<PAGE>
SEMI-ANNUAL REPORT January 31, 1999
Davis Growth &
Income Fund
Davis
Funds
"Over 25 years of Reliable Investing"
<PAGE>
DAVIS GROWTH & INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
Dear Fellow Shareholder:
MARKET OVERVIEW
1998 was a year when no one, including ourselves, seemed capable of consistently
predicting the trend of the market. What lessons did we learn as managers (and
the largest investors in our funds) from the market's volatile performance last
year? The first lesson is that it pays to stay aboard for the long voyage with
stocks inspite of occasional financial hurricanes. It's like being in a sailboat
circling the globe. Most of the time you can't get off because you're in the
middle of the ocean. You've got to ride out whatever storms may come your way.
The second lesson we learned is that to stay invested during turbulent times
requires keeping within a circle of competence. Our expertise is buying growth
at a value price based on rigorous research. Research is the North Star that
guides us and gives us the conviction to hold fast even when we are bombarded
with negative information.
The third lesson is that buying on market dips worked again. This suggests that
rather than panicking and selling, it is better to keep on a steady course. One
of the easiest ways to do this is to make investing a regular habit through up
and down markets with a program of dollar cost averaging. (1)
The fourth lesson is that the Federal Reserve Board (the "Fed") really is the
investor's friend. After the market declined 20% last year, the Fed moved
aggressively to reduce interest rates.(2) With inflation low, the Fed appears to
prefer nurturing slow, continuous growth through attempts to moderate the
business cycle rather than driving the economy into recession. This reduces the
risk that corporate earnings might collapse and may help avoid a big collapse in
the stock market. Still, we have to keep in mind that the Fed was prepared to
have a 20% market drop before it acted last year, and it might be willing to let
the market drop 20% again.
Looking ahead, we are neither totally bearish nor euphorically bullish in the
short run. Stock valuations are currently high but, at the same time, nothing
succeeds like success. Financial assets have been successful for investors and
are still benefiting from that momentum. In addition, huge money flows are being
created by baby boomers saving for their retirement and by central banks around
the world stimulating money-supply growth. A good bit of this money is spilling
into the financial markets and marking prices up.
At the end of the day, we believe the strength and direction of earnings are
likely to determine the market outlook in 1999. But the crosscurrents and
variables that could affect earnings are numerous. What will happen to the U.S.
dollar? Will the Euro be strong or weak? Will China devalue? Will Japan turn
around? Will the Asian nations find the legal and political resolve to deal with
their huge overhang of debt? Will the Fed raise interest rates or lower them
further? What will happen on the American political scene? What about the
potential for year 2000 computer disruptions?
While the market does face a number of potentially troublesome problems, there
are few attractive alternatives to equities. Moreover, it is still possible to
find good stocks to put on our shopping list because we live in a dynamic,
constantly changing economy and the American business model still works. U.S.
companies are undergoing another round of restructuring, consolidation and
cost-cutting in order to concentrate on core businesses, improve bottom-line
earnings and raise returns on capital.
<PAGE>
DAVIS GROWTH & INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
We approach the job of investing shareholders' money and our own pragmatically
with the long-term in mind. We intend to remain fairly fully invested--trying
every day to make sensible decisions, rather than getting carried away with an
overly bullish or bearish stance. We emphasize firsthand research and meeting
with company managements so we are prepared to act when opportunities arise. And
we seek to buy stocks at pressure points when their prices have dipped
temporarily.
If you take a 30-year view of the market, assume a starting level of 9,000 for
the Dow and compound that figure at 7% annually, the Dow would be at 72,000 in
three decades. Even if the Dow dropped to 6,000 and you compound that amount at
7% a year, the Dow would reach 48,000 in 30 years. Given those possibilities, we
are not going to make market calls, we are just going to stay aboard for the
long voyage.(3)
Sincerely,
/s/ Shelby M.C. Davis
Shelby M.C. Davis
Chief Investment Officer
March 15, 1999
2
<PAGE>
DAVIS GROWTH & INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
+ The Davis Growth & Income Fund's Class A shares provided a total return
(based on net asset value) of 4.65% for the six-month period ended
January 31, 1999 and 2.66% from its inception on May 1, 1998 through
January 31, 1999.(4) By way of comparison the funds included in Lipper
Analytical Services' growth and income category provided returns of 7.66%
and 5.54%, respectively, for the same time periods.(5)
+ 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.(6)
+ The Fund is designed as a core holding for investors who want the
long-term returns of growth stock investments while managing risks
through the stability of income-oriented securities.(7)
