<PAGE>
ANNUAL REPORT
[DAVIS LOGO]
JULY 31, 2000
DAVIS GROWTH &
INCOME FUND
<PAGE>
DAVIS GROWTH & INCOME FUND
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
Dear Fellow Shareholder,
We are optimists at heart and we believe that stocks offer the best means of
creating wealth over the long term. Historically, stocks have won over time
because they represent claims on growth, not a fixed promise to pay a fixed
amount, which is the case with bonds.(1) As gross domestic product (GDP) and
corporate profits grow, so does the valuation floor for stocks.
With that as a backdrop, every day when we come to work we try to do four
things. First, we seek out businesses that will grow, preferably ones that need
little new capital because that means they are the most self-sufficient.
Second, we evaluate the judgment, vision and integrity of management. We want to
get a good feel for what management plans to do with the free cash flows
generated by the business--be it making new investments, acquiring other
businesses or increasing dividends.
Third, we value those businesses against the alternatives, seeking to determine
what "mystery" coupon or rate of return the business will produce for its
stockowners. In other words, we determine what we would be willing to pay for
the business in order to provide us with a better projected rate of return than
the coupon rate on risk-free alternatives such as 10-year Treasury bonds, and we
try to buy the companies when they are attractively valued.
Fourth, we consider this analysis within the context of where we are in the
stock market cycle. We know we are on a long journey. If equities grow at a rate
of around 7% a year over the next 30 years, which is a little less than their
long-term average growth rate, that would take the Dow Jones Industrial Average
from around 10,000 to 80,000 by 2030.(2) At the same time, we are mindful that
road conditions will not always be favorable and that there will be checkpoints
along the way because different eras create different risk profiles.
Looking ahead over the next few years, we recognize that we are unlikely to
continue enjoying the big drivers of stock performance that we have had over the
past 15 to 20 years--namely, dramatically rising corporate profits, steeply
falling interest rates and sharply higher price/earnings (P/E) valuations.
Inflation and interest rates have plateaued at best and may be increasing, which
means caution lights are flashing on the road ahead. If inflation keeps
climbing, the Federal Reserve will take concerted action after the presidential
election, raising interest rates even further and therefore the risk-free hurdle
rate against which all stocks have to compete. As for corporate profits, they
still have a green light, but they have been inflated by various accounting
practices and cannot keep growing their share of GDP forever.
All of this leads us to believe that the market could be in a 30% to 50% trading
range over the next 5 to 10 years before there is a big break out again. That is
a lot of movement in points, but not much in percentage terms, particularly when
you consider the market went up tenfold (from 1,000 to 10,000) over the past 20
years. Although the rate of growth may be slowing, we still anticipate a fairly
favorable environment for stocks. The Federal Reserve is doing its job right by
trying to prolong the cycle, deflate a bubble and prevent a boom/bust scenario.
Even if we stay in a trading-range market for some time, there should always be
opportunities for stock picking.
<PAGE>
DAVIS GROWTH & INCOME FUND
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
We think multinationals may be a fertile area to investigate whether they are in
the technology, drug or financial sector. For several years, these companies
have been fighting headwinds related to various financial crises around the
world, the strength of the dollar and the market's fixation on Internet
companies. Now high-quality multinationals with proven management teams may move
into the spotlight because they have flexibility to allocate capital around the
globe to wherever it may earn the best return, and with a world population of
around six billion, their potential customer base is huge.
Contrary to what some people may believe, we are not against technology.
Particularly in a difficult market when you have to be a good stock picker, it
is useful to identify a theme. Over the next decade, technology is almost
certain to be a key investment trend, whether it be the inventors of technology
or traditional companies that successfully apply technology in their business
models. American Express(3) is one example of a company that is likely to
benefit as consumers buy more and more over the Internet, charging purchases on
their credit cards. In addition, there are a number of financial and other
companies that will use the Internet to drive down their costs or to leverage
their brand power and broaden their marketing reach. If these companies are also
multinational, so much the better because they can do this all over the world.
Of course, no one knows for sure exactly what the next few years will bring. But
regardless of election results, inflation, interest rates or profit trends, we
will continue to manage money according to the same generational philosophy we
have applied for decades in all types of markets. Investing is a batting average
business, full of strikeouts and mistakes as well as home runs. Rest assured
that we will try to do sensible things every day when we come to work and do the
best we can because our money is invested side by side with our fellow
shareholders. We continue to believe that stocks are the best way to build
long-term wealth. Staying invested puts time on our side and gives compounding
the opportunity to work for us all.(4)
Sincerely,
/s/ Shelby M.C. Davis
Shelby M.C. Davis
Senior Research Adviser
September 6, 2000
2
<PAGE>
DAVIS GROWTH & INCOME FUND
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
PERFORMANCE OVERVIEW
The Davis Growth & Income Fund's Class A shares generated a total return on net
asset value of 6.51% for the six-month period and 2.94% for the one-year period
ended July 31, 2000.(5) By way of comparison, the funds included in Lipper
Analytical Services Multi-Cap Value Fund category(6) averaged returns of 4.68%
and (1.00)%, respectively, over the same time periods.
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND ANDREW A. DAVIS, PORTFOLIO MANAGERS
Q. How would you describe the performance of the Fund's equity holdings so far
this year?
A. We have been very pleased with the performance of several companies that were
relatively recent additions to the portfolio. In general, these companies were
purchased while their stock prices languished under clouds of uncertainty or
even scandal. In such cases, while we are taking what might be called "headline"
risk, the fact that we are buying the companies after bad news has been
disclosed often limits our economic risk.
