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D O D G E & C O X
Stock Fund
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Dodge & Cox
Investment Managers
35th Floor
One Sansome Street
San Francisco
California 94104
(415) 981-1710
For Fund literature and
information, please call:
(800) 621-3979
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D O D G E & C O X
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Stock Fund
Established 1965
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Quarterly Report
September 30, 1996
1996
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D O D G E & C O X
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Stock Fund
<TABLE>
<CAPTION>
Portfolio of Investments September 30, 1996
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SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON CONSUMER: 21.9%
STOCKS: 1,596,600 Dayton-Hudson Corp......................................... $ 52,687,800
92.4% 545,000 Dillard Department Stores, Inc. Class A.................... 17,576,250
320,000 Fleming Cos., Inc.......................................... 5,560,000
695,300 Ford Motor Co.............................................. 21,728,125
601,900 Fruit of the Loom, Inc..................................... 18,658,900
1,060,000 General Motors Corp........................................ 50,880,000
356,500 Genuine Parts Co........................................... 15,596,875
675,000 James River Corp. of Virginia.............................. 18,646,875
2,000,000 Kmart Corp................................................. 20,500,000
1,028,700 Masco Corp................................................. 30,861,000
549,200 Melville Corp.............................................. 24,233,450
780,000 Nordstrom, Inc............................................. 29,689,140
270,000 Procter & Gamble Co........................................ 26,325,000
405,000 Sony Corp. ADR............................................. 25,768,125
119,000 Unilever NV................................................ 18,757,375
286,200 VF Corp.................................................... 17,207,775
491,300 Whirlpool Corp............................................. 24,872,063
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419,548,753
FINANCE: 18.0%
910,000 American Express Co........................................ 42,087,500
192,000 American International Group, Inc.......................... 19,344,000
363,000 BankAmerica Corp........................................... 29,811,375
640,000 Barnett Banks, Inc......................................... 21,600,000
620,000 Chubb Corp................................................. 28,520,000
477,000 Citicorp................................................... 43,228,125
138,000 General Re Corp............................................ 19,561,500
600,000 Golden West Financial Corp................................. 35,025,000
77,000 Lehman Brothers Holdings, Inc.............................. 1,963,500
303,000 Morgan (J.P.) & Co......................................... 26,929,125
550,000 Norwest Corp............................................... 22,481,250
388,000 Republic New York Corp..................................... 26,820,500
465,000 The St. Paul Cos., Inc..................................... 25,807,500
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343,179,375
ELECTRONICS AND COMPUTERS: 10.4%
1,037,000 Digital Equipment Corp..................................... 37,072,750
598,000 Hewlett-Packard Co......................................... 29,152,500
386,000 International Business Machines Corp....................... 48,057,000
336,400 Motorola, Inc.............................................. 17,366,650
1,000,000 National Semiconductor Corp................................ 20,125,000
596,600 Sybase, Inc................................................ 8,912,011
1,050,600 Tandem Computers, Inc...................................... 11,293,950
496,000 Texas Instruments, Inc..................................... 27,342,000
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199,321,861
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D O D G E & C O X
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Stock Fund
<TABLE>
<CAPTION>
Portfolio of Investments September 30, 1996
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SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON BASIC INDUSTRY: 9.9%
STOCKS 571,000 Aluminum Co. of America................................. $ 33,689,000
(Continued) 551,600 Boise Cascade Corp...................................... 18,754,400
393,000 Champion International Corp............................. 18,028,875
38,500 Crown Vantage, Inc...................................... 459,613
464,000 Dow Chemical Co......................................... 37,236,000
666,000 International Paper Co.................................. 28,305,000
305,000 Lubrizol Corp........................................... 8,768,750
544,000 Nalco Chemical Co....................................... 19,720,000
521,000 Weyerhaeuser Co......................................... 24,031,125
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188,992,763
ENERGY: 8.3%
638,200 Amerada Hess Corp....................................... 33,744,825
308,000 Chevron Corp............................................ 19,288,500
58,000 Exxon Corp.............................................. 4,828,500
239,000 Halliburton Co.......................................... 12,338,375
63,000 Mobil Corp.............................................. 7,292,250
560,000 Phillips Petroleum Co................................... 23,940,000
141,000 Royal Dutch Petroleum Co................................ 22,013,625
145,000 Schlumberger Ltd........................................ 12,252,500
293,000 Union Pacific Resources Group, Inc...................... 8,204,000
231,700 Western Atlas, Inc...................................... 14,423,325
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158,325,900
BUSINESS PRODUCTS AND SERVICES: 5.7%
1,121,300 Donnelley (R.R.) & Sons Co.............................. 36,161,925
492,200 Dow Jones & Co.......................................... 18,211,400
