<PAGE>
ANNUAL REPORT JULY 31, 1999
DAVIS GROWTH &
INCOME FUUD
[DAVIS FUNDS LOGO]
<PAGE>
DAVIS GROWTH & INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
Dear Fellow Shareholder,
As investors of your money and ours, we constantly have to strike an emotional
balance between greed and fear. On days when the market is advancing, we
inevitably wish we had more money in the stocks that are going up the fastest.
And on days when the market is declining, we become fearful about the stocks we
own that are going down.
To help us control these powerful emotions, we have developed a discipline over
the years that focuses on buying growth companies at a value price and holding
them for the long haul. Normally, we do not buy the fastest growing companies,
in spite of our greed, because of our fear that when markets turn down these
stocks potentially have the farthest to fall. Similarly, we do not buy
"non-growth" value companies just because they are cheap since we always want to
aim for growth in our portfolios.
In effect, we think growth and value are joined at the hip. No one would really
ever want to own a no-growth stock, but everyone wants to buy growth. Our
strategy is a compromise in that we try to buy decent growth at a value price.
In a sense, the world of investing is a world of making choices, and the stock
market is not unlike the supermarket. We know when we go into the supermarket
that we are going to buy something because we need to eat. Our task is to pick
from the wide variety of brands, choosing those particular food products that
will provide us with the right kind of bodily nourishment and also satisfy our
own tastes. Similarly, when the stock market opens its doors, we are likely to
buy something. Our job is to pick from the diverse array of stocks available and
buy only those that we think will enhance our financial nourishment and suit our
own investment style. In both instances, we also want to be price sensitive.
Essentially, what we are looking for as investors is "growth on sale." Our stock
choices tend to be good quality merchandise offered at a fair price. We are not
interested in buying premium-priced companies or bargain-basement specials.
As we move through the last year of this millennium with the stock market in
uncharted territory, we know that we will encounter numerous crosscurrents and
variables that could affect corporate earnings. These range from uncertainties
regarding the Presidential election in the year 2000 to the possibility of a
worldwide economic recovery that could rekindle inflation. In addition, we live
in an era of rapid technological change, which is reshaping the economic
landscape and creating both new opportunities and risks for a wide variety of
industries and companies.
In such an environment, we recognize that we will continue to be buffeted by the
conflicting emotions of greed and fear. But we are not going to turn our backs
on stocks. As long-term investors, we intend to remain true to our investment
discipline of using intensive research to buy well-managed growth companies at a
value price. We are confident that this discipline will guide us through
whatever financial storms may come our way, providing great opportunities for
compounding of wealth over time.(1)
Sincerely,
/s/ Shelby M.C. Davis
Shelby M.C. Davis
Chief Investment Officer
September 3, 1999
<PAGE>
DAVIS GROWTH & INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
PERFORMANCE OVERVIEW
o The Davis Growth & Income Fund's Class A shares generated a total return on
net asset value of 7.49% for the six-month period and 12.48% for the
one-year period ended July 31, 1999.(2) By way of comparison, the funds
included in Lipper Analytical Services' growth and income category provided
returns of 5.98% and 14.22%, respectively, for the same time periods.(3)
o The Fund brings together the top-down asset allocation insight and
bottom-up portfolio management skills of Shelby, Christopher and Andrew
Davis. Assets are allocated among a varying blend of quality stocks, real
estate securities, convertible securities and traditional bonds according
to an approach used successfully by the Davises for decades to balance
their family's growth and income objectives.(4)
o The Fund is designed as a core holding for investors who want the long-term
returns of growth stock investments while managing risk through the
stability of income-oriented securities.(5)
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND ANDREW A. DAVIS, PORTFOLIO MANAGERS
Q. How would you describe the Fund's performance so far in 1999?
A. We are satisfied that the performance of the Davis Growth & Income Fund has
gotten off to a good start so far in 1999, but we are well aware that we have
ground to make up after last year's disappointing results. Our portfolio
continues to benefit from increasing valuations for all technology
companies--most notably IBM, Hewlett-Packard and Texas Instruments, which are up
40%, 60% and almost 70%, respectively, calendar year to date.(6) Yet the
prospects of these companies have also improved dramatically with the growth of
the Internet. Although our valuation discipline prevents us from owning most of
the hot new Internet stocks we all read about, companies such as IBM,
Hewlett-Packard and Texas Instruments benefit greatly from the Internet
revolution by selling the electronic equivalent of picks and shovels to the
prospectors in this new gold rush.
We have also made mistakes this year and it is incumbent upon us to mention
these. Most notably, Philip Morris, after suffering its first adverse jury
judgments in its many years of litigation, has declined almost 30% thus far in
1999. We had been optimistic that the large settlements previously negotiated
with the states' attorneys general would help put the most dangerous litigation
behind the company. This has not been the case and, although we expect these
adverse verdicts to be reduced or reversed on appeal, we certainly did not
anticipate them in the first place.
Looking next at the real estate sector, after a disappointing 18-month period,
real estate appears to have finally found a bottom and is gradually attracting
value-oriented investors. The stocks that have performed the best to date are
large-cap, liquid real estate investment trusts (REITs). These are the stocks
that non-real-estate equity funds and other big investors have tended to buy as
they return to the sector. However, we expect that to change because earnings
drive stock prices in the long run.
Q. What opportunities are you finding today in the equity market?
2
<PAGE>
DAVIS GROWTH & INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND ANDREW A. DAVIS, PORTFOLIO MANAGERS -
CONTINUED
A. We are pleased with the quality of the companies that make up the equity
portion of the Fund's portfolio and pleased that we were able to
opportunistically add to some of our favorites during the chaos of the fall of
1998. The greatest opportunity in investing comes from finding a great business
at a great price. Such mis-valuations abound in a bear market but are
correspondingly scarce in a bull market. In the short sell-off of last fall we
were able to find some great companies trading at cheap prices. The most notable
example is American Express, which is currently one of our largest holdings and
which we added to significantly during that period of short-term concern.
The opportunities that we are finding in 1999 do not fall into the wonderful
category of great companies selling at great prices, but instead seem to be in
two less exciting categories. The first is great companies that have come under
a minor cloud, creating perhaps a slight under-valuation, not a tremendously
cheap valuation. For example, although Gillette is undoubtedly a great company
that has declined over 30% from its high, the stock is still not outstandingly
cheap on a valuation basis.
