N-CSR 1 d464917dncsr.htm FORM N-CSR Form N-CSR

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

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)

 

 

555 California Street, 40th Floor

San Francisco, CA 94104

(Address of principal executive offices) (Zip code)

 

 

Thomas M. Mistele, Esq.

555 California Street, 40th 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, 2012

Date of reporting period: DECEMBER 31, 2012

 

 

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. ss. 3507.

 

 

 


ITEM 1. REPORTS TO STOCKHOLDERS.

The following are the December 31, 2012 annual reports for the Dodge & Cox Funds, a Delaware statutory trust, consisting of five series: Dodge & Cox Stock Fund, Dodge & Cox Global 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 February 21, 2013.


LOGO     LOGO

 

Stock Fund

 

www.dodgeandcox.com

For Fund literature, transactions, and account

information, please visit the Funds’ website.

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

555 California Street, 40th Floor

San Francisco, California 94104

(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 December 31, 2012, the end of the reporting period. Any such views are subject to change at any time based upon market or other conditions and Dodge & Cox disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Dodge & Cox Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dodge & Cox Fund.

12/12 SF AR    LOGO    Printed on recycled paper

2012    

Annual Report

December 31, 2012

Stock Fund

ESTABLISHED 1965

TICKER:  DODGX

 


TO OUR SHAREHOLDERS

 

The Dodge & Cox Stock Fund had a total return of 11.1% for the six months ending December 31, 2012, compared to a return of 5.9% for the S&P 500. For 2012, the Fund had a total return of 22.0%, compared to 16.0% for the S&P 500. At year end, the Fund had net assets of $39.8 billion with a cash position of 1.0%.

MARKET COMMENTARY

During 2012, global equity markets appreciated significantly. The year was marked by considerable volatility as investors reacted to uncertainty about broad macroeconomic and political issues, including the U.S. presidential election and “fiscal cliff,” ongoing challenges in the Eurozone, slowing economic growth in China, and social unrest in the Middle East and Africa. And yet, it was an excellent year for U.S. equities as all sectors of the S&P 500 registered positive returns, and the S&P 500 never dipped into negative territory. Contributing factors included low interest rates, strong corporate balance sheets, reasonable earnings growth, and rising dividends. The U.S. economy, despite its challenges, is also relatively healthy compared to many other developed countries around the world. Residential housing is no longer a drag on growth, auto sales are strong, and consumer confidence reached a multi-year high in November. With current valuations (14 times 2012 earnings for the S&P 500)(a) still reasonable, we remain optimistic about the long-term outlook for potential equity returns.

INVESTMENT STRATEGY

As investors on your behalf, we are constantly weighing what we are buying (company fundamentals) with what we are paying (valuation) for each investment opportunity. A great company can be a poor investment if we pay too much. In addition, every investment has a range of outcomes, and it is impossible to know what will happen in the future. As a result, we strive to purchase securities that are inexpensive enough to allow for what could potentially go wrong, and to avoid paying too much for what could go right.

A low valuation often signals that investors are concerned about the company’s fundamentals. We believe

bottom-up research is the best way to identify whether a company’s long-term outlook is appropriately incorporated into its stock price. Through meetings with management, competitors, customers, and suppliers, our global industry analysts build an in-depth understanding of individual companies. In addition, our analysts work closely with our fixed income team to evaluate potential downside risks and each company’s level of access to capital; this collaboration provides an advantage, especially when a company is under stress. Furthermore, we assess corporate governance to understand how our interests align with those of key stakeholders.

Our global analysts advocate equity investment ideas within a team decision-making process. This team-based approach broadens our knowledge base and tests our conviction. Our collective judgment and experience, which have been built over decades, are key to constructing the portfolio. Recognizing that it is often impossible to time the bottom (or top) of the market, we are patient and often move incrementally as we revisit and retest our thinking.

We think it is important to have a long-term investment horizon because short-term market movements can be driven by unpredictable investor sentiment, whereas the true value of a company tends to be reflected over time. Using a three- to five-year horizon, we look to identify companies that have attractive valuations and potential catalysts for their fundamental value to be recognized by investors. We think like long-term owners of a business and, hence, portfolio turnover in the Fund has been low relative to most active mutual fund managers (the Fund’s average holding period has been seven years).

Finding Value in the Technology Sector

As a result of our intensive fundamental research on individual companies, one major theme that has emerged is the Fund’s substantial investment in Information Technology (Tech) companies. Our in-depth research and selection of diverse companies in this sector has led to a Tech weighting in the Fund of 21.2% at year end, compared to 19.1% for the S&P 500. These 21 holdings represent an array of software, hardware, internet, and

 

 

PAGE 1 § DODGE & COX STOCK FUND


services companies, all trading at what we believe are attractive valuations in relation to their earnings and cash flow potential over the next three to five years. The Tech sector of the S&P 500 appears to be valued near a twenty-year low, especially in the software area, relative to free cash flow.

The majority of the Fund’s Tech holdings are industry leaders that generate healthy free cash flows, which they are using to repurchase shares, pay dividends, repay debt, and/or pursue mergers and acquisitions. For example,(b) more mature companies such as Hewlett-Packard (HP) and Xerox have reduced their cost structures and diversified into technology services in recent years through acquisitions (HP bought Electronic Data Systems and Xerox acquired Affiliated Computer Services). While shares of HP performed poorly last year, the company’s significantly depressed valuation appears to reflect overly pessimistic expectations about HP’s growth prospects and profits. In spite of the headlines regarding two large write-offs, HP was solidly profitable on a free cash flow basis in 2012. Xerox and HP are valued at only six and four times forward earnings, respectively.

In contrast to mature companies like HP and Xerox, the Fund also holds eBay and Google, which are profitable, growing rapidly, and investing in further expansion. This dichotomy between “value” and “growth” companies highlights our flexibility; we are willing to look beyond depressed valuations and consider companies with above-average growth potential that are trading at reasonable valuations. Google, a 1.0% holding, was the largest new purchase in the Fund during 2012. Its dominant competitive position in internet search advertising is complemented by a push into display advertising (e.g., on YouTube and Google Maps) and other web-based businesses. Although it does not sell at a depressed level relative to the overall market, we believe Google’s valuation at 16 times forward earnings does not reflect its strong growth potential.

Another theme within Tech for the Fund is an overweight position in Software. We find that enterprise software has high customer switching costs and high recurring revenue, which tend to mitigate risk over our three- to five-year investment horizon. The largest Fund holding in this area is Microsoft (a 2.6% position). The

stock lagged in 2012, but we remain impressed with the durability of the company’s Windows and Office suite of products as well as the growth coming from its Server and Tools division. Furthermore, Microsoft has a huge installed base of customers and launched an enhanced version of its Windows operating system last year. Other software investments highlight the diverse nature of the Fund’s holdings: Symantec (security), Adobe Systems (creative publishing and digital marketing), BMC Software (mainframe and distributed computing tools), and Synopsys and Cadence Design Systems (both electronic design automation for semiconductors). A majority of these companies produce annual free cash flow equal to or greater than 8% of their equity market capitalizations. We believe that this strong cash generation can provide downside protection for shareholders. While all of the Fund’s Tech holdings face the risk of technological obsolescence, each company is investing in opportunities for long-term growth to maintain its competitive position.

While Tech is an important area in the Fund, the portfolio remains well-diversified. Other areas of emphasis include Financials (e.g., Capital One and Wells Fargo), Pharmaceuticals (e.g., Merck and Sanofi), and Media (e.g., Comcast and Time Warner).

IN CLOSING

Despite steady investor withdrawals from U.S. equity mutual funds and inflows into bond funds in recent years, we remain optimistic about the long-term return potential for equities. Even after a strong year for stocks in 2012, the S&P 500 was trading at 13 times forward earnings, which was still modestly below its long-term average multiple. Technological innovation continues to drive global demand for all kinds of new products and services. Emerging markets continue to grow faster than developed markets, creating millions of new middle class and affluent consumers. And the U.S. economy continues to recover from the 2008-2009 global financial crisis and ensuing recession. Unemployment is stubbornly high, but declining, and the private sector workforce is growing. Banks are in much better financial condition, providing a foundation for more lending to consumers and businesses. Interest rates are near historic lows and inflation is modest.

 

 

DODGE & COX STOCK FUND § PAGE 2


We believe there is a good chance that equity returns will be higher than bond returns in the next five years. In fact, the dividend yield alone for the S&P 500 at year end (2.3%) exceeded the yield on the Barclays U.S. Aggregate Bond Index (1.7%). We are also enthusiastic about the long-term prospects for the Fund’s holdings, due to the fact that they trade at a discount (11 times forward earnings) to the S&P 500 and have strong earnings growth potential.

Thank you for your continued confidence in our firm. As always, we welcome your comments and questions.

For the Board of Trustees,

 

LOGO   LOGO

Kenneth E. Olivier,

Chairman and President

 

Charles F. Pohl,

Senior Vice President

January 29, 2013

 

 

(a)  

Unless otherwise specified, all weightings and characteristics are as of December 31, 2012.

(b)  

The use of specific examples does not imply that they are more attractive investments than the Fund’s other holdings.

ANNUAL PERFORMANCE REVIEW

Key Contributors to Relative Results

  §  

The Financials sector was the best performing of the market. Strong relative results for the Fund’s holdings in this sector (up 40% compared to up 29% for the S&P 500 sector) and an average overweight position (21% versus 14%) helped results. Notable contributors included Bank of America (up 110%), Goldman Sachs (up 43%), and Capital One (up 38%).

 
  §  

Strong relative results for the Fund’s holdings in the Consumer Discretionary sector (up 38% compared to up 24% for the S&P 500 sector) and an average overweight position (16% versus 11%) contributed to results. Comcast (up 61%), News Corp. (up 44%), and Time Warner (up 36%) were especially strong.

 
  §  

Sprint Nextel (up 142%) was a standout performer in the Telecommunication Services sector.

 
  §  

Additional contributors included eBay (up 68%) and Sanofi (up 35%).

 

Key Detractors from Relative Results

  §  

The Fund’s holdings in the Information Technology sector (up 8% compared to up 15% for the S&P 500 sector) hurt relative results. Hewlett-Packard (down 43%) was the biggest detractor. Nokia (down 13%) and Xerox (down 12%) were also weak.

 
  §  

The Fund’s holdings in the Energy sector (down 6% compared to up 5% for the S&P 500 sector) hindered results. Occidental Petroleum (down 16%) and Baker Hughes (down 15%) declined.

 
  §  

Additional detractors included J.C. Penney (down 42% from date of purchase) and Sony (down 37%).

 
 

 

PAGE 3 § DODGE & COX STOCK FUND


KEY CHARACTERISTICS OF DODGE & COX

Independent Organization

Dodge & Cox is one of the largest privately owned investment managers in the world. We remain committed to independence, with a goal of providing the highest quality investment management service to our existing clients.

Over 80 Years of Investment Experience

Dodge & Cox was founded in 1930. We have a stable and well-qualified team of investment professionals, most of whom have spent their entire careers at Dodge & Cox.

Experienced Investment Team

The Investment Policy Committee, which is the decision-making body for the Stock Fund, is a nine-member committee with an average tenure at Dodge & Cox of 27 years.

One Business with a Single Research Office

Dodge & Cox manages domestic, international, and global equity, fixed income, and balanced investments, operating from one office in San Francisco.

Consistent Investment Approach

Our team decision-making process involves thorough, bottom-up fundamental analysis of each investment.

Long-Term Focus and Low Expenses

We invest with a three- to five-year investment horizon, which has historically resulted in low turnover relative to our peers. We manage Funds that maintain low expense ratios.

 

 

DODGE & COX STOCK FUND § PAGE 4


GROWTH OF $10,000 OVER 10 YEARS

FOR AN INVESTMENT MADE ON DECEMBER 31, 2002

 

 

LOGO

AVERAGE ANNUAL TOTAL RETURN

FOR PERIODS ENDED DECEMBER 31, 2012

 

       1 Year       5 Years     10 Years     20 Years  

Dodge & Cox Stock Fund

    22.01     -0.23     7.31     10.67

S&P 500

    15.99        1.66        7.10        8.22   

Returns represent past performance and do 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. Fund performance changes over time and currently may be significantly lower than stated. Performance is updated and published monthly. Visit the Fund’s website at www.dodgeandcox.com or call 800-621-3979 for current performance figures.

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 or on Fund share redemptions. Index returns include dividends but, unlike Fund returns, do not reflect fees or expenses. The S&P 500 Index is a market capitalization-weighted index of 500 large-capitalization stocks commonly used to represent the U.S. equity market.

S&P 500® is a trademark of The McGraw-Hill Companies, Inc.

 

Risks: The Fund is subject to stock market risk, meaning stocks in the Fund may decline in value for extended periods due to the financial prospects of individual companies, or due to general market and economic conditions. Please read the prospectus and summary prospectus for specific details regarding the Fund’s risk profile.

 

 
 

FUND EXPENSE EXAMPLE

As a Fund shareholder, you incur ongoing Fund costs, including management fees and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following example shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The example assumes a $1,000 investment held for the six months indicated.

ACTUAL EXPENSES

The first line of the table below provides information about actual account values and expenses based on the Fund’s actual returns. You may use the information in this line, together with your account balance, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER MUTUAL FUNDS

Information on the second line of the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical “Ending Account Value” is based on the actual expense ratio of the Fund and an assumed 5% annual rate of return before expenses (not the Fund’s actual return). The amount under the heading “Expense Paid During the Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other mutual funds.

 

Six Months Ended
December 31, 2012
   Beginning Account Value
7/1/2012
     Ending Account Value
12/31/2012
     Expenses Paid
During Period*
 

Based on Actual Fund Return

   $ 1,000.00       $ 1,111.00       $ 2.75   

Based on Hypothetical 5% Yearly Return

     1,000.00         1,022.53         2.63   
*

Expenses are equal to the Fund’s annualized expense ratio of 0.52%, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

The expenses shown in the table highlight ongoing costs only and do not reflect any transactional fees or account maintenance fees. While other mutual funds may charge such fees, please note that the Fund does not charge transaction fees (e.g., redemption fees, sales loads) or universal account maintenance fees (e.g., small account fees).

 

PAGE 5 § DODGE & COX STOCK FUND


FUND INFORMATION     December 31, 2012   

 

GENERAL INFORMATION        

Net Asset Value Per Share

     $121.90   

Total Net Assets (billions)

     $39.8   

Expense Ratio

     0.52%   

Portfolio Turnover Rate

     11%   

30-Day SEC Yield(a)

     1.54%   

Fund Inception

     1965   

No sales charges or distribution fees

  

Investment Manager: Dodge & Cox, San Francisco. Managed by the Investment Policy Committee, whose nine members’ average tenure at Dodge & Cox is 27 years.

 

PORTFOLIO CHARACTERISTICS    Fund      S&P 500  

Number of Stocks

     75         500   

Median Market Capitalization (billions)

     $18         $13   

Weighted Average Market
Capitalization (billions)

     $80         $107   

Price-to-Earnings Ratio(b)

     11.0x         13.3x   

Foreign Stocks not in the S&P 500(c)

     16.4%         0.0%   

 

TEN LARGEST HOLDINGS (%)(d)    Fund  

Capital One Financial Corp.

     4.3   

Comcast Corp.

     3.9   

Wells Fargo & Co.

     3.8   

Sanofi (France)

     3.3   

Merck & Co., Inc.

     3.1   

Novartis AG (Switzerland)

     3.0   

Time Warner, Inc.

     3.0   

General Electric Co.

     2.9   

GlaxoSmithKline PLC (United Kingdom)

     2.8   

Pfizer, Inc.

     2.7   

ASSET ALLOCATION

 

 

LOGO

 

SECTOR DIVERSIFICATION (%)    Fund        S&P 500  

Financials

     22.0           15.6   

Information Technology

     21.2           19.1   

Health Care

     18.6           12.0   

Consumer Discretionary

     15.3           11.6   

Industrials

     6.7           10.1   

Energy

     6.5           11.0   

Telecommunication Services

     3.4           3.1   

Materials

     3.4           3.5   

Consumer Staples

     1.9           10.6   

Utilities

     0.0           3.4   
 

 

 

(a) 

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.

(b) 

Price-to-earnings (P/E) ratios are calculated using 12-month forward earnings estimates from third-party sources.

(c) 

Foreign stocks are U.S. dollar denominated.

(d) 

The Fund’s portfolio holdings are subject to change without notice. The mention of specific securities is not a recommendation to buy, sell, or hold any particular security and is not indicative of Dodge & Cox’s current or future trading activity.

 

DODGE & COX STOCK FUND § PAGE 6


PORTFOLIO OF INVESTMENTS     December 31, 2012   

 

COMMON STOCKS: 99.0%               
    SHARES      VALUE  
CONSUMER DISCRETIONARY: 15.3%      

CONSUMER DURABLES & APPAREL: 0.8%

  

  

NVR, Inc.(a)

    88,200       $ 81,144,000   

Panasonic Corp. ADR(b) (Japan)

    25,925,097         157,365,339   

Sony Corp. ADR(b) (Japan)

    7,474,942         83,719,350   
    

 

 

 
       322,228,689   

MEDIA: 12.7%

    

Comcast Corp., Class A

    41,749,097           1,560,581,246   

DISH Network Corp., Class A(a)

    7,123,253         259,286,409   

Liberty Global, Inc., Series A(a)

    738,710         46,531,343   

Liberty Global, Inc., Series C(a)

    964,153         56,643,989   

McGraw-Hill Companies, Inc.

    4,097,400         224,004,858   

News Corp., Class A

    36,254,326         925,935,486   

Time Warner Cable, Inc.

    8,307,310         807,387,459   

Time Warner, Inc.

    24,732,732         1,182,966,571   
    

 

 

 
       5,063,337,361   

RETAILING: 1.8%

    

CarMax, Inc.(a)

    4,960,350         186,211,539   

J. C. Penney Co., Inc.(a),(c)

    10,933,700         215,503,227   

Liberty Interactive, Series A(a)

    14,690,075         289,100,676   
    

 

 

 
       690,815,442   
    

 

 

 
       6,076,381,492   
CONSUMER STAPLES: 1.9%     

FOOD & STAPLES RETAILING: 1.4%

  

  

Wal-Mart Stores, Inc.