PERFORMANCE OVERVIEW
AN INTERVIEW WITH ANDREW A. DAVIS AND CHRISTOPHER C. DAVIS, PORTFOLIO MANAGERS
Q. How would you describe the Fund's performance in 1998?
A. The Fund is structured with a mix of asset classes that allows us to be both
offensive and defensive through full market cycles. Perhaps the biggest
contributor to the Fund's disappointing returns last year was the fact that some
20% of the portfolio is allocated to defensive real estate securities--and real
estate was one of the worst-performing market sectors in 1998. For us, these
sharp price declines equate to an increase in opportunity. In fact, we believe
real estate investment trusts (REITs) represent some of the best values and
offer some of the best fundamentals available in the market today.(8)
By almost every measure other than stock prices, we believe the real estate
industry looks terrific. The earnings of real estate companies are outstanding.
The new supply of real estate has slowed dramatically. The availability of
financing for developers has decreased significantly, which lessens the chance
for overbuilding. Dividend growth is strong, at about 5% a year, and yields on
real estate stocks are at an unprecedented high level relative to U.S.
Treasuries and utilities. Moreover, those yields appear safe except under a
worst-case scenario, which we think is unlikely to happen.(9)
But while we see this long string of positives, the market doesn't. Instead, the
market is seeing what happened last time, in the mid 1980s, when a huge amount
of tax-oriented development came on-stream in all product categories nationwide
just as the economy was collapsing. As the economy moved into recession in the
late 1980s and early 1990s, demand for real estate plummeted, creating a
supply-driven recession in real estate.
But the environment is much different today. The economy appears to be heading
for a soft landing. While new supply of real estate is coming, it is nowhere
near the amounts of 10 or 15 years ago. Furthermore, with the economy growing
consistently for a decade, it's only natural that we need some selective
development and new construction. However, investors appear to be walking into
the future with their eyes on the past. And until that psychology turns, real
estate stocks are likely to be in the doldrums.
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 ANDREW A. DAVIS AND CHRISTOPHER C. DAVIS, PORTFOLIO
MANAGERS-CONTINUED
Q. What have you done to take advantage of what you believe is a temporary drop
in real estate stock valuations?
A. In this environment, we have concentrated the Fund's real estate investments
on high-quality REITs in diverse areas. Among our favorite holdings now are
Centerpoint Properties, in the industrial sector; Vornado, a diversified REIT;
and JDN Realty, a shopping-center REIT. (10)
Looking at the real estate companies we own, we see a very similar picture to
last year. The primary difference between then and now is that last year the
stocks were trading at 12 times earnings and today they're trading at nine times
earnings--the lowest level they've been in the past four years. We expect these
companies to show earnings growth in the neighborhood of 8% in 1999 plus
dividend yields of around 7%. This means total returns of 10% to 15% are
possible, assuming multiples hold at their current level or better. All in all,
we believe the evidence is solidly in favor of real estate making a significant
upward move, although we cannot predict when this might occur.(11)
Q. How did the fund's equity investments perform last year?
A. The fund's equity performance was also disappointing last year. Although we
do not judge ourselves on such short-term results, it is worth studying the
causes of such results to see what can be learned from them. We generally divide
these causes into two categories. The first is mistakes. Now, it is not a
mistake if we buy a stock and it subsequently goes down. We recognize that every
stock we purchase will probably trade lower at some point in the future than on
the day we bought it. But it is a mistake if we buy a stock that subsequently
goes down and we don't want to add to our position--or worse, we want to sell
it.
An example of a mistake was our purchase of Schlumberger.(10) Although it is
currently selling for significantly less than we paid for it, the fundamentals
of the oil service industry have deteriorated so dramatically that it is not
clearly more attractive even at these lower prices. Unlike our holdings in real
estate, the decline in Schlumberger's price has not necessarily created a buying
opportunity.
