STANCERA 0827 1607 WWB RBT 082509 - Stanislaus County · Richard Callister 6 Machinery, Chemicals, Medical Devices, Scandinavia Englebert Bangayan 6 Commercial Services, Trans portation

Investment Review

I. Dodge & Cox Update

II. Equity Portfolio Review & Outlook

III. Fixed Income Portfolio Review & OutlookStanislaus County

IV. Supplemental Exhibits

• Portfolio Appraisals as of June 30, 2009

Employees Retirement Association

August 25, 2009

Representing Dodge & Cox:

Wendell W. Birkhofer, Vice President & Portfolio Manager

Robert B. Thompson, Vice President & Portfolio Manager

Dodge & Cox does not guarantee the future performance of any account (including Dodge & Cox mutual funds) or any specific level of performance, the success of any investment decision or strategythat Dodge & Cox may use, or the success of Dodge & Cox's overall management of an account. Investment decisions made for a client's account by Dodge & Cox are subject to various market,

l l d b k (f ll d l h l k h d k l l d l l d l b l ) d h

DODGE & COX Investment Managers | San Francisco 08-405 |

currency, economic, political and business risks (foreign investing, especially in developing countries, has special risks such as currency and market volatility and political and social instability), and thoseinvestment decisions will not always be profitable. No representation is made that it is accurate or complete. Neither the information nor any opinion expressed constitutes an offer to buy or sell thesecurities mentioned. This information is the confidential and proprietary product of Dodge & Cox. Any unauthorized use, reproduction or disclosure is strictly prohibited.

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Text Box

8/25/09 Item #6

Dodge & Cox Update

DODGE & COX Investment Managers | San Francisco

Experienced & Stable Investment Team as of June 30, 2009p

Industry Analysts & Equity Managers

Years Coverage

Fixed Income Analysts & Managers

Years Coverage

Slide 1 of 2

Years CoverageJohn Gunn 36 Chairman & Chief Executive OfficerKenneth Olivier 29 PresidentBryan Cameron 25 Director of Research DepartmentCharles Pohl 24 Chief Investment OfficerGregory Serrurier 24 Portfolio ManagerLynn Poole 21 Portfolio ManagerWendell Birkhofer 21 Portfolio Manager / Broadcasting, EntertainmentDiana Strandberg 20 International

Years CoverageDana Emery 25 Executive Vice President, CorporatesPeter Lambert 20 Mortgage-Backed SecuritiesRobert Thompson 16 Agencies, Special SituationsShirlee Neil 16 CorporatesThomas Dugan 15 Mortgage-Backed SecuritiesStephanie Notowich 13 Mortgage-Backed SecuritiesNancy Kellerman 12 MunicipalsK R d i 12 A B k d S i i TIPSDiana Strandberg 20 International

Kevin Johnson 19 Portfolio Manager / Consumer Finance (U.S.), Integrated OilsSteven Cassriel 16 Portfolio Manager / Railroads, AirlinesDavid Hoeft 15 Computer Hardware & Software, SemiconductorsYasha Gofman 13 EM, Energy, Tobacco, Russia, IsraelSteven Voorhis 12 Pharmaceuticals, IndiaJohn Iannuccillo 11 Aerospace, Electrical Equipment, Paper, Analytical InstrumentsMario DiPrisco 10 Banks (EMEA, India & Latin America), Building Products, Latin AmericaRoger Kuo 10 EM Telecom (Americas) Media & Entertainment China Hong Kong

Kent Radspinner 12 Asset-Backed Securities, TIPSLarissa Roesch 11 Corporates, Scandinavia, ThailandJames Dignan 9 Mortgage-Backed SecuritiesThinh Le 8 CorporatesE. Saul Peña 8 CorporatesJay Stock 6 Analytics Systems, Other ResearchAdam Rubinson 6 Corporates, Auto FinanceAnthony Brekke 5 CorporatesRoger Kuo 10 EM, Telecom (Americas), Media & Entertainment, China, Hong Kong

Keiko Horkan 8 Banks (U.S. & Japan), Consumer Electronics, Specialty Finance, JapanKarol Marcin 8 Global Insurance, Central EuropeAmanda Nelson 8 Telecom Equipment, Natural Gas Pipelines, Electric Utilities, Turkey, GreeceLily Beischer 8 Telecom (Asia), Retail, Footwear & Apparel, Cosmetics, Philippines,

IndonesiaRichard Callister 6 Machinery, Chemicals, Medical Devices, ScandinaviaEnglebert Bangayan 6 Commercial Services, Transportation (International), Homebuilders,

EM Asia Industrial

y pNils Reuter 5 Mortgage-Backed SecuritiesLucinda Johns 4 Corporates, South AfricaLinda Chong 3 Mortgage & Asset-Backed Securities, Korea,

MalaysiaNicholas Lockwood 1 Municipals, Treasury TradingMichael Kiedel new Corporates

EM Asia IndustrialJames Borden 6 Portfolio ManagerRaymond Mertens 5 REITs, Hotels, Commercial Printing, Healthcare Services, Consumer ProductsPhilippe Barret, Jr. 4 Asian (ex. Japan) Banks, Imaging, Brokers, Investment Managers, ExchangesEric Warner 3 Portfolio ManagerKarim Fakhry 3 Appliances, Building Products & Home Improvement (U.S.), Biotech &

PharmaJoel-Patrick Millsap 2 Telecom (Europe), Autos (Global)Kathleen Grey McCarthy 1 Beverages Restaurants EM EMEA ConsumerKathleen Grey McCarthy 1 Beverages, Restaurants, EM, EMEA ConsumerParitosh Somani 1 Metals & Mining, Computer Services, EM Asia ConsumerTae Yamaura 1 Japan, Connectors (Global)Arun Palakurthy new Consumer Electronics (Global)Shawn Dahlem new Portfolio Manager

E-340-072809-040309 |

Years of experience are updated annually in September

2DODGE & COX Investment Managers | San Francisco

Experienced & Stable Investment Team as of June 30, 2009p

Policy Committees

Investment Policy Committee Global Investment Policy Committee

Slide 2 of 2

Investment Policy Committee

Stock Fund, Balanced Fund, Separately Managed Equity and Balanced Portfolios

Member Years Member YearsJohn Gunn 36 Wendell Birkhofer 21Kenneth Olivier 29 Diana Strandberg 20 Bryan Cameron 25 David Hoeft 15

h l hl h

Global Investment Policy Committee

Global Stock Fund

Member Years Member YearsJohn Gunn 36 Steven Voorhis 12Charles Pohl 24 Karol Marcin 8Diana Strandberg 20 Lily Beischer 8

