<PAGE>
D O D G E & C O X D O D G E & C O X
----------------- -----------------
Stock Fund Stock Fund
Established 1965
----------------
----------------
Dodge & Cox
Investment Managers
35th Floor 33rd Annual Report
One Sansome Street December 31, 1997
San Francisco
California 94104
(415) 981-1710
For Fund literature and
information, please call:
(800) 621-3979
This report is submitted
for the general information
of the shareholders of the
Fund. The report is not
authorized for distribution 1997
to prospective investors in ----------------
the Fund unless it is ----------------
accompanied by an ----------------
effective prospectus.
Printed on recycled paper.
12/97 SF AR
<PAGE>
D o d g e & C o x
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Stock Fund
To Our Shareholders
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The Dodge & Cox Stock Fund achieved a total return of 28.4% for 1997, compared
to a 33.3% return for the Standard & Poor's 500 Index (S&P 500) of common
stocks. The year completed a five-year period of 21.1% annualized returns for
the Fund, compared to 20.3% annualized for the S&P 500. As we have cautioned in
previous letters, we do not anticipate that these high historical returns will
continue. Average annual total returns for longer periods are listed on page
three of this report.
Performance Review
The net asset value per share of the Fund rose from $79.81 at the end of 1996 to
$94.57 on December 31, 1997. In addition, the Fund paid income dividends of
$1.49 per share and distributed net realized short and long-term capital gains
of $6.09 per share. At year-end, about 91% of the Fund was invested in common
and preferred stocks, and 9% was in cash equivalents. Total net assets were
$4.1 billion.
Despite a strong 28% total return, the Stock Fund underperformed the S&P 500 for
1997. The Fund was ahead of the S&P 500 through September 30 but lagged in the
fourth quarter. Investor concerns over financial turmoil in Asia negatively
impacted many of the Fund's holdings in companies whose profits are thought to
be more sensitive to economic activity ("cycle-sensitive"), during the last few
months of the year. While events in Asia may slow world economic growth in the
short run, we believe that the U.S. and world economies continue to have
relatively good long-term prospects.
The Fund's 1997 return was driven by the strong appreciation of virtually all of
its holdings in the finance sector, led by Norwest, Golden West and American
Express. Investments in companies in retail and media/entertainment were also
very good performers. Rounding out the top individual stocks were Nordstrom,
Dow Jones and Ford Motor. Stocks that were weak performers included most of
those in the basic industry, electronics/computer, and energy sectors. Among
the Fund's weakest stocks were Union Pacific Resources, Fleming, Sybase and
Motorola.
Portfolio Strategy: Major Themes
Although our investment approach is focused on "bottom-up" individual stock
selection, several themes are apparent in the Stock Fund portfolio. First, the
Fund holds a significantly higher weighting of common stocks in the cycle-
sensitive area than is represented in the S&P 500. This area includes basic
industry (e.g., paper/forest products and chemicals), consumer durables (e.g.,
autos and appliances) and transportation. General Motors, Union Pacific and Dow
Chemical are the largest holdings in this broadly diversified sector. Second,
the Fund's weightings are lower than those of the S&P 500 in the consumer
products, health care and telephone sectors. While these areas contain many
well-managed companies, their stock valuations are far above what we are willing
to pay, given our assessment of their future earnings prospects. The Fund also
has significant holdings in the finance and electronics/computer sectors, with
portfolio weightings similar to those of the S&P 500.
Across the entire Fund portfolio, we strive to invest in companies with strong
business franchises, good prospects for improving profitability and current
valuations that we believe reflect relatively low investor expectations. In
particular, we believe that the cycle-sensitive area has many companies with
attractive valuations. It is true that the economic impact of Asian turmoil is
real for certain companies. For example, the prices of market pulp and lumber
have dropped sharply in recent months, affecting International Paper and
Weyerhaeuser's results. However, in our view, these companies will remain world
leaders over the long-term. We believe that their profitability will improve as
the global economy grows and supply and demand for their products gradually
comes into balance. These companies are trading at historically low relative
valuations, reflecting depressed expectations. For example, International
Paper's
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1
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D o d g e & C o x
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Stock Fund
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stock is valued at about 0.7 times 1997 sales and only 1.5 times book
value per share. This compares to the S&P Industrials valuation of 1.5 times
sales and over 5 times book value.
