<PAGE> 1
Davis Growth Opportunity Fund
Davis Financial Fund
Davis Real Estate Fund
Davis Convertible Securities Fund
Davis Government Bond Fund
Davis Government Money
Market Fund
Semi-Annual Report
June 30, 1997
Davis
Funds
<PAGE> 2
DAVIS SERIES, INC.
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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Dear Shareholder:
Market Overview
During the last six months, we continued to see strong equity market returns,
a healthy economy and low inflation. Looking ahead, we remain optimistic
about the role of U.S.-style capitalism, the ability for companies to grow
and prosper over time and the impact good management can have in creating
shareholder value.
Our approach is strictly long term and we judge every investment in relation
to the risk-free return available from bonds. With U.S. Treasury bonds now
yielding around 7%, investors could buy a zero-coupon Treasury and double
their money in 10 years or quadruple it in 20 years. That's a tough bogey
for stocks. Yet, over 70 years, stocks have compounded at more than 10% as
an annual average.
We think the economy has become less cyclical for several reasons. More than
70% of the jobs today are held in less cyclical service sectors of the
economy. Computers are used increasingly to manage inventories and that
helps prevent big inventory cycles. The Federal Reserve has taken to
announcing its intentions in advance so that interest rate shocks are less
likely. And we are still reaping an enormous peace dividend from the end of
the Cold War, as technology has been applied more and more to the private
sector and cutbacks in defense spending have eased budget deficit pressures.
The longest economic cycle on record lasted 107 months in the 1960s. We are
now in the 76th month of this expansion and see no apparent reason why the
cycle should come to a speedy end. In fact, our hope is that the economy
will fluctuate around a 2% to 3% growth rate, avoiding both boom and
recession, with interest rates ranging from 6% to 8% and inflation contained
at 2% to 4%.
The Dow has the potential to approach 10,000 around the turn of the century,
punctuated by volatility and corrections of up to 1,000 points along the way.
Even so, the Dow has advanced very rapidly, and the percentage gains will not
be what we are used to.
As long-term investors, we will undoubtedly be investing through market
drops, adding to our core holdings and building new positions at attractive
valuations so that we can continue to participate in the optimism that has
always followed pessimism. We encourage our shareholders to maintain a
similar long-term perspective as they seek to build wealth over time.
Sincerely,
/s/ Shelby M.C. Davis
- ----------------------------------
Shelby M.C. Davis
Chief Investment Officer
August 22, 1997
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DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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MANAGEMENT'S DISCUSSION AND ANALYSIS
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG,
CO-PORTFOLIO MANAGERS OF THE DAVIS FINANCIAL FUND
The Davis Financial Fund, which invests for capital growth, was our
best-performing fund for the five-year period ended June 30, 1997, with the
fund's Class A shares producing an average annual total return of 26.35% on
net asset value over that time frame. The Class A shares rose 22.04% on net
asset value over the latest six-month period and 51.20% for the year ending
June 30, 1997.
The fund's strong performance on its Class A shares has consistently placed
it among the top five financial services funds according to Lipper Analytical
Services, Inc.<F1> This includes a #4 ranking among 13 such funds for the
latest five-year period, a #1 ranking among 16 such funds for the latest
three-year period and a #2 ranking among 21 such funds for the latest
one-year period. Furthermore, the Davis Financial Fund's Class A shares held
Morningstar's highest ***** (five-star) rating overall and for the three- and
five-year periods through June 30, 1997.<F2>
FEINBERG NAMED CO-MANAGER OF DAVIS FINANCIAL FUND
In recognition of his strong contribution, Kenneth Charles Feinberg was named
Co-Portfolio Manager of the Davis Financial Fund in June 1997, joining
Christopher C. Davis who has been the fund's sole manager since its inception
in May 1991. "Ken is a talented investment professional with an encyclopedic
knowledge of the financial industry," says Chris Davis "In addition to his
strengths as an analyst and his proven record as a stock picker, Ken's sound
perspective and good humor make him an invaluable colleague. I am delighted
to be working with him as Co-Portfolio Manager of the Davis Financial Fund."
Feinberg joined Davis Selected Advisers in 1994 as a Research Analyst working
directly with Christopher Davis on the Davis Financial Fund. Previously, he
spent six years at Continental Corporation, a property and casualty insurance
company, as an Assistant Vice President in Investor Relations.
Q. What's your primary message for shareholders today?
A. The incredible performance and duration of this bull market has led to
careless thinking on the part of many investors. For example, many index
fund investors would undoubtedly be delighted if they could be guaranteed
the market would reach 10,000 in four years. But they may not be delighted
to learn that this performance equates to an annualized return of only 5.7%,
less than the return now available on government bonds of comparable
duration.
In the midst of this market euphoria, we continue to stick to the basics,
applying an investment approach that has been successfully employed by the
Davis family in bull and bear markets during the past 50 years. Most
importantly, we recognize that stocks are not merely pieces of paper, but
represent ownership interests in businesses. As a result, our entire
investment process boils down to two simple questions: What kind of
businesses do we want to own and how much should we pay for them?
2
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DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG,
CO-PORTFOLIO MANAGERS OF THE DAVIS FINANCIAL FUND - CONTINUED
At the annual meeting of Berkshire Hathaway this year, Chairman Warren
Buffett made the same point in a different way. He noted that in investing
there are two kinds of risks--business risk, or the risks inherent in the type
of business you own, and valuation risk. In today's high market, we think
it's more important than ever to focus on managing risk both in the
businesses that we buy and in the prices we pay for them.
Q. How do you control business risk?
A. Our basic philosophy is to buy financially strong growing companies at
value prices, what we call growth stocks in disguise, and to hold them for
the long term. In this regard, we think that financial stocks offer the
greatest opportunity for the 90s and beyond.
Financial companies are in non-faddish businesses that don't become obsolete,
which is an important consideration in controlling risk. These companies
also continue to benefit from favorable long-term demographic and
macroeconomic trends, as the baby boomers enter their peak earning and
investing years and as capitalism spreads around the world.
Financial stocks currently account for about two thirds of the portfolio. And
some of our largest holdings in this area did very well in the first half,
including American Express and BankAmerica as well as insurance stocks, such
as Transatlantic Holdings and Progressive Corp.<F6> We remain extremely bullish
about the long-term potential offered by our financial stocks, but given the
very strong appreciation these stocks have enjoyed, it would not be
surprising if they experienced a pause along the way.
Other types of business that we believe offer lower risk potential are
high-quality consumer companies, pharmaceutical companies that have broad
product ranges and some energy services companies. Because the fund's
overriding theme is looking for high-quality growth companies conservatively
valued at a discount to that growth, it has substantial holdings outside the
financial arena. Some of these stocks were among the fund's best performers
in the first half, including IBM, Martin Marietta Materials and SmithKline
Beecham.
As always, we also try to control risk by looking closely at the managements
with which we invest. We want managers who are doers, not bluffers.
Companies with first-class managements tend to anticipate change and can
become prudent acquirers of competitors during bad times.
Q. How do you control valuation risk?
A. We think of ourselves as opportunistic buyers. We generally buy
companies when they are under a cloud, that is, when some short-term
disappointment has created an opportunity to buy growth at a value price,
particularly at a low valuation relative to the market.
3
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DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG,
CO-PORTFOLIO MANAGERS OF THE DAVIS FINANCIAL FUND - CONTINUED
Because of our strong price discipline, our portfolio, by and large, has a
lower price/earnings multiple than the market. We think that buying
companies with modest but sustainable growth prospects, strong dividend
yields and solid balance sheets when expectations and valuations are low is a
good formula to follow in a high market.
Investing in a world-class company when it is out of favor because of
short-term events reduces the risk of incurring the calamitous losses that
occur when glamour stocks with high valuations fail to live up to the market's
great expectations and their prices plunge. We never lose sight of the fact
that our firm's long-term investment record has been built as much by
avoiding the big losers as by picking winners.
Q. What's your long-term outlook?
A. Our focus on risk should not lead anyone to think that we have changed
our firmly held conviction that equities offer the best way to create
long-term wealth. Because the fund's turnover remains low, changes in the
portfolio tend to be quite gradual and our philosophy is always the same:
We buy value and hold it for the long term.
Nevertheless the bullish story on equities is well known and we must temper
our optimism with the understanding that markets will rarely be as generous
as they have been in the last several years.
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER OF THE DAVIS REAL ESTATE
FUND
The Davis Real Estate Fund, which invests for growth and income primarily in
real estate investment trusts (REITs), has continued to perform well. The
fund's Class A shares increased 39.56% on net asset value during the one-year
period ended June 30, 1997 compared to an average return of 31.84% for the 55
real estate funds tracked by Lipper Analytical Services, Inc. In the first
half of 1997, the fund's Class A shares provided a return of 9.19% on net
asset value versus an average gain of 7.15% on the 65 real estate funds in
the Lipper real estate category.<F1>
Q. Could you provide some perspective on the real estate market today?
A. Real estate is a significant and growing asset class that investors
should not ignore. Several years ago the value of securitized real estate in
this country totaled approximately $70 billion. At the beginning of 1997,
that figure had increased to some $120 billion and by midyear it was around
$150 billion. In two or three years, the value of securitized real estate
could easily reach as high as $300 billion. This securitization trend is
having a profound and positive effect on how real estate companies,
particularly publicly traded real estate companies, raise capital and on the
quality of properties that are being developed or acquired.
Real estate is in the midst of a sharp recovery from the depression of the
late 1980s and early 1990s and continues to offer excellent investment
opportunities. However, the recovery has extended long enough that company
selection will become even more critical to performance than it has been in
the past.
4
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DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER OF THE DAVIS REAL ESTATE
FUND - CONTINUED
Q. What's the fundamental foundation for your long-term belief in real
estate?
A. The industry has gone through enormous structural changes that make
investing in REITs a much better idea than in the past. Lending criteria for
developers are far more stringent than before. Industry disclosure is vastly
improved. Managements now typically own 5% to 35% of the stock in their own
REITs, which aligns their interests with shareholders'. Having come through
the worst debacle since the depression, managements also have a new
conservative attitude. But perhaps most important of all, real estate today
is valued on the cash flow the property generates, similar to the way
non-real estate companies are valued, not on subjective property appraisals.
Q. Where is the fund finding particular opportunities?
A. As an industry group, REITs, on average, are trading with approximately a
7% yield at about 11 times cash flow, and that cash flow is projected to grow
approximately 8% a year over the next five years. The industry's
debt-to-capitalization ratio is about 35%, with coverage ratios of five times
interest. All in all, that is a very attractive profile--and it's just an
average. We're finding companies that we think can do even better.
The fund is continuing to emphasize three key real estate sectors:
full-service hotels, apartment buildings in California, and the office arena.
We've identified attractive opportunities in large national REITs, such as
Equity Residential Properties, Patriot American Hospitality, Public Storage,
Crescent Real Estate Equities and Boston Properties. We've also invested in
promising small companies, what we call "sub-radar" companies, that are not
followed by many analysts and that have performed exceedingly well, such as
Capstar Hotels, Parkway Properties and Jameson Inns. In addition, we have
found good values in super-regional REITs, such as Reckson Associates Realty,
Cali Realty and Centerpoint Properties.
Q. How do you choose investments?
A. Our investment approach is squarely in line with the signature Davis
investment discipline. We focus on companies with first-class management
teams who view real estate as an operating business that can generate
steadily increasing rental income and solid returns on capital by owning
properties where thriving businesses reside.
In addition, we evaluate the type of real estate, such as apartment buildings
or hotels, and the regions in which a REIT invests because different kinds of
properties and geographic areas will be more attractve at any given time. As
always, we concentrate heavily on valuation, looking for companies selling at
a discount to their expected cash flow growth rate over the next few years.
Q. Why should investors own real estate?
A. Unlike stocks and bonds, real estate is the one asset class that is still
undervalued. Even after the strong recovery in real estate to date, most
types of properties remain closer to their bottoms than their tops.
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DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER OF THE DAVIS REAL ESTATE
FUND - CONTINUED
Furthermore, given today's high stock prices, real estate can diversify and
anchor investors' portfolios. Real estate has historically been one of the
least volatile asset classes. The industry's beta<F5>, a standard measure of
price sensitivity, is currently around .40 versus a beta of 1.00 for the S&P
500, and the Davis Real Estate Fund's beta is only around .23.
One clear sign of our commitment to real estate as a long-term wealth builder
is that a large portion of the Davis Real Estate Fund is internally owned by
our employees, our board of directors and the Davis family.
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER OF THE DAVIS CONVERTIBLE
SECURITIES FUND
The Davis Convertible Securities Fund, which invests for both income and
growth, delivered an average annual total return on net asset value for Class
A shares of 21.69% over the three-year period, 34.27% over the one-year
period and total return of 12.12% over the six-month period ended June 30,
1997. That performance ranked the fund's Class A shares #1 among the 44
convertible securities funds tracked by Lipper Analytical Services over the
latest one-year period, #1 among 31 such funds over the latest three-year
period and #2 among the 23 such funds tracked over the latest five-year
period.<F1>
Q. What's the fund's overriding strategy?
A. Because convertible bonds can be exchanged for common stock of the
issuing company, they share features of both stocks and bonds. Our goal with
the Davis Convertible Securities Fund is to use convertibles to provide a
less risky way of participating in equity market total returns.
Convertible securities are well-suited for a variety of market conditions. If
the issuing company's common stock increases in price, the convertible
security will generally appreciate in value. If the underlying share price
falls, the income received as a bond provides some protection against
declining stock prices.
The Davis Convertible Securities Fund targets convertibles that we expect
will participate in at least 80% of the underlying common stock's
appreciation but that have only 50% of the downside risk if the price of the
common stock declines.
Q. Why has the fund's long-term performance been so strong?
A. The fund has done well because the companies whose convertible securities
we own have performed well. For example, we have found exceptional
opportunities in convertible securities among the businesses we know best at
Davis Selected Advisers, namely, financial services companies, which are
benefiting from the aging of the baby boomers. Among our favorites in this
area are SunAmerica, Conseco and Citicorp.<F6>
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DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
AN INTERVIEW WITH ANDREW A. DAVIS, PORTFOLIO MANAGER OF THE DAVIS CONVERTIBLE
SECURITIES FUND - CONTINUED
Another area of strong interest to us currently is the energy sector,
including companies such as Devon Energy, Unocal and Tosco. After declining
for more than a decade, worldwide demand and prices for oil have returned to
levels that make additional exploration worthwhile, and we believe that makes
oil services companies especially attractive.
We also like selected technology issues, favoring multiple product companies
that invest heavily in research and development, such as Texas Instruments.
Real estate continues to be an area of heavy concentration for the fund. Here
we invest both in real estate convertibles, such as Rouse and Public Storage,
and directly in real estate investment trusts, such as Bay Apartment
Communities and Cali Realty. Real estate stocks tend to perform similarly to
convertibles in that they provide some downside protection, are less volatile
than the equity market and offer attractive yields.
Q. What's your investment process?
A. We follow a three-step discipline. First, we carefully consider
valuations, regularly reviewing more than 500 convertibles and ranking them
from the cheapest to the most expensive according to their break-even time,
call protection, yield advantage, conversion premium and other relevant
criteria.
Second, once we have isolated convertibles that represent good value, we
analyze the investment potential of the underlying companies using the same
fundamental investment approach that has been honed by Davis Selected
Advisers for decades.
Third, having identified bargain convertibles with attractive underlying
stocks, we apply the 80%/50% rule. If we think the convertible can deliver
80% or more of the stock's upside potential while avoiding 50% of its
downside risk, it is a candidate for purchase.
Q. What's your market outlook?
A. With interest rates as low as they are, like many convertible funds,
we are experiencing more calls on some of our holdings. For example,
our Equitable convertibles, a real winner for the fund, which represented
its second largest position, were recently called away. Fortunately,
there are still promising issues available and we have been able to
reinvest capital fairly quickly.
We think convertible securities represent especially good opportunities
now, offering investors a lower-risk way of maintaining exposure to the
stock market, which is trading at very high levels. Because convertibles
combine some of the benefits of stocks (long-term growth potential) with
some of the benefits of bonds (regular interest payments) investors get
the best of both worlds.
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DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
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MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
AN INTERVIEW WITH GRAHAM Y. TANAKA, PORTFOLIO MANAGER OF THE DAVIS GROWTH
OPPORTUNITY FUND
The Davis Growth Opportunity Fund, which invests in a blend of small-, mid-
and large-cap growth stocks, provided a total return on net asset value for
Class A shares of 32.24% over the one-year period and 17.38% over the
six-month period ended June 30, 1997.<F1> This performance compares favorably
to the fund's benchmarks, easily outpacing the 10.3% return on the Russell
Index of 2000 small company stocks and the 13.0% return on the S&P 400 MidCap
Index, and close to the 20.5% return on the S&P 500 Index of large-cap stocks
in the first half of 1997.<F3>
Q. Can you provide some perspective on the performance of the market and
your fund in 1997?
A. The Davis Growth Opportunity Fund is focused on undervalued, dynamic
small- and mid-size companies with faster growth potential, but also holds
some large-cap stocks to balance the portfolio. The fund's ability to look
for the best opportunities across all market sectors has continued to be
beneficial for the portfolio.
In the second quarter, big-cap, blue-chip stocks advanced to such a premium
that we believe small- and mid-cap shares now have much higher upside
potential and are poised to significantly outperform larger-cap issues.
