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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
Stock Fund
Established 1965
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Quarterly Report
March 31, 1996
1996
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D O D G E & C O X
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Stock Fund
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Portfolio of Investments March 31, 1996
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SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON CONSUMER: 21.2%
STOCKS: 515,000 Dayton-Hudson Corp. ........................................... $ 43,710,625
92.8% 545,000 Dillard Department Stores, Inc. Class A ....................... 18,870,625
320,000 Fleming Cos., Inc. ............................................ 4,560,000
601,900 Fruit of the Loom, Inc......................................... 15,574,163
759,000 General Motors Corp. .......................................... 40,416,750
356,500 Genuine Parts Co. ............................................. 16,042,500
555,000 James River Corp. of Virginia ................................. 14,291,250
1,275,000 Kmart Corp. ................................................... 11,953,125
800,000 Masco Corp. ................................................... 23,200,000
670,000 Melville Corp. ................................................ 24,036,250
596,100 Nordstrom, Inc. ............................................... 28,873,892
270,000 Procter & Gamble Co. .......................................... 22,882,500
47,000 Unilever NV ................................................... 6,380,250
286,200 VF Corp. ...................................................... 15,812,550
386,300 Whirlpool Corp. ............................................... 21,343,075
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307,947,555
FINANCE: 17.6%
695,000 American Express Co. .......................................... 34,315,625
129,000 American International Group, Inc. ............................ 12,077,625
288,000 BankAmerica Corp. ............................................. 22,320,000
235,000 Barnett Banks, Inc. ........................................... 14,628,750
191,000 Chubb Corp. ................................................... 17,930,125
447,000 Citicorp ...................................................... 35,760,000
98,000 General Re Corp. .............................................. 14,283,500
500,000 Golden West Financial Corp. ................................... 26,812,500
77,000 Lehman Brothers Holdings, Inc. ................................ 2,059,750
218,000 Morgan (J.P.) & Co. ........................................... 18,094,000
445,000 Norwest Corp. ................................................. 16,353,750
338,000 Republic New York Corp. ....................................... 20,111,000
370,000 The St. Paul Cos., Inc. ....................................... 20,535,000
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255,281,625
ENERGY: 10.1%
462,000 Amerada Hess Corp. ............................................ 25,410,000
283,000 Chevron Corp. ................................................. 15,883,375
58,000 Exxon Corp. ................................................... 4,734,250
239,000 Halliburton Co. ............................................... 13,593,125
63,000 Mobil Corp. ................................................... 7,300,125
560,000 Phillips Petroleum Co. ........................................ 22,120,000
141,000 Royal Dutch Petroleum Co. ..................................... 19,916,250
145,000 Schlumberger Ltd. ............................................. 11,473,125
206,600 Sonat, Inc. ................................................... 7,437,600
213,000 Union Pacific Resources Group, Inc. ........................... 5,644,500
231,700 Western Atlas, Inc. ........................................... 13,902,000
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147,414,350
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D O D G E & C O X
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Stock Fund
<TABLE>
<CAPTION>
Portfolio of Investments March 31, 1996
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SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON BASIC INDUSTRY: 9.8%
STOCKS 436,000 Aluminum Co. of America ........................................ $27,304,500
(Continued) 409,100 Boise Cascade Corp. ............................................ 17,182,200
153,000 Champion International Corp. ................................... 6,923,250
38,500 Crown Vantage, Inc. ............................................ 553,438
324,000 Dow Chemical Co. ............................................... 28,147,500
616,000 International Paper Co. ........................................ 24,255,000
444,000 Nalco Chemical Co. ............................................. 13,653,000
521,000 Weyerhaeuser Co. ............................................... 24,031,125
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142,050,013
ELECTRONICS AND COMPUTERS: 9.3%
491,600 Digital Equipment Corp. ........................................ 27,099,450
249,000 Hewlett-Packard Co. ............................................ 23,406,000
293,000 International Business Machines Corp. .......................... 32,559,625
266,400 Motorola, Inc. ................................................. 14,119,200
920,000 National Semiconductor Corp. ................................... 12,765,000
1,050,600 Tandem Computers, Inc. ......................................... 9,324,075
316,000 Texas Instruments, Inc. ........................................ 16,076,500
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135,349,850
BUSINESS PRODUCTS AND SERVICES: 5.5%
717,900 Donnelley (R.R.) & Sons Co. .................................... 24,767,550
342,200 Dow Jones & Co. ................................................ 13,174,700
371,800 Federal Express Corp. .......................................... 25,979,525
135,000 Xerox Corp. .................................................... 16,942,500
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80,864,275
PUBLIC UTILITIES: 4.9%
601,500 BCE, Inc. ...................................................... 21,278,063
108,000 Carolina Power & Light Co. ..................................... 4,023,000
192,000 Consolidated Natural Gas Co. ................................... 8,352,000
129,000 Edison International ........................................... 2,209,125
