UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORMN-CSR/A
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number811-173
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)
Roberta R.W. Kameda, 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, 2019
Date of reporting period: DECEMBER 31, 2019
FormN-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 Rule30e-1 under the Investment Company Act of 1940 (17 CFR270.30e-1). The Commission may use the information provided on FormN-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by FormN-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in FormN-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.
EXPLANATORY NOTE
The Registrant is filing this amendment to Form N-CSR for the period ended December 31, 2019, originally filed with the Securities and Exchange Commission on February 26, 2020 (Accession Number 0001193125-20-049805), to correct the certifications provided pursuant to Section 302 of the Sarbanes-Oxley Act following discovery that references to the Registrant’s internal control over financial reporting referred in error to the last fiscal quarter rather than the period covered by the Annual Report.
No changes have been made to the Form N-CSR other than those described above.
ITEM 1. REPORTS TO STOCKHOLDERS.
The following are the December 31, 2019 annual reports for the Dodge & Cox Funds, a Delaware statutory trust, consisting of six series: Dodge & Cox Stock Fund, Dodge & Cox Global Stock Fund, Dodge & Cox International Stock Fund, Dodge & Cox Balanced Fund, Dodge & Cox Income Fund, and Dodge & Cox Global Bond Fund. The reports of each series were transmitted to their respective shareholders on February 21, 2020.
DODGE & COX FUNDS®
Annual Report
December 31, 2019
Stock Fund
ESTABLISHED 1965
TICKER: DODGX
Important Notice:
Beginning on January 1, 2021, we intend to discontinue mailing paper copies of the Fund’s shareholder reports as permitted by new regulations adopted by the Securities and Exchange Commission, unless you specifically request paper copies from Dodge & Cox Funds or from your financial intermediary, such as a broker-dealer or bank. The reports will remain available to you on the Dodge & Cox Funds website (dodgeandcox.com), and you will be notified by mail each time a report is posted and provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. If you have not done so already, you may elect to receive shareholder reports and other communications electronically by enrolling ine-delivery on the Funds website, or, if you are invested through a financial intermediary, by updating your mailing preferences through the intermediary.
If you wish to continue receiving paper copies of all future shareholder reports, please contact us at (800)621-3979. Reports will be provided to you free of charge. If you are invested through a financial intermediary, you may contact your financial intermediary to request to receive paper copies. Your election to receive reports in paper form will apply to all funds held with Dodge & Cox Funds or through your financial intermediary, as applicable.
12/19 SF AR 
Printed on recycled paper
TO OUR SHAREHOLDERS
The Dodge & Cox Stock Fund had a total return of 24.8% for the year ended December 31, 2019, compared to a return of 31.5% for the S&P 500 Index.
MARKET COMMENTARY
The U.S. equity market’s performance in 2019 was exceptional: the S&P 500 registered its strongest annual return since 2013 and reached anall-time high. Every sector of the S&P 500 posted positive, double-digit returns. Information Technology surged 50% and was the best-performing sector, while Energy (up 12%) was the worst-performing sector.
Since 1926, the relative performance of growth and value stocksa has seesawed, but value strategies have nearly always outperformed growth over intervals of a decade or more. In fact, there have only been three times when value has underperformed over aten-year period in the United States: the Great Depression (1929-1939/40), the Internet Bubble (1989-1999), and most recently. Over the last ten years, the Russell 1000 Value Index has underperformed the Russell 1000 Growth Index by an average of 3.4 percentage pointsb per year. As a result, the valuation differential between the value and growth segments of the market remains wide by historical standards: the Russell 1000 Value trades at 16.0 times forward earnings compared to a lofty 23.9 times for the Russell 1000 Growth.c
INVESTMENT STRATEGY
While the value-versus-growth dynamic captures much of what has driven wide valuation disparities, interest rates tell an even more powerful story. In the United States, the group of companies that benefits from low interest rates, as described below, is trading at an 80% premium to the group of companies that is harmed by low interest rates (or performs better in a rising interest rate environment). This valuation premium is almost three standard deviations above the historical valuation differential observed over the past 24 years.
Historically, these two groups have traded in roughly the same valuation range. After 2010, however, the valuations of these two groups diverged as investors sought “bond substitutes”—mainly in the Utilities, Real Estate, and Consumer Staples sectors—with higher dividend yields in a lower interest rate environment. The Fund holds no utilities or real estate companies and has only one consumer staples holding (Molson Coors,d 0.8% of the Fund) because we believe many companies have inflated valuations in these sectors.
Conversely, companies that benefit from rising interest rates—Financials, Energy, and some Industrials—are almost all categorized as value stocks, and they are now selling at extraordinary discounts relative to the market. As a value-oriented manager, the Fund remains overweight Financials (25.8% of the portfolio versus 13.0% of the S&P 500) and Energy (9.9% of the portfolio versus 4.3%).
We continue to identify attractive investment opportunities and have leaned into challenged areas of the market, such as Energy and Industrials. At the same time, we also reevaluated the portfolio’s strong performers and significantly trimmed back several
of those large positions, including Charter Communications, Comcast, JPMorgan Chase, and Microsoft. During 2019, we added more to Energy than any other sector and trimmed the most from Communication Services, particularly in the Media industry.
Finding Value in Energy
Energy companies have suffered from years of lower oil prices, which have reduced cash flows at many companies and made it more difficult to invest in new projects. There are also long-term concerns about oil and gas demand as the threat of climate change necessitates a transition to less carbon-intensive alternatives. However, energy companies currently trade at low multiples relative to their history and to the broader market.
We believe the valuations of the Fund’s energy holdings provide an attractive starting point and more than compensate for these risks. During 2019, we increased the Fund’s exposure to Occidental Petroleum, Concho Resources, Schlumberger, and Halliburton as valuations became more attractive. We also recently initiated a position in Hess, an independent oil and gas exploration and production company.
Hess: Hess is investing its strong cash flows from existing assets into a new project with significant production potential in Guyana. The company owns 30% of a partnership with Exxon Mobil in the Stabroek block in the country, and this oil discovery is already one of the largest in recent decades. Much of the Stabroek block remains unexplored and Hess has interests in additional blocks in Guyana and Suriname. Incremental discoveries on these blocks could provide additional upside. In addition, the Guyana resource has some of the lowest development costs outside of OPEC.e Higher incremental returns from this investment should result in attractive free cash flow growth over the next several years.
The Hess management team has expressed a desire to return free cash flow to shareholders, but we acknowledge there is a risk of suboptimal capital allocation. While the Guyana resource will require significant capital over the next several years and Hess is reliant on solid execution from Exxon, we believe these risks are manageable and decided to start a position in Hess. Trading at nine times cash flow, Hess was a 0.7% position in the Fund at year end.
Communication Services: Overweight Media & Entertainment
Within Communication Services, Media & Entertainment is another overweight position in the Fund: 11.9% compared to 8.2% for the S&P 500. The majority of the Fund’s exposure relates to cable and satellite companies (Comcast, Charter Communications, and DISH Network). Comcast and Charter have strong potential to continue generating positive free cash flow and sustaining growth in broadband and business services. In addition, DISH has various options for the unrealized value in its wireless spectrum holdings. The other holdings are content-related media companies (Alphabet/Google, Fox Corp., and News Corp.) that offer scarcity value of premium content and growth in digital distribution outlets, advertising, and international markets.
PAGE 2§ DODGE & COX STOCK FUND
The competitive landscape is rapidly evolving, due to growth in video streaming services (e.g., Netflix, Amazon, Hulu), changes in consumer viewing and listening habits, shifting revenue streams, and industry consolidation. Longer term, uncertainty surrounding potential regulatory incursions (e.g., unbundling, forced wholesale access, price regulation on broadband) and 5G fixed wireless as an alternative to cable broadband also pose risks. However, we believe the Fund’s media and entertainment holdings are trading at reasonable valuations in comparison to these risks and their growth prospects.
In 2019, the Fund’s media holdings outperformed significantly with Charter Communications and Comcast up 70% and 34%, respectively. Based on their solid performance and higher valuations, we trimmed both Comcast and Charter. Nevertheless, they remain in thetop-ten holdings of the Fund. In addition, Walt Disney acquired the majority of Twenty-First Century Fox’s assets and the Fund (a large shareholder) primarily received cash as a result of this transaction.
Comcast: We have held Comcast—the largest U.S. cable provider with over 31 million subscriber relationships—in the Fund since 2002; over the years, we have actively added to and trimmed from the position based on relative valuation. The company has technologically advanced connectivity services and, despite concerns about video “cord cutting,” has the potential to grow through increased broadband penetration and pricing power in both residential and business services. Outside the United States, Comcast ownspan-European satellite broadcaster Sky, which has 24 million subscribers in seven countries, including the United Kingdom, Italy, and Germany. We believe NBC Universal (owned by Comcast) can increase its operating profit through affiliate fee increases at NBC and continued investment in its Universal theme parks. In addition, owner-operator Chairman and CEO Brian Roberts has created significant shareholder value and leads a deep and strong management team. Comcast was a 3.0% position on December 31.
Charter Communications: As the second-largest U.S. cable operator, Charter Communications offers internet, video, fixed voice, and mobile data/voice services under the Spectrum brand to 29 million subscribers. Despite the threat of 5G fixed wireless, Charter has continued to add subscribers in its cable broadband business due to its high speed and cost advantage. Fixed data usage has grown steadily over the past decade and has the potential to continue to grow at attractive rates for the foreseeable future. In addition, we believe Charter has significant pricing power because of its superior broadband offerings and large barriers to entry. The company’s high financial leverage is supported by predictable cash flows in combination with its long-lasting infrastructure advantage. Management holds a significant equity stake and is thus strongly incentivized to create value for its shareholders. Charter accounted for 3.3% of the Fund.
IN CLOSING
U.S. equity returns in 2019 were extraordinary and certainly not the norm. History shows market timing can be hazardous to an
investor’s portfolio. While the U.S. economy will inevitably experience a downturn at some point in the future, we believe there is wisdom in being fully invested through market cycles and maintaining a long-term investment horizon.
As a result of high starting valuations, we caution investors to temper expectations around future U.S. equity market performance. That said, we remain optimistic about the long-term outlook for the Fund’s portfolio, which trades at a meaningful discount to the overall market: 13.5 times forward earnings compared to 18.9 times for the S&P 500. In addition, the Fund is well diversified across 64 companies with strong fundamentals and a variety of investment themes.
As a value-oriented manager, patience and persistence are also essential to long-term investment success. We encourage our shareholders to take a similar view. Thank you for your continued confidence in our firm. As always, we welcome your comments and questions.
For the Board of Trustees,
| | |
 | |  |
Charles F. Pohl, Chairman | | Dana M. Emery, President |
January 31, 2020
| a | | Value stocks are the lower valuation portion of the equity market, and growth stocks are the higher valuation portion. |
| b | | The Russell 1000 Growth Index had a total return of 312.3% from December 31, 2009 through December 31, 2019 compared to 204.9% for the Russell 1000 Value. |
| c | | Unless otherwise specified, all weightings and characteristics are as of December 31, 2019. |
| d | | The use of specific examples does not imply that they are more or less attractive investments than the portfolio’s other holdings. |
| e | | The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 13 nations. |
DODGE & COX STOCK FUND§PAGE 3
2019 PERFORMANCE REVIEW
The Fund underperformed the S&P 500 by 6.7 percentage points in 2019.
Key Detractors from Relative Results
| | § | | The return for the S&P 500 was led by Information Technology, which rose 50% in 2019. The Fund’s holdings, while up 27%, trailed significantly. The main driver was not owning a few of the large, exceptional performers that boosted the S&P 500 sector, especially Apple. Weak performance from holdings, including HP Inc. and Juniper Networks, was also a factor. | |
| | § | | The Fund was overweight (average 10% versus 5%) and underperformed in the Energy sector (up 9% compared to up 12% for the S&P 500 sector), which was the weakest sector of the Index by a considerable margin. Occidental Petroleum and Apache were the main detractors. | |
| | § | | The Fund’s relative returns in the Consumer Discretionary sector lagged substantially (down 6% versus up 28% for the S&P 500 sector), due to poor performance by Qurate Retail and Gap, Inc. | |
| | § | | Other key detractors included FedEx, Bank of New York Mellon, Cigna, and Sanofi. | |
Key Contributors to Relative Results
| | § | | In the Media industry, the Fund was overweight (average 9% versus 1%) and outperformed (holdings up 45% compared to up 36% for the S&P 500 industry). Charter Communications and Comcast were key positives. | |
| | § | | Other contributors included Anadarko Petroleum, Microchip Technology, and Bank of America, and not owning Pfizer, Berkshire Hathaway, and Exxon Mobil. | |
PORTFOLIO INFORMATION
| | | | |
| SECTOR DIVERSIFICATION (%) | | % of Net Assets | |
Financials | | | 25.7 | |
Health Care | | | 22.7 | |
Information Technology | | | 15.3 | |
Communication Services | | | 12.3 | |
Energy | | | 9.9 | |
Industrials | | | 7.5 | |
Consumer Discretionary | | | 3.5 | |
Materials | | | 1.0 | |
Consumer Staples | | | 0.8 | |
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.
90 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 U.S. Equity Investment Committee, which is the decision-making body for the Stock Fund, is a ten-member committee with an average tenure at Dodge & Cox of 24 years.
One Business with a Single Research Office
Dodge & Cox manages equity (domestic, international, and global), fixed income (domestic and global), 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.
Risks: The Fund is subject to market risk, meaning holdings 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.
PAGE 4§ DODGE & COX STOCK FUND
GROWTH OF $10,000 OVER 10 YEARS
FOR AN INVESTMENT MADE ON DECEMBER 31, 2009
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2019
| | | | | | | | | | | | | | | | |
| | | 1 Year | | | 5 Years | | | 10 Years | | | 20 Years | |
Dodge & Cox Stock Fund | | | 24.80 | % | | | 9.72 | % | | | 12.60 | % | | | 9.07 | % |
S&P 500 Index | | | 31.49 | | | | 11.70 | | | | 13.56 | | | | 6.06 | |
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 dodgeandcox.com or call800-621-3979 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 S&P Global Inc.
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 “Expenses Paid During 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, 2019 | | Beginning Account Value
7/1/2019 | | | Ending Account Value
12/31/2019 | | | Expenses Paid
During Period* | |
Based on Actual Fund Return | | $ | 1,000.00 | | | $ | 1,103.30 | | | $ | 2.75 | |
Based on Hypothetical 5% Yearly Return | | | 1,000.00 | | | | 1,022.59 | | | | 2.65 | |
| * | | Expenses are equal to the Fund’s annualized expense ratio of 0.52%, multiplied by the average account value over the period, multiplied by 184/365 (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. Though 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 STOCK FUND§PAGE 5
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| COMMON STOCKS: 98.7% | | | | | | |
| | |
| | | SHARES | | | VALUE | |
| COMMUNICATION SERVICES: 12.3% | |
MEDIA & ENTERTAINMENT: 11.9% | |
Alphabet, Inc., Class A(a) | | | 82,300 | | | $ | 110,231,797 | |
Alphabet, Inc., Class C(a) | | | 1,819,553 | | | | 2,432,778,752 | |
Charter Communications, Inc., Class A(a) | | | 4,998,586 | | | | 2,424,714,097 | |
Comcast Corp., Class A | | | 50,081,194 | | | | 2,252,151,294 | |
DISH Network Corp., Class A(a) | | | 18,139,637 | | | | 643,412,924 | |
Fox Corp., Class A | | | 19,402,775 | | | | 719,260,869 | |
Fox Corp., Class B | | | 3,897,533 | | | | 141,870,201 | |
News Corp., Class A | | | 9,313,490 | | | | 131,692,749 | |
| | | | | | | | |
| | | | 8,856,112,683 | |
TELECOMMUNICATION SERVICES: 0.4% | |
Sprint Corp.(a) | | | 56,515,127 | | | | 294,443,812 | |
| | | | | | | | |
| | | | 9,150,556,495 | |
| CONSUMER DISCRETIONARY: 3.5% | |
AUTOMOBILES & COMPONENTS: 0.3% | |
Harley-Davidson, Inc. | | | 6,567,647 | | | | 244,250,792 | |
|
CONSUMER DURABLES & APPAREL: 0.4% | |
Mattel, Inc.(a)(b) | | | 23,148,305 | | | | 313,659,533 | |
|
RETAILING: 2.8% | |
Booking Holdings, Inc.(a) | | | 678,500 | | | | 1,393,455,805 | |
Qurate Retail, Inc., Series A(a)(b) | | | 36,723,476 | | | | 309,578,902 | |
The Gap, Inc.(b) | | | 18,830,600 | | | | 332,925,008 | |
| | | | | | | | |
| | | | 2,035,959,715 | |
| | | | | | | | |
| | | | 2,593,870,040 | |
| CONSUMER STAPLES: 0.8% | |
FOOD, BEVERAGE & TOBACCO: 0.8% | |
Molson Coors Brewing Company, Class B(b) | | | 11,357,925 | | | | 612,192,157 | |
|
| ENERGY: 9.9% | |
Apache Corp.(b) | | | 32,534,809 | | | | 832,565,762 | |
Baker Hughes Co., Class A | | | 47,100,996 | | | | 1,207,198,528 | |
Concho Resources, Inc. | | | 6,775,500 | | | | 593,330,535 | |
Halliburton Co. | | | 29,324,912 | | | | 717,580,597 | |
Hess Corp. | | | 8,170,682 | | | | 545,883,264 | |
National Oilwell Varco, Inc. | | | 15,523,409 | | | | 388,861,395 | |
Occidental Petroleum Corp.(b) | | | 52,587,926 | | | | 2,167,148,431 | |
Schlumberger, Ltd. (Curacao/United States) | | | 22,664,845 | | | | 911,126,769 | |
| | | | | | | | |
| | | | 7,363,695,281 | |
| FINANCIALS: 25.7% | |
BANKS: 9.9% | |
Bank of America Corp. | | | 69,455,300 | | | | 2,446,215,666 | |
JPMorgan Chase & Co. | | | 8,648,500 | | | | 1,205,600,900 | |
Truist Financial Corp. | | | 16,892,544 | | | | 951,388,078 | |
Wells Fargo & Co. | | | 52,074,841 | | | | 2,801,626,446 | |
| | | | | | | | |
| | | | 7,404,831,090 | |
DIVERSIFIED FINANCIALS: 12.9% | |
American Express Co. | | | 8,922,000 | | | | 1,110,699,780 | |
Bank of New York Mellon Corp. | | | 28,770,224 | | | | 1,448,005,374 | |
Capital One Financial Corp.(b) | | | 24,489,513 | | | | 2,520,215,783 | |
Charles Schwab Corp. | | | 60,572,100 | | | | 2,880,809,076 | |
Goldman Sachs Group, Inc. | | | 7,096,700 | | | | 1,631,744,231 | |
State Street Corp. | | | 643,810 | | | | 50,925,371 | |
| | | | | | | | |
| | | | 9,642,399,615 | |
INSURANCE: 2.9% | |
AEGON NV (Netherlands) | | | 78,646,902 | | | | 356,270,466 | |
Brighthouse Financial, Inc.(a)(b) | | | 6,685,763 | | | | 262,282,482 | |
MetLife, Inc. | | | 30,367,100 | | | | 1,547,811,087 | |
| | | | | | | | |
| | | | 2,166,364,035 | |
| | | | | | | | |
| | | | 19,213,594,740 | |
| | | | | | | | |
| | |
| | | SHARES | | | VALUE | |
| HEALTH CARE: 22.7% | |
HEALTH CARE EQUIPMENT & SERVICES: 6.5% | |
Cigna Corp. | | | 10,508,972 | | | $ | 2,148,979,684 | |
CVS Health Corp. | | | 12,041,500 | | | | 894,563,035 | |
Medtronic PLC (Ireland/United States) | | | 3,260,000 | | | | 369,847,000 | |
UnitedHealth Group, Inc. | | | 4,963,960 | | | | 1,459,304,961 | |
| | | | | | | | |
| | | | 4,872,694,680 | |
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES: 16.2% | |
Alnylam Pharmaceuticals, Inc.(a) | | | 3,197,761 | | | | 368,286,134 | |
AstraZeneca PLC ADR (United Kingdom) | | | 25,152,373 | | | | 1,254,097,318 | |
BioMarin Pharmaceutical, Inc.(a) | | | 2,956,325 | | | | 249,957,279 | |
Bristol-Myers Squibb Co. | | | 30,546,239 | | | | 1,960,763,081 | |
Eli Lilly and Co. | | | 5,012,119 | | | | 658,742,800 | |
Gilead Sciences, Inc. | | | 11,322,512 | | | | 735,736,830 | |
GlaxoSmithKline PLC ADR (United Kingdom) | | | 30,905,200 | | | | 1,452,235,348 | |
Incyte Corp.(a) | | | 1,995,900 | | | | 174,281,988 | |
Novartis AG ADR (Switzerland) | | | 16,641,600 | | | | 1,575,793,104 | |
Roche Holding AG ADR (Switzerland) | | | 40,455,699 | | | | 1,644,928,721 | |
Sanofi ADR (France) | | | 39,536,828 | | | | 1,984,748,766 | |
| | | | | | | | |
| | | | 12,059,571,369 | |
| | | | | | | | |
| | | | 16,932,266,049 | |
| INDUSTRIALS: 7.5% | |
CAPITAL GOODS: 4.4% | |
Johnson Controls International PLC(b) (Ireland/United States) | | | 41,391,117 | | | | 1,685,032,373 | |
United Technologies Corp. | | | 10,520,700 | | | | 1,575,580,032 | |
| | | | | | | | |
| | | | 3,260,612,405 | |
TRANSPORTATION: 3.1% | |
FedEx Corp.(b) | | | 15,306,099 | | | | 2,314,435,230 | |
| | | | | | | | |
| | | | 5,575,047,635 | |
| INFORMATION TECHNOLOGY: 15.3% | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT: 2.6% | |
Maxim Integrated Products, Inc. | | | 5,674,375 | | | | 349,030,806 | |
Microchip Technology, Inc.(b) | | | 15,227,133 | | | | 1,594,585,368 | |
| | | | | | | | |
| | | | 1,943,616,174 | |
SOFTWARE & SERVICES: 4.6% | |
Cognizant Technology Solutions Corp., Class A | | | 10,638,400 | | | | 659,793,568 | |
Micro Focus International PLC ADR(b) (United Kingdom) | | | 22,850,228 | | | | 320,588,699 | |
Microsoft Corp. | | | 15,370,100 | | | | 2,423,864,770 | |
| | | | | | | | |
| | | | 3,404,247,037 | |
TECHNOLOGY, HARDWARE & EQUIPMENT: 8.1% | |
Cisco Systems, Inc. | | | 12,989,787 | | | | 622,990,184 | |
Dell Technologies, Inc., Class C(a) | | | 14,340,717 | | | | 736,969,447 | |
Hewlett Packard Enterprise Co.(b) | | | 76,727,245 | | | | 1,216,894,106 | |
HP Inc.(b) | | | 74,243,278 | | | | 1,525,699,363 | |
Juniper Networks, Inc.(b) | | | 29,879,065 | | | | 735,921,371 | |
TE Connectivity, Ltd. (Switzerland) | | | 12,923,075 | | | | 1,238,547,508 | |
| | | | | | | | |
| | | | 6,077,021,979 | |
| | | | | | | | |
| | | | 11,424,885,190 | |
| MATERIALS: 1.0% | |
Celanese Corp.(b) | | | 6,153,598 | | | | 757,630,986 | |
| | | | | | | | |
TOTAL COMMON STOCKS
(Cost $50,592,562,940) | | | $ | 73,623,738,573 | |
| | |
| PAGE 6§ DODGE & COX STOCK FUND | | See accompanying Notes to Financial Statements |
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| SHORT-TERM INVESTMENTS: 1.3% | |
| | |
| | | PAR VALUE/
SHARES | | | VALUE | |
REPURCHASE AGREEMENTS: 0.9% | |
Bank of Montreal(c)
1.48%, dated 12/31/19, due 1/2/20, maturity value $165,813,632 | | $ | 165,800,000 | | | $ | 165,800,000 | |
Fixed Income Clearing Corporation(c)
1.00%, dated 12/31/19, due 1/2/20, maturity value $152,509,472 | | | 152,501,000 | | | | 152,501,000 | |
Royal Bank of Canada(c)
1.53%, dated 12/31/19, due 1/2/20, maturity value $331,528,178 | | | 331,500,000 | | | | 331,500,000 | |
| | | | | | | | |
| | | | 649,801,000 | |
MONEY MARKET FUND: 0.4% | |
State Street Institutional U.S. Government Money Market Fund | | | 298,136,386 | | | | 298,136,386 | |
| | | | | | | | |
TOTAL SHORT-TERM INVESTMENTS
(Cost $947,937,386) | | | $ | 947,937,386 | |
| | | | | | | | |
TOTAL INVESTMENTS IN SECURITIES
(Cost $51,540,500,326) | | | 100.0 | % | | $ | 74,571,675,959 | |
OTHER ASSETS LESS LIABILITIES | | | 0.0 | % | | | 13,691,629 | |
| | | | | | | | |
| NET ASSETS | | | 100.0 | % | | $ | 74,585,367,588 | |
| | | | | | | | |
| (b) | See Note 10 regarding holdings of 5% voting securities |
| (c) | Repurchase agreements are collateralized by: |
Bank of Montreal: U.S. Treasury Notes1.625%-3.875%,3/15/21-8/15/49 and U.S. Treasury Inflation Indexed Notes0.375%-2.375%,7/15/23-1/15/25. Total collateral value is $169,129,962.
Fixed Income Clearing Corporation: U.S. Treasury Notes2.125%-2.75%,5/31/21-8/15/21. Total collateral value is $155,554,757.
Royal Bank of Canada: U.S. Treasury Notes2.375%-2.75%,8/15/21-5/15/27 and U.S. Treasury Inflation Indexed Note 0.375%, 1/15/27. Total collateral value is $338,158,766.
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 or in other limited circumstances, the Fund uses the country designation of an appropriate broad-based market index. In those cases, 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 7 |
FUTURES CONTRACTS
| | | | | | | | | | | | | | | | |
| Description | | Number of
Contracts | | | Expiration
Date | | | Notional
Amount | | | Value /
Unrealized
Appreciation
(Depreciation) | |
E-mini S&P 500 Index—Long Position | | | 5,774 | | | | 3/20/20 | | | $ | 932,818,570 | | | $ | 9,379,333 | |
| | | | |
STATEMENT OF ASSETS AND LIABILITIES | |
| |
| | | December 31, 2019 | |
ASSETS: | | | | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $35,579,511,337) | | $ | 57,070,320,405 | |
Affiliated issuers (cost $15,960,988,989) | | | 17,501,355,554 | |
| | | | |
| | | 74,571,675,959 | |
Cash | | | 386,072 | |
Deposits with broker for futures contracts | | | 36,376,200 | |
Receivable for variation margin for futures contracts | | | 6,562,307 | |
Receivable for Fund shares sold | | | 78,310,501 | |
Dividends and interest receivable | | | 114,001,862 | |
Prepaid expenses and other assets | | | 362,238 | |
| | | | |
| | | 74,807,675,139 | |
| | | | |
LIABILITIES: | | | | |
Payable for investments purchased | | | 13,388,110 | |
Payable for Fund shares redeemed | | | 175,682,029 | |
Management fees payable | | | 31,276,256 | |
Accrued expenses | | | 1,961,156 | |
| | | | |
| | | 222,307,551 | |
| | | | |
NET ASSETS | | $ | 74,585,367,588 | |
| | | | |
NET ASSETS CONSIST OF: | | | | |
Paid in capital | | $ | 50,900,030,181 | |
Distributable earnings | | | 23,685,337,407 | |
| | | | |
| | $ | 74,585,367,588 | |
| | | | |
Fund shares outstanding (par value $0.01 each, unlimited shares authorized) | | | 384,939,586 | |
Net asset value per share | | $ | 193.76 | |
| |
STATEMENT OF OPERATIONS | | | | |
| |
| | | Year Ended
December 31, 2019 | |
INVESTMENT INCOME: | | | | |
Dividends (net of foreign taxes of $25,376,047) | | | | |
Unaffiliated issuers | | $ | 1,113,082,283 | |
Affiliated issuers | | | 581,431,325 | |
Interest | | | 25,498,354 | |
| | | | |
| | | 1,720,011,962 | |
| | | | |
EXPENSES: | | | | |
Management fees | | | 351,158,289 | |
Custody and fund accounting fees | | | 698,069 | |
Transfer agent fees | | | 4,285,046 | |
Professional services | | | 248,048 | |
Shareholder reports | | | 1,542,155 | |
Registration fees | | | 314,571 | |
Trustees’ fees | | | 341,666 | |
ADR depositary service fees | | | 7,192,655 | |
Miscellaneous | | | 803,555 | |
| | | | |
| | | 366,584,054 | |
| | | | |
NET INVESTMENT INCOME | | | 1,353,427,908 | |
| | | | |
REALIZED AND UNREALIZED GAIN: | | | | |
Net realized gain | | | | |
Investments in securities of unaffiliated issuers (Note 6) | | | 3,888,166,294 | |
Investments in securities of affiliated issuers (Note 6) | | | 713,760,283 | |
Futures contracts | | | 322,466,004 | |
Net change in unrealized appreciation/depreciation | | | | |
Investments in securities of unaffiliated issuers | | | 8,257,177,682 | |
Investments in securities of affiliated issuers | | | 857,947,864 | |
Futures contracts | | | 7,872,392 | |
| | | | |
Net realized and unrealized gain | | | 14,047,390,519 | |
| | | | |
NET CHANGE IN NET ASSETS FROM OPERATIONS | | $ | 15,400,818,427 | |
| | | | |
| | | | | | | | |
STATEMENT OF CHANGES IN NET ASSETS | |
| | |
| | | Year Ended
December 31, 2019 | | | Year Ended
December 31, 2018 | |
OPERATIONS: | | | | | | | | |
Net investment income | | $ | 1,353,427,908 | | | $ | 1,006,222,609 | |
Net realized gain (loss) | | | 4,924,392,581 | | | | 6,749,317,514 | |
Net change in unrealized appreciation/depreciation | | | 9,122,997,938 | | | | (12,568,242,564 | ) |
| | | | | | | | |
| | | 15,400,818,427 | | | | (4,812,702,441 | ) |
| | | | | | | | |
| | |
DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
Total distributions | | | (7,585,191,926 | ) | | | (5,765,113,809 | ) |
| | |
FUND SHARE TRANSACTIONS: | | | | | | | | |
Proceeds from sale of shares | | | 7,953,276,880 | | | | 8,154,979,913 | |
Reinvestment of distributions | | | 7,158,101,543 | | | | 5,469,183,979 | |
Cost of shares redeemed | | | (11,346,329,483 | ) | | | (10,942,582,148 | ) |
| | | | | | | | |
Net change from Fund share transactions | | | 3,765,048,940 | | | | 2,681,581,744 | |
| | | | | | | | |
Total change in net assets | | | 11,580,675,441 | | | | (7,896,234,506 | ) |
| | |
NET ASSETS: | | | | | | | | |
Beginning of year | | | 63,004,692,147 | | | | 70,900,926,653 | |
| | | | | | | | |
End of year | | $ | 74,585,367,588 | | | $ | 63,004,692,147 | |
| | | | | | | | |
| | |
SHARE INFORMATION: | | | | | | | | |
Shares sold | | | 42,512,625 | | | | 40,043,780 | |
Distributions reinvested | | | 38,025,346 | | | | 30,452,377 | |
Shares redeemed | | | (60,186,093 | ) | | | (54,124,818 | ) |
| | | | | | | | |
Net change in shares outstanding | | | 20,351,878 | | | | 16,371,339 | |
| | | | | | | | |
| | |
| PAGE 8§ 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 anopen-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 Fund is an investment company and follows the accounting and reporting guidance issued in Topic 946 by the Financial Accounting Standards Board. 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 normally valued as of the scheduled close of trading on the New York Stock Exchange (“NYSE”), generally 4 p.m. Eastern Time, each day that the NYSE is open for business.
Portfolio holdings for which market quotes are readily available are valued at market value. Listed securities, for example, are generally valued using the official quoted close price or the last sale on the exchange that is determined to be the primary market for the security. Exchange-traded derivatives are generally valued at the settlement price determined by the relevant exchange. Short-term securities less than 60 days to maturity may be valued at amortized cost if amortized cost approximates current value. Mutual funds are valued at their respective net asset values. Security values are not discounted based on the size of the Fund’s position and may differ from the value the Fund receives upon sale of the securities. All securities held by the Fund are denominated in U.S. dollars.
If market quotations are not readily available or if normal valuation procedures produce valuations that are deemed unreliable or inappropriate under the circumstances existing at the time, the investment will be valued at fair value as determined in good faith by or under the direction of the Fund’s Board of Trustees. The Board of Trustees has appointed Dodge & Cox, the Fund’s investment manager, to make fair value determinations in accordance with the Dodge & Cox Funds Valuation Policies (“Valuation Policies”), subject to Board oversight. Dodge & Cox has established a Pricing Committee that is comprised of representatives from Treasury, Legal, Compliance, and Operations. The Pricing Committee is responsible for implementing the Valuation Policies, including determining the fair value of securities and other investments when necessary. The Pricing Committee considers relevant indications of value that are reasonably available to it in determining the fair value assigned to a particular security, such as the value of similar financial instruments, trading volumes, contractual restrictions on disposition, related corporate actions, and changes in economic conditions. In doing so, the Pricing Committee employs various
methods for calibrating fair valuation approaches, including a regular review of key inputs and assumptions, back-testing, and review of any related market activity.
Valuing securities through a fair value determination involves greater reliance on judgment than valuation of securities based on readily available market quotations. In some instances, lack of information and uncertainty as to the significance of information may lead to a conclusion that a prior valuation is the best indication of a security’s value. 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.
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 theex-dividend date, or when the Fund first learns of the transaction if the ex-dividend date has passed.Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends characterized as return of capital for U.S. tax purposes 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. Some 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 using methodologies determined by the nature of the expense.
Distributions to shareholders are recorded on theex-dividend date.
Repurchase agreements Repurchase agreements are transactions under which a Fund purchases a security from a dealer counterparty and agrees to resell the security to that counterparty on a specified future date at the same price, plus a specified interest rate. The Fund’s repurchase agreements are secured by U.S. government or agency securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. The Fund maintains custody of the underlying collateral securities, either through its regular custodian or through a third party custodian that maintains separate accounts for both the Fund and its counterparties. In the event of default by a 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 may be 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
DODGE & COX STOCK FUND§PAGE 9
NOTES TO FINANCIAL STATEMENTS
European courts, the Fund has filed for additional reclaims related to prior years. A corresponding receivable is established when both the amount is known and significant contingencies or uncertainties regarding collectability are removed. These amounts, if any, are reported in “dividends and interest receivable” in the Statement of Assets and Liabilities.
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 |
| § | | Level 2: Other significant observable inputs (including quoted prices for similar securities, market indices, interest rates, credit risk, forward exchange rates, 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 at December 31, 2019:
| | | | | | | | |
| Classification | | LEVEL 1
(Quoted Prices) | | | LEVEL 2
(Other Significant
Observable Inputs) | |
Securities | | | | | | | | |
Common Stocks(a) | | $ | 73,623,738,573 | | | $ | — | |
Short-term Investments | | | | | | | | |
Repurchase Agreements | | | — | | | | 649,801,000 | |
Money Market Fund | | | 298,136,386 | | | | — | |
| | | | | | | | |
Total Securities | | $ | 73,921,874,959 | | | $ | 649,801,000 | |
| | | | | | | | |
| | |
Other Investments | | | | | | | | |
Futures Contracts | | | | | | | | |
Appreciation | | $ | 9,379,333 | | | $ | — | |
| | | | | | | | | |
| (a) | All common stocks held in the Fund are Level 1 securities. For a detailedbreak-out of common stocks by major industry classification, please refer to the Portfolio of Investments. |
NOTE 3—DERIVATIVE INSTRUMENTS
The Fund may use derivatives either to minimize the impact of certain risks to one or more of its investments (as a “hedging technique”) or to implement its investment strategy. A derivative is a financial instrument whose value is derived from a security, currency, interest rate, index, or other financial instrument.
Futures contractsFutures contracts involve an obligation to purchase or sell (depending on whether the Fund has entered a long or short futures contract, respectively) an asset at a future date, at a price set at the time of the contract. Futures contracts are exchange-traded. Upon entering into a futures contract, the Fund is required to deposit an amount of cash or liquid assets (referred to as “initial margin”) in a segregated account with the clearing broker. Subsequent payments (referred to as “variation margin”) to and from the clearing broker are made on a daily basis based on changes in the market value of the contract. Changes in the market value of open futures contracts are recorded as unrealized appreciation or depreciation in the Statement of Operations. Realized gains and losses on futures contracts are recorded in the Statement of Operations at the closing or expiration of the contracts. Cash deposited with a broker as initial margin is recorded in the Statement of Assets and Liabilities. A receivable and/or payable to brokers for daily variation margin is also recorded in the Statement of Assets and Liabilities.
Investments in futures contracts may include certain risks, which may be different from, and potentially greater than, those of the underlying assets. To the extent the Fund uses futures, it is exposed to additional volatility and potential losses resulting from leverage.
Additional derivative informationThe following identifies the location on the Statement of Assets and Liabilities and values of the Fund’s derivative instruments.
| | | | |
| | | Equity
Derivatives | |
Assets | | | | |
Futures contracts(a) | | $ | 9,379,333 | |
| | | | | |
| | | | |
| (a) | Includes cumulative appreciation (depreciation). Only the current day’s variation margin is reported in the Statement of Assets and Liabilities. |
The following summarizes the effect of derivative instruments on the Statement of Operations.
| | | | |
| | | Equity Derivatives | |
Net realized gain (loss) | | | | |
Futures contracts | | $ | 322,466,004 | |
Net change in unrealized appreciation/depreciation | | | | |
Futures contracts | | $ | 7,872,392 | |
| | | | | |
The following summarizes the range of volume in the Fund’s derivative instruments during the year ended December 31, 2019.
| | | | | | |
| Derivative | | % of Net Assets | |
Futures contracts | | USD notional value | | | 1-4% | |
| | | | | | | |
PAGE 10§ DODGE & COX STOCK FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 4—RELATED PARTY TRANSACTIONS
Management fees Under a written agreement approved by a unanimous vote of the Board of Trustees, the Fund pays a management fee monthly at an annual rate 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 two 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 5—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. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes. Financial reporting records are adjusted for permanent book to tax differences at year end to reflect tax character. Book to tax differences are primarily due to differing treatments of redemptions in-kind, wash sales, net short-term realized gain (loss), derivatives, and distributions.
Distributions during the years noted below were characterized as follows for federal income tax purposes:
| | | | | | | | |
| | | Year Ended
December 31, 2019 | | | Year Ended
December 31, 2018 | |
Ordinary income | | $ | 1,484,439,010 | | | $ | 1,021,848,439 | |
| | | ($4.010 per share | ) | | | ($2.947 per share | ) |
Long-term capital gain | | $ | 6,100,752,916 | | | $ | 4,743,265,370 | |
| | | ($16.669 per share | ) | | | ($13.793 per share | ) |
At December 31, 2019, the tax basis components of distributable earnings were as follows:
| | | | |
Undistributed ordinary income | | $ | 27,664,921 | |
Undistributed long-term capital gain | | | 661,965,527 | |
At December 31, 2019, unrealized appreciation and depreciation for investments and derivatives based on cost for federal income tax purposes were as follows:
| | | | |
Tax cost | | $ | 51,585,348,333 | |
| | | | |
Unrealized appreciation | | | 26,624,643,683 | |
Unrealized depreciation | | | (3,628,936,724 | ) |
| | | | |
Net unrealized appreciation | | | 22,995,706,959 | |
| | | | | |
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 6—REDEMPTIONS IN-KIND
During the year ended December 31, 2019, the Fund distributed securities and cash as payment for a redemption of Fund shares. For financial reporting purposes, the Fund realized a net gain of $69,902,483 attributable to the redemption in-kind: $63,172,477 from unaffiliated issuers and $6,730,006 from affiliated issuers. For tax purposes, no capital gain on the redemption in-kind was recognized.
NOTE 7—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 year.
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 itspro-rata portion of the Line of Credit. For the year ended December 31, 2019, the Fund’s commitment fee amounted to $431,189 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 year.
NOTE 8—PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 2019, purchases and sales of securities, other than short-term securities, aggregated $11,683,386,294 and $12,167,259,091, respectively.
NOTE 9—SUBSEQUENT EVENTS
Fund management has determined that no material events or transactions occurred subsequent to December 31, 2019, 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 11
NOTES TO FINANCIAL STATEMENTS
NOTE 10—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, 2019. Further detail on these holdings and related transactions during the year appear below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Value at
Beginning of Year | | | Additions | | | Reductions | | | Realized Gain (Loss) | | | Net Change in Unrealized Appreciation
(Depreciation) | | | Value at
End of Year | | | Dividend Income(a) | |
COMMON STOCKS: 23.5% | | | | | |
COMMUNICATION SERVICES: 0.0% | | | | | |
Zayo Group Holdings, Inc.(b) | | $ | 366,068,100 | | | $ | — | | | $ | (542,532,796 | ) | | $ | 13,937,647 | | | $ | 162,527,049 | | | $ | — | | | $ | — | |
| |
CONSUMER DISCRETIONARY: 1.3% | | | | | |
Mattel, Inc.(b) | | | 204,839,965 | | | | 35,869,760 | | | | (5,130,521 | ) | | | (342,397 | ) | | | 78,422,726 | | | | 313,659,533 | | | | — | |
Qurate Retail, Inc., Series A(b) | | | 630,282,764 | | | | 69,277,732 | | | | (1,434,016 | ) | | | 1,286,181 | | | | (389,833,759 | ) | | | 309,578,902 | | | | — | |
The Gap, Inc. | | | 231,615,965 | | | | 209,181,477 | | | | (25,525,395 | ) | | | 4,018,655 | | | | (86,365,694 | ) | | | 332,925,008 | | | | 12,175,066 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 956,163,443 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
CONSUMER STAPLES: 0.8% | | | | | |
Molson Coors Brewing Company, Class B | | | 325,813,644 | | | | 319,374,192 | | | | — | | | | — | | | | (32,995,679 | ) | | | 612,192,157 | | | | 18,153,569 | |
| |
ENERGY: 4.0% | | | | | |
Anadarko Petroleum Corp. | | | 1,181,822,105 | | | | 47,776,611 | | | | (1,976,098,030 | ) | | | 599,911,115 | | | | 146,588,199 | | | | — | | | | 15,393,943 | |
Apache Corp. | | | 826,455,840 | | | | 30,208,052 | | | | (2,215,052 | ) | | | 574,351 | | | | (22,457,429 | ) | | | 832,565,762 | | | | 32,551,359 | |
Occidental Petroleum Corp. | | | 1,038,225,882 | | | | 1,783,660,163 | | | | (2,437,264 | ) | | | 266,664 | | | | (652,567,014 | ) | | | 2,167,148,431 | | | | 115,590,628 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 2,999,714,193 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
FINANCIALS: 3.7% | | | | | |
Brighthouse Financial, Inc.(b) | | | 204,196,584 | | | | — | | | | (590,648 | ) | | | 82,225 | | | | 58,594,321 | | | | 262,282,482 | | | | — | |
Capital One Financial Corp. | | | 1,712,961,090 | | | | 249,209,329 | | | | (120,101,115 | ) | | | 18,762,202 | | | | 659,384,277 | | | | 2,520,215,783 | | | | 40,360,781 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 2,782,498,265 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
INDUSTRIALS: 5.4% | | | | | |
FedEx Corp. | | | 1,559,092,959 | | | | 966,932,536 | | | | (4,146,503 | ) | | | 3,275,783 | | | | (210,719,545 | ) | | | 2,314,435,230 | | | | 35,223,107 | |
Johnson Controls International PLC | | | 1,258,768,542 | | | | 78,843,533 | | | | (139,635,678 | ) | | | (6,018,744 | ) | | | 493,074,720 | | | | 1,685,032,373 | | | | 45,080,976 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 3,999,467,603 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
INFORMATION TECHNOLOGY: 7.3% | | | | | |
Hewlett Packard Enterprise Co. | | | 1,113,547,426 | | | | 33,561,950 | | | | (166,358,165 | ) | | | 64,065,639 | | | | 172,077,256 | | | | 1,216,894,106 | | | | 35,654,499 | |
HP Inc. | | | 1,040,320,986 | | | | 464,082,463 | | | | (2,469,903 | ) | | | 1,802,741 | | | | 21,963,076 | | | | 1,525,699,363 | | | | 46,215,805 | |
Juniper Networks, Inc. | | | 689,788,470 | | | | 113,218,022 | | | | (1,493,160 | ) | | | 312,179 | | | | (65,904,140 | ) | | | 735,921,371 | | | | 22,005,089 | |
Microchip Technology, Inc. | | | 816,308,757 | | | | 357,870,627 | | | | (43,455,884 | ) | | | 3,310,649 | | | | 460,551,219 | | | | 1,594,585,368 | | | | 19,908,422 | |
Micro Focus International PLC ADR | | | 413,046,488 | | | | 41,947,119 | | | | (1,188,774 | ) | | | 554,516 | | | | (133,770,650 | ) | | | 320,588,699 | | | | 128,102,588 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 5,393,688,907 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
MATERIALS: 1.0% | | | | | |
Celanese Corp. | | | 563,778,831 | | | | — | | | | (13,487,653 | ) | | | 7,960,877 | | | | 199,378,931 | | | | 757,630,986 | | | | 15,015,493 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | $ | 713,760,283 | | | $ | 857,947,864 | | | $ | 17,501,355,554 | | | $ | 581,431,325 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | Net of foreign taxes, if any |
PAGE 12§ DODGE & COX STOCK FUND
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | | | |
SELECTED DATA AND RATIOS
(for a share outstanding throughout each year) | | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
| | | | |
Net asset value, beginning of year | | | $172.81 | | | | $203.61 | | | | $184.30 | | | | $162.77 | | | | $180.94 | |
Income from investment operations: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 3.65 | | | | 2.90 | | | | 3.09 | | | | 3.05 | | | | 2.42 | |
Net realized and unrealized gain (loss) | | | 37.98 | | | | (16.96 | ) | | | 30.03 | | | | 30.56 | | | | (10.55 | ) |
| | | | |
Total from investment operations | | | 41.63 | | | | (14.06 | ) | | | 33.12 | | | | 33.61 | | | | (8.13 | ) |
| | | | |
Distributions to shareholders from: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (3.65 | ) | | | (2.90 | ) | | | (3.11 | ) | | | (3.03 | ) | | | (2.46 | ) |
Net realized gain | | | (17.03 | ) | | | (13.84 | ) | | | (10.70 | ) | | | (9.05 | ) | | | (7.58 | ) |
| | | | |
Total distributions | | | (20.68 | ) | | | (16.74 | ) | | | (13.81 | ) | | | (12.08 | ) | | | (10.04 | ) |
| | | | |
Net asset value, end of year | | | $193.76 | | | | $172.81 | | | | $203.61 | | | | $184.30 | | | | $162.77 | |
| | | | |
Total return | | | 24.80 | % | | | (7.08 | )% | | | 18.32 | % | | | 21.27 | % | | | (4.47 | )% |
Ratios/ supplemental data: | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (millions) | | | $74,585 | | | | $63,005 | | | | $70,901 | | | | $61,600 | | | | $54,845 | |
Ratios of expenses to average net assets | | | 0.52 | % | | | 0.52 | % | | | 0.52 | % | | | 0.52 | % | | | 0.52 | % |
Ratios of net investment income to average net assets | | | 1.93 | % | | | 1.41 | % | | | 1.58 | % | | | 1.83 | % | | | 1.36 | % |
Portfolio turnover rate | | | 17 | % | | | 20 | % | | | 13 | % | | | 16 | % | | | 15 | % |
See accompanying Notes to Financial Statements
DODGE & COX STOCK FUND§PAGE 13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TotheBoard of Trustees of the Dodge & Cox Funds and Shareholders of Dodge & Cox Stock Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, ofDodge & Cox Stock Fund (one of the funds constituting Dodge & Cox Funds, referred to hereafter as the “Fund”) as of December 31, 2019, the related statementof operationsfor the year endedDecember 31, 2019, the statement of changes in net assets for each of the two years in the period ended December 31, 2019, including the related notes, and the financial highlights for each of the five years in the period ended December 31, 2019 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2019, 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 ended December 31, 2019 and the financial highlights for each of the five years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2019 by correspondence with the custodian, transfer agent and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2020
We have served as the auditor of one or more investment companies in the Dodge & Cox Funds since 1931.
PAGE 14§ DODGE & COX STOCK FUND
SPECIAL 2019 TAX INFORMATION
(unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code:
The Fund designates $6,100,752,916 as long-term capital gain distributions in 2019.
The Fund designates up to a maximum amount of $1,719,763,275 of its distributions paid to shareholders in 2019 as qualified dividends (treated for federal income tax purposes in the hands of shareholders as taxable at a maximum rate of 20%). For shareholders that are corporations, the Fund designates 74% of its ordinary dividends paid to shareholders in 2019 as dividends from domestic corporations eligible for the corporate dividends received deduction, provided that the shareholder otherwise satisfies applicable requirements to claim that deduction.
FUNDS’ LIQUIDITY RISK MANAGEMENT PROGRAM
(unaudited)
The Funds have adopted and implemented a written liquidity risk management program as required by Rule 22e-4 under the Investment Company Act. The program is reasonably designed to assess and manage each Fund’s liquidity risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings and access to other funding sources including the Funds’ interfund lending facility and line of credit. The Funds’ Board of Trustees approved the appointment of a Liquidity Risk Management Committee including representatives from Dodge & Cox’s legal, compliance, treasury, operations, trading, and portfolio management departments, which is responsible for the program’s administration and oversight and for reporting to the Board on at least an annual basis regarding the program’s operation and effectiveness. The Liquidity Risk Management Committee refreshed its assessment of the Fund’s liquidity risk profile, considering additional data gathered in the 12 months ended September 30, 2019 and the adequacy and effectiveness of the liquidity risk management program’s operations since its inception in February, 2019 (the “covered period”) in order to prepare a written report to the Board of Trustees for consideration at its meeting held on December 12, 2019. The report concluded that (i) the Fund did not experience significant liquidity challenges during the covered period (ii) the Fund’s investment strategy is appropriate for an open-end fund; and (iii) the Fund’s liquidity risk management program is reasonably designed to assess and manage its liquidity risk.
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, 2019, 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 additionalone-year term through December 31, 2020 with respect to each Fund. During the course of the year, the Board received extensive information and materials relating to the investment management and administrative services provided by Dodge & Cox and the performance of each of the Funds.
INFORMATION RECEIVED
Over the past several years, the Board has requested, received, and discussed a number of special presentations on topics relevant to their annual consideration of the proposed renewal of the Funds’ Agreements. In addition to the foregoing and in advance of the meetings referred to below, the Board, including the Independent Trustees, requested, received, and reviewed materials relating to the Agreements and the services provided by Dodge & Cox. The Independent Trustees retained Broadridge to prepare an independent expense and performance summary for each Fund and comparable funds managed by other advisers identified by Broadridge. The Broadridge materials included information regarding advisory and administrative fee rates, expense ratios, and transfer agency, custodial, and distribution expenses, as well as performance comparisons to each Fund’s peer group and to a broad-based securities index or combination of indices. The Broadridge 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, management fee revenue, and separate account fee schedules. The Board additionally considered the Funds’ brokerage commissions, turnover rates, sales and redemption data, and the investment that Dodge & Cox makes in research used in managing the Funds. The Board received and reviewed memoranda and related materials addressing, among other things, Dodge & Cox’s services to the Funds; how Dodge & Cox Funds’ fees compare to fees of peer group funds; the different fees, services, costs, and risks associated with other accounts managed by Dodge & Cox as compared to the Dodge & Cox Funds; and the ways in which the Funds realize economies of scale. 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 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 mutual fund management arrangements. The Trust’s Contract Review Committee, consisting solely of Independent Trustees, met with the independent legal counsel on November 7, 2019 and again on December 12, 2019 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 asall-important or controlling. In reaching the decision to approve the Agreements, the Board considered
DODGE & COX STOCK FUND§PAGE 15
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 range of services to the Funds in addition to portfolio management, including regulatory compliance, trading desks, proxy voting, transfer agent and custodian oversight, administration, regulatory filings, tax compliance and filings, website, and anti-money laundering. The 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 in the management of the Funds; its consistency in investment approach and depth; the background and experience of the Dodge & Cox U.S. Equity Investment Committee, International Equity Investment Committee, Global Equity Investment Committee, U.S. Fixed Income Investment Committee, and Global Fixed Income Investment Committee, and research analysts responsible for managing the Funds; Dodge & Cox’s methods for assessing the regulatory and investment climate in various jurisdictions; its overall level of attention to its core investment management function; and its commitment to the Funds and their shareholders. The Board reviewed information from Dodge & Cox regarding any material conflicts of interest between the Funds and Dodge & Cox or its other clients, and regarding how Dodge & Cox addresses those conflicts. The Board noted Dodge & Cox’s record of favorable press and industry coverage, as well as its good compliance record, and its reputation as a trusted, shareholder-friendly mutual fund family. In addition, the Board considered that Dodge & Cox manages approximately $211 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, that its investment professionals adhere to a consistent investment approach across the Funds, and that due to its deliberate strategy with respect to new products, Dodge & Cox has had stability in its mutual fund product offerings over the course of many years and has the fewest funds of any of the 25 largest mutual fund families by assets. The Board further considered the “Gold” analyst rating awarded by Morningstar to all of the Funds (other than the Global Bond Fund, which has a “Silver” rating). 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 reviewed each Fund’s recent and long-term investment performance (including periods of outperformance and underperformance), as compared to relevant indices and the performance of such Fund’s peer group and broader Morningstar category. In assessing
the performance of the Funds, the Board considered the Funds’ investment returns over various periods and the volatility thereof and concluded that the levels experienced were consistent with Dodge & Cox’s long-term approach and active investment style. The Board also compared the short- and long-term investment performance of the equity funds to value-oriented indices, in recognition of the significant performance divergence between value and growth stocks over the past several years. It was noted that equity performance has been consistent with the value oriented investment strategy employed by Dodge & Cox. The Board concluded 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 value-oriented investment management process that emphasizes a long-term investment horizon, independent research, a team approach, price discipline, low cost, and low portfolio turnover. The Board concluded that Dodge & Cox has delivered 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 ExpensesThe Board considered each Fund’s management fee rate and net expense ratio relative to (1) a broad category of other mutual funds with similar portfolio characteristics and share class and expense structures and (2) a smaller group of peers selected by Broadridge based on investment style, share class characteristics, and asset levels. The Board also considered the management fees charged by Dodge & Cox to other clients. In particular, the Board considered that the Funds continue to be below their peer group medians in net expense ratios. The Board also evaluated the operating structures of the Funds and Dodge & Cox, noting that the Funds do not chargefront-end sales commissions or distribution fees, and Dodge & Cox bears, among other things, the cost of most third-party research, reimbursement for shareholder recordkeeping and administrative costs to third-party retirement plan administrators, and administrative and office overhead. The Board noted that the Broadridge report shows that the net expense ratio of every Dodge & Cox Fund is in the least expensive quartile compared to its broad Morningstar category. The Board noted the Funds’ unusual single-share-class structure and reviewed Broadridge data (including asset-weighted average expense ratios) showing that most of the peer group funds offer several different classes of shares, with different expense ratios, to different categories of investors, and that the Broadridge expense comparisons described above generally compare the net expense ratio of each Dodge & Cox Fund’s single share class to one of the least expensive share classes of the peer fund, even though those share classes are often not available to retail investors. The Board noted that the Funds provide access for small investors to high quality investment management at a relatively low cost. The Board also considered that the Funds are priced to scale, i.e., management fee rates begin at relatively low levels. Even without breakpoints, the Funds’ management fee rates are lower than those of many peer funds whose fee schedules include breakpoints. With respect tonon-U.S. funds sponsored and managed by Dodge & Cox that are comparable to the Funds in many respects, the Board noted that
PAGE 16§ DODGE & COX STOCK FUND
the fee rates charged by Dodge & Cox are the same as or higher than the fee rates charged to the Funds. 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 the differences in the nature and scope of services Dodge & Cox provides to the Funds as compared to other client accounts, as well as material differences in regulatory, litigation, and other risks as between Dodge & Cox Funds and other types of clients. The Board noted that different markets exist for mutual fund and institutional separate account management services and that a comparison of Fund fee rates and separate account fee rates must consider the fact that separate account clients bear additional costs and responsibilities that are included in the cost of a Fund. 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-ownedS-Corporation and relative to the scope and quality of the services provided. The Board noted in particular that Dodge & Cox’s profits are not generated by high fee rates, but reflect a 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 includes a return on shareholder employees’ investment in the firm, which is vital for remaining independent and facilitating retention of management and investment professionals. The Board also considered that Dodge & Cox has in the past closed some of the Funds to new investors to proactively manage growth in those Funds. While these actions are intended to benefit existing Fund shareholders, the effect is to reduce potential revenues to Dodge & Cox from new shareholders. The Board also considered potential“fall-out” benefits (including the receipt of research from unaffiliated brokers and reputational benefits tonon-U.S. funds sponsored and managed by Dodge & Cox) that Dodge & Cox might receive as a result of its association with the Funds and determined that they are acceptable. The Board also noted that Dodge & Cox continues to invest in its business to provide enhanced services, systems, and research capabilities, all of which benefit the Funds. The Board concluded that Dodge & Cox’s profitability is the keystone of its independence, stability, and long-term investment performance and that the profitability of Dodge & Cox’s relationship with the Funds (includingfall-out benefits) is fair and reasonable.
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 level of 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 and expense structure and the fact that the Dodge & Cox Funds build economies of scale into their fee structures by charging low fees from a fund’s inception and keeping overall expenses down as a Fund grows, as compared to other fund complexes that employ fee “breakpoints” only after a fund reaches a certain scale. An assessment of economies of scale must also take into account that Dodge & Cox invests time and resources in each new Fund for months (and sometimes years) prior to launch; in addition, in a Fund’s early periods of operations, expenses are capped, which means that Dodge & Cox subsidizes the operations of a new Fund for a period of time until it reaches scale. The Board also observed that, while total Fund assets have grown over the long term, this growth has not been continuous or evenly distributed across all of the Funds. In addition, the Board noted that Dodge & Cox has shared the benefits of economies of scale with the Funds by adding services to the Funds over time, and that Dodge & Cox’s internal costs of providing investment management, technology, administrative, legal, and compliance services to the Funds continue to increase. For example, Dodge & Cox has increased its global research staff and investment resources over the years to add new capabilities for the benefit of Fund shareholders and to address the increased complexity of investing globally. In addition, Dodge & Cox has made expenditures in other staff, technology, and infrastructure to enable it to integrate credit and equity analyses and to implement its strategy in a more effective manner. Over the last ten years, Dodge & Cox has increased its spending on research, investment management, client servicing, cybersecurity, technology, third-party research, data services, and computer systems for trading, operations, compliance, accounting, and communications at a rate that has outpaced the Funds’ growth rate during the same period. The Board also observed that, even without fee breakpoints, the Funds are competitively priced in a competitive market and that having a low fee from inception is better for shareholders than starting with a higher fee and adding breakpoints. The Board also noted that there are certain diseconomies of scale associated with managing large funds, insofar as certain of the costs and risks associated with portfolio management increase disproportionately as assets grow. 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 management fee structure was fair and reasonable, that each Fund was paying a competitive fee for the services provided, that
DODGE & COX STOCK FUND§PAGE 17
Dodge & Cox’s services have provided 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 on a quarterly basis by filing the lists with the SEC on Form N-CSR (as of the end of the second and fourth quarters) and on Part F of FormN-PORT (as of the end of the first and third quarters). Shareholders may view the Fund’s Form N-CSR and Part F of Form N-PORT on the SEC’s website at sec.gov. A list of the Fund’s quarter-end holdings is also available at dodgeandcox.com on or about the 15th day following each quarter end and remains available on the website until the list is updated for 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 dodgeandcox.com, or visit the SEC’s website at 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 dodgeandcox.com or at 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.
PAGE 18§ DODGE & COX STOCK FUND
DODGE & COX FUNDS—EXECUTIVE OFFICER & TRUSTEE INFORMATION
| | | | | | |
| | | | |
Name (Age) and
Address* | | Position with Trust (Year of Election or
Appointment)** | | Principal Occupation During Past Five Years and Other Relevant
Experience** | | Other Directorships of Public Companies Held
by Trustees |
| |
| INTERESTED TRUSTEES AND EXECUTIVE OFFICERS |
| Charles F. Pohl (61) | | Chairman and Trustee (since 2014) | | Chairman and Director of Dodge & Cox; Chief Investment Officer and member of U.S. Equity Investment Committee (USEIC), Global Equity Investment Committee (GEIC), and International Equity Investment Committee (IEIC) | | — |
| Dana M. Emery (58) | | President (since 2014) and Trustee (since 1993) | | Chief Executive Officer, President, and Director of Dodge & Cox;Co-Director of Fixed Income (until January 2020) and member of U.S. Fixed Income Investment Committee (USFIIC) and Global Fixed Income Investment Committee (GFIIC) | | — |
| Diana S. Strandberg (60) | | Senior Vice President (since 2006) | | Senior Vice President and Director of Dodge & Cox; Director of International Equity and member of GEIC, IEIC, and GFIIC; member of USEIC (until January 2020) | | — |
| Roberta R.W. Kameda (59) | | Chief Legal Officer (since 2019) and Secretary (since 2017) | | Vice President, General Counsel, and Secretary (since 2017) of Dodge & Cox | | — |
| David H. Longhurst (62) | | Treasurer (since 2006) | | Vice President and Assistant Treasurer of Dodge & Cox | | — |
| Katherine M. Primas (45) | | Chief Compliance Officer (since 2010) | | Vice President and Chief Compliance Officer of Dodge & Cox | | — |
| |
| INDEPENDENT TRUSTEES |
| Caroline M. Hoxby (53) | | Trustee (since 2017) | | Professor of Economics, Stanford University; Director of the Economics of Education Program, National Bureau of Economic Research; Senior Fellow, Hoover Institution and Stanford Institute for Economic Policy Research | | — |
| Thomas A. Larsen (70) | | Trustee (since 2002) | | Senior Counsel of Arnold & Porter (law firm) (2015-2018); Partner of Arnold & Porter (until 2015); Director of Howard, Rice, Nemerovski, Canady, Falk & Rabkin (1977-2011) | | — |
| Ann Mather (59) | | Trustee (since 2011) | | CFO, Pixar Animation Studios (1999-2004) | | Director, Alphabet Inc. (internet information services) (since 2005); Director, Glu Mobile, Inc. (multimedia software) (since 2004); Director, Netflix, Inc. (internet television) (since 2010); Director, Arista Networks (cloud networking) (since 2013) |
| Robert B. Morris III (67) | | Trustee (since 2011) | | Advisory Director, The Presidio Group (2005-2016); Partner and Managing Director—Global Investment Research at Goldman Sachs (until 2001) | | — |
| Gabriela Franco Parcella (51) | | Trustee (since 2020) | | Managing Partner of Merlone Geier Partners (since 2018); Chairman, President, and CEO, Mellon Capital (2011 to 2017); COO, Mellon Capital (1997 to 2011). | | Director, Terreno Realty Corporation (since 2018) |
| Gary Roughead (68) | | Trustee (since 2013) | | Robert and Marion Oster Distinguished Military Fellow, Hoover Institution (since 2012); Admiral, United States Navy (Ret.); U.S. Navy Chief of Naval Operations (2008-2011) | | Director, Northrop Grumman Corp. (global security) (since 2012); Director, Maersk Line, Limited (shipping and transportation) (since 2016) |
| Mark E. Smith (68) | | Trustee (since 2014) | | Executive Vice President, Managing Director—Fixed Income at Loomis Sayles & Company, L.P. (2003-2011) | | — |
| John B. Taylor (73) | | Trustee (since 2005) (and 1995-2001) | | Professor of Economics, Stanford University (since 1984); Senior Fellow, Hoover Institution (since 1996); 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 six series in the Dodge & Cox Funds complex and serves for an indefinite term. |
| ** | | Information as of January 15, 2020. |
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 dodgeandcox.com or calling 800-621-3979.
DODGE & COX STOCK FUND§PAGE 19
dodgeandcox.com
For Fund literature, transactions, and account
information, please visit the Funds’ website.
or write or call:
DODGE & COX FUNDS
c/o DST Asset Manager Solutions, Inc.
P.O. Box 219502
Kansas City, Missouri 64121-9502
(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, 2019, 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.
DODGE & COX FUNDS®
Annual Report
December 31, 2019
Global Stock Fund
ESTABLISHED 2008
TICKER: DODWX
Important Notice:
Beginning on January 1, 2021, we intend to discontinue mailing paper copies of the Fund’s shareholder reports as permitted by new regulations adopted by the Securities and Exchange Commission, unless you specifically request paper copies from Dodge & Cox Funds or from your financial intermediary, such as a broker-dealer or bank. The reports will remain available to you on the Dodge & Cox Funds website (dodgeandcox.com), and you will be notified by mail each time a report is posted and provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. If you have not done so already, you may elect to receive shareholder reports and other communications electronically by enrolling ine-delivery on the Funds website, or, if you are invested through a financial intermediary, by updating your mailing preferences through the intermediary.
If you wish to continue receiving paper copies of all future shareholder reports, please contact us at (800)621-3979. Reports will be provided to you free of charge. If you are invested through a financial intermediary, you may contact your financial intermediary to request to receive paper copies. Your election to receive reports in paper form will apply to all funds held with Dodge & Cox Funds or through your financial intermediary, as applicable.
12/19 GSF AR 
Printed on recycled paper
TO OUR SHAREHOLDERS
The Dodge & Cox Global Stock Fund had a total return of 23.8% for the year ended December 31, 2019, compared to a return of 27.7% for the MSCI World Index.
MARKET COMMENTARY
Global equity markets experienced strong performance in 2019. Improving sentiment surrounding the same macro factors that dragged markets down in 2018—sluggish economic growth, the direction of monetary policy, and trade wars—propelled markets in 2019.
In the United States, the S&P 500 Index reached anall-time high, delivering its strongest annual return since 2013 (up 31%), as every sector posted double-digit returns. Information Technology surged 50% and was the best-performing sector of the S&P 500, while Energy (up 12%) was the worst-performing sector. International equity markets also rebounded sharply in 2019 (MSCI EAFE Index up 22%), more than offsetting the decline in 2018, with every sector of the MSCI EAFE posting positive returns.
INVESTMENT STRATEGY
We believe this is an extremely compelling time to be invested in the value part of the market, given the enormous valuation disparity between value and growth stocks.a History has shown that starting valuation is a major factor in long-term returns, and the current valuation disparity is exceptional: the MSCI World Growth Index now trades at 23.1 times forward earnings, while the MSCI World Value Index trades at 13.4 times.b Investors are paying one of the highest premiums for growth stocks since these indices’ inception in 1997. The current valuation spread is in the 94th percentile and also represents the largest gap since 2000.c
Four sectors encapsulate the current spread between value and growth stocks. On the value end of the spectrum, Financials and Energy are the two largest overweights in the MSCI World Value compared to the overall market. Conversely, Information Technology and Consumer Discretionary are the two largest overweights of the MSCI World Growth compared to the overall market. As a result of ourbottom-up approach, the Fund is overweight Financials, Health Care, and Energy and underweight Information Technology, Consumer Discretionary, and Consumer Staples.
Given the wide valuation spread, we continue to identify attractive investment opportunities and have leaned into challenged areas of the market, such as Energy and Industrials. At the same time, we also reevaluated the portfolio’s strong performers and significantly trimmed back several of those large positions, including Charter Communications, Comcast, ICICI Bank, JD.com, and Naspers.d During 2019, we added more to Energy than any other sector and trimmed the most from Communication Services, particularly in the Media industry.
Compelling Valuations in Energy
Energy companies are trading at low valuations relative to their history and to the broader market. On a price to cash flow basis,
the MSCI World Energy sector is trading at its lowest valuation over the past 20 years relative to the overall MSCI World. Energy companies have suffered from years of lower oil prices, which have reduced cash flows for many companies and made it more difficult to invest in new projects. But this combination of low valuations, lower investments in future supply, and low expectations for oil prices may have created the conditions for attractive relative returns in the future.
During 2019, the Fund increased its exposure to Occidental Petroleum and Baker Hughes as valuations became more attractive and initiated positions in Encanae and Hess. At year end, Energy was 8.9% of the Fund compared to 4.9% for the MSCI World.
Encana: Encana is one of the largest shale oil producers in North America, with high-quality assets in the Permian Basin, Eagle Ford, and Montney. Through its acquisition of Newfield Exploration, Encana also recently entered the Anadarko basin. The company has developed industry-leading operating and technical capabilities. As one of the most sophisticated andlow-cost shale operators in the industry, Encana is able to generate substantial free cash flow across a wide range of oil prices. The company has a strong balance sheet, trades at a high single-digit free cash flow yield, and should be able to grow production atmid-single-digit rates over our investment horizon. Encana’s shares declined substantially after the recent Newfield Exploration acquisition, providing an attractive entry point for us to start a position. This combination of low valuation and reasonable growth is scarce in today’s market. On December 31, Encana was a 1.0% position in the Fund.
Hess: Hess, an independent oil and gas exploration and production company, is investing its strong cash flows from existing assets into a new project with significant production potential in the country.The company owns 30% of a partnership with Exxon Mobil in the Stabroek block in Guyana, and this oil discovery is already one of the largest in recent decades. Much of the Stabroek block remains unexplored, and Hess has interests in additional blocks in Guyana and Suriname. Incremental discoveries on these blocks could provide further upside. In addition, the Guyana resource has some of the lowest development costs outside of OPEC.f The Guyana resource will require significant capital over the next several years, and Hess is reliant on solid execution from Exxon. However, higher incremental returns from this investment should result in attractive free cash flow growth over the next several years. Trading at nine times cash flow, Hess was a 0.9% position in the Fund at year end.