    7,958,650         543,018,690   

FOOD, BEVERAGE & TOBACCO: 0.5%

  

  

Unilever PLC ADR(b) (United Kingdom)

    5,623,600         217,745,792   
    

 

 

 
       760,764,482   
ENERGY: 6.5%     

Baker Hughes, Inc.

    14,220,450         580,763,178   

Chevron Corp.

    3,444,280         372,464,439   

Occidental Petroleum Corp.

    8,883,000         680,526,630   

Schlumberger, Ltd.(b) (Curacao/United States)

    13,601,845         942,471,840   
    

 

 

 
       2,576,226,087   
FINANCIALS: 22.0%     

BANKS: 6.1%

    

BB&T Corp.

    11,454,144         333,430,132   

HSBC Holdings PLC ADR(b) (United Kingdom)

    5,310,329         281,819,160   

SunTrust Banks, Inc.

    10,942,233         310,212,306   

Wells Fargo & Co.

    43,934,841         1,501,692,865   
    

 

 

 
       2,427,154,463   

DIVERSIFIED FINANCIALS: 13.7%

    

Bank of America Corp.

    76,113,300         882,914,280   

Bank of New York Mellon Corp.

    34,644,224         890,356,557   

Capital One Financial Corp.(c)

    29,207,211         1,691,973,733   
    SHARES      VALUE  

Charles Schwab Corp.

    53,202,700       $ 763,990,772   

Credit Suisse Group AG ADR(b) (Switzerland)

    2,347,206         57,647,379   

Goldman Sachs Group, Inc.

    7,042,600         898,354,056   

JPMorgan Chase & Co.

    5,766,200         253,539,814   

Legg Mason, Inc.

    1,238,701         31,859,390   
    

 

 

 
       5,470,635,981   

INSURANCE: 2.2%

    

AEGON NV(b) (Netherlands)

    63,685,517         410,134,730   

Genworth Financial, Inc., Class A(a)

    21,875,157         164,282,429   

Metlife, Inc.

    9,461,600         311,665,104   
    

 

 

 
       886,082,263   
    

 

 

 
       8,783,872,707   
HEALTH CARE: 18.6%     

HEALTH CARE EQUIPMENT & SERVICES: 1.4%

  

Boston Scientific Corp.(a)

    56,840,400         325,695,492   

Medtronic, Inc.

    5,571,500         228,542,930   
    

 

 

 
       554,238,422   

PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES: 17.2%

   

  

GlaxoSmithKline PLC ADR(b) (United Kingdom)

    25,671,200         1,115,927,064   

Merck & Co., Inc.

    30,195,800         1,236,216,052   

Novartis AG ADR(b) (Switzerland)

    18,974,700         1,201,098,510   

Pfizer, Inc.

    42,220,364         1,058,886,729   

Roche Holding AG ADR(b) (Switzerland)

    18,491,600         933,825,800   

Sanofi ADR(b) (France)

    28,003,029         1,326,783,514   
    

 

 

 
         6,872,737,669   
    

 

 

 
       7,426,976,091   
INDUSTRIALS: 6.7%     

CAPITAL GOODS: 3.6%

    

General Electric Co.

    55,466,775         1,164,247,607   

Koninklijke Philips Electronics NV(b) (Netherlands)

    10,049,121         266,703,672   
    

 

 

 
       1,430,951,279   

COMMERCIAL & PROFESSIONAL SERVICES: 0.7%

  

ADT Corp.

    2,545,137         118,323,419   

Pitney Bowes, Inc.

    1,286,630         13,689,743   

Tyco International, Ltd.(b) (Switzerland)

    5,090,275         148,890,544   
    

 

 

 
       280,903,706   

TRANSPORTATION: 2.4%

    

FedEx Corp.

    10,340,099         948,393,880   
    

 

 

 
       2,660,248,865   
 

 

PAGE 7 § DODGE & COX STOCK FUND   See accompanying Notes to Financial Statements


PORTFOLIO OF INVESTMENTS     December 31, 2012   

 

COMMON STOCKS (continued)  
    SHARES      VALUE  
INFORMATION TECHNOLOGY: 21.2%      

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT: 0.8%

  

Maxim Integrated Products, Inc.(c)

    10,236,900       $ 300,964,860   

SOFTWARE & SERVICES: 12.1%

    

Adobe Systems, Inc.(a)

    13,491,841         508,372,569   

Amdocs, Ltd.(b)
(Guernsey/United States)

    5,713,100         194,188,269   

AOL, Inc.(a),(c)

    4,697,054         139,079,769   

BMC Software, Inc.(a),(c)

    7,402,540         293,584,736   

Cadence Design Systems, Inc.(a),(c)

    11,971,800         161,739,018   

Computer Sciences Corp.(c)

    8,982,762         359,759,618   

Compuware Corp.(a),(c)

    14,549,712         158,155,370   

eBay, Inc.(a)

    10,883,100         555,255,762   

Google, Inc., Class A(a)

    541,700         384,265,729   

Microsoft Corp.

    38,945,500         1,041,013,215   

Symantec Corp.(a)

    33,751,300         634,861,953   

Synopsys, Inc.(a),(c)

    12,694,669         404,198,261   
    

 

 

 
       4,834,474,269   

TECHNOLOGY, HARDWARE & EQUIPMENT: 8.3%

  

Corning, Inc.

    18,321,300         231,214,806   

Dell, Inc.

    14,085,800         142,689,154   

Hewlett-Packard Co.

    69,610,995         991,956,679   

Molex, Inc.

    2,364,500         64,621,785   

Molex, Inc., Class A

    8,924,930         199,204,437   

NetApp, Inc.(a)

    14,332,000         480,838,600   

Nokia Corp. ADR(b) (Finland)

    61,286,400         242,081,280   

TE Connectivity, Ltd.(b) (Switzerland)

    13,853,975         514,259,552   

Xerox Corp.(c)

    65,746,682         448,392,371   
    

 

 

 
       3,315,258,664   
    

 

 

 
       8,450,697,793   
MATERIALS: 3.4%     

Celanese Corp., Series A(c)

    9,280,071         413,241,562   

Domtar Corp.

    672,149         56,137,884   

Dow Chemical Co.

    17,300,289         559,145,341   

Vulcan Materials Co.(c)

    6,045,225         314,653,961   
    

 

 

 
       1,343,178,748   
TELECOMMUNICATION SERVICES: 3.4%   

Sprint Nextel Corp.(a),(c)

    183,015,570         1,037,698,282   

Vodafone Group PLC ADR(b) (United Kingdom)

    13,363,300         336,621,527   
    

 

 

 
       1,374,319,809   
    

 

 

 

TOTAL COMMON STOCKS
(Cost $35,084,778,066)

     $ 39,452,666,074   
SHORT-TERM INVESTMENTS: 0.9%  
    PAR VALUE     VALUE  

MONEY MARKET FUND: 0.1%

  

 

SSgA U.S. Treasury Money Market Fund

  $ 39,312,013      $ 39,312,013   

REPURCHASE AGREEMENT: 0.8%

  

 

Fixed Income Clearing Corporation(d) 0.11%, dated 12/31/12, due 1/2/13, maturity value $327,309,000

    327,307,000        327,307,000   
   

 

 

 

TOTAL SHORT-TERM INVESTMENTS
(Cost $366,619,013)

    $ 366,619,013   
   

 

 

 

TOTAL INVESTMENTS
(Cost $35,451,397,079)

    99.9   $ 39,819,285,087   

OTHER ASSETS LESS LIABILITIES

    0.1     22,062,485   
 

 

 

   

 

 

 
NET ASSETS     100.0   $ 39,841,347,572   
 

 

 

   

 

 

 

 

(a) 

Non-income producing

(b) 

Security denominated in U.S. dollars

(c) 

See Note 8 regarding holdings of 5% voting securities

(d) 

Repurchase agreement is collateralized by U.S. Treasury Note 0.25%, 4/30/14. Total collateral value is 333,856,800.

In determining a company’s country designation, the Fund generally references the country of incorporation. In cases where the Fund considers the country of incorporation to be a “jurisdiction of convenience” chosen primarily for tax purposes, the Fund uses the country designation of an appropriate broad-based market index. In that circumstance, two countries are listed—the country of incorporation and the country designated by an appropriate index, respectively.

ADR: American Depositary Receipt

 

 

See accompanying Notes to Financial Statements   DODGE & COX STOCK FUND § PAGE 8


STATEMENT OF ASSETS AND LIABILITIES

  

    December 31, 2012  

ASSETS:

 

Investments, at value

 

Unaffiliated issuers (cost $30,750,688,820)

  $ 35,166,786,121   

Affiliated issuers (cost $4,700,708,259)

    4,652,498,966   
 

 

 

 
    39,819,285,087   

Cash

    19,408   

Receivable for investments sold

    35,689,863   

Receivable for Fund shares sold

    129,504,171   

Dividends and interest receivable

    71,373,534   

Prepaid expenses and other assets

    249,653   
 

 

 

 
    40,056,121,716   
 

 

 

 

LIABILITIES:

 

Payable for investments purchased

    36,998,892   

Payable for Fund shares redeemed

    159,650,443   

Management fees payable

    16,931,537   

Accrued expenses

    1,193,272   
 

 

 

 
    214,774,144   
 

 

 

 

NET ASSETS

  $ 39,841,347,572   
 

 

 

 

NET ASSETS CONSIST OF:

 

Paid in capital

  $ 38,748,636,393   

Undistributed net investment income

    5,179,760   

Accumulated net realized loss

    (3,280,356,589

Net unrealized appreciation

    4,367,888,008   
 

 

 

 
  $ 39,841,347,572   
 

 

 

 

Fund shares outstanding (par value $0.01 each, unlimited shares authorized)

    326,839,589   

Net asset value per share

    $121.90   

STATEMENT OF OPERATIONS

  

   

Year Ended

December 31, 2012

 

INVESTMENT INCOME:

 

Dividends (net of foreign taxes of $20,799,908)

 

Unaffiliated issuers

  $ 842,715,226   

Affiliated issuers

    38,223,809   

Interest

    181,465   
 

 

 

 
    881,120,500   
 

 

 

 

EXPENSES:

 

Management fees

    196,296,447   

Custody and fund accounting fees

    901,790   

Transfer agent fees

    3,861,240   

Professional services

    142,584   

Shareholder reports

    940,502   

Registration fees

    234,955   

Trustees' fees

    190,500   

Miscellaneous

    2,105,284   
 

 

 

 
    204,673,302   
 

 

 

 

NET INVESTMENT INCOME

    676,447,198   
 

 

 

 

REALIZED AND UNREALIZED GAIN ON INVESTMENTS:

 

Net realized gain

 

Unaffiliated issuers

    2,644,480,223   

Affiliated issuers

    270,764,550   

Net change in unrealized appreciation/depreciation

    4,107,467,284   
 

 

 

 

Net realized and unrealized gain

    7,022,712,057   
 

 

 

 

NET INCREASE IN NET ASSETS
FROM OPERATIONS

  $ 7,699,159,255   
 

 

 

 

STATEMENT OF CHANGES IN NET ASSETS

  

   

Year Ended
December 31, 2012

    Year Ended
December 31, 2011
 

OPERATIONS:

   

Net investment income

  $ 676,447,198      $ 664,516,079   

Net realized gain

    2,915,244,773        512,064,516   

Net change in unrealized appreciation/depreciation

    4,107,467,284        (2,850,476,884
 

 

 

   

 

 

 
    7,699,159,255        (1,673,896,289
 

 

 

   

 

 

 

DISTRIBUTIONS TO SHAREHOLDERS FROM:

   

Net investment income

    (677,796,823     (664,086,748

Net realized gain

             
 

 

 

   

 

 

 

Total distributions

    (677,796,823     (664,086,748
 

 

 

   

 

 

 

FUND SHARE TRANSACTIONS:

   

Proceeds from sale of shares

    5,342,166,537        5,006,315,221   

Reinvestment of distributions

    631,503,635        625,800,158   

Cost of shares redeemed

    (9,716,062,236     (9,769,356,748
 

 

 

   

 

 

 

Net decrease from Fund
share transactions

    (3,742,392,064     (4,137,241,369
 

 

 

   

 

 

 

Total increase (decrease) in net assets

    3,278,970,368        (6,475,224,406

NET ASSETS:

   

Beginning of year

    36,562,377,204        43,037,601,610   
 

 

 

   

 

 

 

End of year (including undistributed net investment income of $5,179,760 and $6,529,385, respectively)

  $ 39,841,347,572      $ 36,562,377,204   
 

 

 

   

 

 

 

SHARE INFORMATION:

   

Shares sold

    47,112,087     

 

 

 

 

 

46,452,278

 

 

  

Distributions reinvested

    5,518,679        5,991,930   

Shares redeemed

    (85,519,079     (92,083,372
 

 

 

   

 

 

 

Net decrease in shares outstanding

    (32,888,313     (39,639,164
 

 

 

   

 

 

 
 

 

PAGE 9 § DODGE & COX STOCK FUND   See accompanying Notes to Financial Statements


NOTES TO FINANCIAL STATEMENTS

 

NOTE 1—ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Dodge & Cox Stock Fund (the “Fund”) is one of the series constituting the Dodge & Cox Funds (the “Trust” or the “Funds”). 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 commenced operations on January 4, 1965, and seeks long-term growth of principal and income. Risk considerations and investment strategies of the Fund are discussed in the Fund’s Prospectus.

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require the use of estimates and assumptions by management. Actual results may differ from those estimates. Significant accounting policies are as follows:

Security valuation The Fund’s net assets are valued as of the close of trading on the New York Stock Exchange (NYSE), generally 4:00 p.m. Eastern Time, each day that the NYSE is open for business. Listed securities are valued at market, using the official quoted close price or the last sale of the day at the close of the NYSE or, if not available, at the mean between the exchange listed bid and ask prices. A security that 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. Security values are not discounted based on the size of the Fund’s position. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by or under 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.

Security transactions, investment income, expenses, and distributions Security transactions are recorded on the trade date. Realized gains and losses on securities sold are determined on the basis of identified cost.

Dividend income and corporate action transactions are recorded on the ex-dividend date, or when the Fund first learns of the dividend/corporate action if the ex-dividend date has passed. Withholding taxes on foreign dividends have been provided for in accordance with the

Fund’s understanding of the applicable country’s tax rules and rates. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Dividends characterized as return of capital are recorded as a reduction of cost of investments and/or realized gain. Interest income is recorded on the accrual basis.

Expenses are recorded on the accrual basis. Most expenses of the Trust can be directly attributed to a specific series. Expenses which cannot be directly attributed are allocated among the Funds in the Trust based on relative net assets or other expense methodologies determined by the nature of the expense.

Distributions to shareholders are recorded on the ex-dividend date.

Repurchase agreements The Fund enters into repurchase agreements, secured by U.S. government or agency securities, which involve the purchase of securities from a counterparty with a simultaneous commitment to resell the securities at an agreed-upon date and price. It is the Fund’s policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. In the event of default by the counterparty, the Fund has the contractual right to liquidate the collateral securities and to apply the proceeds in satisfaction of the obligation.

Indemnification Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business the Trust enters into contracts that provide general indemnities to other parties. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred.

NOTE 2—VALUATION MEASUREMENTS

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below.

§  

Level 1: Quoted prices in active markets for identical securities

 

 

DODGE & COX STOCK FUND § PAGE 10


NOTES TO FINANCIAL STATEMENTS

 

§  

Level 2: Other significant observable inputs (including quoted prices for similar securities, market indices, interest rates, credit risk, etc.)

§  

Level 3: Significant unobservable inputs (including Fund management’s assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used to value the Fund’s holdings as of December 31, 2012:

 

Security Classification(a)   LEVEL 1
(Quoted Prices)
    LEVEL 2
(Other Significant
Observable Inputs)
 

Common Stocks(b)

  $ 39,452,666,074      $             —   

Money Market Fund

    39,312,013          

Repurchase Agreement

           327,307,000   
 

 

 

   

 

 

 

Total

  $ 39,491,978,087      $ 327,307,000   
 

 

 

   

 

 

 
                 
(a) 

There were no transfers between Level 1 and Level 2 during the year ended December 31, 2012. There were no Level 3 securities at December 31, 2012 and 2011, and there were no transfers to Level 3 during the year.

(b) 

All common stocks held in the Fund are Level 1 securities. For a detailed break-out of common stocks by major industry classification, please refer to the Portfolio of Investments.

NOTE 3—RELATED PARTY TRANSACTIONS

Management fees Under a written agreement approved by a unanimous vote of the Board of Trustees, the Fund pays an annual management fee of 0.50% of the Fund’s average daily net assets 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 0.75% of the average daily net assets for the year.

Fund officers and trustees All officers and three of the trustees of the Trust are officers or employees of Dodge & Cox. The Trust pays a fee only to those trustees who are not affiliated with Dodge & Cox.

NOTE 4—INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS

A provision for federal income taxes is not required since the Fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute all of its taxable income to

shareholders. Distributions are determined in accordance with income tax regulations, and such amounts may differ from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences at year end to reflect tax character.

Book/tax differences are primarily due to differing treatments of wash sales, in-kind redemptions, and net short-term realized gain (loss). During the year, the Fund recognized net realized gains of $274,042,734 from the delivery of appreciated securities in an in-kind redemption transaction. For federal income tax purposes, this gain is not recognized as taxable income to the Fund and therefore will not be distributed to shareholders. At December 31, 2012, the cost of investments for federal income tax purposes was $35,499,382,848.

Distributions during the years ended December 31, 2012 and 2011, were characterized as follows for federal income tax purposes:

 

     Year Ended
December 31, 2012
   

Year Ended

December 31, 2011

 

Ordinary income

    $677,796,823        $664,086,748   
    ($1.975 per share)        ($1.754 per share)   

Long-term capital gain

             

At December 31, 2012, the tax basis components of distributable earnings were as follows:

 

Unrealized appreciation

   $ 7,886,563,602   

Unrealized depreciation

     (3,566,661,363
  

 

 

 

Net unrealized appreciation

     4,319,902,239   

Undistributed ordinary income

     5,179,760   

Capital loss carryforward(a)

     (3,232,370,820
(a) 

Represents accumulated capital loss as of December 31, 2012, which may be carried forward to offset future capital gains. During 2012, the Fund utilized $2,621,362,756 of the capital loss carryforward. If not utilized, the remaining capital loss carryforward will expire in 2017.

Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund after January 1, 2011, will not be subject to expiration. In addition, such losses must be utilized prior to the losses incurred in the years preceding enactment. (The Fund had net capital gains in 2011 and 2012.)