Smaller stocks are considerably cheaper because they haven't participated as
much in the big move by large-cap stocks during the last two years.
For this bull market to continue, we believe small- and mid-cap stocks have
to participate. This began to happen in the second quarter when the Russell
2000 Index and the S&P 400 MidCap Index rose almost as much as the S&P 500.
The trigger for this better performance, we think, will be institutions
rotating money out of higher priced, large-caps into the cheaper and more
attractive small- and mid-cap sectors as some pension funds are doing
already. Once this ball gets rolling, we expect it to build considerable
speed, and the fund's portfolio is squarely positioned to benefit.
Furthermore, small- and mid-cap sectors are now trading at such low valuation
levels that we believe they entail fairly low risk. If there is a correction
in the blue-chips, we think the small-caps won't correct as much because they
aren't overextended. This was also demonstrated over the past few months
when the big stocks experienced some downward dips while small-cap issues as
a group did not decline at all.
Q. Which of the fund's holdings have done particularly well so far this
year?
A. The fund enjoyed good performance across the board in virtually all areas
of its portfolio. Some of our bottom-up stock picks that corrected last year
rebounded nicely in the first half, including DAKA International, a
restaurant chain; Garden Ridge, a home-decorating superstore; and Thomas
Group, a business services company. In addition, some of our specialty
finance and insurance holdings, such as AFLAC and First Plus Financial,
performed well.<F6>
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DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
AN INTERVIEW WITH GRAHAM Y. TANAKA, PORTFOLIO MANAGER OF THE DAVIS GROWTH
OPPORTUNITY FUND - CONTINUED
The fund's anchor to windward has been our big-cap stocks, which also
registered strong gains--including Pfizer, Federal National Mortgage
Association, Philip Morris and Intel. Selective blue-chip stocks, such as the
ones we own, have the continued potential to do well, even as smaller-and
mid-cap shares generally outperform.
Furthermore, technology holdings such as ASM Lithography generated good
results. We think many of our semiconductor and semiconductor equipment
stocks are in the early stages of a multiyear cycle and have the potential to
be excellent performers over the next two or three years. In addition to
Intel and ASM Lithography, these stocks include Novellus Systems and Adaptec.
Q. How do you manage the fund to control risk while optimizing potential
returns?
One strategy that we've employed successfully to boost overall performance in
the last few years is to keep the portfolio fresh by replacing slow-moving
holdings with new ideas that have the potential for better long-term gains.
We're also working the mine harder with existing holdings. When stocks we
own have a interim spike up, we'll sell some of the shares while still
maintaining a long-term position. If the stock corrects, we'll buy the
shares back at a lower price in the future. We've successfully done that
twice with Novellus in the past year and a half. This technique helps reduce
portfolio volatility.
Another strategy is to focus on stocks that are less market sensitive and,
therefore, less volatile. Philip Morris is an example of a large-cap stock
that is driven more by issues related to tobacco negotiations and legislation
than by overall market factors. We also own small- and mid-cap stocks that
tend to trade on their own, rather than being market driven. These include
MFC Bank Corp., a Swiss merchant bank; Seitel, a leading seismic company with
an innovative approach for oil and gas exploration; and a new purchase for
the fund, K.V. Pharmaceutical Co.
Q. Why should investors own small- and mid-cap stocks?
A. From a diversification point of view, we believe investors may find it
beneficial now to broaden their exposure to the small- and mid-cap sectors.
It is rare to find any point in history when small-cap stocks represented
lower risk than large-cap stocks. Today, we believe investors have a unique
opportunity to buy faster growth, small- and mid-cap companies at such low
multiples that they truly entail less risk.
The Davis Growth Opportunity Fund will continue to hold large-caps to balance
the portfolio, but because these stocks have moved up so quickly, at the
margin, we have been moving some money into bargain-priced smaller-cap
stocks that we expect to outperform.
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DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
AN INTERVIEW WITH GRAHAM Y. TANAKA, PORTFOLIO MANAGER OF THE DAVIS GROWTH
OPPORTUNITY FUND - CONTINUED
Identifying opportunity is what the Davis Growth Opportunity Fund is about.
When we find good companies, we are not averse to holding them as they grow
up and get larger and larger. We've owned many of our biggest positions for
years. Stocks like Intel, AFLAC, Adaptec and Novellus were small-caps or
even micro-caps when we first bought them.
AN INTERVIEW WITH CAROLYN H. SPOLIDORO, MANAGER OF THE DAVIS GOVERNMENT BOND
FUND
The Davis Government Bond Fund seeks to provide stable yet competitive
current income consistent with capital preservation by investing in debt
securities that are guaranteed or issued by the U.S. government or its
agencies.<F4> The fund's total return on net asset value during the first half
of 1997 was 2.75% for Class A shares versus a return of 2.47% for the Lipper
general U.S. government fund category. For the one-year period ending on
that date, the Davis Government Bond Fund was up 7.24% versus 7.01% for the
Lipper average.<F1>
Q. What were the key factors that influenced the fund's performance?
A. At Davis Selected Advisers, we take a middle-of the-road approach to
managing fixed-income funds that emphasizes risk-adjusted performance. Put
another way, we seek to deliver competitive results with less risk or
volatility than our competitors. Our cautious approach offers downside
protection in bearish bond markets but may underperform in bullish bond
markets.
During the first quarter of 1997, interest rates rose due to inflationary
fears related to strong economic growth. Rates then declined a bit in the
second quarter as it became clearer that the economy was not overheating,
causing inflationary fears to ease.
As the market rallied in the second quarter, we sold certain collateralized
mortgage obligations (CMOs) at attractive prices. However, the rally
extended longer than we expected, and the fund did not fully participate in
those gains, which dampened second quarter results relative to our peers. On
a positive note, the fund is now well-situated to take advantage of
opportunities as the market turns.
Q. What is your general strategy for the fund?
A. We are positioning the fund as an all-weather or middle-of-the-road
fund. This balanced approach is designed to smooth out fund performance and
provide stability in a variety of market climates. Our plan is to hold
securities with a somewhat even distribution of maturities over the
intermediate range of the yield curve, allowing us to capture most of the
yield and potential return advantage of long-term bonds with substantially
less risk.
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DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
AN INTERVIEW WITH CAROLYN H. SPOLIDORO, MANAGER OF THE DAVIS GOVERNMENT BOND
FUND - CONTINUED
The fund's strategy is to diversify among different types of government
securities, maturity lengths, call provisions and interest rate coupons.
Owning a wide variety of fixed-income securities is beneficial because
different kinds of securities react differently to interest rate changes. In
addition, agency securities tend to offer slightly higher yields than
comparable U.S. Treasury securities.
The Davis Government Bond Fund's current portfolio breakdown is: 17% CMOs,
36% mortgage pools, 30% government agencies and 17% cash. The portfolio's
duration is 4.0 years and its average life is 6.2 years.
Q. Why should investors choose a government bond fund?
A. A government bond fund can help create a strong foundation for any
long-term financial program. The Davis Government Bond Fund provides
potentially higher monthly income than is offered by most short-term
investments and can be an excellent means of broadening portfolio
diversification for investors seeking to balance equity holdings with
fixed-income securities of the highest credit quality.
Q. What is your forecast for the bond market?
A. We think all the good news has already been built into the bond market.
As investors become increasingly comfortable with the idea that it is
possible to have greater growth without inflation, our concern is that the
market's euphoria may be overdone. Furthermore, we think it is important
that the inflation hawks at the Federal Reserve avoid complacency and remain
ready to consider a further round of tightening sooner, rather than later, if
conditions warrant.
While we believe it is more likely that interest rates may move somewhat
higher, rather than lower, we do not anticipate major interest rate shifts at
this point. As a result, barring unexpected extraordinary developments, we
do not foresee any substantial changes in the composition of the fund's
portfolio. We look for steady results and a continuation of our current
policies focused on maintaining portfolio balance and positioning the fund
for low interest rate risk and high credit quality.
[FN]
<F1> Lipper rankings and comparisons are based on total returns unadjusted for
commissions.
<F2> Morningstar proprietary ratings reflect historical risk-adjusted
performance as of June 30, 1997. Subject to change every month, Morningstar
ratings are calculated from a fund's three-, five- and 10-year average annual
returns in excess of 90-day Treasury bill (T-bill) returns, with appropriate
fee adjustments and a risk factor that reflects fund performance below 90-day
T-bill returns. The Class A shares of the Davis Financial Fund were rated
against 1,997 and 1,134 speciality financial funds for the three- and five-
year periods, respectively. Ten percent of the funds in an investment
category receive five stars; 22.5%, four stars; 35%, three stars; 22.5%, two
stars; and 10%, one star. Star ratings for the fund's other classes of shares
may vary and are available only for those classes with at least three years
of performance history. Past performance is no guarantee of future results.
11
<PAGE> 13
DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
<F3> The Standard & Poor's 500 Index, the Standard & Poor's 400 MidCap Index and
the Russell 2000 Index are unmanaged indexes that have no specific investment
objective. Investments cannot be made directly into the indexes. The S&P
500 Index, the S&P 400 MidCap Index and the Russell 2000 Index include net
dividends reinvested, but do not take into account any sales charge.
<F4> Shares of the fund, like all mutual fund shares, are not federally insured
or guaranteed.
<F5> Beta measures a stock's volatility relative to the rest of the stock
market. The Standard & Poor's 500 Index has a beta coefficient of 1. Any
stock with a higher beta is more volatile than the market and any stock with
a lower beta can be expected to rise and fall more slowly than the market. A
conservative investor whose main concern is preservation of capital should
focus on stocks with low betas, whereas one willing to take high risks in an
effort to earn high rewards should look for high-beta stocks.
<F6> Portfolio holdings are subject to change.
<TABLE>
THE DAVIS FUNDS PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS ON CLASS A SHARES<F*>
(ALL PERIODS THROUGH JUNE 30, 1997)
<CAPTION>
One Three Five Life of
Fund Year Years Years Fund<F**>
- ---- ---- ----- ----- ---------
<S> <C> <C> <C> <C>
Davis Growth Opportunity Fund 25.93% ---- ---- 28.03%
Davis Government Bond Fund 2.06% ---- ---- 4.96%
Davis Financial Fund 43.99% 31.95% 25.12% 25.83%
Davis Convertible Securities Fund 27.90% 19.73% 16.39% 16.12%
Davis Real Estate Fund 32.92% 17.89% ---- 18.63%
<FN>
<F*>Total returns include all capital gains and losses, as well as the
reinvestment of all dividends and capital gains distributions. Past
performance is no guarantee of future results. Prices of shares will
fluctuate so that an investment, when redeemed, may be worth more or less
than originally invested. The performance figures are calculated after
deducting the sales commission, currently a maximum charge of 4.75%, which is
payable upon purchase of Class A shares.
<F**>The inception date for the Class A shares of the Davis Growth Opportunity
Fund and the Davis Government Bond Fund was December 1, 1994. The inception
date for the Davis Financial Fund, Class A shares, was May 1, 1994. The
inception date for the Davis Convertible Securities Fund, Class A shares, was
May 1, 1992. The inception date for the Davis Real Estate Fund, Class A
shares, was January 3, 1994.
</TABLE>
12
<PAGE> 14
DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
<TABLE>
THE DAVIS FUNDS PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS ON CLASS B SHARES<F*>
(ALL PERIODS THROUGH JUNE 30, 1997)
<CAPTION>
One Three Five Ten Life of
Fund Year Years Years Years Fund<F**>
- ---- ---- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C>
Davis Growth Opportunity Fund 28.30% 23.08% 18.79% 13.06% ----
Davis Government Bond Fund 3.43% 4.69% 3.95% 5.70% ----
Davis Financial Fund 46.84% ---- ---- ---- 39.56%
Davis Convertible Securities Fund 30.01% ---- ---- ---- 25.27%
Davis Real Estate Fund 34.17% ---- ---- ---- 23.68%
<FN>
<F*>Total returns include all capital gains and losses, as well as the
reinvestment of all dividends and capital gains distributions. Past
performance is no guarantee of future results. Prices of shares will
fluctuate so that an investment, when redeemed, may be worth more or less
than originally invested. The performance figures are calculated after
deducting the maximum contingent deferred sales charge applicable, which is
payable upon redemption of Class B shares.
<F**>The inception date for the Class B shares of the Davis Financial Fund,
was December 27, 1994. The inception date for the Davis Convertible
Securities Fund, Class B shares, was February 3, 1995. The inception date for
the Davis Real Estate Fund, Class B shares, was December 27, 1994.
</TABLE>
13
<PAGE> 15
DAVIS FUNDS
P.O. Box 1688, 124 East Marcy Street
Santa Fe, New Mexico 87501
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
<TABLE>
THE DAVIS FUNDS PERFORMANCE UPDATE
TOTAL RETURNS ON CLASS Y SHARES<F*>
(ALL PERIODS THROUGH JUNE 30, 1997)
<CAPTION>
Life of
Fund Fund<F**>
- ---- ---------
<S> <C>
Davis Growth Opportunity Fund ----
Davis Government Bond Fund ----
Davis Financial Fund 8.56%
Davis Convertible Securities Fund 19.95%
Davis Real Estate Fund 23.31%
<FN>
<F*>Total returns include all capital gains and losses, as well as the
reinvestment of all dividends and capital gains distributions. Past
performance is no guarantee of future results. Prices of shares will
fluctuate so that an investment, when redeemed, may be worth more or less
than originally invested.
<F**>The inception date for the Class Y shares of the Davis Financial Fund,
was March 10, 1997. The inception date for the Davis Convertible Securities
Fund, Class Y shares, was November 11, 1996. The inception date for the
Davis Real Estate Fund, Class Y shares, was November 8, 1996.
</TABLE>
14
<PAGE> 16
<TABLE>
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS GROWTH OPPORTUNITY FUND
<CAPTION>
VALUE
SHARES (NOTE 1)
========================================================================
<S> <C>
COMMON STOCK - (98.86%)
BUSINESS SERVICES - (1.37%)
92,500 Thomas Group, Inc.<F*> $ 1,063,750
-----------
CAPITAL EQUIPMENT - (12.52%)
62,400 ASM Lithography Holdings N.V.<F*> 3,644,550
70,500 Novellus Systems, Inc.<F*> 6,080,625
-----------
9,725,175
-----------
CONSUMER PRODUCTS & SERVICES - (7.64%)
84,000 CUC International, Inc.<F*> 2,168,250
84,900 Philip Morris Cos., Inc. 3,767,438
-----------
5,935,688
-----------
ELECTRONICS - (21.82%)
166,800 Adaptec, Inc.<F*> 5,796,300
78,800 Intel Corp. 11,157,587
-----------
16,953,887
-----------
ENERGY - (11.03%)
29,700 Anadarko Petroleum Corp. 1,782,000
135,000 Brigham Exploration Company<F*> 1,105,312
22,200 Forcenergy, Inc.<F*> 674,325
14,700 Ocean Energy, Inc.<F*> 679,875
113,800 Seitel, Inc.<F*> 4,324,400
-----------
8,565,912
-----------
FINANCIAL SERVICES - (12.72%)
2,000 Associates First Capital Corp. 111,000
16,700 Fannie Mae 728,537
189,100 FIRSTPLUS Financial Group, Inc.<F*> 6,429,400
89,000 IMC Mortgage Co.<F*> 1,485,187
132,000 MFC Bancorp Ltd. 1,126,125
-----------
9,880,249
-----------
INSURANCE - (8.01%)
131,675 AFLAC Inc. 6,221,644
-----------
MANUFACTURING - (0.96%)
49,375 Brown & Sharpe Manufacturing, Class A<F*> 746,797
-----------
PHARMACEUTICALS - (11.54%)
48,600 KV Pharmaceutical Company<F*> 804,938
57,500 Pfizer, Inc. 6,871,250
515,000 Viragen Inc.<F*> 1,287,500
-----------
8,963,688
-----------
15
<PAGE> 17
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS GROWTH OPPORTUNITY FUND - CONTINUED
<CAPTION>
VALUE
SHARES/PRINCIPAL (NOTE 1)
========================================================================
<S> <C>
COMMON STOCK - CONTINUED
RESTAURANTS - (5.75%)
204,000 DAKA International, Inc.<F*> $ 2,741,250
56,000 IHOP Corp.<F*> 1,729,000
-----------
4,470,250
-----------
RETAIL - (3.10%)
192,000 Garden Ridge Corp.<F*> 2,412,000
-----------
SOFTWARE - (1.87%)
147,900 Business Objects S.A. - ADR<F*> 1,451,269
-----------
TELECOMMUNICATIONS - (0.53%)
70,000 TII Industries, Inc.<F*> 406,875
-----------
Total Common Stock - (identified
cost $34,655,012) 76,797,184
-----------
SHORT TERM - ( 2.02%)
$1,575,000 Federal Home Loan Bank Discount Note,
5.55%, 07/01/97 - (identified cost
$1,575,000) 1,575,000
-----------
TOTAL INVESTMENTS - (100.88%) -
(identified cost $36,230,012) - <Fa> 78,372,184
LIABILITIES LESS OTHER ASSETS - (0.88%) (685,580)
-----------
NET ASSETS - (100%) $77,686,604
===========
<FN>
<F*>Non-Income Producing Security.
