UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-173
DODGE & COX FUNDS
(Exact name of registrant as specified in charter)
One Sansome Street, 35th Floor
San Francisco, CA 94104
(Address of principal executive offices) (Zip code)
Thomas M. Mistele, Esq.
One Sansome St. 35th Floor
San Francisco, CA 94104
(Name and address of agent for service)
Registrant's telephone number, including area code: 415-981-1710
Date of fiscal year end: DECEMBER 31, 2003
Date of reporting period: JUNE 30, 2003
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. (S) 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The following are the June 30, 2003 semi-annual reports for the Dodge & Cox
Funds, a Delaware statutory trust, consisting of four series: Dodge & Cox Stock
Fund, Dodge & Cox International Stock Fund, Dodge & Cox Balanced Fund and Dodge
& Cox Income Fund. The reports of each series were transmitted to their
respective shareholders on August 20, 2003.
D O D G E & C O X D O D G E & C O X
----------------- -----------------
Stock Fund Stock Fund
Established 1965
www.dodgeandcox.com
For Fund literature and account
information, please visit the
Funds' web site.
or write or call:
Dodge & Cox Funds
c/o Boston Financial Data Services
P.O. Box 8422
Boston, Massachusetts
02266-8422
(800) 621-3979
Investment Manager
Dodge & Cox
One Sansome Street
35th Floor
San Francisco, California
94104-4443
(415) 981-1710
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.
This report reflects our
views, opinions and portfolio
holdings as of June 30, 2003,
the end of the reporting period.
The information provided is
not a complete analysis of
every aspect of any industry,
security or the Fund. The Fund's
portfolio composition may Semi-Annual Report
change depending on market and June 30, 2003
economic conditions. Although
historical performance is no 2003
guarantee of future results,
these insights may help you --------------
understand our investment --------------
management philosophy. --------------
6/03 SF SAR Printed on recycled paper
To Our Shareholders
- --------------------------------------------------------------------------------
The Dodge & Cox Stock Fund had a total return of 16.6% for the second quarter
of 2003, compared to a total return of 15.4% for the Standard & Poor's 500
Index (S&P 500). For the six months ended June 30, 2003, the Fund had a total
return of 10.4%, compared to a total return of 11.8% for the S&P 500. The Fund
had total assets of approximately $19.3 billion at quarter-end and a cash
position of 6%.
Second Quarter Performance Review
Rebounding from a very difficult first quarter, the Stock Fund matched its best
three-month result in the past ten years (second quarter of 1999), and
outperformed the S&P 500. The Fund's technology holdings were the key driver
behind this outperformance. Although the Fund is moderately underweight in
technology (13% versus 16% in the S&P 500), the Fund benefited from its
investments in Avaya (up 217%), Compuware (up 69%) and Hewlett-Packard (up
37%). Overall, the Fund's technology holdings were up more than 30% compared to
the S&P 500's technology sector gain of 18%. Outside of the technology sector
strong individual contributors to return included: McDonald's (up 53%), Capital
One Financial (up 64%), Akzo Nobel (up 38%), and CIT Group (up 47%).
Detractors from performance relative to the S&P 500 during the quarter were
limited to a handful of individual stocks including HCA-The Healthcare Company
(down 23%), Sony (down 20%), and Unilever (down 8%).
Top-Down Thoughts
from a Bottom-up Investor
Our investment modus operandi is to look for bargains in the equity market on
the Fund's shareholders' behalf. We define these "bargains" as opportunities
where the Fund can become part owner of a durable business franchise at a
depressed valuation, such that over a three-to-five year time horizon the
prospects for downside risk on the investment appear acceptable and the
potential opportunities for gain are attractive. While we look for bargains in
all areas of the economy, we spend significant time pursuing opportunities in
industries of long-term growth--it's better to run with the wind rather than
against it. Finally, we want to end up with an overall portfolio that is
economically diversified, and that has exposure to many different investment
themes.
With this fundamental analysis as the basis for our approach, our periodic
letters are usually full of individual stock examples and are light on
macroeconomic observations. This quarter we thought we would diverge from that
format and share with you some of our "top-down" thoughts. Warning: Our
economic crystal ball is as clouded as anyone else's.
As to the future of the equity market, we remain on the cautious side. Our
caution is a function of market valuations still being at high levels (the
price-to-sales ratio for the S&P Industrials is 1.4 times versus 0.6 times for
the Fund) and questions surrounding the drivers of short-term earnings growth.
However, the prospects for economic growth over long-term appear positive. In
the U.S., we believe that stimulative fiscal and monetary policies will
eventually take hold, and growth rates are likely to accelerate from the
current sluggish pace. The slowdown in capital spending has been
technology-based. Yet with the continual changes brought by technological
innovation, the technology goods bought in the halcyon days of the mid-to-late
1990's will soon become obsolete. In our view, there is a high probability of
an increase in technology spending over the next few years. Even with that
upturn, however, U.S. economic growth is unlikely to run at historically high
rates. Since consumer spending (two-thirds of GDP) has held up well in the past
few years, in part supported by low interest rates and high levels of mortgage
refinancing, the U.S. consumer is no longer a source of "pent-up" purchasing
power.
Over the long term, the real economic opportunity appears to be outside of the
United States--in fact, outside of the developed world of Western Europe, North
America and Japan. Much of the developing world (over 80% of the world's
population) is transforming to some form of free market system. Key ingredients
are economic and political freedoms, which are increasing in many areas. The
ever-declining costs of communications and computing power act as catalysts for
increasing the pace of change. Isolation is ending, as the transfer of
knowledge is becoming easier and quicker. Improvements in infrastructure
(transportation, electric power, telecommunications, etc.) are occurring
rapidly in many regions. It is not a stretch to assume that an incremental 5%
of the developing world's population becomes as productive as an average
citizen of the developed world over the next five or ten years. That amounts to
270 million people, or approximately 35% of the population of the developed
world. This shift in the developing world is not just about exports
(production), but also about the development of large internal markets
(consumption). The prospects for incremental demand are substantial. The U.S.
consumer, having been the prime driver of global demand in recent years, will
in the future become less important.
Bringing it back to Stock Selection...
In this increasingly integrated world, it is critical that we evaluate a
company's business opportunities on a global basis. A great number of the
companies in the Fund will benefit from growth in overseas markets, in areas as
diverse as restaurants and consumer goods, to business services, industrial
goods, technology and energy. McDonald's growth in non-U.S. markets is four
times the rate of growth in the U.S., of course from a smaller base, yet
growing in importance over time. Sony has long been one of the dominant
1 / Dodge & Cox Stock Fund
- --------------------------------------------------------------------------------
innovators and producers of consumer electronics worldwide. Whirlpool has a
large, well established manufacturing base in Brazil, allowing them to
participate on a cost-effective basis in Latin American markets. News Corp. is
building on its expertise from the successful businesses of Fox in the U.S. and
Sky in the U.K., and attempting to build similar franchises in Italy, Asia and
Latin America. Similarly, FedEx is using logistics capability gained in the
U.S. to build an express delivery service throughout Europe and Asia. Revenues
from Dow Chemical's non-U.S. customers are 59% of its total revenue base, and
Alcoa now controls about 15% of the world's aluminum capacity, approximately
60% of which is located overseas.
.....and Valuation
Each of the companies in the portfolio has a stock price reflecting what
appears to be low expectations in relation to our analysis of potential growth
in earnings and cash flow. The valuation characteristics of the overall
portfolio are at a distinct discount to the broad market (as measured by the
S&P 500). The price-to-earnings multiple of the portfolio (15 times) is a 20%
discount to the market multiple, and the price-to-sales multiple (0.6 times) is
a 50% discount to that of the market. So while we look for growth
opportunities, our price discipline is firmly in place.
In Closing
Though we have discussed "top-down" macroeconomic dynamics more than usual in
this quarter's letter, we firmly believe that the path to favorable long-term
performance is forged one individual investment at a time. We continue to spend
the hours in our day reading financial reports, talking with company management
about their business, as well as talking with competitors, key customers and
suppliers to construct our view of the risks and rewards facing each individual
company. As these specific selections aggregate into a diversified portfolio,
broad investment themes emerge. While exposure to global economic growth is
just one of a number of investment themes in the portfolio, it is nonetheless
an important one cutting across many diverse industries and sectors.
Thank you for the continued confidence you have placed in our firm as a
shareholder of the Stock Fund. As always, we welcome your comments and
questions.
For the Board of Trustees,
/s/ Harry R. Hagey /s/ John A. Gunn
- ----------------------------- -----------------------------
Harry R. Hagey, Chairman John A. Gunn, President
July 31, 2003
Ten Years of Investment Performance
- --------------------------------------------------------------------------------
through June 30, 2003 (in thousands)
[PERFORMANCE GRAPH APPEARS HERE]
Dodge & Cox
Stock Fund S&P 500
----------- -------
Jun-93 $10,000 $10,000
Jun-94 $10,852 $10,473
Jun-95 $13,832 $13,237
Jun-96 $15,440 $15,390
Jun-97 $21,237 $21,684
Jun-98 $25,035 $28,226
Jun-99 $29,620 $34,645
Jun-00 $28,629 $37,167
Jun-01 $36,795 $31,652
Jun-02 $36,529 $25,973
Jun-03 $36,688 $26,039
- - Dodge & Cox Stock Fund $36,688
- - S&P 500 $26,039
Average annual total return for periods ended June 30, 2003
1 Year 5 Years 10 Years 20 Years
- --------------------------------------------------------------------------------
Dodge & Cox Stock Fund 0.43% 7.95% 13.88% 14.54%
S&P 500 0.25 -1.60 10.04 12.21
- --------------------------------------------------------------------------------
For updated performance figures see "Prices and Performance" at
www.dodgeandcox.com, or call Dodge & Cox Funds at 1-800-621-3979.
The Fund's total returns include the reinvestment of dividend and capital gain
distributions, but have not been adjusted for any income taxes payable by
shareholders on these distributions. The Standard & Poor's 500 (S&P 500) is a
widely recognized, unmanaged index of common stock prices. 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.
Standard & Poor's, Standard & Poor's 500, and S&P 500(R) are trademarks of The
McGraw-Hill Companies, Inc.
Dodge & Cox Stock Fund / 2
Fund Information June 30, 2003
- -------------------------------------------------------------------------------
General Information
- -------------------------------------------------------------------------------
Net Asset Value Per Share $96.30
Total Net Assets (millions) $19,292
30-Day SEC Yield/1/ 1.58%
2002 Expense Ratio 0.54%
2002 Portfolio Turnover 13%
Fund Inception Date 1965
Investment Manager: Dodge & Cox, San Francisco. Managed by the Investment
Policy Committee, whose ten members' average tenure at Dodge & Cox is 22 years.
Stock Characteristics Fund S&P 500
- -------------------------------------------------------------------------------
Number of Stocks 83 500
Median Market Capitalization (billions) $10 $8
Weighted-Average Market Cap. (billions) $22 $85
Price-to-Earnings Ratio/2/ 15x 18x
Price-to-Book Value 1.8x 3.0x
Foreign Stocks/3/ (% of Fund) 11.6% 0.0%
Ten Largest Holdings
- -------------------------------------------------------------------------------
AT&T 2.6%
Hewlett-Packard 2.6
Bank One 2.5
McDonald's 2.5
Dow Chemical 2.5
News Corp. Ltd Pref. ADR (Australia) 2.3
Schering-Plough 2.2
Comcast 2.2
HCA-The Healthcare Company 2.0
Xerox 2.0
Asset Allocation
- -------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Stocks: 94.2%
Cash Equivalents: 5.8%
Sector Diversification Fund S&P 500
- -------------------------------------------------------------------------------
Consumer Discretionary 21.2% 10.7%
Financials 18.5 20.6
Information Technology 12.8 16.3
Materials 10.1 2.7
Energy 8.9 5.9
Health Care 8.5 15.0
Industrials 7.0 10.1
Telecommunication Services 3.4 3.9
Consumer Staples 2.2 11.7
Utilities 1.6 3.1
/1/ SEC Yield is 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.
/2/ The Fund's Price-to-earnings (P/E) ratio is calculated using Dodge & Cox's
estimated forward earnings and excludes extraordinary items. The S&P 500's
P/E is calculated by Standard & Poor's and uses an aggregated estimate of
forward earnings.
/3/ All U.S. dollar-denominated.
3 / Dodge & Cox Stock Fund
Portfolio of Investments June 30, 2003
- --------------------------------------------------------------------------------
COMMON STOCKS: 91.9%
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
CONSUMER DISCRETIONARY: 18.9%
CONSUMER DURABLES & APPAREL: 5.9%
13,412,500 Sony Corp. ADR/(b)/ (Japan) $ 375,550,000
24,424,100 Matsushita Electric Industrial Co., Ltd.
ADR/(b)/ (Japan) 245,462,205
3,293,750 Whirlpool Corp. 209,811,875
6,817,600 Eastman Kodak Co. 186,461,360
3,286,700 VF Corp. 111,649,199
--------------
1,128,934,639
RETAILING: 3.6%
15,532,300 May Department Stores Co. 345,748,998
8,401,300 Gap, Inc. 157,608,388
6,206,100 Nordstrom, Inc. 121,143,072
5,198,000 Dillard's, Inc. Class A 70,017,060
--------------
694,517,518
MEDIA: 3.2%
13,768,371 Comcast Corp./(a)/ 415,529,437
12,590,000 AOL Time Warner, Inc./(a)/ 202,573,100
--------------
618,102,537
HOTELS, RESTAURANTS & LEISURE: 3.1%
22,000,100 McDonald's Corp. 485,322,206
15,170,327 InterContinental Hotels Group PLC
ADR/(b)/ (United Kingdom) 110,743,387
--------------
596,065,593
AUTOMOBILES & COMPONENTS: 1.6%
26,298,057 Delphi Automotive Systems Corp. 226,952,232
7,861,559 Ford Motor Co. 86,398,533
--------------
313,350,765
TRADING COMPANIES & DISTRIBUTORS: 1.5%
8,982,900 Genuine Parts Co. 287,542,629
--------------
3,638,513,681
FINANCIALS: 18.5%
BANKS: 6.6%
13,175,350 Bank One Corp. 489,859,513
4,464,150 Golden West Financial Corp. 357,176,641
7,435,100 Wachovia Corp. 297,106,596
2,460,650 Wells Fargo & Co. 124,016,760
--------------
1,268,159,510
INSURANCE: 6.1%
6,895,900 Loews Corp. 326,107,111
8,332,450 St. Paul Companies, Inc. 304,217,750
2,882,550 Chubb Corp. 172,953,000
4,540,400 Torchmark Corp. 169,129,900
9,389,000 UNUMProvident Corp. 125,906,490
1,573,400 MBIA, Inc. 76,703,250
--------------
1,175,017,501
DIVERSIFIED FINANCIALS: 3.1%
6,460,300 Capital One Financial Corp. 317,717,554
11,327,400 CIT Group, Inc. 279,220,410
--------------
596,937,964
SHARES MARKET VALUE
REAL ESTATE: 2.7%
12,058,900 Equity Office Properties Trust $ 325,710,889
7,524,600 Equity Residential Properties Trust 195,263,370
--------------
520,974,259
--------------
3,561,089,234
INFORMATION TECHNOLOGY: 12.8%
TECHNOLOGY HARDWARE & EQUIPMENT: 9.8%
23,328,622 Hewlett-Packard Co. 496,899,649
36,212,400 Xerox Corp./(a)/ 383,489,316
35,061,700 Corning, Inc./(a)/ 259,105,963
22,501,200 Motorola, Inc. 212,186,316
7,455,500 Thermo Electron Corp./(a)/ 156,714,610
5,825,000 NCR Corp./(a)/ 149,236,500
4,659,700 Storage Technology Corp./(a)/ 119,940,678
16,639,800 Avaya, Inc./(a)/ 107,493,108
--------------
1,885,066,140
SOFTWARE & SERVICES: 3.0%
10,304,100 Electronic Data Systems 221,022,945
5,386,000 Computer Sciences Corp./(a)/ 205,314,320
19,411,600 Compuware Corp./(a)/ 112,004,932
2,319,600 Computer Associates International, Inc. 51,680,688
--------------
590,022,885
--------------
2,475,089,025
MATERIALS: 10.1%
CHEMICALS: 6.8%
15,395,831 Dow Chemical Co. 476,654,928
11,834,000 Akzo Nobel N.V. ADR/(b)/ (Netherlands) 315,376,100
5,557,600 Rohm and Haas Co. 172,452,328
5,387,300 Engelhard Corp. 133,443,421
5,361,270 NOVA Chemicals Corp./(b)/ (Canada) 102,078,581
9,000,000 Syngenta A.G. ADR/(b)/ (Switzerland) 91,260,000
833,500 Lubrizol Corp. 25,830,165
--------------
1,317,095,523
METALS AND MINING: 2.2%
2,897,031 Rio Tinto PLC ADR/(b)/ (United Kingdom) 221,767,723
7,838,400 Alcoa, Inc. 199,879,200
--------------
421,646,923
PAPER AND FOREST PRODUCTS: 1.1%
4,308,300 International Paper Co. 153,935,559
2,274,200 Boise Cascade Corp. 54,353,380
--------------
208,288,939
--------------
1,947,031,385
ENERGY: 8.9%
4,615,614 ChevronTexaco Corp. 333,247,331
5,949,300 ConocoPhillips 326,021,640
9,529,400 Occidental Petroleum Corp. 319,711,370
10,527,900 Unocal Corp. 302,045,451
4,833,500 Amerada Hess Corp. 237,711,530
6,196,150 Baker Hughes, Inc. 208,004,755
--------------
1,726,742,077
See accompanying Notes to Financial Statements Dodge & Cox Stock Fund / 4
Portfolio of Investments June 30, 2003
- --------------------------------------------------------------------------------
COMMON STOCKS (continued)
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
HEALTH CARE: 8.5%
PHARMACEUTICALS & BIOTECHNOLOGY: 4.6%
22,508,600 Schering-Plough Corp. $ 418,659,960
3,622,250 Wyeth 164,993,488
5,827,200 Bristol-Myers Squibb Co. 158,208,480
4,039,083 Pfizer Inc. 137,934,684
---------------
879,796,612
HEALTH CARE EQUIPMENT & SERVICES: 3.9%
12,239,300 HCA-The Healthcare Company 392,147,172
4,564,850 Becton, Dickinson & Co. 177,344,422
1,777,350 WellPoint Health Networks, Inc./(a)/ 149,830,605
1,063,950 Bausch & Lomb, Inc. 39,898,125
---------------
759,220,324
---------------
1,639,016,936
INDUSTRIALS: 7.0%
TRANSPORTATION: 3.2%
5,823,500 FedEx Corp. 361,231,705
4,382,650 Union Pacific Corp. 254,281,353
---------------
615,513,058
CAPITAL GOODS: 2.4%
7,744,500 Masco Corp. 184,706,325
4,389,650 Fluor Corp. 147,667,826
2,170,050 Caterpillar, Inc. 120,784,983
796,700 Unova, Inc./(a)/ 8,843,370
---------------
462,002,504
COMMERCIAL SERVICES & SUPPLIES: 1.4%
3,599,300 Pitney Bowes, Inc. 138,249,113
5,273,400 R.R. Donnelley & Sons Co. 137,846,676
---------------
276,095,789
---------------
1,353,611,351
TELECOMMUNICATION SERVICES: 3.4%
25,993,560 AT&T Corp. 500,376,030
18,467,100 AT&T Wireless Services, Inc./(a)/ 151,614,891
---------------
651,990,921
CONSUMER STAPLES: 2.2%
FOOD, BEVERAGE AND TOBACCO: 2.2%
5,193,800 Unilever N.V. ADR/(b)/ (Netherlands) 280,465,200
11,370,509 Archer Daniels Midland Co. 146,338,451
---------------
426,803,651
UTILITIES: 1.6%
6,505,710 American Electric Power Co., Inc. 194,065,329
3,539,900 TXU Corp. 79,470,755
1,679,600 Scottish Power PLC ADR/(b)/
(United Kingdom) 40,831,076
---------------
314,367,160
---------------
Total Common Stocks (cost $16,425,183,482) 17,734,255,421
---------------
PREFERRED STOCKS: 2.3%
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
CONSUMER DISCRETIONARY: 2.3%
MEDIA: 2.3%
17,552,069 News Corp. Ltd., Preferred Limited
Voting Ordinary Shares ADR/(b)/
(Australia) $ 439,679,329
---------------
Total Preferred Stocks (cost $394,894,856) 439,679,329
---------------
