STATEMENT
OF ADDITIONAL INFORMATION
May 1,
2023
DAVIS
FINANCIAL FUND
DAVIS
OPPORTUNITY FUND
DAVIS REAL
ESTATE FUND
DAVIS
APPRECIATION & INCOME FUND
DAVIS
GOVERNMENT BOND FUND
DAVIS
GOVERNMENT MONEY MARKET FUND
Each an Authorized Series
of
Davis Series, Inc.
2949 East Elvira Road, Suite
101
Tucson, Arizona 85756
1‑800‑279‑0279
This statement of additional
information is not a prospectus and should be read in conjunction with the
Funds’ prospectus dated May 1, 2023. This statement of additional information
incorporates the prospectus by reference. A copy of the Funds’ prospectus may be
obtained, without charge, by calling Investor Services at 1‑800‑279‑0279 or by
visiting our website at http://www.davisfunds.com/prospectuses_and_forms .
The Funds’ most recent
annual report and semi-annual report to shareholders are separate documents that
are available on request and without charge by calling Investor Services.
|
Class A |
Class C |
Class Y |
Davis Financial Fund |
RPFGX |
DFFCX |
DVFYX |
Davis Opportunity Fund |
RPEAX |
DGOCX |
DGOYX |
Davis Real Estate Fund |
RPFRX |
DRECX |
DREYX |
Davis Appreciation & Income
Fund |
RPFCX |
DCSCX |
DCSYX |
Davis Government Bond Fund |
RFBAX |
DGVCX |
DGVYX |
Davis Government Money Market Fund |
RPGXX for all share classes |
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This statement of
additional information (“SAI”) supplements, and should be read in conjunction
with the prospectus for Davis Financial Fund, Davis Opportunity Fund, Davis Real
Estate Fund, Davis Appreciation & Income Fund, Davis Government Bond Fund
and Davis Government Money Market Fund (each a “Fund” and jointly the
“Funds”).
The Adviser and
Sub-Adviser. The Funds are managed by Davis Selected Advisers, L.P. (the
“Adviser”) and Davis Selected Advisers–NY, Inc. (the “Sub-Adviser”).
The investment objective,
principal investment strategies and the main risks of investing in each Fund are
described in the Funds’ prospectus. There is no assurance that a Fund will
achieve its investment objective. An investment in a Fund may not be appropriate
for all investors and short-term investing is discouraged. The Funds’ investment
objectives are not fundamental policies and may be changed by the Board of
Directors without a vote of shareholders. The Funds’ prospectus would be amended
prior to any change in investment objective and shareholders would be provided
at least 30 days’ notice before the change in investment objective was
implemented.
In the discussions that
follow, “Fund” applies equally to Davis Opportunity Fund, Davis Financial Fund,
Davis Real Estate Fund, Davis Appreciation & Income Fund, Davis Government
Bond Fund and Davis Government Money Market Fund, unless the context indicates
otherwise.
Davis Funds may implement
investment strategies which are not principal investment strategies if, in the
Adviser’s professional judgment, the strategies are appropriate. A strategy
includes any policy, practice or technique used by the Funds to achieve their
investment objectives. Whether a particular strategy, including a strategy to
invest in a particular type of security, is a principal investment strategy
depends on the strategy’s anticipated importance in achieving the Fund’s
investment objectives, and how the strategy affects the Fund’s potential risks
and returns. In determining what is a principal investment strategy, the Adviser
considers, among other things, the amount of the Fund’s assets expected to be
committed to the strategy, the amount of the Fund’s assets expected to be placed
at risk by the strategy, and the likelihood of the Funds losing some or all of
those assets from implementing the strategy. Non-principal investment strategies
are generally those investments which constitute less than 5% to 10% of a Fund’s
assets depending upon their potential impact upon the investment performance of
the Fund. There are exceptions to the 5% to 10% of assets test, including, but
not limited to, the percentage of a Fund’s assets invested in a single industry
or in a single country.
While the Adviser expects
to pursue the Funds’ investment objectives by implementing the principal
investment strategies described in the Funds’ prospectus, a Fund may employ
non-principal investment strategies or securities if, in Davis Advisors’
professional judgment, the securities, trading, or investment strategies are
appropriate. Factors that Davis Advisors considers in pursuing these other
strategies include whether the strategy: (i) is likely to be consistent with
shareholders’ reasonable expectations; (ii) is likely to assist the Adviser in
pursuing the Fund’s investment objective; (iii) is consistent with the Fund’s
investment objective; (iv) will not cause the Fund to violate any of its
fundamental or non-fundamental investment restrictions; and (v) will not
materially change the Fund’s risk profile from the risk profile that results
from following the principal investment strategies as described in the Fund’s
prospectus and further explained in this SAI, as amended from time to
time.
The composition of the
Fund’s portfolio and the strategies that the Adviser may use to try to achieve
the Fund’s investment objectives may vary depending on market conditions and
available investment opportunities. The Fund is not required to use any of the
investment strategies described below in pursuing its investment objective. The
Fund may use some of the investment strategies rarely or not at all. Whether the
Fund uses a given investment strategy at a given time depends on the
professional judgment of the Adviser.
The principal investment
strategies and risks for each Fund are described in the Funds’ prospectus. An
investment strategy that is a principal investment strategy for one Fund may be
a non-principal investment strategy for one of the other Funds, which,
therefore, may only invest a limited portion of its assets in the non-principal
investment strategy, as described above. A number of investment strategies and
risks, which are not principal investment strategies or principal risks for any
of the Funds (and, therefore, are not included in the Funds’ prospectus), are
described below.
Equity Strategies and Risks
Emphasizing Investments in
Selected Market Sectors. A Fund may invest up to 25% of its net assets in
the securities of issuers conducting their principal business activities in the
same market sector. Significant investments in selected market sectors render a
portfolio particularly vulnerable to the risks of its target sectors. Such
exposure may cause the Fund to be more impacted by risks relating to and
developments affecting that market sector. For purposes of measuring
concentration in a market sector, the Fund generally classifies companies at the
“industry group” or “industry” level. However, further analysis may lead the
Adviser to classify companies at the sub-industry level. See the section of this
SAI on Investment Restrictions for further details.
Capital Goods Industry
Risk. Companies in the capital goods group of industries include
aerospace & defense, building products, construction & engineering, and
other manufacturers of capital intensive products. Companies in a capital good
industry may be affected by fluctuations in the business cycle and by other
factors affecting manufacturing demands. The capital goods industry depends
heavily on corporate spending. Companies in the capital goods industry may
perform well during times of economic expansion, but as economic conditions
worsen, the demand for capital goods may decrease. Similarly one sub-industry of
the capital good industry group can outperform another sub-industry. Many
capital goods are sold internationally, and companies in this industry may be
affected by market conditions in other countries and regions.
Consumer Discretionary Sector
Risk. Companies engaged in the design, production or distribution of
products or services for the consumer discretionary sector (e.g., retailing and
consumer services) are subject to the risk that their products or services may
become obsolete quickly. The success of these companies can depend heavily on
disposable household income and consumer spending. During periods of an
expanding economy, the consumer discretionary sector may outperform the consumer
staples sector, but may underperform when economic conditions worsen. Moreover,
the consumer discretionary sector can be significantly affected by several
factors, including, without limitation, the performance of domestic and
international economies, exchange rates, changing consumer preferences,
demographics, marketing campaigns, cyclical revenue generation, consumer
confidence, commodity price volatility, labor relations, interest rates, import
and export controls, intense competition, technological developments and
government regulation.
- |
Internet & Direct Marketing Retail
Risk. Companies that operate via the internet or direct marketing
(e.g., online consumer services, online retail, travel) segments are
subject to fluctuating consumer demand. Unlike traditional brick and
mortar retailers, online marketplaces and retailers must assume shipping
costs or pass such costs to consumers. Consumer access to price
information for the same or similar products may cause companies that
operate in the online marketplace, retail and travel segments to reduce
profit margins in order to compete. Due to the nature of their business
models, companies that operate in the online marketplace, retail, and
travel segments may also be subject to heightened cybersecurity risk,
including the risk of theft or damage to vital hardware, software, and
information systems. The loss or public dissemination of sensitive
customer information or other proprietary data may negatively affect the
financial performance of such companies to a greater extent than
traditional brick and mortar retailers. As a result of such companies
being web-based and the fact that they process, store, and transmit large
amounts of data, including personal information, for their customers,
failure to prevent or mitigate data loss or other security breaches,
including breaches of vendors’ technology and systems, could expose
companies that operate via the internet or direct marketing retail to a
risk of loss or misuse of such information, adversely affect their
operating results, result in litigation or potential liability, and
otherwise harm their businesses. |
Health Care Sector Risk.
Companies in the health care sector are subject to extensive government
regulation and their profitability can be significantly affected by restrictions
on government reimbursement for medical expenses, rising costs of medical
products and services, pricing pressure (including price discounting), limited
product lines and an increased emphasis on the delivery of healthcare through
outpatient services. Companies in the health care sector are heavily dependent
on obtaining and defending patents, which may be time consuming and costly, and
the expiration of patents may also adversely affect the profitability of these
companies. Health care companies are also subject to extensive litigation based
on product liability and similar claims. In addition, their products can become
obsolete due to industry innovation, changes in technologies or other market
developments. Many new products in the health care sector require significant
research and development and may be subject to regulatory approvals, all of
which may be time consuming and costly with no guarantee that any product will
come to market.
Industrials Sector Risk.
The Industrials Sector includes manufacturers and distributors of capital goods
such as aerospace and defense, building projects, electrical components and
equipment, construction machinery, and companies that offer construction and
engineering services. This sector also includes providers of commercial and
professional services including office services and supplies, security and alarm
services, human resources/employment services, and research and consulting
services. Included in the industrials sector are also companies that provide
transportation services including air freight and logistics, airlines,
railroads, and transportation infrastructure companies. A company in this sector
is subject to the risk that the securities of such issuer will underperform the
market as a whole due to legislative or regulatory changes, adverse market
conditions, and/or increased competition affecting the industrials sector. The
prices of the securities of companies operating in the industrials sector may
fluctuate due to the level and volatility of commodity prices, the exchange
value of the dollar, import controls, worldwide competition, liability for
environmental damage, depletion of resources, and mandated expenditures for
safety and pollution control devices.
Information Technology Sector
Risk. The Information Technology Sector includes companies that offer
software and information technology services and manufacturers and distributors
of technology hardware and semiconductors. A company in this sector is subject
to the risk that the securities of such issuer will underperform the market as a
whole due to legislative or regulatory changes, adverse market conditions,
and/or increased competition affecting the information technology sector. The
prices of the securities of companies operating in the information technology
sector are closely tied to market competition, increased sensitivity to short
product cycles and aggressive pricing, and problems with bringing products to
market.
Passive Foreign Investment
Companies. Some securities of
companies domiciled outside the U.S. in which the Fund may invest may be
considered passive foreign investment companies (“PFICs”) under U.S. tax laws.
PFICs are foreign corporations which generate primarily passive income. For
federal tax purposes, a corporation is deemed a PFIC if 75% or more of the
foreign corporation’s gross income for its tax year is passive income or, in
general, if 50% or more of its assets are assets that produce or are held to
produce passive income. Passive income is further defined as any income to be
considered foreign personal holding company income within the subpart F
provisions defined by Section 954 of the Internal Revenue Code.
Investing in PFICs involves
the risks associated with investing in foreign securities, as described above.
There is also the risk that the Fund may not realize that a foreign corporation
it invests in is a PFIC for federal tax purposes. Federal tax laws impose severe
tax penalties for failure to properly report investment income from PFICs. The
Fund makes efforts to ensure compliance with federal tax reporting of these
investments, however, there can be no guarantee that the Fund’s efforts will
always be successful.
Government Securities Risk.
A Fund may invest in various types of U.S. government securities. These
securities may have different levels of credit risk, including the risk of
default, depending on the nature of the particular government support for that
security. As an example, a U.S. government-sponsored entity, such as Federal
National Mortgage Association (“Fannie Mae”) or Federal Home Loan Mortgage
Corporation (“Freddie Mac”), although chartered or sponsored by an Act of
Congress, may issue securities that are neither insured nor guaranteed by the
U.S. Treasury and therefore possess more risk than those securities that are
insured or guaranteed by the U.S. Treasury.
Unsponsored Depositary
Receipts. A Fund may invest in both sponsored and unsponsored
arrangements. In a sponsored arrangement, the foreign issuer assumes the
obligation to pay some or all of the depositary’s transaction fees, whereas in
an unsponsored arrangement the foreign issuer assumes no obligations and the
depositary’s transaction fees are paid by the holders. Foreign issuers in
respect of whose securities unsponsored depositary receipts have been issued are
not necessarily obligated to disclose material information in the markets in
which the unsponsored depositary receipts are traded and, therefore, such
information may not be reflected in the prices of such securities in those
markets. Shareholder benefits, voting rights and other attached rights may not
be extended to the holders of unsponsored depositary receipts.
Investments in Other Investment
Companies. The Funds can
invest in securities issued by other investment companies, which can include
open-end funds, closed-end funds, or exchange-traded funds (“ETFs”, which are
typically open-ended funds or unit investment trusts listed on a stock
exchange). In some instances an ETF or closed-end fund may trade at market
prices that are higher or lower than the NAV. The Funds may do so as a way of
gaining exposure to securities represented by the investment company’s portfolio
at times when the Funds may not be able to buy those securities directly. As
shareholders of an investment company, the Funds would be subject to their
ratable share of that investment company’s expenses, including its advisory and
administration expenses. At the same time, the Funds would bear their own
management fees and expenses. To the extent that the management fees paid to an
investment company are for the same or similar services as the management fees
paid by the Fund, there would be a layering of fees that would increase expenses
and decrease returns. The Funds do not intend to invest in other investment
companies unless the portfolio manager believes that the potential benefits of
the investment justify the expenses. The Funds’ investments in the securities of
other investment companies are subject to the limits that apply to those kinds
of investments under the Investment Company Act of 1940, as revised (“1940
Act”).
Initial Public Offerings
(“IPOs”). An IPO is the initial public offering of securities of a
particular company. IPOs in which the Fund invests can have a dramatic impact on
Fund performance and assumptions about future performance based on that impact
may not be warranted. Investing in IPOs involves risks. Many, but not all, of
the companies issuing IPOs are small, unseasoned companies. Many are companies
that have only been in operation for short periods of time. Small company
securities, including IPOs, are subject to greater volatility in their prices
than are securities issued by more established companies. If the Fund does not
intend to make a long-term investment in an IPO (it is sometimes possible to
immediately sell an IPO at a profit) the Adviser may not perform the same
detailed research on the company that it does for core holdings.
Rights and Warrants. Rights
and warrants are forms of equity securities. Warrants, basically, are options to
purchase equity securities at specific prices valid for a specific period of
time. Their prices do not necessarily move parallel to the prices of the
underlying securities. Rights are similar to warrants, but normally have shorter
maturities and are distributed directly by issuers to their shareholders. Rights
and warrants have no voting rights, receive no dividends and have no rights with
respect to the assets of the issuer.
Other Forms of Equity
Securities. In addition to common stock the Fund may invest in other
forms of equity securities, including preferred stocks and securities with
equity conversion or purchase rights. The prices of equity securities fluctuate
based on changes in the financial condition of their issuers and on market and
economic conditions. Events that have a negative impact on a business probably
will be reflected in a decline in the price of its equity securities.
Furthermore, when the total value of the stock market declines, most equity
securities, even those issued by strong companies, likely will decline in
value.
Cash Management. For
defensive purposes or to accommodate inflows of cash awaiting more permanent
investment, the Fund may temporarily and without limitation hold high-grade,
short-term money market instruments, cash and cash equivalents, including
repurchase agreements. The Fund also may invest in registered investment
companies which are regulated as money market funds or companies exempted from
registration under Sections 3(c)(1) or 3(c)(7) of the 1940 Act that themselves
primarily invest in temporary defensive investments, including U.S. Government
securities and commercial paper. To the extent that the management fees paid to
other investment companies are for the same or similar services as the
management fees paid by the Fund, there will be a layering of fees that would
increase expenses and decrease returns. Investments in other investment
companies are limited by the 1940 Act and the rules there under.
In certain instances, the
Funds may engage in repurchase agreement transactions through the Fixed Income
Clearing Corporation (“FICC”). FICC sells U.S. Government or agency securities
to each Fund under agreements to repurchase these securities at a stated
repurchase price including interest for the term of the agreement. The term of
the agreement will typically be overnight or over the weekend. Each Fund,
through FICC, receives delivery of the underlying U.S. Government or agency
securities as collateral, whose market value is required to be at least equal to
the repurchase price. If FICC were to become bankrupt, the Fund may be delayed
or may incur costs or possible losses of principal and income in disposing of
the collateral.
Master Limited Partnerships
Risk. A Fund may invest in securities of master limited partnerships
(“MLPs”). Investments in MLPs involve risks that differ from investments in
common stock, including risks related to the following: a common unit holder’s
limited control and limited rights to vote on matters affecting the MLP;
potential conflicts of interest between the MLP and the MLP’s general partner;
cash flow; dilution; and the general partner’s right to require unit holders to
sell their common units at an undesirable time or price. MLP common unit holders
may not elect the general partner or its directors and have limited ability to
remove an MLP’s general partner. MLPs may issue additional common units without
unit holder approval, which could dilute the ownership interests of investors
holding MLP common units. MLP common units, like other equity securities, can be
affected by macro-economic and other factors affecting the stock market in
general, expectations of interest rates, investor sentiment towards an issuer or
certain market sector, changes in a particular issuer’s financial condition, or
unfavorable or unanticipated poor performance of a particular issuer. Prices of
common units of individual MLPs, like prices of other equity securities, also
can be affected by fundamentals unique to the partnership or company, including
earnings power and coverage ratios. A holder of MLP common units typically would
not be shielded to the same extent that a shareholder of a corporation would be.
In certain circumstances, creditors of an MLP would have the right to seek
return of capital distributed to a limited partner, which would continue after
an investor sold its investment in the MLP. The value of an MLP security may
decline for reasons that directly relate to the issuer, such as management
performance, financial leverage and reduced demand for the issuer’s products or
services.
MLPs currently do not pay
U.S. federal income tax at the partnership level. A change in current tax law,
or a change in the underlying business mix of a given MLP, could result in an
MLP being treated as a corporation for U.S. federal income tax purposes, which
could result in a requirement to pay federal income tax on its taxable income
and have the effect of reducing the amount of cash available for distribution by
the MLP, resulting in a reduction of the value of the common unit holder’s
investment. Changes in the laws, regulations or related interpretations relating
to the Fund’s investments in MLPs could increase the Fund’s expenses, reduce its
cash distributions, negatively impact the value of an investment in an MLP, or
otherwise impact the Fund’s ability to implement its investment strategy. Due to
the heavy state and federal regulations that an MLP’s assets may be subject to,
an MLP’s profitability could be adversely impacted by changes in the regulatory
environment.
Generally, the securities
markets may move down, sometimes rapidly and unpredictably, based on overall
economic conditions and other factors. The market value of a security may
decline due to general market conditions that are not specifically related to a
particular company, such as real or perceived adverse economic conditions,
changes in the outlook for corporate earnings, changes in interest or currency
rates or adverse investor sentiment generally. A security’s market value also
may decline because of factors that affect a particular industry or industries,
such as labor shortages or increased production costs and competitive conditions
within an industry.
Derivatives. The Fund is
prohibited from investing in derivatives, excluding certain currency and
interest rate hedging transactions. This restriction is not fundamental and may
be changed by the Fund without a shareholder vote. If the Fund does determine to
invest in derivatives in the future, it will comply with Rule 18f-4 under the
1940 Act.
Additional Non-Principal Investment
Strategies and Risks
Settlement Risk. Settlement
systems in some markets (especially those of developing countries) are generally
less well organized than those of more developed markets. There may be risks
that settlement may be delayed and that cash or securities belonging to the Fund
may be at risk because of failures or defects in the systems. In particular,
market practice may require that payment be made before receipt of the security
being purchased or that delivery of a security be made before payment is
received. In such a situation, a default by a broker or bank that is processing
the transaction may cause the Fund to suffer a loss.
Distressed Companies. The Fund may invest in, or continue to
hold, debt or securities issued by distressed companies which are, or are about
to be, involved in reorganizations, financial restructurings, or bankruptcy. A
bankruptcy, merger or other restructuring, or a tender or exchange offer,
proposed or pending at the time the Fund invests in the debt or securities may
not be completed on the terms or within the time frame contemplated, which may
result in losses to the Fund. Debt obligations of distressed companies typically
are unrated, lower-rated, in default or close to default and are generally more
likely to become worthless than the securities of more financially stable
companies.
Borrowing. The Fund may purchase additional
securities so long as borrowings do not exceed 5% of its total assets. The Fund
may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities. The Fund may borrow from banks
provided that, immediately after any such borrowing there is an asset coverage
of at least 300% for all borrowings. In the event that such asset coverage at
any time falls below 300% the Fund shall, within three days thereafter (not
including Sundays and holidays) reduce the amount of its borrowings to an extent
that the asset coverage of such borrowings shall be at least 300%. The Fund is
not required to dispose of portfolio holdings immediately if the Fund would
suffer losses as a result. Borrowing money to meet redemptions or other purposes
would have the effect of temporarily leveraging the Fund’s assets and
potentially exposing the Fund to leveraged losses.
Lending Portfolio
Securities. A Fund may lend its portfolio securities to certain types of
eligible borrowers approved by the Board of Directors. The Funds have engaged
State Street Bank and Trust Company (“State Street”) as the Funds’ lending agent
pursuant to a written agreement. A Fund will retain a portion of the securities
lending income and will remit the remaining portion to State Street as
compensation for its services as securities lending agent. As securities lending
agent, State Street will screen and select borrowers, monitor the availability
of securities, negotiate rebates, daily mark to market the loans, monitor and
maintain cash collateral levels, process securities movements, and reinvest cash
collateral as directed by the Adviser or as specific in the lending agent
agreement.
A Fund may engage in
securities lending to earn additional income or to raise cash for liquidity
purposes. A Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities.
The collateral must consist of cash, bank letters of credit, securities of the
U.S. Government or its agencies or instrumentalities, or other cash equivalents
in which the Fund is permitted to invest.
Lending activities are
strictly limited as described in the section titled “Investment Restrictions.”
Lending money or securities involves the risk that the Fund may suffer a loss if
a borrower does not repay a loan when due. To manage this risk the Funds deal
only with counterparties they believe to be creditworthy and require that the
counterparty deposit collateral with the Fund.
When it loans securities, a
Fund still owns the securities, receives amounts equal to the dividends or
interest on loaned securities and is subject to gains or losses on those
securities. A Fund also receives one or more of: (i) negotiated loan fees;
(ii) interest on securities used as collateral; and/or (iii) interest
on any short-term debt instruments purchased with such loan collateral. Either
type of interest may be shared with the borrower. A Fund also may pay reasonable
finder’s, custodian, and administrative fees in connection with these loans. The
terms of a Fund’s loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days’
notice or in time to vote on any important matter.