203,000 FPL Group, Inc. ................................................ 9,185,750
524,600 Pacific Enterprises ............................................ 13,574,025
290,000 Texas Utilities Co. ............................................ 11,998,750
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70,620,713
CAPITAL EQUIPMENT: 4.8%
333,000 Caterpillar, Inc. .............................................. 22,644,000
660,600 Deere & Co. .................................................... 27,580,050
244,000 General Electric Co. ........................................... 19,001,500
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69,225,550
DIVERSIFIED TECHNOLOGY: 3.4%
625,000 Corning, Inc. .................................................. 21,875,000
186,000 Minnesota Mining & Manufacturing Co. ........................... 12,066,750
251,100 Raychem Corp. .................................................. 16,195,950
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50,137,700
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Stock Fund
<TABLE>
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Portfolio of Investments March 31, 1996
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SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON TRANSPORTATION: 3.4%
STOCKS 1,110,000 Canadian Pacific Ltd. ........................................ $22,200,000
(Continued) 396,000 Union Pacific Corp. .......................................... 27,175,500
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49,375,500
PHARMACEUTICAL AND HEALTH: 2.8%
190,000 Pfizer, Inc. ................................................. 12,730,000
372,650 Pharmacia & Upjohn, Inc. ..................................... 14,859,419
270,000 SmithKline Beecham plc ADR ................................... 13,905,000
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41,494,419
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Total Common Stocks (cost $997,529,106)............... 1,349,761,550
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PREFERRED CONSUMER: 0.2%
STOCKS: 90,092 Times Mirror Co. Conversion Preferred Series B ............... 2,342,392
0.2% -------------
Total Preferred Stocks (cost $1,936,755) ............. 2,342,392
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PAR VALUE
SHORT-TERM $15,295,351 General Mills, Inc., Variable Demand Note 5.10%, 1996 ........ 15,295,351
INVESTMENTS: 18,367,987 Pitney Bowes Credit Corp., Variable Demand Note 5.11%, 1996 .. 18,367,987
7.0% 28,812,992 Sara Lee Corp., Variable Demand Note 5.09%, 1996 ............. 28,812,992
32,984,020 Southwestern Bell Telephone Co., Variable Demand Note 5.09%, 1996 32,984,020
5,301,837 Wisconsin Electric Power Corp., Variable Demand Note 5.16%, 1996 5,301,837
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Total Short-Term Investments (cost $100,762,187) ..... 100,762,187
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TOTAL INVESTMENTS (cost $1,100,228,048)............... 100.0% 1,452,866,129
OTHER ASSETS LESS LIABILITIES ........................ 0.0 464,635
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TOTAL NET ASSETS ..................................... 100.0% $1,453,330,764
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Capital shares outstanding 20,285,164 Net asset value per share $71.65
(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 Three Months Ended March 31, 1996
<S> <C>
Investment income ..................................................... $ 7,987,836
Expenses .............................................................. 2,017,772
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Net investment income ................................................. $ 5,970,064
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Net realized gain from security transactions (based on identified cost) $10,508,137
Change in unrealized appreciation of investments ...................... 65,410,853
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Net realized and unrealized gain on investments ....................... $75,918,990
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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 (3/31) 1,453,330,764 71.65 102.32 .30** .15**
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$11.72 $15.26
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* Adjusted for assumed reinvestment of capital gains distributions.
** Distributions of $.30 per share from net investment income and $.15 per
share from net capital gains were paid to shareholders of record March 14,
1996. The capital gain distribution of $.15 per share includes a net
short-term capital gain of $.02 per share.
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Average annual total return for periods ended March 31, 1996 1 Year 5 Years 10 Years 20 Years
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<S> <C> <C> <C> <C>
Dodge & Cox Stock Fund 29.25% 15.99% 14.25% 15.14%
S&P 500 Index 32.09 14.66 13.97 14.08
</TABLE>
The average annual total return figures include reinvestment of dividend
and capital gain distributions. These results represent past performance;
past performance is no guarantee of future results. Investment return and
share price will vary, and shares may be worth more or less at redemption
than at original purchase.
* * *
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, Assistant Secretary-
Treasurer and Director
Chairman & CEO, 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 an effective prospectus.
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D O D G E & C O X
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Stock Fund
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D O D G E & C O X
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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
Counsel investment management for individuals, trustees,
Management 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
Investment Plan Shareholders may make regular monthly or quarterly
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 April 1996
The Dodge & Cox Stock Fund had a total return of 6.3% for the quarter ended
March 31, 1996, exceeding the Standard & Poor's 500 Index (S&P 500) return of
5.4%. Longer term results are included in the table below. The Fund's first
quarter results were bolstered by the strong performance of retail stocks, which
rebounded after under-performing the market in 1995. In addition, several
cyclical, financial and energy companies contributed positively to the Fund's
total return.