436,800 Federal Express Corp.................................... 34,616,400
390,000 Xerox Corp.............................................. 20,913,750
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109,903,475
PUBLIC UTILITIES: 5.3%
601,500 BCE, Inc................................................ 25,714,125
108,000 Carolina Power & Light Co............................... 3,726,000
649,000 Edison International.................................... 11,600,875
296,900 FPL Group, Inc.......................................... 12,840,925
579,600 Pacific Enterprises..................................... 17,532,900
370,000 Texas Utilities Co...................................... 14,661,250
961,300 TransCanada PipeLines Ltd............................... 15,500,963
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101,577,038
CAPITAL EQUIPMENT: 3.3%
418,000 Caterpillar, Inc........................................ 31,506,750
745,600 Deere & Co.............................................. 31,315,200
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62,821,950
TRANSPORTATION: 3.2%
1,110,000 Canadian Pacific Ltd.................................... 25,668,750
491,000 Union Pacific Corp...................................... 35,965,750
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61,634,500
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<TABLE>
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Portfolio of Investments September 30, 1996
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SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON DIVERSIFIED TECHNOLOGY: 3.0%
STOCKS 625,000 Corning, Inc........................................... $ 24,375,000
(Continued) 18,600 Imation Corp........................................... 455,700
186,000 Minnesota Mining & Manufacturing Co.................... 12,996,750
251,100 Raychem Corp........................................... 18,832,500
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56,659,950
PHARMACEUTICAL AND HEALTH: 2.5%
190,000 Pfizer, Inc............................................ 15,033,750
372,650 Pharmacia & Upjohn, Inc................................ 15,371,813
300,000 SmithKline Beecham plc ADR............................. 18,262,500
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48,668,063
MISCELLANEOUS: 0.9%
474,300 Meditrust.............................................. 16,422,638
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Total Common Stocks (cost $1,355,193,488)........ 1,767,056,266
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PREFERRED CONSUMER: 0.3%
STOCKS: 64,100 Kmart Financing I, 7 3\4% Trust Convertible Preferred.. 3,132,888
0.3% 90,092 Times Mirror Co. Conversion Preferred Series B......... 2,387,438
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Total Preferred Stocks (cost $5,141,755)......... 5,520,326
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PAR VALUE
SHORT-TERM $ 2,590,000 Eli Lilly & Co., Variable Demand Note 5.02%, 1996...... 2,590,000
INVESTMENTS: 35,508,004 General Mills, Inc., Variable Demand Note 5.19%, 1996.. 35,508,004
6.7% 33,077,521 Pitney Bowes Credit Corp., Variable Demand Note 5.19%,.1996 33,077,521
25,663,937 Sara Lee Corp., Variable Demand Note 5.17%, 1996....... 25,663,937
20,896,991 Southwestern Bell Telephone Co., Variable Demand Note 5.17%,
1996.................................................. 20,896,991
3,409,913 Warner Lambert Co., Variable Demand Note 5.17%, 1996... 3,409,913
5,750,909 Wisconsin Electric Power Corp., Variable Demand Note 5.24%,
1996.................................................. 5,750,909
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Total Short-Term Investments (cost $126,897,275). 126,897,275
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TOTAL INVESTMENTS (cost $1,487,232,518)....... 99.4% 1,899,473,867
OTHER ASSETS LESS LIABILITIES................. 0.6 12,007,839
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TOTAL NET ASSETS.............................. 100.0% $1,911,481,706
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Capital shares outstanding 25,466,499 Net asset value per share $75.06
(par value $1.00 each)
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D O D G E & C O X
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Stock Fund
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Condensed Statement of Operations
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For the Nine Months Ended September 30, 1996
<S> <C>
Investment income................................................ $ 28,239,505
Expenses......................................................... 7,045,974
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Net investment income............................................ $ 21,193,531
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Net realized gain from security transactions
(based on identified cost)..................................... $ 27,806,030
Change in unrealized appreciation of investments................ 125,014,121
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Net realized and unrealized gain on investments................. $ 152,820,151
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<TABLE>
<CAPTION>
Condensed Financial Information
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Net Asset Value Per Share Distributions Per Share
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Year Ended Capital
December 31 Net Assets Actual Adjusted* Income Gains
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<S> <C> <C> <C> <C> <C>
1986 $ 45,062,188 $31.66 $ 35.62 $ .94 $ 3.90
1987 67,466,098 32.94 38.80 1.03 1.58
1988 81,579,776 35.26 42.84 1.07 1.11
1989 125,161,597 42.57 52.74 1.23 .82
1990 172,969,111 38.79 48.41 1.35 .28
1991 281,296,392 44.85 57.14 1.24 .87
1992 335,922,835 48.37 61.82 1.11 .16
1993 435,895,275 53.23 71.70 1.04 2.84
1994 543,475,451 53.94 73.90 1.15 .89
1995 1,227,927,343 67.83 96.66 1.26 2.66
1996 (9/30) 1,911,481,706 75.06 107.19 .94** .15
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$12.36 $15.26
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* Adjusted for assumed reinvestment of capital gains distributions.