Communication Services: Overweight Media & Entertainment
Within Communication Services, Media & Entertainment is another overweight position in the Fund: 11.4% compared to 5.8% for the MSCI World. Several holdings are in cable and satellite companies (Comcast, Charter Communications, and DISH Network). Comcast and Charter generate strong free cash flows
PAGE 2§ DODGE & COX GLOBAL STOCK FUND
and continue to benefit from growth opportunities in broadband and enterprise services. And DISH has significant wireless spectrum holdings representing unrealized value and potential. Other holdings are content-related media companies such as Alphabet, Baidu, and Grupo Televisa, which offer exposure to growth in digital distribution outlets, advertising, and international markets.
The competitive landscape is rapidly evolving due to growth in video streaming services (e.g., Netflix, Amazon, Hulu), changes in consumer viewing and listening habits, shifting revenue models, and industry consolidation. Longer term, the industry will continue to face uncertainty around potential regulatory incursions (e.g., unbundling, wholesale access, broadband price regulation) as well as technological change, most notably 5G and the challenge it could pose to cable broadband. However, we believe the Fund’s media and entertainment holdings are trading at reasonable valuations in light of attractive growth prospects.
In 2019, the Fund’s media holdings outperformed significantly with Charter Communications and Comcast up 70% and 34%, respectively. Based on their solid performance and higher valuations, we trimmed both holdings.
Comcast: We have held Comcast—the largest U.S. cable provider with over 31 million subscriber relationships—in the Fund since its inception in 2008. Over the years, we have actively added to and trimmed from the position based on relative valuation. The company has technologically advanced connectivity services and the potential to grow through increased broadband penetration and pricing power in both residential and business services. Video cord cutting has turned out to be a manageable risk in light of the company’s broader opportunity set for growth. Outside the United States, Comcast ownspan-European satellite broadcaster Sky, which has 24 million subscribers in seven countries, including the United Kingdom, Italy, and Germany. And NBC Universal (owned by Comcast) has opportunities to increase its operating profit through affiliate fee increases at NBC and continued investment in its Universal theme parks. In addition, owner-operator Chairman and CEO Brian Roberts has created significant shareholder value and leads a deep and strong management team. Comcast was a 1.8% position on December 31.
Charter Communications: As the second-largest U.S. cable operator, Charter Communications offers internet, video, fixed voice, and mobile data/voice services to 29 million subscribers. Charter has continued to add subscribers in its cable broadband business due to its high speeds and cost advantages. Fixed data usage has grown steadily over the past decade and has the potential to continue to grow at attractive rates for the foreseeable future. The company’s high financial leverage is supported by significant infrastructure advantages, which translates to high barriers to entry, significant pricing power, and predictable cash flows. Management holds a significant equity stake and is thus strongly incentivized to create value for its shareholders. Charter accounted for 2.4% of the Fund’s assets.
IN CLOSING
As an employee-owned firm with large ownership in our Funds, we have the independence to invest for the long term and find opportunity in unpopular parts of the market.
Given the wide valuation spread between value and growth stocks in the global equity market, we are finding many attractive opportunities today in the value part of the market. History shows that starting valuation is a major factor in long-term returns. We believe the Fund is well positioned, especially if and when this large valuation gap compresses.
At Dodge & Cox, we remain focused on the long term, on our valuation discipline, and on fundamental analysis of prospective investments on acompany-by-company basis. That is how we construct what we believe is the best portfolio for our clients. We remain optimistic about the outlook for the Fund, and we thank you for your continued confidence in our firm. As always, we welcome your comments and questions.
For the Board of Trustees,
| | |
 | |  |
Charles F. Pohl, Chairman | | Dana M. Emery, President |
January 31, 2020
| a | | Value stocks are the lower valuation portion of the equity market, and growth stocks are the higher valuation portion. |
| b | | Unless otherwise specified, all weightings and characteristics are as of December 31, 2019. |
| c | | The MSCI World Value Index and MSCI World Growth Index were formed in 1997. The 94th percentile was calculated using monthly data from FactSet for 1997-2003 and MSCI for 2003-present. |
| d | | The use of specific examples does not imply that they are more or less attractive investments than the portfolio’s other holdings. |
| e | | Encana changed its name to Ovintiv Inc. on January 24, 2020. |
| f | | The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 13 nations. |
DODGE & COX GLOBAL STOCK FUND§PAGE 3
2019 PERFORMANCE REVIEW
The Fund underperformed the MSCI World Index by 3.8 percentage points in 2019.
Key Detractors from Relative Results
| | § | | Information Technology was the best-performing sector in the MSCI World. The Fund’s weaker relative returns (up 27% compared to up 48% for the MSCI World sector) and average underweight position (10% versus 16%) detracted from returns. | |
| | § | | The Fund’s average overweight position in the Energy sector (8% versus 6% for the MSCI World), the worst-performing sector of the market, hurt results. Occidental Petroleum and Apache performed poorly. | |
| | § | | Additional detractors included Qurate Retail, FedEx, Baidu, and Banco Santander. | |
Key Contributors to Relative Results
| | § | | The Fund’s strong stock selection in the Health Care sector (up 28% compared to up 23% for the MSCI World sector), contributed to results. | |
| | § | | Relative returns in Communication Services (up 30% compared to up 28% for the MSCI World sector), combined with a higher average weighting (14% versus 8%), had a positive impact. Charter Communications and Altice Europe were strong performers. | |
| | § | | Additional contributors included Anadarko Petroleum, JD.com, and Johnson Controls International. | |
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.
90 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 Equity Investment 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 25 years.
One Business with a Single Research Office
Dodge & Cox manages equity (domestic, international, and global), fixed income (domestic and global), 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.
Risks: The Fund is subject to market risk, meaning holdings 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. The Fund is also subject to currency risk. Please read the prospectus and summary prospectus for specific details regarding the Fund’s risk profile.
PAGE 4§ DODGE & COX GLOBAL STOCK FUND
GROWTH OF $10,000 OVER 10 YEARS
FOR AN INVESTMENT MADE ON DECEMBER 31, 2009
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2019
| | | | | | | | | | | | | | | | |
| | | 1 Year | | | 3 Years | | | 5 Years | | | 10 Years | |
Dodge & Cox Global Stock Fund | |
| 23.85
| %
| |
| 9.54
| %
| |
| 7.20
| %
| |
| 9.40
| %
|
MSCI World Index | | | 27.67 | | | | 12.57 | | | | 8.74 | | | | 9.47 | |
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 dodgeandcox.com or call800-621-3979 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 23 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.
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 “Expenses Paid During 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, 2019 | | Beginning Account Value
7/1/2019 | | | Ending Account Value
12/31/2019 | | | Expenses Paid During Period* | |
Based on Actual Fund Return | | $ | 1,000.00 | | | $ | 1,103.40 | | | $ | 3.30 | |
Based on Hypothetical 5% Yearly Return | | | 1,000.00 | | | | 1,022.06 | | | | 3.18 | |
| * | | Expenses are equal to the Fund’s annualized expense ratio of 0.62%, multiplied by the average account value over the period, multiplied by 184/365 (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. Though 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 5
| | | | |
| PORTFOLIO INFORMATION | | | December 31, 2019 | |
| | | | |
| SECTOR DIVERSIFICATION (%)(a) | | % of Net Assets | |
Financials | | | 31.2 | |
Health Care | | | 17.9 | |
Communication Services | | | 12.4 | |
Information Technology | | | 9.6 | |
Energy | | | 8.9 | |
Consumer Discretionary | | | 7.6 | |
Industrials | | | 6.8 | |
Materials | | | 3.1 | |
Consumer Staples | | | 0.5 | |
Real Estate | | | 0.3 | |
| | | | |
| REGION DIVERSIFICATION (%)(a) | | % of Net Assets | |
United States | | | 44.4 | |
Europe (excluding United Kingdom) | | | 26.9 | |
Asia Pacific (excluding Japan) | | | 8.4 | |
United Kingdom | | | 8.0 | |
Latin America | | | 3.8 | |
Japan | | | 3.4 | |
Canada | | | 2.3 | |
Africa | | | 1.1 | |
| (a) | Excludes the Fund’s exposure through total return swaps. As of period end, the Fund held long total return swaps referencing Naspers, Ltd. and Prosus NV with notional exposure of 0.46% and 0.21% respectively. In addition, to manage Naspers, Ltd.’s and Prosus NV’s exposure to Tencent Holdings, Ltd., the Fund held a short total return swap referencing Tencent Holdings, Ltd. with notional exposure of –0.76%. |
PAGE 6§ DODGE & COX GLOBAL STOCK FUND
| | | | |
| CONSOLIDATED PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| COMMON STOCKS: 95.4% | |
| | |
| | | SHARES | | | VALUE | |
| COMMUNICATION SERVICES: 12.4% | |
MEDIA & ENTERTAINMENT: 11.4% | |
Alphabet, Inc., Class C(a) (United States) | | | 200,499 | | | $ | 268,071,173 | |
Altice Europe NV, Series A(a) (Netherlands) | | | 1,884,595 | | | | 12,150,985 | |
Baidu, Inc. ADR(a) (Cayman Islands/China) | | | 1,384,800 | | | | 175,038,720 | |
Charter Communications, Inc., Class A(a) (United States) | | | 503,197 | | | | 244,090,801 | |
Comcast Corp., Class A (United States) | | | 4,201,200 | | | | 188,927,964 | |
DISH Network Corp., Class A(a) (United States) | | | 1,630,800 | | | | 57,844,476 | |
Grupo Televisa SAB ADR (Mexico) | | | 12,141,400 | | | | 142,418,622 | |
Liberty Global PLC, Series C(a) (United Kingdom) | | | 3,430,200 | | | | 74,761,209 | |
MultiChoice Group, Ltd.(a) (South Africa) | | | 832,403 | | | | 6,923,815 | |
Television Broadcasts, Ltd. (Hong Kong) | | | 2,509,500 | | | | 3,941,876 | |
| | | | | | | | |
| | | | 1,174,169,641 | |
TELECOMMUNICATION SERVICES: 1.0% | |
Millicom International Cellular SA SDR (Luxembourg) | | | 1,272,984 | | | | 61,013,590 | |
Sprint Corp.(a) (United States) | | | 8,518,500 | | | | 44,381,385 | |
| | | | | | | | |
| | | | 105,394,975 | |
| | | | | | | | |
| | | | 1,279,564,616 | |
| CONSUMER DISCRETIONARY: 7.6% | |
AUTOMOBILES & COMPONENTS: 1.8% | |
Bayerische Motoren Werke AG (Germany) | | | 894,300 | | | | 73,620,090 | |
Honda Motor Co., Ltd. (Japan) | | | 3,791,300 | | | | 106,941,915 | |
| | | | | | | | |
| | | | 180,562,005 | |
CONSUMER DURABLES & APPAREL: 0.3% | |
Mattel, Inc.(a) (United States) | | | 2,144,367 | | | | 29,056,173 | |
|
RETAILING: 5.5% | |
Alibaba Group Holding, Ltd. ADR(a) (Cayman Islands/China) | | | 452,700 | | | | 96,017,670 | |
Booking Holdings, Inc.(a) (United States) | | | 75,500 | | | | 155,056,615 | |
JD.com, Inc. ADR(a) (Cayman Islands/China) | | | 3,202,746 | | | | 112,832,742 | |
Naspers, Ltd. (South Africa) | | | 636,453 | | | | 104,096,828 | |
Prosus NV(a) (Netherlands) | | | 793,553 | | | | 59,220,240 | |
Qurate Retail, Inc., Series A(a) (United States) | | | 5,081,572 | | | | 42,837,652 | |
| | | | | | | | |
| | | | 570,061,747 | |
| | | | | | | | |
| | | | 779,679,925 | |
| CONSUMER STAPLES: 0.5% | |
FOOD & STAPLES RETAILING: 0.5% | |
Magnit PJSC (Russia) | | | 1,006,100 | | | | 55,524,970 | |
|
| ENERGY: 8.5% | |
Apache Corp. (United States) | | | 4,567,082 | | | | 116,871,628 | |
Baker Hughes Co., Class A (United States) | | | 3,444,827 | | | | 88,290,916 | |
Encana Corp. (Canada) | | | 22,392,990 | | | | 105,023,123 | |
Hess Corp. (United States) | | | 1,357,232 | | | | 90,676,670 | |
Occidental Petroleum Corp. (United States) | | | 6,865,663 | | | | 282,933,972 | |
Schlumberger, Ltd. (Curacao/United States) | | | 1,431,200 | | | | 57,534,240 | |
Suncor Energy, Inc. (Canada) | | | 4,090,300 | | | | 134,161,840 | |
| | | | | | | | |
| | | | 875,492,389 | |
| FINANCIALS: 29.7% | |
Banks: 18.8% | |
Axis Bank, Ltd. (India) | | | 10,609,600 | | | | 111,851,092 | |
Banco Santander SA (Spain) | | | 39,562,298 | | | | 165,526,315 | |
Bank of America Corp. (United States) | | | 4,167,300 | | | | 146,772,306 | |
Barclays PLC (United Kingdom) | | | 51,775,300 | | | | 123,199,900 | |
BNP Paribas SA (France) | | | 4,430,500 | | | | 262,548,811 | |
ICICI Bank, Ltd. (India) | | | 26,088,336 | | | | 196,873,724 | |
KasikornbankPCL- Foreign (Thailand) | | | 4,969,500 | | | | 24,867,895 | |
Mitsubishi UFJ Financial Group, Inc. (Japan) | | | 17,775,000 | | | | 96,066,821 | |
Societe Generale SA (France) | | | 6,432,485 | | | | 223,783,093 | |
Standard Chartered PLC (United Kingdom) | | | 16,581,477 | | | | 156,470,262 | |
| | | | | | | | |
| | |
| | | SHARES | | | VALUE | |
UniCredit SPA (Italy) | | | 17,421,366 | | | $ | 254,705,442 | |
Wells Fargo & Co. (United States) | | | 3,177,773 | | | | 170,964,187 | |
| | | | | | | | |
| | | | 1,933,629,848 | |
DIVERSIFIED FINANCIALS: 9.4% | |
Bank of New York Mellon Corp. (United States) | | | 1,244,400 | | | | 62,630,652 | |
Capital One Financial Corp. (United States) | | | 1,927,200 | | | | 198,328,152 | |
Charles Schwab Corp. (United States) | | | 3,596,500 | | | | 171,049,540 | |
Credit Suisse Group AG (Switzerland) | | | 13,783,799 | | | | 187,059,383 | |
Goldman Sachs Group, Inc. (United States) | | | 534,900 | | | | 122,989,557 | |
UBS Group AG (Switzerland) | | | 17,534,800 | | | | 221,304,142 | |
| | | | | | | | |
| | | | 963,361,426 | |
INSURANCE: 1.5% | |
AEGON NV (Netherlands) | | | 12,085,507 | | | | 55,133,524 | |
Aviva PLC (United Kingdom) | | | 18,209,820 | | | | 100,993,471 | |
| | | | | | | | |
| | | | 156,126,995 | |
| | | | | | | | |
| | | | 3,053,118,269 | |
| HEALTH CARE: 17.9% | |
HEALTH CARE EQUIPMENT & SERVICES: 4.0% | |
Cigna Corp. (United States) | | | 776,638 | | | | 158,814,705 | |
CVS Health Corp. (United States) | | | 1,447,500 | | | | 107,534,775 | |
UnitedHealth Group, Inc. (United States) | | | 489,000 | | | | 143,756,220 | |
| | | | | | | | |
| | | | 410,105,700 | |
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES: 13.9% | |
Alnylam Pharmaceuticals, Inc.(a) (United States) | | | 358,500 | | | | 41,288,445 | |
AstraZeneca PLC (United Kingdom) | | | 1,052,300 | | | | 106,032,176 | |
Bayer AG (Germany) | | | 1,972,220 | | | | 161,209,234 | |
Bristol-Myers Squibb Co. (United States) | | | 2,542,700 | | | | 163,215,913 | |
GlaxoSmithKline PLC (United Kingdom) | | | 9,238,400 | | | | 217,699,483 | |
Incyte Corp.(a) (United States) | | | 438,300 | | | | 38,272,356 | |
Novartis AG (Switzerland) | | | 1,985,900 | | | | 188,148,865 | |
Roche Holding AG (Switzerland) | | | 678,000 | | | | 219,846,956 | |
Sanofi (France) | | | 2,963,762 | | | | 297,937,362 | |
| | | | | | | | |
| | | | 1,433,650,790 | |
| | | | | | | | |
| | | | 1,843,756,490 | |
| INDUSTRIALS: 6.8% | |
CAPITAL GOODS: 4.3% | |
Johnson Controls International PLC (Ireland/United States) | | | 2,766,903 | | | | 112,640,621 | |
Mitsubishi Electric Corp. (Japan) | | | 10,640,500 | | | | 144,680,748 | |
Schneider Electric SA (France) | | | 648,578 | | | | 66,567,157 | |
United Technologies Corp. (United States) | | | 768,700 | | | | 115,120,512 | |
| | | | | | | | |
| | | | 439,009,038 | |
TRANSPORTATION: 2.5% | |
FedEx Corp. (United States) | | | 1,721,500 | | | | 260,308,015 | |
| | | | | | | | |
| | | | 699,317,053 | |
| INFORMATION TECHNOLOGY: 8.6% | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT: 1.6% | |
Microchip Technology, Inc. (United States) | | | 1,582,300 | | | | 165,698,456 | |
|
SOFTWARE & SERVICES: 2.3% | |
Cognizant Technology Solutions Corp., Class A (United States) | | | 690,500 | | | | 42,824,810 | |
Micro Focus International PLC (United Kingdom) | | | 3,002,699 | | | | 42,311,310 | |
Microsoft Corp. (United States) | | | 980,300 | | | | 154,593,310 | |
| | | | | | | | |
| | | | 239,729,430 | |
TECHNOLOGY, HARDWARE & EQUIPMENT: 4.7% | |
Dell Technologies, Inc., Class C(a) (United States) | | | 1,888,643 | | | | 97,057,364 | |
Hewlett Packard Enterprise Co. (United States) | | | 5,823,298 | | | | 92,357,506 | |
HP Inc. (United States) | | | 4,207,700 | | | | 86,468,235 | |
| | |
| See accompanying Notes to Consolidated Financial Statements | | DODGE & COX GLOBAL STOCK FUND§PAGE 7 |
| | | | |
| CONSOLIDATED PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| COMMON STOCKS (continued) | |
| | |
| | | SHARES | | | VALUE | |
Juniper Networks, Inc. (United States) | | | 3,067,168 | | | $ | 75,544,348 | |
Samsung Electronics Co., Ltd. (South��Korea) | | | 159,600 | | | | 7,690,220 | |
TE Connectivity, Ltd. (Switzerland) | | | 1,261,115 | | | | 120,865,261 | |
| | | | | | | | |
| | | | 479,982,934 | |
| | | | | | | | |
| | | | 885,410,820 | |
| MATERIALS: 3.1% | |
Celanese Corp. (United States) | | | 791,500 | | | | 97,449,480 | |
Cemex SAB de CV ADR (Mexico) | | | 14,039,917 | | | | 53,070,886 | |
LafargeHolcim, Ltd. (Switzerland) | | | 1,519,662 | | | | 84,267,946 | |
Linde PLC (Ireland/United States) | | | 384,361 | | | | 82,510,492 | |
| | | | | | | | |
| | | | 317,298,804 | |
| REAL ESTATE: 0.3% | |
Hang Lung Group, Ltd. (Hong Kong) | | | 14,717,900 | | | | 36,377,803 | |
| | | | | | | | |
TOTAL COMMON STOCKS
(Cost $8,233,050,188) | | | | | | $ | 9,825,541,139 | |
|
| PREFERRED STOCKS: 2.9% | |
| |
|
| ENERGY: 0.4% | |
Petroleo Brasileiro SA (Brazil) | | | 5,659,606 | | | | 42,357,540 | |
|
| FINANCIALS: 1.5% | |
BANKS: 1.5% | |
Itau Unibanco Holding SA (Brazil) | | | 16,584,293 | | | | 152,611,767 | |
|
| INFORMATION TECHNOLOGY: 1.0% | |
TECHNOLOGY, HARDWARE & EQUIPMENT: 1.0% | |
Samsung Electronics Co., Ltd. (South Korea) | | | 2,509,700 | | | | 97,914,241 | |
| | | | | | | | |
TOTAL PREFERRED STOCKS
(Cost $126,284,285) | | | $ | 292,883,548 | |
|
| SHORT-TERM INVESTMENTS: 1.6% | |
| | |
| | | PAR
VALUE/SHARES | | | VALUE | |
REPURCHASE AGREEMENTS: 1.2% | |
Bank of Montreal(b)
1.48%, dated 12/31/19, due 1/2/20,
maturity value $29,902,458 | | $ | 29,900,000 | | | $ | 29,900,000 | |
Fixed Income Clearing Corporation(b)
1.00%, dated 12/31/19, due 1/2/20, maturity value $38,372,132 | | | 38,370,000 | | | | 38,370,000 | |
Royal Bank of Canada(b)
1.53%, dated 12/31/19, due 1/2/20, maturity value $59,905,092 | | | 59,900,000 | | | | 59,900,000 | |
| | | | | | | | |
| | | | 128,170,000 | |
MONEY MARKET FUND: 0.4% | |
State Street Institutional U.S. Government Money Market Fund | | | 41,147,416 | | | | 41,147,416 | |
| | | | | | | | |
TOTAL SHORT-TERM INVESTMENTS
(Cost $169,317,416) | | | $ | 169,317,416 | |
| | | | | | | | |
TOTAL INVESTMENTS IN SECURITIES
(Cost $8,528,651,819) | | | 99.9 | % | | $ | 10,287,742,103 | |
OTHER ASSETS LESS LIABILITIES | | | 0.1 | % | | | 7,870,616 | |
| | | | | | | | |
| NET ASSETS | | | 100.0 | % | | $ | 10,295,612,719 | |
| | | | | | | | |
| (b) | Repurchase agreements are collateralized by: |
Bank of Montreal: U.S. Treasury Notes1.125%-4.375%,2/29/20-5/15/46 and U.S. Treasury Inflation Indexed Notes1.00%-1.375%,1/15/20-2/15/46. Total collateral value is $30,500,564.
Fixed Income Clearing Corporation: U.S. Treasury Note 1.50%, 8/31/21. Total collateral value is $39,140,628.
Royal Bank of Canada: U.S. Treasury Notes2.125%-2.50%,1/15/22-12/31/22. Total collateral value is $61,103,212.
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 or in other limited circumstances, the Fund uses the country designation of an appropriate broad-based market index. In those cases, 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
| | |
| PAGE 8§ DODGE & COX GLOBAL STOCK FUND | | See accompanying Notes to Consolidated Financial Statements |
| | | | |
| CONSOLIDATED PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
EQUITY TOTAL RETURN SWAPS(a)
| | | | | | | | | | | | | | | | | | |
| Fund Receives | | Fund Pays | | Counterparty | | | Maturity
Date | | | Notional
Amount | | | Value / Unrealized
Appreciation/
(Depreciation) | |
Total Return on Naspers, Ltd. | | 2.898% | | | JPMorgan | | | | 9/30/20 | | | $ | 46,468,024 | | | $ | (1,468,355 | ) |
Total Return on Prosus NV | | 2.898% | | | JPMorgan | | | | 9/30/20 | | | | 21,380,090 | | | | (2,007,612 | ) |
2.198% | | Total Return on Tencent Holdings, Ltd. | | | JPMorgan | | | | 9/30/20 | | | | 75,950,463 | | | | (5,948,848 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | $ | (9,424,815 | ) |
| | | | | | | | | | | | | | | | | | |
| (a) | The combination of the equity total return swaps is designed to hedge Naspers Ltd.’s and Prosus NV’s exposure to Tencent Holdings, Ltd. The swaps pay at maturity; no upfront payments were made. |
FUTURES CONTRACTS
| | | | | | | | | | | | | | | | |
| Description | | Number of
Contracts | | | Expiration
Date | | | Notional
Amount | | | Value /
Unrealized
Appreciation
(Depreciation) | |
E-mini S&P 500 Index—Long Position | | | 1,083 | | | | 3/20/20 | | | $ | 174,964,065 | | | $ | 1,717,020 | |
CURRENCY FORWARD CONTRACTS
| | | | | | | | | | | | | | | | | | | | | | | | |
| Counterparty | | Settle Date | | | Currency Purchased | | | Currency Sold | | | Unrealized
Appreciation (Depreciation) | |
CHF: Swiss Franc | | | | | | | | | | | | | | | | | | | | | | | | |
UBS | | | 1/29/20 | | | | USD | | | | 51,670,164 | | | | CHF | | | | 51,051,000 | | | $ | (1,165,447 | ) |
UBS | | | 1/29/20 | | | | USD | | | | 51,690,986 | | | | CHF | | | | 51,051,000 | | | | (1,144,625 | ) |
Barclays | | | 2/26/20 | | | | USD | | | | 12,135,613 | | | | CHF | | | | 11,900,000 | | | | (204,583 | ) |
Citibank | | | 2/26/20 | | | | USD | | | | 12,137,915 | | | | CHF | | | | 11,900,000 | | | | (202,281 | ) |
Barclays | | | 3/11/20 | | | | USD | | | | 18,809,554 | | | | CHF | | | | 18,450,000 | | | | (341,966 | ) |
Morgan Stanley | | | 3/11/20 | | | | USD | | | | 18,785,318 | | | | CHF | | | | 18,450,000 | | | | (366,202 | ) |
CNH: Chinese Yuan Renminbi | | | | | | | | | | | | | | | | | | | | | | | | |
Credit Suisse | | | 1/8/20 | | | | USD | | | | 19,694,939 | | | | CNH | | | | 135,156,520 | | | | 280,541 | |
State Street | | | 1/8/20 | | | | USD | | | | 2,917,791 | | | | CNH | | | | 20,000,000 | | | | 44,915 | |
State Street | | | 1/8/20 | | | | USD | | | | 2,916,940 | | | | CNH | | | | 20,000,000 | | | | 44,064 | |
Bank of America | | | 1/15/20 | | | | USD | | | | 18,602,432 | | | | CNH | | | | 125,717,097 | | | | 546,279 | |
Credit Suisse | | | 1/15/20 | | | | USD | | | | 18,843,578 | | | | CNH | | | | 127,621,902 | | | | 513,847 | |
State Street | | | 1/15/20 | | | | USD | | | | 18,881,493 | | | | CNH | | | | 127,621,901 | | | | 551,762 | |
JPMorgan | | | 1/15/20 | | | | CNH | | | | 280,000,000 | | | | USD | | | | 40,238,557 | | | | (23,479 | ) |
Goldman Sachs | | | 1/22/20 | | | | USD | | | | 19,155,086 | | | | CNH | | | | 130,676,000 | | | | 389,775 | |
Citibank | | | 2/5/20 | | | | USD | | | | 8,002,896 | | | | CNH | | | | 54,018,750 | | | | 248,265 | |
HSBC | | | 2/5/20 | | | | USD | | | | 7,967,921 | | | | CNH | | | | 53,750,000 | | | | 251,869 | |
JPMorgan | | | 2/5/20 | | | | USD | | | | 16,469,916 | | | | CNH | | | | 115,240,000 | | | | (73,298 | ) |
JPMorgan | | | 2/5/20 | | | | USD | | | | 8,004,557 | | | | CNH | | | | 54,018,750 | | | | 249,925 | |
State Street | | | 2/5/20 | | | | USD | | | | 7,882,983 | | | | CNH | | | | 53,212,500 | | | | 244,092 | |
UBS | | | 2/5/20 | | | | USD | | | | 16,225,255 | | | | CNH | | | | 113,520,000 | | | | (71,045 | ) |
UBS | | | 2/5/20 | | | | USD | | | | 16,466,386 | | | | CNH | | | | 115,240,000 | | | | (76,828 | ) |
Citibank | | | 2/5/20 | | | | CNH | | | | 72,025,000 | | | | USD | | | | 10,143,652 | | | | 195,857 | |
Citibank | | | 2/5/20 | | | | CNH | | | | 70,950,000 | | | | USD | | | | 10,007,758 | | | | 177,430 | |
Citibank | | | 2/5/20 | | | | CNH | | | | 72,025,000 | | | | USD | | | | 10,142,938 | | | | 196,571 | |
Bank of America | | | 2/12/20 | | | | USD | | | | 4,790,613 | | | | CNH | | | | 32,500,000 | | | | 125,910 | |
HSBC | | | 2/12/20 | | | | USD | | | | 4,796,057 | | | | CNH | | | | 32,500,000 | | | | 131,354 | |
JPMorgan | | | 2/12/20 | | | | USD | | | | 15,679,738 | | | | CNH | | | | 111,000,000 | | | | (252,017 | ) |
Barclays | | | 3/4/20 | | | | USD | | | | 18,724,862 | | | | CNH | | | | 125,700,000 | | | | 692,661 | |
UBS | | | 9/23/20 | | | | USD | | | | 45,575,548 | | | | CNH | | | | 327,000,000 | | | | (1,098,728 | ) |
HSBC | | | 11/18/20 | | | | USD | | | | 2,680,091 | | | | CNH | | | | 18,926,000 | | | | (17,522 | ) |
JPMorgan | | | 11/18/20 | | | | USD | | | | 13,810,598 | | | | CNH | | | | 98,000,000 | | | | (157,811 | ) |
JPMorgan | | | 11/18/20 | | | | USD | | | | 13,801,845 | | | | CNH | | | | 98,000,000 | | | | (166,563 | ) |
UBS | | | 11/18/20 | | | | USD | | | | 21,551,724 | | | | CNH | | | | 152,000,000 | | | | (113,562 | ) |
HSBC | | | 1/13/21 | | | | USD | | | | 30,646,516 | | | | CNH | | | | 219,000,000 | | | | (524,094 | ) |
HSBC | | | 1/13/21 | | | | USD | | | | 30,631,513 | | | | CNH | | | | 219,000,000 | | | | (539,097 | ) |
JPMorgan | | | 5/12/21 | | | | USD | | | | 39,755,786 | | | | CNH | | | | 280,000,000 | | | | 48,607 | |
Goldman Sachs | | | 10/27/21 | | | | USD | | | | 12,720,309 | | | | CNH | | | | 90,000,000 | | | | 22,803 | |
HSBC | | | 10/27/21 | | | | USD | | | | 12,723,546 | | | | CNH | | | | 90,000,000 | | | | 26,040 | |
HSBC | | | 1/26/22 | | | | USD | | | | 9,113,221 | | | | CNH | | | | 64,397,667 | | | | 52,174 | |
JPMorgan | | | 1/26/22 | | | | USD | | | | 9,135,069 | | | | CNH | | | | 64,397,666 | | | | 74,022 | |
| | |
| See accompanying Notes to Consolidated Financial Statements | | DODGE & COX GLOBAL STOCK FUND§PAGE 9 |
| | | | |
| CONSOLIDATED PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Counterparty | | Settle Date | | | Currency Purchased | | | Currency Sold | | | Unrealized
Appreciation (Depreciation) | |
JPMorgan | | | 1/26/22 | | | | USD | | | | 9,093,789 | | | | CNH | | | | 64,397,667 | | | $ | 32,742 | |
Goldman Sachs | | | 4/27/22 | | | | USD | | | | 9,234,784 | | | | CNH | | | | 64,264,860 | | | | 214,152 | |
HSBC | | | 4/27/22 | | | | USD | | | | 9,230,132 | | | | CNH | | | | 65,238,570 | | | | 72,824 | |
HSBC | | | 4/27/22 | | | | USD | | | | 5,378,709 | | | | CNH | | | | 38,525,000 | | | | (28,910 | ) |
HSBC | | | 4/27/22 | | | | USD | | | | 5,296,950 | | | | CNH | | | | 37,950,000 | | | | (29,957 | ) |
HSBC | | | 4/27/22 | | | | USD | | | | 5,374,581 | | | | CNH | | | | 38,525,000 | | | | (33,037 | ) |
HSBC | | | 4/27/22 | | | | USD | | | | 9,369,992 | | | | CNH | | | | 65,238,570 | | | | 212,684 | |
Goldman Sachs | | | 7/27/22 | | | | USD | | | | 16,793,687 | | | | CNH | | | | 124,500,000 | | | | (640,045 | ) |
UBS | | | 7/27/22 | | | | USD | | | | 16,793,687 | | | | CNH | | | | 124,500,000 | | | | (640,045 | ) |
HSBC | | | 10/26/22 | | | | USD | | | | 10,530,691 | | | | CNH | | | | 76,000,000 | | | | (86,135 | ) |
HSBC | | | 10/26/22 | | | | USD | | | | 10,535,071 | | | | CNH | | | | 76,000,000 | | | | (81,756 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized gain on currency forward contracts | | | | 5,641,165 | |
Unrealized loss on currency forward contracts | | | | (8,079,033 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized loss on currency forward contracts | | | $ | (2,437,868 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
The listed counterparty may be the parent company or one of its subsidiaries.
| | |
| PAGE 10§ DODGE & COX GLOBAL STOCK FUND | | See accompanying Notes to Consolidated Financial Statements |
| | | | |
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES | |
| |
| | | December 31, 2019 | |
ASSETS: | |
Investments in securities, at value (cost $8,528,651,819) | | $ | 10,287,742,103 | |
Unrealized appreciation on currency forward contracts | | | 5,641,165 | |
Cash pledged as collateral for over-the-counter derivatives | | | 14,770,000 | |
Cash | | | 387,752 | |
Cash denominated in foreign currency (cost $1,052) | | | 1,063 | |
Deposits with broker for futures contracts | | | 6,822,900 | |
Receivable for variation margin for futures contracts | | | 416,954 | |
Receivable for investments sold | | | 695,538 | |
Receivable for Fund shares sold | | | 740,758 | |
Dividends and interest receivable | | | 20,831,174 | |
Prepaid expenses and other assets | | | 65,320 | |
| | | | |
| | | 10,338,114,727 | |
| | | | |
LIABILITIES: | |
Unrealized depreciation on currency forward contracts | | | 8,079,033 | |
Unrealized depreciation on swap contracts | | | 9,424,815 | |
Cash received as collateral for over-the-counter derivatives | | | 4,150,000 | |
Payable for Fund shares redeemed | | | 1,806,531 | |
Management fees payable | | | 5,167,597 | |
Deferred foreign capital gains tax | | | 13,485,932 | |
Accrued expenses | | | 388,100 | |
| | | | |
| | | 42,502,008 | |
| | | | |
NET ASSETS | | $ | 10,295,612,719 | |
| | | | |
NET ASSETS CONSIST OF: | |
Paid in capital | | $ | 8,663,336,744 | |
Distributable earnings | | | 1,632,275,975 | |
| | | | |
| | $ | 10,295,612,719 | |
| | | | |
Fund shares outstanding (par value $0.01 each, unlimited shares authorized) | | | 810,108,066 | |
Net asset value per share | | $ | 12.71 | |
| |
CONSOLIDATED STATEMENT OF OPERATIONS | | | | |
| |
| | | Year Ended
December 31, 2019 | |
INVESTMENT INCOME: | |
Dividends (net of foreign taxes of $15,268,609) | | $ | 261,180,697 | |
Interest | | | 2,926,973 | |
| | | | |
| | | 264,107,670 | |
| | | | |
EXPENSES: | |
Management fees | | | 57,598,684 | |
Custody and fund accounting fees | | | 610,691 | |
Transfer agent fees | | | 410,862 | |
Professional services | | | 269,565 | |
Shareholder reports | | | 135,943 | |
Registration fees | | | 205,367 | |
Trustees’ fees | | | 341,667 | |
ADR depositary services fees | | | 191,617 | |
Miscellaneous | | | 126,233 | |
| | | | |
| | | 59,890,629 | |
| | | | |
NET INVESTMENT INCOME | | | 204,217,041 | |
| | | | |
REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) | |
Investments in securities (net of foreign taxes of $1,788,954) | | | 219,077,456 | |
Futures contracts | | | 19,719,504 | |
Swaps | | | (494,589 | ) |
Currency forward contracts | | | 15,643,306 | |
Foreign currency transactions | | | (875,786 | ) |
Net change in unrealized appreciation/depreciation | |
Investments in securities (net of increase in deferred foreign capital gains tax of $8,048,717) | | | 1,574,842,683 | |
Futures contracts | | | 20,008 | |
Swaps | | | (9,424,815 | ) |
Currency forward contracts | | | (7,060,231 | ) |
Foreign currency translation | | | 382,313 | |
| | | | |
Net realized and unrealized gain | | | 1,811,829,849 | |
| | | | |
NET CHANGE IN NET ASSETS FROM OPERATIONS | | $ | 2,016,046,890 | |
| | | | |
| | | | | | | | |
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS | |
| | |
| | | Year Ended
December 31, 2019 | | | Year Ended
December 31, 2018 | |
OPERATIONS: | | | | | | | | |
Net investment income | | $ | 204,217,041 | | | $ | 146,642,500 | |
Net realized gain (loss) | | | 253,069,891 | | | | 719,841,807 | |
Net change in unrealized appreciation/depreciation | | | 1,558,759,958 | | | | (2,121,170,507 | ) |
| | | | | | | | |
| | | 2,016,046,890 | | | | (1,254,686,200 | ) |
| | | | | | | | |
| | |
DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
Total distributions | | | (714,489,482 | ) | | | (770,232,844 | ) |
| | |
FUND SHARE TRANSACTIONS: | | | | | | | | |
Proceeds from sale of shares | | | 1,228,950,565 | | | | 1,404,694,112 | |
Reinvestment of distributions | | | 692,724,507 | | | | 749,634,584 | |
Cost of shares redeemed | | | (1,541,815,203 | ) | | | (1,425,797,344 | ) |
| | | | | | | | |
Net change from Fund share transactions | | | 379,859,869 | | | | 728,531,352 | |
| | | | | | | | |
Total change in net assets | | | 1,681,417,277 | | | | (1,296,387,692 | ) |
| | |
NET ASSETS: | | | | | | | | |
Beginning of year | | | 8,614,195,442 | | | | 9,910,583,134 | |
| | | | | | | | |
End of year | | $ | 10,295,612,719 | | | $ | 8,614,195,442 | |
| | | | | | | | |
| | |
SHARE INFORMATION: | | | | | | | | |
Shares sold | | | 100,250,875 | | | | 103,488,968 | |
Distributions reinvested | | | 54,978,135 | | | | 67,840,234 | |
Shares redeemed | | | (125,774,206 | ) | | | (105,831,354 | ) |
| | | | | | | | |
Net change in shares outstanding | | | 29,454,804 | | | | 65,497,848 | |
| | | | | | | | |
| | |
| See accompanying Notes to Consolidated Financial Statements | | DODGE & COX GLOBAL STOCK FUND§PAGE 11 |
NOTES TO CONSOLIDATED 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 anopen-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 equity securities. 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 Fund is an investment company and follows the accounting and reporting guidance issued in Topic 946 by the Financial Accounting Standards Board. 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 normally valued as of the scheduled close of trading on the New York Stock Exchange (“NYSE”), generally 4 p.m. Eastern Time, each day that the NYSE is open for business.
Portfolio holdings for which market quotes are readily available are valued at market value. Listed securities, for example, are generally valued using the official quoted close price or the last sale on the exchange that is determined to be the primary market for the security. Exchange-traded derivatives are valued at the settlement price determined by the relevant exchange.Short-term securities less than 60 days to maturity may be valued at amortized cost if amortized cost approximates current value. Mutual funds are valued at their respective net asset values. Security values are not discounted based on the size of the Fund’s position and may differ from the value the Fund receives upon sale of the securities.
Investments initially valued in currencies other than the U.S. dollar are converted to the U.S. dollar using prevailing exchange rates. Currency forward contracts are valued based on the prevailing forward exchange rates of the underlying currencies. As a result, the Fund’s net assets 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 normal valuation procedures produce valuations that are deemed unreliable or inappropriate under the circumstances existing at the time, the investment will be valued at fair value as determined in good faith by or under the direction of the Fund’s Board of Trustees. The Board of Trustees has appointed Dodge & Cox, the Fund’s investment manager, to make fair value determinations in accordance with the Dodge & Cox Funds Valuation Policies (“Valuation Policies”), subject to Board oversight. Dodge & Cox has established a Pricing Committee that is comprised of representatives from Treasury, Legal, Compliance, and Operations. The Pricing Committee is responsible for implementing the
Valuation Policies, including determining the fair value of securities and other investments when necessary. The Pricing Committee considers relevant indications of value that are reasonably available to it in determining the fair value assigned to a particular security, such as the value of similar financial instruments, trading volumes, contractual restrictions on disposition, related corporate actions, and changes in economic conditions. In doing so, the Pricing Committee employs various methods for calibrating fair valuation approaches, including a regular review of key inputs and assumptions, back-testing, and review of any related market activity.
As trading in securities on most foreign exchanges is normally completed before the close of the NYSE, the value of non-U.S. securities can change by the time the Fund calculates its net asset value. To address these changes, the Fund may utilize adjustment factors provided by an independent pricing service to systematically value non-U.S. securities at fair value. These adjustment factors are based on statistical analyses of subsequent movements and changes in U.S. markets and financial instruments trading in U.S. markets that represent foreign securities or baskets of securities.
Valuing securities through a fair value determination involves greater reliance on judgment than valuation of securities based on readily available market quotations. In some instances, lack of information and uncertainty as to the significance of information may lead to a conclusion that a prior valuation is the best indication of a security’s value. 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.
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 theex-dividend date, or when the Fund first learns of the transaction if the ex-dividend date has passed.Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends characterized as return of capital for U.S. tax purposes 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. Some 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 using methodologies determined by the nature of the expense.
Distributions to shareholders are recorded on theex-dividend date.
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
PAGE 12§ DODGE & COX GLOBAL STOCK FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. A corresponding receivable is established when both the amount is known and significant contingencies or uncertainties regarding collectability are removed. These amounts, if any, are reported in “dividends and interest receivable” in the Consolidated Statement of Assets and Liabilities.
Capital gains taxes are incurred upon disposition of certain foreign securities. Expected capital gains taxes on appreciated securities, if any, are accrued as unrealized losses and incurred capital gains taxes 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.
Repurchase agreements Repurchase agreements are transactions under which a Fund purchases a security from a dealer counterparty and agrees to resell the security to that counterparty on a specified future date at the same price, plus a specified interest rate. The Fund’s repurchase agreements are secured by U.S. government or agency securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. The Fund maintains custody of the underlying collateral securities, either through its regular custodian or through a third party custodian that maintains separate accounts for both the Fund and its counterparties. In the event of default by a counterparty, the Fund has the contractual right to liquidate the collateral securities and to apply the proceeds in satisfaction of the obligation.
Foreign currency translation The books and records of the Fund 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 and translation include the following: disposing/holding of foreign currency, 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.
ConsolidationThe Fund may invest in certain securities through its wholly owned subsidiary, Dodge & Cox Global Stock Fund Cayman, Ltd. (the “Subsidiary”). The Subsidiary is a Cayman Islands exempted company and invests in certain securities consistent with the investment objective of the Fund. The Fund’s Consolidated Financial Statements, including the Consolidated Portfolio of Investments, consist of the holdings and accounts of the Fund and the Subsidiary. All intercompany transactions and balances have been eliminated. At December 31, 2019, the Subsidiary had net assets of $100, which represented less than 0.01% of the Fund’s consolidated net assets.
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 |
| § | | Level 2: Other significant observable inputs (including quoted prices for similar securities, market indices, interest rates, credit risk, forward exchange rates, 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 at December 31, 2019:
| | | | | | | | |
| Classification | | LEVEL 1
(Quoted Prices) | | | LEVEL 2
(Other Significant
Observable Inputs) | |
Securities | | | | | | | | |
Common Stocks | | | | | | | | |
Communication Services | | $ | 1,218,551,026 | | | $ | 61,013,590 | |
Consumer Discretionary | | | 599,117,920 | | | | 180,562,005 | |
Consumer Staples | | | — | | | | 55,524,970 | |
Energy | | | 875,492,389 | | | | — | |
Financials | | | 2,269,114,586 | | | | 784,003,683 | |
Health Care | | | 1,274,551,435 | | | | 569,205,055 | |
Industrials | | | 554,636,305 | | | | 144,680,748 | |
Information Technology | | | 877,720,600 | | | | 7,690,220 | |
Materials | | | 150,520,366 | | | | 166,778,438 | |
Real Estate | | | 36,377,803 | | | | — | |
Preferred Stocks | | | | | | | | |
Energy | | | — | | | | 42,357,540 | |
Financials | | | — | | | | 152,611,767 | |
Information Technology | | | — | | | | 97,914,241 | |
Short-term Investments | | | | | | | | |
Repurchase Agreements | | | — | | | | 128,170,000 | |
Money Market Fund | | | 41,147,416 | | | | — | |
| | | | | | | | |
Total Securities | | $ | 7,897,229,846 | | | $ | 2,390,512,257 | |
| | | | | | | | |
| | |
Other Investments | | | | | | | | |
Equity Total Return Swaps | | | | | | | | |
Depreciation | | $ | — | | | $ | (9,424,815 | ) |
Futures Contracts | | | | | | | | |
Appreciation | | | 1,717,020 | | | | — | |
Currency Forward Contracts | | | | | | | | |
Appreciation | | | — | | | | 5,641,165 | |
Depreciation | | | — | | | | (8,079,033 | ) |
| | | | | | | | | |
DODGE & COX GLOBAL STOCK FUND§PAGE 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3—DERIVATIVE INSTRUMENTS
The Fund may use derivatives either to minimize the impact of certain risks to one or more of its investments (as a “hedging technique”) or to implement its investment strategy. A derivative is a financial instrument whose value is derived from a security, currency, interest rate, index, or other financial instrument.
Equity total return swaps Equity total return swaps are contracts that can create long or short economic exposure to an underlying equity security. Under such a contract, one party agrees to make payments to another based on the total return of a notional amount of the underlying security (including dividends and changes in market value), in return for periodic payments from the other party based on a fixed or variable interest rate applied to the same notional amount. Equity total return swaps can also be used to hedge against exposure to specific risks associated with a particular issuer or the underlying asset of a particular issuer. Investments in equity total return swaps may include certain risks including unfavorable price movements in the underlying reference instrument(s), or a default or failure by the counterparty.
Equity total return swaps are traded over-the-counter. The value of equity total return swaps changes daily based on the value of the underlying equity security. Changes in the market value of equity total return swaps are recorded as unrealized appreciation or depreciation in the Consolidated Statement of Operations. Realized gains and losses on equity total return swaps are recorded in the Consolidated Statement of Operations upon exchange of cash flows for periodic payments and upon the closing or expiration of the swaps.
Futures contracts Futures contracts involve an obligation to purchase or sell (depending on whether the Fund has entered a long or short futures contract, respectively) an asset at a future date, at a price set at the time of the contract. Futures contracts are exchange-traded. Upon entering into a futures contract, the Fund is required to deposit an amount of cash or liquid assets (referred to as “initial margin”) in a segregated account with the clearing broker. Subsequent payments (referred to as “variation margin”) to and from the clearing broker are made on a daily basis based on changes in the market value of the contract. Changes in the market value of open futures contracts are recorded as unrealized appreciation or depreciation in the Consolidated Statement of Operations. Realized gains and losses on futures contracts are recorded in the Consolidated Statement of Operations at the closing or expiration of the contracts. Cash deposited with a broker as initial margin is recorded in the Consolidated Statement of Assets and Liabilities. A receivable and/or payable to brokers for daily variation margin is also recorded in the Consolidated Statement of Assets and Liabilities.
Investments in futures contracts may include certain risks, which may be different from, and potentially greater than, those of the underlying assets. To the extent the Fund uses futures, it is exposed to additional volatility and potential losses resulting from leverage.
Currency forward contracts Currency forward contracts are agreements to purchase or sell a specific currency amount at a specified future date and price. Currency forward contracts are
tradedover-the-counter. The values of currency forward contracts change daily based on the prevailing forward exchange rates of the underlying currencies. Changes in the value of open contracts are recorded as unrealized appreciation or depreciation in the Consolidated Statement of Operations. When a currency forward contract is closed, the Fund records a realized gain or loss in the Consolidated 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.
Losses from these transactions may arise from unfavorable changes in currency values or if a counterparty does not perform under a contract’s terms.
Additional derivative information The following identifies the location on the Consolidated Statement of Assets and Liabilities and values of the Fund’s derivative instruments, categorized by primary underlying risk exposure.
| | | | | | | | | | | | |
| | | Equity
Derivatives | | | Foreign Exchange
Derivatives | | | Total
Value | |
Assets | | | | | | | | | | | | |
Unrealized appreciation on currency forward contracts | | $ | — | | | $ | 5,641,165 | | | $ | 5,641,165 | |
Futures contracts(a) | | | 1,717,020 | | | | — | | | | 1,717,020 | |
| | | | | | | | | | | | |
| | $ | 1,717,020 | | | $ | 5,641,165 | | | $ | 7,358,185 | |
| | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | |
Unrealized depreciation on currency forward contracts | | $ | — | | | $ | 8,079,033 | | | $ | 8,079,033 | |
Unrealized depreciation on swaps | | | 9,424,815 | | | | — | | | | 9,424,815 | |
| | | | | | | | | | | | |
| | $ | 9,424,815 | | | $ | 8,079,033 | | | $ | 17,503,848 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| (a) | Includes cumulative appreciation (depreciation). Only the current day’s variation margin is reported in the Consolidated Statement of Assets and Liabilities. |
The following summarizes the effect of derivative instruments on the Consolidated Statement of Operations, categorized by primary underlying risk exposure.
| | | | | | | | | | | | |
| | | Equity Derivatives | | | Foreign Exchange
Derivatives | | | Total | |
Net realized gain (loss) | | | | | | | | | | | | |
Futures contracts | | $ | 19,719,504 | | | $ | — | | | $ | 19,719,504 | |
Swaps | | | (494,589 | ) | | | — | | | | (494,589 | ) |
Currency forward contracts | | | — | | | | 15,643,306 | | | | 15,643,306 | |
| | | | | | | | | | | | |
| | $ | 19,224,915 | | | $ | 15,643,306 | | | $ | 34,868,221 | |
| | | | | | | | | | | | |
Net change in unrealized appreciation/
depreciation | | | | | |
Futures contracts | | $ | 20,008 | | | $ | — | | | $ | 20,008 | |
Swaps | | | (9,424,815 | ) | | | — | | | | (9,424,815 | ) |
Currency forward contracts | | | — | | | | (7,060,231 | ) | | | (7,060,231 | ) |
| | | | | | | | | | | | |
| | $ | (9,404,807 | ) | | $ | (7,060,231 | ) | | $ | (16,465,038 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
PAGE 14§ DODGE & COX GLOBAL STOCK FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes the range of volume in the Fund’s derivative instruments during the year ended December 31, 2019.
| | | | | | | | |
| Derivative | | | % of Net Assets | |
Futures contracts | | | USD notional value | | | | 0-3% | |
Swaps - long | | | USD notional value | | | | 0-1% | |
Swaps - short | | | USD notional value | | | | 0-1% | |
Currency forward contracts | | | USD total value | | | | 5-7% | |
| | | | | | | | | |
The Fund may enter into variousover-the-counter derivative contracts governed by International Swaps and Derivatives Association master agreements (“ISDA agreements”). The Fund’s ISDA agreements, which are separately negotiated with each dealer counterparty, specify (i) events of default and other events permitting a party to terminate some or all of the contracts thereunder and (ii) the process by which those contracts will be valued for purposes of determining termination payments. If some or all of the contracts under a master agreement are terminated because of an event of default or similar event, the values of all terminated contracts must be netted to determine a single payment owed by one party to the other. To the extent amounts owed to the Fund by its counterparties are not collateralized, the Fund is at risk of those counterparties’non-performance. The Fund attempts to mitigate counterparty credit risk by entering into contracts only with counterparties it believes to be of good credit quality, by exchanging collateral, and by monitoring the financial stability of those counterparties.
For financial reporting purposes, the Fund does not offset assets and liabilities that are subject to a master netting arrangement in the Consolidated Statement of Assets and Liabilities.
The Fund’s ability to net assets and liabilities and to offset collateral pledged or received is based on contractual netting/offset provisions in the ISDA agreements. The following table presents the Fund’s net exposure to each counterparty for derivatives that are subject to enforceable master netting arrangements as of December 31, 2019.
| | | | | | | | | | | | | | | | |
| Counterparty | | Gross
Amount of
Recognized
Assets | | | Gross
Amount of
Recognized
Liabilities | | | Cash Collateral
Pledged/
(Received)(a) | | | Net
Amount(b) | |
Bank of America | | $ | 672,189 | | | $ | — | | | $ | (672,189 | ) | | $ | — | |
Barclays | | | 692,661 | | | | 546,549 | | | | (146,112 | ) | | | — | |
Citibank | | | 818,123 | | | | 202,281 | | | | (615,842 | ) | | | — | |
Credit Suisse | | | 794,388 | | | | — | | | | (794,388 | ) | | | — | |
Goldman Sachs | | | 626,730 | | | | 640,045 | | | | — | | | | (13,315 | ) |
HSBC | | | 746,945 | | | | 1,340,508 | | | | — | | | | (593,563 | ) |
JPMorgan | | | 405,296 | | | | 10,097,983 | | | | 9,692,687 | | | | — | |
Morgan Stanley | | | — | | | | 366,202 | | | | 340,000 | | | | (26,202 | ) |
State Street | | | 884,833 | | | | — | | | | (880,000 | ) | | | 4,833 | |
UBS | | | — | | | | 4,310,280 | | | | 3,780,000 | | | | (530,280 | ) |
| | | | | | | | | | | | | | | | |
Total | | $ | 5,641,165 | | | $ | 17,503,848 | | | $ | 10,704,156 | | | $ | (1,158,527 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| (a) | Cash collateral pledged/(received) in excess of derivative assets/liabilities is not presented in this table. The total cash collateral is presented on the Fund’s Consolidated Statement of Assets and Liabilities. |
| (b) | Represents the net amount receivable (payable) from the counterparty in the event of a default. |
NOTE 4—RELATED PARTY TRANSACTIONS
Management fees Under a written agreement approved by a unanimous vote of the Board of Trustees, the Fund pays a management fee monthly at an annual rate 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 two 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 5—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. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes. Financial reporting records are adjusted for permanent book to tax differences at year end to reflect tax character. Book to tax differences are primarily due to differing treatments of wash sales, net short-term realized gain (loss), foreign currency realized gain (loss), foreign capital gains tax, certain corporate action transactions, derivatives, and distributions.
Distributions during the years noted below were characterized as follows for federal income tax purposes:
| | | | | | | | |
| | | Year Ended
December 31, 2019 | | | Year Ended December 31, 2018 | |
Ordinary income | | $
| 290,498,840
|
| | $ | 194,859,210 | |
| | ($ | 0.383 per share | ) | | ($ | 0.273 per share | ) |
Long-term capital gain | | $
| 423,990,642
|
| | $ | 575,373,634 | |
| | ($ | 0.559 per share | ) | | ($ | 0.806 per share | ) |
At December 31, 2019, the tax basis components of distributable earnings were as follows:
| | | | |
Deferred loss(a) | | $ | (41,028,803 | ) |
At December 31, 2019, unrealized appreciation and depreciation for investments and derivatives based on cost for federal income tax purposes were as follows:
| | | | |
Tax cost | | $ | 8,590,960,334 | |
| | | | |
Unrealized appreciation | | | 2,452,793,287 | |
Unrealized depreciation | | | (766,157,181 | ) |
| | | | |
Net unrealized appreciation | | | 1,686,636,106 | |
| | | | | |
| (a) | Represents net realized capital loss incurred between November 1, 2019 and December 31, 2019. As permitted by tax regulation, the Fund has elected to treat this loss as arising in 2020. |
Fund management has reviewed the tax positions for open periods (three years and four years, respectively, from filing the
DODGE & COX GLOBAL STOCK FUND§PAGE 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 6—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 year.
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 itspro-rata portion of the Line of Credit. For the year ended December 31, 2019, the Fund’s commitment fee amounted to $59,977 and is reflected as a Miscellaneous Expense in the Consolidated Statement of Operations. Interest on borrowings is charged at the prevailing rate. There were no borrowings on the Line of Credit during the year.
NOTE 7—PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 2019, purchases and sales of securities, other than short-term securities, aggregated $2,091,044,472 and $2,188,764,888, respectively.
NOTE 8—SUBSEQUENT EVENTS
Fund management has determined that no material events or transactions occurred subsequent to December 31, 2019, and through the date of the Fund’s financial statements issuance, which require additional disclosure in the Fund’s financial statements.
PAGE 16§ DODGE & COX GLOBAL STOCK FUND
CONSOLIDATED FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | | | |
SELECTED DATA AND RATIOS (for a share outstanding throughout each year) | | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
| | | | |
Net asset value, beginning of year | | | $11.03 | | | | $13.86 | | | | $11.91 | | | | $10.46 | | | | $11.83 | |
Income from investment operations: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.27 | | | | 0.21 | | | | 0.13 | | | | 0.14 | | | | 0.16 | |
Net realized and unrealized gain (loss) | | | 2.35 | | | | (1.96 | ) | | | 2.42 | | | | 1.65 | | | | (1.11 | ) |
| | | | |
Total from investment operations | | | 2.62 | | | | (1.75 | ) | | | 2.55 | | | | 1.79 | | | | (0.95 | ) |
| | | | |
Distributions to shareholders from: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (0.34 | ) | | | (0.25 | ) | | | (0.13 | ) | | | (0.14 | ) | | | (0.19 | ) |
Net realized gain | | | (0.60 | ) | | | (0.83 | ) | | | (0.47 | ) | | | (0.20 | ) | | | (0.23 | ) |
| | | | |
Total distributions | | | (0.94 | ) | | | (1.08 | ) | | | (0.60 | ) | | | (0.34 | ) | | | (0.42 | ) |
| | | | |
Net asset value, end of year | | | $12.71 | | | | $11.03 | | | | $13.86 | | | | $11.91 | | | | $10.46 | |
| | | | |
Total return | | | 23.85 | % | | | (12.65 | )% | | | 21.51 | % | | | 17.09 | % | | | (8.05 | )% |
Ratios/supplemental data: | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (millions) | | | $10,296 | | | | $8,614 | | | | $9,911 | | | | $7,101 | | | | $5,708 | |
Ratio of expenses to average net assets | | | 0.62 | % | | | 0.62 | % | | | 0.63 | % | | | 0.63 | % | | | 0.63 | % |
Ratio of net investment income to average net assets | | | 2.13 | % | | | 1.52 | % | | | 1.02 | % | | | 1.36 | % | | | 1.39 | % |
Portfolio turnover rate | | | 22 | % | | | 31 | % | | | 18 | % | | | 25 | % | | | 20 | % |
See accompanying Notes to Consolidated Financial Statements
DODGE & COX GLOBAL STOCK FUND§PAGE 17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TotheBoard of Trustees of the Dodge & Cox Funds and Shareholders of Dodge & Cox Global Stock Fund
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of assets and liabilities, including the consolidated portfolio of investments, ofDodge & Cox Global Stock Fund and its subsidiary (one of the funds constituting Dodge & Cox Funds, referred to hereafter as the “Fund”) as of December 31, 2019, the related consolidated statementof operationsfor the year endedDecember 31, 2019, the consolidated statement of changes in net assets for each of the two years in the period ended December 31, 2019, including the related notes, and the financial highlights for each of the five years in the period ended December 31, 2019 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2019, 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 ended December 31, 2019 and the financial highlights for each of the five years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31, 2019 by correspondence with the custodian, transfer agent and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2020
We have served as the auditor of one or more investment companies in the Dodge & Cox Funds since 1931.
PAGE 18§ DODGE & COX GLOBAL STOCK FUND
SPECIAL 2019 TAX INFORMATION
(unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code:
In 2019, the Fund elected to pass through to shareholders foreign source income of $253,371,854 and foreign taxes paid of $17,057,566.
The Fund designates $423,990,642 as long-term capital gain distributions in 2019.
The Fund designates up to a maximum amount of $313,559,277 of its distributions paid to shareholders in 2019 as qualified dividends (treated for federal income tax purposes in the hands of shareholders as taxable at a maximum rate of 20%). For shareholders that are corporations, the Fund designates 23% of its ordinary dividends paid to shareholders in 2019 as dividends from domestic corporations eligible for the corporate dividends received deduction, provided that the shareholder otherwise satisfies applicable requirements to claim that deduction.
FUNDS’ LIQUIDITY RISK MANAGMENT PROGRAM
(unaudited)
The Funds have adopted and implemented a written liquidity risk management program as required by Rule 22e-4 under the Investment Company Act. The program is reasonably designed to assess and manage each Fund’s liquidity risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings and access to other funding sources including the Funds’ interfund lending facility and line of credit. The Funds’ Board of Trustees approved the appointment of a Liquidity Risk Management Committee including representatives from Dodge & Cox’s legal, compliance, treasury, operations, trading, and portfolio management departments, which is responsible for the program’s administration and oversight and for reporting to the Board on at least an annual basis regarding the program’s operation and effectiveness. The Liquidity Risk Management Committee refreshed its assessment of the Fund’s liquidity risk profile, considering additional data gathered in the 12 months ended September 30, 2019 and the adequacy and effectiveness of the liquidity risk management program’s operations since its inception in February, 2019 (the “covered period”) in order to prepare a written report to the Board of Trustees for consideration at its meeting held on December 12, 2019. The report concluded that (i) the Fund did not experience significant liquidity challenges during the covered period (ii) the Fund’s investment strategy is appropriate for an open-end fund; and (iii) the Fund’s liquidity risk management program is reasonably designed to assess and manage its liquidity risk.
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, 2019, 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 additionalone-year term through December 31, 2020 with respect to each Fund. During the course of the year, the Board received extensive information and materials relating to the investment management and administrative services provided by Dodge & Cox and the performance of each of the Funds.
INFORMATION RECEIVED
Over the past several years, the Board has requested, received, and discussed a number of special presentations on topics relevant to their annual consideration of the proposed renewal of the Funds’ Agreements. In addition to the foregoing and in advance of the meetings referred to below, the Board, including the Independent Trustees, requested, received, and reviewed materials relating to the Agreements and the services provided by Dodge & Cox. The Independent Trustees retained Broadridge to prepare an independent expense and performance summary for each Fund and comparable funds managed by other advisers identified by Broadridge. The Broadridge materials included information regarding advisory and administrative fee rates, expense ratios, and transfer agency, custodial, and distribution expenses, as well as performance comparisons to each Fund’s peer group and to a broad-based securities index or combination of indices. The Broadridge 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, management fee revenue, and separate account fee schedules. The Board additionally considered the Funds’ brokerage commissions, turnover rates, sales and redemption data, and the investment that Dodge & Cox makes in research used in managing the Funds. The Board received and reviewed memoranda and related materials addressing, among other things, Dodge & Cox’s services to the Funds; how Dodge & Cox Funds’ fees compare to fees of peer group funds; the different fees, services, costs, and risks associated with other accounts managed by Dodge & Cox as compared to the Dodge & Cox Funds; and the ways in which the Funds realize economies of scale. 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 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 mutual fund management arrangements. The Trust’s Contract Review Committee, consisting solely of Independent Trustees, met with the independent legal counsel on November 7, 2019 and again on December 12, 2019 to discuss whether to renew the Agreements. The Board, including the Independent Trustees, subsequently concluded that the
DODGE & COX GLOBAL STOCK FUND§PAGE 19
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 asall-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 range of services to the Funds in addition to portfolio management, including regulatory compliance, trading desks, proxy voting, transfer agent and custodian oversight, administration, regulatory filings, tax compliance and filings, website, and anti-money laundering. The 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 in the management of the Funds; its consistency in investment approach and depth; the background and experience of the Dodge & Cox U.S. Equity Investment Committee, International Equity Investment Committee, Global Equity Investment Committee, U.S. Fixed Income Investment Committee, and Global Fixed Income Investment Committee, and research analysts responsible for managing the Funds; Dodge & Cox’s methods for assessing the regulatory and investment climate in various jurisdictions; its overall level of attention to its core investment management function; and its commitment to the Funds and their shareholders. The Board reviewed information from Dodge & Cox regarding any material conflicts of interest between the Funds and Dodge & Cox or its other clients, and regarding how Dodge & Cox addresses those conflicts. The Board noted Dodge & Cox’s record of favorable press and industry coverage, as well as its good compliance record, and its reputation as a trusted, shareholder-friendly mutual fund family. In addition, the Board considered that Dodge & Cox manages approximately $211 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, that its investment professionals adhere to a consistent investment approach across the Funds, and that due to its deliberate strategy with respect to new products, Dodge & Cox has had stability in its mutual fund product offerings over the course of many years and has the fewest funds of any of the 25 largest mutual fund families by assets. The Board further considered the “Gold” analyst rating awarded by Morningstar to all of the Funds (other than the Global Bond Fund, which has a “Silver” rating). 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 reviewed each Fund’s recent and long-term investment performance (including periods of outperformance and underperformance), as compared to relevant indices and the performance of such Fund’s peer group and broader Morningstar category. In assessing the performance of the Funds, the Board considered the Funds’ investment returns over various periods and the volatility thereof and concluded that the levels experienced were consistent with Dodge & Cox’s long-term approach and active investment style. The Board also compared the short- and long-term investment performance of the equity funds to value-oriented indices, in recognition of the significant performance divergence between value and growth stocks over the past several years. It was noted that equity performance has been consistent with the value oriented investment strategy employed by Dodge & Cox. The Board concluded 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 value-oriented investment management process that emphasizes a long-term investment horizon, independent research, a team approach, price discipline, low cost, and low portfolio turnover. The Board concluded that Dodge & Cox has delivered 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 ExpensesThe Board considered each Fund’s management fee rate and net expense ratio relative to (1) a broad category of other mutual funds with similar portfolio characteristics and share class and expense structures and (2) a smaller group of peers selected by Broadridge based on investment style, share class characteristics, and asset levels. The Board also considered the management fees charged by Dodge & Cox to other clients. In particular, the Board considered that the Funds continue to be below their peer group medians in net expense ratios. The Board also evaluated the operating structures of the Funds and Dodge & Cox, noting that the Funds do not chargefront-end sales commissions or distribution fees, and Dodge & Cox bears, among other things, the cost of most third-party research, reimbursement for shareholder recordkeeping and administrative costs to third-party retirement plan administrators, and administrative and office overhead. The Board noted that the Broadridge report shows that the net expense ratio of every Dodge & Cox Fund is in the least expensive quartile compared to its broad Morningstar category. The Board noted the Funds’ unusual single-share-class structure and reviewed Broadridge data (including asset-weighted average expense ratios) showing that most of the peer group funds offer several different classes of shares, with different expense ratios, to different categories of investors, and that the Broadridge expense comparisons described above generally compare the net expense ratio of each Dodge & Cox Fund’s single share class to one of the least expensive share classes of the peer fund, even though those share classes are often not available to retail investors. The Board noted that the Funds
PAGE 20§ DODGE & COX GLOBAL STOCK FUND
provide access for small investors to high quality investment management at a relatively low cost. The Board also considered that the Funds are priced to scale, i.e., management fee rates begin at relatively low levels. Even without breakpoints, the Funds’ management fee rates are lower than those of many peer funds whose fee schedules include breakpoints. With respect tonon-U.S. funds sponsored and managed by Dodge & Cox that are comparable to the Funds in many respects, the Board noted that the fee rates charged by Dodge & Cox are the same as or higher than the fee rates charged to the Funds. 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 the differences in the nature and scope of services Dodge & Cox provides to the Funds as compared to other client accounts, as well as material differences in regulatory, litigation, and other risks as between Dodge & Cox Funds and other types of clients. The Board noted that different markets exist for mutual fund and institutional separate account management services and that a comparison of Fund fee rates and separate account fee rates must consider the fact that separate account clients bear additional costs and responsibilities that are included in the cost of a Fund. 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-ownedS-Corporation and relative to the scope and quality of the services provided. The Board noted in particular that Dodge & Cox’s profits are not generated by high fee rates, but reflect a 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 includes a return on shareholder employees’ investment in the firm, which is vital for remaining independent and facilitating retention of management and investment professionals. The Board also considered that Dodge & Cox has in the past closed some of the Funds to new investors to proactively manage growth in those Funds. While these actions are intended to benefit existing Fund shareholders, the effect is to reduce potential revenues to Dodge & Cox from new shareholders. The Board also considered potential“fall-out” benefits (including the receipt of research from unaffiliated brokers and reputational benefits tonon-U.S. funds sponsored and managed by Dodge & Cox) that Dodge & Cox might receive as a result of its association with the Funds and determined that they are acceptable. The Board also noted that
Dodge & Cox continues to invest in its business to provide enhanced services, systems, and research capabilities, all of which benefit the Funds. The Board concluded that Dodge & Cox’s profitability is the keystone of its independence, stability, and long-term investment performance and that the profitability of Dodge & Cox’s relationship with the Funds (includingfall-out benefits) is fair and reasonable.
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 level of 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 and expense structure and the fact that the Dodge & Cox Funds build economies of scale into their fee structures by charging low fees from a fund’s inception and keeping overall expenses down as a Fund grows, as compared to other fund complexes that employ fee “breakpoints” only after a fund reaches a certain scale. An assessment of economies of scale must also take into account that Dodge & Cox invests time and resources in each new Fund for months (and sometimes years) prior to launch; in addition, in a Fund’s early periods of operations, expenses are capped, which means that Dodge & Cox subsidizes the operations of a new Fund for a period of time until it reaches scale. The Board also observed that, while total Fund assets have grown over the long term, this growth has not been continuous or evenly distributed across all of the Funds. In addition, the Board noted that Dodge & Cox has shared the benefits of economies of scale with the Funds by adding services to the Funds over time, and that Dodge & Cox’s internal costs of providing investment management, technology, administrative, legal, and compliance services to the Funds continue to increase. For example, Dodge & Cox has increased its global research staff and investment resources over the years to add new capabilities for the benefit of Fund shareholders and to address the increased complexity of investing globally. In addition, Dodge & Cox has made expenditures in other staff, technology, and infrastructure to enable it to integrate credit and equity analyses and to implement its strategy in a more effective manner. Over the last ten years, Dodge & Cox has increased its spending on research, investment management, client servicing, cybersecurity, technology, third-party research, data services, and computer systems for trading, operations, compliance, accounting, and communications at a rate that has outpaced the Funds’ growth rate during the same period. The Board also observed that, even without fee breakpoints, the Funds are competitively priced in a competitive market and that having a low fee from inception is better for shareholders than starting with a higher fee and adding breakpoints. The Board also noted that there are certain diseconomies of scale associated with managing large funds, insofar as certain of the costs and risks associated with portfolio management increase disproportionately as assets grow. The Board concluded that the current Dodge & Cox fee structure is fair and reasonable and adequately shares economies of scale that may exist.
