<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
REGISTRATION NO. 2-57209
POST-EFFECTIVE AMENDMENT NO. 43
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-2679
AMENDMENT NO. 39
DAVIS SERIES, INC.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
520-434-3771
Agents For Service: Thomas D. Tays, Esq.
Davis Selected Advisers, L.P.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
520-434-3771
-or-
Sheldon R. Stein, Esq.
D'Ancona & Pflaum
30 North LaSalle Street
Suite 2900
Chicago, Illinois 60602
(1-312-580-2014)
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On May 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on _____, pursuant to paragraph (a) of Rule 485
Title of Securities Being Registered: Common Stock of:
----------------
1. Davis Growth Opportunity Fund
2. Davis Financial Fund
1
<PAGE>
3. Davis Real Estate Fund
4. Davis Convertible Securities Fund
5. Davis Government Bond Fund
6. Davis Government Money Market Fund
2
<PAGE>
FORM N-1A
DAVIS SERIES, INC. CLASS A, B AND C SHARES
------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 43 TO REGISTRATION STATEMENT NO. 2-057209
UNDER THE SECURITIES ACT OF 1933 AND AMENDMENT NO. 39 UNDER THE INVESTMENT
COMPANY ACT OF 1940 TO REGISTRATION STATEMENT NO. 811-2679.
CROSS REFERENCE SHEET
---------------------
N-1A
ITEM NO. PART A CAPTION OR PLACEMENT: PROSPECTUS FOR CLASS ABC SHARES
- -------- ------------------------------------------------------------
1. Front and Back Cover pages
2. Overview of the Fund:
Investment Objective and Strategy
Determining if this Fund is Right for You
Principal Risks
Past Performance
3. Overview of the Fund: Fees and Expenses of the Fund
4. How We Manage the Fund
5. Annual Report, Incorporated by Reference
6. Who is Responsible for Your Davis Account
7. Once You Invest in the Fund
How to Open an Account
How to Buy, Sell and Exchange Shares
8. How to Choose a Share Class
9. Overview of the Fund: Financial Highlights
N-1A
ITEM NO. PART A CAPTION OR PLACEMENT: PROSPECTUS FOR CLASS Y SHARES
- -------- ----------------------------------------------------------
1. Front and Back Cover pages
2. Overview of the Fund:
Investment Objective and Strategy
Determining if this Fund is Right for You
Principal Risks
Past Performance
3. Overview of the Fund: Fees and Expenses of the Fund
4. How We Manage the Fund
5. Annual Report, Incorporated by Reference
3
<PAGE>
6. Who is Responsible for Your Davis Account
7. Once You Invest in the Fund
How to Open an Account
How to Buy, Sell and Exchange Shares
8. Not Applicable
9. Overview of the Fund: Financial Highlights
N-1A
ITEM NO. PART B CAPTION OR PLACEMENT:
- -------- ----------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
10 Cover Page
11 Organization of the Company
12 Portfolio Securities
Other Investment Practices
Investment Restrictions
13 Directors and Officers
Directors Compensation Table
14 Certain Shareholders of the Fund
15 Investment Advisory Services
Distribution of Company Shares
Other Important Service Providers
16 Portfolio Transactions
17 Organization of the Company
18 Contained in the Prospectuses
19 Federal Income Taxes
20 Distribution of Company Shares
21 Performance Data
22 Annual Report Incorporated by Reference
4
<PAGE>
Draft 04.25.00
DAVIS GROWTH OPPORTUNITY FUND
DAVIS FINANCIAL FUND
DAVIS REAL ESTATE FUND
DAVIS CONVERTIBLE SECURITIES FUND
DAVIS GOVERNMENT BOND FUND
DAVIS GOVERNMENT MONEY MARKET FUND
(PORTFOLIOS OF DAVIS SERIES, INC.)
Prospectus and Application Form
Class A Shares
Class B Shares
Class C Shares
May 1, 2000
The Securities and Exchange Commission has not approved or disapproved of these
securities. The Securities and Exchange Commission has not determined whether
this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
Over 25 Years Of Reliable Investing
1
<PAGE>
TABLE OF CONTENTS
Overview of each Davis Series Fund
Davis Growth Opportunity Fund
Davis Financial Fund
Davis Real Estate Fund
Davis Convertible Securities Fund
Davis Government Bond Fund
Davis Government Money Market Fund
Investment Objective and Strategy
Determining if this Fund is Right for You
Principal Risks
Past Performance
Fees and Expenses of the Fund
Financial Highlights
Who Is Responsible for Your Davis Account
How We Manage Davis Series Funds
Once You Invest in Davis Funds
How to Choose a Share Class
How to Open an Account
How to Buy, Sell and Exchange Shares
Davis Funds: Over 25 Years of Reliable Investing
Other Fund Documents
2
<PAGE>
OVERVIEW OF DAVIS GROWTH OPPORTUNITY FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis Growth Opportunity Fund's investment objective is growth of capital.
The Fund invests primarily in common stock of U.S. companies with small and
medium market capitalizations of less than $20 billion.
Our portfolio managers use the Davis investment philosophy to select common
stock of quality overlooked growth companies at value prices and to hold them
for the long-term. We look for companies with sustainable growth rates selling
at modest price-earnings multiples that we hope will expand as other investors
recognize the company's true worth. We believe that if you combine a sustainable
growth rate with a gradually expanding multiple, these rates compound and can
generate returns that could exceed average returns earned by investing in small
and medium market capitalization domestic stocks.
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.
DETERMINING IF THIS FUND IS RIGHT FOR YOU
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking long-term growth of capital.
o You prefer to invest in small and medium capitalization companies.
o You are willing to accept higher risk for the opportunity to pursue higher
returns.
o You are investing for the long-term (five years or more).
YOU SHOULD NOT INVEST IN THIS FUND IF:
o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You are interested in earning current income.
o You prefer to invest in larger, more established companies.
o You are investing for the short-term (less than five years).
PRINCIPAL RISKS
If you buy shares of Davis Growth Opportunity Fund, you may lose some or all of
the money that you invest. This section describes what we think are the two most
significant factors that can cause the Fund's performance to suffer.
o MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little
or nothing to do with the performance of the companies in which we invest.
o COMPANY RISK. The price of a common stock varies with the success and
failure of the company issuing the stock. As a result, the success of the
companies in which the Fund invests largely determines the Fund's
performance. Investing in small and medium capitalization companies may be
more risky than investing in large capitalization companies. Smaller
companies typically have more limited
3
<PAGE>
product lines, markets and financial resources than larger companies, and
their securities may trade less frequently and in more limited volume than
those of larger, more mature companies.
An investment in Davis Growth Opportunity Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PAST PERFORMANCE
The bar chart and the table below provide an indication of the risks of
investing in Davis Growth Opportunity Fund by showing changes in the Fund's year
to year performance over a 10-year period and by showing how the Fund's average
annual returns for one year, five years, ten years, and since inception compare
to those of the S&P 500(R), a widely recognized unmanaged index of stocK
performance. How the Fund has performed in the past is not necessarily an
indication of how the Fund will perform in the future.
DAVIS GROWTH OPPORTUNITY FUND
TOTAL RETURN OVER THE LAST 10-YEAR PERIOD
(As of December 31st of Each Year)
CLASS B SHARES
1990 (4.72)%
1991 40.93%
1992 (2.86)%
1993 11.16%
1994 (8.45)%
1995 45.44%
1996 17.86%
1997 26.82%
1998 1.61%
1999 30.42%
During the period shown above, the highest quarterly return was 25.44% for the
third quarter of 1997, and the worst quarterly return was (20.46)% for the third
quarter of 1998. Year-to-date performance as of the first quarter of 2000 (not
annualized) was 9.64%.
The bar chart does not reflect any sales charges. Total return would have been
less if it reflected those charges. The return for the other classes of shares
offered by this prospectus will differ from the Class B returns shown in the
chart, depending on the expenses of that class.
4
<PAGE>
DAVIS GROWTH OPPORTUNITY FUND AVERAGE ANNUAL TOTAL RETURNS
(For the Periods Ended December 31, 1999)
- --------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS LIFE OF FUND
- --------------------------------------------------------------------------------
CLASS A SHARES * 25.18% 23.27% N/A 22.18%
(SINCE 12/1/94)
- --------------------------------------------------------------------------------
S&P 500 INDEX 21.04% 28.51% N/A 28.74%
- --------------------------------------------------------------------------------
CLASS B SHARES * 26.47% 23.38% 14.35% 15.81%
(SINCE 5/1/84)
- --------------------------------------------------------------------------------
S&P 500 INDEX 21.04% 28.51% 18.17% 18.51%
- --------------------------------------------------------------------------------
CLASS C SHARES * 29.32% N/A N/A 9.75%
- --------------------------------------------------------------------------------
(SINCE 8/15/97)
S&P 500 INDEX 21.04% N/A N/A 24.65%
- --------------------------------------------------------------------------------
* Figures include sales charges.
FEES AND EXPENSES OF THE FUND
FEES YOU MAY PAY AS A DAVIS GROWTH OPPORTUNITY FUND SHAREHOLDER
(Paid Directly From Your Investment)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a 4.75% None None
percentage of offering price)
- --------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) 0.75% 4.00% 1.00%
Imposed on Redemptions (as a percentage of
the lesser of the net asset value of shares
redeemed or the total cost of such shares)
- --------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None
- --------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
DAVIS GROWTH OPPORTUNITY FUND'S ANNUAL FUND OPERATING EXPENSES
(For the Year Ended December 31, 1999)
(Deducted From Davis Growth Opportunity Fund's Assets)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75%
- ---------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.21% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------
Other Expenses 0.33% 0.41% 0.59%
- ---------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.29% 2.16% 2.34%
- ---------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in Davis
Growth Opportunity Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in Davis Growth Opportunity Fund for
the time periods indicated. The example also assumes that your investment has a
5% return each year and that Davis Growth Opportunity Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, your
costs--based on these assumptions--would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $600 $865 $1,149 $1,958
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES $619 $976 $1,359 $2,168*
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES $337 $730 $1,250 $2,676
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
AFTER...
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $600 $865 $1,149 $1,958
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES $219 $676 $1,159 $2,168*
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES $237 $730 $1,250 $2,676
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Class B shares expenses for the 10-year period include 2 years of Class A
shares expenses since Class B shares automatically convert to Class A shares
after 8 years.
FINANCIAL HIGHLIGHTS
These tables are designed to show you the financial performance of Davis Growth
Opportunity Fund for the past five years, assuming that all dividends and
capital gains have been reinvested. Some of the information reflects financial
results for a single Fund share. The total returns represent the rate that an
investor would have earned (or lost) money on an investment in the Fund.
KPMG LLP has audited the information for the fiscal years 1999 and 1998. KPMG
LLP's report, along with the Fund's financial statements, is included in Davis
Series' annual report, which is available upon request. Another firm audited the
information for the previous fiscal years.
6
<PAGE>
DAVIS GROWTH OPPORTUNITY FUND
CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..... $21.96 $22.49 $18.93 $17.25 $12.83
------ ------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Loss ................... -- (0.09) (0.10) (0.13) (0.11)
Net Realized and Unrealized Gains ..... 5.86 0.59 5.34 3.37 6.08
------ ------ ------ ------ ------
Total From Investment Operations . 5.86 0.50 5.24 3.24 5.97
------ ------ ------ ------ ------
Distributions
Distributions from Realized Gains ..... (5.65) (1.03) (1.68) (1.55) (1.55)
Return of Capital ..................... -- -- -- (0.01) --
------ ------ ------ ------ ------
Total Distributions ............... (5.65) (1.03) (1.68) (1.56) (1.55)
====== ====== ====== ====== ======
Net Asset Value, End of Period ........... $22.17 $21.96 $22.49 $18.93 $17.25
====== ====== ====== ====== ======
Total Return(1) .......................... 31.45% 2.32% 27.70% 18.73% 46.65%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $67,871 $52,212 $48,386 $27,158 $22,890
Ratio of Expenses toAverage Net Assets 1.29% 1.32% 1.27% 1.49%(2) 1.51%
Ratio of Net Investment Loss to
Average Net Assets .................. (0.50) (0.38) (0.58) (0.76) (0.71)%
Portfolio Turnover Rate(3)............. 100.30% 18.03% 19.33% 30.55% 30.07%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.48% for 1996. Prior to 1996, such
reductions were reflected in the expense ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
DAVIS GROWTH OPPORTUNITY FUND
CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.. ..... $21.18 $21.88 $18.58 $17.08 $12.82
------ ------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Loss ....................... -- (0.26) (0.25) (0.27) (0.26)
Net Realized and Unrealized Gains ......... 5.42 0.59 5.23 3.33 6.07
------ ------ ------ ------ ------
Total From Investment Operations ..... 5.42 0.33 4.98 3.06 5.81
------ ------ ------ ------ ------
Distributions
Distributions from Realized Gains ......... (5.65) (1.03) (1.68) (1.55) (1.55)
Return of Capital ......................... -- -- -- (0.01) --
------ ------ ------ ------ ------
Total Distributions ................... (5.65) (1.03) (1.68) (1.56) (1.55)
------ ------ ------ ------ ------
7
<PAGE>
Net Asset Value, End of Period ............... $20.95 $21.18 $21.88 $18.58 $17.08
====== ====== ====== ====== ======
Total Return(1)............................... 30.42% 1.61% 26.82% 17.86% 45.44%
Ratios/Supplemental Data
Net Assets, End ofPeriod (000 omitted) .... $52,234 $60,587 $61,383 $39,343 $35,326
Ratio of Expenses to Average Net Assets 2.16% 2.10% 2.09%(2) 2.25%(2) 2.30%
Ratio of Net Investment Loss to
Average Net Assets ..................... (1.37) (1.16) (1.40) (1.52) (1.50)%
Portfolio Turnover Rate(3)................. 100.30% 18.03% 19.33% 30.55% 30.07%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.08% and 2.24% for 1997 and 1996,
respectively. Prior to 1996, such reductions were reflected in the expense
ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
DAVIS GROWTH OPPORTUNITY FUND
CLASS C SHARES
<TABLE>
<CAPTION>
AUGUST 15, 1997
(INCEPTION
OF CLASS)
YEAR ENDED DECEMBER 31, THROUGH
----------------------------- DECEMBER 31,
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ........ $21.71 $22.43 $25.56
------ ------ ------
Income (Loss) From Investment Operations
Net Investment Loss ...................... -- (0.30) (0.04)
Net Realized and Unrealized Gains (Losses) 5.56 0.61 (1.41)
------ ------ ------
Total From Investment Operations .... 5.56 0.31 (1.45)
------ ------ ------
Dividends and Distributions
Distributions from Realized Gains ........ (5.65) (1.03) (1.68)
------ ------ ------
Total Distributions .................. (5.65) (1.03) (1.68)
------ ------ ------
Net Asset Value, End of Period .............. $21.62 $21.71 $22.43
====== ====== ======
Total Return(1).............................. 30.32% 1.48% (5.66)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) .. $5,041 $3,644 $2,585
Ratio of Expenses to Average Net Assets .. 2.34%(2) 2.27% 2.19%*
Ratio of Net Investment Loss to
Average Net Assets .................... (1.54) (1.33) (1.51)%*
Portfolio Turnover Rate(3)................ 100.30% 18.03% 19.33%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.33% for 1999.
8
<PAGE>
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
9
<PAGE>
OVERVIEW OF DAVIS FINANCIAL FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis Financial Fund's investment objective is growth of capital.
The Fund invests primarily in common stock of financial companies. During normal
market conditions, at least half of the Fund's assets are invested in companies
that are "principally engaged" in banking and financial services. Specifically,
at least 25% of the Fund's assets are invested in the banking industry, and at
least another 25% are invested in the financial services industry.
A company is "principally engaged" in banking or financial services if it owns
banking or financial services-related assets that constitute at least 50% of the
value of all of its assets, or if it derives at least 50% of its revenues from
providing banking or financial services. Companies in the banking industry
include commercial banks, industrial banks and savings institutions. Companies
in the financial services industry include finance companies, diversified
financial services companies, investment banking firms, securities brokerage
houses, investment advisory companies, leasing companies, insurance companies
and companies providing similar services.
Our portfolio managers use the Davis investment philosophy to select common
stock of quality overlooked growth companies at value prices and to hold them
for the long-term. We look for banking and financial services companies with
sustainable growth rates selling at modest price-earnings multiples that we hope
will expand as other investors recognize the company's true worth. We believe
that if you combine a sustainable growth rate with a gradually expanding
multiple, these rates compound and can generate returns that could exceed
average returns earned by investing in a portfolio of banking and financial
services companies.
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.
DETERMINING IF THIS FUND IS RIGHT FOR YOU
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking long-term growth of capital.
o You believe that the banking and financial services sectors offer
attractive long-term growth opportunities.
o You are investing for the long-term (five years or more).
YOU SHOULD NOT INVEST IN THIS FUND IF:
o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You are interested in earning current income.
o You do not wish to invest in a concentrated portfolio of banking and
financial services companies.
o You are investing for the short-term (less than five years).
10
<PAGE>
PRINCIPAL RISKS
If you buy shares of Davis Financial Fund, you may lose some or all of the money
that you invest. This section describes what we think are the three most
significant factors that can cause the Fund's performance to suffer.
o MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little
or nothing to do with the performance of the companies in which we invest.
o COMPANY RISK. The price of a common stock varies with the success and
failure of the company issuing the stock. As a result, the success of the
companies in which the Fund invests largely determines the Fund's
performance.
o CONCENTRATED FINANCIAL SERVICES PORTFOLIO. Davis Financial Fund invests
primarily in two industries. Any fund that has a concentrated portfolio is
particularly vulnerable to the risks of its target sector. Risks of
investing in the banking and financial services industries include:
o REGULATORY ACTIONS. Banks and financial services companies may suffer a
setback if regulators change the rules under which they operate.
o CHANGES IN INTEREST RATES. Unstable interest rates can have a
disproportionate effect on the financial services industry.
o CONCENTRATION OF LOANS. Banks whose securities Davis Financial Fund
purchases may themselves have concentrated portfolios, such as a high
level of loans to real estate developers, which makes them vulnerable
to economic conditions that affect that industry.
o COMPETITION. The financial services industry has become increasingly
competitive.
An investment in Davis Financial Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PAST PERFORMANCE
The bar chart and the table below provide an indication of the risks of
investing in Davis Financial Fund by showing changes in the Fund's year to year
performance since inception and by showing how the Fund's average annual returns
for one year, five years and since inception compare to those of the S&P 500(R),
a widely recognized unmanaged index of stock performance. How the Fund has
performed in the past is not necessarily an indication of how the Fund will
perform in the future.
11
<PAGE>
DAVIS FINANCIAL FUND TOTAL RETURN SINCE 1992
(As of December 31st of Each Year)
CLASS A SHARES
1992 32.67%
1993 14.87%
1994 (4.55)%
1995 50.51%
1996 31.50%
1997 44.53%
1998 14.17%
1999 (0.85)%
During the period shown above, the highest quarterly return was 20.11% for the
fourth quarter of 1998, and the worst quarterly return was (15.94)% for the
third quarter of 1998. Year-to-date performance as of the first quarter of 2000
(not annualized) was 4.30%.
The chart does not reflect any sales charges. Total return would have been less
if it reflected those charges. The return for the other classes of shares
offered by this prospectus will differ from the Class A returns shown in the
chart, depending on the expenses of that class.
DAVIS FINANCIAL FUND AVERAGE ANNUAL TOTAL RETURNS
(For the Periods Ended December 31, 1999)
- --------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
- --------------------------------------------------------------------------------
CLASS A SHARES* (5.56)% 25.26% 21.80%
(SINCE 5/1/91)
- --------------------------------------------------------------------------------
S&P 500 INDEX 21.04% 28.51% 19.61%
- --------------------------------------------------------------------------------
CLASS B SHARES* (5.64)% 25.17 24.96%
(SINCE 12/27/94)
- --------------------------------------------------------------------------------
S&P 500 INDEX 21.04% 28.51% 28.43%
- --------------------------------------------------------------------------------
CLASS C SHARES* (2.67)% N/A 8.65%
(SINCE 8/12/97)
- --------------------------------------------------------------------------------
S&P 500 INDEX 21.04% N/A 23.08%
- --------------------------------------------------------------------------------
* Figures include sales charges.
12
<PAGE>
FEES AND EXPENSES OF THE FUND
FEES YOU MAY PAY AS A DAVIS FINANCIAL FUND SHAREHOLDER
(Paid Directly From Your Investment)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a 4.75% None None
percentage of offering price)
- --------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) 0.75% 4.00% 1.00%
Imposed on Redemptions (as a percentage of
the lesser of the net asset value of shares
redeemed or the total cost of such shares)
- --------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None
- --------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
DAVIS FINANCIAL FUND ANNUAL FUND OPERATING EXPENSES
(For the Year Ended December 31, 1999)
(Deducted From Davis Financial Fund's Assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.63% 0.63% 0.63%
- ------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.19% 1.00% 1.00%
- ------------------------------------------------------------------------------------------
Other Expenses 0.22% 0.27% 0.26%
- ------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.04% 1.90% 1.89%
- ------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in Davis
Financial Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in Davis Financial Fund for the time
periods indicated. The example also assumes that your investment has a 5% return
each year and that Davis Financial Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, your costs--based on these
assumptions--would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $576 $790 $1,022 $1,686
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES $593 $897 $1,226 $1,893*
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES $292 $594 $1,021 $2,212
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
AFTER...
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $576 $790 $1,022 $1,686
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES $193 $597 $1,026 $1,893*
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES $192 $594 $1,021 $2,212
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Class B shares expenses for the 10-year period include 2 years of Class A
shares expenses since Class B shares automatically convert to Class A shares
after 8 years.
FINANCIAL HIGHLIGHTS
These tables are designed to show you the financial performance of Davis
Financial Fund for the past five years, assuming that all dividends and capital
gains have been reinvested. Some of the information reflects financial results
for a single Fund share. The total returns represent the rate that an investor
would have earned (or lost) money on an investment in the Fund.
KPMG LLP has audited the information for the fiscal years 1999 and 1998. KPMG
LLP's report, along with the Fund's financial statements, is included in Davis
Series' annual report, which is available upon request. Another firm audited the
information for the previous fiscal years.
14
<PAGE>
DAVIS FINANCIAL FUND
CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........ $29.32 $25.68 $18.06 $14.50 $10.68
------ ------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income .................... 0.11 0.09 0.13 0.14 0.07
Net Realized and Unrealized Gains (Losses) (0.36) 3.55 7.92 4.44 5.32
------ ------ ------ ------ ------
Total From Investment Operations ..... (0.25) 3.64 8.05 4.58 5.39
------ ------ ------ ------ ------
Dividends and Distributions
Net Investment Income .................... -- -- (0.13) (0.15) (0.07)
Distributions from Realized Gains ........ -- -- (0.30) (0.87) (1.50)
Return of Capital ........................ -- -- -- -- --
------ ------ ------ ------ ------
Total Dividend and Distributions ..... -- -- (0.43) (1.02) (1.57)
------ ------ ------ ------ ------
Net Asset Value, End of Period .............. $29.07 $29.32 $25.68 $18.06 $14.50
====== ====== ====== ====== ======
Total Return(1).............................. (0.85) 14.17 44.53% 31.50% 50.51%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) . $425,584 $460,799 $292,059 $107,579 $79,874
Ratio of Expenses to Average Net Assets .. 1.04% 1.07%(2) 1.07% 1.15% 1.18%
Ratio of Net Investment Income
to Average Net Assets .................. 0.36% 0.34 0.77% 0.92% 0.53%
Portfolio Turnover Rate(3) 17.55% 11.37 6.23% 25.78% 41.89%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.06% for 1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
15
<PAGE>
DAVIS FINANCIAL FUND
CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........ $28.71 $25.36 $17.91 $14.41 $10.68
------ ------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income (Loss) ............. (0.16) (0.12) (0.01) 0.01 0.01
Net Realized and Unrealized Gains (Losses) (0.33) 3.47 7.76 4.37 5.22
------ ------ ------ ------ ------
Total From Investment Operations .... (0.49) 3.35 7.75 4.38 5.23
------ ------ ------ ------ ------
Dividends and Distributions
Net Investment Income .................... -- -- -- (0.01) --
Distributions from Realized Gains ........ -- -- (0.30) (0.87) (1.50)
Return of Capital ........................ -- -- -- -- --
------ ------ ------ ------ ------
Total Dividend and Distributions ..... -- -- (0.30) (0.88) (1.50)
------ ------ ------ ------ ------
Net Asset Value, End of Period .............. $28.22 $28.71 $25.36 $17.91 $14.41
====== ====== ====== ====== ======
Total Return(1).............................. (1.71) 13.21% 43.25% 30.29% 49.00%
Ratios/Supplemental Data
Net Assets, End of Period(000 omitted) .. $376,541 $419,145 $193,257 $8,213 $1,762
Ratio of Expenses to Average Net Assets .. 1.90% 1.93%(2) 1.97% 2.04% 2.09%
Ratio of Net Investment Income
(Loss) to Average Net Assets ........... (0.50) (0.52) (0.12) 0.19% (0.38)%
Portfolio Turnover Rate(3) 17.55% 11.37% 6.23% 25.78% 41.89%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.92% for 1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
16
<PAGE>
DAVIS FINANCIAL FUND
CLASS C SHARES
<TABLE>
<CAPTION>
AUGUST 12, 1997
YEAR (INCEPTION
ENDED OF CLASS)
DECEMBER 31, THROUGH
-------------------- DECEMBER 31,
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ....... $29.12 $25.71 $23.76
------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income (Loss) ............ (0.15) (0.10) --
Net Realized and Unrealized
Gains (Losses) ........................ (0.34) 3.51 2.25
------ ------ ------
Total From Investment Operations ... (0.49) 3.41 2.25
------ ------ ------
Dividends and Distributions
Net Investment Income ................... -- -- --
Distributions from Realized Gains ....... -- -- (0.30)
------ ------ ------
Total Dividend and Distributions .... -- -- (0.30)
------ ------ ------
Net Asset Value, End of Period ............. $28.63 $29.12 $25.71
====== ====== ======
Total Return(1)............................. (1.68) 13.26% 9.45%
Ratios/Supplemental Data
Net Assets, End of Period(000 omitted) . $89,128 $92,513 $19,515
Ratio of Expenses to Average Net Assets . 1.89% 1.91% 1.93%*
Ratio of Net Investment Income
(Loss) to Average Net Assets .......... (0.49) (0.51) (0.09)%*
Portfolio Turnover Rate(2)............... 17.55% 11.37% 6.23%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
(2) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
17
<PAGE>
OVERVIEW OF DAVIS REAL ESTATE FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis Real Estate Fund's investment objective is total return through a
combination of growth and income.
During normal market conditions, at least 65% of Davis Real Estate Fund's assets
are invested in "real estate securities," which are securities issued by
companies that are "principally engaged" in the real estate industry. The Fund
does not invest directly in real estate.
A company is "principally engaged" in the real estate industry if it owns real
estate or real estate-related assets that constitute at least 50% of the value
of all of its assets, or if it derives at least 50% of its revenues or net
profits from owning, financing, developing, managing, or selling real estate, or
from offering products or services that are related to real estate. Issuers of
real estate securities include real estate investment trusts (known as "REITs"),
brokers, developers, lenders, and companies with substantial real estate
holdings such as paper, lumber, hotel, and entertainment companies.
Most of Davis Real Estate Fund's real estate securities are, and likely will
continue to be, interests in REITs. REITs pool investors' funds to make real
estate-related investments, such as buying interests in income-producing
property or making loans to real estate developers.
Davis Real Estate Fund focuses on REITs and other companies with first-class
management teams who view real estate as a means of producing steady increases
in income and strong returns on capital. We concentrate heavily on valuation,
looking for companies that sell at less than the present value of their expected
cash flow over the next few years.
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.
DETERMINING IF THIS FUND IS RIGHT FOR YOU
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking total return through a combination of growth and income.
o You believe that the real estate sector offers attractive long-term growth
opportunities.
o You want to diversify your traditional stock and bond portfolio with real
estate securities.
o You are investing for the long-term (five years or more).
YOU SHOULD NOT INVEST IN THIS FUND IF:
o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You do not wish to invest in a concentrated portfolio of real estate
companies.
o You are investing for the short-term (less than five years).
18
<PAGE>
PRINCIPAL RISKS
If you buy shares of Davis Real Estate Fund, you may lose some or all of the
money that you invest. This section describes what we think are the three most
significant factors that can cause the Fund's performance to suffer.
o MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little
or nothing to do with the performance of the companies in which we invest.
o COMPANY RISK. The price of a common stock varies with the success and
failure of the company issuing the stock. As a result, the success of the
companies in which the Fund invests largely determines the Fund's
performance.
o CONCENTRATED REAL ESTATE PORTFOLIO. Davis Real Estate Fund invests
primarily in one industry. Any fund that has a concentrated portfolio is
particularly vulnerable to the risks of its selected industry. Real estate
securities are susceptible to the many risks associated with the direct
ownership of real estate, including:
o Declines in property values--because of changes in the economy or the
surrounding area or because a particular region has become less
appealing to tenants.
o Increases in property taxes, operating expenses, interest rates, or
ocompetition.
o Overbuilding.
o Changes in zoning laws.
o Losses from casualty or condemnation.
An investment in Davis Real Estate Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PAST PERFORMANCE
The bar chart and the table below provide an indication of the risks of
investing in Davis Real Estate Fund by showing changes in the Fund's year to
year performance since inception and by showing how the Fund's average annual
returns for one year, five years and since inception compare to those of the S&P
500(R), a widely recognized unmanaged index of stock performance. How the Fund
has performed in the past is not necessarily an indication of how the Fund will
perform in the future.
19
<PAGE>
DAVIS REAL ESTATE FUND TOTAL RETURN SINCE 1995
(As of December 31st of Each Year)
CLASS A SHARES
1995 17.70%
1996 37.05%
1997 25.08%
1998 (15.56)%
1999 (7.55)%
During the period shown above, the highest quarterly return was 19.22% for the
fourth quarter of 1996, and the worst quarterly return was (11.43)% for the
third quarter of 1998. Year-to-date performance as of the first quarter of 2000
(not annualized) was 1.42%.
The chart does not reflect any sales charges. Total return would have been less
if it reflected those charges. The return for the other classes of shares
offered by this prospectus will differ from the Class A returns shown in the
chart, depending on the expenses of that class.
DAVIS REAL ESTATE FUND AVERAGE ANNUAL TOTAL RETURNS
(For the Periods Ended December 31, 1999)
- --------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
- --------------------------------------------------------------------------------
CLASS A SHARES* (11.93)% 8.45% 8.42%
(SINCE 1/3/94)
- --------------------------------------------------------------------------------
S&P 500 INDEX 21.04% 28.51% 23.60%
- --------------------------------------------------------------------------------
CLASS B SHARES* (11.89)% 8.23% 8.55%
(SINCE 12/27/94)
- --------------------------------------------------------------------------------
S&P 500 INDEX 21.04% 28.51% 28.43%
- --------------------------------------------------------------------------------
CLASS C SHARES* (9.22)% N/A (6.43)%
(SINCE 8/13/97)
- --------------------------------------------------------------------------------
S&P 500 INDEX 21.04% N/A 23.44%
- --------------------------------------------------------------------------------
* Figures include sales charges.
DAVIS REAL ESTATE FUND YIELD
CLASS A SHARES
(As of December 31, 1999)
30-DAY SEC YIELD 4.45%
You can obtain Davis Real Estate Fund's most recent 30-day SEC Yield by calling
us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4 p.m. Mountain
Time.
FEES AND EXPENSES OF THE FUND
20
<PAGE>
FEES YOU MAY PAY AS A DAVIS REAL ESTATE FUND SHAREHOLDER
(Paid Directly from Your Investment)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a 4.75% None None
percentage of offering price)
- --------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) 0.75% 4.00% 1.00%
Imposed on Redemptions (as a percentage of
the lesser of the net asset value of shares
redeemed or the total cost of such shares)
- --------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None
- --------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
DAVIS REAL ESTATE FUND ANNUAL FUND OPERATING EXPENSES
(For the Year Ended December 31, 1999)
(Deducted From Davis Real Estate Fund's Assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.72% 0.72% 0.72%
- ------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.22% 1.00% 1.00%
- ------------------------------------------------------------------------------------------
Other Expenses 0.27% 0.34% 0.29%
- ------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.21% 2.06% 2.01%
- ------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in Davis Real
Estate Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in Davis Real Estate Fund for the
time periods indicated. The example also assumes that your investment has a 5%
return each year and that Davis Real Estate Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, your costs--based on
these assumptions--would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $592 $841 $1,108 $1,871
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES $609 $946 $1,308 $2,069*
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES $304 $630 $1,083 $2,338
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
AFTER...
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $592 $841 $1,108 $1,871
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES $209 $646 $1,108 $2,069*
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES $204 $630 $1,083 $2,338
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
* Class B shares expenses for the 10-year period include 2 years of Class A
shares expenses since Class B shares automatically convert to Class A shares
after 8 years.
FINANCIAL HIGHLIGHTS
These tables are designed to show you the financial performance of Davis Real
Estate Fund since inception, assuming that all dividends and capital gains have
been reinvested. Some of the information reflects financial results for a single
Fund share. The total returns represent the rate that an investor would have
earned (or lost) money on an investment in the Fund.
KPMG LLP has audited the information for the fiscal years 1999 and 1998. KPMG
LLP's report, along with the Fund's financial statements, is included in Davis
Series' annual report, which is available upon request. Another firm audited the
information for the previous fiscal years.
22
<PAGE>
DAVIS REAL ESTATE FUND
CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996(1) 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...... $20.73 $25.41 $21.24 $16.44 $14.72
------ ------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income .................. 0.78 0.74 0.74 0.71 0.82
Net Realized and Unrealized Gains
(Losses) ............................. (2.32) (4.65) 4.51 5.22 1.71
------ ------ ------ ------ ------
Total From Investment Operations .. (1.54) (3.91) 5.25 5.93 2.53
------ ------ ------ ------ ------
Dividends and Distributions
Net Investment Income .................. (0.78) (0.74) (0.74) (0.70) (0.81)
Distributions from Realized Gains ...... -- -- (0.27) (0.25) --
Return of Capital ...................... (0.14) (0.03) (0.07) (0.18) --
------ ------ ------ ------ ------
Total Dividends and Distributions .. (0.92) (0.77) (1.08) (1.13) (0.81)
------ ------ ------ ------ ------
Net Asset Value, End of Period ............ $18.27 $20.73 $25.41 $21.24 $16.44
====== ====== ====== ====== ======
Total Return(2)............................ (7.55) (15.56) 25.08% 37.05% 17.70%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $147,835 $198,328 $147,488 $32,507 $29,320
Ratio of Expenses to Average Net
Assets ............................... 1.21% 1.21% 1.18% 1.32%(3) 1.43%
Ratio of Net Investment Income to
Average Net Assets ................... 3.82% 3.40% 3.40% 3.95% 5.44%
Portfolio Turnover Rate(4).............. 52.22% 19.14% 12.50% 18.60% 38.82%
</TABLE>
(1) Per share calculations other than distributions were based on average
shares outstanding during the period.
(2) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in total returns.
(3) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.31% for the year ended 1996. Prior
to 1996, such reductions were reflected in the expense ratios.
(4) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
DAVIS REAL ESTATE FUND
CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996(1) 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...... $20.67 $25.32 $21.19 $16.41 $14.72
------ ------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income .................. 0.61 0.56 0.54 0.56 0.68
23
<PAGE>
Net Realized and Unrealized Gains
(Losses) ........................... (2.32) (4.63) 4.47 5.21 1.70
------ ------ ------ ------ ------
Total From Investment Operations .. (1.71) (4.07) 5.01 5.77 2.38
------ ------ ------ ------ ------
Dividends and Distributions
Net Investment Income .................. (0.61) (0.56) (0.54) (0.63) (0.69)
Distributions from Realized Gains ...... -- -- (0.27) (0.25) --
Return of Capital ...................... (0.14) (0.02) (0.07) (0.11) --
------ ------ ------ ------ ------
Total Dividend and Distributions ... (0.75) (0.58) (0.88) (0.99) (0.69)
------ ------ ------ ------ ------
Net Asset Value, End of Period ............ $18.21 $20.67 $25.32 $21.19 $16.41
====== ====== ====== ====== ======
Total Return (2)........................... (8.37) (16.21) 23.88% 35.99% 16.59%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $93,585 $143,993 $114,283 $10,919 $414
Ratio of Expenses to Average Net Assets 2.06% 2.02% 2.04% 2.22% 2.39%
Ratio of Net Investment Income to
Average Net Assets ..................... 2.97% 2.59% 2.60% 3.46% 4.48%
Portfolio Turnover Rate(3).............. 52.22% 19.14% 12.50% 18.60% 38.82%
</TABLE>
(1) Per share calculations other than distributions were based on average
shares outstanding during the period.
(2) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in total returns.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
DAVIS REAL ESTATE FUND
CLASS C SHARES
<TABLE>
<CAPTION>
AUGUST 13, 1997
(INCEPTION
YEAR ENDED OF CLASS)
DECEMBER 31, THROUGH
-------------------- DECEMBER 31,
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $20.81 $25.49 $23.41
------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income .............................. 0.61 0.53 0.18
Net Realized and Unrealized Gains (Losses) ....... (2.33) (4.62) 2.42
------ ------ ------
Total From Investment Operations .............. (1.72) (4.09) 2.60
------ ------ ------
Dividends and Distributions
Net Investment Income .............................. (0.61) (0.53) (0.18)
Distributions from Realized Gains .................. -- -- (0.27)
Return of Capital .................................. (0.14) (0.06) (0.07)
------ ------ ------
Total Dividend and Distributions ............... (0.75) (0.59) (0.52)
------ ------ ------
Net Asset Value, End of Period ........................ $18.34 $20.81 $25.49
====== ====== ======
Total Return(1) ....................................... (8.34) (16.20) 11.12%
Ratios/Supplemental Data
24
<PAGE>
Net Assets, End of Period (000 omitted) ........... $29,952 $34,336 $8,322
Ratio of Expenses to Average Net Assets ............ 2.01% 2.02% 2.03%*
Ratio of Net Investment Income to Average Net Assets 3.02% 2.59% 2.56%*
Portfolio Turnover Rate(2) ......................... 52.22% 19.14% 12.50%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
(2) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
25
<PAGE>
OVERVIEW OF DAVIS CONVERTIBLE SECURITIES FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis Convertible Securities Fund's investment objective is total return through
a combination of growth and income.
During normal market conditions, at least 65% of the Fund's assets are invested
in convertible securities. Convertible securities are securities that can be
converted into or exchanged for other securities. The most common types of
convertible securities are bonds and preferred stock that the holder can
exchange for common stock of the same issuer.
Convertible securities offer both current income and growth potential. For
current income, we buy convertible debt instruments like bonds, notes and
debentures that entitle the Fund to receive regular interest payments.
Similarly, we buy preferred stock that entitles the Fund to receive regular
dividend payments. These interest and dividend payments generally exceed the
dividend payments that the issuers of our convertible securities make to holders
of their common stock. Convertible securities have growth potential because if
the underlying common stock begins to increase in value, the holder of the
convertible security can exchange it for common stock and enjoy the benefits of
that growth.
Many convertible debt securities are assigned ratings by agencies that evaluate
the quality of publicly-offered debt. Our portfolio manager may use up to 35% of
Davis Convertible Securities Fund's net assets to buy debt securities with low
ratings, known as "high yield, high-risk debt securities." During normal market
conditions, our portfolio manager invests at least 65% of Davis Convertible
Securities Fund's net assets in money market instruments, investment-grade debt
securities, preferred stock, common stock, other equity securities, and other
non-financial assets.
Davis Convertible Securities Fund first attempts to identify well-managed growth
companies whose securities are selling at attractive prices. Then we try to
identify securities issued by those companies that have the potential to deliver
80% of the amount that the issuer's common stock appreciates when market
conditions are favorable, but will not drop in value by more than 50% of the
amount that the issuer's common stock declines when market conditions are bad.
Of course, there can not be any guarantee that the convertible securities which
we purchase will in fact perform in the manner which our models suggest.
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.
DETERMINING IF THIS FUND IS RIGHT FOR YOU
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking total return through a combination of growth and income.
o You want to diversify a common stock portfolio.
o You are primarily interested in growth-oriented investments, but want
current income.
o You are investing for the long-term (five years or more).
26
<PAGE>
YOU SHOULD NOT INVEST IN THIS FUND IF:
o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You do not wish to invest in a portfolio which has some of the
characteristics of both common stocks and bonds.
o You are investing for the short-term (less than five years).
PRINCIPAL RISKS
If you buy shares of Davis Convertible Securities Fund, you may lose some or all
of the money that you invest. Convertible securities have characteristics of
both equity and debt securities, so they present the risks of both common stock
ownership as well as the risks of bond ownership. This section describes what we
think are the most significant factors that can cause the Fund's performance to
suffer.
EQUITY RISKS
o MARKET RISK. The market value of shares of convertible securities can
change rapidly and unpredictably as a result of political or economic
events having little or nothing to do with the performance of the companies
in which we invest.
o COMPANY RISK. The price of a convertible security varies with the success
and failure of the company issuing the securities. As a result, the success
of the companies in which the Fund invests largely determines the Fund's
performance.
DEBT RISKS
o INTEREST RATE SENSITIVITY. If a security pays a fixed interest rate, and
market rates increase, the value of the fixed-rate security should decline.
o CHANGES IN DEBT RATING. If a rating agency gives a convertible security a
low rating, the value of the security will decline because investors will
demand a higher rate of return.
o CREDIT RISK. Like any borrower, the issuer of a convertible debt security
may be unable to make its payments. The Fund may invest up to 35% of total
assets in high yield, high-risk debt securities.
HIGH YIELD, HIGH-RISK DEBT SECURITIES. There are several agencies that evaluate
and rate debt securities. Two of the most prominent are Standard & Poor's and
Moody's Investors Service.
When they evaluate the quality of a debt instrument, rating agencies look at
factors like the issuer's current financial condition and business prospects,
the value of any collateral that secures the debt, and the issuer's history of
paying other debt. Each agency has its own system for "grading" debt. Standard &
Poor's has eleven ratings, ranging from D for securities that are in default to
AAA for securities that are almost certain to be repaid. Moody's Investors
Service has nine ratings, with C being the lowest and Aaa being the highest.
A security is called "investment-grade" if a respected agency assigns it a
favorable credit rating. In contrast, a debt security is considered "high yield,
high-risk" if it is rated BB or lower by Standard and Poor's, or Ba or lower by
Moody's Investors
27
<PAGE>
Service. Securities with these low ratings are also referred to as "junk bonds."
Many institutional investors, such as pension plans and municipal governments,
are only permitted to buy investment-grade debt.
There are four principal risks of owning high yield, high-risk debt securities:
o OVERBURDENED ISSUERS. Many issuers only resort to offering high yield,
high-risk debt securities when they cannot get financing from more
traditional sources, such as banks. These issuers are unlikely to have
a cushion from which to make their payments when their earnings are
poor or when the economy in general is in decline.
o PRIORITY. Issuers of high yield, high-risk debt securities are likely
to have a substantial amount of other debt. Most, if not all, of this
other debt will be "senior" to the high yield, high-risk debt
securities; an issuer must be current on its senior obligations before
it can pay bondholders. In addition, some of the other debt may be
secured by the issuer's primary operating assets. If the issuer
defaults on those obligations, the lenders may seize their
collateral--possibly forcing the issuer out of business and into
bankruptcy.
o DIFFICULT TO RESELL. Many investors simply do not want high yield,
high-risk debt securities, and others are prohibited from buying them.
o VOLATILE PRICES. Prices of high yield, high-risk debt securities are
more volatile than prices of higher-rated securities. In periods of
economic difficulty or rising interest rates, prices of high yield,
high-risk debt securities decline more than prices of investment-grade
securities.
An investment in Davis Convertible Securities Fund is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
PAST PERFORMANCE
The bar chart and the table below provide an indication of the risks of
investing in Davis Convertible Securities Fund by showing changes in the Fund's
year to year performance since inception, and by showing how the Fund's average
annual returns for one year, five years and since inception compare to those of
the S&P 500(R), a widely recognized unmanaged index of stock performance. How
the Fund has performed in the past is not necessarily an indication of how the
Fund will perform in the future.
28
<PAGE>
DAVIS CONVERTIBLE SECURITIES FUND TOTAL RETURN SINCE 1993
(As of December 31st of Each Year)
CLASS A SHARES
1993 17.26%
1994 (6.72)%
1995 26.68%
1996 29.46%
1997 28.68%
1998 (1.79)%
1999 12.97%
During the period shown above, the highest quarterly return was 14.33% for the
third quarter of 1997, and the worst quarterly return was (9.15)% for the third
quarter of 1998. Year-to-date performance as of the first quarter of 2000 (not
annualized) was 6.90%.
The chart does not reflect any sales charges. Total return would have been less
if it reflected those charges. The return for the other classes of shares
offered by this prospectus will differ from the Class A returns shown in the
chart, depending on the expenses of that class.
DAVIS CONVERTIBLE SECURITIES FUND AVERAGE ANNUAL TOTAL RETURNS
(For the Periods Ended December 31, 1999)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES* 7.62% 17.38% 14.13%
(SINCE 5/1/92)
- ------------------------------------------------------------------------------------------------------
S&P 500 INDEX 21.04% 28.51% 20.65%
- ------------------------------------------------------------------------------------------------------
CLASS B SHARES* 8.01% N/A 16.97%
(SINCE 2/3/95)
- ------------------------------------------------------------------------------------------------------
S&P 500 INDEX 21.04% N/A 28.00%
- ------------------------------------------------------------------------------------------------------
CLASS C SHARES* 10.98% N/A 6.84%
(SINCE 8/12/97)
- ------------------------------------------------------------------------------------------------------
S&P 500 INDEX 21.04% N/A 23.08%
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Figures include sales charges.
DAVIS CONVERTIBLE SECURITIES FUND YIELD, CLASS A SHARES
(As of December 31, 1999)
30-DAY SEC YIELD 2.27%
You can obtain Davis Convertible Securities Fund's most recent 30-day SEC Yield
by calling us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4
p.m. Mountain Time.
FEES AND EXPENSES OF THE FUND
29
<PAGE>
FEES YOU MAY PAY AS A DAVIS CONVERTIBLE SECURITIES FUND SHAREHOLDER
(Paid Directly From Your Investment)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a 4.75% None None
percentage of offering price)
- --------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) 0.75% 4.00% 1.00%
Imposed on Redemptions (as a percentage of
the lesser of the net asset value of shares
redeemed or the total cost of such shares)
- --------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None
- --------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
DAVIS CONVERTIBLE SECURITIES FUND ANNUAL FUND OPERATING EXPENSES
(For the Year Ended December 31, 1999)
(Deducted from Davis Convertible Securities Fund's Assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.74% 0.74% 0.74%
- --------------------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.18% 1.00% 1.00%
- --------------------------------------------------------------------------------------------------------------------
Other Expenses 0.20% 0.27% 0.27%
- --------------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.12% 2.01% 2.01%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in Davis
Convertible Securities Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in Davis Convertible Securities Fund
for the time periods indicated. The example also assumes that your investment
has a 5% return each year and that Davis Convertible Securities Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
your costs--based on these assumptions--would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $584 $814 $1,063 $1,773
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES $604 $930 $1,283 $2,000*
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES $304 $630 $1,083 $2,338
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
AFTER...
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $584 $814 $1,063 $1,773
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES $204 $630 $1,083 $2,000*
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES $204 $630 $1,083 $2,338
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
* Class B shares expenses for the 10-year period include 2 years of Class A
shares expenses since Class B shares automatically convert to Class A shares
after 8 years.
FINANCIAL HIGHLIGHTS
These tables are designed to show you the financial performance of Davis
Convertible Securities Fund for the past five years, assuming that all dividends
and capital gains have been reinvested. Some of the information reflects
financial results for a single Fund share. The total returns represent the rate
that an investor would have earned (or lost) money on an investment in the Fund.
KPMG LLP has audited the information for the fiscal years 1999 and 1998. KPMG
LLP's report, along with the Fund's financial statements, is included in Davis
Series' annual report, which is available upon request. Another firm audited the
information for the previous fiscal years.
31
<PAGE>
DAVIS CONVERTIBLE SECURITIES FUND
CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........ $23.76 $25.26 $21.22 $18.22 $15.57
------ ------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income .................... 0.77 0.77 0.67 0.71 0.67
Net Realized and Unrealized Gains (Losses) 2.22 (1.23) 5.33 4.56 3.42
------ ------ ------ ------ ------
Total From Investment Operations ..... 2.99 (0.46) 6.00 5.27 4.09
------ ------ ------ ------ ------
Dividends and Distributions
Net Investment Income .................... (0.76) (0.76) (0.67) (0.69) (0.66)
Distributions from Realized Gains ........ (0.77) (0.27) (1.22) (1.54) (0.78)
Return of Capital ........................ (0.01) (0.01) (0.07) (0.04) --
------ ------ ------ ------ ------
Total Dividend and Distributions ..... (1.54) (1.04) (1.96) (2.27) (1.44)
------ ------ ------ ------ ------
Net Asset Value, End of Period .............. $25.21 $23.76 $25.26 $21.22 $18.22
====== ====== ====== ====== ======
Total Return(1).............................. 12.97% (1.79) 28.68% 29.46% 26.68%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) .. $117,308 $132,856 $90,107 $42,841 $59,757
Ratio of Expenses to Average Net Assets .. 1.12% 1.16%2 1.08%(2) 1.05% 1.14%
Ratio of Net Investment Income
to Average Net Assets ................. 2.99% 3.27% 3.00% 3.34% 3.87%
Portfolio Turnover Rate(3)................ 32.99% 14.43% 23.68% 43.16% 53.58%
</TABLE>
(1) Assumes hypothetical investment on the business day before the first day of
the fiscal period, with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales
charges are not reflected in total returns.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.15% and 1.07% for 1998 and 1997,
respectively. Prior to 1996, such reductions were reflected in the expense
ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
DAVIS CONVERTIBLE SECURITIES FUND
CLASS B SHARES
<TABLE>
<CAPTION>
FEBRUARY 3, 1995
(INCEPTION
OF CLASS)
YEAR ENDED DECEMBER 31, THROUGH
----------------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...... $23.55 $25.03 $21.05 $18.14 $15.95
------ ------ ------ ------ ------
32
<PAGE>
Income (Loss) From Investment Operations
Net Investment Income .................. 0.53 0.56 0.44 0.59 0.54
Net Realized and Unrealized
Gains (Losses) ....................... 2.22 (1.22) 5.26 4.45 2.97
------ ------ ------ ------ ------
Total From Investment Operations .. 2.75 (0.66) 5.70 5.04 3.51
------ ------ ------ ------ ------
Dividends and Distributions
Net Investment Income ................. (0.54) (0.54) (0.44) (0.56) (0.54)
Distributions from
Realized Gains ....................... (0.77) (0.27) (1.22) (1.54) (0.78)
Return of Capital ..................... (0.01) (0.01) (0.06) (0.03) --
------ ------ ------ ------ ------
Total Dividend and Distributions ... (1.32) (0.82) (1.72) (2.13) (1.32)
------ ------ ------ ------ ------
Net Asset Value, End of Period ............ $24.98 $23.55 $25.03 $21.05 $18.14
====== ====== ====== ====== ======
Total Return(1)............................ 12.01% (2.62) 27.35% 28.21% 25.31%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $86,623 $90,827 $35,536 $2,075 $378
Ratio of Expenses to
Average Net Assets ................... 2.01% 2.04%(2) 2.11%(2) 2.01%(2) 2.01%*
Ratio of Net Investment Income
to Average Net Assets ............... 2.10% 2.39% 2.09% 2.40% 3.00%*
Portfolio Turnover Rate(3).............. 32.99% 14.43% 23.68% 43.16% 53.58%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.03%, 2.10% and 2.00% for 1998, 1997
and 1996, respectively. Prior to 1996, such reductions were reflected in
the expense ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
DAVIS CONVERTIBLE SECURITIES FUND
CLASS C SHARES
<TABLE>
<CAPTION>
AUGUST 12, 1997
YEAR (INCEPTION
ENDED OF CLASS)
DECEMBER 31, THROUGH
-------------------- DECEMBER 31,
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ................... $23.86 $25.36 $24.91
------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income ............................... 0.55 0.59 0.11
Net Realized and Unrealized Gains (Losses) .......... 2.23 (1.26) 1.72
------ ------ ------
Total From Investment Operations ............... 2.78 (0.67) 1.83
------ ------ ------
Dividends and Distributions
Net Investment Income .............................. (0.55) (0.55) (0.11)
Distributions from Realized Gains ................... (0.77) (0.27) (1.22)
33
<PAGE>
Return of Capital .................................. (0.01) (0.01) (0.05)
------ ------ ------
Total Dividend and Distributions ................ (1.33) (0.83) (1.38)
------ ------ ------
Net Asset Value, End of Period ......................... $25.31 $23.86 $25.36
====== ====== ======
Total Return(1)......................................... 11.98% (2.61) 7.38%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ............ $18,936 $26,406 $6,296
Ratio of Expenses to Average Net Assets ............. 2.01% 2.03%(2) 2.08%*(2)
Ratio of Net Investment Income to Average Net Assets 2.10% 2.40% 2.01%*
Portfolio Turnover Rate(3)........................... 32.99% 14.43% 23.68%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.02% and 2.07% for 1998 and 1997,
respectively.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
34
<PAGE>
OVERVIEW OF DAVIS GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis Government Bond Fund's investment objective is current income.
Davis Government Bond Fund invests primarily in "U.S. Government Securities."
