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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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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
Established 1965
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Quarterly Report
March 31, 1997
1997
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D O D G E & C O X
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Stock Fund
Fellow Shareholders
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During the first quarter of 1997, the Dodge & Cox Stock Fund achieved a total
return of 2.5%, versus a return of 2.7% for the Standard & Poor's 500 Index (S&P
500) of common stocks. Total assets of the Fund were $2.5 billion at quarter-
end. Average annual total returns for longer time periods are listed on page
three of this report.
Performance Overview
The Fund's finance (banks and insurance) stocks continued to be strong
performers. Although we sold two stocks in this sector during the quarter, the
portfolio remains modestly overweight in finance relative to the S&P 500. Other
top performers in the first quarter included retail, media/printing and capital
equipment stocks.
The Fund's relative performance was hindered by several of its holdings in the
electronics/computer industry. Energy, utility and railroad stocks also lagged
the market over the quarter.
Long-term Perspective
Our approach at Dodge & Cox has yielded rewarding long-term results for the
Fund. Since March 31, 1977, a period of 20 years, the Stock Fund has an average
annual total return of 16.0% (after all fees and expenses), compared to the S&P
500 return of 15.1%. Our investment approach has remained the same during this
period, as have many of the decision makers. The eight-member Investment Policy
Committee directly manages the Stock Fund. Three members have been on the
Committee for the last 20 years, and the remaining five members' tenure at Dodge
& Cox averages over 13 years.
Value-oriented Equity Philosophy
Fundamental to our approach is the belief that the value of a company is a
function of its future profitability, in terms of both earnings and cash flows.
Investment opportunity is created when a company's future profitability is
underestimated by the investment community, resulting in a current stock price
that "undervalues" the company's future prospects. Thus, investment performance
of the Fund over the next four to five years will be determined primarily by the
current prices of the companies owned in the portfolio and the profitability of
these companies over that time frame. Our approach is to look for values among
the less popular companies, since it is often in the areas of pessimism that one
finds investment bargains. We do not allow short-term developments, good or bad,
to cloud our reasoning in looking longer term for investment value.
Our approach has been characterized by some as "contrarian", since the Fund
often owns companies that are currently out of favor. However, we do not buy
companies just because everyone else dislikes them. Our equity staff of 18
research analysts and portfolio managers is continuously involved in talking to
company managements, researching industry conditions, talking to outside
contacts (consultants and Wall Street analysts), and using numerous other
information sources to maintain as good an understanding as we can of the
potential profitability of companies over the next four to five years. Armed
with this hard-earned knowledge, we are able to comfortably own companies whose
near-term prospects may seem uncertain, but whose longer term prospects appear
more favorable.
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D O D G E & C O X
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Stock Fund
For example, we continue to find value in a number of companies whose profit
growth is more sensitive to the business cycle. In general, these companies tend
to prosper as the economy expands and experience slowdowns in their business as
the economy contracts or moves into a recession. The Fund holds 37 companies,
representing 49% of assets, in this broadly diversified "cycle-sensitive"
sector, which includes among others electronics/computer, industrial
commodities, autos, appliances, machinery, transportation and retail companies.
Many investors are pessimistic about the near to intermediate term outlook for
companies in this area due to questions about the sustainability of the U.S.
economic expansion. Consequently, most are selling at historically low
valuations. Each of the stocks in this group, as well as the rest of the Fund,
is evaluated and selected on its own merits, comparing our long-term view of the
company's potential profitability against its current price. This is the essence
of our long-term, value oriented approach to investment management.
Closing Note
As we explained in our year-end letter, in a period when the stock market is
likely to show less appreciation than in recent years, we believe that our
emphasis on individual security selection and price discipline will be important
factors in seeking attractive relative returns over the long-term.
Thank you for your continued confidence in the Dodge & Cox Stock Fund. As
always, we welcome your comments & questions.
For the Board of Directors,
/s/ John A. Gunn
April 29, 1997 John A. Gunn, President
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D O D G E & C O X
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Stock Fund
Objective
The Fund's primary objective is to provide shareholders with an opportunity for
long-term growth of principal and income. A secondary objective is to achieve a
reasonable current income.
Strategy
The Fund seeks to achieve these objectives by remaining fully invested in well-
established companies which, in the view of Dodge & Cox, have positive earnings
prospects not reflected in the current price. Dodge & Cox makes a conscious
effort to maintain representation in major economic sectors and areas with
strong long-term profit potential. The strategy is based on a long-term
investment horizon and, as a result, portfolio turnover tends to be low.