A second cause of the Fund's relative underperformance in equities was not a
mistake but was instead a direct result of our investment philosophy. This
philosophy includes a strict price discipline that prevents us from buying
high-flying glamorous growth companies--not because we don't like the companies,
but because we don't like their high valuations. In particular, we see a
speculative bubble developing in Internet stocks where valuations have inflated
to levels reminiscent of the biotech craze of the early 1990s and the emerging
markets craze of the mid-1990s.
Unfortunately, the outstanding performance of just these kinds of glamour stocks
drove the market last year, and not owning them hurt our relative performance.
Nevertheless, we think that our price discipline has served the Davis Funds well
over the years and it will remain at the heart of our investment philosophy.
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
AN INTERVIEW WITH ANDREW A. DAVIS AND CHRISTOPHER C. DAVIS, PORTFOLIO
MANAGERS-CONTINUED
Another aspect of our investment philosophy that contributed to our mixed
short-term results was our fundamental belief in the importance of companies
having successful international operations. Last year, it wasn't fashionable to
have significant operations outside the United States, and that hurt the
performance of portfolio holdings such as American Express and
Hewlett-Packard.(10) But the fact that 95% of the world's population lives
outside the United States should make it obvious that the ability to operate
globally is a big long-term advantage.(12) Unlike the category of mistakes
discussed above, our belief in being global and our price discipline are at the
heart of our investment process, for better or for worse.
Q. Could you comment on the Fund's holdings of financial stocks?
A. Given the poor relative showing of financial stocks last year, some investors
have asked if we consider the Fund's ownership of many high-quality financial
companies to be a mistake. We do not. First, we always remember that financial
stocks rarely perform in a uniform way. For example, while companies such as
BankAmerica and Allstate were down 1% and almost 14%, respectively, the shares
of Progressive surged 41%. More generally, however, we continue to think that
favorable demographics, a benign interest-rate environment, ongoing
consolidation and the globalization of the financial industry combined with
reasonable valuations make this diverse sector an attractive area to be invested
in.
Another question we often receive concerns the large position we held in General
Re, which was purchased by Berkshire Hathaway last year. Our current intention
is to keep the Berkshire Hathaway shares we received from this merger. We have
attended Berkshire's annual meeting in Omaha for many years and have long
admired CEO Warren Buffett and his partner Charles Munger.
Q. What about the Fund's investments in convertibles?
A. As an asset class, we believe that convertibles are a required part of any
well-balanced portfolio. They combine the benefits of equity ownership with the
benefits of owning bonds. Still, we'd been saying for the past year that
convertibles looked pricey, and they didn't rally nearly as much as the S&P 500
in 1998. For 1999, the picture appears brighter because, after the poor
performance of convertibles in 1998, the convertible market as a whole looks
like a better value relative to the S&P 500.
Q. What is your overall market outlook as we move into the next century?
A. Looking ahead, if the market euphoria leading up to the new millennium
continues, we may again lag behind funds that do not use a price discipline in
choosing their stocks. In such an environment, we would be pleased to achieve
good absolute results even if relative results lag.
Our price discipline is an important element in controlling risk and avoiding
big losses, such as those investors experienced in 1973 and 1974 when a similar
bubble in growth stock valuations burst. Because our family and employees remain
among the largest shareholders of the Davis Growth & Income Fund, we feel it is
vital to control risk. We've often said that a successful long-term investment
record is built as much by avoiding the big losses as by picking the big
winners. In the coming years, that theory may again be put to the test.(13)
5
<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 ANDREW A. DAVIS AND CHRISTOPHER C. DAVIS, PORTFOLIO
MANAGERS-CONTINUED
In addition to euphoria, the approaching millennium may begin to increase
investor anxiety regarding possible year 2000 computer problems. Such
uncertainty combined with such euphoria promises to create another year of
exceptional volatility that will again test investors' nerves. Although
short-term results may be extremely volatile, we feel confident that the Fund is
positioned to weather any storm. We appreciate shareholders' trust in investing
with us.