Our purchase of American Home Products,(3) for example, came at a time when the
company was facing litigation concerning unforeseen side effects with one of its
drugs. While there was always a risk that the consequences of this litigation
could have been much worse than we anticipated, we believed that the stock price
more than discounted the likely outcome and that, as the clouds of uncertainty
lifted, investors would again recognize the powerful new products and strong
position of this company. Our colleague Danton Goei was an important resource in
the Fund's opportunistic purchase of this company at significantly lower prices.
Similarly, our decision to triple our holdings in Tyco came at a time when the
company was undergoing SEC scrutiny regarding its accounting for a number of
mergers and acquisitions. Our partner Ken Feinberg led an incredibly thorough
research effort on this complex company and was ably assisted by Adam Seessel in
reconstructing all of the company's recent acquisitions and arriving at the
conclusion that management's accounting practices were quite reasonable.
Although these companies could still prove to be disappointing investments if
bad news subsequently comes to light, we think both are illustrative of our
willingness to purchase companies opportunistically while others are anxiously
selling. Such decisions can only be made with conviction based on thorough and
independent research and on the recognition that short-term movements in stock
prices often reflect changes in psychology rather than changes in economics.
Q. What about the Fund's investments in real estate stocks?
A. The real estate sector is much more in favor than it was last year and is
performing better and better as the days go by. The last phase of what we think
will be the full recovery of real estate stock prices will occur when the higher
growth, smaller cap companies start to climb, and we may be nearing or at that
point now.
3
<PAGE>
DAVIS GROWTH & INCOME FUND
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND ANDREW A. DAVIS, PORTFOLIO MANAGERS -
CONTINUED
We believe that a key reason for the improved performance of real estate stocks
may simply be that the real estate investment trust (REIT) industry has a little
more history under its belt. The REIT world as we know it today was born in 1991
at the end of the last major downturn in real estate and has not yet gone
through a complete economic cycle. But every quarter that goes by where these
companies perform better and better--whether the economy is surging or slowing,
whether interest rates are rising or falling--simply increases their
credibility, and every bit of added credibility adds to their multiples.
Perhaps the most important difference in this real estate cycle versus other
cycles historically has been the absence of overbuilding. This is a big positive
for the industry because it means when the economy turns down as it inevitably
will and demand slows, real estate companies will not be burdened by excess new
supply as they were in the late 1980s and early 1990s. Instead, the real estate
industry should enter the next recession in good shape relative to supply and
demand, and that can make a huge difference in the long-term rate of return in
any business. We think we will continue to see greater consistency in company
earnings, and consistency is a virtue highly valued by investors.
Q. What are your favorite real estate holdings now?
A. The Fund has enjoyed good returns from Spieker Properties, a diversified
REIT, and Boston Properties, an office REIT. The performance of two other
relatively big positions, Apartment Investment & Management Company and
Alexandria Real Estate Equities, another office REIT, has not yet fully lived up
to expectations. While these stocks are up significantly more than the S&P 500
for the year, they are not up enough given the superior growth rates of these
two fine companies. However, we feel confident that these companies will receive
the investor recognition they deserve.
Another favored holding is Centerpoint Properties, an industrial REIT that the
Fund has owned for some time. The company has grown its earnings 15% annually,
year after year, but its stock price performance last year was disappointing.
Although the stock has done much better in the year 2000, recently hitting a new
high, we expect even more from the shares.
Q. Could you comment on the overall market environment this year and its impact
on the Fund's portfolio?
A. Turning from those specifics of the portfolio to the market in general, the
year 2000 has proven to be another period of tremendous stock price volatility.
The relatively anemic change in the market averages so far this year is
deceptive in that it masks enormous underlying gyrations in the prices of
individual issues. A natural consequence of such volatility, other factors being
equal, is a tendency toward higher turnover. These enormous price swings mean
companies are more likely to advance from a range of fair value to levels at
which we would consider them overvalued and therefore candidates for sale, or
conversely to decline to such prices that we would consider adding to our
positions.
4
<PAGE>
DAVIS GROWTH & INCOME FUND
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND ANDREW A. DAVIS, PORTFOLIO MANAGERS -
CONTINUED
Another recent characteristic of the market has been a constant lowering of the
quality of reported earnings. As anyone who runs a business can attest,
perfectly predictable and consistent results can rarely be achieved in precise
12-week intervals. Yet Wall Street has come to place such a premium on
consistent results that increasingly corporate America is torturing accounting
policies to create the illusion of predictability and consistency in these short
quarterly periods. As a result, earnings are frequently not what they seem, and
reported results often include nonrecurring items such as favorable changes in
pension fund assumptions, gains on sales of operations or securities, expense
reductions from previously incurred restructuring charges and other financial
gimmicks. Thus, most companies' quarterly earnings must be scrutinized much more
intensively than ever before.
While we hope not to own many of the most flagrant offenders in the Davis Growth
& Income Fund, we would expect that over the next several years the newspapers
will be full of companies forced to come clean when their bag of accounting
tricks is empty. Once a company starts down this path, it is difficult to stop
as inflated results in the current quarter become increasingly difficult
comparisons for future quarters.
Q. What final thoughts would you like to leave with your fellow shareholders?
A. While these observations may sound pessimistic, we are reminded of our
father's comment last year that our goal is to be neither optimistic nor
pessimistic, but to do our best to be realistic. As we have said in the past,
the reality is that returns in the next decade are unlikely to be near the
levels enjoyed in the last two decades. The danger is that as investors move
from a position of almost universal optimism to a more realistic stance equity
valuations could suffer significantly. It is the tendency of markets, like
pendulums, not to move to the middle ground and stop, but instead to swing
markedly to the other side. While such a significant correction would create
many buying opportunities, it is unlikely that investors would have the stomach
to pursue them. Therein lies the biggest danger facing investors.