<TABLE>
<CAPTION>
20 Years of Investment Performance through March 31, 1997
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Comparison of change in value of a $10,000 investment in the Dodge &
Cox Stock Fund and the S&P 500 Index
[LINE GRAPH APPEARS HERE]
YEAR DODGE & COX STOCK FUND S&P 500 INDEX
- ---- ---------------------- -------------
<S> <C> <C>
4/1/77 10,000 10,000
3/31/78 9,616 9,527
3/31/79 11,950 11,430
3/31/80 12,570 12,143
3/31/81 18,110 16,971
3/31/82 16,490 14,717
3/31/83 23,218 21,233
3/31/84 26,388 23,088
3/31/85 30,537 27,455
3/31/86 43,897 37,809
3/31/87 54,863 47,722
3/31/88 53,701 43,745
3/31/89 61,423 51,678
3/31/90 72,532 61,641
3/31/91 79,208 70,512
3/31/92 86,010 78,300
3/31/93 101,644 90,216
3/31/94 110,796 91,548
3/31/95 128,647 105,789
3/31/96 166,296 139,740
3/31/97 196,030 167,439
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<TABLE>
<CAPTION>
Average annual total return for periods ended March 31, 1997 1 Year 5 Years 10 Years 20 Years
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<S> <C> <C> <C> <C>
Dodge & Cox Stock Fund 17.86% 17.90% 13.58% 16.04%
S&P 500 Index 19.82 16.42 13.37 15.13
</TABLE>
The chart covers the period from April 1, 1977 to March 31, 1997. It compares a
$10,000 investment made in the Dodge & Cox Stock Fund to a $10,000 investment
made in the Standard & Poor's 500 Composite Stock Price (S&P 500) Index. The
Fund's total returns include the reinvestment of dividend and capital gain
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 and 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 a loss when shares are sold.
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D O D G E & C O X
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Stock Fund
Fund Information March 31, 1997
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<TABLE>
<CAPTION>
General Information
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<S> <C>
Net Asset Value Per Share $80.99
Total Net Assets (millions) $2,537
1996 Expense Ratio 0.59%
1996 Portfolio Turnover 10%
Foreign Stocks* (as percentage of Fund) 9%
30 Day SEC Yield** 1.77%
Distributions To Shareholders
of Record 3/26/97 (per share): $0.30 Dividend
$0.49 Capital Gain
Fund Inception Date 1965
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Investment Manager: Dodge & Cox, San Francisco.
Managed by eight member Investment Policy Committee,
with members' average tenure at Dodge & Cox of 19 years.
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<CAPTION>
Stock Characteristics
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<S> <C>
Number of Stocks 76
Median Market Capitalization $8.9 billion
Price to Earnings Ratio (trailing twelve months) 18.5x
Price to Book Value (trailing twelve months) 2.7x
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<TABLE>
<CAPTION>
Ten Largest Stock Holdings % of Fund
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<S> <C>
General Motors 2.6
Dayton-Hudson 2.6
R.R. Donnelley & Sons 2.5
American Express 2.4
International Business Machines 2.3
Citicorp 2.2
Digital Equipment 2.0
Dow Chemical 2.0
Union Pacific 2.0
Aluminum Co. of America 1.9
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<CAPTION>
Asset Allocation
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[PIE CHART APPEARS HERE]
<S> <C>
Stocks: 92.6%
Short Term Investments: 7.4%
</TABLE>
<TABLE>
<CAPTION>
Ten Largest Sectors % of Fund
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<S> <C>
Electronics & Computers 10.9
Energy 9.4
Banks 9.1
Retail & Distribution 7.7
Consumer Durables 7.0
Insurance & Financial Services 6.8
Consumer Products 6.5
Transportation 5.0
Paper & Forest Products 4.8
Electric & Gas Utilities 4.6
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* All U.S. dollar-denominated.
** An annualization of the Fund's total net investment income per share for the
30-day period ended on the last day of the month.