SHORT-TERM INVESTMENTS: 5.7%
- --------------------------------------------------------------------------------
PAR VALUE
$ 96,321,990 SSgA Prime Money Market Fund 96,321,990
612,302,000 State Street Repurchase Agreement,
0.90%, 7/1/03 (Collateralized by
U.S. Treasury Securities, value
$624,590,636) 612,302,000
100,000,000 U.S. Treasury Bills, 8/14/03 99,875,333
100,000,000 U.S. Treasury Bills, 9/25/03 99,792,167
100,000,000 U.S. Treasury Bills, 11/13/03 99,608,125
100,000,000 U.S. Treasury Bills, 12/18/03 99,565,555
-------------
Total Short-Term Investments (cost $1,107,465,170) 1,107,465,170
-------------
TOTAL INVESTMENTS (cost $17,927,543,508) 99.9% 19,281,399,920
OTHER ASSETS LESS LIABILITIES 0.1 10,938,870
----- ---------------
TOTAL NET ASSETS 100.0% $19,292,338,790
----- ---------------
/(a)/ Non-income producing
/(b)/ Foreign securities denominated in U.S. Dollars
5 / Dodge & Cox Stock Fund See accompanying Notes to Financial Statements
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
June 30, 2003
Assets:
Investments, at market value
(identified cost $17,927,543,508) $19,281,399,920
Cash 15,975,254
Receivable for investments sold 11,630,410
Receivable for Fund shares sold 52,015,864
Dividends and interest receivable 44,782,141
Prepaid expenses 47,143
---------------
19,405,850,732
---------------
Liabilities:
Payable for investments purchased 84,527,252
Payable for Fund shares redeemed 19,249,492
Management fees payable 7,911,039
Accounts payable 1,824,159
---------------
113,511,942
---------------
Net Assets $19,292,338,790
---------------
Net Assets Consist of:
Paid in capital $18,016,807,808
Accumulated undistributed
net investment income 5,047,444
Accumulated undistributed net
realized loss on investments (83,372,874)
Net unrealized appreciation on investments 1,353,856,412
---------------
$19,292,338,790
---------------
Beneficial shares outstanding (par value
$0.01 each, unlimited shares authorized) 200,340,674
Net asset value per share $ 96.30
Statement of Operations
- -------------------------------------------------------------------------------
Six Months Ended
June 30, 2003
Investment Income:
Dividends (net of foreign taxes of $3,415,118) $ 206,648,129
Interest 3,740,303
---------------
210,388,432
---------------
Expenses:
Management fees (Note 2) 39,422,155
Custodian and fund accounting fees 196,315
Transfer agent fees 2,089,452
Professional fees 30,940
Shareholder reports 353,217
Registration fees 617,871
Trustees' fees (Note 2) 11,250
Miscellaneous 91,260
---------------
42,812,460
---------------
Net Investment Income 167,575,972
---------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments (79,362,019)
Net unrealized appreciation on investments 1,672,981,955
---------------
Net realized and unrealized
gain on investments 1,593,619,936
---------------
Net Increase in Net Assets from Operations $ 1,761,195,908
---------------
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2003 December 31, 2002
Operations:
Net investment income $ 167,575,972 $ 206,585,411
Net realized gain (loss) (79,362,019) 51,787,359
Net unrealized appreciation
(depreciation) 1,672,981,955 (1,656,918,442)
----------------------------------
Net increase (decrease) in net
assets from operations 1,761,195,908 (1,398,545,672)
----------------------------------
Distributions to
Shareholders from:
Net investment income (166,479,798) (202,634,141)
Net realized gain -- (62,051,773)
----------------------------------
Total distributions (166,479,798) (264,685,914)
----------------------------------
Beneficial Share Transactions:
Amounts received from
sale of shares 4,829,627,373 8,428,967,757
Net asset value of shares
issued in reinvestment of
distributions 149,805,649 245,780,303
Amounts paid for
shares redeemed (1,318,089,286) (2,371,299,692)
----------------------------------
Net increase from beneficial
share transactions 3,661,343,736 6,303,448,368
----------------------------------
Total increase in net assets 5,256,059,846 4,640,216,782
Net Assets:
Beginning of period 14,036,278,944 9,396,062,162
----------------------------------
End of period (including
undistributed net
investment income of
$5,047,444 and $3,951,270,
respectively) $19,292,338,790 $ 14,036,278,944
----------------------------------
Shares sold 54,250,638 89,158,684
Shares issued in reinvestment
of distributions 1,633,662 2,705,514
Shares redeemed (14,957,379) (25,931,055)
----------------------------------
Net increase in
shares outstanding 40,926,921 65,933,143
----------------------------------
See accompanying Notes to Financial Statements Dodge & Cox Stock Fund / 6
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1
Dodge & Cox Stock Fund (the "Fund") is a separate series of Dodge & Cox Funds
(the "Trust"). The Trust is organized as a Delaware statutory trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund consistently
follows accounting policies which are in conformity with accounting principles
generally accepted in the United States of America. 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 not available, at the mean between the exchange listed bid and ask price; 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 Trustees; short-term securities are valued at amortized cost which
approximates 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 and interest income
are 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) The Fund may enter into repurchase agreements which
involve the purchase of securities from a counterparty with a simultaneous
commitment to resell the securities at an agreed-upon date and price. In the
event of default by the counterparty, the Fund has the contractual right to
liquidate the securities and to apply the proceeds in satisfaction of the
obligation. (g) 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 and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Note 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 three
of the trustees of the Trust are officers and employees of Dodge & Cox. Those
trustees who are not affiliated with Dodge & Cox receive from the Trust an
annual fee plus an attendance fee for each Board or Committee meeting attended.
Payments to trustees are divided equally among each series of the Trust. The
Trust does not pay any other remuneration to its officers or trustees.
Note 3
The federal tax character of distributions paid in the six months ended June
30, 2003 include $166,479,798 of ordinary income ($0.88 per share) and no
long-term capital gain. At June 30, 2003, the tax basis components of
accumulated undistributed income and net realized gain include $5,047,444 of
ordinary income and no long-term capital gain. For federal tax purposes, net
realized capital losses of $83,372,874 arising in the six months ended June 30,
2003 are available for offsetting capital gains realized in future periods, and
will expire in 2011 if not utilized. For the six months ended June 30, 2003,
purchases and sales of securities, other than short-term securities, aggregated
$3,880,981,750 and $546,856,959, respectively. At June 30, 2003, the cost of
investments for federal income tax purposes was equal to the cost for financial
reporting purposes. Net unrealized appreciation aggregated $1,353,856,412 of
which $2,401,172,184 represented appreciated securities and $1,047,315,772
represented depreciated securities.
The financial information has been taken from the records of the Fund and has
not been audited by the Fund's independent accountants who do not express an
opinion thereon. The financial statements of the Fund will be subject to audit
by the Fund's independent accountants as of the close of the calendar year.
7 / Dodge & Cox Stock Fund
Financial Highlights
- --------------------------------------------------------------------------------------------------------------
SELECTED DATA AND RATIOS (for a share Six Months
outstanding throughout each period) Ended June 30, Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
Net asset value, beginning of period $88.05 $100.51 $96.67 $100.52 $90.70 $94.57
Income from investment operations:
Net investment income 0.88 1.53 1.72 2.06 1.49 1.57
Net realized and unrealized gain (loss) 8.25 (12.06) 7.05 13.28 16.51 3.54
-------------------------------------------------------
Total from investment operations 9.13 (10.53) 8.77 15.34 18.00 5.11
-------------------------------------------------------
Distributions to shareholders from:
Net investment income (0.88) (1.51) (1.73) (2.09) (1.48) (1.56)
Net realized gain -- (0.42) (3.20) (17.10) (6.70) (7.42)
------------------------------------------------------
Total distributions (0.88) (1.93) (4.93) (19.19) (8.18) (8.98)
-------------------------------------------------------
Net asset value, end of period $96.30 $88.05 $100.51 $96.67 $100.52 $90.70
-------------------------------------------------------
Total return 10.43% (10.52)% 9.33% 16.30% 20.20% 5.39%
Ratios/supplemental data:
Net assets, end of period (millions) $19,292 $14,036 $9,396 $5,728 $4,625 $4,355
Ratio of expenses to average net assets .54%* .54% .54% .54% .55% .57%
Ratio of net investment income to average net
assets 2.13%* 1.74% 1.80% 2.13% 1.46% 1.63%
Portfolio turnover rate 4% 13% 10% 32% 18% 19%
- --------------------------------------------------------------------------------------------------------------
*Annualized
Dodge & Cox Stock Fund / 8
THIS PAGE INTENTIONALLY LEFT BLANK
9 / Dodge & Cox Stock Fund
THIS PAGE INTENTIONALLY LEFT BLANK
Dodge & Cox Stock Fund / 10
Officers and Trustees
- --------------------------------------------------------------------------------
Harry R. Hagey, Chairman & Trustee
Chairman & CEO, Dodge & Cox
John A. Gunn, President & Trustee
President, Dodge & Cox
Dana M. Emery, Vice President & Trustee
Senior Vice President, Dodge & Cox
William F. Ausfahl, Trustee
Former CFO and member of Board of Directors, The Clorox Company
L. Dale Crandall, Trustee
Former President, Kaiser Foundation Health Plan and Hospitals
Thomas A. Larsen, Trustee
Director, Howard, Rice, Nemerovski, Canady, Falk & Rabkin
Will C. Wood, Trustee
Principal, Kentwood Associates, Financial Advisers
A. Horton Shapiro, Executive Vice President
Senior Vice President, Dodge & Cox
Katherine Herrick Drake, Vice President
Vice President, Dodge & Cox
Kenneth E. Olivier, Vice President
Executive Vice President, Dodge & Cox
John M. Loll, Treasurer & Asst. Secretary
Vice President & Treasurer, Dodge & Cox
Thomas M. Mistele, Secretary & Asst. Treasurer
Vice President, Secretary & General Counsel, Dodge & Cox
D O D G E & C O X D O D G E & C O X
----------------- -----------------
Balanced Fund
Balanced Fund
Established 1931
www.dodgeandcox.com
For Fund literature and account
information, please visit the
Funds' web site.
or write or call:
Dodge & Cox Funds
c/o Boston Financial Data Services
P.O. Box 8422
Boston, Massachusetts
02266-8422
(800) 621-3979
Investment Manager
Dodge & Cox
One Sansome Street
35th Floor
San Francisco, California
94104-4443
(415) 981-1710
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.
This report reflects our
views, opinions and portfolio
holdings as of June 30, 2003,
the end of the reporting period.
The information provided is
not a complete analysis of
every aspect of any industry,
security or the Fund. The Fund's
portfolio composition may Semi-Annual Report
change depending on market and June 30, 2003
economic conditions. Although
historical performance is no 2003
guarantee of future results,
these insights may help you ------------------
understand our investment ------------------
management philosophy. ------------------
6/03 BF SAR Printed on recycled paper
To Our Shareholders
- --------------------------------------------------------------------------------
The Dodge & Cox Balanced Fund had a total return of 12.3% for the second
quarter of 2003, compared to a total return of 10.1% for the Combined Index/1/.
For the six months ended June 30, 2003, the Fund had a total return of 9.1%,
compared to a total return of 8.7% for the Combined Index. At quarter-end, the
Fund's total net assets of $9.7 billion were invested in 66% stocks, 25%
fixed-income securities and 9% cash equivalents.
Second Quarter Performance Review
Equity Performance Review
Rebounding from a very difficult first quarter, the equity portion of the
Balanced Fund had one of its best three-month results in the past ten years and
outperformed the S&P 500's return of 15.4%. The equity portfolio's technology
holdings were the key driver behind this outperformance. Although the portfolio
is moderately underweight the S&P 500 in technology, the portfolio benefited
from its investments in Avaya (up 217%), Compuware (up 69%) and Hewlett-Packard
(up 37%). The equity portfolio's technology holdings were up more than 30%,
compared to the S&P 500's technology sector gain of 18%. Outside of the
technology sector strong individual contributors to return included: McDonald's
(up 53%), Capital One Financial (up 64%), Akzo Nobel (up 38%), and CIT Group
(up 47%). Detractors from performance relative to the S&P 500 during the
quarter were limited to a handful of individual stocks including, HCA-The
Healthcare Company (down 23%), Sony (down 20%), and Unilever (down 8%).
Fixed-Income Performance Review
The fixed-income portion of the Fund performed slightly better during the
quarter than the Lehman Brothers Aggregate Bond Index's (LBAG) return of 2.5%.
The fixed-income portfolio's overweight position in corporate securities
contributed to relative performance as yield premiums on corporate bonds in
aggregate narrowed significantly relative to U.S. Treasuries. Good security
selection also contributed as most of the portfolio's corporate holdings
outperformed the Lehman Credit Index (corporate plus sovereign securities). The
fixed-income portfolio was hurt by its overweight position in mortgage-backed
securities, which slightly underperformed short U.S. Treasuries, due in part to
falling interest rates. Finally, as interest rates fell in the second quarter,
the portfolio's shorter duration/2/ meant that on average the Fund's
fixed-income holdings appreciated less than the broad market. However, the
portfolio's higher-than-market yield contributed to relative returns.
Strategy
As to the future for the equity market, we remain on the cautious side. Our
caution is a function of market valuations still being at high levels (the
price-to-sales ratio for the S&P Industrials is 1.4 times versus 0.6 times for
the equity portfolio) and questions surrounding the drivers of short-term
earnings growth.
We are, however, optimistic about the long-term prospects for global economic
growth. Over the long term, the real economic opportunity appears to be outside
of the United States--and more specifically, outside of the developed world of
Western Europe, North America and Japan. Much of the developing world (over 80%
of the world's population) is transforming to some form of free market system.
Key ingredients are economic and political freedoms, which are increasing in
many areas. The ever-declining costs of communications and computing power
serve as catalysts for increasing the pace of change. Isolation is ending, as
the transfer of knowledge is becoming easier and quicker. Improvements in
infrastructure (transportation, electric power, telecommunications, etc.) are
occurring rapidly in many regions. This shift in the developing world is not
just about exports (production), but also about the development of large
internal markets (consumption). The prospects for incremental demand are
substantial. The U.S. consumer, having been the prime driver of global demand
in recent years, will in the future become less important.
In this increasingly integrated world, it is critical that we evaluate a
company's business opportunities on a global basis. A great number of the
companies in the Fund's equity portfolio will benefit from growth in overseas
markets, in areas as diverse as restaurants and consumer goods, to business
services, industrial goods, technology and energy. McDonald's growth in
non-U.S. markets is four times the rate of growth in the U.S., of course from a
smaller base, yet growing in importance over time. Sony has long been one of
the dominant innovators and producers of consumer electronics worldwide.
Whirlpool has a large, well established manufacturing base in Brazil, allowing
them to participate cost-effectively in Latin American markets. News Corp. is
building on its expertise from the successful businesses of Fox in the U.S. and
Sky in the U.K., and attempting to build similar franchises in Italy, Asia and
Latin America. Revenues from Dow Chemical's non-U.S. customers are 59% of its
total revenue base, and Alcoa now controls about 15% of the world's aluminum
capacity, approximately 60% of which is located overseas.
1 / Dodge & Cox Balanced Fund
- --------------------------------------------------------------------------------
Our trades in the Fund's fixed-income portfolio this quarter fulfilled three
strategic objectives: reduce overall portfolio duration, selectively trim
corporate exposure, and maintain the portfolio's mortgage sector exposure.
First, we continued to lower the fixed-income portfolio's duration during the
quarter as the decline in Treasury rates seemed to imply a weaker economic and
inflationary outlook than we believe was warranted. We incrementally reduced
duration through the sale of several corporate holdings. The sales of corporate
holdings were made primarily to facilitate a decrease in portfolio duration,
but also in recognition of the higher valuations accorded some of these issuers
in the aftermath of eight months of very strong relative performance in the
corporate sector.
Finally, we are maintaining the fixed-income portfolio's overweight position in
mortgage securities. With prepayments at all-time high levels, we have
experienced significant return of principal on our mortgage-backed holdings.
This means we need to purchase mortgage securities simply to maintain a fixed,
target allocation. With these purchases, and with the Fund's mortgage holdings
in general, we have emphasized mortgage-backed securities that may perform
relatively well in a rising interest rate environment.
In Closing
Thank you for the continued confidence you have placed in our firm as a
shareholder of the Balanced Fund. As always, we welcome your comments and
questions.
For the Board of Trustees,
/s/ Harry R. Hagey /s/ John A. Gunn
- ----------------------------- ----------------------------
Harry R. Hagey, Chairman John A. Gunn, President
July 31, 2003
Ten Years of Investment Performance
- --------------------------------------------------------------------------------
through June 30, 2003 (in thousands)
[PERFORMANCE GRAPH APPEARS HERE]
Dodge & Cox
S&P 500 LBAG Combined Index Balanced Fund
------- -------- -------------- -------------
Jun-93 $10,000 $10,000 $10,000 $10,000
Jun-94 $10,473 $10,064 $10,312 $10,605
Jun-95 $13,237 $11,215 $12,402 $12,862
Jun-96 $15,390 $11,692 $13,816 $13,995
Jun-97 $21,684 $12,611 $17,523 $17,554
Jun-98 $28,226 $13,940 $21,418 $20,255
Jun-99 $34,645 $14,376 $24,672 $22,868
Jun-00 $37,167 $15,033 $26,266 $22,697
Jun-01 $31,652 $16,721 $25,010 $28,000
Jun-02 $25,973 $18,167 $23,073 $28,802
Jun-03 $26,039 $20,056 $24,192 $30,436
- - Dodge & Cox Balanced Fund $30,436
- - S&P 500 $26,039
- - Combined Index $24,192
- - LBAG $20,056
Average annual total return for periods ended June 30, 2003
1 Year 5 Years 10 Years 20 Years
- --------------------------------------------------------------------------------
Dodge & Cox Balanced Fund 5.64% 8.48% 11.77% 12.87%
Combined Index 4.85 2.47 9.24 11.46
S&P 500 0.25 -1.60 10.04 12.21
Lehman Brothers Aggregate
Bond Index (LBAG) 10.40 7.54 7.21 9.54
- --------------------------------------------------------------------------------
For updated performance figures see "Prices and Performance" at
www.dodgeandcox.com, or call Dodge & Cox Funds at 1-800-621-3979.