- ----------
This Semi-annual report is furnished to you by Davis Distributors, LLC, which
acts as the distributor for the Davis Growth & Income Fund. This Semi-annual
report is authorized for distribution only when accompanied or preceded by a
current prospectus of the Davis Growth & Income Fund, which contains more
information about fees and expenses. Please read the prospectus carefully before
investing or sending money.
(1) Neither dollar cost averaging nor any other mechanical system can guarantee
a profit. Such a plan does not protect against loss in declining markets.
(2) There can be no assurance that the Federal Reserve Board will act to support
stock prices or that the Federal Reserve Board's actions in the future might not
hurt stock prices.
(3) This example illustrates the power of compounding over a 30-year period, and
is not intended to be indicative of future investment results which may be
higher or lower than the assumed rate.
(4) 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.
* (Without a 4.75% Sales Charge taken into consideration for the period ended
January 31, 1999)
<TABLE>
<CAPTION>
FUND NAME INCEPTION
- --------- ---------
<S> <C>
Davis Growth & Income Fund A 2.66% - 05/01/98
</TABLE>
** (With a 4.75% Sales Charge taken into consideration for the period ended
January 31, 1999)
<TABLE>
<CAPTION>
FUND NAME INCEPTION
- --------- ---------
<S> <C>
Davis Growth & Income Fund A (2.23%) - 05/01/98
</TABLE>
Returns have not been annualized. Returns for other classes of shares will vary
from the above returns.
(5) Lipper Analytical Services' rankings and comparisons are based on total
returns unadjusted for commissions.
6
<PAGE>
DAVIS GROWTH & INCOME FUND
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
(6) That 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 advisor.
(7) 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.
(8) There can be no assurance that the Fund's investment in real estate
securities will prove to be profitable.
(9) Investments in real estate securities are subject to risks associated with
the direct ownership of real estate. These risks include declines in the value
of real estate, risks related to general and local economic conditions, over
building or condemnation losses, fluctuations in rental income, changes in
neighborhood values, the appeal of properties to tenants and increases in the
interest rates.
(10) Portfolio holdings and portfolio manager opinions cited in this material
are current at the time of printing but are subject to change. See Schedule of
Investments for a detailed list of portfolio holdings.
(11) The opinions expressed are those of the portfolio managers and Davis
Selected Advisers, LP. They are based upon our professional judgement after
reviewing the information available to us. There can be no guarantee that our
options will prove to be more accurate than those of other professional managers
or that an investment in real estate will prove to be profitable.
(12) Source: U.S. Census Bureau.
(13) No price discipline or other method of controlling risk can guarantee
shareholder will not experience a loss. Past performance is not a guarantee of
future results.
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.
7
<PAGE>
DAVIS GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS
January 31, 1999 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
- ------------------------------------------------------------------------------------
COMMON STOCK - (80.62%)
<S> <C> <C>
BANKS AND SAVINGS & LOANS - (5.76%)
39,606 BankAmerica Corp. ...................................... $ 2,648,651
100,000 Wells Fargo & Co. ...................................... 3,493,750
------------
6,142,401
------------
BUILDING MATERIALS - (7.50%)
60,000 Martin Marietta Material, Inc. ......................... 3,150,000
150,000 Masco Corp. ............................................ 4,846,875
------------
7,996,875
------------
CONSUMER PRODUCTS - (6.72%)
50,000 Gillette Co. ........................................... 2,937,500
90,000 Philip Morris Cos., Inc. ............................... 4,230,000
------------
7,167,500
------------
DIVERSIFIED - (2.56%)
42 Berkshire Hathaway, Inc. - Class A* 2,730,000
------------
DIVERSIFIED FINANCIAL SERVICES - (9.81%)
64,500 American Express Co. ................................... 6,635,438
52,500 Citigroup, Inc. ........................................ 2,943,281
