be considered as
representative of the performance of the Fund in the future because, unlike some
bank deposits or other investments which pay a fixed yield for a stated period
of time for a fixed-principal amount, the performance of the Fund will vary
based not only on the current market value of the securities held in its
portfolio, but also on changes in a Fund's expenses and in the asset size of a
Fund. Performance information should be considered in light of a Fund's
investment objectives and policies, the types and quality of a Fund's portfolio
investments, market conditions during the particular
22
<PAGE>
time period and operating expenses. Further information about the performance of
a Fund is contained in each Fund's Annual Report which may be obtained without
charge from the Fund. A Fund and Dodge & Cox may also refer to the following
information:
1. Portfolio information, including median market capitalization, price-
to-earnings ratio, price-to-book value, average bond quality, average
bond maturity, and effective bond duration.
2. The asset allocation and sector weightings of a Fund's portfolio and a
Fund's top ten holdings.
3. A description of the Dodge & Cox investment management philosophy and
approach.
FINANCIAL STATEMENTS
- --------------------
Please refer to each Fund's Financial Statements consisting of the
financial statements of the Fund and the notes thereto, and the report of
independent accountants contained in the Fund's 1999 Annual Report to
Shareholders. The Financial Statements and the report of independent accountants
(but no other material from the Annual Report) are incorporated herein by
reference. Additional copies of the Annual Report may be obtained from a Fund at
no charge by writing, visiting the Funds' web site at www.dodgeandcox.com, or
telephoning the Fund (1-800-621-3979).
23
<PAGE>
APPENDIX: RATINGS
- ------------------
A debt obligation rating by Moody's or S&P reflects their current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The purpose of the rating systems is to provide investors with a
simple system of gradation by which the relative investment qualities of bonds
may be noted. A rating is not a recommendation as to investment value, inasmuch
as it does not comment as to market price or suitability for a particular
investor.
The ratings are based on current information furnished by the issuer or
from other sources that the rating agencies deem reliable. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The following is a description of the characteristics of ratings as
published by Moody's and S&P.
RATINGS BY MOODY'S (MOODY'S INVESTORS SERVICE)
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modification 1 indicates that the security ranks in the higher end of its
generic rating group; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
group.
24
<PAGE>
RATINGS BY S&P (STANDARD & POOR'S RATINGS GROUP)
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated groups.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this group than in higher-rated groups.
BB, B Debt rated BB and B is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from AA to B may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
groups.
25
<PAGE>
DODGE & COX FUNDS
PART C - OTHER INFORMATION
Item 23. Exhibits:
(a) Trust Instrument *
(b) Bylaws *
(d) Investment Management Agreements **
(e) Distributing Agent Agreement
(g) Form of Custody Agreement **
(h) Form of Transfer Agency Agreement **
(i) Opinion and Consent of Counsel
(j)1 Consent of Independent Accountants
(j)2 Signatures/Power of Attorney ***
(k) Financial Data Schedules
Part A: Financial Highlights ****
Part B: Statements of Assets and Liabilities ****
Statement of Changes in Net Assets ****
Statements of Operations ****
Portfolios of Investments ****
(p) Code of Ethics
* Exhibits were filed with Post-Effective Amendment No. 62 and are
herein incorporated by reference.
** Exhibits were filed with Post-Effective Amendment No. 63 and are
herein incorporated by reference.
*** With the exception of the Power of Attorney for L. Dale Crandall
filed herein, the remaining exhibits were filed with Post-Effective
Amendment No. 63 and are herein incorporated by reference.
**** Incorporated by reference to similarly named financial
statements in Registrant's 1999 Annual Reports to Shareholders,
including Notes to Financial Statements and Report of Independent
Accountants. Registrant's 1999 Annual Reports dated December 31, 1999
were filed with the Commission on February 22, 2000 (File No. 811-
173).
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
<PAGE>
Item 25. INDEMNIFICATION
Section 10.02 of the Trust Instrument, filed as Exhibit 23(a) to this
Registration Statement, provides for indemnification of Trustees of
the Registrant.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provision, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustees, officers or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Registrant and Dodge & Cox maintain officers' and directors' liability
insurance in the amount of $20,000,000 with no deductible for the
Trust's officers and trustees and $250,000 deductible for the joint
insured entities.
Item 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
The only business of Dodge & Cox is to serve as the investment adviser
of the Registrant. Business backgrounds of the principal executive
officers and directors of the adviser who also hold positions with the
Registrant are included under "Management of the Fund - Officers and
Trustees" in Part B of the Registration Statement.
Item 27. PRINCIPAL UNDERWRITERS
The Registrant is the sole and principal underwriter of its shares of
beneficial interest.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
Dodge & Cox
One Sansome Street, 35th Floor
San Francisco, CA 94104
Boston Financial Data Services Inc.
66 Brooks Drive, Suite 1
Braintree, MA 01284
<PAGE>
State Street Bank and Trust Company
Lafayette Corporate Center, 4th Floor
Boston, Massachusetts 02101-0351
Item 29. MANAGEMENT SERVICES
None.
Item 30. UNDERTAKINGS
Registrant hereby undertakes to furnish to each person, to whom
Registrant's Prospectus is delivered, a copy of the most recent Annual
Report to Shareholders of the relevant portfolio upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this registration statement under rule 485(b)
under the Securities Act and has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of San Francisco and State of California on the 26th day
of April, 2000.
DODGE & COX FUNDS
*By: /s/ Harry R. Hagey
------------------
Harry R. Hagey
Chairman
(Principal Executive Officer)
*By: /s/ Thomas M. Mistele
---------------------
Thomas M. Mistele
as attorney-in-fact**
Dodge & Cox Funds is organized under a Trust Instrument dated February 13,
1998, a copy of which is on file with the Secretary of State of the State of
Delaware. The obligations of the Registrant hereunder are not binding upon any
of the Trustees, shareholders, nominees, officers, agents or employees of the
Registrant personally, but bind only the trust property of the Registrant as
provided in the Trust Instrument of the Registrant. The execution of this
Amendment to the Registration Statement has been authorized by the Trustees of
the Registrant and this Amendment to the Registration Statement has been signed
by an authorized officer of the Registrant, acting as such, and neither such
authorization by such Trustees nor such execution by such officer shall be
deemed to have been made by any of them personally, but shall bind only the
trust property of the Registrant as provided in its Declaration of Trust.
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Harry R. Hagey Chairman and Trustee April 26, 2000
- ------------------ (Principal Executive Officer)
Harry R. Hagey*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John M. Loll Treasurer April 26, 2000
- --------------------------- (Principal Financial and
John M. Loll* Accounting Officer)
/s/ John A. Gunn President and Trustee April 26, 2000
- ---------------------------
John A. Gunn*
/s/ A. Horton Shapiro Executive Vice President and Trustee April 26, 2000
- ---------------------------
A. Horton Shapiro*
/s/ Katherine Herrick Drake Vice President and Trustee April 26, 2000
- ---------------------------
Katherine Herrick Drake*
/s/ Dana M. Emery Vice President and Trustee April 26, 2000
- ---------------------------
Dana M. Emery*
/s/ Kenneth E. Olivier Vice President and Trustee April 26, 2000
- ---------------------------
Kenneth E. Olivier*
/s/ L. Dale Crandall Trustee April 26, 2000
- ---------------------------
L. Dale Crandall*
/s/ Max Gutierrez, Jr. Trustee April 26, 2000
- ---------------------------
Max Gutierrez, Jr.*
/s/ John B. Taylor Trustee April 26, 2000
- ---------------------------
John B.Taylor*
/s/ Will C. Wood Trustee April 26, 2000
- ---------------------------
Will C. Wood*
</TABLE>
* By: /s/ Thomas M. Mistele
---------------------
Thomas M. Mistele
Secretary
as attorney-in-fact**
** Powers of Attorney were filed with Post-Effective Amendment No. 63 and No.
66.