As of the most recent
fiscal year end:
|
Davis Financial Fund |
Davis Opportunity Fund |
Davis Real Estate Fund |
Davis Appreciation & Income
Fund |
Gross income from securities lending
activities (including income from cash collateral reinvestment) |
$430,691 |
$- |
$‑ |
$‑ |
Fees and/or compensation for securities
lending activities and related services |
|
|
|
|
Fees paid to State Street from a revenue
split for their services as securities lending agent |
$107,641 |
$- |
$‑ |
$‑ |
Fees paid for any cash collateral
management services (including fees deducted from a pooled cash collateral
reinvestment vehicle) that are not included in the revenue split paid to
State Street |
$128 |
$- |
$‑ |
$‑ |
Administrative fees not included in
revenue split |
$‑ |
$‑ |
$‑ |
$‑ |
Indemnification fees not included in
revenue split |
$‑ |
$‑ |
$‑ |
$‑ |
Rebates (paid to borrowers) |
$- |
$‑ |
$‑ |
$‑ |
Other fees not included in revenue split
(specify) |
$‑ |
$‑ |
$‑ |
$‑ |
Aggregate fees/compensation for securities
lending activities |
$107,769 |
$- |
$‑ |
$‑ |
Net income from securities lending
activities |
$322,922 |
$- |
$‑ |
$‑ |
Short Sales. When the Fund
believes that a security is overvalued, it may sell the security short and
borrow the same security from a broker or other institution to complete the
sale. If the price of the security decreases in value, the Fund may make a
profit and, conversely, if the security increases in value, the Fund will incur
a loss because it will have to replace the borrowed security by purchasing it at
a higher price. There can be no assurance that the Fund will be able to close
out the short position at any particular time or at an acceptable price.
Although the Fund’s gain is limited to the amount at which it sold a security
short, its potential loss is not limited. A lender may request that the borrowed
securities be returned on short notice; if that occurs at a time when other
short sellers of the subject security are receiving similar requests, a “short
squeeze” can occur. This means that the Fund might be compelled, at the most
disadvantageous time, to replace borrowed securities previously sold short with
purchases on the open market at prices significantly greater than those at which
the securities were sold short. Short selling also may produce higher than
normal portfolio turnover and result in increased transaction costs to the Fund.
If the Fund sells a security short it will either own an off-setting “long
position” (an economically equivalent security which is owned) or establish a
“Segregated Account” as described in this SAI.
The Fund also may make
short sales “against-the-box,” in which it sells short securities it owns. The
Fund will incur transaction costs, including interest expenses, in connection
with opening, maintaining and closing short sales against-the-box, which results
in a “constructive sale,” requiring the Fund to recognize any taxable gain from
the transaction.
The Fund has adopted a
non-fundamental investment limitation that prevents it from selling any security
short if it would cause more than 5% of its total assets, taken at market value,
to be sold short. This limitation does not apply to selling short against the
box.
When-Issued and Delayed-Delivery
Transactions. The Fund can invest in securities on a “when-issued” basis
and can purchase or sell securities on a “delayed-delivery” basis. When-issued
and delayed-delivery are terms that refer to securities whose terms and
indenture are available and for which a market exists but that are not available
for immediate delivery.
When such transactions are
negotiated, the price (which generally is expressed in yield terms) is fixed at
the time the commitment is made. Delivery and payment for the securities take
place at a later date (generally within 45 days of the date the offer is
accepted). The securities are subject to change in value from market
fluctuations during the period until settlement. The value at delivery may be
less than the purchase price. For example, changes in interest rates before
settlement will affect the value of such securities and may cause a loss to the
Fund. During the period between purchase and settlement, no payment is made by
the Fund to the issuer and no interest accrues to the Fund from the
investment.
The Fund may engage in
when-issued transactions to secure what the Adviser considers to be an
advantageous price and yield at the time of entering into the obligation. When
the Fund enters into a when-issued or delayed-delivery transaction, it relies on
the other party to complete the transaction. Its failure to do so may cause the
Fund to lose the opportunity to obtain the security at a price and yield the
Adviser considers to be advantageous. When the Fund engages in when-issued and
delayed-delivery transactions, it does so for the purpose of acquiring or
selling securities consistent with its investment objective and strategies, and
not for the purpose of investment leverage. Although the Fund will enter into
delayed-delivery or when-issued purchase transactions to acquire securities, it
can dispose of a commitment before settlement. If the Fund chooses to dispose of
the right to acquire a when-issued security before its acquisition or to dispose
of its right to delivery or receive against a forward commitment, it may incur a
gain or loss.
At the time the Fund makes
the commitment to purchase or sell a security on a when-issued or
delayed-delivery basis, it records the transaction on its books and reflects the
value of the security purchased in determining the Fund’s net asset value. In a
sale transaction, it records the proceeds to be received. The Fund will identify
on its books liquid securities of any type at least equal in value to the value
of the Fund’s purchase commitments until the Fund pays for the investment.
When-issued and
delayed-delivery transactions can be used by the Fund as defensive techniques to
hedge against anticipated changes in interest rates and prices. For instance, in
periods of rising interest rates and falling prices, the Fund might sell
securities in its portfolio on a forward commitment basis to attempt to limit
its exposure to anticipated falling prices. In periods of falling interest rates
and rising prices, the Fund might sell portfolio securities and purchase the
same or similar securities on a when-issued or delayed-delivery basis to obtain
the benefit of currently higher cash yields.
Cybersecurity Risk. With
the increased use of technologies such as the Internet to conduct business, the
Fund has become potentially more susceptible to operational and information
security risks through breaches in cybersecurity. In general, a breach in
cybersecurity can result from either a deliberate attack or an unintentional
event. Cybersecurity breaches may involve, among other things, infection by
computer viruses or other malicious software code or unauthorized access to the
Fund’s digital information systems, networks or devices through “hacking” or
other means, in each case for the purpose of misappropriating assets or
sensitive information (including, for example, personal shareholder
information), corrupting data or causing operational disruption or failures in
the physical infrastructure or operating systems that support the Fund.
Cybersecurity risks also include the risk of losses of service resulting from
external attacks that do not require unauthorized access to the Fund’s systems,
networks or devices. For example, denial-of-service attacks on the investment
adviser’s or an affiliate’s website could effectively render the Fund’s network
services unavailable to Fund shareholders and other intended end-users. Any such
cybersecurity breaches or losses of service may cause the Fund to lose
proprietary information, suffer data corruption or lose operational capacity,
which, in turn could cause the Fund to incur regulatory penalties, reputational
damage, additional compliance costs associated with corrective measures and/or
financial loss. While the Fund and its investment adviser have established plans
and procedures designed to prevent or reduce the impact of a cybersecurity
attack, there is no guarantee that these plans and procedures will be
successful. There are inherent limitations in these plans and procedures given
the ever changing nature of technology and cybersecurity attack tactics and
there is a possibility that certain risks have not been adequately identified or
prepared for.
In addition, cybersecurity
failures by or breaches of the Fund’s third-party service providers (including,
but not limited to, the Fund’s investment adviser, transfer agent, custodian and
other financial intermediaries) may disrupt the business operations of the
service providers and of the Fund, potentially resulting in financial losses;
the inability of Fund shareholders to transact business with the Fund and of the
Fund to process transactions; the inability of the Fund to calculate its net
asset value; violations of applicable privacy and other laws, rules and
regulations; regulatory fines and penalties; reputational damage; reimbursement
or other compensatory costs; and/or additional compliance costs associated with
implementation of any corrective measures. The Fund and its shareholders could
be negatively impacted as a result of any such cybersecurity breaches, and there
can be no assurance that the Fund will not suffer losses relating to
cybersecurity attacks or other informational security breaches affecting the
Fund’s third-party service provider in the future, particularly as the Fund
cannot control cybersecurity plans or systems implemented by such service
providers.
Securities the Fund invests
in are subject to cybersecurity risks in similar ways to the Fund. A
cybersecurity risk or cybersecurity event may cause the Fund’s investments in
such issuers to lose value. In extreme cases, a risk or event could cause the
issuer to cease business.
Segregated Accounts. A
number of the Fund’s potential non-principal investment strategies may require
it to establish segregated accounts. When the Fund enters into an investment
strategy that would result in a “senior security,” as that term is defined in
the 1940 Act, the Fund will either: (i) own an off-setting position in
securities; or (ii) set aside liquid securities in a segregated account with its
custodian bank (or designated in the Fund’s books and records) in the amount
prescribed. The Fund will maintain the value of such segregated account equal to
the prescribed amount by adding or removing additional liquid securities to
account for fluctuations in the value of securities held in such account.
Securities held in a segregated account cannot be sold while the senior security
is outstanding, unless they are replaced with qualifying securities and the
value of the account is maintained.
A segregated account is not
required when the Fund holds securities, options, or futures positions whose
value is expected to offset its obligations that would otherwise require a
segregated account. The Fund may also use other SEC approved methods to reduce
or eliminate the leveraged aspects of senior securities.
The Adviser is responsible
for the placement of portfolio transactions, subject to the supervision of the
Funds’ Board of Directors. Following is a summary of the Adviser’s trading
policies which are described in Part 2 of its Form ADV. The Adviser is primarily
a discretionary investment adviser. Accordingly, the Adviser generally
determines the securities and quantities to be bought and sold for each client’s
account.
Best Execution. The Adviser follows procedures intended
to provide reasonable assurance of best execution. However, there can be no
assurance that best execution will in fact be achieved in any given transaction.
The Adviser seeks to place portfolio transactions with brokers or dealers who
will execute transactions as efficiently as possible and at the most favorable
net price. Determining what constitutes best execution is not only quantitative,
e.g., the lowest possible transaction cost, but also whether the transaction
represents the best qualitative execution. In placing executions and paying
brokerage commissions or dealer markups, the Adviser considers, among other
factors, price, commission, timing, aggregated trades, capable floor brokers or
traders, competent block trading coverage, ability to position, capital strength
and stability, reliable and accurate communication and settlement processing,
use of automation, knowledge of other buyers or sellers, arbitrage skills,
administrative ability, underwriting and provision of information on the
particular security or market in which the transaction is to occur, research,
the range and quality of the services made available to clients, and the payment
of bona fide client expenses. To the extent that clients direct brokerage, the
Adviser cannot be responsible for achieving best execution. The Adviser may
place orders for portfolio transactions with broker-dealers who have sold shares
of funds which the Adviser serves as adviser or sub-adviser. However, when the
Adviser places orders for portfolio transactions, it does not give any
consideration to whether a broker-dealer has sold shares of the funds which the
Adviser serves as adviser or sub-adviser. The applicability of specific criteria
will vary depending on the nature of the transaction, the market in which it is
executed and the extent to which it is possible to select from among multiple
broker-dealers.
Cross Trades. When the
Adviser deems it to be advantageous, the Fund may purchase or sell securities
directly from or to another client account which is managed by the Adviser. This
may happen due to a variety of circumstances, including situations when the Fund
must purchase securities due to holding excess cash and, at the same time, a
different client of the Adviser must sell securities in order to increase its
cash position. Cross trades are only executed when deemed beneficial to the Fund
and the other client, and the Adviser has adopted written procedures to ensure
fairness to both parties.
Investment Allocations. The
Adviser considers many factors when allocating securities among its clients,
including the Fund, including but not limited to, the client’s investment style,
applicable restrictions, availability of securities, available cash, anticipated
liquidity, and existing holdings. The Adviser employs several portfolio
managers, each of whom performs independent research and develops different
levels of conviction concerning potential investments. Clients managed by the
portfolio manager performing the research may receive priority allocations of
limited investment opportunities that are in short supply, including Initial
Public Offerings (“IPOs”).
Clients are not assured of
participating equally or at all in any particular investment opportunity. The
nature of a client’s investment style may exclude it from participating in many
investment opportunities, even if the client is not strictly precluded from
participation based on written investment restrictions. For example (i)
large-cap value clients are unlikely to participate in initial public offerings
of small-capitalization companies; (ii) the Adviser may allocate short-term
trading opportunities to clients pursuing active trading strategies rather than
clients pursuing long-term buy-and-hold strategies; (iii) minimum block sizes
may be optimal for liquidity, which may limit the participation of smaller
accounts; (iv) it is sometimes impractical for some custodians to deal with
securities which are difficult to settle; and (v) private accounts and managed
money/wrap accounts generally do not participate in direct purchases of foreign
securities, but may participate in depositary receipts consisting of American
Depositary Receipts (“ADRs”), European Depositary Receipts (“EDRs”) and Global
Depositary Receipts (“GDRs”).
The Adviser attempts to
allocate limited investment opportunities, including IPOs, among clients in a
manner that is fair and equitable when viewed over a considerable period of time
and involving many allocations. Generally, the Adviser allocates investments to
clients utilizing a pro rata methodology. When the Adviser is limited in the
amount of a particular security it can purchase, due to a limited supply,
limited liquidity, or other reason, the Adviser may allocate the limited
investment opportunity to a subset of eligible clients.
The Adviser serves as
investment adviser for a number of clients and may deal with conflicts of
interest when allocating investment opportunities among its various clients. For
example: (i) the Adviser receives different advisory fees from different
clients; (ii) the performance records of some clients are more public than the
performance records of other clients; and (iii) the Adviser and its affiliates,
owners, officers and employees have invested substantial amounts of their own
capital in some client accounts (notably the Davis Funds, Selected Funds, and
Clipper Fund), but do not invest their own capital in every client’s account.
The majority of the Adviser’s clients pursue specific investment strategies,
many of which are similar. The Adviser expects that, over long periods of time,
most clients pursuing similar investment strategies should experience similar,
but not identical, investment performance. Many factors affect investment
performance, including but not limited to: (i) the timing of cash deposits and
withdrawals to and from an account; (ii) the fact that the Adviser may not
purchase or sell a given security on behalf of all clients pursuing similar
strategies; (iii) price and timing differences when buying or selling
securities; and (iv) the clients’ own different investment restrictions. The
Adviser’s trading policies are designed to minimize possible conflicts of
interest in trading for its clients.
Limitations on Aggregate
Investments in a Single Company. The Adviser’s policy is not to invest
for the purpose of exercising control or management of other companies. In
extraordinary circumstances the Adviser may seek to influence management. In
such an event appropriate government and regulatory filings would be made.
Federal and state laws, as
well as company documents (sometimes referred to as “poison pills”) may limit
the percentage of a company’s outstanding shares which may be purchased or owned
by the Adviser’s clients. This is especially true in heavily regulated
industries such as insurance, banking, and real estate investment trusts. Unless
it can obtain an exception, the Adviser will not make additional purchases of
these companies for its clients if, as a result of such purchase, shares in
excess of the applicable investment limitation (for example, 9.9% of outstanding
voting shares) would be held by its clients in the aggregate.
Order Priority. The
Adviser’s trading desk prioritizes incoming orders of similar purchases and
sales of securities between institutional and managed money/wrap account orders.
The Adviser’s trading desk typically executes orders for institutional clients,
including investment companies, institutional private accounts, sub-advised
accounts and others. Managed money/wrap account program sponsors typically
execute orders for managed money/wrap accounts.
The Adviser’s trading desk
attempts to coordinate the timing of orders with a trade rotation to prevent the
Adviser from “bidding against itself” on orders. Generally, a block trade
representing a portion of the total trade is placed first for institutional and
private accounts. Once this trade is completed, the Adviser places orders for
wrap accounts, one sponsor at a time. Sponsors of certain model portfolios will
execute trades for their clients. These model portfolio Sponsors are included as
a part of the wrap account trade rotation. If the Adviser has not received a
response from a model portfolio Sponsor within a reasonable period of time the
Adviser will resume through the trade rotation. If this occurs it is possible
that the model portfolio Sponsor and the Adviser will be executing similar
trades for discretionary clients. The trading concludes with another block
transaction for institutional and private accounts. The trading desk follows
procedures intended to provide reasonable assurance that no clients are
disadvantaged by this trade rotation; and the compliance department monitors
execution quality. However, there can be no assurance that best execution will
in fact be achieved in any given transaction.
Pattern Accounts. The
Adviser serves as investment adviser for a number of clients which are patterned
after model portfolios or designated mutual funds managed by the Adviser. For
example, a client pursuing the Adviser’s large cap value strategy may be
patterned after Davis New York Venture Fund. A client patterned after Davis New
York Venture Fund will usually have all of its trading (other than trading
reflecting cash flows due to client deposits or withdrawals) aggregated with
that of Davis New York Venture Fund. In unusual circumstances, the Adviser may
not purchase or sell a given security on behalf of all clients (even clients
managed in a similar style), and it may not execute a purchase of securities or
a sale of securities for all participating clients at the same time.
Orders for accounts which
are not patterned after model portfolios or designated mutual funds are
generally executed in the order received by the trading desk, with the following
exceptions: (i) the execution of orders for clients that have directed that
particular brokers be used may be delayed until the orders which do not direct a
particular broker have been filled; (ii) the execution of orders may be delayed
when the client (or responsible portfolio manager) requests such delay due to
market conditions in the security to be purchased or sold; and (iii) the
execution of orders which are to be bunched or aggregated.
Aggregated Trades.
Generally, the Adviser’s equity portfolio managers communicate investment
decisions to a centralized equity trading desk, while fixed income portfolio
managers normally place their transactions themselves. The Adviser frequently
follows the practice of aggregating orders of various institutional clients for
execution, if the Adviser believes that this will result in the best net price
and most favorable execution. In some instances, aggregating trades could
adversely affect a given client. However, the Adviser believes that aggregating
trades generally benefits clients because larger orders tend to have lower
execution costs, and the Adviser’s clients do not compete with one another
trading in the market. Directed brokerage trades in a particular security are
typically executed separately from, and possibly after, the Adviser’s other
client trades.
In general, all of the
Adviser’s clients (excluding clients who are directing brokerage and managed
account/wrap programs) seeking to purchase or sell a given security at
approximately the same time will be aggregated into a single order or series of
orders. When an aggregated order is filled, all participating clients receive
the price at which the order was executed. If, at a later time, the
participating clients wish to purchase or sell additional shares of the same
security, or if additional clients seek to purchase or sell the same security,
then the Adviser will issue a new order and the clients participating in the new
order will receive the price at which the new order was executed.
In the event that an
aggregated order is not entirely filled, the Adviser will allocate the purchases
or sales among participating clients in the manner it considers to be most
equitable and consistent with its fiduciary obligations to all such clients.
Generally, partially-filled orders are allocated pro rata based on the initial
order submitted by each participating client.
In accordance with the
various managed account/wrap programs in which the Adviser participates, the
Adviser typically directs all trading to the applicable program sponsor unless,
in the Adviser’s reasonable discretion, doing so would adversely affect the
client. Clients typically pay no commissions on trades executed through program
sponsors. In the event that an order to the sponsor of a managed account/wrap
program is not entirely filled, the Adviser will allocate the purchases or sales
among the clients of that sponsor in the manner it considers to be most
equitable and consistent with its fiduciary obligations to all such clients.
Generally, partially-filled orders are allocated among the particular sponsor’s
participating clients on a random basis that is anticipated to be equitable over
time.
Trading Error Correction.
In the course of managing client accounts, it is possible that trading errors
will occur from time to time. The Adviser has adopted Trading Error Correction
Policies & Procedures which, when the Adviser is at fault, seek to place a
client’s account in the same position it would have been had there been no
error. The Adviser retains flexibility in attempting to place a client’s account
in the same position it would have been had there been no error. The Adviser
attempts to treat all material errors uniformly, regardless of whether they
would result in a profit or loss to the client. For example, the Adviser may
purchase securities from a client account at cost if they were acquired due to a
trading error. If more than one trading error, or a series of trading errors, is
discovered in a client account, then gains and losses on the erroneous trades
may be netted.
Research Paid for with Commissions
(“Soft Dollars”). The Adviser does not use client commissions, “soft
dollars,” to pay for: (i) computer hardware or software, or other electronic
communications facilities; (ii) publications, both paper based or electronic,
that are available to the general public; and (iii) research reports that are
created by parties other than the broker-dealers providing trade execution,
clearing and/or settlement services to the Adviser’s clients. If the Adviser
determines to purchase such services, it pays for them using its own
resources.
The Adviser may receive
research that is bundled with the trade execution, clearing and/or settlement
services provided by a particular broker-dealer. The Adviser may take into
account the products and services, as well as the execution capacity, of a
brokerage firm in selecting brokers. Thus, transactions may be directed to a
brokerage firm that provides: (i) important information concerning a company;
(ii) introductions to key company officers; (iii) industry and company
conferences; and (iv) other value added research services. The Adviser may have
an incentive to select or recommend a broker-dealer based on its interest in
continuing to receive these value added research or services that the Adviser
believes are useful in its investment decision-making process, but only when, in
the Adviser’s judgment, the broker-dealer is capable of providing best execution
for that transaction. If the Adviser were to direct brokerage to a firm
providing these value added services, the Adviser may receive a benefit as it
may not have to pay for the services it has received.
Research or other services
obtained in this manner may be used in servicing the Adviser’s other accounts,
including in connection with other Adviser client accounts other than those that
pay commissions to the broker. Such products and services may disproportionately
benefit other Adviser client accounts relative to the Funds based on the amount
of brokerage commissions paid by the Funds and such other Adviser client
accounts. For example, research or other services that are paid for through one
client’s commissions may not be used in managing that client’s account.
The Adviser follows the
concepts of Section 28(e) of the Securities Exchange Act of 1934. Subject to the
criteria of Section 28(e), the Adviser may pay a broker a brokerage commission
in excess of that which another broker might have charged for effecting the same
transactions, in recognition of the value of the brokerage and research services
provided by or through the broker. The Adviser’s Head Trader exercises his
professional judgment to determine which brokerage firm is best suited to
execute any given portfolio transaction. This includes transactions executed
through brokerage firms which provide the services listed above. The Adviser
does not attempt to allocate soft dollar benefits to client accounts
proportionately to the commissions which the accounts pay to brokerage firms
which provide research services. The Adviser believes it is important to its
investment decision-making to have access to independent research.
Exceptions. There are
occasions when the Adviser varies the trading procedures and considerations
described above. The Adviser exercises its best judgment in determining whether
clients should execute portfolio transactions simultaneously with, prior to, or
subsequent to the model portfolio or designated mutual fund that they are
patterned after. The factors that the Adviser considers in exercising its
judgment include, but are not limited to, the need for confidentiality of the
purchase or sale, market liquidity of the securities in issue, the particular
events or circumstances that prompt the purchase or sale of the securities, and
operational efficiencies. Even when transactions are executed on the same day,
clients may not receive the same price as the model portfolios or designated
mutual funds they are patterned after. If the transactions are not aggregated,
such prices may be better or worse.