20,000 Household International, Inc. .......................... 878,750
------------
10,457,469
------------
ELECTRONICS - (6.19%)
30,000 Applied Materials, Inc.* .............................. 1,894,688
75,000 Molex Inc. ............................................. 2,233,594
25,000 Texas Instruments Inc. ................................. 2,471,875
------------
6,600,157
------------
ENERGY - (0.67%)
15,000 Schlumberger Ltd. ...................................... 714,375
------------
FOOD & RESTAURANT - (3.33%)
45,000 McDonald's Corp. ....................................... 3,546,563
------------
MACHINERY - (2.91%)
100,000 Dover Corp. ............................................ 3,106,250
------------
PROPERTY/CASUALTY INSURANCE - (9.77%)
30,000 The Allstate Corp. ..................................... 1,126,875
30,000 Chubb Corp. ............................................ 1,762,500
35,000 Progressive Corp. (Ohio) ............................... 4,372,813
42,000 Transatlantic Holdings Inc. ............................ 3,147,375
------------
10,409,563
------------
REAL ESTATE - (16.80%)
177,900 Boardwalk Equities, Inc.* .............................. 1,711,144
61,000 CenterPoint Properties Corp. ........................... 1,990,125
6,500 Crescent Operating, Inc.* .............................. 32,094
150,000 Crescent Real Estate Equities, Inc. .................... 3,178,125
2,900 General Growth Properties. Inc. ........................ 100,413
</TABLE>
8
<PAGE>
DAVIS GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS - Continued
January 31, 1999 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
- --------------------------------------------------------------------------------------
COMMON STOCK - CONTINUED
<S> <C> <C>
REAL ESTATE - CONTINUED
84,000 JDN Realty Corp. ........................................ $ 1,785,000
81,200 Mack-Cali Realty Corp. .................................. 2,425,850
110,000 Rouse Co. ............................................... 2,598,750
41,000 Starwood Hotels & Resorts ............................... 1,025,000
86,800 Vornado Realty Trust .................................... 3,065,125
------------
17,911,626
TECHNOLOGY - (8.60%)
72,000 Hewlett-Packard Co. ..................................... 5,643,000
25,000 Intel Corp. ............................................. 3,521,092
------------
9,164,092
------------
Total Common Stocks - (identified cost $83,103,259).... 85,946,871
------------
CONVERTIBLE BONDS - (1.46%)
Cincinnati Financial Corp., Conv. Sub. Deb., 5.50%,
$660,000 05/01/02 - (identified cost $1,672,963)...... 1,558,425
------------
PREFERRED STOCK - (11.07%)
80,000 General Growth Properties, 7.25%, Conv. Pfd. ........... 1,940,000
13,300 Mediaone Group , 6.25%,"ATI" PIES, Conv. Pfd. ........... 1,093,925
100,000 Sealed Air Corp., $2.00, Ser. A, Cum. Conv. Pfd.......... 5,312,500
38,000 Union Pacific Cap Trust, 6.25%, Ser. 144A Conv.
Pfd.(b) ............................................... 1,900,000
30,000 Vornado Realty Trust, 6.50%, Ser. A, Cum. Conv. Pfd...... 1,560,000
------------
Total Preferred Stocks - (identified cost
$10,926,068) ....................................... 11,806,425
------------
SHORT TERM INVESTMENTS - (6.69%)
7,128,000 State Street Bank and Trust Co. Repurchase Agreement,
4.70%, 02/01/99, dated 01/29/99, repurchase value of
$7,130,792 (collateralized by $7,025,000 par value
U.S. Note, 6.88%, 07/31/99, market value $7,342,811)
- (identified cost $7,128,000) .......................... 7,128,000
------------
Total Investments - (identified cost
$102,830,290)(99.84%)(a) ................................ 106,439,721
Other Assets Less Liabilities- (0.16%) .................. 170,786
------------
Net Assets - ( 100%) .................................. $106,610,507
============
</TABLE>
(a) Aggregate cost for Federal Income Tax purposes is $102,830,290. At January
31, 1999 unrealized appreciation (depreciation) of securities for Federal Income
Tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ................................. $ 9,914,652
Unrealized depreciation ................................. (6,305,221)
-----------
Net appreciation ...................................... $ 3,609,431
===========
</TABLE>
(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 $1,900,000 or 1.78% of the Fund's
net assets as of January 31, 1999.