The Fund's total returns include the reinvestment of dividend and capital gain
distributions, but have not been adjusted for any income taxes payable by
shareholders on these distributions. Index returns include dividends and/or
interest income 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.
Lehman Brothers(R) is a trademark of Lehman Brothers, Inc.; Standard & Poor's,
Standard & Poor's 500, and S&P 500(R) are trademarks of The McGraw-Hill
Companies, Inc.
/1/ The Combined Index reflects an unmanaged portfolio of 60% of the Standard &
Poor's 500 Index (S&P 500), which is an unmanaged index of common stock
prices, and 40% of the Lehman Brothers Aggregate Bond Index (LBAG), which
is an unmanaged index of investment-grade fixed-income securities. The
Balanced Fund may, however, invest up to 75% of its total assets in stocks.
/2/ Duration is a measurement of price sensitivity to changes in interest rates.
Dodge & Cox Balanced Fund / 2
Fund Information June 30, 2003
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
Net Asset Value Per Share $65.32
Total Net Assets (millions) $9,671
30-Day SEC Yield/1/ 2.06%
2002 Expense Ratio 0.53%
2002 Portfolio Turnover 25%
Fund Inception Date 1931
Investment Manager: Dodge & Cox, San Francisco. Managed by the Investment Policy
Committee, whose ten members' average tenure at Dodge & Cox is 22 years, and by
the Fixed-Income Strategy Committee, whose eleven members' average tenure is 14
years.
Asset Allocation
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Stocks: 65.7%
Fixed-Income Securities: 25.0%
Cash Equivalents: 9.3%
Stock Portfolio (65.7% of Fund)
- --------------------------------------------------------------------------------
Number of Stocks 83
Median Market Capitalization $10 billion
Price-to-Earnings Ratio/2/ 15x
Price-to-Book Value 1.8x
Foreign Stocks/3/ (% of Fund) 8.0%
Five Largest Sectors % of Fund
- --------------------------------------------------------------------------------
Consumer Discretionary 14.8
Financials 12.8
Information Technology 9.1
Materials 6.9
Energy 6.1
Ten Largest Stock Holdings % of Fund
- --------------------------------------------------------------------------------
McDonald's 1.7
AT&T 1.7
Dow Chemical 1.7
Xerox 1.7
Hewlett-Packard 1.6
Bank One 1.6
News Corp. Ltd., Pref. ADR (Australia) 1.6
Comcast 1.5
FedEx 1.5
Golden West Financial 1.4
Fixed-Income Portfolio (25.0% of Fund)
- --------------------------------------------------------------------------------
Number of Fixed-Income Securities 155
Average Quality AA-
Average Maturity 7.0 years
Effective Duration 3.7 years
Credit Quality Ratings/5/ % of Fund
- --------------------------------------------------------------------------------
U.S. Government & Government Agencies 14.1
Aaa/AAA 0.2
Aa/AA 0.1
A/A 1.8
Baa/BBB 7.1
Ba/BB 1.0
B/B and below 0.7
Sector Breakdown % of Fund
- --------------------------------------------------------------------------------
U.S. Treasury and Government Agency 2.7
Federal Agency CMO and REMIC/4/ 4.7
Federal Agency Mortgage Pass-Through 6.8
Asset-Backed 0.1
Corporate 10.7
/1/ SEC Yield is 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.
/2/ The Fund's price-to-earnings (P/E) ratio is calculated using Dodge & Cox's
estimated forward earnings and excludes extraordinary items.
/3/ All U.S. dollar-denominated.
/4/ Collateralized Mortgage Obligation and Real Estate Mortgage Investment
Conduit.
/5/ For presentation purposes only: when a security is split-rated, the lower
of either the Moody's or Standard & Poor's rating is reported.
3 / Dodge & Cox Balanced Fund
Portfolio of Investments June 30, 2003
- --------------------------------------------------------------------------------
COMMON STOCKS: 64.1%
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
CONSUMER DISCRETIONARY: 13.2%
CONSUMER DURABLES & APPAREL: 4.1%
4,386,100 Sony Corp. ADR/(b)/ (Japan) $ 122,810,800
1,477,500 Whirlpool Corp. 94,116,750
8,346,300 Matsushita Electric Industrial Co., Ltd. ADR/(b)/
(Japan) 83,880,315
2,056,500 Eastman Kodak Co. 56,245,275
1,097,400 VF Corp. 37,278,678
--------------
394,331,818
RETAILING: 2.5%
4,924,350 May Department Stores Co. 109,616,031
3,552,400 Gap, Inc. 66,643,024
2,550,250 Nordstrom, Inc. 49,780,880
1,461,400 Dillard's, Inc. Class A 19,685,058
--------------
245,724,993
MEDIA: 2.3%
4,811,909 Comcast Corp./(a)/ 145,223,414
4,675,900 AOL Time Warner, Inc./(a)/ 75,235,231
--------------
220,458,645
HOTELS, RESTAURANTS & LEISURE: 2.1%
7,592,950 McDonald's Corp. 167,500,477
5,314,826 InterContinental Hotels Group PLC ADR/(b)/
(United Kingdom) 38,798,230
--------------
206,298,707
AUTOMOBILES & COMPONENTS: 1.1%
8,413,720 Delphi Automotive Systems Corp. 72,610,403
2,754,630 Ford Motor Co. 30,273,384
--------------
102,883,787
TRADING COMPANIES & DISTRIBUTORS: 1.1%
3,335,450 Genuine Parts Co. 106,767,754
--------------
1,276,465,704
FINANCIALS: 12.8%
BANKS: 4.7%
4,250,600 Bank One Corp. 158,037,308
1,675,200 Golden West Financial Corp. 134,032,752
2,876,400 Wachovia Corp. 114,940,944
861,450 Wells Fargo & Co. 43,417,080
--------------
450,428,084
INSURANCE: 4.0%
2,267,000 Loews Corp. 107,206,430
2,594,200 St. Paul Companies, Inc. 94,714,242
1,751,500 Torchmark Corp. 65,243,375
783,912 Chubb Corp. 47,034,720
3,495,000 UNUMProvident Corp. 46,867,950
562,750 MBIA, Inc. 27,434,063
--------------
388,500,780
DIVERSIFIED FINANCIALS: 2.3%
2,290,200 Capital One Financial Corp. 112,632,036
4,476,500 CIT Group, Inc. 110,345,725
--------------
222,977,761
SHARES MARKET VALUE
REAL ESTATE: 1.8%
3,908,000 Equity Office Properties Trust $ 105,555,080
2,600,600 Equity Residential Properties Trust 67,485,570
--------------
173,040,650
--------------
1,234,947,275
INFORMATION TECHNOLOGY: 9.1%
TECHNOLOGY HARDWARE & EQUIPMENT: 7.0%
15,102,150 Xerox Corp./(a)/ 159,931,768
7,446,255 Hewlett-Packard Co. 158,605,232
11,957,900 Corning, Inc./(a)/ 88,368,881
7,100,000 Motorola, Inc. 66,953,000
2,955,550 Thermo Electron Corp./(a)/ 62,125,661
2,303,625 NCR Corp./(a)/ 59,018,873
1,748,600 Storage Technology Corp./(a)/ 45,008,964
5,842,850 Avaya, Inc./(a)/ 37,744,811
--------------
677,757,190
SOFTWARE & SERVICES: 2.1%
3,371,000 Electronic Data Systems 72,307,950
1,856,400 Computer Sciences Corp./(a)/ 70,765,968
6,937,800 Compuware Corp./(a)/ 40,031,106
875,900 Computer Associates International, Inc. 19,515,052
--------------
202,620,076
--------------
880,377,266
MATERIALS: 6.9%
CHEMICALS: 4.6%
5,362,959 Dow Chemical Co. 166,037,210
4,178,800 Akzo Nobel N.V. ADR/(b)/ (Netherlands) 111,365,020
2,102,600 Rohm and Haas Co. 65,243,678
1,654,300 Engelhard Corp. 40,977,011
1,516,920 NOVA Chemicals Corp./(b)/ (Canada) 28,882,157
2,333,400 Syngenta A.G. ADR/(b)/ (Switzerland) 23,660,676
321,400 Lubrizol Corp. 9,960,186
--------------
446,125,938
METALS AND MINING: 1.6%
1,115,400 Rio Tinto PLC ADR/(b)/ (United Kingdom) 85,383,870
2,587,200 Alcoa, Inc. 65,973,600
--------------
151,357,470
PAPER AND FOREST PRODUCTS: 0.7%
1,267,800 International Paper Co. 45,298,494
960,300 Boise Cascade Corp. 22,951,170
--------------
68,249,664
--------------
665,733,072
ENERGY: 6.1%
2,124,900 ConocoPhillips 116,444,520
3,410,900 Occidental Petroleum Corp. 114,435,695
1,506,308 ChevronTexaco Corp. 108,755,438
3,490,100 Unocal Corp. 100,130,969
1,589,900 Amerada Hess Corp. 78,191,282
2,053,400 Baker Hughes, Inc. 68,932,638
--------------
586,890,542
See accompanying Notes to Financial Statements Dodge & Cox Balanced Fund / 4
Portfolio of Investments June 30, 2003
- --------------------------------------------------------------------------------
COMMON STOCKS (continued)
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
HEALTH CARE: 5.7%
PHARMACEUTICALS & BIOTECHNOLOGY: 3.0%
7,050,350 Schering-Plough Corp. $ 131,136,510
2,060,000 Bristol-Myers Squibb Co. 55,929,000
1,555,492 Pfizer Inc. 53,120,052
1,123,300 Wyeth 51,166,315
--------------
291,351,877
HEALTH CARE EQUIPMENT & SERVICES: 2.7%
4,071,000 HCA-The Healthcare Company 130,434,840
700,900 WellPoint Health Networks, Inc./(a)/ 59,085,870
1,373,100 Becton, Dickinson & Co. 53,344,935
472,541 Bausch & Lomb, Inc. 17,720,287
--------------
260,585,932
--------------
551,937,809
INDUSTRIALS: 5.1%
TRANSPORTATION: 2.3%
2,269,750 FedEx Corp. 140,792,592
1,455,000 Union Pacific Corp. 84,419,100
--------------
225,211,692
CAPITAL GOODS: 1.8%
1,840,300 Fluor Corp. 61,907,692
2,458,700 Masco Corp. 58,639,995
808,800 Caterpillar, Inc. 45,017,808
624,200 Unova, Inc./(a)/ 6,928,620
--------------
172,494,115
COMMERCIAL SERVICES & SUPPLIES: 1.0%
2,036,500 R.R. Donnelley & Sons Co. 53,234,110
1,203,150 Pitney Bowes, Inc. 46,212,992
--------------
99,447,102
--------------
497,152,909
TELECOMMUNICATION SERVICES: 2.4%
8,650,280 AT&T Corp. 166,517,890
7,949,500 AT&T Wireless Services, Inc./(a)/ 65,265,395
--------------
231,783,285
CONSUMER STAPLES: 1.5%
FOOD, BEVERAGE AND TOBACCO: 1.5%
1,761,400 Unilever N.V. ADR/(b)/ (Netherlands) 95,115,600
4,021,353 Archer Daniels Midland Co. 51,754,813
--------------
146,870,413
UTILITIES: 1.3%
2,368,880 American Electric Power Co., Inc. 70,663,690
1,686,100 TXU Corp. 37,852,945
600,000 Scottish Power PLC ADR/(b)/ (United Kingdom) 14,586,000
--------------
123,102,635
--------------
Total Common Stocks (cost $5,485,596,664) 6,195,260,910
--------------
PREFERRED STOCKS: 1.6%
SHARES MARKET VALUE
CONSUMER DISCRETIONARY: 1.6%
MEDIA: 1.6%
6,257,900 News Corp. Ltd., Preferred Limited Voting
Ordinary Shares ADR/(b)/ (Australia) $ 156,760,395
-------------
Total Preferred Stocks (cost $130,935,524) 156,760,395
-------------
- --------------------------------------------------------------------------------
FIXED-INCOME SECURITIES: 25.0%
- --------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
U.S. TREASURY AND GOVERNMENT AGENCY: 2.7%
U.S. TREASURY: 1.8%
$22,669,946 U.S. Treasury Inflation-Indexed Note, 3.00%,
7/15/12 $ 24,982,983
38,000,000 U.S. Treasury Notes, 3.00%, 1/31/04 38,443,840
75,000,000 U.S. Treasury Notes, 3.375%, 4/30/04 76,473,600
26,515,000 U.S. Treasury Notes, 7.25%, 8/15/04 28,343,077
8,500,000 U.S. Treasury Notes, 3.50%, 11/15/06 8,959,867
--------------
177,203,367
GOVERNMENT AGENCY: 0.9%
4,935,000 Arkansas Dev. Fin. Auth. GNMA Guaranteed Bonds,
9.75%, 11/15/14 6,520,961
9,000,000 Federal Home Loan Mtge. Corp.,
6.25%, 7/15/32 10,589,625
10,647,589 Govt. Small Business Admin. 504 Series 00-20I,
7.21%, 9/1/20 12,268,904
5,458,891 Govt. Small Business Admin. 504 Series 96-20L,
6.70%, 12/1/16 6,070,307
9,450,267 Govt. Small Business Admin. 504 Series 97-20F,
7.20%, 6/1/17 10,690,805
11,317,415 Govt. Small Business Admin. 504 Series 97-20I,
6.90%, 9/1/17 12,715,233
13,201,787 Govt. Small Business Admin. 504 Series 98-20D,
6.15%, 4/1/18 14,556,984
7,021,411 Govt. Small Business Admin. 504 Series 98-20I,
6.00%, 9/1/18 7,716,408
--------------
81,129,227
--------------
258,332,594
FEDERAL AGENCY CMO AND REMIC/(c)/: 4.7%
221,371 Federal Home Loan Mtge. Corp., 6.00%, 1/15/07 222,239
4,511,469 Federal Home Loan Mtge. Corp., 7.25%, 4/15/07 4,663,192
8,458,757 Federal Home Loan Mtge. Corp., 6.50%, 5/15/08 8,816,181
9,327,193 Federal Home Loan Mtge. Corp., 6.50%, 5/15/08 9,807,715
19,380,000 Federal Home Loan Mtge. Corp., 6.50%, 10/15/08 20,050,094
14,655,200 Federal Home Loan Mtge. Corp., 5.50%, 12/15/13 15,054,501
15,000,000 Federal Home Loan Mtge. Corp., 5.50%, 2/15/14 15,293,436
24,259,618 Federal Home Loan Mtge. Corp., 6.00%, 12/15/14 24,784,393
5 / Dodge & Cox Balanced Fund See accompanying Notes to Financial Statements
Portfolio of Investments June 30, 2003
- -------------------------------------------------------------------------------
FIXED-INCOME SECURITIES (continued)
- -------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
FEDERAL AGENCY CMO AND REMIC (continued)
$ 4,418,454 Federal Home Loan Mtge. Corp., 6.50%, 5/15/21 $ 4,486,505
24,675,340 Federal Home Loan Mtge. Corp., 6.25%, 9/15/22 25,122,549
28,000,000 Federal Home Loan Mtge. Corp., 7.00%, 8/25/23 30,364,776
1,095,627 Federal Natl. Mtge. Assn., 5.00%, 1/1/06 1,121,297
4,083,128 Federal Natl. Mtge. Assn., 7.50%, 2/25/07 4,312,440
240,176 Federal Natl. Mtge. Assn., 6.50%, 4/1/09 250,197
21,496,166 Federal Natl. Mtge. Assn., 5.50%, 10/25/09 21,597,636
11,372,069 Federal Natl. Mtge. Assn., 5.50%, 6/25/11 11,454,578
19,718,963 Federal Natl. Mtge. Assn., 5.75%, 8/25/12 19,831,146
20,000,000 Federal Natl. Mtge. Assn., 5.50%, 11/25/13 20,559,936
12,715,000 Federal Natl. Mtge. Assn., 7.00%, 6/17/22 13,124,658
18,996,619 Federal Natl. Mtge. Assn., 7.00%, 6/25/32 20,712,261
19,957,723 Federal Natl. Mtge. Assn., 7.50%, 2/25/41 22,271,582
22,538,523 Federal Natl. Mtge. Assn., 7.50%, 7/25/41 25,151,594
9,045,317 Federal Natl. Mtge. Assn., 7.00%, 9/25/41 9,862,227
20,300,933 Federal Natl. Mtge. Assn., 7.00%, 6/25/42 22,134,371
20,552,340 Federal Natl. Mtge. Assn., 7.00%, 6/25/42 22,408,484
44,593,729 Federal Natl. Mtge. Assn., 6.50%, 7/25/42 48,035,830
18,986,207 Federal Natl. Mtge. Assn., 7.00%, 7/25/42 20,700,908
3,354,849 Veterans Affairs Vendee Mtge. Trust, 7.21%, 2/15/25 3,685,713
2,254,740 Veterans Affairs Vendee Mtge. Trust, 8.793%, 6/15/25 2,514,441
------------
448,394,880
FEDERAL AGENCY MORTGAGE PASS-THROUGH: 6.8%
10,032 Federal Home Loan Mtge. Corp., 7.50%, 7/1/06 10,116
12,812 Federal Home Loan Mtge. Corp., 7.25%, 1/1/08 13,137
18,387 Federal Home Loan Mtge. Corp., 7.50%, 2/1/08 19,288
292,458 Federal Home Loan Mtge. Corp., 8.00%, 2/1/08 310,313
4,448,830 Federal Home Loan Mtge. Corp., 7.00%, 5/1/08 4,711,087
7,017,865 Federal Home Loan Mtge. Corp., 7.00%, 12/1/08 7,411,041
2,259,743 Federal Home Loan Mtge. Corp., 6.50%, 2/1/09 2,388,084
5,325,206 Federal Home Loan Mtge. Corp., 7.00%, 8/1/09 5,665,571
5,830,969 Federal Home Loan Mtge. Corp., 6.00%, 9/1/09 6,081,268
250,456 Federal Home Loan Mtge. Corp., 8.75%, 5/1/10 270,135
1,125,987 Federal Home Loan Mtge. Corp., 8.00%, 11/1/10 1,195,315
11,627,698 Federal Home Loan Mtge. Corp., 6.00%, 9/1/12 12,128,498
17,100,064 Federal Home Loan Mtge. Corp., 6.00%, 10/1/13 17,824,622
23,532,954 Federal Home Loan Mtge. Corp., 6.00%, 4/1/14 24,530,085
PAR VALUE MARKET VALUE
$19,753,359 Federal Home Loan Mtge. Corp., 6.50%, 7/1/14 $ 20,763,998
3,866,865 Federal Home Loan Mtge. Corp., 7.00%, 4/1/15 4,083,181
13,682,909 Federal Home Loan Mtge. Corp., 6.00%, 9/1/15 14,273,363
15,752,780 Federal Home Loan Mtge. Corp., 6.00%, 5/1/16 16,433,532
162,304 Federal Home Loan Mtge. Corp., 8.25%, 2/1/17 173,973
91,210,000 Federal Home Loan Mtge. Corp., 6.00%, 5/1/17 94,859,949
50,000,000 Federal Home Loan Mtge. Corp., 6.50%, 12/1/17 52,517,097
3,259,165 Federal Home Loan Mtge. Corp., 7.75%, 7/25/21 3,481,995
1,682,615 Federal Home Loan Mtge. Corp., 8.50%, 1/1/23 1,809,032
1,752,535 Federal Home Loan Mtge. Corp., 7.47%, 3/1/23 1,869,927
10,372,365 Federal Natl. Mtge. Assn., 5.57%, 1/1/06 11,062,648
1,148,000 Federal Natl. Mtge. Assn., 7.50%, 9/1/07 1,201,762