<Fa>Aggregate cost for Federal Income Tax purposes is $36,230,012. At June 30, 1997
unrealized appreciation (depreciation) of securities for Federal Income Tax purposes
is as follows:
<S> <C>
Unrealized appreciation $44,717,669
Unrealized depreciation (2,575,497)
-----------
Net unrealized appreciation $42,142,172
===========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
16
<PAGE> 18
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS GOVERNMENT BOND FUND
<TABLE>
<CAPTION> VALUE
PRINCIPAL (NOTE 1)
===================================================================================================
<S> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION - MORTGAGE POOLS - (14.97%)
$ 38,032 9.00%, 07/01/01 $ 39,066
378,034 8.50%, 08/01/01 388,430
98,238 9.00%, 08/01/02 101,584
22,953 8.50%, 12/01/02 23,197
23,222 9.00%, 06/01/03 23,713
115,002 9.25%, 01/01/04 119,082
1,102,888 6.50%, 01/01/04 1,089,444
6,182 9.25%, 11/01/07 6,381
93,773 9.25%, 09/01/08 98,696
94,925 10.00%, 07/01/09 101,154
1,191,705 6.50%, 07/01/11 1,171,935
40,166 9.00%, 07/01/16 42,677
219,251 9.00%, 08/01/16 232,935
275,750 9.00%, 01/01/17 292,985
198,544 9.00%, 03/01/17 210,022
67,937 9.00%, 08/01/17 72,183
38,259 9.50%, 12/01/19 41,116
145,061 9.50%, 02/01/20 155,215
-----------
Total FHLMC - (identified cost $4,224,396) 4,209,815
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - MORTGAGE POOLS - ( 6.47%)
10,606 12.00%, 12/01/00 11,068
52,340 9.75%, 02/01/04 54,532
169,809 10.25%, 10/01/09 185,145
66,207 10.75%, 07/01/13 73,800
241,533 9.25%, 10/01/16 259,346
100,026 8.059%, 09/01/19<F*> 104,377
43,118 7.73%, 03/01/24<F*> 45,148
1,084,398 7.50%, 01/01/27 1,087,109
-----------
Total FNMA - (identified cost $1,792,791) 1,820,525
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - MORTGAGE POOLS - (18.22%)
52,890 6.00% with various maturities to 2024 54,140
40,896 6.50% with various maturities to 2023 41,979
1,194,259 7.00% with various maturities to 2026 1,168,128
1,299,221 8.50% with various maturities to 2022 1,354,830
741,139 9.00% with various maturities to 2017 793,796
191,547 10.00% with various maturities to 2020 205,132
85,141 10.25% with various maturities to 2016 92,590
217,229 10.50% with various maturities to 2016 238,790
330,229 11.25% with various maturities to 2011 358,298
502,362 11.50% with various maturities to 2015 570,267
67,158 13.00% with various maturities to 2014 119,759
17
<PAGE> 19
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS GOVERNMENT BOND FUND - CONTINUED
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
===================================================================================================
<S> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - MORTGAGE POOLS - Continued
$ 81,837 14.25% with various maturities to 2014 $ 94,598
30,292 14.75% with various maturities to 2001 31,494
-----------
Total GNMA - (identified cost $5,039,968) 5,123,801
-----------
MEDIUM TERM NOTES - ( 27.53%)
800,000 Federal Home Loan Bank, 7.24%, 11/09/10 770,824
1,215,000 Federal Home Loan Mortgage Corporation, 6.615%, 03/03/04 1,183,045
1,000,000 Federal Home Loan Mortgage Corporation, 7.225%, 05/17/05 997,410
1,000,000 Federal Home Loan Mortgage Corporation, 6.66%, 12/05/05 970,470
1,000,000 Federal Home Loan Mortgage Corporation, 6.63%, 01/12/09 948,640
900,000 Federal Home Loan Mortgage Corporation, 8.00%, 06/20/11 922,752
1,000,000 Federal National Mortgage Association, 6.85%, 09/12/05 980,510
1,000,000 Federal National Mortgage Association, 7.15%, 11/03/10 966,490
-----------
Total Medium Term Notes - (identified cost $7,877,947) 7,740,141
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS & REAL ESTATE MORTGAGE
INVESTMENT CONDUITS - (17.08%)
22,732 Federal Home Loan Mortgage Corporation, 122 F, 8.75%, 10/15/05 22,891
134,198 Federal Home Loan Mortgage Corporation, 1606 LC, 7.391%, 05/15/08<F*> 133,192
1,150,750 Federal Home Loan Mortgage Corporation, 1702BL, 7.00%, 07/15/21 1,119,703
1,000,000 Federal National Mortgage Association, 1993-30 PL, 7.00%, 07/25/20 984,920
31,624 Federal National Mortgage Association, 1991-115ZZ, 8.50%, 10/25/20 31,804
300,000 Federal National Mortgage Association, 1992-174H, 7.25%, 09/25/21 293,589
1,000,000 Federal National Mortgage Association, 1993-155TC, 7.00%, 03/25/23 992,480
1,250,000 Federal National Mortgage Association, 1993-120N, 7.00%, 07/25/23 1,223,362
-----------
Total CMOs & REMICs - (identified cost $4,820,485) 4,801,941
-----------
18
<PAGE> 20
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS GOVERNMENT BOND FUND - CONTINUED
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
===================================================================================================
<S> <C>
SHORT TERM - (14.83%)
$2,050,000 Federal Home Loan Mortgage Corporation Discount Note, 5.40%, 07/01/97 $ 2,050,000
2,120,000 Federal Home Loan Mortgage Corporation Discount Note, 5.42%, 07/03/97 2,119,362
-----------
- (identified cost $4,169,362) 4,169,362
-----------
TOTAL INVESTMENTS - (99.10%) - (identified cost $27,924,949) <Fa> 27,865,585
OTHER ASSETS LESS LIABILITIES - (0.90%) 252,083
-----------
NET ASSETS - (100%) $28,117,668
===========
<FN>
<Fa>Aggregate cost for Federal Income Tax purposes is $27,924,949. At June 30, 1997
unrealized appreciation (depreciation) of securities for Federal Income Tax purposes
is as follows:
<S> <C>
Unrealized appreciation $ 284,890
Unrealized depreciation (344,254)
-----------
Net unrealized depreciation $ (59,364)
===========
<F*> The interest rates on floating rate securities, shown as of June 30, 1997,
may change monthly or less frequently and are based on indices of market
interest rates.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
19
<PAGE> 21
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
===================================================================================================
<S> <C>
FEDERAL FARM CREDIT BANK - (5.38%)
$23,500,000 5.44%, 08/14/97 Discount Note - (identified cost $23,343,751) $ 23,343,751
------------
FEDERAL HOME LOAN BANK - (3.36%)
9,355,000 5.41%, 07/09/97 Discount Note 9,323,777
5,285,000 5.41%, 08/07/97 Discount Note 5,255,614
------------
Total Federal Home Loan Bank -
(identified cost $14,579,391) 14,579,391
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - (43.87%)
4,610,000 5.41%, 07/01/97 Discount Note 4,610,000
20,300,000 5.42%, 07/02/97 Discount Note 20,296,944
27,715,000 5.43%, 07/03/97 Discount Note 27,706,639
15,615,000 5.43%, 07/07/97 Discount Note 15,600,868
6,000,000 5.48%, 07/08/97 Discount Note 5,993,607
41,840,000 5.43%, 07/14/97 Discount Note 41,757,959
4,780,000 5.50%, 07/15/97 Discount Note 4,769,776
5,080,000 5.40%, 07/17/97 Discount Note 5,067,808
9,010,000 5.42%, 07/17/97 Discount Note 8,988,296
8,700,000 5.42%, 07/18/97 Discount Note 8,677,733
13,675,000 5.51%, 07/18/97 Discount Note 13,639,418
12,575,000 5.51%, 07/23/97 Discount Note 12,532,657
20,945,000 5.43%, 09/16/97 Discount Note 20,701,741
------------
Total Federal Home Loan Mortgage Corporation -
(identified cost $190,343,446) 190,343,446
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - (46.62%)
25,000,000 5.42%, 07/10/97 Discount Note 24,966,125
13,815,000 5.51%, 07/10/97 Discount Note 13,795,970
26,630,000 5.44%, 07/11/97 Discount Note 26,589,759
31,220,000 5.39%, 07/15/97 Discount Note 31,154,559
2,520,000 5.43%, 07/16/97 Discount Note 2,514,299
4,170,000 5.46%, 07/1797 Discount Note 4,159,881
2,600,000 5.37%, 07/21/97 Discount Note 2,592,243
10,755,000 5.43%, 07/22/97 Discount Note 10,720,934
15,215,000 5.42%, 07/24/97 Discount Note 15,162,314
4,630,000 5.40%, 07/25/97 Discount Note 4,613,332
24,955,000 5.40%, 07/28/97 Discount Note 24,853,932
12,800,000 5.44%, 08/18/97 Discount Note 12,707,157
8,890,000 5.43%, 08/21/97 Discount Note 8,821,614
19,840,000 5.44%, 09/12/97 Discount Note 19,621,143
------------
Total Federal National Mortgage Association -
(identified cost $202,273,262) 202,273,262
------------
TOTAL INVESTMENTS - (99.23%) - (identified cost $430,539,850) - <Fa> 430,539,850
OTHER ASSETS LESS LIABILITIES - (0.77%) 3,339,154
------------
NET ASSETS - (100%) $433,879,004
============
<FN>
<Fa> Aggregate cost for Federal income tax purposes is $430,539,850.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
20
<PAGE> 22
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS FINANCIAL FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
===================================================================================================
<S> <C>
COMMON STOCK - (84.72%)
AGRICULTURE - (0.91%)
90,000 Archer-Daniels-Midland Co. $ 2,115,000
------------
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (18.36%)
155,000 BankAmerica Corp. 10,007,187
257,361 Bank of East Asia Ltd. 1,072,988
40,000 Bank of New York Co., Inc. 1,740,000
46,800 Barnett Banks, Inc. 2,457,000
40,000 First Bank System, Inc. 3,415,000
24,000 Golden West Financial Corp. 1,680,000
25,000 Greenpoint Financial Corp. 1,664,062
311,688 Lloyds TSB Group PLC 3,202,565
18,000 J.P. Morgan & Co., Inc. 1,878,750
29,000 Norwest Corp. 1,631,250
90,000 State Street Corporation 4,162,500
60,000 TCF Financial Corp. 2,962,500
25,333 Wells Fargo & Co. 6,827,244
------------
42,701,046
------------
BUILDING MATERIALS - (4.07%)
150,000 Martin Marietta Materials, Inc. 4,856,250
110,400 Masco Corporation 4,609,200
------------
9,465,450
------------
CONSUMER PRODUCTS - (3.63%)
160,000 Philip Morris Cos., Inc. 8,431,250
------------
ENERGY - ( 3.10%)
47,000 Burlington Resources, Inc. 2,073,875
30,000 Cooper Cameron Corporation<F*> 1,402,500
28,000 Halliburton Co. 2,219,000
25,000 Smith International, Inc.<F*> 1,518,750
------------
7,214,125
------------
FINANCIAL SERVICES - (39.64%)
INSURANCE - (25.10%)
2,250 Alleghany Corp.<F*> 489,375
58,050 Allied Group, Inc. 2,205,900
40,000 The Allstate Corp. 2,920,000
15,375 American International Group, Inc. 2,296,641
28,500 Aon Corporation 1,474,875
20,900 Argonaut Group, Inc. 621,775
32,000 W.R. Berkley Corp. 1,872,000
20,000 Chubb Corp. 1,337,500
26,000 Cincinnati Financial Corp. 2,058,875
20,000 Executive Risk Inc. 1,040,000
62,500 FPIC Insurance Group, Inc.<F*> 1,421,875
59,809 General Re Corp. 10,885,238
21
<PAGE> 23
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS FINANCIAL FUND - CONTINUED
<CAPTION>
VALUE
SHARES (NOTE 1)
===================================================================================================
<S> <C>
COMMON STOCK - CONTINUED
FINANCIAL SERVICES - CONTINUED
INSURANCE - CONTINUED
40,000 Harleysville Group, Inc. $ 1,522,500
80,000 Leucadia National Corp.<F*> 2,475,083
30,000 Mercury General Corp. 2,182,500
1,509 Nuernberger Beteil AGAKT LITA<F*> 1,297,804
36,000 Orion Capital Corp. 2,655,000
71,000 Progressive Corp. (Ohio) 6,177,000
100,000 Risk Capital Holdings, Inc.<F*> 2,075,000
31,500 State Auto Financial Corp. 720,563
68,900 Transatlantic Holdings Inc. 6,838,325
14,250 Trenwick Group, Inc. 539,719
69,000 20th Century Industries 1,449,000
42,000 Vesta Insurance Group, Inc. 1,816,500
------------
58,373,048
------------
OTHER FINANCIAL SERVICES - (14.54%)
114,000 American Express Co. 8,493,000
50,000 Charles Schwab Corp. 2,034,375
73,200 Donaldson, Lufkin & Jenrette Inc. 4,373,700
34,400 Jefferies Group, Inc. 1,960,800
143,950 Morgan Stanley, Dean Witter, Discover & Co. 6,198,847
81,000 SunAmerica, Inc. 3,948,750
108,000 Travelers Group Inc. 6,810,750
------------
33,820,222
------------
PHARMACEUTICALS - (1.97%)
50,000 SmithKline Beecham PLC - ADR 4,581,250
------------
RAILROAD - (1.38%)
47,000 Burlington Northern Santa Fe 1,797,500
20,000 Union Pacific Corp. 1,410,000
------------
3,207,500
------------
RESTAURANT & FOOD - (4.05%)
195,000 McDonald's Corp. 9,420,937
------------
TECHNOLOGY - (6.90%)
70,000 Hewlett-Packard Company 3,920,000
36,000 Intel Corp. 5,097,375
40,000 International Business Machines Corporation 3,607,500
50,000 Komag Inc.<F*> 820,312
30,000 Novellus Systems, Inc.<F*> 2,587,500
------------
16,032,687
------------
22
<PAGE> 24
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS FINANCIAL FUND - CONTINUED
<CAPTION>
VALUE
SHARES/PRINCIPAL (NOTE 1)
===================================================================================================
<S> <C>
COMMON STOCK - CONTINUED
TELECOMMUNICATIONS - (0.71%)
60,000 AirTouch Communications, Inc.<F*> $ 1,642,500
------------
Total Common Stock - (identified cost $124,673,665) 197,005,015
------------
CONVERTIBLE BOND - (0.60%)
$ 750,000 Cincinnati Financial Corp., Sr. Deb., Conv., 5.50%, 05/01/02
- (identified cost $980,626) 1,383,750
------------
SHORT TERM - ( 13.30%)
11,920,000 Federal Home Loan Bank Discount Note, 5.47%, 07/04/97 11,916,378
15,420,000 Federal Home Loan Mortgage Corporation Discount Note, 5.41%, 07/01/97 15,420,000
3,600,000 Federal National Mortgage Association Discount Note, 5.37%, 07/21/97 3,589,260
------------
- (identified cost $30,925,638) 30,925,638
------------
TOTAL INVESTMENTS - (98.62%) - (identified cost $156,579,929) - <Fa> 229,314,403
OTHER ASSETS LESS LIABILITIES - (1.38%) 3,217,113
------------
NET ASSETS - (100%) $232,531,516
============
<FN>
<F*>Non-Income Producing Security.