<PAGE>
DODGE & COX FUNDS
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<C> <S> <C>
ITEM 23(a) Trust Instrument * EX-99.(a)
ITEM 23(b) Bylaws * EX-99.(b)
ITEM 23(d) Investment Management Agreements ** EX-99.(d)
ITEM 23(e) Distributing Agent Agreement EX-99.(e)
ITEM 23(g) Form of Custody Agreement ** EX-99.(g)
ITEM 23(h) Form of Transfer Agency Agreement ** EX-99.(h)
ITEM 23(i) Opinion and Consent of Counsel EX-99.(i)
ITEM 23(j)1 Consent of Independent Accountants EX-99.(j)1
ITEM 23(j)2 Signatures/Power of Attorney *** EX-99.(j)2
ITEM 23(p) Code of Ethics EX-99.(p)
</TABLE>
* Exhibits were filed with Post-Effective Amendment No. 62 as EX-23.B1 and
EX-23.B2, respectively, and are herein incorporated by reference.
** Exhibits were filed with Post-Effective Amendment No. 63, and are herein
incorporated by reference.
*** With the exception of the Power of Attorney for L. Dale Crandall filed
herein, the remaining exhibits were filed with Post-Effective Amendment No. 63
and are herein incorporated by reference.
<PAGE>
EX-99.(e)
DODGE & COX FUNDS
DISTRIBUTING AGENT AGREEMENT
Sir/Madam:
Dodge & Cox Funds, a Delaware Business Trust ("we" "us" or "Trust"), is the
distributor of the shares of the Dodge & Cox family of mutual funds
(collectively, the "Funds" and individually, a "Fund"). As such, we have the
exclusive right to arrange for the sale of shares of the Funds to dealers or the
public, or both. We invite you to become a distributing agent to distribute
shares of the Funds upon the following terms and conditions.
1. Availability of Fund Shares. As distributor of the Funds, we agree to
cause the Funds to sell to, redeem from and exchange for you as agent for your
customers shares of beneficial interest ("Shares") of one or more Funds, subject
to the terms and conditions of this Distributing Agent Agreement (the
"Agreement"), the Funds' then-current prospectus, any limitations imposed by any
of the Funds or the investment advisor of the Funds. To the extent that a
prospectus contains provisions that are inconsistent with the terms of this
Agreement, the terms of the prospectus shall control.
2. Purchase and Sale of Fund Shares.
(a) The public offering price at which you may offer the Shares is the net
asset value thereof, as computed from time to time as described in the then-
current prospectus of the Fund. You agree to sell Shares of the Funds to your
clients subject to minimum investment requirements applicable to each order,
unless you register your client purchases in your name and omnibus account as
nominee. You understand that all orders are subject to acceptance or rejection
by us in our sole discretion.
(b) Each transaction is always made subject to confirmation by us at the
net asset value next computed after receipt of the order. You agree to notify
the Funds' transfer agent of any material differences within twenty (20)
Business Days of receipt of the confirmation or statement of transaction
activity. Subject to Section 2(e) below, orders to purchase, redeem and
exchange Fund Shares ("Orders") received by you prior to the close of regular
trading (the "Close of Trading") on the New York Stock Exchange (the "Exchange")
on any given business day (currently 4:00 p.m. Eastern time) (each a "Business
Day") and transmitted to the Funds' transfer agent by 8:00 p.m. Eastern time on
the same Business Day will be executed at the net asset value determined as of
the Close of Trading on the Business Day you received such Order. Any Order
received by you after the Close of Trading will be transmitted to the transfer
agent by 8:00 p.m. Eastern time on the next Business Day and will be executed at
the net asset value determined as of the Close of Trading on the next Business
Day.
(c) The day as of which an Order is executed pursuant to the provisions set
forth above is referred to as the "Trade Date".
<PAGE>
(d) Any Order by you for the purchase of shares of the Funds through us
shall be accepted at the time when it is received by us, the Funds' transfer
agent or any clearinghouse agency we may designate from time to time, unless
rejected by us or the Funds' transfer agent. We will not accept any Order from
you that is placed on a conditional basis or is subject to any delay or
contingency prior to execution.
(e) Shares will be issued by the Funds only against receipt of the purchase
price. If payment for Shares purchased is not received by the Funds' transfer
agent by wire transfer (or if such purchase is processed through a clearinghouse
agency approved by us, in collected clearinghouse agency funds) on the Business
Day next following the Trade Date ("T+1"), such Order will be delayed without
any responsibility or liability on our part or on the part of the Funds or the
Funds' transfer agent and such Order will be executed at the net asset value
next computed following receipt of payment. You shall be responsible for any
loss, expense, liability or damage, including loss of profit suffered by us and
/or the respective Funds resulting from your delay or failure to make timely
payment for such Shares.
(f) You agree not to withhold placing Orders received from any customers
for the purchase or sale of Shares so as to profit yourself as a result of such
withholding. You shall not purchase Shares through us except for the purpose of
covering purchase orders received by you. You agree to purchase Shares only
from us or your customers. If you purchase Shares from your customers, you
agree to pay such customers not less than the applicable redemption price as
established by the Fund's then-current prospectus (i.e., the currently quoted
net asset value).
(g) The procedures relating to the processing and settlement of Orders
shall be subject to such instructions, service or operating agreements as we may
forward to you from time to time.
3. Qualification as a Broker or Dealer or a Bank. You represent that you
either (i) are registered as a broker and/or dealer under the Securities
Exchange Act of 1934, as amended, and are licensed and qualified as a broker
and/or dealer or are otherwise authorized to offer and sell the Shares under the
laws of each jurisdiction in which the Shares will be offered and sold by you,
and that you are a member of the National Association of Securities Dealers,
Inc. ("NASD") and agree to maintain such membership (or in the alternative, that
you are a foreign dealer not eligible for membership in the NASD); or (ii) are a
bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, as
amended, and in either case are duly authorized to engage in the activities to
be performed by you hereunder. You further represent that your agents and
employees are and will remain duly registered and licensed to the extent
required under applicable state and federal law. You agree to abide by all
applicable state and federal laws and the rules and regulations of the
Securities and Exchange Commission ("SEC"), the NASD, and any other authorized
regulatory agency as such laws and rules apply to a national bank that are
binding upon underwriters and dealers in the distribution of securities of open-
end investment companies, including, without limitation, Rule 2830 (formerly
Article III, Section 26) of the NASD Rules of Fair Practice, all of which are
incorporated herein as if set forth in full. You agree not to sell or offer for
sale Shares in any state or jurisdiction where they have not been qualified for
sale or in which you are not qualified as a broker, dealer or bank. You agree to
notify us immediately if you cease to be registered or licensed as a broker
and/or dealer or fail to remain as a member in good standing of the NASD, or if
you cease to be a bank, as defined above.
2
<PAGE>
4. Selling Procedures and Sales Materials.
(a) "Sales Material", as used herein, shall include, without limitation,
promotional materials, sales literature, advertisements, press releases,
announcements, research reports, market letters, performance reports or
summaries, and other similar materials, including sales materials intended for
wholesale use (i.e. broker/dealer use only) or retail use.
(b) Neither you nor any person associated with you shall give any
information or make any representation concerning the Funds or the Shares except
those contained in the then-current prospectus or any Sales Materials furnished
by us or approved by us in writing in advance for use in connection therewith
(except that Sales Materials provided by us that are designated as being for
broker/dealer use only may not be disseminated to the public). Any Sales
Materials, if distributed, must be accompanied by or preceded by, the
appropriate Fund's then-current form of prospectus. You agree that any
information given or representations made on the basis of any Sales Materials
shall be consistent with the related information and representations contained
in the applicable Fund prospectus.
(c) You agree to use your best efforts in the proper instruction and
training of all sales personnel employed by you in order that the Shares will be
offered in accordance with the terms and conditions of this Agreement and all
applicable laws, rules and regulations. You agree to hold us, our affiliates,
and the Funds, and our respective agents and employees, harmless and indemnify
us against any direct liability, loss or cost to us and/or the Funds in the
event you or any of your representatives should violate any applicable law, rule
or regulation, or any provisions of this Agreement, if such violation results in
any liability, loss or cost to us and/or the Funds, except to the extent such
liability, loss or cost is caused by our gross negligence or bad faith.