1,854,104 Federal Natl. Mtge. Assn., 7.00%, 12/1/07 1,958,482
3,186,286 Federal Natl. Mtge. Assn., 7.00%, 12/1/07 3,367,084
1,901,592 Federal Natl. Mtge. Assn., 6.50%, 5/1/08 2,019,093
21,355,916 Federal Natl. Mtge. Assn., 5.965%, 10/1/08 23,974,920
3,650,347 Federal Natl. Mtge. Assn., 5.606%, 11/1/08 4,059,810
5,135,047 Federal Natl. Mtge. Assn., 6.50%, 11/1/08 5,452,348
2,633,459 Federal Natl. Mtge. Assn., 6.00%, 1/1/09 2,765,364
8,806,294 Federal Natl. Mtge. Assn., 6.041%, 1/1/09 9,973,596
608,939 Federal Natl. Mtge. Assn., 8.00%, 1/1/09 649,624
354,361 Federal Natl. Mtge. Assn., 7.50%, 8/1/10 375,648
3,266,086 Federal Natl. Mtge. Assn., 7.00%, 7/1/11 3,451,412
10,501,159 Federal Natl. Mtge. Assn., 6.50%, 8/1/11 11,116,783
15,534,084 Federal Natl. Mtge. Assn., 6.50%, 1/1/12 16,399,292
31,326,974 Federal Natl. Mtge. Assn., 6.017%, 4/1/12 35,733,310
9,193,867 Federal Natl. Mtge. Assn., 6.50%, 1/1/13 9,725,972
30,068,850 Federal Natl. Mtge. Assn., 5.50%, 2/1/14 31,386,441
19,274,163 Federal Natl. Mtge. Assn., 6.00%, 3/1/14 20,162,959
40,995,406 Federal Natl. Mtge. Assn., 5.50%, 9/1/14 42,791,789
21,272,915 Federal Natl. Mtge. Assn., 5.50%, 8/1/15 22,205,075
31,778,971 Federal Natl. Mtge. Assn., 5.50%, 8/1/15 33,171,498
9,076,113 Federal Natl. Mtge. Assn., 6.50%, 8/1/15 9,580,156
15,999,463 Federal Natl. Mtge. Assn., 6.00%, 7/1/16 16,699,194
747,697 Federal Natl. Mtge. Assn., 7.50%, 7/1/19 791,397
4,268,905 Govt. Natl. Mtge. Assn., 7.50%, 1/15/08 4,534,855
8,922,771 Govt. Natl. Mtge. Assn., 6.50%, 7/15/09 9,482,947
1,053,906 Govt. Natl. Mtge. Assn., 7.97%, 4/15/20 1,150,340
989,719 Govt. Natl. Mtge. Assn., 7.97%, 5/15/20 1,080,281
682,704 Govt. Natl. Mtge. Assn., 7.97%, 8/15/20 745,172
989,530 Govt. Natl. Mtge. Assn., 7.97%, 8/15/20 1,080,074
1,270,532 Govt. Natl. Mtge. Assn., 7.97%, 10/15/20 1,386,788
1,067,130 Govt. Natl. Mtge. Assn., 7.97%, 1/15/21 1,164,256
15,467,641 Govt. Natl. Mtge. Assn., 7.50%, 11/15/24 16,568,626
7,889,463 Govt. Natl. Mtge. Assn., 7.50%, 10/15/25 8,447,311
------------
658,540,914
See accompanying Notes to Financial Statements Dodge & Cox Balanced Fund / 6
Portfolio of Investments
June 30, 2003
- -------------------------------------------------------------------------------
FIXED-INCOME SECURITIES (continued)
- -------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
ASSET-BACKED SECURITIES: 0.1%
$13,914,540 Union Planters Mortgage Finance Corp., 7.70%,
12/25/24 $ 15,356,833
CORPORATE: 10.7%
INDUSTRIAL: 5.7%
31,975,000 AOL Time Warner, Inc., 7.625%, 4/15/31 36,902,507
5,500,000 AOL Time Warner, Inc., 7.70%, 5/1/32 6,420,876
27,000,000 AT&T Corp./(h)/, 7.30%, 11/15/11 30,864,024
35,000,000 AT&T Corp./(h)/, 8.00%, 11/15/31 39,686,115
7,550,000 AT&T Wireless Services, Inc., 8.75%, 3/1/31 9,332,291
17,000,000 American Home Products Corp., 6.70%, 3/15/11 19,944,502
20,000,000 Comcast Corp., 5.30%, 1/15/14 20,568,840
25,275,000 Dillard's, Inc., 7.375%, 6/1/06 25,401,375
3,500,000 Dillard's, Inc., 7.13%, 8/1/18 3,045,000
25,750,000 HCA-The Healthcare Company, 8.75%, 9/1/10 29,995,531
5,000,000 HCA-The Healthcare Company, 7.875%, 2/1/11 5,599,540
16,880,000 Health Net, Inc., 8.375%, 4/15/11 20,517,370
25,850,000 Hewlett-Packard Co., 5.50%, 7/1/07 28,573,298
18,500,000 Lockheed Martin Corp., 7.65%, 5/1/16 23,542,101
5,900,000 May Department Stores Co., 7.625%, 8/15/13 7,270,948
8,000,000 May Department Stores Co., 7.45%, 10/15/16 9,771,936
16,000,000 May Department Stores Co., 8.125%, 8/15/35,
Callable 2015 19,199,056
10,440,000 May Department Stores Co., 7.875%, 8/15/36,
Callable 2016 12,194,870
15,000,000 Nordstrom, Inc., 8.95%, 10/15/05 17,130,300
34,610,000 Raychem Corp., 8.20%, 10/15/08 37,724,900
35,000,000 Raytheon Co., 6.75%, 8/15/07 39,618,005
22,500,000 Time Warner Entertainment, 8.375%, 7/15/33 29,104,627
12,500,000 Walt Disney Co., 7.55%, 7/15/93, Callable 2023 15,007,300
25,000,000 Xerox Corp., 5.50%, 11/15/03 25,125,000
23,578,000 Xerox Corp., 5.25%, 12/15/03 23,636,945
10,000,000 Xerox Corp., 7.20%, 4/1/16 9,600,000
------------
545,777,257
FINANCE: 4.2%
13,525,000 Bank One Capital III/(d)/, 8.75%, 9/1/30 18,553,730
12,275,000 Bank One Corp., 6.50%, 2/1/06 13,626,465
14,550,000 BankAmerica Capital II/(d)/, 8.00%, 12/15/26,
Callable 2006 17,026,410
14,000,000 Boston Properties, Inc., 6.25%, 1/15/13 15,330,812
15,000,000 Boston Properties, Inc./(e)/, 5.625%, 4/15/15 15,509,580
14,705,000 CIGNA Corp., 7.00%, 1/15/11 16,961,453
1,720,000 CIGNA Corp., 7.65%, 3/1/23 1,976,614
6,050,000 CIGNA Corp., 8.30%, 1/15/33, Step Coupon 7,429,714
10,000,000 CIT Group, Inc., 7.375%, 4/2/07 11,417,700
12,500,000 CIT Group, Inc., 5.75%, 9/25/07 13,630,900
12,480,000 Citicorp Capital Trust I/(d)/, 7.933%, 2/15/27,
Callable 2007 14,610,735
PAR VALUE MARKET VALUE
$20,055,000 EOP Operating Limited Partnership/(f)/, 8.375%,
3/15/06 $ 22,994,381
23,500,000 EOP Operating Limited Partnership/(f)/, 5.875%,
1/15/13 25,335,938
4,945,000 First Nationwide Bank, 10.00%, 10/1/06 5,992,574
11,000,000 Ford Motor Credit Co., 6.50%, 1/25/07 11,573,353
52,500,000 Ford Motor Credit Co., 7.25%, 10/25/11 53,973,832
12,750,000 GMAC, 7.75%, 1/19/10 13,721,818
35,630,000 GMAC, 8.875%, 6/1/10, Putable 2005 40,383,790
25,150,000 Safeco Corp., 7.25%, 9/1/12 30,234,374
17,500,000 St. Paul Companies, Inc., 8.125%, 4/15/10 21,527,992
13,870,000 UNUMProvident Corp., 7.625%, 3/1/11 14,840,900
13,850,000 UNUMProvident Corp., 6.75%, 12/15/28 13,157,500
4,795,000 UNUMProvident Corp., 7.375%, 6/15/32 4,747,050
--------------
404,557,615
TRANSPORTATION: 0.7%
5,486,789 Consolidated Rail Corp., 6.76%, 5/25/15,
Callable 2005 5,845,132
12,740,000 Consolidated Rail Corp., 9.75%, 6/15/20 17,564,014
43,092,576 Union Pacific Corp., 6.33%, 1/2/20 47,915,497
--------------
71,324,643
UTILITIES: 0.1%
25,000,000 PG&E National Energy Group, Inc./(g)/, 5/16/11 13,500,000
--------------
1,035,159,515
--------------
Total Fixed-Income Securities (cost $2,254,127,907) 2,415,784,736
--------------
SHORT-TERM INVESTMENTS: 8.3%
- -------------------------------------------------------------------------------
47,936,411 SSgA Prime Money Market Fund 47,936,411
359,279,000 State Street Repurchase Agreement,
0.90%, 7/1/03 (Collateralized by
U.S. Treasury Securities, value
$366,489,650) 359,279,000
100,000,000 U.S. Treasury Bills, 8/14/03 99,875,333
100,000,000 U.S. Treasury Bills, 9/25/03 99,792,167
100,000,000 U.S. Treasury Bills, 11/13/03 99,608,125
100,000,000 U.S. Treasury Bills, 12/18/03 99,565,555
--------------
Total Short-Term Investments (cost $806,056,591) 806,056,591
--------------
TOTAL INVESTMENTS (cost $8,676,716,686) 99.0% 9,573,862,632
OTHER ASSETS LESS LIABILITIES 1.0 97,393,991
----- --------------
TOTAL NET ASSETS 100.0% $9,671,256,623
----- --------------
/(a)/ Non-income producing
/(b)/ Foreign securities denominated in U.S. dollars
/(c)/ CMO: Collateralized Mortgage Obligation
REMIC: Real Estate Mortgage Investment Conduit
/(d)/ Cumulative Preferred Securities
/(e)/ Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. As of June 30,
2003, these securities represented 0.2% of total net assets.
/(f)/ EOP Operating LP is the operating partnership of Equity Office Properties
Trust
/(g)/ Non-income producing--security in default. Subsequent to June 30, 2003,
Company filed for bankruptcy protection.
/(h)/ Security is accruing at a rate higher than the coupon due to rating
downgrade.
7 / Dodge & Cox Balanced Fund See accompanying Notes to Financial Statements
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
June 30, 2003
Assets:
Investments, at market value
(identified cost $8,676,716,686) $9,573,862,632
Receivable for investments sold 5,386,571
Receivable for paydowns on
mortgage-backed securities 69,496
Receivable for Fund shares sold 141,044,213
Dividends and interest receivable 41,704,279
Prepaid expenses 62,375
--------------
9,762,129,566
--------------
Liabilities:
Payable for investments purchased 25,124,826
Payable for Fund shares redeemed 61,569,212
Management fees payable 3,940,070
Accounts payable 238,835
--------------
90,872,943
--------------
Net Assets $9,671,256,623
--------------
Net Assets Consist of:
Paid in capital $8,778,244,329
Accumulated undistributed
net investment income 1,273,355
Accumulated undistributed net
realized loss on investments (5,407,007)
Net unrealized appreciation on investments 897,145,946
--------------
$9,671,256,623
--------------
Beneficial shares outstanding (par value $0.01 each, unlimited
shares authorized) 148,054,661
Net asset value per share $ 65.32
Statement of Operations
- -------------------------------------------------------------------------------
Six Months Ended June 30, 2003
Investment Income:
Dividends (net of foreign taxes of $1,259,188) $ 74,064,877
Interest 75,206,714
------------
149,271,591
------------
Expenses:
Management fees (Note 2) 20,903,049
Custodian and fund accounting fees 115,020
Transfer agent fees 936,382
Professional fees 30,268
Shareholder reports 97,670
Registration fees 156,145
Trustees' fees (Note 2) 11,250
Miscellaneous 32,866
------------
22,282,650
------------
Net Investment Income 126,988,941
------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments (4,750,149)
Net unrealized appreciation on investments 649,453,212
------------
Net realized and unrealized
gain on investments 644,703,063
------------
Net Increase in Net Assets from Operations $771,692,004
------------
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2003 December 31, 2002
Operations:
Net investment income $ 126,988,941 $ 219,335,589
Net realized gain (loss) (4,750,149) 98,306,929
Net unrealized appreciation (depreciation) 649,453,212 (538,007,515)
-------------- ---------------
Net increase (decrease) in net assets from
operations 771,692,004 (220,364,997)
-------------- ---------------
Distributions to Shareholders from:
Net investment income (126,973,051) (218,078,124)
Net realized gain (2,205,928) (108,348,437)
-------------- ---------------
Total distributions (129,178,979) (326,426,561)
-------------- ---------------
Beneficial Share Transactions:
Amounts received from
sale of shares 1,859,017,092 3,837,314,449
Net asset value of shares
issued in reinvestment of
distributions 123,996,474 312,743,386
Amounts paid for
shares redeemed (839,199,706) (1,758,597,569)
-------------- ---------------
Net increase from beneficial
share transactions 1,143,813,860 2,391,460,266
-------------- ---------------
Total increase in net assets 1,786,326,885 1,844,668,708
Net Assets:
Beginning of period 7,884,929,738 6,040,261,030
-------------- ---------------
End of period (including undistributed
net investment income of $1,273,355
and $1,257,465, respectively) $9,671,256,623 $ 7,884,929,738
-------------- ---------------
Shares sold 29,945,962 60,354,580
Shares issued in reinvestment of
distributions 1,985,903 5,060,173
Shares redeemed (13,679,367) (27,950,121)
-------------- ---------------
Net increase in
shares outstanding 18,252,498 37,464,632
-------------- ---------------
See accompanying Notes to Financial Statements Dodge & Cox Balanced Fund / 8
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1
Dodge & Cox Balanced Fund (the "Fund") is a separate series of Dodge & Cox
Funds (the "Trust"). The Trust is organized as a Delaware statutory trust and
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund consistently
follows accounting policies which are in conformity with accounting principles
generally accepted in the United States of America. 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 not available, at the mean between the exchange listed bid and ask price; 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; long-term debt securities are priced on the basis of valuations
furnished by pricing services which utilize both dealer-supplied valuations and
electronic data processing techniques; 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 Trustees; short-term securities are
valued at amortized cost which approximates 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 and interest income are recorded on the accrual basis. Premiums
and discounts on debt securities purchased are amortized and accreted,
respectively, to interest income over the lives of the respective securities.
(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) The Fund
may enter into repurchase agreements which involve the purchase of securities
from a counterparty with a simultaneous commitment to resell the securities at
an agreed-upon date and price. In the event of default by the counterparty, the
Fund has the contractual right to liquidate the securities and to apply the
proceeds in satisfaction of the obligation. (g) 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 and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Note 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. All officers and three of the trustees of the Trust are officers
and employees of Dodge & Cox. Those trustees who are not affiliated with
Dodge & Cox receive from the Trust an annual fee plus an attendance fee for
each Board or Committee meeting attended. Payments to trustees are divided
equally among each series of the Trust. The Trust does not pay any other
remuneration to its officers or trustees.
Note 3
The federal tax character of distributions paid in the six months ended June
30, 2003 include $129,178,979 of ordinary income ($0.92 per share) and no
long-term capital gain. At June 30, 2003, the tax basis components of
accumulated undistributed income and net realized gain include $2,570,230
of ordinary income and no long-term capital gain, which differ in total from
amounts reported in the financial statements due to temporary differences
between financial statement and tax treatments for defaulted fixed-income
securities and capital losses. For federal tax purposes, net realized capital
losses of $5,407,007 arising in the six months ended June 30, 2003 are
available for offsetting capital gains realized in future periods, and will
expire in 2011 if not utilized. For the six months ended June 30, 2003,
purchases and sales of securities, other than short-term securities, aggregated
$1,545,987,938 and $751,670,669, respectively, of which U.S. government
obligations aggregated $466,161,296 and $292,655,194, respectively. At June 30,
2003, the cost of investments for federal income tax purposes was equal to the
cost for financial reporting purposes. Net unrealized appreciation aggregated
$897,145,946, of which $1,264,403,247 represented appreciated securities and
$367,257,301 represented depreciated securities.
The financial information has been taken from the records of the Fund and has
not been audited by the Fund's independent accountants who do not express an
opinion thereon. The financial statements of the Fund will be subject to audit
by the Fund's independent accountants as of the close of the calendar year.