Although the Fund's investment themes did not change materially during 1997,
portfolio turnover of 19% in the Stock Fund was higher than in previous years,
due to the sale of 18 different holdings. However, the Fund's turnover remains
well below that of the average equity mutual fund. The sale decision on each of
these stocks was based on our evaluation of the long-term profit outlook for the
company, compared to investor expectations reflected in its stock valuation at
the time of sale. The two largest holdings sold during 1997 were Dayton Hudson
and Texas Instruments.
New Investments
The Fund remains well diversified, reflecting another element of the Stock
Fund's investment philosophy. We do not invest "all your eggs in one basket."
The Fund owns 77 stocks and invested in 15 new companies during 1997. The
largest of these new holdings at year-end were Occidental Petroleum and News
Corporation Limited, each representing less than 2% of the Fund. We highlight
these companies as an example of our investment approach, not because we
consider them more attractive than the Fund's other holdings.
* Occidental Petroleum is a worldwide energy and petrochemicals
conglomerate, whose assets are, we believe, worth more than its
current valuation. Management is in the process of divesting its
Midcon gas pipeline. Occidental's oil and gas exploration and
production business is changing dramatically due to a major
acquisition and a new management team. Occidental's chemical
business, OxyChem, will be negatively affected by the expected
downturn in commodity chemicals; however, the current valuation
appears to reflect very low expectations. OxyChem is a world leader
in its major businesses and we believe that its long-term
opportunities are attractive.
* News Corporation is a leading global media and entertainment company
with a diverse mix of strong content and distribution franchises such
as FOX Broadcasting and TV Guide in the United States and two major
British newspapers. Although it is Australian-based, about two-thirds
of total revenues and profits come from the U.S. We believe that the
company has excellent growth opportunities in new international
television ventures, as well as in its established media businesses.
Due to investor concerns over recent acquisition activity and certain
start-up losses (e.g., Fox News Channel), the stock's valuation is
well below that of other large diversified media companies and
therefore appears attractive.
Conclusion
We enter 1998 with concerns regarding the relatively high valuation of the U.S.
equity market. This does not mean necessarily that equities should be sold. In
fact, with moderate economic growth and the thirty-year U.S. Treasury bond yield
currently at 5.8%, we believe that equities will continue to be an attractive
area for investment over the long-term. Our investment approach in this
environment will remain focused on a strong research effort and individual stock
selection.
Thank you for your confidence in the Dodge & Cox Stock Fund. As always, we
welcome your comments and questions.
For the Board of Directors,
/s/ John A. Gunn
-----------------------
January 28, 1998 John A. Gunn, President
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2
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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 December 31, 1997
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[LINE GRAPH APPEARS HERE]
Dodge & Cox
Stock Fund S & P 500 Index
------------------------------
<S> <C> <C>
1/1/1978 10,000 10,000
12/31/1978 10,943 10,638
12/31/1979 13,221 12,622
12/31/1980 17,605 16,709
12/31/1981 17,150 15,831
12/31/1982 20,937 19,241
12/31/1983 26,492 23,585
12/31/1984 27,860 25,070
12/31/1985 38,412 33,036
12/31/1986 45,445 39,201
12/31/1987 50,871 41,261
12/31/1988 57,869 48,115
12/31/1989 73,450 63,354
12/31/1990 69,719 61,379
12/31/1991 84,682 80,082
12/31/1992 93,863 86,179
12/31/1993 111,053 94,865
12/31/1994 116,769 96,113
12/31/1995 155,765 132,227
12/31/1996 190,480 162,582
12/31/1997 244,623 216,786
</TABLE>
<TABLE>
<CAPTION>
Average annual total return for periods ended December 31, 1997 1 Year 5 Years 10 Years 20 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dodge & Cox Stock Fund 28.41% 21.11% 17.00% 17.33%
S&P 500 Index 33.34 20.26 18.05 16.63
</TABLE>
The chart covers the period from January 1, 1978 to December 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 Stock (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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3
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D o d g e & C o x
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Stock Fund
Fund Information December 31, 1997
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<TABLE>
<CAPTION>
General Information
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<S> <C>
Net Asset Value Per Share $94.57
Total Net Assets (millions) $4,087
1997 Expense Ratio 0.57%
1997 Portfolio Turnover 19%
30 Day SEC Yield* 1.81%
Fund Inception Date 1965
Investment Manager: Dodge & Cox, San Francisco. Managed by
eight-member Investment Policy Committee, with members' average
tenure at Dodge & Cox of 20 years.
