<PAGE>
D O D G E & C O X D O D G E & C O X
-------------------- -------------------
Income Fund Income Fund
- ---------------------------------------- Established 1989
-------------------
Officers and Directors
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A. Horton Shapiro, President and Director
Senior Vice-President, Dodge & Cox
John A. Gunn, Vice President and Director
President, Dodge & Cox
W. Timothy Ryan, Secretary-Treasurer
and Director
Senior Vice-President, Dodge & Cox
Dana M. Emery, Assistant
Secretary-Treasurer and Director
Vice-President, Dodge & Cox
Harry R. Hagey, Vice President
Chairman & CEO, Dodge & Cox
Thomas M. Mistele, Assistant
Secretary-Treasurer
General Counsel, Dodge & Cox
Max Gutierrez, Jr., Director
Partner, Brobeck, Phleger & Harrison,
Attorneys
Frank H. Roberts, Director
Retired Partner, Pillsbury, Madison
& Sutro, Attorneys
John B. Taylor, Director
Professor of Economics,
Stanford University
Will C. Wood, Director
Principal, Kentwood Associates,
Financial Advisers
INVESTMENT MANAGER
Dodge & Cox
One Sansome Street, 35th Floor
San Francisco, California 94104
Telephone (415) 981-1710
Prospectus
TRANSFER AGENT April 29, 1997
Boston Financial Data Services Inc.
P. O. Box 9051 As Supplemented
Boston, Massachusetts 02205-9051 January 30, 1998
Telephone (800) 621-3979
CUSTODIAN
State Street Bank and Trust Company
P. O. Box 9051
Boston, Massachusetts 02205-9051
Telephone (800) 621-3979
DODGE & COX INCOME FUND
c/o BFDS
P.O. Box 9051
Boston, Massachusetts 02205-9051
Telephone (800) 621-3979
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<PAGE>
D o d g e & C o x
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Income Fund
Prospectus
April 29, 1997 Dodge & Cox Income Fund
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As Supplemented The Dodge & Cox Income Fund (the "Fund") is a no-load mutual
January 30, 1998 fund with the primary objective of providing 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. The Fund seeks to achieve these objectives by
investing in a diversified portfolio consisting primarily of
high-quality bonds and other fixed-income securities. There
can be no assurance that the Fund will achieve these
objectives.
Shares of the Fund are purchased and redeemed at net asset
value. There are no sales, redemption or Rule 12b-1 plan
distribution charges.
This prospectus sets forth concisely the information you
should know about the Fund before investing. It should be
retained for future reference. A Statement of Additional
Information about the Fund, dated April 29, 1997, as
supplemented January 30, 1998, which is incorporated by
reference in this prospectus, has been filed with the
Securities and Exchange Commission (the "SEC"). To obtain a
free copy, call 1-800-621-3979.
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<TABLE>
<S> <C> <C> <C> <C>
Table of Introduction 1 Telephone Transactions 11
Contents Expense Information 1 Transfer of Shares 11
Financial Highlights 2 Pricing of Shares 11
Investment Objectives and Policies 2 Shareholder Services 11
Investment Restrictions 4 Performance Information 12
Investment Risks 4 Fund Organization and Management 13
Additional Information on Investments 5 Portfolio Transactions 13
Income Dividends and Capital Expenses 14
Gain Distributions 6 Federal Income Taxes 14
How to Purchase Shares 7 Custodian and Transfer Agent 14
How to Redeem Shares 9 Reports to Shareholders 14
Exchanging Shares 10 Shareholder Inquiries 14
</TABLE>
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These securities have not been approved or disapproved by the
Securities and Exchange Commission or any State Securities
Commission nor has the Commission or any State Securities
Commission passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
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D o d g e & C o x
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Income Fund
Introduction
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The Fund is an open-end diversified management investment company which
continuously offers its shares to the public. A unique feature of the Fund
and other "no-load" funds is that shares are sold without sales charge,
while many other investment companies sell their shares with a varying
sales charge. Shares may be redeemed at net asset value at no charge.
The Fund enables you to obtain the benefits of experienced and continuous
investment supervision. Investors in the Fund acquire a diversified bond
portfolio ordinarily limited to large investment accounts. The Fund is
designed to meet the needs of retirement plans, charities, endowments,
individuals, trustees, guardians and others who have funds available for
long-term investment in fixed-income securities.
By investing in the Fund, you avoid the time-consuming details involved in
buying and selling individual securities. The Fund also reduces your record
keeping for tax purposes and simplifies the collection of investment income
and the safe-keeping of individual securities.