** During the quarter, a distribution of $.32 per share from net investment
income was paid to shareholders of record September 17, 1996.
<TABLE>
<CAPTION>
Average annual total returns for periods ended September 30, 1996 1 Year 5 Years 10 Years 20 Years
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<S> <C> <C> <C> <C>
Dodge & Cox Stock Fund 16.53% 16.37% 15.26% 15.34%
S&P 500 Index 20.32 15.22 14.99 14.26
</TABLE>
The Fund's total returns include the reinvestment of dividend and capital gains
distributions. The S&P 500 Index is a broad-based, unmanaged measure of common
stocks. Index returns include dividends and, unlike Fund returns, do not reflect
fees or expenses. Past performance does not guarantee future results. Investment
return and share price will fluctuate with market conditions, and investors may
have a gain or loss when shares are sold.
* * *
The financial information has been taken from the records of the Fund and has
not been audited by our independent accountants, who do not express an opinion
thereon. The financial statements of the Fund will be subject to audit by our
independent accountants as of the close of the calendar year.
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D O D G E & C O X
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Stock Fund
Officers and Directors
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John A. Gunn, President and Director
President, Dodge & Cox
W. Timothy Ryan, Secretary-Treasurer
and Director
Senior Vice-President, Dodge & Cox
Katherine Herrick Drake, Assistant
Secretary-Treasurer and Director
Vice-President, Dodge & Cox
Harry R. Hagey, Director
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
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MANAGERS
Dodge & Cox
One Sansome Street, 35th Floor
San Francisco, California 94104
Telephone (415) 981-1710
CUSTODIAN & TRANSFER AGENT
Firstar Trust Company
P. O. Box 701
Milwaukee, Wisconsin 53201-0701
Telephone (800) 621-3979
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
San Francisco, California
LEGAL COUNSEL
Heller, Ehrman, White & McAuliffe
San Francisco, California
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This report is submitted for the general information of the shareholders of the
Fund. The report is not authorized for distribution to prospective investors in
the Fund unless it is accompanied by a current prospectus.
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DODGE & COX
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Stock Fund
General Information
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Dodge & Cox The Fund enables investors to obtain the benefits of
Stock Fund experienced and continuous investment supervision. The Fund
is invested in a broadly diversified and carefully selected
list of common stocks to provide shareholders with an
opportunity for long-term growth of principal and income.
Investment Since 1930, Dodge & Cox has been providing professional
Manager investment management for individuals, trustees,
corporations, pension and profit-sharing funds, and
charitable institutions. In addition, Dodge & Cox manages the
Dodge & Cox Balanced Fund and the Dodge & Cox Income Fund.
Dodge & Cox is not engaged in the brokerage business nor in
the business of dealing in or selling securities.
No Sales Charge There are no commissions on the purchase or redemption of
shares of the Fund.
Gifts Dodge & Cox Stock Fund shares provide a convenient method for
making gifts to children and to other family members. Fund
shares may be held by an adult custodian for the benefit of a
minor under a Uniform Gifts/Transfers to Minors Act. Trustees
and guardians may also hold shares for a minor's benefit.
Reinvestment Shareholders may direct that dividend and capital gains
Plan distributions be reinvested in additional Fund shares.
Automatic Shareholders may make regular monthly or quarterly
Investment Plan investments of $100 or more through automatic deductions from
their bank accounts.
Withdrawal Plan Shareholders owning $10,000 or more of the Fund's shares may
elect to receive periodic monthly or quarterly payments of at
least $50. Under the plan, all dividend distributions are
automatically reinvested at net asset value with the periodic
payments made from the proceeds of the redemption of
sufficient shares.