Charles Pohl 24 Steven Voorhis 12Gregory Serrurier 24

Fixed Income Investment Policy Committee

I F d B l d F d S l M d

International Investment Policy Committee

I i l S k F d Income Fund, Balanced Fund, Separately Managed Fixed Income and Balanced Portfolios

Member Years Member YearsDana Emery 25 Kent Radspinner 12Charles Pohl 24 Larissa Roesch 11Peter Lambert 20 James Dignan 9 Robert Thompson 16 Anthony Brekke 5Thomas Dugan 15

International Stock Fund

Member Years Member YearsJohn Gunn 36 Yasha Gofman 13Bryan Cameron 25 Mario DiPrisco 10Charles Pohl 24 Roger Kuo 10Gregory Serrurier 24 Keiko Horkan 8Diana Strandberg 20

Private Client Group Policy Committee

Member Years Member YearsBryan Cameron 25 James Borden 6Gregory Serrurier 24 Eric Warner 3Wendell Birkhofer 21 Shawn Dahlem newWendell Birkhofer 21 Shawn Dahlem newLynn Poole 21

E-341-072809-040309 |

Years of experience are updated annually in September.


Dodge & Cox Assets Under Management ($ in billions) as of June 30, 2009g g

Dodge & Cox Funds: $91.0 BillionSeparate Accounts: $54.1 Billion

J

$145.1 in Total Assets: $89.2 in Equities / $55.9 in Fixed Income

P bli E l

Balanced Fund $14.1

I F d

Corporate Employee Benefit $25.2

Public Employee Benefit $9.4

Income Fund$15.0

Foundation & Endowment $9.1

I & O h

International Stock Fund

Stock Fund $33.5

Taft-Hartley Employee Benefit $4.5 Private Clients $3.2

Insurance & Other Corporate Taxable $2.7

$27.9

Global StockFund $ 0.5

Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, management fees, risks and expenses. To obtain a Fund’s prospectus, which contains this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus carefully before investing.

E-351-072409-040909 | 4DODGE & COX Investment Managers | San Francisco

Equity Portfolio Review & Outlook


6

7

8

Comparative Investment Results January 1, 2009 – June 30, 2009p2009 Year-to-Date Total Return, Gross of Fees (Stanislaus County Employees Retirement Association – Equity vs. Russell 1000 Value)

4.4%4%

6%

-2.9%-4%

-2%

0%

2%

4%

STANCERA Russell 1000 Value

Key Contributors to ResultsA higher weighting in the Information Technology sector (19% vs. 3% for the Index sector) contributed significantly. Motorola (+50%) and Maxim

STANCERA Russell 1000 Value

A higher weighting in the Information Technology sector (19% vs. 3% for the Index sector) contributed significantly. Motorola ( 50%) and Maxim Integrated Products (+41%) helped.Relative returns from holdings in the Energy sector (+11% vs. -7% for the Index sector) contributed. Schlumberger (+29%) and Occidental Petroleum (+11%) were strong performers.Sprint Nextel was a standout performer (+163%) in relation to the Telecommunication Services Index sector return of -4%.

Individual contributors included Wyeth (+23%, being acquired by Pfizer), WellPoint (+21%), Sony (+19%), and Time Warner (+16%).y ( , g q y ), ( ), y ( ), ( )

Key Detractors from ResultsWeak returns from holdings in the Financials sector (-13% vs. -7% for the Index sector) detracted. Citigroup (-45% to date of sale) and Capital One (-29%) were weak.

Individual detractors included General Electric (-25%) Xerox (-17%) Novartis (-15%) Comcast (-14%) and FedEx (-13%)Individual detractors included General Electric (-25%), Xerox (-17%), Novartis (-15%), Comcast (-14%), and FedEx (-13%).

f l l f f d fl h d d f d f d h ll b d d b d f d h dSource: FactSet portfolio analysis. Performance figures do not reflect the deduction of investment advisory fees and other expenses. Returns will be reduced by advisory fees and other expenses incurred in the management of your account. The securities identified do not represent the account’s entire holdings; holdings are subject to change at any time without notice. Past performance is not indicative of future results.


Portfolio Structure as of June 30, 2009

Stanislaus County Employees Retirement Association – Equity

30% STANCERA

Russell Value

10%

15%

20%

25%Russell Value

S&P 500

0%

5%

10%

Health Care InformationTechnology

ConsumerDiscretionary

Financials Energy Industrials ConsumerStaples

Materials TelecomServices

Utilities Cash

Representative Portfolio Characteristics Ten Largest Equity Holdings

Dodge & Cox* S&P 500 Russell ValuePrice/Earnings (forward) (a) 12.1x 20.9x 13.2x

Hewlett-Packard Co. 5.5%Schlumberger Ltd. 3.8%

gy y p

Price/Earnings (forward) 12.1x 20.9x 13.2xPrice/Sales (b) 0.6x 1.0x 0.8xPrice/Book Value 1.4x 2.0x 1.4xWeighted Average Market Cap. $48B $71B $63BMedian Market Cap. $14B $7B $3BDividend Yield (trailing) (c) 2.6% 2.4% 2.7%

Schlumberger Ltd. 3.8%Comcast Corp. (Cl A) 3.5%Wells Fargo & Co. 3.3%WellPoint Inc. 3.1%Amgen Inc. 2.9%Merck & Co. Inc. 2.8%O id l P l C 2 7%

*Portfolio characteristics are for a representative Dodge & Cox tax-exempt account over $50 million.

Occidental Petroleum Corp. 2.7%GlaxoSmithKline PLC (ADR) 2.5%News Corp. (Cl A) 2.5%Total Weight 32.7%

f f p g p $(a) Portfolio estimate excludes negative earners. S&P 500 estimate is top-down. (b) Portfolio estimate uses Industrials only. (c) Dodge & Cox portfolio indicated dividend yield is 2.1%.Source: Bloomberg LP, Standard & Poor’s, Mellon. For ten largest holdings, percentage of total equity securities excludes cash or mutual funds. This information was prepared at the client’s request in connection with a review of the client’s account.