The Fund's investment manager, Dodge & Cox, was founded in 1930 and managed
over $25 billion for individual and institutional investors in mutual fund
and private accounts as of December 31, 1996.
Expense Information
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SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases.......................................None
Sales Load Imposed on Reinvested Distributions......................None
Deferred Sales Load.................................................None
Redemption Fees.....................................................None
Exchange Fees.......................................................None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average
net assets)
Management Fees........................................................43%
12b-1 Fees............................................................None
Other Expenses (accounting, transfer agent, custodial,
legal, etc.)........................................................ .07%
----
Total Fund Operating Expenses..........................................50%
EXAMPLE: A shareholder would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of
each time period:
Time period 1 Year 3 Years 5 Years 10 Years
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Expenses $5 $16 $28 $63
This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the above expense information is to assist an investor in
understanding the various costs and expenses that an investor in the Fund
will bear directly or indirectly. Expense figures are based on amounts
incurred during the year 1996 (See "Expenses"). Wire redemptions are
subject to a $12 charge which is not reflected in the above example.
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1
<PAGE>
D o d g e & C o x
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Income Fund
Financial Highlights
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The following table provides information about the Fund's financial history. It
is based on a single share outstanding throughout each year. The table is part
of the Fund's financial statements which are included in the Fund's Annual
Report and incorporated by reference into the Statement of Additional
Information. This document is available to shareholders upon request. The
financial statements in the Annual Report have been audited by Price Waterhouse
LLP, independent accountants, whose unqualified report covers the most recent
five-year period.
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year... $12.02 $10.74 $11.89 $11.55 $11.59 $10.61 $10.68 $10.00
Income from investment operations:
Net investment income................ .74 .78 .77 .78 .82 .81 .82 .69
Net realized and unrealized gain
(loss).............................. (.34) 1.34 (1.11) .51 .05 1.02 (.07) .69
------ ------ ------- ------ ------ ------ ------ ------
Total income (loss) from
investment operations............... .40 2.12 (.34) 1.29 .87 1.83 .75 1.38
------ ------ ------- ------ ------ ------ ------ ------
Distributions:
Dividends from net investment
income.............................. (.74) (.78) (.76) (.78) (.82) (.82) (.81) (.69)
Distributions from net realized
gain on investments................. - (.06) (.05) (.17) (.09) (.03) (.01) (.01)
------ ------ ------- ------ ------ ------ ------ ------
Total distributions.................. (.74) (.84) (.81) (.95) (.91) (.85) (.82) (.70)
------ ------ ------- ------ ------ ------ ------ ------
Net asset value, end of year......... $11.68 $12.02 $10.74 $11.89 $11.55 $11.59 $10.61 $10.68
====== ====== ====== ====== ====== ====== ====== ======
Total return......................... 3.62% 20.21% (2.89)% 11.34% 7.80% 17.94% 7.41% 14.09%
Ratios/Supplemental Data:
Net assets, end of year (millions)... $533 $303 $195 $180 $136 $96 $52 $33
Ratio of expenses to average net
assets.............................. .50% .54% .54% .60% .62% .64% .69% .66%
Ratio of net investment income to
average net assets.................. 6.65% 6.85% 6.90% 6.50% 7.14% 7.63% 7.99% 7.85%
Portfolio turnover rate.............. 37% 53% 55% 26% 12% 15% 13% 3%
</TABLE>
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Investment The Fund is a no-load mutual fund with the primary objective of
Objectives providing shareholders with a high and stable rate of current
and Policies 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. However, investors should recognize
that the market risks inherent in investments cannot be avoided,
nor is there any assurance that the investment objectives of the
Fund will be achieved.
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2
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D o d g e & C o x
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Income Fund
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 market 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, including U.S. dollar-denominated
foreign issues and supranational agencies, rated in the top four
rating groups by either Moody's Investors Service ("Moody's") (Aaa,
Aa, A, Baa) or Standard & Poor's Ratings Group ("S&P") (AAA, AA, A,
BBB); (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 groups. Further information about specific
investments 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 investment 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
and below have speculative characteristics. Securities rated B 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 Moody's and S&P's
rating groups is included in the Appendix to the Statement of
Additional Information.
The percentages referred to in the preceding two paragraphs are
determined at the time of investment and apply under normal market
conditions.
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), purchasing securities at a discount from their
maturity or call value 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, with greater emphasis on
longer maturities.
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3
<PAGE>
D o d g e & C o x
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Income Fund
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.
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,
1996, 1995 and 1994 were 37%, 53% and 55%, respectively.) 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 (see "Federal Income Taxes").
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.