There are two basic types of U.S. Government Securities: direct obligations of
the U.S. Treasury, and obligations issued or guaranteed by an agency or
instrumentality of the U.S. Government. U.S. Government Securities all represent
debt obligations (unlike equity securities, which represent ownership of the
issuer).
Obligations that the U.S. Treasury issues or guarantees are generally considered
to offer the highest credit quality available in any security. Many securities
issued by government agencies are not fully guaranteed by the U.S. Government,
and in unusual circumstances may present credit risk.
At times, a significant portion of Davis Government Bond Fund's securities are
mortgage-backed securities and collateralized mortgage obligations. A
"mortgage-backed security" represents ownership of a pool of mortgage loans. As
the mortgages are paid off, a portion of the principal and interest payments are
passed through to the owners of the securities. Davis Government Bond Fund only
buys mortgage-backed securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. A "collateralized mortgage obligation" is a debt
security that is secured by a pool of mortgages, mortgage-backed securities,
U.S. Government Securities, or corporate debt obligations. Davis Government Bond
Fund only invests in collateralized mortgage obligations that are issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
Davis Government Bond Fund does not attempt to deliver the highest possible
current yield to its investors. Instead, the portfolio manager tries to deliver
competitive results with less risk or volatility than our competitors.
Davis Government Bond Fund typically holds many different types of U.S.
Government Securities with varying features. We try to buy securities with a
range of maturity dates, interest rates and call (prepayment) provisions. By
diversifying among these features, the Fund seeks to capture the higher yield of
long-term securities and the flexibility of short-term securities.
DETERMINING IF THIS FUND IS RIGHT FOR YOU
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking current income.
o You are most comfortable investing in high-quality U.S. Government
Securities.
o You want to diversify a common stock portfolio.
o You are investing for the long-term (three years or more).
35
<PAGE>
YOU SHOULD NOT INVEST IN THIS FUND IF:
o You cannot accept even moderate price swings or market declines.
o You are investing for the short-term (less than three years).
PRINCIPAL RISKS
Because Davis Government Bond Fund principally holds high-quality debt
securities, the primary risk of investing in the Fund arises from interest rate
volatility. There are two principal ways that changes in interest rates affect
the U.S. Government Securities in which the Fund invests:
INTEREST RATE RISKS
o PRICE VOLATILITY RISK. Most of the Fund's U.S. Government Securities pay a
fixed interest rate. When market rates increase, the value (and price) of
the U.S. Government Securities usually decline. When interest rates are
falling, the value (and price) of the U.S. Government Securities usually
increase. As a result, an increase in market rates should reduce the value
of the Fund's portfolio and a decrease in rates should have the opposite
effect.
o EXTENSION AND PREPAYMENT RISK. Market prices of the mortgage-backed
securities and collateralized mortgage obligations which Davis Government
Bond Fund owns are affected by how quickly borrowers elect to prepay the
mortgages underlying the securities. Changes in market interest rates
affect borrowers' decisions about whether or not to prepay their mortgages.
Rising interest rates lead to "extension risk," which occurs when borrowers
maintain their existing mortgages until they come due instead of choosing
to prepay them. Falling interest rates lead to "prepayment risk," which
occurs when borrowers prepay their mortgages more quickly than usual so
that they can refinance at a lower rate. A government agency that has the
right to "call" (prepay) a fixed-rate security may respond the same way.
The pace at which borrowers prepay affects the yield and the cash flow to
holders of securities and the market value of those securities.
An investment in Davis Government Bond Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PAST PERFORMANCE
The bar chart and the table below provide an indication of the risks of
investing in Davis Government Bond Fund by showing changes in the Fund's year to
year performance for the past ten years and by showing how the Fund's average
annual returns for one year, five years, ten years, and since inception compare
to those of the Lehman Brothers Intermediate Term U.S. Treasury Securities
Index, a recognized unmanaged index of U.S. Government Securities performance.
How the Fund has performed in the past is not necessarily an indication of how
the Fund will perform in the future.
36
<PAGE>
DAVIS GOVERNMENT BOND FUND
TOTAL RETURN OVER THE LAST 10-YEAR PERIOD
(As of December 31st of Each Year)
CLASS B SHARES
1990 6.11%
1991 12.36%
1992 4.14%
1993 3.69%
1994 (0.97)%
1995 10.62%
1996 2.78%
1997 7.12%
1998 5.38%
1999 (4.12)%
During the period shown above, the highest quarterly return was 4.85% for the
third quarter of 1991, and the worst quarterly return was (1.90)% for the second
quarter of 1999. Year-to-date performance as of the first quarter of 2000 (not
annualized) was 0.98%.
The chart does not reflect any sales charges. Total return would have been less
if it reflected those charges. The return for the other classes of shares
offered by this prospectus will differ from the Class B returns shown in the
chart, depending on the expenses of that class.
DAVIS GOVERNMENT BOND FUND AVERAGE ANNUAL TOTAL RETURNS
(For the Periods Ended December 31, 1999)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS LIFE OF FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES* (8.00)% 4.04% N/A 4.01%
(SINCE 12/1/94)
- ------------------------------------------------------------------------------------------------------------------------------
LB INTERMEDIATE TREASURY SECURITIES INDEX 0.44% 6.93% N/A 6.88%
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES* (7.78)% 3.92% 4.60% 6.24%
(SINCE 5/1/84)
- ------------------------------------------------------------------------------------------------------------------------------
LB INTERMEDIATE TREASURY SECURITIES INDEX 0.44% 6.93% 7.09% N/A
- ------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES* (5.06)% N/A N/A 1.69%
(SINCE 8/19/97)
- ------------------------------------------------------------------------------------------------------------------------------
LB INTERMEDIATE TREASURY SECURITIES INDEX 0.44% N/A N/A 5.14%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Figures include sales charges.
37
<PAGE>
DAVIS GOVERNMENT BOND FUND YIELD, CLASS A SHARES
(As of December 31, 1999)
30-DAY SEC YIELD 5.58%
You can obtain Davis Government Bond Fund's most recent 30-day SEC Yield by
calling us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4 p.m.
Mountain Time.
FEES AND EXPENSES OF THE FUND
FEES YOU MAY PAY AS A DAVIS GOVERNMENT BOND FUND SHAREHOLDER
(Paid Directly From Your Investment)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a 4.75% None None
percentage of offering price)
- --------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) 0.75% 4.00% 1.00%
Imposed on Redemptions (as a percentage of
the lesser of the net asset value of shares
redeemed or the total cost of such shares)
- --------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None
- --------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
DAVIS GOVERNMENT BOND FUND ANNUAL FUND OPERATING EXPENSES
(For the Year Ended December 31, 1999)
(Deducted From Davis Government Bond Fund's Assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50%
- ----------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.24% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------
Other Expenses 0.46% 0.45% 0.46%
- ----------------------------------------------------------------------------------------------
Total Annual Operating Expenses 1.20% 1.95% 1.96%
- ----------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in Davis
Government Bond Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in Davis Government Bond Fund for
the time periods indicated The example also assumes that your investment has a
5% return each year and that Davis Government Bond Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, your
costs--based on these assumptions--would be:
38
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $591 $838 $1,103 $1,860
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES $598 $912 $1,252 $1,989*
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES $299 $615 $1,057 $2,285
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
AFTER...
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $591 $838 $1,103 $1,860
- --------------------------------------------------------------------------------------------------------------
CLASS B SHARES $198 $612 $1,052 $1,989*
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES $199 $615 $1,057 $2,285
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Class B shares expenses for the 10-year period include 2 years of Class A
shares expenses since Class B shares automatically convert to Class A shares
after 8 years.
FINANCIAL HIGHLIGHTS
These tables are designed to show you the financial performance of Davis
Government Bond Fund for the past five years, assuming that all dividends and
capital gains have been reinvested. Some of the information reflects financial
results for a single Fund share. The total returns represent the rate that an
investor would have earned (or lost) money on an investment in the Fund.
KPMG LLP has audited the information for the fiscal years 1999 and 1998. KPMG
LLP's report, along with the Fund's financial statements, is included in Davis
Series' annual report, which is available upon request. Another firm audited the
information for the previous fiscal years.
39
<PAGE>
DAVIS GOVERNMENT BOND FUND
CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $5.90 $5.87 $5.76 $6.00 $5.79
----- ----- ----- ----- -----
Income (Loss) From Investment Operations
Net Investment Income .............................. 0.28 0.29 0.33 0.33 0.39
Net Realized and Unrealized Gains (Losses) ......... (0.48) 0.07 0.11 (0.14) 0.27
----- ----- ----- ----- -----
Total From Investment Operations .............. (0.20) 0.36 0.44 0.19 0.66
----- ----- ----- ----- -----
Dividends and Distributions
Net Investment Income .............................. (0.28) (0.29) (0.33) (0.33) (0.36)
Return of Capital .................................. (0.04) (0.04) -- (0.10) (0.09)
----- ----- ----- ----- -----
Total Dividend and Distributions ............... (0.32) (0.33) (0.43)
----- ----- ----- ----- -----
Net Asset Value, End of Period ........................ $5.38 $5.90 $5.87 $5.76 $6.00
===== ===== ===== ===== =====
Total Return(1)........................................ (3.47) 6.31% 7.92% 3.40% 11.82%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ........... $18,002 $21,285 $17,589 $18,129 $21,485
Ratio of Expenses to Average Net Assets ............ 1.20% 1.43% 1.27%(2) 1.77% 1.74%
Ratio of Net Investment Income to Average Net Assets 5.07% 4.87% 5.82% 5.88% 6.54%
Portfolio Turnover Rate(3).......................... 150.54% 18.40% 24.35% 45.50% 41.04%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.26% for 1997. Prior to 1996, such
reductions were reflected in the expenses ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
DAVIS GOVERNMENT BOND FUND
CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $5.88 $5.86 $5.75 $5.98 $5.79
----- ----- ----- ----- -----
Income (Loss) From Investment Operations
Net Investment Income ............................. 0.24 0.27 0.29 0.29 0.34
Net Realized and Unrealized Gains (Losses) ......... (0.48) 0.04 0.11 (0.13) 0.26
----- ----- ----- ----- -----
40
<PAGE>
Total From Investment Operations .............. (0.24) 0.31 0.40 0.16 0.60
----- ----- ----- ----- -----
Dividends and Distributions
Net Investment Income .............................. (0.23) (0.27) (0.29) (0.29) (0.33)
Return of Capital .................................. (0.04) (0.02) -- (0.10) (0.08)
----- ----- ----- ----- -----
Total Dividend and Distributions ............... (0.27) (0.29) (0.29) (0.39) (0.41)
----- ----- ----- ----- -----
Net Asset Value, End of Period ........................ $5.37 $5.88 $5.86 $5.75 $5.98
===== ===== ===== ===== =====
Total Return(1)........................................ (4.12) 5.38% 7.12% 2.78% 10.62%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ............ $28,344 $36,005 $12,703 $12,959 $15,976
Ratio of Expenses to Average Net Assets ............ 1.95% 2.18%(2) 2.01%(2) 2.53%(2) 2.51%
Ratio of Net Investment Income to Average Net Assets 4.32% 4.13% 5.07% 5.13% 5.77%
Portfolio Turnover Rate(3).......................... 150.54% 18.40% 24.35% 45.50% 41.04%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 2.17%, 2.00% and 2.52% for 1998, 1997
and 1996, respectively. Prior to 1996, such reductions were reflected in
the expense ratios.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
DAVIS GOVERNMENT BOND FUND
CLASS C SHARES
<TABLE>
<CAPTION>
AUGUST 19, 1997
(INCEPTION
OF CLASS)
YEAR ENDED DECEMBER 31, THROUGH
------------------------ DECEMBER 31,
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $5.90 $5.88 $5.79
----- ----- -----
Income (Loss) From Investment Operations
Net Investment Income ............................. 0.23 0.27 0.08
Net Realized and Unrealized Gains (Losses) ......... (0.47) 0.04 0.09
----- ----- -----
Total From Investment Operations.... (0.24) 0.31 0.17
----- ----- -----
Dividends and Distributions
Net Investment Income .............................. (0.23) (0.27) (0.08)
Return of Capital .................................. (0.04) (0.02) --
----- ----- -----
Total Dividend and Distributions ............... (0.27) (0.29) (0.08)
----- ----- -----
Net Asset Value, End of Period ........................ $5.39 $5.90 $5.88
===== ===== =====
Total Return1 ......................................... (4.15) 5.42% 2.97%
41
<PAGE>
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ............ $4,791 $8,178 $215
Ratio of Expenses to Average Net Assets ............ 1.96% 2.18% 1.97%*(2)
Ratio of Net Investment Income to Average Net Assets 4.31% 4.12% 5.11%*
Portfolio Turnover Rate(3).......................... 150.54% 18.40% 24.35%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.96% for 1997.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
42
<PAGE>
OVERVIEW OF DAVIS GOVERNMENT MONEY MARKET FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis Government Money Market Fund's investment objective is to achieve as high
a level of current income as is consistent with the principle of preservation of
capital and maintenance of liquidity.
Davis Government Money Market Fund invests exclusively in "U.S. Government
Securities" and repurchase agreements secured by U.S. Government Securities.
There are two basic types of U.S. Government Securities: direct obligations of
the U.S. Treasury, and obligations issued or guaranteed by an agency or
instrumentality of the U.S. Government. U.S. Government Securities all represent
debt obligations (unlike equity securities, which represent ownership of the
issuer).
A "repurchase agreement" is a type of short-term investment that uses securities
as collateral. Like a short-term loan, the borrower sells securities to the
lender. The borrower agrees to buy back the securities at a certain time--at a
higher price that incorporates an "interest payment."
Davis Government Money Market Fund favors securities issued or secured by U.S.
Government agencies because those securities typically pay a higher rate than
securities issued or secured directly by the U.S. Treasury. We maintain
liquidity and preserve capital by carefully monitoring the maturity of our
investments. Our portfolio has a dollar-weighted average maturity of 90 days or
less.
DETERMINING IF THIS FUND IS RIGHT FOR YOU
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking current income.
o You are most comfortable investing in high quality U.S. Government
Securities.
o You want a safe haven in times of market turmoil.
o You want easy access to your money.
YOU SHOULD NOT INVEST IN THIS FUND IF:
o You need a high total return to achieve your investment goals.
o Your primary investment goal is capital growth.
PRINCIPAL RISKS
Because Davis Government Money Market Fund invests exclusively in short-term
U.S. Government Securities, it incurs a minimum of interest rate or credit risk.
U.S. Government Securities are among the safest investments you can make, and
are an excellent means of preserving principal. However, there is always some
risk that the issuer of a security held by the Fund will fail to make a payment
when it is due. Some of the agency-issued securities in the Fund's portfolio are
not fully guaranteed by the U.S. Government, and in unusual circumstances may
present credit risk.
The primary risk of investing in Davis Government Money Market Fund is that the
dividends which it pays to investors are not stable. When interest rates
increase the
43
<PAGE>
Fund's dividends should increase. When interest rates decrease the Fund's
dividends should decrease.
Although Davis Government Money Market Fund seeks to preserve the value of your
investment at $1.00 per share, investors can lose money. An investment in the
Fund is not a bank deposit and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
PAST PERFORMANCE
The bar chart and the table below provide an indication of the risks of
investing in Davis Government Money Market Fund by showing changes in the Fund's
year to year performance for the past ten years and by presenting the Fund's
average annual returns for one year, five years, and ten years. How the Fund has
performed in the past is not necessarily an indication of how the Fund will
perform in the future.
DAVIS GOVERNMENT MONEY MARKET FUND
TOTAL RETURN OVER THE LAST 10-YEAR PERIOD
(As of December 31st of Each Year)
1990 6.58%
1991 4.78%
1992 2.70%
1993 2.01%
1994 3.48%
1995 5.25%
1996 4.80%
1997 5.02%
1998 4.94%
1999 4.51%
During the period shown above, the highest quarterly return was 1.65% for the
second quarter of 1990, and the worst quarterly return was 0.47% for the second
quarter of 1993. Year-to-date performance as of the first quarter of 2000 (not
annualized) was 1.32%.
44
<PAGE>
DAVIS GOVERNMENT MONEY MARKET FUND AVERAGE ANNUAL TOTAL RETURNS
(For the Periods Ended December 31, 1999)
- -----------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
- -----------------------------------------------------------------------------
CLASS A SHARES 4.51% 4.90% 4.41%
- -----------------------------------------------------------------------------
CLASS B SHARES 4.51% 4.90% 4.41%
- -----------------------------------------------------------------------------
CLASS C SHARES 4.51% 4.90% 4.41%
- -----------------------------------------------------------------------------
DAVIS GOVERNMENT MONEY MARKET FUND 7-DAY SEC YIELD
CLASS A, B AND C SHARES
(As of December 31, 1999)
7-DAY SEC YIELD 5.65%
You can obtain Davis Government Money Market Fund's most recent 7-day SEC Yield
by calling us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4
p.m. Mountain Time.
FEES AND EXPENSES OF THE FUND
FEES YOU MAY PAY AS A DAVIS GOVERNMENT MONEY MARKET FUND SHAREHOLDER
(Paid Directly From Your Investment)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a None None None
percentage of offering price)
- --------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None None None
Imposed on Redemptions (as a percentage of
the lesser of the net asset value of shares
redeemed or the total cost of such shares)
- --------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None
- --------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
DAVIS GOVERNMENT MONEY MARKET FUND ANNUAL FUND OPERATING EXPENSES
(For the Year Ended December 31, 1999)
(Deducted From Davis Government Money Market Fund's Assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.47% 0.47% 0.47%
- --------------------------------------------------------------------------------------------
Distribution (12b-1) Fees None None None
- --------------------------------------------------------------------------------------------
Other Expenses 0.14% 0.14% 0.14%
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 0.61% 0.61% 0.61%
- --------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in Davis
Government Money Market Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in Davis Government Money Market
Fund for the time periods indicated. The example also assumes that your
investment has a 5% return each year and that Davis Government Money Market
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, your costs--based on these assumptions--would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IF YOU SELL YOUR SHARES IN... 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $62 $195 $340 $762
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES $62 $195 $340 $762
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES $62 $195 $340 $762
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
IF YOU STILL HOLD YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
AFTER...
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $62 $195 $340 $762
- ---------------------------------------------------------------------------------------------------------------
CLASS B SHARES $62 $195 $340 $762
- ---------------------------------------------------------------------------------------------------------------
CLASS C SHARES $62 $195 $340 $762
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL HIGHLIGHTS
This table is designed to show you the financial performance of Davis Government
Money Market Fund for the past five years, assuming that all dividends and
capital gains have been reinvested. Some of the information reflects financial
results for a single Fund share. The total returns represent the rate that an
investor would have earned (or lost) money on an investment in the Fund.
KPMG LLP has audited the information for the fiscal years 1999 and 1998. KPMG
LLP's report, along with the Fund's financial statements, is included in Davis
Series' annual report, which is available upon request. Another firm audited the
information for the previous fiscal years.
46
<PAGE>
DAVIS GOVERNMENT MONEY MARKET FUND
CLASSES A, B & C
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..................... $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ............................... .044 .048 .049 .047 .051
Dividends
Net Investment Income ................................ (.044) (.048) (.049) (.047) (.051)
------ ------ ------ ------ ------
Net Asset Value, End of Period ........................... $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
Total Return(1)........................................... 4.51% 4.94% 5.02% 4.80% 5.25%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ............ $553,977 $514,474 $464,459 $411,416 $360,290
Ratio of Expenses to Average Net Assets ............. 0.61% 0.61% 0.57% 0.66% 0.73%
Ratio of Net Investment Income to Average Net Assets 4.52% 4.84% 4.92% 4.72% 5.13%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period.
47
<PAGE>
WHO IS RESPONSIBLE FOR YOUR DAVIS ACCOUNT
A number of entities provide services to Davis Series Funds. This section shows
how each Fund is organized, the entities that perform these services, and how
these entities are compensated. Additional information on the organization of
each Fund is provided in Davis Series Funds' Statement of Additional
Information. For information on how to receive this document, see the back cover
of this prospectus.
INVESTMENT ADVISER
DAVIS SELECTED ADVISERS, LP
Referred to throughout this prospectus as "Davis Selected Advisers" 2949 East
Elvira Road, Suite 101 Tucson, Arizona 85706
o Provides investment advice for each of the Davis Series Funds.
o Manages the Funds' business affairs.
o Provides day-to-day administrative services.
o Serves as investment adviser for all of the Davis Funds, other mutual
funds, and other institutional clients.
48
<PAGE>
o Annual Adviser Fee for the year ended December 31, 1999 (based on average
net assets): Davis Growth Opportunity Fund: 0.75%
Davis Financial Fund: 0.63%
Davis Real Estate Fund: 0.72%
Davis Convertible Securities Fund: 0.74%
Davis Government Bond Fund: 0.50%
Davis Government Money Market Fund: 0.47%
INVESTMENT SUB-ADVISER
DAVIS SELECTED ADVISERS-NY, INC.
Referred to throughout this prospectus as "Davis Selected Advisers-NY"
609 Fifth Avenue
New York, NY 10017
o Performs investment management and research services for each of the Davis
Series Funds and other institutional clients.
o Wholly owned subsidiary of Davis Selected Advisers.
o Annual Fee: Davis Selected Advisers pays the fee, not Davis Series Funds.
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK AND TRUST COMPANY
Referred to throughout this prospectus as "State Street Bank and Trust" PO Box
8406 Boston, MA 02266-8406
o Prices Davis Funds daily.
o Holds share certificates and other assets of Davis Funds.
o Maintains records of shareholders.
o Issues and cancels share certificates.
o Supervises the payment of dividends.
BOARD OF DIRECTORS
Davis Funds' Board of Directors has general supervisory responsibilities of
Davis Funds. The Board monitors and supervises the performance of the investment
adviser, sub-advisers and other service providers, monitors Davis Funds'
business and investment activities, and determines whether or not to renew
agreements with the adviser and sub-adviser.
DISTRIBUTOR
DAVIS DISTRIBUTORS, LLC
Referred to throughout this prospectus as "Davis Distributors" 2949 East Elvira
Road, Suite 101 Tucson, Arizona 85706
o Oversees purchases of shares and promotional activities for Davis Funds and
other mutual funds managed by Davis Selected Advisers.
o Wholly owned subsidiary of Davis Selected Advisers.
49
<PAGE>
SENIOR RESEARCH ADVISER AND FOUNDER
SHELBY M.C. DAVIS
Responsibilities:
o Senior Research Adviser of Davis Selected Advisers.
o Founder of Davis Selected Advisers.
o Founder of Davis Funds.
Other Experience:
o Served as Davis New York Venture Fund's Portfolio Manager from its
inception in 1969 until February 1997.
o Served as Portfolio Manager of a growth and income fund managed by Davis
Selected Advisers from May 1993 until February 1997.
PORTFOLIO MANAGERS
FOR DAVIS GROWTH OPPORTUNITY FUND
INVESTMENT TEAM
o The Fund is managed by a team of senior portfolio managers and research
analysts from the research department of Davis Selected Advisers who share
ideas and responsibility for managing the Fund's investments.
FOR DAVIS FINANCIAL FUND
CHRISTOPHER C. DAVIS
Responsibilities:
o A Portfolio Manager of Davis Financial Fund since inception.
o Also manages other equity funds advised by Davis Selected Advisers.
Other Experience:
o Assistant portfolio manager and research analyst working with Shelby M.C.
Davis from September 1989 to September 1995.
KENNETH CHARLES FEINBERG
Responsibilities:
o A Portfolio Manager of Davis Financial Fund since May 1997.
o Also manages other equity funds advised by Davis Selected Advisers.
Other Experience:
o Research analyst at Davis Selected Advisers since December 1994.
o Assistant Vice President of Investor Relations for Continental Corp. from
1988 to 1994.
FOR DAVIS REAL ESTATE FUND AND DAVIS CONVERTIBLE SECURITIES FUND
ANDREW A. DAVIS
Responsibilities:
o A Portfolio Manager of Davis Real Estate Fund from its inception in January
1994 and Davis Convertible Securities Fund since February 1993.
o Also manages other Davis equity funds.
Other Experience:
o Vice President of convertible securities research at PaineWebber,
Incorporated from May 1986 through February 1993.
50
<PAGE>
FOR DAVIS GOVERNMENT BOND FUND AND DAVIS GOVERNMENT MONEY MARKET FUND
CRESTON KING, CFA
Responsibilities:
o Portfolio Manager of Davis Government Bond Fund and Davis Government Money
Market Fund since August 1, 1999.
o Also manages other bond funds and money market funds advised by Davis
Selected Advisers.
Other Experience:
o Prior to joining Davis Selected Advisers, Mr. King was a portfolio manager
for U.S. Global Investors, Inc., where he managed various money market
funds and bond funds.
OUR CODE OF ETHICS
We allow the officers and employees of Davis Funds and their affiliates to buy
and sell securities for their own personal accounts; however, in order to do so,
they must agree to a number of restrictions listed in our Code of Ethics.
HOW WE MANAGE DAVIS SERIES FUNDS
EQUITY FUNDS: DAVIS INVESTMENT PHILOSOPHY
Each of the Davis Series Funds which invest in equity securities (Davis Growth
Opportunity Fund, Davis Financial Fund, Davis Real Estate Fund, and Davis
Convertible Securities Fund) is managed using the Davis investment philosophy.
The Davis investment philosophy stresses a back-to-basics approach: we use
extensive research to buy growing companies at value prices and hold on to them
for the long-term. Over the years, Davis Selected Advisers has developed a list
of ten characteristics that we believe foster sustainable long-term growth,
minimize risk and enhance the potential for superior long-term returns. While
very few companies have all ten, we search for those possessing several of the
characteristics that are listed in the following chart.
GOVERNMENT FUNDS: CONSERVATIVE INVESTING
The two Davis Series Funds which invest in U.S. Government Securities (Davis
Government Bond Fund and Davis Government Money Market Fund) do not attempt to
deliver the highest possible current yield to their investors. Instead, the
portfolio manager tries to deliver competitive results with less risk or
volatility than our competitors.
U.S. Government Securities may include bonds and notes issued by the U.S.
government treasury and also government agencies such as the Federal Home Loan
Bank, Government National Mortgage Association (GNMA or "Ginnie Mae"), Federal
National Mortgage Association (FNMA or "Fannie Mae") and Student Loan Marketing
Association (SLMA or "Sallie Mae"). Treasury issues and Ginnie Maes are backed
by the full faith and credit of the U.S. Government while securities issued by
the other
51
<PAGE>
government agencies are not fully guaranteed by the U.S. Government, and in
unusual circumstances may present credit risk.
WHAT WE LOOK FOR IN A COMPANY
1. FIRST-CLASS MANAGEMENT. We believe that great companies are created by
great managers. In visiting companies, we look for managers with a record
of doing what they say they are going to do.
2. MANAGEMENT OWNERSHIP. Just as we invest heavily in our own funds, we look
for companies where individual managers own a significant stake.
3. STRONG RETURNS ON CAPITAL. We want companies that invest their capital
wisely and reap superior returns on those investments.
4. LEAN EXPENSE STRUCTURE. Companies that can keep costs low are able to
compete better, especially in difficult times. A low cost structure sharply
reduces the risk of owning a company's shares.
5. DOMINANT OR GROWING MARKET SHARE IN A GROWING MARKET. A company that is
increasing its share of a growing market has the best of both worlds.
6. PROVEN RECORD AS AN ACQUIRER. When an industry or market downturn occurs,
it is a good idea to own companies that can take advantage of attractive
prices to expand operations through inexpensive acquisitions.
7. STRONG BALANCE SHEET. Strong finances give a company staying power to
weather difficult economic cycles.
8. COMPETITIVE PRODUCTS OR SERVICES. We invest in companies with products that
are not vulnerable to obsolescence.
9. SUCCESSFUL INTERNATIONAL OPERATIONS. A proven ability to expand
internationally reduces the risk of being tied too closely to the U.S.
economic cycle.
10. INNOVATION. The savvy use of technology in any business, from a food
company to an investment bank, can help reduce costs and increase sales.
OTHER SECURITIES AND INVESTMENT STRATEGIES
There are other securities in which Davis Series Funds may invest, and
investment strategies which the Funds may employ, but they are not principal
investment strategies. For example, the equity funds may invest a portion of
their assets in the common stock of foreign companies. Investing in foreign
companies provides additional opportunities to invest in quality overlooked
growth companies. Investment in foreign securities can also offer the Funds the
potential for economic diversification. However, investing in foreign markets
also involves special risks. These securities and investment strategies, and
others, are discussed in the Statement of Additional Information.
Each of the Funds (other than Davis Government Money Market Fund) use short-term
investments to earn interest and maintain flexibility while we evaluate
long-term
52
<PAGE>
opportunities. We also may use short-term investments for temporary defensive
purposes. In the event our portfolio managers anticipate a market decline, we
may reduce our risk by investing in short-term securities until market
conditions improve. Unlike common stocks or longer-term U.S. Government
Securities, these investments will not appreciate in value when the market
advances. In such a circumstance, the short-term investments will not contribute
to the capital growth component of a Fund's investment objective.
RISK SPECTRUM
Davis Selected Advisers manages nine mutual funds in the Davis family. Each Fund
has a distinct investment objective and strategy. The following graph shows how
these Funds compare to each other in terms of risk. The Davis Series Funds range
in risk level from "high" to "low."
53
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
DAVIS FUNDS LOW MED HIGH
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DAVIS GROWTH OPPORTUNITY FUND o
- -------------------------------------------------------------------------------------------
DAVIS INTERNATIONAL TOTAL RETURN FUND o
- -------------------------------------------------------------------------------------------
DAVIS FINANCIAL FUND o
- -------------------------------------------------------------------------------------------
DAVIS REAL ESTATE FUND o
- -------------------------------------------------------------------------------------------
DAVIS NEW YORK VENTURE FUND o
- -------------------------------------------------------------------------------------------
DAVIS GROWTH & INCOME FUND o
- -------------------------------------------------------------------------------------------
DAVIS CONVERTIBLE SECURITIES FUND o
- -------------------------------------------------------------------------------------------
DAVIS GOVERNMENT BOND FUND o
- -------------------------------------------------------------------------------------------
DAVIS GOVERNMENT MONEY MARKET FUND o
- -------------------------------------------------------------------------------------------
</TABLE>
For more information about any of the other Davis Funds, including charges and
expenses, ask for a prospectus. Read it carefully before investing or sending
money.
ONCE YOU INVEST IN DAVIS FUNDS
This section describes how your investment is valued, how you earn money on your
investment, and how the government may tax these earnings.
HOW YOUR SHARES ARE VALUED
Once you open an account in any Davis Fund, you are entitled to buy and sell
shares on any business day. The share price of your investment changes depending
on the total value of the Fund's investments.
Each business day, we determine the value of fund shares by adding up the total
value of investments plus other assets (such as cash), subtracting liabilities,
and dividing the result by the total number of shares outstanding. This share
figure is known as the net asset value.
Net asset values for all of the Davis Funds are determined each business day. A
business day is any day the New York Stock Exchange is open for trading. We
calculate net asset value either at the close of the Exchange or at 4 p.m.
Eastern Time, whichever comes first.
The net asset values of all Davis Funds shares are published daily in the
business section of most major newspapers. If you have access to the Internet,
you can also check net asset value on our web site (WWW.DAVISFUNDS.COM).
HOW SECURITIES IN THE PORTFOLIO ARE VALUED
We use current market valuations to price the securities in each Davis Fund:
o Securities that trade on an organized exchange are valued at the last
published sales price on the exchange. If no sales are recorded, the
securities are valued at the average of the closing bid and asked prices on
the exchange.
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o Over-the-counter securities are valued at the average of closing bid and
asked prices.
o Debt securities may be valued by an independent pricing service. In
particular, the Fund relies on a professional pricing service that has
experience in valuing securities with limited resale markets so as to
obtain prices that reflect the market as accurately as possible.
o Discount securities purchased with a maturity of one year or less are
usually valued at amortized cost.
o Securities with unavailable market quotations and other assets are valued
at "fair value"--which is determined by the Board of Directors.
If any of the Funds' securities are traded in markets that close at different
times, events affecting portfolio values that occur between the time that their
prices are determined and the time the Fund's shares are priced will generally
not be reflected in the Funds' share price. The net asset value of the Funds'
shares may change on days when shareholders will not be able to purchase or
redeem the Funds' shares.
The value of securities denominated in foreign currencies and traded in foreign
markets will have their value converted into the U.S. dollar equivalents at the
prevailing market rate as computed by State Street Bank and Trust. Fluctuation
in the value of foreign currencies in relation to the U.S. dollar may affect the
net asset value of the Funds' shares even if there has not been any change in
the foreign currency price of the Funds' investments.
Normally, the share price of Davis Government Money Market Fund does not
fluctuate. However, if there are unusually rapid changes in interest rates that
the Fund's Board of Directors believes will cause a material deviation between
the amortized cost of the Fund's debt securities and the market value of those
securities, the Board will consider taking temporary action to maintain a fixed
price or to prevent material dilution or other unfavorable consequences to Fund
shareholders. This temporary action could include withholding dividends, paying
dividends out of surplus, realizing gains or losses, or using market valuation
to calculate net asset value rather than amortized cost.
HOW WE PAY EARNINGS
There are two ways you can receive payments from a Davis Fund:
o DIVIDENDS. Distributions to shareholders of net investment income and
short-term capital gains on investments.
o CAPITAL GAINS. Profits received by a Fund from the sale of securities held
for the long-term, which are then distributed to shareholders.
If you would like information about when a particular Davis Fund pays dividends
and distributes capital gains, if any, please call 1-800-279-0279.
Unless you choose otherwise, each Davis Fund automatically reinvests your
dividends and capital gains in additional Fund shares. You can request to have
your dividends
55
<PAGE>
and capital gains paid to you by check, deposited directly into your bank
account, paid to a third party or sent to an address other than your address of
record.
We also offer a DIVIDEND DIVERSIFICATION PROGRAM, which allows you to have your
dividends and capital gains reinvested in shares of another Davis Fund.
You will receive a statement each year detailing the amount of all dividends and
capital gains paid to you during the previous year. To ensure that these
distributions are reported properly to the U.S. Treasury, you must certify on
your Davis Funds Application Form or on the IRS Form W-9 that your Tax
Identification Number is correct and you are not subject to backup withholding.
Backup withholding is required for taxpayers who are subject to back taxes for
failure to report all interest and dividends.
If you fail to report a correct Taxpayer I.D. Number, under-reported dividend or
interest income, or are already subject to backup withholding, Davis Funds are
required by law to withhold a portion of any distributions you may receive and
send it to the U.S. Treasury.
HOW TO PUT YOUR DIVIDENDS AND CAPITAL GAINS TO WORK
You can have all dividends and capital gains from any Davis Fund automatically
invested in the same share class of the same Fund or any other Davis Fund. To be
eligible for this DIVIDEND DIVERSIFICATION PROGRAM, all accounts involved must
be registered under the same name, the same class of shares, and have a minimum
initial value of $250. Shares are purchased at the chosen Fund's net asset value
on the dividend payment date. You can make changes to your selection or withdraw
from the program with 10 days' notice. To participate in this program, fill out
the cross-reinvest information in the appropriate section of the Application
Form. Once your account has been opened and you wish to establish this program,
call for more information.
HOW YOUR DIVIDENDS AND CAPITAL GAINS ARE TAXED
o If you invest in a fund that pays dividends, the dividends are taxable to
shareholders as ordinary income. Dividends include both net investment
income and short-term capital gains.
o If you invest in a fund that pays net capital gains, they generally will be
taxed as a long-term capital gain distribution.
o Davis Government Money Market Fund, as a money market fund, intends to pay
only ordinary income dividends and no capital gain distributions.
Investment earnings (dividends and capital gains), whether received in cash or
reinvested in shares, are taxable in the year in which they were declared, not
the year they are paid.
Also, keep in mind that when you sell or exchange shares of any mutual fund, it
may result in a taxable gain or loss.
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We recommend that you consult with a tax adviser about dividends and capital
gains you receive from any Davis Fund.
HOW TO CHOOSE A SHARE CLASS
Before you can buy shares in any Davis Fund, you need to decide which class of
shares best suits your needs. Each Davis Fund offers four classes of shares: A,
B, C and Y. Class Y shares, which are offered through a separate prospectus, are
available only to institutional investors. Each class is subject to different
expenses and sales charges.
You may choose to buy one class of shares rather than another, depending on the
amount of the purchase and the expected length of time of investment. Long-term
shareholders of Class B or C shares may pay more than the maximum front-end
sales charge allowed by the National Association of Securities Dealers.
SPECIAL NOTE: Institutions buying $5 million or more of any Davis Fund may be
eligible to buy Class Y shares of that Fund, offered through a separate
prospectus. With Class Y shares, you pay no sales charges or distribution fees.
To find out more about Class Y shares, contact your sales representative or our
distributor, Davis Distributors.
DISTRIBUTION FEES. Each Davis Fund has adopted plans under Rule 12b-1 that allow
the Fund to pay distribution and other fees for the distribution of its shares
and for services provided to shareholders. Class A shares pay up to 0.25% of
average annual net assets while Class B and C shares pay 1.00% of average annual
net assets. Because these fees are paid out of the Fund's assets on an ongoing
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
CLASS A SHARES
Class A shares may be best for you if you are a long-term investor who is
willing to pay the entire sales charge at the time of purchase. In return, you
pay a lower distribution fee than the two other share classes:
o You buy Class A shares at their net asset value per share plus a sales
charge, which is 4.75% for any investment below $100,000 (see chart below).
The term "offering price" includes the front-end sales charge.
o There is no limit on how much you can invest in this share class.
o Davis Funds (other than Davis Government Money Market Fund) pay a
distribution fee--up to 0.25% of the average daily net assets--each year
you hold the shares. This fee is lower than the fee you pay for the other
two classes of shares. Lower expenses translate into higher annual return
on net asset value.
Investors who buy Class A shares of Davis Government Money Market Fund do not
pay front-end sales charges.
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CLASS A SALES CHARGES
(FOR ALL DAVIS FUNDS EXCEPT DAVIS GOVERNMENT MONEY MARKET FUND)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AMOUNT OF PURCHASE SALES CHARGE SALES CHARGE (PERCENTAGE AMOUNT OF SALES CHARGE
(PERCENTAGE OF OF NET AMOUNT INVESTED) RETAINED BY THE DEALER
OFFERING PRICE) (PERCENTAGE OF OFFERING
PRICE)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Under $100,000 4.75% 5.0% 4.0%
- --------------------------------------------------------------------------------------------------------------------
$100,000 - $250,000 3.5% 3.6% 3.0%
- --------------------------------------------------------------------------------------------------------------------
$250,000 -$500,000 2.5% 2.6% 2.0%
- --------------------------------------------------------------------------------------------------------------------
$500,000 - $750,000 2.0% 2.0% 1.75%
- --------------------------------------------------------------------------------------------------------------------
$750,000 - $1 million 1.0% 1.0% 0.75%
- --------------------------------------------------------------------------------------------------------------------
$1 million or more* None None None
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* You pay no front-end sales charge on purchases of $1 million or more, but if
you sell those shares (in any Davis Fund other than Davis Government Money
Market Fund) within the first year you may pay a deferred sales charge of 0.75%.
Davis Distributors may pay the dealer a commission during the first year after
purchase at the following rates:
- -------------------------------------------------------------
PURCHASE AMOUNT COMMISSION
- -------------------------------------------------------------
First $3 million 0.75%
- -------------------------------------------------------------
Next $2 million 0.50%
- -------------------------------------------------------------
Over $5 million 0.25%
- -------------------------------------------------------------
If a commission is paid for purchases of $1 million or more in any Davis Fund,
the dealer will be paid with distribution fees received from that Fund. If
distribution fee limits have already been reached for the year, Davis
Distributors itself will pay the commissions.
As the chart above shows, the sales charge gets smaller as your purchase amount
increases. There are several ways you may combine purchases to qualify for a
lower sales charge:
YOU CAN COMBINE PURCHASES OF CLASS A SHARES:
o WITH OTHER FAMILY MEMBERS. If you buy shares for yourself, your spouse and
any children under the age of 21, all the shares you buy will be counted as
a single purchase.
o WITH CERTAIN GROUPS. If you buy shares through a group organized for a
purpose other than to buy mutual fund shares, the purchases will be treated
as a single purchase.
o THROUGH EMPLOYEE BENEFIT PLANS. If you buy shares through trustee or
fiduciary accounts and Individual Retirement Accounts (IRAs) of a single
employer, the purchases will be treated as a single purchase.
o UNDER A STATEMENT OF INTENTION. If you enter a Statement of Intention and
agree to buy Class A shares of $100,000 or more over a 13-month period, all
of the shares you buy during that period will be counted as a single
purchase, with the exception of purchases into Davis Government Money
Market Fund. Before entering a Statement of Intention, please read the
terms and conditions in the Statement of Additional Information. Under a
Statement of Intention, you agree to permit our service provider, State
Street Bank and Trust, to hold fund shares
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<PAGE>
in escrow to guarantee payment of any sales charges that may be due if you
ultimately invest less than you agreed to invest over the covered 13-month
period.
o UNDER RIGHTS OF ACCUMULATION. If you notify your dealer or our distributor,
Davis Distributors, you can include the Class A, B and C shares you already
own when calculating the price for your current purchase.
o WITH CLASS A SHARES OF OTHER DAVIS FUNDS. If you buy Class A shares of this
or any other Davis Fund, all of the shares you buy will be counted as a
single purchase. This includes shares purchased under a Statement of
Intention or Rights of Accumulation.
CLASS A SHARES FRONT-END SALES CHARGE WAIVERS
We will not charge a sales charge on purchases of Class A shares for:
o Investments in Davis Government Money Market Fund.
o Shareholders making purchases with dividends or capital gains that are
automatically reinvested.
o Purchases by directors, officers and employees of any Davis Fund, the
investment adviser of any Davis Fund or its affiliates, and their immediate
families.
o Purchases by employees and people affiliated with broker-dealer firms
offering shares in any Davis Fund.
o Financial institutions acting as fiduciaries making single purchases of
$250,000 or more.
o Employee benefit plans making purchases through a single account covering
at least 250 participants.
o Wrap accounts offered by securities firms, fee-based investment advisers or
financial planners.
o State and local governments.
o Shareholders making purchases in certain accounts offered by securities
firms which have entered into contracts with the Fund and which charge fees
based upon assets in the account.
Wrap accounts are investment programs offered by broker-dealers who place a
client's funds with one or more investment advisers and charge a fee for their
services.
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CLASS B SHARES
Class B shares may be best for you if you are willing to pay a higher
distribution fee than Class A shares for eight years in order to avoid paying a
front-end sales charge:
o You buy the shares at net asset value (no initial sales charge).
o You can invest up to $250,000 in Class B shares.
o If you sell Class B shares in any of the Davis Funds except Davis
Government Money Market Fund within six years of purchase, you must pay a
deferred sales charge. This charge decreases over time as you own the
shares (see chart below).
o After you hold Class B shares for eight years, they are automatically
converted into Class A shares without paying a front-end sales charge.
Class A shares pay a lower distribution fee.
o Davis Funds (other than Davis Government Money Market Fund) pay a
distribution fee of 1.00% of the average daily net asset value each year
you hold the shares. Higher expenses translate into lower annual return on
net asset value.
Investors who buy Class B shares of Davis Government Money Market Fund will not
pay deferred sales charges.
CLASS B SHARES DEFERRED SALES CHARGES
(FOR ALL DAVIS FUNDS EXCEPT DAVIS GOVERNMENT MONEY MARKET FUND)
- -------------------------------------------------------------------------------
SALES MADE AFTER PURCHASE AMOUNT OF DEFERRED SALES CHARGE
- -------------------------------------------------------------------------------
Year 1 4%
- -------------------------------------------------------------------------------
Years 2-3 3%
- -------------------------------------------------------------------------------
Years 4-5 2%
- -------------------------------------------------------------------------------
Year 6 1%
- -------------------------------------------------------------------------------
Years 7-8 None
- -------------------------------------------------------------------------------
CLASS C SHARES
Class C shares may be best for you if you are willing to pay a higher
distribution fee than Class A shares pay in order to avoid paying a front-end
sales charge:
o You buy the shares at net asset value (no initial sales charge).
o You cannot invest more than $1 million in Class C shares.
o If you sell Class C shares in any of the Davis Funds (other than Davis
Government Money Market Fund) within one year of purchase, you must pay a
deferred sales charge of 1.00%.
o Davis Funds (other than Davis Government Money Market Fund) pay a
distribution fee of 1.00% of the average daily net asset value each year
you hold
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<PAGE>
the shares. Higher expenses translate into lower annual return on net asset
value.
Investors who buy shares of Davis Government Money Market Fund will not pay
deferred sales charges.
DEFERRED SALES CHARGE
As an investor in any Davis Fund (other than Davis Money Market Fund), you may
pay a deferred sales charge as a percentage of the net asset value of the shares
you sell or the total cost of the shares, whichever is lower. Davis Funds
investors pay a deferred sales charge in the following cases:
o As a Class A shareholder, only if you buy shares valued at $1 million or
more without a sales charge and sell the shares within one year of
purchase.
o As a Class B shareholder, if you sell shares within six years of purchase.
The percentage decreases over the six-year period.
o As a Class C shareholder, if you sell shares within one year of purchase.
To keep deferred sales charges as low as possible, we will first sell shares in
your account that are not subject to deferred sales charges (if any). We do not
impose a deferred sales charge on the amount of your account value represented
by an increase in net asset value over the initial purchase price, or on shares
acquired through dividend reinvestments or capital gain distributions.
To determine whether the deferred sales charge applies to a redemption, the
Funds redeem shares in the following order:
o Shares acquired by reinvestment of dividends and capital gain
distributions.
o Shares which are no longer subject to the deferred sales charge.
o Shares which have increased in value beyond their original cost.
o Shares held the longest, but still subject to the deferred sales charge.
DEFERRED SALES CHARGE WAIVERS
We will waive deferred sales charges on sales of Class A, B and C shares of any
Davis Fund if:
o You sell Class A shares that were not subject to a commission at the time
of purchase (the amount of purchase totaled $1 million or more and the
shares were held for more than a year).
o You (or a registered joint owner) die or have been determined to be totally
disabled after the purchase of shares.
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o You sell shares under the Automatic Withdrawal Plan amounting to, in a
12-month period, up to 12% of the value of the account when you began
participating in the Plan.
o You sell shares under a qualified retirement plan or IRA that constitute a
tax-free return of contributions to avoid a penalty.
o Your Fund sells the remaining shares in your account under an Involuntary
Redemption
o You qualify for an exception relating to defined contribution plans. These
exceptions are described in the Statement of Additional Information.
o You are a director, officer or employee of Davis Selected Advisers or one
of its affiliates (or a family member of a director, officer or employee).
If the net asset value of the shares that you sell has increased since you
purchased them, any deferred sales charge will be based on the original cost of
the shares.
If you have any additional questions about choosing a share class, please call
us toll-free at 1-800-279-0279 during business hours, 7 a.m. to 4 p.m. Mountain
Time. If you still are not sure about which class is best for you, contact your
financial adviser.
HOW TO OPEN AN ACCOUNT
You can open an account if you invest at least:
o $1,000 for a non-retirement plan account.
o $250 for a retirement plan account.
THREE WAYS YOU CAN OPEN AN ACCOUNT
1. BY MAIL. Fill out the Application Form included in this prospectus and mail
it to our service provider, State Street Bank and Trust. Both you and your
dealer must sign the form. Include a check made payable to DAVIS FUNDS or,
in the case of a retirement account, to the custodian or trustee. All
purchases by check should be in U.S. dollars. DAVIS FUNDS WILL NOT ACCEPT
THIRD-PARTY CHECKS.
2. BY DEALER. You may have your dealer order and pay for the shares. In this
case, you must pay your dealer directly. Your dealer will then order the
shares from our distributor, Davis Distributors. Please note that your
dealer may charge a service fee or commission for buying these shares.
3. BY WIRE. You may wire federal funds directly to our service provider, State
Street Bank and Trust. Before you wire an initial investment, you must call
Davis Distributors and obtain an account number and Application Form. A
customer service representative will assist you with your initial
investment by wire. After the initial wire purchase is made, you will need
to return the Application Form to State Street Bank and Trust. To ensure
that the purchase is credited properly, follow these wire instructions:
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<PAGE>
State Street Bank and Trust Company
Boston, MA 02210
Attn.: Mutual Fund Services
[NAME OF DAVIS FUND THAT YOU ARE BUYING]
Shareholder Name
Shareholder Account Number
Federal Routing Number 011000028
DDA Number 9904-606-2
Generally, Davis Funds do not issue share certificates for purchases. You can
receive certificates for any Fund other than Davis Government Money Market Fund
if you are a Class A shareholder who is not participating in the Automatic
Withdrawal Plan. If you are eligible and wish to receive certificates, please
submit a letter of instruction with your Application Form. Once your account has
been established, the shareholder(s) may request that certificates be sent to
the address of record by calling our customer service department.
RETIREMENT PLAN ACCOUNTS
You can invest in any Davis Fund using any of these types of retirement plan
accounts:
o Deductible IRAs
o Non-deductible IRAs
o Roth IRAs
o Educational IRAs
o Simple IRAs
o Simplified Employee Pension (SEP) IRAs
o 403(b) Plans
State Street Bank and Trust acts as custodian (service provider) for the
retirement plans and charges the participant a $10 maintenance fee each year
regardless of the number of plans established per Social Security number. These
fees are automatically deducted from each account, unless you elect to pay the
fee directly. To open a retirement plan account, you must fill out a special
application form. You can request this form by calling Davis Distributors.
HOW TO BUY, SELL AND EXCHANGE SHARES
Once you have opened an account with Davis Funds, you can add to--or withdraw
from--your investment. This section provides an overview of the types of
transactions you can perform as a shareholder of a Davis Fund. This includes how
to initiate these transactions, and the charges that you may incur (if any) when
buying, selling and exchanging shares.
An exchange occurs when you sell shares in one Davis Fund to buy shares in
another Davis Fund in the same class of shares in response to changes in your
goals or in market conditions.
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<PAGE>
THREE WAYS TO BUY, SELL AND EXCHANGE SHARES
1. BY TELEPHONE. Call 1-800-279-0279. You can speak directly with a Davis Funds
representative during our business hours (7:00 a.m. to 4:00 p.m. Mountain Time)
or use our automated telephone system any time, day or night.
2. BY MAIL. Send the request to our service provider, State Street Bank and
Trust.
Regular Mail
State Street Bank and Trust Company
c/o Davis Funds
PO Box 8406
Boston, MA 02266-8406
Overnight Mail
State Street Bank and Trust Company
c/o Davis Funds
66 Brooks Drive
Braintree, MA 02184
3. BY DEALER. Contact a dealer, who will then make the transaction through our
distributor, Davis Distributors. Please note that your dealer may charge a
service fee or commission for each transaction.
Generally, Davis Funds do not issue share certificates for purchases. Each time
you add to or withdraw from your account, you will receive a statement showing
the details of the transaction--along with any other transactions you made
during the current year.
WHEN YOUR TRANSACTIONS ARE PROCESSED
The per-share price for purchases or sales made through our distributor, Davis
Distributors, will be processed on the same day if the order is received before
4 p.m. Eastern Time. If State Street Bank and Trust requires additional
documents to complete the purchase or sale, the transaction price will be
determined at the close of business after all required documents are received.
For your transaction to be counted on the day you place your order with your
broker-dealer or other financial institution, they must:
o Receive your order before 4 p.m. Eastern Time.
o Promptly transmit the order to State Street Bank and Trust.
BUYING MORE SHARES
You can buy more shares at any time, by mail or through a dealer. The minimum
purchase amount is $25.
When you purchase shares by mail, send a check made payable to the DAVIS FUNDS
for the amount of purchase to our service provider, State Street Bank and Trust.
If you have the purchase form from your most recent statement, include it with
the
64
<PAGE>
check. If you do not have a purchase form, include a letter with your check
stating the name of the Fund, the class of shares you wish to buy and your
account number.
When you buy shares through a dealer, you may be charged a service fee or
commission for performing the transaction.
MAKING AUTOMATIC INVESTMENTS
An easy way to increase your investments in this or other Davis Funds is to sign
up for the AUTOMATIC INVESTMENT PLAN. Under this plan, you arrange for a set
amount of money to be taken from your bank account and invested in shares of a
Davis Fund. The minimum amount you can invest each month is $25. The account
minimums of $1,000 for non-retirement accounts and $250 for retirement accounts
will be waived if you meet the minimum requirement within a year.
Purchases can be processed electronically on any day of the month between the
5th and 28th if the institution that services your bank account is a member of
the Automated Clearing House system. After each automatic investment, you will
receive a transaction confirmation, and the debit should show up on your next
bank statement.
To sign up for the Automatic Investment Plan, fill out the appropriate section
of the Application Form. After your account has been opened and you wish to
establish this plan, you must submit a letter of instruction signed by the
account owner(s). You can stop automatic investments at any time by calling
Davis Distributors.
You can also use our Dividend Diversification Program to buy more shares in any
Davis Fund. See ONCE YOU INVEST IN DAVIS FUNDS.
The Automated Clearing House system is used by most banks for electronic
transfers of money into and out of your bank account and is regulated by the
Federal Reserve.
SELLING SHARES
You may sell back all or part of your shares in any Davis Fund in which you
invest (known as a redemption) at any time, at net asset value minus any sales
charges that may be due. You can sell the shares by telephone, by mail, or
through a dealer.
When you sell shares by mail, indicate the number of shares or dollar amount you
wish to redeem and send the request to our service provider, State Street Bank
and Trust. If more than one person owns the shares you wish to sell, all owners
must sign the redemption request. You may be required to have the owners'
signatures medallion-guaranteed (see "Medallion Signature Guarantee" below).
When you sell shares through a dealer, you may be charged a service fee or
commission for performing the transaction.