This danger was illustrated in the March issue of Mutual Funds magazine, which
featured the following statistic. According to the magazine, "Between 1984 and
the end of 1998, the average stock fund gained 509%, or 12.8% per year over 15
years. Meanwhile, the typical mutual fund investor, whose average holding period
was less than three years, earned just 186% or 7.25% a year." This staggering
underperformance of the average fund investor was self-inflicted as it came from
money flowing into the funds with great short-term performance and then flowing
out of those funds when future results were disappointing.
If we can leave any message with our fellow shareholders, it is to fight the
very human tendency to feel elated and optimistic when prices are high (as they
are today) and discouraged and pessimistic when prices are low. Now when times
are good is the right time to sound the cautious note. In doing so, we hope that
we will all be better positioned to be optimistic and opportunistic when times
look more bleak.(4)
5
<PAGE>
DAVIS GROWTH & INCOME FUND
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
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 risks, fees and expenses. Please read the prospectus
carefully before investing or sending money.
(1) Historically, common stocks have outperformed both bonds and cash. There is
no assurance that this will continue to be true in the future.
(2) This hypothetical 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 7% rate.
(3) See the Fund's Schedule of Investments for a detailed list of portfolio
holdings.
(4) This report reflects the professional opinions of Shelby M.C. Davis and
Davis Growth & Income Fund's portfolio managers. All investments involve some
degree of risk, and there can be no assurance that the Fund's investment
strategies will be successful. Prices of shares will vary, so that when
redeemed, an investor's shares could be worth more or less than their original
cost.
(5) 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, 2000. Returns for other classes of shares will vary from the
following returns:
(WITHOUT a 4.75% sales charge taken into consideration)
--------------------------------------------------------------------------------
FUND NAME 1 YEAR INCEPTION
--------- ------ ---------
--------------------------------------------------------------------------------
Davis Growth & Income Fund A 2.94% 5.83% - 05/01/98
--------------------------------------------------------------------------------
(WITH a 4.75% sales charge taken into consideration)
--------------------------------------------------------------------------------
FUND NAME 1 YEAR INCEPTION
--------- ------ ---------
--------------------------------------------------------------------------------
Davis Growth & Income Fund A (1.94%) 3.56% - 05/01/98
--------------------------------------------------------------------------------
(6) The Lipper Multi-Cap Value Index is composed of funds that by prospectus or
portfolio practice invest in a variety of market capitalization ranges.
Multi-Cap Value Funds seek long-term growth of capital by investing in companies
that are considered to be undervalued relative to a major unmanaged stock index
based on price-to-current earnings, book value, asset value, or other factors.
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.
An investment in the Fund is not a deposit in a bank and is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
6
<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, 2000.
---------------------------------------------------------------
CLASS A SHARES
(This calculation includes an initial sales charge of 4 3/4%).
One Year............................................. (1.94%)
Life of Class (May 1, 1998 through July 31, 2000).... 3.56%
--------------------------------------------------------------
$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, 2000
the value of your investment would have grown to $10,819 - a 8.19% increase on
your initial investment. For comparison, the S&P 500 is also presented on the
chart below.
Class A
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
7/31/00 13,145.17 10,819.05
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 B SHARES AND STANDARD AND POOR'S
500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended July 31, 2000.
-----------------------------------------------------------------------------
CLASS B SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year............................................. (2.12%)
Life of Class (May 4, 1998 through July 31, 2000).... 3.50%
------------------------------------------------------------------------------
$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, 2000 the value of your investment (less applicable contingent
deferred sales charges) would have grown to $10,805 - a 8.05% 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 10,899.94
7/31/00 13,132.07 10,804.72
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 C SHARES AND STANDARD AND POOR'S
500 STOCK INDEX
================================================================================
Average Annual Total Return for the Periods ended July 31, 2000.
------------------------------------------------------------------------------
CLASS C SHARES
(This calculation includes any applicable contingent deferred sales charge.)
One Year............................................. 1.24%
Life of Class (May 4, 1998 through July 31, 2000).... 4.93%
------------------------------------------------------------------------------
$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, 2000 the value of your investment would have grown to $11,140
- a 11.40% 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
7/31/00 13,132.07 11,139.79
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
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, 2000.
----------------------------------------------------------------
CLASS Y SHARES
(There is no sales charge applicable to this calculation.)
One Year............................................. 3.17%
Life of Class (May 4, 1998 through July 31, 2000).... 6.08%
----------------------------------------------------------------
$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, 2000 the value of your investment would have grown to $11,416
- a 14.16% 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 9,820.00
7/31/99 12,051.05 11,068.98
7/31/00 13,132.07 11,415.75
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.