</TABLE>
<TABLE>
<CAPTION>
Asset Allocation
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[PIE CHART APPEARS HERE]
<S> <C>
Stocks: 90.6%
Short-Term Investments: 9.4%
</TABLE>
<TABLE>
<CAPTION>
Stock Characteristics
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<S> <C>
Number of Stocks 77
Median Market
Capitalization $ 9.0 billion
Price to Earnings Ratio
(trailing 12 months) 20.0x
Price to Book Value
(trailing 12 months) 3.0x
Foreign Stocks**
(as percentage of Fund) 10%
</TABLE>
<TABLE>
<CAPTION>
Ten Largest Stock Holdings % of Fund
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<S> <C>
General Motors 2.7
Union Pacific 2.3
Citicorp 2.3
American Express 2.2
Dow Chemical 2.2
Aluminum Co. of America 2.0
Pharmacia & Upjohn 2.0
Digital Equipment 2.0
Federal Express 2.0
International Business Machines 1.9
</TABLE>
<TABLE>
<CAPTION>
Ten Largest Sectors % of Fund
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<S> <C>
Electronics & Computer 9.7
Energy 8.2
Banking 8.1
Electric & Gas Utilities 7.6
Consumer Durables 7.0
Insurance & Financial Services 6.6
Consumer Products 6.5
Transportation 5.4
Retail & Distribution 5.4
Media, Printing & Entertainment 5.2
</TABLE>
*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.
**All U.S. Dollar-denominated.
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4
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<TABLE>
<CAPTION>
D o d g e & C o x
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Stock Fund
Portfolio of Investments December 31, 1997
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SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON CONSUMER: 22.5%
STOCKS: CONSUMER DURABLES: 7.0%
89.0% 1,813,000 General Motors Corp............................................ $ 109,913,125
1,380,000 Ford Motor Co.................................................. 67,188,750
1,146,300 Whirlpool Corp................................................. 63,046,500
867,700 Masco Corp..................................................... 44,144,238
-------------
284,292,613
CONSUMER PRODUCTS: 6.5%
740,000 Sony Corp. ADR................................................. 67,155,000
752,000 Unilever NV.................................................... 46,953,000
279,700 Matsushita Electric Industrial Co., Ltd. ADR................... 42,514,400
1,005,000 Fort James Corp................................................ 38,441,250
765,000 Bausch & Lomb, Inc............................................. 30,313,125
658,300 Dole Food Co., Inc............................................. 30,117,225
263,100 VF Corp........................................................ 12,086,156
-------------
267,580,156
RETAIL AND DISTRIBUTION: 5.3%
6,030,000 Kmart Corp+.................................................... 69,721,875
960,000 Nordstrom, Inc................................................. 57,840,000
1,234,750 Genuine Parts Co............................................... 41,904,328
1,170,000 Dillard's, Inc. Class A........................................ 41,242,500
320,000 Fleming Cos., Inc.............................................. 4,300,000
-------------
215,008,703
MEDIA, PRINTING AND ENTERTAINMENT: 3.7%
1,995,000 R.R. Donnelley & Sons Co....................................... 74,313,750
678,000 Time Warner, Inc............................................... 42,036,000
672,200 Dow Jones & Co................................................. 36,088,737
-------------
152,438,487
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919,319,959
FINANCE: 14.7%
BANKING: 8.1%
727,000 Citicorp....................................................... 91,920,062
748,400 Golden West Financial Corp..................................... 73,202,875
504,100 Republic New York Corp......................................... 57,561,919
776,000 BankAmerica Corp............................................... 56,648,000
1,300,000 Norwest Corp................................................... 50,212,500
-------------
329,545,356
INSURANCE AND FINANCIAL SERVICES: 6.6%
1,000,000 American Express Co............................................ 89,250,000
526,600 Loews Corp..................................................... 55,885,425
620,000 Chubb Corp..................................................... 46,887,500
548,000 The St. Paul Cos., Inc......................................... 44,970,250
158,000 General Re Corp................................................ 33,496,000
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270,489,175
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600,034,531
BASIC INDUSTRY: 10.8%
PAPER AND FOREST PRODUCTS: 4.7%
1,276,000 Weyerhaeuser Co................................................ 62,603,750
1,341,000 International Paper Co......................................... 57,830,625
1,148,000 Champion International Corp.................................... 52,018,750
718,600 Boise Cascade Corp............................................. 21,737,650
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194,190,775
</TABLE>
See accompanying Notes to Financial Statements
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5
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<CAPTION>
D o d g e & C o x
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Stock Fund
Portfolio of Investments December 31, 1997
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SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON CHEMICALS: 4.1%