9 / Dodge & Cox Balanced Fund
Financial Highlights
- -------------------------------------------------------------------------------------------------------
SELECTED DATA AND RATIOS (for a share Six Months
outstanding throughout each period) Ended June 30, Year Ended December 31,
- -------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
Net asset value, beginning of period $60.75 $65.42 $63.42 $65.71 $65.22 $66.78
Income from investment operations:
Net investment income 0.91 1.89 2.12 2.45 2.24 2.24
Net realized and unrealized gain (loss) 4.58 (3.80) 4.07 6.95 5.45 2.17
---------------------------------------------------------
Total from investment operations 5.49 (1.91) 6.19 9.40 7.69 4.41
---------------------------------------------------------
Distributions to shareholders from:
Net investment income (.91) (1.88) (2.14) (2.47) (2.22) (2.23)
Net realized gain (.01) (.88) (2.05) (9.22) (4.98) (3.74)
---------------------------------------------------------
Total distributions (.92) (2.76) (4.19) (11.69) (7.20) (5.97)
---------------------------------------------------------
Net asset value, end of period $65.32 $60.75 $65.42 $63.42 $65.71 $65.22
---------------------------------------------------------
Total return 9.12% (2.94)% 10.06% 15.13% 12.06% 6.70%
Ratios/supplemental data:
Net assets, end of year (millions) $9,671 $7,885 $6,040 $4,909 $5,138 $5,693
Ratio of expenses to average net assets .53%* .53% .53% .53% .53% .54%
Ratio of net investment income to average
net assets 3.04%* 3.12% 3.28% 3.70% 3.18% 3.29%
Portfolio turnover rate 10% 25% 21% 23% 17% 26%
- -------------------------------------------------------------------------------------------------------
*Annualized
Dodge & Cox Balanced Fund / 10
Officers and Trustees
- --------------------------------------------------------------------------------
Harry R. Hagey, Chairman & Trustee
Chairman & CEO, Dodge & Cox
John A. Gunn, President & Trustee
President, Dodge & Cox
Dana M. Emery, Vice President & Trustee
Senior Vice President, Dodge & Cox
William F. Ausfahl, Trustee
Former CFO and member of Board of Directors, The Clorox Company
L. Dale Crandall, Trustee
Former President, Kaiser Foundation Health Plan and Hospitals
Thomas A. Larsen, Trustee
Director, Howard, Rice, Nemerovski, Canady, Falk & Rabkin
Will C. Wood, Trustee
Principal, Kentwood Associates, Financial Advisers
A. Horton Shapiro, Executive Vice President
Senior Vice President, Dodge & Cox
Katherine Herrick Drake, Vice President
Vice President, Dodge & Cox
Kenneth E. Olivier, Vice President
Executive Vice President, Dodge & Cox
John M. Loll, Treasurer & Asst. Secretary
Vice President & Treasurer, Dodge & Cox
Thomas M. Mistele, Secretary & Asst. Treasurer
Vice President, Secretary & General Counsel, Dodge & Cox
D O D G E & C O X D O D G E & C O X
----------------- -----------------
Income Fund
Income Fund
Established 1989
www.dodgeandcox.com
For Fund literature and account
information, please visit the
Funds' web site.
or write or call:
Dodge & Cox Funds
c/o Boston Financial Data Services
P.O. Box 8422
Boston, Massachusetts
02266-8422
(800) 621-3979
Investment Manager
Dodge & Cox
One Sansome Street
35th Floor
San Francisco, California
94104-4443
(415) 981-1710
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.
This report reflects our
views, opinions and portfolio
holdings as of June 30, 2003,
the end of the reporting period.
The information provided is
not a complete analysis of
every aspect of any industry,
security or the Fund. The Fund's
portfolio composition may Semi-Annual Report
change depending on market and June 30, 2003
economic conditions. Although
historical performance is no 2003
guarantee of future results,
these insights may help you ------------------
understand our investment ------------------
management philosophy. ------------------
6/03 IF SAR Printed on recycled paper
To Our Shareholders
- --------------------------------------------------------------------------------
The Dodge & Cox Income Fund produced a total return of 2.8% for the quarter
ended June 30, 2003, compared to a total return of 2.5% for the Lehman Brothers
Aggregate Bond Index (LBAG). For the six months ended June 30, 2003, the Fund
had a total return of 4.3%, compared to a total return of 3.9% for the LBAG. The
Fund ended the quarter with total net assets of $4.9 billion.
Market Commentary
Declining interest rates and the ongoing recovery of the corporate bond sector
fueled fixed-income returns during the second quarter. U.S. Treasury yields
steadied at the beginning of the quarter only to drop markedly in May and early
June as signs of renewed economic vigor, eagerly anticipated after the cessation
of battlefield hostilities in Iraq, were not evident in the economic data. The
benchmark 10-year U.S. Treasury yield hit a multi-decade low of 3.1% on June 13,
then rose slightly to end the quarter at 3.5%.
Such low levels of U.S. Treasury rates seemed to imply a prolonged period of
economic weakness and/or price deflation. This sentiment was not shared
elsewhere, however; over the same time period, U.S. equities rose 15% and the
corporate bond sector, presumably quite sensitive to deteriorating economic
conditions, smartly outpaced all other bond market sectors over the quarter. In
fact, as we write this letter, the interest rate increases that began on June
14th have gathered steam. As of July 31, the benchmark 10-year U.S. Treasury has
risen an additional 90 basis points--to 4.40%--from quarter's end.
Performance Review
The Fund's overweight position in corporate securities (34.1% vs. 26.6% for the
LBAG at the beginning of the quarter) contributed to relative performance. The
Lehman Credit Index (corporate plus sovereign securities) returned 4.8% for the
quarter as the corporate outperformance that began in November 2002 continued.
Security selection was strongly positive as most of the Fund's investments in
this area outperformed the Lehman Credit Index.
Mortgage-backed securities slightly underperformed short U.S. Treasuries during
the quarter as the record-breaking pace of mortgage prepayments persisted.
Almost the entire universe of mortgages is now considered "re-financeable." The
Fund's overweight position in mortgage-backed securities (42.6% vs. 34.7% for
the LBAG at the beginning of the quarter) detracted from relative performance.
In addition, many of the Fund's mortgage-backed holdings modestly underperformed
the Lehman Mortgage Index returns.
The Fund's shorter duration/1/ meant that on average the Fund's holdings
appreciated less than the broad market. However, the Fund's higher-than-market
yield contributed to relative returns.
Current Strategy
Our trades in the Fund this quarter met three strategic objectives: reduce
overall portfolio duration, selectively trim corporate exposure, and maintain
the Fund's target mortgage sector exposure.
First, we continued to lower the portfolio's duration during the quarter, as the
decline in Treasury rates seemed to imply a weaker economic and inflationary
outlook than we believe was warranted. We incrementally reduced duration through
the sale of several corporate holdings. At quarter end, the Fund's duration
stood at 3.34 years, compared to the LBAG duration of 3.95 years.
This quarter's reductions in corporate holdings were made primarily to
facilitate the decrease in portfolio duration, but also in recognition of the
fuller valuations accorded certain issues after nearly eight months of very
strong relative performance from the corporate sector. We sold Canadian Pacific,
Dana Corp., and Eastman Chemical bonds, as their recent strong performance led
to valuations that were, in our judgment, less compelling given the underlying
credit risks. Despite generally fuller valuations we continue to find select
opportunities within the corporate sector. For example, we purchased a 0.75%
portfolio position in Comcast Corp. at new issue. The bond, a 5.3% coupon
maturing in 2014 and rated Baa3/BBB, was purchased at a yield premium of 167
basis points over the 10-year Treasury bond. We also added marginally to the
Fund's holdings in Dillard's, Ford Motor Credit, May Department Stores and
Xerox.
Finally, we are maintaining the Fund's overweight position in mortgage
securities. With prepayments at all-time high levels, we have experienced
significant return of principal on our mortgage-backed holdings. This means we
need to purchase mortgage
1 / Dodge & Cox Income Fund
- --------------------------------------------------------------------------------
securities simply to maintain a fixed, target allocation. With these purchases,
and with the Fund's mortgage holdings in general, we have emphasized
mortgage-backed securities that may perform relatively well in a rising interest
rate environment.
As is our practice, changes to the Fund's composition and duration are
deliberate and incremental--made with a long-term investment horizon and backed
up by fundamental analysis.
In Closing
With the Fund's SEC yield now at 3.2% and short-term interest rates at 45-year
lows, we would like to once again caution investors that the strong annualized
returns for the Fund and the fixed-income market over the past three years are
unlikely to be repeated in the near future. In fact, as interest rates rose in
the month of July, the Income Fund lost 1% of its value, while the LBAG lost
1.8%.
Thank you for the continued confidence you have placed in our firm as a
shareholder of the Income Fund. As always, we welcome your comments and
questions.
For the Board of Trustees,
/s/ Harry R. Hagey
- -----------------------------
Harry R. Hagey, Chairman
/s/ A. Horton Shapiro
- ------------------------------------------------
A. Horton Shapiro, Executive Vice President
July 31, 2003
Ten Years of Investment Performance
- --------------------------------------------------------------------------------
through June 30, 2003 (in thousands)
[PERFORMANCE GRAPH APPEARS HERE]
Dodge & Cox Income Fund LBAG
----------------------- ----
Jun-93 $10,000 $10,000
Jun-94 $10,108 $10,064
Jun-95 $11,394 $11,215
Jun-96 $11,857 $11,692
Jun-97 $12,814 $12,611
Jun-98 $14,234 $13,940
Jun-99 $14,616 $14,376
Jun-00 $15,200 $15,033
Jun-01 $17,110 $16,721
Jun-02 $18,684 $18,167
Jun-03 $20,723 $20,056
- - Dodge & Cox Income Fund $20,723
- - LBAG $20,056
Average annual total return for periods ended June 30, 2003
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Dodge & Cox Income Fund 10.90% 7.80% 7.56%
Lehman Brothers Aggregate
Bond Index (LBAG) 10.40 7.54 7.21
- --------------------------------------------------------------------------------
For updated performance figures see "Prices and Performance" at
www.dodgeandcox.com, or call Dodge & Cox Funds at 1-800-621-3979.
The Fund's total returns include the reinvestment of dividend and capital gain
distributions, but have not been adjusted for any income taxes payable by
shareholders on these distributions. The Lehman Brothers Aggregate Bond Index is
a widely recognized, unmanaged index of investment-grade fixed-income
securities. Index returns include dividends and/or interest income 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.
Lehman Brothers(R) is a trademark of Lehman Brothers, Inc.
/1/ Duration is a measure of price sensitivity to changes in interest rates.
Dodge & Cox Income Fund / 2
Fund Information June 30, 2003
- -------------------------------------------------------------------------------
General Information
- -------------------------------------------------------------------------------
Net Asset Value Per Share $13.00
Total Net Assets (millions) $4,855
30-Day SEC Yield/1/ 3.23%
2002 Expense Ratio 0.45%
2002 Portfolio Turnover 31%
Fund Inception Date 1989
Investment Manager: Dodge & Cox, San Francisco. Managed by the Fixed-Income
Strategy Committee, whose eleven members' average tenure is 14 years, and by the
Investment Policy Committee, whose ten members' average tenure at Dodge & Cox is
22 years.
Portfolio Characteristics Fund LBAG
- -------------------------------------------------------------------------------
Number of Fixed-Income Securities 226 7,454
Average Quality AA AA+
Average Maturity (years) 5.9 6.7
Effective Duration (years) 3.3 4.0
Credit Quality Ratings/3/ Fund LBAG
- -------------------------------------------------------------------------------
U.S. Government & Government Agencies 56.7% 68.2%
Aaa/AAA 0.9 7.2
Aa/AA 0.1 4.7
A/A 4.3 10.2
Baa/BBB 22.2 9.7
Ba/BB 2.7 0.0
B/B and below 3.3 0.0
Cash Equivalents 9.8 0.0
Asset Allocation
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Fixed-Income Securities: 90.2%
Cash Equivalents: 9.8%
Sector Breakdown Fund LBAG
- -------------------------------------------------------------------------------
U.S. Treasury and Government Agency 16.1% 34.1%
Federal Agency CMO and REMIC/2/ 14.8 0.0
Federal Agency Mortgage Pass-Through 25.8 34.2
Asset-Backed 0.7 4.3
Corporate 32.8 23.2
Non-Corporate Yankee 0.0 4.2
Cash Equivalents 9.8 0.0
Maturity Breakdown Fund LBAG
- -------------------------------------------------------------------------------
0-1 Years to Maturity 18.4% 0.0%
1-5 46.9 58.9
5-10 22.3 26.0
10-15 2.2 3.2
15-20 1.2 4.0
20-25 2.2 3.3
25 and Over 6.8 4.6
/1/ SEC Yield is 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.
/2/ Collateralized Mortgage Obligation and Real Estate Mortgage Investment
Conduit.
/3/ For presentation purposes only: when a security is split-rated, the lower of
either the Moody's or Standard & Poor's rating is reported.
3 / Dodge & Cox Income Fund
Portfolio of Investments June 30, 2003
- --------------------------------------------------------------------------------
FIXED-INCOME SECURITIES: 90.2%
- --------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
U.S. TREASURY AND GOVERNMENT AGENCY: 16.1%
U.S. TREASURY: 12.3%
$ 38,472,836 U.S. Treasury Inflation-Indexed Note, 3.375%,
1/15/12 $ 43,528,398
50,195,000 U.S. Treasury Notes, 5.75%, 8/15/03 50,495,015
50,100,000 U.S. Treasury Notes, 4.25%, 11/15/03 50,710,619
70,000,000 U.S. Treasury Notes, 3.375%, 4/30/04 71,375,360
50,000,000 U.S. Treasury Notes, 2.25%, 7/31/04 50,646,500
125,000,000 U.S. Treasury Notes, 6.75%, 5/15/05 137,661,125
100,000,000 U.S. Treasury Notes, 4.625%, 5/15/06 108,402,300
75,000,000 U.S. Treasury Notes, 5.00%, 8/15/11 84,128,925
------------
596,948,242
GOVERNMENT AGENCY: 3.8%
9,839,664 Govt. Small Business Admin. 504 Series 02-20L,
5.10%, 12/1/22 10,356,552
1,922,499 Govt. Small Business Admin. 504 Series 91-20K,
8.25%, 11/1/11 2,100,962
2,716,687 Govt. Small Business Admin. 504 Series 92-20B,
8.10%, 2/1/12 2,960,900
2,330,788 Govt. Small Business Admin. 504 Series 92-20C,
8.20%, 3/1/12 2,548,186
2,393,138 Govt. Small Business Admin. 504 Series 92-20D,
8.20%, 4/1/12 2,621,629
5,108,089 Govt. Small Business Admin. 504 Series 92-20G,
7.60%, 7/1/12 5,551,698
2,626,220 Govt. Small Business Admin. 504 Series 92-20H,
7.40%, 8/1/12 2,852,537
3,465,066 Govt. Small Business Admin. 504 Series 92-20I,
7.05%, 9/1/12 3,752,473
5,096,439 Govt. Small Business Admin. 504 Series 92-20J,
7.00%, 10/1/12 5,523,784
5,353,603 Govt. Small Business Admin. 504 Series 92-20K,
7.55%, 11/1/12 5,858,206
2,354,291 Govt. Small Business Admin. 504 Series 92-20L,
7.45%, 12/1/12 2,577,201
4,109,788 Govt. Small Business Admin. 504 Series 93-20B,
7.00%, 2/1/13 4,462,083
4,126,291 Govt. Small Business Admin. 504 Series 93-20D,
6.75%, 4/1/13 4,477,646
4,562,587 Govt. Small Business Admin. 504 Series 93-20E,
6.55%, 5/1/13 4,942,781
4,336,180 Govt. Small Business Admin. 504 Series 93-20F,
6.65%, 6/1/13 4,713,506
6,848,612 Govt. Small Business Admin. 504 Series 93-20L,
6.30%, 12/1/13 7,418,284
3,407,591 Govt. Small Business Admin. 504 Series 94-20D,
7.70%, 4/1/14 3,780,212
8,071,503 Govt. Small Business Admin. 504 Series 94-20E,
7.75%, 5/1/14 8,974,034
4,984,944 Govt. Small Business Admin. 504 Series 94-20F,