The second category is reasonably good--but not outstanding--businesses that are
under a more severe cloud that makes them very cheap. For example, we added to
our holding of Waste Management when it fell more than 30% from its high. The
stock currently sells at about 12 times earnings--less than half the market
multiple.(6)
Q. What is your outlook for real estate stocks?
A. The REIT world as we know it today was born in 1991 at the end of the last
major downturn in real estate, and the stocks have not been public long enough
to have proven their mettle through a full cycle. Some investors are concerned
that when the next recession comes, real estate will be besieged by the same
problems it suffered in the late 1980s and early 1990s.
But we think the real estate stocks we own will come through the cycle in fine
form.(1) These companies are extremely attractive, and not just from an income
standpoint. Their growth rates are more secure than they have ever been. Their
managements are more seasoned and smarter. And their balance sheets look good.
When you add together all the positives for real estate, you are getting
somewhere between an 11% and 15% potential total return from stocks that are
trading at around 9 1/2 times earnings. In our book, that makes for a great
value.
We believe that these stocks will ultimately trade better. In other words, their
multiples will improve. Earnings of these companies have been up in the
double-digit range on average for the last five years--and that includes 1998
when their stock prices slumped. If you believe earnings are ultimately what
drive the value of stocks--and we do--you cannot ignore real estate.
Q. What are your favorite real estate holdings now?
3
<PAGE>
DAVIS GROWTH & INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND ANDREW A. DAVIS, PORTFOLIO MANAGERS -
CONTINUED
A. To our mind, real estate stocks today represent the ideal Davis Double Play.
(1) We are finding companies with excellent prospects for expanding earnings and
expanding price/earnings multiples that have the potential to deliver multiyear
compounding of their stock prices. Among the real estate companies we favor are:
CenterPoint Properties, an industrial REIT; General Growth Properties, a mall
REIT; JDN Realty, a shopping center REIT; and Vornado, a diversified REIT.(6)
These companies all have one thing in common: We believe they are superior
operators--and that is what real estate is all about today. Companies that know
how to operate not only in a development environment and in an acquisition
environment, but also in an environment where raising rents and managing
expenses are critical, are going to be the industry's real long-term winners.
Q. How have you repositioned the real estate stocks in the portfolio?
A. What we have done in this environment is concentrate the Fund's real estate
investments on fewer higher quality names, after examining the earnings growth
rates of these companies closely. While larger cap real estate stocks have
outperformed smaller cap stocks so far in 1999, many smaller companies have
superior growth rates and should be rewarded for those better growth rates over
time. We have also focused on company balance sheets--avoiding businesses with
weaker balance sheets and even selling companies with strong growth rates that
we felt were too highly leveraged.
Q. When do you sell great companies?
A. Our estimate of fair value for many of the securities we own is very broad,
as it should be based on the uncertainties in any operating business. As a
result, there is no predetermined price at which we would sell all of our
position in any given company if the company's underlying fundamentals had not
changed.
However, if our companies were to advance to prices that we considered
irrational relative to other investment alternatives, we would increasingly have
to consider sales. Importantly, we do not think of ourselves as market timers.
Therefore, we must constantly evaluate the owner-earnings and growth prospects
of the companies we own versus both the risk-free rate and the present value of
the earnings and growth prospects of other companies in the market. Using this
criterion, we remain comfortable with most of our top holdings, although we are
cognizant of the very high levels of today's valuations.
Shelby Cullom Davis once said that you make most of your money in bear markets.
You just don't realize it at the time. This is because you are able to buy great
companies at great prices. There is, however, an unspoken corollary that one can
lose a lot of money in a bull market and not realize it at the time by buying
second-rate businesses at high prices. It is this risk that we and all investors
must focus on in these golden times.
4
<PAGE>
DAVIS GROWTH & INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
This Annual Report is authorized for distribution only when accompanied or
preceded by a current prospectus of Davis Growth & Income Fund which contains
more information about fees and expenses. Please read the prospectus carefully
before investing or sending money.
(1) Neither the Davis Investment Discipline nor any investment discipline can
guarantee a profit.
(2) Total return assumes reinvestment of dividends and capital gain
distributions. Past performance is not a guarantee of future results. Investment
return and principal value will vary so that, when redeemed, an investor's
shares may be worth more or less than when purchased. Below are the average
annual total returns for Davis Growth & Income Fund's Class A shares for periods
ended July 31, 1999. Returns for other classes of shares will vary from the
following returns:
* (WITHOUT a 4.75% Sales Charge taken into consideration for the period ended
July 31, 1999)
- --------------------------------------------------------------------------------
FUND NAME 1 YEAR INCEPTION
- --------- ------ ---------
- --------------------------------------------------------------------------------
Davis Growth & Income Fund A 12.48% 8.20% - 05/01/98
- --------------------------------------------------------------------------------
** (WITH a 4.75% Sales Charge taken into consideration for the period ended
July 31, 1999)
- --------------------------------------------------------------------------------
FUND NAME 1 YEAR INCEPTION
- --------- ------ ---------
- --------------------------------------------------------------------------------
Davis Growth & Income Fund A 7.13% 4.05% - 05/01/98
- --------------------------------------------------------------------------------
(3) The Lipper Growth & Income Funds Index is composed of funds that combine a
growth-of-earnings orientation and an income requirement for level and/or rising
dividends. Funds in the index are equally weighted, and returns include the
reinvestment of all dividends and are net of expenses. Investments cannot be
made directly in the index. Lipper Analytical Services' rankings and comparisons
are based on total returns unadjusted for commissions.
(4) The fact that asset allocation has met the needs of the Davis family for
both growth and income does not assure that the Davis Growth & Income Fund will
meet the needs of other investors. Every investor has a unique blend of
investment objectives and risk tolerances, and should discuss their investment
needs with their own financial adviser.
(5) There can be no assurance that an investment in the Davis Growth & Income
Fund will increase in value over time. The value of the Fund's shares will
fluctuate.
(6) Portfolio holdings and portfolio manager opinions cited in this material are
current as of the date of this report, but are subject to change. See the Fund's
Schedule of Investments for a detailed list of portfolio holdings.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
5
<PAGE>
DAVIS GROWTH & INCOME FUND
COMPARISON OF DAVIS GROWTH & INCOME FUND, CLASS A SHARES AND STANDARD AND POOR'S
500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended July 31, 1999.