 

 

PAGE 11 § DODGE & COX STOCK FUND


NOTES TO FINANCIAL STATEMENTS

 

Fund management has reviewed the tax positions for open periods (three years and four years, respectively, from filing the Fund’s Federal and State tax returns) as applicable to the Fund, and has determined that no provision for income tax is required in the Fund’s financial statements.

NOTE 5—LOAN FACILITIES

Pursuant to an exemptive order issued by the Securities and Exchange Commission (SEC), the Fund may participate in an interfund lending facility (Facility). The Facility allows the Fund to borrow money from or loan money to the Funds. Loans under the Facility are made for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest on borrowings is the average of the current repurchase agreement rate and the bank loan rate. There was no activity in the Facility during the period.

All Funds in the Trust participate in a $500 million committed credit facility (Line of Credit) with State Street Bank and Trust Company, to be utilized for temporary or emergency purposes to fund shareholder redemptions or for other short-term liquidity purposes. The maximum amount available to the Fund is $250 million. Each Fund pays an annual commitment fee on its pro-rata portion of the Line of Credit. The Fund’s commitment fee for the year ended December 31, 2012, amounted to $166,025 and is reflected as a Miscellaneous Expense in the Statement of Operations. Interest on borrowings is charged at the prevailing rate. There were no borrowings on the Line of Credit during the period.

NOTE 6—PURCHASES AND SALES OF INVESTMENTS

For the year ended December 31, 2012, purchases and sales of securities, other than short-term securities, aggregated $4,330,658,454 and $8,246,372,055, respectively.

NOTE 7—ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2013, the Fund will adopt Accounting Standards Update (ASU) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities and ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. These amendments to Topic 210 require enhanced disclosures about offsetting of financial assets and liabilities, including derivative instruments, to enable investors to understand the effect of these arrangements on a fund’s financial position. Management believes the adoption of these ASUs will not have a material impact on the Fund’s financial statements.

NOTE 8—SUBSEQUENT EVENTS

Fund management has determined that no material events or transactions occurred subsequent to December 31, 2012, and through the date of the Fund’s financial statements issuance, which require additional disclosure in the Fund’s financial statements.

 

 

DODGE & COX STOCK FUND § PAGE 12


NOTES TO FINANCIAL STATEMENTS

 

NOTE 9—HOLDINGS OF 5% VOTING SECURITIES

Each of the companies listed below was considered to be an affiliate of the Fund because the Fund owned 5% or more of the company’s voting securities during all or part of the year ended December 31, 2012. Purchase and sale transactions and dividend income earned during the period on these securities were as follows:

 

      Shares at
Beginning of Period
     Additions      Reductions     Shares at
End of Period
     Dividend
Income(a)
    Value at
End of Period
 

AOL, Inc.

     8,439,054                 (3,742,000     4,697,054       $ —  (b)    $ 139,079,769   

BMC Software, Inc.

     8,250,140                 (847,600     7,402,540         —  (b)      —  (c) 

Cadence Design Systems, Inc.

     19,448,500                 (7,476,700     11,971,800         —  (b)      —  (c) 

Capital One Financial Corp.

     30,180,911                 (973,700     29,207,211         5,995,582        1,691,973,733   

Celanese Corp., Series A

     4,602,003         4,777,468         (99,400     9,280,071         1,983,416        413,241,562   

Computer Sciences Corp.

     8,996,552         122,810         (136,600     8,982,762         7,268,170        359,759,618   

Compuware Corp.

     15,838,112                 (1,288,400     14,549,712         —  (b)      158,155,370   

J.C. Penney Co., Inc.

             11,100,000         (166,300     10,933,700         —  (b)      —  (c) 

Maxim Integrated Products, Inc.

     17,296,400                 (7,059,500     10,236,900         11,559,972        —  (c) 

Sprint Nextel Corp.

     135,934,139         50,224,931         (3,143,500     183,015,570         —  (b)      1,037,698,282   

Synopsys, Inc.

     13,695,769                 (1,001,100     12,694,669         —  (b)      404,198,261   

Vulcan Materials Co.

     7,942,625                 (1,897,400     6,045,225         269,657        —  (c) 

Xerox Corp.

     62,009,582         5,000,000         (1,262,900     65,746,682         11,147,012        448,392,371   
             

 

 

   

 

 

 
              $ 38,223,809      $ 4,652,498,966   
             

 

 

   

 

 

 
                                       

 

 

   

 

 

 
(a)

Net of foreign taxes, if any

(b)

Non-income producing

(c)

Company was not an affiliate at period end

 

PAGE 13 § DODGE & COX STOCK FUND


FINANCIAL HIGHLIGHTS

 

SELECTED DATA AND RATIOS

(for a share outstanding throughout each year)

    

Year Ended December 31,

 
       2012      2011     2010      2009      2008  
    

 

 

 

Net asset value, beginning of year

       $101.64         $107.76        $96.14         $74.37         $138.26   

Income from investment operations:

               

Net investment income

       1.98         1.76        1.23         1.15         1.91   

Net realized and unrealized gain (loss)

       20.26         (6.13     11.62         21.82         (59.83
    

 

 

 

Total from investment operations

       22.24         (4.37     12.85         22.97         (57.92
    

 

 

 

Distributions to shareholders from:

               

Net investment income

       (1.98      (1.75     (1.23      (1.20      (1.84

Net realized gain

                                      (4.13
    

 

 

 

Total distributions

       (1.98      (1.75     (1.23      (1.20      (5.97
    

 

 

 

Net asset value, end of year

       $121.90         $101.64        $107.76         $96.14         $74.37   
    

 

 

 

Total return

       22.01      (4.08 )%      13.48      31.27      (43.31 )% 

Ratios/supplemental data:

               

Net assets, end of year (millions)

       $39,841         $36,562        $43,038         $39,991         $32,721   

Ratio of expenses to average net assets

       0.52      0.52     0.52      0.52      0.52

Ratio of net investment income to average net assets

       1.72      1.62     1.25      1.42      1.75

Portfolio turnover rate

       11      16     12      18      31

See accompanying Notes to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Trustees of Dodge & Cox Funds and Shareholders of Dodge & Cox Stock Fund

In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Dodge & Cox Stock Fund (the “Fund”, one of the series constituting Dodge & Cox Funds) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012, by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 20, 2013

 

DODGE & COX STOCK FUND § PAGE 14


SPECIAL 2012 TAX INFORMATION (unaudited)

The following information is provided pursuant to provisions of the Internal Revenue Code:

The Fund designates up to a maximum amount of $901,710,279 of its distributions paid to shareholders in 2012 as qualified dividends (treated for federal income tax purposes in the hands of shareholders as taxable at a maximum rate of 15%).

For shareholders that are corporations, the Fund designates 87% of its ordinary dividends paid to shareholders in 2012 as dividends from domestic corporations eligible for the corporate dividends received deduction, provided that the shareholder otherwise satisfies applicable requirements to claim that deduction.

BOARD APPROVAL OF FUNDS’ INVESTMENT MANAGEMENT AGREEMENTS AND MANAGEMENT FEES

(unaudited)

The Board of Trustees is responsible for overseeing the performance of the Dodge & Cox Funds’ investment manager and determining whether to continue the Investment Management Agreements between the Funds and Dodge & Cox each year (the “Agreements”). At a meeting of the Board of Trustees of the Trust held on December 12, 2012, the Trustees, by a unanimous vote (including a separate vote of those Trustees who are not “interested persons” (as defined in the Investment Company Act of 1940) (the “Independent Trustees”)), approved the renewal of the Agreements for an additional one-year term through December 31, 2013. During the course of the year, the Board received a wide variety of materials relating to the services provided by Dodge & Cox and the performance of each of the Funds.

INFORMATION RECEIVED

In advance of the meeting, the Board, including each of the Independent Trustees, requested, received, and reviewed materials relating to the Agreements and the services provided by Dodge & Cox. The Independent Trustees retained Morningstar® to prepare an independent expense and performance summary for each Fund and comparable funds managed by other advisers identified by Morningstar. The Morningstar materials included information regarding advisory fee rates, expense ratios,

and transfer agency, custodial, and distribution expenses, as well as appropriate performance comparisons to a Fund’s peer group and an index or combination of indices. The Morningstar materials also included a comparison of expenses of various share classes offered by comparable funds.

The materials reviewed by the Board contained information concerning, among other things, Dodge & Cox’s profitability, financial results and condition, advisory fee revenue, and separate account advisory fee schedules. The Board additionally considered the Funds’ brokerage commissions, turnover rates, sales and redemption data and the significant investment that Dodge & Cox makes in research used in managing the Funds. The Board received and reviewed a memorandum summarizing information provided throughout the year regarding Dodge & Cox’s services to the Funds as well as information regarding (i) the different fees, services, costs, and risks associated with separate accounts managed by Dodge & Cox as compared to the Dodge & Cox Funds; (ii) the differences in performance between the Funds and separately managed accounts; and (iii) Fund shares subscription and redemption activity. Throughout the process of reviewing the services provided by Dodge & Cox and preparing for the meeting, the Independent Trustees found Dodge & Cox to be open, forthright, detailed, and very helpful in answering questions about all issues.

The Board received copies of the Agreements and a memorandum from the independent legal counsel to the Independent Trustees discussing the factors generally regarded as appropriate to consider in evaluating advisory arrangements. The Trust’s Contract Review Committee, consisting solely of Independent Trustees, met with the independent legal counsel on November 1, 2012, and again on December 12, 2012, to discuss whether to renew the Agreements. The Board, including the Independent Trustees, subsequently concluded that the existing Agreements are fair and reasonable and voted to approve the Agreements.

In considering the Agreements, the Board, including the Independent Trustees, did not identify any single factor or particular information as all-important or controlling. In reaching the decision to approve the

 

 

PAGE 15 § DODGE & COX STOCK FUND


Agreements, the Board considered several factors, discussed below, to be key factors and reached the conclusions described below.

NATURE, QUALITY, AND EXTENT OF THE SERVICES

The Board considered that Dodge & Cox provides a wide range of services to the Funds in addition to portfolio management and that the quality of these services has been excellent in all respects. The extensive nature of services provided by Dodge & Cox has been documented in materials provided to the Board and in presentations made to the Board throughout the year. In particular, the Board considered the nature, quality, and extent of portfolio management, administrative, and shareholder services performed by Dodge & Cox. With regard to portfolio management services, the Board considered Dodge & Cox’s established long-term history of care and conscientiousness in the management of the Funds; its demonstrated consistency in investment approach and depth; the background and experience of the Dodge & Cox Investment Policy Committee, International Investment Policy Committee, Global Investment Policy Committee, Fixed Income Investment Policy Committee, and research analysts responsible for managing the Funds; its methods for assessing the regulatory and investment climate in various jurisdictions; Dodge & Cox’s overall high level of attention to its core investment management function; and its commitment to the Funds and their shareholders.

In the area of administrative and shareholder services, the Board considered the excellent quality of Dodge & Cox’s work in areas such as compliance, legal services, trading, proxy voting, oversight of the Funds’ transfer agent and custodian, tax compliance, and shareholder communication through its website and other means. The Board also noted Dodge & Cox’s diligent disclosure policy, its favorable compliance record, and its reputation as a trusted, shareholder-friendly mutual fund family.

In addition, the Board considered that Dodge & Cox manages approximately $120 billion in Fund assets with fewer professionals than most comparable funds, and that on average these professionals have more experience and longer tenure than investment professionals at comparable

funds. The Board also noted that Dodge & Cox is an investment research-oriented firm with no other business endeavors to distract management’s attention from its research efforts, and that its investment professionals adhere to a consistent investment approach across the Funds. The Board further considered the favorable stewardship and “Gold” analyst ratings awarded to each of the Funds by Morningstar. The Board concluded that it was satisfied with the nature, extent, and quality of investment management and other services provided to the Funds by Dodge & Cox.

INVESTMENT PERFORMANCE

The Board considered short-term and long-term investment performance for each Fund (including periods of outperformance or underperformance) as compared to both relevant indices and the performance of such Fund’s peer group. The Board also reviewed recent performance in the context of long-term investment goals. The Board noted that each Fund’s short-term (one-year) performance relative to its benchmark and peer group had improved since the previous year’s review. The Board determined after extensive review and inquiry that Dodge & Cox’s historic, long-term, team-oriented bottom up investment approach remains consistent and that Dodge & Cox continues to be distinguished by its integrity, transparency, and independence.

The Board considered that the performance of the Funds is the result of a team-oriented investment management process that emphasizes a long-term investment horizon, comprehensive independent research, price discipline, and focus. The Board also considered that the investment performance delivered by Dodge & Cox to the Funds appeared to be consistent with the relevant performance delivered for other (non-fund) clients of Dodge & Cox. The Board concluded that Dodge & Cox has delivered favorable long-term performance for Fund investors consistent with the long-term investment strategies being pursued by the Funds.

COSTS AND ANCILLARY BENEFITS

Costs of Services to Funds: Fees and Expenses. The Board considered each Fund’s management fee rate and expense ratio relative to similar mutual funds and relative to management fees charged by Dodge & Cox to other

 

 

DODGE & COX STOCK FUND § PAGE 16


clients. In particular, the Board considered that the Funds continue to be substantially below their peer group median in expense ratios and management fee rates and that many media and industry reports specifically comment on the low expense ratios of the Funds, which have been a defining characteristic of the Funds for many years. The Board also evaluated the operating structures of the Funds and Dodge & Cox, noting that the Funds do not charge front-end sales commissions or distribution fees, and Dodge & Cox bears, among other things, the significant cost of third party research, reimbursement for recordkeeping and administrative costs to third-party retirement plan administrators, and administrative and office overhead. The Board noted that expenses are well below industry averages. The Board also considered that the Funds receive numerous administrative, regulatory compliance, and shareholder support services from Dodge & Cox without any additional administrative fee and the fact that the Funds have relatively low transaction costs and portfolio turnover rates. The Board reviewed Morningstar data showing that the few peer group funds with lower expense ratios often have other share classes with significantly higher expense ratios.

The Board reviewed information regarding the fee rates Dodge & Cox charges to separate accounts that have investment programs similar to those of the Funds, including instances where separate account fees are lower than Fund fees. The Board considered differences in the nature and scope of services Dodge & Cox provides to the Funds as compared to separate accounts, differences in regulatory, litigation, and other risks as between mutual funds and separate accounts, and certain characteristics of the market for institutional separate account management services. The Board further noted that, with respect to non-U.S. funds sponsored and managed by Dodge & Cox that are comparable to the Funds in many respects, the fee rates charged by Dodge & Cox are the same as or higher than the fee rates charged to the Funds. After consideration of these matters, the Board concluded that the overall costs incurred by the Funds for the services they receive (including the management fee paid to Dodge & Cox) are reasonable and that the fees are acceptable based upon the qualifications, experience, reputation, and performance of Dodge & Cox and the low overall expense ratios of the Funds.

Profitability and Costs of Services to Dodge & Cox; “Fall-out” Benefits. The Board reviewed reports of Dodge & Cox’s financial position, profitability, and estimated overall value, and considered Dodge & Cox’s overall profitability within its context as a private, employee-owned S-Corporation and relative to the favorable services provided. The Board noted that net revenues for 2012 are projected to decrease slightly from 2011. The Board noted in particular that Dodge & Cox’s profits are not generated by high fee rates, but reflect an extraordinarily streamlined, efficient, and focused business approach toward investment management. The Board recognized the importance of Dodge & Cox’s profitability—which is derived solely from management fees and does not include other business ventures—to maintain its independence, stability, company culture and ethics, and management continuity. The Board also considered that the compensation/profit structure at Dodge & Cox is vital for remaining independent and facilitating retention of its management and investment professionals.

The Board considered potential “fall-out” benefits (including the receipt of research from unaffiliated brokers) that Dodge & Cox might receive as a result of its association with the Funds and determined that they are not significant. The Board also noted the extent of additional administrative services performed by Dodge & Cox for the Funds, and that the magnitude of costs and risks borne by Dodge & Cox in rendering advisory services to the Funds (including risks in the regulatory compliance, securities valuation, and investment management processes) are continuing to increase. The Board concluded that the profitability of Dodge & Cox’s relationship with the Funds (including fall-out benefits) was fair and reasonable.

THE BENEFIT OF ECONOMIES OF SCALE

The Board considered whether there have been economies of scale with respect to the management of each Fund, whether the Funds have appropriately benefited from any economies of scale, and whether the management fee rate is reasonable in relation to the Fund assets and any economies of scale that may exist. In the Board’s view, any consideration of economies of scale must take account of the Funds’ low fee structure and the

 

 

PAGE 17 § DODGE & COX STOCK FUND


considerable efficiencies of the Funds’ organization and fee structure that has been realized by shareholders from the time of each Fund’s inception (i.e., from the first dollar). The Board noted that Dodge & Cox has shared economies of scale by adding or enhancing services to the Funds over time, and that the internal costs of providing investment management, up-to-date technology, administrative, and compliance services to the Funds are continuing to increase. For example, Dodge & Cox has increased its global research staff and investment resources over the years to address the increased complexity of investing in multinational and non-U.S. companies. In addition, Dodge & Cox has made substantial expenditures in other staff and infrastructure to enable it to integrate credit and equity analyses and to be able to implement its strategy in a more effective and secure manner. The Board determined that the Funds provide access for small investors to high quality investment management at a relatively low cost. The Board’s decision to renew the Agreements was made after consideration of economies of scale and review of peer group fund expense ratios and historical expense ratio patterns for the Funds. The Board concluded that the current Dodge & Cox fee structure is fair and reasonable and adequately shares economies of scale that may exist.

CONCLUSION

Based on their evaluation of all material factors and assisted by the advice of independent legal counsel to the Independent Trustees, the Board, including the Independent Trustees, concluded that the advisory fee structure was fair and reasonable, that each Fund was paying a competitive fee for the services provided, that the scope and quality of Dodge & Cox’s services has provided substantial value for Fund shareholders over the long term, and that approval of the Agreements was in the best interests of each Fund and its shareholders.

FUND HOLDINGS

The Fund provides a complete list of its holdings four times each fiscal year, as of the end of each quarter. The Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-CSR (second and fourth quarters) and Form N-Q (first and third quarters). Shareholders may view the Fund’s Forms N-CSR and N-Q on the SEC’s website at www.sec.gov. Forms N-CSR and N-Q may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling 202-942-8090 (direct) or 800-732-0330 (general SEC number). A list of the Fund’s quarter-end holdings is also available at www.dodgeandcox.com on or about 15 days following each quarter end and remains available on the website until the list is updated in the subsequent quarter.