7.60%, 6/1/14 5,537,996
3,734,341 Govt. Small Business Admin. 504 Series 94-20G,
8.00%, 7/1/14 4,157,112
PAR VALUE MARKET VALUE
$ 3,567,032 Govt. Small Business Admin. 504 Series 94-20H,
7.95%, 8/1/14 $ 3,974,532
6,641,477 Govt. Small Business Admin. 504 Series 94-20I,
7.85%, 9/1/14 7,400,457
3,823,024 Govt. Small Business Admin. 504 Series 94-20K,
8.65%, 11/1/14 4,328,951
4,142,080 Govt. Small Business Admin. 504 Series 94-20L,
8.40%, 12/1/14 4,679,168
1,526,304 Govt. Small Business Admin. 504 Series 95-20A,
8.50%, 1/1/15 1,718,699
3,499,345 Govt. Small Business Admin. 504 Series 95-20C,
8.10%, 3/1/15 3,930,718
4,192,161 Govt. Small Business Admin. 504 Series 97-20E,
7.30%, 5/1/17 4,749,760
4,293,770 Govt. Small Business Admin. 504 Series 97-20J,
6.55%, 10/1/17 4,779,946
17,098,171 Govt. Small Business Admin. 504 Series 98-20C,
6.35%, 3/1/18 18,963,917
6,569,362 Govt. Small Business Admin. 504 Series 98-20H,
6.15%, 8/1/18 7,254,840
3,541,285 Govt. Small Business Admin. 504 Series 98-20L,
5.80%, 12/1/18 3,864,999
4,108,247 Govt. Small Business Admin. 504 Series 99-20C,
6.30%, 3/1/19 4,566,859
11,331,412 Govt. Small Business Admin. 504 Series 99-20G,
7.00%, 7/1/19 12,904,933
4,114,723 Govt. Small Business Admin. 504 Series 99-20I,
7.30%, 9/1/19 4,737,069
------------
183,022,630
------------
779,970,872
FEDERAL AGENCY CMO AND REMIC/(a)/: 14.8%
1,045,059 Federal Home Loan Mtge. Corp., 8.00%, 4/15/07 1,073,610
10,278,948 Federal Home Loan Mtge. Corp., 6.00%, 8/15/08 10,812,692
20,100,000 Federal Home Loan Mtge. Corp., 6.00%, 10/15/08 21,397,198
10,000,000 Federal Home Loan Mtge. Corp., 6.00%, 7/15/13 10,082,119
23,275,000 Federal Home Loan Mtge. Corp., 6.00%, 7/15/13 23,562,286
24,259,618 Federal Home Loan Mtge. Corp., 6.00%, 12/15/14 24,784,393
54,156,000 Federal Home Loan Mtge. Corp., 6.00%, 1/15/15 55,479,713
20,000,000 Federal Home Loan Mtge. Corp., 6.50%, 4/15/22 20,274,680
10,000,000 Federal Home Loan Mtge. Corp., 6.00%, 6/17/22 10,414,651
30,356,643 Federal Home Loan Mtge. Corp., 7.178%, 7/25/33 32,786,116
14,017,543 Federal Natl. Mtge. Assn., 6.00%, 1/25/14 14,306,763
See accompanying Notes to Financial Statements Dodge & Cox Income Fund / 4
Portfolio of Investments June 30, 2003
- -------------------------------------------------------------------------------
FIXED-INCOME SECURITIES (continued)
- -------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
FEDERAL AGENCY CMO AND REMIC/(a)/ (continued)
$35,000,000 Federal Natl. Mtge. Assn., 6.00%, 7/25/14 $ 35,733,824
23,418,000 Federal Natl. Mtge. Assn., 5.50%, 8/25/14 24,082,725
29,349,000 Federal Natl. Mtge. Assn., 6.00%, 9/25/14 30,089,440
18,773,000 Federal Natl. Mtge. Assn., 6.00%, 10/25/14 19,116,170
14,650,838 Federal Natl. Mtge. Assn., 6.25%, 3/25/23 14,958,822
9,000,000 Federal Natl. Mtge. Assn., 6.00%, 6/25/23 9,536,630
20,783,554 Federal Natl. Mtge. Assn., 7.00%, 6/25/32 22,660,579
18,104,194 Federal Natl. Mtge. Assn., 7.50%, 7/25/41 20,203,158
31,097,903 Federal Natl. Mtge. Assn., 7.00%, 12/25/41 33,906,448
40,629,822 Federal Natl. Mtge. Assn., 6.50%, 6/25/42 43,765,957
16,527,389 Federal Natl. Mtge. Assn., 7.00%, 6/25/42 18,020,028
35,378,030 Federal Natl. Mtge. Assn., 7.00%, 6/25/42 38,573,126
48,324,601 Federal Natl. Mtge. Assn., 6.50%, 12/25/42 52,054,681
35,198,559 Federal Natl. Mtge. Assn., 7.50%, 12/25/42 39,279,409
9,450,222 Federal Natl. Mtge. Assn., 7.00%, 3/25/45 10,303,700
19,910,000 Govt. Natl. Mtge. Assn., 7.25%, 7/16/28 21,269,154
12,201,821 Veterans Affairs Vendee Mtge. Trust, 7.00%, 6/15/10 12,591,669
1,457,661 Veterans Affairs Vendee Mtge. Trust, 9.292%, 5/15/25 1,599,710
35,964,967 Veterans Affairs Vendee Mtge. Trust, 7.50%, 6/15/27 41,077,388
4,530,931 Veterans Affairs Vendee Mtge. Trust, 8.1046%,
10/15/27 5,035,721
------------
718,832,560
FEDERAL AGENCY MORTGAGE PASS-THROUGH: 25.8%
29,341 Federal Home Loan Mtge. Corp., 8.00%, 12/1/03 29,646
8,753 Federal Home Loan Mtge. Corp., 7.00%, 9/1/06 8,996
16,597 Federal Home Loan Mtge. Corp., 7.25%, 1/1/08 17,018
11,791 Federal Home Loan Mtge. Corp., 8.00%, 1/1/08 12,032
74,663 Federal Home Loan Mtge. Corp., 8.00%, 1/1/08 79,177
37,244 Federal Home Loan Mtge. Corp., 7.50%, 10/1/08 39,241
1,001,721 Federal Home Loan Mtge. Corp., 7.00%, 11/1/08 1,057,842
90,838 Federal Home Loan Mtge. Corp., 8.00%, 5/1/09 95,937
13,454 Federal Home Loan Mtge. Corp., 8.25%, 5/1/09 14,229
112,222 Federal Home Loan Mtge. Corp., 8.00%, 8/1/09 118,925
3,111,581 Federal Home Loan Mtge. Corp., 6.50%, 2/1/11 3,279,717
20,903,035 Federal Home Loan Mtge. Corp., 6.00%, 6/1/11 21,803,319
PAR VALUE MARKET VALUE
$ 4,793,724 Federal Home Loan Mtge. Corp., 6.00%, 7/1/11 $ 5,001,829
5,317,312 Federal Home Loan Mtge. Corp., 7.00%, 12/1/11 5,654,123
2,679,221 Federal Home Loan Mtge. Corp., 7.00%, 3/1/12 2,848,929
7,025,049 Federal Home Loan Mtge. Corp., 6.50%, 4/1/12 7,404,649
106 Federal Home Loan Mtge. Corp., 6.50%, 6/1/12 106
6,933,832 Federal Home Loan Mtge. Corp., 6.50%, 6/1/12 7,296,899
5,640,253 Federal Home Loan Mtge. Corp., 6.00%, 4/1/13 5,879,240
3,542,778 Federal Home Loan Mtge. Corp., 6.00%, 5/1/13 3,692,892
68,371,083 Federal Home Loan Mtge. Corp., 5.50%, 11/1/13 71,265,669
6,869,866 Federal Home Loan Mtge. Corp., 6.00%, 12/1/13 7,162,775
33,178,994 Federal Home Loan Mtge. Corp., 6.00%, 12/1/13 34,584,845
19,036,064 Federal Home Loan Mtge. Corp., 6.00%, 4/1/14 19,842,654
44,243,805 Federal Home Loan Mtge. Corp., 5.50%, 7/1/14 46,116,928
33,040,772 Federal Home Loan Mtge. Corp., 6.50%, 7/1/14 34,731,233
3,677,808 Federal Home Loan Mtge. Corp., 6.50%, 11/1/14 3,865,975
13,877,981 Federal Home Loan Mtge. Corp., 6.00%, 2/1/15 14,466,014
64,992,362 Federal Home Loan Mtge. Corp., 6.50%, 5/1/16 68,281,070
26,553,641 Federal Home Loan Mtge. Corp., 5.50%, 10/1/16 27,544,947
112,150,415 Federal Home Loan Mtge. Corp., 6.00%, 5/1/17 116,638,336
42,811,479 Federal Home Loan Mtge. Corp., 6.50%, 5/1/17 44,966,698
59,414,979 Federal Home Loan Mtge. Corp., 6.50%, 6/1/17 62,406,054
107,512,139 Federal Home Loan Mtge. Corp., 6.00%, 8/1/17 111,805,092
16,324,596 Federal Home Loan Mtge. Corp., 6.50%, 12/1/17 17,146,408
61,530,202 Federal Home Loan Mtge. Corp., 6.00%, 1/1/18 63,987,099
7,580,539 Federal Home Loan Mtge. Corp., 7.90%, 2/1/21 8,133,728
9,016,198 Federal Natl. Mtge. Assn., 6.825%, 5/1/06 9,944,740
1,272,376 Federal Natl. Mtge. Assn., 7.50%, 9/1/07 1,331,963
300 Federal Natl. Mtge. Assn., 6.25%, 12/1/07 300
5 / Dodge & Cox Income Fund See accompanying Notes to Financial Statements
Portfolio of Investments June 30, 2003
- --------------------------------------------------------------------------------
FIXED-INCOME SECURITIES (continued)
- --------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
FEDERAL AGENCY MORTGAGE PASS-THROUGH (continued)
$ 2,880,340 Federal Natl. Mtge. Assn., 7.00%, 7/1/08 $ 3,043,778
9,436,634 Federal Natl. Mtge. Assn., 5.90%, 12/1/08 10,595,738
3,206,559 Federal Natl. Mtge. Assn., 6.50%, 12/1/08 3,404,696
6,019,077 Federal Natl. Mtge. Assn., 5.50%, 6/1/09 6,308,270
2,484,349 Federal Natl. Mtge. Assn., 6.50%, 7/1/09 2,637,838
8,848,172 Federal Natl. Mtge. Assn., 6.503%, 7/1/09 10,347,666
707,139 Federal Natl. Mtge. Assn., 8.00%, 8/1/10 752,147
4,280,691 Federal Natl. Mtge. Assn., 7.00%, 12/1/10 4,559,193
2,973,096 Federal Natl. Mtge. Assn., 7.00%, 12/1/11 3,166,031
463,499 Federal Natl. Mtge. Assn., 8.00%, 1/1/12 499,520
29,841,692 Federal Natl. Mtge. Assn., 6.017%, 4/1/12 34,039,114
9,122,864 Federal Natl. Mtge. Assn., 6.50%, 11/1/12 9,550,025
1,676 Federal Natl. Mtge. Assn., 6.50%, 1/1/13 1,747
11,929,379 Federal Natl. Mtge. Assn., 6.00%, 4/1/13 12,479,483
13,535,699 Federal Natl. Mtge. Assn., 6.00%, 3/1/14 14,159,875
10,051,713 Federal Natl. Mtge. Assn., 6.00%, 6/1/14 10,509,924
44,660,465 Federal Natl. Mtge. Assn., 5.50%, 9/1/14 46,617,448
93,968,548 Federal Natl. Mtge. Assn., 5.50%, 9/1/14 98,086,168
4,284,848 Federal Natl. Mtge. Assn., 7.50%, 11/1/14 4,588,645
17,018,332 Federal Natl. Mtge. Assn., 5.50%, 8/1/15 17,764,060
32,846,911 Federal Natl. Mtge. Assn., 5.50%, 8/1/15 34,286,234
6,488,555 Federal Natl. Mtge. Assn., 7.15%, 10/1/15 7,723,439
23,760,748 Federal Natl. Mtge. Assn., 6.00%, 7/1/16 24,799,916
549,092 Federal Natl. Mtge. Assn., 8.00%, 8/1/22 585,778
612,186 Govt. Natl. Mtge. Assn., 7.25%, 2/15/06 628,025
4,237,448 Govt. Natl. Mtge. Assn., 7.00%, 4/15/09 4,555,580
4,603,196 Govt. Natl. Mtge. Assn., 6.50%, 7/15/09 4,892,186
2,109,132 Govt. Natl. Mtge. Assn., 7.50%, 9/15/17 2,255,544
673,905 Govt. Natl. Mtge. Assn., 7.80%, 6/15/20 733,596
461,263 Govt. Natl. Mtge. Assn., 7.80%, 7/15/20 502,119
520,079 Govt. Natl. Mtge. Assn., 7.80%, 7/15/20 566,145
1,473,775 Govt. Natl. Mtge. Assn., 7.80%, 8/15/20 1,604,315
805,184 Govt. Natl. Mtge. Assn., 7.80%, 9/15/20 876,503
463,622 Govt. Natl. Mtge. Assn., 7.80%, 10/15/20 504,687
558,821 Govt. Natl. Mtge. Assn., 7.80%, 11/15/20 608,319
694,441 Govt. Natl. Mtge. Assn., 7.80%, 1/15/21 755,601
1,762,443 Govt. Natl. Mtge. Assn., 7.80%, 1/15/21 1,917,661
19,334,551 Govt. Natl. Mtge. Assn., 7.50%, 11/15/24 20,710,782
12,466,404 Govt. Natl. Mtge. Assn., 7.50%, 5/15/25 13,349,144
9,938,362 Govt. Natl. Mtge. Assn., 7.00%, 5/15/28 10,568,326
--------------
1,254,092,540
ASSET-BACKED SECURITIES: 0.7%
16,490,000 CA Infrastructure and Econ. Dev. Bank
Special Purpose Trust PGE-1 Rate
Reduction Ctf. 1997-1 A-7, 6.42%,
9/25/08 17,866,130
12,780,000 CA Infrastructure and Econ. Dev. Bank
Special Purpose Trust SCE-1 Rate
Reduction Ctf. 1997-1 A-6, 6.38%,
9/25/08 13,859,528
--------------
31,725,658
PAR VALUE MARKET VALUE
CORPORATE: 32.8%
INDUSTRIAL: 18.7%
$34,400,000 AOL Time Warner, Inc., 7.625%, 4/15/31 $ 39,701,212
36,455,000 AOL Time Warner, Inc., 7.70%, 5/1/32 42,558,733
67,835,000 AT&T Corp./(g)/, 8.00%, 11/15/31 76,917,360
52,685,000 AT&T Corp./(g)/, 7.30%, 11/15/11 60,224,856
8,500,000 AT&T Wireless Services, Inc.,
8.75%, 3/1/31 10,506,552
24,975,000 American Home Products Corp.,
6.70%, 3/15/11 29,300,820
35,025,000 Comcast Corp., 5.30%, 1/15/14 36,021,181
5,000,000 Dillard's, Inc., 7.375%, 6/1/06 5,025,000
16,865,000 Dillard's, Inc., 7.13%, 8/1/18 14,672,550
13,150,000 Dillard's, Inc., 7.75%, 7/15/26 11,604,875
9,000,000 General Electric Co., 5.00%, 2/1/13 9,506,313
43,250,000 HCA-The Healthcare Company,
8.75%, 9/1/10 50,380,844
16,065,000 HCA-The Healthcare Company,
7.875%, 2/1/11 17,991,322
20,520,000 Health Net, Inc., 8.375%, 4/15/11 24,941,732
35,320,000 Hewlett-Packard Co., 5.50%, 7/1/07 39,040,962
15,000,000 Lockheed Martin Corp., 7.65%, 5/1/16 19,088,190
10,645,000 Lockheed Martin Corp., 7.75%, 5/1/26 13,281,181
5,000,000 May Department Stores Co.,
8.00%, 7/15/12 6,211,570
7,105,000 May Department Stores Co.,
7.625%, 8/15/13 8,755,946
12,500,000 May Department Stores Co.,
7.60%, 6/1/25 14,548,888
11,490,000 May Department Stores Co.,
8.75%, 5/15/29 15,205,935
24,905,000 May Department Stores Co.,
7.875%, 3/1/30 30,246,350
7,725,000 May Department Stores Co.,
7.875%, 8/15/36, Callable 2016 9,023,503
14,085,000 Nordstrom, Inc., 8.95%, 10/15/05 16,085,352
29,726,000 Raychem Corp., 8.20%, 10/15/08 32,401,340
11,515,000 Raytheon Co., 6.75%, 8/15/07 13,034,324
5,100,000 Raytheon Co., 6.15%, 11/1/08 5,766,708
10,050,000 Raytheon Co., 6.55%, 3/15/10 11,248,623
7,500,000 Raytheon Co., 7.20%, 8/15/27 8,734,530
9,377,000 Time Warner Entertainment,
8.375%, 3/15/23 11,818,546
35,665,000 Time Warner Entertainment,
8.375%, 7/15/33 46,134,068
14,500,000 Walt Disney Co., 7.55%, 7/15/93,
Callable 2023 17,408,468
12,225,000 Wyeth, 5.25%, 3/15/13 12,918,243
75,000 Xerox Corp., 5.50%, 11/15/03 75,375
6,250,000 Xerox Corp., 7.15%, 8/1/04 6,343,750
41,500,000 Xerox Corp./(c, d)/, 9.75%, 1/15/09 46,687,500
43,825,000 Xerox Corp., 7.125%, 6/15/10 43,770,219
17,346,000 Xerox Corp., 7.20%, 4/1/16 16,652,160
36,366,000 Xerox Corp., 6.25%, 11/15/26,
Putable 2003 and 2008 36,547,830
--------------
910,382,911
See accompanying Notes to Financial Statements Dodge & Cox Income Fund / 6
Portfolio of Investments June 30, 2003
- --------------------------------------------------------------------------------
FIXED-INCOME SECURITIES (continued)
- --------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
FINANCE: 12.4%
$13,505,000 Bank One Capital III/(b)/, 8.75%, 9/1/30 $ 18,526,294
12,775,000 Bank One Corp., 7.625%, 8/1/05 14,314,490
7,175,000 BankAmerica Capital II/(b)/, 8.00%,
12/15/26, Callable 2006 8,396,185
20,000,000 Boston Properties, Inc., 6.25%, 1/15/13 21,901,160
23,240,000 Boston Properties, Inc./(c)/,
5.625%, 4/15/15 24,029,509
10,215,000 CIGNA Corp., 7.00%, 1/15/11 11,782,471
1,090,000 CIGNA Corp., 7.65%, 3/1/23 1,252,622
25,865,000 CIGNA Corp., 7.875%, 5/15/27 30,970,673
25,000,000 CIT Group, Inc., 7.375%, 4/2/07 28,544,250
15,210,000 CIT Group, Inc., 5.75%, 9/25/07 16,586,079
6,300,000 Citicorp Capital Trust I/(b)/, 7.933%,
2/15/27, Callable 2007 7,375,612
10,085,000 Citicorp Capital Trust II/(b)/, 8.015%,
2/15/27, Callable 2007 11,892,202
17,240,000 EOP Operating Limited Partnership/(e)/,
6.80%, 1/15/09 19,841,326
9,500,000 EOP Operating Limited Partnership/(e)/,
7.00%, 7/15/11 11,025,406
35,150,000 EOP Operating Limited Partnership/(e)/,
5.875%, 1/15/13 37,896,094
4,015,000 First Nationwide Bank, 10.00%, 10/1/06 4,865,558
15,175,000 Ford Motor Credit Co., 6.50%, 1/25/07 15,965,966
30,000,000 Ford Motor Credit Co., 5.80%, 1/12/09 29,815,710
73,685,000 Ford Motor Credit Co., 7.25%, 10/25/11 75,753,559
5,525,000 GMAC, 7.75%, 1/19/10 5,946,121
36,425,000 GMAC, 8.875%, 6/1/10, Putable 2005 41,284,860
42,400,000 GMAC, 6.875%, 9/15/11 42,541,489
15,075,000 Safeco Corp., 4.875%, 2/1/10 15,937,637
35,275,000 Safeco Corp., 7.25%, 9/1/12 42,406,264
13,750,000 St. Paul Companies, Inc., 7.875%, 4/15/05 15,130,142
20,545,000 UNUMProvident Corp., 7.625%, 3/1/11 21,983,150
24,390,000 UNUMProvident Corp., 7.375%, 6/15/32 24,146,100
------------
600,110,929
TRANSPORTATION: 1.5%
$13,647,864 Burlington Northern Santa Fe Railway,
7.57%, 1/2/21 16,760,805
23,450,000 Consolidated Rail Corp., 9.75%, 6/15/20 32,329,366
6,632,245 Union Pacific Corp., 6.85%, 1/2/19 7,721,657
15,854,185 Union Pacific Corp., 6.70%, 2/23/19 17,850,386
--------------
74,662,214
UTILITIES: 0.2%
$17,980,000 PG&E National Energy Group, Inc./(f)/,
5/16/11 9,709,200
--------------
1,594,865,254
--------------
Total Fixed-Income Securities (cost $4,166,087,608) 4,379,486,884
--------------
SHORT-TERM INVESTMENTS: 8.4%
- --------------------------------------------------------------------------------
PAR VALUE MARKET VALUE
24,010,125 SSgA Prime Money Market Fund $ 24,010,125
183,853,000 State Street Repurchase Agreement,
0.90%, 7/1/03 (Collateralized by
U.S. Treasury Securities, value
$187,545,300) 183,853,000
50,000,000 U.S. Treasury Bills, 7/24/03 49,963,424
25,000,000 U.S. Treasury Bills, 8/21/03 24,969,541
50,000,000 U.S. Treasury Bills, 8/21/03 49,916,771
25,000,000 U.S. Treasury Bills, 10/23/03 24,929,542
50,000,000 U.S. Treasury Bills, 10/23/03 49,815,541
--------------
Total Short-Term Investments (cost $407,457,944) 407,457,944
--------------
TOTAL INVESTMENTS (cost $4,573,545,552) 98.6% 4,786,944,828
OTHER ASSETS LESS LIABILITIES 1.4 68,533,374
----- --------------
TOTAL NET ASSETS 100.0% $4,855,478,202
----- --------------
/(a)/ CMO: Collateralized Mortgage Obligation
REMIC: Real Estate Mortgage Investment Conduit
/(b)/ Cumulative Preferred Securities
/(c)/ Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. As of June 30,
2003, these securities represented 1.5% of total net assets.
/(d)/ Security is accruing at a rate higher than the coupon until it is
registered.
/(e)/ EOP Operating LP is the operating partnership of Equity Office Properties
Trust.
/(f)/ Non-income producing--security in default. Subsequent to June 30, 2003,
Company filed for bankruptcy protection.
/(g)/ Security is accruing at a rate higher than the coupon due to rating
downgrade.