---------------------------------------------------------------
CLASS A SHARES
(This calculation includes an initial sales charge of 4 3/4%).
One Year............................................. 7.13%
Life of Class (May 1, 1998 through July 31, 1999).... 4.05%
---------------------------------------------------------------
$10,000 INVESTED AT COMMENCEMENT OF OPERATIONS. Let's say you invested $10,000
in Davis Growth & Income Fund, Class A Shares on May 1, 1998 (commencement of
operations) and paid a 4 3/4% sales charge. As the chart shows, by July 31, 1999
the value of your investment would have grown to $10,509 - a 5.09% increase on
your initial investment. For comparison, the S&P 500 is also presented on the
chart below.
S&P 500 DGIF-A
------- ------
5/1/98 10,000.00 9,525.00
7/31/98 10,035.00 9,342.86
7/31/99 12,063.07 10,509.03
Standard & Poor's Stock Index is an unmanaged index and has no specific
investment objective. The index used includes net dividends reinvested, but does
not take into account any sales charge. Investments cannot be made directly into
the index.
The performance data for Davis Growth & Income Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost when
redeemed.
6
<PAGE>
DAVIS GROWTH & INCOME FUND
COMPARISON OF DAVIS GROWTH & INCOME FUND, CLASS B SHARES AND STANDARD AND POOR'S
500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended July 31, 1999.
---------------------------------------------------------------
CLASS B SHARES
(This calculation includes any applicable contingent deferred
sales charge.)
One Year............................................. 7.34%
Life of Class (May 4, 1998 through July 31, 1999).... 4.81%
---------------------------------------------------------------
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Davis Growth &
Income Fund, Class B Shares on May 4, 1998 (inception of class). As the chart
shows, by July 31, 1999 the value of your investment (less applicable contingent
deferred sales charges) would have grown to $10,600 - a 6.00% increase on your
initial investment. For comparison, the S&P 500 is also presented on the chart
below.
Class B
- -------
S&P 500 DGIF-B
------- ------
5/4/98 10,000.00 10,000.00
7/31/98 10,025.00 9,790.00
7/31/99 12,051.05 10,599.94
Standard & Poor's Stock Index is an unmanaged index and has no specific
investment objective. The index used includes net dividends reinvested, but does
not take into account any sales charge. Investments cannot be made directly into
the index.
The performance data for Davis Growth & Income Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost when
redeemed.
7
<PAGE>
DAVIS GROWTH & INCOME FUND
COMPARISON OF DAVIS GROWTH & INCOME FUND, CLASS C SHARES AND STANDARD AND POOR'S
500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended July 31, 1999.
----------------------------------------------------------------
CLASS C SHARES
(This calculation includes any applicable contingent deferred
sales charge.)
One Year............................................. 10.32%
Life of Class (May 4, 1998 through July 31, 1999).... 7.18%
----------------------------------------------------------------
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Davis Growth &
Income Fund, Class C Shares on May 4, 1998 (inception of class). As the chart
shows, by July 31, 1999 the value of your investment would have grown to $10,899
- - a 8.99% increase on your initial investment. For comparison, the S&P 500 is
also presented on the chart below.
Class C
- -------
S&P 500 DGIF-C
------- ------
5/4/98 10,000.00 10,000.00
7/31/98 10,025.00 9,790.00
7/31/99 12,051.05 10,898.78
Standard & Poor's Stock Index is an unmanaged index and has no specific
investment objective. The index used includes net dividends reinvested, but does
not take into account any sales charge. Investments cannot be made directly into
the index.
The performance data for Davis Growth & Income Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost when
redeemed.
8
<PAGE>
DAVIS GROWTH & INCOME FUND
COMPARISON OF DAVIS GROWTH & INCOME FUND, CLASS Y SHARES AND STANDARD AND POOR'S
500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended July 31, 1999.
----------------------------------------------------------------
CLASS Y SHARES
(There is no sales charge applicable to this calculation.)
One Year............................................. 12.72%
Life of Class (May 4, 1998 through July 31, 1999).... 8.53%
----------------------------------------------------------------
$10,000 INVESTED AT INCEPTION. Let's say you invested $10,000 in Davis Growth &
Income Fund, Class Y Shares on May 4, 1998 (inception of class). As the chart
shows, by July 31, 1999 the value of your investment would have grown to $11,069
- - a 10.69% increase on your initial investment. For comparison, the S&P 500 is
also presented on the chart below.
Class Y
- -------
S&P 500 DGIF-Y
------- ------
5/4/98 10,000.00 10,000.00
7/31/98 10,025.00 9,810.00
7/31/99 12,051.05 11,068.98
Standard & Poor's Stock Index is an unmanaged index and has no specific
investment objective. The index used includes net dividends reinvested, but does
not take into account any sales charge. Investments cannot be made directly into
the index.
The performance data for Davis Growth & Income Fund contained in this report
represents past performance and assumes that all distributions were reinvested,
and should not be considered as an indication of future performance from an
investment in the Fund today. The investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost when
redeemed.
9
<PAGE>
DAVIS GROWTH & INCOME FUND
PORTFOLIO HOLDINGS AS OF JULY 31, 1999
================================================================================
PORTFOLIO MAKEUP (% OF FUND NET ASSETS)
- ---------------------------------------
Prefered Stocks 11.2%
Convertible Bond, Cash
& Cash Equivalents &
Other Assets & Liabilities 2.0%
Common Stocks 86.8%
SECTOR WEIGHTINGS
-----------------
(% OF LONG TERM PORTFOLIO)
- --------------------------
Consumer Products 5.0%
Insurance 9.3%
Electronics 4.4%
Real Estate 20.2%
Building Materials 7.0%
Other 8.2%
Banking 8.3%
Machinery 3.2%
Technology 13.2%
Food & Restaurants 3.3%
Diversified Financial Services 12.4%
Industrial 5.5%
<TABLE>
<CAPTION>
TOP 10 HOLDINGS % OF FUND
STOCK SECTOR NET ASSETS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
American Express Co. Diversified Financial Services 7.64%
Hewlett-Packard Co. Technology 6.30%
Sealed Air Corp., $2.00, Ser. A, Cum.Conv. Pfd. Industrial 5.53%
CenterPoint Properties Corp. Real Estate 4.89%
Progressive Corp. (Ohio) Property/Casualty Insurance 4.02%
Masco Corp. Buildings Materials 4.01%
Wells Fargo Co. Banks and Savings & Loans 3.50%
McDonalds Corp. Food & Restaurant 3.30%
Texas Instruments Inc. Electronics 3.23%
Dover Corp. Machinery 3.19%
</TABLE>
10
<PAGE>
DAVIS GROWTH & INCOME FUND
PORTFOLIO ACTIVITY - AUGUST 1, 1998 THROUGH JULY 31, 1999
================================================================================
NEW POSITIONS ADDED (8/1/98-7/31/99)
(Highlighted positions are those greater than 2.00% of 7/31/99 total net
assets.)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 7/31/99
SECURITY SECTOR PURCHASE FUND NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Allstate Corp. Property/Casualty Insurance 8/7/98 0.80%
Cincinnati Financial Corp., Conv.