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D O D G E & C O X
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Stock Fund
Portfolio Of Investments March 31, 1997
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<TABLE>
<CAPTION>
PERCENTAGE OF FUND
<S> <C>
COMMON STOCKS: 92.5%
CONSUMER: 25.3%
RETAIL AND DISTRIBUTION: 7.7%
Dayton-Hudson Corp................................................ 2.6
Kmart Corp........................................................ 1.5
Nordstrom, Inc.................................................... 1.4
Dillard Department Stores, Inc. Class A........................... 1.3
Genuine Parts Co.................................................. 0.7
Fleming Cos., Inc................................................. 0.2
CONSUMER DURABLES: 7.0%
General Motors Corp............................................... 2.6
Ford Motor Co..................................................... 1.6
Masco Corp........................................................ 1.4
Whirlpool Corp.................................................... 1.4
CONSUMER PRODUCTS: 6.5%
Sony Corp. ADR.................................................... 1.5
Unilever NV....................................................... 1.4
Bausch & Lomb Inc................................................. 1.0
VF Corp........................................................... 0.9
James River Corp. of Virginia..................................... 0.8
Matsushita Electric, Inc. ADR..................................... 0.6
Dole Food Co., Inc................................................ 0.3
MEDIA, PRINTING AND ENTERTAINMENT: 4.1%
Donnelley (R.R.) & Sons Co........................................ 2.5
Dow Jones & Co.................................................... 1.0
Time Warner, Inc.................................................. 0.6
FINANCE: 15.9%
BANKS: 9.1%
Citicorp.......................................................... 2.2
Golden West Financial Corp........................................ 1.6
Republic New York Corp............................................ 1.5
BankAmerica Corp.................................................. 1.5
Barnett Banks, Inc................................................ 1.2
Norwest Corp...................................................... 1.1
INSURANCE AND FINANCIAL SERVICES: 6.8%
American Express Co............................................... 2.4
The St. Paul Cos., Inc............................................ 1.4
Chubb Corp........................................................ 1.3
American International Group, Inc................................. 0.9
General Re Corp................................................... 0.8
ELECTRONICS AND COMPUTERS: 10.9%
International Business Machines Corp.............................. 2.3
Digital Equipment Corp............................................ 2.0
Motorola, Inc..................................................... 1.8
Texas Instruments, Inc............................................ 1.5
Hewlett-Packard Co................................................ 1.4
National Semiconductor Corp....................................... 0.9
Sybase, Inc....................................................... 0.5
Tandem Computers, Inc............................................. 0.5
BASIC INDUSTRY: 10.0%
PAPER AND FOREST PRODUCTS: 4.8%
Weyerhaeuser Co................................................... 1.4
Champion International Corp....................................... 1.4
International Paper Co............................................ 1.3
Boise Cascade Corp................................................ 0.7
CHEMICALS: 3.3%
Dow Chemical Co................................................... 2.0
Nalco Chemical Co................................................. 0.8
Lubrizol Corp..................................................... 0.5
METALS AND MINING: 1.9%
Aluminum Co. of America........................................... 1.9
ENERGY: 9.4%
Amerada Hess Corp................................................. 1.7
Phillips Petroleum Co............................................. 1.6
Union Pacific Resources Group, Inc................................ 1.4
Chevron Corp...................................................... 1.2
Royal Dutch Petroleum Co.......................................... 1.2
Western Atlas, Inc................................................ 1.1
Halliburton Co.................................................... 0.6
Mobil Corp........................................................ 0.3
Exxon Corp........................................................ 0.3
UTILITIES: 5.7%
ELECTRIC AND GAS UTILITIES: 4.6%
Texas Utilities Co................................................ 1.3
TransCanada PipeLines Ltd......................................... 0.9
Pacific Enterprises............................................... 0.9
Edison International.............................................. 0.8
FPL Group, Inc.................................................... 0.7
TELEPHONE: 1.1%
BCE, Inc.......................................................... 1.1
</TABLE>
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D O D G E & C O X
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Stock Fund
Portfolio Of Investments March 31, 1997
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<TABLE>
<CAPTION>
PERCENTAGE OF FUND
COMMON STOCKS (Continued)
<S> <C>
TRANSPORTATION: 5.0%
Union Pacific Corp........................................... 2.0
Federal Express Corp......................................... 1.9
Canadian Pacific Ltd......................................... 1.1
DIVERSIFIED TECHNOLOGY: 3.4%
Corning, Inc................................................. 1.1
Xerox Corp................................................... 0.9
Raychem Corp................................................. 0.8
Minnesota Mining & Manufacturing Co.......................... 0.6
HEALTHCARE AND PHARMACEUTICALS: 3.0%
Pharmacia & Upjohn, Inc...................................... 1.6
SmithKline Beecham plc ADR................................... 0.8
HealthCare COMPARE Corp...................................... 0.6
CAPITAL EQUIPMENT: 2.8%
Deere & Co................................................... 1.5
Caterpillar, Inc............................................. 1.3
MISCELLANEOUS: 1.1%
REAL ESTATE INVESTMENT TRUST: 1.1%
Meditrust.................................................... 1.1
PREFERRED STOCKS: 0.1%
CONSUMER: 0.1%
Kmart Financing I, 7 3/4% Trust Convertible Preferred........ 0.1
SHORT-TERM INVESTMENTS: 7.9%
OTHER ASSETS LESS LIABILITIES: (0.5%)
TOTAL NET ASSETS: 100.0%
</TABLE>
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
General Information
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Investment Manager
Since 1930, Dodge & Cox has been providing professional investment management
for individuals, trustees, corporations, pension and profit-sharing funds, and
charitable institutions. Dodge & Cox manages the Dodge & Cox Stock Fund, the
Dodge & Cox Balanced Fund and the Dodge & Cox Income Fund.
No-Load Fund
Shares of the Fund are purchased and redeemed at net asset value. There are no
sales, redemption or Rule 12b-1 plan distribution charges.
Gifts
Fund shares provide a convenient method for making gifts to children and to
other family members. 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.
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.
Reinvestment Plan
Shareholders may direct that dividend and capital gains distributions be
reinvested in additional Fund 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.
Shareholder Inquiries
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
(800) 621-3979
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