* Non-Income Producing Security
See Notes to Financial Statements
9
<PAGE>
DAVIS GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
At January 31,1999 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value (including repurchase
agreement of $7,128,000) (identified cost $102,830,290)
(see accompanying Schedule of Investments) ...................... $106,439,721
Cash .............................................................. 2,112
Receivables:
Capital stock sold .............................................. 353,393
Dividends and interest .......................................... 162,546
Prepaid expenses .................................................. 15,000
------------
Total assets .................................................. 106,972,772
------------
LIABILITIES:
Payables:
Capital stock redeemed .......................................... 190,632
Investment securities purchased ................................. 32,500
Accrued expenses .................................................. 139,133
------------
Total liabilities ............................................. 362,265
------------
NET ASSETS .......................................................... $106,610,507
NET ASSETS CONSIST OF:
Par value of shares of capital stock .............................. $ 524,629
Additional paid-in capital ........................................ 102,082,826
Undistributed net investment income ............................... 150,605
Net unrealized appreciation on investments ........................ 3,609,431
Accumulated net realized gain ..................................... 243,016
------------
Net assets ..................................................... $106,610,507
============
CLASS A SHARES
Net assets ...................................................... $ 58,429,991
Shares outstanding .............................................. 5,744,192
Net asset value and redemption price per share .................. $ 10.17
============
Maximum offering price per share (100/95.25 of $10.17) .......... $ 10.68
============
CLASS B SHARES
Net assets ...................................................... $ 30,629,509
Shares outstanding .............................................. 3,019,934
Net asset value and redemption price per share .................. $ 10.14
============
CLASS C SHARES
Net assets ...................................................... $ 10,323,980
Shares outstanding .............................................. 1,018,007
Net asset value and redemption price per share .................. $ 10.14
============
CLASS Y SHARES
Net assets ...................................................... $ 7,227,027
Shares outstanding .............................................. 710,442
Net asset value and redemption price per share .................. $ 10.17
============
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
DAVIS GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
For the six months ended January 31, 1999 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends.......................................................... $1,030,637
Interest .......................................................... 322,111
----------
Total income .................................................... 1,352,748
Expenses:
Management fees (Note 3) ................................ $337,613
Custodian fees .......................................... 25,552
Transfer agent fees
Class A ............................................... 17,755
Class B ............................................... 24,029
Class C ............................................... 8,132
Class Y ............................................... 999
Audit fees .............................................. 4,967
Legal fees .............................................. 1,536
Accounting fees (Note 3) ................................ 3,000
Reports to shareholders ................................. 4,994
Directors' fees and expenses ............................ 837
Registration and filing fees ............................ 59,150
Miscellaneous ........................................... 1,587
Payments under distribution plan (Note 4)
Class A ............................................... 24,890
Class B ............................................... 123,896
Class C ............................................... 39,368
--------
Total expenses ................................................ 678,305
Expenses paid indirectly (Note 6) ............................. (1,255)
----------
Net expenses .................................................. 677,050
----------
Net investment income ....................................... 675,698
----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized gain from investment transactions ...................... 243,016
Net increase in unrealized appreciation of investments ............. 5,127,153
----------
Net realized and unrealized gain on investments ................... 5,370,169
----------
Net increase in net assets resulting from operations ............ $6,045,867
==========
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
DAVIS GROWTH & INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
SIX
MONTHS ENDED PERIOD ENDED
JANUARY 31, 1999 JULY 31,
(UNAUDITED) 1998(1)
----------- -------
<S> <C> <C>
OPERATIONS:
Net investment income ................................ $ 675,698 $ 225,562
Net realized gain from investment transactions ....... 243,016 --
Net change in unrealized appreciation/(depreciation)
of investments .................................... 5,127,153 (1,517,722)
------------- ------------
Net increase (decrease) in net assets resulting
from operations ................................. 6,045,867 (1,292,160)
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Class A ........................................... (495,280) --
Class B ........................................... (137,136) --
Class C ........................................... (44,341) --
Class Y ........................................... (73,898) --
CAPITAL SHARE TRANSACTIONS (NOTE 5) .................... 26,511,101 76,096,354
------------- ------------
Total increase in net assets ..................... 31,806,313 74,804,194
NET ASSETS:
Beginning of period .................................. 74,804,194 --
------------- ------------
End of period (including undistributed net income
of $150,605 and $225,562, respectively)............. $ 106,610,507 $ 74,804,194
============= ============
</TABLE>
(1) The Fund commenced operations on May 1, 1998.