10
<PAGE>
DAVIS GROWTH & INCOME FUND
PORTFOLIO HOLDINGS AS OF JULY 31, 2000
================================================================================
PORTFOLIO MAKEUP (% OF FUND NET ASSETS)
---------------------------------------
PREFERRED STOCKS 10.3%
CONVERTIBLE BOND & OTHER ASSETS & LIABILITIES 1.9%
COMMON STOCKS 87.8%
SECTOR WEIGHTINGS (% OF LONG TERM PORTFOLIO)
--------------------------------------------
BANKING 3.7%
TECHNOLOGY 10.0%
DIVERSIFIED 6.8%
ELECTRONICS 3.0%
INDUSTRIAL 5.9%
FINANCIAL SERVICES 27.4%
FOOD AND RESTAURANT 2.6%
PHARMACEUTICALS 3.9%
REAL ESTATE 16.2%
INSURANCE 5.7%
TELECOMMUNICATIONS 9.1%
OTHER 5.7%
<TABLE>
<CAPTION>
TOP 10 HOLDINGS % OF FUND
STOCK SECTOR NET ASSETS
--------------------------------------------------------------------------------
<S> <C> <C>
American Express Co. Financial Services 11.46%
Sealed Air Corp., $2.00, 4/01/18
Series A Conv. Pfd Industrial 5.92%
American International Group, Inc. Multi-Line Insurance 5.71%
Citigroup, Inc. Financial Services 5.56%
Hewlett-Packard Co. Technology 4.79%
Household International, Inc. Financial Services 4.47%
Tyco International Ltd. Diversified Manufacturing 4.31%
International Business Machines Technology 4.15%
Morgan Stanley Dean Witter & Co. Investment Firms 3.95%
American Home Products Corp. Pharmaceutical and Healthcare 3.89%
</TABLE>
11
<PAGE>
DAVIS GROWTH & INCOME FUND
PORTFOLIO ACTIVITY - AUGUST 1, 1999 THROUGH JULY 31, 2000
================================================================================
NEW POSITIONS ADDED (8/1/99-7/31/00)
(Highlighted positions are those greater than 2.00% of 7/31/00 total net
assets.)
<TABLE>
<CAPTION>
DATE OF 1ST % OF 7/31/00
SECURITY SECTOR PURCHASE FUND NET ASSETS
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alexandria Real Estate Equities, Inc. Real Estate 8/18/99 1.71%
American Home Products Corp. Pharmaceutical and Healthcare 8/12/99 3.89%
American International Group, Inc. Multi-Line Insurance 3/2/00 5.71%
Apartment Investment & Management Co. Real Estate 8/20/99 1.84%
AT&T Corp. Telecommunications 1/21/00 2.13%
Boston Properties, Inc. Real Estate 8/18/99 1.86%
Bristol-Myers Squibb Co. Pharmaceutical and Healthcare 4/7/00 -
Costco Wholesale Corp. Wholesale 6/9/00 2.35%
Donaldson, Lufkin, & Jenrette, Inc. Investment Firms 8/12/99 -
Freddie Mac Diversified Financial Services 8/18/99 -
Golden West Financial Corp. Banks and Savings & Loans 10/13/9 -
Home Properties of New York, Inc. Real Estate 9/8/99 1.75%
Lexmark International, Inc. Technology 1/21/00 1.06%
Lucent Technologies, Inc. Telecommunications 5/17/00 1.58%
Morgan Stanley Dean Witter & Co. Investment Firms 3/7/00 3.95%
Motorola, Inc. Telecommunications 3/1/00 2.15%
Oracle Corp. Technology 3/7/00 -
Providian Financial Corp. Diversified Financial Services 8/12/99 -
Six Flags, Inc. Theme Parks 9/8/99 0.84%
Spieker Properties, Inc. Real Estate 8/17/99 1.89%
Tellabs, Inc. Telecommunications 5/19/00 2.35%
Tyco International Ltd. Diversified Manufacturing 3/1/00 4.31%
</TABLE>
POSITIONS CLOSED (8/1/99-7/31/00)
(Gains and losses greater than $500,000 are highlighted.)
<TABLE>
<CAPTION>
DATE OF
STOCK SECTOR FINAL SALE GAIN/(LOSS)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Agilent Technologies, Inc. Electronics 6/28/00 576,664
Allstate Corp. Property/Casualty Insurance 8/19/99 (142,948)
Applied Materials, Inc. Electronics 4/7/00 4,585,981
Bank of America Corp. Banks and Savings & Loans 10/13/99 (722,714)
Bristol-Myers Squibb Co. Pharmaceutical and Healthcare 6/9/00 (195,089)
Crescent Operating Inc. Real Estate 12/17/99 (16,657)
Crescent Real Estate Equities Co. Real Estate 11/10/99 (1,108,440)
Donaldson, Lufkin & Jenrette, Inc. Investment Firms 3/1/00 (59,516)
Dover Corp. Machinery 3/1/00 580,685
Freddie Mac Diversified Financial Services 5/17/00 (118,279)
General Growth Properties, Inc. Real Estate 3/1/00 (18,721)
Gillette Co. Consumer Products 2/29/00 (39,388)
Golden West Financial Corp. Banks and Savings & Loans 3/14/00 (160,199)
Intel Corp. Technology 5/17/00 2,299,420
</TABLE>
12
<PAGE>
DAVIS GROWTH & INCOME FUND
PORTFOLIO ACTIVITY - AUGUST 1, 1999 THROUGH JULY 31, 2000
================================================================================
POSITIONS CLOSED (8/1/99-7/31/00) - CONTINUED
(Gains and losses greater than $500,000 are highlighted.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
JDN Realty Corp. Real Estate 12/16/99 (380,114)
Marriott International, Inc. Hotels & Motels 3/2/00 (627,845)
Martin Marietta Materials, Inc. Building Materials 3/1/00 (465,743)
Molex Inc. Electronics 2/29/00 1,263,590
Oracle Corp. Technology 4/7/00 130,414
Philip Morris Cos., Inc. Consumer Products 2/29/00 (1,666,458)
Progressive Corp. (Ohio) Property/Casualty Insurance 2/29/00 (2,097,974)
Providian Financial Corp. Diversified Financial Services 2/29/00 (415,374)
Rouse Co. Real Estate 8/30/99 (454,085)
Starwood Hotels & Resorts Worldwide, Inc. Real Estate 10/20/99 (1,112,635)
Transatlantic Holdings, Inc. Property/Casualty Insurance 3/7/00 (269,163)
UnumProvident Corp. Life Insurance 10/20/99 (544,316)
Vornado Realty Trust Real Estate 3/20/00 (380,788)
Waste Management, Inc. Waste Management Services 10/20/99 (1,171,365)
</TABLE>
13
<PAGE>
DAVIS GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS
July 31, 2000
================================================================================
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK - (87.79%)
BANKS AND SAVINGS & LOANS - (3.74%)
75,300 Wells Fargo & Co.................................................... $ 3,110,831
-----------------
BUILDING MATERIALS - (2.43%)
102,300 Masco Corp.......................................................... 2,020,425
-----------------
DIVERSIFIED - (2.52%)
38 Berkshire Hathaway, Inc., Class A*.................................. 2,093,800
-----------------
DIVERSIFIED MANUFACTURING - (4.31%)
66,900 Tyco International Ltd.............................................. 3,579,150
-----------------
ELECTRONICS - (3.02%)
42,800 Texas Instruments Inc............................................... 2,511,825
-----------------
FINANCIAL SERVICES - (21.48%)
168,000 American Express Co................................................. 9,523,500
65,500 Citigroup, Inc...................................................... 4,621,844
83,300 Household International, Inc........................................ 3,712,056
-----------------
17,857,400
-----------------
FOOD & RESTAURANT - (2.62%)
69,200 McDonald's Corp..................................................... 2,179,800
-----------------
INVESTMENT FIRMS - (3.95%)
36,000 Morgan Stanley Dean Witter & Co..................................... 3,285,000
-----------------
MULTI-LINE INSURANCE - (5.71%)
54,150 American International Group, Inc................................... 4,748,278