STOCKS 874,000 Dow Chemical Co................................................ $ 88,711,000
(Continued) 648,100 Eastman Chemical Co............................................ 38,602,456
644,000 Nalco Chemical Co.............................................. 25,478,250
370,000 Lubrizol Corp.................................................. 13,643,750
-------------
166,435,456
METALS AND MINING: 2.0%
1,180,000 Aluminum Co. of America........................................ 83,042,500
-------------
443,668,731
ELECTRONICS AND COMPUTER: 9.7%
2,202,000 Digital Equipment Corp+........................................ 81,474,000
744,000 International Business Machines Corp........................... 77,794,500
1,194,300 Motorola, Inc.................................................. 68,149,744
1,340,000 Electronic Data Systems........................................ 58,876,250
893,000 Hewlett-Packard Co............................................. 55,812,500
1,442,100 NCR Corp+...................................................... 40,108,406
1,008,400 Sybase, Inc+................................................... 13,455,837
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395,671,237
UTILITIES: 8.5%
ELECTRIC AND GAS UTILITIES: 7.6%
2,201,000 Central & South West Corp...................................... 59,564,562
1,150,000 Texas Utilities Co............................................. 47,796,875
761,900 FPL Group, Inc................................................. 45,094,956
1,890,100 TransCanada PipeLines Ltd...................................... 42,290,988
1,080,000 Pacific Gas & Electric Corp.................................... 32,872,500
1,084,600 Wisconsin Energy Corp.......................................... 31,182,250
709,600 Pacific Enterprises............................................ 26,698,700
869,000 Edison International........................................... 23,625,938
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309,126,769
TELEPHONE: 0.9%
1,153,000 BCE, Inc....................................................... 38,409,312
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347,536,081
ENERGY: 8.2%
1,248,200 Amerada Hess Corp.............................................. 68,494,975
2,180,200 Occidental Petroleum Corp...................................... 63,907,112
2,555,024 Union Pacific Resources Group, Inc............................. 61,959,332
1,241,000 Phillips Petroleum Co.......................................... 60,343,625
553,000 Chevron Corp................................................... 42,581,000
684,000 Royal Dutch Petroleum Co....................................... 37,064,250
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334,350,294
TRANSPORTATION: 5.4%
1,491,000 Union Pacific Corp............................................. 93,094,313
1,318,600 Federal Express Corp+.......................................... 80,517,013
1,690,000 Canadian Pacific Ltd........................................... 46,052,500
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219,663,826
CAPITAL EQUIPMENT: 4.3%
1,261,200 Deere & Co..................................................... 73,543,725
1,080,000 Caterpillar, Inc............................................... 52,447,500
1,200,000 Fluor Corp..................................................... 44,850,000
115,615 Raytheon Co. Class A........................................... 5,701,265
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176,542,490
See accompanying Notes to Financial Statements
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6
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<TABLE>
<CAPTION>
D o d g e & C o x
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Stock Fund
Portfolio of Investments December 31, 1997
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SHARES MARKET VALUE
<C> <C> <S> <C>
COMMON HEALTHCARE AND PHARMACEUTICAL: 2.8%
STOCKS 2,225,100 Pharmacia & Upjohn, Inc......................................... $ 81,494,288
(Continued) 375,000 HealthCare COMPARE Corp+........................................ 19,265,625
300,000 SmithKline Beecham plc ADR...................................... 15,431,250
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116,191,163
DIVERSIFIED TECHNOLOGY: 2.0%
390,000 Xerox Corp...................................................... 28,786,875
775,000 Corning, Inc.................................................... 28,771,875
775,300 Unova, Inc+..................................................... 12,743,994
241,200 Raychem Corp.................................................... 10,386,675
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80,689,419
MISCELLANEOUS: 0.1%
REAL ESTATE INVESTMENT TRUST: 0.1%
72,593 Meditrust Corp.................................................. 2,658,719
-------------
Total Common Stocks (cost $2,697,098,288)................... 3,636,326,450
-------------
PREFERRED CONSUMER: 1.6%
STOCKS: 3,099,500 News Corp. Ltd., Limited Voting Ordinary Shares ADR............. 61,602,562
1.6% 64,100 Kmart Financing I, 7 3/4% Trust Convertible Preferred........... 3,309,163
-------------
Total Preferred Stocks (cost $58,194,354)................... 64,911,725
-------------
PAR VALUE
SHORT-TERM $ 4,000,000 American Express Credit Corp., Commercial Paper 5.9%, 1/6/1998.. 4,000,000
INVESTMENTS: 32,900,000 American Express Credit Corp., Commercial Paper 6 1/4%, 1/2/1998 32,900,000