(d) We shall furnish you, without charge, reasonable quantities of
prospectuses, statements of additional information, periodic reports to
shareholders and proxy statements of the Funds, and any supplemental materials
to any of the foregoing. You shall deliver copies of the above materials to
customers and potential customers in accordance with applicable law and the
rules and regulations of the SEC. In the purchase of Shares through us, you are
entitled to rely only on the information contained in the prospectuses and
statements of additional information.
5. Additional Covenants and Representations.
(a) Each party shall comply with all provisions of federal and state laws
applicable to its respective activities under this Agreement. All obligations
of each party under this Agreement are subject to compliance with applicable
federal and state laws.
(b) You covenant and agree that all Orders transmitted to us, whether by
telephone, telecopy, or other electronic transmission acceptable to us, shall be
sent by or under the authority and direction of a person designated by you as
being duly authorized to act on behalf of the owner of the Shares held in your
accounts for your customers' benefit. We shall be entitled to rely on the
existence of such authority and to assume that any person transmitting Orders
for the purchase, redemption or transfer of Fund shares on behalf of you is "an
appropriate person" as used in Sections 8-107 and 8-401 of the Uniform
Commercial Code with respect to the transmission of instructions regarding Fund
Shares on behalf of the owner of such Fund Shares. You shall maintain the
confidentiality of all passwords and security procedures issued, installed or
otherwise put in place with respect to the use of remote computer terminals and
assume full
3
<PAGE>
responsibility for the security therefor. You further agree to be responsible
for the accuracy of all data transmitted to us by you by telephone, telecopy or
other electronic transmission acceptable to us.
(c) You represent and warrant that (i) this Agreement has been duly
authorized by all necessary corporate action and, when executed and delivered,
shall constitute your legal, valid and binding obligation, enforceable in
accordance with its terms; and (ii) your activities as contemplated by this
Agreement comply with all provisions of federal and state securities laws
applicable to you and to such activities.
(d) We represent and warrant that (i) this Agreement has been duly
authorized by all necessary corporate action and, when executed and delivered,
shall constitute our legal, valid and binding obligation, enforceable in
accordance with its terms; (ii) Shares of the Funds are registered and
authorized for sale in accordance with all federal and state securities laws;
and (iii) the prospectus of each Fund complies in all material respects with
federal and state securities laws.
6. Relationship of Parties. You understand and agree that in performing
your services covered by this Agreement, you are acting as agent for your
customers, and we are in no way responsible for the manner of your performance
or for any of your acts or omissions in connection therewith. Nothing in this
Agreement shall be construed to constitute us or any of our agents, employees or
representatives as your agent, partner, or employee. As distributor of the
Funds, we shall have full authority to take such action as we deem advisable in
respect of all matters pertaining to the distribution of the Shares. We shall
not be under any obligation to you, except for obligations expressly assumed by
us under this Agreement.
7. Indemnity.
(a) We agree to indemnify and hold harmless you and your officers,
directors, employees, agents, affiliates and each person, if any, who controls
you within the meaning of the Securities Act of 1933 (collectively, the
"Indemnified Parties" for purposes of this Section 7(a)) against any losses,
claims, expenses, damages, or liabilities (including amounts paid in settlement
thereof) or litigation expenses (including legal and other expenses)
(collectively, "Losses"), to which the Indemnified Parties may become subject,
insofar as such Losses result from a breach by us of a material provision of
this Agreement. We will reimburse any legal or other expenses reasonably
incurred by the Indemnified Parties in connection with investigating or
defending any such Losses. We shall not be liable for indemnification hereunder
if such Losses are attributable to your negligence or misconduct in performing
your obligations under this Agreement.
(b) You agree to indemnify and hold harmless us and the Funds, and our
officers, trustees, employees, agents, affiliates and each person, if any, who
controls us or the Funds within the meaning of the Securities Act of 1933
(collectively, the "Indemnified Parties" for purposes of this Section 7(b))
against any Losses to which the Indemnified Parties may become subject, insofar
as such Losses result from a breach by you of a material provision of this
Agreement. You agree to reimburse any legal or other expenses reasonably
incurred by the Indemnified Parties in connection with investigating or
defending any such Losses. You shall not be liable for indemnification
hereunder if such Losses are attributable to our negligence or misconduct in
performing our obligations under this Agreement.
4
<PAGE>
(c) Promptly after receipt by an Indemnified Party hereunder of notice of
the commencement of action, such Indemnified Party will, if a claim in respect
thereof is to be made against the Indemnifying Party hereunder, notify the
Indemnifying Party of the commencement thereof; but the omission so to notify
the Indemnifying Party will not relieve it from any liability which it may have
to any Indemnified Party otherwise than under this Section 7. In case any such
action is brought against any Indemnified Party, and it notifies the
Indemnifying Party of the commencement thereof, the Indemnifying Party will be
entitled to participate therein and, to the extent that it may wish to, assume
the defense thereof, with counsel satisfactory to such Indemnified Party, and
after notice from the Indemnifying Party to such Indemnified Party of its
election to assume the defense thereof, the Indemnifying Party will not be
liable to such Indemnified Party under this Section 7 for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation.
(d) If the Indemnifying Party assumes the defense of any such action, the
Indemnifying Party shall not, without the prior written consent of the
Indemnified Parties in such action, settle or compromise the liability of the
Indemnified Parties in such action, or permit a default or consent to the entry
of any judgment in respect thereof, unless in connection with such settlement,
compromise or consent, each Indemnified Party receives from such claimant an
unconditional release from all liability in respect of such claim.
(e) The Trust Instrument, a copy of which, together with all amendments
thereto, is on file in the Office of the Secretary of State of the State of
Delaware, provides that the name "Dodge & Cox Funds" refers to the Trustees
under the Trust Instrument collectively as Trustees and not as individuals or
personally, and that no shareholder of the Fund, or Trustee, officer, employee
or agent of the Trust, shall be subject to claims against or obligations of the
Trust or of the Fund to any extent whatsoever, but that the Trust estate only
shall be liable. You are hereby expressly put on notice of the limitation of
liability as set forth in the Trust Instrument and you agree that the
obligations assumed by the Trust on behalf of the Fund pursuant to this
Agreement shall be limited in all cases to the Fund and its assets, and you
shall not seek satisfaction of any such obligation from the shareholders or any
shareholder of the Fund or any other series of the Trust, or from any Trustee,
officer, employee or agent of the Trust. You understand that the rights and
obligations of each Fund, or series, under the Trust Instrument are separate and
distinct from those of any and all other series.
8. Amendment. This Agreement may be amended by mutual agreement of the
parties in writing.
9. Termination. Either of us may cancel this Agreement upon 30 days'
prior written notice to the other. This Agreement shall terminate automatically
without notice if you cease to be a member of the NASD or such time as you cease
to be a bank, as defined above. We reserve the right, in our sole discretion
and without prior notice, to suspend sales of Shares of the Funds in any state
or other jurisdiction, or to withdraw entirely the offering of Shares of the
Funds, or to modify or amend the terms of our offering of Fund Shares.
10. Notices and Communications. All communications and notices to us
should be sent to the address set forth below. Any communication or notice to
you will be mailed to you at the address specified by you below or will be sent
by telecopy if a phone number is provided below.
5
<PAGE>
If to us: Dodge & Cox Funds
One Sansome Street, 35th Floor
San Francisco, California 94104
Phone: (415) 274-9354
Fax: (415) 986-8126
E-Mail: [email protected]
Attn: Marian Z. Baldauf
With a copy to: General Counsel
If to you:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
Phone:
--------------------------
Fax:
--------------------------
Attn:
--------------------------
11. Assignability. This Agreement is not assignable or transferable,
except that we may, with respect to any Fund or Funds, assign or transfer it to
any successor of ours that becomes general distributor of such Fund or Funds.