DODGE & COX GLOBAL STOCK FUND§PAGE 21
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 management fee structure was fair and reasonable, that each Fund was paying a competitive fee for the services provided, that Dodge & Cox’s services have provided 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 on a quarterly basis by filing the lists with the SEC on Form N-CSR (as of the end of the second and fourth quarters) and on Part F of FormN-PORT (as of the end of the first and third quarters). Shareholders may view the Fund’s Form N-CSR and Part F of Form N-PORT on the SEC’s website at sec.gov. A list of the Fund’s quarter-end holdings is also available at dodgeandcox.com on or about the 15th day following each quarter end and remains available on the website until the list is updated for 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 dodgeandcox.com, or visit the SEC’s website at 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 dodgeandcox.com or at 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.
PAGE 22§ DODGE & COX GLOBAL STOCK FUND
DODGE & COX FUNDS—EXECUTIVE OFFICER & TRUSTEE INFORMATION
| | | | | | |
| | | | |
Name (Age) and
Address* | | Position with Trust (Year of Election or
Appointment)** | | Principal Occupation During Past Five Years and Other Relevant
Experience** | | Other Directorships of Public Companies Held
by Trustees |
| |
| INTERESTED TRUSTEES AND EXECUTIVE OFFICERS |
| Charles F. Pohl (61) | | Chairman and Trustee (since 2014) | | Chairman and Director of Dodge & Cox; Chief Investment Officer and member of U.S. Equity Investment Committee (USEIC), Global Equity Investment Committee (GEIC), and International Equity Investment Committee (IEIC) | | — |
| Dana M. Emery (58) | | President (since 2014) and Trustee (since 1993) | | Chief Executive Officer, President, and Director of Dodge & Cox;Co-Director of Fixed Income (until January 2020) and member of U.S. Fixed Income Investment Committee (USFIIC) and Global Fixed Income Investment Committee (GFIIC) | | — |
| Diana S. Strandberg (60) | | Senior Vice President (since 2006) | | Senior Vice President and Director of Dodge & Cox; Director of International Equity and member of GEIC, IEIC, and GFIIC; member of USEIC (until January 2020) | | — |
| Roberta R.W. Kameda (59) | | Chief Legal Officer (since 2019) and Secretary (since 2017) | | Vice President, General Counsel, and Secretary (since 2017) of Dodge & Cox | | — |
| David H. Longhurst (62) | | Treasurer (since 2006) | | Vice President and Assistant Treasurer of Dodge & Cox | | — |
| Katherine M. Primas (45) | | Chief Compliance Officer (since 2010) | | Vice President and Chief Compliance Officer of Dodge & Cox | | — |
| |
| INDEPENDENT TRUSTEES |
| Caroline M. Hoxby (53) | | Trustee (since 2017) | | Professor of Economics, Stanford University; Director of the Economics of Education Program, National Bureau of Economic Research; Senior Fellow, Hoover Institution and Stanford Institute for Economic Policy Research | | — |
| Thomas A. Larsen (70) | | Trustee (since 2002) | | Senior Counsel of Arnold & Porter (law firm) (2015-2018); Partner of Arnold & Porter (until 2015); Director of Howard, Rice, Nemerovski, Canady, Falk & Rabkin (1977-2011) | | — |
| Ann Mather (59) | | Trustee (since 2011) | | CFO, Pixar Animation Studios (1999-2004) | | Director, Alphabet Inc. (internet information services) (since 2005); Director, Glu Mobile, Inc. (multimedia software) (since 2004); Director, Netflix, Inc. (internet television) (since 2010); Director, Arista Networks (cloud networking) (since 2013) |
| Robert B. Morris III (67) | | Trustee (since 2011) | | Advisory Director, The Presidio Group (2005-2016); Partner and Managing Director—Global Investment Research at Goldman Sachs (until 2001) | | — |
| Gabriela Franco Parcella (51) | | Trustee (since 2020) | | Managing Partner of Merlone Geier Partners (since 2018); Chairman, President, and CEO, Mellon Capital (2011 to 2017); COO, Mellon Capital (1997 to 2011). | | Director, Terreno Realty Corporation (since 2018) |
| Gary Roughead (68) | | Trustee (since 2013) | | Robert and Marion Oster Distinguished Military Fellow, Hoover Institution (since 2012); Admiral, United States Navy (Ret.); U.S. Navy Chief of Naval Operations (2008-2011) | | Director, Northrop Grumman Corp. (global security) (since 2012); Director, Maersk Line, Limited (shipping and transportation) (since 2016) |
| Mark E. Smith (68) | | Trustee (since 2014) | | Executive Vice President, Managing Director—Fixed Income at Loomis Sayles & Company, L.P. (2003-2011) | | — |
| John B. Taylor (73) | | Trustee (since 2005) (and 1995-2001) | | Professor of Economics, Stanford University (since 1984); Senior Fellow, Hoover Institution (since 1996); 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 six series in the Dodge & Cox Funds complex and serves for an indefinite term. |
| ** | | Information as of January 15, 2020. |
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 dodgeandcox.com or calling 800-621-3979.
DODGE & COX GLOBAL STOCK FUND§PAGE 23
dodgeandcox.com
For Fund literature, transactions, and account information, please visit the Funds’ website.
or write or call:
DODGE & COX FUNDS
c/o DST Asset Manager Solutions, Inc.
P.O. Box 219502
Kansas City, Missouri 64121-9502
(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, 2019, 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.
DODGE & COX FUNDS®
Annual Report
December 31, 2019
International Stock Fund
ESTABLISHED 2001
TICKER: DODFX
Important Notice:
Beginning on January 1, 2021, we intend to discontinue mailing paper copies of the Fund’s shareholder reports as permitted by new regulations adopted by the Securities and Exchange Commission, unless you specifically request paper copies from Dodge & Cox Funds or from your financial intermediary, such as a broker-dealer or bank. The reports will remain available to you on the Dodge & Cox Funds website (dodgeandcox.com), and you will be notified by mail each time a report is posted and provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. If you have not done so already, you may elect to receive shareholder reports and other communications electronically by enrolling ine-delivery on the Funds website, or, if you are invested through a financial intermediary, by updating your mailing preferences through the intermediary.
If you wish to continue receiving paper copies of all future shareholder reports, please contact us at (800)621-3979. Reports will be provided to you free of charge. If you are invested through a financial intermediary, you may contact your financial intermediary to request to receive paper copies. Your election to receive reports in paper form will apply to all funds held with Dodge & Cox Funds or through your financial intermediary, as applicable.
12/19 ISF AR 
Printed on recycled paper
TO OUR SHAREHOLDERS
The Dodge & Cox International Stock Fund had a total return of 22.8% for the year ended December 31, 2019, compared to a return of 22.0% for the MSCI EAFE (Europe, Australasia, Far East) Index.
MARKET OVERVIEW
International equity markets rebounded sharply in 2019, more than offsetting the decline of 2018. Every sector of the MSCI EAFE posted positive returns. Improving sentiment surrounding the same macro factors that dragged down markets in 2018—namely sluggish global economic growth, the direction of monetary policy, and trade wars—propelled global equity markets in 2019. Meanwhile, U.S. equities continued their reign of outperformance versus international equities, with the S&P 500 Index returning 31.5% and reaching anall-time high.
INVESTMENT STRATEGY: EXTRAORDINARY VALUATION DISPARITY IN INTERNATIONAL EQUITIES
The strong performance of international equities in 2019 overshadowed what we, as value-oriented investors, believe is the most salient point about international equity markets—the growing valuation disparity between value and growth stocks.a
History has demonstrated that starting valuations are significant drivers of long-term equity returns, and lower starting valuations tend to produce more attractive long-term results. The MSCI EAFE Growth Index trades at 20.6 times forward earnings—making it significantly more expensive than the MSCI EAFE Value Index at 11.4 times.b Investors are paying one of the highest premiums for growth stocks since these indices’ inception in 1997, with the valuation spread in the 99th percentile.c
We have discussed this growing valuation disparity in our recent shareholder letters, and we continue to highlight it because it is the primary reason that international value stocks have underperformed their growth counterparts for seven out of the last ten years.d The contribution from earnings and dividends of value stocks is similar to or even higher than that of growth stocks over the past one, three, five, and ten years. Looking back over the last several decades, we see periods when valuation discrepancies became extremely large and corrected, sometimes sharply. Outstanding investment returns can be earned when you have the courage (because you will likely be buying what has not worked lately) and patience (because it’s impossible to know exactly when things will turn) to invest in some of the lower valuation stocks when they are trading at a truly large discount to the overall market.
Our Approach to Active Value-Oriented Investing
While value stocks are inexpensive, some are cheap for good reasons, and we believe it is paramount to understand the individual companies you own. We build our portfolio one investment at a time on abottom-up basis. Using a three- to five-year horizon, we seek to invest in companies whose long-term fundamentals are underappreciated by their current valuations. Our team-based approach often results in a portfolio that looks markedly different from the benchmark.
In the valuation disparity described above, four sectors best illustrate the spread between value and growth. On the value end of the spectrum, the Financials and Energy sectors are the two largest overweights of the MSCI EAFE Value compared to the overall market. Conversely, the Consumer Staples and Information Technology sectors are the two largest overweights of the MSCI EAFE Growth compared to the overall market. Relative to the MSCI EAFE, the Fund is overweight Financials, Energy, and Information Technology and underweight Consumer Staples as a result of ourbottom-up approach. Below we review the Fund’s positioning in each of these areas.
Perception Versus Reality in Financials
We have found significant opportunities in Financials, which account for 31.2% of the Fund compared to 18.6% for the MSCI EAFE. European and UK Financials, an area about which we have written extensively,e are especially attractive. We think a number of these companies exemplify investor perception that is worse than reality. Their low valuations reflect concerns that these businesses face daunting secular challenges. These include lower and negative interest rates, increasing capital requirements, sluggish economic growth, and political uncertainty in the case of Brexit. In spite of those challenges, management teams of many of the Fund’s holdings have improved returns on equity and strengthened balance sheets through restructuring and cost cutting. For example, UniCredit,f the largest bank in Italy, has improved its return on tangible equity from 4% in 2015 to 9% today by exitingnon-core businesses and cutting headcount, all while meeting more stringent capital requirements imposed by its regulators. UniCredit is in a much stronger financial position than in the past and recently raised its target to return 40% of its earnings to shareholders.
When could the market better appreciate these improving fundamentals? We believe it has already begun to do so. For the first three quarters of 2019, the Fund’s European and UK Financials underperformed the market, but they outperformed significantly in the fourth quarter. We did not know this would happen and would never extrapolate future trends based on one quarter’s performance. But this dramatic turnaround is an excellent reminder of why patience and persistence are important traits for a successful value manager. Staying the course, or adding to holdings as their prices fell, has created significant value for the Fund over the long term.
Compelling Valuations in Energy
The Energy sector shares similar traits with the Financials. Energy companies are trading at low multiples relative to their history and to the broader market. On a price to cash flow basis, the MSCI EAFE Energy sector is trading at the lowest valuation over the past 20 years relative to the overall MSCI EAFE. Energy companies have suffered from low oil prices, which have reduced cash flows and made it more difficult to finance new projects. There are also long-term concerns about the demand for oil and gas as the threat of climate change necessitates a transition to less carbon-intensive
PAGE 2§ DODGE & COX INTERNATIONAL STOCK FUND
alternatives. That said, we think the low valuations of the Fund’s energy holdings provide an attractive starting point and more than compensate for these risks. As an example, Encana,g one of the largest shale oil producers in North America, trades at a high single-digit free cash flow yield and should be able to grow production atmid-single-digit rates over our investment horizon. This combination of low valuation and reasonable growth is scarce in today’s market. At year end, Energy was 9.2% of the Fund compared to 4.9% for the MSCI EAFE.
Uncovering Value in Technology
Although the Information Technology sector is dominated by growth stocks, we have identified selected companies whose valuations do not reflect our view of their long-term earnings power. For example, Samsung Electronics, which trades at a very cheap valuation on a variety of metrics, is one of the Fund’s largest holdings (2.9% position). We believe its valuation does not give enough credit for the company’s leading global position in memory semiconductors, optionality to grow in new segments like its semiconductor foundry, fortress balance sheet, and commitment to return half of its free cash flow to shareholders. The Fund’s weighting in Information Technology is 8.8% compared to 7.1% for the MSCI EAFE.
Perceived Safe Haven in Consumer Staples
Companies in Consumer Staples are perceived to have stable fundamentals in terms of steady revenue growth, and they typically generate healthy free cash flow. But that implied safety in an uncertain world has come at a cost: the MSCI EAFE Consumer Staples sector currently trades at 18.4 times forward earnings, compared to 14.7 times for the overall market. Many of the companies in this sector have improved operating margins over time, but we believe operating margin expansion is unlikely to be a significant driver of future earnings growth. While we continue to actively monitor these companies, we do not see many attractive opportunities, resulting in the Fund’s weighting of 1.5% versus 11.3% for the MSCI EAFE.
IN CLOSING
History shows that starting valuation is a major factor in long-term returns. Given the wide valuation spread between value and growth stocks in the international equity market, we are finding many companies that are inexpensive on a relative basis. We believe the Fund is well positioned to benefit over the long term, especially if and when this large valuation gap compresses.
In past cycles, many investors have made the mistake of changing course after periods of underperformance because they concluded that the cost of sticking with their investment plan was perceived to be too high. The same can be true for investment managers. Many abandon their investment philosophy and process when their approach has been out of favor for a time. As an independent, employee-owned firm with large ownership in our Funds, we benefit from the absence of an outside stakeholder who might otherwise pressure us to change our approach at exactly the wrong time.
At Dodge & Cox, we remain focused on the long term, our valuation discipline, and fundamental analysis of prospective investments on acompany-by-company basis. That is how we construct what we believe is the best portfolio for our clients. We remain optimistic about the long-term outlook for the Fund, and we thank you for your continued confidence in our firm. As always, we welcome your comments and questions.
For the Board of Trustees,
| | |
 | |  |
Charles F. Pohl, Chairman | | Dana M. Emery, President |
January 31, 2020
| a | | Value stocks are the lower valuation portion of the equity market, and growth stocks are the higher valuation portion. |
| b | | Unless otherwise specified, all weightings and characteristics are as of December 31, 2019. |
| c | | The MSCI EAFE Value Index and MSCI EAFE Growth Index were formed in 1997. The 99th percentile was calculated using monthly data from FactSet for 1997-2003 and MSCI since 2003. If you divide the forward price-to-earnings multiple of the MSCI EAFE Growth by that of the MSCI EAFE Value, the difference is a relative valuation standing at the 99th percentile of these indices’ history. |
| d | | Over the past ten years, the MSCI EAFE Growth outperformed the MSCI EAFE Value every year except for 2012, 2013, and 2016. |
| e | | The Dodge & Cox Investment Perspectives paper titled “A Value Investor’s Case for European Financials” is available on dodgeandcox.com. |
| f | | The use of specific examples does not imply that they are more or less attractive investments than the portfolio’s other holdings. |
| g | | Encana changed its name to Ovintiv, Inc. on January 24, 2020. |
DODGE & COX INTERNATIONAL STOCK FUND§PAGE 3
2019 PERFORMANCE REVIEW
The Fund outperformed the MSCI EAFE Index by 0.8 percentage points in 2019.
Key Contributors to Relative Results
| | § | | Despite a large average underweight position in Japan—11% versus 24% for the MSCI EAFE—the Fund’s stock selection contributed to returns. Murata Manufacturing and Kyocera performed well. | |
| | § | | In Financials, the Fund’s average overweight position, 30% versus 19% for the MSCI EAFE, combined with the outperformance of its holdings, boosted performance. ICICI Bank, BNP Paribas, and UniCredit were particularly strong. | |
| | § | | Selected emerging market holdings contributed to returns, especially JD.com, Samsung Electronics, and Alibaba. | |
Key Detractors from Relative Results
| | § | | Poor performance in the Communication Services sector, up 5% versus up 13% for the MSCI EAFE, diminished returns. Underperformers included Millicom International Cellular, Baidu, Grupo Televisa, and Liberty Global. | |
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.
90 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 Equity Investment 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 24 years.
One Business with a Single Research Office
Dodge & Cox manages equity (domestic, international, and global), fixed income (domestic and global), 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.
Risks: The Fund is subject to market risk, meaning holdings 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. The Fund is also subject to currency risk. Please read the prospectus and summary prospectus for specific details regarding the Fund’s risk profile.
PAGE 4§ DODGE & COX INTERNATIONAL STOCK FUND
GROWTH OF $10,000 OVER 10 YEARS
FOR AN INVESTMENT MADE ON DECEMBER 31, 2009
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2019
| | | | | | | | | | | | | | | | |
| | | 1 Year | | | 3 Years | | | 5 Years | | | 10 Years | |
Dodge & Cox International
Stock Fund | | | 22.78 | % | | | 7.67 | % | | | 3.68 | % | | | 5.76 | % |
MSCI EAFE Index | | | 22.01 | | | | 9.56 | | | | 5.67 | | | | 5.50 | |
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 dodgeandcox.com or call800-621-3979 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 21 developed market country indices, excluding the United States and Canada. 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.
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 “Expenses Paid During 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, 2019 | | Beginning Account Value
7/1/2019 | | | Ending Account Value
12/31/2019 | | | Expenses Paid During Period* | |
Based on Actual Fund Return | | $ | 1,000.00 | | | $ | 1,087.80 | | | $ | 3.30 | |
Based on Hypothetical 5% Yearly Return | | | 1,000.00 | | | | 1,022.05 | | | | 3.19 | |
| * | | Expenses are equal to the Fund’s annualized expense ratio of 0.63%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
The expenses shown in the table highlight ongoing costs only and do not reflect any transactional fees or account maintenance fees. Though 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 INTERNATIONAL STOCK FUND§PAGE 5
| | | | |
| PORTFOLIO INFORMATION | |
| December 31, 2019
|
|
| | | | |
| SECTOR DIVERSIFICATION (%)(a) | | % of Net Assets | |
Financials | | | 31.2 | |
Health Care | | | 15.6 | |
Consumer Discretionary | | | 10.0 | |
Energy | | | 9.1 | |
Information Technology | |
| 8.7
|
|
Industrials | | | 8.0 | |
Communication Services | | | 7.0 | |
Materials | | | 5.8 | |
Consumer Staples | | | 1.5 | |
Real Estate | | | 1.3 | |
Utilities | | | 0.9 | |
| | | | |
| REGION DIVERSIFICATION (%)(a) | | % of Net Assets | |
Europe (excluding United Kingdom) | | | 42.8 | |
United Kingdom | | | 14.1 | |
Japan | | | 12.4 | |
Asia Pacific (excluding Japan) | | | 12.2 | |
United States | | | 5.9 | |
Latin America | | | 5.3 | |
Canada | | | 3.8 | |
Africa | |
| 2.3
|
|
Middle East | | | 0.2 | |
| (a) | Excludes the Fund’s exposure through total return swaps. As of period end, the Fund held long total return swaps referencing Naspers, Ltd. and Prosus NV with notional exposure of 0.63% and 0.29% respectively. In addition, to manage Naspers, Ltd.’s and Prosus NV’s exposure to Tencent Holdings, Ltd., the Fund held a short total return swap referencing Tencent Holdings, Ltd. with notional exposure of –1.05%. |
PAGE 6§ DODGE & COX INTERNATIONAL STOCK FUND
| | | | |
| CONSOLIDATED PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| COMMON STOCKS: 94.0% | | | | | | |
| | |
| | | SHARES | | | VALUE | |
| COMMUNICATION SERVICES: 7.0% | |
MEDIA & ENTERTAINMENT: 5.5% | |
Altice Europe NV, Series A(a) (Netherlands) | | | 7,784,454 | | | $ | 50,190,511 | |
Baidu, Inc. ADR(a) (Cayman Islands/China) | | | 7,912,187 | | | | 1,000,100,437 | |
Grupo Televisa SAB ADR (Mexico) | | | 48,563,380 | | | | 569,648,447 | |
Liberty Global PLC, Series A(a)(b) (United Kingdom) | | | 17,244,703 | | | | 392,144,546 | |
Liberty Global PLC, Series C(a) (United Kingdom) | | | 27,740,701 | | | | 604,608,578 | |
MultiChoice Group, Ltd.(a) (South Africa) | | | 8,436,537 | | | | 70,173,966 | |
Television Broadcasts, Ltd.(b) (Hong Kong) | | | 39,842,700 | | | | 62,584,173 | |
| | | | | | | | |
| | | | 2,749,450,658 | |
TELECOMMUNICATION SERVICES: 1.5% | |
America Movil SAB de CV, Series L (Mexico) | | | 338,952,000 | | | | 270,695,502 | |
Millicom International Cellular SA SDR(b) (Luxembourg) | | | 8,107,509 | | | | 388,589,513 | |
MTN Group, Ltd. (South Africa) | | | 16,225,894 | | | | 95,564,329 | |
| | | | | | | | |
| | | | 754,849,344 | |
| | | | | | | | |
| | | | 3,504,300,002 | |
| CONSUMER DISCRETIONARY: 10.0% | |
AUTOMOBILES & COMPONENTS: 3.9% | |
Bayerische Motoren Werke AG (Germany) | | | 7,974,801 | | | | 656,497,334 | |
Honda Motor Co., Ltd. (Japan) | | | 36,411,255 | | | | 1,027,059,151 | |
Yamaha Motor Co., Ltd. (Japan) | | | 14,075,000 | | | | 281,348,296 | |
| | | | | | | | |
| | | | 1,964,904,781 | |
RETAILING: 6.1% | |
Alibaba Group Holding, Ltd. ADR(a) (Cayman Islands/China) | | | 2,213,000 | | | | 469,377,300 | |
Booking Holdings, Inc.(a) (United States) | | | 284,500 | | | | 584,286,185 | |
JD.com, Inc. ADR(a) (Cayman Islands/China) | | | 15,918,648 | | | | 560,813,969 | |
Naspers, Ltd. (South Africa) | | | 6,003,858 | | | | 981,977,572 | |
Prosus NV(a) (Netherlands) | | | 6,074,358 | | | | 453,309,281 | |
| | | | | | | | |
| | | | 3,049,764,307 | |
| | | | | | | | |
| | | | 5,014,669,088 | |
| CONSUMER STAPLES: 1.5% | |
FOOD & STAPLES RETAILING: 0.6% | |
Magnit PJSC(b) (Russia) | | | 5,698,885 | | | | 314,511,897 | |
|
FOOD, BEVERAGE & TOBACCO: 0.9% | |
Imperial Brands PLC (United Kingdom) | | | 16,935,197 | | | | 419,260,783 | |
| | | | | | | | |
| | | | 733,772,680 | |
| ENERGY: 8.4% | |
Encana Corp.(b) (Canada) | | | 108,485,621 | | | | 508,797,562 | |
Equinor ASA (Norway) | | | 42,942,004 | | | | 858,775,672 | |
Schlumberger, Ltd. (Curacao/United States) | | | 20,341,224 | | | | 817,717,205 | |
Suncor Energy, Inc. (Canada) | | | 31,602,600 | | | | 1,036,565,280 | |
Total SA (France) | | | 18,309,249 | | | | 1,010,444,205 | |
| | | | | | | | |
| | | | 4,232,299,924 | |
| FINANCIALS: 29.0% | |
BANKS: 20.7% | |
Axis Bank, Ltd. (India) | | | 57,585,425 | | | | 607,090,998 | |
Banco Santander SA (Spain) | | | 273,390,220 | | | | 1,143,848,508 | |
Barclays PLC (United Kingdom) | | | 459,662,698 | | | | 1,093,772,488 | |
BNP Paribas SA (France) | | | 27,303,458 | | | | 1,617,986,780 | |
ICICI Bank, Ltd. (India) | | | 209,702,376 | | | | 1,582,503,677 | |
KasikornbankPCL- Foreign (Thailand) | | | 30,605,000 | | | | 153,150,602 | |
Mitsubishi UFJ Financial Group, Inc. (Japan) | | | 140,866,400 | | | | 761,326,986 | |
Societe Generale SA (France) | | | 31,398,123 | | | | 1,092,325,761 | |
Standard Chartered PLC (United Kingdom) | | | 96,485,513 | | | | 910,480,624 | |
UniCredit SPA (Italy) | | | 97,563,162 | | | | 1,426,401,829 | |
| | | | | | | | |
| | | | 10,388,888,253 | |
| | | | | | | | |
| | |
| | | SHARES | | | VALUE | |
DIVERSIFIED FINANCIALS: 5.8% | |
Credit Suisse Group AG (Switzerland) | | | 101,258,432 | | | $ | 1,374,174,121 | |
Haci Omer Sabanci Holding AS (Turkey) | | | 41,487,354 | | | | 66,530,401 | |
UBS Group AG (Switzerland) | | | 117,997,827 | | | | 1,489,233,286 | |
| | | | | | | | |
| | | | 2,929,937,808 | |
INSURANCE: 2.5% | |
AEGON NV (Netherlands) | | | 103,998,142 | | | | 474,434,712 | |
Aviva PLC (United Kingdom) | | | 139,538,427 | | | | 773,893,984 | |
| | | | | | | | |
| | | | 1,248,328,696 | |
| | | | | | | | |
| | | | 14,567,154,757 | |
| HEALTH CARE: 15.6% | |
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES: 15.6% | |
AstraZeneca PLC (United Kingdom) | | | 9,763,600 | | | | 983,802,863 | |
Bayer AG (Germany) | | | 16,895,750 | | | | 1,381,058,359 | |
GlaxoSmithKline PLC (United Kingdom) | | | 52,463,800 | | | | 1,236,290,064 | |
Novartis AG (Switzerland) | | | 12,118,770 | | | | 1,148,160,945 | |
Roche Holding AG (Switzerland) | | | 4,406,600 | | | | 1,428,875,510 | |
Sanofi (France) | | | 16,402,322 | | | | 1,648,872,128 | |
| | | | | | | | |
| | | | 7,827,059,869 | |
| INDUSTRIALS: 8.0% | |
CAPITAL GOODS: 7.8% | |
Johnson Controls International PLC (Ireland/United States) | | | 18,665,101 | | | | 759,856,262 | |
Mitsubishi Electric Corp. (Japan) | | | 96,849,500 | | | | 1,316,879,663 | |
Nidec Corp. (Japan) | | | 3,525,800 | | | | 481,638,815 | |
Schneider Electric SA (France) | | | 9,472,546 | | | | 972,219,933 | |
Smiths Group PLC(b) (United Kingdom) | | | 16,927,500 | | | | 378,261,893 | |
| | | | | | | | |
| | | | 3,908,856,566 | |
TRANSPORTATION: 0.2% | |
DP World PLC (United Arab Emirates) | | | 8,256,304 | | | | 108,157,582 | |
| | | | | | | | |
| | | | 4,017,014,148 | |
| INFORMATION TECHNOLOGY: 6.5% | |
SOFTWARE & SERVICES: 1.1% | |
Fujitsu, Ltd. (Japan) | | | 2,801,050 | | | | 264,315,259 | |
Micro Focus International PLC(b) (United Kingdom) | | | 19,729,707 | | | | 278,013,131 | |
| | | | | | | | |
| | | | 542,328,390 | |
TECHNOLOGY, HARDWARE & EQUIPMENT: 5.4% | |
Brother Industries, Ltd. (Japan) | | | 9,819,300 | | | | 202,185,025 | |
Kyocera Corp. (Japan) | | | 12,374,600 | | | | 843,285,852 | |
Murata Manufacturing Co., Ltd. (Japan) | | | 10,717,700 | | | | 662,621,528 | |
Samsung Electronics Co., Ltd. (South Korea) | | | 6,519,550 | | | | 314,140,173 | |
TE Connectivity, Ltd. (Switzerland) | | | 7,428,185 | | | | 711,917,251 | |
| | | | | | | | |
| | | | 2,734,149,829 | |
| | | | | | | | |
| | | | 3,276,478,219 | |
| MATERIALS: 5.8% | |
Akzo Nobel NV (Netherlands) | | | 7,339,754 | | | | 746,239,280 | |
Cemex SAB de CV ADR (Mexico) | | | 100,584,026 | | | | 380,207,618 | |
LafargeHolcim, Ltd. (Switzerland) | | | 10,505,441 | | | | 582,545,287 | |
Linde PLC (Ireland/United States) | | | 3,758,070 | | | | 806,742,110 | |
Nutrien, Ltd. (Canada) | | | 7,964,553 | | | | 381,581,734 | |
| | | | | | | | |
| | | | 2,897,316,029 | |
| REAL ESTATE: 1.3% | |
Daito Trust Construction Co., Ltd. (Japan) | | | 3,158,500 | | | | 391,182,982 | |
Hang Lung Group, Ltd. (Hong Kong)(b) | | | 106,789,500 | | | | 263,948,484 | |
| | | | | | | | |
| | | | 655,131,466 | |
| UTILITIES: 0.9% | |
Engie (France) | | | 28,593,800 | | | | 461,860,766 | |
| | | | | | | | |
TOTAL COMMON STOCKS
(Cost $43,777,080,529) | | | $ | 47,187,056,948 | |
| | |
| See accompanying Notes to Consolidated Financial Statements | | DODGE & COX INTERNATIONAL STOCK FUND§PAGE 7 |
| | | | |
| CONSOLIDATED PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| PREFERRED STOCKS: 5.1% | |
| | |
| | | SHARES | | | VALUE | |
| ENERGY: 0.7% | |
Petroleo Brasileiro SA (Brazil) | | | 48,857,500 | | | $ | 365,658,581 | |
|
| FINANCIALS: 2.2% | |
BANKS: 2.2% | |
Itau Unibanco Holding SA (Brazil) | | | 119,079,551 | | | | 1,095,792,307 | |
|
| INFORMATION TECHNOLOGY: 2.2% | |
TECHNOLOGY, HARDWARE & EQUIPMENT: 2.2% | |
Samsung Electronics Co., Ltd. (South Korea) | | | 28,739,700 | | | | 1,121,259,878 | |
| | | | | | | | |
TOTAL PREFERRED STOCKS
(Cost $1,471,207,221) | | | $ | 2,582,710,766 | |
|
| SHORT-TERM INVESTMENTS: 1.3% | |
| | |
| | | PAR VALUE/
SHARES | | | VALUE | |
|
REPURCHASE AGREEMENTS: 0.9% | |
Bank of Montreal(c)
1.48%, dated 12/31/19, due 1/2/20, maturity value $110,409,077 | | $ | 110,400,000 | | | $ | 110,400,000 | |
Fixed Income Clearing Corporation(c)
1.00%, dated 12/31/19, due 1/2/20, maturity value $115,590,421 | | | 115,584,000 | | | | 115,584,000 | |
Royal Bank of Canada(c)
1.53%, dated 12/31/19, due 1/2/20, maturity value $220,918,777 | | | 220,900,000 | | | | 220,900,000 | |
| | | | | | | | |
| | | | 446,884,000 | |
MONEY MARKET FUND: 0.4% | |
State Street Institutional U.S. Government Money Market Fund | | | 202,091,143 | | | | 202,091,143 | |
| | | | | | | | |
TOTAL SHORT-TERM INVESTMENTS
(Cost $648,975,143) | | | $ | 648,975,143 | |
| | | | | | | | |
TOTAL INVESTMENTS IN SECURITIES
(Cost $45,897,262,893) | | | 100.4 | % | | $ | 50,418,742,857 | |
OTHER ASSETS LESS LIABILITIES | | | (0.4 | %) | | | (190,790,621 | ) |
| | | | | | | | |
| NET ASSETS | | | 100.0 | % | | $ | 50,227,952,236 | |
| | | | | | | | |
| (b) | See Note 9 regarding holdings of 5% voting securities |
| (c) | Repurchase agreements are collateralized by: |
Bank of Montreal: U.S. Treasury Notes1.625%-3.625%,11/30/20-5/15/46 and U.S. Treasury Inflation Indexed Notes0.125%-2.375%,1/15/21-1/15/25. Total collateral value is $112,617,359.
Fixed Income Clearing Corporation: U.S. Treasury Notes1.50%-2.75%,8/15/21-8/31/21. Total collateral value is $117,900,218.
Royal Bank of Canada: U.S. Treasury Notes1.375%-2.75%,3/31/20-11/15/26 and U.S. Treasury Inflation Indexed Note 3.875%, 4/15/29. Total collateral value is $225,337,208.
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 or in other limited circumstances, the Fund uses the country designation of an appropriate broad-based market index. In those cases, 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
| | |
| PAGE 8§ DODGE & COX INTERNATIONAL STOCK FUND | | See accompanying Notes to Consolidated Financial Statements |
| | | | |
| CONSOLIDATED PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
EQUITY TOTAL RETURN SWAPS(a)
| | | | | | | | | | | | | | | | |
| Fund Receives | | Fund Pays | | Counterparty | | Maturity
Date | | | Notional
Amount | | | Value/ Unrealized
Appreciation
(Depreciation) | |
Total Return on Naspers, Ltd. | | 2.898% | | JPMorgan | | | 9/30/20 | | | $ | 315,534,315 | | | $ | (9,970,651 | ) |
Total Return on Prosus NV | | 2.898% | | JPMorgan | | | 9/30/20 | | | | 145,178,374 | | | | (13,632,396 | ) |
2.198% | | Total Return on Tencent Holdings, Ltd. | | JPMorgan | | | 9/30/20 | | | | 515,730,915 | | | | (40,394,816 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | $ | (63,997,863 | ) |
| | | | | | | | | | | | | | | | |
| (a) | The combination of the equity total return swaps is designed to hedge Naspers Ltd.’s and Prosus NV’s exposure to Tencent Holdings, Ltd. The swaps pay at maturity; no upfront payments were made. |
FUTURES CONTRACTS
| | | | | | | | | | | | | | | | |
| Description | | Number of
Contracts | | | Expiration
Date | | | Notional
Amount | | | Value/
Unrealized
Appreciation
(Depreciation) | |
Euro Stoxx 50 Index—Long Position | | | 10,167 | | | | 3/20/20 | | | $ | 425,267,222 | | | $ | (2,100,341 | ) |
Yen Denominated Nikkei 225 Index—Long Position | | | 2,247 | | | | 3/12/20 | | | | 242,216,074 | | | | (31,775 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | $ | (2,132,116 | ) |
| | | | | | | | | | | | | | | | |
CURRENCY FORWARD CONTRACTS
| | | | | | | | | | | | | | | | | | | | | | | | |
| Counterparty | | Settle Date | | | Currency Purchased | | | Currency Sold | | | Unrealized
Appreciation (Depreciation) | |
CHF: Swiss Franc | | | | | | | | | | | | | | | | | | | | | | | | |
UBS | | | 1/29/20 | | | | USD | | | | 182,689,164 | | | | CHF | | | | 180,500,000 | | | $ | (4,120,649 | ) |
UBS | | | 1/29/20 | | | | USD | | | | 182,762,786 | | | | CHF | | | | 180,500,000 | | | | (4,047,027 | ) |
Barclays | | | 2/26/20 | | | | USD | | | | 293,192,329 | | | | CHF | | | | 287,500,000 | | | | (4,942,660 | ) |
Citibank | | | 2/26/20 | | | | USD | | | | 293,247,953 | | | | CHF | | | | 287,500,000 | | | | (4,887,036 | ) |
Barclays | | | 3/11/20 | | | | USD | | | | 229,384,805 | | | | CHF | | | | 225,000,000 | | | | (4,170,319 | ) |
Morgan Stanley | | | 3/11/20 | | | | USD | | | | 229,089,243 | | | | CHF | | | | 225,000,000 | | | | (4,465,881 | ) |
CNH: Chinese Yuan Renminbi | | | | | | | | | | | | | | | | | | | | | | | | |
Credit Suisse | | | 1/8/20 | | | | USD | | | | 41,904,035 | | | | CNH | | | | 287,566,440 | | | | 596,895 | |
State Street | | | 1/8/20 | | | | USD | | | | 73,455,394 | | | | CNH | | | | 503,500,000 | | | | 1,130,735 | |
State Street | | | 1/8/20 | | | | USD | | | | 73,433,968 | | | | CNH | | | | 503,500,000 | | | | 1,109,308 | |
Bank of America | | | 1/15/20 | | | | USD | | | | 76,426,420 | | | | CNH | | | | 516,497,388 | | | | 2,244,337 | |
Credit Suisse | | | 1/15/20 | | | | USD | | | | 77,417,146 | | | | CNH | | | | 524,323,106 | | | | 2,111,092 | |
State Street | | | 1/15/20 | | | | USD | | | | 77,572,917 | | | | CNH | | | | 524,323,106 | | | | 2,266,864 | |
State Street | | | 1/22/20 | | | | USD | | | | 118,252,684 | | | | CNH | | | | 804,000,000 | | | | 2,796,820 | |
State Street | | | 1/22/20 | | | | USD | | | | 118,247,467 | | | | CNH | | | | 804,000,000 | | | | 2,791,603 | |
Citibank | | | 2/5/20 | | | | USD | | | | 190,191,817 | | | | CNH | | | | 1,283,775,744 | | | | 5,900,105 | |
JPMorgan | | | 2/5/20 | | | | USD | | | | 60,804,631 | | | | CNH | | | | 425,450,000 | | | | (270,607 | ) |
State Street | | | 2/5/20 | | | | USD | | | | 187,342,031 | | | | CNH | | | | 1,264,614,912 | | | | 5,800,942 | |
UBS | | | 2/5/20 | | | | USD | | | | 59,901,379 | | | | CNH | | | | 419,100,000 | | | | (262,288 | ) |
UBS | | | 2/5/20 | | | | USD | | | | 60,791,598 | | | | CNH | | | | 425,450,000 | | | | (283,639 | ) |
Citibank | | | 2/5/20 | | | | CNH | | | | 737,000,000 | | | | USD | | | | 103,795,507 | | | | 2,004,117 | |
Citibank | | | 2/5/20 | | | | CNH | | | | 726,000,000 | | | | USD | | | | 102,404,965 | | | | 1,815,560 | |
Citibank | | | 2/5/20 | | | | CNH | | | | 737,000,000 | | | | USD | | | | 103,788,199 | | | | 2,011,425 | |
HSBC | | | 2/5/20 | | | | CNH | | | | 37,611,200 | | | | USD | | | | 5,405,073 | | | | (5,818 | ) |
JPMorgan | | | 2/5/20 | | | | CNH | | | | 31,224,256 | | | | USD | | | | 4,488,501 | | | | (6,120 | ) |
Bank of America | | | 2/12/20 | | | | USD | | | | 154,773,662 | | | | CNH | | | | 1,050,000,000 | | | | 4,067,869 | |
HSBC | | | 2/12/20 | | | | USD | | | | 154,949,531 | | | | CNH | | | | 1,050,000,000 | | | | 4,243,738 | |
Barclays | | | 3/4/20 | | | | USD | | | | 116,617,012 | | | | CNH | | | | 782,850,000 | | | | 4,313,842 | |
Citibank | | | 5/13/20 | | | | USD | | | | 28,812,895 | | | | CNH | | | | 205,349,500 | | | | (597,301 | ) |
UBS | | | 9/23/20 | | | | USD | | | | 81,354,862 | | | | CNH | | | | 583,713,000 | | | | (1,961,289 | ) |
JPMorgan | | | 11/18/20 | | | | USD | | | | 91,600,902 | | | | CNH | | | | 650,000,000 | | | | (1,046,703 | ) |
JPMorgan | | | 11/18/20 | | | | USD | | | | 91,542,849 | | | | CNH | | | | 650,000,000 | | | | (1,104,756 | ) |
HSBC | | | 1/13/21 | | | | USD | | | | 61,013,154 | | | | CNH | | | | 436,000,000 | | | | (1,043,401 | ) |
HSBC | | | 1/13/21 | | | | USD | | | | 60,983,286 | | | | CNH | | | | 436,000,000 | | | | (1,073,270 | ) |
HSBC | | | 5/12/21 | | | | USD | | | | 186,683,702 | | | | CNH | | | | 1,315,000,000 | | | | 201,774 | |
UBS | | | 5/12/21 | | | | USD | | | | 186,803,040 | | | | CNH | | | | 1,315,000,000 | | | | 321,112 | |
Goldman Sachs | | | 10/27/21 | | | | USD | | | | 40,654,396 | | | | CNH | | | | 290,000,000 | | | | (259,789 | ) |
Goldman Sachs | | | 10/27/21 | | | | USD | | | | 120,136,249 | | | | CNH | | | | 850,000,000 | | | | 215,362 | |
HSBC | | | 10/27/21 | | | | USD | | | | 40,678,917 | | | | CNH | | | | 290,000,000 | | | | (235,268 | ) |
| | |
| See accompanying Notes to Consolidated Financial Statements | | DODGE & COX INTERNATIONAL STOCK FUND§PAGE 9 |
| | | | |
| CONSOLIDATED PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Counterparty | | Settle Date | | | Currency Purchased | | | Currency Sold | | | Unrealized
Appreciation (Depreciation) | |
HSBC | | | 10/27/21 | | | | USD | | | | 120,166,820 | | | | CNH | | | | 850,000,000 | | | $ | 245,933 | |
HSBC | | | 1/26/22 | | | | USD | | | | 83,239,651 | | | | CNH | | | | 588,204,670 | | | | 476,555 | |
JPMorgan | | | 1/26/22 | | | | USD | | | | 83,439,203 | | | | CNH | | | | 588,204,660 | | | | 676,109 | |
JPMorgan | | | 1/26/22 | | | | USD | | | | 83,062,158 | | | | CNH | | | | 588,204,670 | | | | 299,062 | |
Goldman Sachs | | | 4/27/22 | | | | USD | | | | 82,386,238 | | | | CNH | | | | 573,325,830 | | | | 1,910,514 | |
HSBC | | | 4/27/22 | | | | USD | | | | 59,399,651 | | | | CNH | | | | 425,450,000 | | | | (319,264 | ) |
HSBC | | | 4/27/22 | | | | USD | | | | 58,496,755 | | | | CNH | | | | 419,100,000 | | | | (330,833 | ) |
HSBC | | | 4/27/22 | | | | USD | | | | 59,354,074 | | | | CNH | | | | 425,450,000 | | | | (364,842 | ) |
HSBC | | | 4/27/22 | | | | USD | | | | 83,592,472 | | | | CNH | | | | 582,012,585 | | | | 1,897,419 | |
HSBC | | | 4/27/22 | | | | USD | | | | 82,344,735 | | | | CNH | | | | 582,012,585 | | | | 649,682 | |
Goldman Sachs | | | 7/27/22 | | | | USD | | | | 34,396,709 | | | | CNH | | | | 255,000,000 | | | | (1,310,935 | ) |
UBS | | | 7/27/22 | | | | USD | | | | 34,396,709 | | | | CNH | | | | 255,000,000 | | | | (1,310,935 | ) |
HSBC | | | 10/26/22 | | | | USD | | | | 40,321,463 | | | | CNH | | | | 291,000,000 | | | | (329,808 | ) |
HSBC | | | 10/26/22 | | | | USD | | | | 40,338,231 | | | | CNH | | | | 291,000,000 | | | | (313,040 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized gain on currency forward contracts | | | | 52,098,774 | |
Unrealized loss on currency forward contracts | | | | (39,063,478 | ) |
| | | | | |
Net unrealized gain on currency forward contracts | | | $ | 13,035,296 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The listed counterparty may be the parent company or one of its subsidiaries.
| | |
| PAGE 10§ DODGE & COX INTERNATIONAL STOCK FUND | | See accompanying Notes to Consolidated Financial Statements |
| | | | |
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES | |
| |
ASSETS: | | | December 31, 2019 | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $42,346,966,025) | | $ | 48,210,153,551 | |
Affiliated issuers (cost $3,550,296,868) | | | 2,208,589,306 | |
| | | | |
| | | 50,418,742,857 | |
Unrealized appreciation on currency forward contracts | | | 52,098,774 | |
Cash pledged as collateral for over-the-counter derivatives | | | 86,640,000 | |
Cash | | | 1,982,782 | |
Cash denominated in foreign currency (cost $15,982,481) | | | 16,156,303 | |
Deposits with broker for futures contracts | | | 39,757,330 | |
Receivable for variation margin for futures contracts | | | 2,363,664 | |
Receivable for investments sold | | | 14,389,997 | |
Receivable for Fund shares sold | | | 19,046,270 | |
Dividends and interest receivable | | | 104,202,771 | |
Prepaid expenses and other assets | | | 266,762 | |
| | | | |
| | | 50,755,647,510 | |
| | | | |
LIABILITIES: | | | | |
Unrealized depreciation on currency forward contracts | | | 39,063,478 | |
Unrealized depreciation on swap contracts | | | 63,997,863 | |
Cash received as collateral for over-the-counter derivatives | | | 43,836,000 | |
Payable for Fund shares redeemed | | | 263,761,553 | |
Management fees payable | | | 25,368,928 | |
Deferred foreign capital gains tax | | | 88,871,635 | |
Accrued expenses | | | 2,795,817 | |
| | | | |
| | | 527,695,274 | |
| | | | |
NET ASSETS | | $ | 50,227,952,236 | |
| | | | |
NET ASSETS CONSIST OF: | | | | |
Paid in capital | | $ | 48,283,748,060 | |
Distributable earnings | | | 1,944,204,176 | |
| | | | |
| | $ | 50,227,952,236 | |
| | | | |
Fund shares outstanding (par value $0.01 each, unlimited shares authorized) | | | 1,152,021,679 | |
Net asset value per share | | $ | 43.60 | |
| |
CONSOLIDATED STATEMENT OF OPERATIONS | | | | |
| |
INVESTMENT INCOME: | |
| Year Ended
December 31, 2019 |
|
Dividends (net of foreign taxes of $152,605,817) | | | | |
Unaffiliated issuers | | $ | 1,536,177,577 | |
Affiliated issuers | | | 171,539,929 | |
Interest | | | 11,979,429 | |
| | | | |
| | | 1,719,696,935 | |
| | | | |
EXPENSES: | | | | |
Management fees | | | 297,044,159 | |
Custody and fund accounting fees | | | 4,778,648 | |
Transfer agent fees | | | 5,313,502 | |
Professional services | | | 353,163 | |
Shareholder reports | | | 1,300,245 | |
Registration fees | | | 248,725 | |
Trustees’ fees | | | 341,667 | |
ADR depositary services fees | | | 971,826 | |
Miscellaneous | | | 621,919 | |
| | | | |
| | | 310,973,854 | |
| | | | |
NET INVESTMENT INCOME | | | 1,408,723,081 | |
| | | | |
REALIZED AND UNREALIZED GAIN (LOSS): | | | | |
Net realized gain (loss) | | | | |
Investments in securities of unaffiliated issuers (net of foreign taxes of $11,825,874) | | | 106,691,051 | |
Investments in securities of affiliated issuers | | | (143,668,512 | ) |
Futures contracts | | | 176,162,099 | |
Swaps | | | (3,358,445 | ) |
Currency forward contracts | | | 140,808,362 | |
Foreign currency transactions | | | (7,817,965 | ) |
Net change in unrealized appreciation/depreciation | | | | |
Investments in securities of unaffiliated issuers (net of increase in deferred foreign capital gains tax of $68,818,612) | | | 8,507,057,063 | |
Investments in securities of affiliated issuers | | | 110,886,214 | |
Futures contracts | | | 13,927,483 | |
Swaps | | | (63,997,863 | ) |
Currency forward contracts | | | (49,312,111 | ) |
Foreign currency translation | | | 1,558,284 | |
| | | | |
Net realized and unrealized gain | | | 8,788,935,660 | |
| | | | |
NET CHANGE IN NET ASSETS FROM OPERATIONS | | $ | 10,197,658,741 | |
| | | | |
| | | | | | | | |
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS | |
| | |
| | | Year Ended
December 31, 2019 | | | Year Ended
December 31, 2018 | |
OPERATIONS: | |
Net investment income | | $ | 1,408,723,081 | | | $ | 1,314,954,895 | |
Net realized gain (loss) | | | 268,816,590 | | | | (189,442,047 | ) |
Net change in unrealized appreciation/depreciation | | | 8,520,119,070 | | | | (12,378,528,792 | ) |
| | | | | | | | |
| | | 10,197,658,741 | | | | (11,253,015,944 | ) |
| | | | | | | | |
| | |
DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
Total distributions | | | (1,925,172,133 | ) | | | (1,392,029,880 | ) |
| |
FUND SHARE TRANSACTIONS: | | | | | |
Proceeds from sale of shares | | | 5,821,012,950 | | | | 7,786,364,752 | |
Reinvestment of distributions | | | 1,693,980,175 | | | | 1,194,160,091 | |
Cost of shares redeemed | | | (13,667,034,158 | ) | | | (13,898,235,680 | ) |
| | | | | | | | |
Net change from Fund share transactions | | | (6,152,041,033 | ) | | | (4,917,710,837 | ) |
| | | | | | | | |
Total change in net assets | | | 2,120,445,575 | | | | (17,562,756,661 | ) |
| |
NET ASSETS: | | | | | |
Beginning of year | | | 48,107,506,661 | | | | 65,670,263,322 | |
| | | | | | | | |
End of year | | $ | 50,227,952,236 | | | $ | 48,107,506,661 | |
| | | | | | | | |
| |
SHARE INFORMATION: | | | | | |
Shares sold | | | 142,603,500 | | | | 177,112,322 | |
Distributions reinvested | | | 38,968,180 | | | | 32,344,484 | |
Shares redeemed | | | (332,827,575 | ) | | | (323,973,781 | ) |
| | | | | | | | |
Net change in shares outstanding | | | (151,255,895 | ) | | | (114,516,975 | ) |
| | | | | | | | |
| | |
| See accompanying Notes to Consolidated Financial Statements | | DODGE & COX INTERNATIONAL STOCK FUND§PAGE 11 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dodge & Cox International 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 anopen-end management investment company. The Fund commenced operations on May 1, 2001, and seeks long-term growth of principal and income. The Fund invests primarily in a diversified portfolio of foreign equity securities. 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 Fund is an investment company and follows the accounting and reporting guidance issued in Topic 946 by the Financial Accounting Standards Board. 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 normally valued as of the scheduled close of trading on the New York Stock Exchange (“NYSE”), generally 4 p.m. Eastern Time, each day that the NYSE is open for business.
Portfolio holdings for which market quotes are readily available are valued at market value. Listed securities, for example, are generally valued using the official quoted close price or the last sale on the exchange that is determined to be the primary market for the security. Exchange-traded derivatives are valued at the settlement price determined by the relevant exchange.Short-term securities less than 60 days to maturity may be valued at amortized cost if amortized cost approximates current value. Mutual funds are valued at their respective net asset values. Security values are not discounted based on the size of the Fund’s position and may differ from the value the Fund receives upon sale of the securities.
Investments initially valued in currencies other than the U.S. dollar are converted to the U.S. dollar using prevailing exchange rates. Currency forward contracts are valued based on the prevailing forward exchange rates of the underlying currencies. As a result, the Fund’s net assets 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 normal valuation procedures produce valuations that are deemed unreliable or inappropriate under the circumstances existing at the time, the investment will be valued at fair value as determined in good faith by or under the direction of the Fund’s Board of Trustees. The Board of Trustees has appointed Dodge & Cox, the Fund’s investment manager, to make fair value determinations in accordance with the Dodge & Cox Funds Valuation Policies (“Valuation Policies”), subject to Board oversight. Dodge & Cox has established a Pricing Committee that is comprised of representatives from Treasury, Legal, Compliance, and Operations. The Pricing Committee is responsible for implementing the Valuation Policies, including determining the fair value of securities and other investments when necessary. The Pricing Committee considers relevant indications of value that are
reasonably available to it in determining the fair value assigned to a particular security, such as the value of similar financial instruments, trading volumes, contractual restrictions on disposition, related corporate actions, and changes in economic conditions. In doing so, the Pricing Committee employs various methods for calibrating fair valuation approaches, including a regular review of key inputs and assumptions, back-testing, and review of any related market activity.
As trading in securities on most foreign exchanges is normally completed before the close of the NYSE, the value of non-U.S. securities can change by the time the Fund calculates its net asset value. To address these changes, the Fund may utilize adjustment factors provided by an independent pricing service to systematically value non-U.S. securities at fair value. These adjustment factors are based on statistical analyses of subsequent movements and changes in U.S. markets and financial instruments trading in U.S. markets that represent foreign securities or baskets of securities.
Valuing securities through a fair value determination involves greater reliance on judgment than valuation of securities based on readily available market quotations. In some instances, lack of information and uncertainty as to the significance of information may lead to a conclusion that a prior valuation is the best indication of a security’s value. 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.
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 theex-dividend date, or when the Fund first learns of the transaction if the ex-dividend date has passed.Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends characterized as return of capital for U.S. tax purposes 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. Some 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 using methodologies determined by the nature of the expense.
Distributions to shareholders are recorded on theex-dividend date.
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. A corresponding receivable is established when both the amount is known and significant contingencies or uncertainties regarding collectability
PAGE 12§ DODGE & COX INTERNATIONAL STOCK FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
are removed. These amounts, if any, are reported in “dividends and interest receivable” in the Consolidated Statement of Assets and Liabilities.
Capital gains taxes are incurred upon disposition of certain foreign securities. Expected capital gains taxes on appreciated securities, if any, are accrued as unrealized losses and incurred capital gains taxes 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.
Repurchase agreements Repurchase agreements are transactions under which a Fund purchases a security from a dealer counterparty and agrees to resell the security to that counterparty on a specified future date at the same price, plus a specified interest rate. The Fund’s repurchase agreements are secured by U.S. government or agency securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. The Fund maintains custody of the underlying collateral securities, either through its regular custodian or through a third party custodian that maintains separate accounts for both the Fund and its counterparties. In the event of default by a counterparty, the Fund has the contractual right to liquidate the collateral securities and to apply the proceeds in satisfaction of the obligation.
Foreign currency translation The books and records of the Fund 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 and translation include the following: disposing/holding of foreign currency, 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.
Consolidation The Fund may invest in certain securities through its wholly owned subsidiary, Dodge & Cox International Stock Fund Cayman, Ltd. (the “Subsidiary”). The Subsidiary is a Cayman Islands exempted company and invests in certain securities consistent with the investment objective of the Fund. The Fund’s Consolidated Financial Statements, including the Consolidated Portfolio of Investments, consist of the holdings and accounts of the Fund and the Subsidiary. All intercompany transactions and balances have been eliminated. At December 31, 2019, the Subsidiary had net assets of $100, which represented less than 0.01% of the Fund’s consolidated net assets.
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 |
| § | | Level 2: Other significant observable inputs (including quoted prices for similar securities, market indices, interest rates, credit risk, forward exchange rates, 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 at December 31, 2019:
| | | | | | | | |
| Classification | | LEVEL 1
(Quoted Prices) | | | LEVEL 2
(Other Significant
Observable Inputs) | |
Securities | | | | | | | | |
Common Stocks | | | | | | | | |
Communication Services | | $ | 3,115,710,489 | | | $ | 388,589,513 | |
Consumer Discretionary | | | 3,049,764,307 | | | | 1,964,904,781 | |
Consumer Staples | | | 419,260,783 | | | | 314,511,897 | |
Energy | | | 3,373,524,252 | | | | 858,775,672 | |
Financials | | | 9,362,867,933 | | | | 5,204,286,824 | |
Health Care | | | 3,868,965,054 | | | | 3,958,094,815 | |
Industrials | | | 2,218,495,670 | | | | 1,798,518,478 | |
Information Technology | | | 989,930,381 | | | | 2,286,547,838 | |
Materials | | | 1,508,028,632 | | | | 1,389,287,397 | |
Real Estate | | | 263,948,484 | | | | 391,182,982 | |
Utilities | | | 461,860,766 | | | | — | |
Preferred Stocks | | | | | | | | |
Energy | | | — | | | | 365,658,581 | |
Financials | | | — | | | | 1,095,792,307 | |
Information Technology | | | — | | | | 1,121,259,878 | |
Short-term Investments | | | | | | | | |
Repurchase Agreements | | | — | | | | 446,884,000 | |
Money Market Fund | | | 202,091,143 | | | | — | |
| | | | | | | | |
Total Securities | | $ | 28,834,447,894 | | | $ | 21,584,294,963 | |
| | | | | | | | |
| | |
Other Investments | | | | | | | | |
Equity Total Return Swaps | | | | | | | | |
Depreciation | | $ | — | | | $ | (63,997,863 | ) |
Futures Contracts | | | | | | | | |
Depreciation | | | (2,132,116) | | | | — | |
Currency Forward Contracts | | | | | | | | |
Appreciation | | | — | | | | 52,098,774 | |
Depreciation | | | — | | | | (39,063,478 | ) |
| | | | | | | | | |
DODGE & COX INTERNATIONAL STOCK FUND§PAGE 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3—DERIVATIVE INSTRUMENTS
The Fund may use derivatives either to minimize the impact of certain risks to one or more of its investments (as a “hedging technique”) or to implement its investment strategy. A derivative is a financial instrument whose value is derived from a security, currency, interest rate, index, or other financial instrument.
Equity total return swaps Equity total return swaps are contracts that can create long or short economic exposure to an underlying equity security. Under such a contract, one party agrees to make payments to another based on the total return of a notional amount of the underlying security (including dividends and changes in market value), in return for periodic payments from the other party based on a fixed or variable interest rate applied to the same notional amount. Equity total return swaps can also be used to hedge against exposure to specific risks associated with a particular issuer or the underlying asset of a particular issuer. Investments in equity total return swaps may include certain risks including unfavorable price movements in the underlying reference instrument(s), or a default or failure by the counterparty.
Equity total return swaps are traded over-the-counter. The value of equity total return swaps changes daily based on the value of the underlying equity security. Changes in the market value of equity total return swaps are recorded as unrealized appreciation or depreciation in the Consolidated Statement of Operations. Realized gains and losses on equity total return swaps are recorded in the Consolidated Statement of Operations upon exchange of cash flows for periodic payments and upon the closing or expiration of the swaps.
Futures contracts Futures contracts involve an obligation to purchase or sell (depending on whether the Fund has entered a long or short futures contract, respectively) an asset at a future date, at a price set at the time of the contract. Futures contracts are exchange-traded. Upon entering into a futures contract, the Fund is required to deposit an amount of cash or liquid assets (referred to as “initial margin”) in a segregated account with the clearing broker. Subsequent payments (referred to as “variation margin”) to and from the clearing broker are made on a daily basis based on changes in the market value of the contract. Changes in the market value of open futures contracts are recorded as unrealized appreciation or depreciation in the Consolidated Statement of Operations. Realized gains and losses on futures contracts are recorded in the Consolidated Statement of Operations at the closing or expiration of the contracts. Cash deposited with a broker as initial margin is recorded in the Consolidated Statement of Assets and Liabilities. A receivable and/or payable to brokers for daily variation margin is also recorded in the Consolidated Statement of Assets and Liabilities.
Investments in futures contracts may include certain risks, which may be different from, and potentially greater than, those of the underlying assets. To the extent the Fund uses futures, it is exposed to additional volatility and potential losses resulting from leverage.
Currency forward contracts Currency forward contracts are agreements to purchase or sell a specific currency amount at a specified future date and price. Currency forward contracts are tradedover-the-counter. The values of currency forward contracts change daily based on the prevailing forward exchange rates of the
underlying currencies. Changes in the value of open contracts are recorded as unrealized appreciation or depreciation in the Consolidated Statement of Operations. When a currency forward contract is closed, the Fund records a realized gain or loss in the Consolidated 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.
Losses from these transactions may arise from unfavorable changes in currency values or if a counterparty does not perform under a contract’s terms.
Additional derivative information The following identifies the location on the Consolidated Statement of Assets and Liabilities and values of the Fund’s derivative instruments, categorized by primary underlying risk exposure.
| | | | | | | | | | | | |
| | | Equity
Derivatives | | | Foreign
Exchange
Derivatives | | | Total Value | |
Assets | | | | | | | | | | | | |
Unrealized appreciation on currency forward contracts | | $ | — | | | $ | 52,098,774 | | | $ | 52,098,774 | |
| | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | |
Unrealized depreciation on currency forward contracts | | $
| —
|
| | $
| 39,063,478
|
| | $
| 39,063,478
|
|
Unrealized depreciation on swaps | | | 63,997,863 | | | | — | | | | 63,997,863 | |
Futures contracts(a) | | | 2,132,116 | | | | — | | | | 2,132,116 | |
| | | | | | | | | | | | |
| | $ | 66,129,979 | | | $ | 39,063,478 | | | $ | 105,193,457 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| (a) | Includes cumulative appreciation (depreciation). Only the current day’s variation margin is reported in the Consolidated Statement of Assets and Liabilities. |
The following summarizes the effect of derivative instruments on the Consolidated Statement of Operations, categorized by primary underlying risk exposure.
| | | | | | | | | | | | |
| | | Equity Derivatives | | | Foreign
Exchange
Derivatives | | | Total | |
Net realized gain (loss) | | | | | |
Futures contracts | | $ | 176,162,099 | | | $ | — | | | $ | 176,162,099 | |
Swaps | | | (3,358,445 | ) | | | — | | |
| (3,358,445
| )
|
Currency forward contracts | | | — | | | | 140,808,362 | | |
| 140,808,362
|
|
| | | | | | | | | | | | |
| | $ | 172,803,654 | | | $ | 140,808,362 | | | $ | 313,612,016 | |
| | | | | | | | | | | | |
Net change in unrealized appreciation/depreciation | | | | | |
Futures contracts | | $ | 13,927,483 | | | $ | — | | | $ | 13,927,483 | |
Swaps | | | (63,997,863 | ) | | | — | | |
| (63,997,863
| )
|
Currency forward contracts | | | — | | | | (49,312,111 | ) | |
| (49,312,111
| )
|
| | | | | | | | | | | | |
| | $ | (50,070,380 | ) | | $ | (49,312,111 | ) | | $ | (99,382,491 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following summarizes the range of volume in the Fund’s derivative instruments during the year ended December 31, 2019.
| | | | | | | | |
| Derivative | | | | | % of Net Assets | |
Futures contracts | | | USD notional value | | | | 0-3 | % |
Swaps - long | | | USD notional value | | | | 0-1 | % |
Swaps - short | | | USD notional value | | | | 0-1 | % |
Currency forward contracts | | | USD total value | | | | 8-10 | % |
| | | | | | | | | |
PAGE 14§ DODGE & COX INTERNATIONAL STOCK FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Fund may enter into variousover-the-counter derivative contracts governed by International Swaps and Derivatives Association master agreements (“ISDA agreements”). The Fund’s ISDA agreements, which are separately negotiated with each dealer counterparty, specify (i) events of default and other events permitting a party to terminate some or all of the contracts thereunder and (ii) the process by which those contracts will be valued for purposes of determining termination payments. If some or all of the contracts under a master agreement are terminated because of an event of default or similar event, the values of all terminated contracts must be netted to determine a single payment owed by one party to the other. To the extent amounts owed to the Fund by its counterparties are not collateralized, the Fund is at risk of those counterparties’non-performance. The Fund attempts to mitigate counterparty credit risk by entering into contracts only with counterparties it believes to be of good credit quality, by exchanging collateral, and by monitoring the financial stability of those counterparties.
For financial reporting purposes, the Fund does not offset assets and liabilities that are subject to a master netting arrangement in the Consolidated Statement of Assets and Liabilities.
The Fund’s ability to net assets and liabilities and to offset collateral pledged or received is based on contractual netting/offset provisions in the ISDA agreements. The following table presents the Fund’s net exposure to each counterparty for derivatives that are subject to enforceable master netting arrangements as of December 31, 2019.
| | | | | | | | | | | | | | | | |
| Counterparty | | Gross
Amount of
Recognized
Assets | | | Gross
Amount of
Recognized
Liabilities | | | Cash
Collateral
Pledged/
(Received)(a) | | | Net Amount(b) | |
Bank of America | | $ | 6,312,206 | | | $ | — | | | $ | (6,312,206 | ) | | $ | — | |
Barclays | | | 4,313,842 | | | | 9,112,979 | | | | 1,030,000 | | | | (3,769,137 | ) |
Citibank | | | 11,731,207 | | | | 5,484,337 | | | | (6,246,870 | ) | | | — | |
Credit Suisse | | | 2,707,987 | | | | — | | | | (2,707,987 | ) | | | — | |
Goldman Sachs | | | 2,125,876 | | | | 1,570,724 | | | | (555,152 | ) | | | — | |
HSBC | | | 7,715,101 | | | | 4,015,544 | | | | (3,699,557 | ) | | | — | |
JPMorgan | | | 975,171 | | | | 66,426,049 | | | | 65,450,878 | | | | — | |
Morgan Stanley | | | — | | | | 4,465,881 | | | | 4,130,000 | | | | (335,881 | ) |
State Street | | | 15,896,272 | | | | — | | | | (15,896,272 | ) | | | — | |
UBS | | | 321,112 | | | | 11,985,827 | | | | 9,780,000 | | | | (1,884,715 | ) |
| | | | | | | | | | | | | | | | |
Total | | $ | 52,098,774 | | | $ | 103,061,341 | | | $ | 44,972,834 | | | $ | (5,989,733 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| (a) | Cash collateral pledged/(received) in excess of derivative assets/liabilities is not presented in this table. The total cash collateral is presented on the Fund’s Consolidated Statement of Assets and Liabilities. |
| (b) | Represents the net amount receivable (payable) from the counterparty in the event of a default. |
NOTE 4—RELATED PARTY TRANSACTIONS
Management fees Under a written agreement approved by a unanimous vote of the Board of Trustees, the Fund pays a management fee monthly at an annual rate 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 two 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 5—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. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes. Financial reporting records are adjusted for permanent book to tax differences at year end to reflect tax character. Book to tax differences are primarily due to differing treatments of wash sales, net short-term realized gain (loss), investments in passive foreign investment companies, foreign currency realized gain (loss), foreign capital gains tax, certain corporate action transactions, derivatives, and distributions.
Distributions during the years noted below were characterized as follows for federal income tax purposes.
| | | | | | | | |
| | | Year Ended
December 31, 2019 | | | Year Ended
December 31, 2018 | |
Ordinary income | | $ | 1,925,172,133 | | | $ | 1,392,029,880 | |
| | ($ | 1.712��per share | ) | | ($ | 1.080 per share | ) |
Long-term capital gain | | | — | | | | — | |
At December 31, 2019, the tax basis components of distributable earnings were as follows:
| | | | |
Undistributed ordinary income | | $ | 11,545,613 | |
Capital loss carryforward(a) | | | (1,617,098,751 | ) |
At December 31, 2019, unrealized appreciation and depreciation for investments and derivatives based on cost for federal income tax purposes were as follows:
| | | | |
Tax cost | | $
| 46,728,840,113
|
|
| | | | |
Unrealized appreciation | | | 9,546,419,704 | |
Unrealized depreciation | | | (5,909,611,643 | ) |
| | | | |
Net unrealized appreciation | | | 3,636,808,061 | |
| | | | | |
| (a) | Represents accumulated short-term and long-term capital loss as of December 31, 2019, which may be carried forward to offset future capital gains. |
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.
DODGE & COX INTERNATIONAL STOCK FUND§PAGE 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6—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 year.
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 itspro-rata portion of the Line of Credit. For the year ended December 31, 2019, the Fund’s commitment fee amounted to
$299,117 and is reflected as a Miscellaneous Expense in the Consolidated Statement of Operations. Interest on borrowings is charged at the prevailing rate. There were no borrowings on the Line of Credit during the year.
NOTE 7—PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 2019, purchases and sales of securities, other than short-term securities, aggregated $7,065,379,446 and $13,574,344,574, respectively.