------------------------------------------------------------------
Investment The Fund has adopted certain restrictions designed to achieve
Restrictions diversification of investment and to reduce investment risk. The
Fund may not: (a) Invest more than 5% of the value of its total
assets in the securities of any one issuer, except 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; (b) Concentrate investment of more than 25% of the
value of its total assets in any one industry, provided that the
various types of public utility companies (electric, telephone and
gas) are considered separate industries for this purpose; (c)
Borrow money, except as a temporary measure for extraordinary or
emergency purposes and not to exceed 5% of the Fund's total assets
at the time of borrowing; (d) Make loans to other persons except
this shall not exclude (1) purchasing debt securities as permitted
by the Fund's other investment policies and restrictions, (2)
entering into repurchase agreements and (3) lending of portfolio
securities, provided that the Fund may not loan securities if the
aggregate value of all securities loaned would exceed 20% of the
total market value of the Fund at the time of lending; or (e)
Invest more than 10% of the value of its total assets in the
securities of other investment companies. The investment
restrictions described in this paragraph and in the Statement of
Additional Information may be changed only with the approval of
the Fund's shareholders.
Investment You should understand that all investments involve risks, and
Risks there can be no guarantee against loss resulting from an
investment in the Fund, nor can there be any assurance that the
Fund's investment objectives will be attained. There are further
risk factors described elsewhere in this prospectus and in the
Statement of Additional Information.
The price of certain fixed income securities fluctuate with
changes in interest rates, rising when interest rates fall and
falling when interest rates 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
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4
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D o d g e & C o x
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Income Fund
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 value of the
securities may also be affected by changes in the financial
condition of, and other events affecting, specific issuers.
Therefore, the Fund's share price may be higher or lower at the
time of sale than your original purchase. Furthermore, because
yield levels on securities vary with changing interest rates, no
specific yield on shares of the Fund can be guaranteed.
Since the Fund will be invested predominantly in higher quality
debt securities, the Fund may not yield as high a level of current
income as funds that invest primarily in lower quality debt
securities which generally have less liquidity, greater market
risk and greater price fluctuation.
Foreign securities involve some special risks such as exposure to
potentially adverse local political and economic developments;
nationalization and exchange controls; potentially lower liquidity
and higher volatility; possible problems arising from accounting,
disclosure, settlement, and regulatory practices that differ from
U.S. standards; foreign taxes; and the risk that fluctuations in
foreign exchange rates will decrease the investment's value
(although favorable changes can increase its value).
-----------------------------------------------------------------
Additional U.S. Government Obligations. A portion of the Fund may be invested
Information in obligations issued or guaranteed by the U.S. Government, its
on agencies or instrumentalities. Some of the obligations purchased
Investments by the Fund are backed by the full faith and credit of the U.S.
Government and are guaranteed as to both principal and interest by
the U.S. Treasury. Examples of these include direct obligations of
the U.S. Treasury, such as U.S. Treasury bills, notes and bonds,
or indirect obligations of the U.S. Treasury, such as obligations
of the Government National Mortgage Association, the Maritime
Administration, the Farmers Home Administration and the Department
of Veterans Affairs.
While the obligations of many of the agencies and
instrumentalities of the U.S. Government are not direct
obligations of the U.S. Treasury, they are generally backed
indirectly by the U.S. Government. Some of the agencies are
indirectly backed by their right to borrow from the U.S.
Government, such as the Federal Financing Bank, the Federal Home
Loan Bank and the U.S. Postal Service. Others are supported solely
by the credit of the agency or instrumentality itself, but are
given additional support due to the U.S. Treasury's authority to
purchase their outstanding debt obligations. These agencies
include the Federal Farm Credit Banks, the Federal Home Loan
Mortgage Corporation and the Federal National Mortgage
Association. No assurance can be given that the U.S. Government
would provide financial support to U.S. Government established or
sponsored agencies. Furthermore, with respect to the U.S.
Government securities purchased by the Fund, guarantees as to the
timely payment of principal and interest do not extend to the
value or yield of these securities nor do they extend to the value
of the Fund's shares. The Fund may invest in these securities if
it believes they offer an expected return commensurate with the
risks assumed.
Mortgage Pass-Through Securities. The Fund may invest a portion of
its assets in mortgage pass-through securities which are
guaranteed by an agency of the U.S. Government or are issued by a
private entity. These securities represent ownership in "pools" of
mortgage loans and are called "pass-throughs" because principal
and interest payments are passed through to security holders
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5
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D o d g e & C o x
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Income Fund
monthly. The security holder may also receive unscheduled
principal payments representing prepayments of the underlying
mortgage loans. When the Fund reinvests the principal and interest
payments, it may receive a rate of interest which is either higher
or lower than the rate on the existing mortgage.