12. Confidentiality. We agree not to use any information provided to us
by you about your customers for any purpose except as necessary to comply with
the provisions of this Agreement; provided, however, that we may use any such
--------- -------
information which we already possess or later receive through any other source,
including the purchase of potential client lists from third parties, as we deem
fit.
13. Choice of Law. This Agreement shall be governed by and its provisions
shall be construed in accordance with the laws of the State of Delaware (without
reference to conflicts of laws principles).
6
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your agreement to and acceptance thereof by signing below, whereupon this
Agreement shall become a binding agreement between us as of the latest date
indicated.
Dated: , 200 DODGE & COX FUNDS
---------- --
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
We agree to and accept the terms of the foregoing Agreement.
Dated: , 200 ----------------------------------
---------- -- (Distributing Agent)
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
7
<PAGE>
EX-99.(i)
DECHERT PRICE & RHOADS
1775 Eye Street, N.W.
Washington, D.C. 20006
April 19, 2000
Dodge & Cox Funds
One Sansome Street
San Francisco, CA 94104
Ladies and Gentlemen:
As counsel for Dodge & Cox Funds (the "Trust"), comprising Dodge & Cox
Stock Fund, Dodge & Cox Income Fund and Dodge & Cox Balanced Fund (the "Funds"),
we are familiar with the Trust's registration under the Investment Company Act
of 1940 (File No. 811-173) and with the registration statement relating to the
shares of beneficial interest in the Funds (the "Shares") under the Securities
Act of 1933 (File No. 2-11522) (the "Registration Statement"). We also have
examined the Trust Certificate, Trust Instrument and Bylaws of the Trust, and
such other records, agreements, documents and instruments as we deemed
appropriate.
Based upon the foregoing, it is our opinion that the Shares registered
pursuant to the Trust's Registration Statement will, when sold and delivered by
the Trust against receipt of the net asset value of the Shares in accordance
with the terms of the Registration Statement and the requirements of applicable
law, have been duly and validly authorized, legally and validly issued, and
fully paid and non-assessable by the Trust.
We consent to the filing of this opinion in connection with Post-Effective
Amendment No. 66 to the Registration Statement to be filed with the Securities
and Exchange Commission.
Very truly yours,
/s/ Dechert Price & Rhoads
<PAGE>
EX-99.(j)1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 66 to the registration statement on Form N-1A (the "Registration
Statement") of Dodge & Cox Funds (a Delaware Business Trust) of our reports
dated January 26, 2000, relating to the financial statements and financial
highlights appearing in the December 31, 1999 Annual Reports to Shareholders of
Dodge & Cox Balanced Fund, Dodge & Cox Stock Fund, and Dodge & Cox Income Fund,
which are also incorporated by reference into the Registration Statement. We
also consent to the reference to us under the heading "Financial Highlights" in
the Prospectus and under the heading "Independent Accountant" in the Statement
of Additional Information.
PricewaterhouseCoopers LLP
San Francisco, California
April 19, 2000
<PAGE>
EX-99.(j)2
DODGE & COX FUNDS
(a Delaware Business Trust)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned constitutes
and appoints Harry R. Hagey, Kenneth E. Olivier, W. Timothy Ryan and Thomas M.
Mistele, and each of them, his/her true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution for him/her in his/her name,
place and stead, in any and all capacities, to sign the registration statement
of Dodge & Cox Funds and any and all amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as
he/she might or could do in person, hereby ratifying and conforming all that
said attorneys-in-fact and agents, or any of them, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Date Signature Date
- --------- ---- --------- ----
<S> <C> <C> <C>
/s/ L. Dale Crandall September 9, 1999
_______________________ ____________________ ________________________ _________________
Katherine Herrick Drake L. Dale Crandall
_______________________ ____________________ ________________________ _________________
Dana M. Emery Max Gutierrez, Jr.
_______________________ ____________________ ________________________ _________________
John A. Gunn John B. Taylor
_______________________ ____________________ ________________________ _________________
Harry R. Hagey Will C. Wood
_______________________ ____________________
Kenneth E. Olivier
_______________________ ____________________
W. Timothy Ryan
_______________________ ____________________
A. Horton Shapiro
</TABLE>
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
EX-99.(p)
DODGE & COX CODE OF ETHICS
AND
POLICY STATEMENT ON INSIDER TRADING
PART 1 - STATEMENT OF PRINCIPLES
Dodge & Cox and the series of Dodge & Cox Funds (the "Dodge & Cox Funds" or
the "Funds") (collectively, the "Dodge & Cox Group") have adopted this Code of
Ethics (the "Code") and Policy Statement on Insider Trading (the "Insider
Trading Policy")./1/
The nature of our business places all directors, trustees, officers,
employees, and affiliated retired officers of the Dodge & Cox Group in a
fiduciary position. We must accept certain limitations as to our freedom of
action with regard to personal financial matters. Our financial interest must
at all times be subordinated to those of Dodge & Cox's clients.
It is impossible to anticipate every circumstance which could, in fact or
in theory, cause a conflict of interest between any affiliated retired officer,
director, trustee, officer, or employee of the Dodge & Cox Group and clients of
Dodge & Cox. Many of these are covered in the Code. If there is any doubt in
your mind as to whether or not a possible conflict of interest is involved, you
should consult the Chairman of the Board (HRH), President (JAG), Senior Vice
President (KEO), or the Compliance Officer (TMM) of Dodge & Cox. Any information
received in this connection will be held in strict confidence.
In addition, the use of inside information to trade in securities or to
benefit in any way is strictly forbidden. Part 12, Insider Trading Policy,
highlights our policy on insider trading and the procedures in place to prevent
it.
PART 2 - CONSEQUENCES OF NON-COMPLIANCE
You are reminded that compliance with the letter and intent of the Code and
Insider Trading Policy is essential to your continued affiliation with the Dodge
& Cox Group. Any violation of the Code or Insider Trading Policy, including
engaging in a prohibited transaction or failing to file required reports, may
result in disciplinary action, and, when appropriate, termination of employment.
- ------------------
/1/ This document was adopted to comply with Securities and Exchange Commission
rules under the Investment Company Act of 1940, the Investment Advisors Act of
1940, the Insider Trading and Securities Fraud Enforcement Act of 1988, industry
practice and recommendations of the ICI Blue Ribbon Committee.
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
PART 3 - CODE OF ETHICS
3.1. Who Is Covered By The Code And How Does It Work?
-----------------------------------------------
The Code covers all "access persons," that is the directors, trustees
(other than independent trustees of Dodge & Cox Funds/2/), officers, employees
and affiliated retired officers of the Dodge & Cox Group. The Code works by
prohibiting some transactions and requiring pre-clearance and reporting of most
others.
In the case of independent trustees of Dodge & Cox Funds, you do not have
to pre-clear your security transactions or file initial and annual holdings
reports. Because an independent trustee is not involved in making investment
decisions, the Code does not apply unless the independent trustee knows that a
Fund transaction in a particular security is under consideration.
3.2. What Accounts And Transactions Are Covered?
------------------------------------------
The Code covers all of your personal securities accounts and transactions.
It also covers all securities and accounts in which you have "beneficial
ownership" or any direct or indirect influence or control. A transaction by or
for the account of your spouse or any other family member living in your home is
considered to be the same as a transaction by you. Also, a transaction for any
account in which you have any economic interest (other than the account of an
unrelated client) is generally considered the same as a transaction by you. For
example, if you invest in a corporation or other entity that invests in
securities, that entity's securities transactions are considered yours, if you
control the entity or have or share control over its investments (e.g.,
----
investment clubs). In a similar way, securities transactions of a trust or
foundation in which you have an economic interest and of which you are a
trustee, settlor, or beneficiary are considered yours if you have voting or
investment control of its assets. If it is not clear whether a particular
account or transaction is covered, you must ask the Compliance Officer for
guidance.