NOTE 8—SUBSEQUENT EVENTS
Fund management has determined that no material events or transactions occurred subsequent to December 31, 2019, and through the date of the Fund’s financial statements issuance, which require additional disclosure in the Fund’s 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, 2019. Further detail on these holdings and related transactions during the year appear below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Value at
Beginning of Year | | | Additions | | | Reductions | | | Realized Gain (Loss) | | | Net Change in Unrealized Appreciation
(Depreciation) | | | Value at
End of Year | | | Dividend Income(a) | |
| COMMON STOCKS: 4.4% | | | | | | | | | | | | | | | | | | | | | | | | | |
| COMMUNICATION SERVICES: 1.7% | | | | | | | | | | | | | | | | | | | | | |
Liberty Global PLC, Series A(b) | | $ | 400,199,754 | | | $ | — | | | $ | (33,257,524 | ) | | $ | (24,048,322 | ) | | $ | 49,250,638 | | | $ | 392,144,546 | | | $ | — | |
Millicom International Cellular SA SDR | | | 429,239,963 | | | | 72,376,580 | | | | (18,396,473 | ) | | | (7,477,309 | ) | | | (87,153,248 | ) | | | 388,589,513 | | | | 15,236,783 | |
Television Broadcasts, Ltd. | | | 75,136,916 | | | | — | | | | — | | | | — | | | | (12,552,743 | ) | | | 62,584,173 | | | | 5,081,098 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 843,318,232 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| CONSUMER STAPLES: 0.6% | | | | | | | | | | | | | | | | | | | | | | | | | |
Magnit PJSC | | | 325,342,817 | | | | — | | | | (42,721,797 | ) | | | (85,469,318 | ) | | | 117,360,195 | | | | 314,511,897 | | | | 13,783,847 | |
| | | | | | |
| ENERGY: 1.0% | | | | | | | | | | | | | | | | | | | | | | | | | |
Encana Corp. | | | — | | | | 483,394,711 | | | | (15,043,134 | ) | | | 3,949,374 | | | | 36,496,611 | | | | 508,797,562 | | | | 2,650,494 | |
| | | | | | |
| INDUSTRIALS: 0.0% | | | | | | | | | | | | | | | | | | | | | | | | | |
Smiths Group PLC | | | 371,995,712 | | | | — | | | | (87,626,937 | ) | | | (1,539,952 | ) | | | 95,433,070 | | | | — | (c) | | | 10,783,745 | |
| | | | | | |
| INFORMATION TECHNOLOGY: 0.6% | | | | | | | | | | | | | | | | | | | | | | | | | |
Micro Focus International PLC | | | 400,640,762 | | | | 34,346,620 | | | | (46,498,398 | ) | | | (19,759,785 | ) | | | (90,716,068 | ) | | | 278,013,131 | | | | 113,112,529 | |
| | | | | | |
| REAL ESTATE: 0.5% | | | | | | | | | | | | | | | | | | | | | | | | | |
Hang Lung Group, Ltd. | | | 280,023,530 | | | | — | | | | (9,519,605 | ) | | | (9,323,200 | ) | | | 2,767,759 | | | | 263,948,484 | | | | 10,891,433 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | $ | (143,668,512 | ) | | $ | 110,886,214 | | | $ | 2,208,589,306 | | | $ | 171,539,929 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | Net of foreign taxes, if any |
| (c) | Company was not an affiliate at year end |
PAGE 16§ DODGE & COX INTERNATIONAL STOCK FUND
CONSOLIDATED FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | | | | | | | |
SELECTED DATA AND RATIOS (for a share outstanding throughout each year) | | | | | | | | Year Ended December 31, | |
| | | 2019 | | | | | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
| | | | |
Net asset value, beginning of year | | | $36.91 | | | | | | | | $46.32 | | | | $38.10 | | | | $36.48 | | | | $42.11 | |
Income from investment operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 1.25 | | | | | | | | 1.01 | | | | 0.70 | | | | 0.82 | | | | 0.79 | |
Net realized and unrealized gain (loss) | | | 7.15 | | | | | | | | (9.34 | ) | | | 8.41 | | | | 2.19 | | | | (5.58 | ) |
| | | | |
Total from investment operations | | | 8.40 | | | | | | | | (8.33 | ) | | | 9.11 | | | | 3.01 | | | | (4.79 | ) |
| | | | |
Distributions to shareholders from: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (1.71 | ) | | | | | | | (1.08 | ) | | | (0.89 | ) | | | (0.85 | ) | | | (0.84 | ) |
Net realized gain | | | — | | | | | | | | — | | | | — | | | | (0.54 | ) | | | — | |
| | | | |
Total distributions | | | (1.71 | ) | | | | | | | (1.08 | ) | | | (0.89 | ) | | | (1.39 | ) | | | (0.84 | ) |
| | | | |
Net asset value, end of year | | | $43.60 | | | | | | | | $36.91 | | | | $46.32 | | | | $38.10 | | | | $36.48 | |
| | | | |
Total return | | | 22.78 | % | | | | | | | (17.98 | )% | | | 23.94 | % | | | 8.26 | % | | | (11.35 | )% |
Ratios/supplemental data: | | | | | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (millions) | | | $50,228 | | | | | | | | $48,108 | | | | $65,670 | | | | $54,187 | | | | $57,029 | |
Ratio of expenses to average net assets | | | 0.63 | % | | | | | | | 0.63 | % | | | 0.63 | % | | | 0.64 | % | | | 0.64 | % |
Ratio of net investment income to average net assets | | | 2.85 | % | | | | | | | 2.17 | % | | | 1.57 | % | | | 2.12 | % | | | 1.86 | % |
Portfolio turnover rate | | | 15 | % | | | | | | | 17 | % | | | 17 | % | | | 17 | % | | | 18 | % |
See accompanying Notes to Consolidated Financial Statements
DODGE & COX INTERNATIONAL STOCK FUND§PAGE 17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TotheBoard of Trustees of the Dodge & Cox Funds and Shareholders of Dodge & Cox International Stock Fund
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of assets and liabilities, including the consolidated portfolio of investments, ofDodge & Cox International Stock Fund and its subsidiary (one of the funds constituting Dodge & Cox Funds, referred to hereafter as the “Fund”) as of December 31, 2019, the related consolidated statementof operations for the year endedDecember 31, 2019, the consolidated statement of changes in net assets for each of the two years in the period ended December 31, 2019, including the related notes, and the financial highlights for each of the five years in the period ended December 31, 2019 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2019, 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 ended December 31, 2019 and the financial highlights for each of the five years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31, 2019 by correspondence with the custodian, transfer agent and brokers. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2020
We have served as the auditor of one or more investment companies in the Dodge & Cox Funds since 1931.
PAGE 18§ DODGE & COX INTERNATIONAL STOCK FUND
SPECIAL 2019 TAX INFORMATION
(unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code:
In 2019, the Fund elected to pass through to shareholders foreign source income of $2,361,801,487 and foreign taxes paid of $176,257,610.
The Fund designates up to a maximum of $2,217,801,156 of its distributions paid to shareholders in 2019 as qualified dividends (treated for federal income tax purposes in the hands of shareholders as taxable at a maximum rate of 20%).
For shareholders that are corporations, the Fund designates 0% of its ordinary dividends paid to shareholders in 2019 as dividends from domestic corporations eligible for the corporate dividends received deduction, provided that the shareholder otherwise satisfies applicable requirements to claim that deduction.
FUNDS’ LIQUIDITY RISK MANAGEMENT PROGRAM
(unaudited)
The Funds have adopted and implemented a written liquidity risk management program as required by Rule 22e-4 under the Investment Company Act. The program is reasonably designed to assess and manage each Fund’s liquidity risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings and access to other funding sources including the Funds’ interfund lending facility and line of credit. The Funds’ Board of Trustees approved the appointment of a Liquidity Risk Management Committee including representatives from Dodge & Cox’s legal, compliance, treasury, operations, trading, and portfolio management departments, which is responsible for the program’s administration and oversight and for reporting to the Board on at least an annual basis regarding the program’s operation and effectiveness. The Liquidity Risk Management Committee refreshed its assessment of the Fund’s liquidity risk profile, considering additional data gathered in the 12 months ended September 30, 2019 and the adequacy and effectiveness of the liquidity risk management program’s operations since its inception in February, 2019 (the “covered period”) in order to prepare a written report to the Board of Trustees for consideration at its meeting held on December 12, 2019. The report concluded that (i) the Fund did not experience significant liquidity challenges during the covered period (ii) the Fund’s investment strategy is appropriate for an open-end fund; and (iii) the Fund’s liquidity risk management program is reasonably designed to assess and manage its liquidity risk.
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, 2019, 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 additionalone-year term through December 31, 2020 with respect to each Fund. During the course of the year, the Board received extensive information and materials relating to the investment management and administrative services provided by Dodge & Cox and the performance of each of the Funds.
INFORMATION RECEIVED
Over the past several years, the Board has requested, received, and discussed a number of special presentations on topics relevant to their annual consideration of the proposed renewal of the Funds’ Agreements. In addition to the foregoing and in advance of the meetings referred to below, the Board, including the Independent Trustees, requested, received, and reviewed materials relating to the Agreements and the services provided by Dodge & Cox. The Independent Trustees retained Broadridge to prepare an independent expense and performance summary for each Fund and comparable funds managed by other advisers identified by Broadridge. The Broadridge materials included information regarding advisory and administrative fee rates, expense ratios, and transfer agency, custodial, and distribution expenses, as well as performance comparisons to each Fund’s peer group and to a broad-based securities index or combination of indices. The Broadridge 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, management fee revenue, and separate account fee schedules. The Board additionally considered the Funds’ brokerage commissions, turnover rates, sales and redemption data, and the investment that Dodge & Cox makes in research used in managing the Funds. The Board received and reviewed memoranda and related materials addressing, among other things, Dodge & Cox’s services to the Funds; how Dodge & Cox Funds’ fees compare to fees of peer group funds; the different fees, services, costs, and risks associated with other accounts managed by Dodge & Cox as compared to the Dodge & Cox Funds; and the ways in which the Funds realize economies of scale. 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 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 mutual fund management arrangements. The Trust’s Contract Review Committee, consisting solely of Independent Trustees, met with the independent legal counsel on November 7, 2019 and again on December 12, 2019 to discuss whether to renew the Agreements. The Board, including the Independent Trustees, subsequently concluded that the existing
DODGE & COX INTERNATIONAL STOCK FUND§PAGE 19
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 asall-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 range of services to the Funds in addition to portfolio management, including regulatory compliance, trading desks, proxy voting, transfer agent and custodian oversight, administration, regulatory filings, tax compliance and filings, website, and anti-money laundering. The 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 in the management of the Funds; its consistency in investment approach and depth; the background and experience of the Dodge & Cox U.S. Equity Investment Committee, International Equity Investment Committee, Global Equity Investment Committee, U.S. Fixed Income Investment Committee, and Global Fixed Income Investment Committee, and research analysts responsible for managing the Funds; Dodge & Cox’s methods for assessing the regulatory and investment climate in various jurisdictions; its overall level of attention to its core investment management function; and its commitment to the Funds and their shareholders. The Board reviewed information from Dodge & Cox regarding any material conflicts of interest between the Funds and Dodge & Cox or its other clients, and regarding how Dodge & Cox addresses those conflicts. The Board noted Dodge & Cox’s record of favorable press and industry coverage, as well as its good compliance record, and its reputation as a trusted, shareholder-friendly mutual fund family. In addition, the Board considered that Dodge & Cox manages approximately $211 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, that its investment professionals adhere to a consistent investment approach across the Funds, and that due to its deliberate strategy with respect to new products, Dodge & Cox has had stability in its mutual fund product offerings over the course of many years and has the fewest funds of any of the 25 largest mutual fund families by assets. The Board further considered the “Gold” analyst rating awarded by Morningstar to all of the Funds (other than the Global Bond Fund, which has a “Silver” rating). 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 reviewed each Fund’s recent and long-term investment performance (including periods of outperformance and underperformance), as compared to relevant indices and the performance of such Fund’s peer group and broader Morningstar category. In assessing the performance of the Funds, the Board considered the Funds’ investment returns over various periods and the volatility thereof and concluded that the levels experienced were consistent with Dodge & Cox’s long-term approach and active investment style. The Board also compared the short- and long-term investment performance of the equity funds to value-oriented indices, in recognition of the significant performance divergence between value and growth stocks over the past several years. It was noted that equity performance has been consistent with the value oriented investment strategy employed by Dodge & Cox. The Board concluded 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 value-oriented investment management process that emphasizes a long-term investment horizon, independent research, a team approach, price discipline, low cost, and low portfolio turnover. The Board concluded that Dodge & Cox has delivered 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 net expense ratio relative to (1) a broad category of other mutual funds with similar portfolio characteristics and share class and expense structures and (2) a smaller group of peers selected by Broadridge based on investment style, share class characteristics, and asset levels. The Board also considered the management fees charged by Dodge & Cox to other clients. In particular, the Board considered that the Funds continue to be below their peer group medians in net expense ratios. The Board also evaluated the operating structures of the Funds and Dodge & Cox, noting that the Funds do not chargefront-end sales commissions or distribution fees, and Dodge & Cox bears, among other things, the cost of most third-party research, reimbursement for shareholder recordkeeping and administrative costs to third-party retirement plan administrators, and administrative and office overhead. The Board noted that the Broadridge report shows that the net expense ratio of every Dodge & Cox Fund is in the least expensive quartile compared to its broad Morningstar category. The Board noted the Funds’ unusual single-share-class structure and reviewed Broadridge data (including asset-weighted average expense ratios) showing that most of the peer group funds offer several different classes of shares, with different expense ratios, to different categories of investors, and that the Broadridge expense comparisons described above generally compare the net expense ratio of each Dodge & Cox Fund’s single share class to one of the least expensive share classes of the peer fund, even though those share classes are often not
PAGE 20§ DODGE & COX INTERNATIONAL STOCK FUND
available to retail investors. The Board noted that the Funds provide access for small investors to high quality investment management at a relatively low cost. The Board also considered that the Funds are priced to scale, i.e., management fee rates begin at relatively low levels. Even without breakpoints, the Funds’ management fee rates are lower than those of many peer funds whose fee schedules include breakpoints. With respect tonon-U.S. funds sponsored and managed by Dodge & Cox that are comparable to the Funds in many respects, the Board noted that the fee rates charged by Dodge & Cox are the same as or higher than the fee rates charged to the Funds. 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 the differences in the nature and scope of services Dodge & Cox provides to the Funds as compared to other client accounts, as well as material differences in regulatory, litigation, and other risks as between Dodge & Cox Funds and other types of clients. The Board noted that different markets exist for mutual fund and institutional separate account management services and that a comparison of Fund fee rates and separate account fee rates must consider the fact that separate account clients bear additional costs and responsibilities that are included in the cost of a Fund. 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-ownedS-Corporation and relative to the scope and quality of the services provided. The Board noted in particular that Dodge & Cox’s profits are not generated by high fee rates, but reflect a 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 includes a return on shareholder employees’ investment in the firm, which is vital for remaining independent and facilitating retention of management and investment professionals. The Board also considered that Dodge & Cox has in the past closed some of the Funds to new investors to proactively manage growth in those Funds. While these actions are intended to benefit existing Fund shareholders, the effect is to reduce potential revenues to Dodge & Cox from new shareholders. The Board also considered potential“fall-out” benefits (including the receipt of research from unaffiliated brokers and reputational benefits tonon-U.S. funds sponsored and managed by Dodge & Cox) that Dodge & Cox
might receive as a result of its association with the Funds and determined that they are acceptable. The Board also noted that Dodge & Cox continues to invest in its business to provide enhanced services, systems, and research capabilities, all of which benefit the Funds. The Board concluded that Dodge & Cox’s profitability is the keystone of its independence, stability, and long-term investment performance and that the profitability of Dodge & Cox’s relationship with the Funds (includingfall-out benefits) is fair and reasonable.
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 level of 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 and expense structure and the fact that the Dodge & Cox Funds build economies of scale into their fee structures by charging low fees from a fund’s inception and keeping overall expenses down as a Fund grows, as compared to other fund complexes that employ fee “breakpoints” only after a fund reaches a certain scale. An assessment of economies of scale must also take into account that Dodge & Cox invests time and resources in each new Fund for months (and sometimes years) prior to launch; in addition, in a Fund’s early periods of operations, expenses are capped, which means that Dodge & Cox subsidizes the operations of a new Fund for a period of time until it reaches scale. The Board also observed that, while total Fund assets have grown over the long term, this growth has not been continuous or evenly distributed across all of the Funds. In addition, the Board noted that Dodge & Cox has shared the benefits of economies of scale with the Funds by adding services to the Funds over time, and that Dodge & Cox’s internal costs of providing investment management, technology, administrative, legal, and compliance services to the Funds continue to increase. For example, Dodge & Cox has increased its global research staff and investment resources over the years to add new capabilities for the benefit of Fund shareholders and to address the increased complexity of investing globally. In addition, Dodge & Cox has made expenditures in other staff, technology, and infrastructure to enable it to integrate credit and equity analyses and to implement its strategy in a more effective manner. Over the last ten years, Dodge & Cox has increased its spending on research, investment management, client servicing, cybersecurity, technology, third-party research, data services, and computer systems for trading, operations, compliance, accounting, and communications at a rate that has outpaced the Funds’ growth rate during the same period. The Board also observed that, even without fee breakpoints, the Funds are competitively priced in a competitive market and that having a low fee from inception is better for shareholders than starting with a higher fee and adding breakpoints. The Board also noted that there are certain diseconomies of scale associated with managing large funds, insofar as certain of the costs and risks associated with portfolio management increase disproportionately
DODGE & COX INTERNATIONAL STOCK FUND§PAGE 21
as assets grow. 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 management fee structure was fair and reasonable, that each Fund was paying a competitive fee for the services provided, that Dodge & Cox’s services have provided 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 on a quarterly basis by filing the lists with the SEC on Form N-CSR (as of the end of the second and fourth quarters) and on Part F ofForm N-PORT (as of the end of the first and third quarters). Shareholders may view the Fund’s Form N-CSR and Part F of Form N-PORT on the SEC’s website at sec.gov. A list of the Fund’s quarter-end holdings is also available at dodgeandcox.com on or about the 15th day following each quarter end and remains available on the website until the list is updated for 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 dodgeandcox.com, or visit the SEC’s website at 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 dodgeandcox.com or at 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.
PAGE 22§ DODGE & COX INTERNATIONAL STOCK FUND
DODGE & COX FUNDS—EXECUTIVE OFFICER & TRUSTEE INFORMATION
| | | | | | |
| | | | |
Name (Age) and
Address* | | Position with Trust (Year of Election or
Appointment)** | | Principal Occupation During Past Five Years and Other Relevant
Experience** | | Other Directorships of Public Companies Held
by Trustees |
| |
| INTERESTED TRUSTEES AND EXECUTIVE OFFICERS |
| Charles F. Pohl (61) | | Chairman and Trustee (since 2014) | | Chairman and Director of Dodge & Cox; Chief Investment Officer and member of U.S. Equity Investment Committee (USEIC), Global Equity Investment Committee (GEIC), and International Equity Investment Committee (IEIC) | | — |
| Dana M. Emery (58) | | President (since 2014) and Trustee (since 1993) | | Chief Executive Officer, President, and Director of Dodge & Cox;Co-Director of Fixed Income (until January 2020) and member of U.S. Fixed Income Investment Committee (USFIIC) and Global Fixed Income Investment Committee (GFIIC) | | — |
| Diana S. Strandberg (60) | | Senior Vice President (since 2006) | | Senior Vice President and Director of Dodge & Cox; Director of International Equity and member of GEIC, IEIC, and GFIIC; member of USEIC (until January 2020) | | — |
| Roberta R.W. Kameda (59) | | Chief Legal Officer (since 2019) and Secretary (since 2017) | | Vice President, General Counsel, and Secretary (since 2017) of Dodge & Cox | | — |
| David H. Longhurst (62) | | Treasurer (since 2006) | | Vice President and Assistant Treasurer of Dodge & Cox | | — |
| Katherine M. Primas (45) | | Chief Compliance Officer (since 2010) | | Vice President and Chief Compliance Officer of Dodge & Cox | | — |
| |
| INDEPENDENT TRUSTEES |
| Caroline M. Hoxby (53) | | Trustee (since 2017) | | Professor of Economics, Stanford University; Director of the Economics of Education Program, National Bureau of Economic Research; Senior Fellow, Hoover Institution and Stanford Institute for Economic Policy Research | | — |
| Thomas A. Larsen (70) | | Trustee (since 2002) | | Senior Counsel of Arnold & Porter (law firm) (2015-2018); Partner of Arnold & Porter (until 2015); Director of Howard, Rice, Nemerovski, Canady, Falk & Rabkin (1977-2011) | | — |
| Ann Mather (59) | | Trustee (since 2011) | | CFO, Pixar Animation Studios (1999-2004) | | Director, Alphabet Inc. (internet information services) (since 2005); Director, Glu Mobile, Inc. (multimedia software) (since 2004); Director, Netflix, Inc. (internet television) (since 2010); Director, Arista Networks (cloud networking) (since 2013) |
| Robert B. Morris III (67) | | Trustee (since 2011) | | Advisory Director, The Presidio Group (2005-2016); Partner and Managing Director—Global Investment Research at Goldman Sachs (until 2001) | | — |
| Gabriela Franco Parcella (51) | | Trustee (since 2020) | | Managing Partner of Merlone Geier Partners (since 2018); Chairman, President, and CEO, Mellon Capital (2011 to 2017); COO, Mellon Capital (1997 to 2011). | | Director, Terreno Realty Corporation (since 2018) |
| Gary Roughead (68) | | Trustee (since 2013) | | Robert and Marion Oster Distinguished Military Fellow, Hoover Institution (since 2012); Admiral, United States Navy (Ret.); U.S. Navy Chief of Naval Operations (2008-2011) | | Director, Northrop Grumman Corp. (global security) (since 2012); Director, Maersk Line, Limited (shipping and transportation) (since 2016) |
| Mark E. Smith (68) | | Trustee (since 2014) | | Executive Vice President, Managing Director—Fixed Income at Loomis Sayles & Company, L.P. (2003-2011) | | — |
| John B. Taylor (73) | | Trustee (since 2005) (and 1995-2001) | | Professor of Economics, Stanford University (since 1984); Senior Fellow, Hoover Institution (since 1996); 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 six series in the Dodge & Cox Funds complex and serves for an indefinite term. |
| ** | | Information as of January 15, 2020. |
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 dodgeandcox.com or calling 800-621-3979.
DODGE & COX INTERNATIONAL STOCK FUND§PAGE 23
dodgeandcox.com
For Fund literature, transactions, and account information, please visit the Funds’ website.
or write or call:
DODGE & COX FUNDS
c/o DST Asset Manager Solutions, Inc.
P.O. Box 219502
Kansas City, Missouri 64121-9502
(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, 2019, 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.
DODGE & COX FUNDS®
Annual Report
December 31, 2019
Balanced Fund
ESTABLISHED 1931
TICKER: DODBX
Important Notice:
Beginning on January 1, 2021, we intend to discontinue mailing paper copies of the Fund’s shareholder reports as permitted by new regulations adopted by the Securities and Exchange Commission, unless you specifically request paper copies from Dodge & Cox Funds or from your financial intermediary, such as a broker-dealer or bank. The reports will remain available to you on the Dodge & Cox Funds website (dodgeandcox.com), and you will be notified by mail each time a report is posted and provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. If you have not done so already, you may elect to receive shareholder reports and other communications electronically by enrolling in e-delivery on the Funds website, or, if you are invested through a financial intermediary, by updating your mailing preferences through the intermediary.
If you wish to continue receiving paper copies of all future shareholder reports, please contact us at (800) 621-3979. Reports will be provided to you free of charge. If you are invested through a financial intermediary, you may contact your financial intermediary to request to receive paper copies. Your election to receive reports in paper form will apply to all funds held with Dodge & Cox Funds or through your financial intermediary, as applicable.
12/19 BF AR 
Printed on recycled paper
TO OUR SHAREHOLDERS
The Dodge & Cox Balanced Fund had a total return of 19.6% for the year ended December 31, 2019, compared to a return of 22.2% for the Combined Index (a 60/40 blend of stocks and fixed income securities).
MARKET COMMENTARY
The U.S. equity market’s performance in 2019 was exceptional: the S&P 500 registered a 31.5% return, its strongest annual return since 2013, and reached anall-time high. Every sector of the S&P 500 posted positive, double-digit returns. Information Technology surged 50% and was the best-performing sector, while Energy (up 12%) was the worst-performing sector.
In fixed income, the U.S. investment-grade fixed income market posted a robust 8.7%a return, fueled by the combination of falling U.S. Treasury yields and strong performance from the Corporate bond sector.
INVESTMENT STRATEGY
We set the Fund’s asset allocation based on our long-term outlook for the Fund’s equity and fixed income holdings, which currently favors equities. We did not make any meaningful changes to this allocation during 2019. At year end, the Fund’s 68.1% equity weighting (including 2.8% in preferred stocks) reflected our more positive outlook for total return potential from equities than from fixed income.
EQUITY STRATEGY
In the United States, the group of companies that benefits from low interest rates, as described below, is trading at an 80% premium to the group of companies that is harmed by low interest rates (or performs better in a rising interest rate environment). Historically, these two groups have traded in roughly the same valuation range. Post 2010, however, the valuations of these two groups diverged as investors sought “bond substitutes”—mainly in the Utilities, Real Estate, and Consumer Staples sectors—with higher dividend yields in a lower interest rate environment. The portfolio holds no utilities or real estate companies and has only one consumer staples holding (Molson Coors,b 0.8%c of the equity portfolio) because we believe many companies have inflated valuations in these sectors. Conversely, companies that benefit from rising interest rates—Financials, Energy, and some Industrials—are almost all categorized as value stocks, and they are now selling at extraordinary discounts relative to the market. As a value-oriented manager, the equity portfolio remains overweight Financials (29.0% of the equity portfolio versus 13.0% of the S&P 500) and Energy (9.6% of the equity portfolio versus 4.3%).
We continue to identify attractive investment opportunities and have leaned into challenged areas of the market, such as Energy and Industrials. At the same time, we also reevaluated the portfolio’s strong performers and significantly trimmed back several of those large positions, including Charter Communications, Comcast, JPMorgan Chase, and Microsoft. During 2019, we added more to Energy than any other sector and trimmed the most from Communication Services, particularly in the Media industry.
Energy
Energy companies have suffered from years of lower oil prices, which have reduced cash flows at many companies and made it more difficult to invest in new projects. There are also long-term concerns about oil and gas demand as the threat of climate change necessitates a transition to less carbon-intensive alternatives. However, energy companies currently trade at low multiples relative to their history and to the broader market. We believe the valuations of the equity portfolio’s energy holdings provide an attractive starting point and more than compensate for these risks.
During 2019, we increased the equity portfolio’s exposure to Occidental Petroleum, Concho Resources, Schlumberger, and Halliburton as valuations became more attractive. We also recently initiated a position in Hess, an independent oil and gas exploration and production company.
Hess: Hess is investing its strong cash flows from existing assets into a new project with significant production potential in Guyana.The company owns 30% of a partnership with Exxon Mobil in the Stabroek block in the country, and this oil discovery is already one of the largest in recent decades. Much of the Stabroek block remains unexplored and Hess has interests in additional blocks in Guyana and Suriname. Incremental discoveries on these blocks could provide additional upside. In addition, the Guyana resource has some of the lowest development costs outside of OPEC.d Higher incremental returns from this investment should result in attractive free cash flow growth over the next several years. Trading at nine times cash flow, Hess was a 0.7% position in the equity portfolio at year end.
Media & Entertainment
Within Communication Services, Media & Entertainment is another overweight position in the equity portfolio: 11.9% compared to 8.2% for the S&P 500. The majority of the portfolio’s exposure relates to cable and satellite companies (Comcast, Charter Communications, and DISH Network). Comcast and Charter have strong potential to continue generating positive free cash flow and sustaining growth in broadband and business services. In addition, DISH has various options for the unrealized value in its wireless spectrum holdings. The other holdings are content-related media companies (Alphabet/Google, Fox Corp., and News Corp.) that offer scarcity value of premium content and growth in digital distribution outlets, advertising, and international markets.
The competitive landscape is rapidly evolving, due to growth in video streaming services (e.g., Netflix, Amazon, Hulu), changes in consumer viewing and listening habits, shifting revenue streams, and industry consolidation. Longer term, uncertainty surrounding potential regulatory incursions (e.g., unbundling, forced wholesale access, price regulation on broadband) and 5G fixed wireless as an alternative to cable broadband also pose risks. However, we believe the portfolio’s media and entertainment holdings are trading at reasonable valuations in comparison to their growth prospects.
PAGE 2§ DODGE & COX BALANCED FUND
In 2019, the portfolio’s media holdings outperformed significantly with Charter Communications and Comcast up 70% and 34%, respectively. Based on their solid performance and higher valuations, we trimmed both Comcast and Charter. Nevertheless, they remain in thetop-ten holdings of the equity portfolio. In addition, Walt Disney acquired the majority of Twenty-First Century Fox’s assets and the Fund (a large shareholder) primarily received cash as a result of this transaction.
FIXED INCOME STRATEGY
Over the year, we made a number of adjustments to the fixed income portfolio’s positioning in light of higher credit market valuations and slightly less constructive economic fundamentals. Most notably, we trimmed multiple credite issuers and invested the proceeds in U.S. Treasuries.
The Credit Sector: Reduced Overall Exposure, but Still Finding Select Opportunities
The most meaningful change to positioning throughout 2019 was an eight percentage point reduction in the portfolio’s credit weighting. Reductions were achieved through a combination of maturities, relative value-driven trims, and participation in tenders related to corporate liability management exercises. For example, we trimmed Verizon and sold Anheuser-Busch InBev. It is important to note that 2019 trims were, by and large, driven by a less attractive risk-reward tradeoff following strong performance and subsequently higher valuations, rather than a deteriorating view of the issuers’ creditworthiness. Despite reducing the portfolio’s credit exposure generally, we remain on the lookout for individual opportunities in credit, highlighted by the additions of AbbVie, Occidental Petroleum, UniCredit, and Vodafone Group over the course of the year. AbbVie, a biopharmaceutical company that issued debt in November to help fund its acquisition of Allergan, merits highlighting. In the coming years, we expect the company to generate tens of billions of dollars of free cash flow, which should enable it to pay down debt and improve its credit profile.
The Securitized Sector: Adding Liquidity and Incremental Yield at a Compelling Valuation
The fixed income portfolio’s holdings in the Securitized sector consist predominantly of Agencyf mortgage-backed securities (MBS). As a group, these securities can provide attractive total-return potential in the front to intermediate part of the yield curve, and they continue to play an important role in the overall portfolio because of their generally substantial liquidity and high credit quality.
Within MBS, the portfolio features a large position in30-year 4.5% coupon securities. This segment underperformed in 2019 as borrowers faced greater refinancing incentives because of the decline in interest rates. Through ourbottom-up, fundamental research we attempt to measure—and assess whether investors are being appropriately compensated for—prepayment risk. Given our analysis, we believe this risk going forward is manageable for these securities, and their favorable starting valuations make them attractive, especially relative to credit alternatives. Overall, we feel
the risk-reward equation in Agency MBS continues to look compelling given modest dollar prices and relatively wide spreads.
Defensive Duration: Mitigating the Risk of Rising Rates over Time
We continue to maintain the portfolio’s overall defensive durationg position with respect to interest rate risk, reflecting our longer-term view that interest rates are still likely to exceed current market expectations.
The portfolio’s relative interest rate positioning is underpinned by two key factors. First, we believe recession risk is low and the U.S. economy is on solid footing. While we expect the economy to slow toward trend growth (2% real GDP) as the fiscal stimulus fades, the strengths of the consumer sector and the labor market should help it avoid a recession. In our view, U.S. Treasury valuations have swung too far in attempting to price in a period of low or negative growth. Second, the significant reduction in unemployment and the ensuing labor market tightening have raised the prospect of more rapid wage growth and somewhat higher inflation than what many indicators are forecasting. While we expect the Fed to keep short term rates steady, we believe the long end of the curve will move higher over time. Given these factors and low starting yields, we believe it is important to remain defensive in order to mitigate the negative effect of any bond market price declines that could stem from potential increases in interest rates over time.
Inflation Expectations: An Additional Valuation-Driven Opportunity
In developing our economic forecasts, our team of analysts and traders is constantly on the lookout for segments of the market that appear undervalued. One example is Treasury Inflation Protected Securities (TIPS), where we recently established a small position in three-year securities. These securities look attractive relative to other investment opportunities due to the low level of inflation required to generate a competitive total return.
IN CLOSING
U.S. equity and fixed income returns in 2019 were very strong and certainly not the norm. As a result of high starting equity and credit market valuations, we caution investors to temper expectations around future performance. Furthermore, the low level of interest rates increases the risk of quite modest (or even negative) returns for fixed income if yields rise substantially from current levels.
That said, we remain optimistic about the long-term outlook for the Fund. The equity portfolio trades at a meaningful discount to the overall market: 13.5 times forward earningsh compared to 18.9 times for the S&P 500. We have positioned the fixed income portfolio defensively from a duration standpoint, and we will continue to seek opportunities to build portfolio yield through ourbottom-up, research-driven investment approach. In addition, the Fund is well diversified and features a variety of investment themes.
As a value-oriented manager, patience and persistence are also essential to long-term investment success. We encourage our
DODGE & COX BALANCED FUND§PAGE 3
shareholders to take a similar view. Thank you for your continued confidence in our firm. As always, we welcome your comments and questions.
For the Board of Trustees,
| | |
 | |  |
Charles F. Pohl, Chairman | | Dana M. Emery, President |
January 31, 2020
| a | | Sector returns as calculated and reported by Bloomberg. |
| b | | The use of specific examples does not imply that they are more or less attractive investments than the portfolio’s other holdings. |
| c | | Unless otherwise specified, all weightings and characteristics are as of December 31, 2019. |
| d | | The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 13 nations. |
| e | | Credit securities refers to corporate bonds and government-related securities, as classified by Bloomberg. |
| f | | The U.S. Government does not guarantee the Fund’s shares, yield, or net asset value. The agency guarantee (by, for example, Ginnie Mae, Fannie Mae, or Freddie Mac) does not eliminate market risk. |
| g | | Duration is a measure of a bond’s (or a bond portfolio’s) price sensitivity to changes in interest rates. |
| h | | Excludes the Fund’s preferred stock positions. |
PAGE 4§ DODGE & COX BALANCED FUND
2019 PERFORMANCE REVIEW
The Fund underperformed the Combined Index by 2.6 percentage points in 2019. The positive relative impact of the Fund’s lower allocation to fixed income was more than offset by the equity portfolio’s underperformance.
Equity Portfolio*
| | § | | The return for the S&P 500 was led by Information Technology, which rose 50% in 2019. The Fund’s holdings, though up 27%, trailed significantly. The main driver was not owning a few of the large, exceptional performers that boosted the S&P 500 sector, especially Apple. Weak performance from holdings, including HP Inc. and Juniper Networks, was also a factor. | |
| | § | | The portfolio was overweight (average 10% versus 5%) and underperformed in the Energy sector (up 10% compared to up 12% for the S&P 500 sector), which was the weakest area of the Index by a considerable margin. Occidental Petroleum and Apache were the main detractors. | |
| | § | | In the Media industry, the portfolio was overweight (average 9% versus 1%) and outperformed (holdings up 45% compared to up 36% for the S&P 500 industry). Charter Communications and Comcast were key positives. | |
Fixed Income Portfolio
| | § | | Security selection within credit was positive as several issuers performed well, including Citigroup capital securities, Enel, Pemex, Petrobras, Rio Oil Finance Trust, TC Energy, and Telecom Italia. | |
| | § | | The portfolio’s overweight to corporate bonds and underweight to U.S. Treasuries added to relative returns given the outperformance of credit. | |
| | § | | The portfolio’s below-benchmark duration position (72%** of the Bloomberg Barclays U.S. Agg’s duration) hampered relative returns as Treasury yields declined. | |
| | * | | Excludes the Fund’s preferred stock positions. |
| | ** | | Denotes Fund positioning at the beginning of the period. |
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.
90 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 U.S. Equity Investment Committee, which is responsible for determining the asset allocation of the Balanced Fund and managing the equity portion of the Balanced Fund, is a ten-member committee with an average tenure at Dodge & Cox of 24 years. The U.S. Fixed Income Investment Committee, which is responsible for managing the debt portion of the Balanced Fund, is a nine-member committee with an average tenure of 20 years.
One Business with a Single Research Office
Dodge & Cox manages equity (domestic, international, and global), fixed income (domestic and global), 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.
Risks: The Fund is subject to market risk, meaning holdings 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. The Fund also invests in individual bonds whose yields and market values fluctuate, so that an investment may be worth more or less than its original cost. Debt securities are subject to interest rate risk, credit risk, and prepayment and call risk, all of which could have adverse effects on the value of the Fund. A low interest rate environment creates an elevated risk of future negative returns. Financial intermediaries may restrict their market making activities for certain debt securities, which may reduce the liquidity and increase the volatility of such securities. Please read the prospectus and summary prospectus for specific details regarding the Fund’s risk profile.
DODGE & COX BALANCED FUND§PAGE 5
GROWTH OF $10,000 OVER 10 YEARS
FOR AN INVESTMENT MADE ON DECEMBER 31, 2009
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2019
| | | | | | | | | | | | | | | | |
| | | 1 Year | | | 5 Years | | | 10 Years | | | 20 Years | |
| | | | | | | | | | | | | | | | |
Dodge & Cox Balanced Fund | | | 19.62 | % | | | 7.78 | % | | | 10.25 | % | | | 8.21 | % |
S&P 500 Index | | | 31.49 | | | | 11.70 | | | | 13.56 | | | | 6.06 | |
Bloomberg Barclays U.S. Aggregate Bond Index (Bloomberg Barclays U.S. Agg) | | | 8.72 | | | | 3.05 | | | | 3.75 | | | | 5.03 | |
Combined Index(a) | | | 22.18 | | | | 8.39 | | | | 9.78 | | | | 5.95 | |
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 dodgeandcox.com or call800-621-3979 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 and/or interest income but, unlike Fund returns, do not reflect fees or expenses.
Standard & Poor’s, Standard & Poor’s 500, and S&P 500® are trademarks of S&P Global Inc. Bloomberg is a registered trademark of Bloomberg Finance L.P. and its affiliates. Barclays® is a trademark of Barclays Bank PLC.
| (a) | The Combined Index reflects an unmanaged portfolio (rebalanced monthly) of 60% of the S&P 500 Index, which is a market capitalization-weighted index of 500 large-capitalization stocks commonly used to represent the U.S. equity market, and 40% of the Bloomberg Barclays U.S. Aggregate Bond Index (Bloomberg Barclays U.S. Agg), which is a widely recognized, unmanaged index of U.S. dollar-denominated, investment-grade, taxable fixed income securities. The Fund may, however, invest up to 75% of its total assets in equity securities. |
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 “Expenses Paid During 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, 2019 | | Beginning Account Value
7/1/2019 | | | Ending Account Value
12/31/2019 | | | Expenses Paid
During Period* | |
Based on Actual Fund Return | | $ | 1,000.00 | | | $ | 1,080.50 | | | $ | 2.74 | |
Based on Hypothetical 5% Yearly Return | | | 1,000.00 | | | | 1,022.57 | | | | 2.66 | |
| * | | Expenses are equal to the Fund’s annualized expense ratio of 0.52%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
The expenses shown in the table highlight ongoing costs only and do not reflect any transactional fees or account maintenance fees. Though 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 6§ DODGE & COX BALANCED FUND
| | | | |
| PORTFOLIO INFORMATION | |
| December 31, 2019
|
|
| | | | | | | | | | | | |
FIVE LARGEST EQUITY
SECTORS (%) | | Common | | | Preferred | | | % of Net Assets | |
Financials | | | 17.3 | | | | 2.5 | | | | 19.8 | |
Health Care | | | 14.8 | | | | — | | | | 14.8 | |
Information Technology | | | 10.2 | | | | — | | | | 10.2 | |
Communication Services | | | 8.0 | | | | 0.3 | | | | 8.4 | |
Energy | | | 6.5 | | | | — | | | | 6.5 | |
| | | | |
FIXED INCOME SECTOR
DIVERSIFICATION (%) | | % of Net Assets | |
U.S. Treasury | | | 6.6 | |
Government-Related | | | 1.3 | |
Securitized | | | 12.2 | |
Corporate | | | 10.3 | |
| (a) | Net Cash & Other includes cash, short-term investments, derivatives, receivables, and payables. |
DODGE & COX BALANCED FUND§PAGE 7
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| COMMON STOCKS: 65.2% | |
| | |
| | | SHARES | | | VALUE | |
| COMMUNICATION SERVICES: 8.0% | |
MEDIA & ENTERTAINMENT: 7.8% | |
Alphabet, Inc., Class A(a) | | | 11,700 | | | $ | 15,670,863 | |
Alphabet, Inc., Class C(a) | | | 250,695 | | | | 335,184,229 | |
Charter Communications, Inc., Class A(a) | | | 677,107 | | | | 328,451,063 | |
Comcast Corp., Class A | | | 6,918,048 | | | | 311,104,619 | |
DISH Network Corp., Class A(a) | | | 2,634,334 | | | | 93,439,827 | |
Fox Corp., Class A | | | 2,676,133 | | | | 99,204,250 | |
Fox Corp., Class B | | | 638,780 | | | | 23,251,592 | |
News Corp., Class A | | | 1,227,504 | | | | 17,356,907 | |
| | | | | | | | |
| | | | 1,223,663,350 | |
TELECOMMUNICATION SERVICES: 0.2% | |
Sprint Corp.(a) | | | 8,107,071 | | | | 42,237,840 | |
| | | | | | | | |
| | | | 1,265,901,190 | |
| CONSUMER DISCRETIONARY: 2.3% | |
AUTOMOBILES & COMPONENTS: 0.2% | |
Harley-Davidson, Inc. | | | 981,400 | | | | 36,498,266 | |
|
CONSUMER DURABLES & APPAREL: 0.3% | |
Mattel, Inc.(a) | | | 3,453,723 | | | | 46,797,947 | |
|
RETAILING: 1.8% | |
Booking Holdings, Inc.(a) | | | 94,000 | | | | 193,050,620 | |
Qurate Retail, Inc., Series A(a) | | | 4,835,850 | | | | 40,766,215 | |
The Gap, Inc. | | | 2,720,678 | | | | 48,101,587 | |
| | | | | | | | |
| | | | 281,918,422 | |
| | | | | | | | |
| | | | 365,214,635 | |
| CONSUMER STAPLES: 0.6% | |
FOOD, BEVERAGE & TOBACCO: 0.6% | |
Molson Coors Brewing Company, Class B | | | 1,680,452 | | | | 90,576,363 | |
|
| ENERGY: 6.5% | |
Apache Corp. | | | 4,517,939 | | | | 115,614,059 | |
Baker Hughes Co., Class A | | | 6,475,200 | | | | 165,959,376 | |
Concho Resources, Inc. | | | 967,400 | | | | 84,715,218 | |
Halliburton Co. | | | 4,219,413 | | | | 103,249,036 | |
Hess Corp. | | | 1,166,925 | | | | 77,962,259 | |
National Oilwell Varco, Inc. | | | 2,060,241 | | | | 51,609,037 | |
Occidental Petroleum Corp. | | | 7,271,814 | | | | 299,671,455 | |
Schlumberger, Ltd. (Curacao/United States) | | | 3,269,921 | | | | 131,450,824 | |
| | | | | | | | |
| | | | 1,030,231,264 | |
| FINANCIALS: 17.3% | |
BANKS: 6.6% | |
Bank of America Corp. | | | 9,545,300 | | | | 336,185,466 | |
JPMorgan Chase & Co. | | | 1,170,200 | | | | 163,125,880 | |
Truist Financial Corp. | | | 2,461,284 | | | | 138,619,515 | |
Wells Fargo & Co. | | | 7,560,106 | | | | 406,733,703 | |
| | | | | | | | |
| | | | 1,044,664,564 | |
DIVERSIFIED FINANCIALS: 8.6% | |
American Express Co. | | | 1,176,500 | | | | 146,462,485 | |
Bank of New York Mellon Corp. | | | 4,104,800 | | | | 206,594,584 | |
Capital One Financial Corp. | | | 3,391,048 | | | | 348,972,749 | |
Charles Schwab Corp. | | | 8,796,800 | | | | 418,375,808 | |
Goldman Sachs Group, Inc. | | | 961,000 | | | | 220,962,730 | |
State Street Corp. | | | 150,719 | | | | 11,921,873 | |
| | | | | | | | |
| | | | 1,353,290,229 | |
INSURANCE: 2.1% | |
AEGON NV (Netherlands) | | | 13,174,348 | | | | 59,679,797 | |
Brighthouse Financial, Inc.(a) | | | 1,060,818 | | | | 41,615,890 | |
MetLife, Inc. | | | 4,316,300 | | | | 220,001,811 | |
| | | | | | | | |
| | | | 321,297,498 | |
| | | | | | | | |
| | | | 2,719,252,291 | |
| HEALTH CARE: 14.7% | |
HEALTH CARE EQUIPMENT & SERVICES: 4.2% | |
Cigna Corp. | | | 1,482,238 | | | | 303,102,849 | |
CVS Health Corp. | | | 1,703,000 | | | | 126,515,870 | |
| | | | | | | | |
| | |
| | | SHARES | | | VALUE | |
Medtronic PLC (Ireland/United States) | | | 364,200 | | | $ | 41,318,490 | |
UnitedHealth Group, Inc. | | | 682,672 | | | | 200,691,914 | |
| | | | | | | | |
| | | | 671,629,123 | |
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES: 10.5% | |
Alnylam Pharmaceuticals, Inc.(a) | | | 401,000 | | | | 46,183,170 | |
AstraZeneca PLC ADR (United Kingdom) | | | 3,411,699 | | | | 170,107,312 | |
BioMarin Pharmaceutical, Inc.(a) | | | 489,400 | | | | 41,378,770 | |
Bristol-Myers Squibb Co. | | | 4,424,800 | | | | 284,027,912 | |
Eli Lilly and Co. | | | 645,049 | | | | 84,778,790 | |
Gilead Sciences, Inc. | | | 1,578,680 | | | | 102,582,627 | |
GlaxoSmithKline PLC ADR (United Kingdom) | | | 4,251,000 | | | | 199,754,490 | |
Incyte Corp.(a) | | | 302,800 | | | | 26,440,496 | |
Novartis AG ADR (Switzerland) | | | 2,287,800 | | | | 216,631,782 | |
Roche Holding AG ADR (Switzerland) | | | 5,161,900 | | | | 209,882,854 | |
Sanofi ADR (France) | | | 5,370,265 | | | | 269,587,303 | |
| | | | | | | | |
| | | | 1,651,355,506 | |
| | | | | | | | |
| | | | 2,322,984,629 | |
| INDUSTRIALS: 5.0% | |
CAPITAL GOODS: 2.9% | |
Johnson Controls International PLC (Ireland/United States) | | | 5,786,914 | | | | 235,585,269 | |
United Technologies Corp. | | | 1,463,000 | | | | 219,098,880 | |
| | | | | | | | |
| | | | 454,684,149 | |
TRANSPORTATION: 2.1% | |
FedEx Corp. | | | 2,206,954 | | | | 333,713,514 | |
| | | | | | | | |
| | | | 788,397,663 | |
| INFORMATION TECHNOLOGY: 10.2% | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT: 1.7% | |
Maxim Integrated Products, Inc. | | | 750,191 | | | | 46,144,249 | |
Microchip Technology, Inc. | | | 2,102,900 | | | | 220,215,688 | |
| | | | | | | | |
| | | | 266,359,937 | |
SOFTWARE & SERVICES: 3.0% | |
Cognizant Technology Solutions Corp., Class A | | | 1,533,900 | | | | 95,132,478 | |
Micro Focus International PLC ADR (United Kingdom) | | | 3,451,871 | | | | 48,429,750 | |
Microsoft Corp. | | | 2,112,400 | | | | 333,125,480 | |
| | | | | | | | |
| | | | 476,687,708 | |
TECHNOLOGY, HARDWARE & EQUIPMENT: 5.5% | |
Cisco Systems, Inc. | | | 1,625,500 | | | | 77,958,980 | |
Dell Technologies, Inc., Class C(a) | | | 2,026,468 | | | | 104,140,191 | |
Hewlett Packard Enterprise Co. | | | 11,544,520 | | | | 183,096,087 | |
HP Inc. | | | 10,681,573 | | | | 219,506,325 | |
Juniper Networks, Inc. | | | 4,295,329 | | | | 105,793,953 | |
TE Connectivity, Ltd. (Switzerland) | | | 1,743,036 | | | | 167,052,570 | |
| | | | | | | | |
| | | | 857,548,106 | |
| | | | | | | | |
| | | | 1,600,595,751 | |
| MATERIALS: 0.6% | |
Celanese Corp. | | | 723,532 | | | | 89,081,260 | |
| | | | | | | | |
TOTAL COMMON STOCKS
(Cost $6,797,202,665) | | | $ | 10,272,235,046 | |
| | |
| PREFERRED STOCKS: 2.9% | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
| COMMUNICATION SERVICES: 0.4% | |
MEDIA & ENTERTAINMENT: 0.4% | |
NBCUniversal Enterprise, Inc. 5.25%(c) | | $ | 53,210,000 | | | $ | 54,939,325 | |
|
| FINANCIALS: 2.5% | |
BANKS: 2.5% | |
Bank of America Corp. 6.10%(g) | | | 16,008,000 | | | | 17,829,710 | |
Bank of America Corp. 6.25%(g) | | | 45,470,000 | | | | 50,528,538 | |
| | |
| PAGE 8§ DODGE & COX BALANCED FUND | | See accompanying Notes to Financial Statements |
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| PREFERRED STOCKS (continued) | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
Citigroup, Inc. 5.95%(g) | | $ | 5,175,000 | | | $ | 5,479,290 | |
Citigroup, Inc. 5.95%(g) | | | 65,327,000 | | | | 71,288,089 | |
Citigroup, Inc. 6.25%(g) | | | 45,886,000 | | | | 52,140,262 | |
JPMorgan Chase & Co. 6.10%(g) | | | 128,285,000 | | | | 139,997,420 | |
Wells Fargo & Co. 5.875%(g) | | | 49,987,000 | | | | 55,610,538 | |
| | | | | | | | |
| | | | | | | 392,873,847 | |
| | | | | | | | |
TOTAL PREFERRED STOCKS
(Cost $410,816,623) | | | $ | 447,813,172 | |
|
| DEBT SECURITIES: 30.4% | |
| U.S. TREASURY: 6.6% | |
U.S. Treasury Inflation Indexed | | | | | | | | |
0.125%, 1/15/22(h) | | | 9,579,772 | | | | 9,574,369 | |
0.125%, 4/15/22(h) | | | 53,847,218 | | | | 53,765,990 | |
0.625%, 4/15/23(h) | | | 9,556,823 | | | | 9,704,290 | |
U.S. Treasury Note/Bond | | | | | | | | |
1.75%, 11/15/20 | | | 10,570,000 | | | | 10,578,469 | |
1.75%, 7/31/21 | | | 39,675,000 | | | | 39,763,032 | |
1.50%, 8/31/21 | | | 61,695,000 | | | | 61,584,428 | |
1.50%, 11/30/21 | | | 119,940,000 | | | | 119,745,047 | |
1.625%, 12/15/22 | | | 46,550,000 | | | | 46,568,467 | |
2.50%, 1/31/24 | | | 39,450,000 | | | | 40,715,679 | |
2.375%, 2/29/24 | | | 38,065,000 | | | | 39,117,680 | |
2.25%, 4/30/24 | | | 28,050,000 | | | | 28,700,012 | |
1.50%, 9/30/24 | | | 26,350,000 | | | | 26,105,565 | |
1.50%, 10/31/24 | | | 169,190,000 | | | | 167,618,414 | |
1.50%, 11/30/24 | | | 208,730,000 | | | | 206,837,481 | |
1.625%, 10/31/26 | | | 28,000,000 | | | | 27,617,667 | |
2.375%, 5/15/29 | | | 21,400,000 | | | | 22,225,519 | |
1.625%, 8/15/29 | | | 64,590,000 | | | | 62,873,274 | |
1.75%, 11/15/29 | | | 20,465,000 | | | | 20,140,038 | |
2.875%, 5/15/49 | | | 40,500,000 | | | | 44,589,919 | |
| | | | | | | | |
| | | | | | | 1,037,825,340 | |
| GOVERNMENT-RELATED: 1.3% | |
FOREIGN AGENCY: 0.6% | |
Petroleo Brasileiro SA (Brazil) | |
5.093%, 1/15/30(c) | | | 7,927,000 | | | | 8,493,860 | |
7.25%, 3/17/44 | | | 4,300,000 | | | | 5,215,900 | |
Petroleos Mexicanos (Mexico) | | | | | | | | |
6.875%, 8/4/26 | | | 13,775,000 | | | | 15,125,639 | |
6.50%, 3/13/27 | | | 18,400,000 | | | | 19,535,648 | |
6.625%, 6/15/35 | | | 9,425,000 | | | | 9,655,913 | |
6.375%, 1/23/45 | | | 20,125,000 | | | | 19,358,237 | |
6.75%, 9/21/47 | | | 11,625,000 | | | | 11,646,855 | |
6.35%, 2/12/48 | | | 15,466,000 | | | | 14,924,690 | |
| | | | | | | | |
| | | | | | | 103,956,742 | |
LOCAL AUTHORITY: 0.7% | |
New Jersey Turnpike Authority RB | |
7.102%, 1/1/41 | | | 12,436,000 | | | | 18,965,397 | |
State of California GO | | | | | | | | |
7.50%, 4/1/34 | | | 13,470,000 | | | | 20,283,665 | |
7.55%, 4/1/39 | | | 4,475,000 | | | | 7,177,989 | |
7.30%, 10/1/39 | | | 18,730,000 | | | | 28,601,085 | |
7.625%, 3/1/40 | | | 4,590,000 | | | | 7,349,646 | |
State of Illinois GO | | | | | | | | |
5.10%, 6/1/33 | | | 22,615,000 | | | | 24,379,648 | |
| | | | | | | | |
| | | | | | | 106,757,430 | |
| | | | | | | | |
| | | | | | | 210,714,172 | |
| SECURITIZED: 12.2% | |
ASSET-BACKED: 2.1% | |
Federal Agency: 0.0% (i) | |
Small Business Admin. - 504 Program | |
Series2000-20D 1, 7.47%, 4/1/20 | | | 81,816 | | | | 82,049 | |
Series2000-20E 1, 8.03%, 5/1/20 | | | 13,072 | | | | 13,161 | |
| | | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
Series2000-20G 1, 7.39%, 7/1/20 | | $ | 48,821 | | | $ | 49,004 | |
Series2000-20I 1, 7.21%, 9/1/20 | | | 14,879 | | | | 14,951 | |
Series2001-20E 1, 6.34%, 5/1/21 | | | 150,804 | | | | 153,396 | |
Series2001-20G 1, 6.625%, 7/1/21 | | | 167,037 | | | | 169,350 | |
Series2003-20J 1, 4.92%, 10/1/23 | | | 736,298 | | | | 763,782 | |
Series2007-20F 1, 5.71%, 6/1/27 | | | 1,030,483 | | | | 1,100,830 | |
| | | | | | | | |
| | | | | | | 2,346,523 | |
Other: 0.4% | |
Rio Oil Finance Trust (Brazil) | |
9.25%, 7/6/24(c) | | | 20,130,114 | | | | 22,545,929 | |
9.75%, 1/6/27(c) | | | 29,702,525 | | | | 35,049,276 | |
8.20%, 4/6/28(c) | | | 4,775,000 | | | | 5,515,173 | |
| | | | | | | | |
| | | | | | | 63,110,378 | |
Student Loan: 1.7% | |
Navient Student Loan Trust | |
USD LIBOR1-Month
+1.30%, 3.092%, 3/25/66(c) | | | 24,832,000 | | | | 25,010,515 | |
+0.80%, 2.592%, 7/26/66(c) | | | 7,727,787 | | | | 7,594,810 | |
+1.15%, 2.942%, 7/26/66(c) | | | 6,902,000 | | | | 6,906,712 | |
+1.05%, 2.842%, 12/27/66(c) | | | 6,095,777 | | | | 6,058,861 | |
+0.75%, 2.542%, 3/25/67(c) | | | 86,422,000 | | | | 85,082,061 | |
+1.00%, 2.792%, 2/27/68(c) | | | 4,337,000 | | | | 4,325,730 | |
+0.70%, 2.505%, 2/25/70(c) | | | 10,770,393 | | | | 10,608,461 | |
SLM Student Loan Trust | |
USD LIBOR1-Month
+0.75%, 2.542%, 1/25/45(c) | | | 39,138,138 | | | | 38,401,613 | |
USD LIBOR3-Month
+0.17%, 2.11%, 1/25/41 | | | 13,771,183 | | | | 13,127,507 | |
+0.55%, 2.49%, 10/25/64(c) | | | 49,262,000 | | | | 48,399,102 | |
SMB Private Education Loan Trust (Private Loans) | | | | | | | | |
Series2018-B A2A, 3.60%, 1/15/37(c) | | | 19,845,000 | | | | 20,384,572 | |
| | | | | | | | |
| | | | | | | 265,899,944 | |
| | | | | | | | |
| | | | | | | 331,356,845 | |
CMBS: 0.2% | |
Agency CMBS: 0.2% | |
Fannie Mae Multifamily DUS | |
Pool AL8144, 2.406%, 10/1/22 | | | 6,824,659 | | | | 6,922,131 | |
Pool AL9086, 2.284%, 7/1/23 | | | 383,575 | | | | 383,720 | |
Freddie Mac Multifamily Interest Only | |
Series K055 X1, 1.365%, 3/25/26(f) | | | 10,485,154 | | | | 751,964 | |
Series K056 X1, 1.264%, 5/25/26(f) | | | 4,590,394 | | | | 309,504 | |
Series K057 X1, 1.191%, 7/25/26(f) | | | 3,773,816 | | | | 240,141 | |
Series K064 X1, 0.607%, 3/25/27(f) | | | 9,492,931 | | | | 363,911 | |
Series K065 X1, 0.673%, 4/25/27(f) | | | 44,099,546 | | | | 1,905,554 | |
Series K066 X1, 0.752%, 6/25/27(f) | | | 37,696,796 | | | | 1,823,790 | |
Series K069 X1, 0.365%, 9/25/27(f) | | | 234,166,962 | | | | 6,071,692 | |
Series K090 X1, 0.705%, 2/25/29(f) | | | 180,720,530 | | | | 10,413,153 | |
| | | | | | | | |
| | | | | | | 29,185,560 | |
MORTGAGE-RELATED: 9.9% | |
Federal Agency CMO & REMIC: 2.0% | |
Dept. of Veterans Affairs | |
Series1995-1 1, 6.359%, 2/15/25(f) | | | 168,723 | | | | 183,790 | |
Series1995-2C 3A, 8.793%, 6/15/25 | | | 65,744 | | | | 74,097 | |
Series2002-1 2J, 6.50%, 8/15/31 | | | 5,249,890 | | | | 6,059,552 | |
Fannie Mae | |
Trust2002-33 A1, 7.00%, 6/25/32 | | | 1,241,980 | | | | 1,441,027 | |
Trust2009-66 ET, 6.00%, 5/25/39 | | | 658,502 | | | | 688,591 | |
Trust2009-30 AG, 6.50%, 5/25/39 | | | 1,297,730 | | | | 1,436,973 | |
Trust2001-T7 A1, 7.50%, 2/25/41 | | | 922,289 | | | | 1,069,397 | |
Trust2001-T5 A3, 7.50%, 6/19/41(f) | | | 435,793 | | | | 505,232 | |
Trust2001-T4 A1, 7.50%, 7/25/41 | | | 974,059 | | | | 1,136,169 | |
Trust2001-T8 A1, 7.50%, 7/25/41 | | | 943,156 | | | | 1,093,178 | |
Trust2001-W3 A, 7.00%, 9/25/41(f) | | | 612,469 | | | | 664,967 | |
| | |
| See accompanying Notes to Financial Statements | | DODGE & COX BALANCED FUND§PAGE 9 |
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| DEBT SECURITIES (continued) | |
| | |
| | | PAR VALUE | | | VALUE | |
Trust2001-T10 A2, 7.50%, 12/25/41 | | $ | 615,480 | | | $ | 686,188 | |
Trust2013-106 MA, 4.00%, 2/25/42 | | | 6,548,401 | | | | 6,937,388 | |
Trust2002-W6 2A1, 7.00%, 6/25/42(f) | | | 984,516 | | | | 1,090,052 | |
Trust2002-W8 A2, 7.00%, 6/25/42 | | | 1,285,120 | | | | 1,500,452 | |
Trust2003-W2 1A1, 6.50%, 7/25/42 | | | 2,126,033 | | | | 2,415,944 | |
Trust2003-W2 1A2, 7.00%, 7/25/42 | | | 826,539 | | | | 962,616 | |
Trust2003-W4 4A, 6.274%, 10/25/42(f) | | | 1,062,570 | | | | 1,207,131 | |
Trust 2012-121 NB, 7.00%, 11/25/42 | | | 1,395,635 | | | | 1,636,046 | |
Trust2004-T1 1A2, 6.50%, 1/25/44 | | | 962,084 | | | | 1,097,026 | |
Trust2004-W2 5A, 7.50%, 3/25/44 | | | 1,744,178 | | | | 1,982,639 | |
Trust2004-W8 3A, 7.50%, 6/25/44 | | | 303,989 | | | | 353,560 | |
Trust 2005-W4 1A2, 6.50%, 8/25/45 | | | 3,108,400 | | | | 3,542,913 | |
Trust2009-11 MP, 7.00%, 3/25/49 | | | 2,714,498 | | | | 3,175,249 | |
USD LIBOR1-Month
+0.55%, 2.342%, 9/25/43 | | | 5,784,691 | | | | 5,825,182 | |
Freddie Mac | |
Series 16 PK, 7.00%, 8/25/23 | | | 687,476 | | | | 725,881 | |
SeriesT-48 1A4, 5.538%, 7/25/33 | | | 20,097,607 | | | | 22,108,906 | |
SeriesT-51 1A, 6.50%, 9/25/43(f) | | | 139,081 | | | | 163,526 | |
SeriesT-59 1A1, 6.50%, 10/25/43 | | | 7,177,870 | | | | 8,523,645 | |
Series 4281 BC, 4.50%, 12/15/43(f) | | | 36,335,635 | | | | 38,960,318 | |
USD LIBOR1-Month
+0.61%, 2.35%, 9/15/43 | | | 13,142,385 | | | | 13,171,318 | |
Ginnie Mae | |
USD LIBOR1-Month
+0.62%, 2.394%, 9/20/64 | | | 3,446,533 | | | | 3,443,779 | |
USD LIBOR12-Month
+0.30%, 3.42%, 1/20/67 | | | 23,579,472 | | | | 23,415,667 | |
+0.23%, 2.204%, 10/20/67 | | | 21,784,875 | | | | 21,496,217 | |
+0.23%, 2.204%, 10/20/67 | | | 13,018,677 | | | | 12,853,017 | |
+0.06%, 3.062%, 12/20/67 | | | 33,693,641 | | | | 33,030,429 | |
+0.08%, 2.817%, 5/20/68 | | | 9,378,947 | | | | 9,172,817 | |
+0.25%, 2.453%, 6/20/68 | | | 28,931,058 | | | | 28,512,275 | |
+0.28%, 3.159%, 11/20/68 | | | 42,233,964 | | | | 41,724,428 | |
+0.25%, 3.25%, 12/20/68 | | | 4,422,407 | | | | 4,353,904 | |
| | | | | | | | |
| | | | | | | 308,421,486 | |
Federal Agency Mortgage Pass-Through: 7.9% | |
Fannie Mae, 15 Year | |
6.00%, 3/1/22 | | | 61,236 | | | | 62,369 | |
4.50%, 1/1/25-1/1/27 | | | 5,515,818 | | | | 5,791,948 | |
3.50%, 11/1/25-12/1/29 | | | 16,723,846 | | | | 17,344,539 | |
Fannie Mae, 20 Year | |
4.00%, 11/1/30-2/1/37 | | | 33,735,354 | | | | 35,893,638 | |
4.50%, 1/1/31-12/1/34 | | | 50,857,707 | | | | 54,514,202 | |
3.50%, 6/1/35-4/1/37 | | | 63,314,243 | | | | 65,882,495 | |
Fannie Mae, 30 Year | |
6.50%, 12/1/28-8/1/39 | | | 12,054,938 | | | | 13,730,246 | |
5.50%, 7/1/33-8/1/37 | | | 7,836,298 | | | | 8,809,133 | |
6.00%, 9/1/36-8/1/37 | | | 10,914,238 | | | | 12,516,431 | |
7.00%, 8/1/37 | | | 299,601 | | | | 342,324 | |
4.50%, 1/1/39-3/1/49 | | | 382,635,325 | | | | 406,709,820 | |
5.00%, 12/1/48-3/1/49 | | | 18,412,330 | | | | 19,686,200 | |
Fannie Mae, 40 Year | |
4.50%, 6/1/56 | | | 32,746,026 | | | | 35,511,608 | |
Fannie Mae, Hybrid ARM(f)
1-Year U.S. Treasury CMT | |
+2.05%, 4.163%, 9/1/34 | | | 675,357 | | | | 708,510 | |
USD LIBOR12-Month
+1.32%, 3.402%, 12/1/34 | | | 838,054 | | | | 864,182 | |
+1.58%, 4.283%, 1/1/35 | | | 737,068 | | | | 768,509 | |
+1.54%, 3.86%, 8/1/35 | | | 516,607 | | | | 540,072 | |
+1.64%, 4.684%, 5/1/37 | | | 619,879 | | | | 641,946 | |
+1.80%, 4.545%, 7/1/39 | | | 357,109 | | | | 368,275 | |
+1.78%, 3.779%, 11/1/40 | | | 1,123,287 | | | | 1,174,465 | |
+1.78%, 3.723%, 12/1/40 | | | 2,548,581 | | | | 2,659,444 | |
| | | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
+1.58%, 3.663%, 11/1/43 | | $ | 1,915,577 | | | $ | 1,975,842 | |
+1.55%, 4.59%, 4/1/44 | | | 4,849,680 | | | | 5,001,072 | |
+1.60%, 2.802%, 11/1/44 | | | 11,290,002 | | | | 11,478,321 | |
+1.60%, 2.783%, 12/1/44 | | | 9,289,326 | | | | 9,475,426 | |
+1.59%, 2.916%, 9/1/45 | | | 2,278,140 | | | | 2,321,208 | |
+1.59%, 2.846%, 12/1/45 | | | 12,310,796 | | | | 12,543,275 | |
+1.59%, 2.661%, 1/1/46 | | | 11,203,963 | | | | 11,396,236 | |
+1.61%, 2.961%, 4/1/46 | | | 6,775,109 | | | | 6,882,502 | |
+1.61%, 2.521%, 12/1/46 | | | 10,726,748 | | | | 10,770,619 | |
+1.61%, 3.157%, 6/1/47 | | | 9,161,023 | | | | 9,333,255 | |
+1.61%, 3.128%, 7/1/47 | | | 12,717,123 | | | | 12,958,240 | |
+1.60%, 2.707%, 8/1/47 | | | 16,870,326 | | | | 17,174,160 | |
+1.61%, 3.335%, 1/1/49 | | | 10,469,234 | | | | 10,698,979 | |
USD LIBOR6-Month
+1.53%, 3.61%, 1/1/35 | | | 801,735 | | | | 827,866 | |
Freddie Mac, Hybrid ARM(f)
1-Year U.S. Treasury CMT | |
+2.25%, 4.118%, 10/1/35 | | | 1,592,219 | | | | 1,685,463 | |
USD LIBOR12-Month
+1.96%, 4.836%, 5/1/34 | | | 1,137,352 | | | | 1,201,146 | |
+1.55%, 4.442%, 4/1/37 | | | 1,292,542 | | | | 1,350,624 | |
+1.80%, 4.045%, 9/1/37 | | | 922,443 | | | | 970,934 | |
+1.87%, 4.089%, 1/1/38 | | | 161,972 | | | | 165,543 | |
+2.07%, 5.193%, 2/1/38 | | | 1,237,356 | | | | 1,300,593 | |
+1.92%, 4.446%, 7/1/38 | | | 113,322 | | | | 117,764 | |
+1.73%, 4.294%, 10/1/38 | | | 474,800 | | | | 493,389 | |
+1.79%, 3.596%, 10/1/41 | | | 698,334 | | | | 723,045 | |
+1.79%, 4.545%, 8/1/42 | | | 2,012,365 | | | | 2,078,765 | |
+1.62%, 2.962%, 5/1/44 | | | 8,101,351 | | | | 8,270,751 | |
+1.61%, 3.029%, 5/1/44 | | | 1,153,003 | | | | 1,176,432 | |
+1.62%, 2.949%, 6/1/44 | | | 2,578,773 | | | | 2,630,189 | |
+1.62%, 3.156%, 6/1/44 | | | 2,066,815 | | | | 2,111,710 | |
+1.63%, 3.071%, 1/1/45 | | | 12,290,211 | | | | 12,542,358 | |
+1.62%, 2.722%, 10/1/45 | | | 6,899,727 | | | | 7,010,644 | |
+1.62%, 2.834%, 10/1/45 | | | 6,244,966 | | | | 6,353,501 | |
+1.63%, 3.233%, 7/1/47 | | | 8,083,316 | | | | 8,242,864 | |
Freddie Mac Gold, 15 Year | |
4.50%, 9/1/24-9/1/26 | | | 3,746,216 | | | | 3,908,033 | |
Freddie Mac Gold, 20 Year | |
6.50%, 10/1/26 | | | 2,059,351 | | | | 2,287,376 | |
4.50%, 4/1/31-6/1/31 | | | 6,691,696 | | | | 7,194,181 | |
Freddie Mac Gold, 30 Year | |
7.75%, 7/25/21 | | | 26,304 | | | | 26,286 | |
7.47%, 3/17/23 | | | 37,077 | | | | 37,525 | |
6.50%, 12/1/32-4/1/33 | | | 3,623,585 | | | | 4,070,094 | |
7.00%, 11/1/37-9/1/38 | | | 2,994,022 | | | | 3,465,138 | |
5.50%, 12/1/37 | | | 417,227 | | | | 468,238 | |
6.00%, 2/1/39 | | | 1,044,042 | | | | 1,197,633 | |
4.50%, 9/1/41-10/1/48 | | | 299,190,526 | | | | 318,485,206 | |
Freddie Mac Pool, 15 Year | |
3.50%, 6/1/34 | | | 43,813,717 | | | | 45,415,879 | |
Ginnie Mae, 30 Year | |
7.97%, 4/15/20-1/15/21 | | | 5,168 | | | | 5,183 | |
7.50%, 11/15/24-10/15/25 | | | 318,835 | | | | 342,909 | |
| | | | | | | | |
| | | | | | | 1,252,686,753 | |
| | | | | | | | |
| | | | | | | 1,561,108,239 | |
| | | | | | | | |
| | | | | | | 1,921,650,644 | |
| CORPORATE: 10.3% | |
FINANCIALS: 3.5% | |
Bank of America Corp. | |
3.004%, 12/20/23(g) | | | 44,918,000 | | | | 46,000,461 | |
4.20%, 8/26/24 | | | 5,825,000 | | | | 6,252,468 | |
4.45%, 3/3/26 | | | 3,970,000 | | | | 4,356,758 | |
4.25%, 10/22/26 | | | 2,970,000 | | | | 3,236,592 | |
4.183%, 11/25/27 | | | 7,925,000 | | | | 8,584,069 | |
| | |
| PAGE 10§ DODGE & COX BALANCED FUND | | See accompanying Notes to Financial Statements |
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| DEBT SECURITIES (continued) | |
| | |
| | | PAR VALUE | | | VALUE | |
Barclays PLC (United Kingdom) | |
4.375%, 9/11/24 | | $ | 18,275,000 | | | $ | 19,183,734 | |
4.836%, 5/9/28 | | | 9,525,000 | | | | 10,260,469 | |
BNP Paribas SA (France) | |
4.25%, 10/15/24 | | | 36,700,000 | | | | 39,341,001 | |
4.375%, 9/28/25(c) | | | 8,223,000 | | | | 8,850,117 | |
4.625%, 3/13/27(c) | | | 9,775,000 | | | | 10,680,881 | |
Boston Properties, Inc. | |
3.125%, 9/1/23 | | | 17,550,000 | | | | 18,100,540 | |
3.80%, 2/1/24 | | | 5,000,000 | | | | 5,285,351 | |
3.65%, 2/1/26 | | | 4,450,000 | | | | 4,711,036 | |
Capital One Financial Corp. | |
3.50%, 6/15/23 | | | 10,581,000 | | | | 10,989,061 | |
4.20%, 10/29/25 | | | 10,175,000 | | | | 10,972,494 | |
Citigroup, Inc.