Redemption proceeds are usually paid to you in cash within seven days after
State Street Bank and Trust receives your proper sale request. If any of the
shares redeemed were recently purchased, payment to you will be delayed until
your purchase check has cleared, up to a maximum of 15 days from the date of
purchase.
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CHECK WRITING PRIVILEGE FOR DAVIS GOVERNMENT MONEY MARKET FUND. You can request
the ability to use your Davis Government Money Market Fund account as a checking
account if:
o You hold Class A shares.
o You are not investing through a retirement plan or an IRA.
Davis Government Money Market Fund investors with check writing privileges can
write checks for $100 or more from their accounts, subject to some rules
prescribed by State Street Bank and Trust.
Writing a check is a way of selling shares and directing the proceeds to a third
party. When a Davis Government Money Market Fund check is presented to State
Street Bank and Trust for payment, the bank will redeem a sufficient number of
shares in your account to cover the amount of the check. If you have recently
exchanged shares in any Davis Fund for shares in Davis Government Money Market
Fund, the full amount of your Davis Government Money Market Fund account may not
be available to cover your checks until the exchange is complete and all related
fees are paid.
To qualify for CHECK WRITING PRIVILEGES, fill out the appropriate section in
your Application Form.
You can find more information about check writing privileges in Davis Series'
Statement of Additional Information. Davis Funds and State Street Bank and Trust
reserve the right to modify or terminate the check writing service at any time.
WHAT YOU NEED TO KNOW BEFORE YOU SELL YOUR SHARES
o You will always receive cash for sales that total less than $250,000 or
1.00% of the Fund's net asset value during any 90-day period. Any sales
above the cash limit may be paid in securities and would mean you would
have to pay brokerage fees.
o You will need a medallion signature guarantee on a stock power or
redemption request for sales paid by check totaling more than $100,000. In
addition, if your address of record has changed in the last 30 days, or if
you wish to send redemption proceeds to a third party, you will need a
medallion signature guarantee for all sales.
o If a certificate was issued for the shares you wish to sell, the
certificate must be sent by certified mail to State Street Bank and Trust
accompanied by a letter of instruction signed by the owner(s).
o A sale may produce a gain or loss. Gains may be subject to tax.
MEDALLION SIGNATURE GUARANTEE. A written endorsement from an eligible guarantor
institution that the signature(s) on the written request is(are) valid. Eligible
guarantors include federally insured financial institutions, registered
broker-dealers, or participants in a recognized medallion signature guarantee
program. Davis Funds cannot accept guarantees from institutions that do not
provide
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reimbursement in cases of fraud. No other form of signature verification can be
accepted.
STOCK POWER. A letter of instruction signed by the owner of the shares that
gives State Street Bank and Trust permission to transfer ownership of the shares
to another person or group. Any transfer of ownership requires that all
shareholders have their signatures medallion-guaranteed.
SPECIAL SALE SITUATIONS
o The Securities and Exchange Commission can suspend payment of sales under
certain emergency circumstances if the New York Stock Exchange is closed
for reasons other than customary closings and holidays.
o Any Davis Fund may make sales payments in securities if the Fund's Board of
Directors decides that making cash payments would harm the Fund.
SPECIAL NOTE: When you make a sale or withdrawal, a deferred sales charge may be
imposed if:
o You buy $1 million or more of Class A shares and sell them within a year of
purchase.
o You sell Class B shares within six years of purchase.
o You sell Class C shares within one year of purchase.
IF YOU DECIDE TO BUY BACK SHARES YOU SOLD
If you decide to buy back some or all of the shares you sold in a Davis Fund
within 60 days of sale and notify us in writing, you can take advantage of the
SUBSEQUENT REPURCHASE PRIVILEGE. With this privilege, which you can use only
once, you will not be charged a sales charge, and any deferred sales charge you
paid on the original sale will be returned to your account. You must send a
letter to our service provider, State Street Bank and Trust, along with a check
for the repurchased shares.
IF YOUR ACCOUNT FALLS BELOW $250
If your account balance falls below $250 as a result of a redemption or
exchange, we may sell your remaining shares in this Fund at net asset value. We
will first notify you by mail, giving you at least 60 days' notice that an
INVOLUNTARY REDEMPTION may take place. If you can increase your account balance
to above $250 during the notice period, the Involuntary Redemption will be
cancelled.
MAKING AUTOMATIC WITHDRAWALS
If your account balance is more than $10,000, you can sell a set dollar or
percentage amount each month or quarter. When you participate in this plan,
known as the
67
<PAGE>
AUTOMATIC WITHDRAWAL PLAN, shares are sold so that you will receive payment by
one of three methods:
o You may receive funds at the address of record provided that this address
has been unchanged for a period of not less than 30 days. These funds are
sent by check on or after the 25th day of the month.
o You may also choose to receive funds by Automated Clearing House (ACH), to
the banking institution of your choice. You may elect an ACH draft date
between the 5th and the 28th days of the month. You must complete the
appropriate section of the Application Form. Once your account has been
established, you must submit a letter of instruction with a medallion
signature guarantee to execute an Automatic Withdrawal Plan by ACH.
o You may have funds sent by check to a third party at an address other than
the address of record. You must complete the appropriate section of the
Application Form. Once your account has been established, you must submit a
letter of instruction with a medallion signature guarantee to designate a
third party payee.
You may stop automatic withdrawals at any time without charge or penalty by
calling Davis Distributors or by notifying the service agent in writing.
WIRING SALE PROCEEDS TO YOUR BANK ACCOUNT
You may be eligible to have your sale proceeds electronically transferred to a
commercial bank account. This is known as an ELECTRONIC WIRE PRIVILEGE. There is
a $5 charge by State Street Bank and Trust for wire service, and receiving banks
may also charge for this service. Payment through Automated Clearing House will
usually arrive at your bank two banking days after the sale. Payment by wire is
usually credited to your bank account on the next business day after the sale.
While State Street Bank and Trust will accept electronic wire sales by telephone
or dealer, you still need to fill out and submit the information under the
Electronic Wire Privilege section of the Application Form. Once your account has
been opened and you have not previously established the Electronic Wire
Privilege, you must submit a letter of instruction with a medallion signature
guarantee signed by all registered owners at the time of the wire sale. If you
are currently an investor with a non-retirement account and have already
established this privilege, you may call our customer service department to
execute a wire sale by telephone.
EXCHANGING SHARES
You can sell shares of any Davis Fund to buy shares in the same class of any
other Davis Fund without having to pay a sales charge. This is known as an
exchange. You can exchange shares by telephone, by mail or through a dealer. The
initial exchange must be for at least $1,000 for a non-retirement account
(unless you are participating in the Automatic Exchange Program). Exchanges are
normally performed on the same day of the request if received in good order by 4
p.m. Eastern Time.
Shares in different Davis Funds may be exchanged at relative net asset value;
however, if any Davis Fund shares being exchanged are subject to a sales charge,
68
<PAGE>
Statement of Intention, or other limitation, the limitation will continue to
apply to the shares received in the exchange. When you exchange shares in a
Davis Fund for shares in Davis Government Money Market Fund, the holding period
for any deferred sales charge does not continue during the time that you own
Davis Government Money Market Fund shares. For example, Class B shares are
subject to a declining sales charge for six years. Any period that you are
invested in shares of Davis Government Money Market Fund will be added to the
six-year declining sales charge period.
When you exchange shares by mail, you must send our service provider, State
Street Bank and Trust, a written request for the exchange. If you wish to
exchange shares for which you hold share certificates, these certificates must
be sent by certified mail to State Street Bank and Trust accompanied by a letter
of instruction signed by the owner(s). A transaction in which shares are sold
for cash is known as a redemption. Please see the section WHAT YOU NEED TO KNOW
BEFORE YOU SELL YOUR SHARES for restrictions that might apply to this type of
transaction.
When you exchange shares through a dealer, you may be charged a service fee or
commission for performing the transaction.
Before you decide to make an exchange, you must obtain the current prospectus of
the desired Fund. For federal income tax purposes, exchanges between Funds are
treated as a sale and a purchase. Therefore, there will usually be a
recognizable capital gain or loss due to an exchange.
There are limits to the number of exchanges you can make each year. Currently,
four exchanges between Funds are allowed during a 12-month period. You may make
an unlimited number of exchanges out of Davis Government Money Market Fund.
Automatic exchanges are excluded from this provision. Davis Distributors must
approve any exchanges above the limit in writing.
YOU CAN MAKE EXCHANGES AMONG ANY OF THE DAVIS FUNDS WITHOUT HAVING TO PAY ANY
SALES CHARGE
EQUITY FUNDS
Davis New York Venture Fund
Davis Growth Opportunity Fund
Davis Financial Fund
Davis International Total Return Fund
GROWTH & INCOME FUNDS
Davis Growth & Income Fund
Davis Real Estate Fund
Davis Convertible Securities Fund
GOVERNMENT BOND FUND
Davis Government Bond Fund
GOVERNMENT MONEY MARKET FUND
Davis Government Money Market Fund
For more information about any of the other Davis Funds, including charges and
expenses, ask for a prospectus. Read it carefully before investing or sending
money.
69
<PAGE>
MAKING AUTOMATIC EXCHANGES
You can elect to make automatic monthly exchanges if all accounts involved are
registered under the same name and have a minimum initial value of $250. You
must exchange at least $25 to participate in this program, known as the
AUTOMATIC EXCHANGE PROGRAM. To sign up for this program, fill out the
appropriate section of the Application Form. Once your account has been opened,
you may contact our customer service department to establish this program.
TELEPHONE TRANSACTIONS
A benefit of investing through Davis Funds is that you can use our automated
telephone system to buy, sell or exchange shares. If you do not wish to have
this option activated for your account, complete the appropriate section of the
Application Form.
When you call Davis Distributors you can perform a transaction with Davis Funds
in two ways:
o Speak directly with a representative during business hours (7:00 a.m. to
4:00 p.m. Mountain Time).
o If you have a TouchTone(TM) telephone, you can use the automated telephone
system, known as DAVIS DIRECT ACCESS, 24 hours a day, seven days a week.
If you wish to sell shares by phone and receive a check in the mail:
o The maximum amount that can be issued is $25,000.
o The check can only be issued to the registered account owner.
o The check must be sent to the address on file with Davis Distributors
o Your current address must be on file for 30 days.
When you buy, sell or exchange shares over the telephone, you agree that Davis
Funds are not liable for following telephone instructions believed to be genuine
(that is, directed by the account holder or registered representative on file).
We use certain procedures to confirm that your instructions are genuine,
including a request for personal identification and a tape recording of the
conversation. If these procedures are not used, Davis Funds may be liable for
unauthorized instructions.
Be aware that during unusual market conditions, Davis Funds may not be able to
accept all requests by phone.
INTERNET TRANSACTIONS
You can use our web site: www.davisfunds.com to review your account balance and
recent transactions. Your account may qualify for the privilege to purchase,
sell or exchange shares online through the Internet. You may also request
confirmation statements and tax summary information be mailed to the address on
file. Please
70
<PAGE>
review our web site for more complete information. If you do not
wish to have this option activated for our account, please contact our customer
service department.
To access your accounts, you will need the name of the fund in which you are
invested, an account number and your social security number. Davis Funds
provides written confirmation of your initial access and any time you buy, sell
or exchange shares. You must also establish a unique and confidential Personal
Identification Number (PIN). This PIN is required each time you access your
Davis account online.
When you transact over the Internet, you agree that Davis Funds are not liable
for processing instructions believed to be genuine.
YOU CAN USE DAVIS DIRECT ACCESS TO:
o GET THE PRICE, TOTAL RETURN, AND FUND DESCRIPTION FOR ANY DAVIS FUND.
o CHECK YOUR ACCOUNT BALANCE AND OTHER ACCOUNT INFORMATION.
o BUY, SELL AND EXCHANGE SHARES.
o GET THE MAILING ADDRESS AND WIRE INSTRUCTIONS FOR ANY DAVIS FUND.
o REQUEST LITERATURE ABOUT ANY DAVIS FUND.
71
<PAGE>
[INSIDE BACK COVER]
DAVIS FUNDS:
OVER 25 YEARS OF RELIABLE INVESTING
Davis Selected Advisers, investment adviser of Davis Funds, has a history of
investing for the long-term. Since our founding in 1969, we have been dedicated
to delivering superior investment performance and service to our clients.
WE ARE LONG-TERM INVESTORS. We analyze high-quality growth companies that have
been overlooked, buy their stock at value prices, and hold the shares for the
long-term. This strategy was first developed by legendary Wall Street investor
Shelby Cullom Davis, a leading financial adviser to governors and presidents.
Our investment approach has been refined for more than 25 years by his son,
Shelby M.C. Davis, Senior Research Adviser and Founder of Davis Selected
Advisers. The Davis strategy is still followed today by the third generation of
family members: Christopher C. Davis and Andrew A. Davis serve as Portfolio
Managers for many funds and institutional accounts managed by Davis Selected
Advisers.
WE ARE FELLOW SHAREHOLDERS. The Davis family, directors and employees not only
manage the company's mutual funds but also invest in them. Together, we have
invested over $1 billion of our own money side-by-side with our shareholders.
Please take the time to read this prospectus carefully, and if you decide to
invest with us, keep it as a reference guide. If you need more information about
Davis Funds, please call us or visit our web site.
72
<PAGE>
ADDRESS AND PHONE GUIDE
OUR TELEPHONE NUMBER: OUR SERVICE PROVIDER'S REGULAR
1-800-279-0279 MAILING ADDRESS:
State Street Bank and Trust Company
c/o Davis Funds
PO Box 8406
Boston, MA 02266-8406
OUR MAILING ADDRESS:
Davis Funds
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
OUR INTERNET ADDRESS: OUR SERVICE PROVIDER'S OVERNIGHT
http://www.davisfunds.com MAILING ADDRESS:
State Street Bank and Trust Company
c/o Davis Funds
66 Brooks Drive
Braintree, MA 02184
73
<PAGE>
[BACK COVER]
OTHER FUND DOCUMENTS
For more information about any Davis Fund, request a free copy of the Statement
of Additional Information or the Annual and Semi-Annual Reports.
The STATEMENT OF ADDITIONAL INFORMATION provides more detailed information about
Davis Series Funds and their management and operations. An ANNUAL REPORT
discusses the market conditions and investment strategies that significantly
affected Fund performance during the last year. A SEMI-ANNUAL REPORT updates
information provided in the Annual Report for the next six months.
The Statement of Additional Information and Annual Report for the six Davis
Series Funds have been filed with the Securities and Exchange Commission, are
incorporated by reference, and are legally a part of this prospectus.
WHERE YOU CAN GET THESE DOCUMENTS:
o BY TELEPHONE. Call Davis Funds toll-free at 1-800-279-0279, Monday through
Friday, 7 a.m. to 4 p.m. Mountain Time. You may also call this number for
account inquiries.
o VIA THE INTERNET. Visit the SEC web site (WWW.SEC.GOV).
o FROM THE SEC. The SEC's Public Reference Room in Washington DC. For more
information call 1-202-942-8090. Additional copies of this information can
be obtained, for a duplicating fee, by electronic request at
[email protected] or by writing the Public Reference Section of the SEC,
Washington DC 20549-6009.
o BY MAIL. Specify the document you are requesting when writing to us.
DAVIS FUNDS
2949 EAST ELVIRA ROAD, SUITE 101
TUCSON, ARIZONA 85706
1-800-279-0279
Investment Company Act File No. 811-2679
74
<PAGE>
Draft 04/24/00
DAVIS GROWTH OPPORTUNITY FUND
DAVIS FINANCIAL FUND
DAVIS REAL ESTATE FUND
DAVIS CONVERTIBLE SECURITIES FUND
DAVIS GOVERNMENT BOND FUND
DAVIS GOVERNMENT MONEY MARKET FUND
(PORTFOLIOS OF DAVIS SERIES, INC.)
Prospectus
Class Y shares
May 1, 2000
The Securities and Exchange Commission has not approved or disapproved of these
securities. The Securities and Exchange Commission has not determined whether
this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
Over 25 Years Of Reliable Investing
<PAGE>
TABLE OF CONTENTS
OVERVIEW OF EACH DAVIS SERIES FUND
Davis Growth Opportunity Fund
Davis Financial Fund
Davis Real Estate Fund
Davis Convertible Securities Fund
Davis Government Bond Fund
Davis Government Money Market Fund
Overview of the Fund
Investment Objectives and Strategy
Determining If This Fund Is Right for You
Principal Risks
Past Performance
Fees and Expenses
Financial Highlights
Who Is Responsible for Your Davis Account
How We Manage Davis Series Funds
Once You Invest in Davis Funds
How to Open an Account
How to Buy, Sell and Exchange Shares
Davis Funds: Over 25 Years of Reliable Investing
Other Fund Documents
2
<PAGE>
OVERVIEW OF DAVIS GROWTH OPPORTUNITY FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis Growth Opportunity Fund's investment objective is growth of capital.
The Fund invests primarily in common stock of U.S. companies with small and
medium market capitalizations of less than $20 billion.
Our portfolio managers use the Davis investment philosophy to select common
stock of quality overlooked growth companies at value prices and to hold them
for the long term. We look for companies with sustainable growth rates selling
at modest price-earnings multiples that we hope will expand as other investors
recognize the company's true worth. We believe that if you combine a sustainable
growth rate with a gradually expanding multiple, these rates compound and can
generate returns that could exceed average returns earned by investing in small
and medium market capitalization domestic stocks.
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.
DETERMINING IF THIS FUND IS RIGHT FOR YOU
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking long-term growth of capital.
o You prefer to invest in small and medium capitalization companies.
o You are willing to accept higher risk for the opportunity to pursue higher
returns.
o You are investing for the long term (five years or more).
YOU SHOULD NOT INVEST IN THIS FUND IF:
o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You are interested in earning current income.
o You prefer to invest in larger, more established companies.
o You are investing for the short term (less than five years).
PRINCIPAL RISKS
If you buy shares of Davis Growth Opportunity Fund, you may lose some or all of
the money that you invest. This section describes what we think are the two most
significant factors that can cause the Fund's performance to suffer.
o MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little
or nothing to do with the performance of the companies in which we invest.
o COMPANY RISK. The price of a common stock varies with the success and
failure of the company issuing the stock. As a result, the success of the
companies in which the Fund invests largely determines the Fund's
performance. Investing in small and medium capitalization companies may be
more risky than investing in
3
<PAGE>
large capitalization companies. Smaller companies typically have
more-limited product lines, markets and financial resources than larger
companies, and their securities may trade less frequently and in
more-limited volume than those of larger, more mature companies.
An investment in Davis Growth Opportunity Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PAST PERFORMANCE
The bar chart and the table below provide an indication of the risks of
investing in Davis Growth Opportunity Fund by showing changes in the Fund's year
to year performance and by showing how the Fund's average annual returns for one
year and since inception compare to those of the S&P 500(R), A widely recognized
unmanaged index of stock performance. How the Fund has performed in the past is
not necessarily an indication of how the Fund will perform in the future.
DAVIS GROWTH OPPORTUNITY FUND
TOTAL RETURN SINCE 1998
(As of December 31st of Each Year)
CLASS Y SHARES
1998 2.18%
1999 32.16%
During the period shown above, the highest quarterly return was 26.63% for the
fourth quarter of 1999, and the worst quarterly return was (20.22)% for the
third quarter of 1998. Year-to-date performance as of the first quarter of 2000
(not annualized) was 9.91%.
DAVIS GROWTH OPPORTUNITY FUND
AVERAGE ANNUAL TOTAL RETURNS
(For the Periods Ended December 31, 1999)
- --------------------------------------------------------------------------------
ONE YEAR LIFE OF FUND
(SINCE 09/18/97)
- --------------------------------------------------------------------------------
Class Y Shares 32.16% 8.39%
- --------------------------------------------------------------------------------
S&P 500 Index 21.04% 23.00%
- --------------------------------------------------------------------------------
4
<PAGE>
FEES AND EXPENSES OF THE FUND
FEES YOU MAY PAY AS A DAVIS GROWTH OPPORTUNITY FUND SHAREHOLDER
(Paid Directly From Your Investment)
- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
DAVIS GROWTH OPPORTUNITY FUND'S ANNUAL FUND OPERATING EXPENSES
(For the Year Ended December 31, 1999)
(Deducted From Davis Growth Opportunity Fund's Assets)
- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------
Management Fees 0.75%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None
- --------------------------------------------------------------------------------
Other Expenses 0.31%
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.06%
- --------------------------------------------------------------------------------
EXAMPLE
This example is intended to help you compare the cost of investing in Davis
Growth Opportunity Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in Davis Growth Opportunity Fund for
the time periods indicated. The example also assumes that your investment has a
5% return each year and that Davis Growth Opportunity Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, your costs
based on these assumptions would be:
- --------------------------------------------------------------------------------
IF YOU SELL YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES IN...
- --------------------------------------------------------------------------------
CLASS Y SHARES $108 $337 $585 $1,294
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
This table is designed to show you the financial performance of Davis Growth
Opportunity Fund Class Y shares since inception, assuming that all dividends and
capital gains have been reinvested. Some of the information reflects financial
results for a single Fund share. The total returns represent the rate that an
investor would have earned (or lost) money on an investment in the Fund.
KPMG LLP has audited the information for the fiscal years 1999 and 1998. KPMG
LLP's report, along with the Fund's financial statements, is included in Davis
Series'
5
<PAGE>
annual report, which is available upon request. Another firm audited the
information for the previous fiscal period.
DAVIS GROWTH OPPORTUNITY FUND
CLASS Y SHARES
<TABLE>
<CAPTION>
SEPTEMBER 18, 1997
(INCEPTION
OF CLASS)
YEAR ENDED DECEMBER 31, THROUGH
--------------------------- DECEMBER 31,
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ........ $21.96 $22.52 $27.19
------ ------ ------
Income (Loss) From Investment Operations
Net Investment Loss ...................... -- (0.14) --
Net Realized and Unrealized Gains (Losses) 6.00 0.61 (2.99)
------ ------ ------
Total From Investment Operations .... 6.00 0.47 (2.99)
------ ------ ------
Dividends and Distributions
Distributions from Realized Gains ........ (5.65) (1.03) (1.68)
------ ------ ------
Total Distributions .................. (5.65) (1.03) (1.68)
------ ------ ------
Net Asset Value, End of Period .............. $22.31 $21.96 $22.52
====== ====== ======
Total Return(1).............................. 32.16% 2.18% (10.98)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $5 $73 $94
Ratio of Expenses to Average Net Assets .. 1.06%(2) 1.33%(2) 1.01%*
Ratio of Net Investment Loss to
Average Net Assets .................... (0.26)% (0.38)% (0.33)%*
Portfolio Turnover Rate(3)................ 100.3% 18.03% 19.33%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.05% and 1.32% for 1999 and 1998,
respectively.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
6
<PAGE>
OVERVIEW OF DAVIS FINANCIAL FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis Financial Fund's investment objective is growth of capital.
The Fund invests primarily in common stock of financial companies. During normal
market conditions, at least half of the Fund's assets are invested in companies
that are "principally engaged" in banking and financial services. Specifically,
at least 25% of the Fund's assets are invested in the banking industry, and at
least another 25% are invested in the financial services industry.
A company is "principally engaged" in banking or financial services if it owns
banking or financial services-related assets that constitute at least 50% of the
value of all of its assets, or if it derives at least 50% of its revenues from
providing banking or financial services. Companies in the banking industry
include commercial banks, industrial banks and savings institutions. Companies
in the financial services industry include finance companies, diversified
financial services companies, investment banking firms, securities brokerage
houses, investment advisory companies, leasing companies, insurance companies
and companies providing similar services.
Our portfolio managers use the Davis investment philosophy to select common
stock of quality overlooked growth companies at value prices and to hold them
for the long term. We look for banking and financial services companies with
sustainable growth rates selling at modest price-earnings multiples that we hope
will expand as other investors recognize the company's true worth. We believe
that if you combine a sustainable growth rate with a gradually expanding
multiple, these rates compound and can generate returns that could exceed
average returns earned by investing in a portfolio of banking and financial
services companies.
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.
DETERMINING IF THIS FUND IS RIGHT FOR YOU
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking long-term growth of capital.
o You believe that the banking and financial services sectors offer
attractive long-term growth opportunities.
o You are investing for the long term (five years or more).
YOU SHOULD NOT INVEST IN THIS FUND IF:
o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You are interested in earning current income.
o You do not wish to invest in a concentrated portfolio of banking and
financial services companies.
o You are investing for the short term (less than five years).
7
<PAGE>
PRINCIPAL RISKS
If you buy shares of Davis Financial Fund, you may lose some or all of the money
that you invest. This section describes what we think are the three most
significant factors that can cause the Fund's performance to suffer.
o MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little
or nothing to do with the performance of the companies in which we invest.
o COMPANY RISK. The price of a common stock varies with the success and
failure of the company issuing the stock. As a result, the success of the
companies in which the Fund invests largely determines the Fund's
performance.
o CONCENTRATED FINANCIAL SERVICES PORTFOLIO. Davis Financial Fund invests
primarily in two industries. Any fund that has a concentrated portfolio is
particularly vulnerable to the risks of its target sector. Risks of
investing in the banking and financial services industries include:
o REGULATORY ACTIONS. Banks and financial service companies may suffer a
setback if regulators change the rules under which they operate.
o CHANGES IN INTEREST RATES. Unstable interest rates can have a
disproportionate effect on the financial services industry.
o CONCENTRATION OF LOANS. Banks whose securities Davis Financial Fund
purchases may themselves have concentrated portfolios, such as a high
level of loans to real estate developers, which makes them vulnerable
to economic conditions that affect that industry.
o COMPETITION. The financial services industry has become increasingly
competitive.
An investment in Davis Financial Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PAST PERFORMANCE
The bar chart and the table below provide an indication of the risks of
investing in Davis Financial Fund by showing changes in the Fund's year to year
performance and by showing how the Fund's average annual returns for one year
and since inception compare to those of the S&P 500(R), a widely recognized
unmanaged index of stock performance. How the Fund has performed in the past is
not necessarily an indication of how the Fund will perform in the future.
8
<PAGE>
DAVIS FINANCIAL FUND
TOTAL RETURN SINCE 1998
(As of December 31st of Each Year)
CLASS Y SHARES
1998 14.58%
1999 (0.65)%
During the period shown above, the highest quarterly return was 20.29% for the
fourth quarter of 1998, and the worst quarterly return was (15.90)% for the
third quarter of 1998. Year-to-date performance as of the first quarter of 2000
(not annualized) was 4.35%.
DAVIS FINANCIAL FUND
AVERAGE ANNUAL TOTAL RETURNS
(For the Periods Ended December 31, 1999)
- --------------------------------------------------------------------------------
ONE YEAR LIFE OF FUND
(SINCE 03/10/97)
- --------------------------------------------------------------------------------
Class Y Shares (0.65)% 14.54%
- --------------------------------------------------------------------------------
S&P 500 Index 21.04% 25.37%
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
FEES YOU MAY PAY AS A DAVIS FINANCIAL FUND SHAREHOLDER
(Paid Directly from Your Investment)
- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
DAVIS FINANCIAL FUND ANNUAL FUND OPERATING EXPENSES
(For the Year Ended December 31, 1999)
(Deducted From Davis Financial Fund's Assets)
- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------
Management Fees 0.63%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None
- --------------------------------------------------------------------------------
Other Expenses 0.23%
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.86%
- --------------------------------------------------------------------------------
9
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in Davis
Financial Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in Davis Financial Fund for the time
periods indicated. The example also assumes that your investment has a 5% return
each year and that Davis Financial Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, your costs--based on these
assumptions--would be:
- --------------------------------------------------------------------------------
IF YOU SELL YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES IN...
- --------------------------------------------------------------------------------
CLASS Y SHARES $88 $274 $477 $1,061
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
This table is designed to show you the financial performance of Davis Financial
Fund Class Y shares since inception, assuming that all dividends and capital
gains have been reinvested. Some of the information reflects financial results
for a single Fund share. The total returns represent the rate that an investor
would have earned (or lost) money on an investment in the Fund.
KPMG LLP has audited the information for the fiscal years 1999 and 1998. KPMG
LLP's report, along with the Fund's financial statements, is included in Davis
Series' annual report, which is available upon request. Another firm audited the
information for the previous period.
10
<PAGE>
DAVIS FINANCIAL FUND
CLASS Y SHARES
<TABLE>
<CAPTION>
MARCH 10, 1997
YEAR (INCEPTION
ENDED OF CLASS)
DECEMBER 31, THROUGH
--------------------------- DECEMBER 31,
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ......................... $29.40 $25.66 $20.32
------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income (Loss) .............................. 0.20 0.14 0.09
Net Realized and Unrealized Gains (Losses) ................ (0.39) 3.60 5.74
------ ------ ------
Total From Investment Operations ..................... (0.19) 3.74 5.83
------ ------ ------
Dividends and Distributions
Net Investment Income ..................................... -- -- (0.19)
Distributions from Realized Gains ......................... -- -- (0.30)
------ ------ ------
Total Dividend and Distributions ...................... -- -- (0.49)
------ ------ ------
Net Asset Value, End of Period ............................... $29.21 $29.40 $25.66
====== ====== ======
Total Return (1).............................................. (0.65)% 14.58% 28.66%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) .................. $8,260 $10,453 $3,805
Ratio of Expenses to Average Net Assets ................... 0.86% 0.83%(2) 0.79%*
Ratio of Net Investment Income (Loss) to Average Net Assets 0.54% 0.58% 1.06%*
Portfolio Turnover Rate(3)................................. 17.55% 11.37% 6.23%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 0.82% for Class Y shares for the year
ended December 31, 1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
11
<PAGE>
OVERVIEW OF DAVIS REAL ESTATE FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis Real Estate Fund's investment objective is total return through a
combination of growth and income.
During normal market conditions, at least 65% of Davis Real Estate Fund's assets
are invested in "real estate securities," which are securities issued by
companies that are "principally engaged" in the real estate industry. The Fund
does not invest directly in real estate.
A company is "principally engaged" in the real estate industry if it owns real
estate or real estate-related assets that constitute at least 50% of the value
of all of its assets, or if it derives at least 50% of its revenues or net
profits from owning, financing, developing, managing, or selling real estate, or
from offering products or services that are related to real estate. Issuers of
real estate securities include real estate investment trusts (known as "REITs"),
brokers, developers, lenders, and companies with substantial real estate
holdings such as paper, lumber, hotel, and entertainment companies.
Most of Davis Real Estate Fund's real estate securities are, and likely will
continue to be, interests in REITs. REITs pool investors' funds to make real
estate-related investments, such as buying interests in income-producing
property or making loans to real estate developers.
Davis Real Estate Fund focuses on REITs and other companies with first-class
management teams who view real estate as a means of producing steady increases
in income and strong returns on capital. We concentrate heavily on valuation,
looking for companies that sell at less than the present value of their expected
cash flow over the next few years.
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.
DETERMINING IF THIS FUND IS RIGHT FOR YOU
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking total return through a combination of growth and income.
o You believe that the real estate sector offers attractive long-term growth
opportunities.
o You want to diversify your traditional stock and bond portfolio with real
estate securities.
o You are investing for the long term (five years or more).
YOU SHOULD NOT INVEST IN THIS FUND IF:
o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You do not wish to invest in a concentrated portfolio of real estate
companies.
o You are investing for the short term (less than five years).
12
<PAGE>
PRINCIPAL RISKS
If you buy shares of Davis Real Estate Fund, you may lose some or all of the
money that you invest. This section describes what we think are the three most
significant factors that can cause the Fund's performance to suffer.
o MARKET RISK. The market value of shares of common stock can change rapidly
and unpredictably as a result of political or economic events having little
or nothing to do with the performance of the companies in which we invest.
o COMPANY RISK. The price of a common stock varies with the success and
failure of the company issuing the stock. As a result, the success of the
companies in which the Fund invests largely determines the Fund's
performance.
o CONCENTRATED REAL ESTATE PORTFOLIO. Davis Real Estate Fund invests
primarily in one industry. Any fund that has a concentrated portfolio is
particularly vulnerable to the risks of its selected industry. Real estate
securities are susceptible to the many risks associated with the direct
ownership of real estate, including:
o Declines in property values--because of changes in the economy or the
surrounding area or because a particular region has become less
appealing to tenants.
o Increases in property taxes, operating expenses, interest rates, or
competition.
o Overbuilding.
o Changes in zoning laws.
o Losses from casualty or condemnation.
An investment in Davis Real Estate Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PAST PERFORMANCE
The bar chart and the table below provide an indication of the risks of
investing in Davis Real Estate Fund by showing changes in the Fund's year to
year performance and by showing how the Fund's average annual returns for one
year and since inception compare to those of the S&P 500(R), a widely recognized
unmanaged index of stock performance. How the Fund has performed in the past is
not necessarily an indication of how the Fund will perform in the future.
13
<PAGE>
DAVIS REAL ESTATE FUND
TOTAL RETURN SINCE 1997
(As of December 31st of Each Year)
CLASS Y SHARES
1997 25.29%
1998 (15.20)%
1999 (7.21)%
During the period shown above, the highest quarterly return was 13.14% for the
third quarter of 1997, and the worst quarterly return was (11.36)% for the third
quarter of 1998. Year-to-date performance as of the first quarter of 2000 (not
annualized) was 1.52%.
DAVIS REAL ESTATE FUND
AVERAGE ANNUAL TOTAL RETURNS
(For the Periods Ended December 31, 1999)
- --------------------------------------------------------------------------------
ONE YEAR LIFE OF FUND
(SINCE
11/08/96)
- --------------------------------------------------------------------------------
Class Y shares (7.21)% 3.46%
- --------------------------------------------------------------------------------
S&P 500 Index 21.04% 26.79%
- --------------------------------------------------------------------------------
DAVIS REAL ESTATE FUND
YIELD, CLASS Y SHARES
(As of December 31, 1999)
30-DAY SEC YIELD 5.01%
You can obtain Davis Real Estate Fund's most recent 30-day SEC Yield by calling
us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4 p.m. Mountain
Time.
FEES AND EXPENSES OF THE FUND
FEES YOU MAY PAY AS A DAVIS REAL ESTATE FUND SHAREHOLDER
(Paid Directly from Your Investment)
- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
14
<PAGE>
DAVIS REAL ESTATE FUND ANNUAL FUND OPERATING EXPENSES
(For the Year Ended December 31, 1999)
(Deducted From Davis Real Estate Fund's Assets)
- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------
Management Fees 0.72%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None
- --------------------------------------------------------------------------------
Other Expenses 0.13%
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.85%
- --------------------------------------------------------------------------------
EXAMPLE
This example is intended to help you compare the cost of investing in Davis Real
Estate Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in Davis Real Estate Fund for the
time periods indicated. The example also assumes that your investment has a 5%
return each year and that Davis Real Estate Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, your costs--based on
these assumptions--would be:
- --------------------------------------------------------------------------------
IF YOU SELL YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES IN...
- --------------------------------------------------------------------------------
CLASS Y SHARES $87 $271 $471 $1,049
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
This table is designed to show you the financial performance of Davis Real
Estate Fund Class Y shares since inception, assuming that all dividends and
capital gains have been reinvested. Some of the information reflects financial
results for a single Fund share. The total returns represent the rate that an
investor would have earned (or lost) money on an investment in the Fund.
KPMG LLP has audited the information for the fiscal years 1999 and 1998. KPMG
LLP's report, along with the Fund's financial statements, is included in Davis
Series' annual report, which is available upon request. Another firm audited the
information for the previous fiscal years.
15
<PAGE>
DAVIS REAL ESTATE FUND
CLASS Y SHARES
<TABLE>
<CAPTION>
NOVEMBER 8,1996
(INCEPTION
YEAR ENDED OF CLASS)
DECEMBER 31, THROUGH
-------------------------------------- DECEMBER 31,
1999 1998 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........ $20.86 $25.56 $21.37 $19.29
------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income .................... 0.80 0.83 0.79 0.13
Net Realized and Unrealized Gains (Losses) (2.28) (4.67) 4.54 2.35
------ ------ ------ ------
Total From Investment Operations ...... (1.48) (3.84) 5.33 2.48
------ ------ ------ ------
Dividends and Distributions
Net Investment Income .................... (0.86) (0.83) (0.79) (0.13)
Distributions from Realized Gains ........ -- -- (0.27) (0.25)
Return of Capital ........................ (0.14) (0.03) (0.08) (0.02)
------ ------ ------ ------
Total Dividends and Distributions .... (1.00) (0.86) (1.14) (0.40)
------ ------ ------ ------
Net Asset Value, End of Period .............. $18.38 $20.86 $25.56 $21.37
====== ====== ====== ======
Total Return(1) ............................. (7.21)% (15.20)% 25.29% 12.89%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) . $43,136 $37,054 $27,147 $18,165
Ratio of Expenses to Average Net Assets .. 0.85% 0.83%(2) 1.00% 1.18%*
Ratio of Net Investment Income to Average 4.18% 3.79% 3.47% 4.22%*
Net Assets
Portfolio Turnover Rat(3) ................ 52.22% 19.14% 12.50% 18.60%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 0.82% for 1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
16
<PAGE>
OVERVIEW OF DAVIS CONVERTIBLE SECURITIES FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis Convertible Securities Fund's investment objective is total return through
a combination of growth and income.
During normal market conditions, at least 65% of the Fund's assets are invested
in convertible securities. Convertible securities are securities that can be
converted into or exchanged for other securities. The most common types of
convertible securities are bonds and preferred stock that the holder can
exchange for common stock of the same issuer.
Convertible securities offer both current income and growth potential. For
current income, we buy convertible debt instruments like bonds, notes and
debentures that entitle the Fund to receive regular interest payments.
Similarly, we buy preferred stock that entitles the Fund to receive regular
dividend payments. These interest and dividend payments generally exceed the
dividend payments that the issuers of our convertible securities make to holders
of their common stock. Convertible securities have growth potential because if
the underlying common stock begins to increase in value, the holder of the
convertible security can exchange it for common stock and enjoy the benefits of
that growth.
Many convertible debt securities are assigned ratings by agencies that evaluate
the quality of publicly-offered debt. Our portfolio manager may use up to 35% of
Davis Convertible Securities Fund's net assets to buy debt securities with low
ratings, known as "high yield, high-risk debt securities." During normal market
conditions, our portfolio manager invests at least 65% of Davis Convertible
Securities Fund's net assets in money market instruments, investment-grade debt
securities, preferred stock, common stock, other equity securities, and other
non-financial assets.
Davis Convertible Securities Fund first attempts to identify well-managed growth
companies whose securities are selling at attractive prices. Then we try to
identify securities issued by those companies that have the potential to deliver
80% of the amount that the issuer's common stock appreciates when market
conditions are favorable, but will not drop in value by more than 50% of the
amount that the issuer's common stock declines when market conditions are bad.
Of course, there can not be any guarantee that the convertible securities which
we purchase will in fact perform in the manner which our models suggest.
Please see the inside back cover page of this prospectus to learn about the
Davis investment philosophy.
DETERMINING IF THIS FUND IS RIGHT FOR YOU
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking total return through a combination of growth and income.
o You want to diversify a common stock portfolio.
o You are primarily interested in growth-oriented investments, but want
current income.
o You are investing for the long term (five years or more).
17
<PAGE>
YOU SHOULD NOT INVEST IN THIS FUND IF:
o You are worried about the possibility of sharp price swings and dramatic
market declines.
o You do not wish to invest in a portfolio which has some of the
characteristics of both common stocks and bonds.
o You are investing for the short term (less than five years).
PRINCIPAL RISKS
If you buy shares of Davis Convertible Securities Fund, you may lose some or all
of the money that you invest. Convertible securities have characteristics of
both equity and debt securities, so they present the risks of both common stock
ownership as well as the risks of bond ownership. This section describes what we
think are the most significant factors that can cause the Fund's performance to
suffer.
EQUITY RISKS
o MARKET RISK. The market value of shares of convertible securities can
change rapidly and unpredictably as a result of political or economic
events having little or nothing to do with the performance of the companies
in which we invest.
o COMPANY RISK. The price of a convertible security varies with the success
and failure of the company issuing the securities. As a result, the success
of the companies in which the Fund invests largely determines the Fund's
performance.
DEBT RISKS
o INTEREST RATE SENSITIVITY. If a security pays a fixed interest rate, and
market rates increase, the value of the fixed-rate security should decline.
o CHANGES IN DEBT RATING. If a rating agency gives a convertible security a
low rating, the value of the security will decline because investors will
demand a higher rate of return.
o CREDIT RISK. Like any borrower, the issuer of a convertible debt security
may be unable to make its payments. The Fund may invest up to 35% of total
assets in high yield, high-risk debt securities.
HIGH YIELD, HIGH-RISK DEBT SECURITIES. There are several agencies that evaluate
and rate debt securities. Two of the most prominent are Standard & Poor's and
Moody's Investors Service.
When they evaluate the quality of a debt instrument, rating agencies look at
factors like the issuer's current financial condition and business prospects,
the value of any collateral that secures the debt and the issuer's history of
paying other debt. Each agency has its own system for "grading" debt. Standard &
Poor's has eleven ratings, ranging from D for securities that are in default to
AAA for securities that are almost certain to be repaid. Moody's Investors
Service has nine ratings, with C being the lowest and Aaa being the highest.
18
<PAGE>
A security is called "investment grade" if a respected agency assigns it a
favorable credit rating. In contrast, a debt security is considered "high yield,
high-risk" if it is rated BB or lower by Standard and Poor's, or Ba or lower by
Moody's Investors Service. Securities with these low ratings are also referred
to as "junk bonds." Many institutional investors, such as pension plans and
municipal governments, are only permitted to buy investment grade debt.
There are four principal risks of owning high yield, high-risk debt securities:
o OVERBURDENED ISSUERS. Many issuers only resort to offering high yield,
high-risk debt securities when they cannot get financing from more
traditional sources, such as banks. These issuers are unlikely to have
a cushion from which to make their payments when their earnings are
poor or when the economy in general is in decline.
o PRIORITY. Issuers of high yield, high-risk debt securities are likely
to have a substantial amount of other debt. Most, if not all, of this
other debt will be "senior" to the high yield, high-risk debt
securities; an issuer must be current on its senior obligations before
it can pay bondholders. In addition, some of the other debt may be
secured by the issuer's primary operating assets. If the issuer
defaults on those obligations, the lenders may seize their
collateral--possibly forcing the issuer out of business and into
bankruptcy.
o DIFFICULT TO RESELL. Many investors simply do not want high yield,
high-risk debt securities, and others are prohibited from buying them.
o VOLATILE PRICES. Prices of high yield, high-risk debt securities are
more volatile than prices of higher-rated securities. In periods of
economic difficulty or rising interest rates, prices of high yield,
high-risk debt securities decline more than prices of investment-grade
securities.
An investment in Davis Convertible Securities Fund is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
PAST PERFORMANCE
The bar chart and the table below provide an indication of the risks of
investing in Davis Convertible Securities Fund by showing changes in the Fund's
year to year performance since inception and by showing how the Fund's average
annual returns for one year and since inception compare to those of the S&P
500(R), a widely recognized unmanaged index of stock performance. How the Fund
has performed in the past is not necessarily an indication of how the Fund will
perform in the future.
19
<PAGE>
DAVIS CONVERTIBLE SECURITIES FUND
TOTAL RETURN SINCE 1997
(AS OF DECEMBER 31ST OF EACH YEAR)
CLASS Y SHARES
1997 28.80%
1998 (1.46)%
1999 13.30%
During the period shown above, the highest quarterly return was 14.39% for the
third quarter of 1997, and the worst quarterly return was (9.09)% for the third
quarter of 1998. Year-to-date performance as of the first quarter of 2000 (not
annualized) was 7.00%.
DAVIS CONVERTIBLE SECURITIES FUND
AVERAGE ANNUAL TOTAL RETURNS
(For the Periods Ended December 31, 1999)
- --------------------------------------------------------------------------------
ONE YEAR LIFE OF FUND
(SINCE 11/13/96)
- --------------------------------------------------------------------------------
Class Y Shares 13.30% 14.75%
- --------------------------------------------------------------------------------
S&P 500 Index 21.04% 26.97%
- --------------------------------------------------------------------------------
DAVIS CONVERTIBLE SECURITIES FUND
YIELD, CLASS Y SHARES
(As of December 31, 1999)
30-DAY SEC YIELD 2.69%
You can obtain Davis Convertible Securities Fund's most recent 30-day SEC Yield
by calling us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4
p.m. Mountain Time.
FEES AND EXPENSES OF THE FUND
FEES YOU MAY PAY AS A DAVIS CONVERTIBLE SECURITIES FUND SHAREHOLDER
(Paid Directly from Your Investment)
- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
20
<PAGE>
DAVIS CONVERTIBLE SECURITIES FUND ANNUAL FUND OPERATING EXPENSES
(For the Year Ended December 31, 1999)
(Deducted From Davis Convertible Securities Fund's Assets)
- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------
Management Fees 0.74%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None
- --------------------------------------------------------------------------------
Other Expenses 0.13%
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.87%
- --------------------------------------------------------------------------------
EXAMPLE
This example is intended to help you compare the cost of investing in Davis
Convertible Securities Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in Davis Convertible Securities Fund
for the time periods indicated. The example also assumes that your investment
has a 5% return each year and that Davis Convertible Securities Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
your costs--based on these assumptions--would be:
- --------------------------------------------------------------------------------
IF YOU SELL YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES IN...
- --------------------------------------------------------------------------------
CLASS Y SHARES $89 $278 $482 $1,073
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
This table is designed to show you the financial performance of Davis
Convertible Securities Fund Class Y shares since inception, assuming that all
dividends and capital gains have been reinvested. Some of the information
reflects financial results for a single Fund share. The total returns represent
the rate that an investor would have earned (or lost) money on an investment in
the Fund.
KPMG LLP has audited the information for the fiscal years 1999 and 1998. KPMG
LLP's report, along with the Fund's financial statements, is included in Davis
Series' annual report, which is available upon request. Another firm audited the
information for the previous fiscal years.
21
<PAGE>
DAVIS CONVERTIBLE SECURITIES FUND
CLASS Y SHARES
<TABLE>
<CAPTION>
NOVEMBER 13, 1996
(INCEPTION
YEAR ENDED OF CLASS)
DECEMBER 31, THROUGH
---------------------------------------- DECEMBER 31
1999 1998 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ................... $23.84 $25.34 $21.29 $21.39
------ ------ ------ ------
Income (Loss) From Investment Operations
Net Investment Income ............................... 0.82 0.89 0.69 0.07
Net Realized and Unrealized Gains (Losses) .......... 2.25 (1.27) 5.35 1.44
------ ------ ------ ------
Total From Investment Operations ................ 3.07 (0.38) 6.04 1.51
------ ------ ------ ------
Dividends and Distributions
Net Investment Income .............................. (0.84) (0.85) (0.69) (0.06)
Distributions from Realized Gains ................... (0.77) (0.27) (1.22) (1.54)
Return of Capital .................................. (0.01) -- (0.08) (0.01)
------ ------ ------ ------
Total Dividend and Distributions ................ (1.62) (1.12) (1.99) (1.61)
------ ------ ------ ------
Net Asset Value, End of Period ......................... $25.29 $23.84 $25.34 $21.29
====== ====== ====== ======
Total Return (1)........................................ 13.30% (1.46)% 28.80% 7.01%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ............ $33,221 $30,536 $36,543 $33,006
Ratio of Expenses to Average Net Assets ............. 0.87% 0.86%(2) 0.95% 0.98%*
Ratio of Net Investment Income to Average Net Assets 3.24% 3.57% 3.09% 3.11%*
Portfolio Turnover Rate(3)........................... 32.99% 14.43% 23.68% 43.16%
</TABLE>
(1) Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
total returns. Total returns are not annualized for periods of less than
one full year.
(2) Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 0.85% for 1998.
(3) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
* Annualized
22
<PAGE>
OVERVIEW OF DAVIS GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis Government Bond Fund's investment objective is current income.
Davis Government Bond Fund invests primarily in "U.S. Government Securities."
There are two basic types of U.S. Government Securities: direct obligations of
the U.S. Treasury, and obligations issued or guaranteed by an agency or
instrumentality of the U.S. Government. U.S. Government Securities all represent
debt obligations (unlike equity securities, which represent ownership of the
issuer).
Obligations that the U.S. Treasury issues or guarantees are generally considered
to offer the highest credit quality available in any security. Many securities
issued by government agencies are not fully guaranteed by the U.S. Government,
and in unusual circumstances may present credit risk.
At times, a significant portion of Davis Government Bond Fund's securities are
mortgage-backed securities and collateralized mortgage obligations. A
"mortgage-backed security" represents ownership of a pool of mortgage loans. As
the mortgages are paid off, a portion of the principal and interest payments are
passed through to the owners of the securities. Davis Government Bond Fund only
buys mortgage-backed securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. A "collateralized mortgage obligation" is a debt
security that is secured by a pool of mortgages, mortgage-backed securities,
U.S. Government Securities, or corporate debt obligations. Davis Government Bond
Fund only invests in collateralized mortgage obligations that are issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
Davis Government Bond Fund does not attempt to deliver the highest possible
current yield to its investors. Instead, the portfolio manager tries to deliver
competitive results with less risk or volatility than our competitors.
Davis Government Bond Fund typically holds many different types of U.S.
Government Securities with varying features. We try to buy securities with a
range of maturity dates, interest rates and call (prepayment) provisions. By
diversifying among these features, the Fund seeks to capture the higher yield of
long-term securities and the flexibility of short-term securities.
DETERMINING IF THIS FUND IS RIGHT FOR YOU
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking current income.
o You are most comfortable investing in high quality U.S. Government
Securities.
o You want to diversify a common stock portfolio.
o You are investing for the long term (three years or more).
YOU SHOULD NOT INVEST IN THIS FUND IF:
o You cannot accept even moderate price swings or market declines.
o You are investing for the short term (less than three years).
23
<PAGE>
PRINCIPAL RISKS
Because Davis Government Bond Fund principally holds high quality debt
securities, the primary risk of investing in the Fund arises from interest rate
volatility. There are two principal ways that changes in interest rates affect
the U.S. Government Securities in which the Fund invests:
INTEREST RATE RISKS
o PRICE VOLATILITY RISK. Most of the Fund's U.S. Government Securities pay a
fixed interest rate. When market rates increase, the value (and price) of
the U.S. Government Securities usually decline. When interest rates are
falling, the value (and price) of the U.S. Government Securities usually
increase. As a result, an increase in market rates should reduce the value
of the Fund's portfolio, and a decrease in rates should have the opposite
effect.
o EXTENSION AND PREPAYMENT RISK. Market prices of the mortgage-backed
securities and collateralized mortgage obligations which Davis Government
Bond Fund owns are affected by how quickly borrowers elect to prepay the
mortgages underlying the securities. Changes in market interest rates
affect borrowers' decisions about whether or not to prepay their mortgages.
Rising interest rates lead to "extension risk," which occurs when borrowers
maintain their existing mortgages until they come due instead of choosing
to prepay them. Falling interest rates lead to "prepayment risk," which
occurs when borrowers prepay their mortgages more quickly than usual so
that they can refinance at a lower rate. A government agency that has the
right to "call" (prepay) a fixed rate security may respond the same way.
The pace at which borrowers prepay affects the yield and the cash flow to
holders of securities and the market value of those securities.
An investment in Davis Government Bond Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PAST PERFORMANCE
The bar chart and the table below provide an indication of the risks of
investing in Davis Government Bond Fund by showing changes in the Fund's
performance and by showing how the Fund's average annual returns for one year
and since inception compare to those of the Lehman Brothers Intermediate Term
U.S. Treasury Securities Index, a widely recognized unmanaged index of
Government Bond performance. How the Fund has performed in the past is not
necessarily an indication of how the Fund will perform in the future.
24
<PAGE>
DAVIS GOVERNMENT BOND FUND
TOTAL RETURN SINCE 1999
(For the Period Ended December 31, ,1999)
1999 (2.73)%
During the period shown above, the highest quarterly return was (0.24)% for the
fourth quarter of 1999, and the worst quarterly return was (1.24)% for the
second quarter of 1999. Year-to-date performance as of the first quarter of 2000
(not annualized) was 1.06%.
DAVIS GOVERNMENT BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
(For the Periods Ended December 31, 1999)
- --------------------------------------------------------------------------------
ONE YEAR LIFE OF FUND
(SINCE 08/31/98)
- --------------------------------------------------------------------------------
Class Y Shares (2.73)% (0.89)%
- --------------------------------------------------------------------------------
Lehman Brothers 0.44% 2.33%
Intermediate Term U.S.
Treasury Securities Index
- --------------------------------------------------------------------------------
DAVIS GOVERNMENT BOND FUND
YIELD, CLASS Y SHARES
(As of December 31, 1999)
30-DAY SEC YIELD 5.83%
You can obtain Davis Government Bond Fund's most recent 30-day SEC Yield by
calling us toll-free at 1-800-279-0279, Monday through Friday, 7 a.m. to 4 p.m.
Mountain Time.
25
<PAGE>
FEES AND EXPENSES OF THE FUND
FEES YOU MAY PAY AS A DAVIS GOVERNMENT BOND FUND SHAREHOLDER
(Paid Directly from Your Investment)
- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
DAVIS GOVERNMENT BOND FUND ANNUAL FUND OPERATING EXPENSES
(For the Period Ended December 31, 1999)
(Deducted From Davis Government Bond Fund's Assets)
- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------
Management Fees 0.50%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None
- --------------------------------------------------------------------------------
Other Expenses 0.42
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.92%
- --------------------------------------------------------------------------------
EXAMPLE
This example is intended to help you compare the cost of investing in Davis
Government Bond Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in Davis Government Bond Fund for
the time periods indicated. The example also assumes that your investment has a
5% return each year and that Davis Government Bond Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, your
costs--based on these assumptions--would be:
- --------------------------------------------------------------------------------
IF YOU SELL YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES IN...