7 / Dodge & Cox Income Fund See accompanying Notes to Financial Statements
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
June 30, 2003
Assets:
Investments, at market value
(identified cost $4,573,545,552) $4,786,944,828
Receivable for paydowns on
mortgage-backed securities 29,996
Receivable for Fund shares sold 33,332,072
Interest receivable 47,271,673
Prepaid expenses 9,092
--------------
4,867,587,661
--------------
Liabilities:
Payable for Fund shares redeemed 10,034,077
Management fees payable 1,579,287
Accounts payable 496,095
--------------
12,109,459
--------------
Net Assets $4,855,478,202
--------------
Net Assets Consist of:
Paid in capital $4,643,441,680
Accumulated undistributed
net investment income 995,434
Accumulated undistributed net
realized loss on investments (2,358,188)
Net unrealized appreciation on investments 213,399,276
--------------
$4,855,478,202
--------------
Beneficial shares outstanding (par value $0.01 each, unlimited
shares authorized) 373,556,506
Net asset value per share $ 13.00
Statement of Operations
- -------------------------------------------------------------------------------
Six Months Ended June 30, 2003
Investment Income:
Interest $113,141,341
------------
Expenses:
Management fees (Note 2) 8,253,772
Custodian and fund accounting fees 64,677
Transfer agent fees 502,114
Professional fees 31,068
Shareholder reports 79,143
Registration fees 198,446
Trustees' fees (Note 2) 11,250
Miscellaneous 16,212
------------
9,156,682
------------
Net Investment Income 103,984,659
------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments (2,358,188)
Net unrealized appreciation on investments 73,174,679
------------
Net realized and unrealized
gain on investments 70,816,491
------------
Net Increase in Net Assets from Operations $174,801,150
------------
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2003 December 31, 2002
Operations:
Net investment income $ 103,984,659 $ 132,199,849
Net realized gain (loss) (2,358,188) 14,419,864
Net unrealized appreciation 73,174,679 105,419,204
-------------- --------------
Net increase in
net assets from operations 174,801,150 252,038,917
-------------- --------------
Distributions to
Shareholders From:
Net investment income (104,554,751) (131,199,485)
Net realized gain (593,265) (14,116,782)
-------------- --------------
Total distributions (105,148,016) (145,316,267)
-------------- --------------
Beneficial Share Transactions:
Amounts received from
sale of shares 1,940,475,676 2,446,118,217
Net asset value of shares issued in
reinvestment of distributions 91,330,969 127,404,686
Amounts paid for
shares redeemed (650,583,915) (787,759,403)
-------------- --------------
Net increase from beneficial
share transactions 1,381,222,730 1,785,763,500
-------------- --------------
Total increase in net assets 1,450,875,864 1,892,486,150
Net Assets:
Beginning of period 3,404,602,338 1,512,116,188
-------------- --------------
End of period (including undistributed
net investment income of $995,434
and $1,565,526, respectively) $4,855,478,202 $3,404,602,338
-------------- --------------
Shares sold 150,097,128 195,529,467
Shares issued in reinvestment of
distributions 7,104,720 10,145,746
Shares redeemed (50,268,305) (62,961,345)
-------------- --------------
Net increase in
shares outstanding 106,933,543 142,713,868
-------------- --------------
See accompanying Notes to Financial Statements Dodge & Cox Income Fund / 8
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1
Dodge & Cox Income Fund (the "Fund") is a separate series of Dodge & Cox Funds
(the "Trust"). The Trust is organized as a Delaware statutory trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund consistently
follows accounting policies which are in conformity with accounting principles
generally accepted in the United States of America. Significant accounting
policies are as follows: (a) Security valuation: long-term debt securities are
priced on the basis of valuations furnished by pricing services which utilize
both dealer-supplied valuations and electronic data processing techniques;
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
Trustees; short-term securities are valued at amortized cost which approximates
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) Interest income is recorded on the accrual basis.
Premiums and discounts on debt securities purchased are amortized and accreted,
respectively, to interest income over the lives of the respective securities.
(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) The Fund
may enter into repurchase agreements which involve the purchase of securities
from a counterparty with a simultaneous commitment to resell the securities at
an agreed-upon date and price. In the event of default by the counterparty, the
Fund has the contractual right to liquidate the securities and to apply the
proceeds in satisfaction of the obligation. (g) 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 and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Note 2
Under a written agreement, the Fund pays an annual management fee of 5/10 of
1% of the Fund's average daily net asset value up to $100 million and 4/10 of
1% of the Fund's average daily net asset value in excess of $100 million 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
ordinary operating expenses of the Fund exceed 1% of the average daily net
asset value for the year. All officers and three of the trustees of the Trust
are officers and employees of Dodge & Cox. Those trustees who are not
affiliated with Dodge & Cox receive from the Trust an annual fee plus an
attendance fee for each Board or Committee meeting attended. Payments to
trustees are divided equally among each series of the Trust. The Trust does not
pay any other remuneration to its officers or trustees.
Note 3
The federal tax character of distributions paid in the six months ended June
30, 2003 include $104,554,751 of ordinary income ($0.31 per share) and $593,265
of long-term capital gain ($0.00 per share). At June 30, 2003, the tax basis
components of accumulated undistributed income and net realized gain include
$1,928,147 of ordinary income and no long-term capital gain, which differ in
total from amounts reported in the financial statements due to temporary
differences between financial statement and tax treatments for defaulted
fixed-income securities. For federal tax purposes, net realized capital losses
of $2,358,188 arising in the six months ended June 30, 2003 are available for
offsetting capital gains realized in future periods, and will expire in 2011 if
not utilized. For the six months ended June 30, 2003, purchases and sales of
securities, other than short-term securities, aggregated $1,855,391,613 and
$782,271,029, respectively, of which U.S. government obligations aggregated
$1,348,603,708 and $524,289,619, respectively. At June 30, 2003, the cost of
investments for federal income tax purposes was equal to the cost for financial
reporting purposes. Net unrealized appreciation aggregated $213,399,276, of
which $228,062,912 represented appreciated securities and $14,663,636
represented depreciated securities.
The financial information has been taken from the records of the Fund and has
not been audited by the Fund's independent accountants who do not express an
opinion thereon. The financial statements of the Fund will be subject to audit
by the Fund's independent accountants as of the close of the calendar year.
9 / Dodge & Cox Income Fund
Financial Highlights
- ---------------------------------------------------------------------------------------------------------
SELECTED DATA AND RATIOS (for a share Six Months
outstanding throughout each period) Ended June 30, Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
Net asset value, beginning of period $12.77 $12.20 $11.80 $11.40 $12.25 $12.08
Income from investment operations:
Net investment income 0.31 .66 .74 .77 .72 .72
Net realized and unrealized gain (loss) 0.23 .62 .46 .41 (.82) .23
-------------------------------------------------
Total from investment operations 0.54 1.28 1.20 1.18 (.10) .95
-------------------------------------------------
Distributions to shareholders from:
Net investment income (.31) (.66) (.74) (.78) (.71) (.72)
Net realized gain -- (.05) (.06) -- (.04) (.06)
-------------------------------------------------
Total distributions (.31) (.71) (.80) (.78) (.75) (.78)
-------------------------------------------------
Net asset value, end of period $13.00 $12.77 $12.20 $11.80 $11.40 $12.25
-------------------------------------------------
Total return 4.27% 10.75% 10.32% 10.70% (.81)% 8.08%
Ratios/supplemental data:
Net assets, end of year (millions) $4,855 $3,405 $1,512 $1,021 $974 $952
Ratio of expenses to average net assets .45%* .45% .45% .46% .46% .47%
Ratio of net investment income to average net
assets 5.07%* 5.67% 6.18% 6.67% 6.10% 6.00%
Portfolio turnover rate 20% 31% 40% 34% 24% 35%
- ---------------------------------------------------------------------------------------------------------
*Annualized
Dodge & Cox Income Fund / 10
Officers and Trustees
- --------------------------------------------------------------------------------
Harry R. Hagey, Chairman & Trustee
Chairman & CEO, Dodge & Cox
John A. Gunn, President & Trustee
President, Dodge & Cox
Dana M. Emery, Vice President & Trustee
Senior Vice President, Dodge & Cox
William F. Ausfahl, Trustee
Former CFO and member of Board of Directors, The Clorox Company
L. Dale Crandall, Trustee
Former President, Kaiser Foundation Health Plan and Hospitals
Thomas A. Larsen, Trustee
Director, Howard, Rice, Nemerovski, Canady, Falk & Rabkin
Will C. Wood, Trustee
Principal, Kentwood Associates, Financial Advisers
A. Horton Shapiro, Executive Vice President
Senior Vice President, Dodge & Cox
Katherine Herrick Drake, Vice President
Vice President, Dodge & Cox
Kenneth E. Olivier, Vice President
Executive Vice President, Dodge & Cox
John M. Loll, Treasurer & Asst. Secretary
Vice President & Treasurer, Dodge & Cox
Thomas M. Mistele, Secretary & Asst. Treasurer
Vice President, Secretary & General Counsel, Dodge & Cox
D O D G E & C O X D O D G E & C O X
----------------- -----------------
International Stock Fund
International
Stock Fund
Established 2001
www.dodgeandcox.com
For Fund literature and account
information, please visit the
Funds' web site.
or write or call:
Dodge & Cox Funds
c/o Boston Financial Data Services
P.O. Box 8422
Boston, Massachusetts
02266-8422
(800) 621-3979
Investment Manager
Dodge & Cox
One Sansome Street
35th Floor
San Francisco, California
94104-4443
(415) 981-1710
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.
This report reflects our
views, opinions and portfolio
holdings as of June 30, 2003,
the end of the reporting period.
The information provided is
not a complete analysis of
every aspect of any industry,
security or the Fund. The Fund's
portfolio composition may Semi-Annual Report
change depending on market and June 30, 2003
economic conditions. Although
historical performance is no 2003
guarantee of future results,
these insights may help you ------------------
understand our investment ------------------
management philosophy. ------------------
6/03 ISF SAR Printed on recycled paper
To Our Shareholders
- --------------------------------------------------------------------------------
The Dodge & Cox International Stock Fund had a total return of 22.6%* for the
second quarter of 2003, compared to a total return of 19.3% for the Morgan
Stanley Capital International Europe, Australasia, Far East Index (MSCI EAFE).
For the six months ended June 30, 2003, the Fund had a total return of 8.3%
compared to the total return of 9.5% for the MSCI EAFE. The Fund had total
assets of approximately $144 million at quarter-end and a cash position of 2%.
Performance Review
Rebounding from a very difficult first quarter, the International Stock Fund
had the best three-month result in its short history, and outperformed the MSCI
EAFE. Almost all of the world's equity markets were up more than 10% for the
quarter. Relative to the MSCI EAFE the Fund benefited from its holdings in
Latin America (12.5% of the portfolio) which were up 28% for the quarter.
Standouts in Latin America during the quarter include Banco Latinoamericano (up
38%), Petroleo Brasileiros (up 29%) and Ultrapar (up 34%). The Fund's relative
return was also helped by its investments in the energy sector (9.3% of the
Fund); Norsk Hydro, for instance, returned over 33% in the quarter. Additional
individual contributors to return included: Rolls-Royce (up 100%) and Reuters
(up 78%). Only two stocks in the Fund were down during the quarter--Unilever
(down 8%) and Sony (down 20%).
The Fund's quarterly results over the last year have been up-and-down along
with a volatile market. While we take note of short-term results, we are not
distracted by them. We remain steadfast to our long-term investment approach
and encourage our shareholders to do the same. The Fund's below market results
in the first quarter and above market results in the second quarter were
achieved with largely the same portfolio; it was the market that moved around
the Fund quite dramatically. Our long-term investment horizon and the
conviction we build through our own research enable us to persist with
investments as prices decline, as they did in the third quarter of 2002 and the
first quarter of this year. We believe that this persistence is a key component
of strong long-term investment results.
Strategy
Our investment decision-making process is driven by our bottom-up, fundamental
security analysis in relation to the valuation for each of the underlying
companies in the Fund. That said, when we take a "top-down" view of the
portfolio, a number of themes appear which help illustrate where we are finding
investment value today. For instance, we have been able to find attractive
opportunities for the International Stock Fund in the following three areas:
.. European "industrial spending" companies (e.g., Imperial Chemical and CNH
Global): Valuations are depressed because of concerns about the outlook for
slow economic growth in Europe and/or key "end markets." Companies in the
Fund from this area of the market are undergoing restructuring programs to
cut costs, improve profits and strengthen balance sheets.
.. Banks serving the developing world: Generally the Fund's holdings are
focused on franchises where core lending activities drive earnings growth,
rather than acquisitions and/or capital markets exposure. Companies trade at
low valuations due to investors' concerns about these companies' exposure to
the developing world, which we believe may actually prove to be a long-term
opportunity. Holdings include both banks located in the developing world
(e.g., the Brazil-based Uniao de Bancos), and banks based in the developed
world with exposure to the developing world (e.g., the Spain-based Banco
Santander Central Hispano).
.. Japanese companies with a competitive advantage: These companies are
inexpensive global leaders being run, in our opinion, for the benefit of the
long-term shareholder. The Fund's holdings are primarily in the auto and
consumer electronic industries (e.g., Honda Motor and Sony).
Conversely, we have not been able to find many opportunities in the largest
companies in Europe. The 20 largest European companies make up 28% of the MSCI
EAFE. They are generally at more expensive valuations than peers and perceived
to be "stable growth" companies. Because of valuation concerns we have found
investment opportunity in only two of these 20 companies--Total and Unilever,
which together total 3% of the Fund.
Outlook
We are optimistic about the long-term prospects for global economic growth.
Free market economic systems are spreading, and technological development
further accelerates long-term growth prospects. We are actively researching
companies with exposure to global economic growth, especially those companies
that serve the developing world, where we believe the potential exists for
above-average growth. A long-term opportunity exists, in our view, as selected
emerging economies become a bigger piece of the global economic pie. In
addition to capitalizing on their
1 / Dodge & Cox International Stock Fund
- --------------------------------------------------------------------------------
comparative economic advantage (e.g., low-cost manufacturing in China), many
economies are benefiting from the development of internal demand (e.g., South
Korea). About 15% of the portfolio is comprised of investments in companies
located directly in developing countries. Kookmin Bank, the largest bank in
South Korea and one of the top credit card issuers, is an example. Another 11%
of the portfolio is comprised of investments in a number of companies that are
regionally well positioned to serve growing economies. Suzuki, a Japanese car
and motorcycle manufacturer, has sizable market share in India, for example.
Roughly a third of the portfolio is invested in companies with significant
global reach. BASF, a German-based chemical company, and Unilever, a Dutch food
company, each have significant manufacturing operations around the world, and
derive sizable amounts of revenues and earnings from the developing world.
In Closing
Though we have discussed "top-down" macroeconomic dynamics more than usual in
this quarter's letter, we firmly believe that the path to favorable long-term
performance is forged one individual investment at a time. We continue to spend
the hours in our day reading financial reports, talking with company management
about their business, as well as talking with competitors, key customers and
suppliers to construct our view of the risks and rewards facing each individual
company.
Thank you for the continued confidence you have placed in our firm as a
shareholder of the International Stock Fund. As always, we welcome your
comments and questions.
For the Board of Trustees,
/s/ Harry R. Hagey /s/ John A. Gunn
- ------------------------ -----------------------
Harry R. Hagey, Chairman John A. Gunn, President
July 31, 2003
Investment Performance Since Inception
- --------------------------------------------------------------------------------
through June 30, 2003 (in thousands)
[PERFORMANCE GRAPH APPEARS HERE]
Dodge & Cox
International
Stock Fund MSCI EAFE
------------- ---------
5/1/2001 $10,000 $10,000
6/30/2002 $ 9,503 $ 8,350
6/30/2003 $ 8,743 $ 7,813
- - Dodge & Cox International Stock Fund $8,743
- - MSCI EAFE $7,813
Average annual total return for periods ended June 30, 2003
Since
Inception
1 Year (5/1/01)
- ------------------------------------------------------------------------------
Dodge & Cox International Stock Fund* -8.01% -6.02%
MSCI EAFE -6.45 -10.66
- ------------------------------------------------------------------------------
For updated performance figures see "Prices and Performance" at
www.dodgeandcox.com, or call Dodge & Cox Funds at 1-800-621-3979.
* Expense reimbursements have been in effect for the International Stock Fund
since its inception. Without the expense reimbursements, returns for the
Fund would have been lower.
The Morgan Stanley Capital International Europe, Australasia, Far East Index
(MSCI EAFE) is a widely recognized benchmark of the world's stock markets,
excluding the United States. The Fund's total returns include the reinvestment
of dividend and capital gain distributions, but have not been adjusted for any
income taxes payable on these distributions. 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.
Morgan Stanley(R), Morgan Stanley Capital International, and EAFE(R) are
trademarks of Morgan Stanley.
Risks of International Investing: Foreign investing, especially in
developing countries, has special risks such as currency and market
volatility and political and social instability. These and other risk
considerations are discussed in the Fund's prospectus.
Dodge & Cox International Stock Fund / 2
Fund Information June 30, 2003
- -------------------------------------------------------------------------------
General Information
- -------------------------------------------------------------------------------
Net Asset Value Per Share $17.12
Total Net Assets (millions) $144
30-Day SEC Yield/1/ 1.49%
2002 Expense Ratio/2/ 0.90%
2002 Turnover Ratio 12%
Fund Inception Date May 1, 2001
Investment Manager: Dodge & Cox, San Francisco. Managed by the International
Investment Policy Committee, whose six members' average tenure at Dodge & Cox
is 16 years.
MSCI
Stock Characteristics Fund EAFE
- -------------------------------------------------------------------------------
Number of Stocks 50 1007
Median Market Capitalization (billions) $5 $2
Weighted Average Market Cap. (billions) $14 $36
Price-to-Earnings Ratio/3/ 12x 16x
Price-to-Book Value 1.0x 1.8x
Ten Largest Holdings
- -------------------------------------------------------------------------------
Banco Latinoamericano de Exportaciones ADR (Panama) 5.3%
Sony ADR (Japan) 3.7
Akzo Nobel N.V. (Netherlands) 3.6
Matsushita Electric Industrial ADR (Japan) 3.6
Banco Santander Central Hispano (Spain) 3.5
News Corp. Ltd. Pref. (Australia) 3.3
Honda Motor ADR (Japan) 3.0
Uniao de Bancos Brasileiros GDR (Brazil) 2.7
Euler & Hermes (France) 2.6
Norsk Hydro A.S.A. ADR (Norway) 2.6
Asset Allocation
- -------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Stocks: 97.8%
Cash Equivalents: 2.2%
MSCI
Region Diversification Fund EAFE
- -------------------------------------------------------------------------------
Europe (excluding United Kingdom) 37.1% 44.7%
Japan 21.6 20.4
United Kingdom 14.0 27.2
Latin America 12.5 0.0
Pacific (excluding Japan) 11.3 7.7
Canada 1.3 0.0
MSCI
Sector Diversification Fund EAFE
- -------------------------------------------------------------------------------
Consumer Discretionary 28.2% 12.6%
Financials 24.4 25.7
Materials 16.1 6.2
Energy 9.3 9.0
Industrials 9.1 8.4
Utilities 3.5 4.9
Information Technology 3.1 6.6
Consumer Staples 2.9 9.0
Telecommunication Services 1.2 7.9
Health Care 0.0 9.7
/1/ SEC Yield is 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.
/2/ For the fiscal years ending December 31, 2001 through 2005, Dodge & Cox has
contractually agreed to reimburse the Fund for all ordinary expenses to the
extent necessary to maintain total Fund operating expenses at 0.90%. The
agreement is renewable annually thereafter and is subject to 30 days prior
written notice for termination by either party. Without reimbursement, the
expense ratio for the year ended December 31, 2002 would have been 1.03%.