USD LIBOR3-Month
+6.37%, 8.306%, 10/30/40(b) | | | 37,080,925 | | | | 41,159,827 | |
Equity Residential
3.00%, 4/15/23 | | | 14,775,000 | | | | 15,207,797 | |
2.85%, 11/1/26 | | | 6,000,000 | | | | 6,151,649 | |
HSBC Holdings PLC (United Kingdom)
3.95%, 5/18/24(g) | | | 14,500,000 | | | | 15,246,896 | |
4.30%, 3/8/26 | | | 11,462,000 | | | | 12,470,648 | |
6.50%, 5/2/36 | | | 23,805,000 | | | | 32,472,419 | |
6.50%, 9/15/37 | | | 8,265,000 | | | | 11,366,714 | |
JPMorgan Chase & Co.
8.75%, 9/1/30(b) | | | 25,692,000 | | | | 37,428,213 | |
Lloyds Banking Group PLC (United Kingdom)
4.50%, 11/4/24 | | | 19,575,000 | | | | 20,917,446 | |
4.65%, 3/24/26 | | | 10,875,000 | | | | 11,816,332 | |
Royal Bank of Scotland Group PLC (United Kingdom)
6.125%, 12/15/22 | | | 43,156,000 | | | | 47,212,439 | |
6.00%, 12/19/23 | | | 16,825,000 | | | | 18,699,330 | |
UniCredit SPA (Italy)
7.296%, 4/2/34(c)(g) | | | 23,425,000 | | | | 26,916,076 | |
Unum Group
7.25%, 3/15/28 | | | 1,526,000 | | | | 1,885,520 | |
6.75%, 12/15/28 | | | 11,368,000 | | | | 14,113,620 | |
Wells Fargo & Co.
4.10%, 6/3/26 | | | 3,376,000 | | | | 3,637,632 | |
4.30%, 7/22/27 | | | 16,645,000 | | | | 18,222,007 | |
| | | | | | | | |
| | | | | | | 541,729,597 | |
INDUSTRIALS: 6.3% | |
AbbVie, Inc.
3.20%, 11/21/29(c) | | | 17,575,000 | | | | 17,868,053 | |
4.05%, 11/21/39(c) | | | 10,550,000 | | | | 11,149,337 | |
4.25%, 11/21/49(c) | | | 5,250,000 | | | | 5,525,327 | |
AT&T, Inc.
5.35%, 9/1/40 | | | 27,575,000 | | | | 33,199,286 | |
4.75%, 5/15/46 | | | 3,500,000 | | | | 3,949,553 | |
5.65%, 2/15/47 | | | 5,175,000 | | | | 6,583,249 | |
Bayer AG (Germany)
3.875%, 12/15/23(c) | | | 7,775,000 | | | | 8,155,953 | |
4.25%, 12/15/25(c) | | | 6,600,000 | | | | 7,115,438 | |
4.375%, 12/15/28(c) | | | 26,300,000 | | | | 28,671,514 | |
Burlington Northern Santa Fe LLC(e)
5.72%, 1/15/24 | | | 2,614,083 | | | | 2,785,733 | |
5.342%, 4/1/24 | | | 4,955,995 | | | | 5,200,674 | |
5.629%, 4/1/24 | | | 8,040,615 | | | | 8,508,898 | |
Cemex SAB de CV (Mexico)
6.00%, 4/1/24(c) | | | 6,877,000 | | | | 7,069,625 | |
5.70%, 1/11/25(c) | | | 22,475,000 | | | | 23,093,287 | |
6.125%, 5/5/25(c) | | | 12,870,000 | | | | 13,352,754 | |
| | | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
Charter Communications, Inc.
4.125%, 2/15/21 | | $ | 5,547,000 | | | $ | 5,635,770 | |
6.55%, 5/1/37 | | | 11,000,000 | | | | 13,466,182 | |
6.75%, 6/15/39 | | | 6,160,000 | | | | 7,805,688 | |
6.484%, 10/23/45 | | | 38,477,000 | | | | 47,983,909 | |
5.375%, 5/1/47 | | | 4,100,000 | | | | 4,586,987 | |
5.75%, 4/1/48 | | | 12,300,000 | | | | 14,325,467 | |
Cigna Corp.
3.75%, 7/15/23 | | | 16,900,000 | | | | 17,712,483 | |
4.125%, 11/15/25 | | | 4,100,000 | | | | 4,444,783 | |
7.875%, 5/15/27(c) | | | 17,587,000 | | | | 22,798,656 | |
4.375%, 10/15/28 | | | 2,692,000 | | | | 2,978,617 | |
Cox Enterprises, Inc.
3.25%, 12/15/22(c) | | | 6,240,000 | | | | 6,415,517 | |
2.95%, 6/30/23(c) | | | 24,666,000 | | | | 25,115,913 | |
3.85%, 2/1/25(c) | | | 18,776,000 | | | | 19,884,232 | |
3.35%, 9/15/26(c) | | | 3,400,000 | | | | 3,508,872 | |
CRH PLC (Ireland)
3.875%, 5/18/25(c) | | | 10,250,000 | | | | 10,942,198 | |
CVS Health Corp.
4.30%, 3/25/28 | | | 12,985,000 | | | | 14,169,691 | |
4.78%, 3/25/38 | | | 8,125,000 | | | | 9,209,340 | |
Dillard’s, Inc.
7.875%, 1/1/23 | | | 8,660,000 | | | | 9,354,805 | |
7.75%, 7/15/26 | | | 50,000 | | | | 56,419 | |
7.75%, 5/15/27 | | | 540,000 | | | | 617,184 | |
7.00%, 12/1/28 | | | 15,135,000 | | | | 16,804,562 | |
Dow, Inc.
7.375%, 11/1/29 | | | 17,000,000 | | | | 22,519,728 | |
9.40%, 5/15/39 | | | 5,677,000 | | | | 9,297,925 | |
Elanco Animal Health, Inc.
3.912%, 8/27/21 | | | 2,500,000 | | | | 2,564,171 | |
4.272%, 8/28/23 | | | 2,500,000 | | | | 2,639,165 | |
4.90%, 8/28/28 | | | 3,500,000 | | | | 3,804,078 | |
Ford Motor Credit Co. LLC(e)
5.75%, 2/1/21 | | | 12,700,000 | | | | 13,107,812 | |
5.875%, 8/2/21 | | | 12,945,000 | | | | 13,549,113 | |
3.813%, 10/12/21 | | | 14,270,000 | | | | 14,530,466 | |
5.596%, 1/7/22 | | | 9,425,000 | | | | 9,929,031 | |
4.25%, 9/20/22 | | | 4,243,000 | | | | 4,387,086 | |
4.14%, 2/15/23 | | | 5,166,000 | | | | 5,311,995 | |
4.375%, 8/6/23 | | | 11,405,000 | | | | 11,851,909 | |
HCA Healthcare, Inc.
4.125%, 6/15/29 | | | 6,725,000 | | | | 7,126,010 | |
5.25%, 6/15/49 | | | 10,255,000 | | | | 11,430,832 | |
Imperial Brands PLC (United Kingdom)
4.25%, 7/21/25(c) | | | 37,725,000 | | | | 39,775,362 | |
3.875%, 7/26/29(c) | | | 15,000,000 | | | | 15,110,774 | |
Kinder Morgan, Inc.
5.50%, 3/1/44 | | | 20,643,000 | | | | 24,101,853 | |
5.40%, 9/1/44 | | | 20,119,000 | | | | 23,239,190 | |
Macy’s, Inc.
6.70%, 7/15/34 | | | 5,890,000 | | | | 6,627,464 | |
Occidental Petroleum Corp.
2.90%, 8/15/24 | | | 7,900,000 | | | | 8,022,024 | |
3.20%, 8/15/26 | | | 15,450,000 | | | | 15,632,322 | |
Prosus NV (Netherlands)
6.00%, 7/18/20(c) | | | 8,400,000 | | | | 8,535,173 | |
5.50%, 7/21/25(c) | | | 25,825,000 | | | | 28,668,229 | |
4.85%, 7/6/27(c) | | | 14,200,000 | | | | 15,469,452 | |
RELX PLC (United Kingdom)
3.125%, 10/15/22 | | | 17,458,000 | | | | 17,981,266 | |
4.00%, 3/18/29 | | | 5,400,000 | | | | 5,857,415 | |
TC Energy Corp. (Canada)
5.625%, 5/20/75(b)(g) | | | 20,570,000 | | | | 21,444,225 | |
5.30%, 3/15/77(b)(g) | | | 28,160,000 | | | | 28,919,194 | |
5.50%, 9/15/79(b)(g) | | | 6,850,000 | | | | 7,189,075 | |
| | |
| See accompanying Notes to Financial Statements | | DODGE & COX BALANCED FUND§PAGE 11 |
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| DEBT SECURITIES (continued) | |
| | |
| | | PAR VALUE | | | VALUE | |
Telecom Italia SPA (Italy)
5.303%, 5/30/24(c) | | $ | 18,183,000 | | | $ | 19,546,725 | |
7.20%, 7/18/36 | | | 11,596,000 | | | | 13,738,941 | |
7.721%, 6/4/38 | | | 8,212,000 | | | | 10,100,760 | |
The Walt Disney Co.
6.65%, 11/15/37 | | | 4,638,000 | | | | 6,875,429 | |
Ultrapar Participacoes SA (Brazil)
5.25%, 10/6/26(c) | | | 12,050,000 | | | | 12,938,808 | |
5.25%, 6/6/29(c) | | | 11,350,000 | | | | 11,968,575 | |
Union Pacific Corp.
6.176%, 1/2/31 | | | 5,932,915 | | | | 6,820,262 | |
Verizon Communications, Inc.
4.272%, 1/15/36 | | | 11,847,000 | | | | 13,376,581 | |
Vodafone Group PLC (United Kingdom)
USSW5+4.87%, 7.00%, 4/4/79(b)(g) | | | 16,900,000 | | | | 19,829,560 | |
Xerox Holdings Corp.
4.50%, 5/15/21 | | | 21,561,000 | | | | 22,142,716 | |
Zoetis, Inc.
3.25%, 2/1/23 | | | 2,150,000 | | | | 2,212,193 | |
4.50%, 11/13/25 | | | 17,545,000 | | | | 19,414,050 | |
| | | | | | | | |
| | | | | | | 997,632,895 | |
UTILITIES: 0.5% | |
Dominion Energy, Inc.
2.579%, 7/1/20 | | | 4,600,000 | | | | 4,609,496 | |
4.104%, 4/1/21 | | | 5,650,000 | | | | 5,789,358 | |
5.75%, 10/1/54(b)(g) | | | 22,950,000 | | | | 24,735,511 | |
Enel SPA (Italy)
4.625%, 9/14/25(c) | | | 10,500,000 | | | | 11,446,523 | |
6.80%, 9/15/37(c) | | | 13,700,000 | | | | 18,200,920 | |
6.00%, 10/7/39(c) | | | 13,352,000 | | | | 16,784,358 | |
| | | | | | | | |
| | | | | | | 81,566,166 | |
| | | | | | | | |
| | | | | | | 1,620,928,658 | |
| | | | | | | | |
TOTAL DEBT SECURITIES
(Cost $4,582,544,389) | | | $ | 4,791,118,814 | |
|
| SHORT-TERM INVESTMENTS: 1.2% | |
| | |
| | | PAR VALUE/
SHARES | | | VALUE | |
REPURCHASE AGREEMENTS: 0.8% | |
Bank of Montreal(d)
1.48%, dated 12/31/19, due 1/2/20, maturity value $35,902,952 | | $ | 35,900,000 | | | $ | 35,900,000 | |
Fixed Income Clearing Corporation(d)
1.00%, dated 12/31/19, due 1/2/20, maturity value $24,742,375 | | | 24,741,000 | | | | 24,741,000 | |
Royal Bank of Canada(d)
1.53%, dated 12/31/19, due 1/2/20, maturity value $71,806,103 | | | 71,800,000 | | | | 71,800,000 | |
| | | | | | | | |
| | | | | | | 132,441,000 | |
MONEY MARKET FUND: 0.4% | |
State Street Institutional U.S. Government Money Market Fund | | | 62,983,694 | | | | 62,983,694 | |
| | | | | | | | |
TOTAL SHORT-TERM INVESTMENTS
(Cost $195,424,694) | | | $ | 195,424,694 | |
| | | | | | | | |
TOTAL INVESTMENTS IN SECURITIES
(Cost $11,985,988,371) | | | 99.7 | % | | $ | 15,706,591,726 | |
OTHER ASSETS LESS LIABILITIES | | | 0.3 | % | | | 39,971,360 | |
| | | | | | | | |
| NET ASSETS | | | 100.0 | % | | $ | 15,746,563,086 | |
| | | | | | | | |
| (b) | Hybrid security has characteristics of both a debt and equity security. |
| (c) | Security exempt from registration under Rule 144A of the Securities Act of 1933. The security may be resold in transactions exempt from registration, normally to qualified institutional buyers. These securities have been deemed liquid by Dodge & Cox, investment manager, pursuant to procedures approved by the Fund’s Board of Trustees. |
| (d) | Repurchase agreements are collateralized by: |
Bank of Montreal: U.S. Treasury Notes1.375%-7.875%,7/15/20-2/15/49 and U.S. Treasury Inflation Indexed Note 2.375%, 1/15/25. Total collateral value is $36,621,050.
Fixed Income Clearing Corporation: U.S. Treasury Note 1.50%, 8/31/21. Total collateral value is $25,235,999.
Royal Bank of Canada: U.S. Treasury Notes2.125%-2.50%,12/31/22-5/15/24. Total collateral value is $73,242,298.
| (e) | Subsidiary (see below) |
| (f) | Variable rate security: interest rate is determined by the interest rates of underlying pool of assets that collateralize the security. The interest rate of the security may change due to a change in the interest rates or the composition of underlying pool of assets. The interest rate shown is the rate as of period end. |
| (g) | Variable rate security:fixed-to-float security pays an initial fixed interest rate and will pay a floating interest rate established at a predetermined time in the future. The interest rate shown is the rate as of period end. |
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 or in other limited circumstances, the Fund uses the country designation of an appropriate broad-based market index. In those cases, two countries are listed—the country of incorporation and the country designated by an appropriate index, respectively.
Debt securities are grouped by parent company unless otherwise noted. Actual securities may be issued by the listed parent company or one of its subsidiaries.
Debt securities with floating interest rates are linked to the referenced benchmark; the interest rate shown is the rate as of period end.
ADR: American Depositary Receipt
ARM: Adjustable Rate Mortgage
CMBS: Commercial Mortgage-Backed Security
CMO: Collateralized Mortgage Obligation
CMT: Constant Maturity Treasury
DUS: Delegated Underwriting and Servicing
GO: General Obligation
RB: Revenue Bond
REMIC: Real Estate Mortgage Investment Conduit
| | |
| PAGE 12§ DODGE & COX BALANCED FUND | | See accompanying Notes to Financial Statements |
| | | | |
STATEMENT OF ASSETS AND LIABILITIES | |
| |
| | | December 31, 2019 | |
ASSETS: | |
Investments in securities, at value (cost $11,985,988,371) | | $ | 15,706,591,726 | |
Cash | | | 81,857 | |
Receivable for investments sold | | | 1,716,597 | |
Receivable for Fund shares sold | | | 5,672,707 | |
Dividends and interest receivable | | | 52,531,176 | |
Prepaid expenses and other assets | | | 92,778 | |
| | | | |
| | | 15,766,686,841 | |
| | | | |
LIABILITIES: | | | | |
Payable for investments purchased | | | 1,472,047 | |
Payable for Fund shares redeemed | | | 11,266,777 | |
Management fees payable | | | 6,648,546 | |
Accrued expenses | | | 736,385 | |
| | | | |
| | | 20,123,755 | |
| | | | |
NET ASSETS | | $ | 15,746,563,086 | |
| | | | |
NET ASSETS CONSIST OF: | |
Paid in capital | | $ | 11,891,715,807 | |
Distributable earnings | | | 3,854,847,279 | |
| | | | |
| | $ | 15,746,563,086 | |
| | | | |
Fund shares outstanding (par value $0.01 each, unlimited shares authorized) | | | 154,984,128 | |
Net asset value per share | | $ | 101.60 | |
| |
STATEMENT OF OPERATIONS | | | | |
| |
| | | Year Ended
December 31, 2019 | |
INVESTMENT INCOME: | |
Dividends (net of foreign taxes of $3,451,782) | | $ | 242,903,175 | |
Interest | | | 210,903,976 | |
| | | | |
| | | 453,807,151 | |
| | | | |
EXPENSES: | | | | |
Management fees | | | 75,998,168 | |
Custody and fund accounting fees | | | 235,640 | |
Transfer agent fees | | | 1,662,212 | |
Professional services | | | 224,590 | |
Shareholder reports | | | 230,652 | |
Registration fees | | | 131,643 | |
Trustees’ fees | | | 341,667 | |
ADR depositary service fees | | | 1,005,798 | |
Miscellaneous | | | 198,441 | |
| | | | |
| | | 80,028,811 | |
| | | | |
NET INVESTMENT INCOME | | | 373,778,340 | |
| | | | |
REALIZED AND UNREALIZED GAIN (LOSS): | | | | |
Net realized gain (loss) | | | | |
Investments in securities | | | 882,635,293 | |
Futures contracts | | | (7,355,862 | ) |
Net change in unrealized appreciation/depreciation | | | | |
Investments in securities | | | 1,452,060,764 | |
Futures contracts | | | 3,564,635 | |
| | | | |
Net realized and unrealized gain | | | 2,330,904,830 | |
| | | | |
NET CHANGE IN NET ASSETS FROM OPERATIONS | | $ | 2,704,683,170 | |
| | | | |
| | | | | | | | |
STATEMENT OF CHANGES IN NET ASSETS | |
| | |
| | | Year Ended
December 31, 2019 | | | Year Ended
December 31, 2018 | |
OPERATIONS: | | | | | | | | |
Net investment income | | $ | 373,778,340 | | | $ | 325,934,721 | |
Net realized gain (loss) | | | 875,279,431 | | | | 1,300,493,950 | |
Net change in unrealized appreciation/depreciation | | | 1,455,625,399 | | | | (2,310,617,993 | ) |
| | | | | | | | |
| | | 2,704,683,170 | | | | (684,189,322 | ) |
| | | | | | | | |
| | |
DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
Total distributions | �� | | (1,421,513,759 | ) | | | (1,299,992,127 | ) |
| | |
FUND SHARE TRANSACTIONS: | | | | | | | | |
Proceeds from sale of shares | | | 1,279,350,269 | | | | 1,255,189,936 | |
Reinvestment of distributions | | | 1,341,818,633 | | | | 1,229,242,880 | |
Cost of shares redeemed | | | (2,338,804,558 | ) | | | (2,706,186,811 | ) |
| | | | | | | | |
Net change from Fund share transactions | | | 282,364,344 | | | | (221,753,995 | ) |
| | | | | | | | |
Total change in net assets | | | 1,565,533,755 | | | | (2,205,935,444 | ) |
| | |
NET ASSETS: | | | | | | | | |
Beginning of year | | | 14,181,029,331 | | | | 16,386,964,775 | |
| | | | | | | | |
End of year | | $ | 15,746,563,086 | | | $ | 14,181,029,331 | |
| | | | | | | | |
| | |
SHARE INFORMATION: | | | | | | | | |
Shares sold | | | 12,844,379 | | | | 11,905,136 | |
Distributions reinvested | | | 13,468,923 | | | | 12,704,514 | |
Shares redeemed | | | (23,371,084 | ) | | | (25,719,422 | ) |
| | | | | | | | |
Net change in shares outstanding | | | 2,942,218 | | | | (1,109,772 | ) |
| | | | | | | | |
| | |
| See accompanying Notes to Financial Statements | | DODGE & COX BALANCED FUND§PAGE 13 |
NOTES TO FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dodge & Cox Balanced 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 anopen-end management investment company. The Fund commenced operations on June 26, 1931, and seeks regular income, conservation of principal, and an opportunity for long-term growth of principal and income. Risk considerations and investment strategies of the Fund are discussed in the Fund’s Prospectus.
The Fund is an investment company and follows the accounting and reporting guidance issued in Topic 946 by the Financial Accounting Standards Board. 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 normally valued as of the scheduled close of trading on the New York Stock Exchange (“NYSE”), generally 4 p.m. Eastern Time, each day that the NYSE is open for business.
Portfolio securities and other financial instruments for which market quotes are readily available are valued at market value. Listed securities, for example, are generally valued using the official quoted close price or the last sale on the exchange that is determined to be the primary market for the security.
Debt securities, certain preferred stocks, and derivatives traded over the counter are valued using prices received from independent pricing services which utilize dealer quotes, recent transaction data, pricing models, and other inputs to arrive at market-based valuations. Pricing models may consider quoted prices for similar securities, interest rates, cash flows (including prepayment speeds), and credit risk. Exchange-traded derivatives are valued at the settlement price determined by the relevant exchange. Short-term securities less than 60 days to maturity may be valued at amortized cost if amortized cost approximates current value. Mutual funds are valued at their respective net asset values. Security values are not discounted based on the size of the Fund’s position and may differ from the value the Fund receives upon sale of the securities. All securities held by the Fund are denominated in U.S. dollars.
If market quotations are not readily available or if normal valuation procedures produce valuations that are deemed unreliable or inappropriate under the circumstances existing at the time, the investment will be valued at fair value as determined in good faith by or under the direction of the Fund’s Board of Trustees. The Board of Trustees has appointed Dodge & Cox, the Fund’s investment manager, to make fair value determinations in accordance with the Dodge & Cox Funds Valuation Policies (“Valuation Policies”), subject to Board oversight. Dodge & Cox has established a Pricing Committee that is comprised of representatives from Treasury, Legal, Compliance, and Operations. The Pricing Committee is responsible
for implementing the Valuation Policies, including determining the fair value of securities and other investments when necessary. The Pricing Committee considers relevant indications of value that are reasonably available to it in determining the fair value assigned to a particular security, such as the value of similar financial instruments, trading volumes, contractual restrictions on disposition, related corporate actions, and changes in economic conditions. In doing so, the Pricing Committee employs various methods for calibrating fair valuation approaches, including a regular review of key inputs and assumptions, back-testing, and review of any related market activity.
Valuing securities through a fair value determination involves greater reliance on judgment than valuation of securities based on readily available market quotations. In some instances, lack of information and uncertainty as to the significance of information may lead to a conclusion that a prior valuation is the best indication of a security’s value. 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.
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 theex-dividend date, or when the Fund first learns of the transaction if the ex-dividend date has passed.Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends characterized as return of capital for U.S. tax purposes are recorded as a reduction of cost of investments and/or realized gain.
Interest income is recorded on the accrual basis. Interest income includes coupon interest, amortization of premium and accretion of discount on debt securities, and gain/loss on paydowns. The ability of the issuers of the debt securities held by the Fund to meet their obligations may be affected by economic developments in a specific industry, state, or region. Debt obligations may be placed onnon-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful. A debt obligation is removed fromnon-accrual status when the issuer resumes interest payments or when collectibility of interest is reasonably assured.
Expenses are recorded on the accrual basis. Some 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 using methodologies determined by the nature of the expense.
Distributions to shareholders are recorded on theex-dividend date.
Foreign taxes The Fund may be 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
PAGE 14§ DODGE & COX BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
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. A corresponding receivable is established when both the amount is known and significant contingencies or uncertainties regarding collectability are removed. These amounts, if any, are reported in “dividends and interest receivable” in the Statement of Assets and Liabilities.
To-Be-Announced securitiesThe Fund may purchase mortgage-related securities on a to-be-announced (“TBA”) basis at a fixed price, with payment and delivery on a scheduled future date beyond the customary settlement period for such securities. The Fund may choose to extend the settlement through a “dollar roll” transaction in which it sells the mortgage-related securities to a dealer and simultaneously agrees to purchase similar securities for future delivery at a predetermined price. The Fund accounts for TBA dollar rolls as purchase and sale transactions.
Repurchase agreements Repurchase agreements are transactions under which a Fund purchases a security from a dealer counterparty and agrees to resell the security to that counterparty on a specified future date at the same price, plus a specified interest rate. The Fund’s repurchase agreements are secured by U.S. government or agency securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. The Fund maintains custody of the underlying collateral securities, either through its regular custodian or through a third party custodian that maintains separate accounts for both the Fund and its counterparties. In the event of default by a 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 |
| § | | Level 2: Other significant observable inputs (including quoted prices for similar securities, market indices, interest rates, credit risk, forward exchange rates, 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 at December 31, 2019:
| | | | | | | | |
| Classification | | LEVEL 1
(Quoted Prices) | | | LEVEL 2
(Other Significant
Observable Inputs) | |
Securities | | | | | | | | |
Common Stocks(a) | | $ | 10,272,235,046 | | | $ | — | |
Preferred Stocks | | | — | | | | 447,813,172 | |
Debt Securities | | | | | | | | |
U.S. Treasury | | | — | | | | 1,037,825,340 | |
Government-Related | | | — | | | | 210,714,172 | |
Securitized | | | — | | | | 1,921,650,644 | |
Corporate | | | — | | | | 1,620,928,658 | |
Short-term Investments | | | | | | | | |
Repurchase Agreements | | | — | | | | 132,441,000 | |
Money Market Fund | | | 62,983,694 | | | | — | |
| | | | | | | | |
Total Securities | | $ | 10,335,218,740 | | | $ | 5,371,372,986 | |
| | | | | | | | |
| | | | | | | | | |
| (a) | 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—DERIVATIVE INSTRUMENTS
The Fund may use derivatives either to minimize the impact of certain risks to one or more of its investments (as a “hedging technique”) or to implement its investment strategy. A derivative is a financial instrument whose value is derived from a security, currency, interest rate, index, or other financial instrument.
Futures contracts Futures contracts involve an obligation to purchase or sell (depending on whether the Fund has entered a long or short futures contract, respectively) an asset at a future date, at a price set at the time of the contract. Futures contracts are exchange-traded. Upon entering into a futures contract, the Fund is required to deposit an amount of cash or liquid assets (referred to as “initial margin”) in a segregated account with the clearing broker. Subsequent payments (referred to as “variation margin”) to and from the clearing broker are made on a daily basis based on changes in the market value of the contract. Changes in the market value of open futures contracts are recorded as unrealized appreciation or depreciation in the Statement of Operations. Realized gains and losses on futures contracts are recorded in the Statement of Operations at the closing or expiration of the contracts. Cash deposited with a broker as initial margin is recorded in the Statement of Assets and Liabilities. A receivable and/or payable to brokers for daily variation margin is also recorded in the Statement of Assets and Liabilities.
Investments in futures contracts may include certain risks, which may be different from, and potentially greater than, those of the underlying assets. To the extent the Fund uses futures, it is exposed to additional volatility and potential losses resulting from leverage.
The Fund did not have open futures contracts at December 31, 2019.
DODGE & COX BALANCED FUND§PAGE 15
NOTES TO FINANCIAL STATEMENTS
Additional derivative information The following summarizes the effect of derivative instruments on the Statement of Operations.
| | | | |
| | | Interest Rate
Derivatives | |
Net realized gain (loss) | | | | |
Futures contracts | | $ | (7,355,862 | ) |
| |
Net change in unrealized appreciation/depreciation | | | | |
Futures contracts | | $ | 3,564,635 | |
The following summarizes the range of volume in the Fund’s derivative instruments during the year ended December 31, 2019.
| | | | | | | | |
| Derivative | | | | | % of Net Assets | |
Futures contracts | | | USD notional value | | | | 0-1 | % |
| | | | | | | | | |
NOTE 4—RELATED PARTY TRANSACTIONS
Management fees Under a written agreement approved by a unanimous vote of the Board of Trustees, the Fund pays a management fee monthly at an annual rate of 0.50% of the Fund’s average daily net assets to Dodge & Cox, investment manager of the Fund.
Fund officers and trustees All officers and two 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 5—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. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes. Financial reporting records are adjusted for permanent book to tax differences at year end to reflect tax character. Book to tax differences are primarily due to differing treatments of wash sales, net short-term realized gain (loss), derivatives, and distributions.
Distributions during the years noted below were characterized as follows for federal income tax purposes:
| | | | | | | | |
| | | Year Ended
December 31, 2019 | | | Year Ended
December 31, 2018 | |
Ordinary income | | $ | 381,385,933 | | | $ | 297,446,889 | |
| | ($ | 2.529 per share | ) | | ($ | 2.010 per share | ) |
Long-term capital gain | | $ | 1,040,127,826 | | | $ | 1,002,545,238 | |
| | ($ | 6.971 per share | ) | | ($ | 6.916 per share | ) |
At December 31, 2019, the tax basis components of distributable earnings were as follows:
| | | | |
Undistributed ordinary income | | $ | 27,395,424 | |
Undistributed long-term capital gain | | | 113,010,136 | |
At December 31, 2019, unrealized appreciation and depreciation for investments and derivatives based on cost for federal income tax purposes were as follows:
| | | | |
Tax cost | | $ | 11,992,150,007 | |
| | | | |
Unrealized appreciation | | | 4,188,276,502 | |
Unrealized depreciation | | | (473,834,783 | ) |
| | | | |
Net unrealized appreciation | | | 3,714,441,719 | |
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 6—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 year.
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 itspro-rata portion of the Line of Credit. For the year ended December 31, 2019, the Fund’s commitment fee amounted to $95,540 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 year.
NOTE 7—PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 2019, purchases and sales of securities, other than short-term securities and U.S. government securities, aggregated $2,373,436,244 and $3,322,909,319, respectively. For the year ended December 31, 2019, purchases and sales of U.S. government securities aggregated $2,762,152,617 and $2,099,697,530, respectively.
PAGE 16§ DODGE & COX BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 8—NEW ACCOUNTING GUIDANCE
In March 2017, the Financial Accounting Standards Board issued an update to amend the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for premiums to the earliest call date, but do not require an accounting change for securities held at a discount. The amendments are effective for financial statements for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Fund’s adoption of the updated accounting standards on January 1, 2019 did not have a material impact on the Fund’s financial statements.
NOTE 9—SUBSEQUENT EVENTS
Fund management has determined that no material events or transactions occurred subsequent to December 31, 2019, and through the date of the Fund’s financial statements issuance, which require additional disclosure in the Fund’s financial statements.
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | | | |
SELECTED DATA AND RATIOS (for a share outstanding throughout each year) | | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
| | | | |
Net asset value, beginning of year | | | $93.27 | | | | $107.00 | | | | $103.35 | | | | $94.42 | | | | $102.48 | |
Income from investment operations: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 2.48 | | | | 2.20 | | | | 2.28 | | | | 2.34 | | | | 2.06 | |
Net realized and unrealized gain (loss) | | | 15.35 | | | | (7.00 | ) | | | 10.45 | | | | 12.89 | | | | (4.99 | ) |
| | | | |
Total from investment operations | | | 17.83 | | | | (4.80 | ) | | | 12.73 | | | | 15.23 | | | | (2.93 | ) |
| | | | |
Distributions to shareholders from: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (2.46 | ) | | | (2.01 | ) | | | (2.29 | ) | | | (2.34 | ) | | | (2.06 | ) |
Net realized gain | | | (7.04 | ) | | | (6.92 | ) | | | (6.79 | ) | | | (3.96 | ) | | | (3.07 | ) |
| | | | |
Total distributions | | | (9.50 | ) | | | (8.93 | ) | | | (9.08 | ) | | | (6.30 | ) | | | (5.13 | ) |
| | | | |
Net asset value, end of year | | | $101.60 | | | | $93.27 | | | | $107.00 | | | | $103.35 | | | | $94.42 | |
| | | | |
Total return | | | 19.62 | % | | | (4.61 | )% | | | 12.59 | % | | | 16.55 | % | | | (2.88 | )% |
Ratios/supplemental data: | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (millions) | | | $15,747 | | | | $14,181 | | | | $16,387 | | | | $15,382 | | | | $14,269 | |
Ratio of expenses to average net assets | | | 0.53 | % | | | 0.53 | % | | | 0.53 | % | | | 0.53 | % | | | 0.53 | % |
Ratio of net investment income to average net assets | | | 2.46 | % | | | 2.06 | % | | | 2.12 | % | | | 2.41 | % | | | 2.03 | % |
Portfolio turnover rate | | | 35 | % | | | 24 | % | | | 19 | % | | | 24 | % | | | 20 | % |
See accompanying Notes to Financial Statements
DODGE & COX BALANCED FUND§PAGE 17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TotheBoard of Trustees of the Dodge & Cox Funds and Shareholders of Dodge & Cox Balanced Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, ofDodge & Cox Balanced Fund (one of the funds constituting Dodge & Cox Funds, referred to hereafter as the “Fund”) as of December 31, 2019, the related statementof operationsfor the year endedDecember 31, 2019, the statement of changes in net assets for each of the two years in the period ended December 31, 2019, including the related notes, and the financial highlights for each of the five years in the period ended December 31, 2019 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2019, 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 ended December 31, 2019 and the financial highlights for each of the five years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2019 by correspondence with the custodian, transfer agent and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2020
We have served as the auditor of one or more investment companies in the Dodge & Cox Funds since 1931.
PAGE 18§ DODGE & COX BALANCED FUND
SPECIAL 2019 TAX INFORMATION
(unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code:
The Fund designates $1,040,127,826 as long-term capital gain distributions in 2019.
The Fund designates $246,323,442 of its distributions paid to shareholders in 2019 as qualified dividends (treated for federal income tax purposes in the hands of shareholders as taxable at a maximum rate of 20%).
For shareholders that are corporations, the Fund designates 37% of its ordinary dividends paid to shareholders in 2019 as dividends from domestic corporations eligible for the corporate dividends received deduction, provided that the shareholder otherwise satisfies applicable requirements to claim that deduction.
FUNDS’ LIQUIDITY RISK MANAGEMENT PROGRAM
(unaudited)
The Funds have adopted and implemented a written liquidity risk management program as required by Rule 22e-4 under the Investment Company Act. The program is reasonably designed to assess and manage each Fund’s liquidity risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings and access to other funding sources including the Funds’ interfund lending facility and line of credit. The Funds’ Board of Trustees approved the appointment of a Liquidity Risk Management Committee including representatives from Dodge & Cox’s legal, compliance, treasury, operations, trading, and portfolio management departments, which is responsible for the program’s administration and oversight and for reporting to the Board on at least an annual basis regarding the program’s operation and effectiveness. The Liquidity Risk Management Committee refreshed its assessment of the Fund’s liquidity risk profile, considering additional data gathered in the 12 months ended September 30, 2019 and the adequacy and effectiveness of the liquidity risk management program’s operations since its inception in February, 2019 (the “covered period”) in order to prepare a written report to the Board of Trustees for consideration at its meeting held on December 12, 2019. The report concluded that (i) the Fund did not experience significant liquidity challenges during the covered period (ii) the Fund’s investment strategy is appropriate for an open-end fund; and (iii) the Fund’s liquidity risk management program is reasonably designed to assess and manage its liquidity risk.
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, 2019, 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 additionalone-year term through December 31, 2020 with respect to each Fund. During the course of the year, the Board received extensive information and materials relating to the investment management and administrative services provided by Dodge & Cox and the performance of each of the Funds.
INFORMATION RECEIVED
Over the past several years, the Board has requested, received, and discussed a number of special presentations on topics relevant to their annual consideration of the proposed renewal of the Funds’ Agreements. In addition to the foregoing and in advance of the meetings referred to below, the Board, including the Independent Trustees, requested, received, and reviewed materials relating to the Agreements and the services provided by Dodge & Cox. The Independent Trustees retained Broadridge to prepare an independent expense and performance summary for each Fund and comparable funds managed by other advisers identified by Broadridge. The Broadridge materials included information regarding advisory and administrative fee rates, expense ratios, and transfer agency, custodial, and distribution expenses, as well as performance comparisons to each Fund’s peer group and to a broad-based securities index or combination of indices. The Broadridge 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, management fee revenue, and separate account fee schedules. The Board additionally considered the Funds’ brokerage commissions, turnover rates, sales and redemption data, and the investment that Dodge & Cox makes in research used in managing the Funds. The Board received and reviewed memoranda and related materials addressing, among other things, Dodge & Cox’s services to the Funds; how Dodge & Cox Funds’ fees compare to fees of peer group funds; the different fees, services, costs, and risks associated with other accounts managed by Dodge & Cox as compared to the Dodge & Cox Funds; and the ways in which the Funds realize economies of scale. 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 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 mutual fund management arrangements. The Trust’s Contract Review Committee, consisting solely of Independent Trustees, met with the independent legal counsel on November 7, 2019 and again on December 12, 2019 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 asall-important or controlling. In
DODGE & COX BALANCED FUND§PAGE 19
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 range of services to the Funds in addition to portfolio management, including regulatory compliance, trading desks, proxy voting, transfer agent and custodian oversight, administration, regulatory filings, tax compliance and filings, website, and anti-money laundering. The 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 in the management of the Funds; its consistency in investment approach and depth; the background and experience of the Dodge & Cox U.S. Equity Investment Committee, International Equity Investment Committee, Global Equity Investment Committee, U.S. Fixed Income Investment Committee, and Global Fixed Income Investment Committee, and research analysts responsible for managing the Funds; Dodge & Cox’s methods for assessing the regulatory and investment climate in various jurisdictions; its overall level of attention to its core investment management function; and its commitment to the Funds and their shareholders. The Board reviewed information from Dodge & Cox regarding any material conflicts of interest between the Funds and Dodge & Cox or its other clients, and regarding how Dodge & Cox addresses those conflicts. The Board noted Dodge & Cox’s record of favorable press and industry coverage, as well as its good compliance record, and its reputation as a trusted, shareholder-friendly mutual fund family. In addition, the Board considered that Dodge & Cox manages approximately $211 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, that its investment professionals adhere to a consistent investment approach across the Funds, and that due to its deliberate strategy with respect to new products, Dodge & Cox has had stability in its mutual fund product offerings over the course of many years and has the fewest funds of any of the 25 largest mutual fund families by assets. The Board further considered the “Gold” analyst rating awarded by Morningstar to all of the Funds (other than the Global Bond Fund, which has a “Silver” rating). 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 reviewed each Fund’s recent and long-term investment performance (including periods of outperformance and underperformance), as compared to relevant indices and the
performance of such Fund’s peer group and broader Morningstar category. In assessing the performance of the Funds, the Board considered the Funds’ investment returns over various periods and the volatility thereof and concluded that the levels experienced were consistent with Dodge & Cox’s long-term approach and active investment style. The Board also compared the short- and long-term investment performance of the equity funds to value-oriented indices, in recognition of the significant performance divergence between value and growth stocks over the past several years. It was noted that equity performance has been consistent with the value oriented investment strategy employed by Dodge & Cox. The Board concluded 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 value-oriented investment management process that emphasizes a long-term investment horizon, independent research, a team approach, price discipline, low cost, and low portfolio turnover. The Board concluded that Dodge & Cox has delivered 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 net expense ratio relative to (1) a broad category of other mutual funds with similar portfolio characteristics and share class and expense structures and (2) a smaller group of peers selected by Broadridge based on investment style, share class characteristics, and asset levels. The Board also considered the management fees charged by Dodge & Cox to other clients. In particular, the Board considered that the Funds continue to be below their peer group medians in net expense ratios. The Board also evaluated the operating structures of the Funds and Dodge & Cox, noting that the Funds do not chargefront-end sales commissions or distribution fees, and Dodge & Cox bears, among other things, the cost of most third-party research, reimbursement for shareholder recordkeeping and administrative costs to third-party retirement plan administrators, and administrative and office overhead. The Board noted that the Broadridge report shows that the net expense ratio of every Dodge & Cox Fund is in the least expensive quartile compared to its broad Morningstar category. The Board noted the Funds’ unusual single-share-class structure and reviewed Broadridge data (including asset-weighted average expense ratios) showing that most of the peer group funds offer several different classes of shares, with different expense ratios, to different categories of investors, and that the Broadridge expense comparisons described above generally compare the net expense ratio of each Dodge & Cox Fund’s single share class to one of the least expensive share classes of the peer fund, even though those share classes are often not available to retail investors. The Board noted that the Funds provide access for small investors to high quality investment management at a relatively low cost. The Board also considered that the Funds are priced to scale, i.e., management fee rates begin
PAGE 20§ DODGE & COX BALANCED FUND
at relatively low levels. Even without breakpoints, the Funds’ management fee rates are lower than those of many peer funds whose fee schedules include breakpoints. With respect tonon-U.S. funds sponsored and managed by Dodge & Cox that are comparable to the Funds in many respects, the Board noted that the fee rates charged by Dodge & Cox are the same as or higher than the fee rates charged to the Funds. 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 the differences in the nature and scope of services Dodge & Cox provides to the Funds as compared to other client accounts, as well as material differences in regulatory, litigation, and other risks as between Dodge & Cox Funds and other types of clients. The Board noted that different markets exist for mutual fund and institutional separate account management services and that a comparison of Fund fee rates and separate account fee rates must consider the fact that separate account clients bear additional costs and responsibilities that are included in the cost of a Fund. 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-ownedS-Corporation and relative to the scope and quality of the services provided. The Board noted in particular that Dodge & Cox’s profits are not generated by high fee rates, but reflect a 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 includes a return on shareholder employees’ investment in the firm, which is vital for remaining independent and facilitating retention of management and investment professionals. The Board also considered that Dodge & Cox has in the past closed some of the Funds to new investors to proactively manage growth in those Funds. While these actions are intended to benefit existing Fund shareholders, the effect is to reduce potential revenues to Dodge & Cox from new shareholders. The Board also considered potential“fall-out” benefits (including the receipt of research from unaffiliated brokers and reputational benefits tonon-U.S. funds sponsored and managed by Dodge & Cox) that Dodge & Cox might receive as a result of its association with the Funds and determined that they are acceptable. The Board also noted that Dodge & Cox continues to invest in its business to provide enhanced services, systems, and research capabilities, all of which
benefit the Funds. The Board concluded that Dodge & Cox’s profitability is the keystone of its independence, stability, and long-term investment performance and that the profitability of Dodge & Cox’s relationship with the Funds (includingfall-out benefits) is fair and reasonable.
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 level of 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 and expense structure and the fact that the Dodge & Cox Funds build economies of scale into their fee structures by charging low fees from a fund’s inception and keeping overall expenses down as a Fund grows, as compared to other fund complexes that employ fee “breakpoints” only after a fund reaches a certain scale. An assessment of economies of scale must also take into account that Dodge & Cox invests time and resources in each new Fund for months (and sometimes years) prior to launch; in addition, in a Fund’s early periods of operations, expenses are capped, which means that Dodge & Cox subsidizes the operations of a new Fund for a period of time until it reaches scale. The Board also observed that, while total Fund assets have grown over the long term, this growth has not been continuous or evenly distributed across all of the Funds. In addition, the Board noted that Dodge & Cox has shared the benefits of economies of scale with the Funds by adding services to the Funds over time, and that Dodge & Cox’s internal costs of providing investment management, technology, administrative, legal, and compliance services to the Funds continue to increase. For example, Dodge & Cox has increased its global research staff and investment resources over the years to add new capabilities for the benefit of Fund shareholders and to address the increased complexity of investing globally. In addition, Dodge & Cox has made expenditures in other staff, technology, and infrastructure to enable it to integrate credit and equity analyses and to implement its strategy in a more effective manner. Over the last ten years, Dodge & Cox has increased its spending on research, investment management, client servicing, cybersecurity, technology, third-party research, data services, and computer systems for trading, operations, compliance, accounting, and communications at a rate that has outpaced the Funds’ growth rate during the same period. The Board also observed that, even without fee breakpoints, the Funds are competitively priced in a competitive market and that having a low fee from inception is better for shareholders than starting with a higher fee and adding breakpoints. The Board also noted that there are certain diseconomies of scale associated with managing large funds, insofar as certain of the costs and risks associated with portfolio management increase disproportionately as assets grow. The Board concluded that the current Dodge & Cox fee structure is fair and reasonable and adequately shares economies of scale that may exist.
DODGE & COX BALANCED FUND§PAGE 21
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 management fee structure was fair and reasonable, that each Fund was paying a competitive fee for the services provided, that Dodge & Cox’s services have provided 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 on a quarterly basis by filing the lists with the SEC on Form N-CSR (as of the end of the second and fourth quarters) and on Part F ofForm N-PORT (as of the end of the first and third quarters). Shareholders may view the Fund’s Form N-CSR and Part F of Form N-PORT on the SEC’s website at sec.gov. A list of the Fund’s quarter-end holdings is also available at dodgeandcox.com on or about the 15th day following each quarter end and remains available on the website until the list is updated for the subsequent quarter.
PROXY VOTING
For a free copy of the Fund’s proxy voting policies and procedures, please call800-621-3979, visit the Fund’s website at dodgeandcox.com, or visit the SEC’s website at 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 dodgeandcox.com or at 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 at800-621-3979. Your request will be implemented within 30 days.
PAGE 22§ DODGE & COX BALANCED FUND
DODGE & COX FUNDS—EXECUTIVE OFFICER & TRUSTEE INFORMATION
| | | | | | |
| | | | |
Name (Age) and
Address* | | Position with Trust (Year of Election or
Appointment)** | | Principal Occupation During Past Five Years and Other Relevant
Experience** | | Other Directorships of Public Companies Held
by Trustees |
| |
| INTERESTED TRUSTEES AND EXECUTIVE OFFICERS |
| Charles F. Pohl (61) | | Chairman and Trustee (since 2014) | | Chairman and Director of Dodge & Cox; Chief Investment Officer and member of U.S. Equity Investment Committee (USEIC), Global Equity Investment Committee (GEIC), and International Equity Investment Committee (IEIC) | | — |
| Dana M. Emery (58) | | President (since 2014) and Trustee (since 1993) | | Chief Executive Officer, President, and Director of Dodge & Cox;Co-Director of Fixed Income (until January 2020) and member of U.S. Fixed Income Investment Committee (USFIIC) and Global Fixed Income Investment Committee (GFIIC) | | — |
| Diana S. Strandberg (60) | | Senior Vice President (since 2006) | | Senior Vice President and Director of Dodge & Cox; Director of International Equity and member of GEIC, IEIC, and GFIIC; member of USEIC (until January 2020) | | — |
| Roberta R.W. Kameda (59) | | Chief Legal Officer (since 2019) and Secretary (since 2017) | | Vice President, General Counsel, and Secretary (since 2017) of Dodge & Cox | | — |
| David H. Longhurst (62) | | Treasurer (since 2006) | | Vice President and Assistant Treasurer of Dodge & Cox | | — |
| Katherine M. Primas (45) | | Chief Compliance Officer (since 2010) | | Vice President and Chief Compliance Officer of Dodge & Cox | | — |
| |
| INDEPENDENT TRUSTEES |
| Caroline M. Hoxby (53) | | Trustee (since 2017) | | Professor of Economics, Stanford University; Director of the Economics of Education Program, National Bureau of Economic Research; Senior Fellow, Hoover Institution and Stanford Institute for Economic Policy Research | | — |
| Thomas A. Larsen (70) | | Trustee (since 2002) | | Senior Counsel of Arnold & Porter (law firm) (2015-2018); Partner of Arnold & Porter (until 2015); Director of Howard, Rice, Nemerovski, Canady, Falk & Rabkin (1977-2011) | | — |
| Ann Mather (59) | | Trustee (since 2011) | | CFO, Pixar Animation Studios (1999-2004) | | Director, Alphabet Inc. (internet information services) (since 2005); Director, Glu Mobile, Inc. (multimedia software) (since 2004); Director, Netflix, Inc. (internet television) (since 2010); Director, Arista Networks (cloud networking) (since 2013) |
| Robert B. Morris III (67) | | Trustee (since 2011) | | Advisory Director, The Presidio Group (2005-2016); Partner and Managing Director—Global Investment Research at Goldman Sachs (until 2001) | | — |
| Gabriela Franco Parcella (51) | | Trustee (since 2020) | | Managing Partner of Merlone Geier Partners (since 2018); Chairman, President, and CEO, Mellon Capital (2011 to 2017); COO, Mellon Capital (1997 to 2011). | | Director, Terreno Realty Corporation (since 2018) |
| Gary Roughead (68) | | Trustee (since 2013) | | Robert and Marion Oster Distinguished Military Fellow, Hoover Institution (since 2012); Admiral, United States Navy (Ret.); U.S. Navy Chief of Naval Operations (2008-2011) | | Director, Northrop Grumman Corp. (global security) (since 2012); Director, Maersk Line, Limited (shipping and transportation) (since 2016) |
| Mark E. Smith (68) | | Trustee (since 2014) | | Executive Vice President, Managing Director—Fixed Income at Loomis Sayles & Company, L.P. (2003-2011) | | — |
| John B. Taylor (73) | | Trustee (since 2005) (and 1995-2001) | | Professor of Economics, Stanford University (since 1984); Senior Fellow, Hoover Institution (since 1996); 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 six series in the Dodge & Cox Funds complex and serves for an indefinite term. |
| ** | | Information as of January 15, 2020. |
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 dodgeandcox.com or calling
800-621-3979.
DODGE & COX BALANCED FUND§PAGE 23
dodgeandcox.com
For Fund literature, transactions, and account information, please visit the Funds’ website.
or write or call:
DODGE & COX FUNDS
c/o DST Asset Manager Solutions, Inc.
P.O. Box 219502
Kansas City, Missouri 64121-9502
(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, 2019, 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.
DODGE & COX FUNDS®
Annual Report
December 31, 2019
Income Fund
ESTABLISHED 1989
TICKER: DODIX
Important Notice:
Beginning on January 1, 2021, we intend to discontinue mailing paper copies of the Fund’s shareholder reports as permitted by new regulations adopted by the Securities and Exchange Commission, unless you specifically request paper copies from Dodge & Cox Funds or from your financial intermediary, such as a broker-dealer or bank. The reports will remain available to you on the Dodge & Cox Funds website (dodgeandcox.com), and you will be notified by mail each time a report is posted and provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. If you have not done so already, you may elect to receive shareholder reports and other communications electronically by enrolling in e-delivery on the Funds website, or, if you are invested through a financial intermediary, by updating your mailing preferences through the intermediary.
If you wish to continue receiving paper copies of all future shareholder reports, please contact us at (800) 621-3979. Reports will be provided to you free of charge. If you are invested through a financial intermediary, you may contact your financial intermediary to request to receive paper copies. Your election to receive reports in paper form will apply to all funds held with Dodge & Cox Funds or through your financial intermediary, as applicable.
12/19 IF AR 
Printed on recycled paper
TO OUR SHAREHOLDERS
The Dodge & Cox Income Fund had a total return of 9.7% for the year ended December 31, 2019, compared to a total return of 8.7% for the Bloomberg Barclays U.S. Aggregate Bond Index (Bloomberg Barclays U.S. Agg).
MARKET COMMENTARY
The U.S. investment-grade fixed income market posted a robust 8.7% return in 2019, fueled by the combination of falling U.S. Treasury yields and strong performance from the Corporate bond sector.
U.S. Treasury rates declined for much of the year amid a substantial pivot toward easing monetary policy by the Federal Reserve as well as rising trade tensions and concerns about slowing global growth. It wasn’t until the fourth quarter that long-term Treasury yields rose from multi-year lows, following a series of positive U.S. economic reports, encouraging developments in U.S.-China trade negotiations, and more clarity on Brexit.
The Fed reversed course from its path of steadily raising rates in 2017-2018 and carried out a“mid-cycle adjustment” of three quarter-point rate cuts in 2019. Moreover, Fed Chairman Jerome Powell signaled that the central bank is likely to keep rates on hold through 2020 amid low inflation. Although the pace of U.S. economic growth slowed last year, the economy continued to expand. For example, labor market reports released during the year were better than expected, as employers added an average of 175,000 jobs per month, and the unemployment rate declined to a50-year low of 3.5%. Other data was mixed: robust consumer spending was offset by manufacturing sector weakness.
The investment-grade Corporate sector returned 14.5%a for the year, outperforming comparable-duration Treasuries by 6.8 percentage points. Credit yield premiumsb on corporate bonds ended the year near their tightest level since the global financial crisis. Meanwhile, Agencyc mortgage-backed securities (MBS) returned 6.4% and outperformed comparable-durationd Treasuries by a modest 0.6 percentage points.
INVESTMENT STRATEGY
The Fund’s strong year—in terms of both absolute and relative performance—was driven by outperformance from a wide variety of individual credite holdings and a significant overweight to the strong-performing Credit sector.
Over the year, we made a number of adjustments to the Fund’s portfolio positioning in light of higher credit market valuations and slightly less constructive economic fundamentals. Most notably, we trimmed multiple credit issuers and invested the proceeds in U.S. Treasuries.
We also made other modest adjustments in the portfolio, but it retains the same general themes. The Fund maintains sizeable exposures to corporate securities (34%)f and Agency MBS (35%), both of which represent modest overweights relative to the Index. The Fund also features smaller positions in asset-backed securities (6%) and government-related securities (5%). The Fund’s
weighting in U.S. Treasuries (18%) and net cash (2%) represents “dry powder” we can deploy as we uncover compelling investment opportunities in the future. We continue to maintain the Fund’s overall defensive position with respect to interest rate risk, with a portfolio duration of 4.3 years (compared to 5.9 years for the Index).
The Credit Sector: Reduced Overall Exposure, but Still Finding Select Opportunities
The most meaningful change to positioning throughout 2019 was an eight percentage point reduction in the Fund’s credit weighting. This selective pruning leaves the Fund’s credit weighting at its post-global financial crisis low and represents the reversal of additions made amid the broad creditsell-off in late 2018/early 2019.
Reductions were achieved through a combination of maturities, relative value-driven trims, and participation in tenders related to corporate liability management exercises. For example, we trimmed certain Verizong bonds, which performed well as the company made progress towards its deleveraging targets. We also recently exited Anheuser-Busch InBev, a position established at the beginning of 2019 during a time of heightened credit market anxiety and issuer volatility driven by ratings downgrades. It is important to note that 2019 trims were, by and large, driven by a less attractive risk-reward tradeoff following strong performance and subsequently higher valuations, rather than a deteriorating view of the issuers’ creditworthiness.
Despite reducing the Fund’s credit exposure generally, we remain on the lookout for individual opportunities in credit, highlighted by the additions of AbbVie, Occidental Petroleum, UniCredit, and Vodafone Group over the course of the year.
AbbVie, a biopharmaceutical company that issued debt in November to help fund its acquisition of Allergan, merits highlighting. AbbVie’s business has been dominated by Humira, a prescription drug that will come off patent as early as 2022 and will likely face increased competition over the next few years. In our view, the acquisition of Allergan makes strategic sense as a means of bolstering free cash flow and increasing product diversification. We believe investors are adequately compensated with an attractive yield spread for the fundamental risks facing AbbVie, including its new, higher leverage and the potential for integration challenges, legislative changes to the U.S. drug pricing model, and unexpected product liabilities. In the coming years, we expect the company to pay down the incremental debt it incurred to finance the Allergan acquisition, leading to a much improved credit profile.
While we believe the credit market is fairly valued, the long-term total return prospects for a well-curated, thoroughly researched, and stress-tested credit portfolio remain attractive. Thus, we are comfortable with the Fund’s credit overweight, but we continue to be vigilant, taking into account the strong performance of credit in 2019.
PAGE 2§ DODGE & COX INCOME FUND
The Securitized Sector: Adding Liquidity and Incremental Yield at a Compelling Valuation
The Fund’s holdings in the Securitized sector consist predominantly of Agency MBS, with a smaller weighting inAAA-rated asset-backed securities (ABS). As a group, these securities can provide attractive total-return potential in the front to intermediate part of the yield curve, and they continue to play an important role in the overall portfolio because of their generally substantial liquidity and high credit quality.
Within MBS, the Fund features a large position in30-year 4.5% coupon securities. This segment underperformed in 2019 as borrowers faced greater refinancing incentives because of the decline in interest rates. Through ourbottom-up, fundamental research we attempt to measure—and assess whether investors are being appropriately compensated for—prepayment risk. Given our analysis, we believe this risk is manageable for these securities going forward, and their favorable starting valuations make them attractive, especially relative to credit alternatives. There are also significant differences in prepayment behavior across servicers and origination channels, creating opportunities to benefit from astute security selection. Overall, we believe the risk-reward equation in Agency MBS continues to look compelling given modest dollar prices and relatively wide spreads.
Within ABS, we sold securities backed by credit card debt and auto loans because we concluded their high relative valuations no longer presented a compelling risk-reward dynamic, and we reinvested the proceeds in Agency MBS. The Fund continues to hold floating rate ABS backed by 97% federally guaranteed student loans. These short-duration securities trade at favorable levels relative to ABS and MBS alternatives, and their floating rate coupon adds a defensive duration element to the portfolio.
Defensive Duration: Mitigating the Risk of Rising Rates over Time
Although we have lowered our expectations for the future path of interest rates, the portfolio’s defensive duration position reflects our longer-term view that interest rates are still likely to exceed current market expectations.
The portfolio’s relative interest rate positioning is underpinned by two key factors. First, we believe recession risk is low and the U.S. economy is on solid footing. While we expect the economy to slow toward trend growth (2% real GDP) as the fiscal stimulus fades, the strengths of the consumer sector and the labor market should help it avoid a recession. In our view, U.S. Treasury valuations have swung too far in attempting to price in a period of low or negative growth. Second, the significant reduction in unemployment and the ensuing labor market tightening have raised the prospect of more rapid wage growth and somewhat higher inflation than what many indicators are forecasting. While we expect the Fed to keep short-term rates steady, we believe the long end of the curve will move higher over time. Given these factors and low starting yields, we believe it is important to remain defensive in order to mitigate the negative effect of any bond market price declines that could stem from potential increases in interest rates over time.
Inflation Expectations: An Additional Valuation-Driven Opportunity
In developing our economic forecasts, our team of analysts and traders is constantly on the lookout for segments of the market that appear undervalued. One example is Treasury Inflation Protected Securities (TIPS), where we recently established a small position in three-year securities. These securities look attractive relative to other investment opportunities due to the low level of inflation required to generate a competitive total return. We believe that underlying inflation (excluding energy prices) already looks strong relative to market expectations, and that a continuation of the economic expansion should support this level of inflation. Additionally, while inflation has remained below the Federal Reserve’s 2% target according to their preferred measure, TIPS returns are based off a different measure of inflation (CPI) that has been running significantly higher.
IN CLOSING
While we are pleased with the Fund’s 2019 results, we caution shareholders to temper their expectations for future returns. The low level of interest rates increases the risk of quite modest (or even negative) returns if yields rise substantially from current levels. In addition, because of current narrow credit yield premiums, credit markets are unlikely to provide the performance tailwind of the past year.
That said, we believe bonds continue to serve a vital defensive role in a diversified portfolio, providing liquidity, income generation, downside protection, and low correlation to riskier asset classes. We have positioned the Fund defensively from a duration standpoint, and we will continue to seek opportunities to build portfolio yield through ourbottom-up, research-driven investment approach.
Thank you for your continued confidence in our firm. As always, we welcome your comments and questions.
For the Board of Trustees,
| | |
 | |  |
Charles F. Pohl, Chairman | | Dana M. Emery, President |
January 31, 2020
| a | | Sector returns as calculated and reported by Bloomberg. |
| b | | Yield premiums are one way to measure a security’s valuation. Narrowing yield premiums result in a higher valuation. Widening yield premiums result in a lower valuation. |
| c | | The U.S. Government does not guarantee the Fund’s shares, yield, or net asset value. The agency guarantee (by, for example, Ginnie Mae, Fannie Mae, or Freddie Mac) does not eliminate market risk. |
| d | | Duration is a measure of a bond’s (or a bond portfolio’s) price sensitivity to changes in interest rates. |
| e | | Credit securities refers to corporate bonds and government-related securities, as classified by Bloomberg. |
| f | | Unless otherwise specified, all weightings and characteristics are as of December 31, 2019. |
| g | | The use of specific examples does not imply that they are more or less attractive investments than the Fund’s other holdings. |
DODGE & COX INCOME FUND§PAGE 3
2019 PERFORMANCE REVIEW
The Fund outperformed the Bloomberg Barclays U.S. Agg by 1.0 percentage point in 2019.
Key Contributors To Relative Results
| | § | | Security selection within credit was positive as several issuers performed well, including Citigroup capital securities, Enel, Pemex, Petrobras, Rio Oil Finance Trust, TC Energy, and Telecom Italia. | |
| | § | | The Fund’s overweight to corporate bonds and underweight to U.S. Treasuries added to relative returns given the significant outperformance of credit. | |
Key Detractors from Relative Results
| | § | | The Fund’s below-benchmark duration position (74%* of the Bloomberg Barclays U.S. Agg’s duration) hampered relative returns as Treasury yields declined. | |
| | § | | The Fund’s Agency MBS holdings slightly underperformed the MBS in the Bloomberg Barclays U.S. Agg after adjusting for duration differences. | |
| | * | | Denotes Fund positioning at the beginning of the period. | |
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.
90 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 U.S. Fixed Income Investment Committee, which is the decision-making body for the Income Fund, is a nine-member committee with an average tenure at Dodge & Cox of 20 years.
One Business with a Single Research Office
Dodge & Cox manages equity (domestic, international, and global), fixed income (domestic and global), 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.
Risks: The Fund invests in individual bonds whose yields and market values fluctuate, so that an investment may be worth more or less than its original cost. Debt securities are subject to interest rate risk, credit risk, and prepayment and call risk, all of which could have adverse effects on the value of the Fund. A low interest rate environment creates an elevated risk of future negative returns. Financial intermediaries may restrict their market making activities for certain debt securities, which may reduce the liquidity and increase the volatility of such securities. Please read the prospectus and summary prospectus for specific details regarding the Fund’s risk profile.
PAGE 4§ DODGE & COX INCOME FUND
GROWTH OF $10,000 OVER 10 YEARS
FOR AN INVESTMENT MADE ON DECEMBER 31, 2009
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2019
| | | | | | | | | | | | | | | | |
| | | 1 Year | | | 5 Years | | | 10 Years | | | 20 Years | |
Dodge & Cox Income Fund | |
| 9.73
| %
| |
| 3.69
| %
| |
| 4.43
| %
| |
| 5.61
| %
|
Bloomberg Barclays U.S. Aggregate Bond Index (Bloomberg Barclays U.S. Agg) | | | 8.72 | | | | 3.05 | | | | 3.75 | | | | 5.03 | |
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 dodgeandcox.com or call800-621-3979 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 interest income but, unlike Fund returns, do not reflect fees or expenses. The Bloomberg Barclays U.S. Aggregate Bond Index (Bloomberg Barclays U.S. Agg) is a widely recognized, unmanaged index of U.S. dollar-denominated, investment-grade, taxable debt securities.
Bloomberg is a registered trademark of Bloomberg Finance L.P. and its affiliates. Barclays® is a trademark of Barclays Bank PLC.