During periods of declining interest rates there is increased
likelihood that mortgage securities may be prepaid. Such
prepayment would most likely be reinvested at lower rates. On the
other hand, if the pass-through securities had been purchased at a
discount, then such prepayment of principal may benefit the
portfolio.
Collateralized Mortgage Obligations. Collateralized Mortgage
Obligations ("CMOs") are private entity or U.S. Government agency-
issued multi-class bonds that are collateralized by U.S. agency-
guaranteed mortgage pass-through securities. The issuer typically
issues several classes, or "tranches" of bonds, the debt service
of which is provided by the principal and interest payments from
the mortgage pass-through securities in the trust. Each of these
tranches is valued and traded separately based on its distinct
cash flow characteristics. Dodge & Cox will purchase a tranche
with the weighted-average life and cash flow characteristics that
it believes will contribute to achieving the objectives of the
Fund.
All CMOs purchased by the Fund will have a AAA rating by either
S&P or Moody's. To qualify for this rating, a CMO is structured so
that even under the most conservative prepayment and reinvestment
assumptions, the principal and interest payments from the
collateral are expected to meet or exceed the cash flow
obligations of all the tranches of the CMO. However, there are
risks associated with CMOs which relate to the risks of the
underlying mortgage pass-through securities. In a falling interest
rate environment, the mortgage securities may be prepaid faster
than the assumed rate. In this scenario, the prepayments of
principal will generally be reinvested at a rate which is lower
than the rate that the security holder is currently receiving.
Conversely, in a rising interest rate environment, the mortgage
collateral may be prepaid at a rate which is slower than the
assumed rate. In this case, the cash flow of the bond decreases. A
reduced prepayment rate effectively lengthens the time period the
security will be outstanding and may adversely affect the value of
the security.
Foreign Securities. The 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. The Fund will invest no more
than 25% of its total assets in foreign securities denominated in
U.S. dollars.
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Income Dividend and capital gain distributions are reinvested in
Dividends additional Fund shares in your account unless you select another
and Capital option on your Account Application Form. The advantage of
Gain Distri- reinvesting distributions arises from compounding; that is, you
butions receive income dividends and capital gain distributions on a
rising number of shares.
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6
<PAGE>
D o d g e & C o x
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Income Fund
Distributions not reinvested are paid by check or transmitted to
your bank account via electronic transfer using the Automated
Clearing House (ACH) network. If the Post Office cannot deliver
your check, or if your check remains uncashed for six months, the
Fund reserves the right to reinvest your distribution check in
your account at the Fund's then current net asset value per share
(NAV) and to reinvest all subsequent distributions in shares of
the Fund.
Income dividends
. The Fund declares and pays dividends (if any) quarterly in
March, June, September and December.
Capital gain distributions
. A capital gain or loss is the difference between the
purchase and sale price of a security.
. If the Fund has net capital gains for the year (after
subtracting any capital losses), they are usually declared
and paid in December to shareholders of record on a
specified date that month.
If a second distribution is necessary, it is usually
declared and paid in March.
In January, you will be sent Form 1099-DIV indicating the tax
status of any dividend and capital gain distributions made to you
during the previous year. This information will also be reported
to the IRS.
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How to Minimum Initial Investment: $2,500; $1,000 for IRA accounts
Purchase Subsequent Minimum Investment: $100
Shares
By Mail: Please make your check payable to Dodge & Cox Income
Fund (otherwise it will be returned) and send your check together
with the Account Application Form to the address below. The Fund
does not accept third party checks (except for properly endorsed
IRA Rollover checks).
<TABLE>
<S> <C>
Regular Mail Mailgram, Express, Certified or Registered Mail
Dodge & Cox Income Fund Dodge & Cox Income Fund
c/o BFDS c/o BFDS
P.O. Box 9051 66 Brooks Drive, Suite 1
Boston, MA 02205-9051 Braintree, MA 02184
</TABLE>
By Wire: To purchase shares in the Fund by Federal wire transfer,
you should request that your bank transmit funds to:
State Street Bank and Trust Company, Boston, MA 02101
ABA #0110 0002 8
Deposit DDA #9905-351-4
FFC Dodge & Cox Income Fund
Account #147/[shareholder account number], [name of
account]
Prior to having the funds wired, you should call Boston Financial
Data Services Inc. (BFDS) at 1-800-621-3979 and advise BFDS that
the funds are being wired. Investors making initial investments
by wire must promptly complete an Account Application Form and
mail it to the Fund, c/o BFDS, at either of the addresses listed
above. No account services will be established until the
completed application has been received by the Fund. IRA accounts
cannot be opened by wire.