- --------------------------------------------------------------------------------
CLASS Y SHARES $94 $293 $509 $1,131
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
This table is designed to show you the financial performance of Davis Government
Bond Fund Class Y shares since inception, assuming that all dividends and
capital gains have been reinvested. Some of the information reflects financial
results for a single Fund share. The total returns represent the rate that an
investor would have earned (or lost) money on an investment in the Fund.
KPMG LLP has audited the information for the fiscal year 1999 and period ended
December 31, 1998. KPMG LLP's report, along with the Fund's financial
statements, is included in Davis Series' annual report, which is available upon
request.
26
<PAGE>
DAVIS GOVERNMENT BOND FUND
CLASS Y SHARES
SEPTEMBER 1,1998
(INCEPTION
OF CLASS
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1999(3) 1998
---- ----
Net Asset Value, Beginning of Period........... $ 5.92 $ 5.92
-------- --------
Income (Loss) From Investment Operations
Net Investment Income...................... 0.24 0.07
Net Realized and Unrealized Gains
(Losses) ................................... (0.40) 0.02
-------- --------
Total From Investment Operations....... (0.16) 0.09
-------- --------
Dividends and Distributions
Net Investment Income....................... (0.30) (0.07)
Return of Capital........................... (0.04) (0.02)
-------- --------
Total Dividend and Distributions........ (0.34) (0.09)
-------- --------
Net Asset Value, End of Period................. $ 5.42 $ 5.92
======== ========
Total Return(1)................................ (2.73)% 1.59%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) $17 $ 352
Ratio of Expenses to Average Net Assets 0.92% 1.05%*
Ratio of Net Investment Income to
Average Net Assets...................... 5.35% 5.25%*
Portfolio Turnover Rate2.................... 150.54% 18.40%
1 Assumes hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
2 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
3 Per share calculations other than distributions were based on average
shares outstanding.
* Annualized
27
<PAGE>
OVERVIEW OF DAVIS GOVERNMENT MONEY MARKET FUND
INVESTMENT OBJECTIVE AND STRATEGY
Davis Government Money Market Fund's investment objective is to achieve as high
a level of current income as is consistent with the principle of preservation of
capital and maintenance of liquidity.
Davis Government Money Market Fund invests exclusively in "U.S. Government
Securities" and repurchase agreements secured by U.S. Government Securities.
There are two basic types of U.S. Government Securities: direct obligations of
the U.S. Treasury, and obligations issued or guaranteed by an agency or
instrumentality of the U.S. Government. U.S. Government Securities all represent
debt obligations (unlike equity securities, which represent ownership of the
issuer).
A "repurchase agreement" is a type of short-term investment that uses securities
as collateral. Like a short-term loan, the borrower sells securities to the
lender. The borrower agrees to buy back the securities at a certain time--at a
higher price that incorporates an "interest payment."
Davis Government Money Market Fund favors securities issued or secured by U.S.
Government agencies because those securities typically pay a higher rate than
securities issued or secured directly by the U.S. Treasury. We maintain
liquidity and preserve capital by carefully monitoring the maturity of our
investments. Our portfolio has a dollar-weighted average maturity of 90 days or
less.
DETERMINING IF THIS FUND IS RIGHT FOR YOU
YOU SHOULD CONSIDER INVESTING IN THIS FUND IF:
o You are seeking current income.
o You are most comfortable investing in high quality U.S. Government
Securities.
o You want a safe haven in times of market turmoil.
o You want easy access to your money.
YOU SHOULD NOT INVEST IN THIS FUND IF:
o You need a high total return to achieve your investment goals.
o Your primary investment goal is capital growth.
PRINCIPAL RISKS
Because Davis Government Money Market Fund invests exclusively in short-term
U.S. Government Securities, it incurs a minimum of interest rate or credit risk.
U.S. Government Securities are among the safest investments you can make, and
are an excellent means of preserving principal. However, there is always some
risk that the issuer of a security held by the Fund will fail to make a payment
when it is due. Some of the agency-issued securities in the Fund's portfolio are
not fully guaranteed by the U.S. Government, and in unusual circumstances may
present credit risk.
28
<PAGE>
The primary risk of investing in Davis Government Money Market Fund is that the
dividends which it pays to investors are not stable. When interest rates
increase the Fund's dividends should increase. When interest rates decrease the
Fund's dividends should decrease.
Although Davis Government Money Market Fund seeks to preserve the value of your
investment at $1.00 per share, investors can lose money. An investment in the
Fund is not a bank deposit and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
PAST PERFORMANCE
As of December 31, 1999, Davis Government Money Market Fund Class Y shares have
not yet been sold to the public. The past performance of the Fund will be
included in the next annual update of the Fund's prospectus after the shares
have been outstanding a full calendar year.
FEES AND EXPENSES OF THE FUND
FEES YOU MAY PAY AS A DAVIS GOVERNMENT MONEY MARKET FUND SHAREHOLDER
(Paid Directly From Your Investment)
- --------------------------------------------------------------- ------------
CLASS Y
- --------------------------------------------------------------- ------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) None
- --------------------------------------------------------------- ------------
Maximum Deferred Sales Charge (Load) None
- --------------------------------------------------------------- ------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
- --------------------------------------------------------------- ------------
Exchange Fee None
- --------------------------------------------------------------- ------------
DAVIS GOVERNMENT MONEY MARKET FUND ANNUAL FUND OPERATING EXPENSES*
(For the Year Ended December 31, 1999)
(Deducted From Davis Government Money Market Fund's Assets)
- --------------------------------------------------------------- ------------
CLASS Y
- --------------------------------------------------------------- ------------
Management Fees 0.47%
- --------------------------------------------------------------- ------------
Distribution (12b-1) Fees None
- --------------------------------------------------------------- ------------
Other Expenses 0.14%
- --------------------------------------------------------------- ------------
Total Annual Operating Expenses 0.61%
- --------------------------------------------------------------- ------------
* As of December 31, 1999, Davis Government Money Market Fund did not have any
outstanding Class Y shares. Therefore, annual Fund operating expenses were
estimated.
29
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in Davis
Government Money Market Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in Davis Government Money Market
Fund for the time periods indicated. The example also assumes that your
investment has a 5% return each year and that Davis Government Money Market
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, your costs--based on these assumptions--would be:
- ------------------- ------------ ------------- ----------- -------------
IF YOU SELL YOUR 1 YEAR 3 YEARS 5 YEARS 10 YEARS
SHARES IN...
- ------------------- ------------ ------------- ----------- -------------
CLASS Y SHARES $62 $195 $340 $762
- ------------------- ------------ ------------- ----------- -------------
FINANCIAL HIGHLIGHTS
Because Davis Government Money Market Fund did not have any Class Y shares
outstanding as of December 31, 1999, no financial highlights table has been
produced.
WHO IS RESPONSIBLE FOR YOUR DAVIS ACCOUNT
A number of entities provide services to Davis Series Funds. This section shows
how each Fund is organized, the entities that perform these services, and how
these entities are compensated. Additional information on the organization of
each Fund is provided in Davis Series Funds' Statement of Additional
Information. For information on how to receive this document, see the back cover
of this prospectus.
INVESTMENT ADVISER
DAVIS SELECTED ADVISERS, LP
Referred to throughout this prospectus as "Davis Selected Advisers" 2949 East
Elvira Road, Suite 101 Tucson, Arizona 85706
o Provides investment advice for each of the Davis Series Funds' portfolio.
o Manages the Funds' business affairs.
o Provides day-to-day administrative services.
o Serves as investment adviser for all of the Davis Funds, other mutual
funds, and other institutional clients.
30
<PAGE>
o Annual Adviser Fee for the year ended December 31, 1999 (based on average
net assets):
o Davis Growth Opportunity Fund: 0.75%
Davis Financial Fund: 0.63%
Davis Real Estate Fund: 0.72%
Davis Convertible Securities Fund: 0.74%
Davis Government Bond Fund: 0.50%
Davis Government Money Market Fund: 0.47%
INVESTMENT SUB-ADVISER
DAVIS SELECTED ADVISERS-NY, INC.
Referred to throughout this prospectus as "Davis Selected Advisers-NY"
609 Fifth Avenue
New York, NY 10017
o Performs investment management and research services for each of the Davis
Series Funds and other institutional clients.
o Wholly owned subsidiary of Davis Selected Advisers.
o Annual Fee: Davis Selected Advisers pays the fee, not Davis Series Funds.
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK AND TRUST COMPANY
Referred to throughout this prospectus as "State Street Bank and Trust"
PO Box 8406
Boston, MA 02266-8406
o Prices Davis Funds daily.
o Holds share certificates and other assets of Davis Funds.
o Maintains records of shareholders.
o Issues and cancels share certificates.
o Supervises the payment of dividends.
BOARD OF DIRECTORS
Davis Funds' Board of Directors has general supervisory responsibilities of
Davis Funds. The Board monitors and supervises the performance of the investment
adviser, sub-advisers and other service providers, monitors Davis Funds'
business and investment activities, and determines whether or not to renew
agreements with the adviser and sub-adviser.
DISTRIBUTOR
DAVIS DISTRIBUTORS, LLC
Referred to throughout this prospectus as "Davis Distributors"
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
o Oversees purchases of shares and promotional activities for Davis Funds and
other mutual funds managed by Davis Selected Advisers.
o Wholly owned subsidiary of Davis Selected Advisers.
31
<PAGE>
SENIOR RESEARCH ADVISER AND FOUNDER
SHELBY M.C. DAVIS
Responsibilities:
o Senior Research Adviser of Davis Selected Advisers.
o Founder of Davis Selected Advisers.
o Founder of Davis Funds.
Other Experience:
o Served as Davis New York Venture Fund's Portfolio Manager from its
inception in 1969 until February 1997.
o Served as Portfolio Manager of a growth and income fund managed by Davis
Selected Advisers from May 1993 until February 1997.
PORTFOLIO MANAGERS
FOR DAVIS GROWTH OPPORTUNITY FUND
INVESTMENT TEAM
o The Fund is managed by a team of senior portfolio managers and research
analysts from the research department of Davis Selected Advisers who share
ideas and responsibility for managing the Fund's investments.
FOR DAVIS FINANCIAL FUND
CHRISTOPHER C. DAVIS
Responsibilities:
o A Portfolio Manager of Davis Financial Fund since inception.
o Also manages other equity funds advised by Davis Selected Advisers.
Other Experience:
o Assistant portfolio manager and research analyst working with Shelby M.C.
Davis from September 1989 to September 1995.
KENNETH CHARLES FEINBERG
Responsibilities:
o A Portfolio Manager of Davis Financial Fund since May 1997.
o Also manages other equity funds advised by Davis Selected Advisers.
Other Experience:
o Research analyst at Davis Selected Advisers since December 1994.
o Assistant Vice President of Investor Relations for Continental Corp. from
1988 to 1994.
FOR DAVIS REAL ESTATE FUND AND DAVIS CONVERTIBLE SECURITIES FUND
ANDREW A. DAVIS
Responsibilities:
o A Portfolio Manager of Davis Real Estate Fund from its inception in January
1994 and Davis Convertible Securities Fund since February 1993.
o Also manages other Davis equity funds.
Other Experience:
o Vice President of convertible securities research at PaineWebber,
Incorporated from May 1986 through February 1993.
32
<PAGE>
FOR DAVIS GOVERNMENT BOND FUND AND DAVIS GOVERNMENT MONEY MARKET FUND
CRESTON KING, CFA
Responsibilities:
o Portfolio Manager of Davis Government Bond Fund and Davis Government Money
Market Fund since August 1, 1999.
o Also manages other bond funds and money market funds advised by Davis
Selected Advisers.
Other Experience:
o Prior to joining Davis Selected Advisers, Mr. King was a portfolio manager
for U.S. Global Investors, Inc., where he managed various money market
funds and bond funds.
OUR CODE OF ETHICS
We allow the officers and employees of Davis Funds and their affiliates to buy
and sell securities for their own personal accounts; however, in order to do so,
they must agree to a number of restrictions listed in our Code of Ethics.
HOW WE MANAGE DAVIS SERIES FUNDS
EQUITY FUNDS: DAVIS INVESTMENT PHILOSOPHY
Each of the Davis Series Funds which invest in equity securities (Davis Growth
Opportunity Fund, Davis Financial Fund, Davis Real Estate Fund, and Davis
Convertible Securities Fund) is managed using the Davis investment philosophy.
The Davis investment philosophy stresses a back-to-basics approach: we use
extensive research to buy growing companies at value prices and hold on to them
for the long term. Over the years, Davis Selected Advisers has developed a list
of ten characteristics that we believe foster sustainable long-term growth,
minimize risk and enhance the potential for superior long-term returns. While
very few companies have all ten, we search for those possessing several of the
characteristics that are listed in the following chart.
GOVERNMENT FUNDS: CONSERVATIVE INVESTING
The two Davis Series Funds which invest in U.S. Government Securities (Davis
Government Bond Fund and Davis Government Money Market Fund) do not attempt to
deliver the highest possible current yield to their investors. Instead, the
portfolio manager tries to deliver competitive results with less risk or
volatility than our competitors.
U.S. Government Securities may include bonds and notes issued by the U.S.
government treasury and also government agencies such as the Federal Home Loan
Bank, Government National Mortgage Association (GNMA or "Ginnie Mae"), Federal
National Mortgage Association (FNMA or "Fannie Mae") and Student Loan Marketing
Association (SLMA or "Sallie Mae"). Treasury issues and Ginnie Maes are backed
by the full faith and credit of the U.S. Government while securities issued by
the other
33
<PAGE>
government agencies are not fully guaranteed by the U.S. Government, and in
unusual circumstances may present credit risk.
WHAT WE LOOK FOR IN A COMPANY
1. FIRST-CLASS MANAGEMENT. We believe that great companies are created by
great managers. In visiting companies, we look for managers with a record
of doing what they say they are going to do.
2. MANAGEMENT OWNERSHIP. Just as we invest heavily in our own funds, we look
for companies where individual managers own a significant stake.
3. STRONG RETURNS ON CAPITAL. We want companies that invest their capital
wisely and reap superior returns on those investments.
4. LEAN EXPENSE STRUCTURE. Companies that can keep costs low are able to
compete better, especially in difficult times. A low cost structure sharply
reduces the risk of owning a company's shares.
5. DOMINANT OR GROWING MARKET SHARE IN A GROWING MARKET. A company that is
increasing its share of a growing market has the best of both worlds.
6. PROVEN RECORD AS AN ACQUIRER. When an industry or market downturn occurs,
it is a good idea to own companies that can take advantage of attractive
prices to expand operations through inexpensive acquisitions.
7. STRONG BALANCE SHEET. Strong finances give a company staying power to
weather difficult economic cycles.
8. COMPETITIVE PRODUCTS OR SERVICES. We invest in companies with products that
are not vulnerable to obsolescence.
9. SUCCESSFUL INTERNATIONAL OPERATIONS. A proven ability to expand
internationally reduces the risk of being tied too closely to the U.S.
economic cycle.
10. INNOVATION. The savvy use of technology in any business, from a food
company to an investment bank, can help reduce costs and increase sales.
OTHER SECURITIES AND INVESTMENT STRATEGIES
There are other securities in which Davis Series Funds may invest, and
investment strategies which the Funds may employ, but they are not principal
investment strategies. For example, the equity funds may invest a portion of
their assets in the common stock of foreign companies. Investing in foreign
companies provides additional opportunities to invest in quality overlooked
growth companies. Investment in foreign securities can also offer the Fund the
potential for economic diversification. However, investing in foreign markets
also involves special risks. These securities and investment strategies, and
others, are discussed in the Statement of Additional Information.
Each of the Funds (other than Davis Government Money Market Fund) use short-term
investments to earn interest and maintain flexibility while we evaluate
long-term
34
<PAGE>
opportunities. We also may use short-term investments for temporary defensive
purposes. In the event our portfolio managers anticipate a market decline, we
may reduce our risk by investing in short-term securities until market
conditions improve. Unlike common stocks or longer-term U.S. Government
Securities, these investments will not appreciate in value when the market
advances. In such a circumstance, the short-term investments will not contribute
to the capital growth component of a Fund's investment objective.
RISK SPECTRUM
Davis Selected Advisers manages nine mutual funds in the Davis family. Each Fund
has a distinct investment objective and strategy. The following graph shows how
these Funds compare to each other in terms of risk. Davis Series Funds range in
risk level from "high" to "low."
35
<PAGE>
- ------------------------------------------------ ---------- -------- ---------
DAVIS FUNDS
LOW MED HIGH
- ------------------------------------------------ ---------- -------- ---------
DAVIS GROWTH OPPORTUNITY FUND o
- ------------------------------------------------ ---------- -------- ---------
DAVIS INTERNATIONAL TOTAL RETURN FUND o
- ------------------------------------------------ ---------- -------- ---------
DAVIS FINANCIAL FUND o
- ------------------------------------------------ ---------- -------- ---------
DAVIS REAL ESTATE FUND o
- ------------------------------------------------ ---------- -------- ---------
DAVIS NEW YORK VENTURE FUND o
- ------------------------------------------------ ---------- -------- ---------
DAVIS GROWTH & INCOME FUND o
- ------------------------------------------------ ---------- -------- ---------
DAVIS CONVERTIBLE SECURITIES FUND o
- ------------------------------------------------ ---------- -------- ---------
DAVIS GOVERNMENT BOND FUND o
- ------------------------------------------------ ---------- -------- ---------
DAVIS GOVERNMENT MONEY MARKET FUND o
- ------------------------------------------------ ---------- -------- ---------
For more information about any of the other Davis Funds, including charges and
expenses, ask for a prospectus. Read it carefully before investing or sending
money.
ONCE YOU INVEST IN DAVIS FUNDS
This section describes how your investment is valued, how you earn money on your
investment and how the government may tax these earnings.
HOW YOUR SHARES ARE VALUED
Once you open an account in any Davis Fund, you are entitled to buy and sell
shares on any business day. The share price of your investment changes depending
on the total value of the Fund's investments.
Each business day, we determine the value of fund shares by adding up the total
value of investments plus other assets (such as cash), subtracting liabilities,
and dividing the result by the total number of shares outstanding. This share
figure is known as the net asset value.
Net asset values for all of the Davis Funds are determined each business day. A
business day is any day the New York Stock Exchange is open for trading. We
calculate net asset value either at the close of the Exchange or at 4 p.m.
Eastern Time, whichever comes first.
The net asset values of all Davis Funds shares are published daily in the
business section of most major newspapers. If you have access to the Internet,
you can also check net asset value on our web site (WWW.DAVISFUNDS.COM).
HOW SECURITIES IN THE PORTFOLIO ARE VALUED
We use current market valuations to price the securities in each Davis Fund:
o Securities that trade on an organized exchange are valued at the last
published sales price on the exchange. If no sales are recorded, the
securities are valued at the average of the closing bid and asked prices on
the exchange.
36
<PAGE>
o Over-the-counter securities are valued at the average of closing bid and
asked prices.
o Debt securities may be valued by an independent pricing service. In
particular, the Fund relies on a professional pricing service that has
experience in valuing securities with limited resale markets so as to
obtain prices that reflect the market as accurately as possible.
o Discount securities purchased with a maturity of one year or less are
usually valued at amortized cost.
o Securities with unavailable market quotations and other assets are valued
at "fair value"--which is determined by the Board of Directors.
If any of the Funds' securities are traded in markets that close at different
times, events affecting portfolio values that occur between the time that their
prices are determined and the time the Fund's shares are priced will generally
not be reflected in the Funds' share price. The net asset value of the Funds'
shares may change on days when shareholders will not be able to purchase or
redeem the Funds' shares.
The value of securities denominated in foreign currencies and traded in foreign
markets will have their value converted into the U.S. dollar equivalents at the
prevailing market rate as computed by State Street Bank and Trust. Fluctuation
in the value of foreign currencies in relation to the U.S. dollar may affect the
net asset value of the Funds' shares even if there has not been any change in
the foreign currency price of the Funds' investments.
Normally, the share price of Davis Government Money Market Fund does not
fluctuate. However, if there are unusually rapid changes in interest rates that
the Fund's Board of Directors believes will cause a material deviation between
the amortized cost of the Fund's debt securities and the market value of those
securities, the Board will consider taking temporary action to maintain a fixed
price or to prevent material dilution or other unfavorable consequences to Fund
shareholders. This temporary action could include withholding dividends, paying
dividends out of surplus, realizing gains or losses, or using market valuation
to calculate net asset value rather than amortized cost.
HOW WE PAY EARNINGS
There are two ways you can receive payments from a Davis Fund:
o DIVIDENDS. Distributions to shareholders of net investment income and
short-term capital gains on investments.
o CAPITAL GAINS. Profits received by a Fund from the sale of securities held
for the long term, which are then distributed to shareholders.
If you would like information about when a particular Davis Fund pays dividends
and distributes capital gains, if any, please call 1-800-279-0279.
Unless you choose otherwise, each Davis Fund automatically reinvests your
dividends and capital gains in additional Fund shares. You can request to have
your dividends and capital gains paid to you by check, deposited directly into
your bank account, paid to a third party or sent to an address other than your
address of record.
37
<PAGE>
We also offer a DIVIDEND DIVERSIFICATION PROGRAM, which allows you to have your
dividends and capital gains reinvested in shares of another Davis Fund.
You will receive a statement each year detailing the amount of all dividends and
capital gains paid to you during the previous year. To ensure that these
distributions are reported properly to the U.S. Treasury, you must certify on
your Davis Funds Application Form or on the IRS Form W-9 that your Tax
Identification Number is correct and you are not subject to backup withholding.
Backup withholding is required for taxpayers who are subject to back taxes for
failure to report all interest and dividends.
If you fail to report a correct Taxpayer I.D. Number, under-reported dividend or
interest income, or are already subject to backup withholding, Davis Funds are
required by law to withhold a portion of any distributions you may receive and
send it to the U.S. Treasury.
HOW YOUR DIVIDENDS AND CAPITAL GAINS ARE TAXED
o If you invest in a fund that pays dividends, the dividends are taxable to
shareholders as ordinary income. Dividends include both net investment
income and short-term capital gains.
o If you invest in a fund that pays net capital gains, they generally will be
taxed as a long-term capital gain distribution.
o Davis Government Money Market Fund, as a money market fund, intends to pay
only ordinary income dividends and no capital gain distributions.
Investment earnings (dividends and capital gains), whether received in cash or
reinvested in shares, are taxable in the year in which they were declared, not
the year they are paid.
Also, keep in mind that when you sell or exchange shares of any mutual fund, it
may result in a taxable gain or loss.
We recommend that you consult with a tax adviser about dividends and capital
gains you receive from any Davis Fund.
HOW TO OPEN AN ACCOUNT
You can open an account if:
o You invest at least $5 million for an institution (trust company, bank
trust, endowment, pension plan, foundation) acting on behalf of its own
account or one or more clients.
o You invest at least $5 million for a government entity (a state, county,
city, department, authority or similar government agency).
o You invest with an account established under a "wrap account" or other
fee-based program that is sponsored and maintained by a registered
broker-dealer approved by our distributor, Davis Distributors.
38
<PAGE>
Generally, Davis Funds do not issue share certificates for purchases. Each time
you add to or withdraw from your account, you will receive a statement showing
the details of the transaction--along with any other transactions you made
during the current year.
THREE WAYS YOU CAN OPEN AN ACCOUNT
1. BY MAIL. Fill out the Application Form included in this prospectus and mail
it to our service provider, State Street Bank and Trust. Both you and your
dealer must sign the form. Include a check made payable to Davis FUNDS, or in
the case of a retirement account, the custodian or to the trustee. All purchases
by check should be in U.S. dollars. DAVIS FUNDS WILL NOT ACCEPT THIRD-PARTY
CHECKS.
2. BY DEALER. You may have your dealer order and pay for the shares. In this
case, you must pay your dealer directly. Your dealer will then order the shares
from our distributor, Davis Distributors. Please note that your dealer may
charge a service fee or commission for buying these shares.
3. BY WIRE. You may wire federal funds directly to our service provider, State
Street Bank and Trust. Before you wire an initial investment, you must call
Davis Distributors and obtain an account number and Application Form. After the
initial wire purchase is made, you will need to return the Application Form to
State Street Bank and Trust. To ensure that the purchase is credited properly,
follow these wire instructions:
State Street Bank and Trust Company
Boston MA 02210
Attn: Mutual Fund Services
(NAME OF DAVIS FUND THAT YOU ARE BUYING)
Shareholder Name
Shareholder Account Number
Federal Routing Number 011000028
DDA Number 9904-606-2
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HOW TO BUY, SELL AND EXCHANGE SHARES
Once you have established an account with Davis Funds, you can add to--or
withdraw from--your investment. This section provides an overview of the types
of transactions you can perform as a shareholder of Davis Funds. This includes
how to initiate these transactions, and the charges that you may incur (if any)
when buying, selling and exchanging shares.
An exchange occurs when you sell shares in one Davis Fund to buy shares in
another Davis Fund in the same class of shares in response to changes in your
goals or in market conditions.
THREE WAYS TO BUY, SELL AND EXCHANGE SHARES
1. BY TELEPHONE. Call 1-800-279-0279. You can speak directly with a Davis Funds
representative during our business hours (7:00 a.m. to 4:00 p.m., Mountain Time)
or use our automated telephone system any time, day or night.
2. BY MAIL. Send the request to our service provider, State Street Bank and
Trust.
Regular Mail
State Street Bank and Trust Company
c/o Davis Funds
PO Box 8406
Boston MA 02266-8406
Overnight Mail
State Street Bank and Trust Company
c/o Davis Funds
66 Brooks Drive
Braintree MA 02184
3. BY DEALER. Contact a dealer, who will then make the transaction through our
distributor, Davis Distributors. Please note that your dealer may charge a
service fee or commission for each transaction.
WHEN YOUR TRANSACTIONS ARE PROCESSED
The per-share price for purchases or sales made through our distributor, Davis
Distributors, will be processed on the same day if the order is received before
4 p.m. Eastern Time. If State Street Bank and Trust requires additional
documents to complete the purchase or sale, the transaction price will be
determined at the close of business after all required documents are received.
For your transaction to be counted on the day you place your order with your
broker-dealer or other financial institution, they must:
o Receive your order before 4 p.m. Eastern Time.
o Promptly transmit the order to State Street Bank and Trust.
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BUYING MORE SHARES
When you purchase shares by mail, send a check made payable to Davis FUNDS for
the amount of purchase to our service provider, State Street Bank and Trust. If
you have the purchase form from your most recent statement, include it with the
check. If you do not have a purchase form, include a letter with your check
stating the name of the Fund, your account number and that the investment should
be made in Class Y shares.
When you buy shares through a dealer, you may be charged a service fee or
commission for performing the transaction.
SPECIAL NOTE FOR WRAP PROGRAM INVESTORS
Be aware that both Class A and Class Y shares are available by the Fund at net
asset value to your sponsor. However, Class A shares are subject to additional
expenses, and sponsors of wrap programs who buy Class A shares are generally
entitled to commissions. If your sponsor has selected Class A shares, you should
discuss these charges and weigh the benefits of any services to be provided by
the sponsor against the higher expenses paid by Class A shareholders. For more
information on these fees and expenses, you can request the prospectus covering
Class A shares by calling Davis Distributors.
SELLING SHARES
You may sell back all or part of your shares in any Davis Fund in which you
invest (known as a redemption) at any time, at net asset value. You can sell the
shares by telephone, by mail, or through a dealer.
When you sell shares by mail, indicate the number of shares or dollar amount you
wish to redeem and send the request to our service provider, State Street Bank
and Trust. If more than one person owns the shares you wish to sell, all owners
must sign the redemption request. You may be required to have the owners'
signatures medallion-guaranteed (see "Medallion Signature Guarantee").
When you sell shares through a dealer, you may be charged a service fee or
commission for performing the transaction.
Redemption proceeds are usually paid to you in cash within seven days after
State Street Bank and Trust receives your proper sale request. If any of the
shares redeemed were recently purchased, payment to you will be delayed until
your purchase check has cleared, up to a maximum of 15 days from the date of
purchase.
WHAT YOU NEED TO KNOW BEFORE YOU SELL YOUR SHARES
o You will always receive cash for sales that total less than $250,000 or
1.00% of the Fund's net asset value during any 90-day period. Any sales
above the cash limit may be paid in securities and would mean you would
have to pay brokerage fees.
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o You will need a medallion signature guarantee on a stock power or
redemption request for sales paid by check totaling more than $100,000.
However, if your address of record has changed in the last 30 days, or if
you wish to send redemption proceeds to a third party, you will need a
medallion signature guarantee for all sales.
o A sale may produce a gain or loss. Gains may be subject to tax.
MEDALLION SIGNATURE GUARANTEE. A written endorsement from an eligible guarantor
institution that the signature(s) on the written request is (are) valid.
Eligible guarantors include federally insured financial institutions, registered
broker-dealers, or participants in a recognized medallion signature guarantee
program. Davis Funds cannot accept guarantees from institutions that do not
provide reimbursement in cases of fraud. No other form of signature verification
can be accepted.
STOCK POWER. A letter signed by the owner of the shares that gives State Street
Bank and Trust permission to transfer ownership of the shares to another person
or group. Any transfer of ownership requires that all shareholders have their
signatures medallion-guaranteed.
SPECIAL SALE SITUATIONS
o The Securities and Exchange Commission can suspend payment of sales under
certain emergency circumstances if the New York Stock Exchange is closed
for reasons other than customary closings and holidays.
o Davis Series Funds may make sales payments in securities if Davis Series
Funds' Board of Directors decides that making cash payments would harm the
Fund.
WIRING SALE PROCEEDS TO YOUR BANK ACCOUNT
You may be eligible to have your sale proceeds electronically transferred to a
commercial bank account. This is known as an ELECTRONIC WIRE PRIVILEGE. There is
a $5 charge by State Street Bank and Trust for wire service, and receiving banks
may also charge for this service. Payment through Automated Clearing House will
usually arrive at your bank two banking days after the sale. Payment by wire is
usually credited to your bank account on the next business day after the sale.
Although State Street Bank and Trust will accept electronic wire sales by
telephone or dealer, you still need to fill out and submit the information under
the Electronic Wire Privilege section of the Application Form. Once your account
has been opened and you have not previously established the Electronic Wire
Privilege, you must submit a letter of instruction with a medallion signature
guarantee signed by all registered owners at the time of the wire sale. If you
are currently an investor with a non-retirement account and have already
established this privilege, you may call our customer service department to
execute a wire sale by telephone.
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EXCHANGING SHARES
You can transfer Class Y shares of Davis Series Funds to Class Y shares in any
other Davis Fund. This is known as an exchange. You can exchange shares by
telephone (to accounts with identical registrations), by dealer or by mail. The
initial exchange must be for at least $5 million for institutions or government
entities or minimums set by wrap program sponsors. Class A shareholders who are
eligible to buy Class Y shares may also exchange their shares for Class Y shares
of the Fund. Exchanges are normally performed on the same day of the request if
received by 4 p.m. Eastern Time.
When you exchange shares by mail, you must send our service provider, State
Street Bank and Trust, a written request for the exchange. No medallion
signature guarantee is required unless shares are also being sold for cash,
which is known as a redemption. Please see the section WHAT YOU NEED TO KNOW
BEFORE YOU SELL YOUR SHARES for restrictions that might apply to this type of
transaction.
When you exchange shares through a dealer, you may be charged a service fee or
commission for performing the transaction.
Before you decide to make an exchange, you must obtain the current prospectus of
the desired Fund. For federal income tax purposes, exchanges between Funds are
treated as a sale and a purchase. Therefore, there will usually be a
recognizable capital gain or loss due to an exchange.
There are limits to the number of exchanges you can make each year. Currently,
four exchanges are allowed during a 12-month period. Davis Distributors must
approve any exchanges above the limit in writing.
YOU CAN MAKE EXCHANGES AMONG ANY OF THE DAVIS FUNDS
WITHOUT HAVING TO PAY ANY SALES CHARGE
EQUITY FUNDS
Davis New York Venture Fund
Davis Growth Opportunity Fund
Davis Financial Fund
Davis International Total Return Fund
GROWTH & INCOME FUNDS
Davis Growth & Income Fund
Davis Real Estate Fund
Davis Convertible Securities Fund
GOVERNMENT BOND FUND
Davis Government Bond Fund
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GOVERNMENT MONEY MARKET FUND
Davis Government Money Market Fund
For more information about any of the other Davis Funds, including charges and
expenses, ask for a prospectus. Read it carefully before investing or sending
money.
TRANSACTIONS BY TELEPHONE
A benefit of investing through Davis Funds is that you can use our telephone
system to buy sell or exchange shares. If you do not wish to have this option
activated for your account, you must note this on your Application Form.
When you call Davis Distributors, you can perform a transaction in two ways:
o Speak directly with a representative during business hours (7 a.m. to 4
p.m. Mountain Time).
o If you have a TouchTone(TM) telephone, you can use the automated telephone
system, known as DAVIS DIRECT ACCESS, 24 hours a day, seven days a week.
When you buy, sell or exchange shares over the telephone, you agree that Davis
Funds are not liable for following telephone instructions believed to be genuine
(that is, directed by the account holder or registered representative on file).
We use certain procedures to confirm that your instructions are genuine,
including a request for personal identification and a tape recording of the
conversation. If these procedures are not used, Davis Funds may be liable for
unauthorized instructions.
Be aware that during unusual market conditions, Davis Funds may not be able to
accept all requests by telephone.
YOU CAN USE DAVIS DIRECT ACCESS TO:
o GET THE PRICE, TOTAL RETURN AND FUND DESCRIPTION FOR ANY DAVIS FUND.
o CHECK YOUR ACCOUNT BALANCE AND OTHER ACCOUNT INFORMATION.
o BUY, SELL AND EXCHANGE SHARES.
o GET THE MAILING ADDRESS AND WIRE INSTRUCTIONS FOR ANY DAVIS FUND.
o REQUEST LITERATURE ABOUT ANY DAVIS FUND.
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DAVIS FUNDS:
OVER 25 YEARS OF RELIABLE INVESTING
Davis Selected Advisers, investment adviser of Davis Funds, has a history of
investing for the long term. Since our founding in 1969, we have been dedicated
to delivering superior investment performance and service to our clients.
WE ARE LONG-TERM INVESTORS. We analyze high-quality growth companies that have
been overlooked, buy their stock at value prices, and hold the shares for the
long term. This strategy was first developed by legendary Wall Street investor
Shelby Cullom Davis, a leading financial adviser to governors and presidents.
Our investment approach has been refined for more than 25 years by his son,
Shelby M.C. Davis, Senior Research Adviser and Founder of Davis Selected
Advisers. The Davis strategy is still followed today by the third generation of
family members: Christopher C. Davis and Andrew A. Davis serve as Portfolio
Managers for many funds and institutional accounts managed by Davis Selected
Advisers.
WE ARE FELLOW SHAREHOLDERS. The Davis family, directors and employees not only
manage the company's mutual funds, but also invest in them. Together, we have
invested over $1 billion of our own money side-by-side with our shareholders.
Please take the time to read this prospectus carefully, and if you decide to
invest with us, keep it as a reference guide. If you need more information about
Davis Funds, please call us or visit our web site.
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<PAGE>
ADDRESS AND TELEPHONE GUIDE
<TABLE>
<CAPTION>
<S> <C>
OUR TELEPHONE NUMBER: OUR INTERNET ADDRESS:
1-800-279-0279 http://www.davisfunds.com
OUR MAILING ADDRESS:
Davis Funds
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
OUR SERVICE PROVIDER'S REGULAR OUR SERVICE PROVIDER'S OVERNIGHT MAILING ADDRESS:
MAILING ADDRESS: State Street Bank and Trust Company
State Street Bank and Trust Company c/o Davis Funds
c/o Davis Funds 66 Brooks Drive
PO Box 8406 Braintree, MA 02184
Boston, MA 02266-8406
</TABLE>
OTHER FUND DOCUMENTS
For more information about any Davis Fund, request a free copy of the Statement
of Additional Information or the Annual and Semi-Annual Reports.
The STATEMENT OF ADDITIONAL INFORMATION provides more detailed information about
Davis Series Funds and their management and operations. An ANNUAL REPORT
discusses the market conditions and investment strategies that significantly
affected Fund performance during the last year. A SEMI-ANNUAL REPORT updates
information provided in the Annual Report for the next six months.
The Statement of Additional Information and Annual Report for the six Davis
Series Funds have been filed with the Securities and Exchange Commission, are
incorporated by reference, and are legally a part of this prospectus.
WHERE YOU CAN GET THESE DOCUMENTS:
o BY TELEPHONE. Call Davis Funds toll-free at 1-800-279-0279, Monday through
Friday, 7 a.m. to 4 p.m. Mountain Time. You may also call this number for
account inquiries.
o VIA THE INTERNET. Visit the SEC web site (WWW.SEC.GOV).
o FROM THE SEC. The SEC's Public Reference Room in Washington DC. For more
information call 1-202-942-8090. Additional copies of this information can
be obtained, for a duplicating fee, by electronic request at
[email protected] or by writing the Public Reference Section of the SEC,
Washington DC 20549-6009.
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<PAGE>
o BY MAIL. Specify the document you are requesting when writing to us.
DAVIS FUNDS
2949 EAST ELVIRA ROAD, SUITE 101
TUCSON, ARIZONA 85706
1-800-279-0279
Investment Company Act File No. 811-2679
47
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
DAVIS GROWTH OPPORTUNITY FUND
DAVIS FINANCIAL FUND
DAVIS REAL ESTATE FUND
DAVIS CONVERTIBLE SECURITIES FUND
DAVIS GOVERNMENT BOND FUND
DAVIS GOVERNMENT MONEY MARKET FUND
PART OF
DAVIS SERIES, INC.
2949 EAST ELVIRA ROAD, SUITE 101
TUCSON, ARIZONA 85706
1-800-279-0279
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE CLASS A, CLASS B AND CLASS C PROSPECTUS DATED MAY 1,
2000, AND THE CLASS Y PROSPECTUS DATED MAY 1, 2000. THE PROSPECTUSES MAY BE
OBTAINED FROM THE FUND.
EACH FUND'S MOST RECENT ANNUAL REPORT AND SEMI-ANNUAL REPORT TO SHAREHOLDERS ARE
SEPARATE DOCUMENTS SUPPLIED WITH THIS STATEMENT OF ADDITIONAL INFORMATION. THE
ANNUAL REPORT, ACCOMPANYING NOTES, AND REPORT OF INDEPENDENT AUDITORS APPEARING
IN THE ANNUAL REPORT ARE INCORPORATED BY REFERENCE IN THIS STATEMENT OF
ADDITIONAL INFORMATION.
<PAGE>
TABLE OF CONTENTS
PAGE
Section I: Investment Strategies and Restrictions............................4
Investment Objectives and Policies...................................4
Portfolio Securities.................................................5
Equity Securities
Banking and Financial Services Industries
Real Estate Securities and REITs
Convertible Securities
Foreign Securities
Bonds and Other Debt Securities
Government Securities
High-Yield, High-Risk Debt Securities
Other Investment Policies...........................................16
Portfolio Transactions..............................................21
Investment Restrictions.............................................24
Section II: Key Persons.....................................................28
Organization of the Company.........................................28
Directors and Officers..............................................29
Directors' Compensation Schedule....................................31
Certain Shareholders of the Funds...................................31
Investment Advisory Services........................................36
Distribution of Company Shares......................................38
Other Important Service Providers...................................43
Section III: Purchase, Exchange and Redemption of Shares....................44
Purchase of Shares..................................................44
Alternative Purchase Arrangements...................................45
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
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Special Services....................................................52
Prototype Retirement Plans
Automatic Investment Program
Dividend Diversification Program
Telephone Privilege
Exchange of Shares..................................................53
General
By Telephone
Automatic Exchange Program
Redemption of Shares................................................55
General
Electronic Wire Privilege
By Telephone
Automatic Withdrawals Plan
Involuntary Redemptions
Subsequent Repurchases
Section IV: General Information.............................................59
Determining the Price of Shares.....................................59
Dividends and Distributions.........................................60
Federal Income Taxes................................................62
Performance Data....................................................62
Appendix A: Quality Ratings of Debt Securities...............................68
Appendix B: Term and Conditions for a Statement of Intention.................70
3
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Section I: Investment Strategies and Restrictions
INVESTMENT OBJECTIVES AND POLICIES
DAVIS GROWTH OPPORTUNITY FUND. The investment objective of Davis Growth
Opportunity Fund is growth of capital. It invests primarily in common stocks and
other equity securities. The Fund's principal risks are the risk of price
fluctuations reflecting both market evaluations of the businesses involved and
general changes in the equity markets. The Fund may invest in foreign securities
and attempt to reduce currency fluctuation risks by engaging in related hedging
transactions. These investments involve special risk factors.
DAVIS FINANCIAL FUND. The investment objective of Davis Financial Fund is
growth of capital. It invests primarily in common stocks and other equity
securities and will concentrate investments in companies principally engaged in
the banking and financial services industries as described below. Davis
Financial Fund generally will invest a minimum of 25% of its total assets in
investments in each of these two industries. The Fund's principal risks are
market risk and company risk. Because Davis Financial Fund concentrates its
investments in the banking and financial services industries, it may be affected
by economic or regulatory developments in, or related to, those market sectors.
The Fund may also invest in foreign securities.
DAVIS REAL ESTATE FUND. The investment objective of Davis Real Estate Fund
is total return through a combination of growth and income. It seeks to achieve
this objective by investing primarily in equity securities of companies
principally engaged in, or related to, the real estate industry or which own
significant real estate assets, or which primarily invest in real estate
financial instruments. Normally, at least 65% of its total assets will be so
invested. It does not invest directly in real estate. Davis Real Estate Fund's
principal risks are market risk, company risk, and the risk of having a
concentrated real estate portfolio. The Fund may invest in foreign securities or
in high-yield, high-risk debt securities, which may involve additional risk.
DAVIS CONVERTIBLE SECURITIES FUND. The investment objective of Davis
Convertible Securities Fund is total return. It seeks this objective through a
combination of current income and capital appreciation. It invests in a
portfolio consisting primarily of convertible debt and equity securities.
Normally it will invest at least 65% of its total assets in convertible
securities. It may also invest in other securities, including common and
preferred stock, non-convertible corporate debt securities, U.S. Government
securities and short-term money market instruments (including repurchase
agreements). The Fund's principal risks are those of equity securities (market
and company risk) and fixed income risk (credit risk and interest rate risk).
Convertible securities have characteristics of both equity and debt, so they
present the risks of common stock ownership as well as the risks that
traditional lenders face. The Fund may invest in foreign securities or in
high-yield, high-risk debt securities, which may involve additional risk.
DAVIS GOVERNMENT BOND FUND. The investment objective of Davis Government
Bond Fund is current income. It invests in debt securities that are obligations
of or guaranteed by the U.S. Government, its agencies and instrumentalities
("U.S. Government Securities"). It also may invest in repurchase agreements
involving such securities. Davis Government Bond Fund's
4
<PAGE>
principal risk is changes in interest rates. Investments held by Davis
Government Bond Fund generally reflect market fluctuations. In particular, the
value of the Fund's investments usually changes inversely to interest rate
changes. Mortgage-related securities (including collateralized mortgage
obligations) may constitute a large or the largest portion of the Fund's
investments. Changes in the level of interest rates may affect extension risk
and prepayment risk of mortgage-related securities.
DAVIS GOVERNMENT MONEY MARKET FUND. The investment objective of Davis
Government Money Market Fund is to achieve as high a level of current income as
is consistent with the principle of preservation of capital and maintenance of
liquidity. It invests in U.S. Government Securities and repurchase agreements
involving such securities. The Fund's principal risk is changes in interest
rates. The Fund minimizes this risk by maintaining an average maturity of 90
days or less. Davis Government Money Market Fund normally has a stable net asset
value with yield fluctuating with short-term interest rates. There is no
assurance that the Fund will be able to maintain a stable net asset value of
$1.00 per share.
An investment in the Funds may not be appropriate for all investors, and
short-term investing is discouraged.
PORTFOLIO SECURITIES
The principal securities in which the Funds invest are described below.
EQUITY SECURITIES. Davis Growth Opportunity Fund, Davis Financial Fund,
Davis Real Estate Fund, and Davis Convertible Securities Fund ("Davis Equity
Funds") invest primarily in equity securities. Equity securities represent an
ownership position in a company. These securities may include, without
limitation, common stocks, preferred stocks, and securities with equity
conversion or purchase rights. Davis Equity Funds (other than Davis Convertible
Securities Fund) usually purchase common stock. The prices of equity securities
fluctuate based on changes in the financial condition of their issuers and on
market and economic conditions. The Funds' results will be related to the
overall market for these securities. There is no limit on the percentage of
assets that the Funds may invest in equity securities.
The equity of smaller companies is subject to additional risks. Smaller
companies are usually less established and less diversified than larger
companies, and have fewer resources available to take advantage of opportunities
or overcome challenges.
Davis Financial Fund and Davis Real Estate Fund concentrate their
investments in specific industries. This concentration is expected to cause the
performance of these Funds to be closely tied to the performance of the
industries in which they concentrate.
Primary Risks. Events that have a negative impact on a business will
probably be reflected in a decline in their equity securities. Furthermore, when
the stock market declines most equity securities, even those issued by strong
companies, are likely to decline in value.
5
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BANKING AND FINANCIAL SERVICES INDUSTRIES. During normal market conditions
Davis Financial Fund concentrates 25% or more of its total assets in obligations
of domestic and foreign companies in each of the banking and financial services
industries. The other Davis Equity Funds may also invest a portion of their
assets in the banking and financial services industries if the Adviser believes
that such investments will contribute to the Funds' investment objectives. For
purposes of defining concentration, Davis Financial Fund will consider an issuer
to be deemed "principally engaged" in the area of concentration if operations in
the identified areas comprise more than 50% of the issuer's assets or revenues
on a consolidated basis. Companies in the banking industry include U.S. and
foreign commercial and industrial banking and savings institutions (including
their parent holding companies). Companies in the financial services industry
include commercial and industrial finance companies, diversified financial
services companies, investment banking, securities brokerage and investment
advisory companies, leasing companies and insurance companies (including
multi-line, property, casualty and life insurance companies) and insurance
holding companies. As a result of such concentration, the Fund's portfolio may
be subject to greater risks than a portfolio without such a concentration,
especially with respect to those risks associated with regulatory developments
in or related to such industries.
Primary Risks. By concentrating its investments in the banking and
financial services industries, Davis Financial Fund is particularly vulnerable
to events affecting those industries.
Banking Industry. Commercial banks (including "money center," regional and
community banks), savings and loan associations, and holding companies of the
foregoing are especially subject to adverse effects of volatile interest rates,
concentrations of loans in particular industries (such as real estate or
energy), and significant competition. The profitability of these businesses is
to a significant degree dependent upon the availability and cost of capital
funds. Economic conditions in the real estate market may have a particularly
strong effect on certain banks and savings associations. Commercial banks and
savings associations are subject to extensive federal and, in many instances,
state regulation. Neither such extensive regulation nor the federal insurance of
deposits ensures the solvency or profitability of companies in this industry,
and there is no assurance against losses in securities issued by such companies.
Broadening bank powers, including the ability to engage in multi-state
operations while permitting diversification of operations, also could expose
banks to well-established competitors in new areas of operations. The broadening
of regional and national interstate powers and the aggressive expansion of
larger publicly held foreign banks may result in increased competition and a
decline in the number of publicly traded regional banks.
Financial Services Industry. Many of the investment considerations
discussed in connection with banks and savings associations also apply to
financial services companies. These companies are all subject to extensive
regulation, rapid business changes, volatile performance dependent upon the
availability and cost of capital and prevailing interest rates, and significant
competition. General economic conditions significantly affect these companies.
Credit and other losses resulting from the financial difficulty of borrowers or
other third parties have a potentially adverse effect on companies in this
industry. Investment banking, securities brokerage and investment advisory
companies are particularly subject to government regulation
6
<PAGE>
and the risks inherent in securities trading and underwriting activities.
Insurance companies are particularly subject to government regulation and rate
setting, potential anti-trust and tax law changes, and industry-wide pricing and
competition cycles. Property and casualty insurance companies may also be
affected by weather and other catastrophes. Life and health insurance companies
may be affected by mortality and morbidity rates, including the effects of
epidemics. Individual insurance companies may be exposed to reserve
inadequacies, problems in investment portfolios (for example, due to real estate
or "junk" bond holdings), and failures of reinsurance carriers.
REAL ESTATE SECURITIES AND REITS. During normal market conditions Davis
Real Estate Fund invests at least 65% of its total assets in real estate
securities and REITs. The other Davis Equity Funds may also invest a portion of
their assets in real estate securities and REITs if the Adviser believes that
such investments will contribute to the Funds' investment objectives.
Real estate securities are issued by companies which have at least 50% of
the value of their assets, gross income, or net profits attributable to
ownership, financing, construction, management or sale of real estate, or to
products or services that are related to real estate or the real estate
industry. None of the Funds invest directly in real estate. Real estate
companies include real estate investment trusts ("REITs"), or other securitized
real estate investments, brokers, developers, lenders and companies with
substantial real estate holdings such as paper, lumber, hotel and entertainment
companies. REITs pool investors' funds for investment primarily in
income-producing real estate or real estate-related loans or interests. A REIT
is not taxed on income distributed to shareholders if it complies with various
requirements relating to its organization, ownership, assets and income, and
with the requirement that it distribute to its shareholders at least 95% of its
taxable income (other than net capital gains) for each taxable year. REITs can
generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and derive
their income primarily from rents. Equity REITs can also realize capital gains
by selling property that has appreciated in value. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive their income
primarily from interest payments. Hybrid REITs combine the characteristics of
both Equity REITs and Mortgage REITs.
Primary Risks. Real estate securities and REITs are subject to risks
associated with the direct ownership of real estate. The Funds also could be
subject to such risks by reason of direct ownership as a result of a default on
a debt security it may own. These risks include declines in the value of real
estate, risks related to general and local economic conditions, overbuilding and
increased competition, increases in property taxes and operating expenses,
changes in zoning laws, casualty or condemnation losses, fluctuations in rental
income, changes in neighborhood values, the appeal of properties to tenants and
increases in interest rates.
Equity REITs may be affected by changes in the value of the underlying
property owned by the trusts, while mortgage REITs may be affected by the
quality of credit extended. Equity and mortgage REITs are dependent upon
management skill, may not be diversified, and are subject to project financing
risks. Such trusts are also subject to heavy cash flow dependency, defaults by
borrowers, self-liquidation and the possibility of failing to qualify for
tax-free pass-through of income under the Internal Revenue Code, and failing to
maintain exemption from registration
7
<PAGE>
under the Investment Company Act of 1940. Changes in interest rates may also
affect the value of the debt securities in the Fund's portfolio. By investing in
REITs indirectly through either of the Funds, a shareholder will bear not only
his or her proportionate share of the expense of the Fund, but also, indirectly,
similar expenses of the REITs, including compensation of management. Some real
estate securities may be rated less than investment-grade by rating services.
Such securities may be subject to the risks of high-yield, high-risk securities
discussed below.
CONVERTIBLE SECURITIES. During normal market conditions Davis Convertible
Securities Fund invests at least 65% of its total assets in convertible
securities. The other Davis Equity Funds may also invest a portion of their
assets in convertible securities if the Adviser believes that such investments
will contribute to the Funds' investment objectives.
Generally, convertible securities are bonds, debentures, notes, preferred
stocks, warrants or other securities that convert or are exchangeable into
shares of the underlying common stock at a stated exchange ratio. Usually, the
conversion or exchange is solely at the option of the holder. However, some
convertible securities may be convertible or exchangeable at the option of the
issuer or are automatically converted or exchanged at a time certain, or upon
the occurrence of certain events, or have a combination of these
characteristics. Usually a convertible security provides a long-term call on the
issuer's common stock and therefore tends to appreciate in value as the
underlying common stock appreciates in value. A convertible security may also be
subject to redemption by the issuer after a certain date and under certain
circumstances (including a specified price) established on issue. If a
convertible security held by one of the Funds is called for redemption, that
Fund could be required to tender it for redemption, convert it into the
underlying common stock, or sell it.
Primary Risks. Convertible bonds, debentures, and notes are varieties of
debt securities, and as such are subject to many of the same risks, including
interest rate sensitivity, changes in debt rating, and credit risk. In addition,
convertible securities are often viewed by the issuer as future common stock
subordinated to other debt and carry a lower rating than the issuer's
non-convertible debt obligations. Thus, convertible securities are subject to
many of the same risks as high-yield, high-risk securities. A more complete
discussion of these risks is provided below in the sections entitled "Bonds and
Other Debt Securities" and "High-Yield, High-Risk Debt Securities."
Due to its conversion feature, the price of a convertible security will
normally vary in some proportion to changes in the price of the underlying
common stock. A convertible security will normally also provide a higher yield
than the underlying common stock (but generally lower than comparable
non-convertible securities). Due to their higher yield, convertible securities
generally sell above their "conversion value," which is the current market value
of the stock to be received upon conversion. The difference between this
conversion value and the price of convertible securities will vary over time
depending on the value of the underlying common stocks and interest rates. When
the underlying common stocks decline in value, convertible securities will tend
not to decline to the same extent because the yield acts as a price support.
When the underlying common stocks rise in value, the value of convertible
securities may also be expected to increase, but will generally not increase to
the same extent as the underlying common stocks.
8
<PAGE>
Fixed-income securities are generally considered to be interest
rate-sensitive. The market value of convertible securities will change in
response to changes in interest rates. During periods of falling interest rates,
the value of convertible bonds generally rises. Conversely, during periods of
rising interest rates, the value of such securities generally declines. Changes
by recognized rating services in their ratings of debt securities, and changes
in the ability of an issuer to make payments of interest and principal will also
affect the value of these investments.