<Fa>Aggregate cost for Federal Income Tax purposes is $156,579,929. At June 30, 1997
unrealized appreciation (depreciation) of securities for Federal Income Tax purposes
is as follows:
<S> <C>
Unrealized appreciation $ 73,172,632
Unrealized depreciation (438,158)
------------
Net unrealized appreciation $ 72,734,474
============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
23
<PAGE> 25
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS CONVERTIBLE SECURITIES FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
===================================================================================================
<S> <C>
CONVERTIBLE PREFERRED STOCK - (36.57%)
BANKS AND SAVINGS & LOAN ASSOCIATIONS - ( 7.95%)
24,300 Banc One Corp., $3.50, Ser. C Conv. Pfd $ 2,296,350
47,500 Morgan Stanley Group Inc. - Citicorp, 5.50%, Ser. CCI Conv. Pfd 5,124,063
-----------
7,420,413
-----------
COMMUNICATIONS - (4.48%)
45,500 AirTouch Communications, Inc., 4.25%, Ser. C Conv. Pfd. 2,184,000
40,000 Loral Space & Communications, Inc., 6.00%, 144A Conv. Pfd. 2,000,000
-----------
4,184,000
-----------
DIVERSIFIED (REIT) - (1.13%)
20,000 Vornado Realty Trust, 6.50%, Ser. A Conv. Pfd. 1,060,000
-----------
ENERGY - (6.48%)
30,000 Devon Financing Trust, $3.25, Ser. 144A Conv. Pfd. 2,115,000
8,300 Devon Financing Trust, $3.25, Conv. Pfd. 585,150
27,000 Tosco Financing Trust, 5.75%, Ser. 144A Conv. Pfd. 1,539,000
31,320 Unocal Corp., 6.25%, Conv. Pfd. 1,808,730
-----------
6,047,880
-----------
HOTELS - (1.75%)
27,900 Host Marriot Financial Trust, 6.75%, Ser. 144A Conv. Pfd. 1,632,150
-----------
INDUSTRIAL (REIT) - (0.60%)
20,000 Security Capital Industrial Trust, 7.00%, Ser. B Cum. Conv. Pfd 557,500
-----------
INSURANCE - (3.72%)
32,000 SunAmerica Inc., Depository Shares, $2.78, Ser. D Conv. Pfd. 3,468,000
-----------
MARINE SUPPORT - (1.22%)
22,000 Hvide Capital Trust, 6.50%, Ser. 144A Conv. Pfd.<F*> 1,144,000
-----------
MULTI-FAMILY HOUSING (REITS) - (1.60%)
28,300 Oasis Residential, Inc., $2.25, Ser. A Cum. Conv. Pfd. 732,263
25,000 Security Capital Pacific Trust Ser. A Conv. Pfd 762,500
-----------
1,494,763
-----------
PULP & PAPER - (2.24%)
15,000 James River Corp. of Virginia, 9.00%, Ser. P Conv. Pfd. 517,500
24,500 Sonoco Products Co., $2.25, Ser. A Conv. Pfd. 1,571,063
-----------
2,088,563
-----------
REAL ESTATE DEVELOPMENT - (3.62%)
70,000 Rouse Company, $3.00, Ser. B Conv. Pfd. 3,377,500
-----------
SELF STORAGE (REIT) - (1.78%)
34,000 Public Storage, Inc., 8.25%, Conv. Pfd. 1,666,000
-----------
Total Convertible Preferred Stock - (identified cost $24,806,508) 34,140,769
-----------
24
<PAGE> 26
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
<CAPTION>
VALUE
PRINCIPAL (NOTE 1)
===================================================================================================
<S> <C>
CONVERTIBLE BONDS - (25.85%)
BUILDING & HOME PRODUCTS - (2.60%)
$ 250,000 Home Depot Inc., Conv. Sub. Deb., 3.25%, 10/01/01 $ 283,750
2,000,000 Masco Corp., Conv. Sub. Deb., 5.25%, 02/15/12 2,145,000
-----------
2,428,750
-----------
ELECTRONICS - (1.67%)
297,000 General Instruments Corp., Conv. Sub. Deb., 5.00%, 06/15/00 332,640
600,000 Texas Instruments, Inc., Conv. Sub. Deb., 2.75%, 09/29/02 1,225,500
-----------
1,558,140
-----------
ENERGY - (1.64%)
1,950,000 Baker Hughes Inc., Sr. Liquid Yield Option Notes, Zero Cpn.,
05/05/08<F*> 1,533,187
-----------
ENGINEERING - (0.58%)
500,000 Thermo Electron Corp., 144A Conv. Sub. Deb., 4.25%, 01/01/03 543,750
-----------
FINANCIAL SERVICES - (2.20%)
500,000 Alex Brown, Inc., Conv. Sub. Deb., 5.75%, 06/12/01 2,052,910
-----------
HOTELS - (1.26%)
1,100,000 Hilton Hotels Corp., Conv. Sub. Notes, 5.00%, 05/15/06 1,177,000
-----------
INDUSTRIAL (REIT) - (0.93%)
700,000 Liberty Property Trust, Conv. Sub. Deb., 8.00%, 07/01/01 871,500
-----------
INSURANCE - (10.24%)
900,000 Conseco Inc., Conv. Sub. Deb., 6.50%, 10/01/05 2,589,750
1,000,000 Cincinnati Financial Corp. Conv. Sub. Deb., 5.50%, 05/01/02 1,845,000
3,803,000 Equitable Companies Inc., Conv. Sub. Deb., 6.125%, 12/15/24 5,124,542
-----------
9,559,292
-----------
MANAGEMENT SERVICES - (0.57%)
1,000,000 Valhi Inc., Conv. Sub. Deb., Zero Cpn., 10/20/07<F*> 532,500
-----------
MEDICAL SERVICES - (0.29%)
250,000 Phycor Inc., Conv. Sub. Deb., 4.50%, 02/15/03 270,000
-----------
MULTI-FAMILY HOUSING (REIT) - (0.70%)
500,000 Camden Property Trust, Conv. Sub. Deb., 7.33%, 04/01/01 653,125
-----------
OFFICE SUPPLIES - (0.97%)
750,000 U S Office Products Co., Conv. Sub. Notes, 5.50%, 02/01/01 904,688
-----------
POLLUTION CONTROL/WASTE MANAGEMENT - (1.74%)
1,500,000 USA Waste Services Inc., Conv. Sub. Notes, 4.00%, 02/01/02 1,621,875
-----------
RETAIL (REIT) - (0.40%)
350,000 Mid-Atlantic Realty Trust, Conv. Sub. Deb., 7.625%, 09/15/03 374,937
-----------
TRANSPORTATION - (0.06%)
500,000 Florida West Airlines, Inc., 8.00%, 03/25/99<Fdag> 50,000
-----------
Total Convertible Bonds - (identified cost $18,612,908) 24,131,654
-----------
25
<PAGE> 27
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
<CAPTION>
VALUE
SHARES (NOTE 1)
===================================================================================================
<S> <C>
COMMON STOCK - (32.19%)
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (5.72%)
41,774 Bank of New York Co., Inc.. $ 1,817,169
27,453 First Bank System, Inc. 2,343,800
21,006 Norwest Corp. 1,181,588
-----------
5,342,557
-----------
CONSUMER PRODUCTS - (2.72%)
77,000 RJR Nabisco Holdings Corp. 2,541,000
-----------
DIVERSIFIED (REIT) - (4.37%)
56,600 Vornado Realty Trust 4,082,275
-----------
ENERGY - (1.27%)
30,706 Noble Affiliates, Inc. 1,187,938
-----------
HOTELS (REIT) - (0.58%)
21,400 Patriot American Hospitality Inc. 545,700
-----------
INSURANCE - (5.03%)
48,695 Leucadia National Corp.<F*> 1,506,502
50,541 Travelers Group Inc. 3,187,242
-----------
4,693,744
-----------
MULTI-FAMILY HOUSING (REITS) - (3.49%)
55,200 Avalon Properties, Inc. 1,580,100
45,400 Bay Apartment Communities, Inc. 1,679,800
-----------
3,259,900
-----------
OFFICE /INDUSTRIAL (REITS/REOCS) - (6.55%)
27,000 Beacon Properties Corp. 901,125
16,700 Cali Realty Corp. 567,800
58,156 Centerpoint Properties Corp. 1,846,453
8,460 Crescent Operating, Inc.<F*> 109,980
84,600 Crescent Real Estate Equities Company 2,686,050
-----------
6,111,408
-----------
OIL & GAS - (0.85%)
35,213 Noble Drilling Corp.<F*> 794,493
-----------
RETAIL (REIT) - (0.78%)
22,750 Kimco Realty Corp. 722,312
-----------
TRANSPORTATION/RAIL - (0.83%)
8,574 Burlington Northern Santa Fe Corp. 770,588
-----------
Total Common Stock - (identified cost $23,170,719) 30,051,915
-----------
26
<PAGE> 28
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS CONVERTIBLE SECURITIES FUND - CONTINUED
<CAPTION>
VALUE
UNITS/PRINCIPAL (NOTE 1)
===================================================================================================
<S> <C>
WARRANTS - (1.58%)
14,500 Intel Corp., Expiring 03/14/98 - (identified cost $1,530,955) $ 1,472,656
-----------
SHORT TERM - (3.58%)
$3,340,000 Federal Home Loan Bank Discount Note, 5.55%, 07/01/97
- (identified cost $3,340,000) 3,340,000
-----------
TOTAL INVESTMENTS - (99.77%) - (identified cost $71,461,090) - <Fa> $93,136,994
OTHER ASSETS LESS LIABILITIES - (0.23%) 213,261
-----------
NET ASSETS - (100%) $93,350,255
===========
<FN>
<F*>Non-Income Producing Security.
<Fdag>This security is in default and is not currently paying interest.
<Fa>Aggregate cost for Federal Income Tax purposes is $71,461,090. At June 30, 1997
unrealized appreciation (depreciation) of securities for Federal Income Tax purposes
is as follows:
<S> <C>
Unrealized appreciation $22,313,476
Unrealized depreciation (637,572)
-----------
Net unrealized appreciation $21,675,904
===========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
27
<PAGE> 29
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS REAL ESTATE FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
===================================================================================================
<S> <C>
COMMON STOCK - (87.23%)
APARTMENTS (REITS) - (18.51%)
133,400 Ambassador Apartments Inc. $ 3,318,325
54,000 Apartment Investment & Management Company 1,525,500
60,600 Avalon Properties, Inc. 1,734,675
68,900 Bay Apartment Communities, Inc. 2,549,300
72,533 Camden Property Trust 2,293,856
108,200 Equity Residential Properties Trust 5,139,500
63,200 Essex Property Trust 2,030,300
77,000 Gables Residential Trust 1,944,250
90,300 Irvine Apartment Communities, Inc. 2,663,850
22,000 Oasis Residential, Inc. 517,000
75,000 Post Properties, Inc. 3,042,188
78,900 Security Capital Pacific Trust 1,804,838
40,000 United Dominion Realty Trust Inc. 567,500
------------
29,131,082
------------
DIVERSIFIED (REITS) - (1.45%)
100,000 First Union Real Estate Investments 1,412,500
40,000 Pacific Gulf Properties, Inc. 880,000
------------
2,292,500
------------
GOLF (REITS) - (3.24%)
132,000 Golf Trust of America, Inc. 3,671,250
41,000 National Golf Properties, Inc. 1,424,750
------------
5,096,000
------------
HOTELS & LODGING - (17.23%)
65,000 Boykin Lodging Company (REIT) 1,555,937
45,000 Bristol Hotel Co.<F*> 1,732,500
95,500 CapStar Hotel Company<F*> 3,056,000
115,900 FelCor Suite Hotels, Inc. (REIT) 4,317,275
52,000 Host Marriot Corp.<F*> 926,250
231,100 Jameson Inns Inc. 2,700,981
148,600 Patriot American Hospitality, Inc. (REIT). 3,789,300
300,000 Servico, Inc.<F*> 4,462,500
150,000 Sunstone Hotel Investors, Inc. (REIT) 2,175,000
56,300 Starwood Lodging Trust (REIT). 2,403,306
------------
27,119,049
------------
INDUSTRIAL (REITS) - (6.84%)
90,700 Centerpoint Properties Corp. 2,879,725
30,000 First Industrial Realty Trust 877,500
89,000 Liberty Property Trust 2,213,875
164,800 Reckson Associates Realty Corp. 3,790,400
28
<PAGE> 30
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS REAL ESTATE FUND - CONTINUED
<CAPTION>
VALUE
SHARES (NOTE 1)
===================================================================================================
<S> <C>
COMMON STOCK - CONTINUED
INDUSTRIAL (REITS) - CONTINUED
20,952 Security Capital Industrial Trust $ 450,468
18,000 Weeks Corp. 562,500
------------
10,774,468
------------
OFFICE SPACE (REITS) - (19.35%)
30,000 Alexandria Real Estate Equities, Inc. 658,125
45,000 Beacon Properties Corp. 1,501,875
225,000 Boston Properties, Inc. 6,187,500
148,400 Cali Realty Corp. 5,045,600
30,000 CarrAmerica Realty Corp. 862,500
19,240 Crescent Operating, Inc.<F*> 250,120
192,400 Crescent Real Estate Equities Company 6,108,700
27,500 Duke Realty Investments, Inc. 1,113,750
67,700 Kilroy Realty Corporation 1,709,425
167,000 Parkway Properties Inc. 4,488,125
85,000 Prentiss Properties Trust 2,178,125
10,000 Spieker Properties Inc. 351,875
------------
30,455,720
------------
REAL ESTATE DEVELOPMENT - (4.84%)
136,000 Catellus Development Corporation<F*> 2,465,000
30,000 Rouse Company 885,000
200,000 Trizec Hahn Corporation 4,275,000
------------
7,625,000
------------
RESORTS/THEME PARKS - (1.75%)
75,000 Premier Parks Inc.<F*> 2,760,938
------------
RETAIL (REITS) - (10.06%)
26,800 Chelsea GCA Realty Inc. 1,018,400
15,000 Developers Diversified Realty Corp. 600,000
100,000 IRT Property Company 1,175,000
75,300 JDN Realty Corp. 2,353,125
39,450 Kimco Realty Corp. 1,252,537
66,800 The Macerich Co. 1,853,700
25,000 Regency Realty Corp. 681,250
86,964 Simon De Bartolo Group Inc. 2,782,848
30,000 Urban Shopping Centers Inc. 956,250
33,350 Vornado Realty Trust 2,405,369
18,000 Weingarten Realty Investors 760,500
------------
15,838,979
------------
STORAGE (REITS) - (3.96%)
103,300 Public Storage, Inc. 3,021,525
15,000 Sovran Self Storage Inc. 438,750
29
<PAGE> 31
DAVIS SERIES, INC.
SCHEDULE OF INVESTMENTS At June 30, 1997 (Unaudited)
DAVIS REAL ESTATE FUND - CONTINUED
<CAPTION>
VALUE
SHARES/PRINCIPAL (NOTE 1)
===================================================================================================
<S> <C>
COMMON STOCK - CONTINUED
STORAGE (REITS) - CONTINUED
25,400 Storage Trust Realty $ 673,100
55,000 Storage USA Inc. 2,103,750
------------
6,237,125
------------
Total Common Stock - (identified cost $114,224,104) 137,330,861
------------
CONVERTIBLE PREFERRED STOCK - (2.67%)
REAL ESTATE - (2.67%)
16,700 Oasis Residential, Inc., $2.25, Ser. A Cum. Conv. Pfd. 432,112
50,000 Rouse Company, $3.00, Ser. B Conv. Pfd. 2,412,500
10,000 Security Capital Pacific Trust, $1.75, Ser. A Conv. Pfd. 305,000
20,000 Vornado Realty Trust, 6.50%, Ser. A Conv. Pfd. 1,060,000
------------
Total Preferred Stock - (identified cost $4,144,525) 4,209,612
------------
CONVERTIBLE CORPORATE BONDS - (0.20%)
REAL ESTATE - (0.20%)
$ 250,000 Liberty Property Trust, Conv. Sub. Deb., 8.00%, 07/01/01
Total Convertible Bonds - (identified cost $250,000) 311,250
------------
SHORT TERM - (8.47%)
13,330,000 Federal Home Loan Mortgage Corporation Discount Note, 5.39%, 07/01/97
- (identified cost $13,330,000) 13,330,000
------------
TOTAL INVESTMENTS - (98.57%) - (identified cost $131,948,629) - <Fa> 155,181,723
OTHER ASSETS LESS LIABILITIES - (1.43%) 2,253,072
------------
NET ASSETS - (100%) $157,434,795
============
<FN>
<F*>Non-Income Producing Security.
<Fa>Aggregate cost for Federal Income Tax purposes is $131,948,629. At June 30, 1997
unrealized appreciation (depreciation) of securities for Federal Income Tax purposes
is as follows:
<S> <C>
Unrealized appreciation $ 23,718,050
Unrealized depreciation (484,956)
------------
Net unrealized appreciation $ 23,233,094
============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
30
<PAGE> 32
<TABLE>
DAVIS SERIES, INC.
STATEMENT OF ASSETS AND LIABILITIES At June 30, 1997 (Unaudited)
========================================================================================================================
<CAPTION>
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at
value (see schedules of
investments) $78,372,184 $27,865,585 $430,539,850 $229,314,403 $93,136,994 $155,181,723
Cash 25,446 71,944 31,232 20,773 7,853 -
Receivables:
Dividends and interest 33,960 226,406 2,324 209,877 384,306 554,939
Capital stock sold 83,881 50,810 5,969,188 4,470,024 881,242 3,421,109
Securities sold - - - - 993,731 -
Note receivable (Note 7) - - - 1,499,963 - -
----------- ----------- ------------ ------------ ----------- ------------
Total assets 78,515,471 28,214,745 436,542,594 235,515,040 95,404,126 159,157,771
----------- ----------- ------------ ------------ ----------- ------------
LIABILITIES:
Cash Overdraft - - - - - 98,057
Payables:
Investment securities
purchased 677,738 - - 2,552,846 2,016,200 1,246,750
Capital stock reacquired 6,388 9,408 1,080,803 144,499 9,937 121,192
Accrued expenses 81,113 62,064 399,933 194,541 8,895 179,528
Commissions payable to
distributor (Note 3) 63,628 25,605 - 91,638 18,839 77,449
Distributions payable - - 1,182,854 - - -
----------- ----------- ------------ ------------ ----------- ------------
Total liabilities 828,867 97,077 2,663,590 2,983,524 2,053,871 1,722,976
----------- ----------- ------------ ------------ ----------- ------------
NET ASSETS (Note 5) $77,686,604 $28,117,668 $433,879,004 $232,531,516 $93,350,255 $157,434,795
=========== =========== ============ ============ =========== ============
CLASS A SHARES
Net assets $33,690,074 $16,662,084 $414,099,304 $170,114,429 $54,688,172 $ 84,876,161
Shares outstanding 1,515,879 2,896,071 414,099,304 7,717,730 2,320,649 3,693,821
Net asset value and redemp-
tion price per share (net
assets/shares outstanding) $ 22.22 $ 5.75 $ 1.00 $ 22.04 $ 23.57 $ 22.98
======= ====== ====== ======= ======= =======
Maximum offering price per
share (100/95.25 of net
asset value) $ 23.33 $ 6.04 $ 1.00 $ 23.14 $ 24.75 $24.13
======= ====== ====== ======= ======= =======
CLASS B SHARES
Net assets $43,996,530 $11,455,584 $ 13,924,781 $ 61,925,922 $ 7,228,974 $ 52,104,130
Shares outstanding 2,023,819 1,995,515 13,924,781 2,843,910 310,043 2,279,111
Net asset value, offering
and redemption price per
share (net assets/shares
outstanding) (Note 3) $ 21.74 $ 5.74 $ 1.00 $ 21.77 $ 23.32 $ 22.86
======= ====== ====== ======= ======= =======
CLASS C SHARES
Net assets $ 5,854,919
Shares outstanding 5,854,919
Net asset value, offering
and redemption price per
share (net assets/shares
outstanding) $ 1.00
======
CLASS Y SHARES
Net assets $ 491,165 $31,433,109 $ 20,454,504
Shares outstanding 22,264 1,329,523 884,742
Net asset value, offering
and redemption price per
share (net assets/shares
outstanding) $ 22.06 $ 23.64 $ 23.12
======= ======= =======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
31
<PAGE> 33
<TABLE>
DAVIS SERIES, INC.