9.5% 17,428,545 General Mills, Inc., Variable Demand Note 5.33%................. 17,428,545
15,454,688 Pitney Bowes Credit Corp., Variable Demand Note 5.33%........... 15,454,688
15,529,835 Portico Institutional Money Market Fund......................... 15,529,835
10,603,965 Sara Lee Corp., Variable Demand Note 5.32%...................... 10,603,965
48,000,000 U.S. Treasury Bills, 2/5/1998................................... 47,758,933
46,000,000 U.S. Treasury Bills, 2/19/1998.................................. 45,680,057
50,000,000 U.S. Treasury Bills, 2/26/1998.................................. 49,598,667
34,000,000 U.S. Treasury Bills, 3/19/1998.................................. 33,629,480
25,000,000 U.S. Treasury Bills, 4/30/1998.................................. 24,574,823
46,000,000 U.S. Treasury Bills, 5/21/1998.................................. 45,076,933
34,000,000 U.S. Treasury Bills, 6/18/1998.................................. 33,176,520
7,209,884 Warner Lambert Co., Variable Demand Note 5.49%.................. 7,209,884
5,262,322 Wisconsin Electric Power Corp., Variable Demand Note 5.49%...... 5,262,322
-------------
Total Short-Term Investments (cost $387,884,652)............ 387,884,652
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TOTAL INVESMENTS (cost $3,143,177,294)......................... 100.1% 4,089,122,827
OTHER ASSETS LESS LIABILITIES.................................. (0.1)% (2,164,739)
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TOTAL NET ASSETS............................................... 100.0% $4,086,958,088
===== ==============
+ Non-income producing
See accompanying Notes to Financial Statements
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7
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<TABLE>
<CAPTION>
D o d g e & C o x
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Stock Fund
Statement of Assets and Liabilities December 31, 1997
----------------------------------------------------------------------------------
<C> <S> <C>
ASSETS:
Investments, at market value (identified cost $3,143,177,294)...... $4,089,122,827
Cash............................................................... 8,835,608
Dividends and interest receivable.................................. 7,228,078
Receivable for investments sold.................................... 23,692,874
Prepaid expenses................................................... 40,354
--------------
4,128,919,741
--------------
LIABILITIES:
Payable for investments purchased.................................. 28,606,408
Payable for Fund shares redeemed................................... 11,272,234
Management fees payable............................................ 1,661,607
Accounts payable................................................... 421,404
--------------
41,961,653
Net asset value --------------
per share $94.57 NET ASSETS.................................................. $4,086,958,088
==============
Capital NET ASSETS CONSIST OF:
shares outstanding Paid in capital.................................................... $3,070,769,858
43,217,142 Accumulated undistributed net investment income.................... 268,994
(par value $1.00 each, Accumulated undistributed net realized gain on investments......... 69,973,703
authorized shares Net unrealized appreciation on investments......................... 945,945,533
50,000,000) --------------
$4,086,958,088
==============
See accompanying Notes to Financial Statements
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8
</TABLE>
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<TABLE>
<CAPTION>
D o d g e & C o x
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Stock Fund
Statement of Operations Year Ended December 31, 1997
---------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends................................................................. $ 56,893,726
Interest.................................................................. 15,865,550
------------
72,759,276
------------
EXPENSES:
Management fees (Note 2).................................................. 16,194,151
Custodian fees............................................................ 305,838
Transfer agent fees....................................................... 1,048,387
Accounting and audit fees................................................. 135,495
Legal fees................................................................ 10,486
Shareholder reports....................................................... 368,731
Registration fees......................................................... 352,435
Directors' fees........................................................... 18,000
Miscellaneous............................................................. 55,082
------------
18,488,605
------------
NET INVESTMENT INCOME..................................................... 54,270,671
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments.......................................... 297,643,981
Change in unrealized appreciation of investments.......................... 396,146,924
------------
Net realized and unrealized gain on investments........................... 693,790,905
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................... $748,061,576
============
See accompanying Notes to Financial Statements
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9
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<TABLE>
<CAPTION>
D o d g e & C o x
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Stock Fund