FOREIGN SECURITIES. Each of the Davis Equity Funds may invest in foreign
securities. Foreign securities are: (1) issued by companies organized under the
laws of a foreign country; (2) principally traded in securities markets outside
of the U.S.; (3) issued by companies earning at least 50% of their revenues or
profits outside of the U.S.; or (4) issued by companies having at least 50% of
their assets outside of the U.S. ("foreign securities"). Foreign securities
include equity securities, real estate securities, convertible securities, and
bonds. Investments in foreign securities may be made through the purchase of
individual securities on recognized exchanges and developed over-the-counter
markets, through American Depository Receipts ("ADRs") or Global Depository
Receipts ("GDRs") covering such securities, and through U.S.-registered
investment companies investing primarily in foreign securities. When the Funds
invest in foreign securities, their operating expenses are likely to be higher
than that of an investment company investing exclusively in U.S. securities,
since the custodial and certain other expenses are expected to be higher.
Primary Risks. Investments in foreign securities may involve a higher
degree of risk than investments in domestic issuers. Foreign securities are
often denominated in foreign currencies, which means that their value will be
affected by changes in exchange rates, as well as other factors that affect
securities prices. There is generally less information publicly available about
foreign securities and securities markets, and there may be less government
regulation and supervision of foreign issuers and securities markets. Foreign
securities and markets may also be affected by political and economic
instabilities, and may be more volatile and less liquid than domestic securities
and markets. Investment risks may include expropriation or nationalization of
assets, confiscatory taxation, exchange controls and limitations on the use or
transfer of assets, and significant withholding taxes. Foreign economies may
differ from the United States favorably or unfavorably with respect to inflation
rates, balance of payments, capital reinvestment, gross national product
expansion, and other relevant indicators. The Funds may attempt to reduce
exposure to market and currency fluctuations by trading in currency futures
contracts or options on futures contracts for hedging purposes only.
BONDS AND OTHER DEBT SECURITIES. Bonds and other debt securities may be
purchased by each of the Funds to increase current income or to diversify their
investment portfolios. The U.S. Government, corporations, and other issuers sell
bonds and other debt securities to borrow money. Issuers pay investors interest
and generally must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. The prices of debt securities fluctuate
depending on such factors as interest rates, credit quality and maturity.
Primary Risks. Bonds and other debt securities are generally considered to
be interest rate-sensitive. The market value of the Funds' investments will
change in response to changes in
9
<PAGE>
interest rates. During periods of falling interest rates, the value of debt
securities held by the Funds generally rises. Conversely, during periods of
rising interest rates, the value of such securities generally declines. Changes
by recognized rating services in their ratings of debt securities and changes in
the ability of an issuer to make payments of interest and principal will also
affect the value of these investments.
GOVERNMENT SECURITIES. Davis Government Bond Fund invests principally in
debt securities that are obligations of or guaranteed by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Securities"). Davis
Government Money Market Fund invests exclusively in U.S. Government Securities
and related repurchase agreements. Each of the other Funds may also invest a
portion of its assets in U.S. Government bonds if the Adviser believes that such
investments will contribute to the Funds' investment objectives.
Davis Government Money Market Fund limits the average maturity of its
investment portfolio to 90 days or less. Davis Government Bond Fund is not
limited as to the maturities of its portfolio investments and may take full
advantage of the entire range of maturities available in U.S. Government
Securities. The Adviser may adjust the average maturity of Davis Government
Money Market Fund's portfolio and Davis Government Bond Fund's portfolio from
time to time, depending on the Adviser's assessment of the relative yields
available on securities of different maturities, and its assessment of future
interest rate patterns and market risk. Thus, at various times, the average
maturity of the portfolio may be relatively short (as short as one day for Davis
Government Money Market Fund, and from one year to five years, for example, for
Davis Government Bond Fund), and at other times may be relatively long (up to 90
days for Davis Government Money Market Fund, and over 10 years, up to 30 years,
for Davis Government Bond Fund). Davis Government Money Market Fund strives to
maintain a constant net asset value per share of $1.00. There is no guarantee
that the Fund will be successful. Davis Government Bond Fund does not attempt to
maintain a fixed net asset value per share. Fluctuations in portfolio values and
therefore fluctuations in the net asset value of its shares are more likely to
be greater when Davis Government Bond Fund's average portfolio maturity is
longer. The portfolio is likely to be primarily invested in securities with
short-term maturities in periods when the Adviser deems a more defensive
position is advisable. For temporary periods, for defensive purposes, or to
accommodate inflows of cash awaiting more permanent investment, it may also
invest in short-term money market instruments, including repurchase agreements.
There are two basic types of U.S. Government Securities: (1) direct
obligations of the U.S. Treasury; and (2) obligations issued or guaranteed by an
agency or instrumentality of the U.S. Government. Agencies and instrumentalities
include the Federal Farm Credit System ("FFCS"), Student Loan Marketing
Association ("SLMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
Home Loan Banks ("FHLB"), Federal National Mortgage Association ("FNMA") and
Government National Mortgage Association ("GNMA"). Some obligations issued or
guaranteed by agencies or instrumentalities, such as those issued by GNMA, are
fully guaranteed by the U.S. Government. Others, such as FNMA bonds, rely on the
assets and credit of the instrumentality with limited rights to borrow from the
U.S. Treasury. Still other securities, such as obligations of the FHLB, are
supported by more extensive rights to borrow from the U.S. Treasury.
10
<PAGE>
When the Adviser deems that higher yields are obtainable through
investments in mortgage-related securities and that the yield advantage offsets
the uncertainties of the timing of principal payments, Davis Government Bond
Fund may be significantly invested in mortgage-related securities. GNMA
Certificates are mortgage-backed securities representing part ownership of a
pool of mortgage loans. These loans issued by lenders such as mortgage bankers,
commercial banks, and savings and loan associations are either insured by the
Federal Housing Administration or guaranteed by the Veterans Administration. A
"pool" or group of such mortgages is assembled and, after being approved by
GNMA, is offered to investors through securities dealers. Once approved by GNMA,
the timely payment of interest and principal on each mortgage is guaranteed by
GNMA and backed by the full faith and credit of the U.S. Government. GNMA
Certificates differ from bonds in that principal is paid back monthly by the
borrower over the term of the loan rather than returned in a lump sum at
maturity. GNMA Certificates are called "pass-through" securities because both
interest and principal payments (including prepayments) are passed through to
the holder of the Certificate. Upon receipt, principal payments will be used by
Davis Government Bond Fund to purchase additional GNMA Certificates or other
U.S. Government Securities.
Davis Government Bond Fund may also invest in pools of mortgages that are
issued or guaranteed by other agencies of the U.S. Government. The average life
of pass-through pools varies with the maturities of the underlying mortgage
instruments. In addition, a pool's term may be shortened or lengthened by
unscheduled or early payment, or by slower than expected prepayment of principal
and interest on the underlying mortgages. The occurrence of mortgage prepayments
is affected by the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions. As
prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool.
The Fund may also invest in a collateralized mortgage obligation ("CMO"). A
CMO is a debt security issued by a corporation, trust or custodian, or by a U.S.
Government agency or instrumentality that is collateralized by a portfolio or
pool of mortgages, mortgage-backed securities, U.S. Government securities, or
corporate debt obligations. The issuer's obligation to make interest and
principal payments is secured by the underlying pool or portfolio of securities.
Davis Government Bond Fund invests only in CMOs which are obligations of, or
guaranteed by the U.S. Government, its agencies, or instrumentalities such as
the FNMA or the FHLMC.
CMOs are most often issued in two or more classes (each of which is a
separate security) with varying maturities and stated rates of interest.
Interest and principal payments from the underlying collateral (generally a pool
of mortgages) are not necessarily passed directly through to the holders of the
CMOs; these payments are typically used to pay interest on all CMO classes and
to retire successive class maturities in a sequence. Thus, the issuance of CMO
classes with varying maturities and interest rates may result in greater
predictability of maturity with one class and less predictability of maturity
with another class than a direct investment in a mortgage-backed pass-through
security (such as a GNMA Certificate). Classes with shorter maturities typically
have lower volatility and lower yield while those with longer maturities
typically have higher volatility and higher yield. Thus, investments in CMOs
provide greater or
11
<PAGE>
lesser control over the investment characteristics than mortgage pass-through
securities and offer more defensive or aggressive investment alternatives.
Investment by the Funds in mortgage-related U.S. Government Securities,
such as GNMA Certificates, and CMOs also involves other risks. The yield on a
pass-through security is typically quoted based on the maturity of the
underlying instruments and the associated average life assumption. Actual
prepayment experience may cause the yield to differ from the assumed average
life yield. Accelerated prepayments adversely impact yields for pass-throughs
purchased at a premium; the opposite is true for pass-throughs purchased at a
discount. During periods of declining interest rates, prepayment of mortgages
underlying pass-through certificates can be expected to accelerate. When the
mortgage obligations are prepaid, the Funds reinvest the prepaid amounts in
securities, the yields of which reflect interest rates prevailing at that time.
Therefore, the Funds' ability to maintain a portfolio of high-yielding,
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities that have lower yields
than the prepaid mortgages. Moreover, prepayments of mortgages that underlie
securities purchased at a premium could result in capital losses. Investment in
such securities could also subject the Funds to "maturity extension risk" which
is the possibility that rising interest rates may cause prepayments to occur at
a slower than expected rate. This particular risk may effectively change a
security that was considered a short or intermediate-term security at the time
of purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short or
intermediate-term securities.
In selecting CMOs, the Adviser seeks a favorable yield relative to risk and
considers purchase price, interest rates, total rates of return, prepayment
rates, average life, duration and volatility, and compares these with other
mortgage-backed investments and U.S. Government Securities.
The guarantees of the U.S. Government, its agencies and instrumentalities
are guarantees of the timely payment of principal and interest on the
obligations purchased. The value of the shares issued by the Funds are not
guaranteed and will fluctuate with the value of the Funds' portfolios. Generally
when the level of interest rates rise, the value of a Fund's portfolio is likely
to decline and when the level of interest rates decline, the value of a Fund's
portfolio is likely to rise.
The Funds may engage in portfolio trading primarily to take advantage of
yield disparities. Such trading strategies may result in minor temporary
increases or decreases in a Fund's current income, and in its holding of debt
securities which sell at substantial premiums or discounts from face value. If
expectations of changes in interest rates or the price of the securities prove
to be incorrect, a Fund's potential income and capital gain will be reduced or
its potential loss will be increased.
HIGH-YIELD, HIGH-RISK DEBT SECURITIES. The real estate securities,
convertible securities, bonds, and other debt securities in which the Funds may
invest may include high-yield, high-risk debt securities rated BB or lower by
Standard & Poor's Corporation ("S&P"), or Ba or lower by Moody's Investors
Service ("Moody's") or unrated securities. Securities rated BB or lower by
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<PAGE>
S&P, and Ba or lower by Moody's are referred to in the financial community as
"junk bonds" and may include D-rated securities of issuers in default. Ratings
assigned by credit agencies do not evaluate market risks. The Adviser considers
the ratings assigned by S&P or Moody's as one of several factors in its
independent credit analysis of issuers. A brief description of the quality
ratings of these two services is contained in the section entitled "Quality
Ratings of Debt Securities."
Davis Real Estate Fund will not purchase securities rated BB or Ba or lower
if the debt securities are in default at the time of purchase, or if such
purchase would then cause 30% or more of the Fund's net assets to be invested in
such lower-rated debt securities. Davis Convertible Securities Fund will not
purchase debt securities rated BB or Ba or lower if the debt securities are in
default at the time of purchase or if such purchase would then cause more than
35% of the Fund's net assets to be invested in such lower-rated debt securities.
Davis Growth Opportunity Fund and Davis Financial Fund generally restrict
investments in high-yield, high-risk debt securities to 5% of the Fund's net
assets or less. Some preferred stocks are assigned credit ratings by Standard &
Poor's, Moody's and other third party rating services. For the purposes of these
investment limitations, only debt securities are considered. If market action
should cause high-yield, high-risk debt securities to represent more than the
above stated limit of a Fund's net assets, then the Fund's portfolio manager
will take advantage of market opportunities to reduce the Fund's investment in
high-yield, high-risk debt securities in an orderly fashion until they represent
less than or equal to the stated limit of the Fund's net assets. The Fund's
portfolio manager will not be required to dump high-yield, high-risk securities
on the market at fire sale prices.
Primary Risks. While likely to have some quality and protective
characteristics, high-yield, high-risk debt securities, whether or not
convertible into common stock, usually involve increased risk as to payment of
principal and interest. Issuers of such securities may be highly leveraged and
may not have available to them traditional methods of financing. Therefore, the
risks associated with acquiring the securities of such issuers generally are
greater than is the case with higher-rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, issuers of
high-yield securities may be more likely to experience financial stress,
especially if such issuers are highly leveraged. During such periods, such
issuers may not have sufficient revenues to meet their principal and interest
payment obligations. The issuer's ability to service its debt obligations also
may be adversely affected by specific issuer developments, or the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of high-yield securities because such
securities may be unsecured and may be subordinated to other creditors of the
issuer.
High-yield, high-risk debt securities are subject to greater price
volatility than higher-rated securities, tend to decline in price more steeply
than higher-rated securities in periods of economic difficulty or accelerating
interest rates, and are subject to greater risk of non-payment in adverse
economic times. There may be a thin trading market for such securities. This may
have an adverse impact on market price and the ability of the Funds to dispose
of particular issues and may cause the Funds to incur special securities
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties. Unexpected net redemptions may force the Funds to sell
high-yield, high-risk debt securities without regard to investment merit,
thereby possibly reducing return
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<PAGE>
rates. Such securities may be subject to redemptions or call provisions which,
if exercised when investment rates are declining, could result in the
replacement of such securities with lower-yielding securities, resulting in a
decreased return. To the extent that the Funds invest in bonds that are original
issue discount, zero coupon, pay-in-kind or deferred interest bonds, the Funds
may have taxable interest income in excess of the cash actually received on
these issues. In order to avoid taxation, the Funds may have to sell portfolio
securities to meet taxable distribution requirements.
The market values of such securities tend to reflect individual corporate
developments to a greater extent than do higher-rated securities, which react
primarily to fluctuations in the general level of interest rates. Such
lower-rated securities also tend to be more sensitive to economic and industry
conditions than are higher-rated securities. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis regarding individual
lower-rated bonds, and the high-yield, high-risk market may depress the prices
for such securities. If the negative factors such as the aforementioned
adversely impact the market value of high-yield, high-risk securities, net asset
value will be adversely affected.
The high-yield, high-risk bond market comprised a small piece of the
general bond market until the middle 1980's when issuance increased
dramatically. Since that time, the high-yield, high-risk bond market has rarely
been tested in a recessionary environment. During economic downturns prices of
high-yield, high-risk bonds declined and defaults rose. Future economic
downturns and/or significant increases in interest rates are likely to have a
negative effect on the high-yield, high-risk bond market, and consequently on
the value of these bonds, as well as increase the incidence of defaults on such
bonds. High-yield, high-risk bonds may be issued in a variety of circumstances.
Some of the more common circumstances are issuance by corporations in the growth
stage of their development, in connection with a corporate reorganization or as
part of a corporate takeover.
The Funds may have difficulty disposing of certain high-yield, high-risk
bonds because there may be a thin trading market for such bonds. Because not all
dealers maintain markets in all high-yield, high-risk bonds, the Funds
anticipate that such bonds could be sold only to a limited number of dealers or
institutional investors. The lack of a liquid secondary market may have an
adverse impact on market price and the ability to dispose of particular issues,
and may also make it more difficult to obtain accurate market quotations or
valuations for purposes of valuing the Funds' assets. Market quotations
generally are available on many high-yield issues only from a limited number of
dealers and may not necessarily represent firm bid prices of such dealers or
prices for actual sales. In addition, adverse publicity and investor perceptions
may decrease the values and liquidity of high-yield, high-risk bonds regardless
of a fundamental analysis of the investment merits of such bonds. To the extent
that the Funds purchase illiquid or restricted bonds, they may incur special
securities registration responsibilities, liabilities and costs, and liquidity
and valuation difficulties relating to such bonds.
Bonds may be subject to redemption or call provisions. If an issuer
exercises these provisions when investment rates are declining, the Funds will
be likely to replace such bonds with lower-yielding bonds, resulting in a
decreased return. Zero coupon, pay-in-kind and deferred interest bonds involve
additional special considerations. Zero coupon bonds are debt
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<PAGE>
obligations that do not entitle the holder to any periodic payments of interest
prior to maturity or a specified cash payment date when the securities begin
paying current interest (the "cash payment date") and therefore are issued and
traded at a discount from their face amount or par value. The market prices of
zero coupon securities are generally more volatile than the market prices of
securities that pay interest periodically, and are likely to respond to changes
in interest rates to a greater degree than do securities paying interest
currently, having similar maturities, and credit quality. Pay-in-kind bonds pay
interest in the form of other securities rather than cash. Deferred interest
bonds defer the payment of interest to a later date. Zero coupon, pay-in-kind or
deferred interest bonds carry additional risk in that, unlike bonds which pay
interest in cash throughout the period to maturity, the Funds will realize no
cash until the cash payment date unless a portion of such securities are sold.
There is no assurance of the value or the liquidity of securities received from
pay-in-kind bonds. If the issuer defaults, the Funds may obtain no return at all
on their investment. To the extent that the Funds invest in bonds that are
original issue discount, zero coupon, pay-in-kind or deferred interest bonds,
the Funds may have taxable interest income in excess of the cash actually
received on these issues. In order to distribute such income to avoid taxation,
the Funds may have to sell portfolio securities to meet its taxable distribution
requirements under circumstances that could be adverse.
Federal tax legislation limits the tax advantages of issuing certain
high-yield, high-risk bonds. This could have a materially adverse effect on the
market for high-yield, high-risk bonds.
Portfolio Composition. As of December 31, 1999 Davis Real Estate Fund had
less than 5% of its total assets invested in high-yield, high risk debt
securities and does not presently intend to have over 5% of its assets invested
in such securities in the near future. The table below reflects Davis
Convertible Securities Fund's portfolio quality rating in debt securities as of
December 31, 1999. The table reflects the percentage of total net assets
represented by debt securities rated by Moody's or S&P, by unrated debt
securities and by other assets. The percentages shown reflect the higher of the
Moody's or S&P rating. U.S. Government Securities, whether or not rated, are
reflected as Aaa and AAA (highest quality). Other assets may include money
market instruments, repurchase agreements, equity securities, net payables and
receivables and cash. The allocations in the table are not necessarily
representative of the composition of the Fund's portfolio at other times.
Portfolio quality rating will change over time.
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<PAGE>
PORTFOLIO COMPOSITION OF THE DAVIS CONVERTIBLE SECURITIES FUND PORTFOLIO BY
QUALITY RATING OF DEBT SECURITIES AS A PERCENTAGE OF TOTAL ASSETS AT
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MOODY'S S&P RATING CATEGORY PERCENTAGE FUND'S ASSESSMENT GENERAL DEFINITION
- --------------------------- ---------- ----------------- ------------------
OF UNRATED SECURITIES OF BOND QUALITY
--------------------- ---------------
<S> <C> <C> <C>
Aaa/AAA ........................ 10.82% _ Highest quality
Aa/AA ........................ 2.21% - High quality
A/A ........................ 7.39% 1.64% Upper medium grade
Baa/BBB ........................ 3.53 - Medium grade
Ba/BB ........................ - - Some speculative elements
B/B ........................ 6.76% - Speculative
Caa/CCC ........................ 4.28% - More speculative
Ca,C/CC,C,D..................... - - Very speculative, may be in default
Not Rated....................... 1.64% - Not rated by Moody's or S&P
Common and Convertible
Preferred Stock............... 57.70% -
Short-term Investments.......... - -
Other assets less liabilities... 5.67% -
------------- ------------- -----------------------
100.00% 1.64%
</TABLE>
The description of each bond quality category set forth in the table above
is intended to be a general guide and not a definitive statement as to how
Moody's and S&P define such rating category. A more complete description of the
rating categories is set forth in the Appendix. The ratings of Moody's and S&P
represent their opinions as to the quality of the securities that they undertake
to rate. It should be emphasized, however, that ratings are relative and
subjective and are not absolute standards of quality. There is no assurance that
a rating assigned initially will not change. The Fund may retain a security
whose rating has changed or has become unrated.
OTHER INVESTMENT POLICIES
The Funds have adopted the following investment policies.
TEMPORARY DEFENSIVE INVESTMENTS. For defensive purposes or to accommodate
inflows of cash awaiting more permanent investment, the Funds may temporarily
and without limitation hold high-grade short-term money market instruments, cash
and cash equivalents, including repurchase agreements. The Funds (other than
Davis Government Money Market Fund) may also invest in other investment
companies (or companies exempted under section 3(c)(7) of the 1940 Act) which
themselves primarily invest in temporary defensive investments. Investments in
other investment companies are limited by the 1940 Act. Davis Government Money
Market Fund continuously invests exclusively in short-term U.S.
Government securities and repurchase agreements.
REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements, but
normally will not enter into repurchase agreements maturing in more than seven
days. A repurchase agreement, as referred to herein, involves a sale of
securities to a Fund, with the concurrent agreement of the seller (a bank or
securities dealer which the Adviser or Sub-Adviser determines to be financially
sound at the time of the transaction) to repurchase the securities at
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<PAGE>
the same price plus an amount equal to accrued interest at an agreed-upon
interest rate, within a specified time, usually less than one week, but, on
occasion, at a later time. The repurchase obligation of the seller is, in
effect, secured by the underlying securities. In the event of a bankruptcy or
other default of a seller of a repurchase agreement, the Funds could experience
both delays in liquidating the underlying securities and losses, including: (a)
possible decline in the value of the collateral during the period while the
Funds seek to enforce their rights thereto; (b) possible loss of all or a part
of the income during this period; and (c) expenses of enforcing their rights.
The Funds will enter into repurchase agreements only when the seller agrees
that the value of the underlying securities, including accrued interest (if
any), will at all times be equal to or exceed the value of the repurchase
agreement. The Funds may enter into tri-party repurchase agreements in which a
third party custodian bank issues the cash upon purchase of the securities used
as collateral, and also holds the securities. The Funds will not enter into a
repurchase agreement maturing in more than seven days if it would cause more
than 15% of the value of their net assets (10% for Davis Government Money Market
Fund) to be invested in such transactions. Repurchase agreements maturing in
less than seven days are not deemed illiquid securities for the purpose of the
Funds' limitation on illiquid securities.
HEDGING FOREIGN CURRENCY RISKS. Davis Equity Funds may invest a portion of
their assets in foreign securities. To attempt to reduce exposure to currency
fluctuations due to investments in foreign securities, the Davis Equity Funds
may trade in forward foreign currency exchange contracts (forward contracts),
currency futures contracts and options thereon and securities indexed to foreign
securities. These techniques are not always effective and their use may expose
the Funds to other risks, such as liquidity and counterparty risk. The Adviser
or Sub-Adviser exercises its professional judgement as to whether the reduction
in currency risk justifies the expense and exposure to liquidity and
counterparty risk. In past years, the Adviser and Sub-Adviser have typically not
used these techniques to any significant extent. These techniques may be used to
lock in an exchange rate in connection with transactions in securities
denominated or traded in foreign currencies, to hedge the currency risk in
foreign securities held by the Davis Equity Funds and to hedge a currency risk
involved in an anticipated purchase of foreign securities. Cross-hedging may
also be utilized, that is, entering into a hedge transaction with respect to a
foreign currency different from the one in which a trade is to be made or in
which a portfolio security is principally traded. There is no limitation on the
amount of assets that may be committed to currency hedging. However, no Davis
Equity Fund will engage in a futures transaction if it would cause the aggregate
of initial margin deposits and premiums paid on outstanding options on futures
contracts to exceed 5% of the value of its total assets (excluding in
calculating such 5% any in-the-money amount of any option). Currency hedging
transactions may be utilized as a tool to reduce currency fluctuation risks due
to a current or anticipated position in foreign securities. The successful use
of currency hedging transactions usually depends on the Adviser's or the
Sub-Adviser's ability to forecast interest rate and currency exchange rate
movements. Should interest or exchange rates move in an unexpected manner, the
anticipated benefits of futures contracts, options or forward contracts may not
be achieved, or losses may be realized, and thus the Davis Equity Funds could be
in a worse position than if such strategies had not been used. Unlike many
exchange-traded futures contracts, there are no daily price fluctuation limits
with respect to options on currencies and
17
<PAGE>
forward contracts, and adverse market movements could therefore continue to an
unlimited extent over a period of time. In addition, the correlation between
movements in the prices of such instruments and movements in the price of the
securities and currencies hedged or used for cover will not be perfect and could
produce unanticipated losses. Unanticipated changes in currency prices may
result in poorer overall performance for the Davis Equity Funds than if they had
not entered into such contracts. When taking a position in an anticipatory hedge
(when the Davis Equity Funds purchase a futures contract or other similar
instrument to gain market exposure in anticipation of purchasing the underlying
securities at a later date), the Davis Equity Funds are required to set aside
cash or high-grade liquid securities to fully secure the obligation.
A forward contract is an obligation to purchase or sell a specific currency
for an agreed price at a future date that is individually negotiated and
privately traded by currency traders and their customers. Such a contract gives
the Davis Equity Funds a position in a negotiated, currently non-regulated
market. A Davis Equity Fund may enter into a forward contract, for example, when
it enters into a contract for the purchase or sale of a security denominated in
a foreign currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). Additionally, when the Adviser or Sub-Adviser believes
that a foreign currency may suffer a substantial decline against the U.S.
dollar, a Fund may enter into a forward sale contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. When the Adviser or Sub-Adviser
believes that the U.S. dollar may suffer a substantial decline against a foreign
currency, a Fund may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount in anticipation of purchasing foreign traded
securities ("position hedge"). In this situation the Davis Equity Funds may, in
the alternative, enter into a forward contract with respect to a different
foreign currency for a fixed U.S. dollar amount ("cross hedge"). This may be
done, for example, where the Adviser or Sub-Adviser believes that the U.S.
dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Funds are denominated.
The Davis Equity Funds may purchase and write put and call options on
foreign currencies for the purpose of protecting against declines in the U.S.
dollar value of foreign currency-denominated portfolio securities and against
increases in the U.S. dollar cost of such securities to be acquired. As in the
case of other kinds of options, however, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received, and the Davis Equity Funds could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to a Fund's position, it may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies to be
written or purchased by the Davis Equity Funds are traded on U.S. and foreign
exchanges or over-the-counter. Currently, a significant portion or all of the
value of an over-the-counter option may be treated as an illiquid investment and
subject to the restriction on such investments as long as the SEC requires that
over-the-counter options be treated as illiquid. Generally, the Davis Equity
Funds would utilize options traded on exchanges where the options are
standardized.
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<PAGE>
The Davis Equity Funds may enter into contracts for the purchase or sale
for future delivery of foreign currencies ("currency futures contracts") and may
purchase and write put and call options to buy or sell currency futures
contracts. A "sale" of a currency futures contract means the acquisition of a
contractual obligation to deliver the foreign currencies called for by the
contract at a specified price on a specified date. A "purchase" of a currency
futures contract means the incurring of a contractual obligation to acquire the
foreign currencies called for by the contract at a specified price on a
specified date. Options on currency futures contracts to be purchased by the
Davis Equity Funds will be traded on U.S. or foreign exchanges or
over-the-counter.
The Davis Equity Funds may also purchase securities (debt securities or
deposits) which have their coupon rate or value at maturity determined by
reference to the value of one or more foreign currencies. These strategies will
be used for hedging purposes only. The Davis Equity Funds will hold securities
or other options or futures positions whose values are expected to offset their
obligations under the hedge strategies. None of the Funds will enter into a
currency hedging position that exposes the Fund to an obligation to another
party unless it owns either (i) an offsetting position in securities, options or
futures positions, or (ii) cash, receivables, and short-term debt securities
with a value sufficient to cover its potential obligations. The Davis Equity
Funds will comply with requirements established by the SEC with respect to
coverage of options and futures strategies by mutual funds, and, if so required,
will set aside liquid securities in a segregated account with their custodian
bank in the amount prescribed. The Davis Equity Funds' custodian will maintain
the value of such segregated account equal to the prescribed amount by adding or
removing additional liquid securities to account for fluctuations in the value
of securities held in such account. Securities held in a segregated account
cannot be sold while the futures or option strategy is outstanding, unless they
are replaced with similar securities.
The Davis Equity Funds' ability to dispose of their positions in futures
contracts, options and forward contracts will depend on the availability of
liquid markets in such instruments. Markets in options and futures with respect
to currencies are still developing. It is impossible to predict the amount of
trading interest that may exist in various types of futures contracts, options
and forward contracts. If a secondary market does not exist with respect to an
option purchased or written by the Davis Equity Funds over-the-counter, it might
not be possible to effect a closing transaction in the option (i.e., dispose of
the option) with the result that (i) an option purchased by the Davis Equity
Funds would have to be exercised in order for the Funds to realize any profit,
and (ii) the Davis Equity Funds may not be able to sell currencies covering an
option written by the Funds until the option expires, or Davis Equity Funds
deliver the underlying futures currency upon exercise. Therefore, no assurance
can be given that the Davis Equity Funds will be able to utilize these
instruments effectively for the purposes set forth above. The Davis Equity
Funds' ability to engage in currency hedging transactions may be limited by tax
considerations.
The Davis Equity Funds' transactions in forward contracts, options on
foreign currencies and currency futures contracts will be subject to special tax
rules under the Internal Revenue Code that, among other things, may affect the
character of any gains or losses of the Davis Equity Funds as ordinary or
capital, and the timing and amount of any income or loss to the Davis Equity
Funds. This, in turn, could affect the character, timing and amount of
distributions
19
<PAGE>
by the Davis Equity Funds to shareholders. The Davis Equity Funds may be limited
in their foreign currency transactions by tax considerations.
In 1999 the Davis Equity Funds did not enter into any foreign currency
hedging transactions.
RESTRICTED AND ILLIQUID SECURITIES. The Funds may invest in restricted
securities that are subject to contractual restrictions on resale. The Funds'
policy is to not purchase or hold illiquid securities (which may include
restricted securities) if more than 15% of the Funds' net assets (10% of Davis
Government Money Market Fund) would then be illiquid.
The restricted securities which the Funds may purchase include securities
which have not been registered under the 1933 Act, but are eligible for purchase
and sale pursuant to Rule 144A ("Rule 144A Securities"). This Rule permits
certain qualified institutional buyers, such as the Funds, to trade in privately
placed securities even though such securities are not registered under the 1933
Act. The Adviser or Sub-Adviser, under criteria established by the Funds' Board
of Directors, will consider whether Rule 144A Securities being purchased or held
by the Funds are illiquid, and, thus subject to the Funds' policy limiting
investments in illiquid securities. In making this determination, the Adviser or
Sub-Adviser will consider the frequency of trades and quotes, the number of
dealers and potential purchasers, dealer undertakings to make a market, and the
nature of the security and the market place trades (for example, the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
transfer). The liquidity of Rule 144A Securities will also be monitored by the
Adviser and Sub-Adviser and, if as a result of changed conditions it is
determined that a Rule 144A Security is no longer liquid, the Funds' holding of
illiquid securities will be reviewed to determine what, if any, action is
required in light of the policy limiting investments in such securities.
Investing in Rule 144A Securities could have the effect of increasing the amount
of investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
WRITING COVERED CALL OPTIONS. For income or hedging purposes, the Funds
(other than Davis Government Money Market Fund) may write covered call options
on their portfolio securities and purchase call options in closing transactions.
The Funds may suffer an opportunity loss if the value of the underlying security
should rise above the strike price of the call option before the option expires.
The Funds do not currently intend to engage in any such transaction if it would
cause more than 10% of total assets to be subject to options.
A covered call option gives the purchaser of the option the right to buy
the underlying security at the price specified in the option (the "exercise
price") at any time until the option expires, generally within three to nine
months, in return for the payment to the writer upon the issuance of the option
of an amount called the "premium." A commission may be charged in connection
with the writing of the option. The premium received for writing a call option
is determined by the option markets. The premium paid, plus the exercise price,
will always be greater than the market price of the underlying securities at the
time the option is written. By writing a covered call option, a Fund foregoes,
in exchange for the premium, the opportunity to profit from an increase in the
market value of the underlying security above the exercise price, if the option
is exercised. The call obligation is terminated upon exercise of the call
option,
20
<PAGE>
expiration of the call, or when the Fund effects a closing purchase transaction.
A closing purchase transaction is one in which the writer purchases another call
option in the same underlying security (identical as to exercise price,
expiration date and number of shares). The writer thereby terminates its
obligation and substitutes the second writer as the obligor to the original
option purchaser. A closing purchase transaction would normally involve payment
of a brokerage commission. During the remaining term of the option, if a Fund
cannot enter into a closing purchase transaction, that Fund would lose the
opportunity for realizing any gain over and above the premium through sale of
the underlying security, and if the security is declining in price, that Fund
would continue to experience such decline.
In 1999 the Davis Equity Funds did not write any covered calls.
WHEN-ISSUED SECURITIES. Fixed-income securities may at times be purchased
or sold on a delayed delivery basis or on a when-issued basis. These
transactions arise when securities are purchased or sold by a Fund with payment
and delivery taking place in the future. No payment is made until delivery,
which may be up to 60 days after purchase. If delivery of the obligation does
not take place, no purchase will result and the transaction will be terminated.
Such transactions are considered to involve more risk than immediate cash
transactions. As a matter of non-fundamental policy, any investment on a
when-issued or delayed delivery basis will not be made if such investment would
cause more than 5% of the value of a Fund's total assets to be invested in
when-issued securities.
When purchasing when-issued securities a Fund will segregate liquid
high-grade assets with its custodian to the extent that the Fund's obligations
are not otherwise "covered" as that term is understood under the Investment
Company Act of 1940. In general, an amount of cash or liquid high-grade
securities at least equal to the current amount of the obligation must either be
identified as being restricted in the Fund's accounting records or physically
segregated in a separate account at the Fund's custodian. The segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. For the purpose of
determining the adequacy of the liquid securities that have been restricted, the
securities will be valued at market or fair value. If the market or fair value
of such securities declines, additional cash or liquid securities will be
restricted on a daily basis so that the value of the restricted cash or liquid
securities, when added to the amount deposited with the broker as margin, equals
the amount of such commitments by the Fund.
PORTFOLIO TRANSACTIONS
Davis Selected Advisers, L.P. ("Adviser") and Davis Selected Advisers-NY,
Inc. ("Sub-Adviser") are responsible for the placement of portfolio transactions
for each of the Funds. The Adviser's and Sub-Adviser's actions are subject to
the supervision of the Board of Directors. The Funds have adopted a policy of
seeking to place portfolio transactions with brokers or dealers who will execute
transactions as efficiently as possible and at the most favorable price. Subject
to this policy, research services, payment of bona fide fund expenses, and
placement of orders by securities firms for Funds shares may be taken into
account as a factor in placement of portfolio transactions. In seeking the
Funds' investment objectives, the Funds may trade to some
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<PAGE>
degree in securities for the short-term if the Adviser or Sub-Adviser believes
that such trading is advisable.
In placing executions and paying brokerage commissions or dealer markups,
the Adviser or Sub-Adviser considers the financial responsibility and reputation
of the broker or dealer, the range and quality of the services made available to
the Funds and the professional services rendered, including execution, clearance
procedures, payment of bona fide expenses of the Funds (such as sub-transfer
agency or sub-accounting fees) which they would otherwise have to pay in cash,
wire service quotations and ability to provide supplemental performance,
statistical and other research information for consideration, analysis and
evaluation by the Adviser's or Sub-Adviser's staff.
The Funds have approved a policy that allows them to use commissions to
purchase research. The Funds will not use markups to purchase research. In
accordance with this policy, brokerage transactions may not be executed solely
on the basis of the lowest commission rate available for a particular
transaction. Research services provided to the Adviser or Sub-Adviser, by or
through brokers who effect portfolio transactions for the Funds, may be used in
servicing other accounts managed by the Adviser, and likewise research services
provided by brokers used for transactions of other accounts may be utilized by
the Adviser or Sub-Adviser in performing services for the Funds. Subject to the
requirements of best execution, the placement of orders by securities firms for
shares of the Funds may be taken into account as a factor in the placement of
portfolio transactions.
On occasions when the Adviser or Sub-Adviser deems the purchase or sale of
a security to be in the best interests of a Fund as well as other fiduciary
accounts, the Adviser or Sub-Adviser may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for other accounts in
order to obtain the best net price and most favorable execution. In such event,
the allocation will be made by the Adviser or Sub-Adviser in the manner
considered to be most equitable and consistent with its fiduciary obligations to
all such fiduciary accounts, including the Fund involved. In some instances,
this procedure could adversely affect a Fund, but the Adviser and Sub-Adviser
deem that any disadvantage in the procedure would be outweighed by the increased
selection available and the increased opportunity to engage in volume
transactions.
The Adviser and Sub-Adviser believe that research from brokers and dealers
is desirable, although not essential, in carrying out their functions, in that
such outside research supplements the efforts of the Adviser and Sub-Adviser by
corroborating data and enabling the Adviser and Sub-Adviser to consider the
views, information, and analyses of other research staffs. Such views,
information, and analyses include such matters as communicating with persons
having special expertise on certain companies, industries, areas of the economy
and/or securities prices, obtaining written materials on these or other areas
which might affect the economy and/or securities prices, obtaining quotations on
securities prices, and obtaining information on the activities of other
institutional investors. The Adviser and Sub-Adviser research, at their own
expense, each security included in, or being considered for inclusion in, the
Funds' portfolios. As any particular research obtained by the Adviser or
Sub-Adviser may be useful to the Funds, the Board of Directors or its Committee
on Brokerage, in considering the reasonableness of the
22
<PAGE>
commissions paid by the Funds, will not attempt to allocate, or require the
Adviser or Sub-Adviser to allocate, the relative costs or benefits of research.
The Funds paid the following brokerage commissions:
<TABLE>
<CAPTION>
Fiscal year ended
December 31,
1999 1998 1997
---- ------ -------
<S> <C> <C> <C>
Davis Growth Opportunity Fund
- -----------------------------
Brokerage commissions paid: $259,496 $60,286 $44,081
Amount paid to brokers providing research: 93.61% 83.43% 83.81%
Brokerage commissions paid
to Shelby Cullom Davis & Co.: (1) $19,527 N/A N/A
Davis Financial Fund
- --------------------
Brokerage commissions paid: $559,039 $628,635 $250,113
Amount paid to brokers providing research: 88.46% 90.50% 98.94%
Brokerage commissions paid
to Shelby Cullom Davis & Co.: (1) $16,260 $53,340 $28,260
Davis Real Estate Fund
- ----------------------
Brokerage commissions paid: $1,157,987 $675,385 $291,541
Amount paid to brokers providing research: 93.84% 99.09% 100.00%
Brokerage commissions paid
to Shelby Cullom Davis & Co.: (1) N/A $14,382 $2,454
Davis Convertible Securities Fund
- ---------------------------------
Brokerage commissions paid: $175,717 $119,151 $68,913
Amount paid to brokers providing research: 100.00% 98.49% 98.26%
Brokerage commissions paid
to Shelby Cullom Davis & Co.: (1) N/A $4,032 N/A
</TABLE>
(1) Shelby Cullom Davis & Co. is a broker-dealer who may be considered an
affiliated person of the Adviser. During the fiscal year ended December 31,
1999, Shelby Cullom Davis & Co. executed the following percentages of the
Funds' total transactions involving commissions:
% of Total % of Aggregate Transactions
Commissions Involving Commissions
----------- ----------------------
Davis Growth Opportunity Fund 7.52% 8.30%
Davis Financial Fund 2.90% 4.43%
Davis Real Estate Fund N/A N/A
Davis Convertible Securities Fund N/A N/A
Because of the Funds' investment policies, portfolio turnover rate will
vary. At times it could be high, which could require the payment of larger
amounts in brokerage commissions. The Adviser and Sub-Adviser are authorized to
place portfolio transactions with Shelby Cullom Davis & Co., a member of the New
York Stock Exchange which may be deemed to be an affiliate of the Adviser, if
the commissions are fair and reasonable and comparable to commissions charged by
non-affiliated qualified brokerage firms for similar services. The Funds
anticipate that, during normal market conditions, their annual portfolio
turnover rate will be less than 100%.
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<PAGE>
Davis Government Bond Fund and Davis Government Money Market Fund have not
paid brokerage commissions during any of these fiscal years. Generally,
securities of these two Funds are purchased from and sold to securities dealers
on a principal basis without commissions. Such transactions may involve profit
to the dealer involved.
INVESTMENT RESTRICTIONS
The fundamental investment restrictions set forth below may not be changed
without the approval of the holders of the lesser of (i) 67% of the eligible
votes, if the holders of more than 50% of the eligible votes are represented, or
(ii) more than 50% of the eligible votes. All percentage limitations set forth
in these restrictions apply as of the time of an investment without regard to
later increases or decreases in the value of securities or total or net assets.
Securities received upon conversion, or exercise of warrants, or subscription
rights and securities remaining upon the breakup of units or detachment of
warrants may be retained to permit advantageous disposition.
The Funds share certain fundamental investment restrictions. In addition,
certain Funds also have special fundamental investment restrictions.
FUNDAMENTAL INVESTMENT RESTRICTIONS COMMON TO ALL OF THE FUNDS
- --------------------------------------------------------------
1. Commodities and Commodities Contracts. The Funds may not purchase or sell
commodities or commodity contracts, except that the Funds, other than Davis
Government Bond Fund and Davis Government Money Market Fund, may invest in
contracts with respect to foreign currencies for hedging (risk reduction)
purposes.
2. Real Estate. The Funds, other than Davis Government Money Market Fund, may
invest in securities secured by real estate or interests therein or
securities issued by companies which invest in real estate or interests
therein, but will not otherwise invest in real estate. (This does not
prevent a Fund from owning and liquidating real estate or real estate
interests incident to a default on portfolio securities.) Davis Government
Money Market Fund may not invest in real estate, interests therein, or real
estate investment trusts.
3. Diversification. The Funds, other than Davis Government Money Market Fund,
may not purchase more than 10% of any one class of an issuer's securities,
other than securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities ("U.S. Government Securities"), repurchase
agreements relating thereto, certificates of deposit or the like, bankers'
acceptances or bank repurchase agreements. For purposes of this
restriction, all debt securities of an issuer are deemed to comprise a
single class. Davis Government Money Market Fund may not purchase more than
10% of the outstanding debt securities (other than U.S. Government
Securities and repurchase agreements related thereto) of any one issuer.
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<PAGE>
The Funds may not purchase the securities (other than U.S. Government
Securities or repurchase agreements related thereto) of any issuer if
immediately after such purchase more than 5% of the value of a Fund's total
assets would be invested in such issuer; except that up to 25% of the value
of the total assets of Davis Financial Fund, Convertible Securities Fund
and Davis Real Estate Fund may be invested without regard to this 5%
limitation. This restriction does not apply to Davis Government Money
Market Fund.
4. Options. The Funds may not invest in or write puts, calls or combinations
thereof ("option transactions"), except that a Fund, other than Davis
Government Money Market Fund, may (a) write calls so long as at the time of
so doing the security underlying the call is listed on a national
securities exchange, the call is issued by the Options Clearing Corporation
and is traded on a registered securities exchange, such calls do not exceed
10% of that Fund's total assets and are covered calls, (b) make closing
purchase transactions in order to close out outstanding call options
previously written by a Fund and, (c) engage in option transactions with
respect to foreign currencies for hedging purposes. (The convertible
feature of convertible securities are not deemed to be puts, calls or
combinations thereof.) With respect to Davis Government Money Market Fund,
it may not invest in puts, calls, straddles, spreads or any combination
thereof.
5. Unseasoned Issuers. The Funds may not buy the securities of companies in
continuous operation for less than three years (including predecessors) if
more than 5% of a Fund's total assets would then be invested in such
securities. This does not apply to Davis Government Bond Fund or Davis
Government Money Market Fund, which both invest in U.S. Government
Securities, or to investments made by Davis Real Estate Fund in real estate
investment trusts ("REITs").
6. Other Registered Investment Companies. The Funds may not buy securities of
other registered investment companies, except that Funds other than Davis
Government Bond Fund and Davis Government Money Market Fund may invest in
shares of investment companies investing primarily in foreign securities,
provided that such purchase does not cause a Fund to: (a) have more than 5%
of the value of its total assets invested in any one such company; (b) have
more than 10% of the value of its total assets invested in the aggregate of
all such companies; or (c) own more than 3% of the total outstanding voting
stock of any such company. All Funds may acquire securities of other
registered companies as a part of a merger, consolidation, reorganization
or acquisition of assets.
7. Purchases on Margin, Short Sales. The Funds may not purchase securities on
margin, make short sales of securities or maintain a short position, except
that (i) all Funds except Davis Growth Opportunity Fund and Davis
Government Money Market Fund may engage in such investments when at the
time of sale a Fund has, by reason of its ownership of other securities,
the right to obtain securities equivalent in kind and amount to the
securities sold without payment of additional consideration, and such other
securities are retained so long as the Fund is in a short position, and
(ii) these restrictions do not apply to transactions with respect to
foreign currencies for hedging purposes.
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<PAGE>
8. Investing for Control. The Funds may not invest for the purpose of
exercising control or management of other companies.
9. Borrowing Money, Pledging Assets. The Funds, other than Davis Government
Money Market Fund, may not borrow money except from banks for extraordinary
or emergency purposes in amounts not exceeding 10% of the value of a Fund's
total assets (excluding the amount borrowed) at the time of such borrowing.
The Funds may not pledge or hypothecate any of their assets, except in
connection with permitted borrowing in amounts not exceeding 15% of the
value of a Fund's total assets (excluding the amount borrowed) at the time
of such borrowing. These restrictions do not apply to the use of margin
deposits in connection with transactions in foreign currencies for hedging
purposes. Davis Government Money Market Fund may not borrow, except from
banks for extraordinary emergency purposes in amounts not exceeding 25% of
the value of its total assets (including the amount borrowed), and may
pledge or hypothecate assets not exceeding 10% of the value of its net
assets (including any amount borrowed) in connection with such borrowing.
Both limits are calculated as of the time of such borrowing.
10. Affiliated Ownership. The Funds may not buy or continue to hold securities
if any officers or directors of the Company, the Adviser, or the Adviser's
General Partner own too many of the same securities. This would happen if
any of these individuals own 1/2 of 1% or more of the securities and all
such individuals who own that much or more own 5% of such securities.
11. Underwriting Securities. The Funds do not engage in the underwriting of
securities; however, the Funds may technically be considered "underwriters"
if they sell restricted securities.
12. Loans. The Funds may not make loans except through the purchase of debt
obligations (including entering into repurchase agreements) in accordance
with the Fund's investment objectives and policies.
13. Concentration.
(a) Concentration, Davis Growth Opportunity Fund and Davis Government Bond
Fund. Neither Davis Growth Opportunity Fund nor Davis Government Bond Fund
may purchase the securities of issuers conducting their principal business
activities in the same industry, if immediately after such purchase the
value of a Fund's investments in such industry would exceed 25% of the
value of its total assets, provided that (a) as to utility companies, the
gas, electric, water and telephone businesses will be considered separate
industries, and as to finance companies, personal credit and business
credit will be considered separate industries, and (b) there is no
limitation with respect to or arising out of investments in U.S. Government
Securities and repurchase agreements with respect thereto, certificates of
deposit or the like, bankers' acceptances and bank repurchase agreements.
26
<PAGE>
(b) Concentration, Davis Financial Fund. Davis Financial Fund may not
invest less than 25% of its total assets (except investments for temporary
defensive periods) in companies principally engaged in each of the banking
and financial services industries. Companies in the banking industry
include U.S. and foreign commercial and industrial banking and savings
institutions (including their parent holding companies). Companies in the
financial services industry include commercial and industrial finance
companies, diversified financial services companies, investment banks,
securities brokerage firms and investment advisory companies, leasing
companies and insurance and insurance holding companies.
Except for companies in the industries identified above, Davis Financial
Fund may not purchase the securities of issuers conducting their principal
business activities in the same industry if immediately after such purchase
the value of the Davis Financial Fund's investments in such industry would
constitute 25% or more of the value of the Fund's total assets, provided
that (a) as to utility companies, the gas, electric, water and telephone
businesses will be considered separate industries, and (b) there is no
limitation with respect to or arising out of investments in U.S. Government
Securities and repurchase agreements fully collateralized by such
government securities.
(c) Concentration, Davis Convertible Securities Fund. Davis Convertible
Securities Fund may not purchase the securities of issuers conducting their
principal business activities in the same industry if immediately after
such purchase the value of the Davis Convertible Securities Fund's
investments in such industry would constitute 25% or more of the value of
the Fund's total assets, provided that (a) as to utility companies, the
gas, electric, water and telephone businesses will be considered separate
industries, and (b) there is no limitation with respect to or arising out
of investments in U.S. Government Securities and repurchase agreements
fully collateralized by such government securities.
(d) Concentration, Davis Real Estate Fund. Davis Real Estate Fund may not
purchase the securities of issuers conducting their principal business
activities in the same industry if immediately after such purchase the
value of the Fund's investments in such industry would constitute 25% or
more of the value of the Fund's total assets, provided that (a) as to
utility companies, the gas, electric, water and telephone businesses will
be considered separate industries, and (b) there is no limitation with
respect to or arising out of investments in U.S. Government Securities and
repurchase agreements fully collateralized by such government securities,
or investments in securities of companies in the real estate industry or
which own significant amounts of real estate or have products or services
relating to the real estate industry.
SPECIAL FUNDAMENTAL INVESTMENT RESTRICTIONS
- -------------------------------------------
1. Arbitrage. Neither Davis Growth Opportunity Fund nor Davis Government Bond
Fund may engage in arbitrage transactions.
27
<PAGE>
2. Maturity. Davis Government Money Market Fund may not purchase any security
which has a maturity date exceeding that prescribed in Rule 2a-7 under the
Investment Company Act of 1940.
3. Restricted Securities. Davis Government Money Market Fund may not invest in
restricted securities; provided, however, that this restriction shall not
apply to repurchase agreements.
4. Oil, Gas, Minerals. Davis Government Money Market Fund may not invest in
oil, gas or other mineral exportations or development programs.
NON-FUNDAMENTAL POLICIES COMMON TO ALL OF THE FUNDS
- ---------------------------------------------------
In addition to the foregoing restrictions, the Funds have adopted certain
non-fundamental investment policies, which may be changed without shareholder
approval including the following:
1. Senior Securities. The Funds may not issue senior securities.
2. Illiquid Securities. The Funds may not purchase illiquid securities if more
than 15% of the value of the Funds' net assets (10% of Davis Government
Money Market Fund) would be invested in such securities.
Section II: Key Persons
- ------------------------
ORGANIZATION OF THE COMPANY
THE COMPANY. Davis Series, Inc. (the "Company") is an open-end,
diversified, management investment company incorporated in Maryland in 1976 and
registered under the Investment Company Act of 1940. The Company is a series
investment company which may issue multiple series, each of which would
represent an interest in its separate portfolio. The Company currently offers
six series, Davis Growth Opportunity Fund, Davis Financial Fund, Davis Real
Estate Fund, Davis Convertible Securities Fund, Davis Government Bond Fund, and
Davis Government Money Market Fund (a "Fund" or the "Funds"). On November 1,
1995, the Company changed its name from Retirement Planning Funds of America,
Inc., to Davis Series, Inc.
FUND SHARES. The Funds may issue shares in different classes. The Funds
shares are currently divided into four classes, Class A, Class B, Class C, and
Class Y shares. The Board of Directors may offer additional series or classes in
the future and may at any time discontinue the offering of any series or class
of shares. Each share, when issued and paid for in accordance with the terms of
the offering, is fully paid and non-assessable. Shares have no preemptive or
subscription rights and are freely transferable. Each of the Funds' shares
represent an interest in
28
<PAGE>
the assets of the Fund issuing the share and have identical voting, dividend,
liquidation and other rights and the same terms and conditions as any other
shares except that (i) each dollar of net asset value per share is entitled to
one vote, (ii) the expenses related to a particular class, such as those related
to the distribution of each class and the transfer agency expenses of each class
are borne solely by each such class, and (iii) each class of shares votes
separately with respect to provisions of the Rule 12b-1 Distribution Plan which
pertains to a particular class, and other matters for which separate class
voting is appropriate under applicable law. Each fractional share has the same
rights, in proportion, as a full share. Shares do not have cumulative voting
rights; therefore, the holders of more than 50% of the voting power of the
Company can elect all of the Directors of the Company. Due to the differing
expenses of the classes, dividends of Class B and Class C shares are likely to
be lower than for Class A shares, and are likely to be higher for Class Y shares
than for any other class of shares. For more information about Class Y shares,
call the Distributor at 1-800-279-0279 to obtain the Class Y prospectus.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the shareholders of the outstanding voting securities of an
investment company, such as the Company, will not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each series affected by such matter. Rule 18f-2 further
provides that a series shall be deemed to be affected by a matter unless it is
clear that the interests of each series in the matter are identical or that the
matter does not affect any interest of such series. Rule 18f-2 exempts the
selection of independent accountants and the election of Board members from the
separate voting requirements of the Rule.
In accordance with Maryland law and the Company's By-laws, the Company does
not hold regular annual shareholder meetings. Shareholder meetings are held when
they are required under the Investment Company Act of 1940 or when otherwise
called for special purposes. Special shareholder meetings may be called upon the
written request of shareholders of at least 25% of the voting power that could
be cast at the meeting.