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D o d g e & C o x
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Income Fund
By Telephone: By using the Fund's telephone purchase option, you
may make subsequent investments directly from your bank account.
To establish the telephone purchase option for your account,
complete the appropriate section on the Account Application Form.
Only bank accounts held at domestic financial institutions that
are Automated Clearing House (ACH) members may be used for
telephone transactions. To make subsequent investments by
telephone, call 1-800-621-3979. This option will become effective
approximately 15 business days after the Account Application Form
is received. The price you pay for your shares will be the next
price the Fund computes after the Fund receives your investment
from your bank, which is usually three business days after you
authorize the transfer. If you want to make an investment the
same day, you must invest by wire. You may not use telephone
transactions for initial purchases of the Fund's shares. (See
"Telephone Transactions.")
Additional Information about Purchases: All subscriptions are
subject to acceptance by the Fund, and the price of the shares
will be the NAV which is next computed after receipt by the
Fund's transfer agent, or other authorized agent or sub-agent, of
the subscription in proper form (see "Pricing of Shares"). All
purchases must be paid for in U.S. dollars; checks must be drawn
on U.S. banks. If your payment is not received or you pay with a
check or ACH transfer that does not clear, your purchase will be
canceled. You will be responsible for any losses or expenses
(including a $20 fee) incurred by the Fund or transfer agent, and
the Fund can redeem shares you own in this or another identically
registered Dodge & Cox Fund account as reimbursement. The Fund
and its agents have the right to reject or cancel any purchase,
exchange, or redemption due to nonpayment. All subscriptions will
be invested in full and fractional shares and you will receive a
confirmation of all transactions. Purchases through the Automatic
Investment Plan will be confirmed at least quarterly.
Certificates (for full shares only) are not issued unless
requested by you.
A Social Security or Taxpayer Identification Number must be
supplied and certified on the Account Application Form before an
account can be established. If you fail to furnish the Fund with
your correct Social Security or Taxpayer Identification Number,
the Fund may be required to withhold Federal income tax at a rate
of 31% ("backup withholding") from dividends, capital gain
distributions and redemptions.
The purchase or redemption of shares through broker-dealers or
other financial institutions may be subject to a service fee by
those entities. The Fund and its agents reserve the right to
accept initial purchases by telephone, to cancel or rescind any
purchase or exchange (for example, if an account has been
restricted due to excessive trading or fraud) upon notice to the
shareholder within five business days of the trade; to freeze any
account and temporarily suspend services on the account when
notice has been received of a dispute between the registered or
beneficial account owners or there is reason to believe a
fraudulent transaction may occur; to otherwise modify the
conditions of purchase and any services at any time, or to act on
instructions believed to be genuine.
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8
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D o d g e & C o x
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Income Fund
----------------------------------------------------------------
How to Redeem By Mail: Your written instructions to redeem should be sent to
Shares the appropriate address below:
<TABLE>
<S> <C>
Regular Mail Mailgram, Express, Certified or Registered Mail
Dodge & Cox Income Fund Dodge & Cox Income Fund
c/o BFDS c/o BFDS
P.O. Box 9051 66 Brooks Drive, Suite 1
Boston, MA 02205-9051 Braintree, MA 02184
</TABLE>
The request must specify your name, account number, and dollar
amount or number of shares redeemed, and be properly signed. The
Fund requires the signatures of all owners exactly as
registered, and possibly a signature guarantee (see "Signature
Guarantees" below).
By Telephone: Telephone redemption requests can be initiated by
calling BFDS at 1-800-621-3979. (See "Telephone Transactions.")
Telephone redemption requests for IRA accounts will not be
accepted.
Redemption payments may be made by check, wire or ACH:
By Check: Checks will be made payable to you and will be sent to
your address of record. If the proceeds of the redemption are
requested to be sent to other than the address of record or if
the address of record has been changed within 15 days of the
redemption request, the request must be in writing with your
signature(s) guaranteed.
By Wire: The Fund will wire redemption proceeds only to the bank
account designated on the initial Account Application Form or in
written instructions--with signature guarantee--received in
advance of the redemption order. Wire redemption requests are
subject to a $12 charge, which is subject to change without
notice.
By ACH: Redemption proceeds can be sent to your bank account by
ACH transfer. You can elect this option by completing the
appropriate section of the Account Application Form. If money is
moved by ACH transfer, you will not be charged by the Fund for
these services. There is a $100 minimum per ACH transfer.