Sub. Deb. 5.50%,05/01/02 Diversified Financial Services 10/15/98 1.51%
Crescent Operating, Inc. Real Estate 1/28/99 0.04%
General Growth Properties, Inc. Real Estate 9/23/98 0.09%
Gillette Co. Consumer Products 9/29/98 1.97%
Globalstar Telecommunications Limited
8.00%, Conv. Pfd. Telecommunications 5/24/99 0.63%
Globalstar Telecommunications Limited
8.00%, Ser. 144A Conv. Pfd. Telecommunications 4/9/99 2.06%
Household International, Inc. Banks and Savings & Loans 11/2/98 2.70%
Intel Corp. Technology 8/7/98 2.48%
International Business Machines Corp. Technology 2/17/99 1.17%
Marriott International, Inc. Hotels & Motels 2/4/99 2.21%
Masco Corp. Building Materials 1/8/99 4.01%
Mediaone Group, 6.25%, "ATI" PIES,
Conv. Pfd. Telecommunications 10/13/98 -
Sealed Air Corp., $2.00, Ser. A,
Cum. Conv. Pfd. Industrial 11/25/98 5.53%
SwissCom AG Reg. Telecommunications 10/5/98 -
UnumProvident Corp. Life Insurance 2/17/99 1.63%
Vornado Realty Trust, 6.50%,
Ser. A, Cum. Conv. Pfd. Real Estate 8/7/98 1.34%
Waste Management, Inc. Waste Management Services 2/4/99 0.80%
</TABLE>
POSITIONS CLOSED (8/1/98-7/31/99)
(Gains and losses greater than $500,000 are highlighted.)
<TABLE>
<CAPTION>
DATE OF
STOCK SECTOR FINAL SALE GAIN/(LOSS)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boeing Co. Aerospace 10/5/98 (585,486)
Chubb Corp. Property/Casualty Insurance 2/22/99 (783,201)
Mack-Cali Realty Corp. Real Estate 3/17/99 (566,537)
Mediaone Group, 6.25%, "ATI" PIES,
Conv. Pfd. Telecommunications 2/18/99 511,326
Schlumberger Ltd. Energy 2/17/99 (450,575)
SwissCom AG Reg. Telecommunications 11/3/98 974,249
Union Pacific Cap Trust, 6.25%,
Ser. 144A Conv. Pfd. Transportation 4/9/99 (76,000)
Vornado Operating Co. Real Estate 12/11/98 (6,229)
</TABLE>
11
<PAGE>
DAVIS GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS
At July 31, 1999
================================================================================
VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------------
COMMON STOCK - (86.84%)
BANKS AND SAVINGS & LOANS - (8.27%)
34,606 Bank of America Corp.............................. $ 2,296,973
70,000 Household International, Inc...................... 3,005,625
100,000 Wells Fargo Co.................................... 3,900,000
-------------
9,202,598
-------------
BUILDING MATERIALS - (6.94%)
60,000 Martin Marietta Material, Inc..................... 3,266,250
150,000 Masco Corp........................................ 4,462,500
-------------
7,728,750
-------------
CONSUMER PRODUCTS - (4.98%)
50,000 Gillette Co....................................... 2,190,625
90,000 Philip Morris Cos., Inc........................... 3,352,500
-------------
5,543,125
-------------
DIVERSIFIED - (2.56%)
42 Berkshire Hathaway, Inc. (Class A)*............... 2,847,810
-------------
DIVERSIFIED FINANCIAL SERVICES - (10.79%)
64,500 American Express Co............................... 8,497,875
78,750 Citigroup, Inc.................................... 3,509,297
-------------
12,007,172
-------------
ELECTRONICS - (4.29%)
30,000 Applied Materials, Inc.* ........................ 2,157,188
75,000 Molex Inc......................................... 2,617,969
-------------
4,775,157
-------------
FOOD & RESTAURANT - (3.30%)
88,000 McDonald's Corp................................... 3,668,500
-------------
HOTELS & MOTELS - (2.21%)
70,000 Marriott International, Inc....................... 2,454,375
-------------
LIFE INSURANCE - (1.63%)
35,000 UnumProvident Corp................................ 1,811,250
-------------
MACHINERY - (3.19%)
90,000 Dover Corp........................................ 3,555,000
-------------
PROPERTY/CASUALTY INSURANCE - (7.61%)
25,000 The Allstate Corp................................. 887,500
35,000 Progressive Corp. (Ohio).......................... 4,471,250
42,000 Transatlantic Holdings, Inc....................... 3,115,875
-------------
8,474,625
-------------
REAL ESTATE - (17.07%)
224,300 Boardwalk Equities, Inc.*......................... 2,114,492
152,300 CenterPoint Properties Corp....................... 5,444,725
6,500 Crescent Operating, Inc.*......................... 39,609
141,900 Crescent Real Estate Equities Co.................. 3,121,800
12
<PAGE>
<TABLE>
<CAPTION>
DAVIS GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS - Continued
At July 31, 1999
================================================================================
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK - CONTINUED
REAL ESTATE - CONTINUED
2,900 General Growth Properties, Inc.................................... $ 95,881
79,500 JDN Realty Corp................................................... 1,694,344
104,000 Rouse Co.......................................................... 2,528,500
38,800 Starwood Hotels & Resorts Worldwide, Inc.......................... 1,047,600
82,100 Vornado Realty Trust.............................................. 2,904,288
--------------
18,991,239
--------------
TECHNOLOGY - (13.20%)
67,000 Hewlett-Packard Co................................................ 7,014,063
40,000 Intel Corp........................................................ 2,761,250
10,400 International Business Machines Corp.............................. 1,307,150
25,000 Texas Instruments Inc............................................. 3,600,000
--------------
14,682,463
--------------
WASTE MANAGEMENT SERVICES - (0.80%)
35,000 Waste Management, Inc............................................. 894,688
--------------
Total Common Stocks - (identified cost $86,177,955)............ 96,636,752
--------------
CONVERTIBLE BONDS - (1.51%)
$ 660,000 Cincinnati Financial Corp., Conv. Sub. Deb., 5.50%, 05/01/02 -
(identified cost $1,672,963).................................... 1,683,000
--------------
PREFERRED STOCK - (11.22%)
80,000 General Growth Properties, 7.25%, Cum. Conv. Pfd................. 1,850,000
11,000 Globalstar Telecommunications Limited, 8.00%, Conv. Pfd........... 702,625
35,900 Globalstar Telecommunications Limited, 8.00%, Ser. 144A
Conv. Pfd. (b).................................................. 2,293,111
100,000 Sealed Air Corp., $2.00, Ser. A, Cum. Conv. Pfd................... 6,150,000
30,000 Vornado Realty Trust, 6.50%, Ser. A, Cum. Conv. Pfd............... 1,496,250
--------------
Total Preferred Stocks - (identified cost $10,687,388)......... 12,491,986
--------------
SHORT TERM INVESTMENTS - (0.55%)
610,000 State Street Bank and Trust Co. Repurchase Agreement, 5.06%,
08/02/99, dated 07/30/99, repurchase value of $610,257
(collateralized by $640,000 par value Federal Home Loan Bank,
6.42%, 06/30/04, market value $632,800) -
(identified cost $610,000)........................................ 610,000
--------------
Total Investments - (identified cost $99,148,306)(100.12%)(a) 111,421,738
Liabilities Less Other Assets - (0.12%)........................ (132,671)
--------------
Net Assets - (100%) $ 111,289,067
==============
</TABLE>
13
<PAGE>
DAVIS GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS - Continued
At July 31, 1999
================================================================================
(a) Aggregate cost for Federal Income Tax purposes is $99,148,306. At July 31,
1999 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes was as follows:
Unrealized appreciation................... $ 17,348,275
Unrealized depreciation................... (5,074,843)
-----------------
Net appreciation..................... $ 12,273,432
=================
(b) This security is subject to Rule 144A. The Board of Directors of the Fund
has determined that there is sufficient liquidity in such security to realize
current valuations. The security amounts to $2,293,111 or 2.06% of the Fund's
net assets as of July 31, 1999.
* Non-Income Producing Security
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
DAVIS GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
At July 31, 1999
================================================================================
<TABLE>
<CAPTION>
ASSETS:
Investments in securities, at value (identified cost $99,148,306)
<S> <C>