3.3 What Securities Are Not Covered By The Code?
-------------------------------------------
You do not need to pre-clear or report transactions in: (i) securities that
are direct obligations of the U.S. Government; (ii) CDs, bankers' acceptances,
commercial paper and high quality short-term debt instruments, including
repurchase agreements; and (iii) shares of registered open-end investment
companies.
- ------------------
/2/ The term "access persons" does not include trustees of Dodge & Cox Funds
who are not "interested persons" of the Trust under the Investment Company Act
of 1940, unless they knew or should have known that during the 15-day period
before or after a transaction, the security was purchased or sold, or considered
for purchase or sale by a Fund or by Dodge & Cox on behalf of a Fund. These
trustees may obtain periodic updates of investment decisions after the Funds
have effected these transactions.
2
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
3.4. What Transactions Are Prohibited By The Code?
--------------------------------------------
A. Front-running: Trading Ahead of a Fund or Client.
-------------------------------------------------
You cannot front-run any trade of a Fund or client. The term "front-
run" means trading on the basis of non-public market information regarding a
contemplated transaction by a Fund or client, whether or not your trade and the
Fund's or client's trade take place in the same market. Thus, you may not (i)
purchase a security if you intend, or know of the Dodge & Cox Group's intention,
to purchase that security or a related security on behalf of a Fund or client,
or (ii) sell a security if you intend, or know the Dodge & Cox Group's
intention, to sell that security or a related security on behalf of a Fund or
client. In addition to other penalties that might apply, you will be expected to
give up any profits on front-running transactions to the Dodge & Cox Group for
the benefit of the affected Funds or other clients.
B. Scalping.
--------
You cannot purchase a security with the intention of recommending that
the security be purchased for a Fund or client in a manner that results in a
profit for you.
C. Trading Parallel to a Fund or Client.
------------------------------------
You cannot buy a security if you know that the same or a related
security is being bought by a Fund or client, or sell a security if you know
that the same or a related security is being sold by a Fund or client.
D. Trading Against a Fund or Client.
--------------------------------
You cannot (i) buy a security if you know that a Fund or client is
selling the same or a related security, or has sold the security within the
periods provided in Part 4.1.A of the Code or (ii) sell a security if you know
that a Fund or client is buying the same or a related security, or has bought
the security within the periods provided in Part 4.1.A of the Code. In
addition, to other penalties that might apply, you will be expected to give up
any profits you make from trading against a Fund or a client to the Dodge & Cox
Group for the benefit of the affected Funds or clients.
E. Use of Proprietary Information.
------------------------------
You cannot buy or sell any security if you have information obtained
in the course of your employment with the Dodge & Cox Group concerning the
security which you have not reported to the Chairman, President, Senior Vice
President or Compliance Officer.
3
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
F. Securities Sold in an Initial Public Offering and Options.
---------------------------------------------------------
You cannot buy securities in any initial public offering, or a
secondary offering by an issuer or transact in options unless you get prior
approval of the Chairman, President, Senior Vice President or Compliance Officer
of the Dodge & Cox Group.
G. Interests in Partnerships, Limited Offerings/3//Private Placements,
-------------------------------------------------------------------
Futures, Short Sales and Commodity Contracts.
--------------------------------------------
You cannot acquire limited partnership interests, private placements,
futures, short sales or commodity contracts unless you get prior approval of the
Chairman, President, Senior Vice President or Compliance Officer of the Dodge &
Cox Group. Under normal circumstances, investments with short-term investment
horizons are discouraged.
H. Short-Term Trading.
------------------
You cannot engage in short-term trading (e.g., purchase and sale or
----
sale and purchase of the same (or equivalent) securities within sixty (60)
calendar days unless you get prior approval of the Chairman, President, Senior
Vice President or Compliance Officer of the Dodge & Cox Group.
3.5. Definitions.
-----------
"Access Persons" include: (i) all officers, directors, trustees (other
than independent trustees of Dodge & Cox Funds as defined above) and employees
of entities in the Dodge & Cox Group; and (ii) all retired officers who have
access to information about investments of a Dodge & Cox Fund or Client Account.
"Client Account" means any Securities account or portfolio managed or
directed by Dodge & Cox including Dodge & Cox Funds.
"Personal Account" means any Securities account or portfolio in which an
Access Person has any direct or indirect influence or control for his/her own
benefit or for the benefit of his/her spouse or others, as well as any account
of the Access Person's spouse, minor children or other relatives residing with
or supported by the Access Person whether or not the Access Person has any
influence or control over such account.
"Security(ies)" is any Security other than direct obligations of the United
States Government, CD's, bankers' acceptances, commercial paper and high
quality/4/ short-term debt instruments, including repurchase agreements, and
shares of registered open-end investment companies.
- ------------------
/3/ An offering that is exempt from registration under the Securities Act of
1933 pursuant to section 4(2) or section 4(6) or pursuant to Rule 504, 505 or
506 or under the Securities Act of 1933.
/4/ Rated within the top two rating categories and with a maturity of less than
366 days.
4
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
"Transaction(s)" is defined as a purchase, sale, or any other type of
acquisition or disposition of any Security, including those of private
companies. A gift of a Security to a charitable organization or to an
individual is considered a sale and must be reported. Similarly, the receipt of
Securities by gift or otherwise is considered a purchase and must be reported.
Stock splits, stock dividends and name changes need not be reported.
3.6. Restrictions On Trading.
-----------------------
Access Persons are encouraged in their personal accounts to choose
investments in keeping with a long-term investment horizon. Dodge & Cox
strongly discourages short-term trading.
Dodge & Cox does not wish to have Access Persons distracted by trading
activities and believes that such activities invariably would detract from an
Access Person's value to Dodge & Cox, the Funds, and its clients.
Similarly, Access Persons are encouraged to manage their personal
investments in such a manner that the performance of one particular investment
does not distract the Access Person from his or her responsibilities.
PART 4 - PRE-CLEARANCE REQUIREMENTS
4.1. Prior Approval Of Securities Transactions - Schedule A.
------------------------------------------------------
A. Unless you are covered by Part 4.1.D of the Code, pre-approval from
the Chairman (if the Chairman is unavailable, the President, Senior Vice
President or Compliance Officer may approve Transactions) is required for all
publicly and privately traded Security Transactions except: (Although a
Security Transaction may be exempt from pre-clearance, it must still be reported
on Schedule C.)
1) Automatic dividend reinvestment programs;
2) Non-volitional Transactions on the part of the issuer of the
Security (e.g., mergers/spin-offs);
----
3) Transactions effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its Securities, to the
extent such rights were acquired from such issuer, and sales of
such rights so acquired;
4) Securities which are not eligible for purchase or sale by Client
Accounts or Funds (i.e., U.S. issuers with market caps below $1
Billion or non-U.S. issuers with market caps below $400 million).
Exception: If a Security with a market cap below $1 Billion is
---------
widely held by Client Accounts or Funds, it must be pre-cleared. A
current list of such Securities is maintained by the Compliance
Officer;
5
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
5) Transactions in Securities in connection with an employer sponsored
------------------
tax qualified plan, such as an ESOP, in an amount not exceeding
$1,000 in any calendar month; and
6) Transactions in any discretionary account that you open or maintain
and for which a registered broker-dealer, a registered investment
adviser, or other investment manager acting in a similar fiduciary
capacity, which is not affiliated with the Dodge & Cox Group,
exercises sole investment discretion, if the following conditions
are met:
(a) The terms of each account relationship ("Agreement") must be
in writing and filed with the Compliance Officer prior to any
Transactions;
(b) Any amendment to each Agreement must be filed with the
Compliance Officer prior to the effective date; and
(c) Each Agreement must obligate the investment manager to comply
with the reporting requirements of the Code by filing the
required reports with the Compliance Officer./5/
But, before you make any request that the discretionary account
manager enter into or refrain from a specific Transaction or class of
Transactions, you must first consult with the Compliance Officer and
pre-clear the Transactions.
Generally, the purchase of a specific Security will not be approved if
the Security is under active consideration, if it has been on the buy list for
less than 7 days, or if there is an active purchase program ongoing. Generally,
the sale of a specific Security will not be permitted if it is held in Client
Accounts and is currently being considered for sale, or is in the process of
being sold or trimmed.