STATEMENT OF OPERATIONS Six months ended June 30, 1997 (Unaudited)
========================================================================================================================
<CAPTION>
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
(LOSS):
Income:
Dividends (net of foreign
taxes withheld of $20,030,
$869 and $1,800 for
Financial Fund,
Convertible Securities
Fund and Davis Real Estate
Fund, respectively) $ 175,385 $ - $ - $ 1,003,440 $1,305,667 $ 2,251,857
Interest 236,783 1,062,407 11,043,033 504,139 517,148 405,120
----------- ---------- ----------- ----------- ---------- -----------
Total income 412,168 1,062,407 11,043,033 1,507,579 1,822,815 2,656,977
----------- ---------- ----------- ----------- ---------- -----------
Expenses:
Management fees (Note 2) 266,896 72,644 981,031 595,776 312,390 384,509
Custodian fees 39,151 40,815 69,526 61,309 34,786 50,079
Transfer agent fees
Class A 23,659 14,572 88,777 51,268 7,975 34,516
Class B 37,415 9,145 1,828 23,633 2,465 29,725
Class C - - 622 - - -
Class Y - - - 50 37 77
Audit fees 6,300 7,500 3,300 6,600 3,700 5,400
Legal fees 4,263 1,931 25,838 16,897 5,100 6,236
Accounting fees (Note 2) 14,585 10,415 8,335 12,500 16,665 16,665
Reports to shareholders 15,663 4,999 13,054 7,540 1,203 7,162
Directors' fees and expenses 11,863 5,974 21,414 9,576 6,474 7,093
Registration and filing fees 19,683 21,058 54,884 24,304 8,299 31,356
Miscellaneous 8,258 19,827 33,217 5,172 864 11,763
Distribution plan payments
(Note 3)
Class A 27,979 20,741 - 78,335 28,348 57,068
Class B 201,542 60,559 - 136,742 19,380 157,534
----------- ---------- ----------- ----------- ---------- -----------
Total expenses 677,257 290,180 1,301,826 1,029,702 447,686 799,183
Fee Reduction (Note 6) (3,163) (789) (1,291) (347) (6,177) (1,304)
----------- ---------- ----------- ----------- ---------- -----------
Net expenses 674,094 289,391 1,300,535 1,029,355 441,509 797,879
----------- ---------- ----------- ----------- ---------- -----------
Net investment
income (loss) (261,926) 773,016 9,742,498 478,224 1,381,306 1,859,098
----------- ---------- ----------- ----------- ---------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain from
investment transactions 2,125,836 189,048 - 1,805,314 4,156,369 541,093
Net increase (decrease) in
unrealized appreciation/
depreciation of investments
during the period 9,555,933 (228,524) - 29,781,767 4,107,278 8,062,358
----------- ---------- ----------- ----------- ---------- -----------
Net realized and
unrealized gain (loss)
on investments gain
(loss) on investments 11,681,769 (39,476) - 31,587,081 8,263,647 8,603,451
----------- ---------- ----------- ----------- ---------- -----------
Net increase in net
assets resulting from
operations $11,419,843 $ 733,540 $ 9,742,498 $32,065,305 $9,644,953 $10,462,549
=========== ========== =========== =========== ========== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
32
<PAGE> 34
<TABLE>
DAVIS SERIES, INC.
STATEMENT OF CHANGES IN NET ASSETS Six months ended June 30, 1997 (Unaudited)
========================================================================================================================
<CAPTION>
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (261,926) $ 773,016 $ 9,742,498 $ 478,224 $ 1,381,306 $ 1,859,098
Net realized gain from
investment transactions 2,125,836 189,048 - 1,805,314 4,156,369 541,093
Net increase (decrease) in
unrealized appreciation/
depreciation of
investments 9,555,933 (228,524) - 29,781,767 4,107,278 8,062,358
----------- ----------- ------------ ------------ ----------- ------------
Net increase in net assets
resulting from operations 11,419,843 733,540 9,742,498 32,065,305 9,644,953 10,462,549
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A - (498,784) (9,477,877) - (433,971) (477,558)
Class B - (309,794) (197,104) - (26,441) (229,289)
Class C - - (67,517) - - -
Class Y - - - - (301,079) (181,211)
CAPITAL SHARE
TRANSACTIONS (NOTE 5) (234,201) (2,894,748) 22,462,710 84,673,481 6,544,714 86,269,227
----------- ----------- ------------ ------------ ----------- ------------
Total increase
(decrease) in
net assets 11,185,642 (2,969,786) 22,462,710 116,738,786 15,428,176 95,843,718
NET ASSETS:
Beginning of period 66,500,962 31,087,454 411,416,294 115,792,730 77,922,079 61,591,077
----------- ----------- ------------ ------------ ----------- ------------
End of period $77,686,604 $28,117,668 $433,879,004 $232,531,516 $93,350,255 $157,434,795
=========== =========== ============ ============ =========== ============
NET ASSETS CONSIST OF:
Undistributed net investment
income (deficit) $ - $ (35,562) $ - $ 478,224 $ 619,816 $ 971,040
Paid-in capital 33,418,596 32,528,952 433,879,004 157,513,504 66,997,689 132,689,568
Accumulated net realized
gain (loss) 2,125,836 (4,316,358) - 1,805,314 4,056,846 541,093
Unrealized appreciation
(depreciation) on
investments 42,142,172 (59,364) - 72,734,474 21,675,904 23,233,094
----------- ----------- ------------ ------------ ----------- ------------
$77,686,604 $28,117,668 $433,879,004 $232,531,516 $93,350,255 $157,434,795
=========== =========== ============ ============ =========== ============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
33
<PAGE> 35
<TABLE>
DAVIS SERIES, INC.
STATEMENT OF CHANGES IN NET ASSETS Year ended December 31, 1996
========================================================================================================================
<CAPTION>
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (752,215) $ 1,892,804 $ 17,866,321 $ 826,707 $ 2,179,172 $ 1,500,187
Net realized gain from
investment transactions 5,082,446 170,808 - 5,277,490 5,214,600 733,835
Net increase (decrease) in
unrealized appreciation/
depreciation of
investments 5,946,731 (1,062,065) - 20,747,872 10,270,464 12,119,634
----------- ----------- ------------ ------------ ----------- -----------
Net increase in net assets
resulting from operations 10,276,962 1,001,547 17,866,321 26,852,069 17,664,236 14,353,656
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A - (1,178,705) (17,525,480) (835,471) (2,094,357) (1,269,681)
Class B - (714,099) (266,131) (2,523) (33,281) (146,572)
Class C - - (74,710) - - -
Class Y - - - - (92,432) (105,733)
Realized gains from
investment transactions
Class A (2,051,127) - - (4,907,119) (2,972,683) (385,179)
Class B (3,031,319) - - (370,371) (142,573) (123,445)
Class Y - - - (2,229,742) (209,063)
Paid-in capital
Class A (18,603) (322,082) - (21,227) (24,207) (319,474)
Class B (27,494) (223,986) - (721) (437) (26,294)
Class Y - - - - (1,614) (21,298)
CAPITAL SHARE
TRANSACTIONS (NOTE 5) 3,136,657 (4,936,341) 51,126,506 13,441,577 7,714,677 20,110,368
----------- ----------- ------------ ------------ ----------- -----------
Total increase
(decrease) in
net assets 8,285,076 (6,373,666) 51,126,506 34,156,214 17,787,587 31,857,285
NET ASSETS:
Beginning of period 58,215,886 37,461,120 360,289,788 81,636,516 60,134,492 29,733,792
----------- ----------- ------------ ------------ ----------- -----------
End of period $66,500,962 $31,087,454 $411,416,294 $115,792,730 $77,922,079 $61,591,077
=========== =========== ============ ============ =========== ===========
NET ASSETS CONSIST OF:
Paid-in capital $33,914,723 $35,423,700 $411,416,294 $ 72,840,023 $60,452,976 $46,420,341
Accumulated net realized
gain (loss) - (4,505,407) - - (99,523) -
Unrealized appreciation
on investments 32,586,239 169,161 - 42,952,707 17,568,626 15,170,736
----------- ----------- ------------ ------------ ----------- -----------
$66,500,962 $31,087,454 $411,416,294 $115,792,730 $77,922,079 $61,591,077
=========== =========== ============ ============ =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
34
<PAGE> 36
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS
At June 30, 1997 (Unaudited)
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Davis Series, Inc. is registered under the Investment Company Act of 1940 as
amended, as a diversified, open-end management investment company. The
Company operates as a series fund issuing shares of common stock in the
following six series:
DAVIS GROWTH OPPORTUNITY FUND seeks to achieve growth of capital. It invests
primarily in common stocks and other equity securities, and may invest in
both domestic and foreign issuers.
DAVIS GOVERNMENT BOND FUND seeks to achieve current income. It invests in
debt securities which are obligations of, or which are guaranteed by, the
U.S. Government, its agencies or instrumentalities.
DAVIS GOVERNMENT MONEY MARKET FUND seeks to achieve as high a level of
current income as is consistent with the principle of preservation of capital
and maintenance of liquidity. It invests in debt securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements involving such securities. There is no assurance that
the Fund will be able to maintain a stable net asset value of $1.00 per
share.
DAVIS FINANCIAL FUND seeks to achieve growth of capital. It invests
primarily in common stocks and other equity securities, and will concentrate
investments in companies principally engaged in the banking and financial
services industries.
DAVIS CONVERTIBLE SECURITIES FUND seeks to achieve total return. The Fund
invests primarily in convertible securities, which combine fixed income with
potential for capital appreciation. It may invest in lower rated bonds
commonly known as "junk bonds," so long as no such investment would cause
35% or more of the Fund's net assets to be so invested.
DAVIS REAL ESTATE FUND seeks to achieve total return through a combination of
growth and income. It invests primarily in securities of companies
principally engaged in or related to the real estate industry or which own
significant real estate assets or which primarily invest in real estate
financial instruments.
Because of the risk inherent in any investment program, the Company cannot
ensure that the investment objective of any of its series will be achieved.
The Company accounts separately for the assets, liabilities and operations of
each series. Each series offers shares in at least three classes, Class A,
Class B and Class Y. The Class A shares are sold with a front-end sales
charge, except for shares of Davis Government Money Market Fund which are
sold at net asset value and the Class B shares are sold at net asset value
and may be subject to a contingent deferred sales charge upon redemption.
Class Y shares were offered commencing September 1, 1996. The Davis
Government Money Market Fund offers Class C shares which are sold at net
asset value. All classes have identical rights with respect to voting
(exclusive of each Class distribution arrangement), liquidation and
distributions. The following is a summary of significant accounting policies
followed by the Company in the preparation of its financial statements.
35
<PAGE> 37
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1997 (Unaudited)
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
A. VALUATION OF SECURITIES - Securities listed on national securities
exchanges are valued at the last reported sales price on the day of
valuation. Securities traded in the over the counter market and listed
securities for which no sale was reported on that date are stated at the
average of closing bid and asked prices. Securities for which market
quotations are not readily available are valued at fair value as determined
by the Board of Directors. The Davis Government Money Market Fund uses the
amortized cost method of valuing investment securities which represents fair
value as determined by the Board of Directors.
B. CURRENCY TRANSLATION - The market values of all assets and liabilities
denominated in foreign currencies are recorded in the financial statements
after translation to the U.S. dollar based upon the mean between the bid and
offered quotations of the currencies against U.S. dollars on the date of
valuation. The cost basis of such assets and liabilities is determined based
upon historical exchange rates. Income and expenses are translated at
average exchange rates in effect as accrued or incurred.
C. FORWARD CURRENCY CONTRACTS - The Company may enter into forward
purchases or sales of foreign currencies to hedge certain foreign currency
denominated assets and liabilities against declines in market value relative
to the U.S. dollar. Forward currency contracts are marked-to-market daily
and the change in market value is recorded by the Company as an unrealized
gain or loss. When the forward currency contract is closed, the Company
records a realized gain or loss equal to the difference between the value of
the forward currency contract at the time it was opened and value at the time
it was closed. Investments in forward currency contracts may expose the
Company to risks resulting from unanticipated movements in foreign currency
exchange rates or failure of the counterparty to the agreement to perform in
accordance with the terms of the contract.
D. FEDERAL INCOME TAXES - It is the Company's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its income to shareholders.
Therefore, no provision for federal income tax is required. At June 30, 1997,
the Davis Government Bond Fund had approximately $4,505,400 of capital loss
carryovers available to offset future capital gains, if any, of which
$2,603,500, $1,110,900, $84,300, $376,100, $298,600 and $32,000 expire in
1997, 1998, 1999, 2001, 2002 and 2003, respectively.
E. USE OF ESTIMATES IN FINANCIAL STATEMENTS - In preparing financial
statements in conformity with generally accepted accounting principles,
management makes estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements, as well as
the reported amounts of income and expenses during the reporting period.
Actual results may differ from these estimates.
F. OTHER - Securities transactions are accounted for on the trade date
(date the order to buy or sell is executed) with gain or loss on the sale of
securities being determined based upon identified cost. Interest income is
recorded on the accrual basis. Discounts on debt securities are amortized in
accordance with the requirements of the Internal Revenue Code. Dividends and
distributions to shareholders are recorded on the ex-dividend date.
36
<PAGE> 38
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1997 (Unaudited)
================================================================================
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATE
Advisory fees are paid monthly to Davis Selected Advisers, L.P. the
Funds' investment adviser (the "Adviser"). The fee for the Davis Government
Money Market Fund is .50 of 1% of the first $250 million of average daily net
assets, .45 of 1% of the next $250 million of average daily net assets and
.40 of 1% of average daily net assets in excess of $500 million. The fee for
the Davis Government Bond Fund is .50 of 1% average daily net assets. The
rate for the Davis Growth Opportunity Fund, Davis Financial Fund, Davis
Convertible Securities Fund and Davis Real Estate Fund is .75 of 1% of the
average daily net assets for the first $250 million, .65 of 1% of the average
net assets on the next $250 million, and .55 of 1% of the av-erage daily net
assets in excess of $500 million.
Effective June 1, 1997, Davis Distributors, LLC (the "Distributor"), a
subsidiary of the the Adviser, became the Underwriter and Distributor of the
Funds. Until June 1, 1997, the Adviser also acted as Underwriter and
Distributor. The Distributor is paid for registering Fund shares for sale in
various states. The fee for the six months ended June 30, 1997 for the Davis
Growth Opportunity Fund, Davis Government Bond Fund, Davis Government Money
Market Fund, Davis Financial Fund, Davis Convertible Securities Fund and
Davis Real Estate Fund, amounted to $9,000 for each fund. The Distributor is
also paid for certain transfer agent services. The fee for the six months
ended June 30, 1997 for the Davis Growth Opportunity Fund, Davis Government
Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, Davis
Convertible Securities Fund and Davis Real Estate Fund amounted to $3,792,
$2,626, $5,588, $7,572, $1,669 and $6,354, respectively.
The Adviser is paid for certain accounting services. The fee for the
six months ended June 30, 1997 for the Davis Growth Opportunity Fund, Davis
Government Bond Fund, Davis Government Money Market Fund, Davis Financial
Fund, Davis Convertible Securities Fund and Davis Real Estate Fund amounted
to $14,585, $10,415, $8,335, $12,500, $16,665 and $16,665, respectively.
Certain directors and officers of the Company are also directors and officers
of the general partner of Davis Selected Advisers, L.P.
Tanaka Capital Management, Inc. ("Tanaka"), acts as the sub-adviser of
the Davis Growth Opportunity Fund. Tanaka manages the day to day investment
operations for the Davis Growth Opportunity Fund. Tanaka also provides
investment advisory services to employee benefit plans, institutions, trusts
and individuals. Graham Y. Tanaka is the owner of Tanaka. The Company pays
no fees directly to Tanaka. Tanaka receives from the Adviser a reallowed
portion of its advisory fee equal to .30% of the first $100 million of the
Davis Growth Opportunity Fund's annual average net assets and .25% of such
Fund assets over $100 million with a minimum annual fee of $100,000.
However, Tanaka's fees on Fund assets over $100 million may not exceed
one-third of the fees paid to the Adviser from the Davis Growth Opportunity
Fund.
Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidiary
of the Adviser, also acts as sub-adviser to the Funds. DSA-NY performs
research and portfolio management services for the Funds under a Sub-Advisory
Agreement with the Adviser. The Company pays no fees directly to DSA-NY.
The Company has adopted procedures to treat Shelby Cullom Davis & Co.
("SCD") as an affiliate of the Adviser. During the six months ended June 30,
1997, SCD received $5,520 in commission on the purchases and sales of
portfolio securities in Davis Financial Fund.
37
<PAGE> 39
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1997 (Unaudited)
================================================================================
NOTE 3 - DISTRIBUTION AND UNDERWRITING FEES
CLASS A SHARES OF DAVIS GROWTH OPPORTUNITY FUND, DAVIS GOVERNMENT BOND
FUND, DAVIS FINANCIAL FUND, DAVIS CONVERTIBLE SECURITIES FUND AND DAVIS REAL
ESTATE FUND
Class A shares of the Funds are sold at net asset value plus a sales
charge and are redeemed at net asset value (without a contingent deferred
sales charge).
During the six months ended June 30, 1997, Davis Distributors, LLC (or
its predecessor, Davis Selected Advisers, L.P.), the Company's Underwriter
(the "Underwriter") received $87,312, $19,352, $1,101,454, $173,846 and
$1,125,750 from commissions earned on sales of Class A shares of Davis Growth
Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis
Convertible Securities Fund and Davis Real Estate Funds' capital stock,
respectively, of which $13,486, $3,026, $175,414, $28,838 and $176,765 was
retained by the Underwriter and the remaining $73,826, $16,326, $926,040,
$145,508 and $948,985 was reallowed to investment dealers. The Underwriter
paid the costs of prospectuses in excess of those required to be filed as
part of the Company's registration statement, sales literature and other
expenses assumed or incurred by it in connection with such sales.
The Underwriter is reimbursed for amounts paid to dealers as a
maintenance fee with respect to Class A shares sold by dealers and remaining
outstanding during the period. The maintenance fee is paid at the annual rate
of 1/4 of 1% of the average net assets maintained by the responsible dealers.
The Underwriter is not reimbursed for accounts in which the Underwriter pays
no service fees to other firms. The maintenance fee for Class A shares of
Davis Growth Opportunity Fund, Davis Government Bond Fund, Davis Financial
Fund, Davis Convertible Securities Fund and Davis Real Estate Fund for the
six months ended June 30, 1997 was $27,979, $20,741, $78,335, $28,348 and
$57,068, respectively.
CLASS B SHARES OF DAVIS GROWTH OPPORTUNITY FUND, DAVIS GOVERNMENT BOND
FUND, DAVIS FINANCIAL FUND, DAVIS CONVERTIBLE SECURITIES FUND AND DAVIS REAL
ESTATE FUND
Class B shares of the Funds are sold at net asset value and are
redeemed at net asset value. A contingent deferred sales charge my be
assessed on shares redeemed within six years of purchase.
Each of the Class B shares of the Funds (other than Davis Government
Money Market Fund) have entered into a Distribution Plan with Davis
Distributors, LLC (the "Distributor") pursuant to Rule 12b-1 of the
Investment Company Act of 1940. The Distribution Plans provide that the
Funds will pay the Distributor a 4% commission on the proceeds from the sale
of each Fund's Class B shares and the Distributor reallows 4% to the
qualified dealer responsible for the sale of the shares. Pursuant to rules
implemented by the National Association of Securities Inc. (the "NASD"),
distribution plan payments are limited to 1% of each Fund's annual average
net assets attributable to Class B shares, of which 0.75% may be used to pay
distribution expenses and 0.25% may be used to pay shareholder service fees.
The NASD rules also limit the aggregate amount the Funds may pay for
distribution to 6.25% of gross Funds sales since inception of the
Distribution Plans plus interest at 1% over the prime rate on unpaid amounts.
The Distributor intends to seek full payment
38
<PAGE> 40
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1997 (Unaudited)
================================================================================
NOTE 3 - DISTRIBUTION AND UNDERWRITING FEES - (CONTINUED)
(plus interest at prime plus 1%) of distribution charges that exceed the 1%
annual limit in some future period or periods when the plan limits have not
been reached.
During the six months ended June 30, 1997, Class B shares of the Davis
Growth Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund,
Davis Convertible Securities Fund and Davis Real Estate Fund made
distribution plan payments which included commissions of $153,429, $45,771,
$102,904, $14,657 and $117,393, respectively and maintenance fees of $48,113,
$14,788, $33,838, $4,723 and $40,141, respectively.
Commissions earned by the Distributor during the six months ended June
30, 1997 on the sale of Class B shares of the Davis Growth Opportunity Fund,
Davis Government Bond Fund, Davis Financial Fund, Davis Convertible
Securities Fund and Davis Real Estate Fund amounted to $91,707, $41,232,
$1,918,856, $183,185 and $1,519,297 of which $90,341, $44,368, $1,804,416,
$178,609 and $1,464,275 was reallowed to qualified selling dealers.
The Distributor intends to seek payment from Class B shares of the
Davis Growth Opportunity Fund, Davis Government Bond Fund, Davis Financial
Fund, Davis Convertible Securities Fund and Davis Real Estate Fund in the
amounts of $115,446, $408,866, $2,088,552, $218,353 and $1,783,836,
respectively, representing the cumulative commissions earned by the
Distributor on the sale of the Funds' Class B shares reduced by cumulative
commissions paid by the Funds and cumulative contingent deferred sales
charges paid by redeeming shareholders. The Funds have no contractual
obligation to pay any such distribution charges and the amounts, if any,
timing and condition of such payments are solely within the discretion of the
Directors who are not interested persons of the Funds or the Distributor.
A contingent deferred sales charge is imposed upon redemption of
certain Class B shares of the Funds within six years of the original
purchase. The charge is a declining percentage starting at 4% of the lesser
of net asset value of the shares redeemed or the total cost of such shares.
During the six months ended ended June 30, 1997 the Distributor received
contingent deferred sales charges from Class B shares of the Davis Growth
Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis
Convertible Securities Fund and Davis Real Estate Fund of $11,608, $15,023,
$14,053, $1,343 and $11,186, respectively.
DAVIS GOVERNMENT MONEY MARKET FUND
All classes of shares of the Davis Government Money Market Fund are
sold to investors at net asset value. The shareholders of the Davis
Government Money Market Fund have adopted a Distribution expense plan in
accordance with Rule 12b-1, which does not provide for any amounts to be paid
directly to the Distributor as either compensation or reimbursement for
distributing shares of the Fund, but does authorize the use of the advisory
fee to the extent such fee may be considered to be indirectly financing any
activity or expense which is primarily intended to result in the sale of Fund
shares. During the year ended December 31, 1996 the Adviser made payments
totaling $3,507 to qualified dealers responsible for the maintenance of
shares of the Fund.
39
<PAGE> 41
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1997 (Unaudited)
================================================================================
NOTE 4 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the year ended June 30, 1997 for the Davis Growth
Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis
Convertible Securities Fund and Real Estate Fund were as follows:
<TABLE>
<CAPTION>
DAVIS DAVIS DAVIS
GROWTH GOVERNMENT DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cost of purchases $9,270,294 $1,095,531 $67,032,377 $20,469,567 $80,836,592
Proceeds of sales $8,058,237 $5,258,523 $ 8,369,755 $15,401,813 $ 4,665,841
</TABLE>
NOTE 5 - CAPITAL STOCK
At June 30, 1997, there were 5 billion shares of capital stock ($0.01
par value per share) authorized of which 500 million shares each are
designated to the Davis Growth Opportunity Fund, Davis Government Bond Fund,
Davis Government Money Market Fund, Davis Financial Fund, Davis Convertible
Securities Fund and Davis Real Estate Fund. Transactions in capital stock
were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
CLASS A JUNE 30, 1997 (UNAUDITED)
---------------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Shares sold 411,923 174,272 119,605,200 1,976,880 403,594 2,295,934
Shares issued in reinvestment
of distributions - 61,226 2,317,652 20 18,098 34,955
----------- ----------- ------------- ----------- ----------- -----------
411,923 235,498 121,922,852 1,976,900 421,692 2,330,889
Shares redeemed (331,053) (484,778) (114,370,757) (216,500) (119,923) (167,366)
----------- ----------- ------------- ----------- ----------- -----------
Net increase (decrease) 80,870 (249,280) 7,552,095 1,760,400 301,769 2,163,523
=========== =========== ============= =========== =========== ===========
Proceeds from shares sold $ 8,411,335 $ 995,497 $ 119,605,200 $40,319,982 $ 8,991,660 $50,045,883
Proceeds from shares issued
in reinvestment of
distributions - 349,281 2,317,652 356 386,026 746,010
----------- ----------- ------------- ----------- ----------- -----------
8,411,335 1,344,778 121,922,852 40,320,338 9,377,686 50,791,893
Cost of shares redeemed (6,768,243) (2,771,433) (114,370,757) (4,326,724) (2,656,105) (3,611,526)
----------- ----------- ------------- ----------- ----------- -----------
Net increase (decrease) $ 1,643,092 $(1,426,655) $ 7,552,095 $35,993,614 $ 6,721,581 $47,180,367
=========== =========== ============= =========== =========== ===========
</TABLE>
40
<PAGE> 42
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1997 (Unaudited)
================================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
CLASS A DECEMBER 31, 1996
---------------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Shares sold 255,172 272,374 169,910,817 449,739 622,121 790,297
Shares issued in reinvestment
of distributions 104,897 177,540 3,536,913 301,467 233,729 82,413
----------- ----------- ------------- ----------- ------------ ------------
360,069 449,914 173,447,730 751,206 855,850 872,710
Shares redeemed (252,296) (887,124) (124,018,542) (303,617) (2,116,170) (1,126,180)
----------- ----------- ------------- ----------- ------------ ------------
Net increase (decrease) 107,773 (437,210) 49,429,188 447,589 (1,260,320) (253,470)
=========== =========== ============= =========== ============ ============
Proceeds from shares sold $ 4,701,372 $ 1,589,302 $ 169,910,817 $ 7,228,963 $ 13,045,489 $ 14,629,230
Proceeds from shares issued
in reinvestment of
distributions 1,996,999 1,025,599 3,536,913 5,513,629 4,826,570 1,500,218
----------- ----------- ------------- ----------- ------------ ------------
6,698,371 2,614,901 173,447,730 12,742,592 17,872,059 16,129,448
Cost of shares redeemed (4,586,515) (5,123,786) (124,018,542) (4,793,945) (44,862,290) (21,662,936)
----------- ----------- ------------- ----------- ------------ ------------
Net increase (decrease) $ 2,111,856 $(2,508,885) $ 49,429,188 $ 7,948,647 $(26,990,231) $ (5,533,488)
=========== =========== ============= =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
CLASS B JUNE 30, 1997 (UNAUDITED)
---------------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Shares sold 145,437 303,066 17,723,899 2,475,446 222,953 1,807,781
Shares issued in reinvestment
of distributions (319) 32,925 179,830 (460) 952 7,022
----------- ----------- ----------- ----------- ---------- -----------
145,118 335,991 17,903,729 2,474,986 223,905 1,814,803
Shares redeemed (238,461) (593,713) (8,133,555) (89,646) (12,443) (50,986)
----------- ----------- ----------- ----------- ---------- -----------
Net increase (decrease) (93,343) (257,722) 9,770,174 2,385,340 211,462 1,763,817
=========== =========== =========== =========== ========== ===========
Proceeds from shares sold $ 2,892,666 $ 1,728,085 $17,723,899 $50,004,438 $4,989,272 $39,281,269
Proceeds from shares issued
in reinvestment of
distributions (5,969) 187,576 179,830 (8,348) 20,143 151,304
----------- ----------- ----------- ----------- ---------- -----------
2,886,697 1,915,661 17,903,729 49,996,090 5,009,415 39,432,573
Cost of shares redeemed (4,763,990) (3,383,754) (8,133,555) (1,782,378) (270,733) (1,117,825)
----------- ----------- ----------- ----------- ---------- -----------
Net increase (decrease) $(1,877,293) $(1,468,093) $ 9,770,174 $48,213,712 $4,738,682 $38,314,748
=========== =========== =========== =========== ========== ===========
</TABLE>
41
<PAGE> 43
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1997 (Unaudited)
================================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
CLASS B DECEMBER 31, 1996
---------------------------------------------------------------------------------------
DAVIS
DAVIS DAVIS GOVERNMENT DAVIS
GROWTH GOVERNMENT MONEY DAVIS CONVERTIBLE DAVIS
OPPORTUNITY BOND MARKET FINANCIAL SECURITIES REAL ESTATE
FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Shares sold 343,025 349,690 15,481,272 357,639 70,295 490,136
Shares issued in reinvestment
of distributions 152,295 99,849 234,340 14,071 8,070 10,505
----------- ----------- ------------ ---------- ---------- ----------
495,320 449,539 15,715,612 371,710 78,365 500,641
Shares redeemed (446,289) (866,250) (14,257,584) (35,443) (602) (10,556)
----------- ----------- ------------ ---------- ---------- ----------
Net increase (decrease) 49,031 (416,711) 1,458,028 336,267 77,763 490,085
=========== =========== ============ ========== ========== ==========
Proceeds from shares sold $ 6,179,416 $ 2,015,748 $ 15,481,272 $5,811,595 $1,391,416 $9,158,900
Proceeds from shares issued
in reinvestment of
distributions 2,852,206 576,412 234,340 255,253 168,855 213,141
----------- ----------- ------------ ---------- ---------- ----------
9,031,622 2,592,160 15,715,612 6,066,848 1,560,271 9,372,041
Cost of shares redeemed (8,006,821) (5,019,616) (14,257,584) (573,918) (12,027) (180,773)
----------- ----------- ------------ ---------- ---------- ----------
Net increase (decrease) $ 1,024,801 $(2,427,456) $ 1,458,028 $5,492,930 $1,548,244 $9,191,268
=========== =========== ============ ========== ========== ==========
</TABLE>
CLASS C - DAVIS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
----------- -----------------
<S> <C> <C>
Shares sold 6,859,004 4,821,807
Shares issued in reinvestment
of distributions 63,155 69,986
----------- -----------
6,922,159 4,891,793
Shares redeemed (1,781,718) (4,652,503)
----------- -----------
Net increase 5,140,441 239,290
=========== ===========
Proceeds from shares sold $ 6,859,004 $ 4,821,807
Proceeds from shares issued in
reinvestment of distributions 63,155 69,986
----------- -----------
6,922,159 4,891,793
Cost of shares redeemed (1,781,718) (4,652,503)
----------- -----------
Net increase $ 5,140,441 $ 239,290
=========== ===========
</TABLE>
42
<PAGE> 44
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1997 (Unaudited)
================================================================================
NOTE 5 - CAPITAL STOCK - (CONTINUED)
<TABLE>
<CAPTION>
CLASS Y
MARCH 10, 1997
(COMMENCEMENT
OF OPERATIONS)
THROUGH
JUNE 30, 1997 SIX MONTHS ENDED
(UNAUDITED) JUNE 30, 1997 (UNAUDITED)
----------- -------------------------------
DAVIS DAVIS
DAVIS CONVERTIBLE REAL
FINANCIAL SECURITIES ESTATE
FUND FUND FUND
---- ---- ----
<S> <C> <C> <C>
Shares sold 22,763 32,601 27,008
Shares issued in reinvestment
of distributions - 13,768 8,332
-------- ----------- --------
22,763 46,369 35,340
Shares redeemed (499) (267,465) (467)
-------- ----------- --------
Net increase (decrease) 22,264 (221,096) 34,873
======== =========== ========
Proceeds from shares sold $476,474 $ 709,120 $603,586
Proceeds from shares issued in
reinvestment of distributions - 294,637 180,954
-------- ----------- --------
476,474 1,003,757 784,540
Cost of shares redeemed (10,319) (5,919,306) (10,428)
-------- ----------- --------
Net increase (decrease) $466,155 $(4,915,549) $774,112
======== =========== ========
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
DAVIS DAVIS
CONVERTIBLE REAL
SECURITIES ESTATE
FUND FUND
---- ----
NOVEMBER 13, 1996 NOVEMBER 8, 1996
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) THROUGH OF OPERATIONS) THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Shares sold 1,462,032 833,978
Shares issued in reinvestment of distributions 108,436 15,891
----------- -----------
1,570,468 849,869
Shares redeemed (19,849) -
----------- -----------
Net increase 1,550,619 849,869
=========== ===========
Proceeds from shares sold $31,272,873 $16,116,495
Proceeds from shares issued in
reinvestment of distributions 2,323,787 336,093
----------- -----------
33,596,660 16,452,588
Cost of shares redeemed (439,996) -
----------- -----------
Net increase $33,156,664 $16,452,588
=========== ===========
43
<PAGE> 45
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1997 (Unaudited)
===============================================================================
NOTE 6 - CUSTODY FEES
Under an agreement with the custodian bank, custody fees are reduced by
credits for cash balances. Such reductions amounted to $3,163, $789, $1,291,
$347, $6,177 and $1,304 for Davis Growth Opportunity Fund, Davis Government
Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, Davis
Convertible Securities Fund and Davis Real Estate Fund, respectively.