The above plans are completely voluntary and involve no
service charge of any kind.
IRA Plan The Fund has available an Individual Retirement plan (IRA)
for shareholders of the Fund.
Fund literature and details on all of these plans are
available from the Fund upon request.
Dodge & Cox Stock Fund
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
Telephone (800) 621-3979
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DODGE & COX
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Stock Fund
Dear Shareholder October 1996
The Dodge & Cox Stock Fund had a total return of 2.3% for the quarter ended
September 30, 1996. This result compares with a total return of 3.1% for the
Standard & Poor's 500 Index (S&P 500). For the first nine months of 1996, the
Stock Fund returned 12.3%, compared to 13.5% for the S&P 500. Returns for longer
time periods are presented in the box below.
<TABLE>
<CAPTION>
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Average Annual Total Return
For periods ended September 30, 1996 1 Year 5 Years 10 Years 20 Years
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<S> <C> <C> <C> <C>
Dodge & Cox Stock Fund 16.53% 16.37% 15.26% 15.34%
S&P 500 20.32 15.22 14.99 14.26
</TABLE>
The Fund's total returns include the reinvestment of dividend and capital gain
distributions. The S&P 500 (a broad-based, unmanaged measure of common stocks)
returns include reinvested dividends, and unlike Fund returns, do not reflect
fees or expenses. Past performance does not guarantee future results. Investment
return and share price will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
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Performance Review
For the first nine months of 1996, the Fund provided a strong total return, but
lagged the return of the S&P 500. Some of the differential in returns can be
explained by the combination of the Fund's operating expenses and a modest cash
position (7.3% at September 30, 1996). Holdings in the banking, capital
equipment, diversified technology and consumer non-durables industries performed
well relative to the overall equity market. While IBM was one of the top
performing stocks in the Fund, the Fund's equity holdings in the
electronics/computer sector lagged the market, as did the Fund's consumer
durables and insurance stocks. Retail stocks have also been some of the Fund's
strongest holdings year-to-date, although, as a group, they lagged the S&P 500
in the third quarter. The Fund's return relative to the S&P 500 in the third
quarter was also hampered by its underweighted position in consumer products and
health care companies.
Cycle Sensitive Stocks
Our equity investment philosophy remains unchanged: we look at stock price in
relation to our analysis of a company's earnings prospects over the next three
to five years, focusing on individual companies, rather than "top-down"
macroeconomic or sector analysis. Using this "bottom-up" approach, we have
invested in many companies in "cycle sensitive" industries. At quarter-end, 43%
of the Fund was invested in this sector, compared to 30% of the S&P 500.
The Fund's 29 holdings in this broadly diversified sector include companies in
the technology, industrial commodities, transportation, consumer durables and
capital equipment industries. At September 30, 1996, the five largest stock
positions in this category were General Motors, IBM, Digital Equipment, Union
Pacific and Dow Chemical. Further illustrating our belief in the potential of
companies in this area is a new position in Ford Motor Co., which was purchased
in the Fund in the third quarter. At $32, Ford trades at less than 10 times our
1996 earnings estimate and yields 4.9% on the current dividend.
Many companies in the cycle sensitive sector have depressed valuations relative
to the market. Many investors are worried about the longevity of the current
U.S. business cycle, since it is 5 1/2 years old. We believe it is difficult to
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Dodge & Cox One Sansome Street San Francisco, California 94104
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DODGE & COX
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Stock Fund
forecast recessions and, based on our three to five year investment horizon,
believe that stock prices of many cycle sensitive companies appear attractive.
In addition, many companies in this area have substantial revenues outside of
the United States. For example, IBM, Digital Equipment and Dow Chemical have
62%, 65% and 55% of their sales overseas, respectively. Even General Motors
derives approximately one fourth of its revenues from foreign markets. The world
economy is integrating, and U.S. companies have a substantial stake
overseas--the domestic business cycle is only one factor among many to be
considered. The Fund's stocks in this sector are impacted by very different
cycles; for instance, Deere is affected by global agricultural equipment
spending and Weyerhaeuser by worldwide paper and forest products pricing.
In Closing
Thank you for your continued confidence in the Dodge & Cox Stock Fund. As
always, we welcome your comments and questions.
Dodge & Cox
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Dodge & Cox One Sansome Street San Francisco, California 94104