-----------------
PHARMACEUTICAL AND HEALTHCARE - (3.90%)
61,000 American Home Products Corp......................................... 3,236,812
-----------------
REAL ESTATE - (12.71%)
39,600 Alexandria Real Estate Equities, Inc................................ 1,418,175
31,700 Apartment Investment & Management Co., Class A...................... 1,533,487
131,300 Boardwalk Equities, Inc.*........................................... 1,116,940
37,200 Boston Properties, Inc.............................................. 1,543,800
45,300 Centerpoint Properties Corp......................................... 1,925,250
47,300 Home Properties of New York, Inc.................................... 1,451,519
30,400 Spieker Properties, Inc............................................. 1,571,300
-----------------
10,560,471
-----------------
TECHNOLOGY - (10.01%)
36,500 Hewlett-Packard Co.................................................. 3,985,344
30,700 International Business Machines Corp................................ 3,451,831
19,500 Lexmark International, Inc.*........................................ 878,719
-----------------
8,315,894
-----------------
</TABLE>
14
<PAGE>
DAVIS GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS - CONTINUED
July 31, 2000
================================================================================
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK - CONTINUED
TELECOMMUNICATIONS - (8.20%)
57,200 AT&T Corp........................................................... $ 1,769,625
30,000 Lucent Technologies, Inc. .......................................... 1,312,500
54,000 Motorola, Inc. ..................................................... 1,785,375
30,000 Tellabs, Inc.*...................................................... 1,950,937
-----------------
6,818,437
-----------------
THEME PARKS - (0.84%)
46,000 Six Flags, Inc.*.................................................... 698,625
-----------------
WHOLESALE - (2.35%)
60,000 Costco Wholesale Corp.* ............................................ 1,955,625
-----------------
Total Common Stocks - (identified cost $60,391,175)............ 72,972,373
-----------------
CONVERTIBLE BONDS - (2.03%)
$660,000 Cincinnati Financial Corp., Conv. Sub. Deb., 5.50%, 5/01/02 -
(identified cost $1,672,962)................................... 1,688,775
-----------------
PREFERRED STOCK - (10.29%)
54,600 General Growth Properties, 7.25%, 7/15/08 Series, Conv. Pfd......... 1,245,563
36,900 Globalstar Telecommunications Ltd, 8.00%, 2/15/11 Series,
Conv. Pfd...................................................... 742,613
100,000 Sealed Air Corp., $2.00, 4/01/18 Series A Conv. Pfd................. 4,925,000
29,500 Vornado Realty Trust, 6.50%, Series A Conv. Pfd.................... 1,639,094
-----------------
Total Preferred Stocks - (identified cost $9,518,984)............... 8,552,270
-----------------
Total Investments - (identified cost $71,583,121)(100.11%)(a) 83,213,418
Liabilities Less Other Assets - (0.11%)........................ (89,725)
-----------------
Net Assets - (100%)................................... $ 83,123,693
=================
(a) Aggregate cost for Federal Income Tax purposes is $71,611,495. At July 31,
2000 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes was as follows:
Unrealized appreciation............................................. $ 17,808,916
Unrealized depreciation............................................. (6,206,993)
-----------------
Net appreciation............................................... $ 11,601,923
=================
</TABLE>
* Non-Income Producing Security
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
DAVIS GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
At July 31, 2000
================================================================================
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $71,583,121)
(see accompanying Schedule of Investments)....................................... $ 83,213,418
Receivables:
Capital stock sold............................................................... 105,214
Dividends and interest........................................................... 109,384
Investments sold................................................................. 469,997
---------------
Total assets................................................................ 83,898,013
---------------
LIABILITIES:
Cash overdraft....................................................................... 364,732
Payable for capital stock redeemed................................................... 255,227
Accrued expenses .................................................................... 154,361
---------------
Total liabilities........................................................... 774,320
---------------
NET ASSETS ............................................................................... $ 83,123,693
===============
NET ASSETS CONSIST OF:
Par value of shares of capital stock................................................. $ 375,987
Additional paid-in capital........................................................... 70,717,077
Net unrealized appreciation on investments........................................... 11,630,297
Accumulated net realized gain........................................................ 400,332
---------------
Net assets.................................................................. $ 83,123,693
===============
CLASS A SHARES
Net assets....................................................................... $ 49,508,327
Shares outstanding............................................................... 4,469,888
Net asset value and redemption price per share .................................. $ 11.08
=========
Maximum offering price per share (100/95.25 of $11.08)*.......................... $ 11.63
=========
CLASS B SHARES
Net assets....................................................................... $ 24,795,474
Shares outstanding............................................................... 2,252,032
Net asset value and redemption price per share .................................. $ 11.01
=========
CLASS C SHARES
Net assets....................................................................... $ 8,713,575
Shares outstanding............................................................... 788,249
Net asset value and redemption price per share .................................. $ 11.05
=========
CLASS Y SHARES
Net assets....................................................................... $ 106,317
Shares outstanding............................................................... 9,577
Net asset value and redemption price per share .................................. $ 11.10
=========
</TABLE>