Portfolio Turnover. Because the equity Funds’ portfolios are
managed using the Davis Investment Discipline, portfolio turnover is expected to
be low. The Funds anticipate that during normal market conditions, their annual
portfolio turnover rate will be less than 100%. However, depending upon market
conditions, portfolio turnover rate will vary. At times, it could be high, which
could require the payment of larger amounts in brokerage commissions and
possibly more taxable distributions.
When the Adviser deems it
to be appropriate, a Fund may engage in active and frequent trading to achieve
its investment objective. Active trading may include participation in IPOs.
Active trading may result in the realization and distribution to shareholders of
larger amounts of capital gains compared with a fund with less active trading
strategies, which could increase shareholder tax liability. Active trading may
also generate larger amounts of short-term capital gains, which are generally
taxable as ordinary income when distributed to taxable shareholders. Frequent
trading also increases transaction costs, which could detract from a Fund’s
performance.
Portfolio
Commissions
The Funds paid the
following brokerage commissions:
|
Fiscal Year-Ended
December 31, |
|
2022 |
2021 |
2020 |
Davis Opportunity Fund |
|
|
|
Brokerage commissions paid: |
$71,134 |
$338,794 |
$190,402 |
Amount paid to brokers providing
research: |
None |
None |
None |
Amount paid to brokers providing
services: |
None |
None |
None |
Davis Financial Fund |
|
|
|
Brokerage commissions paid: |
$95,444 |
$69,086 |
$89,710 |
Amount paid to brokers providing
research: |
None |
None |
None |
Amount paid to brokers providing
services: |
None |
None |
None |
Davis Real Estate Fund |
|
|
|
Brokerage commissions paid: |
$62,673 |
$63,385 |
$73,383 |
Amount paid to brokers providing
research: |
None |
None |
None |
Amount paid to brokers providing
services: |
None |
None |
None |
Davis Appreciation & Income
Fund |
|
|
|
Brokerage commissions paid: |
$8,029 |
$20,610 |
$10,927 |
Amount paid to brokers providing
research: |
None |
None |
None |
Amount paid to brokers providing
services: |
None |
None |
None |
Investments
in Certain Broker-Dealers. As of December 31, 2022, the Funds
owned the following securities (excluding repurchase agreements) issued by any
of its regular brokers and dealers. The Funds’ regular brokers and dealers are
the ten brokers or dealers receiving the greatest amount of commissions from the
Funds’ portfolio transactions during the most recent fiscal year, the ten
brokers or dealers engaging in the largest amount of principal transactions
during the most recent fiscal year, and the ten brokers or dealers that sold the
largest amount of Fund shares during the most recent fiscal year. As of the most
recent fiscal year-ended December 31, 2022, the Fund owned securities (excluding
repurchase agreements) issued by one of these broker dealers:
Fund |
Broker-Dealer |
Value |
Davis Opportunity Fund |
Wells Fargo & Co. |
$30,756,550 |
Davis Financial Fund |
Wells Fargo & Co. |
$56,718,793 |
|
JPMorgan Chase & Co. |
$55,350,311 |
|
Charles Schwab & Co. Inc. |
$15,218,096 |
Davis Real Estate Fund |
None |
|
Davis Appreciation & Income Fund |
Wells Fargo & Co. |
$10,138,677 |
|
Bank of New York Mellon Corp. |
$5,398,672 |
|
JPMorgan Chase & Co. |
$4,456,545 |
Davis Government Bond Fund |
None |
|
Davis Government Money Market Fund |
None |
|
The Funds follow investment
strategies developed in accordance with their investment objectives, policies
and restrictions described in their prospectus and this SAI.
The Funds have adopted the
fundamental investment policies set forth below, which may not be changed
without shareholder approval. Where necessary, an explanation following a
fundamental policy describes the Funds’ practices with respect to that policy,
as permitted by governing rules, regulations, and interpretations. If the
governing rules, regulations, and/or interpretations change, the Funds’
investment practices may change without a shareholder vote.
The fundamental investment
restrictions set forth below may not be changed without the approval of the
lesser of: (i) 67% or more of the voting securities present at such meeting if
the holders of more than 50% of the outstanding voting securities of such
company are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities of such company.
Except for the fundamental
investment policies regarding illiquid securities and borrowing, all percentage
restrictions apply as of the time of an investment without regard to any later
fluctuations in the value of portfolio securities or other assets. All
references to the assets of a Fund are in terms of current market value.
◾ |
Diversification (All Funds
except Davis Financial Fund). The Fund may not make any
investment that is inconsistent with its classification as a diversified
investment company under the 1940 Act. |
Further
Explanation of Diversification Policy. To remain classified as a
diversified investment company under the 1940 Act, the Fund must conform with
the following: With respect to 75% of its total assets, a diversified investment
company may not invest more than 5% of its total assets, determined at market or
other fair value at the time of purchase, in the securities of any one issuer,
or invest in more than 10% of the outstanding voting securities of any one
issuer, determined at the time of purchase. These limitations do not apply to
investments in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
Diversification (Davis Financial
Fund). The Fund is not
required to diversify its investments.
Further
Explanation of Diversification Policy. The Fund is classified as
non-diversified under the 1940 Act. The Fund intends to remain classified as a
regulated investment company under the Internal Revenue Code. This requires the
Fund to conform to the following: at the end of each quarter of the taxable
year, at least 50% of the value of the Fund’s total assets must be represented
by: cash and cash items, U.S. Government securities, securities of other
regulated investment companies and “other securities.” For this purpose, “other
securities” does not include investments in the securities of any one issuer
that represent more than 5% of the value of the Fund’s total assets or more than
10% of the issuer’s outstanding voting securities.
◾ |
Concentration (Davis
Opportunity Fund, Davis Appreciation & Income Fund, Davis Government
Bond Fund and Davis Government Money Market Fund). The Fund may not concentrate its
investments in the securities of issuers primarily engaged in any
particular industry or group of
industries. |
Further
Explanation of Concentration Policy. The Fund may not invest 25%
or more of its total assets, taken at market value, in the securities of issuers
primarily engaged in any particular industry (other than securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities).
Concentration (Davis Financial
Fund). The Fund concentrates
its investments in the financial services industry.
Further
Explanation of Concentration Policy. Financial services are a
“sector” composed of a number of “industries,” examples of which are included in
the following paragraph. The concentration policy requires the Fund to invest at
least 25% of its assets in securities principally engaged in the financial
services group of industries which together make up the financial services
sector. Due to the non-fundamental Name Policy, under normal circumstances the
Fund invests at least 80% of its net assets, plus any borrowing for investment
purposes, in securities issued by companies principally engaged in the financial
services sector.
A
company is “principally engaged” in financial services if it owns financial
services related assets constituting at least 50% of the total value of the
company’s assets, or if at least 50% of the company’s revenues are derived from
its provision of financial services. The financial services sector consists of
several different industries that behave differently in different economic and
market environments, for example: banking, insurance and securities brokerage
houses. Companies in the financial services sector include: commercial banks,
industrial banks, savings institutions, finance companies, diversified financial
services companies, investment banking firms, securities brokerage houses,
investment advisory companies, leasing companies, insurance companies and
companies providing similar services.
The
Fund may not invest 25% or more of its total assets, taken at market value, in
the securities of issuers primarily engaged in any particular industry (other
than issuers in the financial services sector or securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities).
Concentration (Davis Real Estate
Fund). The Fund concentrates its investments in real estate
securities.
Further
Explanation of Concentration Policy. Real estate is a “sector”
composed of a number of “industries,” examples of which are included in the
following paragraph. The concentration policy requires the Fund to invest at
least 25% of its assets in securities principally engaged in the real estate
group of industries which together makeup the real estate sector. Due to the
non-fundamental Name Policy, under normal circumstances the Fund invests at
least 80% of its net assets plus any borrowing for investment purposes in
securities issued by companies principally engaged in the real estate
industry.
Real
estate securities are issued by companies that have at least 50% of the value of
their assets, gross income, or net profits attributable to ownership, financing,
construction, management or sale of real estate, or to products or services that
are related to real estate or the real estate industry. Real estate companies
include real estate investment trusts or other securitized real estate
investments, brokers, developers, lenders and companies with substantial real
estate holdings such as paper, lumber, hotel and entertainment companies.
The
Fund may not invest 25% or more of its total assets, taken at market value, in
the securities of issuers primarily engaged in any particular industry (other
than real estate securities or securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities).
Further
Explanation of Concentration Policies (for all Davis Series
Funds). The Fund may not invest 25% or more of its total assets,
taken at market value, in the securities of issuers primarily engaged in any
particular industry (other than securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities). The Fund generally uses the
Global Industry Classification Standard (“GICS”) as developed by Morgan Stanley
Capital International and Standard & Poor’s Corporation to determine
industry classification. GICS presents industry classification as a series of
levels (i.e., sector, industry group, industry and sub-industry). For purposes
of measuring concentration, the Fund generally classifies companies at the
“industry group” or “industry” level. However, further analysis may lead the
Adviser to classify companies at the sub-industry level. The Adviser will only
measure concentration at the sub-industry level when it believes that the
various sub-industries in question can reasonably be expected to be impacted
differently to a material extent by future economic events. For example, in the
“Insurance” industry, the Adviser believes that the sub-industries (insurance
brokers, life & health insurance, multi-line insurance, property &
casualty insurance, and reinsurance) can reasonably be expected to be impacted
differently to a material extent by future economic events such as natural
disasters, global politics, inflation, unemployment, technology, etc. In
addition, the Adviser may reclassify a company into an entirely different sector
if it believes that the GICS classification on a specific company does not
accurately describe the company.
◾ |
Issuing Senior Securities
(All Funds). The Fund
may not issue senior securities, except as permitted under applicable law,
including the 1940 Act and published SEC staff
positions. |
Further
Explanation of Issuing Senior Securities. The Fund may not issue
senior securities, except as provided by the 1940 Act and any rules,
regulations, orders or letters issued there under. This limitation does not
apply to selling short against the box. See the non-fundamental restriction
further limiting short selling below. The 1940 Act defines a “Senior Security”
as any bond, debenture, note or similar obligation constituting a security and
evidencing indebtedness.
◾ |
Borrowing (All
Funds). The Fund may
not borrow money, except to the extent permitted by applicable law
including the 1940 Act and published SEC staff
positions. |
Further
Explanation of Borrowing Policy. The Fund may borrow from banks
provided that, immediately thereafter the Fund has 300% asset coverage for all
borrowings. The Fund may purchase additional securities so long as borrowings do
not exceed 5% of its total assets. The Fund may obtain such short-term credit as
may be necessary for the clearance of purchases and sales of portfolio
securities. In the event that market fluctuations cause borrowing to exceed the
limits stated above, the Adviser would act to remedy the situation as promptly
as possible, normally within three business days, although it is not required to
dispose of portfolio holdings immediately if the Fund would suffer losses as a
result.
◾ |
Underwriting (All
Funds). The Fund may
not underwrite securities of other issuers except to the extent permitted
by applicable law, including the 1940 Act and published SEC staff
positions. |
Further
Explanation of Underwriting Policy. The Fund may not underwrite
securities of other issuers, except insofar as the Fund may be deemed to be an
underwriter in connection with the disposition of its portfolio
securities.
◾ |
Investments in Commodities
and Real Estate (All Funds). The Fund may not purchase or sell
commodities or real estate, except to the extent permitted by applicable
law, including the 1940 Act and published SEC staff
positions. |
Further
Explanation of Policy Restricting Investments in Commodities and Real
Estate. The Fund may purchase or sell financial futures contracts,
options on financial futures contracts, currency contracts and options on
currency contracts as described in its prospectus and SAI. The Fund may not
purchase or sell real estate, except that the Fund may invest in securities that
are directly or indirectly secured by real estate or issued by issuers that
invest in real estate.
◾ |
Making Loans (All
Funds). The Fund may
not make loans to other persons, except as allowed by applicable law
including the 1940 Act and published SEC staff
positions. |
Further
Explanation of Lending Policy. The acquisition of investment
securities or other investment instruments, entering into repurchase agreements,
leaving cash on deposit with the Fund’s custodian, and similar actions are not
deemed to be the making of a loan.
To
generate income and offset expenses, the Fund may lend portfolio securities to
broker-dealers and other financial institutions that the Adviser believes to be
creditworthy in an amount up to 331/3% of
its total assets, taken at market value. While securities are on loan, the
borrower will pay the Fund any income accruing on the security. The Fund may
invest any collateral it receives in additional portfolio securities, typically
U.S. Treasury notes, certificates of deposit, other high-grade, short-term
obligations or interest-bearing cash equivalents. The Fund is still subject to
gains or losses due to changes in the market value of securities that it has
lent.
When
the Fund lends its securities, it will require the borrower to give the Fund
collateral in cash or U.S. Government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such
loans.
Non-Fundamental Investment
Policies
The Funds have adopted and
will follow the non-fundamental investment policies set forth below, which may
be changed by the Funds’ Board of Directors without the approval of the Funds’
shareholders.
◾ |
Illiquid Securities. The
Fund will not purchase or hold illiquid securities if more than 15% of the
value of the Fund’s net assets would be invested in such securities. If
illiquid securities exceeded 15% of the value of the Fund’s net assets,
the Adviser would attempt to reduce the Fund’s investment in illiquid
securities in an orderly fashion. Davis Government Money Market Fund may
not purchase illiquid securities if more than 10% of the value of the
Fund’s net assets would be invested in such
securities. |
◾ |
High-Yield, High-Risk
Securities. The Fund will not purchase debt securities rated
BB or Ba or lower (sometimes referred to as “Junk Bonds”) if the
securities are in default at the time of purchase or if such purchase
would then cause more than 20% of the Fund’s net assets to be invested in
such lower-rated securities. |
◾ |
Short
Selling. The Fund will not sell any security short if it
would cause more than 5% of its total assets, taken at market value, to be
sold short. This limitation does not apply to selling short against the
box. |
◾ |
Investing for Control.
The Fund does not invest for the purpose of exercising control or
management of other companies. |
◾ |
Mortgage, Pledge, Lend or Hypothecate
Assets. The Fund will not mortgage, pledge, lend or
hypothecate more than 331/3%
of its total assets, taken at market value in securities lending or other
activities. |
◾ |
Name
Policy (Davis Financial Fund, Davis Real Estate Fund, Davis Government
Bond Fund and Davis Government Money Market Fund). Under
normal circumstances, Davis Financial Fund invests at least 80% of net
assets plus any borrowing for investment purposes in securities issued by
companies in the financial services sector, and Davis Real Estate Fund
invests at least 80% of net assets plus any borrowing for investment
purposes in securities issued by companies in the real estate sector.
Under normal circumstances, Davis Government Bond Fund and Davis
Government Money Market Fund invest exclusively in U.S. Government
securities and repurchase agreements collateralized by U.S. Government
securities. The Funds also own other assets that are not investments,
typically cash and receivables. Davis Financial Fund, Davis Real Estate
Fund, Davis Government Bond Fund and Davis Government Money Market Fund
will comply with the Name Policy as of the time an investment is made. If
at some point a Fund no longer meets the 80% test (e.g., due to market
value changes), it would not be required to sell assets, although any
future investments would need to be made in a manner that tends to bring
the Fund back into compliance. In addition, because the 80% test applies
under “normal circumstances,” a Fund could depart from the 80% requirement
to take temporary defensive positions or due to other unusual events
(e.g., large in-flows or redemptions). |
Davis
Financial Fund, Davis Real Estate Fund, Davis Government Bond Fund and Davis
Government Money Market Fund will provide the Fund’s shareholders with at least
60 days’ prior notice before changing their Name Policies such that they would
invest, under normal circumstances, less than 80% of their net assets plus any
borrowing for investment purposes in financial companies, real estate companies,
and U.S. Government securities and repurchase agreements collateralized with
U.S. Government securities (both Davis Government Bond Fund and Davis Government
Money Market Fund), respectively.
This SAI should be read in
conjunction with the prospectus. This SAI supplements the information available
in the prospectus.
The Funds. Davis Series,
Inc. is an open-end, diversified management investment company incorporated in
Maryland in 1976 and registered under the 1940 Act. Davis Series, Inc. is a
series investment company that may issue multiple series, each of which would
represent an interest in its separate portfolio. Davis Series, Inc. currently
offers six series: Davis Financial Fund, Davis Opportunity Fund, Davis Real
Estate Fund, Davis Appreciation & Income Fund, Davis Government Bond Fund
and Davis Government Money Market Fund (a “Fund’’ or the “Funds”). On November
1, 1995, Davis Series, Inc. changed its name from Retirement Planning Funds of
America, Inc., to Davis Series, Inc.
Fund Shares. The Funds may issue shares in different
classes. The Funds’ shares currently are divided into three classes of shares:
A, C, and Y. The Board of Directors may offer additional series or classes in
the future and may at any time discontinue the offering of any series or class
of shares. Each share, when issued and paid for in accordance with the terms of
the offering, is fully paid and non-assessable. Shares have no preemptive or
subscription rights. Each of the Funds’ shares represent an interest in the
assets of the Fund issuing the shares and have identical voting, dividend,
liquidation and other rights and the same terms and conditions as any other
shares except that: (i) each dollar of net asset value per share is entitled to
one vote; (ii) the expenses related to a particular class, such as those related
to the distribution of each class and the transfer agency expenses of each class
are borne solely by each such class; (iii) each class of shares votes separately
with respect to provisions of the Rule 12b-1 Distribution Plan that pertain to a
particular class; and (iv) other matters for which separate class voting is
appropriate under applicable law. Each fractional share has the same rights, in
proportion, as a full share. Due to the differing expenses of the classes,
dividends are likely to be lower for Class C shares than for Class A shares and
are likely to be higher for Class Y shares than for any other class of
shares.
For some issues, such as
the election of directors, all of Davis Series, Inc.’s authorized series vote
together. For other issues, such as approval of the advisory agreement, each
authorized series votes separately. Shares do not have cumulative voting rights;
therefore, the holders of more than 50% of the voting power can elect all of the
directors. Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the shareholders of the outstanding voting securities of an
investment company will not be deemed to have been effectively acted on unless
approved by the holders of a majority of the outstanding shares of each series
affected by such matter. Rule 18f-2 further provides that a series shall be
deemed to be affected by a matter unless it is clear that the interests of each
series in the matter are identical or that the matter does not affect any
interest of such series. Rule 18f-2 exempts the selection of independent
accountants and the election of Board members from the separate voting
requirements of the Rule.
In accordance with Maryland
law and Davis Series, Inc.’s bylaws, the Funds do not hold regular annual
shareholder meetings. Shareholder meetings are held when they are required under
the 1940 Act or when otherwise called for special purposes. Special shareholder
meetings may be called on the written request of shareholders of at least 25% of
the voting power that could be cast at the meeting. The Funds will provide
assistance in calling and holding such special meetings to the extent required
by Maryland statutes or SEC rules and regulations then in effect.
Each of the Independent
Directors and officers holds identical offices with each of the Davis Funds
(three registrants, a total of 13 separate series): Davis New York Venture Fund,
Inc., Davis Series, Inc. and Davis Variable Account Fund, Inc. The three
registrants have the same directors. As indicated below, certain directors and
officers also may hold similar positions with Selected American Shares, Inc. and
Selected International Fund, Inc. (collectively the “Selected Funds”), Clipper
Funds Trust, and Davis Fundamental ETF Trust, funds that are managed by the
Adviser.
The Fund’s Board of
Directors supervises the business and management of the Funds. The Board
establishes the Funds’ policies and meets regularly to review the activities of
the officers, who are responsible for day-to-day operations of the Fund, the
Adviser, and certain other service providers. The Board approves all significant
agreements between the Funds and those companies that furnish services to the
Funds. Directors are elected and serve until their
successors are elected and qualified. Information
about the Directors, including their business addresses, dates of birth,
principal occupations during the past five years, and other current
Directorships of publicly traded companies or funds, are set forth in the table below.
The Board has appointed an
Independent Director as Chair. The Chairman presides at meetings of the
Directors and may call meetings of the Board and any Board committee whenever
deemed necessary. The Chair may act as a liaison with the Funds’ management,
officers, attorneys, and other Directors generally between meetings. The Chair
may perform such other functions as may be requested by the Board from time to
time. The Board has designated a number of standing committees as further
described below, each of which has a Chair. The Board also may designate working
groups or ad hoc committees as it deems appropriate.
The Board believes that
this leadership structure is appropriate because it allows the Board to exercise
informed and independent judgment over matters under its purview, and it
allocates areas of responsibility among committees or working groups of
Directors and the full Board in a manner that enhances effective oversight. The
Board also believes that having a majority of Independent Directors is
appropriate and in the best interest of the Funds’ shareholders. Nevertheless,
the Board also believes that having interested persons serve on the Board brings
corporate and financial viewpoints that are, in the Board’s view, crucial
elements in its decision-making process. The leadership structure of the Board
may be changed at any time and in the discretion of the Board, including in
response to changes in circumstances or the characteristics of the Funds.
For the purposes of their service as Directors to the Davis
Funds, the business address for each of the Directors is: 2949 East Elvira Road, Suite
101, Tucson, AZ 85756.
Subject to exceptions and exemptions which may be granted by the Independent
Directors, Directors must retire from the Board of Directors and cease being a
Director at the close of business on the last day of the calendar year in which
the Director attains age seventy-eight (78).
Name, Date of Birth, Position(s) Held with
Fund, Length of Service |
Principal Occupation(s) During Past Five
Years |
Number of Portfolios
Overseen |
Other Directorships Held by Director During
the Past 5 Years |
Independent
Directors: |
|
|
|
John S. Gates Jr.