DIRECTORS AND OFFICERS
The Company's Board of Directors supervises the business and management of
the Company and the Funds. The Board approves all significant agreements between
the Company, on behalf of the Funds, and those companies that furnish services
to the Funds. The names and addresses of the Directors and officers of the
Company are set forth below, together with their principal business affiliations
and occupations for the last five years. As indicated below, certain Directors
and officers of the Company hold similar positions with the following Funds that
are managed by the Adviser: Davis New York Venture Fund, Inc., Davis Series,
Inc., Davis International Series, Inc. and Davis Variable Account Fund, Inc.
(collectively the "Davis Funds"). As indicated below, certain Directors and
officers of the Company may also hold similar positions with the following Funds
that are managed by the Adviser: Selected American Shares, Inc., Selected
Special Shares, Inc., and Selected Capital Preservation Trust (collectively the
"Selected Funds").
DIRECTORS
WESLEY E. BASS, JR. (8/21/31), 710 Walden Road, Winnetka, IL 60093. Director of
the Company and each of the Davis Funds except Davis International Series, Inc.;
President, Bass & Associates (a financial consulting firm); formerly First
Deputy City Treasurer, City of Chicago, and Executive Vice President, Chicago
Title and Trust Company.
29
<PAGE>
JEREMY H. BIGGS (8/16/35),* Two World Trade Center, 94th Floor, New York, NY
10048. Director and Chairman of the Company and each of the Davis Funds;
Director of the Van Eck Funds; Consultant to the Adviser; Vice Chairman, Head of
Equity Research Department; Chairman of the U.S. Investment Policy Committee,
and Member of the International Investment Committee of Fiduciary Trust Company
International.
MARC P. BLUM (9/9/42), 233 East Redwood Street, Baltimore, MD 21202. Director of
the Company and each of the Davis Funds except Davis International Series, Inc.;
Chief Executive Officer, World Total Return Fund, LLLP; Of Counsel to Gordon,
Feinblatt, Rothman, Hoffberger and Hollander, LLC (attorneys); Director,
Mid-Atlantic Realty Trust.
JERRY D. GEIST (5/23/34), 931 San Pedro Drive S.E., Albuquerque, NM 87108.
Director of the Company and each of the Davis Funds except Davis International
Series, Inc.; Chairman, Santa Fe Center Enterprises; President and Chief
Executive Officer, Howard Energy International Utilities; Director, CH2M-Hill,
Inc.; Member, Investment Committee for Microgeneration Technology Fund, UTECH
Funds; Retired Chairman and President, Public Service Company of New Mexico.
D. JAMES GUZY (3/7/36), P.O. Box 128, Glenbrook, NV 89413. Director of the
Company and each of the Davis Funds except Davis International Series, Inc.;
Chairman, PLX Technology, Inc. (a manufacturer of semi-conductor circuits);
Director, Intel Corp. (a manufacturer of semi-conductor circuits), Cirrus Logic
Corp. (a manufacturer of semi-conductor circuits), Alliance Technology Fund (a
mutual fund) and Micro Component Technology, Inc.
G. BERNARD HAMILTON (3/18/37), Avanti Partners, P.O. Box 1119, Richmond, VA
23218. Director of the Company and each of the Davis Funds; Managing General
Partner, Avanti Partners, L.P.
LAURENCE W. LEVINE (4/9/31), Walsh & Levine 40 Wall Street, 21st Floor, New
York, NY 10005. Director of the Company and each of the Davis Funds except Davis
International Series, Inc.; Partner, Bigham, Englar, Jones and Houston
(attorneys); United States Counsel to Aerolineas Argentina; Director, various
private companies.
CHRISTIAN R. SONNE (5/6/30), P.O. Box 777, Tuxedo Park, NY 10987. Director of
the Company and each of the Davis Funds except Davis International Series, Inc.;
General Partner of Tuxedo Park Associates (a land holding and development firm);
President and Chief Executive Officer of Mulford Securities Corporation (a
private investment fund) until 1990; formerly Vice President of Goldman Sachs &
Company (investment banker).
MARSHA WILLIAMS (3/28/51), 725 Landwehr Road, Northbrook, IL 60062. Director of
the Company and each of the Davis Funds (except Davis International Series,
Inc.) and the Selected Funds; Chief Administrative Officer of Crate & Barrel;
Director, Modine Manufacturing, Inc.; Director, Chicago Bridge & Iron Company,
M.V.; former Treasurer, Amoco Corporation.
OFFICERS
ANDREW A. DAVIS (6/25/63),* 124 East Marcy Street, Santa Fe, NM 87501. Director
of each of the Davis Funds (except Davis International Series, Inc.) and the
Selected Funds; President or Vice President of each of the Davis Funds and
Selected Funds; Director and President, Venture Advisers, Inc.; Director and
Vice President, Davis Selected Advisers-NY, Inc.
CHRISTOPHER C. DAVIS (7/13/65),* 609 Fifth Avenue, New York, NY 10017. Director
of each of the Davis Funds and the Selected Funds; Chief Executive Officer,
President, or Vice President of each of the Davis Funds and Selected Funds;
Director, Vice Chairman, Venture Advisers, Inc.; Director, Chairman, Chief
Executive Officer, Davis Selected Advisers-NY, Inc.; Chairman and Director,
Shelby Cullom Davis Financial Consultants, Inc.; Employee of Shelby Cullom Davis
& Co., a registered broker/dealer; Director, Kings Bay Ltd., an offshore
investment management company.
KENNETH C. EICH (8/14/53), 2949 East Elvira Road, Suite 101,Tucson, Arizona
85706. Vice President of the Company and each of the Davis Funds and Selected
Funds; Chief Operating Officer, Venture Advisers, Inc.; Vice President, Davis
Selected Advisers-NY, Inc.; President, Davis Distributors, LLC; former President
and Chief Executive Officer of First of Michigan Corporation; former Executive
Vice President and Chief Financial Officer of Oppenheimer Management
Corporation.
CRESTON A. KING (4/19/63), 2949 East Elvira Road, Suite 101,Tucson, Arizona
85706. President of the Selected Capital Preservation Trust; former fixed income
portfolio manager for U.S. Global Investors, Inc.
SHARRA L. REED (9/25/66), 2949 East Elvira Road, Suite 101, Tucson, Arizona
85706. Vice President, Treasurer and Assistant Secretary of the Company and each
of the Davis Funds and Selected Funds; Vice President of Venture Advisers, Inc.
30
<PAGE>
THOMAS D. TAYS (3/7/57), 2949 East Elvira Road, Suite 101,Tucson, Arizona 85706.
Vice President and Secretary of the Company and each of the Davis Funds and
Selected Funds; Vice President and Secretary, Venture Advisers, Inc., Davis
Selected Advisers-NY, Inc., and Davis Distributors, LLC; former Vice President
and Special Counsel of U.S. Global Investors, Inc.
SHELDON R. STEIN (11/29/28), 111 East Wacker Drive, Suite 2800, Chicago, IL
60601. Assistant Secretary of the Company and each of the Davis Funds and
Selected Funds; Member, D'Ancona & Pflaum LLC, the Company's counsel.
ARTHUR DON (9/24/53), 111 East Wacker Drive, Suite 2800, Chicago, IL 60601.
Assistant Secretary of the Company and each of the Davis Funds and Selected
Funds; Member, D'Ancona & Pflaum LLC, the Company's counsel.
* Jeremy H. Biggs, Andrew A. Davis and Christopher C. Davis are considered to
be "interested persons" of the Company, as defined in the Investment
Company Act.
The Company does not pay salaries to any of its officers. The Adviser
performs certain services on behalf of the Company and is reimbursed by the
Company for the costs of providing these services.
DIRECTORS' COMPENSATION SCHEDULE
During the fiscal year ended December 31, 1999, the compensation paid to
the Directors who are not considered to be interested persons of the Company was
as follows:
AGGREGATE COMPANY TOTAL
NAME COMPENSATION COMPLEX COMPENSATION*
---- ------------ ---------------------
Wesley E. Bass $ 21,760 $ 61,600
Marc P. Blum 21,240 59,800
Jerry D. Geist 20,700 58,000
D. James Guzy 19,155 53,650
G. Bernard Hamilton 20,700 63,000
LeRoy E. Hoffberger** 20,700 58,000
Laurence W. Levine 20,700 58,000
Christian R. Sonne 20,700 58,000
Marsha Williams 19,155 77,150
* Complex compensation is the aggregate compensation paid, for services as a
Director, by all mutual funds with the same investment adviser. There are
seven registered investment companies in the complex.
** Mr. Hoffberger retired as a Director as of January 1, 2000, but still
serves in a non-voting emeritus status.
CERTAIN SHAREHOLDERS OF THE FUNDS
As of April 12, 2000 officers and directors owned the following percentages
of each Class of shares issued by the Funds:
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
Davis Growth Opportunity Fund 5.709% * * *
Davis Government Bond Fund * * * *
Davis Government Money Market Fund 1.629% * * *
Davis Financial Fund 4.147% * * *
Davis Convertible Securities Fund 2.146% * * *
Davis Real Estate Fund 4.967% * * *
</TABLE>
* Indicates that officers and directors as a group owned less than 1% of the
outstanding shares of the indicated Class of shares.
31
<PAGE>
The following table sets forth, as of April 12, 2000, the name and holdings
of each person known by the Company to be a record owner of more than 5% of the
outstanding shares of any Class of any of the Funds. Other than as indicated
below, the Funds are not aware of any shareholder that beneficially owns in
excess of 25% of the Funds' total outstanding shares.
PERCENT OF CLASS
NAME AND ADDRESS OUTSTANDING
- --------------- -----------------
CLASS A SHARES
- --------------
DAVIS GROWTH OPPORTUNITY FUND
SAC & Co. 5.02%
80452131
12E 49th Street, 41st Floor
New York, NY 10017
DAVIS FINANCIAL FUND
Shelby Cullom Davis & Co. 19.18%
Investment #3
609 5th Avenue, 11th Floor
New York, NY 10017-1021
Merrill Lynch Pierce Fenner & Smith 5.52%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
DAVIS REAL ESTATE FUND
Charles Schwab and Co., Inc. 11.55%
101 Montgomery St.
San Francisco, CA 94104-4122
DAVIS CONVERTIBLE SECURITIES FUND
Shelby Cullom Davis & Co. 23.76%
Investment #3
609 5th Avenue, 11th Floor
New York, NY 10017-1021
32
<PAGE>
The Bank of New York, TRS for 6.84%
Shelby Cullom Davis
FBO the Bank of New York as Pledgee
One Wall Street
New York, NY 10005-2501
DAVIS GOVERNMENT MONEY MARKET FUND
Shelby Cullom Davis & Co. 69.25%
Investment #3
609 5th Avenue, 11th Floor
New York, NY 10017-1021
Davis Selected Advisers, L.P. 8.13%
Attn: Ron Moore
124 East Marcy St.
P.O. Box 1688
Santa Fe, NM 87504-1688
CLASS B SHARES
- --------------
DAVIS GROWTH OPPORTUNITY FUND
Merrill Lynch Pierce Fenner & Smith 13.61%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
DAVIS FINANCIAL FUND
Merrill Lynch Pierce Fenner & Smith 24.79%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
DAVIS REAL ESTATE FUND
Merrill Lynch Pierce Fenner & Smith 25.39%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
DAVIS CONVERTIBLE SECURITIES FUND
Merrill Lynch Pierce Fenner & Smith 24.76%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
33
<PAGE>
DAVIS GOVERNMENT BOND FUND
Merrill Lynch Pierce Fenner & Smith 39.78%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
CLASS C SHARES
- --------------
DAVIS GROWTH OPPORTUNITY FUND
Merrill Lynch Pierce Fenner & Smith 10.12%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
DAVIS FINANCIAL FUND
Merrill Lynch Pierce Fenner & Smith 33.70%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
DAVIS REAL ESTATE FUND
Merrill Lynch Pierce Fenner & Smith 16.28%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
DAVIS CONVERTIBLE SECURITIES FUND
Merrill Lynch Pierce Fenner & Smith 23.54%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Dean Witter FBO 5.89%
Gary Ruben Inc. MP Plan
P.O. Box 250
New York, NY 10008-0250
DAVIS GOVERNMENT BOND FUND
Merrill Lynch Pierce Fenner & Smith 40.67%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
34
<PAGE>
Jacksonville, FL 32246-6484
Robert W. Baird & Co. Inc. 19.24%
A/C 6225-5827
777 East Wisconsin Avenue
Milwaukee, WI 53202-5300
Paine Webber for the benefit of 10.04%
Elinor B. Filupait TTEE
P.O. Box 4371
Lantana, FL 33465-4371
CLASS Y SHARES
- --------------
DAVIS GROWTH OPPORTUNITY FUND
Naidot & Co. 94.66%
Bessemer Trust Company
100 Woodbridge Ctr. Dr.
Woodbridge, NJ 07095-1125
Merrill Lynch Pierce Fenner & Smith 5.34%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
DAVIS FINANCIAL FUND
Merrill Lynch Pierce Fenner & Smith 84.67%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
DAVIS REAL ESTATE FUND
Naidot & Co. 57.96%
c/o Bessemer Trust Company
100 Woodbridge Center Drive
Woodbridge, NJ 07095
Philip O. Geier, President 16.30%
Armard Hammer United World College
P.O. Box 248
Montezuma, NM 87731-0248
35
<PAGE>
Abilene Christian University Endowment 10.04%
Attn: Kent Rideout
ACU Box 29120
Abilene, TX 79699-0001
DAVIS CONVERTIBLE SECURITIES FUND
Naidot & Co. 95.15%
c/o Bessemer Trust Company
100 Woodbridge Center Drive
Woodbridge, NJ 07095
DAVIS GOVERNMENT BOND FUND
Merrill Lynch Pierce Fenner & Smith 99.20%
Mutual Fund Operations
4800 Deerlake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
INVESTMENT ADVISORY SERVICES
Davis Selected Advisers, L.P. (the "Adviser") whose principal office is at
2949 East Elvira Road, Suite 101, Tucson, Arizona 85706, serves as the
investment adviser for each of the Funds. Venture Advisers, Inc. is the
Adviser's sole general partner. Shelby M.C. Davis is Senior Research Adviser and
Founder of the Adviser and the controlling shareholder of the general partner.
Subject to the direction and supervision of the Board of Directors, the Adviser
manages the investment and business operations of the Funds. Davis Distributors,
LLC ("the Distributor"), a subsidiary of the Adviser, serves as the distributor
or principal underwriter of the Funds' shares. Davis Selected Advisers-NY, Inc.
("DSA-NY"), a wholly owned subsidiary of the Adviser, performs investment
management, research and other services for the Funds on behalf of the Adviser
under a Sub-Advisory Agreement with the Adviser. The Adviser also acts as
investment adviser for Davis New York Venture Fund, Inc., Davis International
Series, Inc., Davis Variable Account Fund, Inc., (collectively with the Fund,
the "Davis Funds"), Selected American Shares, Inc., Selected Special Shares,
Inc. and Selected Capital Preservation Trust (collectively the "Selected
Funds"). The Distributor also acts as the principal underwriter for the Davis
Funds and the Selected Funds.
ADVISORY AGREEMENT. Pursuant to the Advisory Agreement, each Fund pays the
Adviser a fee according to the following schedule:
Davis Growth Opportunity Fund, Davis Financial Fund, Davis Real Estate
Fund, and Davis Convertible Securities Fund each pay the Adviser a monthly fee
at an annual rate based on average net assets, as follows: 0.75% on the first
$250 million of average net assets; 0.65% on the next $250 million of average
net assets; and 0.55% on average net assets in excess of $500 million.
36
<PAGE>
Davis Government Bond Fund pays the Adviser a fee at the annual rate of
0.50% of total net assets. Davis Government Money Market Fund pays the Adviser
0.50% on the first $250 million of average net assets; 0.45% on the next $250
million of average net assets; and 0.40% on average net assets in excess of $500
million.
These fees may be higher than those of most other mutual funds, but are not
necessarily higher than those paid by funds with similar objectives. Under the
Sub-Advisory Agreement with DSA-NY, the Adviser pays all of DSA-NY's direct and
indirect costs of operations. All of the fees paid to DSA-NY are paid by the
Adviser and not the Funds.
Advisory fees are allocated among each Class of shares in proportion to
each Class's relative total net assets.
The Funds paid the following aggregate advisory fees to the Adviser :
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31,
1999 1998 1997
---- ---------- ----------
<S> <C> <C> <C>
Davis Growth Opportunity Fund $ 806,845 $ 924,119 $ 660,606
Davis Financial Fund 6,133,985 5,195,747 1,930,789
Davis Real Estate Fund 2,683,242 2,845,709 1,217,004
Davis Convertible Fund 2,003,319 1,960,290 800,976
Davis Government Bond Fund 304,347 216,248 144,613
Davis Government Money Market Fund 2,529,714 2,351,638 2,085,736
</TABLE>
The Advisory Agreement also makes provisions for portfolio transactions and
brokerage policies of the Funds, which are discussed above under "Portfolio
Transactions."
In accordance with the provisions of the Investment Company Act of 1940,
the Advisory Agreement and Sub-Advisory Agreement will terminate automatically
upon assignment and are subject to cancellation upon 60 days' written notice by
the Company's Board of Directors, the vote of the holders of a majority of the
Funds' outstanding shares, or the Adviser. The continuance of the Advisory
Agreement and Sub-Advisory Agreement must be approved at least annually by the
Funds' Board of Directors or by the vote of holders of a majority of the
outstanding shares of the Funds. In addition, any new agreement or the
continuation of the existing agreement must be approved by a majority of
Directors who are not parties to the agreement or interested persons of any such
party.
Pursuant to the Advisory Agreement, the Adviser, subject to the general
supervision of the Funds' Board of Directors, provides management and investment
advice, and furnishes statistical, executive and clerical personnel,
bookkeeping, office space, and equipment necessary to carry out its investment
advisory functions and such corporate managerial duties as requested by the
Board of Directors of the Funds. The Funds bear all expenses other than those
specifically assumed by the Adviser under the Advisory Agreement, including
preparation of its tax returns, financial reports to regulatory authorities,
dividend determinations, transaction and accounting matters related to its
custodian bank, transfer agency, custodial and shareholder services, and
qualification of its shares under federal and state securities laws. Each Fund
37
<PAGE>
reimburses the Adviser for providing certain services including accounting and
administrative services, qualifying shares for sale with state agencies, and
shareholder services. Such reimbursements are detailed below:
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31,
1999 1998 1997
---- ------ ----
<S> <C> <C> <C>
Davis Growth Opportunity Fund
- -----------------------------
Accounting and Administrative Services $ 6,504 $ 6,504 $ 17,835
Qualifying Shares for Sale With State Agencies 9,996 9,996 9,996
Shareholder Services 23,054 33,840 5,963
Davis Financial Fund
- --------------------
Accounting and Administrative Services $ 14,496 $ 14,496 $ 18,543
Qualifying Shares for Sale With State Agencies 9,996 9,996 9,996
Shareholder Services 165,263 170,050 22,076
Davis Real Estate Fund
- ----------------------
Accounting and Administrative Services $ 9,504 $ 9,504 $ 21,418
Qualifying Shares for Sale With State Agencies 9,996 9,996 9,996
Shareholder Services 57,797 75,161 15,130
Davis Convertible Securities Fund
- ---------------------------------
Accounting and Administrative Services $ 7,500 $ 7,500 $ 20,414
Qualifying Shares for Sale With State Agencies 9,996 9,996 9,996
Shareholder Services 25,721 32,827 6,557
Davis Government Bond Fund
- --------------------------
Accounting and Administrative Services $ 2,496 $ 2,496 $ 11,665
Qualifying Shares for Sale With State Agencies 9,996 9,996 9,996
Shareholder Services 7,095 8,135 14,364
Davis Government Money Market Fund
- ----------------------------------
Accounting and Administrative Services $ 37,500 $ 37,500 $ 27,086
Qualifying Shares for Sale With State Agencies 9,996 9,996 9,996
Shareholder Services 19,104 20,809 19,072
</TABLE>
CODE OF ETHICS. The Adviser and the Funds have adopted a Code of Ethics
which regulates the personal securities transactions of the Adviser's investment
personnel, other employees, and affiliates with access to information regarding
securities transactions of the Funds. Such employees may invest in securities,
including securities that may be purchased or held by the Funds. A copy of the
Code of Ethics is on public file with, and available from, the Securities and
Exchange Commission.
DISTRIBUTION OF COMPANY SHARES
DISTRIBUTION PLANS. Class A, Class B, and Class C shares have each adopted
Distribution Plans under which each Fund (other than Davis Government Money
Market Fund) reimburses the Distributor for some of its distribution expenses.
The Distribution Plans were approved by the Funds' Board of Directors in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Rule 12b-1
regulates the manner in which a mutual fund may assume
38
<PAGE>
costs of distributing and promoting the sale of its shares. Payments pursuant to
a Distribution Plan are included in the operating expenses of the Class.
CLASS SHARES. Payments under the Class A Distribution Plan may be up to an
annual rate of 0.25% of the average daily net asset value of the Class A shares.
Such payments are made to reimburse the Distributor for the fees it pays to its
salespersons and other firms for selling the Funds' Class A shares, servicing
its shareholders and maintaining its shareholder accounts. Where a commission is
paid for purchases of $1 million or more of Class A shares and as long as the
limits of the Distribution Plan have not been reached, such payment is also made
from 12b-1 distribution fees received from the Funds. Normally, such fees are at
the annual rate of 0.25% of the average net asset value of the accounts serviced
and maintained on the books of each Fund. Payments under the Class A
Distribution Plan may also be used to reimburse the Distributor for other
distribution costs (excluding overhead) not covered in any year by any portion
of the sales charges the Distributor retains.
CLASS B SHARES. Payments under the Class B Distribution Plan are limited to
an annual rate of 1% of the average daily net asset value of the Class B shares.
In accordance with current applicable rules, such payments are also limited to
6.25% of gross sales of Class B shares plus interest at 1% over the prime rate
on any unpaid amounts. The Distributor pays broker/dealers up to 4% in
commissions on new sales of Class B shares. Up to an annual rate of 0.75% of the
average daily net assets is used to reimburse the Distributor for these
commission payments. Most or all of such commissions are reallowed to
salespersons and to firms responsible for such sales. No commissions are paid by
the Company with respect to sales by the Distributor to officers, directors, and
full-time employees of the Funds, the Distributor, the Adviser, the Adviser's
general partner, or DSA-NY. Up to 0.25% of average net assets is used to
reimburse the Distributor for the payment of service and maintenance fees to its
salespersons and other firms for shareholder servicing and maintenance of its
shareholder accounts.
CLASS C SHARES. Payments under the Class C Distribution Plan are also
limited to an annual rate of 1% of the average daily net asset value of the
Class C shares, and are subject to the same 6.25% and 1% limitations applicable
to the Class B Distribution Plan. The entire amount of payments may be used to
reimburse the Distributor for the payments of commissions, service, and
maintenance fees to its salespersons and other firms for selling new Class C
shares, shareholder servicing and maintenance of its shareholder accounts.
CARRYOVER PAYMENTS. If, due to the foregoing payment limitations, any Fund
is unable to pay the Distributor the 4% commission on new sales of Class B
shares, or the 1% commission on new sales of Class C shares, the Distributor
intends, but is not obligated, to accept new orders for shares and pay
commissions in excess of the payments it receives from the Fund. The Distributor
intends to seek full payment from the Funds of any excess amounts with interest
at 1% over the prime rate at such future date, when and to the extent such
payments on new sales would not be in excess of the limitations. The Funds are
not obligated to make such payments; the amount (if any), timing and condition
of any such payments are solely within the discretion of the Directors of the
Company, who are not interested persons of the Distributor or the Company and
have no direct or indirect financial interest in the Class B or C Distribution
Plans (the "Independent Directors"). If any Fund terminates its Class B share or
Class C share
39
<PAGE>
Distribution Plan, the Distributor will ask the Independent Directors to take
whatever action they deem appropriate with regard to the payment of any excess
amounts. As of December 31, 1999 the cumulative totals of these carryover
payments were:
Class B Shares
- --------------
Dollars % of Net Assets
------------- ----------------
Davis Growth Opportunity Fund $ 234,155 0.44%
Davis Financial Fund 11,102,188 2.95%
Davis Real Estate Fund 6,233,584 6.66%
Davis Convertible Securities Fund 3,457,997 3.99%
Davis Government Bond Fund 203,105 0.72%
DAVIS GOVERNMENT MONEY MARKET FUND. With respect to Davis Government Money
Market Fund, the Distribution Plan for each class of shares does not provide for
any amounts to be paid by the Fund directly to the Distributor as either
compensation or reimbursement for distributing shares of the Fund, but does
authorize the use of the advisory fee for distribution to the extent such fee
may be considered to be indirectly financing any activity or expense which is
primarily intended to result in the sale of Fund shares.
ADDITIONAL INFORMATION CONCERNING THE DISTRIBUTION PLANS. In addition, to
the extent that any investment advisory fees paid by the Company may be deemed
to be indirectly financing any activity which is primarily intended to result in
the sale of Company shares within the meaning of Rule 12b-1, the Distribution
Plans authorize the payment of such fees.
The Distribution Plans continue annually so long as they are approved in
the manner provided by Rule 12b-1 or unless earlier terminated by vote of the
majority of the Independent Directors or a majority of a Fund's outstanding
Class of shares. The Distributor is required to furnish quarterly written
reports to the Board of Directors detailing the amounts expended under the
Distribution Plans. The Distribution Plans may be amended provided that all such
amendments comply with the applicable requirements then in effect under Rule
12b-1. Currently, Rule 12b-1 provides that as long as the Distribution Plans are
in effect, the Company must commit the selection and nomination of candidates
for new Independent Directors to the sole discretion of the existing Independent
Directors.
DEALER COMPENSATION. As described herein, dealers or others may receive
different levels of compensation depending on which class of shares they sell.
The Distributor may make expense reimbursements for special training of a
dealer's registered representatives or personnel of dealers and other firms who
provide sales or other services with respect to the Funds and/or their
shareholders, or to defray the expenses of meetings, advertising or equipment.
Any such amounts may be paid by the Distributor from the fees it receives under
the Class A, Class B and Class C Distribution Plans.
In addition, the Distributor may, from time to time, pay additional cash
compensation or other promotional incentives to authorized dealers or agents who
sell shares of the Funds. In some instances, such cash compensation or other
incentives may be offered only to certain dealers or agents who employ
registered representatives who have sold or may sell significant amounts of
shares of the Funds and/or the other Davis Funds managed by the Adviser during a
specified period of time.
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<PAGE>
Shares of the Funds may also be sold through banks or bank-affiliated
dealers. Any determination that such banks or bank-affiliated dealers are
prohibited from selling shares of the Funds under the Glass-Steagall Act would
have no material adverse effects on the Funds. State securities laws may require
such firms to be licensed as securities dealers in order to sell shares of the
Fund.
FUND SUPERMARKETS. The Funds participate in various "Fund Supermarkets" in
which a broker-dealer offers many mutual funds to the sponsor's clients without
charging the clients a sales charge. The Funds pay the supermarket sponsor a
negotiated fee for distributing the Funds' shares and for continuing services
provided to their shareholders.
A portion of the supermarket sponsor's fee (that portion related to sales,
marketing, or distribution of Funds shares) is paid with fees authorized under
the Distribution Plans.
A portion of the supermarket sponsor's fee (that portion related to
shareholder services such as new account set-up, shareholder accounting,
shareholder inquiries, transaction processing, and shareholder confirmations and
reporting) is paid as a shareholder servicing fee of the Funds. The Funds would
typically be paying these shareholder servicing fees directly, were it not that
the supermarket sponsor holds all customer accounts in a single omnibus account
with the Funds. The amount of shareholder servicing fees which the Funds may pay
to supermarket sponsors may not exceed the lesser of (a) 1/10 of 1 percent of
net assets held by such supermarket sponsors per year, or (b) the shareholder
servicing costs saved by the Funds with the omnibus account (determined in the
reasonable judgement of the Adviser).
If the supermarket sponsor's fees exceed the sum available from the
Distribution Plans and shareholder servicing fees, then the Adviser pays the
remainder out of its profits.
KRC INVESTMENT ADVISERS, LLC. KRC Investment Advisers, LLC ("KRC "), a
registered investment adviser owned and managed by members of the immediate and
extended family of LeRoy E. Hoffberger, a retired Director of the Company, has
entered into a service agreement (the "Services Agreement") with the Distributor
which provides payments to KRC under the Funds' Rule 12b-1 Plan. Under the
Services Agreement, KRC will provide shareholder maintenance services to clients
with respect to shares of the Company, and the Distributor will pay KRC a fee at
the annual rate of 0.25% of average net assets of the accounts of clients
maintained and serviced by KRC. Payments made by the Distributor under the
Services Agreement will be reimbursed by the Company under its Rule 12b-1 Plan.
Those payments will be made in connection with shareholder maintenance services
provided by that investment adviser to its clients who are shareholders of the
Company which include, among others, Mr. Hoffberger and members of his immediate
and extended family and trusts of which they are beneficiaries or trustees. The
cost of these services and advisory services provided by KRC are borne by the
clients. Mr. Hoffberger does not have any ownership interest in or otherwise
have any control of KRC.
THE DISTRIBUTOR. Davis Distributors, LLC ("the Distributor"), 2949 East
Elvira Road, Suite 101, Tucson, Arizona 85706, is a wholly owned subsidiary of
the Adviser, and pursuant to
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<PAGE>
a Distributing Agreement acts as principal underwriter of the Funds shares on a
continuing basis. By the terms of the Distributing Agreement, the Distributor
pays for all expenses in connection with the preparation, printing, and
distribution of advertising and sales literature for use in offering the Funds
shares to the public, including reports to shareholders to the extent they are
used as sales literature. The Distributor also pays for the preparation and
printing of prospectuses other than those forwarded to existing shareholders.
The continuance and assignment provisions of the Distributing Agreement are the
same as those of the Advisory Agreement.
The Distributor received total sales charges (which the Funds do not pay)
on the sale of Class A shares:
Fiscal Year Ended
December 31,
1999 1998 1997
---- ---- ----
Davis Growth Opportunity Fund $ 57,858 $ 369,205 $ 442,713
Amount Reallowed to Dealers 49,677 313,281 376,768
Davis Financial Fund 1,456,334 5,418,760 3,657,273
Amount Reallowed to Dealers 1,229,832 4,568,459 3,081,777
Davis Real Estate Fund 357,316 1,888,528 2,339,674
Amount Reallowed to Dealers 302,241 1,593,635 1,973,114
Davis Convertible Securities Fund 233,781 1,238,727 691,313
Amount Reallowed to Dealers 200,191 1,049,380 583,729
Davis Government Bond Fund 50,142 85,407 39,183
Amount Reallowed to Dealers 43,129 74,035 33,094
Davis Government Money Market Fund does not charge a sales load for any class of
shares.
The Distributor received compensation on redemptions and repurchases of
shares. For the year ended December 31, 1999, the Distributor received the
following amounts as compensation on redemptions and repurchases:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Davis Growth Opportunity Fund $ 6,851 $ 223,970 $ 3,124
Davis Financial Fund 20,760 1,911,297 123,532
Davis Real Estate Fund 7,375 831,806 45,334
Davis Convertible Fund 14,182 395,597 39,053
Davis Government Bond Fund N/A 236,953 16,953
</TABLE>
Davis Government Money Market Fund does not receive compensation on redemptions
and repurchases.
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<PAGE>
The Distributor received the following amounts as reimbursements under the
Distribution Plans:
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31,
1999 1998 1997
--------- ------- ---------
<S> <C> <C> <C>
Davis Growth Opportunity Fund
- -----------------------------
Class A shares $ 114,740 $ 141,000 $ 81,099
Class B shares 481,629 620,687 486,624
Class C shares 34,846 38,471 5,131
Davis Financial Fund
- --------------------
Class A shares 866,206 789,325 305,509
Class B shares 4,177,902 3,305,680 778,923
Class C shares 957,064 636,742 34,391
Davis Real Estate Fund
- ----------------------
Class A shares 392,768 484,050 189,473
Class B shares 1,198,831 1,477,840 554,450
Class C shares 337,845 246,679 13,033
Davis Convertible Securities Fund
- ---------------------------------
Class A shares 227,169 275,435 86,098
Class B shares 888,663 769,236 117,261
Class C shares 225,161 209,203 11,296
Davis Government Bond Fund
- --------------------------
Class A shares 51,351 49,428 41,409
Class B shares 327,123 197,911 118,362
Class C shares 65,473 29,187 460
</TABLE>
OTHER IMPORTANT SERVICE PROVIDERS
CUSTODIAN. State Street Bank and Trust Company ("State Street" or
"Custodian"), One Heritage Drive, North Quincy, Massachusetts 02171, serves as
custodian of the Company's assets. The Custodian maintains all of the
instruments representing the Company's investments and all cash. The Custodian
delivers securities against payment upon sale and pays for securities against
delivery upon purchase. The Custodian also remits the Company assets in payment
of the Funds' expenses, pursuant to instructions of officers or resolutions of
the Board of Directors. The Custodian also provides certain fund accounting and
transfer agent services.
AUDITORS. KPMG LLP ("KPMG"), 707 17th Street, Suite 2300, Denver, Colorado
80202, serves as independent auditors for each of the Funds. The auditors
consult on financial accounting and reporting matters, and meet with the Audit
Committee of the Board of Directors. In addition, KPMG reviews federal and state
income tax returns and related forms.
COUNSEL. D'Ancona & Pflaum LLC, 111 East Wacker Drive, Suite 2800, Chicago,
Illinois 60601, serves as counsel to the Company and also serves as counsel for
those members of the Board of Directors who are not affiliated with the Adviser.
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<PAGE>
Section III: Purchase, Exchange and Redemption of Shares
- --------------------------------------------------------
PURCHASE OF SHARES
CLASS A, B, AND C SHARES. You can purchase Class A, Class B, or Class C
shares of either Fund from any dealer or other person having a sales agreement
with the Distributor. Class Y shares are offered only to certain qualified
purchasers, as described below.
There are three ways to make an initial investment of Class A, Class B, or
Class C shares in the Funds. One way is to fill out the Application Form
included in the Prospectus and mail it to State Street Bank and Trust Company
("State Street Bank and Trust") at the address on the Form. Your dealer or sales
representative will help you fill out the Form. The dealer must also sign the
Form. All purchases made by check (minimum $1,000, except $250 for retirement
plans) should be in U.S. dollars and made payable to THE DAVIS FUNDS, or, in the
case of a retirement account, to the custodian or trustee. THIRD PARTY CHECKS
WILL NOT BE ACCEPTED. When purchases are made by check, redemptions will not be
allowed until the investment being redeemed has been in the account for 15
calendar days. Shareholders whose Davis Government Money Market Fund accounts
are established for distributions of earnings or principal from a unit
investment trust sponsored by Clayton Brown & Associates, Inc. may make initial
and subsequent investments of amounts below the stated minimum.
The second way to make an initial investment is to have your dealer order
and remit payment for the shares on your behalf. The dealer can also order the
shares from the Distributor by telephone or wire.
The third way to purchase shares is by wire. Shares may be purchased at any
time by wiring federal funds directly to State Street Bank and Trust. Prior to
an initial investment by wire, the shareholder should telephone Davis
Distributors, LLC at 1-800-279-0279 to advise them of the investment amount,
class of shares and obtain an account number. A completed Application Form
should be mailed to State Street Bank and Trust after the initial wire purchase.
To assure proper credit, the wire instructions should be made as follows:
State Street Bank and Trust Company,
Boston, MA 02210
Attn.: Mutual Fund Services
DAVIS SERIES, INC.
(Please Specify Fund)
Shareholder Name,
Shareholder Account Number,
Federal Routing Number 011000028,
DDA Number 9904-606-2
After your initial investment, you can make additional investments of at
least $25. Simply mail a check payable to "The Davis Funds" to State Street Bank
and Trust Company, c/o The Davis Funds, P.O. Box 8406, Boston, MA 02266-8406.
For overnight delivery, please send
44
<PAGE>
your check to State Street Bank and Trust Company, c/o The Davis Funds, 66
Brooks Drive, Braintree, MA 02184. THIRD PARTY CHECKS WILL NOT BE ACCEPTED. The
check should be accompanied by a purchase form which State Street Bank and Trust
will provide with each confirmation statement. If you do not have a purchase
form, include a letter with your check stating the name of the Fund, the class
of shares you wish to buy and your account number.
CERTIFICATES. The Company does not issue certificates for Class A shares
unless you request a certificate each time you make a purchase. Certificates are
not issued for Class B or Class C shares or for accounts using the Automatic
Withdrawals Plan. In no event, however, will Davis Government Money Market Fund
issue a certificate since all shares must be uncertificated to use the check
writing or pre-designated account payment privileges. The Company does not issue
certificates for Class Y shares. Instead, shares purchased are automatically
credited to an account maintained for you on the books of the Company by State
Street Bank and Trust. You will receive a statement showing the details of the
transaction and any other transactions you had during the current year each time
you add to or withdraw from your account. If you are eligible and wish to
receive certificates, please submit a letter of instruction with your
Application Form. Once your account has been established, the shareholder(s) may
request that certificates be sent to the address of record by calling our
customer service department.
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund offers four classes of shares. With certain exceptions described
below, Class A shares are sold with a front-end sales charge at the time of
purchase and are not subject to a sales charge when they are redeemed. Class B
shares are sold without a sales charge at the time of purchase, but are subject
to a deferred sales charge if they are redeemed within six years after purchase.
Class B shares will automatically convert to Class A shares eight years after
the end of the calendar month in which the shareholder's order to purchase was
accepted. Class C shares are purchased at their net asset value per share
without the imposition of a front-end sales charge but are subject to a 1%
deferred sales charge if redeemed within one year after purchase, and do not
have a conversion feature. The four classes of Davis Government Money Market
Fund shares are available so as to enable investors to facilitate exchanges
since, with the exception of exchanges from Class A shares to Class Y shares,
shares may be exchanged only for shares of the same class. Davis Government
Money Market shares are sold directly without sales charges; however, front-end
or deferred sales charges may be imposed, in certain cases, upon their exchange
into shares of other Davis Funds (see "Exchange of Shares"). Class Y shares are
offered to (i) trust companies, bank trusts, pension plans, endowments or
foundations acting on behalf of their own account or one or more clients for
which such institution acts in a fiduciary capacity and investing at least
$5,000,000 at any one time ("Institutions"); (ii) any state, county, city,
department, authority or similar agency which invests at least $5,000,000 at any
one time ("Governmental Entities"); and (iii) any investor with an account
established under a "wrap account" or other similar fee-based program sponsored
and maintained by a registered broker-dealer approved by the Distributor ("Wrap
Program Investors"). Class Y shares are sold at net asset value without the
imposition of Rule 12b-1 charges. Shares of the Davis Government Money Market
Fund are offered at net asset value. However, in the case of certain exchanges,
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<PAGE>
the Money Market Fund shares received may be subject to an escrow, pursuant to a
Statement of Intention, or a contingent deferred sales load. See "Exchange of
Shares."
Depending on the amount of the purchase and the anticipated length of time
of the investment, investors may choose to purchase one Class of shares rather
than another. Investors who would rather pay the entire cost of distribution at
the time of investment, rather than spreading such cost over time, might
consider Class A shares. Other investors might consider Class B or Class C
shares, in which case 100% of the purchase price is invested immediately. The
Company will not accept any purchase of Class B shares in the amount of $250,000
or more per investor. Such purchase must be made in Class A shares. Class C
shares may be more appropriate for the short-term investor. The Company will not
accept any purchase of Class C shares when Class A shares may be purchased at
net asset value.
CLASS A SHARES. Class A shares of Davis Government Money Market Fund are
sold at net asset value. Class A shares of the other Funds are sold at their net
asset value plus a sales charge. The amounts of the sales charges are shown in
the following table:
<TABLE>
<CAPTION>
Customary
Sales Charge Charge as Concession to Your
as Percentage Approximate Percentage Dealer as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- ------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C>
$99,999 or less............................. 4-3/4% 5.0% 4%
$100,000 to $249,999........................ 3-1/2% 3.6% 3%
$250,000 to $499,999........................ 2-1/2% 2.6% 2%
$500,000 to $749,999........................ 2% 2.0% 1-3/4%
$750,000 to $999,999........................ 1% 1.0% 3/4 of 1%
$1,000,000 or more.......................... 0% 0.0% 0%*
</TABLE>
* On purchases of $1 million or more, the investor pays no front-end sales
charge, but a contingent deferred sales charge of 0.75% is imposed if shares
purchased at net asset value without a sales load are redeemed within the first
year after purchase. The Distributor may pay the financial service firm a
commission during the first year after such purchase at an annual rate as
follows:
Purchase Amount Commission
--------------- ----------
First $3,000,000................................... .75%
Next $2,000,000................................... .50%
Over $5,000,000................................... .25%
Where a commission is paid for purchases of $1 million or more, such
payment will be made from 12b-1 distribution fees received from the Company and,
in cases where the limits of the distribution plan in any year have been
reached, from the Distributor's own resources.
REDUCTION OF CLASS A SALES CHARGE. There are a number of ways to reduce the
sales charge imposed on the purchase of the Funds' Class A shares, as described
below. These reductions are based upon the fact that there is less sales effort
and expense involved with respect to purchases by affiliated persons and
purchases made in large quantities. If you claim any reduction of sales charges,
you or your dealer must so notify the Distributor (or State Street Bank and
Trust, if the investment is mailed to State Street Bank and Trust) when the
purchase is made. Enough information must be given to verify that you are
entitled to such right.
46
<PAGE>
(1) FAMILY OR GROUP PURCHASES. Certain purchases made by or for more than
one person may be considered to constitute a single purchase, including (i)
purchases for family members, including spouses and children under 21, (ii)
purchases by trust or other fiduciary accounts and purchases by Individual
Retirement Accounts for employees of a single employer, and (iii) purchases made
by an organized group of persons, whether incorporated or not, if the group has
a purpose other than buying shares of mutual funds. For further information on
group purchase reductions, contact the Adviser or your dealer.
(2) STATEMENTS OF INTENTION. Another way to reduce the sales charge is by
signing a Statement of Intention ("Statement"). See Appendix B: "Terms and
Conditions of a Statement of Intention." If you enter into a Statement of
Intention you (or any "single purchaser") may state that you intend to invest at
least $100,000 in the Funds' Class A shares over a 13-month period. The amount
you say you intend to invest may include Class A shares which you already own
(except purchases into Davis Government Money Market Fund) valued at the
offering price, at the end of the period covered by the Statement. A Statement
may be backdated up to 90 days to include purchases made during that period, but
the total period covered by the Statement may not exceed 13 months.
Shares having a value of 5% of the amount you state you intend to invest
will be held "in escrow" to make sure that any additional sales charges are
paid. If any of the Funds shares are in escrow pursuant to a Statement and such
shares are exchanged for shares of another Davis Fund, the escrow will continue
with respect to the acquired shares.
No additional sales charge will be payable if you invest the amount you
have indicated. Each purchase under a Statement will be made as if you were
buying the total amount indicated at one time. For example, if you indicate that
you intend to invest $100,000, you will pay a sales charge of 3-1/2% on each
purchase.
If during the 13-month period you invest less than the amount you have
indicated, you will pay an additional sales charge. For example, if you state
that you intend to invest $250,000 and actually invest only $100,000, you will,
by retroactive adjustment, pay a sales charge of 3-1/2%. The sales charge you
actually pay will be the same as if you had purchased the shares in a single
purchase.
A Statement does not bind you to buy, nor does it bind the Adviser to sell,
the shares covered by the Statement.
(3) RIGHTS OF ACCUMULATION. Another way to reduce the sales charge is under
a right of accumulation. This means that the larger purchase entitled to a lower
sales charge does not have to be in dollars invested at one time. The larger
purchases that you (or any "single purchaser") make at any one time can be
determined by adding to the amount of a current purchase the value of Fund
shares (at offering price) already owned by you.
For example, if you owned $100,000 worth (at offering price) of shares
(including Class A, B and C shares of all Davis Funds), and invest $5,000 in
additional shares, the sales charge on that $5,000 investment would be 3-1/2%,
not 4-3/4%.
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<PAGE>
(4) COMBINED PURCHASES WITH OTHER DAVIS FUNDS. Your ownership or purchase
of Class A shares of other Davis Funds may also reduce your sales charges in
connection with the purchase of the Funds' Class A shares. This applies to all
three situations for reduction of sales charges discussed above.
If a "single purchaser" decides to buy a Fund's Class A shares as well as
Class A shares of any of the other Davis Funds at the same time, these purchases
will be considered a single purchase for the purpose of calculating the sales
charge. For example, a single purchaser can invest at the same time $100,000 in
Davis New York Venture Fund's Class A shares and $150,000 in the Class A shares
of Davis Financial Fund and pay a sales charge of 2-1/2%, not 3-1/2%.
Similarly, a Statement of Intention for the Fund's Class A shares and for
the Class A shares of the other Davis Funds may be aggregated. In this
connection, the Company's Class A shares and the Class A shares of the other
Davis Funds which you already own, valued at the current offering price at the
end of the period covered by your Statement of Intention, may be included in the
amount you have stated you intend to invest pursuant to your Statement.
Lastly, the right of accumulation also applies to the Class A, Class B and
Class C shares of the other Davis Funds that you own. Thus, the amount of
current purchases of the Funds' Class A shares which you make may be added to
the value of the Class A shares of the other Davis Funds (valued at their
current offering price) already owned by you in determining the applicable sales
charge.
In all of the above instances where you wish to assert this right of
combining the shares you own of the other Davis Funds, you or your dealer must
notify the Distributor (or State Street Bank and Trust, if the investment is
mailed to State Street Bank and Trust) of the pertinent facts. Enough
information must be given to permit verification as to whether you are entitled
to a reduction in sales charges.
(5) PURCHASES FOR EMPLOYEE BENEFIT PLANS. Trusteed or other fiduciary
accounts and Individual Retirement Accounts ("IRA") of a single employer are
treated as purchases of a single person. Purchases of and ownership by an
individual and such individual's spouse under an IRA are combined with their
other purchases and ownership.
(6) SALES AT NET ASSET VALUE. There are situations where the sales charge
will not apply to the purchase of Class A shares. A sales charge is not imposed
on these transactions either because the purchaser deals directly with the Fund
(as in employee purchases), or because a responsible party (such as a financial
institution) is providing the necessary services usually provided by a
registered representative. However, if investors effect purchases in Fund shares
through a broker or agent, the broker or agent may charge a fee. The sales
charge will not apply to: (1) Class A shares purchased through the automatic
reinvestment of dividends and distributions; (2) Class A shares purchased by
directors, officers, and employees of any fund for which the Adviser acts as
investment adviser, or officers and employees of the Adviser, Sub-Adviser, or
Distributor, including former directors and officers and any spouse, child,
parent,
48
<PAGE>
grandparent, brother or sister ("immediate family members") of all of the
foregoing, and any employee benefit or payroll deduction plan established by or
for such persons; (3) Class A shares purchased by any registered
representatives, principals, and employees (and any immediate family member) of
securities dealers having a sales agreement with the Distributor; (4) initial
purchases of Class A shares totaling at least $250,000 but less than $5,000,000,
made at any one time by banks, trust companies, and other financial institutions
on behalf of one or more clients for which such institution acts in a fiduciary
capacity; (5) Class A shares purchased by any single account covering a minimum
of 250 eligible employees or participants (the Fund may, at its discretion,
waive this 250 participant minimum; for example, the 250 participant minimum may
be waived for certain financial institutions providing transfer agent and/or
administrative services, or for fee-based mutual fund marketplace programs) and
representing a defined benefit plan, defined contribution plan, cash or deferred
plan qualified under 401(a) or 401(k) of the Internal Revenue Code, or a plan
established under Section 403(b), 457 or 501(c)(9) of such Code, "rabbi trusts",
or other nonqualified plans; (6) Class A shares purchased by persons
participating in a "wrap account" or similar fee-based program sponsored and
maintained by a registered broker-dealer approved by the Fund's Distributor or
by investment advisors or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting, or other fee for their services; and clients of such investment
advisors or financial planners who place trades for their own accounts, if the
accounts are linked to the master account of such investment advisor or
financial planner on the books and records of the broker or agent; (7) Class A
shares amounting to less than $5,000,000 purchased by any state, county, city,
department, authority or similar agency. and (8) Shareholders making purchases
in certain accounts offered by securities firms which have entered into
contracts with the Fund and which charge fees based upon assets in the account.
The Fund may also issue Class A shares at net asset value incident to a merger
with or acquisition of assets of an investment company. The Fund occasionally
may be provided with an opportunity to purchase substantially all the assets of
a public or private investment company or to merge another such company into the
Fund. This offers the Fund the opportunity to obtain significant assets. No
dealer concession is involved. It is industry practice to effect such
transactions at net asset value, as it would adversely affect the Fund's ability
to do such transactions if the Fund had to impose a sales charge.
CLASS B SHARES. Class B shares are offered at net asset value, without a
front-end sales charge. The Distributor receives and usually reallows
commissions to firms responsible for the sale of such shares. With certain
exceptions described below, the Funds impose a deferred sales charge on all the
Funds except Davis Government Money Market Fund. The charge is 4% on shares
redeemed during the first year after purchase, 3% on shares redeemed during the
second or third year after purchase, 2% on shares redeemed during the fourth or
fifth year after purchase and 1% on shares redeemed during the sixth year after
purchase. However, on Class B shares of the Funds which are acquired in exchange
from Class B shares of other Davis Funds which were purchased prior to December
1, 1994, the Funds will impose a deferred sales charge of 4% on shares redeemed
during the first calendar year after purchase; 3% on shares redeemed during the
second calendar year after purchase; 2% on shares redeemed during the third
calendar year after purchase; and 1% on shares redeemed during the fourth
calendar year after purchase; and no deferred sales charge is imposed on amounts
redeemed after four calendar years from purchase. Class B shares will be subject
to a maximum Rule 12b-1 fee at the annual rate of 1% of the
49
<PAGE>
class's average daily net asset value. The Funds will not accept any purchase of
Class B shares in the amount of $250,000 or more per investor.
Class B shares that have been outstanding for eight years will
automatically convert to Class A shares without imposition of a front-end sales
charge. The Class B shares so converted will no longer be subject to the higher
expenses borne by Class B shares. Because the net asset value per share of the
Class A shares may be higher or lower than that of the Class B shares at the
time of conversion, although the dollar value will be the same, a shareholder
may receive more or less Class A shares than the number of Class B shares
converted. Under a private Internal Revenue Service Ruling, such a conversion
will not constitute a taxable event under the federal income tax law. In the
event that this ceases to be the case, the Board of Directors will consider what
action, if any, is appropriate and in the best interests of the Class B
shareholders. In addition, certain Class B shares held by certain defined
contribution plans automatically convert to Class A shares based on increases of
plan assets.
CLASS B SPECIAL DISTRIBUTION ARRANGEMENTS. Class B shares of the Fund are
made available to Retirement Plan Participants such as 401K or 403B Plans at net
asset value with the waiver of Contingent Deferred Sales Charge ("CDSC") if:
(i) the Retirement Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Retirement Plan sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Retirement Plan has less than $3
million in assets invested in broker/dealer funds not advised or managed
by Merrill Lynch Asset Management, L.P. ("MLAM") that are made available
pursuant to a Services Agreement between Merrill Lynch and the Fund's
principal underwriter or distributor and in funds advised or managed by
MLAM (collectively, the "Applicable Investments"); or
(ii) the Retirement Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a contract of
alliance arrangement with Merrill Lynch, and on the date the Retirement
Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the
Retirement Plan has less than $3 million in assets, excluding money market
funds, invested in Applicable Investments; or
(iii) the Retirement Plan has less than 500 eligible employees, as determined by
the Merrill Lynch plan conversion manager, on the date the Retirement Plan
Sponsor signs the Merrill Lynch Recordkeeping Service Agreement.
Retirement Plans recordkept on a daily basis by Merrill Lynch or an
independent recordkeeper under a contract with Merrill Lynch that are currently
investing in Class B shares of the Davis Mutual Funds convert to Class A shares
once the Retirement Plan has reached $5 million invested in Applicable
Investments. The Retirement Plan will receive a Retirement Plan level share
conversion. The Funds may make similar exceptions for other financial
institutions sponsoring or administering similar benefit plans.
CLASS C SHARES. Class C shares are offered at net asset value without a
sales charge at the time of purchase. Class C shares redeemed within one year of
purchase will be subject to a
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1% charge upon redemption. Class C shares do not have a conversion feature. The
Funds will not accept any purchases of Class C shares when Class A shares may be
purchased at net asset value.
The Distributor will pay a commission to the firm responsible for the sale
of Class C shares. No other fees will be paid by the Distributor during the
one-year period following purchase. The Distributor will be reimbursed for the
commission paid from 12b-1 fees paid by the Funds during the one-year period. If
Class C shares are redeemed within the one-year period after purchase, the 1%
redemption charge will be paid to the Distributor. After Class C shares have
been outstanding for more than one year, the Distributor will make quarterly
payments to the firm responsible for the sale of the shares in amounts equal to
0.75% of the annual average daily net asset value of such shares for sales fees
and 0.25% of the annual average daily net asset value of such shares for service
and maintenance fees.
CONTINGENT DEFERRED SALES CHARGES. Any contingent deferred sales charge
("CDSC") imposed upon the redemption of Class A, Class B or Class C shares is a
percentage of the lesser of (i) the net asset value of the shares redeemed, or
(ii) the original cost of such shares. No CDSC is imposed when you redeem
amounts derived from (a) increases in the value of shares redeemed above the net
cost of such shares, or (b) certain shares with respect to which the Funds did
not pay a commission on issuance, including shares acquired through reinvestment
of dividend income and capital gains distributions. Upon request for a
redemption, shares not subject to the CDSC will be redeemed first. Thereafter,
shares held the longest will be redeemed.