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 “Expenses Paid During 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, 2019 | | Beginning Account Value
7/1/2019 | | | Ending Account Value
12/31/2019 | | | Expenses Paid
During Period* | |
Based on Actual Fund Return | | $ | 1,000.00 | | | $ | 1,029.50 | | | $ | 2.15 | |
Based on Hypothetical 5% Yearly Return | | | 1,000.00 | | | | 1,023.08 | | | | 2.15 | |
| * | | Expenses are equal to the Fund’s annualized expense ratio of 0.42%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
The expenses shown in the table highlight ongoing costs only and do not reflect any transactional fees or account maintenance fees. Though 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 INCOME FUND§PAGE 5
| | | | |
PORTFOLIO INFORMATION | | | December 31, 2019 | |
| | | | |
| SECTOR DIVERSIFICATION (%) | | % of Net Assets | |
U.S. Treasury | | | 17.5 | |
Government-Related | | | 5.1 | |
Securitized | | | 41.5 | |
Corporate | | | 34.0 | |
Net Cash & Other(a) | | | 1.9 | |
| (a) | Net Cash & Other includes cash, short-term investments, derivatives, receivables, and payables. |
PAGE 6§ DODGE & COX INCOME FUND
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| DEBT SECURITIES: 98.1% | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
| U.S. TREASURY: 17.5% | | | | | | | | |
U.S. Treasury Inflation Indexed
0.125%, 1/15/22(g) | | $ | 133,806,429 | | | $ | 133,730,962 | |
0.125%, 4/15/22(g) | | | 689,475,057 | | | | 688,434,998 | |
0.625%, 4/15/23(g) | | | 138,374,513 | | | | 140,509,698 | |
U.S. Treasury Note/Bond
1.50%, 10/31/21 | | | 890,000,000 | | | | 888,539,385 | |
1.50%, 11/30/21 | | | 2,214,048,000 | | | | 2,210,449,242 | |
1.50%, 8/15/22 | | | 420,000,000 | | | | 418,877,827 | |
1.50%, 9/15/22 | | | 1,000,000,000 | | | | 997,187,470 | |
1.625%, 11/15/22 | | | 37,899,000 | | | | 37,906,098 | |
1.75%, 7/31/24 | | | 90,000,000 | | | | 90,204,480 | |
1.25%, 8/31/24 | | | 29,555,000 | | | | 28,962,554 | |
1.50%, 10/31/24 | | | 300,000,000 | | | | 297,213,336 | |
1.50%, 11/30/24 | | | 600,000,000 | | | | 594,559,902 | |
3.00%, 10/31/25 | | | 561,940,000 | | | | 599,976,179 | |
2.50%, 2/28/26 | | | 700,000,000 | | | | 728,708,603 | |
2.375%, 4/30/26 | | | 600,000,000 | | | | 620,448,222 | |
2.375%, 5/15/29 | | | 1,085,000,000 | | | | 1,126,854,569 | |
1.625%, 8/15/29 | | | 764,000,000 | | | | 743,693,781 | |
2.875%, 5/15/49 | | | 661,390,000 | | | | 728,180,899 | |
2.25%, 8/15/49 | | | 47,135,000 | | | | 45,669,394 | |
| | | | | | | | |
| | | | | | | 11,120,107,599 | |
| GOVERNMENT-RELATED: 5.1% | | | | | | | | |
FOREIGN AGENCY: 2.3% | | | | | | | | |
Petroleo Brasileiro SA (Brazil)
5.093%, 1/15/30(b) | | | 253,092,000 | | | | 271,190,609 | |
7.25%, 3/17/44 | | | 10,705,000 | | | | 12,985,165 | |
6.90%, 3/19/49 | | | 12,355,000 | | | | 14,492,415 | |
Petroleos Mexicanos (Mexico)
6.875%, 8/4/26 | | | 120,490,000 | | | | 132,304,044 | |
6.50%, 3/13/27 | | | 227,365,000 | | | | 241,397,968 | |
6.84%, 1/23/30(b) | | | 125,987,000 | | | | 134,344,978 | |
6.625%, 6/15/35 | | | 112,290,000 | | | | 115,041,105 | |
6.375%, 1/23/45 | | | 166,156,000 | | | | 159,825,456 | |
6.75%, 9/21/47 | | | 191,366,000 | | | | 191,725,768 | |
6.35%, 2/12/48 | | | 192,270,000 | | | | 185,540,550 | |
| | | | | | | | |
| | | | | | | 1,458,848,058 | |
LOCAL AUTHORITY: 2.8% | | | | | | | | |
L.A. Unified School District GO
5.75%, 7/1/34 | | | 6,075,000 | | | | 7,779,706 | |
6.758%, 7/1/34 | | | 185,585,000 | | | | 255,851,193 | |
New Jersey Turnpike Authority RB
7.414%, 1/1/40 | | | 41,065,000 | | | | 64,417,023 | |
7.102%, 1/1/41 | | | 148,277,000 | | | | 226,128,356 | |
New Valley Generation
4.929%, 1/15/21 | | | 146,348 | | | | 149,434 | |
State of California GO
7.50%, 4/1/34 | | | 162,016,000 | | | | 243,970,173 | |
7.55%, 4/1/39 | | | 106,975,000 | | | | 171,590,040 | |
7.30%, 10/1/39 | | | 202,095,000 | | | | 308,603,107 | |
7.625%, 3/1/40 | | | 115,675,000 | | | | 185,222,280 | |
State of Illinois GO
5.10%, 6/1/33 | | | 306,400,000 | | | | 330,308,392 | |
| | | | | | | | |
| | | | | | | 1,794,019,704 | |
| | | | | | | | |
| | | | | | | 3,252,867,762 | |
| SECURITIZED: 41.5% | | | | | | | | |
ASSET-BACKED: 6.5% | | | | | | | | |
Federal Agency: 0.0%(h) | | | | | | | | |
Small Business Admin. — 504 Program | | | | | | | | |
Series2000-20C 1, 7.625%, 3/1/20 | | | 391 | | | | 391 | |
Series2000-20G 1, 7.39%, 7/1/20 | | | 518 | | | | 520 | |
Series2001-20G 1, 6.625%, 7/1/21 | | | 201,419 | | | | 204,208 | |
Series2001-20L 1, 5.78%, 12/1/21 | | | 498,696 | | | | 510,851 | |
Series2002-20A 1, 6.14%, 1/1/22 | | | 3,959 | | | | 4,034 | |
| | | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
Series2002-20L 1, 5.10%, 12/1/22 | | $ | 152,422 | | | $ | 157,188 | |
Series2003-20G 1, 4.35%, 7/1/23 | | | 13,820 | | | | 14,207 | |
Series2004-20L 1, 4.87%, 12/1/24 | | | 369,042 | | | | 386,121 | |
Series2005-20B 1, 4.625%, 2/1/25 | | | 754,534 | | | | 785,454 | |
Series2005-20D 1, 5.11%, 4/1/25 | | | 25,029 | | | | 26,125 | |
Series2005-20E 1, 4.84%, 5/1/25 | | | 1,087,940 | | | | 1,137,317 | |
Series2005-20G 1, 4.75%, 7/1/25 | | | 1,314,205 | | | | 1,366,751 | |
Series2005-20H 1, 5.11%, 8/1/25 | | | 13,986 | | | | 14,659 | |
Series2005-20I 1, 4.76%, 9/1/25 | | | 1,515,269 | | | | 1,573,771 | |
Series2006-20A 1, 5.21%, 1/1/26 | | | 1,305,553 | | | | 1,368,469 | |
Series2006-20B 1, 5.35%, 2/1/26 | | | 439,124 | | | | 464,564 | |
Series2006-20C 1, 5.57%, 3/1/26 | | | 1,850,256 | | | | 1,950,012 | |
Series2006-20G 1, 6.07%, 7/1/26 | | | 3,582,586 | | | | 3,775,196 | |
Series2006-20H 1, 5.70%, 8/1/26 | | | 29,074 | | | | 30,916 | |
Series2006-20I 1, 5.54%, 9/1/26 | | | 46,253 | | | | 48,848 | |
Series2006-20J 1, 5.37%, 10/1/26 | | | 1,308,562 | | | | 1,383,197 | |
Series2006-20L 1, 5.12%, 12/1/26 | | | 1,238,236 | | | | 1,308,267 | |
Series2007-20A 1, 5.32%, 1/1/27 | | | 2,665,770 | | | | 2,806,840 | |
Series2007-20C 1, 5.23%, 3/1/27 | | | 4,074,794 | | | | 4,294,590 | |
Series2007-20D 1, 5.32%, 4/1/27 | | | 3,934,228 | | | | 4,145,569 | |
Series2007-20G 1, 5.82%, 7/1/27 | | | 2,711,915 | | | | 2,875,804 | |
| | | | | | | | |
| | | | | | | 30,633,869 | |
Other: 1.2% | | | | | | | | |
Rio Oil Finance Trust (Brazil) | | | | | | | | |
9.25%, 7/6/24(b) | | | 365,457,313 | | | | 409,315,846 | |
9.75%, 1/6/27(b) | | | 221,176,382 | | | | 260,990,342 | |
8.20%, 4/6/28(b) | | | 67,600,000 | | | | 78,078,676 | |
| | | | | | | | |
| | | | | | | 748,384,864 | |
Student Loan: 5.3% | | | | | | | | |
Navient Student Loan Trust
USD LIBOR1-Month | | | | | | | | |
+1.25%, 3.042%, 6/25/65(b) | | | 279,041,159 | | | | 281,748,974 | |
+1.15%, 2.955%, 3/25/66(b) | | | 231,008,174 | | | | 230,311,245 | |
+1.30%, 3.092%, 3/25/66(b) | | | 152,006,000 | | | | 153,098,756 | |
+0.80%, 2.592%, 7/26/66(b) | | | 300,085,460 | | | | 294,921,709 | |
+1.05%, 2.842%, 7/26/66(b) | | | 323,668,000 | | | | 321,134,586 | |
+1.15%, 2.942%, 7/26/66(b) | | | 234,752,000 | | | | 234,912,265 | |
+1.00%, 2.792%, 9/27/66(b) | | | 114,564,000 | | | | 113,081,576 | |
+1.05%, 2.842%, 12/27/66(b) | | | 188,816,197 | | | | 187,672,745 | |
+0.72%, 2.512%, 3/25/67(b) | | | 97,760,000 | | | | 95,740,611 | |
+0.80%, 2.592%, 3/25/67(b) | | | 183,798,000 | | | | 180,086,016 | |
+0.68%, 2.472%, 6/27/67(b) | | | 225,000,000 | | | | 221,201,303 | |
+1.00%, 2.792%, 2/27/68(b) | | | 62,078,000 | | | | 61,916,690 | |
+0.70%, 2.505%, 2/25/70(b) | | | 252,630,963 | | | | 248,832,682 | |
Navient Student Loan Trust (Private Loans) | | | | | | | | |
Series2014-AA A2A,
2.74%, 2/15/29(b) | | | 14,026,593 | | | | 14,086,402 | |
Series2017-A A2A,
2.88%, 12/16/58(b) | | | 31,000,000 | | | | 31,069,260 | |
SLM Student Loan Trust
USD LIBOR1-Month | | | | | | | | |
+1.20%, 2.992%, 10/25/34 | | | 27,721,000 | | | | 28,067,881 | |
+1.10%, 2.892%, 8/27/40 | | | 25,924,630 | | | | 25,931,518 | |
USD LIBOR3-Month | | | | | | | | |
+0.63%, 2.57%, 1/25/40(b) | | | 142,597,151 | | | | 138,999,482 | |
+0.17%, 2.11%, 7/25/40 | | | 13,626,000 | | | | 12,667,561 | |
+0.75%, 2.69%, 10/25/40 | | | 80,889,000 | | | | 78,542,135 | |
+0.60%, 2.54%, 1/25/41 | | | 122,299,910 | | | | 118,721,501 | |
+0.55%, 2.49%, 10/25/64(b) | | | 32,458,000 | | | | 31,889,449 | |
+0.55%, 2.49%, 10/25/64(b) | | | 72,950,000 | | | | 71,672,171 | |
SMB Private Education Loan Trust (Private Loans) | | | | | | | | |
Series2017-A A2A, 2.88%, 9/15/34(b) | | | 20,963,943 | | | | 21,038,417 | |
Series2017-B A2A, 2.82%, 10/15/35(b) | | | 23,915,878 | | | | 23,952,706 | |
Series2018-A A2A, 3.50%, 2/15/36(b) | | | 50,000,000 | | | | 51,797,335 | |
| | |
| See accompanying Notes to Financial Statements | | DODGE & COX INCOME FUND§PAGE 7 |
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| DEBT SECURITIES (continued) | |
| | |
| | | PAR VALUE | | | VALUE | |
Series2018-B A2A, 3.60%, 1/15/37(b) | | $ | 68,386,000 | | | $ | 70,245,368 | |
| | | | | | | | |
| | | | | | | 3,343,340,344 | |
| | | | | | | | |
| | | | | | | 4,122,359,077 | |
CMBS: 0.8% | | | | | | | | |
Agency CMBS: 0.8% | | | | | | | | |
Fannie Mae Multifamily DUS
Pool AL6455, 2.765%, 11/1/21 | | | 8,966,822 | | | | 8,953,204 | |
Freddie Mac Multifamily Interest Only | | | | | | | | |
Series K055 X1, 1.365%, 3/25/26(e) | | | 118,242,286 | | | | 8,479,982 | |
Series K056 X1, 1.264%, 5/25/26(e) | | | 40,948,036 | | | | 2,760,889 | |
Series K057 X1, 1.191%, 7/25/26(e) | | | 245,523,370 | | | | 15,623,511 | |
Series K062 X1, 0.307%, 12/25/26(e) | | | 323,166,613 | | | | 6,439,095 | |
Series K064 X1, 0.607%, 3/25/27(e) | | | 411,951,783 | | | | 15,792,172 | |
Series K065 X1, 0.673%, 4/25/27(e) | | | 477,687,514 | | | | 20,641,021 | |
Series K066 X1, 0.752%, 6/25/27(e) | | | 380,591,929 | | | | 18,413,228 | |
Series K067 X1, 0.578%, 7/25/27(e) | | | 479,520,539 | | | | 18,675,071 | |
Series K069 X1, 0.365%, 9/25/27(e) | | | 99,189,122 | | | | 2,571,865 | |
Series K071 X1, 0.291%, 11/25/27(e) | | | 258,407,781 | | | | 5,398,940 | |
Series K070 X1, 0.327%, 11/25/27(e) | | | 201,183,845 | | | | 4,798,617 | |
Series K089 X1, 0.542%, 1/25/29(e) | | | 524,580,673 | | | | 23,101,903 | |
Series K091 X1, 0.559%, 3/25/29(e) | | | 263,547,557 | | | | 12,158,318 | |
Series K092 X1, 0.709%, 4/25/29(e) | | | 490,719,752 | | | | 28,286,166 | |
Series K093 X1, 0.952%, 5/25/29(e) | | | 234,892,621 | | | | 17,715,648 | |
Series K094 X1, 0.881%, 6/25/29(e) | | | 325,011,821 | | | | 23,046,523 | |
Series K095 X1, 0.949%, 6/25/29(e) | | | 226,438,157 | | | | 16,717,318 | |
Series K097 X1, 1.09%, 7/25/29(e) | | | 246,688,818 | | | | 21,964,260 | |
Series K096 X1, 1.257%, 7/25/29(e) | | | 550,107,708 | | | | 49,654,427 | |
Series K098 X1, 1.271%, 8/25/29(e) | | | 478,278,689 | | | | 44,327,730 | |
Series K099 X1, 1.006%, 9/25/29(e) | | | 520,693,890 | | | | 37,769,312 | |
Series K101 X1, 0.837%, 10/25/29(e) | | | 199,972,762 | | | | 13,835,715 | |
Series K102 X1, 0.947%, 10/25/29(e) | | | 555,442,759 | | | | 37,938,351 | |
Series K152 X1, 0.956%, 1/25/31(e) | | | 42,680,140 | | | | 3,384,108 | |
Series K154 X1, 0.308%, 11/25/32(e) | | | 389,165,345 | | | | 11,834,752 | |
Series K1511 X1, 0.778%, 3/25/34(e) | | | 177,744,388 | | | | 14,438,905 | |
| | | | | | | | |
| | | | | | | 484,721,031 | |
MORTGAGE-RELATED: 34.2% | |
Federal Agency CMO & REMIC: 5.1% | |
Dept. of Veterans Affairs | |
Series1995-2D 4A, 9.293%, 5/15/25 | | | 52,896 | | | | 59,454 | |
Series1997-2 Z, 7.50%, 6/15/27 | | | 4,642,447 | | | | 5,172,855 | |
Series1998-2 2A, 8.505%, 8/15/27(e) | | | 10,415 | | | | 11,621 | |
Series1998-1 1A, 8.293%, 3/15/28(e) | | | 81,841 | | | | 89,377 | |
Fannie Mae | |
Trust1998-58 PX, 6.50%, 9/25/28 | | | 163,137 | | | | 180,309 | |
Trust1998-58 PC, 6.50%, 10/25/28 | | | 981,102 | | | | 1,086,572 | |
Trust2001-69 PQ, 6.00%, 12/25/31 | | | 1,157,273 | | | | 1,305,838 | |
Trust2002-33 A1, 7.00%, 6/25/32 | | | 1,487,283 | | | | 1,725,644 | |
Trust2002-69 Z, 5.50%, 10/25/32 | | | 162,545 | | | | 176,994 | |
Trust2008-24 GD, 6.50%, 3/25/37 | | | 557,681 | | | | 621,139 | |
Trust2007-47 PE, 5.00%, 5/25/37 | | | 1,958,627 | | | | 2,137,861 | |
Trust2009-53 QM, 5.50%, 5/25/39 | | | 533,557 | | | | 552,563 | |
Trust2009-30 AG, 6.50%, 5/25/39 | | | 5,528,241 | | | | 6,121,405 | |
Trust2009-40 TB, 6.00%, 6/25/39 | | | 2,249,837 | | | | 2,465,681 | |
Trust2010-123 WT, 7.00%, 11/25/40 | | | 22,576,306 | | | | 26,327,404 | |
Trust2001-T3 A1, 7.50%, 11/25/40 | | | 78,643 | | | | 86,579 | |
Trust2001-T7 A1, 7.50%, 2/25/41 | | | 47,432 | | | | 54,998 | |
Trust2001-T5 A2, 6.979%, 6/19/41(e) | | | 31,883 | | | | 36,058 | |
Trust2001-T5 A3, 7.50%, 6/19/41(e) | | | 166,546 | | | | 193,084 | |
Trust2011-58 AT, 4.00%, 7/25/41 | | | 6,180,258 | | | | 6,585,358 | |
Trust2001-T4 A1, 7.50%, 7/25/41 | | | 1,365,975 | | | | 1,593,311 | |
Trust2001-T10 A1, 7.00%, 12/25/41 | | | 1,456,013 | | | | 1,665,054 | |
Trust2013-106 MA, 4.00%, 2/25/42 | | | 14,707,170 | | | | 15,580,803 | |
Trust2002-90 A1, 6.50%, 6/25/42 | | | 3,352,237 | | | | 3,832,226 | |
Trust2002-W6 2A1, 7.00%, 6/25/42(e) | | | 1,803,515 | | | | 1,996,843 | |
Trust2002-W8 A2, 7.00%, 6/25/42 | | | 1,059,279 | | | | 1,236,770 | |
| | | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
Trust2003-W2 1A2, 7.00%, 7/25/42 | | $ | 5,181,104 | | | $ | 6,034,098 | |
Trust2002-T16 A3, 7.50%, 7/25/42 | | | 2,590,569 | | | | 3,076,336 | |
Trust2003-W4 3A,
5.676%, 10/25/42(e) | | | 1,595,428 | | | | 1,786,894 | |
Trust2012-121 NB, 7.00%, 11/25/42 | | | 744,416 | | | | 872,649 | |
Trust2003-W1 2A,
5.808%, 12/25/42(e) | | | 1,979,564 | | | | 2,133,799 | |
Trust2003-7 A1, 6.50%, 12/25/42 | | | 2,698,237 | | | | 3,039,371 | |
Trust2004-T1 1A2, 6.50%, 1/25/44 | | | 1,223,093 | | | | 1,394,644 | |
Trust2004-W2 2A2, 7.00%, 2/25/44 | | | 64,427 | | | | 73,601 | |
Trust2004-W2 5A, 7.50%, 3/25/44 | | | 2,752,705 | | | | 3,129,050 | |
Trust2004-W8 3A, 7.50%, 6/25/44 | | | 2,160,152 | | | | 2,512,407 | |
Trust2004-W15 1A2, 6.50%, 8/25/44 | | | 543,065 | | | | 618,762 | |
Trust2005-W1 1A3, 7.00%, 10/25/44 | | | 4,575,982 | | | | 5,341,094 | |
Trust2001-79 BA, 7.00%, 3/25/45 | | | 174,884 | | | | 198,951 | |
Trust2006-W1 1A1, 6.50%, 12/25/45 | | | 259,539 | | | | 296,774 | |
Trust2006-W1 1A2, 7.00%, 12/25/45 | | | 1,904,247 | | | | 2,205,224 | |
Trust2006-W1 1A3, 7.50%, 12/25/45 | | | 32,103 | | | | 37,475 | |
Trust2006-W1 1A4, 8.00%, 12/25/45 | | | 2,187,089 | | | | 2,561,275 | |
Trust2007-W10 1A, 6.26%, 8/25/47(e) | | | 6,365,346 | | | | 7,085,622 | |
Trust2007-W10 2A,
6.316%, 8/25/47(e) | | | 1,959,147 | | | | 2,175,172 | |
USD LIBOR1-Month | | | | | | | | |
+0.55%, 2.342%, 9/25/43 | | | 26,432,450 | | | | 26,617,466 | |
+0.40%, 2.192%, 7/25/44 | | | 1,064,071 | | | | 1,053,026 | |
Freddie Mac | |
Series 3312 AB, 6.50%, 6/15/32 | | | 1,982,608 | | | | 2,253,712 | |
Series 2456 CJ, 6.50%, 6/15/32 | | | 108,617 | | | | 123,896 | |
SeriesT-41 2A, 5.276%, 7/25/32(e) | | | 185,232 | | | | 196,046 | |
Series 2587 ZU, 5.50%, 3/15/33 | | | 2,824,763 | | | | 3,107,980 | |
Series 2610 UA, 4.00%, 5/15/33 | | | 1,184,088 | | | | 1,244,871 | |
SeriesT-48 1A, 4.899%, 7/25/33(e) | | | 2,046,123 | | | | 2,195,895 | |
Series 2708 ZD, 5.50%, 11/15/33 | | | 10,839,146 | | | | 11,929,927 | |
Series 3204 ZM, 5.00%, 8/15/34 | | | 5,076,932 | | | | 5,555,540 | |
Series 3330 GZ, 5.50%, 6/15/37 | | | 486,190 | | | | 513,006 | |
Series 3427 Z, 5.00%, 3/15/38 | | | 2,224,644 | | | | 2,441,834 | |
SeriesT-51 1A, 6.50%, 9/25/43(e) | | | 47,288 | | | | 55,599 | |
Series 4283 DW, 4.50%, 12/15/43(e) | | | 59,089,573 | | | | 64,046,904 | |
Series 4283 EW, 4.50%, 12/15/43(e) | | | 35,119,155 | | | | 38,161,394 | |
Series 4281 BC, 4.50%, 12/15/43(e) | | | 99,135,465 | | | | 106,296,455 | |
Series 4319 MA, 4.50%, 3/15/44(e) | | | 19,437,903 | | | | 20,785,494 | |
Ginnie Mae
USD LIBOR1-Month | |
+0.65%, 2.424%, 10/20/64 | | | 7,325,847 | | | | 7,327,838 | |
+0.63%, 2.404%, 4/20/65 | | | 10,773,591 | | | | 10,768,995 | |
+0.60%, 2.374%, 7/20/65 | | | 7,287,678 | | | | 7,277,014 | |
+0.60%, 2.374%, 8/20/65 | | | 7,145,487 | | | | 7,134,901 | |
+0.62%, 2.394%, 9/20/65 | | | 1,547,315 | | | | 1,546,075 | |
+0.75%, 2.524%, 11/20/65 | | | 28,641,728 | | | | 28,749,730 | |
+0.90%, 2.674%, 3/20/66 | | | 18,079,918 | | | | 18,248,260 | |
+0.90%, 2.674%, 4/20/66 | | | 19,898,374 | | | | 20,084,287 | |
+0.78%, 2.554%, 9/20/66 | | | 10,690,613 | | | | 10,743,469 | |
+0.75%, 2.524%, 10/20/66 | | | 51,194,211 | | | | 51,404,378 | |
+0.80%, 2.574%, 11/20/66 | | | 22,274,923 | | | | 22,410,650 | |
+0.81%, 2.584%, 12/20/66 | | | 12,853,998 | | | | 12,939,094 | |
+0.57%, 2.344%, 9/20/67 | | | 28,775,981 | | | | 28,796,332 | |
+0.60%, 2.374%, 9/20/69 | | | 44,330,404 | | | | 44,184,043 | |
+0.60%, 2.374%, 11/20/69 | | | 30,418,113 | | | | 30,175,016 | |
+0.65%, 2.424%, 11/20/69 | | | 39,828,269 | | | | 39,629,852 | |
+0.65%, 2.424%, 11/20/69 | | | 120,004,752 | | | | 119,402,690 | |
USD LIBOR12-Month | | | | | | | | |
+0.30%, 2.416%, 9/20/66 | | | 18,462,022 | | | | 18,406,145 | |
+0.28%, 2.205%, 12/20/66 | | | 35,322,642 | | | | 35,029,510 | |
+0.30%, 3.42%, 1/20/67 | | | 93,002,433 | | | | 92,351,537 | |
+0.30%, 3.42%, 1/20/67 | | | 100,640,273 | | | | 99,941,135 | |
+0.31%, 3.43%, 1/20/67 | | | 37,155,321 | | | | 36,914,209 | |
| | |
| PAGE 8§ DODGE & COX INCOME FUND | | See accompanying Notes to Financial Statements |
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| DEBT SECURITIES (continued) | |
| | |
| | | PAR VALUE | | | VALUE | |
+0.25%, 3.271%, 2/20/67 | | $ | 19,474,805 | | | $ | 19,327,450 | |
+0.20%, 3.221%, 3/20/67 | | | 3,257,860 | | | | 3,227,344 | |
+0.30%, 3.179%, 4/20/67 | | | 23,066,985 | | | | 22,950,734 | |
+0.20%, 2.93%, 5/20/67 | | | 45,232,702 | | | | 44,773,305 | |
+0.30%, 3.03%, 5/20/67 | | | 19,742,465 | | | | 19,632,480 | |
+0.20%, 2.937%, 6/20/67 | | | 98,866,019 | | | | 97,871,575 | |
+0.30%, 3.037%, 6/20/67 | | | 23,527,397 | | | | 23,405,099 | |
+0.20%, 2.403%, 8/20/67 | | | 21,975,571 | | | | 21,715,523 | |
+0.25%, 2.366%, 9/20/67 | | | 22,721,217 | | | | 22,500,730 | |
+0.27%, 2.386%, 9/20/67 | | | 68,861,066 | | | | 68,182,495 | |
+0.22%, 2.194%, 10/20/67 | | | 32,855,249 | | | | 32,463,056 | |
+0.23%, 2.204%, 10/20/67 | | | 157,005,662 | | | | 154,925,274 | |
+0.23%, 2.204%, 10/20/67 | | | 72,934,083 | | | | 72,006,011 | |
+0.25%, 2.224%, 10/20/67 | | | 47,997,422 | | | | 47,416,505 | |
+0.20%, 2.158%, 11/20/67 | | | 16,836,315 | | | | 16,611,673 | |
+0.22%, 2.178%, 11/20/67 | | | 22,837,593 | | | | 22,551,209 | |
+0.22%, 2.178%, 11/20/67 | | | 130,572,907 | | | | 128,772,895 | |
+0.18%, 2.105%, 12/20/67 | | | 33,984,699 | | | | 33,436,304 | |
+0.06%, 3.062%, 12/20/67 | | | 55,674,382 | | | | 54,578,510 | |
+0.06%, 3.062%, 1/20/68 | | | 101,971,595 | | | | 99,986,096 | |
+0.08%, 3.082%, 1/20/68 | | | 45,084,760 | | | | 44,344,243 | |
+0.15%, 3.27%, 1/20/68 | | | 15,890,033 | | | | 15,620,028 | |
+0.05%, 2.56%, 2/20/68 | | | 24,688,109 | | | | 24,293,092 | |
+0.04%, 3.061%, 2/20/68 | | | 52,753,517 | | | | 51,739,368 | |
+0.05%, 3.071%, 2/20/68 | | | 3,635,749 | | | | 3,568,424 | |
+0.07%, 3.091%, 2/20/68 | | | 47,685,390 | | | | 46,815,084 | |
+0.10%, 3.102%, 2/20/68 | | | 92,443,103 | | | | 90,395,350 | |
+0.10%, 3.102%, 2/20/68 | | | 46,166,788 | | | | 45,243,304 | |
+0.15%, 3.152%, 2/20/68 | | | 33,010,622 | | | | 32,470,175 | |
+0.03%, 2.909%, 3/20/68 | | | 17,975,119 | | | | 17,608,976 | |
+0.05%, 2.929%, 3/20/68 | | | 43,416,549 | | | | 42,689,226 | |
+0.04%, 3.061%, 3/20/68 | | | 84,949,986 | | | | 83,356,494 | |
+0.04%, 3.061%, 3/20/68 | | | 34,848,319 | | | | 33,987,628 | |
+0.06%, 3.081%, 3/20/68 | | | 13,765,003 | | | | 13,435,430 | |
+0.02%, 2.899%, 4/20/68 | | | 23,901,949 | | | | 23,280,078 | |
+0.05%, 2.929%, 4/20/68 | | | 45,083,144 | | | | 44,009,056 | |
+0.05%, 2.929%, 4/20/68 | | | 39,566,921 | | | | 38,618,221 | |
+0.04%, 2.77%, 5/20/68 | | | 46,429,685 | | | | 45,277,050 | |
+0.15%, 2.887%, 6/20/68 | | | 44,444,397 | | | | 43,645,558 | |
+0.25%, 2.76%, 7/20/68 | | | 41,089,848 | | | | 40,541,800 | |
+0.12%, 2.236%, 8/20/68 | | | 33,732,386 | | | | 33,169,952 | |
+0.10%, 2.074%, 10/20/68 | | | 62,250,920 | | | | 60,555,647 | |
+0.22%, 2.178%, 11/20/68 | | | 34,131,204 | | | | 33,513,392 | |
+0.30%, 2.258%, 11/20/68 | | | 35,268,295 | | | | 34,932,597 | |
+0.40%, 3.30%, 2/20/69 | | | 30,357,179 | | | | 30,266,900 | |
+0.50%, 2.506%, 11/20/69 | | | 71,456,059 | | | | 71,450,484 | |
| | | | | | | | |
| | | | | | | 3,206,675,029 | |
Federal Agency Mortgage Pass-Through: 29.1% | | | | | |
Fannie Mae, 15 Year
6.00%, 12/1/19-3/1/23 | | | 7,962,898 | | | | 8,156,517 | |
5.50%, 1/1/21-7/1/25 | | | 39,829,314 | | | | 41,296,940 | |
4.00%, 9/1/25 | | | 562,878 | | | | 573,174 | |
4.00%, 11/1/33 | | | 329,699,991 | | | | 353,142,225 | |
5.00%, 9/1/25 | | | 17,968,894 | | | | 18,669,363 | |
3.50%, 10/1/25-9/1/33 | | | 585,541,438 | | | | 607,322,361 | |
3.50%, 6/1/34 | | | 356,938,488 | | | | 370,070,537 | |
4.50%, 3/1/29 | | | 12,968,508 | | | | 13,629,494 | |
Fannie Mae, 20 Year
4.50%, 3/1/29-1/1/34 | | | 295,730,706 | | | | 316,376,955 | |
4.00%, 9/1/30-3/1/37 | | | 1,419,057,843 | | | | 1,511,054,663 | |
3.50%, 11/1/35-10/1/39 | | | 379,156,608 | | | | 394,227,841 | |
Fannie Mae, 30 Year
6.00%, 11/1/28-2/1/39 | | | 76,596,738 | | | | 87,645,029 | |
7.00%, 4/1/32-2/1/39 | | | 6,629,734 | | | | 7,632,640 | |
6.50%, 12/1/32-8/1/39 | | | 31,189,238 | | | | 35,530,408 | |
5.50%, 2/1/33-11/1/39 | | | 115,200,902 | | | | 128,341,764 | |
| | | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
4.50%, 11/1/35-3/1/49 | | $ | 4,300,822,654 | | | $ | 4,568,055,445 | |
4.50%, 6/1/48 | | | 379,214,830 | | | | 400,449,867 | |
4.50%, 6/1/48 | | | 547,804,438 | | | | 578,577,259 | |
4.50%, 7/1/48 | | | 261,402,264 | | | | 275,299,959 | |
4.50%, 7/1/48 | | | 248,842,681 | | | | 262,851,113 | |
4.50%, 1/1/49 | | | 557,880,311 | | | | 586,593,384 | |
4.50%, 3/1/49 | | | 536,082,543 | | | | 563,857,848 | |
5.00%, 7/1/37-3/1/49 | | | 157,763,453 | | | | 169,245,709 | |
4.00%, 10/1/40-2/1/47 | | | 464,167,554 | | | | 491,943,655 | |
Fannie Mae, 40 Year
4.50%, 1/1/52-6/1/56 | | | 131,717,117 | | | | 142,569,632 | |
Fannie Mae, Hybrid ARM(e)
1-Year U.S. Treasury CMT | | | | | | | | |
+2.14%, 4.357%, 10/1/33 | | | 873,666 | | | | 919,694 | |
+2.14%, 4.544%, 8/1/34 | | | 241,556 | | | | 254,473 | |
+1.95%, 3.953%, 9/1/34 | | | 1,127,447 | | | | 1,181,921 | |
+2.29%, 4.72%, 1/1/36 | | | 6,998,707 | | | | 7,377,108 | |
+2.12%, 4.496%, 7/1/36 | | | 60,031 | | | | 63,335 | |
+2.12%, 4.58%, 12/1/36 | | | 1,032,346 | | | | 1,083,968 | |
USD LIBOR12-Month | | | | | | | | |
+1.68%, 4.482%, 7/1/34 | | | 1,279,452 | | | | 1,337,351 | |
+1.37%, 3.247%, 10/1/34 | | | 608,464 | | | | 627,761 | |
+1.94%, 4.117%, 1/1/35 | | | 646,610 | | | | 683,801 | |
+1.39%, 4.379%, 4/1/35 | | | 1,184,289 | | | | 1,226,363 | |
+1.75%, 4.625%, 6/1/35 | | | 361,143 | | | | 379,604 | |
+1.45%, 4.148%, 7/1/35 | | | 342,994 | | | | 354,760 | |
+1.45%, 4.176%, 7/1/35 | | | 329,174 | | | | 342,587 | |
+1.52%, 4.291%, 7/1/35 | | | 519,888 | | | | 539,691 | |
+1.75%, 4.524%, 7/1/35 | | | 1,023,914 | | | | 1,077,235 | |
+1.31%, 3.667%, 8/1/35 | | | 629,454 | | | | 648,826 | |
+1.36%, 3.739%, 8/1/35 | | | 2,193,793 | | | | 2,298,993 | |
+1.75%, 4.125%, 8/1/35 | | | 1,043,621 | | | | 1,094,127 | |
+1.77%, 4.085%, 9/1/35 | | | 949,039 | | | | 984,550 | |
+1.55%, 3.854%, 10/1/35 | | | 1,149,984 | | | | 1,193,858 | |
+1.75%, 3.998%, 10/1/35 | | | 784,951 | | | | 820,149 | |
+1.62%, 3.698%, 12/1/35 | | | 321,875 | | | | 333,583 | |
+1.62%, 3.696%, 1/1/36 | | | 1,500,446 | | | | 1,565,743 | |
+1.69%, 4.087%, 1/1/36 | | | 2,180,447 | | | | 2,283,835 | |
+1.71%, 4.205%, 11/1/36 | | | 800,890 | | | | 839,332 | |
+1.74%, 3.753%, 12/1/36 | | | 753,280 | | | | 788,960 | |
+1.59%, 3.863%, 1/1/37 | | | 925,542 | | | | 966,922 | |
+1.98%, 4.516%, 2/1/37 | | | 1,632,833 | | | | 1,731,131 | |
+1.93%, 4.803%, 4/1/37 | | | 333,777 | | | | 355,040 | |
+1.74%, 4.523%, 8/1/37 | | | 1,077,235 | | | | 1,133,862 | |
+1.48%, 4.042%, 11/1/37 | | | 450,738 | | | | 467,510 | |
+1.73%, 4.357%, 5/1/38 | | | 71,189,926 | | | | 74,581,437 | |
+1.93%, 4.801%, 5/1/38 | | | 1,473,300 | | | | 1,561,331 | |
+1.88%, 4.285%, 9/1/38 | | | 114,511 | | | | 119,111 | |
+1.71%, 3.881%, 10/1/38 | | | 938,378 | | | | 981,745 | |
+1.59%, 3.981%, 10/1/38 | | | 2,301,971 | | | | 2,397,633 | |
+1.73%, 4.269%, 10/1/38 | | | 542,664 | | | | 570,328 | |
+1.71%, 4.277%, 6/1/39 | | | 403,776 | | | | 424,597 | |
+1.77%, 3.744%, 12/1/39 | | | 655,697 | | | | 677,329 | |
+1.71%, 4.608%, 4/1/42 | | | 3,617,060 | | | | 3,757,467 | |
+1.67%, 3.979%, 9/1/42 | | | 2,570,651 | | | | 2,656,616 | |
+1.68%, 3.598%, 11/1/42 | | | 3,063,014 | | | | 3,173,583 | |
+1.57%, 2.284%, 12/1/42 | | | 11,778,537 | | | | 11,885,532 | |
+1.57%, 3.407%, 2/1/43 | | | 6,875,552 | | | | 7,069,547 | |
+1.82%, 4.115%, 2/1/43 | | | 1,439,575 | | | | 1,501,538 | |
+1.56%, 2.317%, 5/1/43 | | | 2,471,722 | | | | 2,492,978 | |
+1.47%, 4.306%, 6/1/43 | | | 666,130 | | | | 674,241 | |
+1.56%, 2.955%, 9/1/43 | | | 2,953,575 | | | | 3,035,342 | |
+1.56%, 3.257%, 9/1/43 | | | 2,019,037 | | | | 2,061,380 | |
+1.46%, 4.045%, 9/1/43 | | | 1,493,422 | | | | 1,533,988 | |
+1.60%, 2.887%, 10/1/43 | | | 20,269,514 | | | | 20,834,678 | |
+1.55%, 2.649%, 11/1/43 | | | 8,585,056 | | | | 8,817,378 | |
+1.60%, 2.883%, 11/1/43 | | | 10,950,875 | | | | 11,117,094 | |
| | |
| See accompanying Notes to Financial Statements | | DODGE & COX INCOME FUND§PAGE 9 |
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| DEBT SECURITIES (continued) | |
| | |
| | | PAR VALUE | | | VALUE | |
+1.56%, 3.126%, 12/1/43 | | $ | 3,640,082 | | | $ | 3,737,158 | |
+1.59%, 2.684%, 2/1/44 | | | 4,553,830 | | | | 4,659,046 | |
+1.58%, 2.981%, 2/1/44 | | | 4,469,650 | | | | 4,583,655 | |
+1.55%, 4.675%, 2/1/44 | | | 746,872 | | | | 768,311 | |
+1.59%, 2.975%, 4/1/44 | | | 3,581,886 | | | | 3,663,319 | |
+1.59%, 3.041%, 4/1/44 | | | 3,054,390 | | | | 3,127,118 | |
+1.58%, 3.182%, 4/1/44 | | | 13,187,507 | | | | 13,454,490 | |
+1.68%, 4.227%, 4/1/44 | | | 11,923,905 | | | | 12,365,103 | |
+1.56%, 4.555%, 4/1/44 | | | 3,594,311 | | | | 3,699,249 | |
+1.57%, 3.025%, 5/1/44 | | | 14,123,505 | | | | 14,473,032 | |
+1.57%, 4.501%, 5/1/44 | | | 4,271,546 | | | | 4,400,167 | |
+1.58%, 2.817%, 7/1/44 | | | 7,410,190 | | | | 7,557,665 | |
+1.59%, 2.854%, 7/1/44 | | | 9,250,601 | | | | 9,434,537 | |
+1.57%, 2.927%, 7/1/44 | | | 4,117,661 | | | | 4,201,782 | |
+1.59%, 2.959%, 7/1/44 | | | 3,364,022 | | | | 3,434,082 | |
+1.56%, 2.959%, 7/1/44 | | | 6,168,601 | | | | 6,297,838 | |
+1.58%, 3.09%, 7/1/44 | | | 8,325,911 | | | | 8,516,068 | |
+1.57%, 2.782%, 8/1/44 | | | 13,429,334 | | | | 13,671,404 | |
+1.58%, 2.79%, 8/1/44 | | | 6,700,603 | | | | 6,821,460 | |
+1.58%, 2.873%, 8/1/44 | | | 4,544,856 | | | | 4,633,516 | |
+1.57%, 3.024%, 8/1/44 | | | 4,469,561 | | | | 4,560,584 | |
+1.58%, 2.622%, 9/1/44 | | | 5,658,695 | | | | 5,743,713 | |
+1.58%, 2.748%, 9/1/44 | | | 7,160,737 | | | | 7,289,295 | |
+1.65%, 2.812%, 9/1/44 | | | 24,367,424 | | | | 24,899,576 | |
+1.58%, 2.861%, 9/1/44 | | | 3,386,104 | | | | 3,444,523 | |
+1.64%, 2.926%, 9/1/44 | | | 10,484,752 | | | | 10,705,229 | |
+1.59%, 3.006%, 9/1/44 | | | 5,153,304 | | | | 5,259,958 | |
+1.57%, 2.436%, 10/1/44 | | | 5,824,262 | | | | 5,890,023 | |
+1.60%, 2.537%, 10/1/44 | | | 4,782,284 | | | | 4,847,627 | |
+1.57%, 2.636%, 10/1/44 | | | 10,059,024 | | | | 10,210,776 | |
+1.58%, 2.73%, 10/1/44 | | | 6,551,904 | | | | 6,659,859 | |
+1.57%, 2.743%, 10/1/44 | | | 23,546,461 | | | | 23,951,247 | |
+1.58%, 2.775%, 10/1/44 | | | 10,216,634 | | | | 10,388,395 | |
+1.60%, 2.838%, 10/1/44 | | | 10,226,945 | | | | 10,417,995 | |
+1.56%, 2.84%, 10/1/44 | | | 5,984,847 | | | | 6,090,217 | |
+1.60%, 2.86%, 10/1/44 | | | 6,721,774 | | | | 6,842,989 | |
+1.60%, 2.903%, 10/1/44 | | | 11,403,727 | | | | 11,616,744 | |
+1.56%, 2.934%, 10/1/44 | | | 5,286,354 | | | | 5,382,624 | |
+1.58%, 2.946%, 10/1/44 | | | 3,341,589 | | | | 3,403,579 | |
+1.58%, 2.736%, 11/1/44 | | | 3,658,800 | | | | 3,709,719 | |
+1.60%, 2.785%, 11/1/44 | | | 10,437,892 | | | | 10,619,358 | |
+1.60%, 2.827%, 11/1/44 | | | 4,687,335 | | | | 4,767,761 | |
+1.58%, 2.842%, 11/1/44 | | | 12,090,643 | | | | 12,310,719 | |
+1.57%, 2.932%, 11/1/44 | | | 9,861,579 | | | | 10,037,412 | |
+1.56%, 2.934%, 11/1/44 | | | 12,180,567 | | | | 12,405,584 | |
+1.59%, 2.664%, 12/1/44 | | | 3,311,368 | | | | 3,374,137 | |
+1.57%, 2.721%, 12/1/44 | | | 21,541,627 | | | | 21,944,939 | |
+1.58%, 2.735%, 12/1/44 | | | 3,160,722 | | | | 3,223,055 | |
+1.58%, 2.784%, 12/1/44 | | | 4,061,877 | | | | 4,143,636 | |
+1.60%, 2.799%, 12/1/44 | | | 8,272,026 | | | | 8,439,301 | |
+1.59%, 2.938%, 12/1/44 | | | 4,578,330 | | | | 4,683,923 | |
+1.57%, 2.893%, 1/1/45 | | | 7,402,836 | | | | 7,563,337 | |
+1.58%, 2.785%, 2/1/45 | | | 11,760,387 | | | | 11,999,252 | |
+1.57%, 2.997%, 3/1/45 | | | 100,851,572 | | | | 102,957,243 | |
+1.59%, 3.096%, 3/1/45 | | | 2,355,457 | | | | 2,409,794 | |
+1.61%, 2.561%, 4/1/45 | | | 4,160,317 | | | | 4,227,007 | |
+1.57%, 2.835%, 4/1/45 | | | 25,532,587 | | | | 26,039,727 | |
+1.59%, 2.643%, 8/1/45 | | | 9,064,896 | | | | 9,210,358 | |
+1.58%, 2.648%, 8/1/45 | | | 7,813,269 | | | | 7,950,537 | |
+1.58%, 2.819%, 10/1/45 | | | 19,662,742 | | | | 20,036,591 | |
+1.60%, 2.603%, 11/1/45 | | | 15,499,761 | | | | 15,741,084 | |
+1.61%, 2.745%, 3/1/46 | | | 2,541,844 | | | | 2,583,255 | |
+1.60%, 2.418%, 4/1/46 | | | 25,777,618 | | | | 26,274,405 | |
+1.59%, 2.685%, 4/1/46 | | | 5,649,362 | | | | 5,738,763 | |
+1.61%, 2.705%, 4/1/46 | | | 4,677,861 | | | | 4,751,553 | |
+1.57%, 2.775%, 4/1/46 | | | 13,573,818 | | | | 13,800,960 | |
| | | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
+1.61%, 2.924%, 4/1/46 | | $ | 3,929,442 | | | $ | 3,990,890 | |
+1.58%, 2.467%, 5/1/46 | | | 7,153,406 | | | | 7,260,057 | |
+1.59%, 2.727%, 6/1/46 | | | 7,983,819 | | | | 8,128,185 | |
+1.60%, 2.74%, 6/1/46 | | | 2,397,369 | | | | 2,441,227 | |
+1.59%, 2.666%, 7/1/46 | | | 2,435,907 | | | | 2,477,817 | |
+1.62%, 2.298%, 12/1/46 | | | 5,915,731 | | | | 5,954,873 | |
+1.61%, 3.079%, 6/1/47 | | | 19,072,207 | | | | 19,399,458 | |
+1.61%, 3.157%, 6/1/47 | | | 21,591,420 | | | | 21,997,349 | |
+1.59%, 3.119%, 7/1/47 | | | 17,427,411 | | | | 17,753,378 | |
+1.61%, 3.137%, 7/1/47 | | | 7,476,435 | | | | 7,617,178 | |
+1.60%, 2.707%, 8/1/47 | | | 22,461,712 | | | | 22,866,246 | |
+1.61%, 3.006%, 8/1/47 | | | 6,633,541 | | | | 6,736,613 | |
+1.61%, 3.033%, 8/1/47 | | | 5,808,061 | | | | 5,901,068 | |
+1.59%, 3.236%, 8/1/47 | | | 7,763,131 | | | | 7,928,435 | |
+1.57%, 2.883%, 10/1/47 | | | 5,055,947 | | | | 5,120,607 | |
+1.61%, 3.057%, 10/1/47 | | | 8,767,453 | | | | 8,907,225 | |
+1.61%, 2.88%, 11/1/47 | | | 5,573,251 | | | | 5,638,195 | |
+1.59%, 2.954%, 11/1/47 | | | 14,446,932 | | | | 14,666,304 | |
+1.61%, 3.115%, 1/1/48 | | | 3,772,355 | | | | 3,819,121 | |
+1.61%, 3.138%, 1/1/48 | | | 6,685,476 | | | | 6,818,867 | |
+1.61%, 3.073%, 3/1/48 | | | 8,741,202 | | | | 8,896,585 | |
+1.61%, 3.175%, 4/1/48 | | | 9,730,221 | | | | 9,920,900 | |
+1.61%, 3.167%, 5/1/48 | | | 78,317,009 | | | | 79,852,624 | |
+1.62%, 3.496%, 8/1/48 | | | 8,115,045 | | | | 8,319,440 | |
+1.62%, 3.313%, 10/1/48 | | | 18,510,357 | | | | 18,894,285 | |
+1.60%, 3.386%, 4/1/49 | | | 11,037,105 | | | | 11,223,346 | |
+1.61%, 3.668%, 8/1/49 | | | 88,684,680 | | | | 91,178,378 | |
+1.62%, 3.73%, 8/1/49 | | | 51,365,439 | | | | 52,855,639 | |
+1.61%, 3.444%, 9/1/49 | | | 82,497,564 | | | | 84,531,349 | |
+1.61%, 3.453%, 9/1/49 | | | 57,813,850 | | | | 59,290,520 | |
+1.62%, 3.357%, 10/1/49 | | | 10,220,012 | | | | 10,474,435 | |
USD LIBOR6-Month | | | | | | | | |
+1.41%, 3.52%, 8/1/34 | | | 1,172,946 | | | | 1,205,366 | |
+1.50%, 3.608%, 1/1/35 | | | 656,926 | | | | 675,952 | |
+1.57%, 3.802%, 11/1/35 | | | 846,516 | | | | 872,385 | |
Freddie Mac, Hybrid ARM(e)
1-Year U.S. Treasury CMT | | | | | | | | |
+2.25%, 4.953%, 2/1/34 | | | 2,086,768 | | | | 2,190,759 | |
+2.25%, 4.025%, 11/1/34 | | | 884,160 | | | | 935,205 | |
+2.25%, 5.00%, 2/1/35 | | | 509,211 | | | | 535,876 | |
+2.13%, 4.625%, 4/1/35 | | | 181,289 | | | | 186,917 | |
+1.67%, 3.999%, 1/1/36 | | | 1,610,280 | | | | 1,669,354 | |
+2.25%, 4.642%, 1/1/36 | | | 2,126,346 | | | | 2,245,631 | |
USD LIBOR12-Month | | | | | | | | |
+1.78%, 4.143%, 9/1/33 | | | 3,265,388 | | | | 3,420,543 | |
+1.80%, 4.129%, 8/1/34 | | | 492,234 | | | | 516,636 | |
+1.63%, 4.703%, 1/1/35 | | | 257,717 | | | | 267,906 | |
+1.80%, 4.672%, 3/1/35 | | | 674,523 | | | | 708,192 | |
+1.73%, 4.226%, 8/1/35 | | | 701,738 | | | | 735,558 | |
+1.87%, 4.229%, 8/1/35 | | | 1,582,812 | | | | 1,668,012 | |
+1.83%, 4.077%, 9/1/35 | | | 863,526 | | | | 884,966 | |
+1.63%, 4.092%, 10/1/35 | | | 1,202,131 | | | | 1,256,211 | |
+1.59%, 3.845%, 1/1/36 | | | 688,306 | | | | 716,802 | |
+1.88%, 4.703%, 4/1/36 | | | 1,568,099 | | | | 1,653,208 | |
+1.78%, 3.858%, 12/1/36 | | | 1,352,476 | | | | 1,420,280 | |
+1.77%, 4.80%, 1/1/37 | | | 974,628 | | | | 1,023,317 | |
+1.57%, 4.678%, 3/1/37 | | | 971,647 | | | | 998,021 | |
+1.55%, 4.442%, 4/1/37 | | | 808,660 | | | | 844,997 | |
+1.71%, 4.623%, 4/1/37 | | | 807,565 | | | | 839,426 | |
+1.63%, 4.50%, 5/1/37 | | | 536,926 | | | | 561,102 | |
+1.63%, 4.388%, 7/1/37 | | | 2,904,467 | | | | 3,046,081 | |
+2.09%, 4.335%, 10/1/37 | | | 106,716 | | | | 112,738 | |
+2.04%, 5.101%, 1/1/38 | | | 301,397 | | | | 315,138 | |
+1.61%, 4.177%, 2/1/38 | | | 2,047,042 | | | | 2,138,966 | |
+1.74%, 4.634%, 4/1/38 | | | 1,960,905 | | | | 2,060,914 | |
+1.85%, 4.739%, 4/1/38 | | | 2,946,170 | | | | 3,102,558 | |
| | |
| PAGE 10§ DODGE & COX INCOME FUND | | See accompanying Notes to Financial Statements |
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| DEBT SECURITIES (continued) | |
| | |
| | | PAR VALUE | | | VALUE | |
+1.89%, 4.767%, 5/1/38 | | $ | 590,741 | | | $ | 611,767 | |
+1.67%, 4.414%, 6/1/38 | | | 1,620,170 | | | | 1,698,870 | |
+1.73%, 4.294%, 10/1/38 | | | 233,852 | | | | 243,008 | |
+1.74%, 4.344%, 10/1/38 | | | 1,726,299 | | | | 1,812,396 | |
+1.78%, 4.528%, 11/1/39 | | | 876,476 | | | | 923,139 | |
+1.85%, 4.437%, 7/1/43 | | | 1,067,846 | | | | 1,115,345 | |
+1.71%, 4.375%, 8/1/43 | | | 12,610,119 | | | | 13,096,596 | |
+1.64%, 2.781%, 10/1/43 | | | 1,413,258 | | | | 1,451,501 | |
+1.58%, 2.856%, 1/1/44 | | | 2,281,091 | | | | 2,334,064 | |
+1.61%, 3.083%, 1/1/44 | | | 2,683,387 | | | | 2,748,207 | |
+1.62%, 2.837%, 2/1/44 | | | 7,531,884 | | | | 7,694,543 | |
+1.64%, 3.123%, 4/1/44 | | | 2,157,768 | | | | 2,208,509 | |
+1.63%, 3.148%, 4/1/44 | | | 4,662,609 | | | | 4,772,478 | |
+1.63%, 2.998%, 5/1/44 | | | 66,108,780 | | | | 67,694,769 | |
+1.62%, 2.854%, 6/1/44 | | | 4,021,466 | | | | 4,099,211 | |
+1.62%, 3.096%, 6/1/44 | | | 13,122,167 | | | | 13,430,796 | |
+1.62%, 3.062%, 7/1/44 | | | 4,639,325 | | | | 4,740,665 | |
+1.63%, 3.076%, 7/1/44 | | | 3,386,596 | | | | 3,458,002 | |
+1.61%, 2.848%, 8/1/44 | | | 5,457,372 | | | | 5,552,113 | |
+1.62%, 3.023%, 8/1/44 | | | 6,647,292 | | | | 6,783,499 | |
+1.63%, 3.075%, 8/1/44 | | | 6,543,327 | | | | 6,680,338 | |
+1.62%, 2.682%, 9/1/44 | | | 6,426,794 | | | | 6,520,761 | |
+1.62%, 2.781%, 9/1/44 | | | 6,821,495 | | | | 6,918,109 | |
+1.62%, 2.841%, 9/1/44 | | | 5,901,532 | | | | 6,008,602 | |
+1.62%, 2.821%, 10/1/44 | | | 3,583,914 | | | | 3,642,227 | |
+1.62%, 2.881%, 10/1/44 | | | 11,019,662 | | | | 11,244,406 | |
+1.61%, 2.913%, 10/1/44 | | | 8,301,234 | | | | 8,448,106 | |
+1.63%, 2.913%, 10/1/44 | | | 9,864,105 | | | | 10,069,690 | |
+1.63%, 3.025%, 10/1/44 | | | 10,011,848 | | | | 10,209,830 | |
+1.60%, 2.693%, 11/1/44 | | | 12,705,462 | | | | 12,933,896 | |
+1.63%, 2.737%, 11/1/44 | | | 6,097,664 | | | | 6,209,042 | |
+1.63%, 2.803%, 11/1/44 | | | 9,513,569 | | | | 9,670,399 | |
+1.61%, 2.887%, 11/1/44 | | | 6,414,981 | | | | 6,547,426 | |
+1.61%, 2.901%, 11/1/44 | | | 17,285,430 | | | | 17,587,068 | |
+1.61%, 2.904%, 11/1/44 | | | 5,033,350 | | | | 5,125,908 | |
+1.62%, 2.924%, 11/1/44 | | | 9,993,717 | | | | 10,209,603 | |
+1.62%, 2.934%, 11/1/44 | | | 8,421,782 | | | | 8,596,454 | |
+1.63%, 2.936%, 11/1/44 | | | 13,501,113 | | | | 13,752,431 | |
+1.63%, 2.941%, 11/1/44 | | | 8,122,119 | | | | 8,294,596 | |
+1.60%, 3.005%, 11/1/44 | | | 4,507,970 | | | | 4,612,990 | |
+1.63%, 2.71%, 12/1/44 | | | 2,698,689 | | | | 2,746,672 | |
+1.63%, 2.83%, 12/1/44 | | | 13,825,550 | | | | 14,102,120 | |
+1.62%, 2.893%, 12/1/44 | | | 8,254,394 | | | | 8,431,057 | |
+1.63%, 2.901%, 12/1/44 | | | 11,435,327 | | | | 11,677,631 | |
+1.62%, 2.938%, 12/1/44 | | | 5,862,532 | | | | 5,989,687 | |
+1.62%, 2.64%, 1/1/45 | | | 8,895,931 | | | | 9,048,811 | |
+1.63%, 2.836%, 1/1/45 | | | 7,457,417 | | | | 7,610,366 | |
+1.62%, 2.837%, 1/1/45 | | | 7,247,568 | | | | 7,386,598 | |
+1.62%, 2.922%, 1/1/45 | | | 12,989,448 | | | | 13,261,288 | |
+1.63%, 3.071%, 1/1/45 | | | 16,279,116 | | | | 16,613,100 | |
+1.62%, 2.876%, 2/1/45 | | | 10,684,287 | | | | 10,899,588 | |
+1.62%, 2.588%, 4/1/45 | | | 4,889,852 | | | | 4,970,076 | |
+1.63%, 2.60%, 5/1/45 | | | 33,654,644 | | | | 34,183,218 | |
+1.63%, 2.755%, 6/1/45 | | | 3,760,184 | | | | 3,825,330 | |
+1.63%, 2.651%, 8/1/45 | | | 9,536,895 | | | | 9,682,162 | |
+1.64%, 2.74%, 8/1/45 | | | 26,710,853 | | | | 27,162,801 | |
+1.61%, 2.816%, 8/1/45 | | | 6,439,688 | | | | 6,553,157 | |
+1.63%, 2.803%, 9/1/45 | | | 7,901,967 | | | | 8,042,387 | |
+1.63%, 2.724%, 5/1/46 | | | 170,596,151 | | | | 173,510,392 | |
+1.62%, 2.751%, 5/1/46 | | | 11,588,725 | | | | 11,767,969 | |
+1.62%, 2.605%, 7/1/46 | | | 18,209,491 | | | | 18,477,821 | |
+1.63%, 2.533%, 9/1/46 | | | 33,983,483 | | | | 34,336,715 | |
+1.63%, 3.167%, 6/1/47 | | | 8,606,124 | | | | 8,751,787 | |
+1.63%, 3.182%, 8/1/47 | | | 5,129,759 | | | | 5,219,066 | |
+1.64%, 3.099%, 10/1/47 | | | 6,707,398 | | | | 6,816,870 | |
+1.64%, 3.146%, 11/1/47 | | | 3,447,430 | | | | 3,507,572 | |
+1.64%, 3.573%, 2/1/49 | | | 27,545,963 | | | | 28,243,574 | |
| | | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
USD LIBOR6-Month | | | | | | | | |
+1.60%, 3.794%, 8/1/36 | | $ | 1,578,173 | | | $ | 1,636,011 | |
Freddie Mac Gold, 15 Year | | | | | | | | |
5.50%, 10/1/20-12/1/24 | | | 608,142 | | | | 617,229 | |
6.00%, 8/1/21-11/1/23 | | | 3,749,546 | | | | 3,874,564 | |
4.50%, 3/1/25-6/1/26 | | | 6,734,087 | | | | 7,027,359 | |
Freddie Mac Gold, 20 Year | | | | | | | | |
6.50%, 10/1/26 | | | 1,514,886 | | | | 1,682,624 | |
4.50%, 5/1/30-1/1/34 | | | 74,673,212 | | | | 80,148,998 | |
4.00%, 9/1/31-10/1/35 | | | 356,767,188 | | | | 380,027,146 | |
3.50%, 7/1/35-1/1/36 | | | 139,531,193 | | | | 145,877,262 | |
Freddie Mac Gold, 30 Year | | | | | | | | |
7.90%, 2/17/21 | | | 437 | | | | 437 | |
7.00%, 4/1/31-11/1/38 | | | 2,317,031 | | | | 2,607,186 | |
6.50%, 12/1/32-10/1/38 | | | 7,718,824 | | | | 8,763,994 | |
6.00%, 12/1/33-2/1/39 | | | 13,507,839 | | | | 15,411,381 | |
5.50%, 3/1/34-12/1/38 | | | 38,522,067 | | | | 43,241,945 | |
4.50%, 3/1/39-2/1/49 | | | 1,778,001,815 | | | | 1,899,385,047 | |
4.50%, 3/1/49 | | | 251,339,762 | | | | 264,914,364 | |
4.00%, 11/1/45-11/1/47 | | | 634,871,625 | | | | 671,900,928 | |
Freddie Mac Pool, 15 Year
| | | | | | | | |
6.00%, 10/1/21 | | | 1,940 | | | | 1,980 | |
Freddie Mac Pool, 20 Year
| | | | | | | | |
3.50%, 8/1/39 | | | 241,531,740 | | | | 251,490,758 | |
Freddie Mac Pool, 30 Year | | | | | | | | |
7.00%, 11/1/37 | | | 8,302 | | | | 9,638 | |
4.50%, 7/1/42-4/1/49 | | | 438,001,453 | | | | 461,445,775 | |
Ginnie Mae, 20 Year
| | | | | | | | |
4.00%, 1/20/35 | | | 6,325,044 | | | | 6,535,341 | |
Ginnie Mae, 30 Year | | | | | | | | |
7.80%, 7/15/20-1/15/21 | | | 6,250 | | | | 6,269 | |
7.85%, 1/15/21 | | | 1,221 | | | | 1,223 | |
7.50%, 12/15/23-5/15/25 | | | 460,296 | | | | 493,875 | |
7.00%, 5/15/28 | | | 165,177 | | | | 179,592 | |
| | | | | | | | |
| | | | | | | 18,511,561,803 | |
PRIVATE LABEL CMO & REMIC: 0.0%(h) | |
GSMPS Mortgage Loan Trust
Series 2004-4 1A4, 8.50%, 6/25/34(b) | | | 2,785,084 | | | | 3,065,982 | |
Seasoned Credit Risk Transfer Trust
Series2017-4 M45T, 4.50%, 6/25/57 | | | 24,534,699 | | | | 26,218,197 | |
| | | | | | | | |
| | | | | | | 29,284,179 | |
| | | | | | | | |
| | | | | | | 21,747,521,011 | |
| | | | | | | | |
| | | | | | | 26,354,601,119 | |
| CORPORATE: 34.0% | |
FINANCIALS: 11.6% | |
Bank of America Corp. | | | | | | | | |
3.004%, 12/20/23(f) | | | 422,916,000 | | | | 433,107,684 | |
4.20%, 8/26/24 | | | 163,140,000 | | | | 175,112,031 | |
4.25%, 10/22/26 | | | 185,082,000 | | | | 201,695,256 | |
Barclays PLC (United Kingdom) | | | | | | | | |
4.375%, 9/11/24 | | | 239,204,000 | | | | 251,098,538 | |
4.836%, 5/9/28 | | | 77,975,000 | | | | 83,995,812 | |
BNP Paribas SA (France) | | | | | | | | |
4.25%, 10/15/24 | | | 381,716,000 | | | | 409,184,997 | |
4.375%, 9/28/25(b) | | | 70,131,000 | | | | 75,479,453 | |
4.375%, 5/12/26(b) | | | 102,019,000 | | | | 109,441,127 | |
4.625%, 3/13/27(b) | | | 232,400,000 | | | | 253,937,256 | |
Boston Properties, Inc. | | | | | | | | |
4.125%, 5/15/21 | | | 52,852,000 | | | | 54,082,632 | |
3.85%, 2/1/23 | | | 76,031,000 | | | | 79,627,389 | |
3.125%, 9/1/23 | | | 19,500,000 | | | | 20,111,711 | |
3.80%, 2/1/24 | | | 64,024,000 | | | | 67,677,868 | |
| | |
| See accompanying Notes to Financial Statements | | DODGE & COX INCOME FUND§PAGE 11 |
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| DEBT SECURITIES (continued) | |
| | |
| | | PAR VALUE | | | VALUE | |
3.20%, 1/15/25 | | $ | 47,075,000 | | | $ | 48,823,165 | |
3.65%, 2/1/26 | | | 19,580,000 | | | | 20,728,560 | |
4.50%, 12/1/28 | | | 101,325,000 | | | | 114,752,952 | |
Capital One Financial Corp. | | | | | | | | |
3.50%, 6/15/23 | | | 129,377,000 | | | | 134,366,485 | |
3.75%, 4/24/24 | | | 14,640,000 | | | | 15,406,397 | |
3.20%, 2/5/25 | | | 45,901,000 | | | | 47,506,234 | |
4.20%, 10/29/25 | | | 121,149,000 | | | | 130,644,392 | |
Citigroup, Inc. | | | | | | | | |
3.50%, 5/15/23 | | | 72,730,000 | | | | 75,659,157 | |
4.00%, 8/5/24 | | | 31,300,000 | | | | 33,495,673 | |
USD LIBOR3-Month
+6.37%, 8.306%, 10/30/40(a) | | | 427,488,075 | | | | 474,511,763 | |
Equity Residential | | | | | | | | |
4.625%, 12/15/21 | | | 108,687,000 | | | | 113,526,832 | |
3.00%, 4/15/23 | | | 47,300,000 | | | | 48,685,536 | |
3.375%, 6/1/25 | | | 77,890,000 | | | | 81,787,465 | |
HSBC Holdings PLC (United Kingdom) | | | | | | | | |
5.10%, 4/5/21 | | | 85,935,000 | | | | 89,105,837 | |
9.30%, 6/1/21 | | | 100,000 | | | | 109,354 | |
2.65%, 1/5/22 | | | 32,865,000 | | | | 33,214,540 | |
3.262%, 3/13/23(f) | | | 13,570,000 | | | | 13,874,347 | |
3.60%, 5/25/23 | | | 63,550,000 | | | | 66,256,742 | |
3.95%, 5/18/24(f) | | | 133,680,000 | | | | 140,565,870 | |
4.30%, 3/8/26 | | | 116,100,000 | | | | 126,316,716 | |
6.50%, 5/2/36 | | | 218,122,000 | | | | 297,540,390 | |
6.50%, 9/15/37 | | | 230,191,000 | | | | 316,577,781 | |
6.80%, 6/1/38 | | | 20,025,000 | | | | 28,475,318 | |
JPMorgan Chase & Co. | | | | | | | | |
3.375%, 5/1/23 | | | 92,238,000 | | | | 95,801,273 | |
4.125%, 12/15/26 | | | 119,864,000 | | | | 131,173,304 | |
4.25%, 10/1/27 | | | 125,244,000 | | | | 138,500,968 | |
8.75%, 9/1/30(a) | | | 81,412,000 | | | | 118,601,343 | |
Lloyds Banking Group PLC (United Kingdom) | | | | | | | | |
4.05%, 8/16/23 | | | 131,150,000 | | | | 138,969,803 | |
4.50%, 11/4/24 | | | 218,317,000 | | | | 233,289,095 | |
4.65%, 3/24/26 | | | 92,232,000 | | | | 100,215,530 | |
Royal Bank of Scotland Group PLC (United Kingdom) | | | | | | | | |
6.125%, 12/15/22 | | | 340,311,000 | | | | 372,298,461 | |
6.10%, 6/10/23 | | | 19,737,000 | | | | 21,717,751 | |
6.00%, 12/19/23 | | | 350,211,000 | | | | 389,225,020 | |
5.125%, 5/28/24 | | | 28,169,000 | | | | 30,497,239 | |
UniCredit SPA (Italy) | | | | | | | | |
7.296%, 4/2/34(b)(f) | | | 292,266,000 | | | | 335,823,004 | |
Unum Group | |
7.25%, 3/15/28 | | | 18,838,000 | | | | 23,276,166 | |
6.75%, 12/15/28 | | | 8,107,000 | | | | 10,065,018 | |
Wells Fargo & Co. | | | | | | | | |
3.55%, 8/14/23 | | | 244,815,000 | | | | 256,501,060 | |
4.10%, 6/3/26 | | | 130,170,000 | | | | 140,257,860 | |
4.30%, 7/22/27 | | | 159,265,000 | | | | 174,354,336 | |
| | | | | | | | |
| | | | | | | 7,377,050,491 | |
INDUSTRIALS: 20.8% | | | | | | | | |
AbbVie, Inc. 3.20%, 11/21/29(b) | | | 239,530,000 | | | | 243,524,019 | |
4.05%, 11/21/39(b) | | | 99,360,000 | | | | 105,004,562 | |
4.25%, 11/21/49(b) | | | 121,960,000 | | | | 128,355,980 | |
AT&T, Inc. 8.75%, 11/15/31 | | | 100,978,000 | | | | 143,356,156 | |
5.35%, 9/1/40 | | | 59,744,000 | | | | 71,929,580 | |
4.75%, 5/15/46 | | | 78,945,000 | | | | 89,084,988 | |
5.65%, 2/15/47 | | | 122,520,000 | | | | 155,860,808 | |
5.45%, 3/1/47 | | | 140,205,000 | | | | 173,671,507 | |
Bayer AG (Germany)
3.875%, 12/15/23(b) | | | 301,635,000 | | | | 316,414,273 | |
4.25%, 12/15/25(b) | | | 133,965,000 | | | | 144,427,227 | |
| | | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
4.375%, 12/15/28(b) | | $ | 170,210,000 | | | $ | 185,558,117 | |
BHP Billiton, Ltd. (Australia)
6.75%, 10/19/75(a)(b)(f) | | | 55,286,000 | | | | 64,915,163 | |
Burlington Northern Santa Fe LLC(d) | | | | | | | | |
8.251%, 1/15/21 | | | 978,256 | | | | 1,004,184 | |
3.05%, 9/1/22 | | | 39,535,000 | | | | 40,619,973 | |
5.943%, 1/15/23 | | | 8,173 | | | | 8,314 | |
3.85%, 9/1/23 | | | 79,525,000 | | | | 84,452,217 | |
5.72%, 1/15/24 | | | 9,702,747 | | | | 10,339,866 | |
5.342%, 4/1/24 | | | 2,751,962 | | | | 2,887,828 | |
5.629%, 4/1/24 | | | 11,937,632 | | | | 12,632,876 | |
5.996%, 4/1/24 | | | 26,189,768 | | | | 28,535,048 | |
3.442%, 6/16/28(b) | | | 75,389,733 | | | | 79,687,829 | |
Cemex SAB de CV (Mexico) | | | | | | | | |
6.00%, 4/1/24(b) | | | 72,394,000 | | | | 74,421,756 | |
5.70%, 1/11/25(b) | | | 225,456,000 | | | | 231,658,295 | |
6.125%, 5/5/25(b) | | | 113,075,000 | | | | 117,316,443 | |
7.75%, 4/16/26(b) | | | 138,048,000 | | | | 150,127,200 | |
Charter Communications, Inc. | | | | | | | | |
5.00%, 2/1/20 | | | 20,700,000 | | | | 20,738,765 | |
4.125%, 2/15/21 | | | 33,095,000 | | | | 33,624,628 | |
4.00%, 9/1/21 | | | 40,609,000 | | | | 41,546,655 | |
4.908%, 7/23/25 | | | 109,110,000 | | | | 120,103,598 | |
6.55%, 5/1/37 | | | 46,188,000 | | | | 56,543,275 | |
6.75%, 6/15/39 | | | 112,072,000 | | | | 142,012,837 | |
6.484%, 10/23/45 | | | 450,292,000 | | | | 561,550,287 | |
5.375%, 5/1/47 | | | 57,310,000 | | | | 64,117,129 | |
5.75%, 4/1/48 | | | 195,865,000 | | | | 228,118,497 | |
Cigna Corp. | | | | | | | | |
4.00%, 2/15/22(b) | | | 62,964,000 | | | | 64,983,780 | |
7.65%, 3/1/23(b) | | | 7,217,000 | | | | 8,279,632 | |
3.75%, 7/15/23 | | | 244,625,000 | | | | 256,385,572 | |
4.125%, 11/15/25 | | | 47,550,000 | | | | 51,548,640 | |
7.875%, 5/15/27(b) | | | 26,720,000 | | | | 34,638,090 | |
4.375%, 10/15/28 | | | 154,300,000 | | | | 170,728,326 | |
Cox Enterprises, Inc. | | | | | | | | |
3.25%, 12/15/22(b) | | | 94,333,000 | | | | 96,986,380 | |
2.95%, 6/30/23(b) | | | 251,295,000 | | | | 255,878,671 | |
3.85%, 2/1/25(b) | | | 231,475,000 | | | | 245,137,548 | |
3.35%, 9/15/26(b) | | | 139,412,000 | | | | 143,876,141 | |
3.50%, 8/15/27(b) | | | 48,562,000 | | | | 50,728,118 | |
CRH PLC (Ireland)
3.875%, 5/18/25(b) | | | 181,839,000 | | | | 194,118,868 | |
CSX Corp. | | | | | | | | |
9.75%, 6/15/20 | | | 10,067,000 | | | | 10,402,413 | |
6.251%, 1/15/23 | | | 10,784,691 | | | | 11,740,485 | |
CVS Health Corp. | | | | | | | | |
4.10%, 3/25/25 | | | 42,500,000 | | | | 45,587,279 | |
4.30%, 3/25/28 | | | 153,100,000 | | | | 167,068,137 | |
4.78%, 3/25/38 | | | 89,275,000 | | | | 101,189,390 | |
Dell Technologies, Inc.
5.45%, 6/15/23(b) | | | 90,089,000 | | | | 97,661,767 | |
Dillard’s, Inc. | | | | | | | | |
7.875%, 1/1/23 | | | 275,000 | | | | 297,064 | |
7.75%, 7/15/26 | | | 21,016,000 | | | | 23,713,850 | |
7.75%, 5/15/27 | | | 12,848,000 | | | | 14,684,408 | |
7.00%, 12/1/28 | | | 28,225,000 | | | | 31,338,538 | |
Dow, Inc. | | | | | | | | |
7.375%, 11/1/29 | | | 69,100,000 | | | | 91,536,069 | |
9.40%, 5/15/39 | | | 153,811,000 | | | | 251,915,307 | |
5.25%, 11/15/41 | | | 39,918,000 | | | | 46,586,258 | |
Elanco Animal Health, Inc. | | | | | | | | |
3.912%, 8/27/21 | | | 32,870,000 | | | | 33,713,717 | |
4.272%, 8/28/23 | | | 32,775,000 | | | | 34,599,454 | |
4.90%, 8/28/28 | | | 46,519,000 | | | | 50,560,547 | |
Ford Motor Credit Co. LLC(d) | | | | | | | | |
5.75%, 2/1/21 | | | 192,923,000 | | | | 199,117,981 | |
| | |
| PAGE 12§ DODGE & COX INCOME FUND | | See accompanying Notes to Financial Statements |
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| DEBT SECURITIES (continued) | |
| | |
| | | PAR VALUE | | | VALUE | |
5.875%, 8/2/21 | | $ | 169,660,000 | | | $ | 177,577,642 | |
3.813%, 10/12/21 | | | 194,775,000 | | | | 198,330,168 | |
5.596%, 1/7/22 | | | 105,725,000 | | | | 111,378,973 | |
3.219%, 1/9/22 | | | 30,125,000 | | | | 30,335,698 | |
4.25%, 9/20/22 | | | 3,142,000 | | | | 3,248,697 | |
4.14%, 2/15/23 | | | 127,081,000 | | | | 130,672,397 | |
4.375%, 8/6/23 | | | 49,659,000 | | | | 51,604,904 | |
4.063%, 11/1/24 | | | 39,570,000 | | | | 40,356,163 | |
HCA Healthcare, Inc. | | | | | | | | |
4.125%, 6/15/29 | | | 73,620,000 | | | | 78,009,945 | |
5.125%, 6/15/39 | | | 39,000,000 | | | | 43,041,139 | |
5.25%, 6/15/49 | | | 43,600,000 | | | | 48,599,149 | |
Imperial Brands PLC (United Kingdom) | | | | | | | | |
4.25%, 7/21/25(b) | | | 580,620,000 | | | | 612,176,819 | |
3.875%, 7/26/29(b) | | | 195,925,000 | | | | 197,371,888 | |
Kinder Morgan, Inc. | | | | | | | | |
6.50%, 2/1/37 | | | 50,861,000 | | | | 63,419,916 | |
6.95%, 1/15/38 | | | 92,139,000 | | | | 121,813,181 | |
6.50%, 9/1/39 | | | 72,546,000 | | | | 91,962,782 | |
5.00%, 8/15/42 | | | 78,782,000 | | | | 86,175,839 | |
5.00%, 3/1/43 | | | 86,308,000 | | | | 94,879,768 | |
5.50%, 3/1/44 | | | 96,910,000 | | | | 113,147,829 | |
5.40%, 9/1/44 | | | 69,297,000 | | | | 80,044,046 | |
Macy’s, Inc. | | | | | | | | |
6.70%, 7/15/34 | | | 77,960,000 | | | | 87,721,070 | |
4.50%, 12/15/34 | | | 95,617,000 | | | | 90,828,390 | |
6.375%, 3/15/37 | | | 21,354,000 | | | | 22,689,761 | |
Nordstrom, Inc.