Statement of Changes in Net Assets Year Ended December 31,
----------------------------------------------------------------------------------------------------
1997 1996
OPERATIONS:
<S> <C> <C>
Net investment income............................................... $ 54,270,671 $ 30,664,543
Net realized gain................................................... 297,643,981 56,765,691
Net change in unrealized appreciation............................... 396,146,924 262,571,381
-------------- -------------
Net increase in net assets from operations.......................... 748,061,576 350,001,615
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................... (54,214,363) (30,810,014)
Net realized gain................................................... (243,063,381) (44,357,660)
-------------- -------------
Total distributions................................................. (297,277,744) (75,167,674)
-------------- -------------
CAPITAL SHARE TRANSACTIONS:
Amounts received from sale of shares................................ 1,593,775,898 929,688,437
Net asset value of shares issued in reinvestment of distributions... 274,381,891 70,061,570
Amounts paid for shares redeemed.................................... (484,030,127) (250,464,697)
-------------- -------------
Net increase from capital share transactions........................ 1,384,127,662 749,285,310
-------------- -------------
Total increase in net assets........................................ 1,834,911,494 1,024,119,251
NET ASSETS:
Beginning of year................................................... 2,252,046,594 1,227,927,343
-------------- -------------
End of year (including undistributed net investment income
of $268,994 and $212,686, respectively)............................ $4,086,958,088 $2,252,046,594
============== ==============
Shares sold......................................................... 17,305,613 12,594,155
Shares issued in reinvestment of distributions...................... 2,975,353 909,380
Shares redeemed..................................................... (5,281,734) (3,389,888)
-------------- --------------
Net increase in shares outstanding.................................. 14,999,232 10,113,647
============== ==============
See accompanying Notes to Financial Statements
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10
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<PAGE>
D o d g e & C o x
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Stock Fund
Notes to Financial Statements
----------------------------------------------------------------
1 The Fund is registered under the Investment Company Act of 1940,
as amended, as a diversified open-end investment company. The
Fund consistently follows accounting policies which are in
conformity with generally accepted accounting principles for
investment companies. Significant accounting policies are as
follows: (a) Security valuation: stocks are valued at the latest
quoted sales prices as of the close of the New York Stock
Exchange or, if no sale, then a representative price within the
limits of the bid and ask prices for the day; a security which
is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market
for such security; securities for which market quotations are
not readily available are valued at fair value as determined in
good faith by or at the direction of the Board of Directors;
short-term securities are valued at amortized cost or original
cost plus accrued interest, both of which approximate current
value; all securities held by the Fund are denominated in U.S.
Dollars. (b) Security transactions are accounted for on the
trade date in the financial statements. (c) Gains and losses on
securities sold are determined on the basis of identified cost.
(d) Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis. (e)
Distributions to shareholders of income and capital gains are
reflected in the net asset value per share computation on the
ex-dividend date. (f) No provision for Federal income taxes has
been included in the accompanying financial statements since the
Fund intends to distribute all of its taxable income and
otherwise continue to comply with requirements for regulated
investment companies.
The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
2 Under a written agreement, the Fund pays an annual management
fee of 1/2 of 1% of the Fund's average daily net asset value to
Dodge & Cox, investment manager of the Fund. The agreement
further provides that Dodge & Cox shall waive its fee to the
extent that such fee plus all other expenses of the Fund exceed
3/4 of 1% of the average daily net asset value for the year. All
officers and four of the directors of the Fund are officers and
employees of Dodge & Cox. Those directors who are not affiliated
with Dodge & Cox receive from the Fund an annual fee of $1,000
and an attendance fee of $500 for each Board or Committee
meeting attended. The Fund does not pay any other remuneration
to its officers or directors.
3 For the year ended December 31, 1997, purchases and sales of
securities, other than short-term securities, aggregated
$1,499,444,134 and $565,208,380, respectively. At December 31,
1997, the cost of investments for Federal income tax purposes
was equal to the cost for financial reporting purposes. Net
unrealized appreciation aggregated $945,945,533, of which
$973,592,603 represented appreciated securities and $27,647,070
represented depreciated securities.