See Notes to Financial Statements.
12
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
January 31, 1999 (Unaudited)
================================================================================
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.
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.
13
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS - Continued
January 31, 1999 (Unaudited)
================================================================================
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 six months ended January 31, 1999, were $40,292,758 and $5,678,791,
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 six months ended January 31, 1999 amounted to $6,498. Boston
Financial Data Services is the Fund's primary transfer agent. The Adviser is
also paid for certain transfer agent services. The fee for the these services
for the six months ended January 31, 1999 amounted to $6,123. 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 $3,000 for the six months ended January
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 six months ended January 31, 1999, SCD
received $5,700 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 (without a contingent deferred sales charge).
14
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS - Continued
January 31, 1999 (Unaudited)
================================================================================
NOTE 4 - DISTRIBUTION AND UNDERWRITING FEES - CONTINUED
CLASS A SHARES-CONTINUED
During the six months ended January 31, 1999, Davis Distributors, LLC, the
Fund's Underwriter (the "Underwriter" or "Distributor") received $140,163 from
commissions earned on sales of Class A shares of the Fund, of which $22,729 was
retained by the Underwriter and the remaining $117,434 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.
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 six months ended
January 31, 1999 was $24,890.
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 six months ended January 31, 1999, Class B shares of the Fund made
distribution plan payments which included distribution fees of $92,887 and
service fees of $31,009.
Commission advances by the Distributor during the six months ended July 31, 1999
on the sale of Class B shares of the Fund amounted to $312,722, of which
$304,622 was re-allowed to qualified selling dealers.
The Distributor intends to seek payment from Class B shares of the Fund in the
amount of $890,610, 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 six
months ended January 31, 1999 the Distributor received $19,339 in contingent
deferred sales charges from Class B shares of the Fund.
15
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS - Continued
January 31, 1999 (Unaudited)
================================================================================
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 six months ended January 31, 1999, Class C shares of the Fund made
distribution payments of $39,368. During the six months ended January 31, 1999,
the Distributor received $2,966 in contingent deferred sales charges from Class
C shares of the Fund.
NOTE 5 - CAPITAL STOCK
At January 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
(COMMENCEMENT OF
SIX MONTHS ENDED OPERATIONS)
JANUARY 31, 1999 THROUGH
(UNAUDITED) JULY 31, 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares subscribed ............. 1,136,058 $ 10,814,649 5,091,097 $ 50,824,732
Shares issued in reinvestment
of distributions ............ 49,938 480,686 -- --
--------- ------------ --------- ------------
1,185,996 11,295,335 5,091,097 50,824,732
Shares redeemed ............... (510,743) (4,908,558) (22,159) (219,149)
--------- ------------ --------- ------------
Net increase .................. 675,253 $ 6,386,777 5,068,938 $ 50,605,583
========= ============ ========= ============
CLASS B
MAY 4, 1998 (INCEPTION OF
SIX MONTHS ENDED CLASS)
JANUARY 31, 1999 THROUGH
(UNAUDITED) JULY 31, 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Shares subscribed ............. 1,305,172 $ 12,425,827 2,022,615 $ 20,110,464
Shares issued in reinvestment
of distributions ............ 12,580 123,779 -- --
--------- ------------ --------- ------------
1,317,752 12,549,606 2,022,615 20,110,464
Shares redeemed ............... (297,735) (2,868,620) (22,699) (227,492)
--------- ------------ --------- ------------
Net increase .................. 1,020,017 $ 9,680,986 1,999,916 $ 19,882,972
========= ============ ========= ============
</TABLE>
16
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS - Continued
January 31, 1999 (Unaudited)
================================================================================
NOTE 5 - CAPITAL STOCK - CONTINUED
<TABLE>
<CAPTION>
CLASS C
MAY 4, 1998 (INCEPTION OF
SIX MONTHS ENDED CLASS)
JANUARY 31, 1999 THROUGH
(UNAUDITED) JULY 31, 1998
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares subscribed ............. 578,169 $ 5,486,536 580,058 $ 5,766,073
Shares issued in reinvestment
of distributions ............ 4,089 40,296 -- --
--------- ----------- --------- -----------
582,258 5,526,832 580,058 5,766,073
Shares redeemed ............... (127,478) (1,230,536) (16,832) (164,417)
--------- ----------- --------- -----------
Net increase .................. 454,780 $ 4,296,296 563,226 $ 5,601,656
========= =========== ========= ===========
CLASS Y
MAY 4, 1998 (INCEPTION OF
SIX MONTHS ENDED CLASS)
JANUARY 31, 1999 THROUGH
(UNAUDITED) JULY 31, 1998
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Shares subscribed ............. 702,112 $ 6,073,411 622 $ 6,153
Shares issued in reinvestment
of distributions ............ 7,710 73,633 -- --
--------- ----------- --------- -----------
709,822 6,147,044 622 6,153
Shares redeemed ............... (1) (2) (1) (10)
--------- ----------- --------- -----------
Net increase .................. 709,821 $ 6,147,042 621 $ 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 $1,255 during the six months ended January 31, 1999.