The pre-approval process and restrictions will help to insure that:
(i) our clients have first access to our investment ideas; (ii) the Security in
question is not under active consideration; and (iii) a buy or sell program is
not underway.
B. How long does the pre-clearance last?
-------------------------------------
A clearance is good for 24 hours, but may be extended in special
circumstances.
C. What form do I use to pre-clear a trade?
----------------------------------------
You must fill in the pre-approval form (please see Schedule A) and
give it to the Chairman, or in his absence the President, Senior Vice President
or Compliance Officer, who will review the Transaction(s) to check whether Dodge
& Cox is engaged in a buy or sell program or if the Security is being actively
considered for purchase or sale.
- ------------------
/5/ Any pre-existing Agreement must be promptly amended to comply with this
condition. The required reports may be made in the form of an account statement
if they are filed by the applicable deadline.
6
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
D. Must the independent trustees of Dodge & Cox Funds pre-clear trades?
--------------------------------------------------------------------
You need not pre-clear any Securities Transaction if you are an
independent trustee of Dodge & Cox Funds unless you knew or should have known
that during the 15-day period before the Transaction, the Security was purchased
or sold, or considered for purchase or sale by Dodge & Cox Funds.
PART 5 - PROHIBITED TRANSACTIONS
5.1. Initial Public Offerings/Options.
--------------------------------
Access Persons shall not acquire Securities in initial public offerings or
secondary offerings by an issuer or transact in options unless he/she receives
prior approval of the Chairman, President, Senior Vice President or Compliance
Officer of the Dodge & Cox Group.
5.2. Limited Offerings/Private Placements/Limited Partnerships/Short
---------------------------------------------------------------
Sales/Commodities.
-----------------
Access Persons cannot acquire limited partnership interests, securities in
limited offerings/private placements, futures, short sales and commodity
contracts unless he/she receives prior approval of the Chairman, President,
Senior Vice President or Compliance Officer of the Dodge & Cox Group. Under
normal circumstances, investments with short-term investment horizons are
discouraged.
5.3. Short-Term Trading.
------------------
An Access Person cannot profit from the purchase and sale or sale and
purchase within sixty (60) calendar days of any security. This restriction does
not apply to trading within a shorter period to avoid losses if you do not
violate any other provisions of this Code. If you violate this section you will
be expected to give up all profits from these short-term trading transactions to
Dodge & Cox for the benefit of the affected Funds or other clients. If Dodge &
Cox cannot determine which Fund(s) or client(s) were affected, the proceeds will
be donated to a charity chosen by Dodge & Cox.
PART 6 - GENERAL RESTRICTIONS AND DISCLOSURE REQUIREMENTS
6.1. Access Persons shall immediately report any employment of relatives/6/ by
any brokerage firm or related persons.
- ------------------
/6/ A relative of an Access Person includes: (i) a spouse; (ii) parents; (iii)
grandparents; (iv) natural or adopted children; (v) aunts and uncles; and (vi)
brothers and sisters (including step and adoptive relationships).
7
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
6.2. No orders may be placed by any Access Person for the purchase or sale of
Securities for an account that is not in the Dodge & Cox Group, other than an
account for the Access Person or for a spouse, minor child, parent or an account
for which the Access Person is a fiduciary. If a circumstance should arise
under which an individual believes that an exception should be made (e.g., in
the case of an ill or elderly relative), he/she should (i) get written approval
from two disinterested members of the Board of Directors of Dodge & Cox before
placing an order, and (ii) report the Transaction under our standard reporting
procedures.
6.3. No orders of any kind may be placed using Dodge & Cox trading facilities
other than for Client Accounts under management.
6.4. If a Personal Account is also a Client Account, the restrictions contained
in Part 4.A shall not apply as to any Transaction in such Account directed or
approved by the Access Person if a portfolio manager or senior officer of Dodge
& Cox has also approved the Transactions.
6.5. If an investment opportunity is brought to an Access Person in his/her
capacity as an employee of Dodge & Cox, the Access Person must consult with the
Chairman, President, Senior Vice President or Compliance Officer before entering
into the Transaction to confirm that the Dodge & Cox Group does not wish to take
advantage of the opportunity.
PART 7 - RESTRICTIONS ON ACCEPTANCE OF GIFTS, ETC.
No Access Person shall accept any gift of material value, or any
entertainment exceeding what is customary, from any client of Dodge & Cox or
from a client's estate or from any broker/dealer, bank, corporation, or supplier
of goods or services to Dodge & Cox or Client Accounts. Any Access Person who
receives an offer of either a gift or a bequest of material value from any of
the foregoing sources shall promptly report it to the Chairman, President,
Senior Vice President, or Compliance Officer. This policy is not intended to
limit or curtail purely personal gifts that Access Persons may receive from
individuals in business. However, such gifts must be reported.
PART 8 - RESTRICTIONS ON SERVING AS FIDUCIARY
Access Persons shall not accept appointments as trustee, executor,
administrator, guardian, conservator, investment advisor, partner, director, or
other fiduciary without prior approval of the President or Chairman of the Board
of Dodge & Cox. Appointment as a fiduciary for a relative is exempt from this
requirement, although such appointment should be promptly reported.
8
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
PART 9 - PROHIBITION ON OTHER CONFLICTS OF INTEREST
No Access Person shall engage in any Transaction whether or not specified
in this Code in which he/she has a financial interest adverse to the Dodge & Cox
Group or Client Accounts, or which has the appearance of creating a conflict of
interest with the Dodge & Cox Group or Client Accounts or the gaining of a
financial benefit to the Access Person or a Personal Account by virtue of
his/her relationship with the Dodge & Cox Group.
PART 10 - REPORTING OF SECURITIES TRANSACTIONS
10.1. Background and Conflicts of Interest.
-------------------------------------
A. Importance of Reporting.
-----------------------
Compliance with the following personal Securities Transaction
reporting procedures is essential to enable us to meet our responsibilities to
Dodge & Cox Funds and other clients and to comply with regulatory requirements.
Access Persons are expected to comply with both the letter and spirit of these
requirements.
B. Disclosure of Beneficial Ownership of a Security by Research Analysts
---------------------------------------------------------------------
and Portfolio Managers.
----------------------
If you have any beneficial ownership in a security and you recommend
to the Policy Committee and/or Fixed Income Strategy Committee that the security
be considered for purchase or sale by a Fund or client you must disclose your
beneficial ownership to the Chairman, President, Senior Vice President or
Compliance Officer in writing before or simultaneously with the recommendation.
10.2. Monthly Securities Transactions Reports - Schedule C.
-----------------------------------------------------
Unless you are an independent trustee of Dodge & Cox Funds, each Access
Person shall file with the Compliance Officer not later than ten (10) days after
the end of each month the information below on the form attached as Schedule C:
(Reminder: a "Security" does not include direct obligations of the U.S.
--------
Government, CD's, bankers' acceptances, commercial paper and high quality short-
term debt instruments, including repurchase agreements, and shares of registered
open-end investment companies.)
1) The date of the Transaction, Security name/type (Common, Bond -
interest rate and maturity date), and the amount;
2) The name of the account in which the Transaction was completed;
3) The nature of the Transaction;
9
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
4) Market cap of the security;
5) The price at which the Transaction was effected; and,
6) The name of the broker, dealer, or bank with or through whom
the Transaction was effected (if the Access Person established
a new account during the month include the date the account was
established).
Accounts managed by the Dodge & Cox Group are exempt from this requirement.
If you are an independent trustee of Dodge & Cox Funds, you are not
required to file Transaction reports unless you knew or should have known that
during the 15-day period before or after a Transaction, the Security was
purchased or sold, or considered for purchase or sale by Dodge & Cox Funds.
10.3. Initial and Annual Securities Holdings Reports - Schedule D.
------------------------------------------------------------
An Access Person must file an initial holding report on Schedule D within
ten days of being employed by Dodge & Cox and annually thereafter a holding
report dated December 31 by January 30.