* On purchases of $100,000 or more, the offering price is reduced.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
DAVIS GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
For the year ended July 31, 2000
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends ....................................................................... $ 1,713,215
Interest ........................................................................ 61,962
-----------------
Total income............................................................. 1,775,177
Expenses:
Management fees (Note 3)........................................ $ 718,634
Custodian fees.................................................. 47,478
Transfer agent fees
Class A.................................................... 35,634
Class B.................................................... 48,737
Class C.................................................... 17,174
Class Y.................................................... 1,624
Audit fees...................................................... 9,200
Legal fees...................................................... 2,099
Accounting fees (Note 3)........................................ 6,000
Reports to shareholders ........................................ 36,375
Directors' fees and expenses ................................... 2,626
Registration and filing fees ................................... 101,132
Miscellaneous .................................................. 27,446
Payments under distribution plan (Note 4)
Class A.................................................... 50,162
Class B.................................................... 288,132
Class C.................................................... 101,218
---------------
Total expenses.......................................................... 1,493,671
Expenses paid indirectly (Note 6)....................................... (480)
-----------------
Net expenses............................................................ 1,493,191
-----------------
Net investment income .............................................. 281,986
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions....................................... 1,915,216
Net decrease in unrealized appreciation of investments.............................. (643,135)
-----------------
Net realized and unrealized gain on investments.................................. 1,272,081
-----------------
Net increase in net assets resulting from operations ................... $ 1,554,067
=================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
DAVIS GROWTH & INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
2000 1999
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income............................................. $ 281,986 $ 1,014,950
Net realized gain/(loss) from investment transactions............. 1,915,216 (1,297,490)
Net change in unrealized appreciation/(depreciation)
of investments................................................ (643,135) 13,791,154
---------------- ---------------
Net increase in net assets resulting
from operations.......................................... 1,554,067 13,508,614
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income:
Class A ..................................................... (257,075) (930,424)
Class B ..................................................... (11,908) (211,825)
Class C ..................................................... (4,026) (68,532)
Class Y ..................................................... (12,314) (135,448)
Realized gains from investment transactions:
Class A ..................................................... (157,789) -
Class B ..................................................... (25,514) -
Class C ..................................................... (8,664) -
Class Y ..................................................... (25,427) -
CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets resulting from capital share
transactions (Note 5):
Class A ..................................................... (9,063,301) 2,056,131
Class B ..................................................... (9,013,302) 10,692,550
Class C ..................................................... (3,335,312) 5,323,001
Class Y ..................................................... (7,804,809) 6,250,806
---------------- ---------------
Total increase (decrease) in net assets....................... (28,165,374) 36,484,873
NET ASSETS:
Beginning of year................................................. 111,289,067 74,804,194
---------------- ---------------
End of year (including undistributed net income of
$3,337 in 1999) .................................................. $ 83,123,693 $ 111,289,067
================ ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
July 31, 2000
================================================================================
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.
19
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2000
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
USE OF ESTIMATES IN FINANCIAL STATEMENTS - In preparing financial statements in
conformity with accounting principles generally accepted in the United States of
America, 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, 2000, were $51,816,739 and $80,481,907
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. Management fees paid during
the year ended July 31, 2000, approximated 0.75% of average net assets.
The Adviser is paid for registering Fund shares for sale in various
states. The fee for the year ended July 31, 2000 amounted to $12,996. State
Street Bank & Trust Co. ("State Street Bank") 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, 2000 amounted to $11,007. State
Street Bank is the Fund's primary accounting provider. Fees for such services
are included in the custodian fee as State Street Bank also serves as the Funds'
custodian. The Adviser is also paid for certain accounting services. The fee
amounted to $6,000 for the year ended July 31, 2000. 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, 2000, SCD
received $2,520 in commissions on the purchases and sales 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, 2000, Davis Distributors, LLC, the
Fund's Underwriter (the "Underwriter" or "Distributor") received $ 47,940 from
commissions earned on sales of Class A shares of the Fund, of which $7,496 was
retained by the Underwriter and the remaining $40,444 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.
20
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS - Continued
July 31, 2000
================================================================================
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 an annual rate up to 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, 2000 was $50,162.