PROXY VOTING

For a free copy of the Fund’s proxy voting policies and procedures, please call 800-621-3979, visit the Fund’s website at www.dodgeandcox.com, or visit the SEC’s website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ending June 30 is also available at www.dodgeandcox.com or at www.sec.gov.

HOUSEHOLD MAILINGS

The Fund routinely mails shareholder reports and summary prospectuses to shareholders and, on occasion, proxy statements. In order to reduce the volume of mail, when possible, only one copy of these documents will be sent to shareholders who are part of the same family and share the same residential address.

If you have a direct account with the Funds and you do not want the mailing of shareholder reports and summary prospectuses combined with other members in your household, contact the Funds at 800-621-3979. Your request will be implemented within 30 days.

 

 

DODGE & COX STOCK FUND § PAGE 18


DODGE & COX FUNDS—EXECUTIVE OFFICER & TRUSTEE INFORMATION

 

Name (Age) and
Address*
 

Position with Trust

(Year of Election or
Appointment)

  Principal Occupation During Past 5 Years   Other Directorships Held by Trustees
INTERESTED TRUSTEES AND OFFICERS
Kenneth E. Olivier (60)  

Chairman, President, and Trustee

(Trustee since 2005)

  Chairman (since 2011), Chief Executive Officer (since 2010), President (until 2011), and Director of Dodge & Cox; Portfolio Manager and member of Investment Policy Committee (IPC)  
Dana M. Emery (51)  

Senior Vice President

and Trustee

(Trustee since 1993)

  Co-President (since 2011), Executive Vice President (until March 2011), and Director of Dodge & Cox; Director of Fixed Income, Portfolio Manager, and member of Fixed Income Investment Policy Committee (FIIPC)  
John A. Gunn (69)  

Trustee

(Trustee since 1985)

  Chairman Emeritus (since 2011), Chairman (2007-2011), Chief Executive Officer (2007-2010), and Director of Dodge & Cox; Portfolio Manager and member of IPC, Global Investment Policy Committee (GIPC) (since 2008), International Investment Policy Committee (IIPC), and FIIPC (until 2008)  
Charles F. Pohl (54)  

Senior Vice President

(Officer since 2004)

  Co-President (since 2011), Senior Vice President (until 2011), and Director of Dodge & Cox; Chief Investment Officer (since 2007), Director of Credit Research, Portfolio Manager, Investment Analyst, and member of IPC, GIPC (since 2008), IIPC (since 2007), and FIIPC  
Diana S. Strandberg (53)   Senior Vice President (Officer since 2006)   Senior Vice President (since 2011), Vice President (until 2011), and Director (since 2011) of Dodge & Cox; Director of International Equity (since 2009), Portfolio Manager, Investment Analyst, and member of IPC, GIPC (since 2008), and IIPC  
David H. Longhurst (55)  

Treasurer

(Officer since 2006)

  Vice President (since 2008) and Assistant Treasurer (since 2007) of Dodge & Cox; Fund Administration and Accounting Senior Manager (until 2007)  
Thomas M. Mistele (59)  

Secretary

(Officer since 1998)

  Chief Operating Officer, Director, Secretary, Senior Counsel (since 2011), and General Counsel (until 2011) of Dodge & Cox  
Katherine M. Primas (37)  

Chief Compliance

Officer

(Officer since 2009)

  Chief Compliance Officer (since 2008) and Associate Chief Compliance Officer of Dodge & Cox (until 2008)  
INDEPENDENT TRUSTEES
L. Dale Crandall (71)  

Trustee

(Since 1999)

  President, Piedmont Corporate Advisors, Inc. (since 2003); President, Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals (2000-2002); Senior Vice President—Finance and Administration & CFO, Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals (1998-2000)   Director, Ansell Limited (medical equipment and supplies) (2002-present); Director, Coventry Health Care, Inc. (managed health care) (2004-present); Bridgepoint Education, Inc. (education services) (2008-present)
Thomas A. Larsen (63)  

Trustee

(Since 2002)

  Senior Counsel of Arnold & Porter LLP (law firm) (since 2012); Director of Howard, Rice, Nemerovski, Canady, Falk & Rabkin (1977-2011)  
Ann Mather (52)  

Trustee

(Since 2011)

  CFO, Pixar Animation Studios (1999-2004)   Director, Google, Inc. (internet information services) (2005-present); Director, Glu Mobile, Inc. (multimedia software) (2005-present); Director, Netflix, Inc. (video services) (2010-present); Director, MoneyGram International, Inc. (business services) (2010-present); Director, Solazyme Inc. (renewable oils) (since 2011)
Robert B. Morris III (60)  

Trustee

(Since 2011)

  Advisory Director, The Presidio Group (previously Presidio Financial Partners) (since 2005)  
John B. Taylor (66)  

Trustee

(Since 2005)

(and 1998-2001)

  Professor of Economics, Stanford University; Senior Fellow, Hoover Institution; Under Secretary for International Affairs, United States Treasury (2001-2005)  

 

*  

The address for each Officer and Trustee is 555 California Street, 40th Floor, San Francisco, California 94104. Each Officer and Trustee oversees all five series in the Dodge & Cox Funds complex and serves for an indefinite term.

Additional information about the Trust’s Trustees and Officers is available in the Trust’s Statement of Additional Information (SAI). You can get a free copy of the SAI by visiting the Funds’ website at www.dodgeandcox.com or calling
1-800-621-3979.

 

PAGE 19 § DODGE & COX STOCK FUND


LOGO     LOGO

 

Global Stock Fund

 

www.dodgeandcox.com

For Fund literature, transactions, and account information, please visit the Funds’ website.

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

555 California Street, 40th Floor

San Francisco, California 94104

(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 December 31, 2012, the end of the reporting period. Any such views are subject to change at any time based upon market or other conditions and Dodge & Cox disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Dodge & Cox Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dodge & Cox Fund.

12/12 GSF AR    LOGO    Printed on recycled paper

2012    

Annual Report

December 31, 2012

Global Stock

Fund

ESTABLISHED 2008

TICKER:  DODWX

 


TO OUR SHAREHOLDERS

 

The Dodge & Cox Global Stock Fund had a total return of 13.8% for the six months ending December 31, 2012, compared to a return of 9.4% for the MSCI World Index. For 2012, the Fund had a total return of 21.1%, compared to 15.8% for the MSCI World. At year end, the Fund had net assets of $2.7 billion with a cash position of 1.6%.

MARKET COMMENTARY

The past year was marked by considerable volatility as investors responded to uncertainty about broad macroeconomic issues, including the fate of the Eurozone, slowing economic growth in China, and the U.S. “fiscal cliff.” And yet, global equity markets appreciated significantly during 2012. Even the areas of the market that were of greatest concern appreciated: MSCI European Financials Index (up 33%), MSCI China Index (up 23%), and MSCI Europe Index (up 19%). We remain optimistic about the long-term outlook for potential equity returns. Company fundamentals remain strong, with robust corporate balance sheets and cash flows. Emerging markets continue to advance, as does technological innovation. And valuations are attractive, with the MSCI World trading at 15 times trailing earnings,(a) compared to a 10-year average of 17 times.

INVESTMENT STRATEGY

As investors, we are constantly weighing what we are buying (company fundamentals) with what we are paying (valuation). A great company can be a terrible investment if you pay too much. Every investment also has a range of outcomes. For these reasons, we strive to purchase securities that are inexpensive enough to allow for what could potentially go wrong, while not paying too much for what could go right.

Our investment professionals accomplish this through intensive, fundamental research and a team-based decision making process. This approach broadens our knowledge base and informs our decision making. Our collective judgment and experience, built over decades, is key to constructing the portfolio. In 2012, the Fund’s performance in three areas—Financials, Pharmaceuticals, and Media—illustrated the merits of this investment approach.

Financials

The Fund’s holdings in Financials experienced strong performance for the year, up 40% compared to a 29% increase in the MSCI World. This recovery occurred despite the fact that many of the concerns that arose during the financial crisis still remain: a low interest rate environment, uncertain regulatory changes, and ongoing litigation and writedowns. However, many companies in the sector stood to benefit from their stronger franchises, solid management, higher capital ratios, and cleaner balance sheets—all amidst a reduced field of competitors. These fundamentals, when weighed against low valuations, made them attractive investment opportunities. For these reasons, the Fund was overweight in Financials during 2012, and remained overweight at year end (24.8% versus 20.3%). The sector experienced severe volatility throughout the crisis, and indeed, may again. We continue to evaluate evolving risks against valuation levels, with the companies’ long-term prospects in mind.

Pharmaceuticals Industry

The Fund was also overweight in Pharmaceuticals (13.7% versus 6.7%). The industry started outperforming in 2011, with improvements in drug pipelines and better top-line growth. Valuations continued to increase in 2012.

As valuations rebounded, we have used some of the profits to fund other investments. However, we still see long-term investment opportunity and remain overweight in the industry due to low relative valuations and attractive growth prospects. The Fund’s Pharmaceuticals holdings traded at approximately 11 times forward earnings with a 3.8% dividend yield. These companies also derive approximately 20 to 30 percent of their revenues from emerging markets, a business that is growing at double-digit rates. Per capita consumption of drugs is low in most emerging markets, and governments and consumers have demonstrated a tendency to allocate more spending to health care as consumer purchasing power increases.

Media Industry

Media, a third area of emphasis in the Fund (7.2% versus 2.6%), also finished the year with strong performance (up

 

 

PAGE 1 § DODGE & COX GLOBAL STOCK FUND


43% versus up 34%). Company valuations in this area of the economy became increasingly attractive around 2009, amid a deep cyclical decline in advertising spending. The Fund’s Media holdings are in durable, subscription-based franchises, with valuable assets that generate strong cash flows. The cable holdings, in particular, are benefiting from their infrastructure lead to gain share in growing broadband markets. The Fund also has investments in companies with large growth potential in emerging markets such as Mexico, China, and Africa.

FINDING OPPORTUNITIES

We continue to find opportunity within Technology, Media, and Telecommunications (TMT) where valuations are depressed. One such example(b) is Sprint Nextel (2.0% of the Fund), a position initiated in the first quarter. After the company announced poor performance and a significant commitment to purchase iPhones, its valuation declined. Combined with a sizeable debt load and need to increase capital expenditures, concerns about access to capital began to surface. Looking at Sprint Nextel’s balance sheet and the value of its non-financial assets (spectrum and subscriber base), the company appeared to provide adequate security for a lender or other investor. The core franchise also had the potential for significant margin expansion. Operating performance subsequently improved, and Softbank announced a $20 billion investment, helping to validate the value of Sprint Nextel’s assets and franchise. Sprint Nextel appreciated 104% in 2012, from the time of the Fund’s initial investment.

Hewlett-Packard (HP) is another good example of the kind of opportunity we are seeing in TMT. HP is an industry leader, with leading market shares in several major technology businesses. It generates healthy free cash flows, which can be used to repurchase shares, pay dividends, repay debt, and/or pursue strategic mergers and acquisitions. While shares of HP performed poorly last year, the company’s significantly depressed valuation appears to reflect overly pessimistic expectations about HP’s growth prospects and profits.

IN CLOSING

While the world economy could continue to experience volatility and face headwinds, we are optimistic about the

prospects for continued global growth, driven in large part by the growth contributed by emerging markets. The Firm remains committed to identifying the individual companies that stand to benefit from global growth or a recovery, and investing in them at attractive valuations on behalf of our investors. Markets can be difficult to predict over the short term; as a result, we encourage shareholders to remain focused on the long term.

Thank you for your continued confidence in our firm. As always, we welcome your comments and questions.

For the Board of Trustees,

 

LOGO   LOGO

Kenneth E. Olivier,

Chairman and President

 

Charles F. Pohl

Senior Vice President

January 29, 2013

 

 

(a)  

Unless otherwise specified, all weightings and characteristics are as of December 31, 2012.

(b)  

The use of specific examples does not imply that they are more attractive investments than the Fund’s other holdings.

 

 

DODGE & COX GLOBAL STOCK FUND § PAGE 2


ANNUAL PERFORMANCE REVIEW

Key Contributors to Relative Results

  §  

The Fund’s average overweight position (25% versus 19%) and holdings in the Financials sector (up 40% versus up 29% for the MSCI World sector) had a positive impact. Bank of America (up 110%), Aegon (up 65%), and Barclays (up 60%) were strong performers.

 
  §  

The Fund’s holdings in the Materials sector (up 42% versus up 11% for the MSCI World sector) helped results. Lafarge (up 82%) was a notable contributor.

 
  §  

The Fund’s average overweight position (17% versus 10%) and holdings in the Health Care sector (up 22% versus up 17% for the MSCI World sector) also contributed. Bayer (up 51%) helped performance.

 
  §  

Additional contributors included AOL (up 128%), Sprint Nextel (up 104% since date of purchase), and Naspers (up 47%).

 

Key Detractors from Relative Results

  §  

The Fund’s overweight position and holdings in the Information Technology sector (flat versus up 13% for the MSCI World sector) detracted from results. Hewlett-Packard (down 43%), Nintendo (down 22%), and Nokia (down 17%) were notable detractors.

 
  §  

The Fund’s holdings in the Consumer Discretionary sector (up 21% versus up 24% for the MSCI World sector) hindered results. J.C. Penney (down 42% since date of purchase) and Yamaha Motor (down 13%) hurt performance.

 
  §  

Nidec (down 35% since date of purchase) was an additional detractor.

 

KEY CHARACTERISTICS OF DODGE & COX

Independent Organization

Dodge & Cox is one of the largest privately owned investment managers in the world. We remain committed to independence, with a goal of providing the highest quality investment management service to our existing clients.

Over 80 Years of Investment Experience

Dodge & Cox was founded in 1930. We have a stable and well-qualified team of investment professionals, most of whom have spent their entire careers at Dodge & Cox.

Experienced Investment Team

The Global Investment Policy Committee, which is the decision-making body for the Global Stock Fund, is a seven-member committee with an average tenure at Dodge & Cox of 21 years.

One Business with a Single Research Office

Dodge & Cox manages domestic, international, and global equity, fixed income, and balanced investments, operating from one office in San Francisco.

Consistent Investment Approach

Our team decision-making process involves thorough, bottom-up fundamental analysis of each investment.

Long-Term Focus and Low Expenses

We invest with a three- to five-year investment horizon, which has historically resulted in low turnover relative to our peers. We manage Funds that maintain low expense ratios.

 

 

 

PAGE 3 § DODGE & COX GLOBAL STOCK FUND


GROWTH OF $10,000 SINCE INCEPTION

FOR AN INVESTMENT MADE ON MAY 1, 2008

 

 

LOGO

AVERAGE ANNUAL TOTAL RETURN

FOR PERIODS ENDED DECEMBER 31, 2012

 

     1 Year     3 Years     Since
Inception
(5/1/08)
 

Dodge & Cox Global Stock Fund

    21.11    
6.80

    -0.49

MSCI World Index

    15.84       
6.93
  
    -0.33   

Returns represent past performance and do 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. Fund performance changes over time and currently may be significantly

lower than stated. Performance is updated and published monthly. Visit the Fund’s website at www.dodgeandcox.com or call 800-621-3979 for current performance figures.

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 or on Fund share redemptions. Index returns include dividends but, unlike Fund returns, do not reflect fees or expenses. The MSCI World Index is a broad-based, unmanaged equity market index aggregated from 24 developed market country indices, including the United States. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.

MSCI World is a service mark of MSCI Barra.

 

Risks: The Fund is subject to stock market risk, meaning stocks in the Fund may decline in value for extended periods due to the financial prospects of individual companies, or due to general market and economic conditions. Investing in non-U.S. securities may entail risk due to foreign economic and political developments; this risk may be increased when investing in emerging markets. Please read the prospectus and summary prospectus for specific details regarding the Fund’s risk profile.

 
 

FUND EXPENSE EXAMPLE

As a Fund shareholder, you incur ongoing Fund costs, including management fees and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following example shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The example assumes a $1,000 investment held for the six months indicated.

ACTUAL EXPENSES

The first line of the table below provides information about actual account values and expenses based on the Fund’s actual returns. You may use the information in this line, together with your account balance, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER MUTUAL FUNDS

Information on the second line of the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical “Ending Account Value” is based on the actual expense ratio of the Fund and an assumed 5% annual rate of return before expenses (not the Fund’s actual return). The amount under the heading “Expense Paid During the Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other mutual funds.

 

Six Months Ended

December 31, 2012

   Beginning Account Value
7/1/2012
     Ending Account Value
12/31/2012
    

Expenses Paid

During Period*

 

Based on Actual Fund Return

   $ 1,000.00       $ 1,138.40       $ 3.46   

Based on Hypothetical 5% Yearly Return

     1,000.00         1,021.90         3.27   
*

Expenses are equal to the Fund’s annualized expense ratio of 0.64%, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

The expenses shown in the table highlight ongoing costs only and do not reflect any transactional fees or account maintenance fees. While other mutual funds may charge such fees, please note that the Fund does not charge transaction fees (e.g., redemption fees, sales loads) or universal account maintenance fees (e.g., small account fees).

 

DODGE & COX GLOBAL STOCK FUND § PAGE 4


FUND INFORMATION     December 31, 2012   

 

GENERAL INFORMATION        

Net Asset Value Per Share

     $8.99   

Total Net Assets (billions)

     $2.7   

Expense Ratio

     0.65%   

Portfolio Turnover Rate

     12%   

30-Day SEC Yield(a)

     1.88%   

Fund Inception

     2008   

No sales charges or distribution fees

  

Investment Manager: Dodge & Cox, San Francisco. Managed by the Global Investment Policy Committee, whose seven members’ average tenure at Dodge & Cox is 21 years.