NOTE 7 - NOTE RECEIVABLE
At June 30, 1997, Davis Financial Fund owned a note receivable from the
Robert Plan Corporation in the amount of $1,499,963. Principal plus accrued
interest at 5% over the prime rate of The Chase Manhattan Bank is payable in
eight equal installments on January 31, 1997, April 30, 1997, July 31, 1997,
October 31, 1997, January 30, 1998, April 30, 1998, July 31, 1998 and October
30, 1998.
NOTE 8 - MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS
A special meeting of shareholders was held on March 25, 1997. Matters
submitted for approval included consideration of a Sub-Advisory Agreement
between Davis Selected Advisers, L.P., the Investment Adviser of the Company,
and Davis Selected Advisers-NY, Inc., an affiliate of the Adviser and
election of Mr. Christian R. Sonne, Mr. LeRoy E. Hoffberger, Mr. Eugene M.
Feinblatt and Mr. Jeremy H. Biggs as directors of the Company. Results of
the meeting were as follows:
DAVIS GROWTH OPPORTUNITY FUND - With respect to consideration of the
Sub-Advisory Agreement, 1,907,022 votes were cast in favor, 36,057 votes were
cast against and 80,765 votes abstained. With respect to the election of Mr.
Sonne, 1,972,636 votes were cast in favor and 51,209 votes were withheld.
With respect to the election of Mr. Hoffberger, 1,973,262 votes were cast in
favor and 50,584 votes were withheld. With respect to the election of Mr.
Feinblatt, 1,972,520 votes were cast in favor and 51,326 votes were withheld.
With respect to the election of Mr. Biggs, 1,974,240 votes were cast in favor
and 49,606 votes were withheld.
DAVIS GOVERNMENT BOND FUND - With respect to consideration of the
Sub-Advisory Agreement, 2,708,937 votes were cast in favor, 31,867 votes were
cast against and 395,760 votes abstained. With respect to the election of Mr.
Sonne, 2,744,367 votes were cast in favor and 392,198 votes were withheld.
With respect to the election of Mr. Hoffberger, 2,789,372 votes were cast in
favor and 347,193 votes were withheld. With respect to the election of Mr.
Feinblatt, 2,789,372 votes were cast in favor and 347,193 votes were
withheld. With respect to the election of Mr. Biggs, 2,796,886 votes were
cast in favor and 339,679 votes were withheld.
DAVIS GOVERNMENT MONEY MARKET FUND - With respect to consideration of the
Sub-Advisory Agreement, 368,055,334 votes were cast in favor, 420,212 votes
were cast against and 1,204,427 votes abstained. With respect to the election
of Mr. Sonne, 367,212,550 votes were cast in favor and 467,423 votes were
withheld. With respect to the election of Mr. Hoffberger, 367,184,990 votes
were cast in favor and 494,983 votes were withheld. With respect to the
election of Mr. Feinblatt, 367,072,791 votes were cast in favor and 607,182
votes were withheld. With respect to the election of Mr. Biggs, 367,187,677
votes were cast in favor and 492,296 votes were withheld.
44
<PAGE> 46
DAVIS SERIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
At June 30, 1997 (Unaudited)
===============================================================================
Note 8 - MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS - (Continued)
DAVIS FINANCIAL FUND - With respect to consideration of the Sub-Advisory
Agreement, 4,981,802 votes were cast in favor, 21,302 votes were cast against
and 42,112 votes abstained. With respect to the election of Mr. Sonne,
5,003,348 votes were cast in favor and 41,869 votes were withheld. With
respect to the election of Mr. Hoffberger, 5,005,265 votes were cast in favor
and 39,952 votes were withheld. With respect to the election of Mr.
Feinblatt, 5,005,134 votes were cast in favor and 40,084 votes were withheld.
With respect to the election of Mr. Biggs, 5,005,265 votes were cast in favor
and 39,952 votes were withheld.
DAVIS CONVERTIBLE SECURITIES FUND - With respect to consideration of the
Sub-Advisory Agreement, 3,319,960 votes were cast in favor, 10,837 votes were
cast against and 16,295 votes abstained. With respect to the election of Mr.
Sonne, 3,320,477 votes were cast in favor and 26,637 votes were withheld.
With respect to the election of Mr. Hoffberger, 3,320,477 votes were cast in
favor and 26,637 votes were withheld. With respect to the election of Mr.
Feinblatt, 3,320,477 votes were cast in favor and 26,637 votes were withheld.
With respect to the election of Mr. Biggs, 3,320,477 votes were cast in favor
and 26,637 votes were withheld.
DAVIS REAL ESTATE FUND - With respect to consideration of the Sub-Advisory
Agreement, 2,815,494 votes were cast in favor, 7,912 votes were cast against
and 18,125 votes abstained. With respect to the election of Mr. Sonne,
2,836,092 votes were cast in favor and 5,442 votes were withheld. With
respect to the election of Mr. Hoffberger, 2,834,126 votes were cast in favor
and 7,408 votes were withheld. With respect to the election of Mr.
Feinblatt, 2,834,665 votes were cast in favor and 6,869 votes were withheld.
With respect to the election of Mr. Biggs, 2,835,330 votes were cast in favor
and 6,204 votes were withheld.
The terms of office of Mr. Wesley E. Bass, Jr., Mr. Marc P. Blum, Mr.
Shelby M.C. Davis, Mr. Jerry D. Geist, Mr. D. James Guzy, Mr. G. Bernard
Hamilton, Mr. Laurence W. Levine and Mr. Edwin R. Werner also continued after
the meeting.
45
<PAGE> 47
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS GROWTH OPPORTUNITY FUND
===============================================================================
The following financial information represents selected data for each
share of capital stock outstanding throughout each period:
</TABLE>
<TABLE>
CLASS A
<CAPTION>
SIX MONTHS ONE MONTH
ENDED ----- YEAR ENDED ----- ENDED
JUNE 30, 1997 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1996 1995 1994
----------- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 18.93 $ 17.25 $ 12.83 $ 13.70
------- ------- ------- -------
Income (Loss) From Investment Operations
- ----------------------------------------
Net Investment Income (Loss) (0.03) (0.13) (0.11) (0.01)
Net Gains or Losses on Securities
(both realized and unrealized) 3.32 3.37 6.08 (0.29)
------- ------- ------- -------
Total From Investment Operations 3.29 3.24 5.97 (0.30)
------- ------- ------- -------
Less Distributions
- ------------------
Distributions (from capital gains) - (1.55) (1.55) (0.57)
Distributions (from paid-in capital) - (0.01) - -
------- ------- ------- -------
Total Distributions - (1.56) (1.55) (0.57)
------- ------- ------- -------
Net Asset Value, End of Period $ 22.22 $ 18.93 $ 17.25 $ 12.83
======= ======= ======= =======
Total Return<F1> 17.38% 18.73% 46.65% (2.21)%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000 omitted) $33,690 $27,158 $22,890 $12,455
Ratio of Expenses to Average Net Assets 1.46%<F*> 1.49%<F2> 1.51% 1.42%<F*>
Ratio of Net Income to Average Net Assets (0.29)%<F*> (0.76)% (0.71)% (0.08)%<F*>
Portfolio Turnover Rate 11.46% 30.55% 30.07% 37.31%
Average Commission Rate per share $0.0600 $0.0454 - -
<FN>
<F1> Sales charges are not reflected in calculation.
<F2> Ratio of expenses to average net assets after the reduction of custodian
fees under a custodian agreement was 1.48% for 1996. Prior to 1996, such
reductions were reflected in the expenses ratios.
<F*> Annualized
</TABLE>
46
<PAGE> 48
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS GROWTH OPPORTUNITY FUND
===============================================================================
The following financial information represents selected data for each
share of capital stock outstanding throughout each period:
<TABLE>
CLASS B
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997 ----------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993<F1> 1992<F1>
----------- ---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 18.58 $ 17.08 $ 12.82 $ 14.67 $ 13.25 $ 13.73
------- ------- ------- ------- ------- -------
Income (Loss) From Investment Operations
- -----------------------------------------
Net Investment Income (Loss) (0.11) (0.27) (0.26) (0.12) (0.07) (0.07)
Net Gains or Losses on Securities
(both realized and unrealized) 3.27 3.33 6.07 (1.11) 1.54 (0.32)
------- ------- ------- ------- ------- -------
Total From Investment
Operations 3.16 3.06 5.81 (1.23) 1.47 (0.39)
------- ------- ------- ------- ------- -------
Less Distributions
- ------------------
Dividends (from net investment
income) - - - - (0.05) -
Distributions (from capital gains) - (1.55) (1.55) (0.62) - -
Distributions (from paid-in capital) - (0.01) - - - (0.09)
------- ------- ------- ------- ------- -------
Total Distributions - (1.56) (1.55) (0.62) (0.05) (0.09)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 21.74 $ 18.58 $ 17.08 $ 12.82 $ 14.67 $ 13.25
======= ======= ======= ======= ======= =======
Total Return<F2> 17.01% 17.86% 45.44% (8.45)% 11.16% (2.86)%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000 omitted) $43,997 $39,343 $35,326 $36,087 $51,762 $46,958
Ratio of Expenses to
Average Net Assets 2.23%<F*> 2.25%<F3> 2.30% 2.15% 2.39% 2.55%
Ratio of Net Income to
Average Net Assets (1.08)%<F*> (1.52)% (1.50)% (0.81)% (0.55)% (0.54)%
Portfolio Turnover Rate 11.46% 30.55% 30.07% 37.31% 38.93% 39.01%
Average Commission Rate per share $0.0600 $0.0454 - - -
<FN>
<F1> Per share data has been restated to give effect to a 2 for 1 stock
split to shareholders of record as of the close of business of
January 7, 1994.
<F2> Sales charges are not reflected in calculation.
<F3> Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement was 2.24% for 1996. Prior
to 1996, such reductions were reflected in the expenses ratios.
<F*> Annualized
</TABLE>
47
<PAGE> 49
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS GOVERNMENT BOND FUND
===============================================================================
The following financial information represents selected data for each
share of capital stock outstanding throughout each period:
<TABLE>
CLASS A
<CAPTION>
SIX MONTHS ONE MONTH
ENDED ----- YEAR ENDED ----- ENDED
JUNE 30, 1997 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1996 1995 1994
----------- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 5.76 $ 6.00 $ 5.79 $ 5.78
------- ------- ------- -------
Income (Loss) From Investment Operations
- ----------------------------------------
Net Investment Income 0.16 0.33 0.39 0.02
Net Gains or Losses on Securities
(both realized and unrealized) - (0.14) 0.27 (0.01)
------- ------- ------- -------
Total From Investment Operations 0.16 0.19 0.66 0.01
------- ------- ------- -------
Less Distributions
- ------------------
Dividends (from net investment income) (0.17) (0.33) (0.36) -
Distributions (from paid-in capital) - (0.10) (0.09) -
------- ------- ------- -------
Total Distributions (0.17) (0.43) (0.45) -
------- ------- ------- -------
Net Asset Value, End of Period $ 5.75 $ 5.76 $ 6.00 $ 5.79
======= ======= ======= =======
Total Return<F1> 2.75% 3.40% 11.82% (0.97)%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000 omitted) $16,662 $18,129 $21,485 $20,035
Ratio of Expenses to Average Net Assets 1.68%<F*> 1.77% 1.74% 1.64%<F*>
Ratio of Net Income to Average Net Assets 5.63%<F*> 5.88% 6.54% 6.22%<F*>
Portfolio Turnover Rate 4.07% 45.50% 41.04% 62.17%
<FN>
<F1> Sales charges are not reflected in calculation.
<F*> Annualized
</TABLE>
48
<PAGE> 50
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS GOVERNMENT BOND FUND
===============================================================================
The following financial information represents selected data for each
share of capital stock outstanding throughout each period:
<TABLE>
CLASS B
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997 ----------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993<F1> 1992<F1>
----------- ---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 5.75 $ 5.98 $ 5.79 $ 6.33 $ 6.61 $ 6.88
------- ------- ------- ------- ------- -------
Income (Loss) From Investment Operations
- ----------------------------------------
Net Investment Income 0.13 0.29 0.34 0.31 0.36 0.37
Net Gains or Losses on Securities
(both realized and unrealized) - (0.13) 0.26 (0.37) (0.12) (0.10)
------- ------- ------- ------- ------- -------
Total From Investment Operations 0.13 0.16 0.60 (0.06) 0.24 0.27
------- ------- ------- ------- ------- -------
Less Distributions
- ------------------
Dividends (from net investment
income) (0.14) (0.29) (0.33) (0.37) (0.42) (0.27)
Distributions (from paid-in capital) - (0.10) (0.08) (0.11) (0.10) (0.27)
------- ------- ------- ------- ------- -------
Total Distributions (0.14) (0.39) (0.41) (0.48) (0.52) (0.54)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 5.74 $ 5.75 $ 5.98 $ 5.79 $ 6.33 $ 6.61
======= ======= ======= ======= ======= =======
Total Return<F2> 2.37% 2.78% 10.62% (0.97)% 3.69% 4.14%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000 omitted) $11,456 $12,959 $15,976 $19,241 $50,080 $54,422
Ratio of Expenses to
Average Net Assets 2.43%<F*> 2.53%<F3> 2.51% 2.38% 2.37% 2.51%
Ratio of Net Income to
Average Net Assets 4.89%<F*> 5.13% 5.77% 5.48% 5.52% 5.83%
Portfolio Turnover Rate 4.07% 45.50% 41.04% 62.17% 42.82% 81.28%
<FN>
<F1> Per share calculations other than distributions were based on average
shares outstanding during the period.
<F2> Sales charges are not reflected in calculation.
<F3> Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement was 2.52% for 1996. Prior
to 1996, such reductions were reflected in the expenses ratios.
<F*> Annualized
</TABLE>
49
<PAGE> 51
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS GOVERNMENT MONEY MARKET FUND
===============================================================================
The following financial information for each respective fund represents
selected data for each share of capital stock outstanding throughout each
period.
<TABLE>
CLASS A
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1997 -------------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- ------- -------
Income From Investment Operations
- ---------------------------------
Net Investment Income .024 .047 .051 .034 .020 .027
Less Distributions
- ------------------
Dividends (from net investment
income) (.024) (.047) (.051) (.034) (.020) (.027)
-------- -------- -------- -------- ------- -------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======= =======
Total Return 2.37% 4.80% 5.25% 3.48% 2.01% 2.70%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000 omitted) $414,099 $406,547 $357,118 $239,980 $39,531 $42,410
Ratio of Expenses to Average
Net Assets 0.64%<F*> 0.66% 0.73% 0.64% 1.15% 1.14%
Ratio of Net Income to Average
Net Assets 4.77%<F*> 4.72% 5.13% 3.43% 1.98% 2.68%
<FN>
<F*> Annualized
</TABLE>
50
<PAGE> 52
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS GOVERNMENT MONEY MARKET FUND
===============================================================================
The following financial information for each respective fund represents
selected data for each share of capital stock outstanding throughout each
period.
<TABLE>
CLASS B
<CAPTION>
DECEMBER 8, 1994
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED ----- YEAR ENDED ----- THROUGH
JUNE 30, 1997 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1996 1995 1994
----------- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $1.000 $1.000
------- ------- ------ ------
Income From Investment Operations
- ---------------------------------
Net Investment Income .024 .047 .051 .003
Less Distributions
- ------------------
Dividends (from net investment income) (.024) (.047) (.051) (.003)
------- ------- ------ ------
Net Asset Value, End of Period $ 1.000 $ 1.000 $1.000 $1.000
======= ======= ====== ======
Total Return 2.37% 4.80% 5.25% 0.34%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000 omitted) $13,925 $ 4,155 $2,697 $ 747
Ratio of Expenses to Average Net Assets 0.64%<F*> 0.66% 0.73% 0.64%<F*>
Ratio of Net Income to Average Net Assets 4.77%<F*> 4.72% 5.13% 3.43%<F*>
<FN>
<F*> Annualized
</TABLE>
51
<PAGE> 53
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS GOVERNMENT MONEY MARKET FUND
===============================================================================
The following financial information for each respective fund represents
selected data for each share of capital stock outstanding throughout each
period.
<TABLE>
CLASS C
<CAPTION>
MARCH 30, 1995
(COMMENCEMENT
SIX MONTHS YEAR OF OPERATIONS
ENDED ENDED THROUGH
JUNE 30, 1997 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1996 1995
----------- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $1.000 $1.000 $1.000
------ ------ ------
Income From Investment Operations
- ---------------------------------
Net Investment Income .024 .047 .041
Less Distributions
- ------------------
Dividends (from net investment income) (.024) (.047) (.041)
------ ------ ------
Net Asset Value, End of Period $1.000 $1.000 $1.000
====== ====== ======
Total Return 2.37% 4.80% 4.21%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000 omitted) $5,855 $ 714 $ 475
Ratio of Expenses to Average Net Assets 0.64%<F*> 0.66% 0.73%<F*>
Ratio of Net Income to Average Net Assets 4.77%<F*> 4.72% 5.13%<F*>
<FN>
<F*> Annualized
</TABLE>
52
<PAGE> 54
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS FINANCIAL FUND
===============================================================================
The following financial information for each respective fund represents
selected data for each share of capital stock outstanding throughout each
period.