If you are an independent trustee of Dodge & Cox Funds, you are not
required to file Initial and Annual Holdings Reports unless you knew or should
have known that during the 15-day period before or after a Transaction, the
Security was purchased or sold, or considered for purchase or sale by Dodge &
Cox Funds.
10.4. Electronic Reporting of Transactions - Schedule B.
--------------------------------------------------
In lieu of filing a Schedule C, an Access Person may report all
transactions through electronic reporting by your brokerage firms. In order to
be eligible for electronic reporting, an Access Person must complete Schedule B
and limit his/her trading to the brokerage firms providing the electronic
reporting.
10.5. Dividend Reinvestment Plans
---------------------------
If an Access Person participates in a dividend reinvestment plan for a
Security, shares issued under the plan should be reported annually on Schedule D
in lieu of Schedule C. Shares issued under the cash purchase option should be
pre-cleared (if required) and reported each month on Schedule C.
PART 11 - DISCLAIMER OF BENEFICIAL OWNERSHIP
An Access Person may include in any report required under Part 10 above a
disclaimer as to beneficial ownership in any Securities covered by the report.
10
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DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
PART 12 - POLICY STATEMENT ON INSIDER TRADING
The Dodge & Cox Group forbids any of its Access Persons from trading on or
relaying inside information for personal benefit or on behalf of others. This
policy applies to every Access Person and applies to activities both within and
outside the Dodge & Cox Group.
Insider trading is a breach of Federal Securities law and is subject to
both civil and criminal penalties. In addition, the Insider Trading and
Securities Fraud Enforcement Act of 1988 (ITSFEA) substantially increases the
civil and criminal penalties for trading on material non-public information and
broadens the scope of responsibility for preventing insider trading.
The ITSFEA requires that Dodge & Cox establish and enforce a written policy
on insider trading. The law also creates the concept of a "controlling person"
which means that unless Dodge & Cox establishes and enforces a policy to
prohibit insider trading, Dodge & Cox and its controlling persons may be
responsible and liable for any insider trading violations of its employees,
officers, and/or directors.
A. Insider Trading.
---------------
Federal Securities laws do not define the concept of an insider or
insider trading; the burden of proof is on the individual and Dodge & Cox to
show that it did not break the law. Any dispute will be judged in court looking
back with perfect hindsight. Insider trading is generally defined as the use of
inside information to trade in Securities or the communication of this
information to others. The law prohibits:
. trading by an insider in possession of material non-public
information;
. trading by a non-insider having inside information either disclosed
by an insider in violation of his fiduciary duty to keep it
confidential or misappropriated;
. communicating material non-public information to others (tipping).
B. The Concept of the Insider.
--------------------------
The concept of the insider is very broad. An insider includes
employees, officers and directors of a company. Also included are persons
associated with the company through a special, confidential relationship in the
conduct of the company's affairs and who receive information solely for the
company's purposes. These "temporary insiders" can include attorneys,
consultants, accountants and financial printers.
C. What is Inside Information?
--------------------------
Inside information is broadly defined to include two concepts:
materiality and non-public. Material information is information which a
reasonable investor would consider
11
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DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
important in making an investment decision or is reasonably certain to have a
substantial impact on the price of a company's Securities. Information is
considered to be non-public until it has been disseminated to investors
generally. The stock exchanges require that companies disclose information to:
the national news and business news wire services (Dow Jones and Reuters); the
national services (Associated Press); and The New York Times and The Wall Street
------------------ ---------------
Journal. In addition, information appearing in local newspapers, brokerage
- -------
reports, and SEC documents is generally considered to be public.
D. Procedure Upon Receipt of Inside Information.
--------------------------------------------
Before trading for yourself or others, including Client Accounts, in
the Securities of a company about which you may have potential inside
information, ask yourself the following questions:
Is the information material? Is this information that an investor
would consider important in making his or her investment decisions?
Is this information that would substantially affect the market price
of the Securities if generally disclosed? Is the information non-
public? To whom has this information been provided? Has the
information been effectively communicated to the marketplace? (For
example, published in Reuters, The Wall Street Journal or other
-----------------------
publications of general circulation?)
If, after consideration of these questions, you believe that the
information may be material and non-public, or if you have questions as to
whether the information is material and non-public, you should take the
following steps:
1) Report the matter immediately to the Compliance Officer;
2) Do not purchase or sell the Securities on behalf of yourself or
Client Accounts;
3) Do not communicate the information inside or outside the Dodge &
Cox Group, other than to the Compliance Officer;
4) The Compliance Officer shall immediately contact either the
Chairman, President or Senior Vice President (as the circumstances
warrant) for advice concerning any possible material, non-public
information;
5) After the Compliance Officer has reviewed the issue and consulted
with the Chairman, President, or Senior Vice President, you will be
instructed either to continue the prohibitions against trading and
communication noted in nos. 2 and 3, or you will be allowed to
trade and communicate the information;
6) In the event the information in your possession is determined by
the Compliance Officer to be material and non-public, it may not be
communicated to anyone, including persons within the Dodge & Cox
Group, except as provided in no. 1 above. In addition, care should
be taken so that the information is secure. For example, files
containing the information
12
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DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
should be sealed and access to computer files containing material
non-public information should be restricted to the extent
practicable;
7) "Ethical Wall" Policy: In order to limit or contain the flow of
material non-public information to those with a "need to know", the
Dodge & Cox Group may institute some form of "Ethical Wall" (i.e.,
physical and organizational barriers to keep certain information
segregated.) These barriers may involve appointment of back-up
portfolio managers and restricting access to information. The Dodge
& Cox Group will maintain sufficient documentation of actions taken
pursuant to a "Ethical Wall;" and
8) Restricted List: The Dodge & Cox Group maintains a "restricted
list" of Securities for which it has obtained material non-public
information or is otherwise restricted from trading. The list is
maintained by the Compliance Officer and should be reviewed prior
to the placement or execution of a Securities trade. The Compliance
Officer shall make the list available to the Dodge & Cox trading
desks.
PART 13 - SANCTIONS
The Code is designed to insure compliance with applicable law and to
maintain client and shareholder confidence in the Dodge & Cox Group.
Not every violation of the Code is necessarily a violation of the law or
the Dodge & Cox Group's Code and Policy Statement on Insider Trading. Isolated
or inadvertent violations of the Code not resulting in a violation of law or the
Policy Statement on Insider Trading will be referred to the Compliance Officer
and/or management personnel, and disciplinary action commensurate with the
violation, if warranted, will be imposed. A pattern of violations which
individually do not violate the law, the Code, or the Policy Statement on
Insider Trading, but which taken together demonstrate a lack of respect for the
law and the Dodge & Cox Group's Code and Policy Statement on Insider Trading,
may result in termination of employment. A violation of the Code resulting in a
violation of the law will be severely sanctioned, with disciplinary action
including, but not limited to, referral of the matter to the Board of Trustees
of Dodge & Cox Funds and/or Dodge & Cox, disgorgement, termination of employment
or referral of the matter to the appropriate regulatory agency for civil and/or
criminal investigation.
PART 14 - WAIVERS OF COMPLIANCE
The Compliance Officer may, after consultation with the Chairman, President
or Senior Vice President of the Dodge & Cox Group, waive compliance by any
person with the Code if he/she finds that such a waiver: (i) is necessary to
alleviate hardship or in view of unforeseen circumstances or is otherwise
appropriate under all the relevant facts and circumstances; (ii) will not be
inconsistent with the purposes and objectives of the Code; (iii) will not
adversely affect
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DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
the interests of advisory clients of the Dodge & Cox Group; and (iv) is not
likely to permit a transaction or conduct that would violate provisions of
applicable laws or regulations.
Any waiver shall be in writing, shall contain a statement of the basis for
it, and a copy shall be kept by the Compliance Officer.