 

PORTFOLIO CHARACTERISTICS    Fund        MSCI
World
 

Number of Stocks

     95           1,610   

Median Market Capitalization (billions)

     $22           $9   

Weighted Average Market
Capitalization (billions)

     $67           $76   

Price-to-Earnings Ratio(b)

     10.6x           12.5x   

Countries Represented

     20           24   

Emerging Markets (Brazil, China, India, Mexico, South Africa, Turkey)

     10.0%           0.0%   

 

TEN LARGEST HOLDINGS (%)(c)    Fund  

Sanofi (France)

     2.9   

Hewlett-Packard Co. (United States)

     2.7   

Roche Holding AG (Switzerland)

     2.6   

Microsoft Corp. (United States)

     2.5   

Wells Fargo & Co. (United States)

     2.2   

Lafarge SA (France)

     2.1   

Novartis AG (Switzerland)

     2.1   

GlaxoSmithKline PLC (United Kingdom)

     2.1   

Sprint Nextel Corp. (United States)

     2.0   

Naspers, Ltd. (South Africa)

     2.0   

ASSET ALLOCATION

 

 

LOGO

 

REGION DIVERSIFICATION  (%)(d)    Fund        MSCI
World
 

United States

     43.5           52.5   

Europe (excluding United Kingdom)

     29.9           18.3   

United Kingdom

     9.4           9.6   

Japan

     6.1           8.5   

Latin America

     4.5           0.0   

Africa/Middle East

     3.3           0.2   

Pacific (excluding Japan)

     1.7           6.0   

Canada

     0.0           4.9   

 

SECTOR DIVERSIFICATION (%)    Fund        MSCI
World
 

Financials

     24.8           20.3   

Information Technology

     16.0           11.9   

Health Care

     14.4           10.5   

Consumer Discretionary

     11.9           11.1   

Industrials

     8.1           11.0   

Telecommunication Services

     8.0           3.8   

Materials

     6.4           7.0   

Energy

     6.1           10.3   

Consumer Staples

     2.7           10.6   

Utilities

     0.0           3.5   
 

 

 

(a) 

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.

(b)

Price-to-earnings (P/E) ratios are calculated using 12-month forward earnings estimates from third-party sources.

(c) 

The Fund’s portfolio holdings are subject to change without notice. The mention of specific securities is not a recommendation to buy, sell, or hold any particular security and is not indicative of Dodge & Cox’s current or future trading activity.

(d) 

The Fund may classify a company in a different category than the MSCI World. The Fund generally classifies a company based on its country of incorporation, but may designate a different country in certain circumstances.

 

PAGE 5 § DODGE & COX GLOBAL STOCK FUND


PORTFOLIO OF INVESTMENTS     December 31, 2012   

 

COMMON STOCKS: 96.9%               
    SHARES      VALUE  
CONSUMER DISCRETIONARY: 11.9%   

AUTOMOBILES & COMPONENTS: 2.2%

  

Bayerische Motoren Werke AG (Germany)

    202,400       $ 19,519,861   

Mahindra & Mahindra, Ltd. (India)

    655,100         11,247,192   

Yamaha Motor Co., Ltd. (Japan)

    2,578,200         28,578,334   
    

 

 

 
       59,345,387   

CONSUMER DURABLES & APPAREL: 1.3%

  

Li Ning Co., Ltd.(a)
(Cayman Islands/China)

    13,637,800         9,035,686   

Panasonic Corp. (Japan)

    3,684,440         22,386,699   

Sony Corp. (Japan)

    241,800         2,705,613   
    

 

 

 
       34,127,998   

MEDIA: 7.2%

  

Comcast Corp., Class A (United States)

    1,090,600         40,766,628   

DISH Network Corp., Class A(a) (United States)

    256,300         9,329,320   

Grupo Televisa SAB ADR (Mexico)

    934,100         24,828,378   

Naspers, Ltd. (South Africa)

    846,600         54,396,467   

Television Broadcasts, Ltd. (Hong Kong)

    2,523,100         18,938,947   

Time Warner Cable, Inc. (United States)

    269,271         26,170,448   

Time Warner, Inc. (United States)

    412,466         19,728,249   
    

 

 

 
          194,158,437   

RETAILING: 1.2%

  

J. C. Penney Co., Inc.(a) (United States)

    1,157,000         22,804,470   

Liberty Interactive, Series A(a) (United States)

    482,357         9,492,786   
    

 

 

 
       32,297,256   
    

 

 

 
       319,929,078   
CONSUMER STAPLES: 2.7%   

FOOD & STAPLES RETAILING: 0.5%

  

Wal-Mart Stores, Inc. (United States)

    197,600         13,482,248   

FOOD, BEVERAGE & TOBACCO: 2.2%

  

Anadolu Efes Biracilik ve Malt Sanayii AS (Turkey)

    1,602,600         23,128,455   

Diageo PLC ADR (United Kingdom)

    112,800         13,150,224   

Unilever PLC (United Kingdom)

    616,700         23,408,587   
    

 

 

 
       59,687,266   
    

 

 

 
       73,169,514   
ENERGY: 4.7%   

Baker Hughes, Inc. (United States)

    642,387         26,235,085   

Occidental Petroleum Corp. (United States)

    405,725         31,082,592   

Royal Dutch Shell PLC ADR (United Kingdom)

    373,580         25,758,341   

Schlumberger, Ltd.
(Curacao/United States)

    642,100         44,491,109   
    

 

 

 
       127,567,127   
    SHARES      VALUE  
FINANCIALS: 24.7%   

BANKS: 9.0%

  

Banco Santander SA (Spain)

    3,343,079       $ 26,955,528   

Barclays PLC (United Kingdom)

    11,003,400         47,516,889   

BB&T Corp. (United States)

    534,200         15,550,562   

HSBC Holdings PLC (United Kingdom)

    2,568,162         27,163,011   

Mitsubishi UFJ Financial Group, Inc. (Japan)

    2,197,200         11,823,440   

Standard Chartered PLC (United Kingdom)

    1,051,683         26,658,762   

SunTrust Banks, Inc. (United States)

    413,795         11,731,088   

UniCredit SPA(a) (Italy)

    2,984,199         14,736,248   

Wells Fargo & Co. (United States)

    1,747,773         59,738,881   
    

 

 

 
          241,874,409   

DIVERSIFIED FINANCIALS: 11.0%

  

Bank of America Corp. (United States)

    3,760,300         43,619,480   

Bank of New York Mellon Corp. (United States)

    1,814,400         46,630,080   

Capital One Financial Corp. (United States)

    751,900         43,557,567   

Charles Schwab Corp. (United States)

    3,353,300         48,153,388   

Credit Suisse Group AG (Switzerland)

    2,076,416         52,100,055   

Goldman Sachs Group, Inc. (United States)

    339,200         43,268,352   

Haci Omer Sabanci Holding AS (Turkey)

    3,344,188         18,484,826   
    

 

 

 
       295,813,748   

INSURANCE: 4.1%

  

AEGON NV (Netherlands)

    7,268,833         46,322,889   

Dai-ichi Life Insurance Co., Ltd. (Japan)

    10,300         14,492,562   

Swiss Life Holding AG (Switzerland)

    70,600         9,422,545   

Swiss Re AG (Switzerland)

    545,300         39,798,316   
    

 

 

 
       110,036,312   

REAL ESTATE: 0.6%

  

BR Malls Participacoes SA (Brazil)

    703,600         9,321,289   

Hang Lung Group, Ltd. (Hong Kong)

    1,327,500         7,605,055   
    

 

 

 
       16,926,344   
    

 

 

 
       664,650,813   
HEALTH CARE: 14.4%   

HEALTH CARE EQUIPMENT & SERVICES: 0.7%

  

Boston Scientific Corp.(a) (United States)

    1,520,200         8,710,746   

Medtronic, Inc. (United States)

    221,200         9,073,624   
    

 

 

 
       17,784,370   

PHARMACEUTICALS, BIOTECHNOLOGY & LIFE
SCIENCES: 13.7%

   

Bayer AG (Germany)

    494,520         46,960,868   

GlaxoSmithKline PLC (United Kingdom)

    1,022,100         22,191,410   

GlaxoSmithKline PLC ADR (United Kingdom)

    782,100         33,997,887   

Merck & Co., Inc. (United States)

    1,088,000         44,542,720   
 

 

See accompanying Notes to Financial Statements   DODGE & COX GLOBAL STOCK FUND § PAGE 6


PORTFOLIO OF INVESTMENTS     December 31, 2012   

 

COMMON STOCKS (continued)  
    SHARES      VALUE  

Novartis AG (Switzerland)

    278,700       $ 17,644,919   

Novartis AG ADR (Switzerland)

    609,700         38,594,010   

Pfizer, Inc. (United States)

    692,000         17,355,360   

Roche Holding AG (Switzerland)

    345,800         70,448,072   

Sanofi (France)

    824,862         78,225,965   
    

 

 

 
       369,961,211   
    

 

 

 
          387,745,581   
INDUSTRIALS: 8.1%   

CAPITAL GOODS: 6.7%

  

General Electric Co. (United States)

    1,936,700         40,651,333   

Koninklijke Philips Electronics NV (Netherlands)

    1,356,213         36,384,892   

Mitsubishi Electric Corp. (Japan)

    2,706,700         23,037,925   

Nidec Corp. (Japan)

    529,900         30,985,820   

Schneider Electric SA (France)

    567,978         42,361,806   

Wienerberger AG (Austria)

    899,280         8,284,553   
    

 

 

 
       181,706,329   

COMMERCIAL & PROFESSIONAL SERVICES: 0.2%

  

Tyco International, Ltd. (Switzerland)

    149,900         4,384,575   

TRANSPORTATION: 1.2%

  

FedEx Corp. (United States)

    351,700         32,257,924   
    

 

 

 
       218,348,828   
INFORMATION TECHNOLOGY: 16.0%   

SOFTWARE & SERVICES: 8.8%

  

Adobe Systems, Inc.(a) (United States)

    705,254         26,573,971   

Amdocs, Ltd. (Guernsey/United States)

    353,219         12,005,914   

AOL, Inc.(a) (United States)

    540,769         16,012,170   

eBay, Inc.(a) (United States)

    431,700         22,025,334   

Google, Inc., Class A(a) (United States)

    44,900         31,850,713   

Microsoft Corp. (United States)

    2,503,700         66,923,901   

Nintendo Co., Ltd. (Japan)

    279,400         29,812,044   

Symantec Corp.(a) (United States)

    1,057,200         19,885,932   

Synopsys, Inc.(a) (United States)

    346,800         11,042,112   
    

 

 

 
       236,132,091   

TECHNOLOGY, HARDWARE & EQUIPMENT: 7.2%

  

Corning, Inc. (United States)

    1,000,700         12,628,834   

Hewlett-Packard Co. (United States)

    5,148,400         73,364,700   

NetApp, Inc.(a) (United States)

    871,300         29,232,115   

Nokia Oyj (Finland)

    6,458,425         25,398,389   

TE Connectivity, Ltd. (Switzerland)

    574,115         21,311,149   

Telefonaktiebolaget LM Ericsson (Sweden)

    1,594,288         16,035,769   

Xerox Corp. (United States)

    2,569,500         17,523,990   
    

 

 

 
       195,494,946   
    

 

 

 
       431,627,037   
MATERIALS: 6.4%   

Akzo Nobel NV (Netherlands)

    312,038         20,590,459   

Celanese Corp., Series A (United States)

    712,600         31,732,078   

Cemex SAB de CV ADR(a) (Mexico)

    1,312,639         12,955,747   
    SHARES      VALUE  

Domtar Corp. (United States)

    262,716       $ 21,942,040   

Dow Chemical Co. (United States)

    496,000         16,030,720   

Duratex SA (Brazil)

    1,816,600         13,272,323   

Lafarge SA (France)

    883,995         56,644,759   
    

 

 

 
       173,168,126   
TELECOMMUNICATION SERVICES: 8.0%   

America Movil SAB de CV, Series L (Mexico)

    21,172,000         24,388,346   

Bharti Airtel, Ltd. (India)

    34,800         202,440   

Millicom International Cellular SA SDR (Luxembourg)

    394,000         34,244,993   

MTN Group, Ltd. (South Africa)

    1,612,100         33,883,952   

Sprint Nextel Corp.(a) (United States)

    9,605,600         54,463,752   

Telecom Italia SPA-RSP (Italy)

    31,300,504         24,768,169   

Telefonica SA (Spain)

    255,460         3,468,824   

Telekom Austria AG (Austria)

    955,114         7,227,616   

Vodafone Group PLC (United Kingdom)

    13,333,000         33,530,710   
    

 

 

 
       216,178,802   
    

 

 

 

TOTAL COMMON STOCKS
(Cost $2,375,347,877)

     $ 2,612,384,906   
PREFERRED STOCKS: 1.5%  
ENERGY: 1.4%   

Petroleo Brasileiro SA ADR (Brazil)

    1,871,100         36,112,230   
FINANCIALS: 0.1%   

DIVERSIFIED FINANCIALS: 0.1%

  

Credit Suisse Group V, Ltd.(b) (Guernsey/Switzerland)

    2,469         3,711,666   
    

 

 

 

TOTAL PREFERRED STOCKS
(Cost $45,309,671)

     $ 39,823,896   
 

 

PAGE 7 § DODGE & COX GLOBAL STOCK FUND   See accompanying Notes to Financial Statements


PORTFOLIO OF INVESTMENTS     December 31, 2012   

 

SHORT-TERM INVESTMENTS: 1.3%  
    PAR VALUE     VALUE  

MONEY MARKET FUND: 0.1%

  

SSgA U.S. Treasury Money Market Fund

  $ 2,656,902      $ 2,656,902   

REPURCHASE AGREEMENT: 1.2%

  

Fixed Income Clearing Corporation(c)
0.11%, dated 12/31/12, due 1/2/13, maturity value $32,587,199

    32,587,000        32,587,000   
   

 

 

 

TOTAL SHORT-TERM INVESTMENTS
(Cost $35,243,902)

   

  $ 35,243,902   
   

 

 

 

TOTAL INVESTMENTS
(Cost $2,455,901,450)

    99.7   $ 2,687,452,704   

OTHER ASSETS LESS LIABILITIES

    0.3     7,264,447   
 

 

 

   

 

 

 
NET ASSETS     100.0   $ 2,694,717,151   
 

 

 

   

 

 

 

 

(a)

Non-income producing

(b)

Subordinated Mandatory and Contingent Convertible Securities (MACCS) received through a rights offering on July 31, 2012. The MACCS will be mandatorily converted into Credit Suisse Group AG shares on March 29, 2013. Each MACCS has a principal amount of CHF 1,000 and bears interest equivalent to a rate of 4% per annum, payable upon conversion of the MACCS. This security (0.1% of net assets) is deemed to be illiquid by Dodge & Cox, investment manager, pursuant to procedures approved by the Board of Trustees.

(c)

Repurchase agreement is collateralized by U.S. Treasury Note 0.25%, 4/3014. Total collateral value is $33,241,500.

In determining a company’s country designation, the Fund generally references the country of incorporation. In cases where the Fund considers the country of incorporation to be a “jurisdiction of convenience” chosen primarily for tax purposes, the Fund uses the country designation of an appropriate broad-based market index. In that circumstance, two countries are listed—the country of incorporation and the country designated by an appropriate index, respectively.

ADR: American Depositary Receipt

SDR: Swedish Depository Receipt

Forward Foreign Currency Contracts

As of December 31, 2012, open forward foreign currency contracts are summarized as follows:

 

        Contract Amount        
Counterparty   Settlement
Date
  Receive
U.S.
Dollar
  Deliver
Foreign
Currency
    Unrealized
Appreciation
 
Contracts to sell Japanese Yen:     
Deutsche Bank   1/23/2013   6,061,524     480,000,000      $ 520,307   
UBS   1/23/2013   6,183,668     490,000,000        527,009   
Barclays   3/6/2013   5,485,363     450,000,000        288,724   
       

 

 

 
        $ 1,336,040   
       

 

 

 
                   

 

 

 
 

 

See accompanying Notes to Financial Statements   DODGE & COX GLOBAL STOCK FUND § PAGE 8


STATEMENT OF ASSETS AND LIABILITIES

  

    December 31, 2012  

ASSETS:

 

Investments, at value (cost $2,455,901,450)

  $ 2,687,452,704   

Cash denominated in foreign currency (cost $443)

    446   

Receivable for investments sold

    727,477   

Unrealized appreciation on foreign currency contracts

    1,336,040   

Receivable for Fund shares sold

    3,012,271   

Dividends and interest receivable

    4,665,586   

Prepaid expenses and other assets

    13,357   
 

 

 

 
    2,697,207,881   
 

 

 

 

LIABILITIES:

 

Payable for Fund shares redeemed

    951,038   

Management fees payable

    1,342,132   

Accrued expenses

    197,560   
 

 

 

 
    2,490,730   
 

 

 

 

NET ASSETS

  $ 2,694,717,151   
 

 

 

 

NET ASSETS CONSIST OF:

 

Paid in capital

  $ 2,461,863,960   

Undistributed net investment income

    305,276   

Accumulated net realized loss

    (357,864

Net unrealized appreciation

    232,905,779   
 

 

 

 
  $ 2,694,717,151   
 

 

 

 

Fund shares outstanding (par value $0.01 each, unlimited shares authorized)

    299,715,343   

Net asset value per share

    $8.99   

STATEMENT OF OPERATIONS

 
    Year Ended
December 31, 2012
 

INVESTMENT INCOME:

 

Dividends (net of foreign taxes of $2,853,329)

  $ 56,786,099   

Interest

    70,254   
 

 

 

 
    56,856,353   
 

 

 

 

EXPENSES:

 

Management fees

    13,233,494   

Custody and fund accounting fees

    226,862   

Transfer agent fees

    242,958   

Professional services

    154,341   

Shareholder reports

    34,220   

Registration fees

    150,335   

Trustees’ fees

    190,500   

Miscellaneous

    76,523   
 

 

 

 
    14,309,233   
 

 

 

 

NET INVESTMENT INCOME

    42,547,120   
 

 

 

 

REALIZED AND UNREALIZED GAIN:

 

Net realized gain (net of foreign taxes of $83,097)

 

Investments

    45,961,491   

Foreign currency transactions

    1,133,844   

Net change in unrealized appreciation/depreciation

 

Investments

    333,522,857   

Foreign currency transactions

    816,103   
 

 

 

 

Net realized and unrealized gain

    381,434,295   
 

 

 

 

NET INCREASE IN NET ASSETS
FROM OPERATIONS

  $ 423,981,415   
 

 

 

 

STATEMENT OF CHANGES IN NET ASSETS

  

   

Year Ended
December 31, 2012

    Year Ended
December 31, 2011
 

OPERATIONS:

   

Net investment income

  $ 42,547,120      $ 37,205,930   

Net realized gain

    47,095,335        81,109,924   

Net change in unrealized appreciation/depreciation

    334,338,960        (358,037,218
 

 

 

   

 

 

 
    423,981,415        (239,721,364
 

 

 

   

 

 

 

DISTRIBUTIONS TO SHAREHOLDERS FROM:

   

Net investment income

    (42,084,059     (35,098,359

Net realized gain

    (48,458,943     (12,720,210
 

 

 

   

 

 

 

Total distributions

    (90,543,002     (47,818,569
 

 

 

   

 

 

 

FUND SHARE TRANSACTIONS:

   

Proceeds from sale of shares

    761,898,134        625,171,940   

Reinvestment of distributions

    87,874,010        46,192,193   

Cost of shares redeemed

    (363,483,545     (325,573,001
 

 

 

   

 

 

 

Net increase from Fund
share transactions

    486,288,599        345,791,132   
 

 

 

   

 

 

 

Total increase in net assets

    819,727,012        58,251,199   

NET ASSETS:

   

Beginning of year

    1,874,990,139        1,816,738,940   
 

 

 

   

 

 

 

End of year (including undistributed net investment income of $305,276 and $88,406, respectively)

  $ 2,694,717,151      $ 1,874,990,139   
 

 

 

   

 

 

 

SHARE INFORMATION:

   

Shares sold

    88,250,537        72,510,079   

Distributions reinvested

    9,742,130        6,102,007   

Shares redeemed

    (42,378,520     (38,661,666
 

 

 

   

 

 

 

Net increase in shares outstanding

    55,614,147        39,950,420   
 

 

 

   

 

 

 
 

 

PAGE 9 § DODGE & COX GLOBAL STOCK FUND   See accompanying Notes to Financial Statements


NOTES TO FINANCIAL STATEMENTS

 

NOTE 1—ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Dodge & Cox Global Stock Fund (the “Fund”) is one of the series constituting the Dodge & Cox Funds (the “Trust” or the “Funds”). 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 commenced operations on May 1, 2008, and seeks long-term growth of principal and income. The Fund invests primarily in a diversified portfolio of U.S. and foreign stocks. 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.