/3/ Price-to-earnings ratio is calculated using fiscal year-end earnings and
excludes extraordinary items.
3 / Dodge & Cox International Stock Fund
Portfolio of Investments June 30, 2003
- -------------------------------------------------------------------------------
COMMON STOCKS: 87.3%
- -------------------------------------------------------------------------------
SHARES MARKET VALUE
CONSUMER DISCRETIONARY: 24.9%
CONSUMER DURABLES & APPAREL: 10.7%
192,500 Sony Corp. ADR/(b)/ (Japan) $ 5,390,000
516,000 Matsushita Electric Industrial Co., Ltd. ADR/(b)/
(Japan) 5,185,800
135,700 Electrolux A.B. (Sweden) 2,681,684
263,000 Makita Corp. (Japan) 2,139,460
-----------
15,396,944
AUTOMOBILES & COMPONENTS: 6.4%
228,900 Honda Motor Co. Ltd. ADR/(b)/ (Japan) 4,360,545
365,700 Fiat SPA ADR/(a, b)/ (Italy) 2,625,726
173,000 Suzuki Motor Corp. (Japan) 2,254,608
-----------
9,240,879
HOTELS, RESTAURANTS & LEISURE: 3.5%
410,677 InterContinental Hotels Group PLC
(United Kingdom) 2,918,876
152,500 H.I.S. Co., Ltd. (Japan) 2,110,863
-----------
5,029,739
MEDIA: 2.6%
125,600 Reuters Group PLC ADR/(b)/ (United Kingdom) 2,208,048
2,300 Sky Perfect Communications, Inc./(a)/ (Japan) 1,575,487
-----------
3,783,535
RETAILING: 1.7%
79,000 Fast Retailing Co., Ltd. (Japan) 2,445,371
-----------
35,896,468
FINANCIALS: 21.7%
BANKS: 17.5%
966,422 Banco Latinoamericano de Exportaciones
ADR/(a, b)/ (Panama) 7,702,383
569,200 Banco Santander Central Hispano (Spain) 4,995,533
625,200 Mitsubishi Tokyo Financial Group, Inc. ADR/(b)/
(Japan) 2,863,416
92,900 Kookmin Bank ADR/(b)/ (South Korea) 2,810,225
133,900 Danske Bank (Denmark) 2,611,510
417,000 DBS Group Holdings Ltd. (Singapore) 2,439,358
145,000 Standard Chartered PLC (United Kingdom) 1,763,976
-----------
25,186,401
DIVERSIFIED FINANCIALS: 2.6%
123,230 Euler & Hermes (France) 3,756,252
INSURANCE: 1.6%
1,500,000 Promina Group (Australia) 2,376,933
-----------
31,319,586
MATERIALS: 16.1%
CHEMICALS: 13.2%
196,100 Akzo Nobel N.V. (Netherlands) 5,206,019
73,900 BASF A.G. (Germany) 3,162,130
1,428,000 Imperial Chemical Industries PLC
(United Kingdom) 2,897,320
347,200 Kemira OYJ (Finland) 2,743,651
SHARES MARKET VALUE
96,200 NOVA Chemicals Corp. (Canada) $ 1,824,305
175,500 Syngenta A.G. ADR/(b)/ (Switzerland) 1,779,570
3,600 Givaudan (Switzerland) 1,518,201
------------
19,131,196
METALS AND MINING: 2.9%
380,078 BHP Billiton Ltd. (Australia) 2,204,958
104,400 Rio Tinto PLC (United Kingdom) 1,967,216
------------
4,172,174
------------
23,303,370
INDUSTRIALS: 9.1%
CAPITAL GOODS: 6.0%
20,417 Sulzer A.G. (Switzerland) 2,858,773
1,980,200 Kidde PLC (United Kingdom) 2,782,113
407,200 Hagemeyer N.V. (Netherlands) 1,569,079
152,020 CNH Global N.V./(b)/ (Netherlands) 1,450,271
------------
8,660,236
AEROSPACE & DEFENSE: 2.6%
1,746,400 Rolls-Royce Group PLC (United Kingdom) 3,702,097
TRANSPORTATION: 0.5%
110,000 Stolt-Nielsen S.A. (Norway) 716,697
------------
13,079,030
ENERGY: 7.0%
75,400 Norsk Hydro A.S.A. ADR/(b)/ (Norway) 3,705,910
139,376 Compagnie Generale de Geophysique/(a)/
(France) 3,180,695
12,000 Total (France) 1,816,475
897,600 Stolt Offshore S.A. ADR/(a, b)/ (Norway) 1,400,256
------------
10,103,336
INFORMATION TECHNOLOGY: 3.1%
TECHNOLOGY HARDWARE & EQUIPMENT: 3.1%
306,971 Oce N.V. (Netherlands) 3,174,310
45,000 Seiko Epson Corp. (Japan) 1,340,370
------------
4,514,680
CONSUMER STAPLES: 2.9%
FOOD, BEVERAGE AND TOBACCO: 2.9%
48,300 Unilever N.V. ADR/(b)/ (Netherlands) 2,608,200
237,000 Kikkoman Corp. (Japan) 1,568,070
------------
4,176,270
UTILITIES: 1.3%
80,700 Scottish Power PLC ADR/(b)/ (United
Kingdom) 1,961,817
TELECOMMUNICATION SERVICES: 1.2%
85,000 KT Corp. ADR/(b)/ (South Korea) 1,675,350
------------
Total Common Stocks (cost $133,336,219) 126,029,907
------------
See accompanying Notes to Financial Statements
Dodge & Cox International Stock Fund / 4
Portfolio of Investments June 30, 2003
- -------------------------------------------------------------------------------
PREFERRED STOCKS: 10.5%
- -------------------------------------------------------------------------------
SHARES MARKET VALUE
CONSUMER DISCRETIONARY: 3.3%
MEDIA: 3.3%
768,238 News Corp. Ltd., Preferred Limited Voting
Ordinary Shares (Australia) $ 4,740,510
FINANCIALS: 2.7%
BANKS: 2.7%
228,400 Uniao de Bancos Brasileiros Sponsored
GDR/(b)/ (Brazil) 3,919,344
ENERGY: 2.3%
183,700 Petroleo Brasileiro S.A. ADR/(b)/ (Brazil) 3,262,512
UTILITIES: 2.2%
342,000 Ultrapar Participacoes S.A. ADR/(b)/ (Brazil) 3,153,240
------------
Total Preferred Stocks (cost $13,175,321) 15,075,606
------------
SHORT-TERM INVESTMENTS: 3.7%
- -------------------------------------------------------------------------------
PAR VALUE
$ 729,397 SSgA Prime Money Market Fund 729,397
4,596,000 State Street Repurchase Agreement,
0.90%, 7/1/03 (Collateralized by
U.S. Treasury Securities, value
$4,690,345) 4,596,000
------------
Total Short-Term Investments (cost $5,325,397) 5,325,397
------------
TOTAL INVESTMENTS (cost $151,836,937) 101.5% 146,430,910
OTHER ASSETS LESS LIABILITIES (1.5) (2,097,954)
----- ------------
TOTAL NET ASSETS 100.0% $144,332,956
----- ------------
/(a)/ Non-income producing
/(b)/ Securities denominated in U.S. Dollars
See accompanying Notes to Financial Statements
5 / Dodge & Cox International Stock Fund
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
June 30, 2003
Assets:
Investments, at market value
(identified cost $151,836,937) $146,430,910
Cash denominated in foreign currency
(identified cost $36,787) 36,738
Receivable for investments sold 430,315
Receivable for Fund shares sold 127,673
Dividends and interest receivable 249,997
Prepaid expenses 1,932
------------
147,277,565
------------
Liabilities:
Payable for investments purchased 1,988,542
Payable for Fund shares redeemed 662,614
Management fees payable 178,664
Accounts payable 114,789
------------
2,944,609
------------
Net Assets $144,332,956
------------
Net Assets Consist of:
Paid in capital $152,377,609
Accumulated undistributed net investment income 2,389,641
Accumulated undistributed net realized loss on
investments and foreign currency transactions (5,028,218)
Net unrealized depreciation on investments and
foreign currency (5,406,076)
------------
$144,332,956
------------
Beneficial shares outstanding (par value $0.01 each, unlimited
shares authorized) 8,430,652
Net asset value per share $ 17.12
Statement of Operations
- -------------------------------------------------------------------------------
Six Months Ended June 30, 2003
Investment Income:
Dividends (net of foreign taxes of $302,895) $ 2,911,788
Interest 26,966
-----------
2,938,754
-----------
Expenses:
Management fees (Note 2) 372,221
Custodian and fund accounting fees 37,913
Transfer agent fees 59,113
Professional fees 30,473
Shareholder reports 30,093
Registration fees 62,053
Trustees' fees (Note 2) 11,250
Miscellaneous 968
-----------
Total expenses 604,084
-----------
Expenses reimbursed by investment manager (Note 2) (45,752)
-----------
Net expenses 558,332
-----------
Net Investment Income 2,380,422
-----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) from:
Investments (3,637,818)
Foreign currency transactions 12,043
Net unrealized appreciation on investments and
foreign currency 12,395,484
-----------
Net realized and unrealized gain on
investments and foreign currency 8,769,709
-----------
Net Increase in Net Assets from Operations $11,150,131
-----------
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2003 December 31, 2002
Operations:
Net investment income $ 2,380,422 $ 1,034,768
Net realized loss (3,625,775) (1,069,095)
Net unrealized appreciation
(depreciation) 12,395,484 (16,951,890)
-------------------------------
Net increase (decrease) in net
assets from operations 11,150,131 (16,986,217)
-------------------------------
Distributions to Shareholders
From:
Net investment income -- (1,025,549)
Net realized gain -- (376,593)
-------------------------------
Total distributions -- (1,402,142)
-------------------------------
Beneficial Share Transactions:
Amounts received from sale of
shares 50,534,010 174,721,935
Net asset value of shares issued
in reinvestment of
distributions -- 1,238,324
Amounts paid for shares
redeemed (34,290,281) (65,837,104)
-------------------------------
Net increase from beneficial
share transactions 16,243,729 110,123,155
-------------------------------
Total increase in net assets 27,393,860 91,734,796
Net Assets:
Beginning of period 116,939,096 25,204,300
-------------------------------
End of period (including
undistributed net investment
income of $2,389,641 and
$9,219, respectively) $144,332,956 $116,939,096
-------------------------------
Shares sold 3,214,737 9,847,266
Shares issued in reinvestment of
distributions -- 79,075
Shares redeemed (2,182,311) (3,896,407)
-------------------------------
Net increase in shares
outstanding 1,032,426 6,029,934
-------------------------------
See accompanying Notes to Financial Statements
Dodge & Cox International Stock Fund / 6
Notes to Financial Statements
- -------------------------------------------------------------------
Note 1
Dodge & Cox International Stock Fund (the "Fund") is a separate series of Dodge
& Cox Funds (the "Trust"). The Trust is organized as a Delaware statutory trust
and is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund's predecessor,
Dodge & Cox International Equity Fund, L.L.C. (the "LLC"), was organized on
October 25, 1999 as a private investment company that converted into, and had
the same investment manager as, the Fund. The Fund was capitalized on April 30,
2001 upon the transfer of assets from the LLC and commenced operations on May
1, 2001.
The Fund consistently follows accounting policies which are in conformity with
accounting principles generally accepted in the United States of America.
Significant accounting policies are as follows: (a) Security valuation: listed
portfolio securities are valued at the last reported sales price on the date of
determination on the principal exchange on which such securities are traded or,
if not available, at the mean between the exchange listed bid and ask price;
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
Trustees; foreign securities are converted to U.S. dollars using prevailing
exchange rates; short-term securities are valued at amortized cost which
approximates current value. (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 and interest
income are recorded on the accrual basis; certain dividends from foreign
securities may be recorded as soon as the Fund is informed of the dividend if
such information is obtained subsequent to the ex-dividend date. (e)
Distributions to shareholders of income and capital gains are reflected in the
net asset value computation on the ex-dividend date. (f) Foreign currency
translation: investment securities and other assets and liabilities denominated
in a foreign currency are translated into U.S. dollars at the prevailing rates
of exchange at period end; purchases and sales of securities and income
receipts are translated into U.S. dollars at the prevailing exchange rate on
the respective dates of the transactions. Net realized gains and losses on
foreign currency transactions represent net gains and losses from sales and
maturities of foreign currency contracts, disposition of foreign currencies,
the difference between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade and
settlement date on purchases and sales of securities. The effects of changes in
foreign currency exchange rates on investments in securities are included with
the net realized and unrealized gain or loss on investment securities. (g) The
Fund may enter into forward foreign currency exchange contracts in order to
reduce the exposure to changes in foreign currency exchange rates on the
foreign portfolio holdings and to lock in the U.S. dollar cost of firm purchase
and sale commitments for securities denominated in or exposed to foreign
currencies. (h) The Fund may enter into repurchase agreements which involve the
purchase of securities from a counterparty with a simultaneous commitment to
resell the securities at an agreed-upon date and price. In the event of default
by the counterparty, the Fund has the contractual right to liquidate the
securities and to apply the proceeds in satisfaction of the obligation. (i) 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 and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates. Foreign investing, especially in developing countries, has special
risks such as currency and market volatility and political and social
instability. These and other risk considerations are discussed in the Fund's
Prospectus.
7 / Dodge & Cox International Stock Fund
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
Note 2
Under a written agreement, the Fund pays an annual management fee of 6/10 of 1%
of the Fund's average daily net asset value to Dodge & Cox, investment manager
of the Fund. For the fiscal years ending December 31, 2001 through 2005, Dodge
& Cox has contractually agreed to reimburse the Fund for all ordinary expenses
to the extent necessary to maintain the ratio of expenses to average net assets
at 9/10 of 1%. The agreement is renewable annually thereafter and is subject to
30 days written notice for termination by either party. All officers and three
of the trustees of the Trust are officers and employees of Dodge & Cox. Those
trustees who are not affiliated with Dodge & Cox receive from the Trust an
annual fee plus an attendance fee for each Board or Committee meeting attended.
Payments to trustees are divided equally among each series of the Trust. The
Trust does not pay any other remuneration to its officers or trustees. At June
30, 2003, 11% of the Fund's outstanding shares were beneficially owned by
employees of Dodge & Cox who are officers or trustees of the Trust. At June 30,
2003, 1% of the Fund's outstanding shares were beneficially owned by employees
of Dodge & Cox who are not officers or trustees of the Trust.
Note 3
At June 30, 2003, the tax basis components of accumulated undistributed income
and net realized gain include $2,401,684 of ordinary income and no long-term
capital gain. For federal tax purposes, net realized capital losses of
$5,040,261 arising in the six months ended June 30, 2003 are available for
offsetting capital gains realized in future periods, and will expire in 2011 if
not utilized. For the six months ended June 30, 2003, purchases and sales of
securities, other than short-term securities, aggregated $29,405,744 and
$9,708,522, respectively. At June 30, 2003, the cost of investments for federal
income tax purposes was equal to the cost for financial reporting purposes. Net
unrealized depreciation aggregated $5,406,076, of which $11,647,884 represented
appreciated securities and $17,053,960 represented depreciated securities.
The financial information has been taken from the records of the Fund and has
not been audited by the Fund's independent accountants who do not express an
opinion thereon. The financial statements of the Fund will be subject to audit
by the Fund's independent accountants as of the close of the calendar year.
Dodge & Cox International Stock Fund / 8
Financial Highlights
- ----------------------------------------------------------------------------------------------------------
SELECTED DATA AND RATIOS (for a share Six Months Year Ended May 1, 2001 through
outstanding throughout each period) Ended June 30, December 31, December 31,
- ----------------------------------------------------------------------------------------------------------
2003 2002 2001
Net asset value, beginning of period $15.81 $ 18.42 $20.00
Income from investment operations:
Net investment income 0.28 0.13 0.14
Net realized and unrealized gain (loss) 1.03 (2.55) (1.56)
-------------------------------------------
Total from investment operations 1.31 (2.42) (1.42)
-------------------------------------------
Distributions to shareholders from:
Net investment income -- (0.13) (0.14)
Net realized gain -- (0.06) (0.02)
-------------------------------------------
Total distributions -- (0.19) (0.16)
-------------------------------------------
Net asset value, end of period $17.12 $ 15.81 $18.42
-------------------------------------------
Total return 8.29% (13.11)% (7.09)%
Ratios/supplemental data:
Net assets, end of period (millions) $144 $117 $25
Ratio of expenses to average net assets 0.90%* 0.90% 0.90%*
Ratio of expenses to average net assets, excluding
reimbursement by investment manager 0.97%* 1.03% 2.47%*
Ratio of net investment income to average net assets 3.84%* 1.30% 1.74%*
Portfolio turnover rate 8% 12% 23%
- -----------------------------------------------------------------------------------------------------------
*Annualized
9 / Dodge & Cox International Stock Fund
THIS PAGE INTENTIONALLY LEFT BLANK
Dodge & Cox International Stock Fund / 10
Officers and Trustees
- ----------------------------------------------------------------------
Harry R. Hagey, Chairman & Trustee
Chairman & CEO, Dodge & Cox
John A. Gunn, President & Trustee
President, Dodge & Cox
Dana M. Emery, Vice President & Trustee
Senior Vice President, Dodge & Cox
William F. Ausfahl, Trustee
Former CFO and member of Board of Directors, The Clorox Company
L. Dale Crandall, Trustee
Former President, Kaiser Foundation Health Plan and Hospitals
Thomas A. Larsen, Trustee
Director, Howard, Rice, Nemerovski, Canady, Falk & Rabkin
Will C. Wood, Trustee
Principal, Kentwood Associates, Financial Advisers
A. Horton Shapiro, Executive Vice President
Senior Vice President, Dodge & Cox
Katherine Herrick Drake, Vice President
Vice President, Dodge & Cox
Kenneth E. Olivier, Vice President
Executive Vice President, Dodge & Cox
John M. Loll, Treasurer & Asst. Secretary
Vice President & Treasurer, Dodge & Cox
Thomas M. Mistele, Secretary & Asst. Treasurer
Vice President, Secretary & General Counsel, Dodge & Cox
ITEM 2. CODE OF ETHICS.
Not required at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not required at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not required at this time.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a)The registrant's principal executive and principal financial officers have
evaluated the registrant's disclosure controls and procedures as of a date
within 90 days of this filing and have concluded that the registrant's
disclosure controls and procedures were effective, as of that date, in ensuring
that information required to be disclosed by the registrant in this Form N-CSR
was recorded, processed, summarized, and reported timely, based on their
evaluation of these controls and procedures.
(b)The registrant's principal executive officer and principal financial officer
are aware of no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Not required at this time.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
are attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are
attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 26, 2003 Dodge & Cox Funds
By /s/ Harry R. Hagey
-------------------------------------------
Harry R. Hagey
Chairman - Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
DATE: August 26, 2003 Dodge & Cox Funds
By /s/ John M. Loll
-------------------------------------------
John M. Loll
Treasurer - Principal Financial Officer