Portfolio Holdings as of June 30, 2009g

Technology, Media andTelecommunications 36.6% Health Care 25.8% Finance 11.8% Industrials / Energy 19.9% Consumer 5.8%

Stanislaus County Employees Retirement Association – Equity

CONSUMER ELECTRONICS 3 6% HEALTH CARE SERVICES 6 9% BANKS 5 1% ENERGY 11 4% CONSUMER PRODUCTS 0 2% CONSUMER ELECTRONICS 3.6% HEALTH CARE SERVICES 6.9% BANKS 5.1% ENERGY 11.4% CONSUMER PRODUCTS 0.2%

Panasonic Corp. (ADS) Cardinal Health Inc. BB&T Corp. Baker Hughes Inc. Avon Products Inc.Sony Corp. (ADS) Health Management Associates Inc. (Cl A) HSBC Holdings PLC (ADS) Chevron Corp.

UnitedHealth Group Inc. Wells Fargo & Co. Occidental Petroleum Corp. PUB/LEISURE 0.3% ELECTRONIC MEDIA 10.8% WellPoint Inc. Royal Dutch Shell PLC (ADS Cl A)

FINANCIAL SERVICES 4.4% Schlumberger Ltd. Interpublic Group of Cos.Comcast Corp. (Cl A) MEDICAL DEVICES 2.3%DISH Network Corp. (Cl A) Bank of New York Mellon Corp. GENERAL INDUSTRIAL 4.5% RETAIL & DISTRIBUTION 5.3%Liberty Global Class C Boston Scientific Corp. Capital One Financial Corp.Liberty Global Inc. (Cl A) Covidien PLC Credit Suisse Group (ADS) Caterpillar Inc. CarMax Inc.Liberty Media Entertainment Series A Thermo Fisher Scientific Inc. Legg Mason Inc. Eaton Corp. Genuine Parts Co.News Corp. (Cl A) SLM Corp. General Electric Co. Home Depot Inc.Time Warner Cable Inc. PHARMACEUTICALS 16.6% State Street Corp. Koninklijke Philips Electronics N.V. (ADS) Liberty Media Interactive Series ATime Warner Inc. Tyco International Ltd. Macy's Inc.

Amgen Inc. INSURANCE 2.2% Wal-Mart Stores Inc. TECHNOLOGY 20.3% GlaxoSmithKline PLC (ADS) INDUSTRIAL COMMODITIES 2.2% Walgreen Co.

Merck & Co. Inc. Aegon N.V. (ADS)Adobe Systems Inc. Novartis AG (ADS) Genworth Financial Inc. (Cl A) Cemex S.A.B. de C.V. (ADS)Autodesk Inc Pfizer Inc Loews Corp Domtar CorpAutodesk Inc. Pfizer Inc. Loews Corp. Domtar Corp.BMC Software Inc. Sanofi-Aventis S.A. (ADS) Travelers Cos. Inc. Dow Chemical Co.Cadence Design Systems Inc. Wyeth Vulcan Materials Co.Citrix Systems Inc.Computer Sciences Corp. TRANSPORTATION 1.9%Compuware Corp.eBay Inc. FedEx Corp.Ericsson ADRHewlett-Packard Co.Hitachi Ltd. (ADS)Kyocera Corp. (ADS)Maxim Integrated Products Inc.Molex Inc. (Cl A)Motorola Inc.Pitney Bowes Inc.Symantec Corp.Synopsys Inc.Tyco Electronics Ltd.Xerox Corp.

TELECOM 1.9%

Sprint Nextel Corp.

The above is not a complete analysis of every material fact concerning the securities described. The information provided is historical, does not predict future results or profitability and is subject to change without notice. Opinions expressed are subject to change without notice. This is not a recommendation to buy or sell any security and is not indicative of Dodge & Cox’s current or future trading activity. The securities identified may not represent an account’s entire holdings, which are subject to change at any time without notice.


January 1, 2009 – June 30, 2009Summary of Transactions

New Purchases Significant Additions Sales Significant Trims

yStanislaus County Employees Retirement Association – Equity

Energy SCHLUMBERGER LTDEnergy SCHLUMBERGER LTD

Industrials CATERPILLAR INC EATON CORP

Consumer Discretionary TIME WARNER CABLE SHERWIN-WILLIAMS CO/THE COMCAST CORP-CL ATHOMSON (EX-TMM)-SPON ADR

Consumer Staples AVON PRODUCTS INC WAL-MART STORES INC

Health Care MERCK & CO. INC. PFIZER INC PFIZER INCTHERMO FISHER SCIENTIFIC INC SANOFI-AVENTIS-ADR

Financials BB&T CORP CAPITAL ONE FINANCIAL CORP AMERICAN INTERNATIONAL GROUPBANK OF NEW YORK MELLON CORP CITIGROUP INCSTATE STREET CORP

Information Technology ADOBE SYSTEMS INC SUN MICROSYSTEMS INC KYOCERA CORP -SPONS ADRSYMANTEC CORPSYMANTEC CORP

The above is not a complete analysis of every material fact concerning the securities described. The information provided is historical, does not predict future results or profitability and is subject to change without notice. Opinions expressed are subject to change without notice. This is not a recommendation to buy or sell any security and is not indicative of Dodge & Cox’s current or future trading activity. The securities identified do not represent an account’s entire holdings, which are subject to change at any time without notice.


as of June 30, 2009Information Technology: Valuation Disparities

S&P 500 technology companies trading at less than 2x sales have: S&P 500 technology companies trading at greater than 2x sales have:

I. Dodge & Cox weighting vs. the S&P 500: 19.6% vs. 18.4%

gy pDodge & Cox Stock Fund

Dodge & Cox: 14.2% S&P 500: 13.2%15%

20%

ting

S&P 500 technology companies trading at less than 2x sales have:Total market capitalization of: $421 billionTotal sales of: $462 billion

S&P 500 technology companies trading at greater than 2x sales have:Total market capitalization of: $1,171 billionTotal sales of: $329 billion