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<CAPTION>
Dodge & Cox
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Stock Fund
Financial Highlights
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SELECTED DATA AND RATIOS (for a share outstanding throughout
each year)
Year Ended December 31,
-------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............................ $79.81 $67.83 $53.94 $53.23 $48.37
Income from investment operations:
Net investment income......................................... 1.48 1.28 1.27 1.15 1.04
Net realized and unrealized gain.............................. 20.86 13.67 16.54 1.60 7.70
------ ------ ------ ------ ------
Total income from investment operations....................... 22.34 14.95 17.81 2.75 8.74
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Distributions:
Dividends from net investment income.......................... (1.49) (1.29) (1.26) (1.15) (1.04)
Distributions from net realized gain on investments........... (6.09) (1.68) (2.66) (.89) (2.84)
------ ------ ------ ------ ------
Total distributions........................................... (7.58) (2.97) (3.92) (2.04) (3.88)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR.................................. $94.57 $79.81 $67.83 $53.94 $53.23
====== ====== ====== ====== ======
Total Return.................................................. 28.41% 22.26% 33.38% 5.16% 18.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions)............................ $4,087 $2,252 $1,228 $ 543 $ 436
Ratio of expenses to average net assets....................... .57% .59% .60% .61% .62%
Ratio of net investment income to average net assets.......... 1.67% 1.79% 2.07% 2.16% 1.95%
Portfolio turnover rate....................................... 19% 10% 13% 7% 15%
Average commission rate paid*................................. $.0489 $.0506
* Represents the average commission rate paid per share on securities transactions for which commissions were charged.
Disclosure is required by the S.E.C. beginning in 1996.
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12
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<PAGE>
D o d g e & C o x
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Stock Fund
Report of Independent Accountants
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To the Directors and Shareholders of Dodge & Cox Stock Fund
In our opinion, the accompanying statement of assets and
liabilities, including the portfolio of investments, and the
related statements of operations and of changes in net assets
and the financial highlights present fairly, in all material
respects, the financial position of the Dodge & Cox Stock Fund
(the "Fund") at December 31, 1997, the results of its operations
for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended,
in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December
31, 1997 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
January 28, 1998
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SPECIAL 1997 TAX INFORMATION (UNAUDITED)
Corporate shareholders should note that for the year ended
December 31, 1997, a total of 77% of the Fund's ordinary
dividends (as reported to shareholders in Box 1b of Form 1099-
DIV) qualified for the corporate dividends received deduction.
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13
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D o d g e & C o x
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Stock Fund
Proxy Voting Results
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A special meeting of shareholders was held on January 30, 1998
(adjourned from January 20, 1998), to vote on the following
proposals. All of the proposals received the required number of
votes and were adopted.
A summary of voting results is listed below each proposal.
Proposal To approve a reorganization of the Fund as a separate series of
One Dodge & Cox Funds, a newly formed Delaware business trust.
For: 25,302,040
Against: 276,417
Abstain: 477,994
Broker Non-Vote: 1,497,461
Proposal To approve the elimination or revision of certain fundamental
Two investment restrictions for the Fund.
For: 25,490,618
Against: 565,834
Abstain: 0
Broker Non-Vote: 1,497,460
Proposal To ratify the selection of Price Waterhouse LLP as the Fund's
Three independent certified public accountants.
For: 26,943,468
Against: 194,441
Abstain: 416,003
Proposal To approve an increase in authorized capital of the Fund.
Four
For: 26,348,781
Against: 601,572
Abstain: 601,764
Broker Non-Vote: 1,795
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D o d g e & C o x
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Stock Fund
General Information
----------------------------------------------------------------
Investment Since 1930, Dodge & Cox has been providing professional
Manager 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 Shareholders may make regular monthly or quarterly investments
Investment of $100 or more through automatic deductions from their bank
Plan accounts.
Withdrawal Shareholders owning $10,000 or more of the Fund's shares may
Plan 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 Shareholders may direct that dividend and capital gains
Plan 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 an Individual Retirement Plan (IRA) available for
shareholders of the Fund.
Shareholder Fund literature and details on all of these Plans are available
Inquiries from the Fund upon request.
Dodge & Cox Stock Fund
c/o BFDS
P.O. Box 9051
Boston, MA 02205-9051
(800) 621-3979
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