Signature Guarantees: You may need to have your signature
guaranteed in certain situations, such as:
. Written requests to wire redemption proceeds (if not
previously authorized on the Account Application Form).
. Sending redemption proceeds to any person, address, or bank
account not on record.
. Transferring redemption proceeds to a Dodge & Cox account
with a different registration (name/ownership) from yours.
. Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings
institutions, broker-dealers, and other guarantors acceptable to
the Fund. The Fund cannot accept guarantees from notaries public
or organizations that do not provide reimbursement in the case
of fraud.
Redemptions-in-Kind: The Fund reserves the right, if conditions
exist which make cash payments undesirable, to honor any request
for redemption by making payment in whole or in part in readily
marketable securities chosen by the Fund and valued as they are
for purposes of computing the
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Fund's NAV (a redemption-in-kind). If payment is made in
securities, a shareholder may incur transaction expenses in
converting these securities to cash. The Fund has elected,
however, to be governed by Rule 18f-1 under the Investment
Company Act, as a result of which the Fund is obligated to
redeem shares, with respect to any one shareholder during any
90-day period, solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund at the beginning of the
period.
IRA Accounts: Redemption requests for IRA accounts must be in
writing and must include instructions regarding Federal income
tax withholding. Unless you have elected otherwise, your
redemptions will be subject to income tax withholding.
Additional Information about Redemptions: Under certain
circumstances, the Fund's transfer agent may require additional
documents, including stock powers with signatures guaranteed,
trust instruments, death certificates, appointments as executor
and certificates of corporate authority. If certificates have
been issued for any of the shares to be redeemed, such
certificates must be endorsed with signatures guaranteed and
delivered to the Fund's transfer agent. For any questions
regarding documentation or signature requirements for trusts,
estates, corporations, etc., please call BFDS (1-800-621-3979).
The redemption price will be the NAV which is next computed
after receipt of a redemption request in good order (see
"Pricing of Shares") by BFDS or other authorized agent or sub-
agent. The redemption price may be more or less than your cost,
depending upon the market value of the Fund's investments at the
time of redemption. Redemption payments are made as soon as
practicable, generally within two business days, but no later
than the seventh day after the effective date for redemption, or
within such shorter period as may legally be required. If shares
are redeemed within two weeks of purchase, the Fund may delay
payment of the redemption proceeds until your purchase check has
cleared, which may take up to 15 days. There is no such delay
when shares being redeemed were purchased by wiring Federal
Funds.
The Fund may suspend your redemption right or postpone payment
at times when the New York Stock Exchange is closed or under any
emergency circumstances as determined by the SEC. If the Post
Office cannot deliver your check, or if your check remains
uncashed for six months, the Fund reserves the right to reinvest
your redemption proceeds in your account at the then current
NAV.
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Exchanging You may exchange your shares for shares of another Dodge & Cox
Shares Fund, provided that the registration and Taxpayer Identification
Number of both accounts are identical. An exchange may be
initiated by contacting the Fund's transfer agent in writing or
by telephone. (See "Telephone Transactions.") An exchange is
treated as a redemption and a purchase; and, therefore, you may
realize a taxable gain or loss. You should obtain and read a
current prospectus of the fund into which the exchange is being
made.
There is a $1,000 minimum for all exchanges. If a new account is
being opened by exchange, the minimum investment requirements
must be met. After the exchange, the account from which the
exchange is made must have a remaining balance of at least
$2,500 ($1,000 for an IRA account) in order to remain open. The
Fund reserves the right to terminate or materially modify the
exchange privilege upon 60 days advance notice to shareholders.
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Telephone By using telephone purchase, redemption and/or exchange options,
Transactions you agree to hold the Fund, Dodge & Cox (any of its affiliated
mutual funds), BFDS, and each of their respective directors,
trustees, officers, employees and agents harmless from any
losses, expenses, costs or liability (including attorney fees)
which may be incurred in connection with the exercise of these
privileges. Generally, all shareholders are automatically
eligible to use these options. However, you may elect to decline
these options in the Account Application Form or by writing
BFDS. (You may also reinstate them at any time by writing BFDS.)
If the Fund does not employ reasonable procedures to confirm
that the instructions received from any person with appropriate
account information are genuine, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. If you
are unable to reach the Fund by telephone because of technical
difficulties, market conditions, or a natural disaster,
purchase, redemption and exchange requests should be made by
regular or express mail. If an account has multiple owners, the
Fund may rely on the instructions of any one account owner. You
should note that purchase and sales orders will not be canceled
or modified once received in good order.