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require the use of estimates and assumptions by management. Actual results may differ from those estimates. Significant accounting policies are as follows:

Security valuation The Fund’s net assets are valued as of the close of trading on the New York Stock Exchange (NYSE), generally 4:00 p.m. Eastern Time, each day that the NYSE is open for business. Listed securities are valued at market, using the official quoted close price or the last sale on the date of determination or, if not available, at the mean between the exchange listed bid and ask prices. A security that 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. Security values are not discounted based on the size of the Fund’s position. Short-term securities are valued at amortized cost, which approximates current value.

Investments initially valued in currencies other than the U.S. dollar are converted to the U.S. dollar using prevailing exchange rates. As a result, the Fund’s net asset value per share (NAV) may be affected by changes in the value of currencies in relation to the U.S. dollar.

If market quotations are not readily available or if a security’s value has materially changed after the close of the security’s primary market but before the close of trading on the NYSE, the security is valued at fair value as determined in good faith by or under the direction of the Board of Trustees. The Fund may use fair value pricing in

calculating its NAV when, for example, (i) the primary market for a security is closed or if trading of a security is suspended or limited, (ii) the Fund determines that the price provided by a pricing service is inaccurate or unreliable, or (iii) the Fund determines that a significant event affecting the value of a security has occurred before the close of the NYSE but after the close of the security’s primary market. An event is considered significant if there is both an affirmative expectation that the security’s value will materially change in response to the event and a reasonable basis exists for quantifying a resulting change in value. Because trading in securities on most non-U.S. exchanges is normally completed before the close of the NYSE, the value of foreign securities can change by the time the Fund calculates its NAV. To address these changes, the Fund may utilize adjustment factors provided by an independent pricing service to systematically value foreign securities at fair value. These adjustment factors are based on statistical analyses of subsequent movements and changes in securities indices, specific security prices, and exchange rates in foreign markets. When fair value pricing is employed, the prices of securities used by the Fund to calculate its net asset value may differ from quoted or published prices for the same securities. In addition, fair values may not reflect the price that the Fund could obtain for a security if it were to dispose of that security at the time of pricing.

Security transactions, investment income, expenses, and distributions Security transactions are recorded on the trade date. Realized gains and losses on securities sold are determined on the basis of identified cost.

Dividend income and corporate action transactions are recorded on the ex-dividend date, or when the Fund first learns of the dividend/corporate action if the ex-dividend date has passed. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Dividends characterized as return of capital are recorded as a reduction of cost of investments and/or realized gain. Interest income is recorded on the accrual basis.

Expenses are recorded on the accrual basis. Most expenses of the Trust can be directly attributed to a specific series. Expenses which cannot be directly attributed are allocated among the Funds in the Trust based on relative net assets or other expense methodologies determined by the nature of the expense.

 

 

DODGE & COX GLOBAL STOCK FUND § PAGE 10


NOTES TO FINANCIAL STATEMENTS

 

Distributions to shareholders are recorded on the ex-dividend date.

Repurchase agreements The Fund enters into repurchase agreements, secured by U.S. government or agency securities, which involve the purchase of securities from a counterparty with a simultaneous commitment to resell the securities at an agreed-upon date and price. It is the Fund’s policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. In the event of default by the counterparty, the Fund has the contractual right to liquidate the collateral securities and to apply the proceeds in satisfaction of the obligation.

Foreign taxes The Fund is subject to foreign taxes which may be imposed by certain countries in which the Fund invests. The Fund endeavors to record foreign taxes based on applicable foreign tax law. Withholding taxes are incurred on certain foreign dividends and are accrued at the time the associated dividend is recorded. The Fund files withholding tax reclaims in certain jurisdictions to recover a portion of amounts previously withheld. The Fund records a reclaim receivable based on, among other things, a jurisdiction’s legal obligation to pay reclaims as well as payment history and market convention. In consideration of recent decisions rendered by European courts, the Fund has filed for additional reclaims related to prior years. However, a corresponding receivable amount has not yet been recorded because there is no historical precedent for collecting such reclaims and the amount, if any, that the Fund might recover is uncertain. Such amounts, if and when received, could result in an increase in the Fund’s net asset value per share.

Capital gains taxes are incurred upon disposition of certain foreign securities. Capital gains taxes on appreciated securities are accrued as unrealized losses and are reflected as realized losses upon the sale of the related security. Currency taxes may be incurred when the Fund purchases certain foreign currencies related to securities transactions and are recorded as realized losses on foreign currency transactions.

Forward foreign currency contracts A forward foreign currency contract represents an obligation to purchase or sell a specific foreign currency at a future date and at a price set at the time of the contract. Losses from these transactions may arise from unfavorable changes in

currency values or if the counterparties do not perform under a contract’s terms.

The values of the forward foreign currency contracts are adjusted daily based on the applicable exchange rate of the underlying currency. Changes in the value of open contracts are recorded as unrealized appreciation or depreciation in the Statement of Operations. When the forward contract is closed, the Fund records a realized gain or loss in the Statement of Operations equal to the difference between the value at the time the contract was opened and the value at the time it was closed.

During the year, the Fund maintained foreign currency contracts to hedge foreign currency risks associated with portfolio investments denominated in Japanese Yen and Swiss Francs. These forward foreign currency contracts had U.S. dollar total values of approximately 1% of net assets during the year.

Foreign currency translation The books and records of the Funds are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the prevailing exchange rates of such currencies against the U.S. dollar. The market value of investment securities and other assets and liabilities are translated at the exchange rate as of the valuation date. Purchases and sales of investment securities, income, and expenses are translated at the exchange rate prevailing on the transaction date.

Reported realized and unrealized gain (loss) on investments include foreign currency gain (loss) related to investment transactions.

Reported realized and unrealized gain (loss) on foreign currency transactions include the following: holding/disposing of foreign currency and forward foreign currency contracts, the difference between the trade and settlement dates on securities transactions, the difference between the accrual and payment dates on dividends, and currency losses on the purchase of foreign currency in certain countries that impose taxes on such transactions.

Indemnification Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business the Trust enters into contracts that provide general indemnities to other parties. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred.

 

 

PAGE 11 § DODGE & COX GLOBAL STOCK FUND


NOTES TO FINANCIAL STATEMENTS

 

NOTE 2—VALUATION MEASUREMENTS

Various inputs are used in determining the value of the Fund’s investments and other financial instruments. These inputs are summarized in the three broad levels listed below.

§  

Level 1: Quoted prices in active markets for identical securities

§  

Level 2: Other significant observable inputs (including quoted prices for similar securities, market indices, interest rates, credit risk, etc.)

§  

Level 3: Significant unobservable inputs (including Fund management’s assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used to value the Fund’s holdings as of December 31, 2012:

 

Security Classification(a)   LEVEL 1
(Quoted Prices)
     LEVEL 2
(Other Significant
Observable Inputs)
 

Securities

    

Common Stocks

    

Consumer Discretionary

  $ 153,120,279       $ 166,808,799   

Consumer Staples

    26,632,472         46,537,042   

Energy

    127,567,127           

Financials

    312,249,398         352,401,415   

Health Care

    152,274,347         235,471,234   

Industrials

    77,293,832         141,054,996   

Information Technology

    360,380,835         71,246,202   

Materials

    82,660,585         90,507,541   

Telecommunication Services

    78,852,098         137,326,704   

Preferred Stocks

    

Energy

    36,112,230           

Financials

            3,711,666   

Short-term Investments

    

Money Market Fund

    2,656,902           

Repurchase Agreement

            32,587,000   
 

 

 

    

 

 

 

Total Securities

  $ 1,409,800,105       $ 1,277,652,599   
    

Other Financial Instruments

    

Forward Foreign Currency Contracts

  $       $ 1,336,040  (b) 
                  
(a) 

Transfers during the period between Level 1 and Level 2 relate to the use of systematic fair valuation. On days when systematic fair valuation is used, securities whose primary market closes before the NYSE are classified as Level 2. There were no Level 3 securities at December 31, 2012 and 2011, and there were no transfers to Level 3 during the year.

(b) 

Represents net unrealized appreciation on forward foreign currency contracts.

NOTE 3—RELATED PARTY TRANSACTIONS

Management fees Under a written agreement approved by a unanimous vote of the Board of Trustees, the Fund pays an annual management fee of 0.60% of the Fund’s average daily net assets to Dodge & Cox, investment manager of the Fund.

Fund officers and trustees All officers and three of the trustees of the Trust are officers or employees of Dodge & Cox. The Trust pays a fee only to those trustees who are not affiliated with Dodge & Cox.

NOTE 4—INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS

A provision for federal income taxes is not required since the Fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute all of its taxable income to shareholders. Distributions are determined in accordance with income tax regulations, and such amounts may differ from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences at year end to reflect tax character.

Book/tax differences are primarily due to differing treatments of wash sales, net short-term realized gain (loss) on investments, foreign capital gain taxes, and foreign currency realized gain (loss). At December 31, 2012, the cost of investments for federal income tax purposes was $2,466,517,298.

Distributions during the years ended December 31, 2012 and 2011, were characterized as follows for federal income tax purposes:

 

    

Year Ended

December 31, 2012

   

Year Ended

December 31, 2011

 

Ordinary income

    $43,399,487        $35,098,359   
    ($0.150 per share)        ($0.149 per share)   

Long-term capital gain

    $47,143,515        $12,720,210   
    ($0.162 per share)        ($0.054 per share)  
 

 

DODGE & COX GLOBAL STOCK FUND § PAGE 12


NOTES TO FINANCIAL STATEMENTS

 

At December 31, 2012, the tax basis components of distributable earnings were as follows:

 

Unrealized appreciation

   $ 452,492,220   

Unrealized depreciation

     (231,556,814
  

 

 

 

Net unrealized appreciation

     220,935,406   

Undistributed ordinary income

     365,710   

Undistributed long-term capital gain

     11,533,589   

Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund after January 1, 2011, will not be subject to expiration. In addition, such losses must be utilized prior to the losses incurred in the years preceding enactment. (The Fund had net capital gains in 2011 and 2012.)

Fund management has reviewed the tax positions for open periods (three years and four years, respectively, from filing the Fund’s Federal and State tax returns) as applicable to the Fund, and has determined that no provision for income tax is required in the Fund’s financial statements.

NOTE 5—LOAN FACILITIES

Pursuant to an exemptive order issued by the Securities and Exchange Commission (SEC), the Fund may participate in an interfund lending facility (Facility). The Facility allows the Fund to borrow money from or loan money to the Funds. Loans under the Facility are made for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest on borrowings is the average of the current repurchase agreement rate and the bank loan rate. There was no activity in the Facility during the period.

All the Funds in the Trust participate in a $500 million committed credit facility (Line of Credit) with State Street Bank and Trust Company, to be utilized for temporary or emergency purposes to fund shareholder redemptions or for other short-term liquidity purposes. The maximum amount available to the Fund is $250 million. Each Fund pays an annual commitment fee on its pro-rata portion of the Line of Credit. The Fund’s commitment fee for the year ended December 31, 2012, amounted to $8,899 and is reflected as a Miscellaneous

Expense in the Statement of Operations. Interest on borrowings is charged at the prevailing rate. There were no borrowings on the Line of Credit during the period.

NOTE 6—PURCHASES AND SALES OF INVESTMENTS

For the year ended December 31, 2012, purchases and sales of securities, other than short-term securities, aggregated $711,572,310 and $268,888,715, respectively.

NOTE 7—ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2013, the Fund will adopt Accounting Standards Update (ASU) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities and ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. These amendments to Topic 210 require enhanced disclosures about offsetting of financial assets and liabilities, including derivative instruments, to enable investors to understand the effect of these arrangements on a fund’s financial position. Management believes the adoption of these ASUs will not have a material impact on the Fund’s financial statements.

NOTE 8—SUBSEQUENT EVENTS

Fund management has determined that no material events or transactions occurred subsequent to December 31, 2012, and through the date of the Fund’s financial statements issuance, which require additional disclosure in the Fund’s financial statements.

 

 

PAGE 13 § DODGE & COX GLOBAL STOCK FUND


FINANCIAL HIGHLIGHTS

 

SELECTED DATA AND RATIOS

(for a share outstanding throughout the period)

    

        Year Ended December 31,

    
May 1, 2008 (inception)
through December 31,
 
               2012      2011      2010      2009      2008  
    

 

 

 

Net asset value, beginning of period

       $7.68         $8.90         $7.91         $5.34         $10.00   

Income from investment operations:

                

Net investment income

       0.15         0.16         0.08         0.06         0.04   

Net realized and unrealized gain (loss)

       1.48         (1.18      0.99         2.57         (4.66
    

 

 

 

Total from investment operations

       1.63         (1.02      1.07         2.63         (4.62
    

 

 

 

Distributions to shareholders from:

                

Net investment income

       (0.15      (0.15      (0.08      (0.06      (0.04

Net realized gain

       (0.17      (0.05                        
    

 

 

 

Total distributions

       (0.32      (0.20      (0.08      (0.06      (0.04
    

 

 

 

Net asset value, end of period

       $8.99         $7.68         $8.90         $7.91         $  5.34   
    

 

 

 

Total return

       21.11      (11.39 )%       13.51      49.18      (46.21 )% 

Ratios/supplemental data:

                

Net assets, end of period (millions)

       $2,695         $1,875         $1,817         $914         $468   

Ratio of expenses to average net assets

       0.65      0.66      0.69      0.74      0.87 %(a) 

Ratio of net investment income to average net assets

       1.93      1.94      1.19      1.09      1.39 %(a) 

Portfolio turnover rate

       12      19      14      20      10
(a) 

Annualized

See accompanying Notes to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Trustees of Dodge & Cox Funds and Shareholders of Dodge & Cox Global Stock Fund

In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Dodge & Cox Global Stock Fund (the “Fund”, one of the series constituting Dodge & Cox Funds) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012, by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California

February 20, 2013

 

DODGE & COX GLOBAL STOCK FUND § PAGE 14


SPECIAL 2012 TAX INFORMATION

(unaudited)

The following information is provided pursuant to provisions of the Internal Revenue Code:

In 2012, the Fund elected to pass through to shareholders foreign source income of $42,342,989 and foreign taxes paid of $2,936,426.

The Fund designates up to a maximum of $58,401,318 of its distributions paid to shareholders in 2012 as qualified dividends (treated for federal income tax purposes in the hands of shareholders as taxable at a maximum rate of 15%).

For shareholders that are corporations, the Fund designates 39% of its ordinary dividends paid to shareholders in 2012 as dividends from domestic corporations eligible for the corporate dividends received deduction, provided that the shareholder otherwise satisfies applicable requirements to claim that deduction.

BOARD APPROVAL OF FUNDS’ INVESTMENT MANAGEMENT AGREEMENTS AND MANAGEMENT FEES (unaudited)

The Board of Trustees is responsible for overseeing the performance of the Dodge & Cox Funds’ investment manager and determining whether to continue the Investment Management Agreements between the Funds and Dodge & Cox each year (the “Agreements”). At a meeting of the Board of Trustees of the Trust held on December 12, 2012, the Trustees, by a unanimous vote (including a separate vote of those Trustees who are not “interested persons” (as defined in the Investment Company Act of 1940) (the “Independent Trustees”)), approved the renewal of the Agreements for an additional one-year term through December 31, 2013. During the course of the year, the Board received a wide variety of materials relating to the services provided by Dodge & Cox and the performance of each of the Funds.

INFORMATION RECEIVED

In advance of the meeting, the Board, including each of the Independent Trustees, requested, received, and reviewed materials relating to the Agreements and the services provided by Dodge & Cox. The Independent Trustees retained Morningstar® to prepare an independent

expense and performance summary for each Fund and comparable funds managed by other advisers identified by Morningstar. The Morningstar materials included information regarding advisory fee rates, expense ratios, and transfer agency, custodial, and distribution expenses, as well as appropriate performance comparisons to a Fund’s peer group and an index or combination of indices. The Morningstar materials also included a comparison of expenses of various share classes offered by comparable funds.