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, 2000, Class B shares of the Fund made
distribution plan payments which included distribution fees of $216,167 and
service fees of $71,965.
Commission advances by the Distributor during the year ended July 31,
2000 on the sale of Class B shares of the Fund amounted to $76,978, of which
$76,607 was re-allowed to qualified selling dealers.
The Distributor intends to seek payment from Class B shares of the Fund
in the amount of $1,479,033, 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, 2000 the Distributor received $153,139 in contingent deferred
sales charges from Class B shares of the Fund.
21
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2000
================================================================================
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, 2000, Class C shares of the Fund made
distribution payments of $101,218. During the year ended July 31, 2000, the
Distributor received $5,515 in contingent deferred sales charges from Class C
shares of the Fund.
NOTE 5 - CAPITAL STOCK
At July 31, 2000, 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
-------
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
2000 1999
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares subscribed.............................. 241,238 $ 2,552,758 1,424,482 $ 13,883,526
Shares issued in reinvestment of distributions. 37,491 393,821 88,554 891,665
------------- ---------------- ------------ --------------
278,729 2,946,579 1,513,036 14,775,191
Shares redeemed................................ (1,138,846) (12,009,880) (1,251,969) (12,719,060)
------------- ---------------- ------------ --------------
Net increase (decrease)................... (860,117) $ (9,063,301) 261,067 $ 2,056,131
============= ================ ============ ==============
<CAPTION>
CLASS B
-------
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
2000 1999
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares subscribed.............................. 357,071 $ 3,759,549 1,814,613 $ 17,831,888
Shares issued in reinvestment of distributions. 2,772 27,588 17,900 179,921
------------- ---------------- ------------ --------------
359,843 3,787,137 1,832,513 18,011,809
Shares redeemed................................ (1,216,552) (12,800,439) (723,688) (7,319,259)
------------- ---------------- ------------ --------------
Net increase (decrease)................... (856,709) $ (9,013,302) 1,108,825 $ 10,692,550
============= ================ ============ ==============
</TABLE>
22
<PAGE>
DAVIS GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
July 31, 2000
================================================================================
NOTE 5 - CAPITAL STOCK - CONTINUED
<TABLE>
<CAPTION>
CLASS C
-------
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
2000 1999
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares subscribed.............................. 238,183 $ 2,532,118 871,308 $ 8,619,196
Shares issued in reinvestment of distributions. 952 9,471 5,844 58,855
------------- ---------------- ------------ ---------------
239,135 2,541,589 877,152 8,678,051
Shares redeemed................................ (559,903) (5,876,901) (331,361) (3,355,050)
------------- ---------------- ------------ ---------------
Net increase (decrease)................... (320,768) $ (3,335,312) 545,791 $ 5,323,001
============= ================ ============ ===============
<CAPTION>
CLASS Y
-------
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
2000 1999
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares subscribed.............................. 6,146 $ 67,648 707,983 $ 6,134,544
Shares issued in reinvestment of distributions. 3,678 37,168 13,435 134,598
------------- ---------------- ------------ ---------------
9,824 104,816 721,418 6,269,142
Shares redeemed................................ (720,454) (7,909,625) (1,832) (18,336)
------------- ---------------- ------------ ---------------
Net increase (decrease)................... (710,630) $ (7,804,809) 719,586 $ 6,250,806
============= ================ ============ ===============
</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 $480 during the year ended July 31, 2000.
23
<PAGE>
DAVIS GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
Class A
================================================================================
Financial Highlights for a share of capital stock outstanding throughout each
period.
<TABLE>
<CAPTION>
MAY 1, 1998
(COMMENCEMENT
YEAR ENDED JULY 31, OF OPERATIONS)
--------------------- THROUGH
2000 1999 JULY 31, 1998
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .......... $10.85 $ 9.81 $10.00
------ ------ ------
Income(Loss) From Investment Operations
Net Investment Income .................... 0.07 0.16 0.03
Net Realized and Unrealized Gains (Losses) 0.25 1.05 (0.22)
------ ------ ------
Total From Investment Operations ....... 0.32 1.21 (0.19)
Dividends and Distributions
Dividends from Net Investment Income ..... (0.08) (0.17) --
Dividends from Realized Gains ............ (0.01) -- --
------ ------ ------
Total Dividends and Distributions ...... (0.09) (0.17) --
Net Asset Value, End of Period ............... $11.08 $10.85 $ 9.81
====== ====== ======
Total Return(1)................................ 2.94% 12.48% (1.90)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) .. $49,508 $57,824 $49,715
Ratio of Expenses to Average Net Assets .. 1.16% 1.16% 1.44%*
Ratio of Net Investment Income to Average
Net Assets ............................. 0.69% 1.39% 1.87%*
Portfolio Turnover Rate(2)................ 54% 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
FINANCIAL HIGHLIGHTS
Class B
================================================================================
Financial Highlights for a share of capital stock outstanding throughout each
period.
<TABLE>
<CAPTION>
MAY 4, 1998
(INCEPTION
YEAR ENDED JULY 31, OF CLASS)
--------------------- THROUGH
2000 1999 JULY 31, 1998
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ................... $10.82 $ 9.79 $10.00
------ ------ ------
Income(Loss) From Investment Operations
Net Investment Income ............................. (0.05) 0.05 0.01
Net Realized and Unrealized Gains (Losses) ........ 0.25 1.05 (0.22)
------ ------ ------
Total From Investment Operations ................ 0.20 1.10 (0.21)
Dividends and Distributions
Dividends from Net Investment Income .............. --(3) (0.07) --
Dividends from Realized Gains ..................... (0.01) -- --
------ ------ ------
Total Dividends and Distributions ............... (0.01) (0.07) --
Net Asset Value, End of Period ........................ $11.01 $10.82 $ 9.79
====== ====== ======
Total Return(1)......................................... 1.88% 11.34% (2.10)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ........... $24,795 $33,643 $19,571
Ratio of Expenses to Average Net Assets ........... 2.16% 2.17% 2.32%*
Ratio of Net Investment Income (Loss) to
Average Net Assets .............................. (0.31)% 0.38% 0.99%*
Portfolio Turnover Rate(2)......................... 54% 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.