Purchases and sales should be made for long-term investment
purposes only. Because excessive trading may be disadvantageous
to the Fund, the Fund reserves the right to limit purchase and
sale transactions, including exchanges, when a pattern of
frequent trading appears evident.
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Transfer of Changes in account registrations--such as changing the name(s)
Shares on your account, or transferring shares to another person or
legal entity--must be submitted in writing and require a
signature guarantee. Please call BFDS (1-800-621-3979) for full
instructions.
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Pricing The share price (also called "net asset value per share" or
of Shares "NAV") for the Fund is calculated at 4:00 p.m. ET each day the
New York Stock Exchange is open for business. To calculate the
NAV, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by
the number of shares outstanding.
If the Fund, or its authorized agent or 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.
The Fund cannot accept orders that request a particular day or
price for your transaction or any other special conditions.
The time at which transactions and shares are priced and the
time until which orders are accepted may be changed in case of
an emergency or if the New York Stock Exchange closes at a time
other than 4 p.m. ET.
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Shareholder The Fund offers you the following services: (Please call or
Services write the Fund (1-800-621-3979) for applications and additional
information.)
Automatic Investment Plan: You may make regular monthly or
quarterly investments of $100 or more through automatic
deductions from your bank account.
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Systematic Withdrawal Plan: If you own $10,000 or more of the
Fund's shares, you may receive regular monthly or quarterly
payments of $50 or more. Shares will automatically be redeemed
at NAV to make the withdrawal payments.
Reinvestment Plan: You may direct that dividend and capital
gains distributions be reinvested in additional Fund shares.
Individual Retirement Account (IRA): If you have earned income
or are entitled to certain distributions from eligible
retirement plans, you may make or authorize contributions to
your Individual Retirement Account. The Fund has an IRA Plan
available for shareholders of the Fund.
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Performance The Fund may include figures indicating its yield or total
Information return in advertisements or reports to shareholders or
prospective investors. Quotations of yield, as defined by the
SEC, will be based on net investment income per share earned
during a given thirty-day period and will be computed by
dividing this net investment income by the net asset value per
share on the last day of the period and annualizing the results.
Yield does not directly reflect changes in net asset value per
share which occurred during the period. Quotations of the Fund's
average annual total rate of return will be expressed in terms
of the average annual compounded rate of return on a
hypothetical investment in the Fund over a specified period,
will reflect the deduction of a proportional share of Fund
expenses (on an annual basis) and will assume that all dividends
and capital gains distributions are reinvested when paid. Total
return indicates the positive or negative rate of return that an
investor would have earned from reinvested dividends and
distributions and changes in net asset value per share during
the period.
Performance information for the Fund may be compared, in reports
and promotional literature, to: (i) the Lehman Brothers
Aggregate Bond Index, the Salomon Brothers Broad Investment-
Grade Bond Index, or other managed and unmanaged indices of the
performance of various types of investments, so that investors
may compare the Fund's results with those of indices widely
regarded by investors as representative of the security markets
in general, and (ii) the performance of other mutual funds.
Unmanaged indices may assume the reinvestment of income
distributions, but generally do not reflect deductions for
administrative and management costs and expenses; managed
indices do reflect such deductions.
Performance information for the Fund reflects only the
performance of hypothetical investments in the Fund during the
particular time periods on which the calculations are based.
Such information should not be considered as representative of
the performance of the Fund in the future because, unlike some
bank deposits or other investments which pay a fixed yield for a
stated period of time for a fixed principal amount, the
performance of the Fund will vary based not only on the current
market value of the securities held in its portfolio, but also
on changes in the Fund's expenses and in the asset size of the
Fund. Performance information should be considered in light of
the Fund's investment objectives and policies, the types and
quality of the Fund's portfolio investments, market conditions
during the particular time period and operating expenses. For a
description of the methods used to determine the Fund's total
return and yield, see "Performance Information" in the Statement
of Additional Information. Further information about the
performance of the Fund is contained in the Fund's Annual Report
which may be obtained without charge from the Fund.
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Fund Fund Organization and Voting Rights. The Fund, organized as a
Organization California corporation in 1988, is registered as an open-end,
and diversified management investment company under the Investment
Management Company Act. The Fund's Board of Directors supervises Fund
operations and performs duties required by applicable state and
Federal law. All shares have the same rights as to voting,
redemption, dividends and in liquidation. Shares have cumulative
voting rights for election of directors, which means that each
share is entitled to as many votes as there are directors to be
elected, all of which may be cast for one nominee or distributed
as the shareholder sees fit. All shares issued are fully paid
and non-assessable, are transferable and are redeemable at net
asset value upon demand of the shareholder. Shares have no
preemptive or conversion rights. The Fund is not required to
hold annual shareholder meetings and will do so only when
required by law or when specially called in accordance with the
Fund's bylaws.