The materials reviewed by the Board contained information concerning, among other things, Dodge & Cox’s profitability, financial results and condition, advisory fee revenue, and separate account advisory fee schedules. The Board additionally considered the Funds’ brokerage commissions, turnover rates, sales and redemption data and the significant investment that Dodge & Cox makes in research used in managing the Funds. The Board received and reviewed a memorandum summarizing information provided throughout the year regarding Dodge & Cox’s services to the Funds as well as information regarding (i) the different fees, services, costs, and risks associated with separate accounts managed by Dodge & Cox as compared to the Dodge & Cox Funds; (ii) the differences in performance between the Funds and separately managed accounts; and (iii) Fund shares subscription and redemption activity. Throughout the process of reviewing the services provided by Dodge & Cox and preparing for the meeting, the Independent Trustees found Dodge & Cox to be open, forthright, detailed, and very helpful in answering questions about all issues.

The Board received copies of the Agreements and a memorandum from the independent legal counsel to the Independent Trustees discussing the factors generally regarded as appropriate to consider in evaluating advisory arrangements. The Trust’s Contract Review Committee, consisting solely of Independent Trustees, met with the independent legal counsel on November 1, 2012, and again on December 12, 2012, to discuss whether to renew the Agreements. The Board, including the Independent Trustees, subsequently concluded that the existing Agreements are fair and reasonable and voted to approve the Agreements.

 

 

PAGE 15 § DODGE & COX GLOBAL STOCK FUND


In considering the Agreements, the Board, including the Independent Trustees, did not identify any single factor or particular information as all-important or controlling. In reaching the decision to approve the Agreements, the Board considered several factors, discussed below, to be key factors and reached the conclusions described below.

NATURE, QUALITY, AND EXTENT OF THE SERVICES

The Board considered that Dodge & Cox provides a wide range of services to the Funds in addition to portfolio management and that the quality of these services has been excellent in all respects. The extensive nature of services provided by Dodge & Cox has been documented in materials provided to the Board and in presentations made to the Board throughout the year. In particular, the Board considered the nature, quality, and extent of portfolio management, administrative, and shareholder services performed by Dodge & Cox. With regard to portfolio management services, the Board considered Dodge & Cox’s established long-term history of care and conscientiousness in the management of the Funds; its demonstrated consistency in investment approach and depth; the background and experience of the Dodge & Cox Investment Policy Committee, International Investment Policy Committee, Global Investment Policy Committee, Fixed Income Investment Policy Committee, and research analysts responsible for managing the Funds; its methods for assessing the regulatory and investment climate in various jurisdictions; Dodge & Cox’s overall high level of attention to its core investment management function; and its commitment to the Funds and their shareholders.

In the area of administrative and shareholder services, the Board considered the excellent quality of Dodge & Cox’s work in areas such as compliance, legal services, trading, proxy voting, oversight of the Funds’ transfer agent and custodian, tax compliance, and shareholder communication through its website and other means. The Board also noted Dodge & Cox’s diligent disclosure policy, its favorable compliance record, and its reputation as a trusted, shareholder-friendly mutual fund family.

In addition, the Board considered that Dodge & Cox manages approximately $120 billion in Fund assets with fewer professionals than most comparable funds, and that on average these professionals have more experience and longer tenure than investment professionals at comparable funds. The Board also noted that Dodge & Cox is an investment research-oriented firm with no other business endeavors to distract management’s attention from its research efforts, and that its investment professionals adhere to a consistent investment approach across the Funds. The Board further considered the favorable stewardship and “Gold” analyst ratings awarded to each of the Funds by Morningstar. The Board concluded that it was satisfied with the nature, extent, and quality of investment management and other services provided to the Funds by Dodge & Cox.

INVESTMENT PERFORMANCE

The Board considered short-term and long-term investment performance for each Fund (including periods of outperformance or underperformance) as compared to both relevant indices and the performance of such Fund’s peer group. The Board also reviewed recent performance in the context of long-term investment goals. The Board noted that each Fund’s short-term (one-year) performance relative to its benchmark and peer group had improved since the previous year’s review. The Board determined after extensive review and inquiry that Dodge & Cox’s historic, long-term, team-oriented bottom up investment approach remains consistent and that Dodge & Cox continues to be distinguished by its integrity, transparency, and independence.

The Board considered that the performance of the Funds is the result of a team-oriented investment management process that emphasizes a long-term investment horizon, comprehensive independent research, price discipline, and focus. The Board also considered that the investment performance delivered by Dodge & Cox to the Funds appeared to be consistent with the relevant performance delivered for other (non-fund) clients of Dodge & Cox. The Board concluded that Dodge & Cox has delivered favorable long-term performance for Fund investors consistent with the long-term investment strategies being pursued by the Funds.

 

 

DODGE & COX GLOBAL STOCK FUND § PAGE 16


COSTS AND ANCILLARY BENEFITS

Costs of Services to Funds: Fees and Expenses. The Board considered each Fund’s management fee rate and expense ratio relative to similar mutual funds and relative to management fees charged by Dodge & Cox to other clients. In particular, the Board considered that the Funds continue to be substantially below their peer group median in expense ratios and management fee rates and that many media and industry reports specifically comment on the low expense ratios of the Funds, which have been a defining characteristic of the Funds for many years. The Board also evaluated the operating structures of the Funds and Dodge & Cox, noting that the Funds do not charge front-end sales commissions or distribution fees, and Dodge & Cox bears, among other things, the significant cost of third party research, reimbursement for recordkeeping and administrative costs to third-party retirement plan administrators, and administrative and office overhead. The Board noted that expenses are well below industry averages. The Board also considered that the Funds receive numerous administrative, regulatory compliance, and shareholder support services from Dodge & Cox without any additional administrative fee and the fact that the Funds have relatively low transaction costs and portfolio turnover rates. The Board reviewed Morningstar data showing that the few peer group funds with lower expense ratios often have other share classes with significantly higher expense ratios.

The Board reviewed information regarding the fee rates Dodge & Cox charges to separate accounts that have investment programs similar to those of the Funds, including instances where separate account fees are lower than Fund fees. The Board considered differences in the nature and scope of services Dodge & Cox provides to the Funds as compared to separate accounts, differences in regulatory, litigation, and other risks as between mutual funds and separate accounts, and certain characteristics of the market for institutional separate account management services. The Board further noted that, with respect to non-U.S. funds sponsored and managed by Dodge & Cox that are comparable to the Funds in many respects, the fee rates charged by Dodge & Cox are the same as or higher than the fee rates charged to the Funds. After consideration of these matters, the Board concluded that

the overall costs incurred by the Funds for the services they receive (including the management fee paid to Dodge & Cox) are reasonable and that the fees are acceptable based upon the qualifications, experience, reputation, and performance of Dodge & Cox and the low overall expense ratios of the Funds.

Profitability and Costs of Services to Dodge & Cox; “Fall-out” Benefits. The Board reviewed reports of Dodge & Cox’s financial position, profitability, and estimated overall value, and considered Dodge & Cox’s overall profitability within its context as a private, employee-owned S-Corporation and relative to the favorable services provided. The Board noted that net revenues for 2012 are projected to decrease slightly from 2011. The Board noted in particular that Dodge & Cox’s profits are not generated by high fee rates, but reflect an extraordinarily streamlined, efficient, and focused business approach toward investment management. The Board recognized the importance of Dodge & Cox’s profitability—which is derived solely from management fees and does not include other business ventures—to maintain its independence, stability, company culture and ethics, and management continuity. The Board also considered that the compensation/profit structure at Dodge & Cox is vital for remaining independent and facilitating retention of its management and investment professionals.

The Board considered potential “fall-out” benefits (including the receipt of research from unaffiliated brokers) that Dodge & Cox might receive as a result of its association with the Funds and determined that they are not significant. The Board also noted the extent of additional administrative services performed by Dodge & Cox for the Funds, and that the magnitude of costs and risks borne by Dodge & Cox in rendering advisory services to the Funds (including risks in the regulatory compliance, securities valuation, and investment management processes) are continuing to increase. The Board concluded that the profitability of Dodge & Cox’s relationship with the Funds (including fall-out benefits) was fair and reasonable.

THE BENEFIT OF ECONOMIES OF SCALE

The Board considered whether there have been economies of scale with respect to the management of

 

 

PAGE 17 § DODGE & COX GLOBAL STOCK FUND


each Fund, whether the Funds have appropriately benefited from any economies of scale, and whether the management fee rate is reasonable in relation to the Fund assets and any economies of scale that may exist. In the Board’s view, any consideration of economies of scale must take account of the Funds’ low fee structure and the considerable efficiencies of the Funds’ organization and fee structure that has been realized by shareholders from the time of each Fund’s inception (i.e., from the first dollar). The Board noted that Dodge & Cox has shared economies of scale by adding or enhancing services to the Funds over time, and that the internal costs of providing investment management, up-to-date technology, administrative, and compliance services to the Funds are continuing to increase. For example, Dodge & Cox has increased its global research staff and investment resources over the years to address the increased complexity of investing in multinational and non-U.S. companies. In addition, Dodge & Cox has made substantial expenditures in other staff and infrastructure to enable it to integrate credit and equity analyses and to be able to implement its strategy in a more effective and secure manner. The Board determined that the Funds provide access for small investors to high quality investment management at a relatively low cost. The Board’s decision to renew the Agreements was made after consideration of economies of scale and review of peer group fund expense ratios and historical expense ratio patterns for the Funds. The Board concluded that the current Dodge & Cox fee structure is fair and reasonable and adequately shares economies of scale that may exist.

CONCLUSION

Based on their evaluation of all material factors and assisted by the advice of independent legal counsel to the Independent Trustees, the Board, including the Independent Trustees, concluded that the advisory fee structure was fair and reasonable, that each Fund was paying a competitive fee for the services provided, that the scope and quality of Dodge & Cox’s services has provided substantial value for Fund shareholders over the long term, and that approval of the Agreements was in the best interests of each Fund and its shareholders.

FUND HOLDINGS

The Fund provides a complete list of its holdings four times each fiscal year, as of the end of each quarter. The Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-CSR (second and fourth quarters) and Form N-Q (first and third quarters). Shareholders may view the Fund’s Forms N-CSR and N-Q on the SEC’s website at www.sec.gov. Forms N-CSR and N-Q may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling 202-942-8090 (direct) or 800-732-0330 (general SEC number). A list of the Fund’s quarter-end holdings is also available at www.dodgeandcox.com on or about 15 days following each quarter end and remains available on the website until the list is updated in the subsequent quarter.

PROXY VOTING

For a free copy of the Fund’s proxy voting policies and procedures, please call 800-621-3979, visit the Fund’s website at www.dodgeandcox.com, or visit the SEC’s website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ending June 30 is also available at www.dodgeandcox.com or at www.sec.gov.

HOUSEHOLD MAILINGS

The Fund routinely mails shareholder reports and summary prospectuses to shareholders and, on occasion, proxy statements. In order to reduce the volume of mail, when possible, only one copy of these documents will be sent to shareholders who are part of the same family and share the same residential address.

If you have a direct account with the Funds and you do not want the mailing of shareholder reports and summary prospectuses combined with other members in your household, contact the Funds at 800-621-3979. Your request will be implemented within 30 days.

 

 

DODGE & COX GLOBAL STOCK FUND § PAGE 18


DODGE & COX FUNDS—EXECUTIVE OFFICER & TRUSTEE INFORMATION

 

Name (Age) and
Address*
 

Position with Trust

(Year of Election or
Appointment)

  Principal Occupation During Past 5 Years   Other Directorships Held by Trustees
INTERESTED TRUSTEES AND OFFICERS
Kenneth E. Olivier (60)  

Chairman, President, and Trustee

(Trustee since 2005)

  Chairman (since 2011), Chief Executive Officer (since 2010), President (until 2011), and Director of Dodge & Cox; Portfolio Manager and member of Investment Policy Committee (IPC)  
Dana M. Emery (51)  

Senior Vice President

and Trustee

(Trustee since 1993)

  Co-President (since 2011), Executive Vice President (until March 2011), and Director of Dodge & Cox; Director of Fixed Income, Portfolio Manager, and member of Fixed Income Investment Policy Committee (FIIPC)  
John A. Gunn (69)  

Trustee

(Trustee since 1985)

  Chairman Emeritus (since 2011), Chairman (2007-2011), Chief Executive Officer (2007-2010), and Director of Dodge & Cox; Portfolio Manager and member of IPC, Global Investment Policy Committee (GIPC) (since 2008), International Investment Policy Committee (IIPC), and FIIPC (until 2008)  
Charles F. Pohl (54)  

Senior Vice President

(Officer since 2004)

  Co-President (since 2011), Senior Vice President (until 2011), and Director of Dodge & Cox; Chief Investment Officer (since 2007), Director of Credit Research, Portfolio Manager, Investment Analyst, and member of IPC, GIPC (since 2008), IIPC (since 2007), and FIIPC  
Diana S. Strandberg (53)   Senior Vice President (Officer since 2006)   Senior Vice President (since 2011), Vice President (until 2011), and Director (since 2011) of Dodge & Cox; Director of International Equity (since 2009), Portfolio Manager, Investment Analyst, and member of IPC, GIPC (since 2008), and IIPC  
David H. Longhurst (55)  

Treasurer

(Officer since 2006)

  Vice President (since 2008) and Assistant Treasurer (since 2007) of Dodge & Cox; Fund Administration and Accounting Senior Manager (until 2007)  
Thomas M. Mistele (59)  

Secretary

(Officer since 1998)

  Chief Operating Officer, Director, Secretary, Senior Counsel (since 2011), and General Counsel (until 2011) of Dodge & Cox  
Katherine M. Primas (37)  

Chief Compliance

Officer

(Officer since 2009)

  Chief Compliance Officer (since 2008) and Associate Chief Compliance Officer of Dodge & Cox (until 2008)  
INDEPENDENT TRUSTEES
L. Dale Crandall (71)  

Trustee

(Since 1999)

  President, Piedmont Corporate Advisors, Inc. (since 2003); President, Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals (2000-2002); Senior Vice President—Finance and Administration & CFO, Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals (1998-2000)   Director, Ansell Limited (medical equipment and supplies) (2002-present); Director, Coventry Health Care, Inc. (managed health care) (2004-present); Bridgepoint Education, Inc. (education services) (2008-present)
Thomas A. Larsen (63)  

Trustee

(Since 2002)

  Senior Counsel of Arnold & Porter LLP (law firm) (since 2012); Director of Howard, Rice, Nemerovski, Canady, Falk & Rabkin (1977-2011)  
Ann Mather (52)  

Trustee

(Since 2011)

  CFO, Pixar Animation Studios (1999-2004)   Director, Google, Inc. (internet information services) (2005-present); Director, Glu Mobile, Inc. (multimedia software) (2005-present); Director, Netflix, Inc. (video services) (2010-present); Director, MoneyGram International, Inc. (business services) (2010-present); Director, Solazyme Inc. (renewable oils) (since 2011)
Robert B. Morris III (60)  

Trustee

(Since 2011)

  Advisory Director, The Presidio Group (previously Presidio Financial Partners) (since 2005)  
John B. Taylor (66)  

Trustee

(Since 2005)

(and 1998-2001)

  Professor of Economics, Stanford University; Senior Fellow, Hoover Institution; Under Secretary for International Affairs, United States Treasury (2001-2005)  

 

*  

The address for each Officer and Trustee is 555 California Street, 40th Floor, San Francisco, California 94104. Each Officer and Trustee oversees all five series in the Dodge & Cox Funds complex and serves for an indefinite term.

Additional information about the Trust’s Trustees and Officers is available in the Trust’s Statement of Additional Information (SAI). You can get a free copy of the SAI by visiting the Funds’ website at www.dodgeandcox.com or calling
1-800-621-3979.

 

PAGE 19 § DODGE & COX GLOBAL STOCK FUND


LOGO

    LOGO

 

International Stock Fund

 

www.dodgeandcox.com

For Fund literature, transactions, and account information, please visit the Funds’ website.

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

555 California Street, 40th Floor

San Francisco, California 94104

(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 December 31, 2012, the end of the reporting period. Any such views are subject to change at any time based upon market or other conditions and Dodge & Cox disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Dodge & Cox Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dodge & Cox Fund.

12/12 ISF AR    LOGO    Printed on recycled paper

2012    

Annual Report

December 31, 2012

International Stock Fund

ESTABLISHED 2001

TICKER:  DODFX

 


TO OUR SHAREHOLDERS

 

The Dodge & Cox International Stock Fund had a total return of 17.2% for the six months ending December 31, 2012, compared to a return of 14.0% for the MSCI EAFE (Europe, Australasia, Far East) Index. For 2012, the Fund had a total return of 21.0%, compared to 17.3% for the MSCI EAFE. At year end, the Fund had net assets of $40.6 billion with a cash position of 1.3%.

MARKET COMMENTARY

During 2012, global equity markets significantly appreciated in both U.S.-dollar and local currency terms. The past year was marked by considerable volatility as investors responded to uncertainty about broad macroeconomic issues, including the fate of the Eurozone, slowing economic growth in China, and the U.S. “fiscal cliff.” And yet, markets were strong—even the areas that were of greatest concern appreciated: MSCI Europe Index (up 19%), MSCI European Financials Index (up 33%), and MSCI China Index (up 23%). Company fundamentals remain strong with robust corporate balance sheets and cash flows. Furthermore, valuations are low. At year end, the MSCI EAFE was trading at 12 times forward earnings with a dividend yield of 3.4%.

INVESTMENT STRATEGY

As investors, we are constantly weighing what we are buying (company fundamentals) with what we are paying (valuation) for each investment opportunity. A great company can be a terrible investment if you pay too much. Every investment has a range of outcomes, and it is impossible to know what will happen in the future. As a result, we want to purchase securities that are inexpensive enough to embed what could potentially go wrong, while also not paying too much for what could go right.

A low valuation often signals that investors are concerned about the company’s fundamentals. We believe bottom-up research is the best way to identify whether a company’s long-term fundamentals are appropriately incorporated into its stock price. Through meetings with management, competitors, customers, and suppliers, our global industry analysts build an in-depth understanding of individual companies. Our equity analysts work with our fixed income team to evaluate potential downside and

access to capital; this collaboration provides an advantage, especially when a company is under stress. Furthermore, we keenly focus on governance to understand how our interests align with those of key stakeholders.

Our global equity analysts advocate investment ideas within a team decision-making process. This team-based approach provides checks and balances, tests our conviction, and broadens our knowledge base over time. Our collective judgment and experience, which have been built over decades, are key to constructing the portfolio. Recognizing that it is often impossible to time the bottom (or top) of the market, we are patient and often move incrementally to revisit and retest our thinking.