PART 15 - CONTINUING RESPONSIBILITIES
15.1. The Compliance Officer shall make a record on Schedule A of all requests
for pre-clearance regarding the purchase or sale of a Security, including the
date of the request, the name of the Access Person, the details of the proposed
transaction, and whether it was prohibited; and if prohibited, the Compliance
Officer shall keep a record of any waivers given, including the reasons for each
exception and a description of any potentially conflicting Fund or client
transactions.
15.2. The Compliance Officer shall also collect the signed initial
acknowledgements of receipt and the annual acknowledgements from each Access
Person of receipt of a copy of the Code and Policy Statement on Insider Trading,
as well as Schedules A, B , C and D of the Code. The Compliance Officer shall
preserve those acknowledgements and reports, the records of consultations and
waivers, and the confirmations, statements and other information for the period
required by applicable regulations.
15.3. The Board of Trustees, including a majority of the independent trustees,
of Dodge & Cox Funds shall approve the Code annually and approve any material
changes to the Code based on a certification from Dodge & Cox that it has
adopted procedures reasonably necessary to prevent Access Persons from violating
the Code.
15.4. The Compliance Officer shall submit a written quarterly report to Dodge &
Cox Funds Board of Trustees and the Board of Dodge & Cox on issues raised under
the Code that:
1) Describes issues that arose during the previous quarter under the Code
or procedures applicable to the Dodge & Cox Group, including, but not
limited to, information about material Code or procedure violations
and sanctions imposed in response to those material violations; and
2) Certifies to Dodge & Cox Funds' Board that the Dodge & Cox Group has
adopted procedures reasonably necessary to prevent its Access Persons
from violating its Code of Ethics.
15.5 The Compliance Officer will conduct adequate reviews and audits to monitor
compliance with the reporting, pre-clearance, prohibited transaction and other
requirements of the Code.
14
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
PART 16 - COMPLIANCE EDUCATION PROGRAM
As part of the Dodge & Cox Group's ongoing compliance education program, it
has implemented the following procedures:
A. Review for New Access Persons.
-----------------------------
The Compliance Officer shall identify and inform all Access Persons
who are required to report under the Code. New Access Persons will be given a
copy of the Code and will be required to read and sign it. The Compliance
Officer will be available to review this statement with the Access Person.
B. Revisions.
---------
Any revisions of this Code and Policy Statement on Insider Trading
will be distributed to all Access Persons.
C. Annual Review.
-------------
Once a year, senior officers of Dodge & Cox and the Compliance Officer
will review the Code and Policy Statement on Insider Trading with all Access
Persons and will hold an in-service session on insider trading and related
matters.
15
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
DODGE & COX COMPLIANCE OFFICER:
Thomas M. Mistele
or in his absence the following designees:
Harry R. Hagey
Kenneth E. Olivier
John A. Gunn
16
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
ACKNOWLEDGMENT FORM
DODGE & COX GROUP'S CODE OF ETHICS AND
POLICY STATEMENT ON INSIDER TRADING
I hereby acknowledge receipt of a copy of the Dodge & Cox Group's
Revised CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING, dated April 3,
2000, which I have read and understand, and certify that to the best of my
knowledge, I have complied with the Code and the Policy Statement on Insider
Trading to the extent they have applied to me during the past year. I further
understand and acknowledge that any violation of the Code or the Policy
Statement on Insider Trading, including engaging in a prohibited Transaction or
failure to file reports as required (See Schedules A, B, C and D), may subject
me to disciplinary action, including termination of employment.
-----------------------------
Signature
-----------------------------
Print name
-----------------------------
Date
17
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DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
SCHEDULE A
SECURITIES TRANSACTION PRECLEARANCE FORM
<TABLE>
<CAPTION>
Employee Name ___________________________________________ Date __________________________________________
Name of Account ___________________________________________
===================================================================================================================================
Purchase, Checked Same Day
Sale, Market Tax Trading Execution
or Gift Security Price Cap. Loss Activity Required Approved Comments
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
Signed ______________________________________________ Date ___________________________ Time ____________________________
HRH, JAG, KEO or TMM (Approval expires 24 hours from this date and time,
unless same day execution is required.)
</TABLE>
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
SCHEDULE B
CODE OF ETHICS CERTIFICATION OF
BROKERAGE ACCOUNTS - SCHWAB INSTITUTIONAL (SCHWABLINK)
The Code of Ethics requires each Access Person of Dodge & Cox to report all
transactions in securities in which that person has a direct or indirect
beneficial interest, not later than ten days after the end of any month.
In order to comply with this reporting requirement, I hereby certify that
the brokerage accounts listed below represent all of my brokerage accounts in
---
which I have a direct or indirect beneficial ownership interest, including
security accounts of a spouse, minor children, trusts, foundations, and any
account for which trading authority has been delegated to me. Further, by
signing below, I authorize Dodge & Cox to access current and historical account
information and make copies, in each case as may reasonably be requested by
Dodge & Cox. I further agree to report all additional accounts in which I
acquire a direct or indirect beneficial interest within ten days after such
account is opened or such interest is acquired. I have read this release and am
fully familiar with its contents. I understand that I may choose not to execute
this release and, instead, report any securities transactions directly on
Schedule C. In lieu of listing each securities account below, you may instead
attach copies of the brokerage statements, sign below and return this Schedule
B.
List all accounts below:
ACCOUNT#: ______________________ ACCOUNT#: _______________________________
ACCOUNT NAME(S): _______________ ACCOUNT NAME(S): ________________________
ACCOUNT#: ______________________ ACCOUNT#: _______________________________
ACCOUNT NAME(S): _______________ ACCOUNT NAME(S): ________________________
ACCOUNT#: ______________________ ACCOUNT#: _______________________________
ACCOUNT NAME(S): _______________ ACCOUNT NAME(S): ________________________
Date _________________________ ____________________________________
Signature
____________________________________
Print Name
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
C: SECURITIES TRANSACTIONS REPORT COMPLIANCE REPORT: (Employee Name)
This report of personal Securities Transactions pursuant to Rule 204-2(a) of the
Investment Advisers Act of 1940 or Rule 17j-1(c) of the Investment Company Act
of 1940 must be completed and submitted to the Compliance Department not later
than 10 days after the end of each month. Refer to Part 10 of the Revised Code
of Ethics for further instructions.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Trade Name of Buy, Sell Security Name/Type (Common, Market Cap Quantity Price Principal Broker-Dealer Pre-Cleared
Name Account* Or Other Bond-interest rate and over Amount or Bank Compliance
maturity date) $1 billion/ Dept.
$400 million (Date or N/A)
for non-U.S.
issuer
(yes/no)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
* For any new account opened during the month, show the date the account was established.
[_] I had no personal Securities Transactions during the preceding month that were required to be reported on Schedule C.
The report or recording of any Transaction above shall not be construed as an admission that I have any direct or indirect ownership
in the Securities.
- ----------------------------------------------- -------------------------------- -------------------------------------------
(Signature) (Date) (Month Ending)
</TABLE>
<PAGE>
DODGE & COX INVESTMENT MANAGERS SAN FRANCISCO
SCHEDULE D: INITIAL, ANNUAL AND UPDATED SCHEDULE OF SECURITIES HOLDINGS
(EmployeeName)
This report shall include the information below of each security holding in
which you have a direct or indirect beneficial interest, including holdings by a
spouse, minor children, trusts, foundations, and any account for which trading
authority has been delegated to you, other than authority to trade for a Fund in
or a client of the Dodge & Cox Group. In lieu of listing each security position
below, you may instead attach copies of brokerage statements, sign below and
return Schedule D and brokerage statements to the Compliance Officer.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Security Type
(Preferred, Common, Dividend
Bond - Include interest Shares/ Broker-Dealer Reinvestment
Name of Account Security Name rate/maturity date) Principal Amount or Bank ("Yes" or "No")
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
To the best of my knowledge I have disclosed all of my securities holdings.
[_] I have no securities holdings to report.
- -------------------------------------------- ----------------------------------------- ----------------------------------------
(Signature) (Date) (Year Ended)
</TABLE>