(08/02/53)
Director since 2007 |
Executive Chairman, TradeLane Properties LLC (industrial real estate
company); Chairman and Chief Executive Officer of PortaeCo LLC (private
investment company). |
13 |
Director, Miami Corp. (diversified investment company). |
Thomas S. Gayner
(12/16/61)
Director since 2004
Chairman since 2009 |
CEO and Director, Markel Corp. (diversified financial holding
company). |
13 |
Director, Graham Holdings Company (educational and media company);
Director, Cable ONE Inc. (cable service provider). |
Samuel H. Iapalucci
(07/19/52)
Director since 2006 |
Retired; Executive Vice President and Chief Financial Officer, CH2M
HILL Companies, Ltd. (engineering) until 2008. |
13 |
None. |
Robert P. Morgenthau
(03/22/57)
Director since 2002 |
Principal, Spears Abacus Advisors, LLC (investment management firm)
since 2011; Chairman, NorthRoad Capital Management, LLC (investment
management firm) 2002-2011. |
13 |
None. |
Lara Vaughan
(04/20/69)
Director since 2021 |
Chief Executive Officer and Chief Financial Officer of Parchman,
Vaughan, & Company, L.L.C. (investment bank). |
13 |
None. |
Marsha Williams
(03/28/51)
Director since 1999 |
Retired; Senior Vice President and Chief Financial Officer, Orbitz
Worldwide, Inc. (travel service provider) 2007-2010. |
13 |
Chairperson, Modine Manufacturing Company (heat transfer technology);
Director, Fifth Third Bancorp (diversified financial services); Director,
Crown Holdings, Inc. (manufacturing company). |
Interested
Directors*: |
|
|
|
Andrew A. Davis
(06/25/63)
Director since 1997 |
President or Vice President of each Davis Fund, Selected Fund, and
Clipper Fund; President, Davis Selected Advisers, L.P., and also serves as
an executive officer of certain companies affiliated with the
Adviser. |
16 |
Director, Selected Funds (consisting of two portfolios) since 1998;
Trustee, Clipper Funds Trust (consisting of one portfolio) since
2014. |
Christopher C. Davis
(07/13/65)
Director since 1997 |
President or Vice President of each Davis Fund, Selected Fund,
Clipper Fund, and Davis ETF; Chairman, Davis Selected Advisers, L.P., and
also serves as an executive officer of certain companies affiliated with
the Adviser, including sole member of the Adviser’s general partner, Davis
Investments, LLC. |
16 |
Director, Selected Funds (consisting of two portfolios) since 1998;
Trustee, Clipper Funds Trust (consisting of one portfolio) since 2014;
Lead Independent Director, Graham Holdings Company (educational and media
company); Director, The Coca-Cola Company (beverage company); Director,
Berkshire Hathaway Inc. (financial services). |
* Andrew Davis and Christopher Davis own partnership
units (directly, indirectly, or both) of the Adviser and are considered to
be “interested persons” of the Funds as defined in the Investment Company
Act of 1940. Andrew Davis and Christopher Davis are
brothers. |
During the fiscal
year-ended December 31, 2022, the compensation paid to the Directors who are not
considered to be interested persons of the Funds is listed in the table below.
The Directors receive no pecuniary retirement benefits accrued as Fund expenses.
Interested Directors are not compensated by the Funds.
Independent Directors |
DOF |
DFF |
DREF |
DAIF |
DGBF |
DGMMF |
Aggregate Fund
Compensation(1) |
Total Complex
Compensation(2) |
John Gates Jr. |
$10,162 |
$18,827 |
$4,311 |
$3,934 |
$527 |
$2,159 |
$39,920 |
$125,000 |
Thomas Gayner |
$10,162 |
$18,827 |
$4,311 |
$3,934 |
$527 |
$2,159 |
$39,920 |
$125,000 |
Samuel Iapalucci |
$10,162 |
$18,827 |
$4,311 |
$3,934 |
$527 |
$2,159 |
$39,920 |
$125,000 |
Robert Morgenthau |
$10,162 |
$18,827 |
$4,311 |
$3,934 |
$527 |
$2,159 |
$39,920 |
$125,000 |
Lara Vaughan |
$10,162 |
$18,827 |
$4,311 |
$3,934 |
$527 |
$2,159 |
$39,920 |
$125,000 |
Marsha Williams |
$10,457 |
$19,374 |
$4,436 |
$4,048 |
$542 |
$2,223 |
$41,080 |
$128,600 |
Director Emeritus |
|
|
|
|
|
|
|
|
Marc Blum(3) |
$5,081 |
$9,414 |
$2,155 |
$1,967 |
$263 |
$1,080 |
$19,960 |
$62,500 |
(1) |
“Aggregate
Fund Compensation” is the aggregate compensation paid for service as a
director by all series of Davis Series,
Inc. |
(2) |
“Total
Complex Compensation” is the aggregate compensation paid for service as a
director by all mutual funds with the same investment adviser. There are
seven registered investment companies in the
complex. |
(3) |
Mr.
Blum retired in December 2020 and served as Director Emeritus until
December 2022. |
All Davis Funds officers
(including some Interested Directors) hold positions as executive officers with
the Adviser and its affiliates, including Davis Selected Advisers, L.P.
(Adviser), Davis Selected Advisers–NY, Inc. (sub-adviser), Davis Distributors,
LLC (the principal underwriter), Davis Investments, LLC (the sole general
partner of the Adviser) and other affiliated companies. The Davis Funds do not
pay salaries to any of their officers. Each of the Davis Funds’ officers serves
for one year and until his or her successor is elected and qualified.
Lisa J. Cohen (born 04/25/89,
Davis Funds officer since 2021). Vice President and Secretary of the
Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of two
portfolios), Clipper Funds Trust (consisting of one portfolio), and Davis
Fundamental ETF Trust (consisting of four portfolios); Vice President, Chief
Legal Officer, and Secretary, Davis Selected Advisers, L.P., and also serves as
an executive officer of certain companies affiliated with the Adviser.
Andrew A. Davis (born 06/25/63, Davis Funds
officer since 1997). See description in the section on Interested
Directors.
Christopher C. Davis (born
07/13/65, Davis Funds officer since 1997). See description in the section
on Interested Directors.
Kenneth C. Eich (born 08/14/53, Davis Funds
officer since 1997). Executive Vice President and Principal
Executive Officer of the Davis Funds (consisting of 13 portfolios), Selected
Funds (consisting of two portfolios), and Clipper Funds Trust (consisting of one
portfolio); Trustee/Chairman, Executive Vice President, and Principal Executive
Officer of Davis Fundamental ETF Trust (consisting of four portfolios); Chief
Operating Officer, Davis Selected Advisers, L.P., and also serves as an
executive officer of certain companies affiliated with the Adviser.
Douglas A. Haines (born 03/04/71,
Davis Funds officer since 2004). Vice President, Treasurer, Chief
Financial Officer, Principal Financial Officer, and Principal Accounting Officer
of the Davis Funds (consisting of 13 portfolios), Selected Funds (consisting of
two portfolios), Clipper Funds Trust (consisting of one portfolio), and Davis
Fundamental ETF Trust (consisting of four portfolios); Vice President and
Director of Fund Accounting, Davis Selected Advisers, L.P.
Michaela McLoughry (born 03/21/81,
Davis Funds officer since 2023). Vice President and Chief Compliance
Officer of the Davis Funds (consisting of 13 portfolios), Selected Funds
(consisting of two portfolios), Clipper Funds Trust (consisting of one
portfolio), and Davis Fundamental ETF Trust (consisting of four portfolios);
Vice President and Chief Compliance Officer, Davis Selected Advisers, L.P., and
also serves as an executive officer of certain companies affiliated with the
Adviser.
Although the Board has
general criteria that guide its choice of candidates to serve on the Board,
there are no specific required qualifications for Board membership, including
with respect to the diversity of candidates for Board membership. Candidates for
Board membership nominated by shareholders are not treated differently than
candidates nominated from other sources. The Board believes that the different
perspectives, viewpoints, professional experience, education, and individual
qualities of each Director represent a diversity of experiences and a variety of
complementary skills. Each Director has experience as a Director of the Davis
Funds. It is the Directors’ belief that this allows the Board, as a whole, to
oversee the business of the Davis Funds in a manner consistent with the best
interests of the Davis Funds’ shareholders. When considering potential nominees
to fill vacancies on the Board, and as part of its annual self-evaluation, the
Board reviews the mix of skills and other relevant experiences of the Directors;
qualified candidates will be men or women of proven character and talent who
have achieved notable success in their professional careers. The specific
talents that the Nominating Committee of the Board seeks in a candidate depend
to a great extent upon the Board of Directors’ needs at the time a vacancy
occurs.
The table above provides
professional experience of each Director on an individual basis. This disclosure
includes the length of time serving the Davis Funds other directorships held,
and their principal occupation during the past five years. With their experience, each of the Directors have become
familiar with the Davis Funds’ regulatory and investment matters and have
contributed to the Directors’ deliberations. In light of the Davis Funds’
business and structure, the Board believes the experience of each Director is
beneficial for overseeing the business of the Davis Funds. Moreover, the Board
believes that the different experiences and backgrounds of the Directors are
complementary and enhance the Board’s ability to oversee the Davis Funds’
affairs.
Audit Committee. The Davis
Funds have an Audit Committee, which is comprised entirely of Independent
Directors (Marsha Williams, Chair; Samuel Iapalucci; Robert Morgenthau; and Lara
Vaughan). The Audit Committee has a charter. The Audit Committee reviews
financial statements and other audit-related matters for the Davis Funds. The
Audit Committee also holds discussions with management and with the Independent
Accountants concerning the scope of the audit and the auditor’s independence.
The Audit Committee meets as often as deemed appropriate by the Audit Committee.
The Audit Committee met four times during the fiscal year-ended December
2022.
The Board of Directors has
determined that Marsha Williams is the Davis Funds’ Independent Audit Committee
Financial Expert pursuant to Section 407 of the Sarbanes-Oxley Act and as
defined by Item 3 of Form N-CSR of the Investment Company Act of 1940. In their
deliberations, the Board of Directors considered Ms. Williams’: (i) professional
experience; (ii) independence as defined in Item 3 of Form N-CSR; and (iii)
integrity and absence of disciplinary history.
Nominating Committee. The
Davis Funds have a Nominating Committee, which is comprised entirely of
Independent Directors (Thomas Gayner, Chair; and Marsha Williams), which meets
as often as deemed appropriate by the Nominating Committee. The Davis Funds do
not elect Directors annually. Each Director serves until retirement,
resignation, death or removal. Subject to exceptions and exemptions, which may
be granted by the Independent Directors, Directors must retire from the Board of
Directors and cease being a Director at the close of business on the last day of
the calendar year in which the Director attains age seventy-eight (78). After
formal retirement, Directors may serve an additional two years in emeritus
status, attend board functions and receive up to one-half the current
compensation of Directors. The Nominating Committee met one time during the
fiscal year-ended December 2022. The Nominating Committee reviews and nominates
persons to serve as members of the Board of Directors, and reviews and makes
recommendations concerning the compensation of the Independent Directors. The
chairperson of the Nominating Committee also currently serves as the Chairman of
the Board and: (i) presides over board meetings; (ii) presides over executive
sessions of the Independent Directors of the Davis Funds, in addition to
presiding over meetings of the committee; (iii) participates with the officers
and counsel in the preparation of agendas and materials for Board meetings; (iv)
facilitates communication between the Independent Directors and management, and
among the Independent Directors; and (v) has such other responsibilities as the
Board or Independent Directors shall determine. The Nominating Committee has a
charter. When the Board of Directors is seeking a candidate to become a
director, it considers qualified candidates received from a variety of sources,
including having authority to retain third-parties that may receive compensation
related to identifying and evaluating candidates. Shareholders may propose
nominees by writing to the Nominating Committee, in care of the Secretary of the
Davis Funds, at 2949 East Elvira, Suite 101, Tucson, Arizona 85756.
Brokerage Committee. The
Davis Funds have a Brokerage Committee, which is comprised entirely of
Independent Directors (John Gates Jr., Chair; and Thomas Gayner), which meets as
often as deemed appropriate by the Brokerage Committee. The Brokerage Committee
met one time during the fiscal year-ended December 2022. The Brokerage Committee
reviews and makes recommendations concerning Davis Funds portfolio brokerage and
trading practices.
As registered investment
companies, Davis Funds are subject to a variety of risks, including investment
risk, valuation risk, reputational risk, risk of operational failure or lack of
business continuity, and legal, compliance and regulatory risk. Risk management
seeks to identify and address risks, i.e., events or circumstances that could
have material adverse effects on the business, operations, shareholder services,
investment performance or reputation of the Fund.
Day-to-day management of
Davis Funds, including risk management, is the responsibility of the Funds’
contractual service providers, including the Funds’ investment adviser,
principal underwriter/distributor and transfer agent. Each of these entities is
responsible for specific portions of the Funds’ operations, including the
processes and associated risks relating to the Funds’ investments, integrity of
cash movements, financial reporting, operations and compliance. The Board
oversees the service providers’ discharge of their responsibilities, including
the processes they use to manage relevant risks. As part of its overall
activities, the Board reviews the management of the Funds’ risk management
structure by various departments of the Adviser, including: Portfolio
Management, Fund Operations, Legal and Internal Audit, as well as by Davis
Funds’ Chief Compliance Officer (“CCO”). The responsibility to manage the Funds’
risk management structure on a day-to-day basis is within the Adviser’s overall
investment management responsibilities. The Adviser has its own, independent
interest in risk management.
The Board discharges risk
oversight as part of its overall activities, with the assistance of its Audit
Committee and CCO. In addressing issues regarding the Funds’ risk management
between meetings, appropriate representatives of the Adviser communicate with
the Chair of the Board or the Funds’ CCO, who is accountable and reports
directly to the Board. Various personnel, including Davis Funds’ CCO, the
Adviser’s management, and other service providers (such as the Funds’
independent accountants) make periodic reports to the Board or to the Audit
Committee with respect to various aspects of risk management.
The Board recognizes that
not all risks that may affect the Funds can be identified, that it may not be
practical or cost-effective to eliminate or mitigate certain risks, that it may
be necessary to bear certain risks (such as investment-related risks) to achieve
the Funds’ investment objectives, and that the processes, procedures and
controls employed to address certain risks may be limited in their
effectiveness. Moreover, reports received by the Directors as to risk management
matters are typically summaries of the relevant information. As a result of the
foregoing and other factors, the Board’s risk management oversight is subject to
substantial limitations.
The Audit Committee assists
the Board in reviewing with the independent auditors, at various times
throughout the year, matters relating to the annual audits and financial
accounting and reporting matters.
Davis Funds’ CCO assists
the Board in overseeing the significant investment policies of the Funds. The
CCO monitors these policies. The Board receives and considers the CCO’s annual
written report, which, among other things, summarizes material compliance issues
that arose during the previous year and any remedial action taken to address
these issues, as well as any material changes to the compliance programs. The
Board also receives and considers reports from the Davis Funds’ CCO throughout
the year. As part of its oversight responsibilities, the Board has approved
various compliance policies and procedures. Each Committee presents reports to
the Board which may prompt further discussion of issues concerning the oversight
of the Funds’ risk management. The Board also may discuss particular risks that
are not addressed in the Committee process.
As of December 31, 2022,
the Directors had invested the following amounts in all Funds managed by the
Adviser. Investments are listed in the following ranges: none, $1-10,000,
$10,001-50,000, $50,001-100,000 and over $100,000:
Independent
Directors |
DOF |
DFF |
DREF |
DAIF |
DGBF |
DGMMF |
Total
Invested In All Funds(2) |
J. Gates Jr. |
None |
None |
None |
None |
None |
None |
Over $100,000 |
T. Gayner |
Over $100,000 |
Over $100,000 |
Over $100,000 |
$10,001-50,000 |
None |
None |
Over $100,000 |
S. Iapalucci |
None |
None |
None |
Over $100,000 |
None |
None |
Over $100,000 |
R. Morgenthau |
Over $100,000 |
None |
None |
None |
Over $100,000 |
None |
Over $100,000 |
L. Vaughan |
$1-10,000 |
$1-10,000 |
$1-10,000 |
$10,001-50,000 |
None |
None |
Over $100,000 |
M. Williams |
Over $100,000 |
Over $100,000 |
Over $100,000 |
Over $100,000 |
None |
None |
Over $100,000 |
Interested Directors(1) |
DOF |
DFF |
DREF |
DAIF |
DGBF |
DGMMF |
Total
Invested In All Funds(2) |
A. Davis |
None |
Over $100,000 |
Over $100,000 |
None |
None |
$1-10,000 |
Over $100,000 |
C. Davis |
Over $100,000 |
Over $100,000 |
Over $100,000 |
Over $100,000 |
$1-10,000 |
Over $100,000 |
Over
$100,000 |
(1) |
Andrew
Davis and Christopher Davis are employed by and own shares in the Adviser
and are considered to be “interested persons” of the Davis Funds as
defined in the Investment Company Act of
1940. |
(2) |
“Total
Invested in All Funds” is the aggregate dollar range of investments in all
Funds overseen by the individual director and managed by Davis Selected
Advisers, L.P. This includes the Davis Funds for all directors, also the
Selected Funds and Clipper Fund for Andrew Davis and Christopher
Davis. |
None of the Independent
Directors (or their immediate family members) owns any securities issued by the
Davis Funds’ investment adviser, sub-adviser, principal underwriter or any
company (other than a registered investment company) directly or indirectly
controlling, controlled by or under common control with the above listed
companies (hereafter referred to as the “Adviser and its affiliates”). Andrew
Davis and Christopher Davis own partnership units (directly, indirectly or both)
in the Adviser and are considered to be Interested Directors.
None of the Independent
Directors (or their immediate family members) have had any direct or indirect
interest, the value of which exceeds $120,000, during the last two calendar
years in the Adviser or in the Adviser and its affiliates.
None of the Independent
Directors (or their immediate family members) have had any material interest in
any transaction, or series of transactions, during the last two years, in which
the amount involved exceeds $120,000 and to which any of the following persons
was a party: any Davis Fund, an officer of the Davis Funds, or any fund managed
by the Adviser or in the Adviser and its affiliates.
None of the Independent
Directors (or their immediate family members) have had any direct or indirect
relationships during the last two years, in which the amount involved exceeds
$120,000 and to which any of the following persons was a party: any Davis Fund,
an officer of the Davis Funds, or any fund managed by the Adviser or in the
Adviser and its affiliates.
None of the officers of the
Adviser and its affiliates have served during the last two years on the board of
directors of a company where any Director of the Fund (or any of the Directors’
immediate family members) served as an officer.
As of April 3, 2023, officers and directors, as
a group, owned the following percentages of each class of shares issued by the
Funds (1):
Officers and Directors |
Class A |
Class C |
Class Y |
Davis Opportunity Fund |
4% |
- |
* |
Davis Financial Fund |
9% |
- |
1% |
Davis Real Estate Fund |
24% |
- |
2% |
Davis Appreciation & Income
Fund |
2% |
- |
1% |
Davis Government Bond Fund |
1% |
- |
27% |
Davis Government Money Market Fund |
3% |
- |
1% |
(1) |
This
percentage does not include investments controlled indirectly, including
holdings by Davis Selected Advisers, L.P. |
* |
Indicates
that officers and directors as a group owned less than 1% of the
outstanding shares of the indicated class of
shares. |
The
following table sets forth as of April 3, 2023, the name and holdings of each
person known by Davis Series, Inc. to be a record owner of more than 5% of the
outstanding shares of any class of any of the Funds. Other than as indicated
below, the Funds are not aware of any shareholder who beneficially owns more
than 25% of the Fund’s total outstanding shares. Shareholders owning a
significant percentage of the Funds’ shares do not affect the voting rights of
other shareholders.
Class of Shares |
Name and Address of Shareholders
Owning more than 5% of Fund |
Percent of Class
Outstanding |
|
|
|
Class A Shares |
Davis Opportunity Fund |
|
|
Morgan Stanley Smith Barney LLC
New York, NY |
14.34% |
|
|
|
|
Charles Schwab & Co. Inc.
San Francisco, CA |
9.06% |
|
|
|
|
Wells Fargo Clearing Services LLC
Saint Louis, MO |
8.42% |
|
|
|
|
Merrill Lynch Pierce Fenner & Smith
Jacksonville, FL |
7.94% |
|
|
|
|
Pershing LLC
Jersey City, NJ |
6.81% |
|
|
|
|
UBS WM USA
Weehawken, NJ |
5.80% |
|
|
|
Class A Shares |
Davis Financial Fund |
|
|
UBS WM USA
Weehawken, NJ |
13.00% |
|
|
|
|
Charles Schwab & Co. Inc.
San Francisco, CA |
10.26% |
|
|
|
|
Merrill Lynch Pierce Fenner & Smith
Jacksonville, FL |
10.20% |
|
|
|
|
Wells Fargo Clearing Services LLC
Saint Louis, MO |
9.37% |
|
|
|
|
Morgan Stanley Smith Barney LLC
New York, NY |
8.26% |
|
|
|
|
Pershing LLC
Jersey City, NJ |
6.45% |
|
|
|
Class A Shares |
Davis Real Estate Fund |
|
|
Christopher Davis
New York, NY |
17.28% |
|
|
|
|
UBS WM USA
Weehawken, NJ |
7.63% |
|
|
|
|
Morgan Stanley Smith Barney LLC
New York, NY |
7.04% |
|
|
|
|
Charles Schwab & Co. Inc.
San Francisco, CA |
6.79% |
|
|
|
|
Pershing LLC
Jersey City, NJ |
6.46% |
|
|
|
|
J.P. Morgan Securities LLC
Brooklyn, NY |
5.79% |
|
|
|
|
Wells Fargo Clearing Services LLC
Saint Louis, MO |
5.62% |
|
|
|
Class A Shares |
Davis Appreciation & Income
Fund |
|
|
Wells Fargo Clearing Services LLC
Saint Louis, MO |
11.17% |
|
|
|
|
Morgan Stanley Smith Barney LLC
New York, NY |
10.38% |
|
|
|
|
Pershing LLC
Jersey City, NJ |
9.40% |
|
|
|
|
Merrill Lynch Pierce Fenner & Smith
Jacksonville, FL |
8.69% |
|
|
|
|
Edward D. Jones & Co.
Saint Louis, MO |
8.32% |
|
|
|
|
UBS WM USA
Weehawken, NJ |
8.16% |
|
|
|
|
Charles Schwab & Co. Inc.
San Francisco, CA |
7.28% |
|
|
|
Class A Shares |
Davis Government Bond Fund |
|
|
Merrill Lynch Pierce Fenner & Smith
Jacksonville, FL |
22.47% |
|
|
|
|
Wells Fargo Clearing Services LLC
Saint Louis, MO |
12.04% |
|
|
|
|
Pershing LLC
Jersey City, NJ |
8.37% |
|
|
|
|
Edward D. Jones & Co.
Saint Louis, MO |
5.64% |
|
|
|
|
LPL Financial
San Diego, CA |
5.31% |
|
|
|
Class A Shares |
Davis Government Money Market Fund |
|
|
State Street Bank & Trust Co.
Boston, MA |
25.20% |
|
|
|
|
RBC Capital Markets Corp.
Minneapolis, MN |
10.43% |
|
|
|
|
Davis Distributors LLC
Tucson, AZ |
7.66% |
|
|
|
|
Davis Selected Advisers - NY, Inc.
Tucson, AZ |
6.72% |
|
|
|
|
Davis Selected Advisers, L.P.
Tucson, AZ |
6.22% |
|
|
|
Class C Shares |
Davis Opportunity Fund |
|
|
Wells Fargo Clearing Services LLC
Saint Louis, MO |
19.13% |
|
|
|
|
UBS WM USA
Weehawken, NJ |
14.47% |
|
|
|
|
Pershing LLC
Jersey City, NJ |
13.19% |
|
|
|
|
Morgan Stanley Smith Barney LLC
New York, NY |
9.31% |
|
|
|
|
RBC Capital Markets Corp.