The CDSC on Class A, B, and C shares that are subject to a CDSC will be
waived if the redemption relates to the following: (a) in the event of the total
disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including registered joint owner) occurring
after the purchase of the shares being redeemed; (b) in the event of the death
of the shareholder (including a registered joint owner); (c) for redemptions
made pursuant to an automatic withdrawals plan in an amount, on an annual basis,
up to 12% of the value of the account at the time the shareholder elects to
participate in the automatic withdrawals plan; (d) for redemptions from a
qualified retirement plan or IRA that constitute a tax-free return of excess
contributions to avoid tax penalty; (e) on redemptions of shares sold to
directors, officers, and employees of any fund for which the Adviser acts as
investment adviser, or officers and employees of the Adviser, Sub-Adviser, or
Distributor, including former directors and officers and immediate family
members of all of the foregoing, and any employee benefit or payroll deduction
plan established by or for such persons; and (f) on redemptions pursuant to the
right of the Company to liquidate a shareholder's account if the aggregate net
asset value of the shares held in such account falls below an established
minimum amount.
Shares in different Davis Funds may be exchanged at relative net asset
value; however, if any Davis Fund shares being exchanged are subject to a sales
charge, Statement of Intention, or other limitation, the limitation will
continue to apply to the shares received in the exchange. When an investor
exchanges Class B or Class C shares in a Davis Fund for shares in Davis
Government Money Market Fund, the holding period for any deferred sales charge
does not continue during the time that the investor owns Davis Government Money
Market Fund shares.
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For example, Class B shares are subject to a declining sales charge for six
years. Any period that an investor owns shares of Davis Government Money Market
Fund will be added to the six-year declining sales charge period. Class A shares
sold at net asset value subject to a deferred sales charge will continue to age
while invested in Davis Government Money Market Fund shares.
CLASS Y SHARES. Class Y shares are offered through a separate Prospectus to
(i) trust companies, bank trusts, endowments, pension plans or foundations
("Institutions) acting on behalf of their own account or one or more clients for
which such Institution acts in a fiduciary capacity and investing at least
$5,000,000 at any one time; (ii) any state, county, city, department, authority
or similar agency which invests at least $5,000,000 ("Government Entities"); and
(iii) any investor with an account established under a "wrap account" or other
similar fee-based program sponsored and maintained by a registered broker-dealer
approved by the Funds' Distributor ("Wrap Program Investors"). Wrap Program
Investors may only purchase Class Y shares through the sponsors of such programs
who have entered into agreements with Davis Distributors, LLC.
Wrap Program Investors should be aware that both Class A and Class Y shares
are made available by the Fund at net asset value to sponsors of wrap programs.
However, Class A shares are subject to additional expenses under the Funds' Rule
12b-1 Plan and sponsors of wrap programs utilizing Class A shares are generally
entitled to payments under the Plan. If the sponsor has selected Class A shares,
investors should discuss these charges with their program's sponsor and weigh
the benefits of any services to be provided by the sponsor against the higher
expenses paid by Class A shareholders.
SPECIAL SERVICES
PROTOTYPE RETIREMENT PLANS. The Distributor and certain qualified dealers
have available prototype retirement plans (e.g. profit sharing, money purchase,
Simplified Employee Pension ("SEP") plans, model 403(b) and 457 plans for
charitable, educational and governmental entities) sponsored by the Company for
corporations and self-employed individuals. The Distributor and certain
qualified dealers also have prototype Individual Retirement Account ("IRA")
plans (deductible IRAs, non-deductible IRAs, including "Roth IRAs", and
educational IRAs) and SIMPLE IRA plans for both individuals and employers. These
plans utilize the shares of the Company and other Davis Funds as their
investment vehicle. State Street Bank and Trust acts as custodian or trustee for
certain retirement plans, and charges the participant an annual maintenance fee
of $10 per social security number regardless of the number of plans established.
The maintenance fee will be redeemed automatically at year-end from your
account, unless you elect to pay the fee directly prior to that time.
AUTOMATIC INVESTMENT PROGRAM. You may arrange for automatic monthly
investing whereby State Street Bank and Trust will be authorized to initiate a
debit to your bank account of a specific amount (minimum $25) each month which
will be used to purchase the Funds' shares. The account minimums of $1,000 for
non-retirement accounts and $250 for retirement accounts will be waived, if
pursuant to the automatic investment program the account balance will meet the
minimum investment requirements within twelve months of the initial investment.
For
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banking institutions that are members of the Automated Clearing House system
(ACH), such purchases can be processed electronically on any day of the month
between the 5th and the 28th. After each automatic investment, you will receive
a transaction confirmation from State Street Bank and Trust and the debit should
be reflected on your next bank statement. You may terminate the Automatic
Investment Program at any time. If you desire to utilize this program, you may
complete the appropriate section of the Application Form. Once you have
established your account, you may use the Account Service Form to establish this
program or submit a letter of instruction signed by the account owner(s). Class
Y shares are not eligible to participate in the Automatic Investment Program.
DIVIDEND DIVERSIFICATION PROGRAM. You may also establish a dividend
diversification program which allows you to have all dividends and any other
distributions automatically invested in shares of one or more of the Davis
Funds, subject to state securities law requirements and the minimum investment
requirements. You must receive a current prospectus for the other Fund or Funds
prior to investment. Shares will be purchased at the chosen Fund's net asset
value on the dividend payment date. A dividend diversification account must be
in the same registration as the distributing Fund account and must be of the
same class of shares. All accounts established or utilized under this program
must have a minimum initial value, and all subsequent investments must be at
least $25. This program can be amended or terminated at any time, upon at least
60 days' notice. If you would like to participate in this program, you may
complete the appropriate section of the Application Form. Once you have
established your account, you may use the Account Service Form to establish this
program or submit a letter of instruction signed by the account owner(s). Class
Y shares are not eligible to participate in the Dividend Diversification
Program.
TELEPHONE PRIVILEGE. Unless you have provided in your application that the
telephone privilege is not to be available, the telephone privilege is
automatically available under certain circumstances for exchanging shares and
for redeeming shares. BY EXERCISING THE TELEPHONE PRIVILEGE TO SELL OR EXCHANGE
SHARES, YOU AGREE THAT THE DISTRIBUTOR SHALL NOT BE LIABLE FOR FOLLOWING
TELEPHONE INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE. Reasonable procedures
will be employed to confirm that such instructions are genuine and if not
employed, the Company may be liable for unauthorized instructions. Such
procedures will include a request for personal identification (account or social
security number) and tape recording of the instructions. You should be aware
that during unusual market conditions we might have difficulty in accepting
telephone requests, in which case you should contact us by mail.
EXCHANGE OF SHARES
GENERAL. The exchange privilege is a convenient way to buy shares in other
Davis Funds in order to respond to changes in your goals or in market
conditions. If such goals or market conditions change, the Davis Funds offer a
variety of investment objectives, call our customer service department for
details. However, the Funds are intended as long-term investments and are not
intended for short-term trades. Shares of a particular class of a Fund may be
exchanged only for shares of the same class of another Davis Fund, some Class A
shareholders maybe eligible to purchase Class Y shares and exchange their shares
for Class Y shares of the same Fund. All of the Davis Funds offer Class A, Class
B, Class C and Class Y shares. The shares to
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be received upon exchange must be legally available for sale in your state. For
Class A, Class B or Class C shares the net asset value of the initial shares
being acquired must meet the required minimum of $1,000 (and $250 for retirement
accounts) unless such exchange is under the Automatic Exchange Program described
below. For Class Y shares the net asset value of the initial shares being
acquired must be at least $5,000,000 for Institutions and Government Entities or
minimums set by wrap program sponsors.
Shares may be exchanged at relative net asset value without any additional
charge. However, if any shares being exchanged are subject to an escrow or
segregated account pursuant to the terms of a Statement of Intention or a CDSC,
such shares will be exchanged at relative net asset value, but the escrow or
segregated account will continue with respect to the shares acquired in the
exchange. In addition, the terms of any CDSC, or redemption fee applicable at
the time of exchange, will continue to apply to any shares acquired upon
exchange. Exchanges of Class A shares of Davis Government Money Market Fund into
Class A shares of another Davis Fund will be made at the public offering price
of the acquired shares (which includes the applicable front-end sales load)
unless such shares were acquired by exchange of shares on which you have already
paid a sales charge.
Before you decide to make an exchange, you must obtain the current
prospectus of the desired Fund. Call your broker or the Distributor for
information and a prospectus for any of the other Davis Funds registered in your
state. Read the prospectus carefully. If you decide to exchange your shares,
contact your broker/dealer, the Distributor, or send State Street Bank and Trust
a written unconditional request for the exchange and follow the instructions
regarding delivery of share certificates contained in the section on "Redemption
of Shares." An unconditional request does not specify an exchange date, price or
other condition for the execution of the exchange. A medallion signature
guarantee is not required for such an exchange. However, if shares are also
redeemed for cash in connection with the exchange transaction, a medallion
signature guarantee may be required. A medallion signature guarantee is a
written confirmation from an eligible guarantor institution, such as a
securities broker-dealer or a commercial bank, that the signature(s) on the
account is (are) valid. Unfortunately, no other form of signature verification
can be accepted. Your dealer may charge an additional fee for handling an
exercise of the exchange privilege.
An exchange involves both a redemption and a purchase, and normally both
are done on the same day. However, in certain instances such as where a large
redemption is involved, the investment of redemption proceeds into shares of
other Davis Funds may take up to seven days. For federal income tax purposes,
exchanges between Funds are treated as a sale and purchase. Therefore, there
will usually be a recognizable capital gain or loss due to an exchange. An
exchange between different classes of the same Fund is not a taxable event.
The number of times you may exchange shares among the Davis Funds within a
specified period of time may be limited at the discretion of the Distributor.
Currently, more than four exchanges out of a Fund during a twelve-month period
are not permitted without the prior written approval of the Distributor. The
Company reserves the right to terminate or amend the exchange privilege at any
time upon 60 days' notice.
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SEGREGATION OF DAVIS GOVERNMENT MONEY MARKET FUND SHARES. In order to
secure the payment of any sales charge or CDSC that may be due on shares
exchanged into shares of Davis Government Money Market Fund, the number of
shares equal in value to the sales charge are segregated and separately
maintained in Davis Government Money Market Fund. The purpose of the segregation
is to assure that redemptions utilizing the Davis Government Money Market Fund
check writing privilege do not deplete the account without payment of any
applicable sales charge and therefore no draft will be honored for liquidation
of shares in excess of the shares in the Davis Government Money Market Fund
account which are free of segregation. See "Check Writing Privilege" under
"Redemption of Shares - Davis Government Money Market Fund."
BY TELEPHONE. You may exchange shares by telephone into accounts with
identical registrations and the same share class. Please see the discussion of
procedures with respect to telephone instructions in the section entitled
"Telephone Privilege," as such procedures are also applicable to exchanges.
AUTOMATIC EXCHANGE PROGRAM. The Company also offers an automatic monthly
exchange program. All accounts established or utilized under this program must
have the same registration and the same share class, and a minimum initial value
of at least $250. All subsequent exchanges must have a value of at least $25.
Each month, shares will be simultaneously redeemed and purchased at the chosen
Fund's applicable price. If you would like to participate in this program, you
may complete the appropriate section of the Application Form. Once you have
established your account, you may use the Account Service Form or a letter of
instruction signed by the account owner(s) to establish this program.
REDEMPTION OF SHARES
GENERAL. You can redeem, or sell back to the Company, all or part of your
shares at any time at net asset value less any applicable sales charges. You can
do this by sending a written request to State Street Bank and Trust Company, c/o
The Davis Funds, P.O. Box 8406, Boston, MA 02266-8406, indicating how many of
your shares or what dollar amount you want to redeem. If more than one person
owns the shares to be redeemed, all owners must sign the request. The signatures
on the request must correspond to the account from which the shares are being
redeemed.
Sometimes State Street Bank and Trust needs more documents to verify
authority to make a redemption. This usually happens when the owner is a
corporation, partnership or fiduciary (such as a trustee or the executor of an
estate), or if the person making the request is not the registered owner of the
shares.
If shares to be redeemed are represented by a certificate, the certificate
must be sent to State Street Bank and Trust with the a letter of instruction
signed by all account owner(s).
For the protection of all shareholders, the Company also requires that
signatures appearing on a letter of instruction, stock power or redemption
request where the proceeds would be more than $100,000 mailed to the address of
record, must be medallion signature-guaranteed
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by an eligible guarantor institution, such as a securities broker-dealer, or a
commercial bank. In some situations where corporations, trusts, or estates are
involved, additional documents such as a certified copy of the corporate
resolution, may be necessary to effect the redemption. The transfer agent may
reject a request from any of the foregoing eligible guarantors, if such
guarantor does not satisfy the transfer agent's written standards or procedures,
or if such guarantor is not a member or participant of a medallion signature
guarantee program or does not reimburse in the case of fraud. This provision
also applies to exchanges when there is also a redemption for cash. A medallion
signature guarantee on redemption requests where the proceeds would be $100,000
or less is not required, provided that such proceeds are being sent to the
address of record and, in order to ensure authenticity of an address change,
such address of record has not been changed within the last 30 days.
Redemption proceeds are normally paid to you within seven days after State
Street Bank and Trust receives your proper redemption request. Payment for
redemptions can be suspended under certain emergency conditions determined by
the Securities and Exchange Commission, or if the New York Stock Exchange is
closed for other than customary or holiday closings. If any of the shares
redeemed were just bought by you, payment to you may be delayed until your
purchase check has cleared (which usually takes up to 15 days from the purchase
date). You can avoid any redemption delay by paying for your shares with a bank
wire or federal funds.
Redemptions are ordinarily paid to you in cash. However, the Company's
Board of Directors is authorized to decide if conditions exist making cash
payments undesirable (although the Board has never reached such a decision). If
the Board of Directors should decide to make payments other than in cash,
redemptions could be paid in securities, valued at the value used in computing a
Fund's net asset value. There would be brokerage costs incurred by the
shareholder in selling such redemption proceeds. We must, however, redeem shares
solely in cash up to the lesser of $250,000 or 1% of the Fund's net asset value,
whichever is smaller, during any 90-day period for any one shareholder.
Your shares may also be redeemed through participating dealers. Under this
method, the Distributor repurchases the shares from your dealer, if your dealer
is a member of the Distributor's selling group. Your dealer may, but is not
required to, use this method in selling back your shares and may place a
repurchase request by telephone or wire. Your dealer may charge you a service
fee or commission. No such charge is incurred if you redeem your own shares
through State Street Bank and Trust rather than having a dealer arrange for a
repurchase.
DAVIS GOVERNMENT MONEY MARKET FUND. You may request redemption of part or
all of your shares in Davis Government Money Market Fund by mail by sending your
request to State Street Bank and Trust Company, c/o Davis Funds, P.O. Box 8406,
Boston, MA 02266-8406. You may also redeem shares through the Check Writing
Privilege or by Expedited Redemption Privilege to a pre-designated bank account.
Normally, except for payment to a pre-designated bank account, State Street Bank
and Trust will send payment for Davis Government Money Market Fund shares
redeemed within three business days, but in no event, later than seven days,
after receipt of a redemption request in proper form. Redemption of Davis
Government Money Market Fund shares which were acquired by exchange from shares
subject to a contingent deferred sales charge may be subject to such a charge.
Shares exchanged into Davis Government
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Money Market Fund are subject to segregation to assure payment of any sales
charges that may be due upon redemption.
DAVIS GOVERNMENT MONEY MARKET FUND CHECK WRITING PRIVILEGE, CLASS A SHARES.
For Davis Government Money Market Fund (Class A shares only) accounts other than
retirement plans and IRAs, State Street Bank and Trust will provide, upon
request, forms of drafts to be drawn on your regular account that will clear
through State Street Bank and Trust. These drafts may be made payable to the
order of any person in any amount not less than $100. When a draft is presented
to State Street Bank and Trust for payment, State Street Bank and Trust will
redeem a sufficient number of full and fractional shares in your account to
cover the amount of the draft. This enables you to continue earning daily income
dividends until the draft has cleared.
If you elect to use this method of redemption, please so signify on the
Check Writing Privilege Form. You will be subject to State Street Bank and
Trust's rules and regulations governing such drafts, including the right of
State Street Bank and Trust not to honor drafts in amounts exceeding the value
of the regular account at the time they are presented for payment. Drafts in
excess of the value of the Davis Government Money Market Fund regular account
cannot be honored by redemption of any other Fund account. The Company and State
Street Bank and Trust reserve the right to modify or terminate this service at
any time.
A shareholder may issue a "Stop Payment" on any draft by calling State
Street Bank and Trust at (617) 847-8543. The "Stop Payment" order will become
effective if it is given on a timely basis pursuant to the "Stop Payment" rules
in effect at State Street Bank and Trust with respect to their regular checking
accounts.
ELECTRONIC WIRE PRIVILEGE. You may be eligible to have your sale proceeds
electronically transferred to a commercial bank account. This is known as an
ELECTRONIC WIRE PRIVILEGE. There is a $5 charge by State Street Bank and Trust
for wire service, and receiving banks may also charge for this service. Payment
through Automated Clearing House will usually arrive at your bank two banking
days after the sale. Payment by wire is usually credited to your bank account on
the next business day after the sale.
While State Street Bank and Trust will accept electronic wire sales by
telephone or dealer, you still need to fill out and submit the information under
the Electronic Wire Privilege section of the Application Form. Once your account
has been opened and you have not previously established the Electronic Wire
Privilege, you must submit a letter of instruction with a medallion signature
guarantee signed by all registered owners at the time of the wire sale. If you
are currently an investor with a non-retirement account and have already
established this privilege, you may call our customer service department to
execute a wire sale by telephone.
If a shareholder seeks to use the check writing privilege or expedited
redemption privilege to a pre-designated bank account to redeem Davis Government
Money Market Fund shares recently purchased by check (whether by regular or
expedited method), the Fund will refuse to accept telephone redemption requests
when made and to honor redemption drafts when presented unless it is then
reasonably assured of the collection of the check representing the
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purchase (normally up to 15 days after receipt of such check). This result can
be avoided by investing by wire.
MAINTENANCE FEES. To help relieve the Davis Government Money Market Fund's
high cost of maintaining small accounts, there is a $10 charge imposed on all
accounts whose net asset value has been reduced to less than $1,000. This charge
is collected by redemption in December of each year and is paid to Davis
Government Money Market Fund.
BY TELEPHONE. You can redeem shares by telephone and receive a check by
mail, but please keep in mind:
The check can only be issued for up to $25,000;
The check can only be issued to the registered owner(s);
The check can only be sent to the address of record; and
Your current address of record must have been on file for 30 days.
AUTOMATIC WITHDRAWAL PLAN. Under the Automatic Withdrawal Plan, you can
instruct State Street Bank and Trust to sell a set dollar or percentage amount
each month or each quarter. Your account must have a value of at least $10,000
to start a plan.
When you participate in this plan, shares are sold so that you will receive
payment by one of three methods:
First, you may receive funds at the address of record provided that this
address has been unchanged for a period of not less than 30 days. These funds
are sent by check on or after the 25th day of the month.
Second, you may also choose to receive funds by Automated Clearing House
(ACH) to the banking institution of your choice. You may elect an ACH draft date
between the 5th and the 28th days of the month. You must complete the
appropriate section of the Application Form. Once your account has been
established, you must submit a letter of instruction with a medallion signature
guarantee.
Third, you may have funds sent by check to a third party at an address
other than the address of record. You must complete the appropriate section of
the Application Form. Once your account has been established, you must submit a
letter of instruction with a medallion signature guarantee to designate a third
party payee.
Withdrawals involve redemption of shares and may produce gain or loss for
income tax purposes. Shares of the Funds initially acquired by exchange from any
of the other Davis Funds will remain subject to an escrow or segregated account
to which any of the exchanged shares were subject. If you utilize this program,
any applicable CDSCs will be imposed on such shares redeemed. Purchase of
additional shares concurrent with withdrawals may be disadvantageous to you
because of tax and sales load consequences. If the amount you withdraw exceeds
the dividends on your shares, your account will suffer depletion. You may
terminate your Automatic Withdrawal Plan at any time without charge or penalty.
The Company reserves the
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right to terminate or modify the Automatic Withdrawal Plan at any time. Class Y
shares are not eligible for the Automatic Withdrawal Plan.
INVOLUNTARY REDEMPTIONS. To relieve the Company of the cost of maintaining
uneconomical accounts, the Company may effect the redemption of shares at net
asset value in any account if the account, due to shareholder redemptions, has a
value of less than $250. At least 60 days prior to such involuntary redemption,
the Company will mail a notice to the shareholder so that an additional purchase
may be effected to avoid such redemption.
SUBSEQUENT REPURCHASES. After some or all of your shares are redeemed or
repurchased, you may decide to put back all or part of your proceeds into the
same Class of a Fund's shares. Any such shares will be issued without sales
charge at the net asset value next determined after you have returned the amount
of your proceeds. In addition, any applicable CDSC assessed on such shares will
be returned to the account. Shares will be deemed to have been purchased on the
original purchase date for purposes of calculating the CDSC and the conversion
period. This can be done by sending State Street Bank and Trust or the
Distributor a letter of instruction signed by the account owner(s), together
with a check for the reinstatement amount. The letter must be received, together
with the payment, within 60 days after the redemption or repurchase. You can
only use this privilege once.
Section IV: General Information
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DETERMINING THE PRICE OF SHARES
NET ASSET VALUE. The net asset value per share of each class is determined
daily by dividing the total value of investments and other assets, less any
liabilities, by the total outstanding shares. The net asset value of each Fund
is determined daily as of the earlier of the close of the New York Stock
Exchange (the "Exchange") or 4 p.m. Eastern time on each day that the Exchange
is open for trading.
The price per share for purchases or redemptions made directly through
State Street Bank and Trust is generally the value next computed after State
Street Bank and Trust receives the purchase order or redemption request. In
order for your purchase order or redemption request to be effective on the day
you place your order with your broker-dealer or other financial institution,
such broker-dealer or financial institution must (i) receive your order before
4:00 p.m. Eastern time, and (ii) promptly transmit the order to State Street
Bank and Trust. The broker-dealer or financial institution is responsible for
promptly transmitting purchase orders or redemption requests to State Street
Bank and Trust so that you may receive the same day's net asset value. Note that
in the case of redemptions and repurchases of shares owned by corporations,
trusts, or estates, or of shares represented by outstanding certificates, State
Street Bank and Trust may require additional documents to effect the redemption
and the applicable price will be determined as of the close of the next
computation following the receipt of the required documentation or outstanding
certificates. See "Redemption of Shares."
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The Company does not price its shares or accept orders for purchases or
redemptions on days when the New York Stock Exchange is closed. Such days
currently include New Year's Day, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Certain brokers and certain designated intermediaries on their behalf may
accept purchase and redemption orders. The Distributor will be deemed to have
received such an order when the broker or the designee has accepted the order.
Customer orders are priced at the net asset value next computed after such
acceptance. Such order may be transmitted to the Fund or its agents several
hours after the time of the acceptance and pricing.
VALUATION OF PORTFOLIO SECURITIES. Portfolio securities are normally valued
using current market valuations. Securities traded on a national securities
exchange are valued at the last published sales price on the exchange, or in the
absence of recorded sales, at the average of closing bid and asked prices on
such exchange. Over-the-counter securities are valued at the average of closing
bid and asked prices. Fixed-income securities may be valued on the basis of
prices provided by a pricing service. Investments in short-term securities
(purchased with a maturity of one year or less) are valued at amortized cost
unless the Board of Directors determines that such cost is not a fair value.
Assets for which there are no quotations available will be valued at a fair
value as determined by or at the direction of the Board of Directors.
To the extent that the Funds' securities are traded in markets that close
at different times, events affecting portfolio values that occur between the
time that their prices are determined and the time the Funds' shares are priced
will generally not be reflected in the Funds' share price. The value of
securities denominated in foreign currencies and traded in foreign markets will
have their value converted into the U.S. dollar equivalents at the prevailing
market rate as computed by State Street Bank & Trust Company. Fluctuation in the
value of foreign currencies in relation to the U.S. dollar may affect the net
asset value of the Funds' shares even if there has not been any change in the
foreign currency price of the Funds' investments.
Normally, the share price of Davis Government Money Market Fund does not
fluctuate. However, if there are unusually rapid changes in interest rates which
in the Board's view cause a material deviation between amortized cost and market
value, the Board will consider whether such conditions require taking any
temporary action to maintain the normal fixed price or to prevent material
dilution or other unfavorable results to shareholders. Such action could include
withholding dividends, paying dividends out of surplus, realizing gains or
losses or using market valuation.
DIVIDENDS AND DISTRIBUTIONS
There are two sources of income, net income and realized capital gains,
paid to you by the Funds. You will receive confirmation statements for dividends
declared and shares purchased through reinvestment of dividends. You will also
receive confirmations after each purchase and after each redemption. Different
classes of shares may be expected to have different expense ratios due to
differing distribution services fees and certain other expenses.
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Classes with higher expense ratios will pay correspondingly lower dividends than
Classes with lower expense ratios. For tax purposes, information concerning
distributions will be mailed annually to shareholders.
Shareholders have the option of receiving all dividends and distributions
in cash, of having all dividends and distributions reinvested, or of having
income dividends paid in cash and capital gain distributions reinvested.
Reinvestment of all dividends and distributions is automatic for accounts
utilizing the Automatic Withdrawals Plan. The reinvestment of dividends and
distributions is made at net asset value (without any initial or contingent
deferred sales charge) on the payment date.
For the protection of the shareholder, upon receipt of the second dividend
check which has been returned to State Street Bank and Trust as undeliverable,
undelivered dividends will be invested in additional shares at the current net
asset value and the account designated as a dividend reinvestment account.
DAVIS GROWTH OPPORTUNITY FUND AND DAVIS FINANCIAL FUND. Income dividends
and distributions from net realized capital gains, if any, are distributed
annually.
DAVIS GOVERNMENT BOND FUND. Income dividends are paid monthly. You will
receive confirmation statements for dividends declared and shares purchased
through reinvestment of dividends. Distributions from any net realized capital
gain not offset by capital loss carryovers are distributed annually. Davis
Government Bond Fund declares distributions based on the Adviser's projections
of estimated net investment income and net realized short-term gains. The amount
of each distribution may differ from actual net investment income and gains
determined in accordance with generally accepted accounting principles. Davis
Government Bond Fund at times may continue to pay distributions based on
expectations of future investment results to provide stable distributions for
its shareholders even though, as a result of temporary market conditions or
other factors (including losses realized later in a fiscal year which have the
effect of affecting previously realized gains), Davis Government Bond Fund may
have failed to achieve projected investment results for a given period. In such
cases, Davis Government Bond Fund's distributions may include a return of
capital to shareholders. Shareholders who reinvest their distributions are
largely unaffected by such returns of capital. In the case of shareholders who
do not reinvest, a return of capital is equivalent to a partial redemption of
the shareholder's investment.
DAVIS GOVERNMENT MONEY MARKET FUND. Dividends from net income are declared
daily on shares outstanding as of the close of business the preceding day and
are paid monthly. You will receive monthly confirmation statements for dividends
declared and shares purchased through reinvestment of dividends. Income for
Saturdays, Sundays and holidays are accrued on Fridays. Dividends declared
during each calendar month are paid on the last business day of the month.
Shares earn dividends as of the first business day after the effective purchase
date up through the date of redemption.
DAVIS CONVERTIBLE SECURITIES FUND AND DAVIS REAL ESTATE FUND. Income
dividends are normally paid quarterly. Distributions from any net realized
capital gains are made annually.
61
<PAGE>
DIVIDENDS AND DISTRIBUTIONS MAY CHANGE. Usually dividends and capital gains
distributions are paid as discussed above. However, the Board of Directors
reserves the right to suspend payments or to make additional payments.
FEDERAL INCOME TAXES
This section is not intended to be a full discussion of all the aspects of
the federal income tax law and its effects on the Funds and their shareholders.
Shareholders may be subject to state and local taxes on distributions. Each
investor should consult his or her own tax adviser regarding the effect of
federal, state, and local taxes on any investment in the Funds.
The Funds intend to continue to qualify as a regulated investment company
under the Internal Revenue Code (the "Code"), and if so qualified, will not be
liable for federal income tax to the extent its earnings are distributed. If,
for any calendar year, the distribution of earnings required under the Code
exceeds the amount distributed, an excise tax, equal to 4% of the excess, will
be imposed on the applicable Fund. The Funds intend to make distributions during
each calendar year sufficient to prevent imposition of the excise tax.
Distributions of net investment income and net realized short-term capital
gains will be taxable to shareholders as ordinary income. Distributions of net
long-term capital gains will be taxable to shareholders as long-term capital
gain regardless of how long the shares have been held. Distributions will be
treated the same for tax purposes whether received in cash or in additional
shares. Dividends declared in the last calendar month to shareholders of record
in such month and paid by the end of the following January are treated as
received by the shareholder in the year in which they are declared. A gain or
loss for tax purposes may be realized on the redemption of shares. If the
shareholder realizes a loss on the sale or exchange of any shares held for six
months or less and if the shareholder received a capital gain distribution
during that period, then the loss is treated as a long-term capital loss to the
extent of such distribution.
PERFORMANCE DATA
From time to time, the Funds may advertise information regarding their
performance. Such information will be calculated separately for each class of
shares. These performance figures are based upon historical results and are not
intended to indicate future performance.
62
<PAGE>
CUMULATIVE TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN
The cumulative total return and the average annual total return (each is
defined below) with respect to each class of shares for each Fund for the
periods indicated below is as follows:
<TABLE>
<CAPTION>
Cumulative Average Annual
Davis Growth Opportunity Fund Total Return (1) Total Return (2)
- ----------------------------- -------------- --------------
<S> <C> <C>
Class A shares
One year ended December 31, 1999.........................................25.18% 25.18%
Five years ended December 31, 1999......................................184.85% 23.27%
Period from December 1, 1994 through
December 31, 1999 (life of class) ......................................176.89% 22.18%
Class B shares
One year ended December 31, 1999 ........................................26.47% 26.47%
Five years ended December 31, 1999 .....................................186.10% 23.38%
Ten years ended December 31, 1999 ......................................282.52% 14.35%
Period from May 1, 1984 through
December 31, 1999 (life of class) ......................................898.21% 15.81%
Class C shares
One year ended December 31, 1999.........................................29.32% 29.32%
Period from August 15, 1997 through
December 31, 1999 (life of class)........................................24.77% 9.75%
Class Y shares
One year ended December 31, 1999.........................................32.16% 32.16%
Period from September 18, 1997 through
December 31, 1999 (life of class)........................................20.21% 8.39%
<CAPTION>
Cumulative Average Annual
Davis Financial Fund Total Return (1) Total Return (2)
- -------------------- ------------- ---------------
<S> <C> <C>
Class A shares
One year ended December 31, 1999....................................... (5.56)% (5.56)%
Five years ended December 31, 1999..................................... 208.50% 25.26%
Period from May 1, 1991 through
December 31, 1999 (life of class) ..................................... 453.41% 21.80%
Class B shares
One year ended December 31, 1999....................................... (5.64)% (5.64)%
Five years ended December 31, 1999..................................... 207.46% 25.17%
Period from December 27, 1994 through
December 31, 1999 (life of class) ..................................... 205.67% 24.96%
Class C shares
One year ended December 31, 1999....................................... (2.67)% (2.67)%
Period from August 12, 1997 through
December 31, 1999 (life of class)...................................... 21.89% 8.65%
Class Y shares
One year ended December 31, 1999 ...................................... (0.65)% (0.65)%
Period from March 10, 1997 through
December 31, 1999 (life of class)...................................... 46.46% 14.54%
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Cumulative Average Annual
Davis Real Estate Fund Total Return (1) Total Return (2)
- ---------------------- ------------- --------------
<S> <C> <C>
Class A shares
One year ended December 31, 1999...................................... (11.93)% (11.93)%
Five years ended December 31, 1999.................................... 50.06% 8.45%
Period from January 3, 1994 through
December 31, 1999 (life of class)...................................... 62.33% 8.42%
Class B shares
One year ended December 31, 1999...................................... (11.89)% (11.89)%
Five years ended December 31, 1999.................................... 48.54% 8.23%
Period from December 27, 1994 through
December 31, 1999 (life of class)...................................... 50.88% 8.55%
Class C shares
One year ended December 31, 1999 ..................................... (9.22)% (9.22)%
Period from August 13, 1997 through
December 31, 1999 (life of class)......................................(14.65)% (6.43)%
Class Y shares
One year ended December 31, 1999...................................... (7.21)% (7.21)%
Period from November 8, 1996 through
December 31, 1999 (life of class)...................................... 11.29% 3.46%
Cumulative Average Annual
Davis Convertible Securities Fund Total Return (1) Total Return (2)
- --------------------------------- ------------- --------------
<S> <C> <C>
Class A shares
One year ended December 31, 1999 ...................................... 7.62% 7.62%
Five years ended December 31, 1999 .................................... 122.96% 17.38%
Period from May 1, 1992 through
December 31, 1999 (life of class)..................................... 175.65% 14.13%
Class B shares
One year ended December 31, 1999 ...................................... 8.01% 8.01%
Period from February 3, 1995 through
December 31, 1999 (life of class) ..................................... 115.84% 16.97%
Class C shares
One year ended December 31, 1999 ...................................... 10.98% 10.98%
Period from August 12, 1997 through
December 31, 1999 (life of class)....................................... 17.10% 6.84%
Class Y shares
One year ended December 31, 1999 ...................................... 13.30% 13.30%
Period from November 13, 1996 through
December 31, 1999 (life of class) ..................................... 53.86% 14.75%
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Cumulative Average Annual
Davis Government Bond Fund. Total Return (1) Total Return (2)
- -------------------------- ------------- -------------
<S> <C> <C>
Class A shares
One year ended December 31, 1999 ............................................(8.00)% (8.00)%
Five years ended December 31, 1999.......................................... 21.93% 4.04%
Period from December 1, 1994 through
December 31, 1999 (life of class) ......................................... 22.13% 4.01%
Class B shares
One year ended December 31, 1999 .......................................... (7.78)% (7.78)%
Five years ended December 31, 1999 ......................................... 21.19% 3.92%
Ten years ended December 31, 1999 .......................................... 56.90% 4.60%
Period from May 1, 1984 through
December 31, 1999 (life of class) ......................................... 158.45% 6.24%
Class C shares
One year ended December 31, 1999 .......................................... (5.06)% (5.06)%
Period from August 19, 1997 through
December 31, 1999 (life of class)............................................ 4.05% 1.69%
Class Y shares
One year ended December 31, 1999........................................... (2.73)% (2.73)%
Period from September 1, 1998 through
December 31, 1999 (life of class).......................................... (1.19)% (0.89)%
</TABLE>
(1) "Cumulative Total Return" is a measure of a Fund's performance
encompassing all elements of return. Total return reflects the change
in share price over a given period and assumes all distributions are
taken in additional Fund shares. Total return is determined by
assuming a hypothetical investment at the beginning of the period,
deducting a maximum front-end or applicable contingent deferred sales
charge, adding in the reinvestment of all income dividends and capital
gains, calculating the ending value of the investment at the net asset
value as of the end of the specified time period and subtracting the
amount of the original investment, and by dividing the original
investment. This calculated amount is then expressed as a percentage
by multiplying by 100. Periods of less than one year are not
annualized.
(2) "Average Annual Total Return" represents the average annual compounded
rate of return for the periods presented. Periods of less than one
year are not annualized. Average annual total return measures both the
net investment income generated by, and the effect of any realized or
unrealized appreciation or depreciation of, the underlying investments
in the Fund's portfolio. Average annual total return is calculated
separately for each class in accordance with the standardized method
prescribed by the Securities and Exchange Commission by determining
the average annual compounded rates of return over the periods
indicated, that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment
made at the beginning of such period.
65
<PAGE>
This calculation (i) assumes all dividends and distributions are reinvested
at net asset value on the appropriate reinvestment dates, and (ii) deducts (a)
the maximum front-end or applicable contingent deferred sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory fees, charged as expenses to all shareholder accounts.
30-DAY SEC YIELD. The 30-Day SEC Yield (defined below) with respect to each
class of shares of Davis Real Estate Fund, Davis Convertible Bond Fund, and
Davis Government Bond Fund for the period ended December 31, 1999, is as
follows:
Davis Real Davis Convertible Davis Government
Estate Fund Securities Fund Bond Fund
----------- ----------------- -----------
Class A shares 4.45% 2.27% 5.58%
Class B shares 3.88% 1.58% 4.83%
Class C shares 3.83% 1.54% 4.79%
Class Y shares 5.01% 2.69% 5.83%
"30-Day SEC Yield" is computed in accordance with a standardized method
prescribed by the rules of the Securities and Exchange Commission and is
calculated separately for each class. 30-Day SEC Yield is a measure of the net
investment income per share (as defined) earned over a specified 30-day period
expressed as a percentage of the maximum offering price of the Funds' shares at
the end of the period. Such yield figure was determined by dividing the net
investment income per share on the last day of the period, according to the
following formula:
30-Day SEC Yield = 2 [(a - b + 1) 6 - 1]
----------
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last day of the period.
The Funds' 30-Day SEC Yields will fluctuate depending upon prevailing
interest rates, quality, maturities, types of instruments held, and operating
expenses. Thus, any yield quotation should not be considered representative of
future results. If a broker-dealer charges investors for services related to the
purchase or redemption of Fund shares, the yield will effectively be reduced.
CURRENT AND EFFECTIVE YIELDS. The current and effective yields for Davis
Government Money Market Fund's Class A shares for the seven-day period ended
December 31, 1999, were 5.65% and 5.80%, respectively.
Yield quotations are calculated in accordance with the following formulas:
Current Yield = [(C-D) - BV] x (365/7)
66
<PAGE>
Effective Yield = [ [ [ (C-D) - BV] + 1]365/7] - 1
C = Net change (excluding capital change in value of
hypothetical account with balance of one share at beginning
of seven-day period).
D = Deductions charged to hypothetical account.
BV = Value of hypothetical account at beginning of seven-day
period for which yield is quoted.
Davis Government Money Market Fund's Current and Effective Yields will
fluctuate depending upon prevailing interest rates, quality, maturities, types
of instruments held, and operating expenses. Thus, any yield quotation should
not be considered representative of future results. If a broker-dealer charges
investors for services related to the purchase or redemption of Fund shares, the
yield will effectively be reduced.
OTHER FUND STATISTICS. In reports or other communications to shareholders
and in advertising material, the performance of the Funds may be compared to
recognized unmanaged indices or averages of the performance of similar
securities. Also, the performance of the Funds may be compared to that of other
funds of comparable size and objectives as listed in the rankings prepared by
Lipper Analytical Services, Inc., Morningstar, Inc. or similar independent
mutual fund rating services, and the Funds may use evaluations published by
nationally-recognized independent ranking services and publications. Any given
performance comparison should not be considered representative of the Funds'
performance for any future period.
In advertising and sales literature the Funds may publish various
statistics describing its investment portfolio such as the Funds' average Price
to Book and Price to Earnings ratios, beta, alpha, R-squared, standard
deviation, etc.
The Funds' Annual Report and Semi-Annual Report contain additional
performance information and will be made available upon request and without
charge by calling Davis Funds toll-free at 1-800-279-0279, Monday through
Friday, 7 a.m. to 4 p.m. Mountain Time.
67
<PAGE>
APPENDIX A
QUALITY RATINGS OF DEBT SECURITIES
MOODY'S CORPORATE BOND RATINGS
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present, which make
the long-term risks, appear somewhat larger than Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade-obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations, i.e.
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements as their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments, or of maintenance of
other terms of the contract over any longer period of time, may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
STANDARD & POOR'S CORPORATE BOND RATINGS
AAA - Debt rated 'AAA' has the highest rating assigned by Standard and Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A - Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
68
<PAGE>
BB - Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B - Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC - Debt rated 'CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The 'CCC' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.
CC - The rating 'CC' is typically applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.
C - The rating 'C' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI - The rating 'CI' is reserved for income bonds on which no interest is being
paid.
D - Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 (superior capacity), Prime-2 (strong capacity) and Prime-3 (acceptable
capacity). In assigning ratings to an issuer which represents that its
commercial paper obligations are supported by the credit of another entity or
entities, Moody's evaluates the financial strength of the indicated affiliated
corporations, commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating assessment.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
The S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from 'A' for the highest
quality to 'D' for the lowest. Issues assigned an 'A' rating are regarded as
having the greatest capacity for timely payment. Within the 'A' category, the
numbers 1, 2 and 3 indicate relative degrees of safety. The addition of a plus
sign to the category A-1 denotes that the issue is determined to possess
overwhelming safety characteristics.
69
<PAGE>
APPENDIX B
TERMS AND CONDITIONS FOR A STATEMENT OF INTENTION (CLASS A SHARES ONLY)
TERMS OF ESCROW:
1. Out of my initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified in this Statement will be held in escrow by State Street
Bank and Trust in the form of shares (computed to the nearest full share at the
public offering price applicable to the initial purchase hereunder) registered
in my name. For example, if the minimum amount specified under this statement is
$100,000 and the public offering price applicable to transactions of $100,000 is
$10 a share, 500 shares (with a value of $5,000) would be held in escrow.
2. In the event I should exchange some or all of my shares to those of another
mutual fund for which Davis Distributors, LLC, acts as distributor, according to
the terms of this prospectus, I hereby authorize State Street Bank and Trust to
escrow the applicable number of shares of the new fund, until such time as this
Statement is complete.
3. If my total purchases are at least equal to the intended purchases, the
shares in escrow will be delivered to me or to my order.
4. If my total purchases are less than the intended purchases, I will remit to
Davis Distributors, LLC, the difference in the dollar amount of sales charge
actually paid by me and the sales charge which I would have paid if the total
purchase had been made at a single time. If remittance is not made within 20
days after written request by Davis Distributors, LLC, or my dealer, State
Street Bank and Trust will redeem an appropriate number of the escrowed shares
in order to realize such difference.
5. I hereby irrevocably constitute and appoint State Street Bank and Trust my
attorney to surrender for redemption any or all escrowed shares with full power
of substitution in the premises.
6. Shares remaining after the redemption referred to in Paragraph No. 4 will be
credited to my account.
7. The duties of State Street Bank and Trust are only such as are herein
provided being purely ministerial in nature, and it shall incur no liability
whatever except for willful misconduct or gross negligence so long as it has
acted in good faith. It shall be under no responsibility other than faithfully
to follow the instructions herein. It may consult with legal counsel and shall
be fully protected in any action taken in good faith in accordance with advice
from such counsel. It shall not be required to defend any legal proceedings
which may be instituted against it in respect of the subject matter of this
Agreement unless requested to do so and idemnified to its satisfaction against
the cost and expense of such defense.
8. If my total purchases are more than the intended purchases and such total is
sufficient to qualify for an additional quantity discount, a retroactive price
adjustment shall be made for all purchases made under such Statement to reflect
the quantity discount applicable to the aggregate amount of such purchases
during the thirteen-month period.
70
<PAGE>
FORM N-1A
DAVIS SERIES, INC.
POST-EFFECTIVE AMENDMENT NO. 43 UNDER THE SECURITIES ACT OF 1933
REGISTRATION STATEMENT NO. 2-57209
AND
AMENDMENT NO. 39 UNDER THE INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-2679
PART C
OTHER INFORMATION
-----------------
Item 23. Exhibits:
---------
(a)(1) Articles of Incorporation. incorporated by to Exhibit
(1) of Registrant's registration statement 2-57209
filed on Edgar 04.15.96.
(a)(2) Articles Supplementary to Articles of Incorporation
dated September 1, 1996 designating shares,
incorporated by reference to Exhibit (1)(b) of
Registrant's registration statement 2-57209 filed on
Edgar 08.12.97.
(b)* By-laws. Amended and Restated Bylaws, filed herein.
(c) Instruments Defining Rights of Security Holders. Not
applicable.
(d)(1) Investment Advisory Contracts. incorporated by
reference to Exhibits 5(a) and 5(b) of Registrant's
registration statement 2-57209 filed on Edgar 04.15.96.
(d)(2) Sub-Advisory Agreement between Davis Selected
Advisers, L.P. and Davis Selected Advisers-NY, Inc.,
incorporated by reference to exhibit 5(d) of
Registrant's registration statement 2-57209 filed on
Edgar 05.02.97.
(e)(1) Underwriting Contracts. Distributor's Agreement,
incorporated by reference to Exhibit (b) of
Registrant's registration agreement. 2-57209 filed on
Edgar 04.14.96.
1
<PAGE>
(e)(2) Transfer and Assumption Agreement dated July 31,
1997, incorporated by reference to Exhibit (6)(b) of
Registrant's registration statement 2-57209 filed on
Edgar 08.12.97.
(f) Bonus or Profit Sharing Contracts. Not applicable.
(g)(1)*Custodian Agreements Custodian Contract, filed
herein.
(g)(2)*Custodian Contract, amendment in respect to Rule
17f-5, filed herein.
(g)(3)*Custodian Contract, amendment in respect to
repurchase agreements, filed herein.
(h) Other Material Contracts. Transfer Agency and Service
Agreement incorporated by reference to Exhibit (8)(d)
of Registrant's Post-Effective Amendment No. 25, File
No. 2-57209.
(i)* Legal Opinion. Opinion and Consent of Counsel,
(D'Ancona & Pflaum).
(j)* Other Opinions. Consent of Auditors. KPMG LP.
(k) Omitted Financial Statements, incorporated from the
Annual Report.
(l) Initial Capital Agreements. Not Applicable
(m)(1) Rule 12b-1 Plan. Distribution Plan for Class A
shares, as amended, incorporated by reference to
Exhibit (15)(a) of Registrant's registration statement
2-57209 filed on Edgar 08.12.97.
(m)(2) Distribution Plan for Class B shares, incorporated by
reference to Exhibit (15)(b) of Registrant's
Post-Effective Amendment No. 32, File No. 2-57209.
(m)(3) Distribution Plan for Class C shares, incorporated by
reference to Exhibit (15)(d) of Registrant's
registration statement 2-57209 filed on Edgar
08.12.97..
(m)(4) Distribution Plan for Davis Government Money Market
Fund, incorporated by reference to Exhibit (15)(b) of
Registrant's Post-Effective Amendment No. 25, File No.
2-57209.
(n) Financial Data Schedule. Not applicable
2
<PAGE>
(o) Rule 18f-3 Plan. Plan pursuant to Rule 18f-3, as
amended, incorporated by reference to Exhibit (18)(b)
of Registrant's registration statement 2-57209 filed on
Edgar 08.12.97.
(p)(1) Other Exhibits. Powers of Attorney of the Registrant,
Officers and Board of Directors of Davis Series, Inc.
appointing Sheldon Stein and Arthur Don as
attorneys-in-fact. Incorporated by reference to Exhibit
(18)(b) of Registrant's registration statement. 2-57209
filed on Edgar10.21.98.
(p)(2) Other Exhibits. Powers of Attorney of the Registrant,
Marsha Williams of Davis Series, Inc. appointing
Sheldon Stein and Arthur Don as attorneys-in-fact
incorporated by reference to exhibit (p)(2) filed on
Edgar 04.28.99.
(p)(3)*Other Exhibits. Powers of Attorney of the
Registrant, Christopher Davis, appointing Sheldon Stein
and Arthur Don as attorneys-in-fact, filed herein.
* Filed Herein
Item 24. Persons Controlled by or Under Common Control With Registrant
-------------------------------------------------------------
Davis Distributors, LLC (the Fund's principal underwriter) and Davis
Selected Advisers-NY, Inc. (the Fund's sub-adviser) are wholly owned
subsidiaries of Davis Selected Advisers, L.P, (the Fund's Investment Adviser).
Item 25. Indemnification
---------------
Registrant's Articles of Incorporation indemnifies its directors, officers
and employees to the full extent permitted by Section 2-418 of the Maryland
General Corporation Law, subject only to the provisions of the Investment
Company Act of 1940. The indemnification provisions of the Maryland General
Corporation Law (the "Law") permit, among other things, corporations to
indemnify directors and officers unless it is proved that the individual (1)
acted in bad faith or with active and deliberate dishonesty, (2) actually
received an improper personal benefit in money, property or services, or (3) in
the case of a criminal proceeding, had reasonable cause to believe that his act
or omission was unlawful. The Law was also amended to permit corporations to
indemnify directors and officers for amounts paid in settlement of stockholders'
derivative suits.
In addition, the Registrant's directors and officers are covered under a
policy to indemnify them for loss (subject to certain deductibles) including
costs of defense incurred by reason of alleged errors or omissions, neglect or
breach of duty. The policy has a number of
3
<PAGE>
exclusions including alleged acts, errors, or omissions which are finally
adjudicated or established to be deliberate, dishonest, malicious or fraudulent
or to constitute willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties in respect to any registered investment company. This
coverage is incidental to a general policy carried by the Registrant's adviser.
In addition to the foregoing indemnification, Registrant's Articles of
Incorporation exculpate directors and officers with respect to monetary damages
except to the extent that an individual actually received an improper benefit in
money property or services or to the extent that a final adjudication finds that
the individual acted with active and deliberate dishonesty.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
Davis Selected Advisers, L.P. ("DSA ") and subsidiary companies comprise a
financial services organization whose business consists primarily of providing
investment management services as the investment adviser and manager for
investment companies registered under the Investment Company Act of 1940,
unregistered off-shore investment companies, and as an investment adviser to
institutional and individual accounts. DSA also serves as sub-investment adviser
to other investment companies. Davis Distributors, L.L.C., a wholly owned
subsidiary of DSA, is a registered broker-dealer. Davis Selected Advisers - NY,
Inc., another wholly owned subsidiary, provides investment management services
to various registered and unregistered investment companies, pension plans,
institutions and individuals.
Other business of a substantial nature that directors or officers of DSA
are or have been engaged in the last two years:
SHELBY M.C. DAVIS (3/20/37), 4135 North Steers Head Road, Jackson Hole WY 83001.
Senior Research Advisor and Founder of Davis Selected Advisers, L.P.
ANDREW A. DAVIS (6/25/63), 124 East Marcy Street, Santa Fe NM 87501. Director
and either a President or Vice President of each of the Davis Funds (except
Davis International Series, Inc.) and the Selected Funds; Director and
President, Venture Advisers, Inc.; Director and Vice President, Davis Selected
Advisers-NY, Inc.;
CHRISTOPHER C. DAVIS (7/13/65), 609 Fifth Avenue, New York NY 10017. Director
and President, Vice President or Chief Executive Officer of each of the Davis
Funds and the Selected Funds; Director, Vice Chairman, Venture Advisers, Inc.;
Director, Chairman, Chief Executive Officer, Davis Selected Advisers-NY, Inc.;
Chairman and Director, Shelby Cullom Davis Financial Consultants, Inc.; Employee
of Shelby Cullom Davis & Co., a registered broker/dealer; Director, Kings Bay
Ltd., an offshore investment management company.
KENNETH C. EICH (8/14/53), 2949 East Elvira Road, Suite 101, Tucson AZ 85706.
Vice President of each of the Davis Funds and Selected Funds; Chief Operating
Officer, Venture Advisers, Inc.; Vice President, Davis Selected Advisers-NY,
Inc.; President, Davis Distributors LLC;
GARY TYC (05/27/56), 2949 East Elvira Road, Suite 101, Tucson AZ 85706. Vice
President, Chief Financial Officer Treasurer, and Assistant Secretary of Venture
Advisers, Inc.; Vice
4
<PAGE>
President, Treasurer, & Assistant Secretary of Davis Selected Advisers - NY,
Inc.; Vice President, Treasurer, & Assistant Secretary of Davis Distributors
LLC; former Vice President of Oppenheimer Management Corporation.
THOMAS D. TAYS (03/07/57), 2949 East Elvira Road, Suite 101, Tucson AZ 85706.
Vice President and Secretary of each of the Davis Funds and Selected Funds; Vice
President and Secretary, Venture Advisers, Inc., Davis Selected Advisers-NY,
Inc., and Davis Distributors LLC.
Item 27. Principal Underwriter
---------------------
(a) Davis Distributors, LLC, a wholly owned subsidiary of the Adviser,
located at 2949 East Elvira Road, Tucson AZ 85706, is the principal underwriter
for the Registrant and also acts as principal underwriter for Davis New York
Venture Fund, Inc., Davis Series, Inc., Davis International Series, Inc.,
Selected American Shares, Inc., Selected Special Shares, Inc. and Selected
Capital Preservation Trust.
(b) Management of the Principal Underwriters:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS UNDERWRITER WITH REGISTRANT
- ---------------- ----------- ----------------
<S> <C> <C>
Kenneth C. Eich President Vice President
2949 East Elvira Road
Suite 101
Tucson AZ 85706
Gary P. Tyc Vice President, Treasurer and None
2949 East Elvira Road Assistant Secretary
Suite 101
Tucson AZ 85706
Thomas D. Tays Vice President and Secretary Vice President and Secretary
2949 East Elvira Road
Suite 101
Tucson AZ 85706
</TABLE>
(c) Not applicable.
Item 28. Location of Accounts and Records
Accounts and records are maintained at the offices of Davis Selected
Advisers, L.P., 2949 East Elvira Road, Suite 101, Tucson, Arizona 85706, and at
the offices of the Registrant's custodian, State Street Bank and Trust Company,
One Heritage Drive, North Quincy,
5
<PAGE>
Massachusetts 02107, and the Registrant's transfer agent State Street Bank and
Trust, c/o Service Agent, BFDS, Two Heritage Drive, 7th Floor, North Quincy,
Massachusetts 02107.
Item 29. Management Services
-------------------
Not applicable
Item 30. Undertakings
------------
Registrant undertakes to furnish each person to whom a prospectus is delivered
with a copy of Registrant's latest annual report to shareholders upon request
and without charge.