We think it is important to have a long-term investment horizon because short-term market movements can be driven by unpredictable investor sentiment, whereas the true value of a company tends to be reflected over time. Using a three- to five-year horizon, we look to identify companies that have attractive valuations and potential drivers for their fundamental value to be recognized by investors. We think like long-term owners of a business and, hence, have had low turnover in the Fund (the Fund’s average holding period has been seven years).

As a result of our investment framework, the Fund is overweight in three areas of the market that we believe are particularly compelling: Technology, Media, and Telecom (28.7% of the Fund compared to 10.8% for the MSCI EAFE)(a), European Financials (18.3% compared to 13.4% for the MSCI EAFE), and the Pharmaceuticals industry (15.5% of the Fund compared to 8.2% for the MSCI EAFE).

Technology, Media, and Telecom (TMT)

During the year, the Fund added to several TMT holdings that we believe have attractive long-term growth prospects in relation to their valuation. One such example(b) is Millicom International Cellular (incorporated in Luxembourg), a 1.0% position in the Fund. The company is a wireless telecommunication operator that provides prepaid cellular services to more than 30 million customers in 13 emerging market countries, primarily in Latin America and Africa.

 

 

PAGE 1 § DODGE & COX INTERNATIONAL STOCK FUND


Increased economic development and rising personal incomes are augmenting demand for communication services in these regions. Millicom has strong cash flows and attractive returns on capital with a multiple of 14 times forward earnings.

Among the Fund’s holdings in the Information Technology sector, there are a handful of investments marked by high uncertainty and a wide range of potential investment outcomes. As a result, these companies are trading at exceptionally low valuations. For example, Nokia, a 1.3% position in the Fund, traded at 0.3 times sales and 2.6 times R&D spending at year end. Nokia is the world’s second largest manufacturer of mobile telephones with sales in more than 150 countries. We acknowledge that the company is facing serious headwinds and has lost market share in mobile devices due to fierce competition and a lack of smartphone offerings; investors are understandably skeptical about Nokia’s prospects. However, there is also evidence that Nokia has long-term investment merit. First, the management team has a strong sense of urgency and understands change needs to occur. They are implementing a restructuring plan designed to improve revenue growth, profitability, and free cash flow generation. Second, Nokia has partnered with Microsoft to use the Windows Mobile operating system, which should help Nokia compete more effectively in the high-end smartphone market. Third, we believe Nokia has sufficient resources to bridge the company’s long-term transition.

European Financials

Investing when there is a high degree of uncertainty and a wide range of outcomes can yield outsized investment returns, as is illustrated by our additions to the Fund’s holdings in European Financials during 2012. The Fund is now significantly overweight in European Financials.

As we discussed in our Semi-Annual Report, investor concerns about the outlook for the Eurozone caused European bank share prices to come under pressure and valuations were quite low—typically 50 to 70 percent of book value. Yet, fundamentals had improved for many banks and included more stable funding and healthier capital ratios.

Financials was the best performing sector of the market in 2012, with European Financials particularly strong (MSCI European Financials Index up 33%). The

share price recovery occurred as investors’ fears about the Eurozone receded; yet, issues remain and include slow economic growth, a low interest rate environment, regulatory changes, and the possibility of fines and litigation. If we had waited for complete visibility on all issues, we would have missed this sizeable investment opportunity. We believe the Fund’s European Financials holdings remain attractive investment opportunities when we weigh valuation against long-term fundamentals.

Pharmaceuticals Industry

The Fund has been overweight in Pharmaceuticals since 2007, which turned out to be a few years early in hindsight. Our persistence in adding resulted in a significant overweight position in the industry when it started outperforming in 2011. Since share prices have recently increased substantially, we have used some of the profits to fund other investments.

We still see long-term investment opportunity and remain overweight in the industry due to low relative valuations and attractive growth prospects. The Fund’s Pharmaceuticals holdings traded at approximately 11 times forward earnings with a 3.5% dividend yield. Drug approvals are coming through the research pipeline, and top-line growth is materializing. Moreover, the Fund’s Pharmaceuticals holdings derive approximately 20 to 30 percent of their revenues from emerging markets, which are collectively growing at double-digit rates. Per capita consumption of drugs is low in most emerging markets, and governments and consumers have demonstrated a tendency to allocate more spending to health care as consumer purchasing power increases.

IN CLOSING

Despite current economic uncertainties, we are highly enthusiastic about the long-term prospects for equities. Global equity markets are trading at attractive valuations, which more than embed present concerns in our opinion. Our bottom-up research is the foundation, our long-term horizon provides the framework, and our team decision-making process enables us to maintain conviction in the midst of investor pessimism. Using this approach, we have identified long-term investment opportunities and are excited about the prospects for the Fund’s holdings. Acknowledging that markets could continue to be volatile

 

 

DODGE & COX INTERNATIONAL STOCK FUND § PAGE 2


over the short term, we encourage shareholders to remain focused on the long term.

Thank you for your continued confidence in our firm. As always, we welcome your comments and questions.

For the Board of Trustees,

 

LOGO   LOGO

Kenneth E. Olivier,

Chairman and President

 

Diana S. Strandberg,

Senior Vice President

January 29, 2013

 

 

(a)  

Unless otherwise specified, all weightings and characteristics are as of December 31, 2012.

(b)  

The use of specific examples does not imply that they are more attractive investments than the Fund’s other holdings.

ANNUAL PERFORMANCE REVIEW

Key Contributors to Relative Results

  §  

The Fund’s holdings in the Materials sector (up 55% versus up 14% for the MSCI EAFE sector), especially holdings in the Construction Materials industry and the Fund’s underweight position in the Metals & Mining industry, helped results. Notable contributors included Cemex (up 90%), Lafarge (up 82%), and Lanxess (up 70%).

 
  §  

The best performing sector of the market was Financials. The Fund’s holdings in this sector (up 41% compared to up 33% for the MSCI EAFE sector) aided results, especially holdings in Europe, the United Kingdom, and emerging markets. Yapi Kredi (up 105%), Sabanci Holding (up 94%), Aegon (up 65%), and Barclays (up 60%) were among the notable contributors.

 
  §  

The Fund’s average overweight position (16% versus 10%) and holdings in the Health Care sector (up 23% compared to up 17% for the MSCI EAFE sector) contributed to results. Bayer (up 51%) and Sanofi (up 32%) were especially strong.

 
  §  

Additional contributors included Naspers (up 47%), Schneider Electric (up 41%), and Philips Electronics (up 30%).

 

Key Detractors from Relative Results

  §  

The Fund’s overweight position and holdings in the Information Technology sector (down 10% compared to up 8% for the MSCI EAFE sector) significantly hindered performance. Hewlett-Packard (down 43%), Nintendo (down 22%), and Nokia (down 17%) were particularly weak.

 
  §  

Additional detractors included Nidec (down 32%) and Mitsubishi Electric (down 11%).

 
 

 

PAGE 3 § DODGE & COX INTERNATIONAL STOCK FUND


KEY CHARACTERISTICS OF DODGE & COX

Independent Organization

Dodge & Cox is one of the largest privately owned investment managers in the world. We remain committed to independence, with a goal of providing the highest quality investment management service to our existing clients.

Over 80 Years of Investment Experience

Dodge & Cox was founded in 1930. We have a stable and well-qualified team of investment professionals, most of whom have spent their entire careers at Dodge & Cox.

Experienced Investment Team

The International Investment Policy Committee, which is the decision-making body for the International Stock Fund, is a nine-member committee with an average tenure at Dodge & Cox of 22 years.

One Business with a Single Research Office

Dodge & Cox manages domestic, international, and global equity, fixed income, and balanced investments, operating from one office in San Francisco.

Consistent Investment Approach

Our team decision-making process involves thorough, bottom-up fundamental analysis of each investment.

Long-Term Focus and Low Expenses

We invest with a three- to five-year investment horizon, which has historically resulted in low turnover relative to our peers. We manage Funds that maintain low expense ratios.

 

 

DODGE & COX INTERNATIONAL STOCK FUND § PAGE 4


GROWTH OF $10,000 SINCE INCEPTION

FOR AN INVESTMENT MADE ON DECEMBER 31, 2002

 

 

LOGO

AVERAGE ANNUAL TOTAL RETURN

FOR PERIODS ENDED DECEMBER 31, 2012

 

     1 Year     3 Years     5 Years    

10 Years

 

Dodge & Cox International
Stock Fund

    21.03     4.96     -1.89     11.63

MSCI EAFE

    17.32        3.56        -3.69        8.21   

Returns represent past performance and do 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. Fund performance changes over time and currently may be significantly lower than stated. Performance is updated and published

monthly. Visit the Fund’s website at www.dodgeandcox.com or call 800-621-3979 for current performance figures.

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 or on Fund share redemptions. Index returns include dividends but, unlike Fund returns, do not reflect fees or expenses. The MSCI EAFE (Europe, Australasia, Far East) Index is a broad-based, unmanaged equity market index aggregated from 22 developed market country indices, excluding the United States. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.

MSCI EAFE is a service mark of MSCI Barra.

 

Risks: The Fund is subject to stock market risk, meaning stocks in the Fund may decline in value for extended periods due to the financial prospects of individual companies, or due to general market and economic conditions. Investing in non-U.S. securities may entail risk due to foreign economic and political developments; this risk may be increased when investing in emerging markets. Please read the prospectus and summary prospectus for specific details regarding the Fund’s risk profile.

 
 

FUND EXPENSE EXAMPLE

As a Fund shareholder, you incur ongoing Fund costs, including management fees and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following example shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The example assumes a $1,000 investment held for the six months indicated.

ACTUAL EXPENSES

The first line of the table below provides information about actual account values and expenses based on the Fund’s actual returns. You may use the information in this line, together with your account balance, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER MUTUAL FUNDS

Information on the second line of the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical “Ending Account Value” is based on the actual expense ratio of the Fund and an assumed 5% annual rate of return before expenses (not the Fund’s actual return). The amount under the heading “Expense Paid During the Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other mutual funds.

 

Six Months Ended

December 31, 2012

   Beginning Account Value
7/1/2012
     Ending Account Value
12/31/2012
    

Expenses Paid

During Period*

 

Based on Actual Fund Return

   $ 1,000.00       $ 1,171.50       $ 3.48   

Based on Hypothetical 5% Yearly Return

     1,000.00         1,021.93         3.24   
*

Expenses are equal to the Fund’s annualized expense ratio of 0.64%, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

The expenses shown in the table highlight ongoing costs only and do not reflect any transactional fees or account maintenance fees. While other mutual funds may charge such fees, please note that the Fund does not charge transaction fees (e.g., redemption fees, sales loads) or universal account maintenance fees (e.g., small account fees).

 

PAGE 5 § DODGE & COX INTERNATIONAL STOCK FUND


FUND INFORMATION     December 31, 2012   

 

GENERAL INFORMATION        

Net Asset Value Per Share

     $34.64   

Total Net Assets (billions)

     $40.6   

Expense Ratio

     0.64%   

Portfolio Turnover Rate

     10%   

30-Day SEC Yield(a)

     2.19%   

Fund Inception

     2001   

No sales charges or distribution fees

  

Investment Manager: Dodge & Cox, San Francisco. Managed by the International Investment Policy Committee, whose nine members’ average tenure at Dodge & Cox is 22 years.

 

PORTFOLIO CHARACTERISTICS    Fund        MSCI
EAFE
 

Number of Stocks

     90           909   

Median Market Capitalization (billions)

     $16           $7   

Weighted Average Market
Capitalization (billions)

     $61           $53   

Price-to-Earnings Ratio(b)

     10.8x           12.1x   

Countries Represented

     24           22   

Emerging Markets (Brazil, China, India, Indonesia, Mexico, South Africa, Thailand, Turkey, United Arab Emirates)

     17.0%           0.0%   

 

TEN LARGEST HOLDINGS (%)(c)    Fund  

Naspers, Ltd. (South Africa)

     4.0   

Sanofi (France)

     3.7   

Roche Holding AG (Switzerland)

     3.7   

Lafarge SA (France)

     3.4   

Koninklijke Philips Electronics NV (Netherlands)

     3.0   

Novartis AG (Switzerland)

     2.8   

GlaxoSmithKline PLC (United Kingdom)

     2.7   

HSBC Holdings PLC (United Kingdom)

     2.7   

Bayer AG (Germany)

     2.7   

Credit Suisse Group AG (Switzerland)

     2.6   

ASSET ALLOCATION

 

 

LOGO

 

REGION DIVERSIFICATION  (%)(d)    Fund        MSCI
EAFE
 

Europe (excluding United Kingdom)

     47.8           42.8   

United Kingdom

     17.9           22.6   

Japan

     11.7           20.0   

Africa/Middle East

     7.1           0.5   

United States

     5.5           0.0   

Latin America

     4.8           0.0   

Pacific (excluding Japan)

     3.9           14.1   

 

SECTOR DIVERSIFICATION (%)    Fund        MSCI
EAFE
 

Financials

     25.2           24.7   

Health Care

     15.5           9.8   

Consumer Discretionary

     12.9           10.7   

Information Technology

     11.5           4.3   

Industrials

     9.1           12.6   

Telecommunication Services

     8.5           4.9   

Materials

     8.2           9.8   

Energy

     5.4           7.7   

Consumer Staples

     2.4           11.6   

Utilities

     0.0           3.9   
 

 

 

(a)   

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.

(b)  

Price-to-earnings (P/E) ratios are calculated using 12-month forward earnings estimates from third-party sources.

(c)   

The Fund’s portfolio holdings are subject to change without notice. The mention of specific securities is not a recommendation to buy, sell, or hold any particular security and is not indicative of Dodge & Cox’s current or future trading activity.

(d)   

The Fund may classify a company in a different category than the MSCI EAFE. The Fund generally classifies a company based on its country of incorporation, but may designate a different country in certain circumstances.

 

DODGE & COX INTERNATIONAL STOCK FUND § PAGE 6


PORTFOLIO OF INVESTMENTS     December 31, 2012   

 

COMMON STOCKS: 97.6%               
    SHARES      VALUE  
CONSUMER DISCRETIONARY: 12.9%   

AUTOMOBILES & COMPONENTS: 3.7%

  

Bayerische Motoren Werke AG (Germany)

    6,201,400       $ 598,075,435   

Honda Motor Co., Ltd. (Japan)

    300,000         11,057,524   

Honda Motor Co., Ltd. ADR (Japan)

    6,758,400         249,655,296   

Mahindra & Mahindra, Ltd. (India)

    3,772,581         64,770,177   

NGK Spark Plug Co., Ltd.(b) (Japan)

    16,720,000         222,197,863   

Yamaha Motor Co., Ltd.(b) (Japan)

    30,430,000         337,304,591   
    

 

 

 
         1,483,060,886   

CONSUMER DURABLES & APPAREL: 1.3%

  

Corporacion Geo SAB de CV, Series B(a),(b) (Mexico)

    50,305,400         58,842,642   

Li Ning Co., Ltd.(a)
(Cayman Islands/China)

    51,843,900         34,349,031   

Panasonic Corp. (Japan)

    64,080,534         389,354,050   

Sony Corp. (Japan)

    5,548,028         62,079,462   
    

 

 

 
       544,625,185   

CONSUMER SERVICES: 0.4%

  

Accor SA (France)

    4,958,051         177,848,002   

MEDIA: 7.5%

  

Grupo Televisa SAB ADR (Mexico)

    19,680,592         523,110,135   

Liberty Global, Inc., Series A(a) (United States)

    2,481,805         156,328,897   

Liberty Global, Inc., Series C(a) (United States)

    3,274,971         192,404,546   

Naspers, Ltd.(b) (South Africa)

    25,160,895         1,616,659,335   

News Corp., Class A (United States)

    11,612,792         296,590,708   

Television Broadcasts, Ltd.(b) (Hong Kong)

    34,015,100         255,324,875   
    

 

 

 
       3,040,418,496   
    

 

 

 
       5,245,952,569   
CONSUMER STAPLES: 2.4%   

FOOD, BEVERAGE & TOBACCO: 2.4%

  

Anadolu Efes Biracilik ve Malt Sanayii AS(b) (Turkey)

    24,488,440         353,413,070   

Diageo PLC ADR (United Kingdom)

    1,750,100         204,026,658   

Unilever PLC (United Kingdom)

    11,000,000         417,536,015   
    

 

 

 
       974,975,743   

HOUSEHOLD & PERSONAL PRODUCTS: 0.0%(e)

  

Aderans Co., Ltd.(a),(b) (Japan)

    182,300         2,408,625   
    

 

 

 
       977,384,368   
ENERGY: 4.5%   

Royal Dutch Shell PLC ADR (United Kingdom)

    11,069,270         763,226,167   

Schlumberger, Ltd.
(Curacao/United States)

    11,052,217         765,808,116   

Total SA (France)

    5,868,600         303,744,304   
    

 

 

 
       1,832,778,587   
<
    SHARES      VALUE  
FINANCIALS: 25.0%   

BANKS: 15.1%

  

Banco Santander SA (Spain)

    50,330,159       $ 405,816,320   

Barclays PLC (United Kingdom)

    237,066,217         1,023,742,588   

BNP Paribas SA (France)

    3,700,000         208,558,473   

Erste Group Bank AG(a) (Austria)

    3,700,000         118,309,469   

HSBC Holdings PLC (United Kingdom)

    103,154,921         1,091,051,978   

ICICI Bank, Ltd. (India)

    3,718,675         78,312,204   

Kasikornbank PCL Foreign (Thailand)

    82,212,627         521,981,076   

Lloyds Banking Group PLC(a) (United Kingdom)

    412,000,000         330,126,450   

Mitsubishi UFJ Financial Group, Inc. (Japan)

    58,099,900         312,643,659   

Standard Bank Group, Ltd. (South Africa)

    25,862,295         365,947,338   

Standard Chartered PLC (United Kingdom)

    26,294,877         666,540,082   

UniCredit SPA(a) (Italy)

    123,651,788         610,603,864   

Yapi ve Kredi Bankasi AS(a) (Turkey)

    133,779,068         391,087,371   
    

 

 

 
       6,124,720,872   

DIVERSIFIED FINANCIALS: 4.1%

  

Credit Suisse Group AG (Switzerland)

    42,183,520         1,058,440,945   

Deutsche Boerse AG (Germany)

    3,750,000         228,884,907   

Haci Omer Sabanci Holding AS (Turkey)

    63,602,354         351,558,709