Minneapolis, MN |
9.05% |
|
|
|
|
American Enterprise Investment Services Inc.
Minneapolis, MN |
6.16% |
|
|
|
|
Charles Schwab & Co. Inc.
San Francisco, CA |
5.97% |
|
|
|
|
Raymond James
St. Petersburg, FL |
5.17% |
|
|
|
Class C Shares |
Davis Financial Fund |
|
|
Morgan Stanley Smith Barney LLC
New York, NY |
16.54% |
|
|
|
|
Wells Fargo Clearing Services LLC
Saint Louis, MO |
15.94% |
|
|
|
|
Pershing LLC
Jersey City, NJ |
14.06% |
|
|
|
|
Charles Schwab & Co. Inc.
San Francisco, CA |
8.92% |
|
|
|
|
LPL Financial
San Diego, CA |
7.96% |
|
|
|
|
UBS WM USA
Weehawken, NJ |
7.55% |
|
|
|
|
Raymond James
St. Petersburg, FL |
7.32% |
|
|
|
Class C Shares |
Davis Real Estate Fund |
|
|
LPL Financial
San Diego, CA |
50.50% |
|
|
|
|
Pershing LLC
Jersey City, NJ |
19.87% |
|
|
|
|
Wells Fargo Clearing Services LLC
Saint Louis, MO |
16.26% |
|
|
|
Class C Shares |
Davis Appreciation & Income
Fund |
|
|
Wells Fargo Clearing Services LLC
Saint Louis, MO |
21.35% |
|
|
|
|
Charles Schwab & Co. Inc.
San Francisco, CA |
16.32% |
|
|
|
|
LPL Financial
San Diego, CA |
13.56% |
|
|
|
|
RBC Capital Markets Corp.
Minneapolis, MN |
11.37% |
|
|
|
|
UBS WM USA
Weehawken, NJ |
10.69% |
|
|
|
|
Pershing LLC
Jersey City, NJ |
7.84% |
|
|
|
Class C Shares |
Davis Government Bond Fund |
|
|
Raymond James
St. Petersburg, FL |
43.30% |
|
|
|
|
Pershing LLC
Jersey City, NJ |
19.89% |
|
|
|
|
Charles Schwab & Co. Inc.
San Francisco, CA |
12.00% |
|
|
|
|
LPL Financial
San Diego, CA |
11.45% |
|
|
|
|
Wells Fargo Clearing Services LLC
Saint Louis, MO |
7.03% |
|
|
|
Class C Shares |
Davis Government Money Market Fund |
|
|
Morgan Stanley Smith Barney LLC
New York, NY |
33.18% |
|
|
|
|
Wells Fargo Clearing Services LLC
Saint Louis, MO |
10.50% |
|
|
|
|
UBS WM USA
Weehawken, NJ |
9.03% |
|
|
|
|
Pershing LLC
Jersey City, NJ |
5.78% |
|
|
|
|
Charles Schwab & Co. Inc.
San Francisco, CA |
5.52% |
|
|
|
Class Y Shares |
Davis Opportunity Fund |
|
|
Davis Selected Advisers, L.P.
Tucson, AZ |
34.11% |
|
|
|
|
Morgan Stanley Smith Barney LLC
New York, NY |
16.08% |
|
|
|
|
Merrill Lynch Pierce Fenner & Smith
Jacksonville, FL |
5.83% |
|
|
|
|
UBS WM USA
Weehawken, NJ |
5.58% |
|
|
|
|
LPL Financial
San Diego, CA |
5.17% |
|
|
|
Class Y Shares |
Davis Financial Fund |
|
|
Morgan Stanley Smith Barney LLC
New York, NY |
16.84% |
|
|
|
|
Merrill Lynch Pierce Fenner & Smith
Jacksonville, FL |
11.91% |
|
|
|
|
Davis Selected Advisers, L.P.
Tucson, AZ |
9.11% |
|
|
|
|
Charles Schwab & Co, Inc.
San Francisco, CA |
8.38% |
|
|
|
|
American Enterprise Investment Services Inc.
Minneapolis, MN |
6.94% |
|
|
|
|
Pershing LLC
Jersey City, NJ |
6.63% |
|
|
|
|
Wells Fargo Clearing Services LLC
Saint Louis, MO |
6.37% |
|
|
|
Class Y Shares |
Davis Real Estate Fund |
|
|
Davis Selected Advisers, L.P.
Tucson, AZ |
28.85% |
|
|
|
|
UBS WM USA
Weehawken, NJ |
18.84% |
|
|
|
|
American Enterprise Investment Services Inc.
Minneapolis, MN |
12.23% |
|
|
|
|
NFS LLC
Jersey City, NJ |
5.71% |
|
|
|
Class Y Shares |
Davis Appreciation & Income
Fund |
|
|
Davis Selected Advisers, L.P.
Tucson, AZ |
68.89% |
|
|
|
Class Y Shares |
Davis Government Bond Fund |
|
|
NFS LLC
Jersey City, NJ |
65.60% |
|
|
|
|
Merrill Lynch Pierce Fenner & Smith
Jacksonville, FL |
11.39% |
|
|
|
|
LPL Financial
San Diego, CA |
9.78% |
|
|
|
Class Y Shares |
Davis Government Money Market Fund |
|
|
NFS LLC
Jersey City, NJ |
87.48% |
|
|
|
|
State Street Bank & Trust Co.
Boston, MA |
6.83% |
|
|
|
|
Matrix Trust Co.
Denver, CO |
5.67% |
|
|
|
Davis Selected Advisers, L.P. and
Davis Selected Advisers–NY, Inc. Davis Selected Advisers, L.P. (the
“Adviser”), whose principal office is at 2949 East Elvira Road, Suite 101,
Tucson, Arizona 85756, serves as investment adviser for Davis New York Venture
Fund, Inc., Davis Series, Inc. and Davis Variable Account Fund, Inc.
(collectively the “Davis Funds”); Davis Fundamental ETF Trust (collectively the
“Davis ETFs”); Selected American Shares, Inc. and Selected International Fund,
Inc. (collectively the “Selected Funds”); and Clipper Funds Trust. The Adviser
also provides advisory or sub-advisory services to other parties including other
registered investment companies, private accounts, offshore funds, and managed
money/wrap accounts. Davis Investments, LLC, an entity controlled by Christopher
Davis, is the Adviser’s sole general partner. Christopher Davis is Chairman of
the Adviser and, as the sole member of the general partner, controls the
Adviser. Davis Distributors, LLC (the “Distributor”), a subsidiary of the
Adviser, serves as the distributor or principal underwriter of the funds that
the Adviser administers, including Davis Funds, Selected Funds, Clipper Fund,
and offshore funds. Davis Selected Advisers–NY, Inc. (“Sub-Adviser”), a wholly
owned subsidiary of the Adviser, performs investment management, research and
other services for the Davis Funds on behalf of the Adviser under sub-advisory
agreements with the Adviser.
Advisory Agreement with Davis
Selected Advisers, L.P. and Sub-Advisory Agreement with Davis Selected
Advisers–NY, Inc. Pursuant to
an Advisory Agreement, each Fund pays the Adviser a fee according to the
following schedule:
Davis
Opportunity Fund, Davis Financial Fund, Davis Real Estate Fund and Davis
Appreciation & Income Fund pay the Adviser a fee at the annual
rate of 0.55% of average net assets.
Davis
Government Bond Fund and Davis Government Money Market Fund pay
the Adviser a fee at the annual rate of 0.30% of average net assets.
Advisory fees are allocated
among each class of shares in proportion to each class’ relative total net
assets. These fees may be higher than those of some other mutual funds but are
not necessarily higher than those paid by funds with similar objectives.
Expense
Cap.
The Adviser is
contractually committed to waive fees and/or reimburse the expenses of Davis
Financial Fund, Davis Opportunity Fund, Davis Appreciation & Income Fund,
Davis Government Bond Fund, and Davis Real Estate Fund to the extent necessary
to cap total annual fund operating expenses (Class A shares, 1.00%; Class C
shares, 1.75%; Class Y shares, 0.75%) until May 1, 2024. After that date, there
is no assurance that the Adviser will continue to cap expenses. The expense cap
cannot be terminated prior to May 1, 2024, without the consent of the Board of
Directors.
The Adviser is
contractually committed to waive fees and/or reimburse Davis Government Money
Market Fund’s expenses such that net investment income will not be less than
zero until May 1, 2024. After that date, there is no assurance that the Adviser
will continue to cap expenses. The Adviser may recapture from the assets of the
Fund any of the operating expenses it has reimbursed (but not any of the
management fees which it has waived) until the end of the third calendar year
after the end of the calendar year in which such reimbursement occurs, subject
to certain limitations. This recapture could negatively affect the Fund’s future
yield.
The Funds paid the
following aggregate advisory fees to the Adviser:
Fiscal Year-Ended December 31, |
2022 |
2021 |
2020 |
Davis Opportunity Fund |
$2,796,217 |
$3,454,183 |
$2,587,766 |
Davis Financial Fund |
$5,144,178 |
$5,377,818 |
$4,171,292 |
Davis Real Estate Fund |
$1,191,966 |
$1,243,319 |
$1,122,772 |
Davis Appreciation & Income
Fund |
$1,086,173 |
$1,174,253 |
$934,714 |
Davis Government Bond Fund |
$75,453 |
$82,903 |
$91,174 |
Davis Government Money Market Fund |
$349,301 |
$416,154 |
$416,144 |
In
accordance with the provisions of the 1940 Act, the Advisory Agreement and
Sub-Advisory Agreement will terminate automatically on assignment and are
subject to cancellation on 60 days’ written notice by the Board of Directors,
the vote of the holders of a majority of the Funds’ outstanding shares or the
Adviser. The continuance of the Advisory Agreement and Sub-Advisory Agreement
must be approved at least annually by the Funds’ Board of Directors or by the
vote of holders of a majority of the outstanding shares of the Funds. In
addition, any new agreement or the continuation of the existing agreement, must
be approved by a majority of Directors who are not parties to the agreements or
interested persons of any such party. The Advisory Agreement also makes
provisions for portfolio transactions and brokerage policies of the Fund, which
are discussed above under “Portfolio
Transactions.”
The Adviser has entered
into a Sub-Advisory Agreement with its wholly owned subsidiary, Davis Selected
Advisers–NY, Inc., where the Sub-Adviser performs research and other services on
behalf of the Adviser. Under the Agreement, the Adviser pays all of the
Sub-Adviser’s direct and indirect costs of operation. All of the fees paid to
the Sub-Adviser are paid by the Adviser and not the Funds.
Pursuant to the Advisory
Agreement, the Adviser, subject to the general supervision of the Funds’ Board
of Directors, provides management and investment advice and furnishes
statistical, executive and clerical personnel, bookkeeping, office space and
equipment necessary to carry out its investment advisory functions and such
corporate managerial duties as requested by the Board of Directors of the Funds.
The Funds bear all expenses other than those specifically assumed by the Adviser
under the Advisory Agreement, including preparation of its tax returns,
financial reports to regulatory authorities, dividend determinations,
transactions and accounting matters related to its custodian bank, transfer
agency, custodial and investor services, and qualification of its shares under
federal and state securities laws. The Funds reimburse the Adviser for providing
certain services, including accounting and administrative services, and investor
services. Such reimbursements are detailed below:
Fiscal Year-Ended December 31, |
2022 |
2021 |
2020 |
Davis Opportunity Fund |
|
|
|
Accounting and Administrative
Services: |
$24,500 |
$23,000 |
$21,998 |
Investor Services: |
$41,130 |
$54,058 |
$45,600 |
Davis Financial Fund |
|
|
|
Accounting and Administrative
Services: |
$42,004 |
$34,496 |
$39,004 |
Investor Services: |
$119,805 |
$118,411 |
$105,214 |
Davis Real Estate Fund |
|
|
|
Accounting and Administrative
Services: |
$10,002 |
$8,996 |
$9,502 |
Investor Services: |
$29,405 |
$30,936 |
$35,891 |
Davis Appreciation & Income
Fund |
|
|
|
Accounting and Administrative
Services: |
$9,004 |
$8,000 |
$7,496 |
Investor Services: |
$18,576 |
$20,273 |
$18,742 |
Davis Government Bond Fund |
|
|
|
Accounting and Administrative
Services: |
$2,000 |
$2,000 |
$2,000 |
Investor Services: |
$7,487 |
$8,394 |
$7,567 |
Davis Government Money Market Fund |
|
|
|
Accounting and Administrative
Services: |
$4,496 |
$5,002 |
$5,502 |
Investor Services: |
$16,491 |
$17,814 |
$15,622 |
Approval of the Advisory and
Sub-Advisory Agreements. The Board of Directors is scheduled to meet four
times a year. The Directors believe that matters bearing on the Advisory and
Sub-Advisory Agreements are considered at most, if not all, of their meetings.
The Independent Directors are advised by independent legal counsel selected by
the Independent Directors. A discussion of the Directors’ considerations in the annual approval of
Advisory and Sub-Advisory Agreements is included in the Funds’ next annual or
semi- annual report following the annual approval.
Unique Nature of Each Fund.
The Adviser may serve as the investment adviser or sub-adviser to other funds
that have investment objectives and principal investment strategies similar to
those of the Funds. While the Funds may have many similarities to these other
funds, the investment performance of each fund will be different due to a number
of differences between the funds, including differences in sales charges,
expense ratios and cash flows.
Code of Ethics. The
Adviser, Sub-Adviser, Distributor and the Davis Funds have adopted a Code of
Ethics, meeting the requirements of Rule 17j-1 under the 1940 Act that regulate
the personal securities transactions of the Adviser’s investment personnel,
other employees and affiliates with access to information regarding securities
transactions of the Davis Funds. Such employees may invest in securities,
including securities that may be purchased or held by the Davis Funds. A copy of
the Code of Ethics is on public file with, and available from, the SEC.
Continuing Regulation. The
Adviser, like most other asset managers, is subject to ongoing inquiries from
the SEC and/or the Financial Industry Regulatory Authority (“FINRA”) regarding
industry practices.
Proxy Voting Policies and
Record. The Board of Directors
has directed the Adviser to vote the Funds’ portfolio securities in conformance
with the Adviser’s Proxy Voting Policies and Procedures. These policies and
procedures are summarized in Appendix C.
Information regarding how the Funds voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is available on
the Fund’s website, www.davisfunds.com,
without charge, by calling Davis Funds’ Investor Services at 1‑800‑279‑0279, or on the Commission’s website
(www.sec.gov).
Davis Financial Fund. The
portfolio managers of Davis Financial Fund are Christopher Davis and Pierce
Crosbie. They are the persons primarily responsible for investing the Fund’s
assets on a daily basis.
Davis Opportunity Fund. The
listed portfolio managers of Davis Opportunity Fund are Dwight Blazin,
Christopher Davis, Danton Goei, Darin Prozes, and Edward Yen. They are the
persons primarily responsible for investing the Fund’s assets on a daily
basis.
Davis Real Estate Fund. The
portfolio managers of Davis Real Estate Fund are Andrew Davis and Chandler
Spears. They are the persons primarily responsible for investing the Fund’s
assets on a daily basis.
Davis Appreciation & Income
Fund. The portfolio managers of Davis Appreciation & Income Fund are
Christopher Davis, Creston King and Darin Prozes. They are the persons primarily
responsible for investing the Fund’s assets on a daily basis.
Davis Government Bond Fund &
Davis Government Money Market Fund. The portfolio manager of Davis
Government Bond Fund and Davis Government Money Market Fund is Creston King. He
is the person primarily responsible for investing the Funds’ assets on a daily
basis.
Accounts
Managed as of December 31, 2022
Portfolio
Managers |
Dollar
Range of Fund Shares Owned(5) |
Number
of RICs(2) |
Assets(1)
in
RICs in
millions |
Number
of OPIV(3) |
Assets(1)
in
OPIV(3)
in millions |
Number
of OA(4) |
Assets
in OA(4)
in
millions |
DFF |
|
|
|
|
|
|
|
Christopher Davis |
Over $1 Million |
10 |
$9,206.2 |
2 |
$336.6 |
37 |
$6,324.7 |
Pierce Crosbie |
$100,001-$500,000 |
3 |
$237.6 |
0 |
$0 |
3 |
$493.2 |
DOF |
|
|
|
|
|
|
|
Christopher Davis |
Over $1 Million |
10 |
$9,576.8 |
2 |
$336.6 |
37 |
$6,324.7 |
Danton Goei |
Over $1 Million |
10 |
$9,591.0 |
4 |
$543.1 |
35 |
$6,131.8 |
Darin Prozes |
Over $1 Million |
2 |
$157.9 |
0 |
$0 |
20 |
$636.6 |
Dwight Blazin |
$100,001-$500,000 |
1 |
$11.1 |
0 |
$0 |
19 |
$83.0 |
Edward Yen |
$50,001-$100,000 |
1 |
$6.8 |
0 |
$0 |
4 |
$21.2 |
DREF |
|
|
|
|
|
|
|
Andrew Davis |
Over $1 Million |
1 |
$10.0 |
1 |
$161.6 |
2 |
$30.4 |
Chandler Spears |
$100,001-$500,000 |
1 |
$10.0 |
1 |
$161.6 |
2 |
$30.4 |
DAIF |
|
|
|
|
|
|
|
Christopher Davis |
Over $1 Million |
10 |
$9,865.3 |
2 |
$336.6 |
37 |
$6,324.7 |
Darin Prozes |
$100,001-$500,000 |
2 |
$276.0 |
0 |
$0 |
20 |
$636.6 |
Creston King |
$100,001-$500,000 |
2 |
$142.5 |
0 |
$0 |
1 |
$19.2 |
DGBF |
|
|
|
|
|
|
|
Creston King |
$100,001-$500,000 |
2 |
$155.0 |
0 |
$0 |
1 |
$19.2 |
DGMMF |
|
|
|
|
|
|
|
Creston King |
$10,001-$50,000 |
2 |
$55.3 |
0 |
$0 |
1 |
$19.2 |
(1) |
“Assets”
means total assets managed by the portfolio manager. Some or all of these
assets may be co-managed with another portfolio manager who will also be
credited with managing the same assets. The sum of assets managed by Davis
Advisors’ portfolio managers may
exceed the total assets managed by Davis
Advisors. |
(2) |
“RIC”
means Registered Investment Company. |
(3) |
“OPIV”
means Other Pooled Investment Vehicles. |
(4) |
“OA”
means Other Accounts. These accounts are primarily private accounts and
sponsors of managed money/wrap accounts. |
(5) |
Ownership
disclosure is made using the following ranges: None; (F) $1 - $10,000; (E)
$10,001 - $50,000; (D) $50,001 - $100,000; (C) $100,001 - $500,000; (B)
$500,001 - $1 million; (A) over $1
million. |
Structure of Compensation
Christopher Davis’ and Andrew
Davis’ compensation for
services provided to the Adviser consists of a base salary. The Adviser’s
portfolio managers are provided benefits packages including life insurance,
health insurance, and participation in the Adviser’s 401(k) plan comparable to
that received by other company employees.
Dwight Blazin’s, Pierce Crosbie’s,
Danton Goei’s, Darin Prozes’, Chandler Spears’, Edward Yen’s compensation
for services provided to the Adviser consists of: (i) a base salary; (ii) an
annual discretionary bonus; (iii) awards of equity (“Units”) in Davis Selected
Advisers, L.P., including Units and/or phantom Units; (iv) an incentive plan
whereby the Adviser purchases shares in certain mutual funds managed by the
Adviser, which vest based on the passage of time provided that the Portfolio
Manager is still employed by the Adviser; and (v) an incentive plan whereby the
Adviser purchases shares in selected mutual funds managed by the Adviser. In the
case of fund shares purchased as described above in (v), at the end of specified
periods, generally five-years following the date of purchase, some, all or none
of the Fund shares will be registered in the employee’s name based on Fund
performance, after expenses on a pre-tax basis, versus the Fund’s benchmark
index, as described in the Fund’s prospectus or, in limited cases, based on
performance ranking among established peer groups. The Adviser does not purchase
incentive shares in every fund these portfolio managers manage or assist on. In
limited cases, such incentive compensation is tied on a memorandum basis to the
performance of the portion of the Fund (“sleeve”) managed by the analyst versus
the Fund’s benchmark. The Adviser’s portfolio managers are provided benefits
packages including life insurance, health insurance, and participation in the
Adviser’s 401(k) plan comparable to that received by other company
employees.
Creston King’s compensation
for services provided to the Adviser consists of: (i) a base salary; (ii) an
annual bonus based principally upon short- and long-term fund performance
relative to similar funds; (iii) awards of equity (“Units”) in Davis Advisors
including Units, and/or phantom Units; and (iv) an incentive plan whereby the
Adviser purchases shares in certain mutual funds managed by the Adviser, which
vest based on the passage of time provided that the Portfolio Manager is still
employed by the Adviser; (v) an incentive plan whereby the Adviser purchases
shares in selected mutual funds managed by the Adviser. In the case of fund
shares purchased as described above in (v), at the end of specified periods,
generally five-years following the date of purchase, some, all or none of the
Fund shares will be registered in the employee’s name based on Fund performance,
after expenses on a pre-tax basis, versus the Fund’s benchmark index, as
described in the Fund’s prospectus or, in limited cases, based on performance
ranking among established peer groups. The Adviser does not purchase incentive
shares in every fund this portfolio manager manages or assists on. The Advisers’
portfolio managers are provided benefits packages including life insurance,
health insurance, and participation in the Advisers’ 401(k) plan comparable to
that received by other company employees.
Potential
Conflicts of Interest
Potential conflicts of
interest may arise in connection with the management of multiple accounts,
including potential conflicts of interest related to the knowledge and timing of
the Funds’ trades, investment opportunities, broker selection and Fund
investments. Portfolio managers and other investment professionals may be privy
to the size, timing and possible market impact of a Fund’s trades. It is
theoretically possible that Portfolio Managers could use this information to the
advantage of other accounts they manage and to the possible detriment of a Fund.
It is possible that an investment opportunity may be suitable for both a Fund
and other accounts managed by portfolio managers, but may not be available in
sufficient quantities for both the Fund and the other accounts to participate
fully. Similarly, there may be limited opportunity to sell an investment held by
a Fund and another account. Management of multiple portfolios and/or other
accounts may result in a portfolio manager devoting unequal time and attention
to the management of each portfolio and/or other account. The Adviser seeks to
manage such competing interests for the time and attention of portfolio
managers. For example, many of Davis Advisors’ portfolio managers focus on a
small set of model accounts with similar accounts being managed by investing in
the same securities and using the same investment weightings that are used in
connection with the management of the model accounts.