Dodge & Cox: 5.4%S&P 500: 5.2%

0%

5%

10%

15%

P/S less than 2x P/S more than 2x

Portf

olio

Wei

ght

P i t S l P i t S l P i t S lDodge & Cox Technology Investments Select S&P 500 High-Valuation Technology Companies

P/S less than 2x P/S more than 2x

Installed base and market leadership are valuable assetsNew and/or refocused management are catalysts for improvement

Strong research and development effort leads to new product potentialSolid financial structure and strong cash flow point to staying power

II. Investment thesis: company strengths not fully reflected in valuation

Price to Sales Price to Sales Price to SalesAdobe Systems 4.5x Ericsson (ADR) 1.2x Qualcomm 6.8xCitrix Systems 3.7x Kyocera (ADR) 1.2x Google 6.0xBMC Software 3.3x Molex 0.9x Oracle 4.6xMaxim Integrated Products 2.7x Hewlett-Packard Co. 0.8x Apple 3.7xeBay 2.6x Tyco Electronics Ltd. 0.7x Microsoft 3.5xSymantec 2.1x Motorola 0.5x Cisco Systems 2.8xS C S C I lSynopsys 2.0x Computer Sciences Corp. 0.4x Intel 2.7xAutodesk 2.0x Xerox 0.3xCadence Design Systems 1.6x Hitachi Ltd. (ADR) 0.1xCompuware 1.5xWeighted average of Dodge & Cox technology companies: 0.6x All S&P 500 technology companies: 2.0x

Source: FactSet. Valuations use trailing twelve-month data. The above information is not a complete analysis of every material fact concerning any market, industry, or investment. Data has been obtained from sources considered reliable but Dodge & Cox makes no representations as to the completeness or accuracy of such information Opinions expressed are subject to change without noticeobtained from sources considered reliable, but Dodge & Cox makes no representations as to the completeness or accuracy of such information. Opinions expressed are subject to change without notice. This is not a recommendation to buy or sell any security and is not indicative of Dodge & Cox’s current or future trading activity. The securities identified do not represent the Fund’s entire holdings, which are subject to change at any time without notice. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, management fees, risks and expenses. To obtain a Fund’s prospectus, which contains this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus carefully before investing.


as of June 30, 2009Health Care: Opportunities in a Growing Sector

Health Care Weightings Price-to-Sales Ratios

pp gDodge & Cox Representative Portfolio

17.5%

6.9%8.4%

8%

12%

16%

20%

of P

ortfo

lio

Dodge & Cox (26.5%)

S&P 500 (13.6%)

2.5x

1.9x

2.6x2.4x

2x

3xDodge & Cox

S&P 500

2.1%2.1% 3.2%

0%

4%

Pharmaceuticals &Biotech

Health CareServices

Medical Devices &Equipment

% o

0.2x 0.3x

0x

1x

Pharmaceuticals &Biotech

Health Care Services Medical Devices &Equipment

Pharmaceuticals: Amgen, GlaxoSmithKline, Merck, Novartis, Pfizer, Sanofi-Aventis, WyethValuations are low relative to history and to the market. Our portfolio weighting has increased as valuations have declined.Strong balance sheets and high free cash flow provide some downside protection. Research product pipelines offer potential growth.p p p p gAbundant cost-cutting opportunities exist, and are being acted on by many companies.

Health Care Services: Cardinal Health, Health Management Associates, UnitedHealth, WellPointLong-term growth potential due to innovation, rising demand and changing demographics.Our holdings appear well positioned due to relatively strong market positions, sound balance sheets and high quality management teams.Our investments have valuations below the market averages, despite industry leadership and attractive growth prospects.

Source: FactSet Weighting and ratios are from a representative Dodge & Cox tax-exempt account over $50 million The above information is not a complete analysis of every material fact concerning

Our investments have valuations below the market averages, despite industry leadership and attractive growth prospects.

Medical Devices & Equipment: Boston Scientific, Covidien, Thermo Fisher ScientificAreas of potential growth and attractive margins.

Source: FactSet. Weighting and ratios are from a representative Dodge & Cox tax-exempt account over $50 million. The above information is not a complete analysis of every material fact concerning any market, industry, or investment. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representations as to the completeness or accuracy of such information. Opinions expressed are subject to change without notice. This is not a recommendation to buy or sell any security and is not indicative of Dodge & Cox’s current or future trading activity. The securities identified do not represent an account’s entire holdings, which are subject to change at any time without notice.


as of June 30, 2009Recent Contraction in Corporate Earningsp gQ1 96 – Q2 09E: S&P 500 Operating Earnings per Share, Rolling 4 Quarters

$95

12/01 – 6/076/07 6/09

$65

$75

$85 Cumulative: +135%Annualized: +14%

6/07 – 6/09Cumulative: -56%

$45

$55

$351996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Standard & Poor’s. Operating earnings estimates are bottom-up, which include estimates of each firm in the index. The final quarter includes estimated earnings, which may be higher than actual earnings. The above information is not a complete analysis of every material fact concerning any market, industry or investment. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representations as to the completeness or accuracy of such information. Opinions expressed are subject to change without notice. The information provided is historical, does not predict p p y f f p p j g f p , pfuture results or profitability and is subject to change without notice. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, management fees, risks and expenses. To obtain a Fund’s prospectus, which contains this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus carefully before investing. Past performance is no guarantee of future returns.


as of June 30, 2009Current Market Environment

2 5

S&P Industrials Forward Price-to-Earnings: Dec 89 – Jun 09 S&P Industrials Price-to-Sales: Jul 89 – Jun 09

Average: 16.2x16x

18x

20x

22x

24x

26x

Median: 1.3x

1.0x

1.5x

2.0x

2.5x

10x

12x

14x

16x

1989 1991 1993 1995 1997 1999 2001 2003 2005 20070.0x

0.5x

1.0x

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

Source: Morgan Stanley. Data is through 6/30/09. Source: The Leuthold Group. Data is through 6/30/09.

6.07.08%

S&P Industrials Net Profit Margin: Dec 89 – Mar 09 Consumer Price Index: Jul 89 – Jun 09

g y g p g

Average: 2.9

0 01.02.03.04.05.0

Average: 5.0%

2%

4%

6%

-2.0-1.00.0

1989 1991 1993 1995 1997 1999 2001 2003 2005 20070%

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Q109

Source: Standard & Poor's. Data is through 3/31/09. Source: Department of Labor. Data is through 6/30/09.