6.95%, 3/15/28 | | | 20,107,000 | | | | 24,164,260 | |
Occidental Petroleum Corp. | | | | | | | | |
2.90%, 8/15/24 | | | 107,365,000 | | | | 109,023,368 | |
3.20%, 8/15/26 | | | 38,905,000 | | | | 39,364,108 | |
3.50%, 8/15/29 | | | 91,530,000 | | | | 93,307,992 | |
Prosus NV (Netherlands) | | | | | | | | |
6.00%, 7/18/20(b) | | | 220,010,000 | | | | 223,550,401 | |
5.50%, 7/21/25(b) | | | 347,931,000 | | | | 386,236,811 | |
4.85%, 7/6/27(b) | | | 140,217,000 | | | | 152,752,119 | |
RELX PLC (United Kingdom) | | | | | | | | |
3.125%, 10/15/22 | | | 146,687,000 | | | | 151,083,626 | |
3.50%, 3/16/23 | | | 64,115,000 | | | | 66,627,774 | |
4.00%, 3/18/29 | | | 59,330,000 | | | | 64,355,634 | |
TC Energy Corp. (Canada) | | | | | | | | |
5.625%, 5/20/75(a)(f) | | | 237,639,000 | | | | 247,738,657 | |
5.875%, 8/15/76(a)(f) | | | 84,536,000 | | | | 90,986,097 | |
5.30%, 3/15/77(a)(f) | | | 282,129,000 | | | | 289,735,198 | |
5.50%, 9/15/79(a)(f) | | | 138,575,000 | | | | 145,434,462 | |
Telecom Italia SPA (Italy) | | | | | | | | |
5.303%, 5/30/24(b) | | | 241,154,000 | | | | 259,240,550 | |
7.20%, 7/18/36 | | | 61,253,000 | | | | 72,572,554 | |
7.721%, 6/4/38 | | | 166,317,000 | | | | 204,569,910 | |
The Walt Disney Co. | | | | | | | | |
6.20%, 12/15/34 | | | 14,795,000 | | | | 20,736,933 | |
6.65%, 11/15/37 | | | 79,075,000 | | | | 117,221,763 | |
Ultrapar Participacoes SA (Brazil) | | | | | | | | |
5.25%, 10/6/26(b) | | | 151,950,000 | | | | 163,157,832 | |
5.25%, 6/6/29(b) | | | 137,300,000 | | | | 144,782,850 | |
Union Pacific Corp. | | | | | | | | |
6.061%, 1/17/23 | | | 1,939,227 | | | | 2,116,964 | |
4.698%, 1/2/24 | | | 1,514,664 | | | | 1,580,543 | |
5.082%, 1/2/29 | | | 4,539,555 | | | | 4,873,579 | |
5.866%, 7/2/30 | | | 27,919,074 | | | | 31,313,373 | |
6.176%, 1/2/31 | | | 24,386,051 | | | | 28,033,312 | |
Verizon Communications, Inc. 4.272%, 1/15/36 | | | 166,472,000 | | | | 187,965,405 | |
Vodafone Group PLC (United Kingdom) 7.00%, 4/4/79(a)(f) | | | 201,235,000 | | | | 236,118,431 | |
| | | | | | | | |
| | |
| | | PAR VALUE | | | VALUE | |
Xerox Holdings Corp.
| | | | | | | | |
2.75%, 9/1/20 | | $ | 22,690,000 | | | $ | 22,620,682 | |
4.50%, 5/15/21 | | | 100,501,000 | | | | 103,212,517 | |
4.07%, 3/17/22 | | | 2,349,000 | | | | 2,401,852 | |
Zoetis, Inc.
| | | | | | | | |
3.45%, 11/13/20 | | | 39,377,000 | | | | 39,800,002 | |
4.50%, 11/13/25 | | | 166,139,000 | | | | 183,837,610 | |
| | | | | | | | |
| | | | | | | 13,195,055,643 | |
UTILITIES: 1.6% | | | | | | | | |
Dominion Energy, Inc. | | | | | | | | |
2.579%, 7/1/20 | | | 32,099,000 | | | | 32,165,261 | |
4.104%, 4/1/21 | | | 97,451,000 | | | | 99,854,647 | |
5.75%, 10/1/54(a)(f) | | | 232,036,000 | | | | 250,088,408 | |
Enel SPA (Italy) | | | | | | | | |
4.25%, 9/14/23(b) | | | 30,675,000 | | | | 32,458,124 | |
4.625%, 9/14/25(b) | | | 120,488,000 | | | | 131,349,399 | |
3.625%, 5/25/27(b) | | | 38,125,000 | | | | 39,457,714 | |
6.80%, 9/15/37(b) | | | 174,509,000 | | | | 231,841,189 | |
6.00%, 10/7/39(b) | | | 161,224,000 | | | | 202,669,368 | |
| | | | | | | | |
| | | | | | | 1,019,884,110 | |
| | | | | | | | |
| | | | | | | 21,591,990,244 | |
TOTAL DEBT SECURITIES
(Cost $59,889,761,215) | | | | | | $ | 62,319,566,724 | |
| | |
| See accompanying Notes to Financial Statements | | DODGE & COX INCOME FUND§PAGE 13 |
| | | | |
| PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | |
| |
| SHORT-TERM INVESTMENTS: 1.4% | | | | |
| | |
| | | PAR VALUE/
SHARES | | | VALUE | |
REPURCHASE AGREEMENTS: 1.0% | | | | | | | | |
Bank of Montreal(c) | | | | | | | | |
1.48%, dated 12/31/19, due 1/2/20, maturity value $156,712,884 | | $ | 156,700,000 | | | $ | 156,700,000 | |
Fixed Income Clearing Corporation(c) | | | | | | | | |
1.00%, dated 12/31/19, due 1/2/20, maturity value $194,326,795 | | | 194,316,000 | | | | 194,316,000 | |
Royal Bank of Canada(c) | | | | | | | | |
1.53%, dated 12/31/19, due 1/2/20, maturity value $313,326,631 | | | 313,300,000 | | | | 313,300,000 | |
| | | | | | | | |
| | | | | | | 664,316,000 | |
| | |
MONEY MARKET FUND: 0.4% | | | | | | | | |
State Street Institutional U.S. Government Money Market Fund | | | 254,584,447 | | | | 254,584,447 | |
| | | | | | | | |
TOTAL SHORT-TERM INVESTMENTS
(Cost $918,900,447) | | | | | | $ | 918,900,447 | |
| | | | | | | | |
TOTAL INVESTMENTS IN SECURITIES
(Cost $60,808,661,662) | | | 99.5 | % | | $ | 63,238,467,171 | |
OTHER ASSETS LESS LIABILITIES | | | 0.5 | % | | | 307,094,384 | |
| | | | | | | | |
| NET ASSETS | | | 100.0 | % | | $ | 63,545,561,555 | |
| | | | | | | | |
| (a) | Hybrid security has characteristics of both a debt and equity security. |
| (b) | Security exempt from registration under Rule 144A of the Securities Act of 1933. The security may be resold in transactions exempt from registration, normally to qualified institutional buyers. |
| (c) | Repurchase agreements are collateralized by: |
Bank of Montreal: U.S. Treasury Notes1.125%-2.875%,7/31/20-5/15/46 and U.S. Treasury Inflation Indexed Notes0.125%-1.375%,7/15/24-2/15/45. Total collateral value is $159,847,229.
Fixed Income Clearing Corporation: U.S. Treasury Note 1.50%, 8/31/21. Total collateral value is $198,206,175.
Royal Bank of Canada: U.S. Treasury Notes2.125%-2.875%,9/30/23-5/15/27 and U.S. Treasury Inflation Indexed Notes3.375%-3.875%,4/15/29-4/15/32. Total collateral value is $319,593,355.
| (d) | Subsidiary (see below) |
| (e) | Variable rate security: interest rate is determined by the interest rates of underlying pool of assets that collateralize the security. The interest rate of the security may change due to a change in the interest rates or the composition of underlying pool of assets. The interest rate shown is the rate as of period end. |
| (f) | Variable rate security:fixed-to-float security pays an initial fixed interest rate and will pay a floating interest rate established at a predetermined time in the future. The interest rate shown is the rate as of period end. |
Debt securities are grouped by parent company unless otherwise noted. Actual securities may be issued by the listed parent company or one of its subsidiaries. In determining a parent company’s country designation, the Fund generally references the country of incorporation.
Debt securities with floating interest rates are linked to the referenced benchmark; the interest rate shown is the rate as of period end.
ARM: Adjustable Rate Mortgage
CMBS: Commercial Mortgage-Backed Security
CMO: Collateralized Mortgage Obligation
CMT: Constant Maturity Treasury
DUS: Delegated Underwriting and Servicing
GO: General Obligation
RB: Revenue Bond
REMIC: Real Estate Mortgage Investment Conduit
| | |
| PAGE 14§ DODGE & COX INCOME FUND | | See accompanying Notes to Financial Statements |
| | | | |
STATEMENT OF ASSETS AND LIABILITIES | |
| |
| |
| | | December 31, 2019 | |
ASSETS: | |
Investments in securities, at value (cost $60,808,661,662) | | $ | 63,238,467,171 | |
Cash | | | 1,182,783 | |
Receivable for investments sold | | | 17,460,944 | |
Receivable for Fund shares sold | | | 79,554,791 | |
Interest receivable | | | 411,467,061 | |
Prepaid expenses and other assets | | | 304,550 | |
| | | | |
| | | 63,748,437,300 | |
| | | | |
LIABILITIES: | |
Payable for Fund shares redeemed | | | 177,678,190 | |
Management fees payable | | | 21,521,249 | |
Accrued expenses | | | 3,676,306 | |
| | | | |
| | | 202,875,745 | |
| | | | |
NET ASSETS | | $ | 63,545,561,555 | |
| | | | |
NET ASSETS CONSIST OF: | |
Paid in capital | | $ | 60,964,832,308 | |
Distributable earnings | | | 2,580,729,247 | |
| | | | |
| | $ | 63,545,561,555 | |
| | | | |
Fund shares outstanding (par value $0.01 each, unlimited shares authorized) | | | 4,530,761,843 | |
Net asset value per share | | $ | 14.03 | |
| |
STATEMENT OF OPERATIONS | | | | |
| |
| | | Year Ended
December 31, 2019 | |
INVESTMENT INCOME: | |
Dividends | | $ | 38,568,317 | |
Interest | | | 2,062,523,768 | |
| | | | |
| | | 2,101,092,085 | |
| | | | |
EXPENSES: | |
Management fees | | | 237,350,192 | |
Custody and fund accounting fees | | | 740,839 | |
Transfer agent fees | | | 7,919,343 | |
Professional services | | | 240,391 | |
Shareholder reports | | | 1,954,008 | |
Registration fees | | | 1,202,626 | |
Trustees’ fees | | | 341,667 | |
Miscellaneous | | | 678,673 | |
| | | | |
| | | 250,427,739 | |
| | | | |
NET INVESTMENT INCOME | | | 1,850,664,346 | |
| | | | |
REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) | |
Investments in securities | | | 640,367,179 | |
Futures contracts | | | (65,402,334 | ) |
Net change in unrealized appreciation/depreciation | |
Investments in securities | | | 2,943,215,105 | |
Futures contracts | | | 27,176,840 | |
| | | | |
Net realized and unrealized gain | | | 3,545,356,790 | |
| | | | |
NET CHANGE IN NET ASSETS FROM OPERATIONS | | $ | 5,396,021,136 | |
| | | | |
| | | | | | | | |
STATEMENT OF CHANGES IN NET ASSETS | |
| | | | | |
| | |
| | | Year Ended
December 31, 2019 | | | Year Ended
December 31, 2018 | |
OPERATIONS: | | | | | | | | |
Net investment income | | $ | 1,850,664,346 | | | $ | 1,688,153,909 | |
Net realized gain (loss) | | | 574,964,845 | | | | 67,886,229 | |
Net change in unrealized appreciation/depreciation | | | 2,970,391,945 | | | | (1,942,972,195 | ) |
| | | | | | | | |
| | | 5,396,021,136 | | | | (186,932,057 | ) |
| | | | | | | | |
| | |
DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
Total distributions | | | (2,203,565,377 | ) | | | (1,887,086,223 | ) |
| | |
FUND SHARE TRANSACTIONS: | | | | | | | | |
Proceeds from sale of shares | | | 15,958,728,359 | | | | 14,058,784,954 | |
Reinvestment of distributions | | | 1,912,882,574 | | | | 1,568,832,950 | |
Cost of shares redeemed | | | (11,832,125,919 | ) | | | (13,526,739,100 | ) |
| | | | | | | | |
Net change from Fund share transactions | | | 6,039,485,014 | | | | 2,100,878,804 | |
| | | | | | | | |
Total change in net assets | | | 9,231,940,773 | | | | 26,860,524 | |
| | |
NET ASSETS: | | | | | | | | |
Beginning of year | | | 54,313,620,782 | | | | 54,286,760,258 | |
| | | | | | | | |
End of year | | $ | 63,545,561,555 | | | $ | 54,313,620,782 | |
| | | | | | | | |
| | |
SHARE INFORMATION: | | | | | | | | |
Shares sold | | | 1,153,948,397 | | | | 1,043,147,794 | |
Distributions reinvested | | | 137,478,496 | | | | 117,588,178 | |
Shares redeemed | | | (857,254,896 | ) | | | (1,008,309,102 | ) |
| | | | | | | | |
Net change in shares outstanding | | | 434,171,997 | | | | 152,426,870 | |
| | | | | | | | |
| | |
| See accompanying Notes to Financial Statements | | DODGE & COX INCOME FUND§PAGE 15 |
NOTES TO FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dodge & Cox Income 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 anopen-end management investment company. The Fund commenced operations on January 3, 1989, and seeks high and stable current income consistent with long-term preservation of capital. Risk considerations and investment strategies of the Fund are discussed in the Fund’s Prospectus.
The Fund is an investment company and follows the accounting and reporting guidance issued in Topic 946 by the Financial Accounting Standards Board. 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 normally valued as of the scheduled close of trading on the New York Stock Exchange (“NYSE”), generally 4 p.m. Eastern Time, each day that the NYSE is open for business.
Debt securities and derivatives traded over the counter are valued using prices received from independent pricing services which utilize dealer quotes, recent transaction data, pricing models, and other inputs to arrive at market-based valuations. Pricing models may consider quoted prices for similar securities, interest rates, cash flows (including prepayment speeds), and credit risk. Exchange-traded derivatives are valued at the settlement price determined by the relevant exchange. Short-term securities less than 60 days to maturity may be valued at amortized cost if amortized cost approximates current value. Mutual funds are valued at their respective net asset values. Security values are not discounted based on the size of the Fund’s position and may differ from the value the Fund receives upon sale of the securities. All securities held by the Fund are denominated in U.S. dollars.
If market quotations are not readily available or if normal valuation procedures produce valuations that are deemed unreliable or inappropriate under the circumstances existing at the time, the investment will be valued at fair value as determined in good faith by or under the direction of the Fund’s Board of Trustees. The Board of Trustees has appointed Dodge & Cox, the Fund’s investment manager, to make fair value determinations in accordance with the Dodge & Cox Funds Valuation Policies (“Valuation Policies”), subject to Board oversight. Dodge & Cox has established a Pricing Committee that is comprised of representatives from Treasury, Legal, Compliance, and Operations. The Pricing Committee is responsible for implementing the Valuation Policies, including determining the fair value of securities and other investments when necessary. The Pricing Committee considers relevant indications of value that are reasonably available to it in determining the fair value assigned to a particular security, such as the value of similar financial instruments, trading volumes, contractual restrictions on disposition, related corporate actions, and changes in economic
conditions. In doing so, the Pricing Committee employs various methods for calibrating fair valuation approaches, including a regular review of key inputs and assumptions, back-testing, and review of any related market activity.
Valuing securities through a fair value determination involves greater reliance on judgment than valuation of securities based on readily available market quotations. In some instances, lack of information and uncertainty as to the significance of information may lead to a conclusion that a prior valuation is the best indication of a security’s value. 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.
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.
Interest income is recorded on the accrual basis. Interest income includes coupon interest, amortization of premium and accretion of discount on debt securities, and gain/loss on paydowns. The ability of the issuers of the debt securities held by the Fund to meet their obligations may be affected by economic developments in a specific industry, state, or region. Debt obligations may be placed onnon-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful. A debt obligation is removed fromnon-accrual status when the issuer resumes interest payments or when collectibility of interest is reasonably assured. Dividend income is recorded on the ex-dividend date.
Expenses are recorded on the accrual basis. Some 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 using methodologies determined by the nature of the expense.
Distributions to shareholders are recorded on theex-dividend date.
Repurchase agreements Repurchase agreements are transactions under which a Fund purchases a security from a dealer counterparty and agrees to resell the security to that counterparty on a specified future date at the same price, plus a specified interest rate. The Fund’s repurchase agreements are secured by U.S. government or agency securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. The Fund maintains custody of the underlying collateral securities, either through its regular custodian or through a third party custodian that maintains separate accounts for both the Fund and its counterparties. In the event of default by the counterparty, the Fund has the contractual right to liquidate the securities and to apply the proceeds in satisfaction of the obligation.
To-Be-Announced securities The Fund may purchase mortgage-related securities on a to-be-announced (“TBA”) basis at a fixed price, with payment and delivery on a scheduled future date beyond the customary settlement period for such securities. The Fund may choose to extend the settlement through a “dollar roll”
PAGE 16§ DODGE & COX INCOME FUND
NOTES TO FINANCIAL STATEMENTS
transaction in which it sells the mortgage-related securities to a dealer and simultaneously agrees to purchase similar securities for future delivery at a predetermined price. The Fund accounts for TBA dollar rolls as purchase and sale 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.
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 |
| § | | Level 2: Other significant observable inputs (including quoted prices for similar securities, market indices, interest rates, credit risk, forward exchange rates, 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 at December 31, 2019:
| | | | | | | | |
| Classification | | LEVEL 1
(Quoted Prices) | | | LEVEL 2
(Other Significant
Observable Inputs) | |
Securities | | | | | | | | |
Debt Securities | | | | | | | | |
U.S. Treasury | | $ | — | | | $ | 11,120,107,599 | |
Government-Related | | | — | | | | 3,252,867,762 | |
Securitized | | | — | | | | 26,354,601,119 | |
Corporate | | | — | | | | 21,591,990,244 | |
Short-term Investments | | | | | | | | |
Repurchase Agreements | | | — | | | | 664,316,000 | |
Money Market Fund | | | 254,584,447 | | | | — | |
| | | | | | | | |
Total Securities | | $ | 254,584,447 | | | $ | 62,983,882,724 | |
| | | | | | | | |
| | | | | | | | | |
NOTE 3—DERIVATIVE INSTRUMENTS
The Fund may use derivatives either to minimize the impact of certain risks to one or more of its investments (as a “hedging technique”) or to implement its investment strategy. A derivative is a financial instrument whose value is derived from a security, currency, interest rate, index, or other financial instrument.
Futures contracts Futures contracts involve an obligation to purchase or sell (depending on whether the Fund has entered a long or short futures contract, respectively) an asset at a future date, at a price set at the time of the contract. Futures contracts are exchange-traded. Upon entering into a futures contract, the Fund is required to
deposit an amount of cash or liquid assets (referred to as “initial margin”) in a segregated account with the clearing broker. Subsequent payments (referred to as “variation margin”) to and from the clearing broker are made on a daily basis based on changes in the market value of the contract. Changes in the market value of open futures contracts are recorded as unrealized appreciation or depreciation in the Statement of Operations. Realized gains and losses on futures contracts are recorded in the Statement of Operations at the closing or expiration of the contracts. Cash deposited with a broker as initial margin is recorded in the Statement of Assets and Liabilities. A receivable and/or payable to brokers for daily variation margin is also recorded in the Statement of Assets and Liabilities.
Investments in futures contracts may include certain risks, which may be different from, and potentially greater than, those of the underlying assets. To the extent the Fund uses futures, it is exposed to additional volatility and potential losses resulting from leverage.
The Fund did not have open futures contracts at December 31, 2019.
Additional derivative information The following summarizes the effect of derivative instruments on the Statement of Operations.
| | | | |
| | | Interest Rate Derivatives | |
Net realized gain (loss) | | | | |
Futures contracts | | $ | (65,402,334 | ) |
| |
Net change in unrealized appreciation/depreciation | | | | |
Futures contracts | | $ | 27,176,840 | |
| | | | | |
The following summarizes the range of volume in the Fund’s derivative instruments during the year ended December 31, 2019.
| | | | | | | | |
| Derivative | | | % of Net Assets | |
Futures contracts | | | USD notional value | | | | 0-1 | % |
NOTE 4—RELATED PARTY TRANSACTIONS
Management fees Under a written agreement approved by a unanimous vote of the Board of Trustees, the Fund pays a management fee monthly at an annual rate of 0.50% of the Fund’s average daily net assets up to $100 million and 0.40% of the Fund’s average daily net assets in excess of $100 million to Dodge & Cox, investment manager of the Fund. The agreement further provides that Dodge & Cox shall waive its fee to the extent that such fee plus all other ordinary operating expenses of the Fund exceed 1% of the average daily net assets for the year.
Fund officers and trustees All officers and two 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.
DODGE & COX INCOME FUND§PAGE 17
NOTES TO FINANCIAL STATEMENTS
NOTE 5—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. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes. Financial reporting records are adjusted for permanent book to tax differences at year end to reflect tax character. Book to tax differences are primarily due to differing treatments of wash sales, net short-term realized gain (loss), derivatives, and distributions.
Distributions during the years noted below were characterized as follows for federal income tax purposes:
| | | | | | | | |
| | | Year Ended December 31, 2019 | | | Year Ended December 31, 2018 | |
Ordinary income | | $ | 1,993,518,195 | | | $ | 1,653,646,376 | |
| | ($ | 0.462 per share | ) | | ($ | 0.398 per share | ) |
Long-term capital gain | | $ | 210,047,182 | | | $ | 233,439,847 | |
| | ($ | 0.047 per share | ) | | ($ | 0.057 per share | ) |
At December 31, 2019, the tax basis components of distributable earnings were as follows:
| | | | |
Undistributed ordinary income | | $ | 35,103,885 | |
Undistributed long-term capital gain | | | 115,979,668 | |
At December 31, 2019, unrealized appreciation and depreciation for investments and derivatives based on cost for federal income tax purposes were as follows:
| | | | |
Tax cost | | $ | 60,808,821,477 | |
| | | | |
Unrealized appreciation | | | 2,623,673,988 | |
Unrealized depreciation | | | (194,028,294 | ) |
| | | | |
Net unrealized appreciation | | | 2,429,645,694 | |
| | | | | |
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 6—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 year.
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 itspro-rata portion of the Line of Credit. For the year ended December 31, 2019, the Fund’s commitment fee amounted to $381,795 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 year.
NOTE 7—PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 2019, purchases and sales of securities, other than short-term securities and U.S. government securities, aggregated $3,453,152,078 and $7,691,881,822 respectively. For the year ended December 31, 2019, purchases and sales of U.S. government securities aggregated $30,295,157,112 and $20,868,219,196 respectively.
NOTE 8—NEW ACCOUNTING GUIDANCE
In March 2017, the Financial Accounting Standards Board issued an update to amend the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for premiums to the earliest call date, but do not require an accounting change for securities held at a discount. The amendments are effective for financial statements for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Fund’s adoption of the updated accounting standards on January 1, 2019 did not have a material impact on the Fund’s financial statements.
NOTE 9—SUBSEQUENT EVENTS
Fund management has determined that no material events or transactions occurred subsequent to December 31, 2019, and through the date of the Fund’s financial statements issuance, which require additional disclosure in the Fund’s financial statements.
PAGE 18§ DODGE & COX INCOME FUND
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | | | |
SELECTED DATA AND RATIOS (for a share outstanding throughout each year) | | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
| | | | |
Net asset value, beginning of year | | | $13.26 | | | | $13.76 | | | | $13.59 | | | | $13.29 | | | | $13.78 | |
Income from investment operations: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.44 | | | | 0.41 | | | | 0.38 | | | | 0.42 | | | | 0.40 | |
Net realized and unrealized gain (loss) | | | 0.84 | | | | (0.45 | ) | | | 0.21 | | | | 0.32 | | | | (0.48 | ) |
| | | | |
Total from investment operations | | | 1.28 | | | | (0.04 | ) | | | 0.59 | | | | 0.74 | | | | (0.08 | ) |
| | | | |
Distributions to shareholders from: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (0.43 | ) | | | (0.40 | ) | | | (0.38 | ) | | | (0.42 | ) | | | (0.40 | ) |
Net realized gain | | | (0.08 | ) | | | (0.06 | ) | | | (0.04 | ) | | | (0.02 | ) | | | (0.01 | ) |
| | | | |
Total distributions | | | (0.51 | ) | | | (0.46 | ) | | | (0.42 | ) | | | (0.44 | ) | | | (0.41 | ) |
| | | | |
Net asset value, end of year | | | $14.03 | | | $ | 13.26 | | | $ | 13.76 | | | $ | 13.59 | | | $ | 13.29 | |
| | | | |
Total return | | | 9.73 | % | | | (0.31 | )% | | | 4.36 | % | | | 5.62 | % | | | (0.59 | )% |
Ratios/supplemental data: | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (millions) | | $ | 63,546 | | | $ | 54,314 | | | $ | 54,287 | | | $ | 46,632 | | | $ | 43,125 | |
Ratio of expenses to average net assets | | | 0.42 | % | | | 0.42 | % | | | 0.43 | % | | | 0.43 | % | | | 0.43 | % |
Ratio of net investment income to average net assets | | | 3.12 | % | | | 3.02 | % | | | 2.80 | % | | | 3.11 | % | | | 2.97 | % |
Portfolio turnover rate | | | 49 | % | | | 37 | % | | | 19 | % | | | 27 | % | | | 24 | % |
See accompanying Notes to Financial Statements
DODGE & COX INCOME FUND§PAGE 19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TotheBoard of Trustees of the Dodge & Cox Funds and Shareholders of Dodge & Cox Income Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, ofDodge & Cox Income Fund (one of the funds constituting Dodge & Cox Funds, referred to hereafter as the “Fund”) as of December 31, 2019, the related statementof operationsfor the year endedDecember 31, 2019, the statement of changes in net assets for each of the two years in the period ended December 31, 2019, including the related notes, and the financial highlights for each of the five years in the period ended December 31, 2019 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2019, 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 ended December 31, 2019 and the financial highlights for each of the five years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2019 by correspondence with the custodian, transfer agent and brokers. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2020
We have served as the auditor of one or more investment companies in the Dodge & Cox Funds since 1931.
PAGE 20§ DODGE & COX INCOME FUND
SPECIAL 2019 TAX INFORMATION
(unaudited)
The following information is provided pursuant to provisions of the Internal Revenue Code:
The Fund designates $210,047,182 as long-term capital gain distributions in 2019.
FUNDS’ LIQUIDITY RISK MANAGEMENT PROGRAM
(unaudited)
The Funds have adopted and implemented a written liquidity risk management program as required by Rule 22e-4 under the Investment Company Act. The program is reasonably designed to assess and manage each Fund’s liquidity risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings and access to other funding sources including the Funds’ interfund lending facility and line of credit. The Funds’ Board of Trustees approved the appointment of a Liquidity Risk Management Committee including representatives from Dodge & Cox’s legal, compliance, treasury, operations, trading, and portfolio management departments, which is responsible for the program’s administration and oversight and for reporting to the Board on at least an annual basis regarding the program’s operation and effectiveness. The Liquidity Risk Management Committee refreshed its assessment of the Fund’s liquidity risk profile, considering additional data gathered in the 12 months ended September 30, 2019 and the adequacy and effectiveness of the liquidity risk management program’s operations since its inception in February, 2019 (the “covered period”) in order to prepare a written report to the Board of Trustees for consideration at its meeting held on December 12, 2019. The report concluded that (i) the Fund did not experience significant liquidity challenges during the covered period (ii) the Fund’s investment strategy is appropriate for an open-end fund; and (iii) the Fund’s liquidity risk management program is reasonably designed to assess and manage its liquidity risk.
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, 2019, 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 additionalone-year term through December 31, 2020 with respect to each Fund. During the course of the year, the Board received extensive information and materials relating to the investment management and administrative services provided by Dodge & Cox and the performance of each of the Funds.
INFORMATION RECEIVED
Over the past several years, the Board has requested, received, and discussed a number of special presentations on topics relevant to their annual consideration of the proposed renewal of the Funds’ Agreements. In addition to the foregoing and in advance of the meetings referred to below, the Board, including the Independent Trustees, requested, received, and reviewed materials relating to the Agreements and the services provided by Dodge & Cox. The Independent Trustees retained Broadridge to prepare an independent expense and performance summary for each Fund and comparable funds managed by other advisers identified by Broadridge. The Broadridge materials included information regarding advisory and administrative fee rates, expense ratios, and transfer agency, custodial, and distribution expenses, as well as performance comparisons to each Fund’s peer group and to a broad-based securities index or combination of indices. The Broadridge 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, management fee revenue, and separate account fee schedules. The Board additionally considered the Funds’ brokerage commissions, turnover rates, sales and redemption data, and the investment that Dodge & Cox makes in research used in managing the Funds. The Board received and reviewed memoranda and related materials addressing, among other things, Dodge & Cox’s services to the Funds; how Dodge & Cox Funds’ fees compare to fees of peer group funds; the different fees, services, costs, and risks associated with other accounts managed by Dodge & Cox as compared to the Dodge & Cox Funds; and the ways in which the Funds realize economies of scale. 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 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 mutual fund management arrangements. The Trust’s Contract Review Committee, consisting solely of Independent Trustees, met with the independent legal counsel on November 7, 2019 and again on December 12, 2019 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 asall-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 range of services to the Funds in addition to portfolio management, including regulatory compliance, trading desks, proxy voting, transfer agent and custodian oversight, administration, regulatory
DODGE & COX INCOME FUND§PAGE 21
filings, tax compliance and filings, website, and anti-money laundering. The 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 in the management of the Funds; its consistency in investment approach and depth; the background and experience of the Dodge & Cox U.S. Equity Investment Committee, International Equity Investment Committee, Global Equity Investment Committee, U.S. Fixed Income Investment Committee, and Global Fixed Income Investment Committee, and research analysts responsible for managing the Funds; Dodge & Cox’s methods for assessing the regulatory and investment climate in various jurisdictions; its overall level of attention to its core investment management function; and its commitment to the Funds and their shareholders. The Board reviewed information from Dodge & Cox regarding any material conflicts of interest between the Funds and Dodge & Cox or its other clients, and regarding how Dodge & Cox addresses those conflicts. The Board noted Dodge & Cox’s record of favorable press and industry coverage, as well as its good compliance record, and its reputation as a trusted, shareholder-friendly mutual fund family. In addition, the Board considered that Dodge & Cox manages approximately $211 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, that its investment professionals adhere to a consistent investment approach across the Funds, and that due to its deliberate strategy with respect to new products, Dodge & Cox has had stability in its mutual fund product offerings over the course of many years and has the fewest funds of any of the 25 largest mutual fund families by assets. The Board further considered the “Gold” analyst rating awarded by Morningstar to all of the Funds (other than the Global Bond Fund, which has a “Silver” rating). 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 reviewed each Fund’s recent and long-term investment performance (including periods of outperformance and underperformance), as compared to relevant indices and the performance of such Fund’s peer group and broader Morningstar category. In assessing the performance of the Funds, the Board considered the Funds’ investment returns over various periods and the volatility thereof and concluded that the levels experienced were consistent with Dodge & Cox’s long-term approach and active investment style. The Board also compared the short- and long-term investment performance of the equity funds to value-oriented indices, in recognition of the significant performance
divergence between value and growth stocks over the past several years. It was noted that equity performance has been consistent with the value oriented investment strategy employed by Dodge & Cox. The Board concluded 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 value-oriented investment management process that emphasizes a long-term investment horizon, independent research, a team approach, price discipline, low cost, and low portfolio turnover. The Board concluded that Dodge & Cox has delivered 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 net expense ratio relative to (1) a broad category of other mutual funds with similar portfolio characteristics and share class and expense structures and (2) a smaller group of peers selected by Broadridge based on investment style, share class characteristics, and asset levels. The Board also considered the management fees charged by Dodge & Cox to other clients. In particular, the Board considered that the Funds continue to be below their peer group medians in net expense ratios. The Board also evaluated the operating structures of the Funds and Dodge & Cox, noting that the Funds do not chargefront-end sales commissions or distribution fees, and Dodge & Cox bears, among other things, the cost of most third-party research, reimbursement for shareholder recordkeeping and administrative costs to third-party retirement plan administrators, and administrative and office overhead. The Board noted that the Broadridge report shows that the net expense ratio of every Dodge & Cox Fund is in the least expensive quartile compared to its broad Morningstar category. The Board noted the Funds’ unusual single-share-class structure and reviewed Broadridge data (including asset-weighted average expense ratios) showing that most of the peer group funds offer several different classes of shares, with different expense ratios, to different categories of investors, and that the Broadridge expense comparisons described above generally compare the net expense ratio of each Dodge & Cox Fund’s single share class to one of the least expensive share classes of the peer fund, even though those share classes are often not available to retail investors. The Board noted that the Funds provide access for small investors to high quality investment management at a relatively low cost. The Board also considered that the Funds are priced to scale, i.e., management fee rates begin at relatively low levels. Even without breakpoints, the Funds’ management fee rates are lower than those of many peer funds whose fee schedules include breakpoints. With respect tonon-U.S. funds sponsored and managed by Dodge & Cox that are comparable to the Funds in many respects, the Board noted that the fee rates charged by Dodge & Cox are the same as or higher than the fee rates charged to the Funds. 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
PAGE 22§ DODGE & COX INCOME FUND
separate account fees are lower than Fund fees. The Board considered the differences in the nature and scope of services Dodge & Cox provides to the Funds as compared to other client accounts, as well as material differences in regulatory, litigation, and other risks as between Dodge & Cox Funds and other types of clients. The Board noted that different markets exist for mutual fund and institutional separate account management services and that a comparison of Fund fee rates and separate account fee rates must consider the fact that separate account clients bear additional costs and responsibilities that are included in the cost of a Fund. 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-ownedS-Corporation and relative to the scope and quality of the services provided. The Board noted in particular that Dodge & Cox’s profits are not generated by high fee rates, but reflect a 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 includes a return on shareholder employees’ investment in the firm, which is vital for remaining independent and facilitating retention of management and investment professionals. The Board also considered that Dodge & Cox has in the past closed some of the Funds to new investors to proactively manage growth in those Funds. While these actions are intended to benefit existing Fund shareholders, the effect is to reduce potential revenues to Dodge & Cox from new shareholders. The Board also considered potential“fall-out” benefits (including the receipt of research from unaffiliated brokers and reputational benefits tonon-U.S. funds sponsored and managed by Dodge & Cox) that Dodge & Cox might receive as a result of its association with the Funds and determined that they are acceptable. The Board also noted that Dodge & Cox continues to invest in its business to provide enhanced services, systems, and research capabilities, all of which benefit the Funds. The Board concluded that Dodge & Cox’s profitability is the keystone of its independence, stability, and long-term investment performance and that the profitability of Dodge & Cox’s relationship with the Funds (includingfall-out benefits) is fair and reasonable.
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 level of 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 and expense structure and the fact that the Dodge & Cox Funds build economies of scale into their fee structures by charging low fees from a fund’s inception and keeping overall expenses down as a Fund grows, as compared to other fund complexes that employ fee “breakpoints” only after a fund reaches a certain scale. An assessment of economies of scale must also take into account that Dodge & Cox invests time and resources in each new Fund for months (and sometimes years) prior to launch; in addition, in a Fund’s early periods of operations, expenses are capped, which means that Dodge & Cox subsidizes the operations of a new Fund for a period of time until it reaches scale. The Board also observed that, while total Fund assets have grown over the long term, this growth has not been continuous or evenly distributed across all of the Funds. In addition, the Board noted that Dodge & Cox has shared the benefits of economies of scale with the Funds by adding services to the Funds over time, and that Dodge & Cox’s internal costs of providing investment management, technology, administrative, legal, and compliance services to the Funds continue to increase. For example, Dodge & Cox has increased its global research staff and investment resources over the years to add new capabilities for the benefit of Fund shareholders and to address the increased complexity of investing globally. In addition, Dodge & Cox has made expenditures in other staff, technology, and infrastructure to enable it to integrate credit and equity analyses and to implement its strategy in a more effective manner. Over the last ten years, Dodge & Cox has increased its spending on research, investment management, client servicing, cybersecurity, technology, third-party research, data services, and computer systems for trading, operations, compliance, accounting, and communications at a rate that has outpaced the Funds’ growth rate during the same period. The Board also observed that, even without fee breakpoints, the Funds are competitively priced in a competitive market and that having a low fee from inception is better for shareholders than starting with a higher fee and adding breakpoints. The Board also noted that there are certain diseconomies of scale associated with managing large funds, insofar as certain of the costs and risks associated with portfolio management increase disproportionately as assets grow. 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 management fee structure was fair and reasonable, that each Fund was paying a competitive fee for the services provided, that Dodge & Cox’s services have provided 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.
DODGE & COX INCOME FUND§PAGE 23
FUND HOLDINGS
The Fund provides a complete list of its holdings on a quarterly basis by filing the lists with the SEC on Form N-CSR (as of the end of the second and fourth quarters) and on Part F of Form N-PORT (as of the end of the first and third quarters). Shareholders may view the Fund’s Form N-CSR and Part F of Form N-PORT on the SEC’s website at sec.gov. A list of the Fund’s quarter-end holdings is also available at dodgeandcox.com on or about the 15th day following each quarter end and remains available on the website until the list is updated for 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 dodgeandcox.com, or visit the SEC’s website at 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 dodgeandcox.com or at 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 at800-621-3979. Your request will be implemented within 30 days.
PAGE 24§ DODGE & COX INCOME FUND
THIS PAGE INTENTIONALLY LEFT BLANK
DODGE & COX INCOME FUND§PAGE 25
THIS PAGE INTENTIONALLY LEFT BLANK
PAGE 26§ DODGE & COX INCOME FUND
DODGE & COX FUNDS—EXECUTIVE OFFICER & TRUSTEE INFORMATION
| | | | | | |
| | | | |
Name (Age) and
Address* | | Position with Trust (Year of Election or
Appointment)** | | Principal Occupation During Past Five Years and Other Relevant
Experience** | | Other Directorships of Public Companies Held
by Trustees |
| |
| INTERESTED TRUSTEES AND EXECUTIVE OFFICERS |
| Charles F. Pohl (61) | | Chairman and Trustee (since 2014) | | Chairman and Director of Dodge & Cox; Chief Investment Officer and member of U.S. Equity Investment Committee (USEIC), Global Equity Investment Committee (GEIC), and International Equity Investment Committee (IEIC) | | — |
| Dana M. Emery (58) | | President (since 2014) and Trustee (since 1993) | | Chief Executive Officer, President, and Director of Dodge & Cox;Co-Director of Fixed Income (until January 2020) and member of U.S. Fixed Income Investment Committee (USFIIC) and Global Fixed Income Investment Committee (GFIIC) | | — |
| Diana S. Strandberg (60) | | Senior Vice President (since 2006) | | Senior Vice President and Director of Dodge & Cox; Director of International Equity and member of GEIC, IEIC, and GFIIC; member of USEIC (until January 2020) | | — |
| Roberta R.W. Kameda (59) | | Chief Legal Officer (since 2019) and Secretary (since 2017) | | Vice President, General Counsel, and Secretary (since 2017) of Dodge & Cox | | — |
| David H. Longhurst (62) | | Treasurer (since 2006) | | Vice President and Assistant Treasurer of Dodge & Cox | | — |
| Katherine M. Primas (45) | | Chief Compliance Officer (since 2010) | | Vice President and Chief Compliance Officer of Dodge & Cox | | — |
| |
| INDEPENDENT TRUSTEES |
| Caroline M. Hoxby (53) | | Trustee (since 2017) | | Professor of Economics, Stanford University; Director of the Economics of Education Program, National Bureau of Economic Research; Senior Fellow, Hoover Institution and Stanford Institute for Economic Policy Research | | — |
| Thomas A. Larsen (70) | | Trustee (since 2002) | | Senior Counsel of Arnold & Porter (law firm) (2015-2018); Partner of Arnold & Porter (until 2015); Director of Howard, Rice, Nemerovski, Canady, Falk & Rabkin (1977-2011) | | — |
| Ann Mather (59) | | Trustee (since 2011) | | CFO, Pixar Animation Studios (1999-2004) | | Director, Alphabet Inc. (internet information services) (since 2005); Director, Glu Mobile, Inc. (multimedia software) (since 2004); Director, Netflix, Inc. (internet television) (since 2010); Director, Arista Networks (cloud networking) (since 2013) |
| Robert B. Morris III (67) | | Trustee (since 2011) | | Advisory Director, The Presidio Group (2005-2016); Partner and Managing Director—Global Investment Research at Goldman Sachs (until 2001) | | — |
| Gabriela Franco Parcella (51) | | Trustee (since 2020) | | Managing Partner of Merlone Geier Partners (since 2018); Chairman, President, and CEO, Mellon Capital (2011 to 2017); COO, Mellon Capital (1997 to 2011). | | Director, Terreno Realty Corporation (since 2018) |
| Gary Roughead (68) | | Trustee (since 2013) | | Robert and Marion Oster Distinguished Military Fellow, Hoover Institution (since 2012); Admiral, United States Navy (Ret.); U.S. Navy Chief of Naval Operations (2008-2011) | | Director, Northrop Grumman Corp. (global security) (since 2012); Director, Maersk Line, Limited (shipping and transportation) (since 2016) |
| Mark E. Smith (68) | | Trustee (since 2014) | | Executive Vice President, Managing Director—Fixed Income at Loomis Sayles & Company, L.P. (2003-2011) | | — |
| John B. Taylor (73) | | Trustee (since 2005) (and 1995-2001) | | Professor of Economics, Stanford University (since 1984); Senior Fellow, Hoover Institution (since 1996); 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 six series in the Dodge & Cox Funds complex and serves for an indefinite term. |
| ** | | Information as of January 15, 2020. |
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 dodgeandcox.com or calling 800-621-3979.
DODGE & COX INCOME FUND§PAGE 27
dodgeandcox.com
For Fund literature, transactions, and account
information, please visit the Funds’ website.
or write or call:
DODGE & COX FUNDS
c/o DST Asset Manager Solutions, Inc.
P.O. Box 219502
Kansas City, Missouri 64121-9502
(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, 2019, 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.
DODGE & COX FUNDS®
Annual Report
December 31, 2019
Global Bond Fund
ESTABLISHED 2014
TICKER: DODLX
Important Notice:
Beginning on January 1, 2021, we intend to discontinue mailing paper copies of the Fund’s shareholder reports as permitted by new regulations adopted by the Securities and Exchange Commission, unless you specifically request paper copies from Dodge & Cox Funds or from your financial intermediary, such as a broker-dealer or bank. The reports will remain available to you on the Dodge & Cox Funds website (dodgeandcox.com), and you will be notified by mail each time a report is posted and provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. If you have not done so already, you may elect to receive shareholder reports and other communications electronically by enrolling in e-delivery on the Funds website, or, if you are invested through a financial intermediary, by updating your mailing preferences through the intermediary.
If you wish to continue receiving paper copies of all future shareholder reports, please contact us at (800) 621-3979. Reports will be provided to you free of charge. If you are invested through a financial intermediary, you may contact your financial intermediary to request to receive paper copies. Your election to receive reports in paper form will apply to all funds held with Dodge & Cox Funds or through your financial intermediary, as applicable.
12/19 GBF AR 
Printed on recycled paper
TO OUR SHAREHOLDERS
The Dodge & Cox Global Bond Fund had a total return of 12.2% for the year ended December 31, 2019, compared to 6.8% for the Bloomberg Barclays Global Aggregate Bond Index (Bloomberg Barclays Global Agg).
MARKET COMMENTARY
2019 was a strong year for bond returns as declines in interest rates and credit yield premiumsa across nearly all markets powered significant price increases. The Bloomberg Barclays Global Agg’s annual return was the second-highest in the past decade, despite a modest drag from currency (primarily the euro’s depreciation versus the U.S. dollar). The fall in interest rates was largely driven by renewed monetary easing by major central banks and concerns regarding low growth and inflation outlooks. Pessimism with respect to the economic outlook peaked in August: at that point, the U.S. Treasury yield curve inverted, bond market prices implied a recession probability of approximately 35%, and the stockpile of negative-yielding global debt grew to $17 trillion. But these seemingly foreboding indicators subsided in the fourth quarter. Moreover, despite a myriad of troublesome geopolitical headlines (e.g., trade tensions, Brexit, U.S. impeachment proceedings), investor risk appetite was strong, driving positive returns across a variety of asset classes, including equities, emerging market debt, and corporate bonds. As we enter 2020, the longest U.S. economic expansion on record continues and global growth is expected to pick up modestly.
The Bloomberg Barclays U.S. Corporate Bond Index returned 14.5%,b the highest since 2009. Triple-B bonds outperformed higher-rated securities, despite many negative headlines throughout the year related to the growth in the triple-B bond market and the potential for credit rating downgrades. The decline in yield premiums that drove this performance has left valuations near post-financial crisis highs, which suggests that recent excess returns are unlikely to be repeated. Nonetheless, even at mediocre valuation levels, we believe the long-term outlook for corporate bonds is still positive, particularly for a hand-picked, carefully-researched set of issuers.
Facing significant global economic and political uncertainty and weak manufacturing data, the Federal Reserve reversed course from the year prior and carried out a “mid-cycle adjustment” of three rate cuts. In the fourth quarter, better-than-expected GDP growth and continued strong employment data (e.g., the U.S. unemployment rate is 3.5%, a 50-year low) led Fed Chair Jerome Powell to express a “patient wait-and-see approach regarding further policy actions.” Many other central banks joined the rate cutting bandwagon in 2019. The European Central Bank (ECB) and the Bank of Japan maintained negative policy rates and are expected to leave rates unchanged for the foreseeable future. Overall, developed market government bond yields are low and, in our view, do not offer compelling value.
The U.S. dollar did not move much on a broad trade-weighted basis, but there was significant variation amongst individual currencies. The British pound appreciated sharply in the fourth quarter, when Brexit uncertainty subsided following a surprisingly strong electoral victory for Boris Johnson’s Conservative Party. While the decline in Brexit uncertainty provided some support to the euro, the currency mildly depreciated during the year due to
ECB easing, a recession in Italy, social unrest in France, and weak industrial production in Germany. Within emerging markets, the Russian ruble appreciated strongly as concerns about sanctions receded and fiscal balances improved, while the Argentine peso suffered a large depreciation as a new, less market-friendly administration was elected, capital controls were imposed, and intentions for debt restructuring were announced. Most currencies appear undervalued versus the U.S. dollar and we continue to find value in select currency opportunities.
INVESTMENT STRATEGY
We are pleased with the Fund’s double-digit returns in 2019, with positive contributions from all three primary return levers of our investment strategy—credit, rates, and currency. Performance was driven by broad market moves including declining global yields and credit yield premiums, but also particularly strong performance from a number of individual creditc issuers and emerging market currency and rates exposures. We believe these results highlight the benefit of a global, broad, and flexible fixed income investment strategy, as well as the importance of careful individual security selection.
During the year, we made several incremental adjustments to the Fund’s interest rate and currency positioning, but we were particularly active in the Credit sector. As credit valuations rose throughout the year, we significantly trimmed the Fund’s credit holdings.
Credit: A Banner Year
Credit performed exceptionally well in 2019 (the Bloomberg Barclays Global Aggregate Credit Index returned 10.7%), and was a significant driver of the Fund’s returns (as it has been over the Fund’s history). At the end of 2018, 59% of the Fund’s assets were invested in credit, a reflection of our optimism about valuations and the outlook for our individually selected holdings. However, as credit valuations increased over the year, we reduced our credit exposure by 18 percentage points via sales or trims of more than 35 issuers. For example, we reduced our exposure to Kinder Morgan,d a midstream energy company, whose bonds we first purchased in November 2014 and added to during the 2015 energy sell-off. Although the company’s fundamentals have improved since then, at current valuations we believe a smaller position size is warranted.
We enter each investment based on our assessment of the risk-reward profile over a three- to five- year horizon, and frequently hold investments for this time period or even longer. This approach facilitates the accumulation and compounding of income, provides time for our fundamental investment thesis to play out, and keeps transaction costs low. Nonetheless, we are comfortable selling a position more quickly if we no longer believe valuations reflect our assessment of the fundamentals. In January, we purchased bonds of AB InBev, the largest beverage company in the world, at a time when the credit markets were relatively stressed and yield premiums on the bonds looked attractive. However, as the broad credit market improved and AB InBev bond valuations rose, we began trimming our position during the second quarter and fully sold the position by the end of the year.
PAGE 2§ DODGE & COX GLOBAL BOND FUND
As of December 31, 2019, the Fund’s credit weighting is 41%, its lowest level since the inception of the Fund. This is driven by our view that yield premiums are likely to rise moderately over our long-term investment horizon and therefore current valuation levels offer only modest excess return prospects. That said, we continue to believe corporate bonds offer more value than developed market government bonds. We also believe that corporate fundamentals are relatively strong, banks are well-capitalized, and a major recession is unlikely. Furthermore, even in a market generally characterized by mediocre valuations, our research team continues to identify individual opportunities. Despite broad reduction, we added six new corporate issuers across a range of industries during the year. One of the new purchases was AbbVie, a biopharmaceutical company, which issued debt in November to help fund its acquisition of Allergan. In the coming years, we expect the company to generate tens of billions of dollars of free cash flow, which should enable it to pay down debt and improve its credit profile.
Rates: Falling Yields Everywhere (Almost)
For the global bond market as a whole, the substantial and broad-based decline in global government bond yields created a significant tailwind for returns. However, the low yield environment presents challenges for fixed income investors seeking to generate attractive long-term returns. In markets like Germany and Japan, bonds provide no income to cushion against the potential for price declines from rising rates. As of December 31, there was approximately $11 trillion in negative yielding debt outstanding (of which the Fund owns none). Even in the United States, where interest rates are higher (e.g., two-year U.S. Treasury yield of 1.6%), the level of income is quite low. While we do not foresee a major rise in inflation and interest rates, we believe the Fund’s moderate U.S.-dollar duratione—around three years—is prudent given that accepting much higher interest rate risk could result in a return profile with an asymmetric downside risk.
An important benefit of a global bond strategy is the ability to diversify interest rate risk, whereas domestic bond strategies are typically constrained to a sole market—regardless of whether it is attractively priced. As discussed above, we generally do not find developed market government bond yields compelling, but through our extensive and rigorous research efforts, we have identified several opportunities in emerging market countries. In late 2018, we added exposure to longer-dated bonds in Mexico and Indonesia. In Mexico, yields spiked to the highest level since the global financial crisis following the election of Andres Manuel Lopez Obrador (a.k.a. AMLO) as President, which drove up uncertainty and prompted fears over fiscal policies. We felt this provided an attractive entry point because yields reflected a greater degree of risk than we believed was warranted. In Indonesia, negative emerging market sentiment drove interest rates to multi-year highs, despite proactive policy responses to external risks and solid economic fundamentals, similarly providing a good entry point. Our conviction in these markets during periods of heightened volatility paid off over the course of 2019, as yields in both markets fell significantly, generating extremely strong performance from these holdings (e.g., Mexico 2047 bonds returned 36% in 2019).
During the year, we initiated positions in currency-hedged government bonds in Thailand and Korea, where we believe rates
are likely to remain relatively low over our long-term investment horizon. Our positive outlook was based on our expectations for monetary accommodation on the back of stalling growth and subdued inflation, and structural headwinds that are likely to exert downward pressure on real rates over time. On a hedged basis, both markets provide yields notably higher than comparable U.S. Treasuries, and they also exhibit relatively low correlations with many of our other holdings, thus offering diversification benefits.
Currency: Differentiation is Key
Looking at the dispersion of emerging market currency returns in 2019 highlights the importance of country and currency selection. Careful analysis of economic and political dynamics across countries is essential and served the Fund well in 2019. Overall, the Fund’s currency positioning added to performance, with gains concentrated in the Mexican peso and Indonesian rupiah.
We continue to find value in several emerging market currencies that we believe offer a compelling risk-reward profile. The Fund’s newest currency exposure is the Chilean peso, which was initiated via the purchase of five-year Chilean government bonds. We established this position in November, after a significant depreciation of the peso following a rise in social unrest and political turmoil. From our perspective, Chile’s strong government institutions, history of solid macroeconomic management, and low leverage, as well as a global economic environment likely to support the price of copper (Chile’s major export), create a compelling case for the peso to appreciate to levels more aligned with those fundamentals over our long-term horizon.
IN CLOSING
We are pleased by the Fund’s strong performance over the year. However, given current valuations, the declines in interest rates and credit yield premiums that have fueled recent returns are unlikely to be repeated in the near future. Nonetheless, we are confident in our portfolio positioning and believe our flexible approach and the multiple and diverse sources of return will continue to benefit the Fund. We thank you for your continued confidence in Dodge & Cox.
For the Board of Trustees,
| | |
 | |  |
Charles F. Pohl, Chairman | | Dana M. Emery, President |
January 31, 2020
| a | | Yield premiums are one way to measure a security’s valuation. Narrowing yield premiums result in a higher valuation. Widening yield premiums result in a lower valuation. |
| b | | Unless otherwise specified, all weightings and characteristics are as of December 31, 2019. |
| c | | Credit securities refers to corporate bonds and government-related securities, as classified by Bloomberg. |
| d | | The use of specific examples does not imply that they are more or less attractive investments than the Fund’s other holdings. |
| e | | Duration is a measure of a bond’s (or a bond portfolio’s) price sensitivity to changes in interest rates. |
DODGE & COX GLOBAL BOND FUND§PAGE 3
2019 PERFORMANCE REVIEW
The Fund returned 12.2% in 2019.
Key Contributors
| | § | | The Fund’s large allocation to corporate bonds (53%*) contributed strongly to returns as credit yield premiums declined. Notable outperformers include Charter Communications, AT&T, Bayer, Kinder Morgan, and TC Energy. | |
| | § | | The Fund benefited significantly from exposure to declining global interest rates, particularly in the United States, Mexico, and Indonesia. | |
| | § | | The Fund’s exposure to several emerging market currencies performed well, led by the Mexican peso and Indonesian rupiah. | |
Key Detractors
| | § | | The Fund’s small holdings of Argentine debt negatively impacted performance. | |
| | * | | Denotes Fund positioning at the beginning of the period. | |
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.
90 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 Fixed Income Investment Committee, which is the decision-making body for the Global Bond Fund, is a six-member committee with an average tenure at Dodge & Cox of 21 years.
One Business with a Single Research Office
Dodge & Cox manages equity (domestic, international, and global), fixed income (domestic and global), 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.
Risks: The yields and market values of the instruments in which the Fund invests may fluctuate. Accordingly, an investment may be worth more or less than its original cost. Debt securities are subject to interest rate risk, credit risk, and prepayment and call risk, all of which could have adverse effects on the value of the Fund. A low interest rate environment creates an elevated risk of future negative returns. Financial intermediaries may restrict their market making activities for certain debt securities, which may reduce the liquidity and increase the volatility of such securities. 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. The Fund is also subject to currency risk. Please read the prospectus and summary prospectus for specific details regarding the Fund’s risk profile.
PAGE 4§ DODGE & COX GLOBAL BOND FUND
GROWTH OF $10,000 SINCE INCEPTION
FOR AN INVESTMENT MADE ON DECEMBER 5, 2012
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2019
| | | | | | | | | | | | | | | | |
| | | 1 Year | | | 3 Years | | | 5 Years | | | Since
Inception
(12/5/12) | |
Dodge & Cox Global Bond Fund | | | 12.23 | % | | | 6.20 | % | | | 4.07 | % | | | 3.51 | % |
Bloomberg Barclays Global Aggregate Bond Index (Bloomberg Barclays Global Agg) | | | 6.84 | | | | 4.27 | | | | 2.31 | | | | 1.23 | |
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 dodgeandcox.com or call800-621-3979 for current performance figures.
A private fund managed and funded by Dodge & Cox (the “Private Fund”) was reorganized into the Fund and the Fund commenced operations on May 1, 2014. The Private Fund commenced operations on December 5, 2012 and had an investment objective, policies, and strategies that were, in all material respects, the same as those of the Fund, and was managed in a manner that, in all material respects, complied with the investment guidelines and restrictions of the Fund. However, the Private Fund was not registered as an investment company under the Investment Company Act of 1940 (the “1940 Act”), and therefore was not subject to certain investment limitations, diversification requirements, liquidity requirements, and other restrictions imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may have adversely affected its performance.
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 interest income but, unlike Fund returns, do not reflect fees or expenses. The Bloomberg Barclays Global Aggregate Bond Index (Bloomberg Barclays Global Agg) is a widely recognized, unmanaged index of multi-currency investment-grade, debt securities.
Bloomberg is a registered trademark of Bloomberg Finance L.P. and its affiliates. Barclays® is a trademark of Barclays Bank PLC.