(see accompanying Schedule of Investments)........................... $ 111,421,738
Cash................................................................... 4,036
Receivables:
Capital stock sold................................................... 292,834
Dividends and interest............................................... 211,086
---------------
Total assets....................................................... 111,929,694
---------------
LIABILITIES:
Payable for capital stock redeemed..................................... 473,079
Accrued expenses ...................................................... 167,548
---------------
Total liabilities.................................................. 640,627
---------------
NET ASSETS .............................................................. $ 111,289,067
===============
NET ASSETS CONSIST OF:
Par value of shares of capital stock................................... $ 513,400
Additional paid-in capital............................................. 99,796,388
Undistributed net investment income.................................... 3,337
Net unrealized appreciation on investments............................. 12,273,432
Accumulated net realized loss.......................................... (1,297,490)
---------------
Net assets......................................................... $ 111,289,067
===============
CLASS A SHARES
Net assets........................................................... $ 57,824,191
Shares outstanding................................................... 5,330,005
Net asset value and redemption price per share ...................... $ 10.85
=======
Maximum offering price per share (100/95.25 of $10.85)*.............. $ 11.39
=======
CLASS B SHARES
Net assets........................................................... $ 33,643,444
Shares outstanding................................................... 3,108,741
Net asset value and redemption price per share ...................... $ 10.82
=======
CLASS C SHARES
Net assets........................................................... $ 12,002,112
Shares outstanding................................................... 1,109,017
Net asset value and redemption price per share ...................... $ 10.82
=======
CLASS Y SHARES
Net assets........................................................... $ 7,819,320
Shares outstanding................................................... 720,207
Net asset value and redemption price per share ...................... $ 10.86
=======
</TABLE>
* On purchases of $100,000 or more, the offering price is reduced.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
DAVIS GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
For the year ended July 31, 1999
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME:
Income:
<S> <C> <C>
Dividends................................................................... $ 2,179,015
Interest ................................................................... 355,710
------------
Total income........................................................... 2,534,725
Expenses:
Management fees (Note 3)..................................... $ 744,256
Custodian fees............................................... 53,105
Transfer agent fees
Class A.................................................... 38,821
Class B.................................................... 52,231
Class C.................................................... 17,484
Class Y.................................................... 1,984
Audit fees................................................... 9,200
Legal fees................................................... 2,537
Accounting fees (Note 3)..................................... 6,000
Reports to shareholders...................................... 43,391
Directors' fees and expenses................................. 1,164
Registration and filing fees................................. 109,327
Miscellaneous................................................ 7,099
Payments under distribution plan (Note 4)
Class A.................................................... 56,774
Class B.................................................... 283,511
Class C.................................................... 94,486
-------------
Total expenses......................................................... 1,521,370
Expenses paid indirectly (Note 6)...................................... (1,595)
------------
Net expenses........................................................... 1,519,775
------------
Net investment income............................................... 1,014,950
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investment transactions................................ (1,297,490)
Net increase in unrealized appreciation of investments........................ 13,791,154
------------
Net realized and unrealized gain on investments............................ 12,493,664
------------
Net increase in net assets resulting from operations................... $ 13,508,614
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
DAVIS GROWTH & INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JULY 31, JULY 31,
1999 1998(1)
---- -------
<S> <C> <C>
OPERATIONS:
Net investment income........................................ $ 1,014,950 $ 225,562
Net realized loss from investment transactions............... (1,297,490) -
Net change in unrealized appreciation/(depreciation)
of investments............................................. 13,791,154 (1,517,722)
------------ -----------
Net increase (decrease) in net assets resulting
from operations......................................... 13,508,614 (1,292,160)
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Class A .................................................. (930,424) -
Class B .................................................. (211,825) -
Class C .................................................. (68,532) -
Class Y .................................................. (135,448) -
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets resulting from
capital share transactions (Note 5):
Class A .................................................. 2,056,131 50,605,583
Class B .................................................. 10,692,550 19,882,972
Class C .................................................. 5,323,001 5,601,656
Class Y .................................................. 6,250,806 6,143
------------ -----------
Total increase in net assets.............................. 36,484,873 74,804,194
NET ASSETS:
Beginning of year/period..................................... 74,804,194 -
------------ -----------
End of year/period (including undistributed net income of
$3,337 and $225,562, respectively) $111,289,067 $74,804,194
============ ===========
</TABLE>
(1) The Fund commenced operations on May 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a separate series of Davis New York Venture Fund, Inc., which
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund's investment
objective is both capital growth and income. The Fund commenced operations on
May 1, 1998. The Fund offers shares in four classes, Class A, Class B, Class C
and Class Y. The Class A shares are sold with a front-end sales charge and the
Class B and Class C shares are sold at net asset value and may be subject to a
contingent deferred sales charge upon redemption. Class Y shares are sold at net
asset value and are not subject to any contingent deferred sales charge. Class Y
shares are only available to certain qualified investors. Income, expenses
(other than those attributable to a specific class) and gains and losses are
allocated daily to each class of shares based upon the relative proportion of
net assets represented by each class. Operating expenses directly attributable
to a specific class are charged against the operations of that class. All
classes have identical rights with respect to voting (exclusive of each Class's
distribution arrangement), liquidation and distributions. The following is a
summary of significant accounting policies followed by the Fund in the
preparation of its financial statements.