Investment Manager. Dodge & Cox, a California corporation, has
served as investment manager to the Fund since inception. Dodge
& Cox is one of the oldest professional investment management
firms in the United States, having acted continuously as
investment managers since 1930. The Fund's investments are
managed by Dodge & Cox's Bond Policy Committee, and no one
person is primarily responsible for making investment
recommendations to the Committee. Dodge & Cox is located at One
Sansome Street, 35th Floor, San Francisco, California 94104.
Dodge & Cox's activities are devoted to investment research and
the supervision of investment accounts for individuals and
institutions. In addition, Dodge & Cox is investment manager to
other registered mutual funds, the Dodge & Cox Balanced Fund
since 1931 and the Dodge & Cox Stock Fund since 1965. The Fund
pays Dodge & Cox a management fee which is payable monthly at
the annual rate of 0.50% of the average daily net asset value of
the Fund up to $100 million and 0.40% of the average daily net
asset value of the Fund in excess of $100 million. However, the
investment management agreement provides 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
exceeds 1% of the average daily net asset value of the Fund. No
waiver of management fee was required for 1996 under this
agreement.
Dodge & Cox has adopted a Code of Ethics that restricts personal
investing practices by its employees. Among other provisions,
the Code of Ethics requires that employees with access to
information about the purchase or sale of securities in the
Fund's portfolio obtain preclearance before executing certain
personal trades. The Code of Ethics is designed to ensure that
the interests of the Fund's shareholders come before the
interests of the people who manage the Fund.
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Portfolio Orders for the Fund's portfolio securities transactions are
Transactions placed by Dodge & Cox, which seeks to obtain the best available
prices, taking into account the costs and quality of executions.
In the over-the-counter market, purchases and sales are
transacted directly with principal market-makers except in those
circumstances where it appears better prices and executions are
available elsewhere.
Subject to the above policy, when two or more brokers are in a
position to offer comparable prices and executions, preference
may be given to brokers that have provided investment research,
statistical, and other related services for the benefit of the
Fund and/or of other funds and accounts over which Dodge & Cox
exercises investment and brokerage discretion.
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Expenses In addition to Dodge & Cox's fee, the Fund pays other direct
expenses, including custodian, transfer agent, legal, accounting
and audit fees; costs of preparing and printing prospectuses and
reports sent to shareholders; registration fees and expenses;
proxy and annual meeting expenses (if any); and director fees
and expenses. In 1996, the ratio of total operating expenses to
average net assets of the Fund was 0.50%. Dodge & Cox furnishes
personnel and other facilities necessary for the administration
of the Fund for which it receives no additional compensation.
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Federal The Fund intends to qualify each year as a regulated investment
Income Taxes company under the Internal Revenue Code. A regulated investment
company that distributes for the year all of its ordinary income
and capital gains pays no tax on its ordinary income or capital
gains. A regulated investment company that fails to distribute
all of its ordinary income and capital gains must pay tax on the
undistributed amounts at a maximum rate of 35%. If the company
does not distribute at least 98% of its ordinary income and
capital gains, it must pay an additional 4% excise tax on the
amount by which the 98% requirements exceed actual
distributions.
Distributions designated as long-term capital gains
distributions are taxed to a shareholder as though they were
long-term capital gains realized by the shareholder whether
received in cash or shares of the Fund and regardless of the
period of time shares of the Fund have been held. All taxable
distributions, except for long-term capital gains distributions,
are taxed to a shareholder as ordinary income dividends whether
received in cash or in shares of the Fund. State taxation of
distributions varies from state to state. You should consult
your own tax adviser about the Federal, state and local tax
consequences of an investment in the Fund.
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Custodian and State Street Bank and Trust Company, P.O. Box 9051, Boston,
Transfer Agent Massachusetts 02205-9051, (1-800-621-3979), acts as custodian of
all cash and securities of the Fund and receives and disburses
cash and securities for the account of the Fund. BFDS acts as
transfer and dividend disbursing agent for the Fund.
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Reports to In addition to account statements, you receive periodic
Shareholders shareholder reports highlighting relevant information, including
investment results and a review of portfolio characteristics. To
reduce Fund expenses, the Fund attempts to identify related
shareholders within a household and send only one copy of a
report. Call 1-800-621-3979 if you would like an additional free
copy of the Fund's financial report.
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Shareholder For Fund literature and information, or if you have any
Inquiries questions concerning your account, please call BFDS (1-800-621-
3979).
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