Note: Price-to-earnings ratio is based on 12-month, forward diluted estimates, including negative earnings. Net Profit margin based on diluted EPS, as reported (US GAAP). The above information is l l f l f k d h b b d f d d l bl b d knot a complete analysis of every material fact concerning any market, industry, or investment. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representations as to

the completeness or accuracy of such information. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, management fees, risks and expenses. To obtain a Fund’s prospectus, which contains this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus carefully before investing.


Components of Equity Returns as of June 30, 2009p q y

Components of S&P 500 Returns: (1960–Q2 2009)

0.7%9.1%

8%

10%

3.5% 4.1%

4.9%

2%

4%

6%

0%

Total Return Dividend Yield EPS Growth(Operating)

P/E Change(Operating)

Inflation

Total return is a function of earnings growth, dividend yield and P/E multiple.

Though currently depressed, earnings have been a large source of returns over time.

Dividends have historically helped to offset inflation.

As of June 30, 2009, S&P 500 P/E is 25x, using 12-month operating earnings (before write-offs and one-time charges) of $37.03. Earnings for the most recent quarter include estimates.

Past performance is not indicative of future returns and actual results may differ materially from returns shown above. The annual growth rates and P/E ratio assumptions are for illustrative purposes only and do not reflect the performance of any Dodge & Cox Fund or account. Sources: Standard & Poor’s, Bloomberg, Russell/Mellon Analytical Services. The above information is not a complete analysis of every material fact concerning any market industry or investment Data has been obtained from sources considered reliable but Dodge & Cox makes no representations as to the completeness orof every material fact concerning any market, industry or investment. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representations as to the completeness or accuracy of such information. Opinions expressed are subject to change without notice. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, management fees, risks and expenses. To obtain a Fund’s prospectus, which contains this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus carefully before investing.


Fixed Income Portfolio Review & Outlook


Fixed Income Differentiating Characteristics June 30, 2009g

Focus

Entire investment team focused on a single investment philosophy. Core fixed income represents

J

g p p y p

approximately 90% of fixed income assets under management

Clearly defined investment approach: rigorous fundamental analysis with price discipline

One business in one location: facilitates an ongoing dialogue among our investment professionals

Long-Term View

Think like a private investor looking for long-term value over 3-5 years

Patience to wait for results

Competitive advantage: look beyond short-term concerns to long-term opportunity

Experience & Continuity

Stable organization: average tenure is 15 years for Fixed Income Investment Policy Committee members

Consistent investment philosophy over time

Independence

Ability to stand by our investment convictions

Operate as owners rather than employees

Our objective: to provide the highest quality investment management service to our clientsj p g q y g

Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, management fees, risks and expenses. To obtain a Fund’s prospectus, which contains this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus carefully before investing.


20

21

22

23

U.S. Treasury Yield Curves June 2009y

5.5%

6.0%

June 30, 2009 June 30, 2008 June 29, 2007

4 0%

4.5%

5.0%

3.0%

3.5%

4.0%

d to

Mat

urity

1.5%

2.0%

2.5%Yiel

0.5%

1.0%

Source: Bloomberg LP.

Th b i f ti i t pl t l i f t i l f t i k t i d t i t t D t h b bt i d f id d li bl b t D d & C k

0.0%0 5 10 15 20 25 30

Years to Maturity

The above information is not a complete analysis of every material fact concerning any market, industry or investment. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representations as to the completeness or accuracy of such information. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, management fees, risks and expenses. To obtain a Fund’s prospectus, which contains this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus carefully before investing.


U.S. Bond Market Conditions June 30, 2009

600650700750

Barclays Capital Quality Rating Indices Barclays Capital Banking Index

1 4001,5001,600

Corp AAA Corp AA Corp A Corp BAA BA/B

200250300350400450500550600

OA

S(a

)

400500600700800900

1,0001,1001,2001,3001,400

OA

S(a)

050

100150

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

TED Spread Barclays Capital U.S. MBS Index

-100200300400

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

120

140

160

180

200

a)2 5

3

3.5

4

4.5

tial %

20

40

60

80

100OA

S(a

0.5

1

1.5

2

2.5

Yie

ld D

iffer

ent

-

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

0

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

TED Spread is the difference in rates between 3mos. libor rate and 3mos. UST Bill rate

(a)OAS (option-adjusted spread) is the option-adjusted yield differential between stated index and comparable U.S. Treasuries. OAS does not translate into a return.

Sources: Barclays Capital Bloomberg The above information is not a complete analysis of every material fact concerning any market industry or investment Data has been obtained from sourcesSources: Barclays Capital, Bloomberg. The above information is not a complete analysis of every material fact concerning any market, industry, or investment. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representations as to the completeness or accuracy of such information. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, management fees, risks and expenses. To obtain a Fund’s prospectus, which contains this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus carefully before investing.


Fixed Income Performance One Year Ending June 30, 2009

Stanislaus County Employees Retirement Association-Bond Acct

Portfolio (gross of fees): 7.44%Barclays Capital Aggregate Bond Index: 6.06%

U.S. Treasury yields declined, the yield curve steepened, and corporate bond yield premiums increased to record levels amid difficult capital market conditions, unprecedented interventionist U.S. government actions, and a significant slowdown in U.S. and global economic activity. In the second quarter of 2009, non-Treasury sectors staged a significant rally.

Yields of 2-year Treasuries declined by 151 bps to 1 11% 5-year Treasuries declined by 77bps to 2 56% 10-year Treasuries declined by

Market Changes

Yields of 2-year Treasuries declined by 151 bps to 1.11%, 5-year Treasuries declined by 77bps to 2.56%, 10-year Treasuries declined by 44bps to 3.53%, and 30-year Treasuries declined by 19bps to 4.33%. The Barclays Capital Treasury Index returned 6.5% for the year.

The Barclays Capital Corporate Index returned 3.8% for the year and underperformed comparable-duration Treasuries by 3.1%. Financial sector holdings fared far worse than non-financial holdings: the Financial Institutions Index returned -1.5% for the year, compared to 7.7% for Industrials and 8.6% for Utilities.

The portfolio’s nominal yield advantage significantly benefited relative returns.

Issue-specific MBS performance and the MBS sector overweight were both positive for the year.