6
<PAGE>
DAVIS SERIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of Illinois on the 26th day of
April,2000.
DAVIS SERIES, INC.
*By: /s/ Arthur Don
------------------------------
Arthur Don
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated.
Signature Title Date
--------- ----- ----
Christopher C. Davis* Chief Executive Officer April 26, 2000
- ---------------------
Christopher C. Davis
Sharra L. Reed* Principal Financial Officer
- --------------
Sharra L. Reed and Treasurer April 26, 2000
*By: /s/ Arthur Don
------------------------------
Arthur Don
Attorney-in-Fact
*Arthur Don signs this document on behalf of the Registrant and each of the
foregoing officers pursuant to the powers of attorney filed as Exhibit (p) to
Registrant's Post-Effective Amendments filed on Edgar 10.21.98, and Exhibit
(p)(3) filed herein.
/s/ Arthur Don
---------------------------
Arthur Don
Attorney-in-Fact
7
<PAGE>
DAVIS SERIES, INC.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on April 26, 2000 by the following
persons in the capacities indicated.
Signature Title
--------- -----
Wesley E. Bass. Jr.* Director
- -----------------------------
Wesley E. Bass, Jr.
Jeremy H. Biggs* Director
- -----------------------------
Jeremy H. Biggs
Marc P. Blum* Director
- -----------------------------
Marc P. Blum
Andrew A. Davis* Director
- -----------------------------
Andrew A. Davis
Christopher C. Davis* Director
- -----------------------------
Christopher C. Davis
Jerry D. Geist* Director
- -----------------------------
Jerry D. Geist
D. James Guzy* Director
- -----------------------------
D. James Guzy
G. Bernard Hamilton* Director
- -----------------------------
G. Bernard Hamilton
Laurence W. Levine* Director
- -----------------------------
Laurence W. Levine
Christian R. Sonne* Director
- -----------------------------
Christian R. Sonne
Marsha Williams** Director
- -----------------------------
Marsha Williams
*Arthur Don signs this document on behalf of each of the foregoing persons
pursuant to the powers of attorney filed as Exhibit (p) to Registrant's
Post-Effective Amendment filed on Edgar 10.21.98.
8
<PAGE>
**Arthur Don signs this document on behalf of the foregoing person pursuant to
the powers of attorney filed as Exhibit (p)(2) to Registrant's Post-Effective
Amendment filed on Edgar 04.28.99.
/s/Arthur Don
-----------------------------
Arthur Don
Attorney-in-Fact
9
<PAGE>
EXHIBIT LIST
23(b) Amended and Restated Bylaws
23(g)(1) Custodian Contract
23(g)(2) Custodian Contract, amendment in respect to Rule 17f-5
23(g)(3) Custodian Contract, amendment in respect to repurchase agreements.
23(i) Legal Opinion and Consent
23(j)(1) Auditor's Consent. KPMG LLP
23(p)(3) Power of Attorney, Christopher C. Davis.
10
<PAGE>
Exhibit 23(b)
- -------------------------------------------------------------------------------
AMENDED AND RESTATED BYLAWS OF
DAVIS SERIES, INC.
DAVIS NEW YORK VENTURE FUND, INC.
DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND, INC.
DAVIS TAX-FREE HIGH INCOME FUND, INC.
(REVISED OCTOBER 6, 1998)
- -------------------------------------------------------------------------------
<PAGE>
AMENDED AND RESTATED BYLAWS OF
DAVIS SERIES, INC.
DAVIS NEW YORK VENTURE FUND, INC.
DAVIS INTERMEDIATE INVESTMENT GRADE BOND FUND, INC.
DAVIS TAX-FREE HIGH INCOME FUND, INC.
(REVISED OCTOBER 6, 1998)
ARTICLE I
---------
STOCKHOLDERS
------------
SECTION 1. Place of Meeting. All meetings of the stockholders shall be held
at the principal office of the Corporation in the State of Maryland or at such
other place within or without the State of Maryland as may from time to time be
designated by the Board of Directors and stated in the notice of meeting.
SECTION 2. Annual Meetings. Annual meetings shall not be required to be
held in any year unless the election of Directors is required to be acted upon
under the Investment Company Act of 1940 (hereinafter, the " 1940 Act"). An
annual meeting shall be held in accordance with the 1940 Act in the event that
less than a majority of the Directors then in office were elected by the vote of
stockholders. Any annual meeting may be called (i) by the Board of Directors, or
(ii) if required by the 1940 Act, by the President solely for the purposes of
electing Directors and considering the ratification of the independent public
accountant selected by the Board of Directors to audit the financial statements
of the Corporation. Annual meetings called by the President may consider other
business which is proposed by the President and properly brought before such
meetings; provided, however, that specific matters other than election of
Directors and ratification of selection of accountants may be placed on the
agenda of the meeting solely with the approval of a majority of the entire Board
of Directors.
SECTION 3. Special Meetings. Special meetings of stockholders may be called
by the President or the Board of Directors, and shall be called upon the written
request of stockholders
<PAGE>
holding at least twenty-five percent (25%) of the votes entitled to be cast at
the meeting. A request by stockholders for a meeting shall state the purpose of
the meeting and the matters proposed to be acted upon. Unless requested by
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting, a special meeting need not be called to consider any matter which
is substantially the same as a matter voted on at any special meeting of the
stockholders held during the preceding 12 months. Upon receipt of such written
request, the secretary shall inform the stockholders who make the request of the
reasonably estimated cost of preparing and mailing a notice of the meeting, and
on payment of these costs to the corporation, shall notify each stockholder
entitled to notice of the meeting.
SECTION 4. Notice of Meetings of Stockholders. Not less than ten days' and
not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special meeting), shall be given to
each stockholder entitled to vote thereat and each other stockholder entitled to
notice of the meeting by leaving the same with him or at his residence or usual
place of business or by mailing it, postage prepaid, and addressed to him or at
his address as it appears upon the books of the Corporation.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with records of the meeting,
either before or after the holding thereof, waives such notice.
SECTION 5. Closing of Transfer Books and Record Dates. The Board of
Directors may fix the time, not exceeding twenty days preceding the date of any
meeting of stockholders, any vote at a meeting, any dividend payment date or any
date for the allotment of rights, during which the books of the Corporation
shall be closed against transfers of stock. If such books are closed for the
purpose of determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of providing for the closing of the
books against transfers of stock as aforesaid, the Board of Directors may fix,
in
<PAGE>
advance, a date, not exceeding ninety days and not less than ten days preceding
the date of any meeting of stockholders, and not exceeding ninety days preceding
any dividend payment date or any date for the allotment of rights, as a record
date for the determination of the stockholders entitled to notice of or to vote
at such meeting, or entitled to receive such dividends or rights, as the case
may be; and only stockholders of record on such date shall be entitled to notice
of and to vote at such meeting or to receive such dividends or rights, as the
case may be.
SECTION 6. Quorum and Adjournment of Meetings. The presence in person or by
proxy of the holders of record of a majority of all of the votes entitled to be
cast thereat shall constitute a quorum at all meetings of the stockholders. If
at any meeting of the stockholders there shall be less than a quorum present,
the stockholders present at such meeting may, without further notice, adjourn
the same from time to time until a quorum shall attend, but no business shall be
transacted at any such adjourned meeting except such as might have been lawfully
transacted had the meeting not been adjourned.
SECTION 7. Voting and Inspectors. At all meetings of stockholders every
stockholder of record entitled to vote shall be entitled to one vote for each
dollar of net asset value per share standing in his or her name on the books of
the Corporation irrespective of the Series or Class thereof, (and such
stockholders of record holding fractional shares, if any, shall have
proportionate voting rights.)
All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided in the
Articles of Incorporation or in these Bylaws or by specific statutory provision,
including requirements for approval of any matters by the provisions of the 1940
Act.
At any election of Directors, the Board of Directors prior thereto may, or
if they have not so acted, the Chairman of the meeting may, and upon the request
of the holders of ten percent (10%) of the votes entitled to be cast at such
election shall, appoint at least one inspector of election who shall
<PAGE>
first subscribe an oath or affirmation to execute faithfully the duties of
inspector at such election with strict impartiality and according to the best of
his or her ability, and shall after the election make a certificate of the
result of the vote taken. No candidate for the office of Director shall be
appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon any
election or matter, and such vote shall be taken upon the request of the holders
of ten percent (10%) of the votes entitled to be cast at such election or on
such matter.
SECTION 8. Conduct of Stockholders' Meetings. The meetings of the
stockholders shall be presided over by the President or, if the President shall
not be present, by a Vice President or, if neither the President nor any Vice
President is present, by a chairman to be elected at the meeting. The Secretary
of the Corporation, if present, shall act as Secretary of such meeting or, if
the Secretary is not present, an Assistant Secretary shall so act; if neither
the Secretary nor an Assistant Secretary is present, then the meeting shall
elect its Secretary.
SECTION 9. Concerning Validity of Proxies, Ballots, Etc. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the secretary of the meeting, who
shall decide all questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed as provided in Section 7, in which event such
inspectors of election shall decide all such questions.
SECTION 10. Consents. Whenever stockholders are required or permitted to
take any action by vote, such action may be taken without a meeting if the
following are filed with the records of stockholders meetings: (a) a unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter, and (b) a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it.
<PAGE>
ARTICLE 11
BOARD OF DIRECTORS
SECTION 1. Number, Vacancies and Tenure. The Directors may, at any time
when the stockholders are not assembled in meeting, establish, increase or
decrease the number of seats on the Board of Directors by majority vote of the
entire Board of Directors; provided, that after the first annual meeting the
number of Directors shall never be less than three (3) nor more than fifteen
(15). The number of Directors may not be decreased so as to affect the term of
any incumbent Director. Except as hereinafter provided, (i) if the number of
Directors is increased, the additional Directors to fill the vacancies thus
created may be elected by majority vote of the entire Board of Directors, and
(ii) any vacancy occurring for any other cause may be filled by a majority of
the remaining Directors, even if such majority is less than a quorum. No vacancy
may be filled for any cause whatsoever unless, immediately after the filling of
such vacancy, at least two-thirds of the entire Board of Directors shall have
been elected by the stockholders of the Corporation. A Director shall hold
office until his successor is elected and qualified, or until such Director's
earlier death, resignation, retirement or removal; provided, however, that if a
Director was not elected to office by a vote of stockholders, the term of such
Director shall, in any event, end as of the date of the next annual meeting of
stockholders which is required to be held pursuant to Article I, Section 1 of
these Bylaws following such Director's election to office. Such a Director may
be a candidate for election to office at such annual meeting and, if elected at
such meeting, shall serve for the indefinite term specified above.
SECTION 2. Mandatory Retirement of Directors. A Director shall retire from
the Board of Directors and cease being a Director at the close of business on
the last day of the calendar year in which the Director attains age seventy-two
(72), except that any person who was a Director on July 1, 1994, and that date
was seventy-three (73) years of age or less shall retire from the Board of
Directors and cease being a Director at the close of business on the last day of
the year in which the Director attains age seventy-four (74).
SECTION 3. Removal. At any meeting of stockholders, duly called and at
which a quorum is present, the stockholders may, by the affirmative vote of the
holders of a majority of the votes
<PAGE>
entitled to be cast thereon, remove any director or directors from office and
may elect a successor or successors to fill any resulting vacancies for the
unexpired terms of removed directors.
SECTION 4. Place of Meeting. The Directors may hold their meetings, have
one or more offices, and keep the books of the Corporation outside the State of
Maryland, at any office or offices of the Corporation or at any other place as
they may from time to time by resolution determine, or in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
SECTION 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice, if any, as the Directors may from
time to time determine.
SECTION 6. Special Meetings. Special meetings of the Board of Directors may
be held from time to time upon call of the President or two or more of the
Directors, by oral or telegraphic or written notice (including written notice
transmitted electronically) duly served on or sent or mailed to each Director
not less than one day before such meeting. No notice need be given to any
Director who attends in person or to any Director who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
SECTION 7. Quorum. One-third of the Directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation or by these
Bylaws.
<PAGE>
SECTION 8. Executive Committee. The Board of Directors may, by the
affirmative vote of a majority of the entire Board, elect from the Directors an
Executive Committee to consist of such number of Directors, but not less than
two, as the Board may from time to time determine. The Board of Directors by
such affirmative vote shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
Directors. When the Board of Directors is not in session, the Executive
Committee shall have and may exercise any or all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation
(including the power to authorize the seal of the Corporation to be affixed to
all papers which may require it) except as provided by law and except the power
to increase or decrease the size of, or fill vacancies on, the Board, to remove
or appoint executive officers or to dissolve or change the permanent membership
of the Executive Committee, and the power to make or amend the Bylaws of the
Corporation. The Executive Committee may fix its own rules of procedure, and may
meet, when and as provided by such rules or by resolution of the Board of
Directors, but in every case the presence of a majority shall be necessary to
constitute a quorum. In the absence of any member of the Executive Committee,
the members thereof present at any meeting, whether or not they constitute a
quorum, may appoint a member of the Board of Directors to act in the place of
such absent member.
SECTION 9. Other Committees. The Board of Directors, by the affirmative
vote of a majority of the entire Board, may appoint other committees which shall
in each case consist of such number of members, and shall have and may exercise
such powers as the Board may determine in the resolution appointing them. A
majority of all members of any such committee may determine its action, and fix
the time and place of its meetings, unless the Board of Directors shall
otherwise provide. The Board of Directors shall have power at any time to change
the members and powers of any such committee, to fill vacancies, and to
discharge any such committee.
SECTION 10. Informal Action by Directors and Committees. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or
<PAGE>
of such committee, as the case may be, and if such consent is filed with the
minutes of proceedings of the Board, or of such committee, as the case may be.
SECTION 11. Compensation of Directors. Directors shall be entitled to
receive such compensation from the Corporation for their services as may from
time to time be voted by the Board of Directors.
ARTICLE III
-----------
OFFICERS
--------
SECTION 1. Executive Officers. The executive officers of the Corporation
shall be chosen by the Board of Directors. These shall include a President, one
or more Vice Presidents (the number thereof to be determined by the Board of
Directors), a Secretary and a Treasurer. The Board of Directors or the Executive
Committee may also in its discretion appoint a Chairman of the Board of
Directors, Assistant Secretaries, Assistant Treasurers, and other officers,
agents and employees, who shall have such authority and perform such duties as
the Board or the Executive Committee may determine. The Board of Directors may
fill any vacancy which may occur in any office. Two or more offices, except
those of President and Vice President, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in more than one
capacity, if such instrument is required to be executed, acknowledged or
verified by two or more officers.
SECTION 2. Term of Office. Unless a longer, shorter or indefinite term of
office is provided by the Board of Directors for any officer or all officers,
the term of office of all officers shall be one year and until their respective
successors are chosen and qualify. Any officer may be removed from office at any
time with or without cause by the vote of a majority of the entire Board of
Directors, if the Board of Directors in its judgment finds that the best
interests of the Corporation are served thereby.
<PAGE>
SECTION 3. Powers and Duties. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
ARTICLE IV
-------------
CAPITAL STOCK
-------------
SECTION 1. Certificate of Shares. A stockholder of Class A Shares of any
series shall, upon request, be entitled to a certificate for full shares of
stock in such form not inconsistent with law as the Board of Directors shall
determine. No certificate will be issued to evidence ownership of any other
class of shares.
SECTION 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by the holder's duly authorized attorney-in-fact or legal representative upon
presentation of proper instruments of assignment and transfer, with such proof
of the authenticity of the signature and the capacity of the signator as the
Corporation or its transfer agent may reasonably require. If certificates have
been issued evidencing the ownership of the Shares to be transferred, such
certificates must be surrendered and canceled before the transfer may be
effected.
SECTION 3. Stock Ledgers. The stock ledgers of the Corporation, containing
the names and addresses of the stockholders and the number of shares held by
them respectively, shall be kept at the principal offices of the Corporation or,
if the Corporation employs a transfer agent, at the offices of the Transfer
Agent of the Corporation.
SECTION 4. Lost, Stolen or Destroyed Certificates. The Corporation may
determine the conditions upon which a new certificate of stock of the
Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may require the owner of
such certificate or his legal representative to give bond, with sufficient
surety to the Corporation and each Transfer Agent, if any, to indemnify it and
each Transfer Agent against any
<PAGE>
and all loss or claims which may arise by reason of the issue of a new
certificate in the place of the one so lost, stolen or destroyed.
ARTICLE V
---------
FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed by the Board of Directors.
ARTICLE VI
----------
INDEMNIFICATION
---------------
Each Director and officer (and his heirs, executors and administrators)
shall be indemnified by the Corporation to the extent set forth in the Articles
of Incorporation.
ARTICLE VII
-----------
AMENDMENT OF BYLAWS
-------------------
The Bylaws of the Corporation may be altered, amended, added to or repealed
by majority vote of the entire Board of Directors.
<PAGE>
Exhibit 23(g)(1)
CUSTODIAN CONTRACT
BETWEEN
RETIREMENT PLANNING FUNDS OF AMERICA, INC.
AND
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Employment of Custodian and Property to be Held By It 4
2. Duties of the Custodian with Respect to Property of the Fund Held by the
Custodian in the United States 5
2.1 Holding Securities 5
2.2 Delivery of Securities 5
2.3 Registration of Securities 8
2.4 Bank Accounts 9
2.5 Availability of Federal Funds 9
2.6 Collection of Income 10
2.7 Payment of Fund Monies 10
2.8 Liability for Payment in Advance of Receipt of Securities Purchased 12
2.9 Appointment of Agents 12
2.10 Deposit of Fund Assets in Securities System 12
2.10A Fund Assets Held in the Custodian's Direct Paper System 14
2.11 Segregated Account 15
2.12 Ownership Certificates for Tax Purposes 16
2.13 Proxies 16
2.14 Communications Relating to Portfolio Securities 16
3. Duties of the Custodian with Respect to Property of the Fund
Held Outside of the United States 17
3.1 Appointment of Foreign Sub-Custodians 17
3.2 Assets to be Held 17
3.3 Foreign Securities Depositories 17
3.4 Segregation of Securities 17
3.5 Agreements with Foreign Banking Institutions 18
3.6 Access of Independent Accountants of the Fund 18
3.7 Reports by Custodian 18
3.8 Transactions in Foreign Custody Account 19
3.9 Liability of Foreign Sub-Custodians 19
3.10 Liability of Custodian 20
3.11 Reimbursement for Advances 20
3.12 Monitoring Responsibilities 21
3.13 Branches of U.S. Banks 21
3.14 Tax Law 21
4. Payments for Sales or Repurchase or Redemptions of Shares of the Fund 22
5. Proper Instructions 22
6. Actions Permitted Without Express Authority 23
</TABLE>
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7. Evidence of Authority 23
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income 24
9. Records 24
10. Opinion of Fund's Independent Accountants 25
11. Reports to Fund by Independent Public Accountants 25
12. Compensation of Custodian 25
13. Responsibility of Custodian 25
14. Effective Period, Termination and Amendment 27
15. Successor Custodian 28
16. Interpretive and Additional Provisions 29
17. Additional Funds 29
18. Massachusetts Law to Apply 29
19. Prior Contracts 29
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CUSTODIAN CONTRACT
This Contract between Retirement Planning Funds of America, Inc., a
corporation organized and existing under the laws of Maryland, having its
principal place of business at 124 East Marcy Street, Santa Fe, New Mexico 87504
hereinafter called the "Funds, and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the Custodian.
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund offers shares in five series, the Equity Fund, Bond
Fund, Government Money Market Fund, Global Value Fund, and Convertible
Securities Fund (such series together with all other series subsequently
established by the Fund and made subject to this Contract in accordance with
paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock of
the Fund representing interests in the Portfolios, ("Shares") as may be issued
or sold from time to time. The Custodian shall not be responsible for any
property of a Portfolio held or received by the Portfolio and not delivered to
the Custodian.
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Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Directors of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held by the
Custodian in the United Sates
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury, collectively referred to herein as "Securities System" and
(b) commercial paper of an issuer for which State Street Bank and Trust
Company acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the Custodian
pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only
upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor,
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
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<PAGE>
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Portfolio or into the name of any nominee or nominees of
the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are to
be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall have
no responsibility or, liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own
negligence or willful misconduct:
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
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<PAGE>
10) For delivery in connection with any loans of securities made by
the Portfolio, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's account
in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
for the delivery of securities owned by the Portfolio prior to
the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by
the Fund on behalf of the Portfolio, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio of
the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Portfolio of the
Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the currently effective
prospectus and statement of additional information of the Fund,
related to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
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<PAGE>
15) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the
Board of Directors or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the Portfolio
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to
be deposited with each such bank or trust company shall on behalf of
each applicable Portfolio be approved by vote of a majority of
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<PAGE>
the Board of Directors of the Fund. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be withdrawable
by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
9
<PAGE>
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth
in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of
the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses
of the Fund whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of
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<PAGE>
the Board of Directors or of the Executive Committee of the Fund
signed by an officer of the Fund and certified by its Secretary
or an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
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<PAGE>
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i)
receipt of advice from the Securities System that payment for
such securities has been transferred to the Account, and pi)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Portfolio. Copies of all advices from the Securities System of
transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio in the form of a written advice or notice and
shall furnish to the Fund on behalf of the Portfolio copies of
daily transaction sheets reflecting each day's transactions in
the Securities System for the account of the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of
the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against
the Securities System or any other person which the Custodian
may have as a consequence
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<PAGE>
of any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or
damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Securities System for the account of
the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
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2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Directors or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to
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the Portfolio such proxies, all proxy soliciting materials and all
notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States.
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "'Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Directors, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-S
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign securities
transactions.
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3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Portfolios
shall be maintained in foreign securities depositories only through
arrangements implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to each applicable Portfolio of the Fund, the foreign
securities of such Portfolios held by each foreign sub-custodian. Each
agreement pursuant to which the Custodian employs a foreign banking
institution shall require that such institution establish a custody
account for the Custodian on behalf of the Fund for each applicable
Portfolio of the Fund and physically segregate in each account,
securities and other assets of the Portfolios, and, in the event that
such institution deposits the securities of one or more of the
Portfolios in a foreign securities depository, that it shall identify
on its books as belonging to the Custodian, as agent for each
applicable Portfolio, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the assets of
each Portfolio will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for
their safe custody or administration; (b) beneficial ownership for the
assets of each Portfolio will be freely transferable without the
payment of money or value other than for custody or administration; (c)
adequate records will be maintained identifying the assets as belonging
to each applicable Portfolio; (d) officers of or auditors employed by,
or other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with
the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian
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<PAGE>
insofar as such books and records relate to the performance of such
foreign banking institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account.
(a) Except as otherwise provided in paragraph (b) of this Section 3.8,
the provision of Sections 2.2 and 2.7 of this Contract shall apply,
mutatis mutandis to the foreign securities of the Fund held outside the
United States by foreign sub-custodians. (b) Notwithstanding any
provision of this Contract to the contrary, settlement and payment for
securities received for the account of each applicable Portfolio and
delivery of securities maintained for the account of each applicable
Portfolio may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in
the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer) against
a receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer. (c) Securities maintained in
the custody of a foreign sub-custodian may be maintained in the name of
such entity's nominee to the same extent as set forth in Section 2.3 of
this Contract, and the Fund agrees to hold any such nominee harmless
from any liability as a holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and each Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss,
17
<PAGE>
damage, cost, expense, liability or claim if and to the extent that
the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 Liability of Sub-Custodian. The Custodian shall be liable for the acts
or omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a bunch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advance. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolios assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial
18
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condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 Branches of U.S. Banks.
(a) Except as otherwise set forth in this Contract, the provisions
hereof shall not apply where the custody of the Portfolios assets are
maintained in a foreign bunch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification set forth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be governed
by paragraph 1 of this Contract. (b) Cash held for each Portfolio of
the Fund in the United Kingdom shall be maintained in an interest
bearing account established for the Fund with the Custodian's London
branch, which account shall be subject to the direction of the
Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund.
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
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From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt
of instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks down on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions.
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Directors
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Directors of the
Fund accompanied by a detailed description of procedures approved by the Board
of Directors, Proper Instructions may include communications effected directly
between electromechanical or electronic devices provided that the Board of
Directors and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.11.
6. Actions Permitted without Express Authority.
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable
Portfolio:
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<PAGE>
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and other negotiable
instruments; and
4) in general, attend to all non-discretionary detail in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Directors of the Fund.
7. Evidence of Authority.
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an of ricer of the Fund to do so, shall adviser
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio.
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<PAGE>
9. Records.
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized of officers, employees or agents of the
Fund and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant.
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-IA, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants.
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contacts, including securities deposited and/or maintained in
a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
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<PAGE>
13. Responsibility of Custodian.
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 10)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.13 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody of any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism. If the Fund on behalf of a Portfolio requires the
Custodian to take any action with respect to securities, which action involves
the payment of money or which action may, in the opinion of the Custodian,
result in the Custodian or its nominee assigned to the Fund or the Portfolio
being liable for the payment of money or incurring liability of some other form,
the Fund on behalf of the Portfolio, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contacts for foreign exchange or in the event that the Custodian
or its nominee shall incur or be assessed any taxes, charges, expenses,
assessments claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any property at any time
held for the account of
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<PAGE>
the applicable Portfolio shall be security therefor and should the Fund fail to
repay the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent necessary
to obtain reimbursement.
14. Effective Period. Termination and Amendment.
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors of the Fund has
approved the initial use of a particular Securities System by such Portfolio and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Directors has reviewed the use by such Portfolio of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect to
a Portfolio act under Section 2.10A hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the Board of
Directors has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Directors has reviewed the use by such
Portfolio of the Direct Paper System; provided further, however that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Articles of Incorporation,
and further provided, that the Fund on behalf of one or more of the Portfolios
may at any time by action of its Board of Directors (i) substitute another bank
or trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
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15. Successor Custodian.
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Directors of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the of lice of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this
25
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Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, prodded that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Articles of Incorporation of the Fund.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds.
In the event that the Fund establishes one or more series of Shares in
addition to the Equity Fund, Bond Fund, Government Money Market Fund, Global
Value Fund, and Convertible Securities Fund with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it shall
so notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts.
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 15th day of April, 1992.
ATTEST RETIREMENT PLANNING FUNDS OF AMERICA, INC.
ATTEST STATE STREET BANK AND TRUST COMPANY
- ------------------- ------------------------------------------
Assistant Secretary Vice President
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SCHEDULE A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of Retirement Planning
Funds of America, Inc. for use as sub-custodians for the Fund's securities and
other assets:
(Insert banks and securities depositories)
Euroclear
Certified:
- --------------------------
Fund's Authorized Officer
Date:---------------------
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Exhibit 23(g)(2)
AMENDMENT TO CUSTODIAN CONTRACT
This Amendment to the Custodian Contract is made as of * [date] by and
between Davis Series, Inc. (formerly Retirement Planning Funds of America,
Inc., the "Fund") and State Street Bank and Trust Company (the "Custodian").
Capitalized terms used in this Amendment without definition shall have the
respective meanings given to such terms in the Custodian Contract referred to
below.
WHEREAS, the Fund and the Custodian entered into a Custodian Contract
dated as of April 15, 1992 (as amended and in effect from time to time, the
"Contract"); and
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets, and the Fund has made Davis Growth Opportunity
Fund, Davis Government Bond Fund, Davis Government Money Market Fund, Davis
Financial Fund, Davis Convertible Securities Fund and Davis Real Estate Fund
subject to the Contract (each such series, together with all other series
subsequently established by the Fund and made subject to the Contract in
accordance with the terms thereof, shall be referred to as a "Portfolio", and,
collectively, the "Portfolios"); and
WHEREAS, the Fund and the Custodian desire to amend certain provisions
of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") promulgated
under the Investment Company Act of 1940, as amended; and
WHEREAS, the Fund and the Custodian desire to amend and restate
certain other provisions of the Contract relating to the custody of assets of
each of the Portfolios held outside of the United States.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereby agree to
amend the Contract, pursuant to the terms thereof, as follows:
I. Article 3 of the Contract is hereby deleted, and Articles 4 through 19 of
the Contract are hereby renumbered, as of the effective date of this
Amendment, as Articles 5 through 20, respectively.
II. New Articles 3 and 4 of the Contract are hereby added, as of the effective
date of this Amendment, as set forth below.
3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
3.1. DEFINITIONS.
<PAGE>
Capitalized terms in this Article 3 shall have the following meanings:
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including financial institutions such as any Mandatory Securities Depositories
operating in the country); prevailing or developing custody and settlement
practices; and laws and regulations applicable to the safekeeping and recovery
of Foreign Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of
Rule 17f-5, except that the term does not include Mandatory Securities
Depositories.
"Foreign Assets" means any of the Portfolios' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Portfolios'
transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if
the Fund determines to place Foreign Assets in a country outside the United
States (i) because required by law or regulation; (ii) because securities
cannot be withdrawn from such foreign securities depository or clearing agency;
or (iii) because maintaining or effecting trades in securities outside the
foreign securities depository or clearing agency is not consistent with
prevailing or developing custodial or market practices.
3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
The Fund, by resolution adopted by its Board of Directors (the "Board"), hereby
delegates to the Custodian, subject to Section (b) of Rule 17f-5, the
responsibilities set forth in this Article 3 with respect to Foreign Assets
held outside the United States, and the Custodian hereby accepts such
delegation, as Foreign Custody Manager of each Portfolio.
3.3. COUNTRIES COVERED.
The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to the countries and custody
arrangements for each such country listed on Schedule A to this Contract, which
may be amended from time to time by the Foreign Custody Manager. The Foreign
Custody Manager shall list on Schedule A the Eligible Foreign Custodians
selected by the Foreign Custody Manager to maintain the assets of each
Portfolio. Mandatory
2
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Depositories are listed on Schedule B to this Contract, which Schedule B may be
amended from time to time by the Foreign Custody Manager. The Foreign Custody
Manager will provide amended versions of Schedules A and B in accordance with
Section 3.7 of this Article 3.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account, or to place or maintain Foreign Assets, in a country listed on
Schedule A, and the fulfillment by the Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by the Board responsibility as Foreign Custody Manager with
respect to that country and to have accepted such delegation. Following the
receipt of Proper Instructions directing the Foreign Custody Manager to close
the account of a Portfolio with the Eligible Foreign Custodian selected by the
Foreign Custody Manager in a designated country, the delegation by the Board to
the Custodian as Foreign Custody Manager for that country shall be deemed to
have been withdrawn and the Custodian shall immediately cease to be the Foreign
Custody Manager of the Portfolio with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to
the Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to a Portfolio with
respect to the country as to which the Custodian's acceptance of delegation is
withdrawn.
3.4. SCOPE OF DELEGATED RESPONSIBILITIES.
3.4.1. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS.
Subject to the provisions of this Article 3, the Foreign Custody Manager may
place and maintain the Foreign Assets in the care of the Eligible Foreign
Custodian selected by the Foreign Custody Manager in each country listed on
Schedule A, as amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager to
place or maintain Foreign Assets with an Eligible Foreign Custodian, the
Foreign Custody Manager shall determine that the Foreign Assets will be subject
to reasonable care, based on the standards applicable to custodians in the
country in which the Foreign Assets will be held by that Eligible Foreign
Custodian, after considering all factors relevant to the safekeeping of such
assets, including, without limitation:
(i) the Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the
physical protections available for certificated securities
(if applicable), its methods of keeping custodial records,
and its security and data protection practices;
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(ii) whether the Eligible Foreign Custodian has the financial
strength to provide reasonable care for Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation and
standing and, in the case of a foreign securities depository
or clearing agency which is not a Mandatory Securities
Depository, the foreign securities depository's or clearing
agency's operating history and the number of participants in
the foreign securities depository or clearing agency; and
(iv) whether the Fund will have jurisdiction over and be able to
enforce judgments against the Eligible Foreign Custodian,
such as by virtue of the existence of any offices of the
Eligible Foreign Custodian in the United States or the
Eligible Foreign Custodian's consent to service of process in
the United States.
3.4.2. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS.
The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign
Custodian that is a foreign securities depository or clearing agency) governing
the foreign custody arrangements with each Eligible Foreign Custodian selected
by the Foreign Custody Manager will provide reasonable care for the Foreign
Assets held by that Eligible Foreign Custodian based on the standards
applicable to custodians in the particular country. Each such contract shall
include provisions that provide:
(i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that the Fund will be
adequately protected against the risk of loss of the Foreign
Assets held in accordance with such contract;
(ii) that the Foreign Assets will not be subject to any right,
security interest, or lien or claim of any kind in favor of
the Eligible Foreign Custodian or its creditors except a
claim of payment for their safe custody or administration or,
in the case of cash deposits, liens or rights in favor of
creditors of the Eligible Foreign Custodian arising under
bankruptcy, insolvency, or similar laws;
(iii) that beneficial ownership of the Foreign Assets will be
freely transferable without the payment of money or value
other than for safe custody or administration;
(iv) that adequate records will be maintained identifying the
Foreign Assets as belonging to the Fund or as being held by a
third party for the benefit of the Fund;
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(v) that the Fund's independent public accountants will be given
access to those records or confirmation of the contents of
those records; and
(vi) that the Fund will receive periodic reports with respect to
the safekeeping of the Foreign Assets, including, but not
limited to, notification of any transfer of the Foreign
Assets to or from the account of the Portfolio or a third
party account containing the Foreign Assets held for the
benefit of the Portfolio, or, in lieu of any or all of the
provisions set forth in (i) through (vi) above, such other
provisions that the Foreign Custody Manager determines will
provide, in their entirety, the same or greater level of care
and protection for the Foreign Assets as the provisions set
forth in (i) through (vi) above in their entirety.
3.4.3. MONITORING.
In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible Foreign
Custodian and (ii) the contract governing the custody arrangements established
by the Foreign Custody Manager with the Eligible Foreign Custodian. In the
event the Foreign Custody Manager determines that the custody arrangements with
an Eligible Foreign Custodian it has selected are no longer appropriate, the
Foreign Custody Manager shall notify the Board in accordance with Section 3.7
hereunder.
3.5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY.
For purposes of this Article 3, the Board shall be deemed to have considered
and determined to accept such Country Risk as is incurred by placing and
maintaining the Foreign Assets in each country for which the Custodian is
serving as Foreign Custody Manager of a Portfolio, and the Board shall be
deemed to be monitoring on a continuing basis such Country Risk to the extent
that the Board considers necessary or appropriate. The Fund, on behalf of the
Portfolios, and the Custodian each expressly acknowledge that the Foreign
Custody Manager shall not be delegated any responsibilities under this Article
3 with respect to Mandatory Securities Depositories.
3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO.
In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the Investment Company Act of 1940, as amended,
would exercise.
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3.7. REPORTING REQUIREMENTS.
The Foreign Custody Manager shall report the withdrawal of the Foreign Assets
from an Eligible Foreign Custodian and the placement of such Foreign Assets
with another Eligible Foreign Custodian by providing to the Board amended
Schedules A or B at the end of the calendar quarter in which an amendment to
either Schedule has occurred. The Foreign Custody Manager shall make written
reports notifying the Board of any other material change in the foreign custody
arrangements of a Portfolio described in this Article 3 after the occurrence of
the material change.
3.8. REPRESENTATIONS WITH RESPECT TO RULE 17F-5.
The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.
The Fund represents to the Custodian that the Board has determined that it is
reasonable for the Board to rely on the Custodian to perform the
responsibilities delegated pursuant to this Contract to the Custodian as the
Foreign Custody Manager of each Portfolio.
3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY
MANAGER.
The Board's delegation to the Custodian as Foreign Custody Manager of a
Portfolio shall be effective as of the date of execution of this Amendment and
shall remain in effect until terminated at any time, without penalty, by
written notice from the terminating party to the non-terminating party.
Termination will become effective thirty days after receipt by the
non-terminating party of such notice. The provisions of Section 3.3 of this
Article 3 shall govern the delegation to and termination of the Custodian as
Foreign Custody Manager of the Fund with respect to designated countries.
4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF A PORTFOLIO HELD
OUTSIDE THE UNITED STATES.
4.1 DEFINITIONS.
Capitalized terms in this Article 4 shall have the following meanings:
"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian or a Permissible Foreign Custodian.
"Permissible Foreign Custodian" means any person with whom property of a
Portfolio may be placed and maintained outside of the United States under (i)
section 17(f) or
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26(a) of the Investment Company Act of 1940, as amended, without regard to Rule
17f-5 or (ii) an order of the U.S. Securities and Exchange Commission.
4.2. HOLDING SECURITIES.
The Custodian shall identify on its books as belonging to a Portfolio the
foreign securities held by each Foreign Sub-Custodian or Foreign Securities
System. The Custodian may hold foreign securities for all of its customers,
including the Portfolio, with any Foreign Sub-Custodian in an account that is
identified as belonging to the Custodian for the benefit of its customers,
provided however, that (i) the records of the Custodian with respect to foreign
securities of the Portfolio which are maintained in such account shall identify
those securities as belonging to the Portfolio and (ii) the Custodian shall
require that securities so held by the Foreign Sub-Custodian be held separately
from any assets of such Foreign Sub-Custodian or of other customers of such
Foreign Sub-Custodian.
4.3. FOREIGN SECURITIES SYSTEMS.
Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign
Sub-Custodian in such country pursuant to the terms of this Contract.
4.4. HOLDING OF FOREIGN ASSETS WITH PERMISSIBLE FOREIGN CUSTODIANS.
Subject to the requirements of Sections 17(f) and 26(a) of the Investment
Company Act of 1940, as amended (and any other applicable law or order), the
Custodian may place and maintain Foreign Assets in the care of any Permissible
Foreign Custodian. Article 3 (other than the definitions in Section 3.1) of
this Contract shall not apply to placement of Foreign Assets by the Custodian
with a Permissible Custodian.
4.5. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
4.5.1. DELIVERY OF FOREIGN SECURITIES.
The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of a Portfolio held by such Foreign Sub-Custodian, or in a Foreign
Securities System account, only upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:
(i) upon the sale of such foreign securities for the Portfolio in
accordance with reasonable market practice in the country
where such foreign securities are held or traded, including,
without limitation: (A) delivery against expectation of
receiving later payment; or (B) in the case of a sale
effected through a Foreign Securities System, in accordance
with the rules governing the operation of the Foreign
Securities System;
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(ii) in connection with any repurchase agreement related to foreign
securities;
(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Portfolio;
(iv) to the issuer thereof or its agent when such foreign securities
are called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name
of the Custodian (or the name of the respective Foreign
Sub-Custodian or of any nominee of the Custodian or such Foreign
Sub-Custodian) or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with market custom;
provided that in any such case the Foreign Sub-Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Foreign
Sub-Custodian's own negligence or willful misconduct;
(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities,
the surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts or
temporary securities for definitive securities:
(ix) for delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Portfolio;
(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions, a copy of a resolution
of the Board or of an Executive Committee of the Board so
authorized by the Board, signed
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by an officer of the Fund and certified by its Secretary or an
Assistant Secretary that the resolution was duly adopted and is
in full force and effect (a "Certified Resolution"), specifying
the foreign securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
4.5.2. PAYMENT OF PORTFOLIO MONIES.
Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, monies of a Portfolio in the following cases only:
(i) upon the purchase of foreign securities for the Portfolio,
unless otherwise directed by Proper Instructions, by (A)
delivering money to the seller thereof or to a dealer therefor
(or an agent for such seller or dealer) against expectation of
receiving later delivery of such foreign securities; or (B) in
the case of a purchase effected through a Foreign Securities
System, in accordance with the rules governing the operation of
such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Portfolio;
(iii) for the payment of any expense or liability of the Portfolio
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees
under this Contract, legal fees, accounting fees, and other
operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign exchange
contracts for the Portfolio, including transactions executed
with or through the Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(vi) in connection with the borrowing/lending of foreign securities;
and
(vii) for any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions, a Certified Resolution
specifying the amount of such payment, setting forth the purpose
for which such payment is to be made, declaring such purpose to
be a proper corporate
<PAGE>
purpose, and naming the person or persons to whom such payment
is to be made.
4.5.3. MARKET CONDITIONS.
Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of a Portfolio and delivery
of Foreign Assets maintained for the account of a Portfolio may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs, including, without limitation, delivering Foreign Assets to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) with the expectation of receiving later payment for such Foreign Assets
from such purchaser or dealer.
4.6. REGISTRATION OF FOREIGN SECURITIES.
The foreign securities maintained in the custody of a Foreign Custodian (other
than bearer securities) shall be registered in the name of the Fund (on behalf
of the applicable Portfolio) or in the name of the Custodian or in the name of
any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and
the Fund agrees to hold any such nominee harmless from any liability as a
holder of record of such foreign securities. The Custodian or a Foreign
Sub-Custodian shall not be obligated to accept securities on behalf of the Fund
(on behalf of the applicable Portfolio) under the terms of this Contract unless
the form of such securities and the manner in which they are delivered are in
accordance with reasonable market practice.
4.7. BANK ACCOUNTS.
A bank account or bank accounts opened and maintained outside the United States
on behalf of a Portfolio with a Foreign Sub-Custodian shall be subject only to
draft or order by the Custodian or such Foreign Sub-Custodian, acting pursuant
to the terms of this Contract to hold cash received by or from or for the
account of the Portfolio.
4.8. COLLECTION OF INCOME.
The Custodian shall use reasonable endeavors to collect all income and other
payments in due course with respect to the Foreign Assets held hereunder to
which a Portfolio shall be entitled and shall credit such income, as collected,
to the Portfolio. In the event that extraordinary measures are required to
collect such income, the Fund and the Custodian shall consult as to such
measures and as to the compensation and expenses of the Custodian relating to
such measures.
4.9. PROXIES.
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The Custodian will generally with respect to the foreign securities held under
this Article 4 use its reasonable endeavors to facilitate the exercise of
voting and other shareholder proxy rights, subject always to the laws,
regulations and practical constraints that may exist in the country where such
securities are issued. The Fund acknowledges that local conditions, including
lack of regulation, onerous procedural obligations, lack of notice and other
factors may have the effect of severely limiting the ability of the Fund to
exercise shareholder rights.
4.10. COMMUNICATIONS RELATING TO FOREIGN SECURITIES.
The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub-Custodians from issuers of the foreign securities
being held for the account of a Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information
so received by the Custodian from issuers of the foreign securities whose
tender or exchange is sought or from the party (or its agents) making the
tender or exchange offer. The Custodian shall not be liable for any untimely
exercise of any tender, exchange or other right or power in connection with
foreign securities or other property of the Portfolio at any time held by it
unless (i) the Custodian or the respective Foreign Sub-Custodian is in actual
possession of such foreign securities or property and (ii) the Custodian
receives Proper Instructions with regard to the exercise of any such right or
power, and both (i) and (ii) occur at least three business days prior to the
date on which such right or power is to be exercised.
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4.11. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS.
Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible,
to indemnify, and hold harmless, the Custodian from and against any loss,
damage, cost, expense, liability or claim arising out of or in connection with
such Foreign Sub-Custodian's performance of such obligations. At the election
of the Fund, the Fund shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Fund and any applicable Portfolio has not been made
whole for any such loss, damage, cost, expense, liability or claim.
4.12. TAX LAW.
The Custodian shall have no responsibility or liability for any obligations now
or hereafter imposed on the Fund or the Custodian as custodian of the
Portfolios by the tax law of the United States or of any state or political
subdivision thereof. It shall be the responsibility of the Fund to notify the
Custodian of the obligations imposed on the Fund with respect to the Portfolios
or the Custodian as custodian of such Portfolios by the tax law of countries
other than those mentioned in the above sentence, including responsibility for
withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole responsibility of the
Custodian with regard to such tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for exemption or refund under the tax
law of countries for which the Fund has provided such information.
4.13. LIVABILITY OF CUSTODIAN.
Except as may arise from the Custodian's own negligence or willful misconduct
or the negligence or willful misconduct of a Sub-Custodian, the Custodian shall
be without liability to the Fund for any loss, liability, claim or expense
resulting from or caused by anything which is (A) part of Country Risk or (B)
part of the "prevailing country risk" of the Fund and the Portfolios, as such
term is used in SEC Release Nos. IC-22658; IS-1080 (May 12, 1997) or as such
term or other similar terms are now or in the future interpreted by the U.S.
Securities and Exchange Commission or by the staff of the Division of
Investment Management of such Securities and Exchange Commission.
The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or a Foreign Securities Depository, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation,
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currency restrictions, or acts of war or terrorism, or any other loss where the
Sub-Custodian has otherwise acted with reasonable care.
III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and
effect. In the event of any conflict between the terms of the Contract
prior to this Amendment and this Amendment, the terms of this
Amendment shall prevail. If the Custodian is delegated the
responsibilities of Foreign Custody Manager pursuant to the terms of
Article 3 hereof, in the event of any conflict between the provisions
of Articles 3 and 4 hereof, the provisions of Article 3 shall prevail.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to
be executed in its name and behalf by its duly authorized representative as of
the date first above written.
WITNESSED BY: STATE STREET BANK AND TRUST COMPANY
/s/ By:/s/
----------------------------- ----------------------------
Glenn Ciotti Name: Ronald E. Logue
Vice President & Associate Counsel Title: Executive Vice President
WITNESSED BY: DAVIS SERIES, INC.
/s/ By:/s/
------------------------------ -----------------------------
Name: Eileen Street
Title: Treasurer
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Exhibit 23(g)(3)
AMENDMENT TO CUSTODIAN CONTRACT
This Amendment to Custodian Contract is made as of November 1, 1998 by
and between Davis Series, Inc. (The "Fund") and State Street Bank and Trust
Company (the "Custodian"). Capitalized terms used in this Amendment without
definition shall have the respective meanings given to such terms in the
Custodian Contract referred to below.
WHEREAS, the Fund and the Custodian entered into a Custodian Contract
dated April IS, 1992 (as amended from time to time, the "Custodian Contract");
and
WHEREAS, the Fund and the Custodian wish to amend the Custodian
Contract to enable the Fund to instruct the Custodian to deliver Fund property,
in the context of repurchase and reverse repurchase transactions, without the
Custodian receiving cash, securities or other negotiable instruments in return
therefor,
Now, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth hereinafter and in the Custodian Contract,
the parties hereby agree to amend the Custodian Contract as follows:
1. The following clause is added to the end of the last sentence of the
first paragraph of Section 1 of the Custodian Contract:
. . .including without limitation any property released, delivered
or otherwise removed from the Fund's account with the Custodian
pursuant to Proper Instructions.
2. Section 2.1 is amended and restated in its entirety as follows:
The Custodian shall hold and physically segregate for the account
of the Fund all non-cash Fund property to be held by it in the
United States, including all domestic securities owned by the Fund,
other than (a) property of the Fund released and delivered pursuant
to Section 2.2(15) or purchased pursuant to Section 2.8(7), (b)
securities which are maintained pursuant to Section 2.12 in a
clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury
(each, a "U.S. Securities System"), and (c) commercial paper of an
issuer for which State Street Bank and Trust Company acts as
issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian (the "Direct
Paper System") pursuant to Section 2.12A.
3. Section 2.2(15) is renumbered as Section 2.2(16), and new Section 2.2(15)
is added to
<PAGE>
the Custodian Contract as follows:
(15) Upon the sale of Fund property, and prior to or without
receipt of payment therefor, but only as set forth in Proper
Instructions (such delivery in advance of payment shall be
referred to herein as a "Free Trade"); and
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4. The following clause is added to the beginning of the first sentence of
Section 2.7 of the Custodian Contract:
Except with respect to Fund property released and delivered
pursuant to Section 2.2(15) or purchased pursuant to Section
2.8(7), the Custodian shall...
5. Section 2.8(7) is renumbered as Section 2.8(8), and new Section 2.8(7) is
added to the Custodian Contract as follows:
(7) Upon the purchase of investments, and prior to or without
receipt thereof, but only as set forth in Proper Instructions
(such payment in advance of delivery, along with delivery in
advance of payment made in accordance with Section 2.2(15),
as applicable, shall also be referred to herein as a "Free
Trade"); and
6. The following clause is added to the beginning of the first sentence of
Section 2.9 of the Custodian Contract:
Except with respect to Fund monies released and delivered pursuant
to Section 2.8(7),...
7. The following clause is added to the beginning of the first sentence of
Section 2.15 of the Custodian Contract:
Except with respect to Fund property released and delivered
pursuant to Section 2.2(15), or purchased pursuant to Section
2.8(7), of this Custodian Contract, the Custodian shall...
8. The following clause is added to the beginning of the first sentence of
Section 2.16 of the Custodian Contract:
Except with respect to Fund property released and delivered
pursuant to Section 2.2(15), or purchased pursuant to Section
2.8(7), of this Custodian Contract, the Custodian shall...
9. The following sentence is added to the end of Section 3 of the Custodian
Contract:
The Fund acknowledges that, in keeping the books of account of the
Fund and/or making the calculations described herein, with respect
to Fund property released, delivered or purchased pursuant to
Sections 2.2(15) and 2.8(7) of this Custodian Contract, the
Custodian is authorized and instructed to rely upon information
provided to it by the Fund, the Fund's counterparty(ies), or the
agents of either of them.
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10. The following sentence is added to the end of Section 4 of the Custodian
Contract:
The Fund acknowledges that, in creating and maintaining the records
as set forth herein, with respect to Fund property released,
delivered or purchased pursuant to Sections 2.2(15) and 2.8(7) of
this Custodian Contract, the Custodian is authorized and instructed
to rely upon information provided to it by the Fund, the Fund's
counterparty(ies), or the agents of either of them.
11. The following paragraph is added to Section 8 of the Custodian Contract:
The Fund agrees to indemnify and hold the Custodian harmless from
and against any and all costs, expenses, losses, damages, charges,
attorney's fees, payments and liabilities which may be asserted
against the Custodian acting in accordance with any Proper
Instruction with respect to Free Trades including, but not limited
to, loss, damage, cost, expense, liability, tax, charge, assessment
or claim resulting from (a) the failure of the Fund to receive
income with respect to purchased investments, (b) the failure of
the Fund to recover amounts invested on maturity of purchased
investments, (c) the failure of the Custodian to respond to or be
aware of notices or other corporate communications with respect to
purchased investments, or (d) the Custodian's reliance on
information provided by the Fund, the Fund's counterparty(ies) or
the agents of either of them with respect to Fund property
released, delivered or purchased pursuant to Sections 2.2(15) and
2.8(7) of this Custodian Contract.
12. Except as specifically set forth herein, the terms and provisions of the
Custodian Contract continue to apply with full force and effect.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed
in its name and behalf by its duly authorized representative as of the date
first above written.
DAVIS SERIES, INC. WITNESSED BY:
By:/s/________________________________ By:/s/__________________________
Name: Sharra Reed Name: Thomas Tays
Title:Treasurer Title: Secretary
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STATE STREET BANK AND TRUST COMPANY WITNESSED BY:
By:/s/_________________________________ By:/s/_________________________
Name: Ronald E. Logue Name: Glenn Ciotti
Title:Executive Vice President Title:VP & Assoc. Counsel
5
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EXHIBIT
ITEM 23 (I)
[LETTERHEAD OF D'ANCONA & PFLAUM]
April 26, 2000
Davis Series, Inc.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
Dear Ladies and Gentlemen:
We have acted as counsel for Davis Series, Inc. (the "Fund") in connection
with the registration under the Securities Act of 1933 (the "Act") of an
indefinite number of shares of beneficial interest in the series of the Company
designated as Davis Growth Opportunity Fund, Davis Financial Fund, Davis Real
Estate Fund, Davis Convertible Securities Fund, Davis Government Bond Fund and
Davis Government Money Market Fund (collectively, the "Shares") in registration
statement No. 2-57209 on Form N-1A (the "Registration Statement").
In this connection we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate and other
records, certificates and other papers as we deemed it necessary to examine for
the purpose of this opinion, including the Articles of Incorporation and bylaws
of the Company, actions of the Board of Directors authorizing the issuance of
Shares and the Registration Statement.
Based on the foregoing examination, we are of the opinion that upon the
issuance and delivery of the Shares in accordance with the Articles of
Incorporation and the actions of the Board of Directors authorizing the issuance
of the Shares, and the receipt by the Company of the authorized consideration
therefor, the Shares so issued will be validly issued, fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not admit that we are in the category
of persons whose consent is required under section 7 of the Act.
Very truly yours,
D'Ancona & Pflaum
By: /s/ Sheldon R. Stein
-------------------------
Sheldon R. Stein, Member
<PAGE>
EXHIBIT (J)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Davis Series, Inc.
We consent to the use of our report dated February 4, 2000 incorporated by
reference in this Registration Statement of Davis Series, Inc. and to the
references to our firm under the headings "Financial Highlights" in each of the
Prospectuses for Davis Series, Inc. and "Auditors" in the Statement of
Additional Information.
/s/ KPMG, LLP
------------------------
/s/ KPMG LLP
Denver, Colorado
April 26, 2000
<PAGE>
DAVIS SERIES, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes
and appoints Sheldon R. Stein and Arthur Don, and each of them, as the
undersigned's attorneys-in-fact, each with the power of substitution, for him
or her in any and all capacities, to sign any post-effective amendments to the
registration statement under the Securities Act of 1933 (Registration No.
2-57209) and/or the Investment Company Act of 1940 (Registration No. 811-2679),
whether on Form N-1A or any successor forms thereof, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and all other applicable state or federal
regulatory authorities. Each of the undersigned hereby ratifies and confirms
all that each of the aforenamed attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney
as of the date listed below.
OFFICERS:
Christopher C. Davis Date: 03/30/00
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Christopher C. Davis
Chief Executive Officer
Sharra L. Reed Date: 03/30/00
- ------------------------- ----------------------
Sharra L. Reed
Treasurer, Chief Financial Officer
and Chief Accounting Officer