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Average Annual Total Return
For periods ended March 31, 1996 1 Year 5 Years 10 Years 20 Years
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<S> <C> <C> <C> <C>
Dodge & Cox Stock Fund 29.25% 15.99% 14.25% 15.14%
S&P 500 Index 32.09 14.66 13.97 14.08
</TABLE>
The Fund's average annual total return figures include reinvestment of dividend
and capital gain distributions and are net of expenses and investment management
fees. These results represent past performance; past performance is no
guarantee of future results. Investment return and share price will vary, and
shares may be worth more or less at redemption than at original purchase.
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The equity market continued its heady 1995 pace in the first quarter of 1996.
We want to reiterate our caution that recent returns, especially the strong
performance of the last five quarters, are unlikely to be repeated in the near
future. However, we continue to identify companies that we believe have good
long term investment prospects. Since the beginning of the year, for example,
we have established new positions in three companies--Champion International,
National Semiconductor, and Unilever. Assuming the world economy continues to
expand over the next several years and inflation remains low, we believe the
equity market will continue to offer satisfactory investment returns.
"Bottom-up" Investment Philosophy
We started these quarterly letters last year to give you a clear idea of the
bottom-up investment philosophy we apply when managing your money. Because our
approach always starts at the individual investment--the company--we want to
focus this quarter on two representative stocks held by the Fund--Federal
Express and Dayton-Hudson. Please note that these companies are discussed as an
example of our research process, not because we believe they are necessarily
more attractive than the Fund's other investments. Federal Express and
Dayton-Hudson are important stocks in the portfolio, but they represent 5% of
the Fund's assets. The remaining 95% consists of 75 other companies, each of
which receive the same kind of analytical and research scrutiny we will describe
below.
Two Illustrations of our Approach
From the end of 1985 to 1988, the price of Federal Express fell relative to the
stock market, as the company's international expansion led to large losses
overseas and because of a failed experiment in facsimile machines called "Zap
Mail." Seeing a potential value, our transportation analyst began researching
the company.
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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
In early 1989, Federal Express made a large acquisition, Flying Tiger. Often we
are wary of large acquisitions. Subsequent to the acquisition, a rapid decline
in profits from Tiger's international shipping hurt Federal Express' bottom
line. Because Federal Express had a very profitable domestic franchise and we
believed in the long-term international opportunity, our analyst recommended
purchase in mid-1989. Our Policy Committee, which makes the investment
decisions for the Fund, decided to wait and monitor the company's prospects. In
1990, two members of the Committee spent a day with management at Federal
Express. With greater confidence in their long term strategy, and a lower stock
price relative to the market, we purchased the stock for the Fund in March,
1991.
Federal Express has continued to pursue the international express business.
After restructuring this business in 1992, revenues have grown in excess of 20%
annually, and it is now profitable. During the five years in which the Fund has
owned Federal Express, the stock has returned 12.8% annually, underperforming
the S&P 500's return of 14.7%. We have continued to add to the Fund's position
when we believe the stock price is low. Given the company's potential growth in
sales and profits as the global expansion continues, we believe the stock has an
attractive valuation of 4 times cash flow and 14 times earnings.
Dayton-Hudson, currently the Fund's largest holding, was first purchased in
1987. Problems in one of its retail divisions, Mervyn's, had caused the stock
to drop significantly relative to the market in the previous two years. At that
time, we believed Dayton-Hudson had good growth prospects with Target and
Mervyn's stores and steady earnings from its department stores division.
In retrospect, we underestimated Target, which has grown revenues at 14%
annually since 1987 and occupies a strong position in discount retailing. Target
plans to continue to expand by growing its store base by 8-10% per year over the
next 3-4 years. Mervyn's, however, we overestimated. After recovering from the
problems of 1987 to earn good returns in 1989-1990, this division had weak
profits from 1993-1995. The division has changed management and merchandising
strategy. Results have improved somewhat in late 1995 and early 1996.
As we got to know the management at Dayton-Hudson, we have been impressed with
their merchandising skills and ability to solve problems when they materialize.
In the tough retailing environment of 1995, Dayton-Hudson's stock price rose
only slightly in a sharply higher market. Believing in the company's underlying
strengths and future prospects, we took the opportunity to continue to build the
Fund's position in the stock.
In Closing
Our investment approach has a long term orientation. However, we examine the
Fund's portfolio and its prospects daily. In effect, we are always standing up
at the plate looking at the pitches, but only swinging occasionally.
While we often look at companies with declining prices relative to the market,
we are not "knee-jerk" contrarians. When many other investors dislike a company,
we do not automatically like it. With out of favor companies, worries are never
imaginary, but often they are overblown in the minds of current investors. It is
our belief that some of the best investment bargains are found during periods of
pessimism.
As always, we welcome your comments and suggestions.
Dodge & Cox
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