The Barclays Capital MBS Index returned 9.4% for the year and outperformed comparable-duration Treasuries by 1.1%.

Dodge & Cox – Relative Return Factors

Issue specific MBS performance and the MBS sector overweight were both positive for the year.

The portfolio’s corporate sector overweight detracted from relative returns for part of the year given the underperformance of the corporate sector as a whole and the financial sector in particular. Later, this overweight added significantly to relative returns with the recovery of this sector in Q2. We added significantly to the portfolio’s corporate weighting year-over-year.

Certain corporate holdings performed poorly including Kaupthing Bank, AIG, Dillard’s, and Unum Group, offset largely by good p g p p y g p g , , , p, g y y gperformance from Ford Motor Credit, GMAC, and Comcast, among others.

The portfolio’s Treasury underweight (both on a market value and contribution-to-duration basis) hampered relative returns given the Treasury rally over this period when compared to corporates.

Past performance does not guarantee future results. The above is not a complete analysis of every material fact concerning the securities described. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representation as to the accuracy or completeness of such information.


Portfolio Positioning vs. Benchmark June 30, 2009

60 50St i l C t

gStanislaus County Employees Retirement Association-Bond Acct

Market Sector Composition Quality Composition

25303540455055

Allo

catio

n

Stanislaus CountyEmployees RetirementAssociation-Bond Acct

Barclays CapitalAggregate Bond Index

25

30

35

40

45

Allo

catio

n

Stanislaus CountyEmployees RetirementAssociation-Bond Acct

Barclays CapitalAggregate Bond Index

05

10152025

U.S. Treasury Mortgage Credit Cash

% A

(a)0

5

10

15

20

U.S. Govt. AAA AA A BAA ≤BA Cash

% A

U.S. Treasury& Govt. Related

MortgageRelated

Credit CashTreasury Related

Weighted-Average Summary Characteristics(b)

Stanislaus County Employees Barclays Capital

Retirement Association-Bond Acct Aggregate Bond Index

Yield-to-Maturity(c) 5.46% 4.12%

Quality(d) A+ AA+

Maturity 5.9 Yrs 6.7 Yrs

(a)Includes cumulative preferred stock of “Preferred Blocker, Inc.” a subsidiary of GMAC , Inc. (b)Source: statistics calculated using Compare from CMS BondEdge, an Interactive Data division and Barclays Capital POINT System. (c)Yield and principal value fluctuate with market conditions. (d) In calculating average quality for the portfolio, the investment manager assigns ratings to U.S. Treasury, agency, and government-related securities that are higher than those assigned to securities rated AAA. This differs from the Index methodology, which treats them as equivalent to AAA. The portfolio’s average credit quality might be lower if calculated using the Index methodology

Effective Duration 3.7 Yrs 4.3 Yrs

Performance figures do not reflect the deduction of investment advisory fees and other expenses. Returns will be reduced by advisory fees and other expenses incurred in the management of your account. For example, if an annual management fee of .60% were deducted quarterly from your account, a ten year annualized cumulative composite return of 10.00% would be reduced by .64% to 9.36%. Information on Dodge & Cox investment advisory fees can be found in its Form ADV, Part II.


Contribution to Yield (by Sector) June 30, 2009( y )Stanislaus County Employees Retirement Association-Bond Acct

6100%

67%100%

4

5

6

o Y

ield

(%)


Barclays Capital Aggregate Bond Index

27% 40%40%

20%1

2

3

Con

tribu

tion

to

6%0.0% 0%

-Cash Government Mortgage Credit Total(a)

Weight (%) 0.91 0.00 11.00 35.27 38.84 38.09 49.24 26.64 100.00 100.00Yield to Maturity 0.06 0.00 2.95 2.36 3.77 4.34 7.45 6.14 5.46 4.12

Contribution 0.00 0.00 0.32 0.83 1.46 1.65 3.67 1.64 5.46 4.12t Yi ld (b)to Yield ( )

Source: Barclays Capital POINT System. (a)Includes cumulative preferred stock of “Preferred Blocker, Inc.” a subsidiary of GMAC, Inc. (b)Contribution to Yield = Portfolio weightings (%) x Yield to Maturity (Years). The above information is not a complete analysis of every material fact concerning any market, industry or investment.


Contribution to Duration (by Sector) June 30, 2009( y )Stanislaus County Employees Retirement Association-Bond Acct

5

66%

100%

100%

3

4

5

urat

ion,

Yea

rs


Barclays Capital Aggregate Bond Index

11%

23%

66%

39%

26%35%

1

2

Con

tribu

tion

to D

u

11%

-Government Mortgage Credit Total

(a) (b)

Weight (%) 11.00 35.27 38.84 38.09 49.24 26.64 100.00 100.00Duration (Years) 3.69 4.71 2.21 2.95 5.03 5.69 3.74 4.30

Contribution 0.41 1.66 0.86 1.12 2.48 1.52 3.74 4.30to Duration (c)to Duration

Source: Barclays Capital POINT System. (a)Includes cumulative preferred stock of “Preferred Blocker, Inc.” a subsidiary of GMAC, Inc. (b)Portfolio cash weight = 0.91% (not shown in chart). Contribution to duration from cash is zero. (c)Contribution to Duration = Portfolio weightings (%) x Duration (Years). The above information is not a complete analysis of every material fact concerning any market, industry or investment.