If a portfolio manager
identifies a limited investment opportunity which may be suitable for more than
one portfolio or other account, a portfolio may not be able to take full
advantage of that opportunity due to an allocation of filled purchase or sale
orders across all eligible portfolios and other accounts. Large clients may
generate more revenue for the Adviser than do smaller accounts. Accounts which
pay higher management fees usually generate more revenue than accounts of the
same size paying lower management fees. A portfolio manager may be faced with a
conflict of interest when allocating limited investment opportunities given the
benefit to the Adviser of favoring accounts that pay a higher fee or generate
more income for the Adviser. To deal with these situations, the Adviser has
adopted procedures for allocating limited investment opportunities across
multiple accounts.
With respect to securities
transactions for the portfolios, the Adviser determines which broker to use to
execute each order, consistent with its duty to seek best execution of the
transaction. However, with respect to certain other accounts (such as mutual
funds, other pooled investment vehicles that are not registered mutual funds,
and other accounts managed for organizations and individuals), the Adviser may
be limited by the client with respect to the selection of brokers or may be
instructed to direct trades through a particular broker. In these cases, the
Adviser may place separate, non-simultaneous, transactions for a portfolio and
another account which may temporarily affect the market price of the security or
the execution of the transaction, or both, to the detriment of the portfolio or
the other account.
Substantial investment of
the Adviser or Davis Family assets in certain mutual funds may lead to conflicts
of interest. A portion of a portfolio manager’s compensation may include awards
of equity in Davis Advisors. A portfolio manager may face a conflict of interest
given that the Adviser is more heavily invested in some funds than in other
funds. A portion of the portfolio manager’s compensation may also include an
incentive plan whereby the Adviser purchases shares in certain funds managed by
Davis Advisors. A portfolio manager may face a conflict of interest given that
his long-term compensation may be more heavily determined by the performance of
one fund, or portion of a fund, than by another fund which he also manages. To
mitigate these potential conflicts of interest, the Adviser has adopted policies
and procedures intended to ensure that all clients are treated fairly over time.
Davis Advisors does not receive an incentive based fee on any account.
Davis Advisors expects
that, over long periods of time, most clients pursuing similar investment
strategies should experience similar, but not identical, investment performance.
Many factors affect investment performance, including, but not limited to: (i)
the timing of cash deposits and withdrawals to and from an account; (ii) the
possibility that Davis Advisors may not purchase or sell a given security on
behalf of all clients pursuing similar strategies; (iii) price and timing
differences when buying or selling securities; and (iv) clients pursuing similar
investment strategies but imposing different investment restrictions. Davis
Advisors has adopted written trading policies designed to minimize possible
conflicts of interest in trading for its clients.
Conflicts of interest may
also arise regarding proxy voting. Davis Advisors has adopted written proxy
voting policies designed to minimize possible conflicts of interest when voting
proxies on behalf of its clients.
Certain Portfolio Managers
may serve on the board(s) of public companies where they, from time to time, may
have access to material, non-public information (“MNPI”). Davis Advisors has
instituted policies and procedures to ensure that these Portfolio Managers will
not be able to utilize MNPI for their own benefit or for any of the accounts
they manage.
Portfolio Holdings Information is
Protected. Information about the Funds’ portfolio holdings is proprietary
information which the Adviser is committed to protecting. Davis Funds have
adopted procedures reasonably designed to ensure that portfolio holdings
information is not released on a selective basis except to qualified persons
rendering services to the Fund which require that those persons receive
information concerning the Funds’ portfolio holdings. Neither the Fund nor the
Adviser receives compensation with respect to the disclosure of portfolio
holdings.
Public Disclosure of Portfolio
Holdings. Information about
the Funds’ portfolio holdings that have previously been made public may be
freely disclosed. Information about portfolio holdings may become “public” by
(i) publication on the Davis Funds’ website, (ii) quarterly filings with the SEC
on Form N-CSR or Form N-PORT, (iii) monthly filings with the SEC on Form N-MFP
for Davis Government Money Market Fund, or (iv) other publication determined by
the Adviser’s Chief Legal Officer or their designee, in writing stating their
rationale, to be public. The publicly disclosed portfolio may exclude certain
securities when allowed by applicable regulations and deemed to be in the best
interest of a fund.
Davis Funds generally
publish their portfolio holdings on Davis Funds’ website (www.davisfunds.com) as
of the end of each fiscal quarter with a 60-day lag. Davis Funds’ Executive Vice
President, or his designee, currently the Davis Funds Chief Compliance Officer,
may authorize publication of portfolio holdings on a more frequent basis.
The Adviser manages other
accounts such as separate accounts, private accounts, unregistered products, and
portfolios sponsored by companies other than the Adviser. These other accounts
may be managed in a similar fashion to certain Davis Funds and thus may have
similar portfolio holdings. Such accounts may be subject to different portfolio
holdings disclosure policies that permit public disclosure of portfolio holdings
information in different forms and at different times than the Funds’ portfolio
holdings disclosure policies. Additionally, clients of such accounts have access
to their portfolio holdings and may not be subject to the Funds’ portfolio
holdings disclosure policies.
Statistical Information.
The Funds’ portfolio holdings procedures do not prevent the release of
aggregate, composite or descriptive information that, in the opinion of the
Davis Funds’ Chief Compliance Officer or her designee, does not present material
risks of dilution, arbitrage, market timing, insider trading or other
inappropriate trading that may be detrimental to the Fund. Information excluded
from the definition of portfolio holdings information generally includes,
without limitation: (i) descriptions of allocations among asset classes,
regions, countries or industries/sectors; (ii) aggregated data such as average
or median ratios, market capitalization, credit quality or duration; (iii)
performance attributions by industry, sector or country; or (iv) aggregated risk
statistics.
Release of Non-Public Portfolio
Holdings Information. Davis Funds or the Adviser may disclose non-public
information about the Fund’s portfolio holdings to third-parties in a number of
situations, including the following: (i) disclosure of specific securities (not
a material portion of the entire portfolio) to broker-dealers in connection with
the purchase or sale by the Fund of such securities; (ii) requests for price
quotations on specific securities (not a material portion of the entire
portfolio) from broker-dealers for the purpose of enabling the Fund’s service
providers to calculate the Fund’s net asset value; (iii) requests for bids on
one or more securities; (iv) disclosures in connection with litigation involving
Fund portfolio securities; (v) disclosure to regulatory authorities; (vi)
statements to the press by portfolio managers from time to time about the Fund’s
portfolio and securities held by the Fund which may or may not have been
previously disclosed; and (vii) attendance by employees of the Adviser at due
diligence meetings with existing or potential investors in which specific Fund
holdings are discussed and other information which the employee reasonably
believes cannot be used in a manner which would be harmful to the Fund. In
addition, the Adviser may provide a wide variety of information about the Fund
(other than portfolio holdings) to existing and potential investors and
intermediaries working on behalf of such investors. Such information may not be
available from publicly available information and may consist of statistical and
analytical information concerning the Fund’s portfolio as a whole and how it has
performed, without naming specific portfolio securities held by the Fund. Davis Funds’ portfolio holdings
procedures prohibit release of non-public information concerning the Fund’s
portfolio holdings to individual investors, institutional investors,
intermediaries which distribute the Fund’s shares and other parties which are
not employed by the Adviser or its affiliates. Information about the Fund’s
portfolio holdings may be reviewed by third-parties for legitimate business
purposes, but only if: (i) the Adviser’s Chief Operating Officer, or his
designee, currently Davis Funds’ Chief Compliance Officer, considers the
application for review of the Fund’s portfolio holdings and, in his or her
business judgment, the requesting third-party: (a) has a legitimate business
purpose for reviewing the portfolio holdings and (b) does not pose a material
risk to the Fund; and (ii) the third-party enters into an acceptable
confidentiality agreement (including a duty not to trade). Davis Funds’ Board of
Directors is notified of the application for review of the Fund’s portfolio
holdings by any such third-parties at the next scheduled quarterly meeting of
the Board of Directors, at which time the Board reviews the application by each
such party and considers whether the release of the Fund’s portfolio holding
information to the third-parties is in the best interest of the Fund and its
shareholders.
Third-Parties Receiving Portfolio
Holdings Information. As of January 1, 2023, each of the following
third-party service providers have been approved to receive non-public
information concerning Davis Funds’ portfolio holdings: (i) KPMG LLP (serves as
the Funds’ independent registered public accounting firm); (ii) Linedata
(trading software); (iii) Global Trading Analytics (provides analytical
reports); (iv) Wilshire Associates (provides investment performance attribution
reports); (v) State Street Bank and Trust Company (serves as the Funds’
custodian bank and securities lending agent); (vi) Greenberg Traurig, LLP
(counsel for Davis Funds); (vii) K&L Gates LLP (counsel for the Adviser);
(viii) Donnelley Financial Solutions (Software Development); (ix) Diligent
Corporation (Software Development); (x) Broadridge Financial Solutions (provides
analytical reports to the Directors); (xi) Deloitte & Touche (serves as the
Adviser’s auditor); (xii) MSCI/ISS Group and ADP; (xiii) Electra Information
Systems (share reconciliation); (xiv) Morningstar Direct (investment performance
attribution reports); (xv) ComplySci; and (xvi) the Investment Company
Institute.
Administration. The Fund’s
Chief Compliance Officer oversees the release of portfolio holdings information,
including authorizing the release of portfolio holdings information.
The Distributor. Davis
Distributors, LLC (“Distributor”), 2949 East Elvira Road, Suite 101, Tucson,
Arizona 85756, is a wholly owned subsidiary of the Adviser and, pursuant to a
Distributing Agreement, acts as principal underwriter of the Davis Funds’ shares
on a continuing basis. By the terms of the Distributing Agreement, the
Distributor (or an affiliate) pays for all expenses in connection with the
preparation, printing and distribution of advertising and sales literature for
use in offering the Davis Funds’ shares to the public, including reports to
shareholders to the extent they are used as sales literature. The Distributor
(or an affiliate) also pays for the preparation and printing of prospectuses
other than those forwarded to existing shareholders. The continuance and
assignment provisions of the Distributing Agreement are the same as those of the
Advisory Agreement.
The Distributor has
agreements with securities dealers and other financial institutions for
distributing shares of the Funds and/or providing services to shareholders. The
Distributor may pay such firms service fees for accounts for which
representatives of the dealers are responsible and provide services. The sources
for these payments include the distribution fees paid by Class A and C shares
and the Distributor or Adviser may also use their own resources.
The Distributor received
the following amounts in total sales charges (which the Funds do not pay) on the
sale of Class A shares:
Fiscal Year-Ended December 31, |
2022 |
2021 |
2020 |
Davis Opportunity Fund |
|
|
|
Total sales charges: |
$38,023 |
$73,396 |
$45,776 |
Amount re-allowed to dealers: |
$32,139 |
$61,754 |
$38,820 |
Davis Financial Fund |
|
|
|
Total sales charges: |
$287,292 |
$354,561 |
$225,039 |
Amount re-allowed to dealers: |
$244,637 |
$307,120 |
$190,338 |
Davis Real Estate Fund |
|
|
|
Total sales charges: |
$14,214 |
$48,185 |
$18,001 |
Amount re-allowed to dealers: |
$11,986 |
$40,415 |
$15,215 |
Davis Appreciation & Income
Fund |
|
|
|
Total sales charges: |
$19,914 |
$26,075 |
$21,276 |
Amount re-allowed to dealers: |
$16,845 |
$21,841 |
$18,288 |
Davis Government Bond Fund |
|
|
|
Total sales charges: |
$1,869 |
$5,372 |
$697 |
Amount re-allowed to dealers: |
$1,576 |
$4,543 |
$586 |
For the
fiscal year-ended December 31, 2022, the Distributor received compensation on
redemptions and repurchases of shares in the following amounts:
|
Class A |
Class C |
Davis Opportunity Fund |
$- |
$726 |
Davis Financial Fund |
$- |
$7,064 |
Davis Real Estate Fund |
$- |
$129 |
Davis Appreciation & Income
Fund |
$- |
$93 |
Davis Government Bond Fund |
$1 |
$1,147 |
Davis Government Money Market Fund |
N/A |
N/A |
The Distributor received the
following amounts as reimbursements under the Funds’ Distribution plans:
Fiscal Year-Ended December 31, |
2022 |
2021 |
2020 |
Davis Opportunity Fund |
|
|
|
Class A Shares |
$620,612 |
$731,266 |
$591,573 |
Class C Shares |
$146,366 |
$196,633 |
$202,893 |
Davis Financial Fund |
|
|
|
Class A Shares |
$981,353 |
$1,052,861 |
$736,234 |
Class C Shares |
$687,786 |
$785,055 |
$740,522 |
Davis Real Estate Fund |
|
|
|
Class A Shares |
$231,736 |
$261,242 |
$231,471 |
Class C Shares |
$28,645 |
$37,369 |
$46,438 |
Davis Appreciation & Income
Fund |
|
|
|
Class A Shares |
$261,731 |
$286,484 |
$235,433 |
Class C Shares |
$27,658 |
$38,417 |
$55,128 |
Davis Government Bond Fund |
|
|
|
Class A Shares |
$44,695 |
$54,953 |
$55,653 |
Class C Shares |
$5,114 |
$9,772 |
$12,001 |
Class Y
shares do not have a Distribution Plan.
Distribution Plans. Class A
and C shares both use distribution plans to pay asset-based sales charges or
distribution and/or services fees in connection with the distribution of shares,
including payments to financial intermediaries for providing distribution
assistance. Financial intermediaries that receive these fees may pay some or all
of them to their investment professionals. Because these fees are paid out of a
Class’ assets on an on-going basis, over time these fees will increase the cost
of an investment and may cost more than other types of sales and marketing
charges.
The Distribution Plans were
approved by the Board of Directors of each Davis Fund in accordance with Rule
12b-1 under the 1940 Act. Rule 12b-1 regulates the manner in which a mutual fund
may assume costs of distributing and promoting the sale of its shares. Payments
pursuant to a Distribution Plan are included in the operating expenses of the
Class.
How Share Classes Affect Payments
to Brokers. A financial advisor may receive different compensation for
selling one class of shares than for selling another class. It is important to
remember that Class C contingent deferred sales charges and/or asset-based sales
charges have the same purpose as the front-end sales charge on sales of Class A
shares: to compensate the Distributor for concessions and expenses it (or an
affiliate) pays to dealers and financial institutions for selling shares.
Recordkeeping Fees. Certain
dealers (and other financial intermediaries) have chosen to maintain omnibus
accounts with the Davis Funds. In an “omnibus account,” a fund maintains a
single account in the name of the dealer and the dealer maintains all of the
individual shareholder accounts. Likewise, for many retirement plans, a
third-party administrator may open an omnibus account with the Davis Funds and
the administrator will then maintain all of the participant accounts. The
Adviser, on behalf of Davis Funds, enters into agreements whereby Davis Funds,
and sometimes the Adviser in addition, compensate the dealer or administrator
for recordkeeping services. This compensation is not treated as a distribution
expense.
Class A Shares. Payments
under the Class A Distribution Plan may be up to an annual rate of 0.25% of the
average daily net asset value of the Class A shares. Such payments are made to
reimburse the Distributor for the fees it (or an affiliate) pays to its
salespersons and other firms for selling Class A shares, servicing its
shareholders and maintaining its shareholder accounts. Normally, servicing fees
are paid at an annual rate of 0.25% of the average net asset value of the
accounts serviced and maintained on the books of each Davis Fund. In addition,
when the Distributor (or an affiliate) pays a commission to a broker-dealer for
qualifying purchases of Class A shares at net asset value, the Fund may
reimburse the Distributor for this commission. The Fund will not reimburse this
commission if the result would be that Class A shares would pay Distribution
Plan fees in excess of 0.25% of average net assets. Payments under the Class A
Distribution Plan also may be used to reimburse the Distributor for other
distribution costs (excluding overhead) not covered in any year by any portion
of the sales charges the Distributor retains.
Class C Shares. Payments
under the Class C Distribution Plan are limited to an annual rate equal to the
lesser of 1.25% of the average daily net asset value of the Class C shares or
the maximum amount provided by applicable rule or regulation of the Financial
Industry Regulatory Authority, which currently is 1%. Therefore, the effective
rate of the Class C Distribution Plan at present is 1%. In accordance with
current applicable rules, such payments also are limited to 6.25% of gross sales
of Class C shares plus interest at 1% over the prime rate on any unpaid amounts.
The Distributor (or an affiliate) pays broker/dealers up to 1% in commissions on
new sales of Class C shares. The Fund pays the distribution fee on Class C
shares in order: (i) to pay the Distributor commissions on Class C shares which
have been sold and (ii) to enable the Distributor (or an affiliate) to pay
services fees on Class C shares which have been sold. From these distribution
payments, the Distributor currently uses up to 0.25% of average net assets for
the payment of service and maintenance fees to its salespersons and other firms
for shareholder servicing and maintenance of its shareholder accounts.
Davis Government Money Market
Fund. With respect to Davis
Government Money Market Fund, the Distribution Plan for each class of shares
does not provide for any amounts to be paid by the Fund directly to the
Distributor as either compensation or reimbursement for distributing shares of
the Fund, but does authorize the use of the advisory fee for distribution to the
extent such fee may be considered to be indirectly financing any activity or
expense that primarily is intended to result in the sale of Fund shares.
Additional Information Concerning
the Distribution Plans. In
addition, to the extent that any investment advisory fees paid by the Davis
Funds may be deemed to be indirectly financing any activity that primarily is
intended to result in the sale of Fund shares within the meaning of Rule 12b-1,
the Distribution Plans authorize the payment of such fees.
The Distribution Plans
continue annually so long as they are approved in the manner provided by Rule
12b-1 or unless earlier terminated by vote of the majority of the Independent
Directors or a majority of the Fund’s outstanding Class of shares. The
Distributor is required to furnish quarterly written reports to the Board of
Directors detailing the amounts expended under the Distribution Plans. The
Distribution Plans may be amended, provided that all such amendments comply with
the applicable requirements then in effect under Rule 12b-1. Currently, Rule
12b-1 provides that as long as the Distribution Plans are in effect, the Davis
Funds must commit the selection and nomination of candidates for new Independent
Directors to the sole discretion of the existing Independent Directors.
Dealer Compensation. Dealers or others may receive different
levels of compensation depending on which class of shares they sell. The
Distributor may make expense reimbursements for special training of a dealer’s
registered representatives or personnel of dealers and other firms who provide
sales or other services with respect to the Davis Funds and/or their
shareholders, or to defray the expenses of meetings, advertising or equipment.
Any such amounts may be paid by the Distributor from the fees it receives under
the Class A and C Distribution Plans.
In addition, the
Distributor (or an affiliate) may, from time to time, pay additional cash
compensation or other promotional incentives to authorized dealers or agents who
sell shares of the Davis Funds. In some instances, such cash compensation or
other incentives may be offered only to certain dealers or agents who employ
registered representatives who have sold or may sell significant amounts of
shares of the Davis Funds during a specified period of time. These payments are
more fully described in the prospectus.
Fund Supermarkets. The Davis Funds participate in various
“Fund Supermarkets” in which a supermarket sponsor (usually a registered
broker-dealer) offers many mutual funds to the supermarket sponsor’s clients.
The Davis Funds pay the supermarket sponsor a negotiated fee for distributing
the shares and for continuing services provided to their shareholders. A portion
of the supermarket sponsor’s fee (that portion related to sales, marketing or
distribution of shares) is paid with fees authorized under the Distribution
Plans.
A portion of the
supermarket sponsor’s fee (that portion related to investor services such as new
account setup, shareholder accounting, shareholder inquiries, transaction
processing, and shareholder confirmations and reporting) is paid as a
shareholder servicing fee of each Davis Fund. Each Davis Fund typically would be
paying these shareholder servicing fees directly, were it not that the
supermarket sponsor holds all customer accounts in a single omnibus account with
each Davis Fund. If the supermarket sponsor’s fees exceed the sum available from
the Distribution Plans and shareholder servicing fees, then the Adviser pays the
remainder out of its profits.
Custodian. State Street Bank and Trust Company
(“State Street” or the “Custodian”), One Lincoln Street, Boston, MA 02111,
serves as custodian of each Davis Fund’s assets. The Custodian maintains all of
the instruments representing the Davis Funds’ investments and all cash. The
Custodian delivers securities against payment on sale and pays for securities
against delivery on purchase. The Custodian also remits the Davis Funds’ assets
in payment of their expenses, pursuant to instructions of officers or
resolutions of the Board of Directors. The Custodian also provides certain fund
accounting services to the Funds.
Transfer Agent. SS&C Technologies, Inc., P.O. Box
219197, Kansas City, MO 64121-9197, serves as the Funds’ transfer agent.
Independent Registered Public
Accounting Firm. KPMG LLP
(“KPMG”), 4200 Wells Fargo Center, 90 South 7th Street, Minneapolis, MN 55402,
serves as the Funds’ independent registered public accounting firm. KPMG audits
each Funds’ financial statements and financial highlights, performs other
related audit services, and meets with the Audit Committee of the Board of
Directors. KPMG LLP also acts as the independent registered public accounting
firm to certain other funds advised by the Adviser. In addition, KPMG prepares
the Funds’ federal and state income tax returns and related forms. Audit and
non-audit services provided by KPMG to the Funds must be pre-approved by the
Audit Committee.
Counsel. Greenberg Traurig, LLP, 1144 15th
Street, Suite 3300, Denver, CO 80202, serves as counsel to the Davis Funds and
also serves as counsel for the Independent Directors.
This SAI should be read in
conjunction with the Fund’s prospectus. This SAI supplements the information
available in the Funds’ prospectus.
Each of the Davis Funds
offers Class A, C and Y shares. In addition, Davis New York Venture Fund offers
Class R shares. Depending on the amount of the purchase and the anticipated
length of time of the investment, investors may choose to purchase one Class of
shares rather than another. Investors who would rather pay the entire cost of
distribution, or sales charge, at the time of investment rather than spreading
such cost over time, might consider Class A shares. Other investors might
consider Class C shares, in which case 100% of the purchase price is invested
immediately. If you have significant Davis Funds holdings you may not be
eligible to invest in Class C shares. See “How
to Choose a Share Class,” in the prospectus for details.
Class A Shares
With certain exceptions
described below, Class A shares are sold with a front-end sales charge at the
time of purchase and are not subject to a sales charge when they are redeemed.
The amounts of the sales charges are shown in the prospectus.
Class C Shares
Class C shares are
purchased at their net asset value per share without the imposition of a
front-end sales charge but are subject to a 1% deferred sales charge if redeemed
within one year after purchase. Class C shares will automatically convert to
Class A shares eight years after the end of the calendar month in which the
shareholder’s order to purchase was accepted.
Class Y Shares
Class Y shares are sold at
net asset value without the imposition of Rule 12b-1 charges. Class Y shares are
only available through certain institutions which have entered into agreements
with Davis Distributors LLC.
Shares Issued by Davis Government Money
Market Fund
The three classes of Davis
Government Money Market Fund shares are available so as to enable investors to
facilitate exchanges since, with the exception of exchanges from Class A shares
to Class Y shares, shares may be exchanged only for shares of the same class.