17
<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
SIX MONTHS (COMMENCEMENT SIX MONTHS (INCEPTION
ENDED OF OPERATIONS) ENDED OF CLASS)
JANUARY 31, 1999 THROUGH JANUARY 31, 1999 THROUGH
(UNAUDITED) JULY 31, 1998 (UNAUDITED) 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 ................... 0.08 0.03 0.03 0.01
Net Realized and Unrealized Loss ........ 0.37 (0.22) 0.37 (0.22)
------- ------- ------- -------
Total From Investment Operations ...... 0.45 (0.19) 0.40 (0.21)
DIVIDENDS AND DISTIBUTIONS
Dividends from Net Investment Income .... (0.09) -- 0.05) --
------- ------- ------- -------
Total Dividends and Distributions ..... (0.09) -- 0.05) --
Net Asset Value, End of Period ........... $ 10.17 $ 9.81 $ 0.14 $ 9.79
======= ======= ======= =======
TOTAL RETURN (1) 4.65% (1.90)% 4.10% (2.10)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000 omitted).. $58,430 $49,715 $30,630 $19,571
Ratio of Expenses to Average Net Assets 1.14%* 1.44%* 2.17%* 2.32%*
Ratio of Net Investment Income to Average
Net Assets ............................ 1.87%* 1.87%* 0.84%* 0.99%*
Portfolio Turnover Rate(2) .............. 7.40% 0% 7.40% 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.
18
<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
--------------------------- ---------------------------
SIX MONTHS MAY 4, 1998 SIX MONTHS MAY 4, 1998
ENDED (INCEPTION ENDED (INCEPTION
JANUARY 31, OF CLASS) JANUARY 31, OF CLASS)
1999 THROUGH 1999 THROUGH
(UNAUDITED) JULY 31, 1998 (UNAUDITED) 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 ..................... 0.03 0.01 0.05 0.04
Net Realized and Unrealized Loss .......... 0.37 (0.22) 0.41 (0.22)
------- ------ ------ ------
Total From Investment Operations .......... 0.40 (0.21) 0.46 (0.18)
DIVIDENDS AND DISTRIBUTIONS
Dividends from Net Investment Income ...... (0.05) -- (0.11) --
------- ------ ------ ------
Total Dividends and Distributions ......... (0.05) -- (0.11) --
Net Asset Value, End of Period ........... $ 0.14 $ 9.79 $10.17 $ 9.82
======= ====== ====== ======
TOTAL RETURN (1) .......................... 4.10% (2.10)% 4.71% (1.80)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000 omitted) ... $10,324 $5,512 $7,227 $ 6
Ratio of Expenses to Average Net Assets .. 2.18%* 2.32%* 1.01%* 1.14%*
Ratio of Net Investment Income to Average .
Net Assets ................................ 0.83%* 0.99%* 2.00%* 2.17%*
Portfolio Turnover Rate(2) ................ 7.40% 0% 7.40% 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 thecalculation.
* Annualized.
See Notes to Financial Statements.
19
<PAGE>
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
Carolyn H. Spolidoro
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.
================================================================================
20
<PAGE>
Davis Selected Advisors, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
1-800-279-0279
Davis
Funds
"Over 25 years of Reliable Investing"