Estimated Effects of Parallel Interest Rate Changes on Total ReturnsgStanislaus County Employees Retirement Association-Bond Acct vs. Barclays Capital Aggregate Bond Index

June 30, 2009

8

9Simulated Annualized Total Returns

Three Year Horizon

5

6

7

8

n%

Stanislaus County Employees Retirement Association

Yield Change

Stanislaus County Employees Retirement

Association

Barclays Capital Aggregate Bond Index (BCAG)

(%) (%) (%)-3.0 7.93 6.67

Three Year Horizon

2

3

4

5

Tota

l Ret

urn

-2.5 7.50 6.17-2.0 7.10 5.72-1.5 6.71 5.29-1.0 6.33 4.88-0.5 5.95 4.470 0 5 57 4 01

0

1

2

-3 -2 -1 0 1 2 3

BCAG

0.0 5.57 4.010.5 5.17 3.471.0 4.75 2.871.5 4.29 2.222.0 3.82 1.532.5 3.33 0.823 0 2 82 0 11

Key AssumptionsStarting portfolio yield is 5.46% and Benchmark is 3.93%. The analysis assumes instantaneous and parallel yield curve changes. The analysis does not show the potential effect of changes to the shape of the yield curve or to yield premiums. The analysis also assumes a static portfolio, no corporate defaults, and

Yield Change (%) 3.0 2.82 0.11

Total returns show simulated results Actual performance will vary with market conditions and may be materially different that the returns listed Performance figures do not reflect the deduction of

the potential effect of changes to the shape of the yield curve or to yield premiums. The analysis also assumes a static portfolio, no corporate defaults, and

mortgage prepayments estimated by the CMS BondEdge Compare model. Horizon period cash flows are determined using the CMS BondEdge Compare

model. In each yield change scenario, underlying security cash flows are instantaneously reinvested at the security’s starting yield plus the given yield change. Underlying securities are not aged.

Total returns show simulated results. Actual performance will vary with market conditions and may be materially different that the returns listed. Performance figures do not reflect the deduction of investment advisory fees and other expenses. Returns will be reduced by advisory fees and other expenses incurred in the management of your account. For example, if an annual management fee of .20% were deducted quarterly from your account, a ten year annualized cumulative composite return of 6.00% would be reduced by .21% to 5.79%. Information on Dodge & Cox investment advisory fees can be found in its Form ADV, Part II.


Supplemental Exhibits

E-354-040309-011509 | DODGE & COX Investment Managers | San Francisco

Consumer Discretionary Sector Diversification as of June 30, 2009yDodge & Cox Representative Account: 17.6% vs. S&P 500: 9.0%

Retailing / Distribution: 3.3%CarMax Genuine Parts Home

Media / Cable: 10.9%

CarMax, Genuine Parts, Home Depot, Liberty Interactive, Macy's

Comcast, DISH Network, Interpublic Group, Liberty Entertainment, Liberty Global, News Corp., Time Warner Cable, Time Warner

Consumer Electronics: 3.4%Panasonic, Sony

ll d dSector exposure is well diversified:

Some companies are domestic, others have global franchises

Some are deeply cyclical, others less economically sensitive

Some face rapid technological change, others less so

Source: FactSet Weightings are from a representative Dodge & Cox tax-exempt account over $50 million The above is not a complete analysis of every material fact concerning the securities described

Some sell impulse purchase products, others exhibit utility-like consumption

Some require internal restructuring, others face external market risks

Source: FactSet. Weightings are from a representative Dodge & Cox tax-exempt account over $50 million. The above is not a complete analysis of every material fact concerning the securities described. Statements of fact may be inaccurate or incomplete. The information provided is historical, does not predict future results or profitability and is subject to change without notice. Opinions expressed are subject to change without notice. This is not a recommendation to buy or sell any security and is not indicative of Dodge & Cox’s current or future trading activity. The securities identified do not represent an account’s entire holdings and are subject to change at any time without notice.


May 1967 – July 2009Ten-Year U.S. Treasury Yieldsy

16

12

14

6

8

10

Perc

ent

2

4

6

0

May-

67M

ay-69

May-

71M

ay-73

May-

75M

ay-77

May-

79M

ay-81

May-

83M

ay-85

May-

87M

ay-89

May-

91M

ay-93

May-

95M

ay-97

May-

99M

ay-01

May-

03M

ay-05

May-

07M

ay-09

Source: Bloomberg LP “GT 10-Year” or rolling “new issued” UST Ten-year note

The above information is not a complete analysis of every material fact concerning any market industry or investment Data has been obtained from sources considered reliable but Dodge & CoxThe above information is not a complete analysis of every material fact concerning any market, industry or investment. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representations as to the completeness or accuracy of such information. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, management fees, risks and expenses. To obtain a Fund’s prospectus, which contains this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus carefully before investing.


Recent Policy Actions And Effect on Mortgage Market June 30, 2009

8.50

9.00

15

20

y g gS&P / Case-Shiller Composite – 20 City Home Price Index (% Change YOY) Freddie Mac 30-Yr Conforming Mortgage Rate (Survey)

5 50

6.00

6.50

7.00

7.50

8.00

%

-10

-5

0

5

10

% C

hang

e (Y

OY)

4.00

4.50

5.00

5.50

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

-25

-20

-15

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Mortgage Affordability (NAR Home Affordability Composite Index) Mortgage Bankers Association Mortgage Applications

160

180

10,000

12,000

500

600

Refis (left scale) Purchases (right scale)

100

120

140

4,000

6,000

8,000

200

300

400

S F ddi M Bl b Th b i f ti i t pl t l i f t i l f t i k t i d t i t t D t h b bt i d f

80

100

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

0

2,000

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

0

100

Sources: Freddie Mac, Bloomberg. The above information is not a complete analysis of every material fact concerning any market, industry, or investment. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representations as to the completeness or accuracy of such information. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, management fees, risks and expenses. To obtain a Fund’s prospectus, which contains this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus carefully before investing.


Corporate Spread Comparison By Quality Rating June 30, 2009p p p y Q y g

1,600

1 1001,2001,3001,4001,500 Corp AAA Corp AA Corp A Corp BAA BA/B

700800900

1,0001,100

OA

S(a)

200300400500600

-100200

Dec-9

6

Dec-9

7

Dec-9

8

Dec-9

9

Dec-0

0

Dec-0

1

Dec-0

2

Dec-0

3

Dec-0

4

Dec-0

5

Dec-0

6

Dec-0

7

Dec-0

8

Source: Barclays Capital (POINT System). (a)The option-adjusted spread (OAS) is the instrument’s current spread over the benchmark minus that component of the spread that is attributable to the cost of the embedded options. OAS does not translate into a return The above information is not a complete analysis of every material fact concerning any market industry or investment Data has been obtained from sources considered reliabletranslate into a return. The above information is not a complete analysis of every material fact concerning any market, industry or investment. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representations as to the completeness or accuracy of such information. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, management fees, risks and expenses. To obtain a Fund’s prospectus, which contains this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus carefully before investing.