SECURITY VALUATION - Portfolio securities traded on national securities
exchanges are valued at the published last sales prices 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. If no quotations are available, the fair value of the
investment is determined by or at the direction of the Board of Directors.
Investments in short-term securities (maturing in sixty days or less) are valued
at amortized cost unless the Board of Directors determines that such cost is not
a fair value. The valuation procedures are reviewed and subject to approval by
the Board of Directors.
FEDERAL INCOME TAXES - It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no provision for federal income or excise tax is required. At July 31, 1999, the
Fund had approximately $1,297,000 of capital loss carryovers available to offset
future capital gains, if any, which expire in 2008.
SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME - Securities transactions
are accounted for on the trade date (date the order to buy or sell is executed)
with realized gain or loss on the sale of securities being determined based upon
identified cost. Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis. Discounts and premiums on debt
securities are amortized over the lives of the respective securities in
accordance with the requirements of the Internal Revenue Code.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions to
shareholders are recorded on the ex-dividend date. The character of the
distributions made during the year from net investment income may differ from
its ultimate characterization for federal income tax purposes. Also, due to the
timing of distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which income or gain was recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders to reflect
the differences between financial statement amounts and distributions determined
in accordance with income tax regulations. Accordingly, during the year ended
July 31, 1999, amounts have been reclassified to reflect an increase in
undistributed net investment income of $109,054 and a corresponding decrease in
additional paid-in capital.
18
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS - Continued
July 31, 1999
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
USE OF ESTIMATES IN FINANCIAL STATEMENTS - In preparing financial statements in
conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of income and expenses
during the reporting period. Actual results may differ from these estimates.
NOTE 2 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) for the year ended July 31, 1999, were $55,725,980 and $16,692,166,
respectively.
NOTE 3 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Advisory fees are paid to Davis Selected Advisers, L.P. (the "Adviser")
at the annual rate of 0.75% of the average net assets for the first $250
million, 0.65% of the average net assets on the next $250 million and 0.55% of
the average net assets in excess of $500 million.
The Adviser is paid for registering Fund shares for sale in various
states. The fee for the year ended July 31, 1999 amounted to $12,996. Boston
Financial Data Services is the Fund's primary transfer agent. The Adviser is
also paid for certain transfer agent services. The fee for these services for
the year ended July 31, 1999 amounted to $11,343. State Street Bank & Trust Co.
is the Fund's primary accounting provider, fees for such services are included
in the custodian fee. The Adviser is also paid for certain accounting services.
The fee amounted to $6,000 for the year ended July 31, 1999. Certain directors
and the officers of the Fund are also directors and officers of the general
partner of the Adviser.
Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of
the Adviser, acts as sub-adviser to the Fund. DSA-NY performs research and
portfolio management services for the Fund under a Sub-Advisory Agreement with
the Adviser. The Fund pays no fees directly to DSA-NY.
The Fund has adopted procedures to treat Shelby Cullom Davis & Co.
("SCD") as an affiliate of the Adviser. During the year ended July 31, 1999, SCD
received $6,300 in commissions on the purchases of portfolio securities in the
Fund.
NOTE 4 - DISTRIBUTION AND UNDERWRITING FEES
CLASS A SHARES
Class A shares of the Fund are sold at net asset value plus a sales
charge and are redeemed at net asset value.
During the year ended July 31, 1999, Davis Distributors, LLC, the Fund's
Underwriter (the "Underwriter" or "Distributor") received $198,941 from
commissions earned on sales of Class A shares of the Fund, of which $31,696 was
retained by the Underwriter and the remaining $167,245 was re-allowed to
investment dealers. The Underwriter paid the costs of prospectuses in excess of
those required to be filed as part of the Fund's registration statement, sales
literature and other expenses assumed or incurred by it in connection with such
sales.
19
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS - Continued
July 31, 1999
================================================================================
NOTE 4 - DISTRIBUTION AND UNDERWRITING FEES - CONTINUED
CLASS A SHARES - CONTINUED
The Underwriter is reimbursed for amounts paid to dealers as a service
fee with respect to Class A shares sold by dealers which remain outstanding
during the period. The service fee is paid at the annual rate of 1/4 of 1% of
the average net assets maintained by the responsible dealers. The Underwriter is
not reimbursed for accounts for which the Underwriter pays no service fees to
other firms. The service fee for Class A shares of the Fund for the year ended
July 31, 1999 was $56,774.
CLASS B SHARES
Class B shares of the Fund are sold at net asset value and are redeemed
at net asset value less a contingent deferred sales charge if redeemed within
six years of purchase.