<TABLE>
CLASS A
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1997 -------------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993<F2> 1992<F2>
---------- ---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 18.06 $ 14.50 $ 10.68 $ 11.70 $ 11.20 $ 8.76
-------- -------- ------- ------- ------- -------
Income (Loss) From Investment Operations
- ----------------------------------------
Net Investment Income 0.06 0.14 0.07 0.08 0.07 0.05
Net Gains or Losses on Securities
(both realized and unrealized) 3.92 4.44 5.32 (0.61) 1.59 2.79
-------- -------- ------- ------- ------- -------
Total From
Investment Operations 3.98 4.58 5.39 (0.53) 1.66 2.84
-------- -------- ------- ------- ------- -------
Less Distributions
- ------------------
Dividends (from net
investment income) - (0.15) (0.07) (0.08) (0.08) (0.05)
Distributions (from capital gains) - (0.87) (1.50) (0.39) (1.08) (0.35)
Distributions (from paid-in capital) - - - (0.02) - -
-------- -------- ------- ------- ------- -------
Total Distributions - (1.02) (1.57) (0.49) (1.16) (0.40)
-------- -------- ------- ------- ------- -------
Net Asset Value, End of Period $ 22.04 $ 18.06 $ 14.50 $ 10.68 $ 11.70 $ 11.20
======== ======== ======= ======= ======= =======
Total Return<F1> 22.04% 31.50% 50.51% (4.55)% 14.87% 32.67%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000 omitted) $170,114 $107,579 $79,874 $57,670 $50,778 $31,660
Ratio of Expenses to
Average Net Assets 1.14%<F*> 1.15% 1.18% 1.24% 1.32% 1.68%
Ratio of Net Income
to Average Net Assets 0.74%<F*> 0.92% 0.53% 0.67% 0.57% 0.43%
Portfolio Turnover Rate 5.71% 25.78% 41.89% 43.95% 70.33% 49.64%
Average Commission Rate per share $0.0600 $ 0.0518 - - - -
<FN>
<F1> Sales charges are not reflected in calculation.
<F2> Per share data has been restated to give effect to a 2 for 1 stock
split to shareholders of record as of the close of business on
January 7, 1994.
<F*> Annualized
</TABLE>
53
<PAGE> 55
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS FINANCIAL FUND
===============================================================================
The following financial information for each respective fund represents
selected data for each share of capital stock outstanding throughout each
period.
<TABLE>
<CAPTION>
-------------------------- CLASS B --------------------------- -- CLASS Y --
DECEMBER 27, 1994 MARCH 10, 1997
(COMMENCEMENT (COMMENCEMENT
SIX MONTHS OF OPERATIONS) OF OPERATIONS)
ENDED ----- YEAR ENDED ----- THROUGH THROUGH
JUNE 30, 1997 DECEMBER 31, DECEMBER 31, JUNE 30, 1997
(UNAUDITED) 1996 1995 1994 (UNAUDITED)
----------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.91 $14.41 $10.68 $11.22 $ 20.32
------- ------ ------ ------ -------
Income (Loss) From Investment Operations
- ----------------------------------------
Net Investment Income - 0.01 0.01 0.03 0.02
Net Gains or Losses on Securities
(both realized and unrealized) 3.86 4.37 5.22 (0.13) 1.72
------- ------ ------ ------ -------
Total From Investment Operations 3.86 4.38 5.23 (0.10) 1.74
------- ------ ------ ------ -------
Less Distributions
- ------------------
Dividends (from net investment income) - (0.01) - (0.03) -
Distributions (from capital gains) - (0.87) (1.50) (0.39) -
Distributions (from paid-in capital) - - - (0.02) -
------- ------ ------ ------ -------
Total Distributions - (0.88) (1.50) (0.44) -
------- ------ ------ ------ -------
Net Asset Value, End of Period $ 21.77 $17.91 $14.41 $10.68 $ 22.06
======= ====== ====== ====== =======
Total Return<F1> 21.55% 30.29% 49.00% (0.90)% 8.56%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000 omitted) $61,926 $8,213 $1,762 $ 28 $ 491
Ratio of Expenses to Average Net Assets 2.02%<F*> 2.04% 2.09% 2.04%<F*> 0.95%<F*>
Ratio of Net Income to Average Net Assets (0.06)%<F*> 0.19% (0.38)% (0.13)%<F*> 1.01%<F*>
Portfolio Turnover Rate 5.71% 25.78% 41.89% 43.95% 5.71%
Average Commission Rate per share $0.0600 $0.0518 - - $0.0600
<FN>
<F1> Sales charges are not reflected in calculation.
<F*> Annualized
</TABLE>
54
<PAGE> 56
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS CONVERTIBLE SECURITIES FUND
===============================================================================
The following financial information represents selected data for each share
of capital stock outstanding throughout the period.
<TABLE>
CLASS A
<CAPTION>
MAY 1, 1992
SIX MONTHS (COMMENCEMENT
ENDED OF OPERATIONS)
JUNE 30, 1997 ------------- YEAR ENDED DECEMBER 31, ---------- THROUGH
(UNAUDITED) 1996 1995 1994 1993 DECEMBER 31, 1992
----------- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 21.22 $ 18.22 $ 15.57 $ 17.45 $ 15.73 $ 14.29
------- ------- ------- ------- ------- -------
Income From Investment Operations
- ---------------------------------
Net Investment Income 0.36 0.71 0.67 0.67 0.67 0.40
Net Gains or Losses on Securities
(both realized and unrealized) 2.19 4.56 3.42 (1.83) 2.02 1.44
------- ------- ------- ------- ------- -------
Total From Investment
Operations 2.55 5.27 4.09 (1.16) 2.69 1.84
------- ------- ------- ------- ------- -------
Less Distributions
- ------------------
Dividends (from net
investment income) (0.20) (0.69) (0.66) (0.67) (0.67) (0.40)
Distributions (from capital gains) - (1.54) (0.78) (0.05) (0.30) -
Distributions (from paid-in capital) - (0.04) - - - -
------- ------- ------- ------- ------- -------
Total Distributions (0.20) (2.27) (1.44) (0.72) (0.97) (0.40)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 23.57 $ 21.22 $ 18.22 $ 15.57 $ 17.45 $ 15.73
======= ======= ======= ======= ======= =======
Total Return<F1> 12.12% 29.46% 26.68% (6.72)% 17.26% 19.95%<F*>
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000 omitted) $54,688 $42,841 $59,757 $47,844 $44,730 $24,323
Ratio of Expenses to
Average Net Assets 1.05%<F*><F2> 1.05% 1.14% 1.20% 1.21% 1.35%
Ratio of Net Income
to Average Net Assets 3.34%<F*> 3.34% 3.87% 4.06% 3.89% 4.94%
Portfolio Turnover Rate 18.60% 43.16% 53.58% 45.15% 62.17% 11.51%
Average Commission Rate per share $0.0600 $0.0552 - - - -
<FN>
<F1> Sales charges are not reflected in calculation.
<F2> Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement was 1.04% for the period
ending June 30, 1997. Prior to 1996, such reductions were reflected in
the expenses ratios.
<F*> Annualized
</TABLE>
55
<PAGE> 57
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS CONVERTIBLE SECURITIES FUND
===============================================================================
The following financial information represents selected data for each share
of capital stock outstanding throughout the period.
<TABLE>
<CAPTION>
------------------- CLASS B ----------------------- ------------ CLASS Y --------------
FEBRUARY 3, 1995 NOVEMBER 13, 1996
(COMMENCEMENT (COMMENCEMENT
SIX MONTHS YEAR OF OPERATIONS) SIX MONTHS OF OPERATIONS
ENDED ENDED THROUGH ENDED THROUGH
JUNE 30, 1997 DECEMBER 31, DECEMBER 31, JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996 1995 (UNAUDITED) 1996
----------- ---- ---- ----------- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 21.05 $ 18.14 $ 15.95 $ 21.29 $ 21.39
------- ------- ------- ------- -------
Income From Investment
- ----------------------
Operations
- ----------
Net Investment Income 0.22 0.59 0.54 0.38 0.07
Net Gains or Losses on
Securities (both realized
and unrealized) 2.20 4.45 2.97 2.17 1.44
------- ------- ------- ------- -------
Total From
Investment
Operations 2.42 5.04 3.51 2.55 1.51
------- ------- ------- ------- -------
Less Distributions
- ------------------
Dividends (from net
investment income) (0.15) (0.56) (0.54) (0.20) (0.06)
Distributions (from
capital gains) - (1.54) (0.78) - (1.54)
Distributions (from
paid-in capital) - (0.03) - - (0.01)
------- ------- ------- ------- -------
Total Distributions (0.15) (2.13) (1.32) (0.20) (1.61)
------- ------- ------- ------- -------
Net Asset Value, End of
Period $ 23.32 $ 21.05 $ 18.14 $ 23.64 $ 21.29
======= ======= ======= ======= =======
Total Return<F1> 11.55% 28.21% 25.31% 12.10% 7.01%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period
(000 omitted) $ 7,229 $ 2,075 $ 378 $31,433 $33,006
Ratio of Expenses to
Average Net Assets 2.01%<F2><F*> 2.01%<F2> 2.01%<F*> 0.99%<F2><F*> 0.98%<F*>
Ratio of Net Income
to Average Net Assets 2.48%<F*> 2.40% 3.00%<F*> 3.38%* 3.11%<F*>
Portfolio Turnover Rate 18.60% 43.16% 53.58% 18.60% 43.16%
Average Commission
Rate per share $0.0600 $0.0552 - $0.0600 $0.0552
<FN>
<F1> Sales charges are not reflected in calculation.
<F2> Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement was 2.00% and 2.00% for
Class B shares for 1996 and the period ended June 30, 1997, and 0.98%
for Class Y Shares for the period ended June 30, 1997. Prior to 1996,
such reductions were reflected in the expenses ratios.
<F*> Annualized
</TABLE>
56
<PAGE> 58
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS REAL ESTATE FUND
===============================================================================
The following financial information represents selected data for each share
of capital stock outstanding throughout the period.
<TABLE>
CLASS A
<CAPTION>
JANUARY 3, 1994
(COMMENCEMENT
SIX MONTHS ----- YEAR ENDED ----- OF OPERATIONS)
ENDED DECEMBER 31, THROUGH
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996<F1> 1995 1994
----------- -------- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 21.24 $ 16.44 $ 14.72 $ 14.29
------- ------- ------- -------
Income From Investment Operations
- ---------------------------------
Net Investment Income 0.35 0.71 0.82 0.62
Net Gains on Securities (both realized and unrealized) 1.59 5.22 1.71 0.55
------- ------- ------- -------
Total From Investment Operations 1.94 5.93 2.53 1.17
------- ------- ------- -------
Less Distributions
- ------------------
Dividends (from net investment income) (0.20) (0.70) (0.81) (0.62)
Distributions (from capital gains) - (0.25) - (0.12)
Distributions (from paid-in capital) - (0.18) - -
------- ------- ------- -------
Total Distributions (0.20) (1.13) (0.81) (0.74)
------- ------- ------- -------
Net Asset Value, End of Period $ 22.98 $ 21.24 $ 16.44 $ 14.72
======= ======= ======= =======
Total Return<F2> 9.19% 37.05% 17.70% 8.25%<F*>
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000 omitted) $84,876 $32,507 $29,320 $25,450
Ratio of Expenses to Average Net Assets 1.29%<F*> 1.32%<F3> 1.43% 1.86%<F*>
Ratio of Net Income to Average Net Assets 3.90%<F*> 3.95% 5.44% 3.98%<F*>
Portfolio Turnover Rate 5.10% 18.60% 38.82% 35.80%
Average Commission Rate per share $0.0600 $0.0600 - -
<FN>
<F1> Per share calculations other than distributions were based on average
shares outstanding during the period.
<F2> Sales charges are not reflected in calculation.
<F3> Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement was 1.31% for 1996. Prior
to 1996, such reductions were reflected in the expenses ratios.
<F*> Annualized
</TABLE>
57
<PAGE> 59
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS REAL ESTATE FUND
===============================================================================
The following financial information represents selected data for each share
of capital stock outstanding throughout the period.
<TABLE>
CLASS B
<CAPTION>
DECEMBER 27, 1994
(COMMENCEMENT
SIX MONTHS OF OPERATIONS)
ENDED ------ YEAR ENDED ----- THROUGH
JUNE 30, 1997 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1996<F1> 1995 1994
----------- -------- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 21.19 $ 16.41 $14.72 $14.73
------- ------- ------ ------
Income From Investment Operations
- ---------------------------------
Net Investment Income 0.26 0.56 0.68 0.02
Net Gains on Securities (both realized and unrealized) 1.56 5.21 1.70 0.11
------- ------- ------ ------
Total From Investment Operations 1.82 5.77 2.38 0.13
------- ------- ------ ------
Less Distributions
- ------------------
Dividends (from net investment income) (0.15) (0.63) (0.69) (0.02)
Distributions (from capital gains) - (0.25) - (0.12)
Dividends (from paid-in capital) - (0.11) - -
------- ------- ------ ------
Total Distributions (0.15) (0.99) (0.69) (0.14)
------- ------- ------ ------
Net Asset Value, End of Period $ 22.86 $ 21.19 $16.41 $14.72
======= ======= ====== ======
Total Return<F2> 9.63% 35.99% 16.59% 0.89%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000 omitted) $52,104 $10,919 $ 414 $ 34
Ratio of Expenses to Average Net Assets 2.23%<F*> 2.22% 2.39% 2.64%<F*>
Ratio of Net Income to Average Net Assets 3.06%<F*> 3.46% 4.48% 3.20%<F*>
Portfolio Turnover Rate 5.10% 18.60% 38.82% 35.80%
Average Commission Rate per share $0.0600 $0.0600 - -
<FN>
<F1> Per share calculations other than distributions were based on average
shares outstanding during the period.
<F2> Sales charges are not reflected in calculation.
<F*> Annualized
</TABLE>
58
<PAGE> 60
DAVIS SERIES, INC.
FINANCIAL HIGHLIGHTS
DAVIS REAL ESTATE FUND
===============================================================================
The following financial information represents selected data for each share
of capital stock outstanding throughout the period.
<TABLE>
CLASS Y
<CAPTION>
NOVEMBER 8,1996
(COMMENCEMENT
SIX MONTHS OF OPERATIONS
ENDED THROUGH
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
----------- ----
<S> <C> <C>
Net Asset Value, Beginning of Period $ 21.37 $ 19.29
------- -------
Income From Investment Operations
- ---------------------------------
Net Investment Income 0.41 0.13
Net Gains on Securities (both realized and unrealized) 1.55 2.35
------- -------
Total From Investment Operations 1.96 2.48
------- -------
Less Distributions
- ------------------
Dividends (from net investment income) (0.21) (0.13)
Distributions (from capital gains) - (0.25)
Dividends (from paid-in capital) - (0.02)
------- -------
Total Distributions (0.21) (0.40)
------- -------
Net Asset Value, End of Period $ 23.12 $ 21.37
======= =======
Total Return 9.23% 12.89%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000 omitted) $20,455 $18,165
Ratio of Expenses to Average Net Assets 1.19%<F1><F*> 1.18%<F*>
Ratio of Net Income to Average Net Assets 3.79%<F*> 4.22%<F*>
Portfolio Turnover Rate 5.10% 18.60%
Average Commission Rate per share $0.0600 $0.0600
<FN>
<F1> Ratio of expenses to average net assets after the reduction of
custodian fees under a custodian agreement was 1.18% for the period
ended June 30, 1997. Prior to 1996, such reductions were in the
expenses ratios.
<F*> Annualized
</TABLE>
59
<PAGE> 61
DAVIS SERIES, INC.
124 East Marcy Street Santa Fe, New Mexico 87501
================================================================================
DIRECTORS OFFICERS
Jeremy H. Biggs Jeremy H. Biggs
Wesley E. Bass, Jr. Chairman
Marc P. Blum Shelby M.C. Davis
Shelby M.C. Davis President
Eugene M. Feinblatt Kenneth C. Eich
Jerry D. Geist Vice President
D. James Guzy Eileen R. Street
G. Bernard Hamilton Vice President,
LeRoy E. Hoffberger Treasurer &
Laurence W. Levine Assistant Secretary
Christian R. Sonne Samuel P. Ynzunza
Edwin R. Werner Vice President, Secretary
Christopher C. Davis
Vice President
Andrew A. Davis
Vice President
Carolyn H Spolidoro
Vice President
Sharra L. Reed
Assistant Treasurer &
Assistant Secretary
INVESTMENT ADVISER & DISTRIBUTOR
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, New Mexico 87501
TRANSFER AGENT & CUSTODIAN
State Street Bank and Trust Company
c/o The Davis Funds
P.O. Box 8406
Boston, MA 02266-8406
COUNSEL
D'Ancona & Pflaum
30 North LaSalle Street
Chicago, Illinois 60602
AUDITORS
Tait, Weller & Baker
Two Penn Center, Suite 700
Philadelphia, Pennsylvania 19102-1707
================================================================================
FOR MORE INFORMATION ABOUT DAVIS SERIES, INC. INCLUDING MANAGEMENT FEE,
CHARGES AND EXPENSES, SEE THE CURRENT PROSPECTUS WHICH MUST PRECEDE OR
ACCOMPANY THIS REPORT.
================================================================================
<PAGE> 62
Davis Growth Opportunity Fund
Davis Financial Fund
Davis Real Estate Fund
Davis Convertible Securities Fund
Davis Government Bond Fund
Davis Government Money
Market Fund
Semi-Annual Report
June 30, 1997
Davis
Funds