Portfolio Composition by Theme June 30, 2009p yStanislaus County Employees Retirement Association-Bond Acct

U.S. Treasury Securities 6.3% Corporate Securities 48.4%(a)

Various U.S. Treasury Notes 6.3 % Generally maintain a Non-Callable and Seek stable-to-improvinglower-than-market weighting Call-Protected Securities credits to build portfolio Control Portfolio duration and American International Group, Inc. HSBC Holdings PLC yield and enhance relative yield curve exposure AT&T, Inc. JPMorgan Chase & Co. total returnIncrease portfolio yield through Bank of America Corp. Kaupthing Bank hf(d)

holding off-the-run issues BHP Billiton Ltd. Lafarge SAProvide call protection Boston Properties, Inc. Liberty Media Corp.

Burlington Northern Santa Fe Corp. Liberty Mutual Group, Inc.M R l d S i i 38 9% C i l O Fi i l C M ' I C l i lMortgage-Related Securities 38.9% Capital One Financial Corp. Macy's Inc. Capture relatively

CIGNA Corp. Nordstrom, Inc. inexpensive call protectionSeasoned Pass-Throughs 32.4 % Provide Federal Agency quality Citigroup, Inc. Norfolk Southern Corp.Collateralized Mortgage 3.6 % Add incremental yield to portfolio Comcast Corp. Reed Elsevier Group PLC Obligations Emphasize stable average-life Consolidated Rail Corp. Roche Holding Ltd.Fannie Mae D.U.S. 2.7 % investments Covidien Ltd. SLM Corp.

Multifamily Provide defensive feature with Cox Communications Inc Sprint Nextel Corp Multifamily Provide defensive feature with Cox Communications, Inc. Sprint Nextel Corp."Hybrid" ARMs 0.2 % seasoned pass-throughs CSX Corp. Time Warner Cable, Inc.

Dillard's, Inc. Time Warner, Inc. Government Related Securities 4.7% Dow Chemical Co. Travelers Cos., Inc.

FedEx Corp. Union Pacific Corp.California Taxable G.O. Adding incremental yield Ford Motor Credit Company(b) Unum GroupSmall Business Administration PC (504) without incurring much greater General Electric Co. WellPoint, Inc.Small Business Administration PC (504) without incurring much greater General Electric Co. WellPoint, Inc.

credit risk GMAC, Inc.(c) Wells Fargo & Co.HCA, Inc. Wyeth

Cash 0.9% Health Net, Inc. Xerox Corp.Hewlett-Packard Co.

Asset-Backed Securities 0.8%

(a)Except as noted, investments grouped by parent company. Actual securities maybe issued by the listed parent company or one of its subsidiaries. (b)Subsidiary. (c)Includes cumulative preferred stock of “Preferred Blocker, Inc.” a subsidiary of GMAC, Inc. (d)Currently in default.

SLM Student Loan Trust 2007-1 A2 Add yield withoutincurring significant credit risk

The above is not a complete analysis of every material fact concerning the securities described. Statements of fact may be inaccurate or incomplete. The information provided is historical, does not predict future results or profitability and is subject to change without notice. This is not a recommendation to buy or sell any security and is not indicative of Dodge & Cox’s current or future trading activity. Holdings are subject to change at any time without notice.


Credit Analysis Review June 30, 2009y

Having looked over lists of major companies in recent history that have gone into bankruptcy, defaulted, or been downgraded to non-investment grade, we have come to the conclusion that there are four basic reasons that companies get into severe financial difficulty. These reasons include:A. The company is a weak player in a declining or cyclical commodity business.B. The company is very poorly financed to begin with and is unable to withstand ordinary business downturns.p y y p y g yC. The regulatory or legal environment changes in some adverse way.D. The company makes some “fad” product (e.g. toys) that can experience sudden shifts in demand.

Questions We Ask to Evaluate the Potential for a Company to Fall Into Any of Those Four Groups

Economic and Industry Risk AssessmentWhat is the industry’s exposure to the business cycle? Do emerging technologies or regulatory instability threaten the industry?What is the industry’s importance within the overall economy? Is this a commodity-like product/service in a low profitability industry? If so, what is the supply/demand balance likely to be going forward? What do capital expenditures look like (for the company and its competitors)?Is the industry expanding or contracting? Is the industry consolidating or fragmenting? Does it need more or fewer players?Is there an increasingly dominant or disruptive competitor?

Company-Specific Risk AssessmentCompany Specific Risk AssessmentWhat is the firm’s market share? Is it increasing or decreasing? What could reverse this trend over the course of a market cycle? Are there major contracts that expire prior to the maturity of our debt?What is management’s attitude towards debt? Are there specific goals in terms of credit ratings or debt level? Are they likely to do a levered acquisition?Does the firm face potential environmental liabilities, litigation exposure, or regulatory actions that could result in a severely adverse outcome?Are there any reasons for the firm to go into bankruptcy (e.g. labor contracts or other fixed commitments that might need to be abrogated)?

B l Sh O i Hi d D id C hfl M d lBalance Sheet, Operating History, and Downside Cashflow ModelHow stable are earnings and cash flows? What’s the potential range of outcomes over a cycle? What’s the firm’s financial position relative to its peers? Are there substantial off-balance sheet assets or liabilities or odd securities in the company’s capital structure?

Credit Metrics and Liquidity AnalysisHow large of a cash cushion exists for emergency situations? What happens if the firm is unable to refinance expiring credit arrangements? Does the firm own any non-core assets? How marketable are they? Are they generating cash flow?Specific emphasis is placed on leverage, coverage, and industry-specific ratios, both on an absolute basis and relative to peers. Is there anything misleading in the ratios?

Issue-Specific Risk AssessmentAre there any structural or subordination issues, significant covenants, ratings triggers, guarantees, etc. associated with the debt?

The above information is not a complete analysis of every material fact concerning any market, industry or investment. Opinions expressed are subject to change without notice. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, management fees, risks and expenses. To obtain a Fund’s prospectus, which contains this and other important information, visit www.dodgeandcox.com or call 800-621-3979. Please read the prospectus carefully before investing.


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Fixed Income Appraisal

June 30 2009June 30, 2009


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Documents

STANCERA 0827 1607 WWB RBT 082509 - Stanislaus County · Richard Callister 6 Machinery, Chemicals, Medical Devices, Scandinavia Englebert Bangayan 6 Commercial Services, Trans portation