The Fund pays a distribution fee to reimburse the Distributor for
commission advances on the sale of the Fund's Class B shares. The National
Association of Securities Dealers, Inc., ("NASD") limits the percentage of the
Fund's average annual net assets attributable to Class B shares which may be
used to reimburse the Distributor. The limit is 1%, of which 0.75% may be used
to pay distribution expenses and 0.25% may be used to pay shareholder service
fees. The NASD rule also limits the aggregate amount the Fund may pay for
distribution to 6.25% of gross Fund sales since inception of the Rule 12b-1
plan, plus interest, at 1% over the prime rate on unpaid amounts. The
Distributor intends to seek full payment (plus interest at prime plus 1%) of
distribution charges that exceed the 1% annual limit in some future period or
periods when the plan limits have not been reached.
During the year ended July 31, 1999, Class B shares of the Fund made
distribution plan payments which included distribution fees of $212,654 and
service fees of $70,857.
Commission advances by the Distributor during the year ended July 31,
1999 on the sale of Class B shares of the Fund amounted to $476,542, of which
$469,198 was re-allowed to qualified selling dealers.
The Distributor intends to seek payment from Class B shares of the Fund
in the amount of $893,369, representing the cumulative commission advances by
the Distributor on the sale of the Fund's Class B shares, plus interest, reduced
by cumulative distribution fees paid by the Fund and cumulative contingent
deferred sales charges paid by redeeming shareholders. The Fund has no
contractual obligation to pay any such distribution charges and the amount, if
any, timing and condition of such payment are solely within the discretion of
the Directors who are not interested persons of the Fund or the Distributor.
A contingent deferred sales charge is imposed upon redemption of
certain Class B shares of the Fund within six years of the original purchase.
The charge is a declining percentage starting at 4% of the lesser of net asset
value of the shares redeemed or the total cost of such shares. During the year
ended July 31, 1999 the Distributor received $78,351 in contingent deferred
sales charges from Class B shares of the Fund.
20
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS - Continued
July 31, 1999
================================================================================
NOTE 4 - DISTRIBUTION AND UNDERWRITING FEES - CONTINUED
CLASS C SHARES
Class C shares of the Fund are sold at net asset value and are redeemed
at net asset value less a contingent deferred sales charge of 1% if redeemed
within one year of purchase. The Fund pays the Distributor 1% of the Fund's
average annual net assets attributable to Class C shares, of which 0.75% may be
used to pay distribution expenses and 0.25% may be used to pay shareholder
service fees.
During the year ended July 31, 1999, Class C shares of the Fund made
distribution payments of $94,486. During the year ended July 31, 1999, the
Distributor received $8,577 in contingent deferred sales charges from Class C
shares of the Fund.
NOTE 5 - CAPITAL STOCK
At July 31, 1999, there were 3,000,000,000 shares of capital stock ($0.05
par value per share) authorized, 1,000,000,000 of which shares are classified as
Davis Growth & Income Fund. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
CLASS A
- -------
MAY 1, 1998
YEAR ENDED (COMMENCEMENT OF
JULY 31, OPERATIONS) THROUGH
1999 JULY 31, 1998
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares subscribed.............................. 1,424,482 $ 13,883,526 5,091,097 $ 50,824,732
Shares issued in reinvestment of distributions. 88,554 891,665 - -
------------- ---------------- ------------ --------------
1,513,036 14,775,191 5,091,097 50,824,732
Shares redeemed................................ (1,251,969) (12,719,060) (22,159) (219,149)
------------- ---------------- ------------ --------------
Net increase.............................. 261,067 $ 2,056,131 5,068,938 $ 50,605,583
============= ================ ============ ==============
<CAPTION>
CLASS B
- -------
MAY 4, 1998
YEAR ENDED (INCEPTION OF CLASS)
JULY 31, THROUGH
1999 JULY 31, 1998
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares subscribed.............................. 1,814,613 $ 17,831,888 2,022,615 $ 20,110,464
Shares issued in reinvestment of distributions. 17,900 179,921 - -
------------- ---------------- ------------ --------------
1,832,513 18,011,809 2,022,615 20,110,464
Shares redeemed................................ (723,688) (7,319,259) (22,699) (227,492)
------------- ---------------- ------------ --------------
Net increase.............................. 1,108,825 $ 10,692,550 1,999,916 $ 19,882,972
============= ================ ============ ==============
</TABLE>
21
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS - Continued
July 31, 1999
================================================================================
NOTE 5 - CAPITAL STOCK - CONTINUED
<TABLE>
<CAPTION>
CLASS C
- -------
MAY 4, 1998
YEAR ENDED (INCEPTION OF CLASS)
JULY 31, THROUGH
1999 JULY 31, 1998
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares subscribed.............................. 871,308 $ 8,619,196 580,058 $ 5,766,073
Shares issued in reinvestment of distributions. 5,844 58,855 - -
------------- ---------------- ------------ ---------------
877,152 8,678,051 580,058 5,766,073
Shares redeemed................................ (331,361) (3,355,050) (16,832) (164,417)
------------- ---------------- ------------ ---------------
Net increase.............................. 545,791 $ 5,323,001 563,226 $ 5,601,656
============= ================ ============ ===============
<CAPTION>
CLASS Y
- -------
MAY 4, 1998
YEAR ENDED (INCEPTION OF CLASS)
JULY 31, THROUGH
1999 JULY 31, 1998
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares subscribed.............................. 707,983 $ 6,134,544 622 $ 6,153
Shares issued in reinvestment of distributions. 13,435 134,598 - -
------------- ---------------- ------------ ---------------
721,418 6,269,142 622 6,153
Shares redeemed................................ (1,832) (18,336) (1) (10)
------------- ---------------- ------------ ---------------
Net increase ............................. 719,586 $ 6,250,806 621 $ 6,143
============= ================ ============ ===============
</TABLE>
NOTE 6 - CUSTODIAN FEES
Under an agreement with the custodian bank, custodian fees are reduced
for earnings on cash balances maintained at the custodian by the Fund. Such
reductions amounted to $1,595 during the year ended July 31, 1999.
22
<PAGE>
DAVIS GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
Class A & B
================================================================================
Financial Highlights for a share of capital stock outstanding throughout each
period.