Davis Government Money Market shares are sold directly without sales charges;
however, front-end or deferred sales charges may be imposed, in certain cases,
on their exchange into shares of other Davis Funds (see “Exchange of Shares”). Shares of the Davis
Government Money Market Fund are offered at net asset value. However, in the
case of certain exchanges, the Davis Government Money Market Fund shares
received may be subject to an escrow, pursuant to a Statement of Intention, or a
contingent deferred sales load. See “Exchange
of Shares.”
Reduction of Class A Sales
Charge. There are a number of ways to reduce the sales charge imposed on
the purchase of the Davis Funds’ Class A shares, as described below. In addition
to the methods described below that may be used to reduce the sales charge
certain financial intermediaries may adopt their own schedule. Descriptions of
the sales load waivers and/or discounts for Class A shares with respect to
certain financial intermediaries are reproduced in “Appendix A-Intermediary-Specific Sales Charge
Waivers and Discounts” to the statutory prospectus based on information
provided by the financial intermediary.
These reductions are based
on the fact that there is less sales effort and expense involved with respect to
purchases by affiliated persons and purchases made in large quantities. The
examples listed below are descriptive of the types of fact patterns which
qualify for a reduction of sales charge. It is not possible to list every
potential qualifying transaction. The Distributor uses its discretion to
determine whether or not any specific transaction is similar enough to the
examples listed below to qualify for a reduction of sales charge. If you claim
any reduction of sales charges, you or your dealer must notify the Distributor
(or Davis Funds, if the investment is mailed to Davis Funds) when the purchase
is made. Enough information must be given to verify that you are entitled to
such reduction.
◾ |
Immediate Family or Group
Purchases. Certain
purchases made by or for more than one person may be considered to
constitute a single purchase, including: (i) purchases for immediate
family members, (“immediate family members” consist of spouses and
children under 21); (ii) purchases by trust or other fiduciary accounts
and purchases by Individual Retirement Accounts for employees of a single
employer; and (iii) purchases made by an organized group of persons,
whether incorporated or not, if the group has a purpose other than buying
shares of mutual funds. For further information on group purchase
reductions, contact the Adviser or your
dealer. |
◾ |
Other Groups. Certain purchases made by or for
more than one person may be considered to constitute a single purchase,
including: (i) purchases by trust or other fiduciary accounts and
purchases by Individual Retirement Accounts for employees of a single
employer; and (ii) purchases made by an organized group of persons,
whether incorporated or not, if the group has a purpose other than buying
shares of mutual funds. For further information on group purchase
reductions, contact the Adviser or your
dealer. |
◾ |
Statement of
Intention. Another way
to reduce the sales charge is by signing a Statement of Intention
(“Statement”). See “Appendix B: Terms and
Conditions of a Statement of Intention.” If you enter into a
Statement of Intention you (or any “single purchaser”) may combine all
purchases of all shares classes of the Davis Funds (excluding Davis
Government Money Market Fund) over a 13-month period. The amount you say
you intend to invest may include shares that you already own valued at
public offering price, the day prior to the period covered by the
Statement. A Statement may be backdated up to 90 days to include purchases
made during that period, but the total period covered by the Statement may
not exceed 13 months and purchases made prior to the start of the 13-month
period will not be readjusted to reflect a lower sales
charge. |
Shares
having a value of up to 5% of the amount you state you intend to invest will be
held “in escrow” to make sure that any additional sales charges are paid. If any
of the Fund’s shares are in escrow pursuant to a Statement and such shares are
exchanged for shares of another Davis Fund, the escrow will continue with
respect to the acquired shares.
No
additional sales charge will be payable if you invest the amount you have
indicated. Each purchase under a Statement will be made as if you were buying
the total amount indicated at one time. For example, if you indicate that you
intend to invest $100,000, you will pay a sales charge of 31/2% on
each purchase.
If
during the 13-month period you invest less than the amount you have indicated,
you will pay an additional sales charge. For example, if you state that you
intend to invest $250,000 and actually invest only $100,000, you will, by
retroactive adjustment, pay a sales charge of 31/2%. The
sales charge you actually pay will be the same as if you had purchased the
shares in a single purchase.
A
Statement does not bind you to buy, nor does it bind the Adviser or Distributor
to sell, the shares covered by the Statement.
◾ |
Rights of Accumulation (All
Davis Funds Combined). Another way to reduce the sales
charge is under a right of accumulation. This means that the larger
purchase entitled to a lower sales charge does not have to be in dollars
invested at one time or in a single Davis Fund. The larger purchases that
you (or any “single purchaser”) make at any one time can be determined by
adding to the amount of a current purchase to the value of any Davis Fund
shares (at offering price) already owned by you. Davis Government Money
Market Fund shares are not counted in determining the total amount of
Davis Funds shares you own. |
For
example, if you own $100,000 worth (at offering price) of shares, including
Class A, B and C shares of all Davis Funds except Davis Government Money Market
Fund shares and invest $5,000 in additional shares, the sales charge on that
$5,000 investment would be 31/2%, not
43/4%.
Lastly, the
right of accumulation also applies to the Class A, B and C shares of the other
Davis Funds that you own. Thus, the amount of current purchases of the Fund’s
Class A shares that you make may be added to the value of the Class A, B and C
shares of the other Davis Funds (valued at their current offering price,
excluding Davis Government Money Market Fund shares) already owned by you in
determining the applicable sales charge.
In all
of the above instances where you wish to assert this right of combining the
shares you own of the other Davis Funds, you or your dealer must notify the
Distributor (or Davis Funds, if the investment is mailed to Davis Funds) of the
pertinent facts. Enough information must be given to permit verification as to
whether you are entitled to a reduction in sales charges.
◾ |
Combining Statement of
Intention(s) and/or Rights of Accumulation. A Statement of Intention for the
Fund and shares of the other Davis Funds may be aggregated. Also, the
Fund’s Class A shares and all share classes of the other Davis Funds that
you already own, (excluding Davis Government Money Market Fund)valued at
the current offering price the day prior to the period covered by your
Statement of Intention, may be included in the amount you have stated you
intend to invest pursuant to your
Statement. |
◾ |
Purchases for Employee
Benefit Plans. Trustees
or other fiduciary accounts and Individual Retirement Accounts (“IRA”) of
a single employer are treated as purchases of a single person. Purchases
of and ownership by an individual and such individual’s spouse under an
IRA are combined with their other purchases and
ownership. |
Class A Share Sales at Net Asset
Value. There are situations where the sales charge will not apply to the
purchase of Class A shares. A sales charge is not imposed on these transactions
either because the purchaser deals directly with the Fund (as in employee
purchases), or because a responsible party (such as a financial institution) is
providing the necessary services usually provided by a registered
representative. Although the investor pays no front-end sales charge, a
contingent deferred sales charge of 0.50% may be imposed if the Distributor paid
a sales commission to a broker or agent and the shares purchased at net asset
value without a sales load are redeemed within the first year after purchase. In
addition, if investors effect purchases in Fund shares through a broker or
agent, the broker or agent may charge a fee. The situations where the sales
charge will not apply are described in the prospectus.
The Fund also may issue
Class A shares at net asset value incident to a merger with or acquisition of
assets of an investment company. The Fund occasionally may be provided with an
opportunity to purchase substantially all the assets of a public or private
investment company or to merge another such company into the Fund. This offers
the Fund the opportunity to obtain significant assets. No dealer concession is
involved. It is industry practice to effect such transactions at net asset
value, as it would adversely affect the Fund’s ability to do such transactions
if the Fund had to impose a sales charge.
Class C Shares. Class C
shares are offered at net asset value without a sales charge at the time of
purchase. Class C shares redeemed within one year of purchase will be subject to
a 1% charge on redemption. Class C shares that have been outstanding for eight
years, including reinvested dividends and capital gain distributions, will
automatically convert to Class A shares without imposition of a front-end sales
charge. The Class C shares so converted will no longer be subject to the higher
expenses borne by Class C shares. Because the net asset value per share of the
Class A shares may be higher or lower than that of the Class C shares at the
time of conversion, although the dollar value will be the same, a shareholder
may receive more or fewer Class A shares than the number of Class C shares
converted. Under a private Internal Revenue Service Ruling, such a conversion
will not constitute a taxable event under the federal income tax law. In the
event that this ceases to be the case, the Board of Directors will consider what
action, if any, is appropriate and in the best interests of the Class C
shareholders. The Davis Funds will not accept any purchases of Class C shares
when Class A shares may be purchased at net asset value.
The Distributor will pay a
commission to the firm responsible for the sale of Class C shares. No other fees
will be paid by the Distributor during the one-year period following purchase.
The Distributor will be reimbursed for the commission paid from 12b‑1 fees paid
by the Fund during the one-year period. If Class C shares are redeemed within
one year of purchase, the 1% redemption charge will be paid to the Distributor.
After Class C shares have been outstanding for more than one year, the
Distributor will make quarterly payments to the firm responsible for the sale of
the shares in amounts equal to 0.75% of the annual average daily net asset value
of such shares for sales fees and 0.25% of the annual average daily net asset
value of such shares for service and maintenance fees.
The Distributor will pay a
commission to the firm responsible for the sale of Class C shares. No
other fees will be paid by the Distributor during the one-year period following
purchase. The Distributor will be reimbursed for the commission paid from 12b‑1
fees paid by the Funds during the one-year period. If Class C shares are
redeemed within one year of purchase, the 1% redemption charge will be paid to
the Distributor. After Class C shares have been outstanding for more than one
year, the Distributor will make quarterly payments to the firm responsible for
the sale of the shares in amounts equal to 0.75% of the annual average daily net
asset value of such shares for sales fees and 0.25% of the annual average daily
net asset value of such shares for service and maintenance fees.
Contingent Deferred Sales
Charges. Any contingent
deferred sales charge (“CDSC”) imposed on the redemption of Class A or C shares
is a percentage of the lesser of: (i) the net asset value of the shares
redeemed; or (ii) the original cost of such shares. No CDSC is imposed when you
redeem amounts derived from: (i) increases in the value of shares redeemed above
the net cost of such shares, or (ii) certain shares with respect to which the
Fund did not pay a commission on issuance, including shares acquired through
reinvestment of dividend income and capital gains distributions. On request for
a redemption, shares not subject to the CDSC will be redeemed first. Thereafter,
shares held the longest will be redeemed.
The CDSC on Class A and C
shares that are subject to a CDSC will be waived if the redemption relates to
the following: (i) in the event of the total disability of the last surviving
shareholder (as evidenced by a determination by the federal Social Security
Administration) occurring after the purchase of the shares being redeemed; (ii)
in the event of the death of the last surviving shareholder; (iii) for
redemptions made pursuant to an automatic withdrawal plan, if: (a) there are at
least four withdrawals a year (except for retirement accounts subject to a
required minimum distribution, in which case it may run once a year); and (b)
the aggregate value of the redeemed shares does not exceed 12% of the account’s
value on an annual basis**; (iv) for redemptions from a qualified retirement
plan or IRA that constitute a tax-free return of excess contributions to avoid
tax penalty; (v) on redemptions of shares sold to directors, officers and
employees of any fund for which the Adviser acts as investment adviser, or
officers and employees of the Adviser, Sub-Adviser or Distributor, including
former directors and officers and extended family members of all of the
foregoing and any employee benefit or payroll deduction plan established by or
for such persons; and (vi) on redemptions pursuant to the right of the Funds to
liquidate a shareholder’s account if the aggregate net asset value of the shares
held in such account falls below an established minimum amount.
** |
An Automatic Withdrawal Plan may be
established as either a percentage or a fixed dollar amount. The shares
that may be redeemed without a sales charge are recalculated as a
percentage of the current market value of the account as of the date of
each withdrawal. If established as a percentage, no sales charge will be
incurred regardless of market fluctuations. If established as a fixed
dollar amount, a sales charge may be incurred if the market value of the
account decreases. If you redeem shares in addition to those redeemed
pursuant to the Automatic Withdrawal Plan, a deferred sales charge may be
imposed on those shares and on any subsequent redemptions within a
12-month period, regardless of whether such redemptions are pursuant to an
Automatic Withdrawal Plan. |
Subject to various
limitations, shares in different Davis Funds may be exchanged at relative net
asset value. If a sales charge is due on Class A shares, and has not been
previously paid, then the sales charge will be deducted at the time of the
exchange. If any Class of Davis Fund shares being exchanged are subject to a
sales charge, Statement of Intention, or other limitation, the limitation will
continue to apply to the shares received in the exchange. When an investor
exchanges any Class of shares in a Davis Fund for shares in Davis Government
Money Market Fund, the holding period for any deferred sales charge does not
continue during the time that the investor owns Davis Government Money Market
Fund shares. For example, Class C shares are subject to a contingent deferred
sales charge for one year. Any period that an investor owns shares of Davis
Government Money Market Fund will be added to the one-year period.
Class Y Shares. Class Y
shares are sold at net asset value without the imposition of Rule 12b-1 charges.
Class Y shares are offered to: (i) trust companies, bank trusts, endowments,
pension plans or foundations (“Institutions”) acting on behalf of their own
account or one or more clients for which such Institution acts in a fiduciary
capacity and investing at least $5,000,000 at any one time; (ii) any state,
county, city, department, authority or similar agency that invests at least
$5,000,000 (“Government Entities”); (iii) any investor with an account
established under a “wrap account” or other similar fee-based program sponsored
and maintained by a registered broker-dealer approved by the Davis Funds’
Distributor (“Wrap Program Investors”); (iv) a 401(k) plan, 457 plan, employer
sponsored 403(b) plan, profit sharing and money purchase pension plan, defined
benefit plan, or non-qualified deferred compensation plan where plan level or
omnibus accounts are held on the books of the Fund if at least $500,000 is
invested; (v) the Adviser and its affiliates; and (vi) through a registered
investment adviser (RIA) who initially invests for clients an aggregate of at
least $100,000 in Davis Funds through a fund “supermarket” or other mutual fund
trading platform sponsored by a broker-dealer or trust company and which has
entered into an agreement with Davis Distributors, LLC.
Wrap Program Investors may
purchase Class Y shares through the sponsors of such programs who have entered
into agreements with Davis Distributors, LLC. Wrap Program Investors should be
aware that both Class A and Y shares are made available by the Davis Funds at
net asset value to sponsors of wrap programs. However, Class A shares are
subject to additional expenses under the Fund’s Rule 12b-1 Plan and sponsors of
wrap programs utilizing Class A shares generally are entitled to payments under
the Plan. If the Sponsor has selected Class A shares, investors should discuss
these charges with their program’s sponsor and weigh the benefits of any
services to be provided by the sponsor against the higher expenses paid by Class
A shareholders.
Conversion between Class A or C Shares and
Class Y Shares
For shareholders who
currently hold Class A or C shares, but are authorized under certain
circumstances to purchase Class Y shares, those shareholders may convert their
eligible existing shares to Class Y shares of the Fund provided that the Class Y
shares received in the conversion are held in a fee-based account and their
dealer has entered into an agreement with the Distributor. Shares that are
subject to a CDSC are not eligible to convert to Class Y shares until the
applicable CDSC period has expired. Shareholders who are no longer eligible for
Class Y shares may be converted to Class A shares without a sales charge. Under
current interpretations of applicable federal income tax law by the Internal
Revenue Service (the “IRS”), these conversions to or from Class Y shares are not
treated as taxable events. If those laws or the IRS interpretation of those laws
should change, these conversion features may be suspended.
Investment Minimums. The
Distributor may waive the investment minimums for any and all Classes of shares
at its discretion. The Distributor may determine that it is appropriate to waive
the investment minimum for participants in certain fee based programs sponsored
by financial intermediaries. The Distributor may determine that it is
appropriate to treat related investors as a single investment account. Examples
may include trust funds of the same bank, separate accounts of the same
insurance company, clients whose funds are managed by a single bank, insurance
company, investment adviser, broker-dealer, or clients of a financial
intermediary that maintains an omnibus account with the Fund.
Davis Funds and the
Distributor reserve the right to reject any purchase order for any reason. Each
Davis Fund prospectus provides full directions on how to purchase shares.
Broker-Dealers May Remit
Payment. Your broker-dealer
may order and remit payment for the shares on your behalf. The broker-dealer can
also order the shares from the Distributor by telephone or wire. Please note
that the following rules and provisions apply with respect to purchases of Fund
shares through a broker-dealer:
◾ |
The Distributor has
entered into agreements with broker-dealers to receive on its behalf
purchase and redemptions orders; |
◾ |
Such broker-dealers
are authorized to designate other intermediaries to receive purchase and
redemption orders on behalf of the
Distributor; |
◾ |
The Funds will be
deemed to have received a purchase or redemption order when an authorized
broker or, if applicable, its broker’s authorized designee, receives the
order; and |
◾ |
A Client order will
be priced at the Fund’s net asset value next computed after they are
received by an authorized broker-dealer or the broker-dealer’s authorized
designee. |
Each Davis Funds prospectus
describes a number of special services offered by the Davis Funds. This SAI
supplements that discussion.
Prototype Retirement Plans.
The Distributor and certain qualified dealers have available prototype
retirement plans (e.g., profit sharing, money purchase, Simplified Employee
Pension (“SEP”) plans, model 403(b) and 457 plans for charitable, educational
and governmental entities) sponsored by the Davis Funds for corporations and
self-employed individuals. The Distributor and certain qualified dealers also
have prototype Individual Retirement Account (“IRA”) plans (deductible IRAs and
non-deductible IRAs, including “Roth IRAs”), Education Savings Accounts and
SIMPLE IRA plans for both individuals and employers. These plans utilize the
shares of the Davis Funds as their investment vehicles. UMB Bank acts as
custodian or trustee for certain retirement plans and charges each participant
an annual custodial fee of $15 per Social Security Number regardless of the
number of plans established. For a detailed explanation of the custodial fees
charged to an IRA, please refer to the prospectus.
In-Kind Purchases. Shares
of the Davis Funds are continuously offered at their public offering price next
determined after an order is accepted. The methods available for purchasing
shares of a Fund are described in the Fund’s prospectus. In addition, shares of
the Davis Funds may be purchased using securities if the Adviser determines that
doing so is in the best interest of the applicable Fund and its shareholders.
The Adviser must review the securities that are offered in exchange for the
“in-kind” purchase to determine that the securities delivered to the Fund: (i)
meet the investment objective, strategy and policies of the Fund; (ii) do not
cause the violation of any investment restrictions at the time of acceptance;
(iii) are readily marketable; (iv) may be accurately and objectively valued on a
daily basis; and (v) represent securities that are desirable for the Fund to own
given the Fund’s investment strategy and the Adviser’s view of market
conditions. The Adviser reserves the right to reject all or any part of the
securities offered in exchange for shares of the Fund. On any such in-kind
purchase, the following conditions will apply:
◾ |
The securities
offered by the investor in exchange for shares of a Fund must not be in
any way restricted as to resale or otherwise be
illiquid; |
◾ |
The securities must
have a value that is readily ascertainable (and not established only by
evaluation procedures) as evidenced by a listing on the NYSE, AMEX or
NASDAQ or other appropriate method; and |
◾ |
The transaction
involves a net purchase of $1 million or more in Fund
shares. |
Davis Funds believe that
this ability to purchase shares of a Fund using securities provides a means by
which holders of certain securities may obtain diversification and continuous
professional management of their investments without the expense of selling
those securities in the public market. Benefits to the Fund include the ability
to purchase desirable securities without brokerage commissions.
An investor who wishes to
make an in-kind purchase must provide the Adviser with a full and exact written
description of each security that he or she proposes to deliver to the
applicable Davis Fund. The Fund will advise the investor as to those securities
that it is prepared to accept and will provide the forms required to be
completed and signed by the investor. The investor should then send the
securities, in proper form for transfer and with the necessary forms, to the
Adviser and certify that there are no legal or contractual restrictions on the
free transfer and sale of the securities. The securities will be valued as of
the close of business on the day of receipt by the Fund in the same manner as
portfolio securities of the Fund are valued. The number of shares of the Fund,
having a net asset value as of the close of business on the day of receipt equal
to the value of the securities delivered by the investor, will be issued to the
investor, less applicable stock transfer taxes, if any.
The exchange of securities
by the investor pursuant to this in-kind offer will constitute a taxable
transaction and may result in a gain or loss for federal income tax purposes.
Each investor should consult his tax adviser to determine the tax consequences
under Federal and state law of making such an in-kind purchase. This service may
be discontinued at any time without prior notice.
The Funds’ prospectus
describes exchange procedures. This SAI supplements that discussion.
Market Timing. Davis Funds
have not entered into any arrangements that permit organizations or individuals
to “market time” the Funds. Although the Davis Funds will not knowingly permit
investors to excessively trade the Funds, shareholders seeking to engage in
market timing may employ a variety of strategies to avoid detection, and there
can be no guarantee that all market timing will be prevented, despite the Davis
Funds’ best efforts. The Funds receive purchase and sales orders through
financial intermediaries and cannot always know or reasonably detect excessive
trading that may be facilitated by these intermediaries or by the use of omnibus
accounts by intermediaries. The Davis Funds reserve the right to terminate or
amend the exchange privilege at any time by filing amended registration
statements.
The Funds’ prospectus
describes redemption procedures; this SAI supplements those discussions.
Certificates. In the past,
Davis Funds issued share certificates and some are still outstanding. If shares
to be redeemed are represented by a certificate, the certificate must be sent by
certified mail to Davis Funds with a letter of instruction signed by all account
owner(s).
Redemption Proceeds.
Redemption proceeds normally are paid to you within seven days after Davis Funds
receive your proper redemption request. Payment for redemptions can be suspended
under certain emergency conditions determined by the SEC or if the New York
Stock Exchange (“NYSE”) is closed for reasons other than customary or holiday
closings. You may redeem shares on any business day (i.e., any day the NYSE is
open for regular session trading). Redemption proceeds may be withheld until a
sufficient period of time has passed for State Street Bank and Trust Company to
be reasonably sure that all checks or drafts (including certified or cashiers’
checks) for shares purchased have cleared, normally not exceeding fifteen
calendar days. You can avoid any redemption delay by paying for your shares with
a bank or federal funds wire.
Redemptions Are Ordinarily Paid to
You in Cash. However, the Board of Directors is authorized to decide if
conditions exist making cash payments undesirable. If the Board of Directors
should decide to make payments other than in cash, redemptions could be paid in
securities, valued at the value used in computing a Fund’s net asset value.
There would be brokerage costs incurred by the shareholder in selling securities
received in redemption of Fund shares. The Fund must, however, redeem shares
solely in cash up to the lesser of $250,000 or 1% of the Fund’s net asset value,
whichever is smaller, during any 90-day period for any one shareholder.