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 “Expenses Paid During 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, 2019 | | Beginning Account Value
7/1/2019 | | | Ending Account Value
12/31/2019 | | | Expenses Paid
During Period* | |
Based on Actual Fund Return | | $ | 1,000.00 | | | $ | 1,038.10 | | | $ | 2.31 | |
Based on Hypothetical 5% Yearly Return | | | 1,000.00 | | | | 1,022.94 | | | | 2.29 | |
| * | | Expenses are equal to the Fund’s annualized net expense ratio of 0.45%, multiplied by the average account value over the period, multiplied by 184/365 (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. Though 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 BOND FUND§PAGE 5
| | | | |
| PORTFOLIO INFORMATION | | | December 31, 2019 | |
| | | | |
| SECTOR DIVERSIFICATION (%)(a) | | % of Net Assets | |
Government | | | 33.7 | |
Government-Related | | | 2.9 | |
Securitized | | | 23.3 | |
Corporate | | | 37.9 | |
Net Cash & Other(b) | | | 2.2 | |
| | | | |
| REGION DIVERSIFICATION (%)(a) | | % of Net Assets | |
United States | | | 55.8 | |
Latin America | | | 14.3 | |
Europe (excluding United Kingdom) | | | 11.7 | |
Asia Pacific (excluding Japan) | | | 8.6 | |
United Kingdom | | | 5.2 | |
Canada | | | 1.9 | |
Africa | | | 0.3 | |
| (a) | Weights exclude the effect of the Fund’s derivative contracts. |
| (b) | Net Cash & Other includes cash, short-term investments, derivatives, receivables, and payables. |
PAGE 6§ DODGE & COX GLOBAL BOND FUND
| | | | |
| CONSOLIDATED PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | | | | | |
| DEBT SECURITIES: 97.8% | |
| | | |
| | | | | | PAR VALUE | | | VALUE | |
| GOVERNMENT: 33.7% | |
Argentina Government(h)(Argentina)
4.50%, 2/13/20 | | | USD | | | | 3,890,000 | | | $ | 2,189,688 | |
Brazil Government (Brazil)
6.00%, 8/15/24(a) | | | BRL | | | | 2,026,000 | | | | 1,915,349 | |
Chile Government (Chile)
4.00%, 3/1/23(c) | | | CLP | | | | 2,130,000,000 | | | | 2,985,800 | |
Colombia Government (Colombia) | |
7.75%, 4/14/21 | | | COP | | | | 19,560,000,000 | | | | 6,133,740 | |
3.00%, 3/25/33(a) | | | COP | | | | 13,535,660,000 | | | | 4,245,730 | |
India Government (India)
8.24%, 2/15/27 | | | INR | | | | 795,000,000 | | | | 11,958,529 | |
Indonesia Government (Indonesia) | |
8.75%, 5/15/31 | | | IDR | | | | 39,200,000,000 | | | | 3,116,868 | |
8.25%, 5/15/36 | | | IDR | | | | 156,400,000,000 | | | | 11,772,956 | |
Mexico Government (Mexico) | |
2.00%, 6/9/22(a) | | | MXN | | | | 166,118,507 | | | | 8,447,158 | |
5.75%, 3/5/26 | | | MXN | | | | 85,100,000 | | | | 4,264,114 | |
4.00%, 11/30/28(a) | | | MXN | | | | 76,788,216 | | | | 4,255,020 | |
8.00%, 11/7/47 | | | MXN | | | | 74,000,000 | | | | 4,285,953 | |
Poland Government (Poland)
2.50%, 1/25/23 | | | PLN | | | | 24,170,000 | | | | 6,524,784 | |
South Korea Government (South Korea)
3.00%, 9/10/24 | | | KRW | | | | 3,900,000,000 | | | | 3,598,479 | |
Thailand Government (Thailand)
1.25%, 3/12/28(a) | | | THB | | | | 161,214,900 | | | | 5,264,144 | |
Turkey Government (Turkey)
10.50%, 8/11/27 | | | TRY | | | | 5,785,000 | | | | 904,362 | |
U.S. Treasury Note/Bond (United States) | | | | | | | | | | | | |
1.50%, 10/31/21 | | | USD | | | | 18,000,000 | | | | 17,970,459 | |
1.50%, 11/30/21 | | | USD | | | | 26,000,000 | | | | 25,957,739 | |
1.375%, 10/15/22 | | | USD | | | | 3,550,000 | | | | 3,526,471 | |
1.625%, 11/15/22 | | | USD | | | | 6,085,000 | | | | 6,086,140 | |
1.50%, 9/30/24 | | | USD | | | | 3,660,000 | | | | 3,626,048 | |
1.50%, 10/31/24 | | | USD | | | | 7,400,000 | | | | 7,331,262 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 146,360,793 | |
| GOVERNMENT-RELATED: 2.9% | |
Chicago Transit Authority RB (United States) | | | | | | | | | | | | |
6.20%, 12/1/40 | | | USD | | | | 225,000 | | | | 294,466 | |
6.899%, 12/1/40 | | | USD | | | | 1,000,000 | | | | 1,350,920 | |
Petroleo Brasileiro SA (Brazil) | |
6.625%, 1/16/34 | | | GBP | | | | 525,000 | | | | 833,511 | |
7.25%, 3/17/44 | | | USD | | | | 1,500,000 | | | | 1,819,500 | |
Petroleos Mexicanos (Mexico) | |
4.75%, 2/26/29 | | | EUR | | | | 1,800,000 | | | | 2,139,168 | |
6.75%, 9/21/47 | | | USD | | | | 4,061,000 | | | | 4,068,635 | |
6.35%, 2/12/48 | | | USD | | | | 51,000 | | | | 49,215 | |
Province of Buenos Aires Argentina (Argentina)
59.739%, 5/31/22 | | | ARS | | | | 54,100,000 | | | | 519,815 | |
State of Illinois GO (United States)
5.10%, 6/1/33 | | | USD | | | | 1,600,000 | | | | 1,724,848 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 12,800,078 | |
| SECURITIZED: 23.3% | |
ASSET-BACKED: 4.6% | |
Other: 0.9% | |
Rio Oil Finance Trust (Brazil) | |
9.25%, 7/6/24(c) | | | USD | | | | 1,958,216 | | | | 2,193,221 | |
9.75%, 1/6/27(c) | | | USD | | | | 501,673 | | | | 591,980 | |
8.20%, 4/6/28(c) | | | USD | | | | 1,074,000 | | | | 1,240,481 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,025,682 | |
| | | | | | | | | | | | |
| | | |
| | | | | | PAR VALUE | | | VALUE | |
Student Loan: 3.7% | | | | | | | | | | | | |
Navient Student Loan Trust (United States) | | | | | | | | | | | | |
USD LIBOR1-Month | | | | | | | | | | | | |
+1.25%, 3.042%, 6/25/65(c) | | | USD | | | | 1,325,101 | | | $ | 1,337,960 | |
+1.35%, 3.142%, 6/25/65(c) | | | USD | | | | 900,000 | | | | 907,537 | |
+1.00%, 2.792%, 9/27/66(c) | | | USD | | | | 3,863,000 | | | | 3,813,014 | |
Navient Student Loan Trust (Private Loans) (United States)
Series2017-A B, 3.91%, 12/16/58(c) | | | USD | | | | 1,445,000 | | | | 1,479,253 | |
SLM Student Loan Trust (United States) | |
USD LIBOR1-Month | | | | | | | | | | | | |
+0.95%, 2.742%, 9/25/28 | | | USD | | | | 1,901,481 | | | | 1,867,469 | |
USD LIBOR3-Month | | | | | | | | | | | | |
+0.11%, 2.004%, 12/15/32(c) | | | USD | | | | 3,047,263 | | | | 2,880,518 | |
+0.45%, 2.344%, 12/15/32(c) | | | USD | | | | 1,093,516 | | | | 1,047,661 | |
SMB Private Education Loan Trust (Private Loans) (United States) | | | | | | | | | | | | |
Series2017-B A2A, 2.82%, 10/15/35(c) | | | USD | | | | 1,506,170 | | | | 1,508,489 | |
Series2018-C B, 4.00%, 11/17/42(c) | | | USD | | | | 1,000,000 | | | | 1,027,699 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 15,869,600 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 19,895,282 | |
CMBS: 0.7% | | | | | | | | | | | | |
Agency CMBS: 0.7% | | | | | | | | | | | | |
Freddie Mac Military Housing Trust Multifamily (United States) | | | | | | | | | | | | |
4.10%, 11/25/52(c)(f) | | | USD | | | | 1,028,368 | | | | 1,139,644 | |
12.442%, 11/25/55(c)(f) | | | USD | | | | 1,619,193 | | | | 1,847,284 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,986,928 | |
MORTGAGE-RELATED: 18.0% | | | | | | | | | |
Federal Agency CMO & REMIC: 2.2% | | | | | | | | | |
Fannie Mae (United States)
Trust2004-W9 1A3, 6.05%, 2/25/44 | | | USD | | | | 381,325 | | | | 424,585 | |
Freddie Mac (United States) | | | | | | | | | | | | |
Series 4283 EW, 4.50%, 12/15/43(f) | | | USD | | | | 103,179 | | | | 112,117 | |
Series 4319 MA, 4.50%, 3/15/44(f) | | | USD | | | | 372,665 | | | | 398,501 | |
Ginnie Mae (United States)
Series2010-169 JZ, 4.00%, 12/20/40 | | | USD | | | | 504,358 | | | | 529,341 | |
USD LIBOR1-Month
+0.65%, 2.424%, 9/20/69 | | | USD | | | | 5,154,597 | | | | 5,153,535 | |
USD LIBOR12-Month | | | | | | | | | | | | |
+0.22%, 2.194%, 10/20/67 | | | USD | | | | 583,241 | | | | 576,279 | |
+0.15%, 3.27%, 12/20/67 | | | USD | | | | 1,429,606 | | | | 1,406,103 | |
+0.04%, 3.061%, 2/20/68 | | | USD | | | | 1,077,885 | | | | 1,057,164 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 9,657,625 | |
Federal Agency Mortgage Pass-Through: 15.8% | |
Fannie Mae, 15 Year (United States)
5.00%, 7/1/25 | | | USD | | | | 12,961 | | | | 13,496 | |
Fannie Mae, 20 Year (United States)
3.50%, 10/1/39 | | | USD | | | | 1,627,180 | | | | 1,688,699 | |
| | |
| See accompanying Notes to Consolidated Financial Statements | | DODGE & COX GLOBAL BOND FUND§PAGE 7 |
| | | | |
CONSOLIDATED PORTFOLIO OF INVESTMENTS | |
| December 31, 2019
|
|
| | | | | | | | | | | | |
| DEBT SECURITIES (continued) | |
| | | |
| | | | | | PAR VALUE | | | VALUE | |
Fannie Mae, 30 Year (United States) | |
4.50%, 4/1/39-12/1/48 | | | USD | | | | 5,137,921 | | | $ | 5,454,327 | |
4.50%, 5/1/48 | | | USD | | | | 3,088,812 | | | | 3,262,969 | |
4.50%, 3/1/49 | | | USD | | | | 6,284,588 | | | | 6,610,203 | |
4.50%, 6/1/49 | | | USD | | | | 6,062,782 | | | | 6,376,577 | |
Fannie Mae, Hybrid ARM(f) (United States)
USD LIBOR12-Month | | | | | | | | | | | | |
+1.58%, 2.873%, 8/1/44 | | | USD | | | | 94,574 | | | | 96,419 | |
+1.58%, 2.748%, 9/1/44 | | | USD | | | | 158,829 | | | | 161,681 | |
+1.60%, 3.323%, 6/1/49 | | | USD | | | | 4,833,866 | | | | 4,948,595 | |
+1.62%, 3.73%, 8/1/49 | | | USD | | | | 2,827,933 | | | | 2,909,976 | |
Freddie Mac, Hybrid ARM(f) (United States)
USD LIBOR12-Month | | | | | | | | | | | | |
+1.63%, 3.025%, 10/1/44 | | | USD | | | | 205,192 | | | | 209,250 | |
+1.60%, 2.693%, 11/1/44 | | | USD | | | | 522,432 | | | | 531,825 | |
+1.62%, 2.64%, 1/1/45 | | | USD | | | | 492,580 | | | | 501,045 | |
Freddie Mac Gold, 30 Year (United States) | | | | | | | | | | | | |
6.00%, 2/1/35 | | | USD | | | | 54,845 | | | | 62,403 | |
4.50%, 8/1/44-8/1/47 | | | USD | | | | 1,833,938 | | | | 1,945,950 | |
4.50%, 10/1/48 | | | USD | | | | 4,273,935 | | | | 4,515,426 | |
4.50%, 11/1/48 | | | USD | | | | 3,698,817 | | | | 3,903,237 | |
4.50%, 3/1/49 | | | USD | | | | 7,049,796 | | | | 7,430,548 | |
Freddie Mac Pool, 15 Year (United States)
3.50%, 6/1/34 | | | USD | | | | 11,831,152 | | | | 12,263,788 | |
Freddie Mac Pool, 30 Year (United States)
4.50%, 3/1/49 | | | USD | | | | 5,625,009 | | | | 5,919,310 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 68,805,724 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 78,463,349 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 101,345,559 | |
| CORPORATE: 37.9% | | | | | | | | | | | | |
FINANCIALS: 10.5% | | | | | | | | | | | | |
Bank of America Corp. (United States) | | | | | | | | | | | | |
4.25%, 10/22/26 | | | USD | | | | 1,000,000 | | | | 1,089,762 | |
4.183%, 11/25/27 | | | USD | | | | 2,925,000 | | | | 3,168,253 | |
Barclays PLC (United Kingdom)
4.836%, 5/9/28 | | | USD | | | | 2,050,000 | | | | 2,208,290 | |
BNP Paribas SA (France) | | | | | | | | | | | | |
4.375%, 9/28/25(c) | | | USD | | | | 2,400,000 | | | | 2,583,033 | |
4.625%, 3/13/27(c) | | | USD | | | | 1,550,000 | | | | 1,693,643 | |
Chubb, Ltd. (Switzerland)
2.50%, 3/15/38 | | | EUR | | | | 4,275,000 | | | | 5,607,057 | |
Citigroup, Inc. (United States) | |
USD LIBOR3-Month +6.37%, 8.306%, 10/30/40(b) | | | USD | | | | 3,300,000 | | | | 3,663,000 | |
HSBC Holdings PLC (United Kingdom)
6.00%, 3/29/40 | | | GBP | | | | 2,851,000 | | | | 5,138,442 | |
JPMorgan Chase & Co. (United States)
1.09%, 3/11/27(g) | | | EUR | | | | 3,100,000 | | | | 3,609,704 | |
Lloyds Banking Group PLC (United Kingdom) | | | | | | | | | | | | |
4.50%, 11/4/24 | | | USD | | | | 1,125,000 | | | | 1,202,152 | |
4.582%, 12/10/25 | | | USD | | | | 3,225,000 | | | | 3,489,172 | |
Royal Bank of Scotland Group PLC (United Kingdom) | | | | | | | | | | | | |
6.00%, 12/19/23 | | | USD | | | | 3,525,000 | | | | 3,917,690 | |
5.125%, 5/28/24 | | | USD | | | | 650,000 | | | | 703,724 | |
UniCredit SPA (Italy)
7.296%, 4/2/34(c)(g) | | | USD | | | | 3,850,000 | | | | 4,423,773 | |
| | | | | | | | | | | | |
| | | |
| | | | | | PAR VALUE | | | VALUE | |
Wells Fargo & Co. (United States)
4.30%, 7/22/27 | | | USD | | | | 2,950,000 | | | $ | 3,229,494 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 45,727,189 | |
INDUSTRIALS: 23.9% | | | | | | | | | | | | |
AbbVie, Inc. (United States)
4.25%, 11/21/49(c) | | | USD | | | | 2,675,000 | | | | 2,815,286 | |
AT&T, Inc. (United States)
3.15%, 9/4/36 | | | EUR | | | | 4,300,000 | | | | 5,626,278 | |
Bayer AG (Germany)
3.75%, 7/1/74(b)(g) | | | EUR | | | | 4,425,000 | | | | 5,341,743 | |
BHP Billiton, Ltd. (Australia)
6.75%, 10/19/75(b)(c)(g) | | | USD | | | | 1,425,000 | | | | 1,673,192 | |
Cemex SAB de CV (Mexico) | | | | | | | | | | | | |
5.70%, 1/11/25(c) | | | USD | | | | 1,350,000 | | | | 1,387,139 | |
7.75%, 4/16/26(c) | | | USD | | | | 2,900,000 | | | | 3,153,750 | |
Charter Communications, Inc. (United States) | | | | | | | | | | | | |
7.30%, 7/1/38 | | | USD | | | | 2,150,000 | | | | 2,798,867 | |
6.75%, 6/15/39 | | | USD | | | | 1,300,000 | | | | 1,647,304 | |
6.484%, 10/23/45 | | | USD | | | | 3,125,000 | | | | 3,897,126 | |
Cigna Corp. (United States) | | | | | | | | | | | | |
3.75%, 7/15/23 | | | USD | | | | 850,000 | | | | 890,865 | |
4.125%, 11/15/25 | | | USD | | | | 575,000 | | | | 623,354 | |
4.375%, 10/15/28 | | | USD | | | | 1,575,000 | | | | 1,742,690 | |
Concho Resources, Inc. (United States) | | | | | | | | | | | | |
4.875%, 10/1/47 | | | USD | | | | 500,000 | | | | 582,480 | |
4.85%, 8/15/48 | | | USD | | | | 250,000 | | | | 291,006 | |
Cox Enterprises, Inc. (United States) | | | | | | | | | | | | |
4.80%, 2/1/35(c) | | | USD | | | | 350,000 | | | | 386,936 | |
8.375%, 3/1/39(c) | | | USD | | | | 2,450,000 | | | | 3,676,500 | |
CVS Health Corp. (United States) | |
4.30%, 3/25/28 | | | USD | | | | 1,000,000 | | | | 1,091,235 | |
4.78%, 3/25/38 | | | USD | | | | 1,000,000 | | | | 1,133,457 | |
Danaher Corp. (United States)
1.35%, 9/18/39 | | | EUR | | | | 2,725,000 | | | | 2,877,453 | |
Dow, Inc. (United States)
5.55%, 11/30/48 | | | USD | | | | 1,575,000 | | | | 1,963,552 | |
Elanco Animal Health, Inc. (United States)
4.90%, 8/28/28 | | | USD | | | | 1,525,000 | | | | 1,657,491 | |
Ford Motor Credit Co. LLC(d) (United States) | | | | | | | | | | | | |
3.35%, 11/1/22 | | | USD | | | | 550,000 | | | | 555,295 | |
4.14%, 2/15/23 | | | USD | | | | 1,825,000 | | | | 1,876,576 | |
4.375%, 8/6/23 | | | USD | | | | 2,350,000 | | | | 2,442,086 | |
4.063%, 11/1/24 | | | USD | | | | 1,375,000 | | | | 1,402,318 | |
Grupo Televisa SAB (Mexico) | | | | | | | | | | | | |
8.50%, 3/11/32 | | | USD | | | | 1,464,000 | | | | 1,967,853 | |
6.125%, 1/31/46 | | | USD | | | | 700,000 | | | | 840,894 | |
HCA Healthcare, Inc. (United States)
4.125%, 6/15/29 | | | USD | | | | 1,150,000 | | | | 1,218,574 | |
Imperial Brands PLC (United Kingdom) | | | | | | | | | | | | |
3.375%, 2/26/26 | | | EUR | | | | 2,500,000 | | | | 3,160,463 | |
3.875%, 7/26/29(c) | | | USD | | | | 1,525,000 | | | | 1,536,262 | |
Kinder Morgan, Inc. (United States) | |
6.95%, 1/15/38 | | | USD | | | | 3,700,000 | | | | 4,891,618 | |
5.50%, 3/1/44 | | | USD | | | | 675,000 | | | | 788,100 | |
LafargeHolcim, Ltd. (Switzerland) | | | | | | | | | |
7.125%, 7/15/36 | | | USD | | | | 1,150,000 | | | | 1,500,388 | |
6.50%, 9/12/43(c) | | | USD | | | | 1,225,000 | | | | 1,529,613 | |
4.75%, 9/22/46(c) | | | USD | | | | 950,000 | | | | 974,033 | |
Macy’s, Inc. (United States) | | | | | | | | | | | | |
6.70%, 9/15/28 | | | USD | | | | 50,000 | | | | 57,072 | |
6.70%, 7/15/34 | | | USD | | | | 425,000 | | | | 478,213 | |
| | |
| PAGE 8§ DODGE & COX GLOBAL BOND FUND | | See accompanying Notes to Consolidated Financial Statements |
| | | | |
| CONSOLIDATED PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
| | | | | | | | | | | | |
| DEBT SECURITIES (continued) | |
| | | |
| | | | | | PAR VALUE | | | VALUE | |
Millicom International Cellular SA (Luxembourg)
5.125%, 1/15/28(c) | | | USD | | | | 3,625,000 | | | $ | 3,800,849 | |
Molex Electronic Technologies(d) LLC (United States)
2.878%, 4/15/20(c) | | | USD | | | | 731,000 | | | | 731,977 | |
MTN Group, Ltd. (South Africa)
4.755%, 11/11/24(c) | | | USD | | | | 1,425,000 | | | | 1,460,625 | |
Occidental Petroleum Corp. (United States) | | | | | | | | | | | | |
4.30%, 8/15/39 | | | USD | | | | 750,000 | | | | 762,908 | |
6.60%, 3/15/46 | | | USD | | | | 1,450,000 | | | | 1,864,034 | |
Prosus NV (Netherlands) | | | | | | | | | | | | |
5.50%, 7/21/25(c) | | | USD | | | | 2,450,000 | | | | 2,719,735 | |
4.85%, 7/6/27(c) | | | USD | | | | 1,975,000 | | | | 2,151,561 | |
QVC, Inc.(d) (United States)
4.45%, 2/15/25 | | | USD | | | | 1,800,000 | | | | 1,860,042 | |
TC Energy Corp. (Canada) | | | | | | | | | | | | |
5.625%, 5/20/75(b)(g) | | | USD | | | | 1,800,000 | | | | 1,876,500 | |
5.30%, 3/15/77(b)(g) | | | USD | | | | 6,350,000 | | | | 6,521,196 | |
Telecom Italia SPA (Italy) | | | | | | | | | | | | |
7.20%, 7/18/36 | | | USD | | | | 1,333,000 | | | | 1,579,338 | |
7.721%, 6/4/38 | | | USD | | | | 3,250,000 | | | | 3,997,500 | |
Ultrapar Participacoes SA (Brazil) | |
5.25%, 10/6/26(c) | | | USD | | | | 559,000 | | | | 600,232 | |
5.25%, 6/6/29(c) | | | USD | | | | 2,000,000 | | | | 2,109,000 | |
Vodafone Group PLC (United Kingdom)
7.00%, 4/4/79(b)(g) | | | USD | | | | 900,000 | | | | 1,056,012 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 103,568,571 | |
UTILITIES: 3.5% | | | | | | | | | | | | |
Dominion Energy, Inc. (United States)
5.75%, 10/1/54(b)(g) | | | USD | | | | 4,340,000 | | | | 4,677,652 | |
Enel SPA (Italy)
3.375%, 11/24/81(b)(g) | | | EUR | | | | 4,425,000 | | | | 5,373,013 | |
NextEra Energy, Inc. (United States)
5.65%, 5/1/79(b)(g) | | | USD | | | | 1,875,000 | | | | 2,075,605 | |
The Southern Co. (United States)
5.50%, 3/15/57(b)(g) | | | USD | | | | 2,925,000 | | | | 3,064,444 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 15,190,714 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 164,486,474 | |
| | | | | | | | | | | | |
TOTAL DEBT SECURITIES
(Cost $413,563,573) | | | | | | | | | | $ | 424,992,904 | |
|
| SHORT-TERM INVESTMENTS: 1.7% | |
| | | |
| | | | | | PAR VALUE/ SHARES | | | VALUE | |
REPURCHASE AGREEMENTS: 1.3% | |
Bank of Montreal(e)
1.48%, dated 12/31/19, due 1/2/20, maturity value $1,300,107 | | | USD | | | | 1,300,000 | | | $ | 1,300,000 | |
Fixed Income Clearing Corporation(e)
1.00%, dated 12/31/19, due 1/2/20, maturity value $1,759,098 | | | USD | | | | 1,759,000 | | | | 1,759,000 | |
Royal Bank of Canada(e)
1.53%, dated 12/31/19, due 1/2/20, maturity value $2,600,221 | | | USD | | | | 2,600,000 | | | | 2,600,000 | |
| | | | | | | | | | | | |
| | | | 5,659,000 | |
| | | | | | | | | | | | |
| | | |
| | | | | | PAR VALUE/ SHARES | | | VALUE | |
MONEY MARKET FUND: 0.4% | |
State Street Institutional U.S. Government Money Market Fund | | | USD | | | | 1,710,556 | | | $ | 1,710,556 | |
| | | | | | | | | | | | |
TOTAL SHORT-TERM INVESTMENTS
(Cost $7,369,556) | | | $ | 7,369,556 | |
| | | | | | | | | | | | |
TOTAL INVESTMENTS IN SECURITIES
(Cost $420,933,129) | | | | 99.5 | % | | $ | 432,362,460 | |
OTHER ASSETS LESS LIABILITIES | | | | 0.5 | % | | | 2,211,585 | |
| | | | | | | | | | | | |
| NET ASSETS | | | | | | | 100.0 | % | | $ | 434,574,045 | |
| | | | | | | | | | | | |
| (b) | Hybrid security has characteristics of both a debt and equity security. |
| (c) | Security exempt from registration under Rule 144A of the Securities Act of 1933. The security may be resold in transactions exempt from registration, normally to qualified institutional buyers. |
| (d) | Subsidiary (see below) |
| (e) | Repurchase agreements are collateralized by: |
Bank of Montreal: U.S. Treasury Note 2.50%, 5/15/46 and U.S. Treasury Inflation Indexed Note 2.375%, 1/15/25. Total collateral value is $1,326,194.
Fixed Income Clearing Corporation: U.S. Treasury Note 1.50%, 8/31/21. Total collateral value is $1,795,764.
Royal Bank of Canada: U.S. Treasury Note 2.375%, 5/15/27. Total collateral value is $2,652,293.
| (f) | Variable rate security: interest rate is determined by the interest rates of underlying pool of assets that collateralize the security. The interest rate of the security may change due to a change in the interest rates or the composition of underlying pool of assets. The interest rate shown is the rate as of period end. |
| (g) | Variable rate security:fixed-to-float security pays an initial fixed interest rate and will pay a floating interest rate established at a predetermined time in the future. The interest rate shown is the rate as of period end. |
| (h) | Dual currency bond. Issued in USD but pays in ARS at maturity. |
Debt securities are grouped by parent company unless otherwise noted. Actual securities may be issued by the listed parent company or one of its subsidiaries. In determining a parent company’s country designation, the Fund generally references the country of incorporation.
ARM: Adjustable Rate Mortgage
CMBS: Commercial Mortgage-Backed Security
CMO: Collateralized Mortgage Obligation
GO: General Obligation
REMIC: Real Estate Mortgage Investment Conduit
RB: Revenue Bond
ARS: Argentine Peso
BRL: Brazilian Real
CLP: Chilean Peso
COP: Colombian Peso
EUR: Euro
GBP: British Pound
IDR: Indonesian Rupiah
INR: Indian Rupee
KRW: South Korean Won
MXN: Mexican Peso
PLN: Polish Zloty
THB: Thai Baht
TRY: Turkish Lira
USD: United States Dollar
| | |
| See accompanying Notes to Consolidated Financial Statements | | DODGE & COX GLOBAL BOND FUND§PAGE 9 |
| | | | |
| CONSOLIDATED PORTFOLIO OF INVESTMENTS | | | December 31, 2019 | |
FUTURES CONTRACTS
| | | | | | | | | | | | | | | | |
| Description | | Number of Contracts | | | Expiration Date | | | Notional
Amount | | | Value / Unrealized Appreciation
(Depreciation) | |
Euro-Bobl Future—Short Position | | | 52 | | | | 3/6/20 | | | $ | (7,794,424 | ) | | $ | 43,083 | |
Euro-Bund Future—Short Position | | | 77 | | | | 3/6/20 | | | | (14,725,374 | ) | | | 219,264 | |
Euro-Buxl Future—Short Position | | | 31 | | | | 3/6/20 | | | | (6,898,208 | ) | | | 269,788 | |
Long-Term U.S. Treasury Bond—Short Position | | | 74 | | | | 3/20/20 | | | | (11,537,063 | ) | | | 223,585 | |
UK-Gilt Future—Short Position | | | 40 | | | | 3/27/20 | | | | (6,961,037 | ) | | | 114,029 | |
Ultra Long-Term U.S. Treasury Bond—Short Position | | | 42 | | | | 3/20/20 | | | | (7,629,562 | ) | | | 226,148 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | $ | 1,095,897 | |
| | | | | | | | | | | | | | | | |
CURRENCY FORWARD CONTRACTS
| | | | | | | | | | | | | | | | | | | | | | | | |
| Counterparty | | Settle Date | | | Currency Purchased | | | Currency Sold | | | Unrealized
Appreciation (Depreciation) | |
BRL: Brazilian Real | | | | | | | | | | | | | | | | | | | | | | | | |
Goldman Sachs | | | 8/5/20 | | | | USD | | | | 740,960 | | | | BRL | | | | 3,000,000 | | | $ | 2,852 | |
Goldman Sachs | | | 8/5/20 | | | | USD | | | | 196,157 | | | | BRL | | | | 835,000 | | | | (9,284 | ) |
Goldman Sachs | | | 8/5/20 | | | | BRL | | | | 3,835,000 | | | | USD | | | | 904,055 | | | | 39,495 | |
EUR: Euro | | | | | | | | | | | | | | | | | | | | | | | | |
Bank of America | | | 3/18/20 | | | | USD | | | | 1,665,867 | | | | EUR | | | | 1,500,000 | | | | (24,585 | ) |
Citibank | | | 3/18/20 | | | | USD | | | | 1,401,344 | | | | EUR | | | | 1,250,000 | | | | (7,367 | ) |
Citibank | | | 1/8/20 | | | | USD | | | | 4,817,933 | | | | EUR | | | | 4,325,000 | | | | (34,933 | ) |
Citibank | | | 3/18/20 | | | | USD | | | | 2,338,564 | | | | EUR | | | | 2,075,000 | | | | 105 | |
Credit Suisse | | | 6/17/20 | | | | USD | | | | 23,281,017 | | | | EUR | | | | 20,650,000 | | | | (122,250 | ) |
Goldman Sachs | | | 3/18/20 | | | | USD | | | | 751,933 | | | | EUR | | | | 675,000 | | | | (8,770 | ) |
Citibank | | | 1/8/20 | | | | EUR | | | | 525,000 | | | | USD | | | | 583,086 | | | | 5,990 | |
GBP: British Pound | | | | | | | | | | | | | | | | | | | | | | | | |
Barclays | | | 1/8/20 | | | | USD | | | | 492,590 | | | | GBP | | | | 375,000 | | | | (4,207 | ) |
Citibank | | | 1/8/20 | | | | USD | | | | 3,061,000 | | | | GBP | | | | 2,375,000 | | | | (85,383 | ) |
Citibank | | | 1/8/20 | | | | USD | | | | 640,146 | | | | GBP | | | | 500,000 | | | | (22,251 | ) |
Citibank | | | 6/17/20 | | | | USD | | | | 1,640,643 | | | | GBP | | | | 1,225,000 | | | | 10,817 | |
KRW: South Korean Won | | | | | | | | | | | | | | | | | | | | | | | | |
Citibank | | | 10/7/20 | | | | USD | | | | 3,569,314 | | | | KRW | | | | 4,220,000,000 | | | | (103,566 | ) |
THB: Thai Baht | | | | | | | | | | | | | | | | | | | | | | | | |
Barclays | | | 1/22/20 | | | | USD | | | | 1,219,357 | | | | THB | | | | 38,300,000 | | | | (68,736 | ) |
Barclays | | | 6/10/20 | | | | USD | | | | 754,389 | | | | THB | | | | 23,420,000 | | | | (34,427 | ) |
Barclays | | | 6/10/20 | | | | USD | | | | 2,145,156 | | | | THB | | | | 66,650,000 | | | | (99,701 | ) |
Barclays | | | 9/23/20 | | | | USD | | | | 985,283 | | | | THB | | | | 30,100,000 | | | | (29,454 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized gain on currency forward contracts | | | | 59,259 | |
Unrealized loss on currency forward contracts | | | | (654,914 | ) |
| | | | | |
Net unrealized loss on currency forward contracts | | | $ | (595,655 | ) |
| | | | | |
The listed counterparty may be the parent company or one of its subsidiaries.
CENTRALLY CLEARED INTEREST RATE SWAP CONTRACTS
| | | | | | | | | | | | | | | | | | | | | | | | |
Notional
Amount | | Expiration
Date | | | Pay (Semi-Annually) | | | Receive (Quarterly) | | | Value | | | Upfront
Payments
(Receipts) | | | Unrealized
Appreciation/
(Depreciation) | |
$1,620,000 | | | 3/18/50 | | | | Fixed 2.25 | % | | | USD LIBOR 3-Month | | | $ | (57,857 | ) | | $ | (116,966 | ) | | $ | 58,887 | |
| | |
| PAGE 10§ DODGE & COX GLOBAL BOND FUND | | See accompanying Notes to Consolidated Financial Statements |
| | | | |
CONSOLIDATED
STATEMENT OF ASSETS AND LIABILITIES | |
| |
| | | December 31, 2019 | |
ASSETS: | | | | |
Investments in securities, at value (cost $420,933,129) | | $ | 432,362,460 | |
Unrealized appreciation on currency forward contracts | | | 59,259 | |
Cash | | | 100 | |
Cash denominated in foreign currency (cost $846,900) | | | 845,847 | |
Deposits with broker for futures contracts | | | 973,851 | |
Deposits with broker for swaps | | | 180,766 | |
Receivable for variation margin for futures contracts | | | 430,999 | |
Receivable for variation margin for swaps | | | 12,190 | |
Receivable for investments sold | | | 11,968 | |
Receivable for Fund shares sold | | | 2,611,985 | |
Dividends and interest receivable | | | 4,533,261 | |
Prepaid expenses and other assets | | | 19,804 | |
| | | | |
| | | 442,042,490 | |
| | | | |
LIABILITIES: | | | | |
Unrealized depreciation on currency forward contracts | | | 654,914 | |
Bank overdraft | | | 388,231 | |
Payable for investments purchased | | | 5,852,116 | |
Payable for Fund shares redeemed | | | 108,133 | |
Deferred foreign capital gains tax | | | 87,775 | |
Management fees payable | | | 169,467 | |
Accrued expenses | | | 207,809 | |
| | | | |
| | | 7,468,445 | |
| | | | |
NET ASSETS | | $ | 434,574,045 | |
| | | | |
NET ASSETS CONSIST OF: | | | | |
Paid in capital | | $ | 425,511,359 | |
Distributable earnings | | | 9,062,686 | |
| | | | |
| | $ | 434,574,045 | |
| | | | |
Fund shares outstanding (par value $0.01 each, unlimited shares authorized) | | | 39,150,092 | |
Net asset value per share | | $ | 11.10 | |
| |
CONSOLIDATED STATEMENT OF OPERATIONS | | | | |
| |
| | | Year Ended
December 31 , 2019 | |
INVESTMENT INCOME: | | | | |
Dividends | | $ | 204,312 | |
Interest (net of foreign taxes of $136,642) | | | 13,589,185 | |
| | | | |
| | | 13,793,497 | |
| | | | |
EXPENSES: | | | | |
Management fees | | | 1,478,240 | |
Custody and fund accounting fees | | | 116,018 | |
Transfer agent fees | | | 42,628 | |
Professional services | | | 301,583 | |
Shareholder reports | | | 51,947 | |
Registration fees | | | 99,815 | |
Trustees’ fees | | | 341,667 | |
Miscellaneous | | | 23,445 | |
| | | | |
Total expenses | | | 2,455,343 | |
| | | | |
Expenses reimbursed by investment manager | | | (1,124,927 | ) |
| | | | |
Net expenses | | | 1,330,416 | |
| | | | |
NET INVESTMENT INCOME | | | 12,463,081 | |
| | | | |
REALIZED AND UNREALIZED GAIN (LOSS): | | | | |
Net realized gain (loss) | | | | |
Investments in securities | | | 3,928,250 | |
Futures contracts | | | (4,576,411 | ) |
Swaps | | | (372,926 | ) |
Currency forward contracts | | | 1,611,439 | |
Foreign currency transactions | | | (83,282 | ) |
Net change in unrealized appreciation/depreciation | | | | |
Investments in securities (net of increase in deferred foreign capital gains tax of $34,009) | | | 18,472,186 | |
Futures contracts | | | 1,954,665 | |
Swaps | | | 106,460 | |
Currency forward contracts | | | (714,871 | ) |
Foreign currency translation | | | 42,648 | |
| | | | |
Net realized and unrealized gain | | | 20,368,158 | |
| | | | |
NET CHANGE IN NET ASSETS FROM OPERATIONS | | $ | 32,831,239 | |
| | | | |
| | | | | | | | |
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS | |
| | |
| | | Year Ended
December 31, 2019 | | | Year Ended
December 31, 2018 | |
OPERATIONS: | | | | | | | | |
Net investment income | | $ | 12,463,081 | | | $ | 8,249,112 | |
Net realized gain (loss) | | | 507,070 | | | | 576,759 | |
Net change in unrealized appreciation/depreciation | | | 19,861,088 | | | | (11,885,492 | ) |
| | | | | | | | |
| | | 32,831,239 | | | | (3,059,621 | ) |
| | | | | | | | |
| | |
DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
Total distributions | | | (12,957,331 | ) | | | (10,969,606 | ) |
| | |
FUND SHARE TRANSACTIONS: | | | | | | | | |
Proceeds from sale of shares | | | 230,427,910 | | | | 123,099,819 | |
Reinvestment of distributions | | | 12,291,764 | | | | 10,700,054 | |
Cost of shares redeemed | | | (54,122,654 | ) | | | (49,996,330 | ) |
| | | | | | | | |
Net change from Fund share transactions | | | 188,597,020 | | | | 83,803,543 | |
| | | | | | | | |
Total change in net assets | | | 208,470,928 | | | | 69,774,316 | |
| | |
NET ASSETS: | | | | | | | | |
Beginning of year | | | 226,103,117 | | | | 156,328,801 | |
| | | | | | | | |
End of year | | $ | 434,574,045 | | | $ | 226,103,117 | |
| | | | | | | | |
| | |
SHARE INFORMATION: | | | | | | | | |
Shares sold | | | 20,885,448 | | | | 11,449,398 | |
Distributions reinvested | | | 1,112,139 | | | | 1,037,870 | |
Shares redeemed | | | (4,953,662 | ) | | | (4,697,860 | ) |
| | | | | | | | |
Net change in shares outstanding | | | 17,043,925 | | | | 7,789,408 | |
| | | | | | | | |
| | |
| See accompanying Notes to Consolidated Financial Statements | | DODGE & COX GLOBAL BOND FUND§PAGE 11 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Dodge & Cox Global Bond 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 anopen-end management investment company. The Fund1 seeks a high rate of total return consistent with long-term preservation of capital. 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 Fund is an investment company and follows the accounting and reporting guidance issued in Topic 946 by the Financial Accounting Standards Board. 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 normally valued as of the scheduled close of trading on the New York Stock Exchange (“NYSE”), generally 4 p.m. Eastern Time, each day that the NYSE is open for business.
Debt securities and derivatives traded over the counter are valued using prices received from independent pricing services which utilize dealer quotes, recent transaction data, pricing models, and other inputs to arrive at market-based valuations. Pricing models may consider quoted prices for similar securities, interest rates, cash flows (including prepayment speeds), and credit risk. Exchange-traded derivatives are valued at the settlement price determined by the relevant exchange. Other financial instruments for which market quotes are readily available are valued at market value. Short-term securities less than 60 days to maturity may be valued at amortized cost if amortized cost approximates current value. Mutual funds are valued at their respective net asset values. Security values are not discounted based on the size of the Fund’s position and may differ from the value the Fund receives upon sale of the securities.
Investments initially valued in currencies other than the U.S. dollar are converted to the U.S. dollar using prevailing exchange rates. Currency forward contracts are valued based on the prevailing forward exchange rates of the underlying currencies. As a result, the Fund’s net assets 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 normal valuation procedures produce valuations that are deemed unreliable or inappropriate under the circumstances existing at the time, the investment will be valued at fair value as determined in good faith by
| 1 | | The Fund’s predecessor, Dodge & Cox Global Bond Fund, L.L.C. (the “Private Fund”), was organized on August 31, 2012 and commenced operations on December 5, 2012 as a private investment fund that reorganized into, and had the same investment manager as, the Fund. The Fund commenced operations on May 1, 2014, upon the transfer of assets from the Private Fund. This transaction was accomplished through a transfer of Private Fund net assets valued at $10,725,688 in exchange for 1,000,000 shares of the Fund. Immediately after the transfer, the shares of the Fund were distributed to the sole owner of the Private Fund and the investment manager of the Fund, Dodge & Cox, which became the initial shareholder of the Fund. |
or under the direction of the Fund’s Board of Trustees. The Board of Trustees has appointed Dodge & Cox, the Fund’s investment manager, to make fair value determinations in accordance with the Dodge & Cox Funds Valuation Policies (“Valuation Policies”), subject to Board oversight. Dodge & Cox has established a Pricing Committee that is comprised of representatives from Treasury, Legal, Compliance, and Operations. The Pricing Committee is responsible for implementing the Valuation Policies, including determining the fair value of securities and other investments when necessary. The Pricing Committee considers relevant indications of value that are reasonably available to it in determining the fair value assigned to a particular security, such as the value of similar financial instruments, trading volumes, contractual restrictions on disposition, related corporate actions, and changes in economic conditions. In doing so, the Pricing Committee employs various methods for calibrating fair valuation approaches, including a regular review of key inputs and assumptions, back-testing, and review of any related market activity.
Valuing securities through a fair value determination involves greater reliance on judgment than valuation of securities based on readily available market quotations. In some instances, lack of information and uncertainty as to the significance of information may lead to a conclusion that a prior valuation is the best indication of a security’s value. 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.
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.
Interest income is recorded on the accrual basis. Interest income includes coupon interest, amortization of premium and accretion of discount on debt securities, gain/loss on paydowns, and inflation adjustments to the principal amount of inflation-indexed securities. The ability of the issuers of the debt securities held by the Fund to meet their obligations may be affected by economic developments in a specific industry, state, region, or country. Debt obligations may be placed on non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured. Dividend income is recorded on the ex-dividend date.
Expenses are recorded on the accrual basis. Some 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 using methodologies determined by the nature of the expense.
Distributions to shareholders are recorded on theex-dividend date.
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 receipts and are accrued at the time the associated interest income is recorded.
PAGE 12§ DODGE & COX GLOBAL BOND FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capital gains taxes are incurred upon disposition of certain foreign securities. Expected capital gains taxes on appreciated securities, if any, are accrued as unrealized losses and incurred capital gains taxes 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.
Repurchase agreements Repurchase agreements are transactions under which a Fund purchases a security from a dealer counterparty and agrees to resell the security to that counterparty on a specified future date at the same price, plus a specified interest rate. The Fund’s repurchase agreements are secured by U.S. government or agency securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. The Fund maintains custody of the underlying collateral securities, either through its regular custodian or through a third party custodian that maintains separate accounts for both the Fund and its counterparties. In the event of default by a counterparty, the Fund has the contractual right to liquidate the securities and to apply the proceeds in satisfaction of the obligation.
To-Be-Announced securities The Fund may purchase mortgage-related securities on ato-be-announced (“TBA”) basis at a fixed price, with payment and delivery on a scheduled future date beyond the customary settlement period for such securities. The Fund may choose to extend the settlement through a “dollar roll” transaction in which it sells the mortgage-related securities to a dealer and simultaneously agrees to purchase similar securities for future delivery at a predetermined price. The Fund accounts for TBA dollar rolls as purchase and sale transactions.
Foreign currency translation The books and records of the Fund 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 includes foreign currency gain (loss) related to investment transactions.
Reported realized and unrealized gain (loss) on foreign currency transactions and translation include the following: holding/disposing of foreign currency, the difference between the trade and settlement dates on securities transactions, the difference between the accrual and payment dates on interest, and currency losses on the purchase of foreign currency in certain countries that impose taxes on such transactions.
Consolidation The Fund may invest in certain securities through its wholly owned subsidiary, Dodge & Cox Global Bond Fund Cayman, Ltd. (the “Subsidiary”). The Subsidiary is a Cayman Islands exempted company and invests in certain securities consistent with the investment objective of the Fund. The Fund’s Consolidated Financial Statements, including the Consolidated Portfolio of Investments, consist of the holdings and accounts of the Fund and the Subsidiary. All intercompany
transactions and balances have been eliminated. At December 31, 2019, the Subsidiary had net assets of $100, which represented less than 0.01% of the Fund’s consolidated net assets.
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 |
| § | | Level 2: Other significant observable inputs (including quoted prices for similar securities, market indices, interest rates, credit risk, forward exchange rates, 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 at December 31, 2019:
| | | | | | | | |
| Classification | | LEVEL 1 (Quoted Prices) | | | LEVEL 2
(Other Significant
Observable Inputs) | |
Securities | | | | | | | | |
Debt Securities | | | | | | | | |
Government | | $ | — | | | $ | 146,360,793 | |
Government-Related | | | — | | | | 12,800,078 | |
Securitized | | | — | | | | 101,345,559 | |
Corporate | | | — | | | | 164,486,474 | |
Short-term Investments | | | | | | | | |
Repurchase Agreements | | | — | | | | 5,659,000 | |
Money Market Fund | | | 1,710,556 | | | | — | |
| | | | | | | | |
Total Securities | | $ | 1,710,556 | | | $ | 430,651,904 | |
| | | | | | | | |
| | |
Other Investments | | | | | | | | |
Futures Contracts | | | | | | | | |
Appreciation | | $ | 1,095,897 | | | $ | — | |
Interest Rate Swap Contracts | | | | | | | | |
Appreciation | | | — | | | | 58,887 | |
Currency Forward Contracts | | | | | | | | |
Appreciation | | | — | | | | 59,259 | |
Depreciation | | | — | | | | (654,914 | ) |
| | | | | | | | | |
NOTE 3—DERIVATIVE INSTRUMENTS
The Fund may use derivatives either to minimize the impact of certain risks to one or more of its investments (as a “hedging technique”) or to implement its investment strategy. A derivative is a financial instrument whose value is derived from a security, currency, interest rate, index, or other financial instrument.
DODGE & COX GLOBAL BOND FUND§PAGE 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Futures contracts Futures contracts involve an obligation to purchase or sell (depending on whether the Fund has entered a long or short futures contract, respectively) an asset at a future date, at a price set at the time of the contract. Futures contracts are exchange-traded. Upon entering into a futures contract, the Fund is required to deposit an amount of cash or liquid assets (referred to as “initial margin”) in a segregated account with the clearing broker. Subsequent payments (referred to as “variation margin”) to and from the clearing broker are made on a daily basis based on changes in the market value of the contract. Changes in the market value of open futures contracts are recorded as unrealized appreciation or depreciation in the Consolidated Statement of Operations. Realized gains and losses on futures contracts are recorded in the Consolidated Statement of Operations at the closing or expiration of the contracts. Cash deposited with a broker as initial margin is recorded in the Consolidated Statement of Assets and Liabilities. A receivable and/or payable to brokers for daily variation margin is also recorded in the Consolidated Statement of Assets and Liabilities.
Investments in futures contracts may include certain risks, which may be different from, and potentially greater than, those of the underlying assets. To the extent the Fund uses futures, it is exposed to additional volatility and potential losses resulting from leverage.
Interest rate swaps Interest rate swaps are agreements that obligate two parties to exchange a series of cash flows at specified payment dates calculated by reference to specified interest rates, such as an exchange of floating rate payments for fixed rate payments. Upon entering into a centrally cleared interest rate swap, the Fund is required to post an amount of cash or liquid assets (referred to as initial margin) in a segregated account with the clearing broker. Subsequent payments (referred to as variation margin) to and from the clearing broker are made on a daily basis based on changes in the market value of the swap. Changes in the market value of open interest rate swaps are recorded as unrealized appreciation or depreciation in the Consolidated Statement of Operations. Realized gains and losses on interest rate swaps are recorded in the Consolidated Statement of Operations, both upon the exchange of cash flows on each specified payment date and upon the closing or expiration of the swap. Cash deposited with the clearing broker as initial margin is recorded in the Consolidated Statement of Assets and Liabilities. A receivable and/or payable to brokers for daily variation margin is also recorded in the Consolidated Statement of Assets and Liabilities.
Investments in interest rate swaps may include certain risks including unfavorable changes in interest rates, or a default or failure by the clearing broker or clearinghouse.
Currency forward contracts Currency forward contracts are agreements to purchase or sell a specific currency amount at a specified future date and price. Currency forward contracts are tradedover-the-counter. The values of currency forward contracts change daily based on the prevailing forward exchange rates of the underlying currencies. Changes in the value of open contracts are recorded as unrealized appreciation or depreciation in the Consolidated Statement of Operations. When a currency forward contract is closed, the Fund records a realized gain or loss in the Consolidated 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.
Losses from these transactions may arise from unfavorable changes in currency values or if a counterparty does not perform under a contract’s terms.
Additional derivative information The following identifies the location on the Consolidated Statement of Assets and Liabilities and values of the Fund’s derivative instruments, categorized by primary underlying risk exposure.
| | | | | | | | | | | | |
| | | Interest Rate
Derivatives | | | Foreign
Exchange
Derivatives | | | Total
Value | |
Assets | | | | | | | | | | | | |
Unrealized appreciation on currency
forward contracts | | $ | — | | | $ | 59,259 | | | $ | 59,259 | |
Futures contracts(a) | | | 1,095,897 | | | | — | | | | 1,095,897 | |
Swaps(a) | | | 58,887 | | | | — | | | | 58,887 | |
| | | | | | | | | | | | |
| | $ | 1,154,784 | | | $ | 59,259 | | | $ | 1,214,043 | |
| | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | |
Unrealized depreciation on currency
forward contracts | | $ | — | | | $ | 654,914 | | | $ | 654,914 | |
| | | | | | | | | | | | | |
| (a) | Includes cumulative appreciation (depreciation). Only the current day’s variation margin is reported in the Consolidated Statement of Assets and Liabilities. |
The following summarizes the effect of derivative instruments on the Consolidated Statement of Operations, categorized by primary underlying risk exposure.
| | | | | | | | | | | | |
| | | Interest Rate Derivatives | | | Foreign
Exchange Derivatives | | | Total | |
Net realized gain (loss) | | | | | | | | | | | | |
Futures contracts | | $ | (4,576,411 | ) | | $ | — | | | $ | (4,576,411 | ) |
Swaps | | | (372,926 | ) | | | — | | |
| (372,926
| )
|
Currency forward contracts | | | — | | | | 1,611,439 | | | | 1,611,439 | |
| | | | | | | | | | | | |
| | $ | (4,949,337 | ) | | $ | 1,611,439 | | | $ | (3,337,898 | ) |
| | | | | | | | | | | | |
Net change in unrealized appreciation/depreciation | |
Futures contracts | | $ | 1,954,665 | | | $ | — | | | $ | 1,954,665 | |
Swaps | | | 106,460 | | | | — | | | | 106,460 | |
Currency forward contracts | | | — | | | | (714,871 | ) | | | (714,871 | ) |
| | | | | | | | | | | | |
| | $ | 2,061,125 | | | $ | (714,871 | ) | | $ | 1,346,254 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following summarizes the range of volume in the Fund’s derivative instruments during the year ended December 31, 2019.
| | | | | | |
| Derivative | | | | % of Net Assets | |
Futures contracts | | USD notional value | | | 12-19 | % |
Swaps | | USD notional value | | | 0-1 | % |
Currency forward contracts | | USD total value | | | 11-14 | % |
| | | | | | | |
PAGE 14§ DODGE & COX GLOBAL BOND FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Fund may enter into variousover-the-counter derivative contracts governed by International Swaps and Derivatives Association master agreements (“ISDA agreements”). The Fund’s ISDA agreements, which are separately negotiated with each dealer counterparty, specify (i) events of default and other events permitting a party to terminate some or all of the contracts thereunder and (ii) the process by which those contracts will be valued for purposes of determining termination payments. If some or all of the contracts under a master agreement are terminated because of an event of default or similar event, the values of all terminated contracts must be netted to determine a single payment owed by one party to the other. To the extent amounts owed to the Fund by its counterparties are not collateralized, the Fund is at risk of those counterparties’non-performance. The Fund attempts to mitigate counterparty credit risk by entering into contracts only with counterparties it believes to be of good credit quality, by exchanging collateral, and by monitoring the financial stability of those counterparties.
For financial reporting purposes, the Fund does not offset assets and liabilities that are subject to a master netting arrangement in the Consolidated Statement of Assets and Liabilities.
The Fund’s ability to net assets and liabilities and to offset collateral pledged or received is based on contractual netting/offset provisions in the ISDA agreements. The following table presents the Fund’s net exposure to each counterparty for derivatives that are subject to enforceable master netting arrangements as of December 31, 2019.
| | | | | | | | | | | | | | | | |
| Counterparty | | Gross Amount of Recognized Assets | | | Gross Amount of Recognized Liabilities | | | Cash
Collateral
Pledged/ (Received) | | | Net Amount(a) | |
Bank of America | | $ | — | | | $ | 24,585 | | | $ | — | | | $ | (24,585 | ) |
Barclays | | | — | | | | 236,525 | | | | — | | | | (236,525 | ) |
Citibank | | | 16,912 | | | | 253,500 | | | | — | | | | (236,588 | ) |
Credit Suisse | | | — | | | | 122,250 | | | | — | | | | (122,250 | ) |
Goldman Sachs | | | 42,347 | | | | 18,054 | | | | — | | | | 24,293 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 59,259 | | | $ | 654,914 | | | $ | — | | | $ | (595,655 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| (a) | Represents the net amount receivable (payable) from the counterparty in the event of a default. |
NOTE 4—RELATED PARTY TRANSACTIONS
Management fees Under a written agreement approved by a unanimous vote of the Board of Trustees, the Fund pays a management fee monthly at an annual rate of 0.50% of the Fund’s average daily net assets to Dodge & Cox, investment manager of the Fund. Dodge & Cox has contractually agreed to reimburse the Fund for all ordinary expenses to the extent necessary to maintain the ratio of total operating expenses to average net assets (“net expense ratio”) at 0.45% through April 30, 2020. The term of the agreement is renewable annually thereafter unless terminated with 30 days’ written notice by either party prior to the end of the term.
Fund officers and trustees All officers and two 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 5—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. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes. Financial reporting records are adjusted for permanent book to tax differences at year end to reflect tax character. Book to tax differences are primarily due to differing treatments of wash sales, net short-term realized gain (loss), foreign currency realized gain (loss), straddles, derivatives, and distributions.
Distributions during the years noted below were characterized as follows for federal income tax purposes:
| | | | | | | | |
| | | Year Ended
December 31, 2019 | | | Year Ended
December 31, 2018 | |
Ordinary income | | $ | 12,957,331 | | | $ | 9,758,236 | |
| | ($ | 0.377 per share | ) | | ($ | 0.471 per share | ) |
Long-term capital gain | | | — | | | $ | 1,211,370 | |
| | | | | | ($ | 0.060 per share | ) |
At December 31, 2019, the tax basis components of distributable earnings were as follows:
| | | | |
Undistributed ordinary income | | $ | 80,485 | |
Capital loss carryforward(a) | | | (1,938,295 | ) |
At December 31, 2019, unrealized appreciation and depreciation for investments and derivatives based on cost for federal income tax purposes were as follows:
| | | | |
Tax cost | | $ | 421,944,150 | |
| | | | |
Unrealized appreciation | | | 15,959,012 | |
Unrealized depreciation | | | (4,981,573 | ) |
| | | | |
Net unrealized appreciation | | | 10,977,439 | |
| | | | | |
| (a) | Represents accumulated long-term capital loss as of December 31, 2019, which may be carried forward to offset future capital gains. |
Fund management has reviewed the tax positions for the open periods (three years and four years, respectively, from filing the Fund’s federal and State tax returns) applicable to the Fund, and has determined that no provision for income tax is required in the Fund’s financial statements.
DODGE & COX GLOBAL BOND FUND§PAGE 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6—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 year.
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 itspro-rata portion of the Line of Credit. For the year ended December 31, 2019, the Fund’s commitment fee amounted to $2,023 and is reflected as a Miscellaneous Expense in the Consolidated Statement of Operations. Interest on borrowings is charged at the prevailing rate. There were no borrowings on the Line of Credit during the year.
NOTE 7—PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 2019, purchases and sales of securities, other than short-term securities and U.S. government securities, aggregated $132,062,660 and $70,148,906, respectively. For the year ended December 31, 2019, purchases and sales of U.S. government securities aggregated $219,739,709 and $100,252,669, respectively.
NOTE 8—NEW ACCOUNTING GUIDANCE
In March 2017, the Financial Accounting Standards Board issued an update to amend the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for premiums to the earliest call date, but do not require an accounting change for securities held at a discount. The amendments are effective for financial statements for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Fund’s adoption of the updated accounting standards on January 1, 2019 did not have a material impact on the Fund’s financial statements.
NOTE 9—SUBSEQUENT EVENTS
Fund management has determined that no material events or transactions occurred subsequent to December 31, 2019, and through the date of the Fund’s financial statements issuance, which require additional disclosure in the Fund’s financial statements.
PAGE 16§ DODGE & COX GLOBAL BOND FUND
CONSOLIDATED FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | | | |
SELECTED DATA AND RATIOS (for a share outstanding throughout each year) | | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
| | | | |
Net asset value, beginning of year | | | $10.23 | | | | $10.92 | | | | $10.33 | | | | $9.67 | | | | $10.31 | |
Income from investment operations: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 0.38 | | | | 0.40 | | | | 0.37 | | | | 0.30 | | | | 0.34 | |
Net realized and unrealized gain (loss) | | | 0.87 | | | | (0.56 | ) | | | 0.49 | | | | 0.54 | | | | (0.98 | ) |
| | | | |
Total from investment operations | | | 1.25 | | | | (0.16 | ) | | | 0.86 | | | | 0.84 | | | | (0.64 | ) |
| | | | |
Distributions to shareholders from: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (0.38 | ) | | | (0.43 | ) | | | (0.26 | ) | | | (0.18 | ) | | | — | |
Net realized gain | | | — | | | | (0.10 | ) | | | (0.01 | ) | | | — | | | | — | |
| | | | |
Total distributions | | | (0.38 | ) | | | (0.53 | ) | | | (0.27 | ) | | | (0.18 | ) | | | — | |
| | | | |
Net asset value, end of year | | | $11.10 | | | | $10.23 | | | | $10.92 | | | | $10.33 | | | | $9.67 | |
| | | | |
Total return | | | 12.23 | % | | | (1.45 | )% | | | 8.31 | % | | | 8.64 | % | | | (6.21 | )% |
Ratios/supplemental data: | | | | | | | | | | | | | | | | | | | | |
Net assets, end of year (millions) | | | $435 | | | | $226 | | | | $156 | | | | $110 | | | | $68 | |
Ratio of expenses to average net assets | | | 0.45 | % | | | 0.45 | % | | | 0.49 | % | | | 0.60 | % | | | 0.60 | % |
Ratio of expenses to average net assets,
before reimbursement by investment manager | | | 0.83 | % | | | 0.92 | % | | | 1.06 | % | | | 1.33 | % | | | 1.41 | % |
Ratio of net investment income to average net assets | | | 4.21 | % | | | 4.15 | % | | | 3.51 | % | | | 3.77 | % | | | 3.39 | % |
Portfolio turnover rate | | | 60 | % | | | 55 | % | | | 46 | % | | | 73 | % | | | 55 | % |
See accompanying Notes to Consolidated Financial Statements
DODGE & COX GLOBAL BOND FUND§PAGE 17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TotheBoard of Trustees of the Dodge & Cox Funds and Shareholders of Dodge & Cox Global Bond Fund
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of assets and liabilities, including the consolidated portfolio of investments, ofDodge & Cox Global Bond Fund and its subsidiary (one of the funds constituting Dodge & Cox Funds, referred to hereafter as the “Fund”) as of December 31, 2019, the related consolidated statementof operations for the year endedDecember 31, 2019, the consolidated statement of changes in net assets for each of the two years in the period ended December 31, 2019, including the related notes, and the financial highlights for each of the five years in the period ended December 31, 2019 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2019, 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 ended December 31, 2019 and the financial highlights for each of the five years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31, 2019 by correspondence with the custodian, transfer agent and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 20, 2020
We have served as the auditor of one or more investment companies in the Dodge & Cox Funds since 1931.
PAGE 18§ DODGE & COX GLOBAL BOND FUND
FUNDS’ LIQUIDITY RISK MANAGEMENT PROGRAM
(unaudited)
The Funds have adopted and implemented a written liquidity risk management program as required by Rule 22e-4 under the Investment Company Act. The program is reasonably designed to assess and manage each Fund’s liquidity risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings and access to other funding sources including the Funds’ interfund lending facility and line of credit. The Funds’ Board of Trustees approved the appointment of a Liquidity Risk Management Committee including representatives from Dodge & Cox’s legal, compliance, treasury, operations, trading, and portfolio management departments, which is responsible for the program’s administration and oversight and for reporting to the Board on at least an annual basis regarding the program’s operation and effectiveness. The Liquidity Risk Management Committee refreshed its assessment of the Fund’s liquidity risk profile, considering additional data gathered in the 12 months ended September 30, 2019 and the adequacy and effectiveness of the liquidity risk management program’s operations since its inception in February, 2019 (the “covered period”) in order to prepare a written report to the Board of Trustees for consideration at its meeting held on December 12, 2019. The report concluded that (i) the Fund did not experience significant liquidity challenges during the covered period (ii) the Fund’s investment strategy is appropriate for an open-end fund; and (iii) the Fund’s liquidity risk management program is reasonably designed to assess and manage its liquidity risk.
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, 2019, 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 additionalone-year term through December 31, 2020 with respect to each Fund. During the course of the year, the Board received extensive information and materials relating to the investment management and administrative services provided by Dodge & Cox and the performance of each of the Funds.
INFORMATION RECEIVED
Over the past several years, the Board has requested, received, and discussed a number of special presentations on topics relevant to their annual consideration of the proposed renewal of the Funds’ Agreements. In addition to the foregoing and in advance of the
meetings referred to below, the Board, including the Independent Trustees, requested, received, and reviewed materials relating to the Agreements and the services provided by Dodge & Cox. The Independent Trustees retained Broadridge to prepare an independent expense and performance summary for each Fund and comparable funds managed by other advisers identified by Broadridge. The Broadridge materials included information regarding advisory and administrative fee rates, expense ratios, and transfer agency, custodial, and distribution expenses, as well as performance comparisons to each Fund’s peer group and to a broad-based securities index or combination of indices. The Broadridge 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, management fee revenue, and separate account fee schedules. The Board additionally considered the Funds’ brokerage commissions, turnover rates, sales and redemption data, and the investment that Dodge & Cox makes in research used in managing the Funds. The Board received and reviewed memoranda and related materials addressing, among other things, Dodge & Cox’s services to the Funds; how Dodge & Cox Funds’ fees compare to fees of peer group funds; the different fees, services, costs, and risks associated with other accounts managed by Dodge & Cox as compared to the Dodge & Cox Funds; and the ways in which the Funds realize economies of scale. 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 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 mutual fund management arrangements. The Trust’s Contract Review Committee, consisting solely of Independent Trustees, met with the independent legal counsel on November 7, 2019 and again on December 12, 2019 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 asall-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 range of services to the Funds in addition to portfolio management, including regulatory compliance, trading desks, proxy voting, transfer agent and custodian oversight, administration, regulatory filings, tax compliance and filings, website, and anti-money laundering. The 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 GLOBAL BOND FUND§PAGE 19
Dodge & Cox. With regard to portfolio management services, the Board considered Dodge & Cox’s established long-term history of care in the management of the Funds; its consistency in investment approach and depth; the background and experience of the Dodge & Cox U.S. Equity Investment Committee, International Equity Investment Committee, Global Equity Investment Committee, U.S. Fixed Income Investment Committee, and Global Fixed Income Investment Committee, and research analysts responsible for managing the Funds; Dodge & Cox’s methods for assessing the regulatory and investment climate in various jurisdictions; its overall level of attention to its core investment management function; and its commitment to the Funds and their shareholders. The Board reviewed information from Dodge & Cox regarding any material conflicts of interest between the Funds and Dodge & Cox or its other clients, and regarding how Dodge & Cox addresses those conflicts. The Board noted Dodge & Cox’s record of favorable press and industry coverage, as well as its good compliance record, and its reputation as a trusted, shareholder-friendly mutual fund family. In addition, the Board considered that Dodge & Cox manages approximately $211 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, that its investment professionals adhere to a consistent investment approach across the Funds, and that due to its deliberate strategy with respect to new products, Dodge & Cox has had stability in its mutual fund product offerings over the course of many years and has the fewest funds of any of the 25 largest mutual fund families by assets. The Board further considered the “Gold” analyst rating awarded by Morningstar to all of the Funds (other than the Global Bond Fund, which has a “Silver” rating). 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 reviewed each Fund’s recent and long-term investment performance (including periods of outperformance and underperformance), as compared to relevant indices and the performance of such Fund’s peer group and broader Morningstar category. In assessing the performance of the Funds, the Board considered the Funds’ investment returns over various periods and the volatility thereof and concluded that the levels experienced were consistent with Dodge & Cox’s long-term approach and active investment style. The Board also compared the short- and long-term investment performance of the equity funds to value-oriented indices, in recognition of the significant performance divergence between value and growth stocks over the past several years. It was noted that equity performance has been consistent with the value oriented investment strategy employed by Dodge & Cox. The Board concluded 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 value-oriented investment management process that emphasizes a long-term investment horizon, independent research, a team approach, price discipline, low cost, and low portfolio turnover. The Board concluded that Dodge & Cox has delivered 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 net expense ratio relative to (1) a broad category of other mutual funds with similar portfolio characteristics and share class and expense structures and (2) a smaller group of peers selected by Broadridge based on investment style, share class characteristics, and asset levels. The Board also considered the management fees charged by Dodge & Cox to other clients. In particular, the Board considered that the Funds continue to be below their peer group medians in net expense ratios. The Board also evaluated the operating structures of the Funds and Dodge & Cox, noting that the Funds do not chargefront-end sales commissions or distribution fees, and Dodge & Cox bears, among other things, the cost of most third-party research, reimbursement for shareholder recordkeeping and administrative costs to third-party retirement plan administrators, and administrative and office overhead. The Board noted that the Broadridge report shows that the net expense ratio of every Dodge & Cox Fund is in the least expensive quartile compared to its broad Morningstar category. The Board noted the Funds’ unusual single-share-class structure and reviewed Broadridge data (including asset-weighted average expense ratios) showing that most of the peer group funds offer several different classes of shares, with different expense ratios, to different categories of investors, and that the Broadridge expense comparisons described above generally compare the net expense ratio of each Dodge & Cox Fund’s single share class to one of the least expensive share classes of the peer fund, even though those share classes are often not available to retail investors. The Board noted that the Funds provide access for small investors to high quality investment management at a relatively low cost. The Board also considered that the Funds are priced to scale, i.e., management fee rates begin at relatively low levels. Even without breakpoints, the Funds’ management fee rates are lower than those of many peer funds whose fee schedules include breakpoints. With respect tonon-U.S. funds sponsored and managed by Dodge & Cox that are comparable to the Funds in many respects, the Board noted that the fee rates charged by Dodge & Cox are the same as or higher than the fee rates charged to the Funds. 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 the differences in the nature and scope of services Dodge & Cox provides to the Funds as compared to other client accounts, as well as material differences in regulatory, litigation, and other risks as between Dodge & Cox Funds and other types of clients. The Board noted that different
PAGE 20§ DODGE & COX GLOBAL BOND FUND
markets exist for mutual fund and institutional separate account management services and that a comparison of Fund fee rates and separate account fee rates must consider the fact that separate account clients bear additional costs and responsibilities that are included in the cost of a Fund. 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-ownedS-Corporation and relative to the scope and quality of the services provided. The Board noted in particular that Dodge & Cox’s profits are not generated by high fee rates, but reflect a 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 includes a return on shareholder employees’ investment in the firm, which is vital for remaining independent and facilitating retention of management and investment professionals. The Board also considered that Dodge & Cox has in the past closed some of the Funds to new investors to proactively manage growth in those Funds. While these actions are intended to benefit existing Fund shareholders, the effect is to reduce potential revenues to Dodge & Cox from new shareholders. The Board also considered potential“fall-out” benefits (including the receipt of research from unaffiliated brokers and reputational benefits tonon-U.S. funds sponsored and managed by Dodge & Cox) that Dodge & Cox might receive as a result of its association with the Funds and determined that they are acceptable. The Board also noted that Dodge & Cox continues to invest in its business to provide enhanced services, systems, and research capabilities, all of which benefit the Funds. The Board concluded that Dodge & Cox’s profitability is the keystone of its independence, stability, and long-term investment performance and that the profitability of Dodge & Cox’s relationship with the Funds (includingfall-out benefits) is fair and reasonable.
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 level of 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 and expense structure and the fact that the Dodge & Cox Funds build economies of scale into their fee structures by charging low fees from a fund’s inception
and keeping overall expenses down as a Fund grows, as compared to other fund complexes that employ fee “breakpoints” only after a fund reaches a certain scale. An assessment of economies of scale must also take into account that Dodge & Cox invests time and resources in each new Fund for months (and sometimes years) prior to launch; in addition, in a Fund’s early periods of operations, expenses are capped, which means that Dodge & Cox subsidizes the operations of a new Fund for a period of time until it reaches scale. The Board also observed that, while total Fund assets have grown over the long term, this growth has not been continuous or evenly distributed across all of the Funds. In addition, the Board noted that Dodge & Cox has shared the benefits of economies of scale with the Funds by adding services to the Funds over time, and that Dodge & Cox’s internal costs of providing investment management, technology, administrative, legal, and compliance services to the Funds continue to increase. For example, Dodge & Cox has increased its global research staff and investment resources over the years to add new capabilities for the benefit of Fund shareholders and to address the increased complexity of investing globally. In addition, Dodge & Cox has made expenditures in other staff, technology, and infrastructure to enable it to integrate credit and equity analyses and to implement its strategy in a more effective manner. Over the last ten years, Dodge & Cox has increased its spending on research, investment management, client servicing, cybersecurity, technology, third-party research, data services, and computer systems for trading, operations, compliance, accounting, and communications at a rate that has outpaced the Funds’ growth rate during the same period. The Board also observed that, even without fee breakpoints, the Funds are competitively priced in a competitive market and that having a low fee from inception is better for shareholders than starting with a higher fee and adding breakpoints. The Board also noted that there are certain diseconomies of scale associated with managing large funds, insofar as certain of the costs and risks associated with portfolio management increase disproportionately as assets grow. 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 management fee structure was fair and reasonable, that each Fund was paying a competitive fee for the services provided, that Dodge & Cox’s services have provided 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.
DODGE & COX GLOBAL BOND FUND§PAGE 21
FUND HOLDINGS
The Fund provides a complete list of its holdings on a quarterly basis by filing the lists with the SEC on Form N-CSR (as of the end of the second and fourth quarters) and on Part F ofForm N-PORT (as of the end of the first and third quarters). Shareholders may view the Fund’s Form N-CSR and Part F of Form N-PORT on the SEC’s website at sec.gov. A list of the Fund’s quarter-end holdings is also available at dodgeandcox.com on or about the 15th day following each quarter end and remains available on the website until the list is updated for 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 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 dodgeandcox.com or at 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.
PAGE 22§ DODGE & COX GLOBAL BOND FUND
DODGE & COX FUNDS—EXECUTIVE OFFICER & TRUSTEE INFORMATION
| | | | | | |
| | | | |
Name (Age) and
Address* | | Position with Trust (Year of Election or
Appointment)** | | Principal Occupation During Past Five Years and Other Relevant
Experience** | | Other Directorships of Public Companies Held
by Trustees |
| |
| INTERESTED TRUSTEES AND EXECUTIVE OFFICERS |
| Charles F. Pohl (61) | | Chairman and Trustee (since 2014) | | Chairman and Director of Dodge & Cox; Chief Investment Officer and member of U.S. Equity Investment Committee (USEIC), Global Equity Investment Committee (GEIC), and International Equity Investment Committee (IEIC) | | — |
| Dana M. Emery (58) | | President (since 2014) and Trustee (since 1993) | | Chief Executive Officer, President, and Director of Dodge & Cox;Co-Director of Fixed Income (until January 2020) and member of U.S. Fixed Income Investment Committee (USFIIC) and Global Fixed Income Investment Committee (GFIIC) | | — |
| Diana S. Strandberg (60) | | Senior Vice President (since 2006) | | Senior Vice President and Director of Dodge & Cox; Director of International Equity and member of GEIC, IEIC, and GFIIC; member of USEIC (until January 2020) | | — |
| Roberta R.W. Kameda (59) | | Chief Legal Officer (since 2019) and Secretary (since 2017) | | Vice President, General Counsel, and Secretary (since 2017) of Dodge & Cox | | — |
| David H. Longhurst (62) | | Treasurer (since 2006) | | Vice President and Assistant Treasurer of Dodge & Cox | | — |
| Katherine M. Primas (45) | | Chief Compliance Officer (since 2010) | | Vice President and Chief Compliance Officer of Dodge & Cox | | — |
| |
| INDEPENDENT TRUSTEES |
| Caroline M. Hoxby (53) | | Trustee (since 2017) | | Professor of Economics, Stanford University; Director of the Economics of Education Program, National Bureau of Economic Research; Senior Fellow, Hoover Institution and Stanford Institute for Economic Policy Research | | — |
| Thomas A. Larsen (70) | | Trustee (since 2002) | | Senior Counsel of Arnold & Porter (law firm) (2015-2018); Partner of Arnold & Porter (until 2015); Director of Howard, Rice, Nemerovski, Canady, Falk & Rabkin (1977-2011) | | — |
| Ann Mather (59) | | Trustee (since 2011) | | CFO, Pixar Animation Studios (1999-2004) | | Director, Alphabet Inc. (internet information services) (since 2005); Director, Glu Mobile, Inc. (multimedia software) (since 2004); Director, Netflix, Inc. (internet television) (since 2010); Director, Arista Networks (cloud networking) (since 2013) |
| Robert B. Morris III (67) | | Trustee (since 2011) | | Advisory Director, The Presidio Group (2005-2016); Partner and Managing Director—Global Investment Research at Goldman Sachs (until 2001) | | — |
Gabriela Franco Parcella (51) | | Trustee (since 2020) | | Managing Partner of Merlone Geier Partners (since 2018); Chairman, President, and CEO, Mellon Capital (2011 to 2017); COO, Mellon Capital (1997 to 2011). | | Director, Terreno Realty Corporation (since 2018) |
| Gary Roughead (68) | | Trustee (since 2013) | | Robert and Marion Oster Distinguished Military Fellow, Hoover Institution (since 2012); Admiral, United States Navy (Ret.); U.S. Navy Chief of Naval Operations (2008-2011) | | Director, Northrop Grumman Corp. (global security) (since 2012); Director, Maersk Line, Limited (shipping and transportation) (since 2016) |
| Mark E. Smith (68) | | Trustee (since 2014) | | Executive Vice President, Managing Director—Fixed Income at Loomis Sayles & Company, L.P. (2003-2011) | | — |
| John B. Taylor (73) | | Trustee (since 2005) (and 1995-2001) | | Professor of Economics, Stanford University (since 1984); Senior Fellow, Hoover Institution (since 1996); 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 six series in the Dodge & Cox Funds complex and serves for an indefinite term. |
| ** | | Information as of January 15, 2020. |
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 dodgeandcox.com or calling
800-621-3979.
DODGE & COX GLOBAL BOND FUND§PAGE 23
dodgeandcox.com
For Fund literature, transactions, and account
information, please visit the Funds’ website.
or write or call:
DODGE & COX FUNDS
c/o DST Asset Manager Solutions, Inc.
P.O. Box 219502
Kansas City, Missouri 64121-9502
(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, 2019, 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.
ITEM 2. CODE OF ETHICS.
A code of ethics, as defined in Item 2 of FormN-CSR, adopted by the registrant and applicable to the registrant’s principal executive officer and principal financial officer was in effect during the entire period covered by this report. A copy of the code of ethics as revised May 1, 2014 is filed as an exhibit to this FormN-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that Ann Mather, Robert B. Morris III and Mark E. Smith, members of the registrant’s Audit and Compliance Committee, are each an “audit committee financial expert” and are “independent”, as defined in Item 3 of FormN-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)– (d) Aggregate fees billed to the registrant for the fiscal years ended December 31, 2019 and December 31, 2018 for professional services rendered by the registrant’s principal accountant were as follows:
| | | | | | | | |
| | | 2019 | | | 2018 | |
(a) Audit Fees | | $ | 376,900 | | | $ | 369,500 | |
(b) Audit-Related Fees | | | — | | | | — | |
(c) Tax Fees | | | 230,740 | | | | 223,000 | |
(d) All Other Fees | | | — | | | | — | |
Audit fees include amounts related to the audit of the registrant’s annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Tax fees include amounts related to tax advice and tax return preparation, compliance, and reviews.
(e) (1) The registrant’s Audit and Compliance Committee has adopted policies and procedures (“Policies”) which require the registrant’s Audit and Compliance Committee topre-approve all audit andnon-audit services provided by the principal accountant to the registrant. The policies also require the Audit and Compliance Committee topre-approve any engagement of the principal accountant to providenon-audit services to the registrant’s investment adviser, if the services directly impact the registrant’s operations and financial reporting. The Policies do not apply in the case of audit services that the principal accountant provides to the registrant’s adviser. If a service (other than the engagement of the principal accountant to audit the registrant’s financial statements) is required to bepre-approved under the Policies between regularly scheduled Audit and Compliance Committee meetings,pre-approval may be authorized by a designated Audit and Compliance Committee member with ratification at the next scheduled Audit and Compliance Committee meeting.
(e) (2) No services included in (b) - (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule2-01 of RegulationS-X.
(f) Less than 50% of the hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.
(g) For the fiscal years ended December 31, 2019 and December 31, 2018, the aggregate fees billed by the registrant’s principal accountant fornon-audit services rendered to the registrant, fornon-audit services rendered to the registrant’s investment adviser, and fornon-audit services rendered to entities controlled by the adviser were $732,040 and $666,770, respectively.
(h) Allnon-audit services described under (g) above that were notpre-approved by the registrant’s Audit and Compliance Committee were considered by the registrant’s Audit and Compliance Committee and found to be compatible with maintaining the principal accountant’s independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
Not applicable. The complete schedule of investments is included in Item 1 of this FormN-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FORCLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OFCLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BYCLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has adopted the following procedures by which shareholders may recommend nominees to the registrant’s Board of Trustees.
1. The shareholder must submit any such recommendation in writing to the registrant to the attention of the Secretary at the address of the principal executive offices of the registrant. The shareholder’s recommendation is then considered by the registrant’s Nominating Committee.
2. The shareholder recommendation must include:
(i) A statement in writing setting forth (a) the name, date of birth, business address and residence address of the person recommended by the shareholder (the “candidate”); and (b) whether the recommending shareholder believes that the candidate is or will be an “interested person” of the registrant (as defined in the Investment Company Act of 1940) and, if not an “interested person,” information regarding the candidate that will be sufficient for the registrant to make such determination and, if applicable, similar information regarding whether the candidate would satisfy the standards for independence of a Board member under listing standards of the New York Stock Exchange or other applicable securities exchange.
(ii) The written and manually signed consent of the candidate to be named as a nominee and to serve as a Trustee if elected;
(iii) The recommending shareholder’s name as it appears on the registrant’s books and the number of all shares of the registrant owned beneficially and of record by the recommending shareholder (as evidenced to the Nominating Committee’s satisfaction by a recent brokerage or account statement); and
(iv) A description of all arrangements or understandings between the recommending shareholder and the candidate and any other person or persons (including their names) pursuant to which the recommendation is being made by the recommending shareholder.
In addition, the Nominating Committee may require the candidate to furnish such other information as it may reasonably require or deem necessary to determine the eligibility of such candidate to serve on the Board or to satisfy applicable law and information regarding the candidate that would be required to be disclosed if the candidate were a nominee in a proxy statement or other filing required to be made in connection with solicitation of proxies for election of Trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) An evaluation was performed within 90 days of the filing of this report, under the supervision and with the participation of the registrant’s management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures. Based on that evaluation, the principal executive officer and principal financial officer concluded that the registrant’s disclosure controls and procedures were effective.
(b) The registrant’s principal executive officer and principal financial officer are aware of no changes in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FORCLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 13. EXHIBITS.
(a) (1) The registrant’s code of ethics pursuant to Item 2 of FormN-CSR is attached. (EX.99A)
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached. (EX.99B)
(a) (3) Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached. (EX.99C)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| Dodge & Cox Funds |
| |
| By | | /s/ Charles F. Pohl |
| | Charles F. Pohl |
| | Chairman – Principal Executive Officer |
Date: February 28, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | |
| Dodge & Cox Funds |
| |
| By | | /s/ Charles F. Pohl |
| | Charles F. Pohl |
| | Chairman – Principal Executive Officer |
| |
| By | | /s/ David H. Longhurst |
| | David H. Longhurst |
| | Treasurer – Principal Financial Officer |
Date: February 28, 2020