(3) Less than $0.005 per share.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
DAVIS GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
Class C
================================================================================
Financial Highlights for a share of capital stock outstanding throughout each
period.
<TABLE>
<CAPTION>
MAY 4, 1998
(INCEPTION
YEAR ENDED JULY 31, OF CLASS)
------------------------ THROUGH
2000 1999 JULY 31, 1998
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ..................... $10.82 $ 9.79 $10.00
------ ------ ------
Income(Loss) From Investment Operations
Net Investment Income ............................... (0.01) 0.05 0.01
Net Realized and Unrealized Gains (Losses) .......... 0.25 1.05 (0.22)
------ ------ ------
Total From Investment Operations .................. 0.24 1.10 (0.21)
Dividends and Distributions
Dividends from Net Investment Income ................ --(3) (0.07) --
Dividends from Realized Gains ....................... (0.01) -- --
------ ------ ------
Total Dividends and Distributions ................. (0.01) (0.07) --
Net Asset Value, End of Period .......................... $11.05 $10.82 $ 9.79
====== ====== ======
Total Return(1) .......................................... 2.24% 11.32% (2.10)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) ............. $8,714 $12,002 $5,512
Ratio of Expenses to Average Net Assets ............ 2.16% 2.17% 2.32%*
Ratio of Net Investment Income (Loss) to
Average Net Assets ................................ (0.31)% 0.38% 0.99%*
Portfolio Turnover Rate(2) .......................... 54% 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.
(3) Less than $0.005 per share.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
DAVIS GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
Class Y
================================================================================
Financial Highlights for a share of capital stock outstanding throughout each
period.
<TABLE>
<CAPTION>
MAY 4, 1998
(INCEPTION
YEAR ENDED JULY 31, OF CLASS)
---------------------- THROUGH
2000 1999 JULY 31, 1998
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .......... $10.86 $ 9.82 $10.00
------ ------ ------
Income(Loss) From Investment Operations
Net Investment Income .................... 0.09 0.18 0.04
Net Realized and Unrealized Gains (Losses) 0.25 1.05 (0.22)
------ ------ ------
Total From Investment Operations ....... 0.34 1.23 (0.18)
Dividends and Distributions
Dividends from Net Investment Income ..... (0.09) (0.19) --
Dividends from Realized Gains ............ (0.01) -- --
------ ------ ------
Total Dividends and Distributions ...... (0.10) (0.19) --
Net Asset Value, End of Period ............... $11.10 $10.86 $ 9.82
====== ====== ======
Total Return(1)................................ 3.17% 12.72% (1.80)%
Ratios/Supplemental Data
Net Assets, End of Period (000 omitted) .. $106 $7,819 $6
Ratio of Expenses to Average Net Assets .. 1.03% 1.01% 1.14%*
Ratio of Net Investment Income to Average
Net Assets ............................. 0.82% 1.54% 2.17%*
Portfolio Turnover Rate(2)................ 54% 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.
27
<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, 2000, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the years in the two-year
period 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 auditing standards generally
accepted in the United States of America. 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, 2000, by correspondence with the custodian and
brokers; and where confirmations were not received from brokers, we performed
other auditing procedures. 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, 2000, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the two-year period then ended and for the period from May 1, 1998
(commencement of operations) to July 31, 1998, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Denver, Colorado
September 8, 2000
28
<PAGE>
DAVIS GROWTH & INCOME FUND
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
FOR THE YEAR ENDED JULY 31, 2000
================================================================================
In early 2001, shareholders will receive information regarding all
dividends and distributions paid to them by the Fund during calendar year 2000.
Regulations of the U.S. Treasury Department require the Fund to report this
information to the Internal Revenue Service.
During the fiscal year ended July 31, 2000, Davis Growth & Income Fund
distributed $217,394 of dividends which are hereby designated as capital gain
dividends for U.S. federal income tax purposes.
Dividends paid by the Fund during the fiscal year ended July 31, 2000 which
are not designated as capital gain distribution should be multiplied by 100% 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.
29
<PAGE>
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<PAGE>
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31
<PAGE>
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<PAGE>
DAVIS GROWTH & INCOME FUND
2949 East Elvira Road, Tucson, Arizona 85706
================================================================================
DIRECTORS OFFICERS
Wesley E. Bass, Jr. Jeremy H. Biggs
Jeremy H. Biggs Chairman
Marc P. Blum Christopher 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,
Laurence W. Levine Treasurer & Assistant Secretary
Christian R. Sonne Thomas D. Tays
Marsha Williams Vice President & Secretary
Andrew A. Davis
Vice President
INVESTMENT ADVISER
Davis Selected Advisers, L.P.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
(800) 279-0279
DISTRIBUTOR
Davis Distributors, LLC
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
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, LLC
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>
DAVIS SELECTED ADVISERS, L.P.
2949 EAST ELVIRA ROAD,
SUITE 101
TUCSON, ARIZONA 85706
1-800-279-0279
www.davisfunds.com
[DAVIS LOGO]