Federal Funds Wire. You may
be eligible to have your redemption proceeds electronically transferred to a
commercial bank account by federal funds wire. There is a $5 charge by State
Street Bank and Trust Company for wire service, and receiving banks also may
charge for this service. Redemption by federal funds wire is usually credited to
your bank account on the next business day after the sale. Alternatively,
redemption through Automated Clearing House usually will arrive at your bank two
banking days after the sale. To have redemption proceeds sent by federal funds
wire to your bank, you must first fill out the “Banking Instruction” section on the Account
Application Form and attach a voided check or deposit slip. If the account has
already been established, an Account Service Form must be submitted with a
medallion guarantee and a copy of a voided check or deposit slip.
Redeeming Shares in Davis
Government Money Market Fund. You may request redemption of part or all
of your shares in Davis Government Money Market Fund by mail by sending your
request to Davis Funds, P.O. Box 219197, Kansas City, MO 64121-9197. You also
may redeem shares through the Check Writing Privilege or by Expedited Redemption
Privilege to a pre-designated bank account. Normally, except for payment to a
pre-designated bank account, Davis Funds will send payment for Davis Government
Money Market Fund shares redeemed within three business days, but in no event,
later than seven days, after receipt of a redemption request in proper form.
Redemption of Davis Government Money Market Fund shares that were acquired by
exchange from shares subject to a contingent deferred sales charge may be
subject to such a charge. Shares exchanged into Davis Government Money Market
Fund are subject to segregation to assure payment of any sales charges that may
be due on redemption.
Segregation of Davis Government
Money Market Fund Shares. In order to secure the payment of any sales
charge or CDSC that may be due on shares exchanged into shares of Davis
Government Money Market Fund, the number of shares equal in value to the sales
charge are segregated and separately maintained in Davis Government Money Market
Fund. The purpose of the segregation is to assure that redemptions utilizing the
Davis Government Money Market Fund check writing privilege do not deplete the
account without payment of any applicable sales charge and therefore no draft
will be honored for liquidation of shares in excess of the shares in the Davis
Government Money Market Fund account that are free of segregation.
Davis Government Money Market Fund
Check Writing Privilege, Class A Shares. A shareholder may issue a “Stop Payment” on
any draft by calling Davis Funds at 1‑800‑279‑0279. The “Stop Payment” order
will become effective if it is given on a timely basis pursuant to the “Stop
Payment” rules in effect at Davis Funds with respect to their regular checking
accounts.
If a shareholder seeks to
use the check writing privilege or expedited redemption privilege to a
pre-designated bank account to redeem Davis Government Money Market Fund shares
recently purchased by check (whether by regular or expedited method), the Fund
will refuse to accept telephone redemption requests when made and to honor
redemption drafts when presented unless it is then reasonably assured of the
collection of the check representing the purchase (normally up to 15 days after
receipt of such check). This result can be avoided by investing by wire.
This SAI should be read in
conjunction with the Funds’ prospectus. This SAI supplements the information
available in the prospectus.
The prospectus describes
procedures used to determine the price of shares. This SAI supplements that
discussion.
Net Asset Value. The price
per share for purchases or redemptions of Fund shares made directly through
Davis Funds, generally, is the value next computed after Davis Funds receives
the purchase order or redemption request in good order. In order for your
purchase order or redemption request to be effective on the day you place your
order with your broker-dealer or other financial institution, such broker-dealer
or financial institution must: (i) receive your order before 4 p.m. Eastern
time; and (ii) promptly transmit the order to Davis Funds. The broker-dealer or
financial institution is responsible for promptly transmitting purchase orders
or redemption requests to Davis Funds so that you may receive the same day’s net
asset value. Note that in the case of redemptions and repurchases of Fund shares
owned by corporations, trusts or estates, or of shares represented by
outstanding certificates (in the past, Davis Funds issued share certificates),
Davis Funds may require additional documents to effect the redemption and the
applicable price will be determined as of the next computation following the
receipt of the required documentation or outstanding certificates. See “Redemption of Shares.”
Davis Funds do not price
their shares or accept orders for purchases or redemptions on days when the NYSE
is closed.
Certain brokers and certain
designated intermediaries on their behalf may accept purchase and redemption
orders. The Distributor will be deemed to have received such an order when the
broker or the designee has accepted the order. Customer orders are priced at the
net asset value next computed after such acceptance. Such order may be
transmitted to the Funds or their agents several hours after the time of the
acceptance and pricing.
Valuation of Portfolio
Securities. The valuation of each Fund’s portfolio securities is
described in the Fund’s prospectus and annual report.
The Funds’ prospectus
describes the Funds’ dividend and distribution policies. This SAI supplements
that discussion.
There are two sources of
income, net income and realized capital gains, paid to you by the Funds. You
will receive confirmation statements for dividends declared and Fund shares
purchased through reinvestment of dividends. You also will receive confirmations
after each purchase or redemption. Different classes of Fund shares may be
expected to have different expense ratios due to differing distribution services
fees and certain other expenses. Classes with higher expense ratios will pay
correspondingly lower dividends than classes with lower expense ratios. For tax
purposes, information concerning Fund distributions will be mailed annually to
shareholders. Shareholders have the option of receiving all Fund dividends and
distributions in cash, of having all dividends and distributions reinvested, or
of having income dividends paid in cash and capital gain distributions
reinvested. Reinvestment of all dividends and distributions is automatic for
accounts utilizing the Automatic Withdrawal Plan. The reinvestment of dividends
and distributions is made at net asset value (without any initial or contingent
deferred sales charge) on the payment date.
Dividends and Distributions May
Change. Usually dividends and
capital gains distributions are paid as discussed above. However, the Board of
Directors reserves the right to suspend payments or to make additional
payments.
The Funds’ prospectus
provides a general discussion of federal income taxes, this SAI supplements that
discussion. This discussion is not intended to be a full discussion of all the
aspects of the federal income tax law and its effects on the Funds and their
shareholders. Shareholders may be subject to state and local taxes on
distributions. Each investor should consult his or her own tax adviser regarding
the effect of federal, state and local taxes on any investment in Davis
Funds.
Each of the Davis Funds
intends to continue to qualify as a regulated investment company under the
Internal Revenue Code and, if so qualified, will not be liable for federal
income tax to the extent its earnings are distributed. If a Fund does not
qualify as a regulated investment company, it will be subject to corporate tax
on its net investment income and net capital gains at the corporate tax rates.
If a Fund does not distribute all of its net investment income or net capital
gains, it will be subject to tax on the amount that is not distributed. If, for
any calendar year, the distribution of earnings required under the Internal
Revenue Code exceeds the amount distributed, an excise tax, equal to 4% of the
excess, will be imposed on the applicable Fund. Each Davis Fund intends to make
distributions during each calendar year sufficient to prevent imposition of the
excise tax.
From time to time, the
Funds may be entitled to a tax loss carry-forward. Such carry-forward would be
disclosed in the most current version of the Fund’s annual report.
As they invest in foreign
securities, the Funds may be subject to the withholding of foreign taxes on
dividends or interest it receives on foreign securities. Foreign taxes withheld
will be treated as an expense of the Fund unless the Fund meets the
qualifications and makes the election to enable it to pass these taxes through
to shareholders for use by them as a foreign tax credit or deduction. Tax
conventions and treaties between certain countries and the United States may
reduce or eliminate such taxes.
Distributions of net
investment income and net realized short-term capital gains will be taxable to
shareholders as ordinary income. Distributions of net long-term capital gains
will be taxable to shareholders as long-term capital gain regardless of how long
the shares have been held. Distributions will be treated the same for tax
purposes whether received in cash or in additional shares. Dividends declared in
the last calendar month to shareholders of record in such month and paid by the
end of the following January are treated as received by the shareholder in the
year in which they are declared. A gain or loss for tax purposes may be realized
on the redemption of shares. If the shareholder realizes a loss on the sale or
exchange of any shares held for six months or less and if the shareholder
received a capital gain distribution during that period, then the loss is
treated as a long-term capital loss to the extent of such distribution.
We recommend that you
consult with a tax advisor about dividends and capital gains that may be
received from the Davis Funds.
Mutual funds are required
to report to the Internal Revenue Service the “cost basis” of shares acquired by
a shareholder on or after January 1, 2012, (“covered shares”) and subsequently
redeemed. These requirements do not apply to investments through a tax-deferred
arrangement, such as a 401(k) plan or an individual retirement plan. The cost
basis of a share is generally its purchase price adjusted for dividends, return
of capital, and other corporate actions. Cost basis is used to determine whether
a sale of the shares results in a gain or loss. If you redeem covered shares
during any year, then the Fund will report the cost basis of such covered shares
to you and the IRS on Form 1099-B. The Fund will permit Fund shareholders to
elect from among several IRS-accepted cost basis methods to calculate the cost
basis in your covered shares. If you do not affirmatively elect a cost basis
method, then the Fund’s default cost basis calculation method, which is
currently the Average Cost method, will be applied to your account(s). The cost
basis method elected or applied may not be changed after the settlement date of
a sale of Fund shares. If you hold Fund shares through a broker (or another
nominee), please contact that broker (nominee) with respect to the reporting of
cost basis and available elections for your account. You are encouraged to
consult your tax advisor regarding the application of the cost basis reporting
rules and, in particular, which cost basis calculation method you should
elect.
Among other disclosures,
the Funds’ most current prospectus, SAI, annual and semi-annual reports and
other documents describe (i) the procedures which the Funds follow when
interacting with shareholders; and (ii) shareholders’ rights. The Fund’s
procedures and shareholders’ rights may change from time to time to reflect
changing laws, rules, and operations. The Funds’ prospectus and other disclosure
documents will be amended from time to time to reflect these changes.
From time to time, the
Funds may advertise information regarding their performance. Such information
will be calculated separately for each class of shares. These performance
figures are based on historical results and are not intended to indicate future
performance.
Performance
Rankings
Lipper Rankings. From time
to time, the Funds may publish the ranking of the performance of its classes of
shares by Lipper Analytical Services, Inc. Lipper is a widely recognized
independent mutual fund monitoring service. Lipper monitors the performance of
regulated investment companies, including the Funds, and ranks their performance
for various periods in categories based on investment style. The Lipper
performance rankings are based on total returns that include the reinvestment of
capital gain distributions and income dividends but do not take sales charges or
taxes into consideration. Lipper also publishes “peer-group” indices of the
performance of all mutual funds in a category that it monitors and averages of
the performance of the Funds in particular categories.
Morningstar Ratings and
Rankings. From time to time,
the Funds may publish the ranking and/or star rating of the performance of its
classes of shares by Morningstar, Inc., an independent mutual fund monitoring
service. Morningstar rates and ranks mutual funds in broad investment
categories: domestic stock funds, international stock funds, taxable bond funds
and municipal bond funds.
Performance Rankings and
Comparisons by Other Entities and Publications. From time to time, the
Funds may include in their advertisements and sales literature performance
information about the Funds cited in newspapers and other periodicals such as
The New York Times, The Wall Street Journal, Barron’s, or similar publications.
That information may include performance quotations from other sources,
including Lipper and Morningstar. The performance of the Funds’ classes of
shares may be compared in publications to the performance of various market
indices or other investments and averages, performance rankings or other
benchmarks prepared by recognized mutual fund statistical services.
Investors also may wish to
compare the returns on each Davis Fund’s share classes to the return on
fixed-income investments available from banks and thrift institutions. Those
include certificates of deposit, ordinary interest-paying checking and savings
accounts and other forms of fixed- or variable-time deposits and various other
instruments such as Treasury bills. However, none of the Davis Funds’ returns or
share prices are guaranteed or insured by the FDIC or any other agency and will
fluctuate daily, while bank depositary obligations may be insured by the FDIC
and may provide fixed rates of return. Repayment of principal and payment of
interest on Treasury securities is backed by the full faith and credit of the
U.S. Government.
From time to time, the Fund
may publish rankings or ratings of the Adviser or Funds transfer agent and of
the investor services provided by them to shareholders of the Davis Funds. Those
ratings or rankings of shareholder and investor services by third-parties may
include comparisons of their services to those provided by other mutual fund
families selected by the rating or ranking services. They may be based on the
opinions of the rating or ranking service itself, using its research or
judgment, or based on surveys of investors, brokers, shareholders or
others.
Other Performance Statistics
In reports or other
communications to shareholders and in advertising material, the performance of
the Fund may be compared to recognized unmanaged indices or averages of the
performance of similar securities. Also, the performance of the Fund may be
compared to that of other funds of comparable size and objectives as listed in
the rankings prepared by Lipper, Morningstar, or similar independent mutual fund
rating services, and the Fund may use evaluations published by nationally
recognized independent ranking services and publications. Any given performance
comparison should not be considered representative of the Fund’s performance for
any future period.
In advertising and sales
literature the Davis Funds may publish various statistics relating to investment
portfolios such as the average price to book and price to earnings ratios, beta,
alpha, R-squared, standard deviation, etc. of the Funds’ portfolio
holdings.
The performance of the
Funds may be compared in publications to the performance of various indices and
investments for which reliable performance data is available and to averages,
performance rankings or other information prepared by recognized mutual fund
statistical services. The Fund’s annual report and semi-annual report contain
additional performance information and are available on request and without
charge by calling Davis Funds toll-free at 1‑800‑279‑0279, Monday through Friday, 9 a.m.
to 6 p.m. Eastern time.
Moody’s
Credit Ratings
Aaa – Obligations rated Aaa are judged to be of
the highest quality, with minimal risk.
Aa – Obligations rated Aa are judged to be of
high quality and are subject to very low credit risk.
A – Obligations rated A are considered upper
medium-grade-obligations and are subject to low credit risk.
Baa – Obligations rated Baa are subject to
moderate credit risk. They are considered medium-grade and as such may possess
speculative characteristics.
Ba – Obligations rated Ba are judged to have
speculative elements and are subject to substantial credit risk.
B – Obligations rated B are considered
speculative and are subject to high credit risk.
Caa – Obligations rated Caa are judged to be of
poor standing and are subject to very high credit risk.
Ca – Obligations rated Ca are highly
speculative and are likely in, or very near, default, with some prospect of
recovery in principal and interest.
C – Obligations rated C are the lowest-rated
class of bonds, and are typically in default, with little prospect for recovery
of principal and interest.
Standard
& Poor’s Credit Ratings
AAA – Extremely strong capacity to meet
financial commitments. Highest rating.
AA – Very strong capacity to meet financial
commitments.
A – Strong capacity to meet financial
commitments, but somewhat susceptible to adverse economic conditions and changes
in circumstances.
BBB –Adequate capacity to meet financial
commitments, but more subject to adverse economic conditions.
BBB- – Considered lowest investment-grade by
market participants.
BB+ – Considered highest speculative-grade by
market participants.
BB – Less vulnerable in near-term but faces
major ongoing uncertainties to adverse business, financial and economic
conditions.
B – More vulnerable to adverse business,
financial and economic conditions but currently has the capacity to meet
financial commitments.
CCC – Currently vulnerable and dependent on
favorable business, financial and economic conditions to meet financial
commitments.
CC – Highly vulnerable; default has not yet
occurred, but is expected to be a virtual certainty.
C – Currently highly vulnerable to non-payment,
and ultimate recovery is expected to be lower than that of higher rated
obligations.
D – Payment default on a financial commitment
or breach or an imputed promise; also used when a bankruptcy petition has been
filed or similar action taken.
Appendix B:
Terms and Conditions for a Statement
of Intention
(Class A Shares
Only)
Terms
of Escrow:
1. Out of my initial purchase (or
subsequent purchases if necessary) 5% of the dollar amount specified in
this Statement will be held in escrow by SS&C Technologies, Inc. in
the form of shares (computed to the nearest full share at the public
offering price applicable to the initial purchase hereunder) registered in
my name. For example, if the minimum amount specified under this statement
is $100,000 and the public offering price applicable to transactions of
$100,000 is $10 a share, 500 shares (with a value of $5,000) would be held
in escrow.
2. In the event I should exchange
some or all of my shares to those of another mutual fund for which Davis
Distributors, LLC, acts as distributor, according to the terms of this
prospectus, I hereby authorize SS&C Technologies, Inc. to escrow the
applicable number of shares of the new fund, until such time as this
Statement is complete.
3. If my total purchases are at least equal to
the intended purchases, the shares in escrow will be delivered to me or to
my order.
4. If my total purchases are less
than the intended purchases I will permit Davis Distributors, LLC, my
dealer, or SS&C Technologies, Inc. to redeem the difference in the
dollar amount of the sales charge that would have originally been paid by
me, from the escrowed shares. |
|
5. I hereby irrevocably constitute
and appoint SS&C Technologies, Inc. my attorney to surrender for
redemption any or all escrowed shares with full power of substitution in
the premises.
6. Shares remaining after the
redemption referred to in Paragraph No. 4 will be credited to my
account.
7. The duties of SS&C
Technologies, Inc. are only such as are herein provided being purely
ministerial in nature, and it shall incur no liability whatever except for
willful misconduct or gross negligence so long as it has acted in good
faith. It shall be under no responsibility other than faithfully to follow
the instructions herein. It may consult with legal counsel and shall be
fully protected in any action taken in good faith in accordance with
advice from such counsel. It shall not be required to defend any legal
proceedings that may be instituted against it in respect of the subject
matter of this Agreement unless requested to do so and indemnified to its
satisfaction against the cost and expense of such
defense. |
Appendix C:
Summary of the Adviser’s Proxy Voting
Policies and Procedures
Davis Selected Advisers,
L.P. (“The Adviser”) votes on behalf of its clients in matters of corporate
governance through the proxy voting process. The Adviser takes its ownership
responsibilities very seriously and believes the right to vote proxies for its
clients’ holdings is a significant asset of the clients. The Adviser exercises
its voting responsibilities as a fiduciary, solely with the goal of maximizing
the value of its clients’ investments.
The Adviser votes proxies
with a focus on the investment implications of each issue. For each proxy vote,
The Adviser takes into consideration its duty to clients and all other relevant
facts known to The Adviser at the time of the vote. Therefore, while these
guidelines provide a framework for voting, votes are ultimately cast on a
case-by-case basis.
The Adviser has adopted
written Proxy Voting Policies and Procedures and established a Proxy Oversight
Group to oversee voting policies and deal with potential conflicts of interest.
In evaluating issues, the Proxy Oversight Group may consider information from
many sources, including the portfolio managers for each client account,
management of a company presenting a proposal, shareholder groups, and
independent proxy research services.
While the Proxy Oversight
Group may consider information from many sources, there is no requirement that
it consider each source and the Proxy Oversight Group shall have the discretion
in its professional judgement to determine each matter to be voted on. The
Adviser may utilize research provided by an independent third-party proxy
advisory firm. As a policy, the Adviser does not follow the voting
recommendations provided by these firms.
Clients may obtain a copy
of The Adviser’s Proxy Voting Policies and Procedures, and/or a copy of how
their own proxies were voted, by writing to:
Davis
Selected Advisers, L.P.
Attn: Chief Compliance Officer
2949 East Elvira
Road, Suite 101
Tucson, Arizona, 85756
Guiding
Principles
Creating Value for Existing
Shareholders. The most important factors that the Adviser will consider
in evaluating proxy issues are: (i) the company’s or management’s long-term
track record of creating value for shareholders. In general, the Adviser will
consider the recommendations of a management with a good record of creating
value for shareholders as more credible than the recommendations of a management
with a poor record; (ii) whether, in the Advisers’ estimation, the current
proposal being considered will significantly enhance or detract from long-term
value for existing shareholders; and (iii) whether a poor record of long term
performance resulted from poor management or from factors outside of
management’s control.
Other factors which the
Adviser will consider may include:
◾ |
Shareholder oriented
management. One of the factors that The Adviser considers in
selecting stocks for investment is the presence of shareholder-oriented
management. In general, such managements will have a large ownership stake
in the company. They will also have a record of taking actions and
supporting policies designed to increase the value of the company’s shares
and thereby enhance shareholder wealth. The Adviser’s research analysts
are active in meeting with top management of portfolio companies and in
discussing their views on policies or actions which could enhance
shareholder value. Whether management shows evidence of responding to
reasonable shareholder suggestions, and otherwise improving general
corporate governance, is a factor which may be taken into consideration in
proxy voting. |
◾ |
Allow
responsible management teams to run the business. Because
the Adviser tries, generally to invest with “owner oriented” managements
(see above), it will vote with the recommendation of management on most
routine matters, unless circumstances such as long standing poor
performance or a change from its initial assessment indicates otherwise.
Examples include the election of directors and ratification of auditors.
The Adviser supports policies, plans and structures that give management
teams the appropriate latitude to run the business in the way that is most
likely to maximize value for owners. Conversely, The Adviser opposes
proposals that limit management’s ability to do this. The Adviser will
generally vote with management on shareholder social and environmental
proposals on the basis that their impact on share value is difficult to
judge and is therefore best done by
management. |
◾ |
Preserve and expand the power of
shareholders in areas of corporate governance. Equity
shareholders are owners of the business, and company boards and management
teams are ultimately accountable to them. The Adviser will support
policies, plans and structures that promote accountability of the board
and management to owners, and align the interests of the board and
management with owners. Examples include: annual election of all board
members and incentive plans that are contingent on delivering value to
shareholders. The Adviser will generally oppose proposals that reduce
accountability or misalign interests, including but not limited to
classified boards, poison pills, excessive option plans, and repricing of
options. |
◾ |
Support compensation policies that
reward management teams appropriately for performance. The
Adviser believes that well thought out incentives are critical to driving
long-term shareholder value creation. Management incentives ought to be
aligned with the goals of long-term owners. In the Adviser’s view, the
basic problem of skyrocketing executive compensation is not high pay for
high performance, but high pay for mediocrity or worse. In situations
where the Adviser feels that the compensation practices at companies it
owns are not acceptable, it will exercise its discretion to vote against
compensation committee members and specific compensation
proposals. |
The Adviser exercises its
professional judgment in applying these principles to specific proxy votes. The
Adviser’s Proxy Policies and Procedures provide additional explanation of the
analysis which the Adviser may conduct when applying these guiding principles to
specific proxy votes.
Conflicts
of Interest
A potential conflict of
interest arises when The Adviser has business interests that may not be
consistent with the best interests of its client. The Adviser’s Proxy Oversight
Group is charged with resolving material potential conflicts of interest which
it becomes aware of. It is charged with resolving conflicts in a manner that is
consistent with the best interests of clients. There are many acceptable methods
of resolving potential conflicts, and the Proxy Oversight Group exercises its
judgment and discretion to determine an appropriate means of resolving a
potential conflict in any given situation:
◾ |
Votes consistent with
the “General Proxy Voting Policies,” are presumed to be consistent with
the best interests of clients; |
◾ |
The Adviser may
disclose the conflict to the client and obtain the client’s consent prior
to voting the proxy; |
◾ |
The Adviser may
obtain guidance from an independent
third-party; |
◾ |
The potential
conflict may be immaterial; or |
◾ |
Other reasonable
means of resolving potential conflicts of interest which effectively
insulate the decision on how to vote client proxies from the
conflict. |