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------- ------------------------------
MAY 1, 1998 MAY 4, 1998
YEAR (COMMENCEMENT YEAR (INCEPTION
ENDED OF OPERATIONS) ENDED OF CLASS)
JULY 31, THROUGH JULY 31, THROUGH
1999 JULY 31, 1998 1999 JULY 31, 1998
---- ------------- ----- -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $ 9.81 $ 10.00 $ 9.79 $ 10.00
------- ------- ------- -------
Income(Loss) From Investment Operations
Net Investment Income........................ 0.16 0.03 0.05 0.01
Net Realized and Unrealized Gains (Losses)... 1.05 (0.22) 1.05 (0.22)
------- ------- ------- -------
Total From Investment Operations.......... 1.21 (0.19) 1.10 (0.21)
Dividends and Distibutions
Dividends from Net Investment Income...... (0.17) - (0.07) -
------- -------
Total Dividends and Distributions....... (0.17) - (0.07) -
Net Asset Value, End of Period................ $ 10.85 $ 9.81 $ 10.82 $ 9.79
======= ======= ======= =======
Total Return(1)................................ 12.48% (1.90)% 11.34% (2.10)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)... $57,824 $49,715 $33,643 $19,571
Ratio of Expenses to Average Net Assets... 1.16% 1.44%* 2.17% 2.32%*
Ratio of Net Investment Income to
Average Net Assets...................... 1.39% 1.87%* 0.38% 0.99%*
Portfolio Turnover Rate(2)................ 18% 0% 18% 0%
</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. Total returns
are not annualized for periods of less than one 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
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
DAVIS GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
Class C & Y
================================================================================
Financial Highlights for a share of capital stock outstanding throughout each
period.
<TABLE>
<CAPTION>
CLASS C CLASS Y
-------------------------- ------------------------------
MAY 4, 1998 MAY 4, 1998
YEAR (INCEPTION YEAR (INCEPTION
ENDED OF CLASS) ENDED OF CLASS)
JULY 31, THROUGH JULY 31, THROUGH
1999 JULY 31, 1998 1999 JULY 31, 1998
---- ------------- ----- -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $ 9.79 $ 10.00 $ 9.82 $ 10.00
------- -------- -------- --------
Income(Loss) From Investment Operations
Net Investment Income......................... 0.05 0.01 0.18 0.04
Net Realized and Unrealized Gains (Losses).... 1.05 (0.22) 1.05 (0.22)
------- -------- -------- --------
Total From Investment Operations............ 1.10 (0.21) 1.23 (0.18)
Dividends and Distributions
Dividends from Net Investment Income.......... (0.07) - (0.19) -
------- -------- -------- --------
Total Dividends and Distributions........... (0.07) - (0.19) -
Net Asset Value, End of Period.................... $ 10.82 $ 9.79 $ 10.86 $ 9.82
======= ======== ======== ========
Total Return (1)................................... 11.32% (2.10)% 12.72% (1.80)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted)....... $12,002 $5,512 $ 7,819 $6
Ratio of Expenses to Average Net Assets...... 2.17% 2.32%* 1.01% 1.14%*
Ratio of Net Investment Income to
Average Net Assets.......................... 0.38% 0.99%* 1.54% 2.17%*
Portfolio Turnover Rate(2).................... 18% 0% 18% 0%
</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. Total returns
are not annualized for periods of less than one 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
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
DAVIS GROWTH & INCOME FUND
INDEPENDENT AUDITORS' REPORT
================================================================================
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DAVIS GROWTH & INCOME FUND:
We have audited the accompanying statement of assets and liabilities of
Davis Growth & Income Fund, including the schedule of investments, as of July
31, 1999, the related statement of operations for the year then ended, and the
statements of changes in net assets and financial highlights for the year then
ended and for the period from May 1, 1998 (commencement of operations) to July
31, 1998. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1999, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Davis Growth & Income Fund as of July 31, 1999, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the year then ended and for the period from May 1, 1998
(commencement of operations) to July 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Denver, Colorado
September 3, 1999
25
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DAVIS GROWTH & INCOME FUND
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
FOR THE YEAR ENDED JULY 31, 1999
================================================================================
In early 2000, shareholders will receive information regarding all
dividends and distributions paid to them by the Fund during calendar year 1999.
Regulations of the U.S. Treasury Department require the Fund to report this
information to the Internal Revenue Service.
Dividends paid by the Fund during the fiscal year ended July 31, 1999
which are not designated as capital gain distribution should be multiplied by
77.8% to arrive at the net amount eligible for the corporate dividends-received
deduction.
The foregoing information is presented to assist shareholders in
reporting distributions received from the Fund to the Internal Revenue Service.
Because of the complexity of the federal regulations which may affect your
individual tax return and the many variations in state and local tax
regulations, we recommend that you consult your tax adviser for specific
guidance.
26
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DAVIS GROWTH & INCOME FUND
124 East Marcy Street, Santa Fe, New Mexico 87501
================================================================================
DIRECTORS OFFICERS
Wesley E. Bass, Jr. Jeremy H. Biggs
Jeremy H. Biggs Chairman
Marc P. Blum Shelby M. C. Davis
Andrew A. Davis President
Christopher C. Davis Kenneth C. Eich
Jerry D. Geist Vice President
D. James Guzy Sharra L. Reed
G. Bernard Hamilton Vice President,
LeRoy E. Hoffberger Treasurer & Assistant Secretary
Laurence W. Levine Thomas D. Tays
Christian R. Sonne Vice President & Secretary
Marsha Williams Christopher C. Davis
Vice President
Andrew A. Davis
Vice President
INVESTMENT ADVISER
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
(800) 279-2279
DISTRIBUTOR
Davis Distributors, LLC
124 East Marcy Street
Santa Fe, New Mexico 87501
TRANSFER AGENT & CUSTODIAN
State Street Bank and Trust Company
c/o The Davis Funds
P.O. Box 8406
Boston, Massachusetts 02266-8406
COUNSEL
D'Ancona & Pflaum
111 E. Wacker Drive, Suite 2800
Chicago, Illinois 60601-4205
AUDITORS
KPMG LLP
707 Seventeenth Street
Suite 2300
Denver, Colorado 80202
================================================================================
FOR MORE INFORMATION ABOUT DAVIS GROWTH & INCOME FUND INCLUDING MANAGEMENT FEES,
CHARGES AND EXPENSES, SEE THE CURRENT PROSPECTUS WHICH MUST PRECEDE OR ACCOMPANY
THIS REPORT.
================================================================================
<PAGE>
ANNUAL REPORT
DAVIS SELECTED ADVISERS, L.P.
124 EAST MARCY STREET
SANTA FE, NEW MEXICO 87501
1-800-279-0279
[DAVIS FUNDS LOGO]
